Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 32: goals and benchmarks and effective development and communication of them 12

Posted in startups, strategy and planning by Timothy Platt on October 13, 2017

This is my 32nd 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 1-31.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I began discussing three specific exit strategies in Part 31, in the context of discussing exit strategies per se and what that term actually means as a stage of development, fundamental change-based transition point:

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 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 at the end of that series installment, I stated that I would continue its flow of discussion here, examining these same three transitional changes in greater detail and in terms of goals and benchmarks, and communications issues as they play out in businesses going them.

• If I were to summarize the basic set of topics that I will at least begin to address here, in a single brief phrase, it would be to note that my goal here is to at least briefly outline the core generic elements of the How, of strategically mapping out and evaluating basic business transition options moving forward, on the basis of specific, carefully gathered, organized and evaluated and communicated empirical evidence.

This overall flow of business process and review steps has, or at least should have its roots in the normal and normative day-to-day practices followed by business owners and their leadership teams as they manage their businesses in the face of more routine change and uncertainly. Efforts to develop and follow effective review and evaluation processes in the face of impending disruptive change, which true business transitions always involve, cannot work for people who have not already built an effective foundation for that from well considered evidence based business management practices, as carried out in the face of simpler, routine change and variety as arises every normal business day. And I will add that the data and insight gained from this more normal and every day review and analysis practice, serves as essential baseline data and both for identifying need for more significant change and early on, and for more effectively planning and preparing for it.

In the context of this series and this portion of it, that means knowing when and how one or another, or one or more of the above three listed exit strategies might be starting to make sense, and how and why. And this posting is all about looking at and measuring and tracking the right performance metrics and looking for and documenting exceptions and exception handling, as need for that arises, and as a part of that same business analysis process.

The goals and benchmarks of this, need to be realistic and that means they need to be clear and precise and framed in terms of the business performance measures actually followed. Subjective can be vitally important here, and certainly when that means coming to an awareness that not all of the right types of data and insight are being considered here. But ultimately, this analysis and the raw data that enters into it need to be objective and specific; subjective impressions and estimates cannot offer any real value and certainly when it comes to the supposedly raw business data that is going to be used for this type of business analysis.

What should you look for here, as measured objective data and as sources of it? Look to the basic business model and what the business does that collectively would, or at least should make it profitable and effective enough in its marketplace to reach that goal and stay there. And at least start addressing all of that, in the financial terms of cash flow and availability, and costs and returns on investment and how systems fit together in those terms. And as this is a business transitions type of analysis under consideration here, look both short-term and longer-term, and project outward according to two distinct models:

• What happens if the business simply continues on with a business as usual approach for the area of the business under immediate consideration here?
• What options might be available for disruptively breaking away from that old pattern and in a new way?
• And what would variously happen if one of these transitional changes were entered into, pro and con, short-term and long?

Ask this of each of the options considered in the second bullet pointed question here, in terms of the basic metrics used for your ongoing business analyses, as augmented where and as gaps in what they can tell you become apparent. And remember: any gaps and uncertainties in how you would answer these questions, represents risk faced from pursuing whatever approach: whatever next step development model that is under direct consideration at the moment. Here, risk represents cost and potential loss faced, and at least ideally for capability to measure and determine, as a product of the sum of direct and indirect costs faced if an adverse event were to occur, as multiplied by the chance that it would take place (as measured as a proportion – e.g. a 1% chance of occurrence represented by the fraction .01 and so on.)

This addressed what is considered, and certainly as a first step analysis where it would become clearer that problems and challenges might be arising. Now consider which stakeholders are included in these conversations, and really involved in them: not just in the room but silently so.

• Effective inclusion here in these conversations is essential for finding better approaches for addressing the gaps and challenges identified here, where a best path forward might mean pursuing some particular type or combination of basic exit strategy options as noted above, by way of those three possible examples.
• It means more effectively and fully characterizing and understanding the gaps and problems faced that would go into that type of determination.
• It means more effectively arriving at workable approaches for carrying out any necessary changes that are agreed to.
• And this is essential for gaining buy-in so the necessary changes and all the work that enters into them, are actually done and in a coordinated manner by all necessarily involved stakeholders.

