Minimize your “big idea” risks by asking 4 questions
Have you ever loved a new idea so much you’re willing to forgive the nagging uncertainty of its financial viability? I’ve been there. You’ve already created the catchy name, bought the URL and outlined the program details. To ease your conscience, you tell yourself you’ll just work harder at selling it.
Blue Ocean Strategy (BOS) emphasizes a focus on blue oceans of uncontested market space. In contrast, red oceans or existing market space get crowded as more compete for a greater share of existing demand. Cutthroat competition turns the ocean red. Blue oceans consist of untapped market space where there is opportunity for highly profitable growth and where competition is rendered irrelevant. As nonprofits more frequently turn to alternative funding sources, they don’t have the luxury of crashing and burning on a bad idea. That’s why the BOS methodology is essential for nonprofits during any form of planning/forecasting.
An integral part of BOS approach is creating a business model that is viable and makes a healthy profit in the blue ocean. If you follow the correct strategic sequence and test your blue ocean ideas against criteria in that sequence, you can minimize your risk. The sequence stems from the authors asking the following questions.
If you answer “no” to any question, your blue ocean potential stops.
Buyer utility—Is there exceptional buyer utility in your business idea?
Price—Is your price easily accessible to the mass of buyers?
Cost—Can you attain your cost target to profit at your strategic price?
Adoption—What are the adoption hurdles in actualizing your business idea? Are you addressing them up front?
We asked our interview guest, Heather Gowdy, and coauthor of The Nonprofit Business Plan: A Leader’s Guide to Creating a Successful Business Model (2012), to discuss the merits of the strategic sequence in light of her unique perspective on business planning.
CausePlanet: The strategic sequence (on page six of the Page to Practice™ summary) reinforces a closer look at the financial aspects of a potential blue ocean. We know from The Nonprofit Business Plan, you would endorse thoroughly understanding the financial aspects of any potential strategy. Will you comment on the importance of questions like these in the strategic sequence?
Gowdy: It is absolutely critical to understand the financial implications of a potential strategy—just as it is important to understand the implications for mission advancement. Many nonprofits excel at doing both, but just as many struggle with aspects of business model analysis. Which is understandable: doing so can be even more complex in the nonprofit sector than in the business sector. A nonprofit organization’s “buyers” or customers are not just the individuals and groups availing themselves of a particular product or service. Given that those customers typically do not pay market rate for what they receive, the nonprofit must make up the difference with funding from other sources. Those third-party payers are also customers (buyers) although they may not receive anything directly in return. Nonprofits must continually consider, attract and satisfy both types of customer. The price versus cost question can be equally challenging. Nonprofits can, do and often must provide services that do not in and of themselves generate a financial profit. The question becomes, does the mission value of doing so warrant moving forward, and if so, what other aspect of the business model will support that? Jumping to implementation without having clear answers to these questions is risky at best.
When you’ve considered launching a new idea, have you asked yourself questions similar to these contained in the authors’ strategic sequence? If you answered “no” to any of the questions, did you still carry on with the plan or make adjustments?
“Which comes first: the partnership or the plan?” by Heather Gowdy
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