Mike McCamon, Managing Director, Virtual Inc.
The excitement can be infectious: it’s that moment you find like-minded cohorts willing to join up and build a new standard for the world. Since founding a trade group often grows from a technical solution addressing an intractable problem, often the very last thing on founders’ minds is the design of a business plan. But hey, someone must pay for everything. Yes, you can bootstrap using free tools and volunteer labor, but at some point you will need to pay a lawyer, then an accountant, etc. Next, you’ll want administrative help to facilitate meetings and of course eventually you will want to tell the world – (a.k.a. Marketing and PR) about your great new idea. You’ll also have to build programs to ensure success while also having a compliant Board that oversees processes and procedures.
All of this costs money. But, how much? That’s hard to say since the scope and scale of every group is different. But one thing is for certain: you will need a good business plan that helps get your new organization off the ground, running efficiently and poised from growth and success. Below are five business plan concepts you should consider when forming, growing, or changing your organization:
- Design that allows revenue to scale with success. Nearly all trade groups fund their operations, either fully or in part, through membership dues. The problem with membership dues is this revenue source may not be connected to the success of your work. For many technology groups one great option is a certification, compliance or interoperability program. There are many great revenue opportunities when your group has these types of programs which are mandatory for adopters who may never want to be a member. For some groups, over time these programs can even become the primary revenue source, often well outpacing membership for established and successful groups.
- Reduce concentration risk. My rule of thumb has been 60: no account, no market, or no line of revenue should ever be more than 60% of the total for that metric. There is just too much risk with having one member being 60% of anything within a group – whether that’s revenue, leadership roles, engagement in working groups or committees. There are two obvious risks here. The first is the fact if they choose to leave you’re in trouble and, secondly, it can lead to resentment from other lesser members who feel like they are just followers of the biggest player at the table. Similarly, if one market or use case is over 60% of your adoption you risk “the next things” displacing your solution. And of course, any major category of revenue over this threshold you should quickly explore ways to diversify for success.
- Pricing structure aligned with ability to pay. Yes, your membership level design should be built around higher access/control being correlated with higher annual dues. There is often a nice three-tier model of Lead/Contribute/Implement design. But don’t neglect the fact that innovation often comes from smaller organizations, so it’s important to have a way for them to contribute with bigger players but at a rate that is more reasonable for their size. We often recommend three price tiers in the Contribute level based on annual revenue each one order of magnitude greater than each other: less than 10, between 10 and 100, and 100+. No need for an overly difficult vetting process, just an honor system and reviewed each year.
- Don’t Forget Licensing. Your group will likely have intellectual property declarations, obligations, and exclusions — but that’s only one aspect of licensing. What your group create will have value. While you must exhibit care in the design, there may be assets you can license for others and often this is akin to printing money since you have already made initial investment to create the asset. Suppose you have a great how-to resource. Your group does not have to be the destination for training on the topic. You could choose to license or certify others (see above) to do the heavy lifting and your group can collect passive income. And do not neglect your trademarks. If you have done the work to register them and they become popular, you can license their use as well to others for a fee.
- Free Membership. What? Yes, free membership. It might be counterintuitive, but offering free membership gives you a great deal of flexibility to (1) identify future paying members, (2) provide a safe place for members to land when considering an exit, (3) show ongoing momentum and growth in membership, and (4) if well designed, for identifying new or more speculative ideas into your work where a potential member may not want to initially justify the cost of annual membership.
Agree? Want to learn more? At Virtual our mission is to successfully partner and lead groups in forming, growing, or changing for success. Our Client Advisory Team has decades of experience leading a wide variety of membership organizations throughout their journey and we would like to learn how we can help you.
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