Designing business models, value propositions & sustainable funding for clusters.
How a cluster organization starts matters for the outcomes of its business model. Get the basics right, engage and learn from those in the cluster, and model the activities, services, and business model accordingly.
by Wadim Baslow, Project Manager, Quercus Group
This blogpost supplements Nicolai Rottbøll’s talk at the 5th ECCP capacity building webinar on cluster business models on March, 17th by the European Cluster Collaboration Platform (ECCP).
Developing a model that helps to sustain a cluster and its activities over the long run is difficult.
Some clusters overly depend on public funding from regional or national governments. Others face a withdrawal of their business members due to the COVID-19 pandemic. There are plenty of more pressures on the economic model of clusters that are hard to get by. On a basic level, clusters create value as intermediaries, who forge and drive connections and relationships that might otherwise not occur. This is an important role in the network of public, private and academic actors giving rise to innovation and regional economic development. This value add is intangible. Unfortunately, intangibles continue to be under-resourced despite the recognition and the growing body of evidence on how cluster impact also “more tangible” KPIs.
A blueprint, recipe or magic bullet for a cluster business model does not exist. However, we believe that getting the basics rights will make it more likely for clusters to succeed. Honestly, this is not groundbreaking. As André Gide, French author and winner of the Nobel Prize in Literature would put it:
“Everything that needs to be said has already been said. But since no one was listening, everything must be said again”
Here are few basic thoughts on designing a cluster business model:
Get the basics right
Before you start developing a business model, invest time, energy and resources in answering the classic basic questions of “why, how and what” of your cluster.
This works similar to the concept of inheritance in programming. All children inherit the properties and behavior of a parent element. Along with this analogy, how you start and how you respond to the basic questions will greatly impact subsequent steps of cluster development such as scoping and defining activities and services, the organizational model, the membership model, communication and marketing and the financing model.
A cluster organization works its magic where an existing cluster and network of organizations, traditionally related by sector and in close geographic proximity, either falls short in performance (something could be better) or showcases gaps (not yet performed benefits). The cluster organization’s purpose is thus rooted in the lived challenges, needs and aspirations of the cluster’s stakeholders.
What are the challenges, needs and aspirations of my cluster? Jeff Zych shares a few notes from Richard Rumelts ‘Good Strategy/Bad Strategy’. He writes:
“A good strategy, therefore, must identify the challenge to be overcome, and design a way to overcome it. To do that, the kernel of a good strategy contains three elements: a diagnosis, a guiding policy, and coherent action.”
Diagnosis refers to answering the why. The guiding principles refer to how you address the challenges, and the coherent action corresponds to what you will do.
There are many frameworks, tools and methods that can help and guide you through steps or the entire process: Business Model Canvas, Value Proposition Canvas, Platform Design Toolkit, Root Cause Analysis, Theory of Change, and many more. At Quercus Group, we often lean on them and are guided by our own 8-step model for cluster development.
Learn & engage with the cluster stakeholder’s needs, interests and motivations
Clusters are intermediaries. As such, they are inherently working with relational challenges, too. In fact, you might want to consider asking “who” before “why, how, and what”.
In his article “Start with who” Michael Bachmann argues exactly for that. He shares his experiences from founding Impact Hubs and building communities.
“People often join a community because they resonate with its vision. But they will stay (or not) because of its people. We have seen many communities fail that had a beautiful Why but didn’t tend to the Who.”
Cluster organizations in a sense build communities, too. Multiple types of stakeholders (triple-helix) interact in a cluster. Developing a successful cluster organization thus presupposes a good understanding of the people, the organizations that are active in the cluster, and how the dynamics between them play out.
How do I engage with stakeholders, you might ask. This is worth multiple more blogs posts. We would like to share four considerations that might be helpful:
1. Be overly prepared, be ignorant by intention, curious and open, and synthesize
Usually, reports, studies, datasets and other sources of information are available to us to obtain a bird’s eye view of the stakeholder landscape, and the landscape of needs, challenges and opportunities of a sector and region. It helps tremendously to build basic knowledge before engaging with potential partners and cluster stakeholders.
But treat it lightly and allow yourself to change the initial mental model of what is going on when you begin engaging in conversations. Disregarding the initial research and assuming ignorance at first might be beneficial to deeper understand each individual organization and person against their context. It is a strategy that is interested to stay close to lived experiences and mitigates imposing preformed interpretations. Methods such as the 5 Whys support this type of explorative outreach with the aspiration to genuinely understand better.
