Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 34: goals and benchmarks and effective development and communication of them 14

Posted in startups, strategy and planning by Timothy Platt on January 3, 2018

This is my 34th 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 and its Page 4 continuation, postings 499 and loosely following for Parts 1-33.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I began Part 33 by listing three possible exit strategy transitions that the owners of a new business venture might pursue as it first begins to achieve a consistent positive cash flow and proven profitability, thus entering into its first real growth phase:

1. A new venture that has at least preliminarily proven itself as viable and as a source of profitability can go public and with all of the organizational change and all of the transparency and reporting requirements that this entails as they begin offering stock shares.
2. A new venture can transition from pursuing an organic growth and development model (as in exit strategy 1, above) but to one in which they seek out and acquire larger individually sourced outside capital investment resources, and particularly from venture capitalists as briefly touched upon in Part 28, Part 29 and Part 30 of this series.
3. A new venture, and certainly one that is built around a growth-oriented business model, might build its first bricks and mortar site, in effect as a prototype effort that it would refine with a goal of replication through, for example a franchise system.

And I chose these three for their diversity, and with no attempt at anything like comprehensive coverage of even the commoner possibilities there. So for example, I offered venture capital funding in Scenario 2, but not angel or crowd sourced funding: two other possibilities that would provide what might be considered variation scenarios to the one offered here. Initially, my plan was to delve into the details of the three exit strategies that I did list there, at least beginning in that posting. But further reflection prompted me to offer more foundational material regarding the type of scenario analysis that I would offer here first, that I would turn to when addressing them. So as a consequence, I begin more specifically considering the above Scenario 1 here in this posting. And I will do so, developing my line of discussion to follow here, in terms of the organizing model approach developed in Part 33.

My topic of focus here is on businesses that seek to go public through initial public offerings (IPOs) and stock releases. And I begin addressing this possibility and its issues and challenges by posing two more-general analytical requirements here, that are at least implicit in all that I wrote in Part 33:

• Know your own business and what positives and negatives it carries with it as it is now (e.g. positive assets, and debts and other at least potentially limiting restrictions on what it can do and when and how.)
• And know both the positives (for you and your business) and the negatives that in this case, going public would bring with it for your business.

Now the question is one of how those positives and negatives lists match up. Where would the positives from going through an IPO mesh with and reinforce the positives already there, at least potentially in this business? And where would those going-IPO positives help address that business’ current negatives: factors or conditions that could hinder its development and even threaten its success if not balanced off in some way by mitigating factors? Now, where would the restrictions and demands of going public in this way limit the business? That certainly becomes important if pursuing this approach would create a new negative for the business, or exacerbate a current one. Let me take that out of the abstract with a specific real-world example.

Let’s assume that a business has been founded by a small group of invested owners who all have equal equity shares in what they are collectively building. And on the surface, they do work well enough together in building their joint venture, to keep everything developing fairly smoothly and efficiently and certainly through its earliest stages. But below that surface, this group is roiled by what can at times seem fairly fundamental disagreement over where their business is, and should be going as it builds out and comes into its own. This might keep surfacing as expressed differences in the type of corporate culture that they should be building there, or differences of opinion as to the right type of community of employees and managers that it should develop and how it should best relate to and connect to its marketplace. And under that, this type of difference can extend into hiring and terms of employment differences and a great deal more. And now these people, each with their own sometimes aligning and sometimes divergent views on all of this, are considering going public – where that requires a type and level of transparency and of public reporting that might very well bring all of these points of difference and disagreement to a head.

That type of pressure towards what some might seen as forced compromise, can be stressful and it can at least start out looking like a business side negative colliding with an exit strategy negative to create a real pit that the business could fall into. But at the same time, this can be seen as a positive too, forcing these people to stop trying to perhaps superficially gloss over what might be significant differences, and early enough so they do not face a crisis from their remaining there.

Problems that are simply kicked down the road and set aside sometimes to just fade away – if they were more superficial and less important than initially considered. But real problems set aside for later and again and again, can just grow and fester below the surface too – until they erupt to the surface.

Going IPO requires meeting a lot more legally mandated and societally expected requirements than just public reporting, but I pick up on this one because it highlights how perceived negatives in this case, can overlap and mutually reinforce each other. But at the same time, this example also highlights how initial perception and understanding can be wrong, or at least misleading. It is usually better for the founders of a business, in this type of group business development initiative, to resolve their differences as early as possible, and for them to not wait until they are forced to, and at a time and under circumstances not of their choosing. And that holds whether the founding group can in fact find a modus vivendi and continue on together, or if some of them end up going their separate ways. Early there at least lessens the chance that a business-to-be, simply explodes from long-harbored disagreement and yes, from long-harbored resentment arising from that too.

I repeat my first of two general points as offered above, in light of this:

• Know your own business and what positives and negatives it carries with it as it is now.

And I repeat the second of them too, with a perhaps reconsideration of what the first actually means in mind:

• And know both the positives (for you and your business) and the negatives that in this case, going public would bring with it for your business.

Your answers to the questions that those two points raise as arrived at initially, might require rethinking. And that is definitely true where your starting assumptions might limit what you see, and how you would prioritize and weight the factors and considerations that you do list, for their impact and significance.

Let’s reconsider my underlying tensions and disagreements scenario of above, in light of that point of observation. If the disagreement issues that that team of business founders faced were on the table and readily amenable to inclusion in this type of analysis, and even in a first round assessment of the positives and negatives faced, their differences would probably have already been resolved, and either by arrival at some form of compromise consensus agreement, or through at least one founder walking away, taking the equivalent of their equity share with them (e.g. as an agreed to buyout arrangement.)

Do your research on how other business ventures that match yours for at least some crucial details, have fared when going IPO. And look in particular for lessons learnable from businesses that have run into trouble there, and certainly where their initial valuations as posted from what might have been day 1 hype, at least significantly drop if not collapse after that.

I am going to turn to reconsider Scenario 2 (venture capital backing) and then Scenario 3 (building with franchise model expansion in mind), beginning in my next series installment. Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And you can find this and related material at my Startups and Early Stage Businesses directory too and at its Page 2 continuation.

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