Testing Previous Goals and Assumptions

The article on discovery-driven planning is a great piece. It elaborates on six aspects of discovery-driven planning that differentiate it from conventional planning. I believe it provides a solid test on the feasibility of goals and assumptions of a venture. This could serve as a perfect test for the assumptions that I put forward previously for my venture with regard to market size, amount of donations and commissions.

Framing
For a social venture, I would set a profit margin at 5%, or a profit of $100,000. It is a proposed goal and should be a decision that my management team agrees upon to be achievable and good enough. For future framing, I would use its surplus level as an estimated basis. To obtain it, revenue level should be at least $2 million. That leaves allowable costs of $1,900,000. If setting ROA at 5% as well, allowable investment on assets is expected to be $2,000,000.

According to benchmark on a similar organization with similar size, its costs on Administrative and Fundraising are $270,000. It means that $1,730,000 is left to purchase insurance policies for the uninsured. Given an average of policy cost the venture is able to get for customers is $300 per month, it implies that the number of families that we can help is 480 families. Thus 480 families per year is the goal for my market penetration.

On the revenue side, the $2,000,000 revenue goal is consisted of $51,900 of commissions (estimated based on a commission rate of 3%), and $1,948,100. It says that my venture needs to raise a fund level of $1,948,100 to deliver these products and to cover other expenses.

Checking Market Reality
From market research, it is found that there are 13,820 people are involuntarily uninsured in Pittsburgh. The targeted market segment is Married with Children group which has a size of 1,960. The 480 families, or 1,508 people, accounts for 77% of the market segment and 11% of the Pittsburgh insured market.

In terms of donation size, Pittsburgh has a median contribution of $4,591,492. The goal of contribution level required for my venture is 58% lower than the median level, which is achievable for a start-up social venture like mine.

Documenting Assumptions
Assumption Number Assumption Type of Assumption Range
1 Profit margin Internal ±10%
2 Profit level Internal ±10%
3 ROA level Internal ±10%
4 Administrative cost Internal ±30%
5 Fundraising cost Internal ±25%
6 Average family insurance cost External ±40%
7 Average family size External ±10%
8 Commission rate Internal ±100%
9 Uninsured rate in Pittsburgh External ±20%
10 Size of Married with Children External ±25%
11 Average donation External ±100%

This exercise is so important that it fundamentally changes some of the targets that I set previously for the venture, e.g. number of customers served. This new estimation is more realistic and bottom-line supported. On the article of the Art of Bootstrapping, I particularly like two points that the author proposes, i.e. Position against the leader and understaff. They tie to the characteristics of my venture. I could use his advice and position my venture as “offering free Highmark like insurance”. People would be attracted to it given their familiarity of Highmark products and the catchword “free”. I also think understaff is necessary for my venture. The large amount of donation required to offer products for customers leave me little leeway in covering huge administrative costs. Potential people that I bring onboard have passion in what the venture provides and will preferably provide volunteering services.

However, one thing I do not agree with is “Forget the ‘proven’ team.” It is really a “it depends” case. A management team with needed skills is extremely important for my venture, especially in its initial period. I need this team to create a “buzz” in the community, establish partnerships, solicit support from donors and attract customers. All of these are critical enough to make the venture succeed or fail. I cannot risk losing any of these battles by cutting a short cut to offer a small pay for people who lack necessary skills.

This week’s readings along with previous articles all suggest that the venture should start small and keep costs low in the beginning stage. There seems to be a dilemma with regard to getting the right team to make the venture work and cost it takes to get these people on board and retain them. My question is: for NPO type of social venture, what are options available for attracting and retaining experts on the team? Material incentives, aligning with mission and others?