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Revenue generation through commercial ventures
An application of the managing innovation, being entrepreneurial framework

by John Pepin, Pepin, Tranquada & Associates

Abstract

The Revenue Generation Through Commercial Ventures framework may be used by charities to:

• Create businesses/business products and a commercial venture portfolio.
• Review current businesses/products and support expansion of current products and the creation of new products.
• Enhance a charity's ability to secure venture philanthropy and venture capital funding.
• Support a charity's approach to social entrepreneurialism helping develop business-like approaches to support from the corporate sector as it relates to sponsorship and cause-related marketing.

It consists of a charity:

• Identifying its need to and purpose of achieving the above.
• Preparing the organisation for a more commercial approach to business-type ventures, including identifying barriers and inhibitors and developing policies and plans to ready the organisation and protect core services and programmes.
• Implementing a creative product development approach including creation, screening, business planning, design, testing, launch, evaluation and revision.

Introduction

There has been a significant increase in the number of charities and non-profit organisations in the United Kingdom. Presently there are over 180,000 charities and at least 385,000 non-profit organisations competing for clients, volunteers, members, and, for the time and resources of supporters.

Increasing competition and changes in the funding and political environment add to the difficulty of maintaining or expanding current levels of activities and funding.

From within this incredibly confusing and diverse mix of pressures, volunteers and staff, who are responsible for the health and well-being of an organisation, as trustees and management must make decisions to ensure their mission is fulfilled with the utmost efficiency in a cost effective manner.

As part of these fluid and changing circumstances, customer and service-user expectations are also continually changing. Organisations must pay attention not only to their clients, government and other funders, but also to the customers or users of their services. They must create value while balancing demand, quality, priorities, accountability and cost effectiveness.

In addition, clients and users of service are more informed and want to be part of the development, decision making and implementation processes. They have incredible expectations but want products and services at reasonable cost.

To remain vibrant and responsive, to stay ahead, organisations must not stand still. They must properly plan on the strategic and business levels, creating and implementing new ways to generate additional and diverse sources of revenues including business or commercial ventures. They must learn to manage innovation and be commercially entrepreneurial.

This paper will present revenue generation through commercial ventures, an application of the Managing Innovation, Being Entrepreneurial framework.

The approach outlined below summarises the process charities experience as they build upon their current base applying the systematic approach to developing revenues through commercial ventures.

It will explore preparing an organisation for innovation, entrepreneurial management and the creative process of product development. Outlined will be strategies for developing that target offering of quality products and services prospective clients are looking for while also enhancing organisational profile.

The Process: An Overview

The Managing Innovation, Being Entrepreneurial commercial development process, although described in general terms, may be applied in a number of ways to meet the specific needs of an organisation.

The entrepreneurial approach taken by an individual organisation to product development varies depending on a number of factors including the organisation's current state of readiness and availability of resources. It may also include different combinations of trustees, staff, members, volunteers and stakeholders in multilevel, multifunctional, geographically dispersed teams working at various stages throughout implementation.

Application of the Process

It is important to note this process may be used by charities to:

• Create businesses and a commercial venture portfolio.
• Review current business and support expansion of current products and the creation of new products.
• Enhance a charity's ability to secure venture philanthropy and venture capital funding.
• Support a charity's approach to social entrepreneurialism helping develop business-like approaches to support from the corporate sector as it relates to sponsorship and cause-related marketing.

Purpose and Objectives of the Process

The purpose of Managing Innovation, Being Entrepreneurial commercial development process is to:

• Create an organisation proactively responsive to a changing environment.
• Develop commercial products and a commercial ventures portfolio to meet members, clients, and customers needs.
• Manage these entrepreneurial commercial activities and the associated organisational changes required within the context of an organisation's values, mission, strategic and business plans and structure.

It has been designed to achieve the above realistically and successfully whilst decreasing risk.

The objectives are to:

• Identify new business opportunities, the resources required and help bring new products to market.
• Review businesses and potential opportunities within current programmes and services, and develop them, as appropriate, as businesses in new markets.
• Assess organisational readiness issues, inhibitors and barriers related to being innovative and entrepreneurial and develop organisational policies, plans and approaches in support of commercial ventures and create organisation-wide buy-in.
• Develop and test a product development process and its supporting structure, ensuring that the process is replicable by staff and volunteers on an ongoing basis.
• Create an organisation-wide business ventures portfolio and a development/business plan for the portfolio and individual products.

Steps

The systematic approach to innovation and being entrepreneurial consists of nine steps as shown below.

Systematic Approach

• Determination of organisational need to and the purpose of the commercial ventures.
• Organisational readiness and commitment, barriers and inhibitors.
• Search for opportunities.
• Creating new product/commercial ideas.
• Screening process including product business plans.
• Research.
• Design & testing.
• Launch.
• Ongoing review & revision.

  The steps the team(s) takes bringing products and services from ideation to market include the following.

