Business Models Aren’t Just For Business
This post originally appeared here on the Harvard Business Review site.
During my six years as an accidental bureaucrat, after spending twenty-five years in the private sector, my friends often wondered how I could do it. They routinely asked versions of the question: doesn’t government move too slowly for you? My standard reply was that, yes, the public sector moves slowly - but then, big companies don’t move so quickly either. And come to think of it, I teased my friends in higher education, colleges and universities move more slowly than either business or government! The point is, all institutions move slowly.
What surprised me wasn’t how slowly the different institutions moved, but the different language, behavior, secret handshakes, and views of each other I found across sectors. Xenophobia runs rampant within public, private, non-profit, and for-profit silos. Each silo has created its own world completely foreign to inhabitants from other sectors. Visiting emissaries are always viewed with skepticism. (”I’m from the government and I’m here to help …”)
One epiphany from my immersion into the non-private sector is how strenuously social sector organizations resist the notion they have a “business model”. Non-profits, government agencies, social enterprises, schools, and NGOs consistently proclaim that they aren’t businesses, and therefore business rules don’t apply.
Well, I’m sorry to break the news, but if an organization has a viable way to create, deliver, and capture value, it has a business model. It doesn’t matter whether an organization is in the public or private sector. It doesn’t matter if it’s a non-profit or a for-profit enterprise. All organizations have a business model. Non-profit corporations may not be providing a financial return to investors or owners, but they still capture value to finance activities with contributions, grants, and service revenue. Social enterprises may be mission-driven, focused on delivering social impact versus a financial return on investment, but they still need a sustainable model to scale. Government agencies are financed by taxes, fees, and service revenue, but are still accountable to deliver citizen value at scale.
The idea that business models are just for business is just wrong. Any organization that wants to be relevant, to deliver value at scale, and to sustain itself must clearly articulate and evolve its business model. And if an organization doesn’t have a sustainable business model, its days are numbered.
It may be, however, that the model is implicit rather than explicit. It’s amazing how few organizations can clearly articulate their business model. Can yours? If you ask any ten people in your organization how it creates, delivers, and captures value, will the answers even be close?
If not, it’s probably because, in the industrial era when business models seldom changed and everyone played the game by the same set of well-understood industry and sector rules, it wasn’t as important to be explicit about business models. Business models were safely assumed and taken for granted.
That won’t work in the 21st century when all bets are off. Business models don’t last as long as they used to. New players are rapidly emerging, enabled by disruptive technology, refusing to play by industrial era rules. Business model innovators aren’t constrained by existing business models. Business model innovation is becoming the new strategic imperative for all organization leaders.
Perhaps the most important reason for developing common business model language across public, private, non-profit, and for-profit sectors is that transforming our important social systems (including education, health care, energy, and entrepreneurship) will require networked business models that cut across sectors. We need new hybrid models that don’t fit cleanly into today’s convenient sector buckets. We already see for-profit social enterprises, non-profits with for-profit divisions, and for-profit companies with social missions. Traditional sector lines are blurring. We’re going to see every imaginable permutation and will have to get comfortable with more experimentation and ambiguity.
Economic prosperity and solutions for our big social system challenges require business model innovation across sectors. All organization leaders must learn how to do R&D for new business models. Non-profit, social enterprise, school, and government leaders aren’t exempt. Business models aren’t just for business.
Saul, Wonderfully said. There is one organizational model I have been ‘playing with’ — the chaordic model created by Dee Hock. I would love your thoughts on this model as it seems perfect for large organizations especially those with a social mission (though my wish is for all organizations to have a ‘trip’ bottom line).
In working through some of the fundamental pillars of this org. structure, a business model can emerge. It might be a good exercise for companies to go through, even if it is just an intellectual exercise, to see what insights emerge if they shifted to this org. model. I have found through my exec. coaching that if execs ask the question ‘What if?’ without being committed (a bad word) to the results — a structured ideation session — insights occur for many different parts of the organization which can be implemented… baby steps are then taken, which can lead to larger changes down the road. Your thoughts?
Well, it’s certainly true that all institutions have an organizational model. But is an organizational model dependent upon it being a business model?
Up until very recently in the history of our species, the last 175 years or so, the idea of “business” was the absolute last thing on anyone’s mind, because “business” was connected with the idea of “surplus” - extra food, extra raw materials, extra finished goods - that could be traded for cash, and the cash be put to other uses besides subsistence.
We used to have other kinds of economies on this planet — the potlatch economy of the Tlinglit Indians of the Pacific Northwest, for example, was based on the trade-off of material goods for power and influence: If you want power and influence, give away what you have to those whom you want to have following you.
The household economy that ruled the American Northeast from 1620 until about 1840 was based on subsistence farming and cottage industry, and gradually replaced by industrialization. That industrialization was, in part, powered by the rise of coal, oil, and other fossil fuels, and squeezed down by the urbanization of the North and the slave-society of the South.
The wartime economy of the 1940s in this country was predicated on an assumption of scarcity in the world and in the nation, and the need to reinvigorate household economies.
If you look at the governance models of organizations that survive but also predate the rise of industrialism — like for example, the Freemasons, the Roman Catholic Church, or the typical Orthodox Jewish Schule, you don’t see a ‘business’ model so much as an antique cameo in a jarring modern setting, trying to reconcile the ancient model of governance with the modern mindset of its current owners.
Is it the case that there are, really and truly, only business models? Or is it the case that “business models” is the colonization of your mind by the Pax Corporate, the ecumene of a certain way of seeing the world?
Just a thought.
Thanks for this. I’ve been arguing for this in the NFP sector for some time. Every time I hear an argument against the ‘business model’ I hear ideology speaking. The fear comes from the notion that a business model is about financial profit and misses the point that it’s actually about clearly defining desired outcomes, aligning with the customer or key stakeholder, having a plan to deliver the goals and measuring the achievements. The anti-business model folks always miss the point that they constantly demand more funding resources as a solution to the issues/problems they are tackling, i.e., that their cause is more deserving / critical than others. In the process, they skip the accountability to rationalize the demand for funding with a business plan. Happy to say that shrinking NFP funding is forcing their funders (and boards) to require business plans to demonstrate how the resources will be applied and measured. It’s called transparency.