I often get asked if one can or should model a non-profit using a Lean Canvas. The answer is a resounding yes. A nonprofit is essentially a multisided model made up of users (beneficiaries) and customers (donors). The main difference, from a modeling perspective, between a non-profit and a for-profit is that the former reinvests all its profit towards impact. Impact is the derivative currency that connects the two sides and drives the model.
Matthew Pattinson, Empowered Startups, is an advocate for using the entrepreneurial method to foster sustainability and social innovation. He put together the following how-to guest post demystifying the process.
We as change-makers tend to focus on the social or environmental problem that we seek to address and don’t fully consider who is our donor, what problems are we are solving for them, and why will they donate money to our organizations. The lean canvas makes defining how we create value for the donor explicit.
There are several variations of the lean and business model canvases now floating around for non-profits and social ventures. However, I think that the lean canvas is still the best way for a non-profit to understand and communicate its model.
A business model is a story about how an organization creates, delivers, and captures value.
If you are not yet familiar with the lean canvas, I recommend referring to Ash Maurya’s post Why Lean Canvas vs Business Model Canvas? and Steve Mullen’s post An Introduction to Lean Canvas. In this post I will cover when is it beneficial for a non-profit to use a canvas, why the lean canvas is the best option, and how to model a non-profit.
When to use a canvas?
Canvases are useful during an organization’s launch, transition periods, and strategic discussions.
Founding a new non-profit or launching a new program
Every idea for a new organization or program is based on initial assumptions. A canvas articulates these assumptions quickly and clearly so that you can easily compare organizational or program models by creating multiple canvases.
You can then use these canvases as a starting point to validate assumptions both about your beneficiaries and donors by soliciting feedback from stakeholders. This results in more effective programs and fundraising campaigns.
When applying for funding from foundations or government, you may have to go through an onerous proposal writing process that carries no guarantees for funding. The more you can demonstrate results from your programs by running small tests on the critical assumptions in your proposal, the more likely you will be to secure funding. I recommend using the lean canvas to outline and test the assumptions in your program or organization before you begin to write funding proposals.
Improving strategic alignment in organization
A canvas is the blueprint for how the organization creates and delivers value for both its beneficiaries and donors. It is a useful communication tool to concretely and clearly demonstrate your organization’s strategy so that everyone can understand their role in creating and delivering value.
Non-profits are also at risk of mission creep: expanding the mission beyond the goals that were originally set. This can have a negative effect on the organization’s ability to achieve its original mission. It can also create gaps in organizational capabilities if the team does not have the training and resources needed to carry out the added responsibilities of an expanded mission. Canvases can prevent scope creep by ensuring better communication and strategic alignment in your organization.
Communicating new strategic opportunities and innovation
Because canvases make it easy to share ideas and solicit feedback, they can be used to quickly communicate both current and potential strategies during strategic planning sessions. They can also be used as a required template for new program ideas to help leadership compare and test new ways to serve beneficiaries and donors.
Why the lean canvas?
We as change-makers tend to focus on the social or environmental problem that we seek to address and not fully consider who is our donor, what problems are we are solving for them, and why will they donate money to our organizations. The lean canvas makes defining the how we create value for the donor explicit.
In addition to ensuring that problems are explicit, the lean canvas visually constrains the size of the solution on the canvas. Solutions flow from an understanding of the problem. Overemphasis on the solution can lead to a non-profit implementing a strategy that is ineffective in achieving its purpose. For example, recently a lot of collective will has been used to ban straws in an effort to keep plastics out of the ocean. Although admirable and a step in the right direction, research on the sources of the plastics indicate that this will have almost no effect on the amount of plastics in the ocean.
Key for any organization is to create value and be financially sustainable before it runs out of resources (e.g. time, money). A founder needs to focus on the few metrics that matter and ignore the many that don’t. In non-profits the founder should focus on a metric to show it is gaining support from donors, and a metric whether it is having an impact in support of its mission. The lean canvas clearly defines what are these key short-term metrics. For beneficiaries, logic models and theories of change are still part of understanding and defining the long-term outcomes and should be used alongside the lean canvas.
Highlights connection between money and mission
In non-profits there is a distinction between who value is created for (i.e. beneficiaries) and how it is funded (i.e. grants, donations, government budget). The lean canvas clearly highlights the connection between these two distinct groups in one model.
Steps to modeling your non-profit
As a complement to this post, I also recommend reading Ash Maurya’s post titled “Facebook Lean Canvas: How to Model a Multi-sided Business” to see how something seemingly intangible as attention can be converted into revenue. This is what non-profits do everyday; convert something as seemingly intangible as impact into fundraising dollars. Although in a non-profit financial resources are put into creating a positive impact rather than paid out as profits.
1) Model your beneficiaries first
It is why you exist and what you are passionate about. Organizations that demonstrably serve their beneficiaries in a clear and effective way have an easier time fundraising. Assuming World Vision was starting today, here is what its lean canvas would look like for beneficiaries:
After building your organizational model on the lean canvas, the beneficiary side is also where you start with validating your model.
2) Model your donors second
Now model the canvas from the perspective of those who are providing the funding for your non-profit. Here is what World Vision’s canvas might look like including the perspective of donors:
Tips on modeling non-profits
Define the organization’s mission in the problem section
The social or environmental challenges can be defined under the problem section of the lean canvas and then matched with who experiences those problems on the customer segments side. They go side by side with the problems of those who are providing the financial resources for the venture (e.g. donors, customers). In the World Vision example, the organization seeks to address hunger and education among orphans and children.
Beneficiaries are one side of a multi-sided business model
On the lean canvas beneficiaries go under the customer segment section as those stakeholders who are experiencing the social or environmental challenges that the organization will serve as part of its mission. For example, World Vision seeks to create change for orphans and other children in need in countries that have a Fragile State Index above 70.
Only highlight short-term indicators in key metrics
In non-profits, it is not sufficient to measure the economic indicators of how the venture is performing. I put the output or short-term measures of how the organization measures its mission success under the key metrics section.
Non-profits typically also measure longer term outcomes (1–6 years) and impacts (7–10 years). I recommend keeping these off canvases as the lean methodology emphasizes actionable, accessible, and auditable metrics. The longer the time horizon the less actionable and auditable they are due to other external influences that enter over a longer time horizon. However, they are key in measuring performance relative to the mission so keep them as part of your organization’s logic model or theory of change.
Highlight only critical partners in solution or channels
Non-profits tend to use partnerships earlier and more frequently than business startups. I would refrain from putting any partnerships on the canvas at the start, however, if they are critical to your model, as in cases of using partners to reach remote beneficiaries, I would place them under channels, or where they are part of an alliance in service delivery, they can go under solution.
Cost structure and budget are interchangeable
Government programs and non-profits operate under a defined budget. The total budget goes as a line under the cost section. Can also include a high level breakdown of the costs.
Include any cost recovery done as a revenue stream
In that your non-profit operates with a cost recovery program, include that revenue section of the canvas.