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Brief Explanation Introduction

Do you know the stages of a venture?

As your organisation matures, your revenue model will evolve. Revenue models tend to go through 3 typical stages of evolution, which we can call the ‘Prototype’, the ‘Standardise’, and ‘Scaling’ phase.  

Prototype:  Every start-up belongs in this category at launch. When you start, you don’t have a defined revenue model yet. Your first task is to find one. The prototype phase is all about experimentation. You may be trying to sell your services to many different types of customer, but you haven’t worked out exactly which one is best. Or you may know your customer, but still be struggling to work out exactly how to deliver it. Or you may not know the right price to charge. 

You can only find out by trying many different approaches, and rapidly adjusting your strategy based on market feedback until you’ve got it right. The skills that investors look to you for during this phase are flexibility, creativity and agility in coming up with a viable product. The prototype phase ends when you’ve worked out a core product/service delivered to a target customer, sold at a unit price that makes the product both affordable for the customer and profitable for you

Standardise: In the standardisation phase, you worked out your customer and product, and know how to deliver it, and at which price. The goal in this phase is to make every part of your supply chain and delivery process as streamlined and efficient as possible. This means trying to settle on a handful of ‘core products’ (ideally no more than 2-3 initially). The core products should then be designed to be as easy as possible to roll out. This means: 

  • Being disciplined in who you pick as your customer. You should have an ideal ‘customer profile’, and not chase customers who fall outside of that profile. For social entrepreneurs, this may include saying no to customers who don’t fit your target beneficiary group. 
  • Having a standard set of prices for your products, so that you don’t negotiate every time with your customers or risk setting a price too low. 
  • Having a standard set of contracts with your supplier and delivery partners, so that you don’t have to create a bespoke new product every time a new customer comes along. 

 

By standardising the above, you make it easy to scale up once you have a profitable core product.  

This isn’t to say that prototyping stops once standardisation starts. You are likely to continue to do activities beyond your core products, and to experiment with developing new products. It might be fairer to say that the ‘Standardise’ phase is often combined with prototyping. But what differentiates social businesses that are in this phase is the focus on perfecting a handful of core products/services. 

Scaling: In the Scaling Phase, you’re finally ready to grow. You’ve now defined your core products clearly and have a clear sense of how to deliver them efficiently. Module 4 looks at different strategies that you can now adopt to scale your impact once you are in this phase. 

Exercise

So which phase are you in now? Review the different products or activities that you deliver for customers. Which of these would you categorise as ‘prototyping’, ‘standardising’, or ‘scaling’?  

Some questions to help you decide are: 

  • Can you describe the ‘ideal customer’ of your core product?  
  • Can you describe your ‘core product’ in detail? Or is it different for every customer? 
  • Do you offer your customers a fixed price list, or do you have to negotiate price every time?  
  • Do you feel that you could package your ‘core product’ in a way that others could distribute and sell/deliver the same product if you told them how to? 

Tips

Different social investors invest in different phases. Angel investors (private individuals) may be willing to look at a venture that is still in the prototyping or standardising phase, whereas most funds would only look at businesses that are scaling. If you are still prototyping or standardising, it’s a waste of your time to approach funds that cannot invest in these early stages. 

Social investors look for different things from you in each phase. For prototyping businesses, social investors will most want to know whether your team have the skills to find the best business model quickly enough. Are you agile and flexible enough to keep experimenting rapidly until you have a viable business model? They will not expect you to have a fully developed business model, nor should you pretend to.  

However if you are at the scaling phase, then investors will expect you to have a strong standardised business model with a proven set of core products. Their focus on ventures in this phase will be on whether the core product is profitable and easy to roll out, and whether you have a credible growth strategy

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