How to sell impact creating a non-profit business model reviewed
Social Innovator. Changemaker. Problem-Solver. These terms give you an idea of the footprint Misan Rewane has made in the area of youth employment in Nigeria. The Stanford and Harvard trained Senior Fellow leveraged her education and experience at multinational strategy consulting firms and non-profits to tackle Nigeria’s youth unemployment head-on through WAVE, the non-profit she founded in 2013.
Over its six years of operation, the organisation has written the playbook for youth hiring; Misan’s leadership and mantra, “Hire for attitude and train for skills” which has enabled WAVE to successfully upskill youths into the labour market and positively reoriented the attitudes and hiring practices of many Nigerian employers.
Misan, who in 2019 passed the mantle of WAVE leadership after a remarkable five-year journey, sat down with the NPLM Programme for a conversation bursting with her valuable insights on how young founders can develop an effective non-profit business model.
What considerations are essential to building a non-profit business model?
Let’s reframe the question: how do you clearly identify a business model for a new identified social problem?
Building a non-profit business model is similar to building a for-profit business model. Every business model has four key components: the customer value proposition, the product value chain, the “go to market”, and the financial model.
Study generic business models. You’re not the first person to have done a lot of these things, so don’t go reinventing the wheel. There are likely others out there who are doing what you want to do.
Let’s start with the customer value proposition. How does a founder developing a new business model (or trying to evolve their existing business model) create a unique value proposition for their non-profit organisation?
First, identify “the why” of your value proposition.
What value do you or does your organisation add to society? If you go bankrupt tomorrow, what would society miss? And if it will miss nothing, why then do you exist? I love these questions because they help me think critically about the value I add to the world.
For instance, a person thinks society will miss someone who facilitates conversations between industries. That’s my unique value proposition, but five other organisations that facilitate such conversations, then that’s not a unique value proposition. So always be able to articulate what exactly will society miss if you don’t exist. Remember: as a non-profit, you are selling impact.
What is the value that you’re creating for the user/beneficiary or customer? When you create value for someone, you are helping them to achieve something. Your value proposition should comprise two parts: the core value or customer value proposition and the funder value proposition.
WAVE is tackling the youth unemployment problem by teaching hardworking young people the skills required to get a job, start a career, and build a brighter future. There are many other things that we do, but this is our core value proposition.
Next, identify “the what” of your value proposition.
It’s very helpful to think about the value you create in terms of “the job to be done”. You must design your business model, value proposition around jobs to be done. You have got three branches of these jobs: functional, social, and emotional.
A person comes to WAVE because they need to skills-train and find work—that’s our functional job. They need a steady and secure source of income for a secure livelihood—that’s our social job. We are helping them become what they imagine and helping them realise their dreams—that’s our emotional job. The social and emotional jobs give you a bigger sense of humility and stewardship. So it’s not just job skills training for us at WAVE; we are in the business of helping people realise their potential and that’s work to take very seriously. It makes us very intentional about designing. Finally, consider “the how” for your value proposition.
That’s the second element of the business model, right, the product value chain?
Exactly. How do you develop, produce, and deliver your value? Start by making certain assessments, firstly about your customer. What are the things that your customers prioritise? These become your product attributes. In your space, your customers might prioritise price; people just want to go to the cheapest education option or healthcare provider or financial literacy programme. For others, it might be convenient; they just want the easiest thing. Some want reliability and care about the quality of your after-hire support; they want to make sure you’re not just a bait-and-switch operator but that you will be with them after they’ve hired your product. Some people care about speed; they just want service delivered quickly. Some care about flexibility; they want service personalised to their unique needs, not cookie-cutter solutions. There are many different types of product attributes, so think about those in your particular industry, work, and organisation, and think about your customer’s goals.
Your customers may change over time, though.
Yes, they will. Your target customer today is not necessarily your target customer tomorrow. So when considering your customer value proposition, it’s important to ask yourself another question: how will my target customer segments change over time? What’s the value proposition for future customers? When we started WAVE, we wanted to train young people and connect them to entry-level work. Because we were new and didn’t yet have a defined brand, we decided to take lower risks in the beginning. Our initial strategy was therefore to become more accessible over time. So our initial customer segment was pretty much A-players, i.e., people with a minimum of a secondary school certificate. Our strategy: we get these people (who, for whatever reason, are unemployed) into the market, the market responds well and our brand reputation grows, then we gradually expand to take B-players, then C-players. In the early days, 70% of the people we worked with had a degree. It’s now the opposite: 70% of those we work with today didn’t even finish secondary school. That’s our core market today and we knew from the outset that they would eventually be our core market.
