B Plan Model

8/8/2019 B Plan Model

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Exercise 1: Value Proposition

Value Propositions are brief descriptions of your organization and the value it provides, andarticulate why the target customer/beneficiary will ³choose to buy´ or ³consume´ your product

or service offering(s) over other alternatives. (Note: the alternative may be ³non-consumption´).

Instructions: Application | Exercise 1 | Exercise 2 | Exercise 3

Submit: Exercise 1 | Exercise 2 | Exercise 3

Reminder : Please register on Social Edge in order participate.

Exercise 1: Value Proposition

Value Propositions are brief descriptions of your organization and the value it provides, andarticulate why the target customer/beneficiary will ³choose to buy´ or ³consume´ your productor service offering(s) over other alternatives. (Note: the alternative may be ³non-consumption´).

Task Overview:

The purpose of Exercise 1 is to define the value that you create for your beneficiaries (comparedto the alternatives). The value proposition should be derivable from (or identical to) the missionstatement.

In Exercise 2, you will describe the characteristics of your beneficiaries and why your value proposition is ³right: for these beneficiaries. In Exercise 3 you will define the key income andexpense drivers that you use to sustain and scale your value proposition.

Background Resources:

Reference on value proposition: J. Gregory Dees, Jed Emerson, and Peter Economy, StrategicTools for Social Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit , New York, John Wiley, 2002, Chapters 1 & 2.

Wh

at is th

e definition of a Value Proposition?

A concise statement which articulates why the target beneficiary will ³choose to buy´ or ³consume´ your product/ service offering over other alternatives in the market. (Often the biggest hurdle is competing against ³non-consumption´). The Value Proposition is the distilledessence of the organization¶s mission/strategy.

Effectiveness of Value Proposition



y Targeted beneficiaries recognize that this message is for themy Understandable (by beneficiaries, as well as employees, and donors)y Important relevant to salient aspect of the beneficiaries¶ context & culturey Credible: can be supported by evidencey Deliverable by the organization and employees and beneficiaries can say it easily and

with integrityy Differentiated: ³competitors´ (non consumption or alternatives) cannot easily make the

same claimy Sustainable advantage: ³competitors´ cannot catch-up quickly

Is it clear why your product/services is better than alternatives? Is it clear that ³nonconsumption´ is a less beneficial alternative?

Evidence Makes Value Propositions Come Alive

y Experienceo

demos, test drives, pilots, referencesy Experts

o academic, consultants, analysts, gurusy Examples

o Diagrams, pictures, customer PR y Statistics & quantification makes evidence stronger y Analogies help make evidence understandabley Irrefutable facts are the best evidence ... ³water flows downhill´

EXERCISE 1:

1a. Create a Value Proposition for your organization in a sentence such as:

[Name of organization] provides [products/services], which are [statement of keydifferentiators], for [target beneficiaries], and thereby creates [statement of socialvalue/impact], unlike [competition].

1b. Provide evidence for your value proposition.

Over the past xx years, we have helped xxxx beneficiaries, creating (list of) benefits for each, compared to (the alternative)

Example: The Aravind Eye Care System Value Proposition For more information on Aravind Eye Care System, please see:

y C.K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, Philadelphia: Wharton School Publishing, 2005.

y V. Kasturi Rangan, The Aravind Eye Hospital, Mandurai, India: In Service for Sight,Harvard Business School Case Stud, 9-593-098, January, 2007.



1a. Aravind Eye Care Value Proposition:

For the millions of people in India with cataract blindness, the Aravind Eye Care System profitability provides diagnosis, treatment, and post-operative care, which is 100% safe, has a

greater than 95% chance of cure, is less than 1/5 of the cost of comparable care, and is free for those who cannot afford to pay. Unlike government run hospitals, Aravind provides high-qualitycataract surgery in a professional and ethical manner, serving all patients with dignity. Unlikethose who do not receive quality surgery, patients are able to return to productive lives.

1b. Aravind Eye Care Evidence of Value Proposition.

Over the past 33 years, Aravind Eye Care has successfully performed cataract surgery on over 2.4 million patients in India, with nearly 60% of the surgeries performed for free, and all of thesurgeries performed for less cost and with higher accuracy (fewer adverse events) thanalternative hospitals.

