Five reasons why membership is killing association business models: Part II

Membership is perhaps the most sacred tenet in all of association orthodoxy. Indeed, for many organizations, the membership imperative defines the very existence of the association: membership is who they are and what they do. In a time of relentless societal transformation, however, the impact of forces beyond our control makes it necessary for us to question all of our most deep-seated beliefs, including our beliefs about membership.

In this three-part series, I am sharing five critical reasons why the continued emphasis on membership is “killing” association business models. If you have not done so already, I recommend you read Part I. Please share your ideas and insights in the comments below.

Reason #3: Membership-centric business models often depend on cross-subsidies that create unintended consequences.

Most association business models operate on a “two-sided market” pattern in which one side of the market (the membership) receives a subsidized value offer, with the subsidy coming from the more robust revenue streams provided by the second side of the market, typically advertisers, exhibitors and sponsors. The value to the second side of the market is the ability to access the qualified buyers on the first side of the market. For associations, the unintended consequences of this business model pattern can include: 1) a dependence on revenue streams from third parties facing their own financial pressures and constraints, 2) a focus on increasing membership to maintain the viability of the two-sided market, rather than investing in innovation to generate organic revenue growth and 3) the inability to reduce the cost of the hybrid value delivery platform (part digital but also part physical and in-person) most associations still use today.

NEW DESIGN APPROACH: The problem is not the two-sided market pattern itself, but whether it remains a viable option for associations in combination with the traditional membership value proposition. Many associations are struggling to grow their memberships, while many third-party financial supporters are bypassing associations by establishing direct relationships with buyers and influencers using more cost-effective social and mobile platforms. The priority for associations, then, is to design business models that can generate meaningful revenue streams based on the creation of new value with transformative potential for their future stakeholders.

Reason #4: Membership-centric business models ask members to make the most important decisions about new value creation.

For decades, nearly all key business decisions about women’s products and services were made in corporate boardrooms populated almost entirely by men. Similarly, in associations, a relatively small number of leaders who are personally and professionally invested in the membership paradigm make virtually all critical decisions about the new value their organizations will (or will not) create for the larger markets they are trying to serve. In the absence of 100% penetration into those markets, associations may lose access to current and future stakeholders unmoved by the membership value proposition.

NEW DESIGN APPROACH: To address this issue and engage the ideas, insights and passions of a more diverse set of contributors, especially stakeholders who are outside the traditional boundaries of their organizations, associations need a rapid learning approach to strategy-making, such as crowdsourcing. Through the crowdsourcing of strategy, associations can establish meaningful connections with potential stakeholder segments, identify serendipitous opportunities for collaboration and experimentation and surface hidden assets for innovation. Crowdsourcing strategy will help challenge leadership assumptions around new value creation, shorten learning curves for taking action and facilitate the design of more adaptive and resilient business models that do not depend on membership.

Part III with Reason #5, as well as some closing thoughts, will be published next week. In the meantime, sign up today for P.I.’s new Serious Questions electronic newsletter!

Jeff De Cagna

Jeff De Cagna is chief strategist and founder of Principled Innovation LLC, and a contrarian thinker on strategy, business models, governing and the future of associations.

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