This is a CTP of initiative: Impact Hub Belo Horizonte (Brazil)
This CTP is about the adaptation to the business model that occurred twice in the history of the Impact Hub Belo Horizonte - IH BH. The IH seeks to support all its members by increasing their knowledge and strengthening internal networking while also presenting members to external partners who can help them in their business purposes.
IH was founded in 2011 in Belo Horizonte, a city in southeastern Brazil, with several different membership plans that were affordable and decided in a participatory manner. Usually, the services were used more than the membership fee permits, causing losses to their owners. For the interviewee it is as if the members said: “We like the initiative and want to stay here! We forgot that you had to pay the bills ".
In 2012, IH BH changed its business model with the objective that the project would be good for both parties, member companies and owners. They begin to offer six different membership plans; they standardized their services and the prices paid by the members.
The financial issues with the co-working space continued, not giving enough income to the owners, but the number of members rose from about 20 to about 100 after the change. However, most members paid the lowest plan, arguing that they did not need physical space. In this period, the owners also realized that when the member companies grew, they usually rented an individual office, outside of IH.
In 2015 they managed to understand and execute a new business model, which enabled them to pay the bills and to remunerate the owners of IH by offering only one membership plan, with a higher value than the previous. All members pay the same monthly amount, which can be reduced by a loyalty program. With the loyalty program, the member company pays in advance for a longer period and its monthly fee is consequently reduced. This new model also offers individual offices for companies in need.
In the same year the owners also changed the corporate model. They retained 50% of the business and invited 10 more investors (people who had synergy and had contributed capital) for the remaining 50% of the company.
Regarding the difficulties of change and even perceived needs, the interviewee felt that the co-working space was not offering what was really necessary for the entrepreneurs. She also noted that the movement of innovative companies in the region was still immature in relation to the needs of their own businesses, as stated:
"What I realized is that some of the social innovation movements here in BH were less worried at the beginning with the business model, even ... its structure (...) You talk to people ... 'I also want to go together' ... things are happening, you lend me something, I'll lend you another, nobody spends money on this ... we want to be affordable, we want to choose the coolest initiatives, business is cool, but nobody wants to pay. When model changes, changes the way people see us. We want to have nice things, want to be in motion ... but there were many times we looked and saw that things were still ... there was no one there ... we realized ... we have a space of 800 square metres and there was no one inside. We are not offering anything that people value”.
The owners realized, since its founding, that there was not enough profitability for the business. Consequently, they did not deliver enough value to their members. She stated that they often thought of giving up the business due to its unsuccessful financial return. The changes taking place are directly related to this fact and try to overcome it. The latter change is still ongoing and the results have not yet been presented.
The main co-producers of the changes were members that through conversations with the owners, pointed out problems and demands that the changes tried to solve.
Other co-producers for the two changes were the partners that used the space periodically (did not pay a fixed price for a period), which also helped to form an understanding on what should be changed, as well as the perception of its members and owners regarding the need for changes in the business model.
Other actors were involved specifically in the change of 2015. In 2013 the IH BH won a public call to manage another physical space, a startup incubator funded by the Government of the State of Minas Gerais. According to the interviewee, this experience and relationships with government officials and new technology companies were also important to implement the new business model in 2015.
The events identified as levers for the two changes (2012 and 2015) were:
April, 2012 - Business does not make a profit - For the change in 2012, as well as the change in 2015, the lack of profitability was identified as the most significant aspect. The amount paid by the members companies was not generating the desired profit. This aspect has forced them to think and make changes to the business model: "It was always like... people want to come here, want to work here, but they do not need, do not need but want, but can not afford it (...) was not that they did not need, in fact it is that the design of their value was different".
June 2012 - Increase of members - As a result of the 2012 business model change, there was a significant increase in the number of members and they realized that the purpose of the members were more aligned with IH's purposes. Today the member firms are chosen by different criteria, including synergy with the IH purposes and the assessment that they will compromise with the partnership, paying their bills and using the network to leverage their business.
March 2013 - Learning from other experiences - The experience in implementing a startup acceleration program as a service to the State Government of Minas Gerais was also identified as critical to the owners learning process. This experience was important to rethink their ways of working in IH.
May 2014 - Emptying the workspace - Another important event, according to the interviewee, was the realization that the physical space of the IH BH had a low level of use. Members just didn´t use the co-working space. Most of them believed they did not need a space to work and that they could work better at home.
April 2014 - Owners and customers were dissatisfied - One of the methodologies used by IH BH in its management is a quarterly conversation between members and owners. These conversations have been identified as crucial both to the change in 2012, as well as for the change in 2015, because this helped to understand and meet the demands of the IH BH community.
April 2014 - Creation of individual offices - Another aspect related to change in 2015 was the observation that when the member company increased a little, they left the IH and looked for a larger space to work, which would fit new workplaces and where they would have privacy to work. Thus, the IH BH implemented "walls" and created individual offices and a better structure for these offices.
October 2015 - Gaining business insight - Knowledge about their business over time improves the perception of delivering value to members, even at higher prices and with less flexibility. Less flexibility means that these 2015 decisions were taken by the owners and not in a participatory manner with members, although they talked a lot with them. - Knowledge about their business over time improves the perception of delivering value to members, even at higher prices and with less flexibility. Less flexibility means that these 2015 decisions were taken by the owners and not in a participatory manner with members, although they talked a lot with them.
The main contestation emerged from member companies, dissatisfied with the new conditions arising from both changes. Twice, the costs for members to maintain the co-working space and network were raised. Some of these member companies, especially the member companies who paid lower priced plans consequently left the IH during the two adaptations to the business model.
Importantly, the participants of the member companies that have left the IH BH continue attending the co-working space in courses and events.
Another contestation was on how decisions were taken. At first, until 2012, the IH BH made decisions in a participative way, i.e., decisions were made by owners and members. However, decisions regarding the business plan adaptation in 2012 and 2015 have been taken by the owners, which caused dissatisfaction in some member companies.
In every decision, some of the member companies left the IH and new companies have joined, changing the profile of the network.
Regarding the anticipation, the interviewee said that when new plans were developed to change the business model, they had the consequences in mind: they knew that some of the member companies would leave IH. They thought that there would be opposition to a less participative change. They knew that those who remained in the space would accept the prices charged; and all this in fact occurred.
The owners of the IH, according to the respondent, were clear on both what was and what was not working, what needed to change, and which way to go. But they think that the process was longer and the transition was slower than expected.
After the change to the business model in 2012, the number of member companies has increased a lot (from about 20 to 100). The interviewee considers that they have adapted or planned the team. Thus, with increasing work without proper planning, they hired employees excessively and only managed to make staff changes in 2015. In the period between 2012 and 2015 IH came to have 10 employees. Today IH BH works with only two employees and the daily work of the two major owners who spend their working hours in the space. The ten new owners that invested in IH after 2015 work a few hours per month without specific assignments in required activities and for which they demonstrate competence.
The interviewee says she learned to see business as something more integrated in which changes require cooperative planning.
Another point learned was how to communicate the changes as best as possible to all involved. In the reported cases, this communication was gradual, so that changes could be fully understood.
They learned that for the provision of services (in the case that they provided services for the state government of Minas Gerais in 2013), it has to be worthwhile financially. For her, the work outside the IH co-working space has a very high cost, due to the fact they must invest a lot of time outside of their original tasks.
Finally, the interviewee said that with the CTP they learned to be more flexible and that operating a business can be more fluid: "I'm from the area of exact sciences, planning, sometimes I'm not so flexible. I understand that things can and must change. This was a learning experience. I was very resistant: `we agreed that it was so',`OK, but it is not working!'"
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