So from the beginning, think about how your target customer segments will change, so that you are clear about what stage you are currently in and at what point you plan to target other customer segments. You also want to look at whether you are targeting an existing market of people, re-segmenting said existing market, or creating a completely new market.
You must also think about the resources, processes, and priorities required to deliver on your value proposition. In other words, what activities are required to develop and produce your core offering? What other resources that you might need? What talents and skills do you need to execute on your value proposition? What management team do you need? What technology and additional operations do you need? Did you create any intellectual property in what you’re doing and how do you protect it? WAVE provides quick and convenient skills training so that trainees can gain steady and secure income and realise their potential—that’s our customer value proposition. What were the required activities to develop and produce that core offering? We needed a way to find trainees—that became our outreach department. We needed a way to screen these young people into our programme—that became our admissions department. We needed a way to train them—that became our training department. We needed a way to keep our curriculum updated and relevant to what the job market wanted—that became instructional design. We needed a way to find employers who would be willing to hire them—that begin our employer partnerships. We needed a way to match the right person to the right job to ensure they’re compatible so that there’s success on both sides—that became our career services department. When they finish the programme, how do we continue to support them? That’s our alumni affairs department. Figuring out if we’re having an impact and, if so, how much? That’s our business intelligence function. How do we manage our money; when we raise money when we collect fees? Finance department. How do we hire people to execute on all of the great stuff that we’ve developed? HR department.
These were activities, resources, and processes we needed, each of which in turn had its process. What’s the process of outreach to young people? What’s the process of training, supporting alumni, finding employers, convincing employers to try our programme?
So, when you think about required resources, processes, and priorities, it’s just thinking about what needs to go into the factory to manufacture the value proposition that you have outlined.
Exactly. Also, consider what will be performed in-house versus outsourced. In the beginning, a lot of our training was outsourced. We didn’t have these instructors on payroll because we didn’t want to take on that risk and we couldn’t even afford to put them on the payroll. We were very clear with them from the start that this was a one-year arrangement during which we would try to learn from them to develop the capacity to do it ourselves. So we thought about what these terms would entail.
What else should founders consider when developing their product value chain?
Identifying the Minimum Viable Product is vital. An MVP is a pilot version of your product or service. It will help you test to see if there’s even any interest. Your eventual product may have 15 different features and elements, but what is the minimum viable product that can get on the market and test certain assumptions? Your ideal product might be a three-month programme charging x amount and run at a nice campus with a certain calibre of instructors. Before you rent a property or hire these people at his price point, however, you launch a two-day programme that’s enough to tell you certain things. Are people willing to pay for this programme? Are we teaching the right skills? What timeline will people be interested in? What are the minimum qualifications or experience for a facilitator to do a good job here? A WhatsApp flier you put out for your MVP is in itself a form of MVP; you haven’t done any recruitment, incurred facilities expenses, or drafted the full three-month curriculum, but your flier will tell you what percentage of people who see it are interested and sign up for the programme.
After your MVP comes to your product roadmap. Here, you identify the stages at which you release certain versions of your product or programme. Your MVP tells you how many people express interest and register. Next, you’ll find out how many of those who registered will show up on day one. After running the two-day programme, you will find out how many attendees are interested in a three-month programme and you can now launch the full programme. So version one is just the flier. Version two is the two-day programme. Version three is the three-month programme. Version four might be a one-year master’s programme two years later when you move to your permanent site.
It’s also important to identify required third-party complements or ancillary services. What additional things do your customers need to have to use your product or service? Maybe you are setting up a primary school for low-income children and you realise that because the school is far away, your students will need additional complementary services, like a school bus or some other form of transport to the school because it’s far away from these young children.
WAVE used to require a completed guarantor form from trainees at enrolment because employers require a guarantor, but this rule became a stumbling block for some and discouraged them from enrolling. We no longer mandate one at the programme start, but trainees must have it by the time they graduate. Over those three weeks, we’re reminding them all the time to get the form.
What is the “Go To Market”?
“Go to market” simply means determining how you get the value you are creating into the hands of your customer. So you have come up with a way to produce your product, service, or programme. How do you get it to the market? Well, you look at the 4 Ps: What is the product? How would you price it? How would you promote it? Where will you position it? We have already addressed the first P. Next is your pricing model.