Exercise 2: Target Market Statement

The Target Market Statement describes the size and characteristics of beneficiaries of theorganization (those individuals or groups that the organization¶s is intended to serve). Theexercise has 3 parts: 1) defining the total available market (all those beneficiaries who could possibly use your product/services), 2) defining the total addressable market (those beneficiariesyou are currently targeting), and 3) defining a market segmentation table which identifies thecharacteristics of your beneficiaries that are relevant to the beneficiaries¶ decision to use your product/services




Task Overview: Your task is to identify the precise group of beneficiaries that you want to serve. We refer to this³group´ as a ³target market,´ borrowing from traditional business terminology. You will need toidentify the beneficiaries (³customers)´ in the target market for whom your products/servicescreate value. Remember that there may be a distinction between those who will use your productor service (direct beneficiaries), and those who will pay-for or assist-with creating the product or service (indirect beneficiaries).



You will need to be able to identify the attributes (needs) of your beneficiaries that make your product or service valuable to them. These attributes, if specific and descriptive, will identify acategory of potential adopters (consumers) of your products or services that view them ascompelling relative to these needs and relative to alternatives for meeting the needs.

To develop your target market statement, you will proceed with three steps.

2.1 Estimate the total number of possible direct beneficiaries for your organization, i.e., howmany people could benefit from the value proposition. You can use geographic boundaries (e.g.continent, nation, state) to segment this number. This is the Total Available Market.

2.2 Identify the segment of the Total Available Market that you are currently targeting. This isthe group of potential beneficiaries you can reach with the organizational resources (financialand human) that you have (or will have) available. Identify why these potential beneficiarieswill ³consume´ your product or service, rather than an alternative (including ³non-

consumption´). Th

is is th

e Total Addressable Market.

2.3 Segment, or divide, your customers into different categories. These categories can beanything that will help you to understand specific characteristics of your beneficiaries, how toreach them, and what kind of communication and messaging will convince them to buy your product, adopt your service, or join your community. Some examples of categories are age,education level, income level, location, size of family, or group affiliation (such as an industry or village organization). This is your Target Market Segmentation.

Once you have an idea of the segments that exist in your market, you can begin developing amore in-depth characterization of differentiating attributes and needs of your beneficiaries. Oneapproach to developing a deeper understanding of these segments is to interview potential beneficiaries to determine their attributes. You may decide to focus your ³marketing´ efforts onone segment, multiple segments, or use the segmentation to develop multiple marketingmessages. You may even decide to have different (or slightly different) products or services for each target market segment.

Background Resources: Reference on market segmentation:

y J. Gregory Dees, Jed Emerson, and Peter Economy, Strategic Tools for Social Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit , New York,John Wiley, 2002, Chapter 2.

y Arthur DeThomas Ph.D. and Stephanie Derammelaere, H ow to Write a Convincing

Business Plan, Third Edition, New York: Barron¶s Educational Services, 2008., chapters6 and 7.

What is market segmentation?



y Market segmentation is not a strategy. It is a creative and analytical process that precedesthe development of strategy.

y First, an enterprise needs to be creative in conceiving alternative approaches to ³MarketSegmentation.´

y Second, the enterprise must then be analytical in selecting the best approach or attributes

on which to segment the market

Why Segment?

y To define the distinct attributes of groups that help to determine their adoption andconsumption patterns.

y To define and enhance the effectiveness of communication and marketing to the variousgroups or segments

y To facilitate or enable predictable results based on outreach to a specific groupy To assess the magnitude of adoption hurdles.

The basis for segmentation:

Type of Variable Attributes

Descriptor Variables DemographicsSocio-Economics

Psychological Variables AttitudesInterestsOpinions

Life StylePersonality

Product/Patronage

Characteristics(Situation S pecificity)

Purchase Occasion

Use OccasionUsage Rate

Brand LoyaltyBenefits SoughtMix Element Sensitivity

What are the criteria for effective segmentation? Criteria:

y Substantialy Accessibley Measurabley Worthwhiley Identifiabley Competitively advantageousy Heterogeneous

The process of setting a target market or beneficiary group



Segment the Beneficiaries(Market)

1. Identify segmentation variables and segment the market2. Develop profiles of resulting segments

Target the Beneficiaries (Market) 3. Evaluate the attractiveness of each segment4. Select the target segment(s)

Product or Service Positioning 5. Identify possible positioning concepts for each targetsegment6. Select, develop, and signal the chosen positioning concept

EXERCISE 2 (3 parts):

2.1 Create an estimate of the Total Available Market which: 1) divides (segments) the potential beneficiaries for your product into major categories (segments) using geography (or other major categorization), 2) estimates the size (number of beneficiaries in each segment, and3) specifies the key product/service needs of segment.