  1. Need and Purpose

The need to develop and purpose of commercial ventures is determined early on in the process. For example, they may be created to:

• Meet clients, market, service users and member needs.
• Generate revenues to support core services and new programme development.
• Raise profile and support educational and advocacy activities.
• Create jobs, advance careers and increase compensation to staff.

It is important to note that the purpose of business is to make a profit, whilst a charity's. is to meet a need. This understanding of the difference in purpose, motives and goals is necessary, as each product will be evaluated primarily on the basis of whether it is generating a profit.

Charities often establish policies in support of the profit motive for their commercial activities. However, many will create secondary criteria stating the products must also be mission-related and, where possible, meet a number of other criteria including helping the community, enhancing profile and supporting educational and advocacy activities.

2. Organisational Readiness: A Strategic Approach

At this point an organisation has determined the need to be commercially entrepreneurial and has created consensus on the primary and secondary purposes of the commercial activities.

This helps to set the context within which the review and adjustment of the organisation's strategic and business plans takes place. This review ensures entrepreneurial activities are valued and seen as goals leading to further support of core services.

As part of this step the team(s) assesses organisational readiness and commitment to being commercially entrepreneurial. This includes identifying inhibitors and barriers to being entrepreneurial and to developing the commercial ventures. Once identified the team(s) creates and supports implementation of individual action plans concerning each of the inhibitors and barriers. It is important to review these plans after the next step so that they take into consideration the specific products the charity is planning to develop and launch.

This identification and planning can be tricky in itself because of the tendency of non-profits to focus on the present. A lot of time and resources are directed to existing activities -- to reacting to requests and to crisis situations. Some groups think that becoming more entrepreneurial could undermine their core values. Moreover, being entrepreneurial involves new risks.

Also organisational values, vision, mission, roots and history must be clearly stated, understood and accepted, and be part of every action and decision.

At this stage, there is also a need to review and develop policies and practices to support the innovation process and to ensure an innovation value-set is developed to guide behaviour. Typical business ventures policies and criteria adopted by some charities include some of the following:

• Management must implement the managing innovation framework.
• Commercial ventures must operate in a business-like manner and focus on profit.
• Business activities must primarily support the mission, and secondarily, enhance profile and advance educational and advocacy activities.
• Core programmes are to be protected.
• Businesses may be mission or non-mission related, however organisational values must be applied.
• Any product should generally break-even within a maximum of eighteen months.
• Products must be developed by the organisation first.
• Management must first build on the strength of the organisation.
• There has to be individual product business plans with an exit strategy and an overall business plan for the commercial ventures portfolio with an agreed upon rate of return on investment.
• All business activities must meet a number of financial criteria, trustee authorisation of management to invest and spend to certain levels (these are specified for each individual charity).

Commercial entrepreneurial values for consideration and in summary could include:

• We are customer focused.
• We strive for transparency and accountability.
• We value effectiveness.
• We accept change and support excellence.
• We are responsive to the external environment.

Creating effective communication, product development and evaluation plans are also important to the process.

Other key elements to be addressed to ensure this entrepreneurial approach is enshrined in the strategic processes are as described below.

1. The organisation should involve key stakeholders in all stages of change.
2. It is important to remember that, in many cases, this is an organisational change process. Trustees and management should resist the temptation to stop the process because there is resistance or because the problems are greater than expected.
3. Ultimately you want to end up with entrepreneurial organisational characteristics in place such as delegating responsibility to staff, a strong innovative culture that supports risk taking, clear goals, trust in each other, predictability, healthy creative conflict, and a client orientation.
4. An innovation vision and a blueprint should be created. While defining broad goals, it should emphasise that innovation is a catalyst to get to the future.
5. Organisations should also consider building a structure to support innovation where a senior manager is given the responsibility to co-ordinate the regular review of every organisational process and service in light of changing internal and external client needs.
6. The organisation needs communication with a consistent message concerning innovation and change from trustees and senior management and actions must be consistent with message.

A good communications plan should be developed that informs rather than sells, that responds to the needs of the various stakeholders and that creates awareness and understanding. This leads to trust and support.

7. The staged commercial venture development process should be implemented.
8. New product creation innovation and development teams should be used throughout the process, as appropriate. They should be cross-functional and multilevel representing a cross section of expertise, perspective and experience. This will serve to achieve buy-in throughout the organisation and also make the best use of internal resources.
9. An evaluation system should be implemented.

At this point in the process, the trustees and staff should carefully review the elements described above and create and implement plans to support the achievement of the strategic plan and the creation of a commercial ventures portfolio.

3. Product Development Process

This phase focuses on the review of current products and on the creation and/or expansion of the commercial venture portfolio. This consists of research into internal and external opportunity sources and the implementation of a product/service creation, development, implementation and evaluation process. It also looks at creating new markets for existing products and services.

