Emerging Business Revenue Models

The concept of non-dues revenue has changed. Traditionally, associations earned dues revenue from members — and all other revenue sources were nondues revenue and viewed as a group. As membership marketing has become more challenging and membership models have changed, other sources of revenue have become more important. Today, a more sophisticated strategy for ensuring financial health is required for an association to survive – and thrive. What was once called non-dues revenue has given way to the broader concept of revenue diversification. In some organizations, this is mostly a semantic distinction, but for many others it signals a shift in how the organization’s overall business model is defined and managed.

Traditionally, a business model was thought of as how a business or association was organized to generate revenue and manage expenses. However, it has become apparent that a broader concept is needed, and now business models are thought of as the overall rationale, vision, and strategy an organization uses to generate value through interaction with stakeholders. This view of the business model clearly cuts across what was called dues and non-dues revenue. It involves an overview of the total organization and how its components interact, in addition to how each component works and succeeds as a distinct business line. It’s no longer realistic to view membership as the organization’s “main” source of revenue and “other” revenue as supplemental. All sources of revenue must now be thought of as significant elements of the overall revenue mix, and the business model must consider not only the revenue stream but also the underlying activity that generates stakeholder value consistent with the organization’s mission and strategies.

Flexibility and Agility

As with the management process in general, flexibility and agility are critical to designing, evaluating and managing the organization’s business model; the organization must have the ability to adjust to changing times, sometimes quickly. It is challenging to position the organization to adjust readily. Flexibility and agility are often thought of as synonyms, but the distinction between them for purposes of business model management is very important.

Flexibility is about a mindset. An organization’s leadership must have an attitude open to change and a culture that embraces change. The “don’t argue with success” syndrome won’t work in today’s dynamic environment. The Wayne Gretsky phenomenon of knowing where the puck will be rather than just where it is applies here. It’s critical to have a culture that consistently reinforces the need to identify new opportunities, to acknowledge success, and to accept that some ideas just won’t work. This must be an organization-wide cultural characteristic that originates with top leadership and permeates throughout the organization.

Agility is the capability to act on opportunities for change that a flexible mindset allows. It’s one thing to identify an opportunity for a promising new product or service, and quite another to bring together all the factors required to make it work. The same requirements for agile management apply here: a good environmental/ market sensing process, good communications, a real team strategy, specificity about defining success, and a sound exit strategy. For a business model, two other elements are critical: 1). The organization must assemble the right mix of expertise to pursue a specific opportunity, including the ability to look beyond internal talent to fill gaps in expertise, and 2). A sophisticated financial forecasting capability is an important component since success will be expressed partially by financial performance.

Membership as Part of the Business Model

Successful business models embrace the overall rationale, vision, and strategy an organization uses to generate value through interaction with its stakeholders. For many associations, the membership model is the most important element of the business model. Market research, pilot projects, and forecasting models are as relevant to membership as to other entrepreneurial components. Defining the product is critical to any business model and particularly for membership. Yet simply viewing the product as “getting someone to join” and the availability of “member benefits” no longer works. With social media, ongoing involvement is expected. Engagement is the product of membership and its revenue stream is a byproduct. Defining the membership “product” has become identifying the type of engagement and interaction prospective members expect and is aligned with the organization’s capacity to deliver. The business plan for membership and other stakeholders must share a vision and overall strategy, and they should constitute a business model for the entire enterprise.

Defining the Business Model

Most, if not all, organizations have a business model. In many cases, it is implicit. To be a useful strategic framework, it must be made explicit and that starts with asking fundamental questions about “what business are we in – really?” It is more than just an inventory of all the revenue sources and lines of activity. It involves answering three questions:
1. How do we create value?
2. For whom is that value created?
3. Are the things we do to create value consistent with our mission and vision? If not, do we change the mission and vision or create additional value?

Once the business model is explicit, ask basic questions, such as:
• Is this the business we thought we were in?
• Is this the business we want to be in?
• Is this the business that will sustain the organization?

The Difference Between Agile and Reckless

Agility requires judgment. As much as possible, deciding to try a new venture, discontinue an existing business line, or make major course corrections should be based on sound market research, good financial forecasting, and good product/service design. However, often this input does not provide a clear answer. Management judgment becomes the critical factor. A good risk management process helps keep uncertainty in perspective.

Often, risk management is misinterpreted as total risk avoidance, which makes a flexible mind set irrelevant. Alternatively, good risk management acknowledges that risk is unavoidable, but it can be managed. Defining in advance the type and level of risk an organization is willing to accept and how it will manage that risk becomes an important part of the overall process and helps determine the amount of resources to invest, how to define success, timing thresholds, and exit strategies. Every major proposed venture should have a formal risk assessment. It may be the key component that distinguishes a well-designed business plan from a shot in the dark.

Getting Everyone on Board

Because the business model is an essential component of an organization’s strategic framework, it must be understood, supported, and actively incorporated throughout the organization, especially among senior management and the Board. And to be effective, the business model must have its origins within the governance structure. This is especially true of the risk management dimension, because the people developing action plans and implementing them must have a good sense of both strategic direction and the parameters of risk to advance the organization’s mission.

Associations today are much more complex because of the pace of change and communications. Because of modern communications and the increased use of social media, almost everything is done in “real time” that is much more instant and fast moving than ever. Organizations must be agile to sense and react to change and see between business and core activities in which the organization is engaged. This is especially true of the connections between business-related activities and what were traditionally considered core activities. Today, they are part of a whole that is much more apparent and the business model of the organization encompasses both.