Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 43: goals and benchmarks and effective development and communication of them 23

Posted in startups, strategy and planning by Timothy Platt on June 2, 2019

This is my 43rd 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 1-42.) 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, in recent installments to this series, which I repeat here for smoother continuity of narrative as I continue addressing them:

1. A new venture that has at least preliminarily proven itself as viable and as a source of profitability can go public through an initial public offering (IPO) and the sale of 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 more recently here, I have been analyzing and discussing these business development possibilities, for how they would address a set of three specific business performance requirements that are important for long-term success:

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

I at least preliminarily finished discussing the first of those due diligence issues: the above Point A, in Part 42, for all three of the above listed business development scenarios, briefly touching on Point B and C while doing so for how the three functionally interconnect. My goal here is to more fully and specifically address Point B and its issues as it plays out for the three business models under consideration here. And I begin by noting a point of comparison:

• The selection and fine tuning of what a business would bring to market as its defining source of revenue generating value might be influenced by outside forces, with that including market demands and pressures from their competitors. But ultimately, the most compelling drivers for this come from within the business itself, from its founders and owners and from its ongoing leadership as codified by them in its ongoing business model. And standardization of marketable, sellable production tends to be held as essential. So for example, if a business bakes rolls, all of its product should be of the same size and shape at least within very narrow preset limits and all should be made according to the same recipe for any given roll type offered and with tight quality control over ingredients used. And all should be cooked the same way and to the same doneness and all should packaged, and easy to package quickly for shipment and sale, in the same way too (bringing Point 3 into this narrative here too.)
• Higher level, internal to the business decision making plays a very significant role in the What and How of their business operations as actually carried out too. And that can mean standardized work performance patterns that significantly mirror those just noted for what the business would offer to its outside world. But when you look beyond the officially expected as detailed there, to see how business processes are actually carried out, you can often find that determined by a much wider range of in-house participants, with that larger stakeholder group also including mid and lower level managers and even non-managerial hands-on employees who actually carry out much of the work so specified. And this at-least capacity for variation, can be necessary and even essential if a business is to be flexible enough in order to be able to accommodate change and the unexpected, and certainly as it might more locally arise and even in day-to-day operations. Setting aside the questions and issues of when variation here is a positive and when it is a negative, it does happen and in ways and to degrees that would not be allowed for, or even make sense for products shipped out the doors and certainly within a single business and within a single one of its production runs.
• And outside considerations can and do have very significant impact on the operational What and How of a business too, and with a higher level of functional significance than might be expected in a marketable product context, and for entire functional areas of a business. Consider Finances and the outside mandated requirements of generally accepted accounting procedures (GAAP) as a perhaps best known example there, though outside regulatory forces can and in fact do reach into most if not all aspects of business operations, and for many types of businesses and for essentially all industries.

But for purposes of this discussion, let’s set aside outside-mandated, standardized demands and their pressures (as just exemplified here by adherence to GAAP) that all businesses would face, as leaving competitors on what at least in principle would still be a level playing field competitively. (Here, I set aside biased regulatory requirements that might for example explicitly favor larger already established businesses in an industry or sector, while thwarting possible new entrants there with new competing products or services that their more established peers would be less able to directly compete with.)

All three of the basic business scenarios that I have been discussing here since Part 33 are built around a premise of long-term stability and business strength, and all are built around a basic assumption of overall completeness in what they would carry out and be prepared to carry out operationally, in order to insure that happening. So for example, I did not include here, a fourth business development scenario in which a business founder, or founding team might build a new business venture with an explicit goal of selling it to some larger business entity through a mergers and acquisitions process, where:

• Some of the functional areas that they would assemble in it,
• And at least proof of principle development of all of its key marketable and sellable products or services might have to be very robust
• But where other more supportive capabilities might be left more vestigial as they would be provided by an acquiring entity that would be less inclined to have to pay for what to it, would be unnecessary duplications. (Think here in terms of founders who have ownership to a key next-step advancement patent or set of them, that seek to develop and prove the value of that holding in order to maximize its value to a buyer and its profitability to themselves.)

I offer this build-to-sell scenario, in the context of at least briefly mapping out something of a fourth case in point business development alternative. But the core details included in my tripartite description of it, also offers a simplified and even simplistic outline to what has become an increasingly complex options-rich range of business development possibilities and for a wide and growing range of business types: the three that I have primarily been addressing here included. And I at least acknowledge the legitimacy of that view of matters by posing some Point B oriented questions that the strategic decision makers of a new and forming, or more established and growing business might very well find themselves facing, which I phrase here as being asked of you, the reader:

• What are the core functionalities in this business that you would have to keep in-house, and develop and expand there as your business as a whole scales up (assuming once again that you would retain ownership of this enterprise and continue to lead it)?
• And what more supportive and ancillary functionalities and services might best be outsourced to third party provider specialists, where doing so would be more cost-effective and not carry additional new risk management issues? (And when and how might you do that and under what terms?)
• And focusing on functionalities and services that really should be maintained in-house, and particularly in distributed business systems, which of them should be managed from a home office or other more central facility and which of them should be managed and effectively owned, more locally?

At least aspects of what have traditionally been seen as Information Technology in a business are now routinely outsourced with that including server farms and enterprise-wide cloud storage and access management solutions, and the vast majority of web site and online presence support, or at least their more technical hardware and software underpinnings. And this type of outsourcing can and often does include call center operations and certainly for off-hours coverage when 24/7 customer assistance is a desired goal. And outsourcing can become an attractive option for at least areas of Human Resources and Personnel management too, to add a third increasingly common example of this here (see my series When and If It Might Make Sense to Outsource Human Resources, as can be found at HR and Personnel as postings 134 and following.)

I have in fact pushed this in-house versus outsourced dynamic to a lean and outsourced extreme in one of my earlier series: Virtualizing and Outsourcing Infrastructure, as can be found at Business Strategy and Operations as its postings 127 and loosely following (for its Parts 1-10.) More specific in-house versus outsource decisions become important in the types of context that I raise here, because they have stakeholder-responsibility and stakeholder-autonomy implications that can be shaped by a determination of precisely what type of business model and business development plan is in place. And to take that out of the abstract, consider the above-repeated business development Scenario 3, and at least potential areas for home office/parent company versus franchise facility/franchisee conflicts. What would and in fact should best be carried out and controlled system-wide from a parent company controlled and managed facility, and whether that means in-house maintained and operated or centrally contracted and managed-outsourced? And what should best be done by, and best be considered a responsibility of the individual franchisees in place and their local business outlets in these larger systems?

• Both overall cost-effectiveness and consistency, and market-facing standardization and the branding that serves as a public face to all of this, would enter into any realistic answer to those types of questions, and certainly as best for now solutions to them are to be sought out and implemented. And with that, I tie this back to the above stated performance Points A and C.

I am going to continue this narrative in a next series installment with an explicit focus on those market-facing issues, and with particular attention to Point C and its implicit questions and issues. And in anticipation of that discussion to come, I note here that we live and work in contexts that have increasingly come to expect and even demand social and environmental responsibility from businesses, and good corporate citizenship from them. So actually addressing the demands of Point C, of necessity have to include active consideration of Point B issues as well as Point A ones.

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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