Will you charge customers fixed or variable pricing? Variable pricing might mean taking a percentage of their first month’s salary. WAVE’s training fee is no longer a fixed fee; whatever monthly salary you land when you complete the programme becomes your one-time training fee. Will you do tiered pricing? Some charge on a sliding scale based on the customer’s income.
How will you collect your revenue? You can get creative to accommodate customers. Some schools, for instance, collect revenue daily or monthly instead of every term, and some accept as payment for school fees the recyclable plastics that the family can collect. These days, retail solar solutions allow residents and business owners in off-grid rural areas to lease and pay a manageable amount every month.
Also, what are the switching costs for your customers? What will it cost them to switch from what they’re already doing to your programme? If WAVE, for instance, targeted people who already enrolled in computer school, they could pass on our offering because they already registered at that school and cannot get a refund. If a street hawker came to WAVE from 9 to 6, what time will they have to continue their daily hustle?
Next is promotion.
Are you going to advertise on traditional channels or are you going to use non-traditional channels? What is the mix of direct versus indirect channels to educate prospects about your products? Direct channels could be hitting the streets to distribute fliers to unemployed young people or going to the radio to tell a wider audience about your programme. Indirect channels could be reaching parents and wealthy individuals to find out who in their community is dependent on them for financial resources and who they’re trying to get to be independent. Would they want to tell that person about the WAVE programme, so that that person can attend? Another indirect channel is incentivising participants who found you through word of mouth to tell others about the programme, either by giving them such an amazing experience at your programme that they can’t help but sing the gospel from the rooftops, or you incentivise them with a referral discount or bonus. Or you just emotionally blackmail them by pointing to all the benefits they got from your programme so that the least they do is pay it forward.
The last P is positioning.
For your product, service, or programme to create the most impact, you must ask yourself a few questions. Where is your customer and how can you reach them? Which promotion channels will work for you? That leads to considering your mix of free versus paid demand generation methods. How will your product design encourage vitality? Many things go viral these days through viral challenges, like the “don’t rush” challenge. So how do you make your product go viral? Is it through word-of-mouth referrals, which is free as opposed to radio or direct outreach? Is it through try-before-you-buy service? We used to have anyone who came for an interview or even just an enquiry sit in on an ongoing class for 30 minutes to an hour and observe the product in real-time. We’d also ask our students to invite family and friends to graduation so that when you come to graduation, everybody is speaking about the transformative power of their three weeks with us and people who didn’t even attend the programme leave that graduation and tell their friends, “Better go and register with those people; what I saw at their graduation today blew my mind.” So, there were certain elements that we were intentional about in our design to make sure that our product went viral and other people would talk about it and refer other people to it.
Is there a chasm between early adopters and mainstream customer segments? A lot of times when we’re designing our product, we were so passionate about the problem we were trying to solve, about our beneficiary. We imagine they’re just like us: they get it. They get that there’s a problem. They are going to sign up for our programme. That’s your early adopter. Your early adopter is just like you. They pray for you to come up with this product. When you announce your product/service or programme to the world, they are first on the waiting list. However, your mainstream customer isn’t even aware that it’s a problem that they have. WAVE faced this problem very early on. In the beginning, we got people who just got it. They would come to the information session and they would sign up. Soon, though people were leaving info sessions and were not even interested. We realised would run through the early adopters and there’s a huge gap between them and mainstream customers. So, we had to tinker with our model again to cater to this mainstream customer. Our info sessions are completely different from what they were in the beginning; we have to spend an hour just getting potential students to understand that they do have an employability problem and we waive our upfront fee because they were so sceptical and don’t want to pay anything upfront. So our product looks very different six years later than it looked in year one when we were targeting our early adopters.
Are there opportunities during your go-to-market for collaboration with other organisations? Is it advisable?
Collaboration is the new competition. Many of us are in covid-19 crisis mode and having to come up with a completely new business model. So get creative with how you partner. Partnerships present an opportunity to consider moving away from a saturated sector towards somewhere different or maybe finding another person or outfit that’s providing a different element of value and partner with them to provide a more holistic solution. You may all be trying to reach the same set of people and are all paying individually for different radio slots. Collaboration pools your marketing resources, so you can now go on one radio show for 20 minutes and have a panel for all of us. It’s “coopetition—they’re your competition, but they’re also your cooperative. You cooperate but you also compete. So think about how to work with your coopetition and partner with them to make your business model stronger.
The final component of the business model is the financial formula. How does a founder arrive at a financial model for their organisation?