Example: Aravind Eye Care System: Total Available Market: Cataract Blindness

Cataract Blindness Segment Size Needs

Worldwide 22.5M sight (20/40), safety, access

Developing Countries (B.O.P.) 19M sight, safety, access, plus low cost

India 14M sight, safety, access, plus low cost

2.2 Create a Total Addressable Market Statement, which identifies the characteristics and

size of that segment of the Total Available Market that you currently are targeting, and describes:

y Description:y Characteristics:y Needs:y How needs met:y Estimate of size:y Basis for the estimation:y The positioning of the product/service (compared to alternatives, including ³non-

consumption):

Example of a Total Available Market Statement: Aravind Eye Care System:

y Description: masses of poor people in India, who have lost their eyesight due to cataract.y Characteristics: Poor people who have lost their eyesight due to cataractsy Needs: Ability to see, regain independence and ability to earn income.y How needs met: Free for poor (subsidized by paying beneficiaries), extra capsular

surgery with intraocular lens.



y Estimate the Size: 1992²30 million blind in the world. Almost 20 million reside in Indiaand 2 million are added annually. Blindness rate in the developing world is 1.5% versusup to .25% in industrialized countries. Cataract is the major cause of blindness indeveloping countries. Comprise 75% of all cases. 80% are age related occurring in peopleover 45 years.

y Basis for the estimation: World Health Organization

y Market Positioning:

Alternative Characteristics Size Positioning

Standard SurgeryAravind

Skilled labor intensive, Travel to statehospitalsSafeCost: $1.5K

1.2M/yr Subsidized(public/private)High success rate

Non-Consumption(no surgery)

No cost, loss of sight/ productivity 10M Default

Aravind Efficient ProcessLocal clinics/hospitals, SafeCost: $300

200K/yr Low cost, accessible,high success rate,60% are free

2.3 Create a Market Segmentation Table identifying different groups, by distinctive attributes.For each segment describe why your solution will gain adoption or why it will not. For eachSegment describe why your solution will gain adoption or why it will not. Template:

Market Segment Analysis Template

SegmentDefinition

Compelling Reason for Adoption

Reasons for Non-adoption of Product or Service

1.

2.

Example: Market Segmentation Table - Aravind Eye Care System

Segment Definition Compelling Reason for Adoption

Reasons for Non-adoption of Product or Service

1. Ability to pay:

Cataract Blind People above poverty income level

1. Return to productivelife2. Low cost3. Safe, accurate

procedure

1. still have vision, however diminished2. cannot leave family3. fear of surgery

2. No ability to pay: 1. Return to productivelife

1. Lack of knowledge of service2. cannot afford food and



Cataract Blind People below poverty level

2. Free3. Ease of access4. Safe, accurate procedure

transportation to hospital3. fear of surgery4. no one to accompany5. family opposition

Exercise 3: Business Model

The Business Model for an organization describes the key income and expense drivers for theorganization, and the critical success factors (key assumptions) related to the financialsustainability of the organization.




Task Overview: In this third and final exercise you will identify the key income (revenue) ³drivers´ that³monetize´ (fund) your value proposition. It is useful if at least a portion of the funds that youneed to operate or scale will be based on income for products or services provided (³earned

income´) because earned income reduces your dependence on contributed income (grants and/or fund raising). It is imperative that the earned income be a by-product of producing the productsand/or services for your beneficiaries and not be an additional defocusing initiative that woulddistract you from your primary purpose. Note that the earned income may not come from thedirect beneficiaries, but rather from an indirect beneficiary (e.g., a government or NGO) that pays for the products or services based on their effective delivery. In addition to the key incomedrivers, you also will identify the key expense (cost) drivers that are necessary to create theseincome streams. The income and expense drivers are often described using ³fishbone diagrams´which list the key income and expense drivers and the % (of totals) for each driver (income andexpense. Note that income drivers and expense drivers often are based on price and quantity. For example, the income from cataract surgeries depends on the number of paying beneficiaries and

the amount each pays, while the expenses for the surgeries depend on the total number of surgeries and the costs for each.

After identifying the income and expense drivers, you will identify the Critical Success Factors(Assumptions) that are necessary to sustain the income drivers and control the expense drivers.

Background Resources:



Reference on business models: Richard G. Hammermesh, Paul W. Marshall, and Taz Pirohamed,³Note on Business Model Analysis for the Entrepreneur,´ H arvard Business School Report 9-802-048, January 22, 2002.

