Business model innovation (changing the who, what, when, why, where, how, and how much that are involved in delivering for-profit offerings or nonprofit benefits) can dramatically expand profitability while growing an organization’s ability to serve its customers or beneficiaries. Let’s look at a simple example of how the choice of “when” you operate affects growth and cost performance.
A young married couple, Mr. William and Ms. Dorothy Hustead, bought a small store in a tiny town near the South Dakota Badlands. From 1931 to 1936, they struggled through the Depression serving the town’s 326 impoverished residents.
One day in 1936, Ms. Hustead, bothered by the sound of cars on the nearby highway heading for Mount Rushmore, persuaded her husband to expand their business to serve these travelers. Mr. Hustead put up signs on the highway to draw visitors to their store, making a unique appeal. The signs said, “Free Ice Water . . . Wall Drug.”
In those days before automobile air conditioning was common, that offer was a powerful appeal. Beginning from this humble expansion of its customer base, Wall Drug now serves more than 20,000 visitors a day during the summer in its Wall, South Dakota, store and many more on its Web site.
When the Offering Is Provided
If Wall Drug had begun 24 hour a day operations in the early 1930s, that action would have added costs for electricity and staff, but probably little more volume. The town’s residents knew that they could buy from the only pharmacy in town during the day. If they had an emergency need from the pharmacy in the night, they could always knock on the door at the Hustead’s house.
After the highway signs began to attract a larger customer base throughout the day and night, being open longer hours did begin to pay off. Likewise, the Wall Drug Web site wouldn’t make nearly as much profit if it were open less than 24 hours a day, every day of the year.
Profit-making businesses can run tests to see when sales volume increases enough to pay for added overhead, operating, and capital costs.
A nonprofit organization will often see great enhancements to benefits received by beneficiaries from being open more hours, when additional donated goods and services and volunteers are available. For example, in a food distribution charity working poor families may be able to reduce pickup costs by timing trips to match daily commutes to and from work when the distribution centers are open before and after normal working hours. Like the for-profit organizations, the demand for such expanded hours can be tested and the benefits received compared to the added electricity and other added operating and overhead costs.
Obviously, the potential for recipients taking excess goods and reselling them is present, and that risk will have to be managed. An electronic card system, similar to that used in university cafeterias, might be used to monitor frequency of access and quantities taken.
The added costs of being open more hours are almost always much lower than for regular hours. Why? Many of the base costs of land, building, equipment, management, marketing, and reporting are covered during the hours the organization is open already. To be open more hours is often little more expensive than adding a few more employees. Nonprofit organizations with enough volunteers may only see some added utility costs.
The exception to this rule of thumb is if perishable items are involved where low volume may mean throwing out lots of materials or finished goods. For example, selling coffee later at night can be a loser if most of the brewed coffee is thrown out rather than sold to customers or given away to nonprofit beneficiaries.
As a result, changing when you are open can make an enormous improvement to your volume while reducing your costs compared to what you deliver. As an example, many obstetric and gynecological practices find they can add many more patients by being open before and after normal working hours so that working patients can come in on their way to or from work. Making this shift may simply be a matter of rescheduling the physicians in the practice so that some start early and others start late.
How can you change the hours your organization is available to serve customers or beneficiaries in lower-cost, more helpful ways?
Copyright 2007 Donald W. Mitchell, All Rights Reserved