Chapter 19: What is my revenue model? -
Tomorrow Toolkit for Entrepreneurs
Baltimore Innovation Week attendees talk business at an event held at the Betamore coworking facility.
What is my revenue model? By Julie Zeglen
Many social entrepreneurs are shy about talking about revenue. This can’t be the way for you. Understand your funding mechanism.

As a social entrepreneur, you’ll need to balance impact with profit, and you’ll need to get comfortable talking about it. How do you go about choosing a revenue model?

The movement here is one that suggests it’s not good enough to want to have impact and expect some foundation or large funder to cover the cost. You can be more creative to support your mission. A good way to think about this is to think of having two pathways to a revenue model with mission in mind:

  • If someone who directly uses my product or service will pay for it, can I find a way for others to benefit?
  • If those who directly use my product or service can’t or won’t pay entirely for it, can I find others to support who indirectly benefit to pay for it?

For an example of the first, look at Wash Cycle Laundry, which was able to expand to Austin and Washington D.C. in four years. The Philadelphia-based laundry service is eco-friendly, making it attractive to sustainability fans, and also hires from vulnerable populations with the help of city partnerships. They’re selling a fairly straightforward service but doing so with a real mission, says founder and CEO Gabriel Mandujano, who operates in Philadelphia, Washington, D.C. and Austin.

Four years after first launching, the company had about 100 small business and several hundred individuals using its service, including institutions like Thomas Jefferson University Hospital and University of Pennsylvania. Despite the paying clients, founder Mandujano still sought outside investment for expansion, raising venture capital while also patching together grants and loans to support growth on the road to profitability.

Part of his salesmanship is the impact his growing business has for others, both environmentally by using bicycle messengers to pick up laundry and by hiring from at-risk populations.

Build a business that solves a real problem and impact others from the start, like Wash Cycle Laundry founder Gabriel Mandujano who hires from at-risk populations.

For an example of the second, talk to Nic Esposito, founder of Philadelphia-based publisher The Head & the Hand Press. He’s aimed to “achieve our fiscal sustainability while upholding our other sustainable ideas” by way of a mix of support and funding.

The Head & the Hand Press uses both paying customers and foundation funding while mixing in volunteer labor support. Its writers’ workshop program has nonprofit status, allowing the company to accept foundation grants for work done within the program. This way, profits from the Press’s book sales don’t need to go to the workshop, which wasn’t making enough money to be sustainable on its own. Esposito has found a mission-related portion of his organization that can attract revenue, while subsidizing it with mission work that attracts funders that have supplementary goals — like seeing a growing creative community and giving experience to aspiring publishers.

Beyond selling a product, social entrepreneurs can also seek out opportunities that can financially benefit their company in other ways — such as the Project Liberty Digital Incubator, which offers free office space in the Philadelphia Media Network offices to digital media startups. Philadelphia-based My Milkcrate, which created an app that promotes sustainable economies by connecting users to local, socially conscious businesses, participated in the incubator last year.

Sustaining the venture itself and acting on mission can go hand-in-hand. Detroit SOUP is a regularly held communal dinner, where attendees pay a small donation. The events include time for presenters to share ideas, and attendees cast votes that result in microgrants backing ideas that help the community. That revenue supports SOUP and its community.

Foundation funding does exist for for-profits in the form of program-related investments, or low-interest loans.

Your Checklist:

  • Know the difference between startup costs and revenue. If you are trying to launch your organization or add a new product or service, you may need an outlay of initial capital to fund that work. In addition to bank lending, creative foundation approaches to low-interest loans and donor funding, consider applying to be housed in an incubator or set up a crowdfunding campaign, both of which are often to used to test models. That should be seen in distinction to what your long term sustainability plans are — recurring revenue from customers or  on-going client support.
  • Define who benefits from your product or service: Will they and can they pay for its use? If you’re trying to serve a vulnerable population, it might not be realistic to ask them to pay, which means that funding will have to be found elsewhere. Or, you could offer the product or service at a discounted rate and supplement the cost with outside funding.
  • Consider diversifying your revenue: If you do need to find outside funding, look into classifying one arm of your business as a 501(c)3 — as long as that arm is mission-minded — so you’re able to apply for grants. Alternately, are there nonprofits with which you can partner, perhaps in a fiscal agency relationship? Brainstorm 7-10 ways you could bring in revenue, in addition to the traditional mission pathway of donors and grant funding.
  • Befriend others in the marketplace. Then learn from them: How are other socially minded organizations doing similar work to yours making money? Search out some local businesses that are serving similar populations. Consider whether their revenue model could be applied to your venture.
  • Test the marketplace: Don’t forget Chapter 6. Put your ideas into action. Find small tests for what you hope to be a model of bringing in revenue. No survey or business plan can beat trying to sell a product, service or funding opportunity.

The point is that mission and revenue can go together quite nicely, if you keep them both in mind from the very start.

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