Deliver 20 Times More Nonprofit Benefits with the Same Resources, Time, and Effort
In considering how to expand your nonprofit organization's
business model (who, what, when, why, where, how, and how
much of providing benefits) to 21 times its current size,
you should be guided by what will be easily understandable
and desirable by your stakeholders (those affected by the
benefits, not just the direct beneficiaries) . . . and
where the adjustments will provide more effectiveness for
the nonprofit organization.
Business model innovation is something that many nonprofit
organizations struggle with. In this article, I have broken
out three of the elements and supplied three examples to
make innovative business model thinking and analysis easier
to do. This article's material will be clearest to those
who have already read about continuing business model
innovation.
Do More of What You Do Now
Unless you are providing a very small percentage of the
needs of each beneficiary, growing by 21-fold requires
adding beneficiaries. Because so many organizations can
expand to provide 21 times the number of beneficiaries,
that's a great place to begin. You should start by
considering who you will serve as these added beneficiaries
and where those benefits will be delivered to make the
expansion more practical and affordable.
Who Will You Serve and Where Are They?
Let's begin considering volume-expanding business models by
looking at "who" is served. The lesson is to keep it
simple. Change as little as possible while becoming more
efficient and effective as an organization for your
beneficiaries. The simplest way to do this is to put more
volume through an existing organizational structure without
adding fixed costs.
Let's consider an organization that carries donated food by
truck to distribution centers serving needy families. Most
such distribution centers provide a small portion of a
family's total weekly needs -- perhaps as little as one
meal a week. The families may be visiting 10 to 30
different distribution centers weekly to fulfill all their
needs. The trucks carrying the goods to a given
distribution center are often owned and operated by that
center, may be in use for only a few hours a week, and
could be operated much more often without wearing out the
equipment.
Let's assume that more volunteers can be found to load the
food, and drive and unload the trucks. Both the nonprofit
organization and the needy families will benefit
economically if 21 meals weekly are delivered and
distributed at one time to a distribution center. Asset
costs of having the truck will be spread over much more
use, dropping cost per mile. Beneficiaries will make many
fewer trips, cutting weekly costs of acquiring the food.
By contrast, if an organization picks people and
organizations to serve who are located far away and desire
less profitable offerings, this choice of who is served and
where to serve them can increase costs to serve each
beneficiary versus doing more with the same customers. If
the nonprofit's food distribution truck has to serve
families all over a large country and recipients still
receive only one meal per week, the cost to deliver the
food will increase versus serving local people even though
the same number of people are served in both cases. Look at
Exhibit 1 to see details of why this cost increase can
occur.
Exhibit 1: Adding Truck Trip Volume but Expanding Miles
Driven per Trip by a Large Factor and Keeping Food Received
per Family Pickup the Same
While driving more miles can reduce capital costs per year
for a vehicle, there's a limit to how far this efficiency
goes. In this example, you drive such longer distances that
you actually wear out your vehicles and have to buy new
ones. In addition, your operating costs of fuel, oil, and
maintenance would also be higher from taking longer
delivery trips. As a result, increasing volume a lot
doesn't drop costs by nearly as much.
Truck Beginning Point — One Truck Trip per Week
Annual truck capital costs $52,000 (5,200 miles per year)
Capital cost per trip $1,000
20 Times Truck Volume Increase with Tripling of Miles
Driven per Trip Annual truck capital costs $327,600
(327,600 miles per year)
Additional truck operating costs $81,900
Capital cost and additional operating costs per trip $400
Automobile Beginning Point for Recipients — 21 Pick
Ups per Week
Weekly gas, oil, and maintenance $21.00
Cost per pickup for a beneficiary $1.00
Since pickup frequency remains the same, recipients receive
no benefit in reduced costs.
What Benefits Are Being Served?
Providing more of what you already offer to beneficiaries
can be a big help in creating efficiencies. But sometimes
you are serving virtually all of someone's needs for given
items.
When that happens, improved effectiveness occurs in food
trucking by the nonprofit organization if you add items
dense in nutrients and weight are shipped instead (e.g.,
old-fashioned oatmeal versus potato chips). See Exhibit 2
for a quantification of this factor.
Exhibit 2: Adding Helpful Nutrient Volume Through an
Underutilized Truck and Increasing Food Available to Needy
Families for Each Pickup
If we add the factor of what kind of food is delivered, we
see that capital costs can be lowered greatly if we carry
food that contains more helpful nutrients per cubic meter
or foot of space. By shipping foods with 10 times as many
nutrients in a given volume, we are able to lower the
capital cost per trip/unit of helpful nutrients by another
90 percent.
Truck Beginning Point — 1 Truck Trip per Week Annual
truck capital costs $52,000 (5,200 miles per year)
Capital cost per trip $1,000
Capital cost/unit of helpful nutrients $0.10
20 Times Truck Volume Increase with Denser Nutrients
— 21 Truck Trips per Week Annual truck capital costs
$109,200 (109,200 miles per year)
Capital cost per trip $100
Capital cost/unit of helpful nutrients 0.001
Note: Annual capital cost is higher because service life is
reduced by driving more miles a year.
Increasing nutrient density has a similar effect on the
costs of recipients picking up the food. The 96 percent
cost-reduction gain from reducing frequency of trips is
also improved by making the materials more nutrient dense
by a factor of 10.
Automobile Operating Costs Beginning Point for Recipients
— 21 Pick Ups per Week
Weekly gas, oil and maintenance $21.00
Weekly gas, oil and maintenance/ unit of helpful nutrients
$0.21
Automobile Operating Cost — 1 Trip per Week for
Denser Nutrients Weekly gas, oil and maintenance $1.00
Weekly gas, oil and maintenance/ Unit of helpful nutrients
$0.00084
Copyright 2007 Donald W. Mitchell, All Rights Reserved
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Donald Mitchell is chairman of Mitchell and Company, a
strategy and financial consulting firm in Weston, MA. He is
coauthor of six books including The 2,000 Percent Squared
Solution, The 2,000 Percent Solution, and The Ultimate
Competitive Advantage. You can find free tips for
accomplishing 20 times more by registering at:
====> http://www.2000percentsolution.com .
