Entries For: August 2008
2008-08-07
David Vitrant
How to setup my business model?
Q: I am starting a new social venture called FundScience Inc. The basic plan is to use social networking and microfinancing techniques to get the public to fund pilot research projects up to $50,000.
I have a lot of interested individuals, and a good team (for technical, legal and financing advice). As a geneticist turned non-profit Entrepreneur, I'm at a lack for how to setup my model (like donorchoose) and making sure my Business Plan is perfect.
Since my goal is to give 100% to research, to be transparent, and push openness and collaboration out the door I was hoping Social Edge might be able to guide me along the process.
Patrick O'Heffernan responds:
First, let me say that this is a very intriguing idea and one that may resonate well if done right. However, there are some questions that you need to ask and answer before you move forward with it and before you write your business plan:
1) What kind of pilot research projects?
I assume that the projects would all have a public interest benefit, and the low investment you are seeking underscores that, but "pilot projects" can cover a lot of ground, especially when you identify yourself as a geneticist. What kind of projects? Who will be researchers be? Where will the take place? Will they involve human subjects (and if so, so you have the necessary committees and permits)? Who will benefit from them? Will they involve GMO's? etc, etc. The point here is that social networking opens you up to a a general public who as a rule does not necessarily embrace research, but will embrace testing products that have demonstrable benefits for identifiable people. A project testing stoves that do not require charcoal and thus reduce the demand for forest destruction in central Africa would work; a pilot testing solar panels in the same area that are imported from California at high prices might not. The point is, set criteria for your projects that give investors confidence that they will attract microfinance investment.
2. 100% to research?
How are you going to pay for the operation. DonorChose spends $1.7 million in overhead each year. Giving grants to projects is not free - you will need time and staff to vet projects, to do site visits, to comply with (some pretty onerous) laws about sending money to non US non-profits, to file NPO papers, for 990 forms, etc. If you are not going to charge overhead, how do you intend to support the organization in the long term. Investors will want to be paid back and donors will want to see that you are sustainable. Don't rely on foundation grants - begging is not a good business strategy, even for NPOs.
3. The perfect business plan.
There may be a perfect business plan, but you should write the imperfect plan and circulate it, not wait for the perfect plan. It will evolve as you learn more and as more people see it and offer advice and resources. Since you are using the term business, I assume you will be making a profit. Your plan needs to detail where your revenue will come from. You said 100% to research, so are you going to make money from advertising, from patents, from licensing? If you are looking for investors, even social investors will want to see a revenue stream, a market analysis, comparable companies, a 5 year cash-flow analysis, when you intend to go in the black and how, and a plan for the use of their money. You will also have to determine your ROI - return on investment, both financial and social. If these are pilot projects, it is likely some will not work - that is why they are pilot. You will have to subtract the cost of those that don't work from the outputs of those that do - a process every venture investor is familiar with and builds into her or his portfolio of investments.
I recommend that you get a copy of this week's Chronicle of Philanthropy and read the article on Direct Connections about NPOs that are experimenting with the model that you are proposing. You will gain good insight into the thinking that went into organizations like DonorChose and Kiva and how they remain stable.
And good luck. As an MIT alum, I love your idea!
I have a lot of interested individuals, and a good team (for technical, legal and financing advice). As a geneticist turned non-profit Entrepreneur, I'm at a lack for how to setup my model (like donorchoose) and making sure my Business Plan is perfect.
Since my goal is to give 100% to research, to be transparent, and push openness and collaboration out the door I was hoping Social Edge might be able to guide me along the process.
Patrick O'Heffernan responds:
First, let me say that this is a very intriguing idea and one that may resonate well if done right. However, there are some questions that you need to ask and answer before you move forward with it and before you write your business plan:
1) What kind of pilot research projects?
I assume that the projects would all have a public interest benefit, and the low investment you are seeking underscores that, but "pilot projects" can cover a lot of ground, especially when you identify yourself as a geneticist. What kind of projects? Who will be researchers be? Where will the take place? Will they involve human subjects (and if so, so you have the necessary committees and permits)? Who will benefit from them? Will they involve GMO's? etc, etc. The point here is that social networking opens you up to a a general public who as a rule does not necessarily embrace research, but will embrace testing products that have demonstrable benefits for identifiable people. A project testing stoves that do not require charcoal and thus reduce the demand for forest destruction in central Africa would work; a pilot testing solar panels in the same area that are imported from California at high prices might not. The point is, set criteria for your projects that give investors confidence that they will attract microfinance investment.
2. 100% to research?
How are you going to pay for the operation. DonorChose spends $1.7 million in overhead each year. Giving grants to projects is not free - you will need time and staff to vet projects, to do site visits, to comply with (some pretty onerous) laws about sending money to non US non-profits, to file NPO papers, for 990 forms, etc. If you are not going to charge overhead, how do you intend to support the organization in the long term. Investors will want to be paid back and donors will want to see that you are sustainable. Don't rely on foundation grants - begging is not a good business strategy, even for NPOs.
3. The perfect business plan.
There may be a perfect business plan, but you should write the imperfect plan and circulate it, not wait for the perfect plan. It will evolve as you learn more and as more people see it and offer advice and resources. Since you are using the term business, I assume you will be making a profit. Your plan needs to detail where your revenue will come from. You said 100% to research, so are you going to make money from advertising, from patents, from licensing? If you are looking for investors, even social investors will want to see a revenue stream, a market analysis, comparable companies, a 5 year cash-flow analysis, when you intend to go in the black and how, and a plan for the use of their money. You will also have to determine your ROI - return on investment, both financial and social. If these are pilot projects, it is likely some will not work - that is why they are pilot. You will have to subtract the cost of those that don't work from the outputs of those that do - a process every venture investor is familiar with and builds into her or his portfolio of investments.
I recommend that you get a copy of this week's Chronicle of Philanthropy and read the article on Direct Connections about NPOs that are experimenting with the model that you are proposing. You will gain good insight into the thinking that went into organizations like DonorChose and Kiva and how they remain stable.
And good luck. As an MIT alum, I love your idea!
