How One Cookie Can Change Your Whole Business Model

In the children’s book “If You Give a Mouse a Cookie” the simple offer of a cookie leads to the straw, a napkin, and then into grooming, housecleaning, naps, art projects, and more. Anyone who’s ever started a big project or change identifies with this unstoppable domino effect as one action triggers another, and another, and another.

It’s true at nonprofits, too. Changes don’t happen in isolation, they have ripple effects. One process that triggers some of the biggest ripples throughout an organization is a change to the underlying business model.

If you give a program director the green light to offer counseling services, she’s going to ask for licensed staff. When you hire the licensed staff, they’ll probably ask for confidential treatment rooms. When they have the treatment rooms they’ll ask for professional development – and on and on, leading to a new billing system, cash flow to support it, grants for outreach, and more. Any major change in one part of a nonprofit’s business model creates the need for changes elsewhere. If the needed changes aren’t made, the original effort is hard to sustain.

Talking about “changing our business model” is sometimes just a buzzword-y way of saying “we need more income.” At Propel Nonprofits (formerly Nonprofits Assistance Fund and MAP for Nonprofits) we think business models are much more complex, though, and deserve more investigation. We describe business models as a set of four components that together deliver the capacity and durability needed to achieve the organization’s mission-focused goals. The four components are: revenue mix; cost of effective programs; infrastructure; and capital structure. By understanding these four elements and their inter-connectedness, nonprofit leaders can plan business model changes that are more likely to be sustained.

Consider the new counseling program again. Assuming that the program development work has resulted in a high quality program that is likely to be effective, and that the full costs are known, this change begins in the Cost of Effective Programs component. This new service may add a new item to the Revenue Mix, which requires understanding of the market, sources of payments, and requirements. The program will also need Infrastructure support such as a billing system, confidential patient records, and professional development for licensed staff. Anytime the source of payment is a third party billing, there may be delays, necessitating adequate working capital, a part of the Capital Structure. This nonprofit has a better chance of succeeding with the new counseling program if all of these changes are anticipated and factored into the plans. Sometimes a nonprofit should say no to a big change because the resulting ripples just can’t be absorbed, including some program expansions or building projects. When a major change is made without understanding and being prepared for the changes to the whole business model, the organization can be hobbled.  For a longer definition and descriptions of these components, read Transforming Nonprofit Business Models.

Remember, too, that by the end of the story the mouse is hungry again and wants another cookie. Business models also need to be fed again when the time comes for the next change.

Citation credit: “If You Give  A Mouse A Cookie” by Laura Numeroff