It is important to note that product creation runs parallel to, and begins just after the commencement of the organisational readiness process, thus allowing for the constant testing and revision of the plans and actions associated with the latter.

The product creation and development stage is as follows.

1. A search for opportunities by scanning community trends, needs and potential opportunities and markets; assessing internal capacities, resources; and developing an inventory of the current product portfolio.
2. Creation of products and the beginning (or growth) of the commercial venture portfolio. These products may be built upon current programme-related products or services, staff and client skills and resources, and hard and soft property. Charities may start unrelated businesses and invest in businesses.

Product examples from other organisations include: shops, sales of training workshops, galleries, rental of space, licensing and franchising, development of intellectual property created from research grants, management services organisation, training of disabled and others in telemarketing, accreditation, employee assistance plans, sales of fertiliser, insurance and other discounts, catalogue sales, card sales, management consulting, fee for service for services such as child care and health and safety courses, travel/holiday services, packaging and assembling, IT management, advertising, and so on.

3. A three-stage product screening process designed for non-profit organisations allowing for the most cost effective and efficient use of resources, decreasing unnecessary risk whilst achieving the business goals of the organisation. It consists of the:
1. Initial product screening and priority setting of the potential products created by the product creation group(s) in the step 2 above.
2. Second level screening of the potential products receiving top priority, the screening performed by the individual product development task groups.
3. Detailed business planning for those products selected as a result of second level screening.
1. Finalisation of product business, marketing, sales and launch plans.
2. Product design, testing and revision.
3. Launch, formative and summative evaluation and ongoing revision.

At this point, and in addition to individual product business plans, organisations also create a general business plan for the total commercial ventures portfolio, integrating it into the organisational business plan.

This set of product development activities is primarily a staff function. Its focus is on implementing part of the strategic and business plans creating an entrepreneurial organisation.

Leading-Edge Networking

An additional step, leading-edge networking, may be taken to enhance the traditional and effective product development process described above.

It is composed of a review of the literature and the web researching innovative programmes, products and services throughout the world to identify opportunities. This would consist of designing/implementing an exercise to identify and talk to experts on the leading-edge of servicing the target population group and in fields that face similar problems but in different forms. Included would be the identification and description of the innovative service(s) and a preliminary assessment of them as to their efficacy and applicability.

If appropriate and if funds are available, an organisation could design a special two to three-day creative session composed of internal and external stakeholders and the identified leading-edge experts to create ideas and plans for new products and services to meet the needs of the charity.

Role of the consultant

At the beginning it is often difficult for organisations to begin this process. Commercial activities may be new to the organisation. Internal skill sets may not be present or not available to initiate and complete the process. An external facilitator may be needed to help create consensus, helping the organisation stakeholders deal with contentious issues related to real and perceived value conflicts, policy issues and organisational readiness concerns.

The consultant supports this transformation journey. Therefore, it is important to choose a consultant who understands charities and how they work and who also has experience of developing businesses within charities. Additionally, the consultant has supported charities through the change process often associated with the development of commercial ventures.

The consultant's roles are to help the organisation develop an approach customised to meet the unique needs of each organisation and to assist with implementation.

Other roles include:

• Facilitating consensus and supporting change on the trustee and staff levels as well as with stakeholders.
• Providing objective feedback.
• Helping to create and implement the planning process.
• Training, mentoring, intervening, as appropriate, when barriers are erected.
• Supporting the development of an on-going planning process within the organisation.
• Aiding in creating strategic partnerships and consortia.

Summary

The environment within which charities and non-profit organisations function is shifting at a fast pace. Competition for resources is increasing. New approaches are needed to keep organisations vibrant and responsive to client needs.

One method that is outlined in this paper is that of implementing the Managing Innovation, Being Entrepreneurial commercial development framework. This would result in an organisation becoming dynamic in its pursuit of new revenues through a process of creating or expanding a commercial venture portfolio.

The paper described an approach that includes, the determination of the need, the establishment of policies and directions that value innovation and the preparation of business plans to support these directions, the preparation of an organisation to support innovation, and the implementation of a commercial venture development process.

The component parts of the approach were discussed in detail following the systematic approach to being entrepreneurial. The focus was on need, purpose, inhibitors, organisational readiness and product and commercial venture portfolio development.

Lastly the role of the consultant supporting the process was outlined with special emphasis on creating and strengthening internal competencies. This way trustees, staff and stakeholders take ownership and are able to continue being entrepreneurial and innovative well into the future. This ensures that plans are fully implemented and are successful in achieving the organisational vision, mission and values.

John Pepin and Warren Tranquada bring social entrepreneurship experience developing new services and revenue generating commercial businesses in not-for-profit and charitable organizations in the North America and the UK. In North America, contact 800-503-8020. In the UK, contact 44-1280-705-655. john.pepin@pepintranquada.com or warren.tranquada@pepintranquada.com.

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