This class will focus on the remaining 2 elements of the system intervention process: financial modeling and target setting. Students will be led through the process of understanding how to determine a viable business margin for their venture, and how to set reasonable yet motivating business targets that guide business model execution.

1. APS 1015: Social Entrepreneurship
Class 5: Intervening in Social Systems
(part 2)
Monday, May 26, 2014
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Instructors:
Norm Tasevski (norm@socialentrepreneurship.ca)
Alex Kjorven (alex@socialentrepreneurship.ca)

2. © Norm Tasevski
Agenda
• Recap of Empathy Mapping & Business
Modelling(last class)
• Building an Intervention
– Step 3: Financial Modeling
– Step 4: Target Setting
• Prep for Monday
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3. © Norm Tasevski
Intervening – A 4 Step Process
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Step 1:
Empathy
Mapping
Step 2:
Business
Modeling
Step 3:
Financial
Modelling
Step 4:
Target
Setting

4. © Norm Tasevski
• For our purposes, this is a process for determining whether
business model generates a viable margin
• Who determines viability?
• The Steps:
– Assess revenue model (# units, unit price)
– Assess expense model (fixed, variable)
– Generate margin
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Financial Modeling

5. © Norm Tasevski
• Step 1: Assess Revenue Model
– 2 parts: # units sold and price/unit
– How do we define a “unit”?
• The value proposition perceived as having value by the
customer, and to which the customer is willing to pay a price
– The relationship between units and price:
• The more “custom” a unit, the fewer that can be offered and
the costlier the unit is to make. The product is perceived as
more valuable, and therefore price is higher
• The more “commoditized” a unit, the more that can be offered
and the cheaper the unit is to make. The product is perceived
as less valuable, and therefore price is lower
– How do we determine price?
• This is…complicated
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Financial Modeling

6. © Norm Tasevski
Financial Modeling – Determining Price
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Determine cost + desired margin
(see step 2)
Ask people!!!
(friends, potential customers, etc)

7. © Norm Tasevski
• Step 2: Determine Cost Model
– 2 parts: fixed costs, variable costs
• Fixed:
– The costs that don’t change as more units are sold
– Example: rent
– Goal: determine the total fixed costs incurred
• Variable:
– The costs that do change as more units are sold
– Example: raw materials used to build the product
– Goal: determine the per unit fixed costs incurred
• A note: all fixed costs are variable over time!
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Financial Modeling

8. © Norm Tasevski
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Your Best Friend…

9. Break
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10. © Norm Tasevski
• The key business and social metrics used to
execute the business model in a way that
aligns with the financial model
• Business targets:
– Revenue targets (e.g. # units sold in the quarter)
– Expense targets (e.g. target marketing budget)
• Social targets:
– “Output” targets (e.g. # people employed)
– “Outcome” targets (e.g. increase in community
resiliency)
• SMART
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Target Setting

11. © Norm Tasevski
• Baseline vs. Target
– Baseline: your starting point – the reference metrics
– Target: the measurable improvement from the baseline
• Linking targets to the business model
– Each element of the canvas deserves their own metrics (e.g. target #
customers, target #/type of activities to run)
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Target Setting

12. © Norm Tasevski
What did we learn?
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