Business Models

An email from the Harvard Business Journal this morning about Business Models. Open question: how does the concept of a business model work for non-profits, which are mission-driven? Does a total focus on mission threaten to hide from view the ways in which a nonprofit thinks about its business. Jim Collins, in Good to Great, talks about the "Hedgehog Concept," which involves burrowing into your organization's data and culture and history, rigorously searching for a convergence between three areas: what you (and your organization) are passionate about, what the organization can be the best in the world in, and what drives the "economic engine" that part of your business that you do best and that makes economic sense.

In the 2005 supplement, Good to Great and the Social Sectors, Collins tries to translate the core concepts of Good to Great into a non-profit context. One place where the translation is difficult is with the "hedgehog concept," especially with the construction of the "economic engine," which I see as having some analogy to a business model. How does the financial engine of an organization generate enough money to make programs possible? In the social sectors monograph, Collins says that the "third circle" of the Hedgehog trinity, the "economic engine" circle, makes more sense as a "resource engine." By talking about resources beyond (but including) money, you can bring in sources of energy like volunteerism, political influence, etc. that drive the organization forward... or something like that.

I've often thought that what was strange about nonprofits was that they tend to have at least two businesses--the business that serves the public (the "real" business, the front of the shop), and the donor business--the back of the shop. A museum appears to be in the business of bringing visitors in the door, but they're also in the business of attracting donors--which is, in most cases, where the real support comes from. A university is in the business of educating students, but they're also in the business of... attracting and cultivating donors, which is, for most big schools, where the real money is. Universities are perhaps also an example of what happens when the donor business begins to become disproportionate to the "real" business... but that's for another time.