1. September 14, 2010 cfinsights.org SHARING KNOWLEDGE. GROWING IMPACT. Learning Lab: Tools to Support Business Model Innovation Prepared for the Council on Foundations Fall Conference

2. the IDEA BEHIND IS SIMPLE What if EACH community foundation could know what ALL community foundations collectively know? 26/5/2016© CF Insights 2010

3. 6/5/2016© CF Insights 20103 I.The Challenge of Business Model Innovation II.Reviewing Your Existing Business Model A.Comparative Data B.Activity-Based Costing Analysis C.Economic Scenario Planning III.Planning for the Future AGENDA

4. 6/5/2016© CF Insights 20104 How should community foundations focus internally and externally in order to identify opportunities for business model innovation? How can we plan for our immediate needs and sustainable growth? What process steps can we take and what practical tools are available to support strategic thinking and problem solving within your own foundation? Business Model Innovation: Key Challenges “Fueling Impact”: Taking the Next Steps KEY QUESTIONS COMMUNITY FOUNDATIONS ARE ASKING ABOUT BUSINESS MODEL INNOVATION

5. 6/5/2016© CF Insights 20105 I.The Challenge of Business Model Innovation II.Reviewing Your Existing Business Model A.Comparative Data B.Activity-Based Costing Analysis C.Economic Scenario Planning III.Planning for the Future AGENDA

6. Tools Available 6 What Should We Do to Understand Our Existing Business Model? Frame a Discussion Explore examples and stories in “Fueling Impact” Discuss current positioning and concepts of differentiation and sustainability Analyze Product Economics Define current products and services Analyze costs and revenues to understand implicit allocation of resources and alignment with priorities “Stress Test” Business Model Connect with Constituents Understand how constituents’ perceive the CF’s greatest value – and the fit with their current and future needs Reviewing Your Existing Business Model Gauge the sensitivity of your business model to changes beyond your control (e.g., investment performance, donor giving) Identify areas to mitigate risk Understand What’s Unique about Your CF Get specific about your assets, revenues, and unique capabilities Quantify business model metrics relative to peers Comparative Data and Reports Activity-Based Costing Analysis Economic Scenario Planning Process Steps “Fueling Impact”

7. 6/5/2016© CF Insights 20107 Reviewing Your Existing Business Model Comparative Data CF INSIGHTS OFFERS ACCESS TO INFORMATION ON OVER 500 COMMUNITY FOUNDATIONS, WITH 60 ON- DEMAND REPORTS CUSTOMIZED TO REFLECT AN INDIVIDUAL COMMUNITY FOUNDATION’S UNIQUE PEER SET WHAT IS UNIQUE ABOUT YOUR COMMUNITY FOUNDATION RELATIVE TO YOUR PEERS? HOW DOES YOUR BUSINESS MODEL COMPARE?  Asset composition  Cost structure  Growth and giving patterns  Staffing ratios and functions  Revenue mix  Age and development path  Community served

8. 6/5/2016© CF Insights 20108 Reviewing Your Existing Business Model Example: Comparing Asset Composition ASSET MIX IS AN IMPORTANT FACTOR TO CONSIDER

9. 6/5/2016© CF Insights 20109 DAF: 38% Agency: <1% Other: 3% Designated: 7% Unrestricted: 28% FOI: 19% Scholarship: 1% 2009 ASSET ALLOCATION Deferred Gifts: 2% Support Org: 2% Geographic: 0% ANNUAL GROWTH RATE VS. PEERS (2008-2009) Those foundations with 12/31 FYEs show recovery from the economic crisis 12/31 FYEs Columbus: 18% Cleveland: 6% Atlanta: 5% Chicago: -6% San Francisco: -11% Boston: -25% 6/30 FYEs 9/30 FYE TOTAL ASSET SIZE ($M) -7% CAGR from 2007-2009 $1.04 B $1.02 B $904.5 B STAFFING FUND ASSETS ASSETS PER AUDIT PER FTE, 2009 Differences in assets per FTE is often reflective of different operating models and product focus GIFTS TOTAL GIFTS ($M) SFF Peer average Boston: $23 Columbus: $29 Chicago: $9 Cleveland: $36 Atlanta: $23 San Francisco: $24 AVERAGE GIFT SIZE VS. PEERS GIFTS PER CAPITA VS. PEERS GRANTS TOTAL GRANTS ($M) SFF Peer average Boston: 14% Columbus: 7% Chicago: 7% Cleveland: 5% Atlanta: 21% San Francisco: 9% AVERAGE GRANT SIZE VS. PEERS GRANTS AS A % OF ASSETS VS. PEERS SUSTAINABILITY OPERATING EXPENSES AS A % OF ASSETS Boston: 1.5% Columbus: 0.6% Chicago: 1.1% Cleveland: 0.7% Atlanta: 1.1% San Francisco: 1.1% AVERAGE FUND SIZE VS. PEERS OPERATING EXPENSES AS A % OF ASSETS SFF Peer average SFF Peer average Reviewing Your Existing Business Model

10. 6/5/2016© CF Insights 201010 Reviewing Your Existing Business Model Activity-Based Costing Analysis CONDUCT A DETAILED REVIEW OF YOUR CURRENT PRODUCTS, COSTS, AND REVENUES WHERE ARE YOUR RESOURCES GOING? ARE YOU SUBSIDIZING STRATEGIC INVESTMENTS OR AREAS YOU SHOULD BE BREAKING EVEN? ARE THERE OPPORTUNITIES TO INCREASE REVENUES TO BETTER ALIGN WITH THE VALUE OF PRODUCTS AND SERVICES?  Match economics to mission  Prioritize the right products and services  Adjust fee schedules and create incentives for donors that support priorities  Evaluate revenue sources  Gauge community leadership investment

