Is Your Business Model Sustainable?

There is much talk, particularly in the healthcare industry, about the need to "change the way we do business". That can mean anything. It could be major shift in moving from treating illness to preventing it. It may involve a renewed emphasis on quality, or transparency. It may mean developing or participating in an Accountable Care Organization...and on and on and on.

But what if the existing business model for your organization is unsustainable? By that I mean the core of your business, given such factors as physical plant, location, demographics, competition, program and service viability, reimbursement issues, etc., cannot be sustained for the long term. If this is the case, no amount of tinkering will solve the underlying problem.

Barring a decision to close, intensive strategic planning efforts must be undertaken, to determine whether an alternate business model is a viable alternative. Let me provide an example. I was the CFO of a non-profit organization. Let's call it OopsCo. This organization had been perhaps the premier provider of its particular services in the United States, and had been in existence for a hundred years. Aside from its core business, its mission involved a non-reimbursed teaching program and the provision of charity care.

All was well, until OopsCo took its eye off customer service to both the direct consumer and to the referrers of customers. The result was that a for-profit competitor was enticed by several important referrers to come to town and open a similar business.
Within a year, 30% of OopsCo's volume had been lost, and this at a time when it's endowment, used to fund its operating deficit, had suffered the results of a market downturn. While the local demographics were good, customers chose to travel to another part of town, where the competitor had established a competent, customer-friendly alternative. OopsCo's physical plant was not designed originally for its current purpose, and was grossly ineficient. It's charitable mission was draining dollars it could ill afford to spend.

The senior management team suggested the Board reconstitute a Strategic Planning Committee, and evaluate alternative business models. Several models were discussed, any of which might have strengthened the organization's future viability. These included: spinning off the mission-driven activities into a foundation; merging with the new competitor, who was not averse to the idea; and being acquired by a national chain that provided the services offered by OopsCo.

This is not a success story, as the Board chose to maintain the organization in its current form. I have not followed OopsCo's fortunes over the past several years, as I and the rest of the senior management team, seeing no solution, left the organization. My guess, however, is the losses have not been sufficiently stemmed, and OopsCo's future is uncertain.

We can learn from this anecdote. While you plan for growth and change, don't forget to monitor the basic viability of your underlying business model. And if you sense there may be an unswattable fly in the ointment, do your homework and then have the courage to bring the matter to the attention of your governing body.