Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 9: bricks and mortar, online, and hybrid businesses and business models 2

Posted in startups, strategy and planning by Timothy Platt on June 13, 2015

This is my ninth 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 1-8.)

I focused on two fundamental, foundational points in Part 8 of this series:

• How every business, whether primarily bricks and mortar or primarily online, faces need for developing and maintaining both non-liquid assets, and readily cash-available liquidity, and
• How even the most traditionally bricks and mortar types of business, and the most explicitly, purely online businesses now need to maintain both physical asset, non-liquid resource bases, and an online and cyberspace presence. Ultimately, virtually every business needs to have at least some elements of both bricks and mortar physical presence and online cyber-spatial presence too.

I focus here in this posting on the second of those observations, and on how 21st century businesses, of necessity have to be at least somewhat hybrid in their structure and planning if they are to be competitive in their markets and if they are to succeed to the best of their realizable potential.

This posting and in fact this entire series are about business models but bottom line, a business model cannot work if it begins as an abstract document of intent and only stays that. It has to represent a statement of ongoing intent and of commitment to follow through on that intent but it needs to be grounded in the possible and on what can be made possible if it is to work.

I focus here on the possible and what can become so, of that. And I begin that by raising two crucial business model details, and the questions of:

• Which assets to develop and maintain and with what cash flow consequences for doing so and with what cash flow consequences from not selecting differently in this,
• And how to balance cost and effort expended with return on investment capabilities realized and results achieved from what is done.

My focus up to here and for much of this series has been on startups and early stage businesses. And I have been pursuing this overall discussion in terms of businesses at these beginning stages of their development because they are essentially always limited in resources and in monetary resources in particular. So precise balancing is vitally important, in determining what they do now and next and on how they build to do so, and with a premium placed on identifying, developing and sustaining their high priority goals and essentials along the way. But even as I write that, I have to acknowledge that more mature businesses can come to face similar challenges too, that make this type of focused frugality essential for them too, with concomitant understanding as to where and how to best expend resources available if they are to return to greater flexibility and strength. I initially offered my cash flow management series: Understanding and Navigating Burn Rate, with startups and early stage businesses in mind. But I explicitly note here that essentially all of the points that I raised there apply to change management challenged businesses too, and to businesses that seek to step back from that brink before they actually reach it too – and that have to do so from what has already become a financially weakened position (see Startups and Early Stage Businesses, parts 67-78 for its Parts 1-12.)

With this wider range of businesses in mind, I begin addressing these issues with some fundamental questions. And I acknowledge up-front that these are going to be open-ended questions that will require readdressing as an ongoing process, and that while they are that important, they do not necessarily have just one right, or even just one best answer. You just need to ask them and recurringly and you need to find and act upon answers that would be right for you and your business.

• What are your long-term, long-range goals from where you are now as a business owner or manager?
• What should you be doing right now at whatever stage your business is in, to help you realize them? Rephrasing that question, what should your next best step be right now, and both to meet here and now needs and to help your business further along as it moves forward?
• And given your resources available, including available non-liquid resources, immediately available liquidity, and human asset support from your managers and employees, how can you most effectively address these here and now high priority needs and short-term goals, and in ways that leave your resource base as strong as possible while doing so for its longer term future?

There is going to be essential feedback there, where for example an unrealistic, unattainable short term goal, given overall resource limitations, cannot seriously be considered a valid goal. In that case your response to the question of bullet point three shapes how that of point two can realistically be answered. But I offer those three bullet points and their questions as fitting into what might be considered a logical progression, with that order offered as a starting point for organizing a more detailed and business-specific business analysis.

• What non-liquid assets do you need to secure and maintain now and at what costs, and with what consequences from what that decision limits or prevents having instead?
• How much readily and immediately available liquidity do you need, and both to meet immediate and readily predictable short-term costs, and for what you would realistically need as a cushion and to address risk management needs?
• And how do you use these resources so as to strengthen and grow this business, and make it more agile in being able to address the needs of the next unexpected to arise?

What you arrive at for your answers to these, depends on what your business is like, and on what you seek to achieve through it.

• If for example, you have a (primarily) bricks and mortar retail store, part of planning and executing for your ongoing now, and with your longer term goals in mind, will revolve around keeping your inventory of items offered for sale optimized, and both for what you carry and for how much of this stock you seek to have on hand for meeting customer demand. And you will, of course, also have to find an effective ongoing balance between maintaining staff levels that can meet customer needs and provide customer service, while limiting personnel costs so as to maintain a healthy financials balance.
• If you have a (primarily) online business you need to find corresponding contractual costs balances with your suppliers and both for anything you would pass along to your customers, and for what you need to maintain your ongoing business operations. Do you outsource the hosting of your web site? Even if you do, do you push your entire Information Technology content storage into the cloud and connect into it from employee and manager laptops, tablets, smart phones and yes, perhaps even desktop computers too still? Or do you have your own in-house networks and server system?
• All of this and for whatever systems and resources you decide to pursue and develop here and for either business model example, carries both direct and indirect expenses, including minimum expenses per month or other contract payment period, for maintaining contractual agreements with any third party service or support businesses that you enter into supply (and service) chain agreements with. (And yes, I picked my detail examples for the first two of these bullet points with an awareness of their overlap of applicability between those two points.)

I will introduce a term in the context of this resource decision-making process, that I find helpful for this type of analytical modeling: friction. Think of costs and perceived risk of likelihood of facing costs in your business processes and systems, as sources of friction in moving your business forward. Think of financially valuable assets held and particularly liquid assets held and available, as lubricants and friction reducers. Your goal as a business owner or strategist is to find the path of least resistance and of lower overall realized friction as you take your business forward, and both in its immediate here and now, and longer term, in your overall strategic planning. Your goal there is not necessarily going to be to reduce all realistically potential friction to zero, but rather to reduce it enough relative to the business enablers you have available, to keep your business performing effectively and moving along in that.

Thinking and planning, and executing according to these two types of timeframes: short term here-and-now, and long-term and strategic can and all too often does mean reconciling conflicting needs, where long-term reduction in friction and corresponding creation of flexible agility can mean absorbing short term additional costs and short term friction. And that does not just arise when contemplating capital development and concomitant capital expenditures when for example building up a non-liquid resource base for future business growth (e.g. buying or building a new office or manufacturing space.) This type of consideration has to be ongoing, and businesses that find themselves facing need for change management often do so not because of sudden unconsidered large scale sources of friction here, but because of its steady, overlooked accumulation, and from poor business processes and oversight, and less overall strategic coordination.

I am going to continue this discussion in a next series installment where I will at least begin to more fully explore how business models and business plans evolve over time, and both in the face of sudden disruptive change, and in response to the accumulating pressures of evolutionary change. 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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