11. Total Community Leadership Costs and Revenues COMMUNITY LEADERSHIP COSTS AS % OF TOTAL ADMINISTRATIVE COSTS Source: Foundation data and CF Insights. 42%23%30%32%15%25%10%21%18%13%16% 4 Reviewing Your Existing Business Model Example: Community Leadership Revenues and Costs COMMUNITY LEADERSHIP IS AN IMPORTANT COMPONENT OF CF INVESTMENTS – AND EACH CF HAS A VERY DIFFERENT REVENUE MODEL

12. 6/5/2016© CF Insights 201012 Reviewing Your Existing Business Model Economic Scenario Planning TEST YOUR CURRENT BUSINESS MODEL’S VIABILITY UNDER VARIOUS ECONOMIC CONDITIONS WHAT ARE THE WEAK POINTS IN YOUR BUSINESS MODEL? WHERE DO YOU NEED MORE STABILITY AND WHERE CAN YOU TAKE MORE RISK?  Relationship between investment performance and revenues  Declining interest income  Relative levels of giving and grantmaking  Low level of flexibility – inability to tap operating funds  Spending policy shifts deficit to later years  Revenues unconnected to investment performance  More diversified revenue sources  Take a more active role to influence donor giving and grantmaking levels  Revisit policies or build funds that add operating flexibility, particularly to support programmatic and leadership work BASED ON THE RESULTS OF YOUR SCENARIO PLANNING, YOU WILL BE ABLE TO MAKE MORE INFORMED DECISIONS ABOUT THE CHANGES NEEDED IN YOUR BUSINESS MODEL

13. A Base “Expected” Scenario Is a Starting Point to Make Assumptions and Forecast Results Reviewing Your Existing Business Model Example “Expected Scenario” Assumes modest market recovery starting in 2010, with no changes to spending policies. The staff will continue to pursue other sources of revenue, while we maintain our operating budget at current levels. CategoryAssumptionRationale Market Performance 4% return in 2010, followed by four years of 7% return Economists are expecting markets to recover in 2010; the average annual S&P return since 1950 is 9.2% Donor Behavior New gifts as % of assets is 3% in 2010, 4% in 2011, and 5% thereafter These % are lower than in past periods due to donor sensitivity to volatile markets and lagged response to improving market conditions Spending Policy No changes (i.e. 3 year rolling avg, fees remain 1.3% of assets and grants paid out remain at about 5% of assets) We do not think it prudent to increase fees; we have seen the 5% level of grantmaking hold steady over the past 12 months Other Revenues Fee for service and general operating grants grow at 10% after 2011 Smaller organizations will continue to look to us for back office support; our community efforts during the crisis will pay off in the form of operating support Operating Expenses Annual growth of 3% Growth reflects inflation and small pay increases; since preserving operating capacity is a key priority for the organization no further reductions are assumed     

14. Reviewing Your Existing Business Model Personnel Non-Personnel Assuming operating expenses grow by 3% annually (to account for inflation and modest pay increases), operating at a deficit in 2012 and 2013 Are there long- or short- term changes we should be making to the business model? The Expected Scenario Section Allows You to Share Assumptions and Forecast Results

15. Creating Multiple Scenarios Tests How Results Change When You Modify Assumptions Reviewing Your Existing Business Model OPTIMISTIC PESSIMISTIC In this scenario, markets end the year up only 3%, with future growth at 4% or 5% at best; DAFs curb gifts in each of the next five years as economic uncertainty persists Market Performance 6% return in 2010 instead of 4% 3% return in 2010 instead of 4%; 4% return in 2011 and 5% return in 2012-2014 instead of 7% Donor Behavior New gifts to DAFs at 5% of assts per year starting already in 2010 instead of 2012 New gifts to DAFs as % of assets 1% lower in each of the forecast years Spending Policy None Other Revenues None Operating Expenses None      In this scenario, markets end the year up 6% and our DAF holders shore up their asset levels with new gifts in 2010 and 2011 Key Differences to Expected Scenario

16. 6/5/2016© CF Insights 201016 I.The Challenge of Business Model Innovation II.Reviewing Your Existing Business Model A.Comparative Data B.Activity-Based Costing Analysis C.Economic Scenario Planning III.Planning for the Future AGENDA

17. Tools Available 17 What Should We Do to Plan for the Future? Determine Ideas to Test Identify factors to change going forward Define a set of new revenue ideas to test Explore operating efficiencies Model Implications and Scenarios Consider the viability of potential changes and economic impact under various scenarios Make Decisions Develop Communi- cations Engage your constituents in the changes you need to make to support your collective philanthropic goals Planning for the Future Define the right choices that strike a balance between your mission-driven priorities and budget realities Identify New Revenue Sources Screen ideas for fit with criteria: generate current income, support future growth, and fit constituents’ needs, the community context, and your unique strengths Case Studies and Peer Learning Economic Scenario Planning Process Steps

18. Planning for the Future What if EACH community foundation could know what ALL community foundations collectively know? 186/5/2016© CF Insights 2010 What Should We Do to Plan for the Future? What questions do you have about existing resources? What else do you need to know or be able to do?