Most start-ups have, probably quite rightly, an almost myopic concern with their own operation and its customer base.
‘What are we going to do?’ and
‘Will enough customers pay for it?’ are questions that obsess the would be entrepreneur.
‘Will we have fun doing it? is a question that is taken much less seriously – but is just as critical.
The first of these questions is, without doubt, one over which we can exert absolute control – and therefore is worth much consideration, conversation and exploration. If you rush this piece of thinking you can expect to have plenty of time to repent later – and not neccesarily at leisure.
The second of these questions we can really know very little about – until the product or service is out there – and our operation is up and running. [Market research is notoriously inaccurate – not least because customers lie (‘of course if there was a gym closer to my home I would use it more…’) and are often blissfully unaware of their real wants and needs (Sky and Sony both spent vast fortunes on expensive market research for subscription television and the Walkman. In both cases the research came back with a resounding NO! In both cases it took visionary and powerful leadership to create markets for products and services that customers could not ‘see’ becoming a part of their lives.)]. This does not mean that we should not worry about understanding the marketplace. But for most entrepreneurs investing much more heavily in understanding the customers response to your product and service in practice – rather than in theory allows the operational changes to be made that lead to success. This is counter to much of the business development orthodoxy which pretends that it is possible – through the bsuiness planning and market research processes to provie a business idea in theory before you tkae the risk of putting it into practice. The orthodoxy is seductive – but wrong.
The third question is also difficult to answer. The fantasy of entrepreneurship is often very different from the reality. I remember working with a young entrepreneur who thought he could wash cars for a living. The financials could be made to stack up if he managed to wash 12 cars each day. Five and a half days a week. 46 weeks a year. On top of this he also had to do the marketing and book-keeping. Three weeks into the new business and 140 shiny cars later this guy had fallen out of love with his idea – BIG TIME!
‘Will I have fun doing it’ is a massively important question and one that rarely gets the attention it deserves. However until you are up to your elbows in sponges, buckets, chamois leather, book-keeping and marketing leaflets you can never really know. It is sensible then to also think about ‘If I don’t love it – how will I get out of it in one piece? This leads to early consideration of an exit strategy from the business.
In many start up businesses then the thinking about the business looks, in essence, like this:
Thinking is around ‘How can I finance the operation’ and ‘Will the customer buy it?’ Understanding the Operations Loop is vital. Providing things for customers that we believe they want and will pay for. In return getting their money – and if we are wise a whole bunch of other information on how our product and service could be made even more attractive to them. Designing this operational loop to get as much as we can from the customer in terms of both cash and intelligence is a vital component of successful entrepreneurship. Most businesses do this really badly. Talk with your customers – don’t leave them satisfaction surveys to fill in!
Most standard business planning processes can make some contribution to thinking through the operational loop of the business. However they NEVER give enough consideration to the importance of having FUN! And they can also horribly accelerate the process of thinking. As long as we can get the numbers to work… Entrepreneurship is about much more than numbers. It is about livelihoods, ambition, aspiration, skill, passion and commitment. In the process of business planning these are what we really need to developing. They will determine our future more than a theoretical cash flow! [I believe that the business plan has become a simple tool of policy for much publicly funded business support. Business plans have become synonymous with ticks in boxes for funders. Many of them are very poorly developed and end up in businesses starting and failing pretty soon afterwards.]
This provides some ‘food for thought’ in supporting entrepreneurs to develop well formed thinking about their busines idea. But it is not enough. If we are smart the operational loop will deliver an excellent product or service, wonderful marketing and sales and first class financial management and controls. And what is more the operational loop will be self correcting. Feedback from customers and intelligent discussion within the operational team (this will not just happen – people will need to be given time and space to do it and may need to be trained as well) will ensure that prices remain fair and profitable while product and service quality reflects customers changing requirements. But there is another set of questions that has to be developed that seldom get the air-time that they require in the hustle and bustle of ‘operations’.
These are questions about:
Should we grow the business? Can we? How?
Is the operational team performing as well as we would expect? What can we do to help them improve efficiency and effectiveness?
How is our marketplace changing – and how do we need to change to ensure that we stay in the game? Customer preferences, technology, regulations can all shift to leave a businesses in trouble.
How can we develop the business so that it provides us with more of what we want and less of what we don’t?
How can we reduce the harmful aspects of what we do and increase the positive impacts that we have on our community?
These are essentially questions of ‘Strategy’. They are questions that require us to work on the business rather than in the business. A second loop is needed that will require more time and energy to develop. Once we start thinking about strategy our business looks more like this:
A good way to think about this is that the operations loop takes care of todays’ (triple) bottom line. The strategy loop is about doing the right things today to look after ‘tomorrow’s’ bottom line.
The operational and strategy loop overlap. Much of the data that will drive strategy should come from customers via the operations loop. However other data will have to come from the wider business and social environment. This ‘environmental awareness’ is vital to effective strategy. Being able to make the transition from operational to strategic practice is, in my book, the mark of the real entrepreneur. They are able to stand back from the business and work on it. The crafts-person, the artisan, falls so in love their operation that they find it very difficult to stand back and develop it strategically. They spend all of their time and energy working ‘in’ the business and not enough working ‘on’ it.
When we are thinking through the development of a business idea it is rare to plan in the time and expertise to ensure that both operational and strategic loops are well resourced. And even when we do – still this is not enough. We need to think about a fourth component of business. A component that will ensure that strategy gets reflected in action and that experience at the front-line informs strategy. This is the function of Management. It serves to integrate the strategic and the operational components and ensures that information from both is used to drive the effective development of the business both operationally and strategically.
So now our enterprise is starting to look more like this:
I have used this model for many years to help a wide range of enterprises in the private, public and third sectors to think about their own development and the functions that need to be strengthened to ensure continued success. [The model presented here is a simple, private sector, for profit model. Slight variations help to illustrate the very different enterpise dynamic in the public and third sectors – but they will have to wait for another day.]
I am increasingly now using it with entrepreneurs to help them think through much more broadly the nature of the work that has to be done if they are to establish an enterprise that will successfully make it through the early years with success designed in from the start.
I think that a serious consideration of this model has real implications for the way we provide support to would be entrepreneurs. It forces consideration very early on about the necessity of a team based start-up and of the changing role of the founder as different components of the model demand attention over time.
The model has been heavily influenced by the work of Bob Garrett on the development of effective company directors.
Your comments, thoughts and especially suggestions on how the model could be improved would be very welcome.