Business Models

y The Nature of the Venture¶s ³Cash Engine´o Translating a social benefit venture concept into«

One where Revenue is > Expenses Knowing how much CASH it will take to achieve

The summation of the core business decisions and trade-offs employed by a venture to

earn a ³surplus´

y Income (revenue) drivers (earned and contributed), and the key variables influencingeach (e.g. numbers, amounts)

y Expense (cost) drivers (for each income driver)

y Critical Success Factorso The most important elements of business model relative to achieving a surplus of

income over expenses AND meeting the needs of the target market(beneficiaries).

Potential Sources of Income for Sustainability and Growth

y Contributed Income Modelo

Donors make (regular) contributions to fund product/service delivery (e.g. annualfund drive or web-based solicitation of contributions)o Can include grants (note that grants are generally consider like ³investments´

rather than sustainable income)y Third-party Earned Income Model:

o Indirect beneficiaries (those who benefit from the market creation or the impactsof the products or services) provide the income

o e.g. A government agency or NGO pays to rebuild houses after an earthquakey Fee Based Income Model

o Unit Sales of any product or serviceo Fee per use or output

y Micro-financed or Deferred Payment Modelo e. g. Cell phone services in developing countrieso Development and marketing of software products that leverage success in the

current direct market to segments of developed country marketso e.g. Internet and cell phone based mass transit schedules, crop planting and

cultivation best practicesy Subscription Model

o Fees to join service



o Internet Servicey Ability to Pay Model (Tiered-pricing Model)

o Those that can afford to pay subsidize service delivery those that cannoto Different prices (and possibly products/services) for different market segments

y Market Place Modelso

A direct (or indirect) sales channel products or serviceso An ³eBay´ type market for products and serviceso Organizing the direct market provide access to other target marketso These models then facilitate related advertising and affiliate revenue models

y Franchising/Licensing Modelo Enable other organizations to provide your services in different markets or

regions, in some cases, the national or regional governmentsy Cause Related Marketing Model

o Pay for the good or service to create market or to gain brand/company awarenesso Pay per use or outputo e.g. Participation through local market distribution in leading edge programs like

Grameenphone or Hewlett-Packard's "e-inclusion" (e.g., digital photoentrepreneurs)

Examples of Earned Income Models

Model Type Description Example

Volume or unit Price per product unit Sale of LED lights

Subscription(member) fee

Fee for content or membership Fee to join Co-op

Advertising

revenue

Sale of advertising space or time Advertising on sides of

ambulances, or in freeclinics

Transaction feerevenue

Fee per transaction or activity Fee for training course

Licensingrevenue

Fee for Intellectual Property (specifications of a product and/or service)

Fees for manufacturinglicenses

Franchisingrevenue

Fees for Intellectual Property (specifications of products, services, and processes), plus fees for ³Brand´ (name and marketing), plus fees for suppliesthat meet specifications

Franchise outlets for health care products

Examples of Contributed Income Models

Model Type Description Example

Donations Gifts from indirect beneficiaries Food Bank

Indirect Indirect beneficiary pays for products or services Factory pays for day-care for



beneficiary because of effective value creation children of workers

Out-source Government or NGO outsources products or services (in their budget)

Providing free prostheses toamputees

Examples of Blended Income Models

Model

Type Blend Example

Blendedearned

Fees for products and services Fees health care andmedicines

Hybrid Contributed and earned income drivers Grants for research to develop products plus sales

Learn andearn

Fees for training/education plus fees from productsor services created by trainees/students

IT trainees earn money for data processing services

Critical Success Factors A business model critical success factor is an assumption or operational competency that must betrue for the income and expense drivers to sustainable support the value proposition for anincreasing number of beneficiaries. The success of the business model in supporting the value proposition for the target market segmentation depends on the critical success factors remainingtrue.



Example: Aravind Critical Success Factors

y Low-cost workflow for eye care systemy Successful training of all staff y Maintain > 40% paying clientsy Re-invested surplus in staff training, improved processes, and new technologyy Motivate staff through work environment and competitive compensationy Use partnerships for in-field diagnosis and for new technology development

Exercise: 3.1. Identify the key income drivers for your organization. (Hint: from the backgroundresources, which income models could be applied for your products/services?) Describe these

using an Income (revenue) Fishbone Diagram for your organization. (An editable blank

fishbone diagram is included below.)

3.2. Identify the key expense drivers that will be required to obtain this income. (Hint: whatare the costs for product/service development, sales and marketing, and administration).

Describe these using an Expense (cost) Fishbone Diagram for your organization. (An

editable blank fishbone diagram is include below.)

3.3 List the (3-7) critical success factors (or key assumptions) which are the bases for your

income and expense drivers.

B Plan Model

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