2. Be strategic and inclusive about who you engage with.
We find it helpful to be strategic about the choice of stakeholders at the beginning of developing a cluster organization. Rather than going for the many, select a few and grow from there. It matters to the later development who is initially part of the nucleus of people driving the cluster organization.
Aspects that might guide the choice of actors could be the leverage, e.g. by influence, power or resources, or diversity. In the initial period of developing the Copenhagen Cleantech Cluster, e.g. the endorsement of “heavyweights” — trusted and well-known individuals in the sector — was key to on-board more stakeholders to the initiative. At the same time, asking ‘who is missing or perhaps should be part’ is just as important as a cluster thrives in the presence of a diverse set of actors.
3. Make use of tools to understand the stakeholder landscape
There are plenty of fantastic tools that support exploring the landscape of relevant stakeholders and actors.
We often use a variation of stakeholder map that plots stakeholders relative to the issue/challenge/initiative. The stakeholder map from Nesta’s Collective Intelligence Playbook centers the issue and maps directly related stakeholders, indirectly-related stakeholders and remotely related stakeholders.
The Platform Design Toolkit works with a similar concept centering the platform owners (“entities that own the vision […] and are responsible to ensure that platform exists and evolves”), partners that “create additional value”, peer producers, and peer consumers.
If you’d like to visualize your stakeholder map, it might be worth experimenting with Kumu, which according to its website “makes it easy to organize complex data into relationship maps that are beautiful to look at and a pleasure to use”.
4. Use tools to understand the individual stakeholder
Again, many tools provide guidance to our journey to understand the individual stakeholders. Especially, design thinking toolsets are rich in methods e.g. to understand user journeys, developing personas, etc.
The aforementioned The Platform Design Toolkit provides an incredibly helpful canvas called “the ecosystem entity-role portrait” that we believe can is inspiring for cluster development and developing services according to various stakeholder profiles. The canvas structures our thinking around the capabilities and assets of a role/actor that can be leveraged, the pressures at play and aspired goals, and potentially sought-after value gains.
Diversify! — multiple needs and interests as an opportunity
A common investment concept is to diversify across a variety of assets to minimize risk exposure. When developing a cluster business model, the idea of diversifying can be just as helpful to set the cluster organization on a more robust financial footing.
It is not uncommon that cluster organizations, for instance, rely heavily on or only on public funding, exposing them to the risk of public funding shifts or withdrawal. In other instances, some cluster organizations’ business models rely on one particular type of service such as conferences or matchmaking-events. The latter got shaken in the wake of the COVID-19 pandemic that rendered the possibility of physical events null. In-flowing fees diminished as the willingness to pay the same price for digital events is limited.
Now, what does it mean to diversify as a cluster? A cluster’s assets are its members. These members are diverse and therefore have varying needs, interests and challenges.
- Startups: Access to testing facilities, funding, partners, local markets and access to larger corporates, etc.
- SMEs: Access to partners, international markets, visibility, projects, etc.
- Large businesses: branding, access to international markets, access to innovative startups, access to politicians, etc.
- Public sector (locally): regional branding, local job creation, start-ups stimulation, export promotion, foreign direct investment promotion, etc.
- Public sector (national fx ministries): Attraction of foreign direct investments, national branding/ positioning, export promotion, etc.
- Knowledge institutions: R&D projects with private companies, technology transfer, international R&D collaboration, Spin-outs
Navigating a multi-stakeholder effort is a challenging endeavor in itself. However, it is exactly the diversity and range of present interests, needs and challenges that provides an avenue to diversify a cluster's activities and services tailored to the cluster segments, and the potential synergies between segments.
Designing a cluster business model
The classic development is to start out with mainly public funding and over the years land on a balance with 1/3 public funding, 1/3 member funding and 1/3 project funding (although there are many other variations). The biggest mistake in many projects and cluster initiatives is to start developing your business model too late. It has to start from day one if you ask us.
Doing so, we advocate to
- get the basics rights, (who, why, how, what),
- let the business model be a function of your cluster stakeholder’s experienced challenges, interests, needs and aspirations.
- genuinely engage with the range of present stakeholders in the clusters and make them center-stage to the cluster’s services. Model the business model around creating value as helping your stakeholders to realize gains that are achieved through the cluster.
- balance your business model embracing the diversity of actors, diversity of activities, and diversity of services, as an instrument to de-risk and nurture a thriving cluster environment.
Thank you,
Wadim
If you find this blog post helpful, or if you have any feedback, comment or question, I’d be glad to hear from you.
Write me an e-mail at wadim@quercus-group.com or connect on Linkedin.
