Discover more from ArtsManaged Field Notes
There's only one business model
"There is only one business model," says Clara Miller, "reliable revenue that meets or exceeds expense."
“Pare down to the essence, but don’t remove the poetry.”
Leonard Koren, from Wabi-Sabi for Artists, Designers, Poets & Philosophers
If you build or grow a business of any kind – for-profit, nonprofit, hybrid – someone will ask about your business model. It will usually be a banker or investor or donor or foundation executive, considering whether to put money in the game, who wants to know what game you think you’re playing.
These inquisitors will rarely define their terms, or reveal their assumptions, about what a business model is. So you’ll be left to guess or improvise. They could mean “what will you make or do?” or “what markets or audiences will you serve?” or “where will your revenue come from?” or “how will you organize the people, money, and stuff you need?” or even “what other business will you be like?”
It’s annoying to get a vague question about a complex and evolving thing. But it’s important to have a coherent response regardless. So let’s take a minute to define what a business plan is or does.
My favorite definition comes from Business Model Generation:
“a business model describes the rationale of how an organization creates, delivers, and captures value.”
So, first off, a business models is a “rationale” – a set of reasons or a logical basis for how the business works. And that rationale describes how the enterprise accomplishes three things: creating objects or experiences of value, delivering that value to an audience, and capturing value back along the way to sustain or grow its operations (and/or generate a profit).
To simplify even further, social sector finance maven Clara Miller cuts to the chase when she says: “There is only one business model: reliable revenue that meets or exceeds expense.” At the bottom of all the creating, delivering, and capturing value is the persistent need to cover your expenses over time. If you can’t do that, it’s not a business model, it’s a bottomless pit.
So when someone asks about your business model, tell them how your enterprise creates, delivers, and captures value in ways that generate reliable revenue exceeding expense.
The simple definition doesn’t make for simple work. But at least it starts a focused and compelling conversation with anyone who asks.
From the ArtsManaged Field Guide
Function of the Week: Accounting
Accounting involves recording, summarizing, analyzing, and reporting financial states and actions.
Framework of the Week: Statement of Financial Position (Balance Sheet)
The balance sheet is one of three primary financial statements used by (and required for) formally organized business entities in the United States. It offers a "snapshot" of what a company owns and what it owes to lenders and investors.
Thanks for reading ArtsManaged Field Notes! Subscribe for free, fresh updates in your inbox every Tuesday morning.