You have several considerations here. Who’s going to pay for your impact? Some founders want their non-profit to be 100% philanthropy funded. Some want philanthropy to cover a percentage of revenue while the rest is earned income. Others include government funding. Your user can be part of your revenue such that you generate a portion of your earned income through user fees. You can also use a cross-subsidy model, which is a sort of “Robin Hood” model: you charge the rich so that you can serve the poor.
What is your contribution margin? Your contribution margin comprises the elements that contribute to your overall cost. What are your cost drivers for key activities? In the early days, a third of WAVES costs was contributed by outreach, a third by training, a ninth to a sixth by finding the employers, and another ninth by career services and alumni services, all in addition to overhead. Also determine your unit economics, i.e., the cost versus revenue per user. What’s the cost of providing your service to one person and how much can you make from that person?
You also need to identify your Total Addressable Market. We used to have this argument all the time at WAVE: what’s the size of the market? We thought hey, we’re in a country of 200 million people, so why are we struggling to get 500 people to graduate from our programme every year? Well, we have people who would want our product and people who don’t want our product because they don’t know they need it. The population of people that don’t know that they need your product is huge and might think that’s your total addressable market, but you want to think about your early adopter market, i.e., the number of the people who know they have a problem, know your product could be the solution and know that all they need to do is to be introduced to your product. That’s your total addressable market that could affect whether your organisation will still exist in three years; by then, you may have run out of early adopters and are struggling to break into the mainstream but don’t have enough runway or activity.
What investment do you have to make in working capital versus property, plant, equipment, or PPE? Do you need to lease space? WAVE didn’t have our own space for the first nine months. We just rented an empty apartment and negotiated an 18-day term with them, so we were paying daily because we didn’t want to acquire our property. Even today, we still have academies where we rent space and we haven’t tried to build our own permanent space.
Finally, how will these metrics change as your business scales? It wasn’t until our second or third year that I discovered that it’s costing us just as much to find young people as it does to train them! That doesn’t make any sense. Is it that people don’t want our product, in which case should we even exist? So because we were now tracking that metric, we became very intentional about monitoring it. How do we get more cost-effective about how we find young people into the programme? That’s when we started to test referral bonuses and other incentives. It’s therefore important to think about how your metrics will change as your business scales. I mentioned earlier how we pegged our training fee at the first monthly salary. That was our revenue model. 40% of our cost is covered by earned income from training fees, employer recruitment fees, and corporate training fees—a cross-subsidy model. However, we know that percentage that could go as high as 60 to 70% if we can get more young people into jobs because, at the time of my departure, only 50% of trainees were going into jobs with our employer partners where we have control over revenue collection. If they find a job on their own, don’t find one at all, or become self-employed, we don’t have control over the revenue collection. So, we knew that these were levers; if we could increase our job placement rate, we would increase our revenue. If we could increase our collection rate from 70% to 90%—even after they get a job with our employers, they don’t always pay on time—we would increase revenue by that amount. Philanthropy also accounted for some of our revenue and we looked at government funding to cover up to 20% of our revenue. We were thinking very granularly about our different sources of revenue and how we needed to evolve.
Cash flow was also very important for us: when will we get paid? We knew that the young person who came through our programme would not have money until maybe their third month on the job after they’d finished repaying all the money that they had borrowed to sustain themselves during unemployment. If WAVE, for instance, finishes training a person today, it may take us six to eight weeks to get them a job and they won’t get their first real paycheque for another four weeks.
Are we going to collect that entire first pay cheque or are we going to be kind and benevolent and collect just a third or a sixth of their paycheque? This means we won’t recuperate what we expended on training for a total of about 8 or more months. That’s what I mean by thinking about your cash flow.
To conclude, please share your thoughts on how founders can navigate a post-pandemic world during a recession.
The covid-19 universe presents an opportunity to revisit your planned or existing business model. Re-exam your business model to understand where new value is being created. Your pre-covid value proposition for your customers may be very different now. And so, examine where new value is being created and where value has been destroyed. Where are people no longer getting value from? To do this, you have to get back to your user, get up close and ask them where value is being derived right now.
By articulating and thinking through each of the details of your business model and hypotheses with a fine-tooth comb, you’ll be able to bring to the fore issues that are dealbreakers and identify any lack of internal consistency between your value proposition, operations, go to market, and pricing. You’ll be able to ensure that you’re selling impact—innovative and collaborative impact.
WAVE is tackling the problem of youth unemployment by teaching hard-working youth the skills that businesses are hiring for and also helping these businesses find the right talent.
Learn more about how WAVE is doing this by visiting our website at www.waveacademies.org”
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