Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 8: bricks and mortar, online, and hybrid businesses and business models 1

Posted in startups, strategy and planning by Timothy Platt on May 20, 2015

This is my eighth posting to a series that addresses the issues of planning for and developing the right business model, and both for initial small business needs and for scalability and capacity to evolve from there (see Business Strategy and Operations – 3, postings 499 and loosely following for Parts 1-7.)

I began discussing bricks and mortar, and online businesses in Part 7 of this series where I noted how:

• Online does not always mean less expensive and even just for startup and early stage businesses,
• And online does not automatically mean that less of a business’ assets need be tied up in non-liquid forms either.

Both bricks and mortar, and online businesses both generally start out with minimal headcount and with minimal business-owned and maintained assets, and certainly physical ones such as office and other workplace space. For a new retail outlet or restaurant, as two possible case-in-point exceptions to that, bricks and mortar businesses can start out requiring more of their resource base tied up in non-liquid form. But as businesses grow and expand, new online and related costs can and do grow and expand as well, and for an online business in ways that can make any early such sources of fiscal advantage shrink at the very least.

This is important. Online businesses can be more efficient in concentrating their financial strength in more readily liquid forms that can be used to drive their business operations and shape their competitive edge and their overall marketplace strength. But never simply assume that, and never simply assume some automatic scale of liquidity that would be available simply because of the online nature of a new business.

• Online businesses can be leaner in what they leave tied up in non-liquid form as a proportion of overall asset value held.
• But validating that and determining levels of liquidity that are likely to be available and in what timeframe have to be explicitly analyzed and thought through as a core element of the financials section of an explicit business plan,
• And ideally as part of a business plan with three financials section scenarios examined: a standard “best” case, a corresponding “worst” case and a normative performance results scenario – as generally included in any well-drafted business plan.

I added a key element into the first of these three bullet points that is fundamental to the discussion to follow: timeframes of business development and the issues of how asset allocation needs and liquidity needs as a portion of that can and do systematically change as a new business unfolds. And with that stated I turn to the anticipatory note that I added at the end of Part 7 as to what I will primarily address next: a deeper look into bricks and mortar and online businesses and business models and a discussion of some of the issues of building and running a hybrid model business too.

Let’s start that with true startup and early stage business asset requirements, and for purposes of this discussion let’s focus here on non-liquid assets that would be required from day one, that would absorb a significant proportion of overall value that is put into this venture in order to launch it.

• A traditional bricks and mortar business operates out of a set physical location, and the archetypal image of such a business is a market-facing enterprise such as a retail or wholesale storefront or a manufacturing or repair business.
• A consulting business that provides services that are carried out entirely at client business locations and that does not seek to market or otherwise do business online or with explicit online support need not have much if any of its own dedicated business use-only space and can be as lean for physical assets held and maintained as a box of business cards, at least in principle. It can in effect be bricks and mortar in someone else’s bricks and mortar and be so for an ongoing succession of its clients.
• And an intentional online business, and here let’s consider a website development or similar online-oriented software development business, is probably going to need to hold and maintain at least some dedicated office space, and both for hosting its own computer hardware systems and for carrying out its team-based work, and for hosting client meetings where having office space lends a greater sense of credibility and professionalism.
• I have worked with “entirely online businesses”, and have in fact written about that business model approach in this blog (see for example: my series Virtualizing and Outsourcing Infrastructure, at Business Strategy and Operations postings 127 and loosely following for Parts 1-10.) But that business model generally calls for a complex system of outsourced service agreements to cover its virtualization needs that collectively can become costly, and that a startup might find difficult to afford from day one in its pre-revenue period. And I add that even an “entirely online businesses” is still going to need at least some non-liquid assets such as computers, tablets and smart phones to connect into its virtualized support systems. So for purposes of this discussion, let’s assume any business: primarily bricks and mortar or primarily online is going to require both physical non-liquid resources of its own (such as work space and equipment) and supporting liquidity as well.
• The primary distinction there becomes one of what balance of types and levels of non-liquid resources a new business has to hold and fund out of its initial liquid asset base plus any further funding it can bring in, pre-revenue,
• And what it can keep as liquid or readily converted assets for meeting its early expenses.

In today’s world, most and essentially all businesses need at least something of a physical presence with at least some non-liquid assets and the costs for securing and maintaining them. And most and essentially all businesses need an online presence too, and for marketing and as a route to becoming known in their markets, and for more effectively bringing in foot traffic business if nothing else. That increasingly holds true for small and local businesses, just as it does for larger businesses that reach out to wider and geographically more dispersed customer bases; consider the increasingly important requirement of tracking and responding to online reviews and market-sourced commentary if nothing else there.

To cite a specific type of business that at least up until now has had no real need of an online presence, consider local dry cleaners. Many offer cleaning and storage services to their customers for off-season apparel (e.g. heavy winter coats that take up too much room at home when seasonally not needed, but that a dry cleaner can store over the late spring, summer and autumn months after cleaning them) in conjunction with bringing in that much more dry cleaning business per se. And if they offer discounts for higher volume business from their steady customers, reaching out to their customers and to prospective customers online and both to offer special deals and seasonal services can bring value to everyone involved – and increase their overall levels of business in the process.

This brings me back to the business model and its details, and in determining both:

• What assets to develop and maintain and with what cash flow consequences,
• And how to balance cost and effort expended, with return on investment capabilities and results.

I am going to turn to that complex of issues in my next series installment where I will explicitly focus on the hybrid, bricks and mortar plus online business model as my primary focus point of discussion. Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 3 and also at Page 1 and Page 2 of that directory. And you can find this and related material at my Startups and Early Stage Businesses directory too.

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