(This is the second in a series of three posts on Business Modeling in Social Ventures. See here for the first and third entry.)
In the original post on business modeling in social ventures the launching pad for this topic was the question: How can nonprofits and social ventures develop stronger, sustainable business models? The short answer is by engaging in more rigorous business planning by leveraging such tools as (1) the business model canvas and (2) design thinking, and by examining the business models of other social ventures with strong, diversified and sustainable revenue models. In the previous post I also talked about why this mindset shift is essential for social ventures and non-profits. In this post I take a closer look at Kiva’s business model as an example of how to engage in business model generation, creatively leveraging available assets and designing for multiple revenue streams.
What is Kiva and what is inspiring about their business model?
Kiva is a micro-lending organization that allows funders to invest in entrepreneurs in developing countries. Kiva’s business model is a great example of leveraging an inspiring mission, building a trusted brand, delivering measurable impact on village economies, empowering jobs creation, and generating multiple revenue streams.
Kiva makes money primarily four ways – donors, grants, float and fees – but they have unlimited potential to uncap some of the current revenue streams and unshackle themselves from grants should they ever decide to abandon their non-profit status and raise cash for equity. They have created a model, in other words, where they do not have to rely on their 501(c)3 tax status to sustain the organization. The question would be, however, whether they would be able to accomplish this while serving their mission and without sacrificing their brand (see Compartamos Banco).
A key takeaway here is that Kiva has developed a lot of options for themselves. Unlike social ventures that rely on primarily grants and donor giving, this provides Kiva with significant stability and freedom as well as room to continue to innovate.
What makes Kiva unusual is that they are a social impact organization that has focused from the beginning on their business modeling. As Coates and Saloner point out, the founders, Jessica Jackley and Matt Flannery, as soon as they made the decision to move ahead with the Kiva concept, had to decide what corporate tax structure for their entity. This was their next biggest decision, and they went about it through an intensive multi-stakeholder brainstorming process: “they set up meeting after meeting with contacts in microfinance to discuss, among many other topics, whether the venture should be nonprofit or for-profit.”
Think like an entrepreneur
What I’d like to point out about this process, what this caveat illustrates, is the entrepreneurial mindset of the founders. Entrepreneurial and non-profit are not two words you hear in the same context very often. Jackley and Flannery went out and talked to stakeholders, potential channel partners, and potential users, and they explored multiple possibilities. Kiva wasn’t necessarily destined, from the beginning, to be a non-profit. They engaged in a design process.
Once they did make their decision to incorporate as a non-profit they were able to gain access to enormous pools of talent throughout Silicon Valley, talent that helped them build the technology, marketing, partnerships, processes, their board of advisors and the Kiva brand. Had they decided to incorporate as a for-profit social venture, they would have missed out on valuable and crucial startup resources.
Kiva still needed startup capital, though. Even after Kiva received major press coverage and got a flood of traffic in 2005, the flowing capital was for loans for the entrepreneurs in East Africa, not for their operating costs. But they had another asset on their hands: their huge and influential network of Silicon Valley entrepreneurs. Once the press coverage hit Kiva then leveraged their network to secure nearly $2 million in grants. Before that the company was surviving off of founder’s student loans, personal savings and donations from friends and volunteers.
Think like a businessperson
Having an army of pro-bono human capital is what made Kiva’s startup costs manageable. The number one thing social venture founders have to grasp from before the beginning is the financials: costs, revenues, cash flow. And this is where the Business Model Canvas becomes indispensable. Was the Kiva idea a long shot gamble? Was it feasible? How could they know if they, the founders, were chasing their gut, their passions, or whether they were pursuing a sound business idea? By doing some homework. By testing their value proposition through interviews, brainstorming and modeling.
For illustrative purposes, here is a sample model canvas I assembled, something a brainstorming session may have looked like for Kiva:
The core of the exercise is starting with your Value Proposition, answering the question: what is the goal of my venture? For Kiva, that answer is to empower people around the globe to lift themselves out of poverty. You can read more about modeling exercises and thinking through Customer Segments, Key Partners, Cost Structures, Revenue Streams, etc. here.
This exercise can be as brief or in-depth as you want to make it. The one thing any early stage business model should be is this: iterative. It should be the work of numerous minds, countless pitch sessions with friends and critics, and seemingly infinite customer interactions. Early on you should create constant feedback loops.
Kiva startup funding came from, essentially, a bank of human capital reserves. Could your social venture get off the ground with this type of capital? Do you need office space? Do you have the technical skills that Matt had to build your first platform? Are you in a geographic region like Silicon Valley that is soaked with talented do-gooders?
Know what assets can you leverage. Know the fixed costs of getting started. Have a solid understanding of how long “getting started” will take. Know how you’re going to get to revenue (and don’t count on grants for at least two years if you’re a non-profit). Have solid estimates of what that revenue will be. And get to revenue ASAP.
Beyond startup costs towards sustainability
One of Kiva’s goals was to have 100% of donor loans go to the entrepreneurs at the other end of the loans, which meant Kiva had to both raise money to give as loans and develop revenue to support operations and other fixed costs of running the organization. They did this primarily through four streams:
Even within these four seemingly straightforward revenue streams Kiva got creative by leveraging donor giving at the point of purchase to make a subtle, but powerful, ask: to pay an additional fee to help with operational costs. This ended up being a huge revenue driver for the organization.
Sustainability is tied to one thing – revenues. As a founder or a CEO your number one duty to your social venture is to make sure there is money to keep the lights on and the payroll humming. What are the revenue streams you can monetize? Know your assets. Know timelines. Know your cost of revenue.
If you are the founder, CEO, president or executive director how are you thinking about sustaining your social venture? How are you innovating to create multiple revenue streams? Whether it’s business model canvasing, design thinking, lean startup methodology or some other framework, how can you use available means to prepare for the longevity of your venture?