APS1015 Class 5 - Intervening in Systems Part 2

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APS 1015: Social Entrepreneurship Class 5: Intervening in Social Systems (part 2) Monday, May 26, 2014 1 Instructors: Norm Tasevski ([email protected]) Alex Kjorven ([email protected])

description

This class will focus on the remaining 2 elements of the system intervention process: financial modeling and target setting. Students will be led through the process of understanding how to determine a viable business margin for their venture, and how to set reasonable yet motivating business targets that guide business model execution.

Transcript of APS1015 Class 5 - Intervening in Systems Part 2

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APS 1015: Social Entrepreneurship

Class 5: Intervening in Social Systems(part 2)

Monday, May 26, 2014

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Instructors:Norm Tasevski ([email protected]) Alex Kjorven ([email protected])

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Agenda

• Recap of Empathy Mapping & Business Modelling(last class)

• Building an Intervention– Step 3: Financial Modeling– Step 4: Target Setting

• Prep for Monday

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Intervening – A 4 Step Process

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Step 1: Empathy Mapping

Step 2: Business Modeling

Step 3:Financial Modelling

Step 4:Target Setting

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• For our purposes, this is a process for determining whether business model generates a viable margin

• Who determines viability?

• The Steps:– Assess revenue model (# units, unit price)

– Assess expense model (fixed, variable)

– Generate margin

Financial Modeling

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• Step 1: Assess Revenue Model– 2 parts: # units sold and price/unit

– How do we define a “unit”?• The value proposition perceived as having value by the

customer, and to which the customer is willing to pay a price

– The relationship between units and price:• The more “custom” a unit, the fewer that can be offered

and the costlier the unit is to make. The product is perceived as more valuable, and therefore price is higher

• The more “commoditized” a unit, the more that can be offered and the cheaper the unit is to make. The product is perceived as less valuable, and therefore price is lower

– How do we determine price?• This is…complicated

Financial Modeling

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Financial Modeling – Determining Price

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Determine cost + desired margin(see step 2)

Ask people!!!(friends, potential customers, etc)

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• Step 2: Determine Cost Model– 2 parts: fixed costs, variable costs

• Fixed:– The costs that don’t change as more units are sold

– Example: rent

– Goal: determine the total fixed costs incurred

• Variable:– The costs that do change as more units are sold

– Example: raw materials used to build the product

– Goal: determine the per unit fixed costs incurred

• A note: all fixed costs are variable over time!

Financial Modeling

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Your Best Friend…

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Break

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• The key business and social metrics used to execute the business model in a way that aligns with the financial model

• Business targets:– Revenue targets (e.g. # units sold in the quarter)

– Expense targets (e.g. target marketing budget)

• Social targets:– “Output” targets (e.g. # people employed)

– “Outcome” targets (e.g. increase in community resiliency)

• SMART

Target Setting

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• Baseline vs. Target– Baseline: your starting point – the reference metrics

– Target: the measurable improvement from the baseline

• Linking targets to the business model – Each element of the canvas deserves their own metrics (e.g. target #

customers, target #/type of activities to run)

Target Setting

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What did we learn?

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