In Arts Professional (UK), José Rodríguez recently wrote about how non-profit arts organizations frequently misunderstand what a business model is.
The first misconception he lists is that only businesses need business models and since non-profit arts organizations aren’t businesses, ergo, they don’t need a business model. I don’t think I have ever heard a non-profit in the US suggest they weren’t a business, but he talks about a perception of “business” as a dirty word which is definitely something I have heard in the arts community.
The misconception he addresses that is worth attention is that business models are not necessarily related to moneymaking. My emphasis.
2. Business models are only about money
There are many definitions of business models, which sometimes makes it difficult to understand what we are actually talking about, but what most of these definitions have in common is the central role of value creation. And here lies the main difference with what people usually think about business models. It is not only about how your organisation makes money, but about how it creates value and organises itself around its value propositions.
Value is defined as ‘the regard that something is held to deserve; the importance, worth or usefulness of something’. Value can be money, but it can also be many other things. Value is what is important for you and your stakeholders. And for being able to create value, we need to understand the desires, needs, challenges and problems of those that we are trying to serve: audiences, community, employees, volunteers, customers, funders, sponsors, etc. Keep it in mind: Business models are not (only) about money, but about value.
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So what is a business model?
A business model is a vital concept determining the success of any organisation and not a complex formula relating to its profit-making mechanisms. A business model is just a story explaining who your audiences and customers are, what they value, and how you will be able to sustain the organisation in providing that value.
At its most basic, every business model has three components, which respond to a few simple questions:
- Which stakeholders do we serve? Which of their needs do we seek to address?
- What do our stakeholder groups value? How do we create that value for each one of them?
- How do we generate income, and attract other necessary resources, to be able to create value for our stakeholders in a sustained way?
Since it is in the last paragraph of the article, it can be easy to miss but an important feature of business plans is that they are temporary. Since the stakeholders you serve may change, the things your stakeholders value may change or the way you are able to create value for your stakeholders may change, then of necessity your business model must change.
By his definition, making changes to your business model doesn’t necessarily mean a change to your tax status unless you significantly change the way you generate income. Conceiving of business models in this context may help you operate in a more flexible, nimble manner since it moves you away from thinking you need to act in a set way to stay within certain strictures.