Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 41: goals and benchmarks and effective development and communication of them 21

Posted in startups, strategy and planning by Timothy Platt on January 24, 2019

This is my 41st 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 and Page 5 continuations, postings 499 and loosely following for Parts 1-40.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I have been discussing three specific possible early stage growth scenarios that a new business’ founders might pursue for their venture (see Part 33):

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. (See Part 33 and Part 34.)
2. A new venture can transition from pursuing what at least begins as if following an organic growth and development model (as would most likely at least initially be followed in exit strategy 1, above too) but with a goal of switching to one in which they seek out and acquire larger individually sourced outside capital investment resources, and particularly from venture capitalists. (See Part 35.)
3. And 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. (See Part 36 through Part 39.)

And I continued that overall narrative in Part 40 with a set of more general comments, and by raising some generally framed questions of a type that at least categorically would apply to most any next-step business development scenario that might be considered, and certainly early on. Then I concluded that posting with a set of three issues that would have to be addressed and for most any business that would operate in a business-to-consumer context: issues that would enter into their core decision making and its execution as effort is made to build that business to be as competitively effective as possible:

A. Fine tuning their products and/or services offered,
B. Business operations and how they are prioritized and carried out, and certainly in that context, and
C. Branding and how it would be both centrally defined and locally expressed through all of this.

There are two basic approaches that I could pursue here as I seek to parse out and analytically identify and discuss the issues just raised in that list. I could discuss all three of those points in order as a group, and successively so for each of the three development scenarios listed towards the top of this posting and under consideration here. That would mean my addressing each of those business development scenarios in turn and with them serving as my primary focus of attention here. Or I could more fully discuss each of these issue points, one at a time as they would arise and play out for each of the scenarios under consideration, and with them serving as my primary focus of attention. I have decided to follow the second of those organizing approaches here, and proceed as follows starting with Point A and products and services offered, or still just under consideration for that to round out this topics point.

Point A: At least in principle, the founders of a business can and do decide on their own what products and/or services they might pursue offering through their own business venture. But in reality, they always face at least some shaping influences there, and even in a simplest case organic growth oriented business model where all funding available or sought out, comes from the cash flow and positive revenue generation of the business itself, as supplemented by funding that they themselves would bring to the table, and with their not having to answer to others as equity holders in this. In that case, outside influences would still arise and have to be accommodated, as coming from their intended markets and from their understanding as to what would effectively, and profitably sell there. And more such pressures would come from their likely and current competition, as they seek to gain and retain a maximum possible market share in the face of their offerings. Both the above-stated Scenarios 1 and 2 are based on the founders and owners of a venture securing outside funding, with any additional shaping constraints added that those funding sources would attach to the support that they offer. And while Scenario 3 as stated towards the top of this posting might be centered around organic growth and arise free of the types of outside equity ownership voices that Scenarios 1 and 2 would invoke, building with a goal of expandability into what might become an open-ended range of local markets and market types can easily place at least some product and service restraints on what they could effectively offer too, and certainly if they seek to benefit from economies of scale across their entire growing business empire and if they seek to remain consistent enough across their overall system for how they develop and support unified consistent branding. Pressures towards uniformity as arising from these considerations can limit this type of business in its ability to meet more locally community-based product and service needs and certainly where such diversity would impact on any business-wide brand-specific product designs supported, as an important case in point example here.

Focusing on Scenario 1 for the moment in this Point A context: when a new or still young business seeks out initial public offering (IPO) funding, it has to be able to argue a case for its receiving such support from both:

• Prospective shareholders who would actually invest in it,
• And from stock market analysts who those prospective investors would turn to as a key part of their due diligence when deciding where to invest and with what levels of their available funds.

This means the founders and owners of such a business, would have to be able to effectively argue a case that they seek to bring profitably attractive products and/or services to market, and in ways that would at least maintain value in this enterprise as benchmarked against the price these investors would pay per share and put into it, and with at least some additional value added for them, as coming from profits generated too. And they would have to be able to market and present themselves for being likely to accomplish this, in ways and according to timeframes that those market analysts would see as meeting their reporting needs.

Dividends: those additional profits as doled out to investors on a per-share basis, might not be as important for successfully arguing that a business is a good investment if that business and its leadership can present themselves as a growth company with long-term investment value, rather than a more strictly income generating one that would primarily offer short-term and ongoing cash returns on investment. But that calls for a demonstrable focus on innovation and on this business setting out to grow and evolve and effectively so. And even then, most shareholders still expect at least modest regularly offered dividends too. And those dividends and a business’ capability to reliably and consistently offer them, becomes even more important when and as a business is positioned more as a profit-oriented venture.

• Either way, all of the stock market analysis that shareholders and prospective shareholders would turn to when making their investment decisions, would be developed on a short timeframe, and generally largely on the basis of just the most recent business quarter or half year. That would put pressures on this business to develop and offer their products and any New that they could bring to them, as quickly and efficiently as possible.

Now let’s consider this same issue point from the perspective of the above Scenario 2, and with the guidance and the pressures exerted by venture capitalists added into a basic organic growth, default business model here. Some venture capitalists selectively make at least some longer term investments and commitments to the ventures that they buy equity in through their funding. But all venture capitalists, as such, invest in what their due diligence effort would show to be likely up and coming business successes, and with a goal of gaining profits and large ones from those investments that do develop that way to cover their losses from those that do not – while still leaving a significant profit margin for the investor.

Most of the time that means their seeking out quick returns on the investments that they enter into, so they can keep their investment funds moving and working for them and not tied up in any single client business. This puts pressures on the businesses that they do chose to invest in, to develop and capture as large and profitable a market share, and as quickly as possible and with corners cut if necessary in longer-term business development preparation where that might compete for funds with this market-facing effort. All of this, of necessity, has an impact on what is going to be brought to market and how and how quickly it would be updated and tuned for greater market impact.

Scenario 3 obviously has its expected forms of impact in this issue too. I am going to continue this narrative in a next series installment where I will complete my discussion for here, of this Point A issue. Then I am going to move on from there to address the above Points B and C next, also doing so in terms of the three scenarios under direct consideration here, with commentary added as needed regarding a fourth: organic growth scenario too, as called for. And then, and with this overall narrative thread in place, I am going to discuss a core point of consideration that readily emerges from it:

• How a new, young business begins, determines if and how it can accommodate and support flexible adaptability and resiliency as it moves forward,
• With the details of that determined and shaped by what type of basic organizing path that venture seeks to follow in its business plan and its execution (where I have been discussing a set of such determinative options here in these postings.)
• Think of this as a matter of looking for longer-term consequences as they would more, or less likely arise depending on how some key early decisions are made.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 5, and also at Page 1, Page 2, Page 3 and Page 4 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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