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.