I have been writing here in general and relatively abstract terms. I am going to delve more into the specifics in my next series installment where I will consider exit strategy 1 from my above list of three in detail: the fundamental change scenario of a business going public with all that that entails. After that, I will more specifically consider each of the other two exit strategy scenarios under consideration here.

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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Building a startup for what you want it to become 26: moving past the initial startup phase 12

Posted in startups by Timothy Platt on September 9, 2017

This is my 26th installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Startups and Early Stage Businesses and its Page 2 continuation, postings 186 and loosely following for Parts 1-25.)

I focused in Part 25 on the raw data and the processed knowledge that a business accumulates that it uses, in one direction to help shape its strategic and operational plans, and that it uses in the other direction when executing them and evaluating the results achieved. And as part of that, I posed a brief set of questions, the likes of which would go into any quality control effort for managing and more effectively using those data stores, which I repeat here for purposes of continuity of narrative:

1. Is this data reliable, and if so for what? I parse that question, offered here as a general point of principle, into a set of more focused related questions.
2. Where did it come from? And how reliable is its source from prior experience?
3. Is it complete and unedited or has it been pre-filtered or re-represented in some way, by a stakeholder who might be bringing their own biases or agendas with them when offering it? Answers to this question would in most cases be more presumptive than conclusive but evidence of possible filtering or bias should raise red flags and should always be considered as a possibility. As an example of how pre-filtering can be carried out without any intent of adding bias into a data set but still end up adding that in, consider how data can be “cleaned up” before use by deleting from consideration, unexpected and seemingly out of pattern outliers and other “anomalies”, while removing second copies of duplicated records and the like and doing similar data cleansing. That happens and it should raise red flags.
4. Is this data consistent with other data gathered and with expectations in place, or is it divergent from or contrarian to that? Note, new and different and unexpected should not rule out new data findings. But they should prompt closer and fuller examination and particularly if their inclusion would significantly shape conclusions drawn and actions taken.
5. And of course, what would this data suggest, and certainly when considered in the larger context of what is already known?
6. And what are the consequences of that, and both if this data is correct and reliable and if it is not?

I then added at the end of Part 25 that I would “discuss this set of issues in more detail in a next series installment where I will focus on specific types of raw data as business intelligence, and in the more specific context of an at least briefly sketched out working business example.”

My goal for this posting is to set up a conundrum, or at least a realistic-seeming systems example that highlights within it a combination of competing needs and requirements. And I begin that with a set of seemingly simple questions, that I pose in the context of a retail business that maintains a complex inventory of products that it offers for sale. A store of this type is data-driven, with their overall business performance depending on the aggregate sales performance of what they offer, as cumulatively determined on a product by product basis.

• What sells at what rate and at what volume, at any given point in time? This might or might not have a seasonal or other cyclical element to it, as just one reason why this type of question has to be recurringly reconsidered.
• How is this trending, for the various stock keeping unit (SKU) product types offered?
• What is their turnover rate for the business?
• And what is their profit margin when they do sell? That is actually a more complex question than it might at first seem, where a product that simply sits on a self or in back room storage as inventory waiting its turn on a sales floor shelf, accumulates additional cost to the business by taking up room that faster selling items might fill, and more profitably so. But even that more expansive evaluation leaves out the possibility of loss leader product offerings that might intentionally be sold at or even below cost in order to bring in customers, with them offered as marketing tools for driving larger sales.
• What products might be calling for greater shelf space or greater specific model diversity offered, or both? And what would best be reduced for the shelf space that it commands, or even discounted for clearance sale and discontinued, and either for now because of seasonal or other shifts, or permanently?

These are just sample orienting questions, even if they were selected here for their specific relevance to most retail businesses. And all of them require both specific data, and in quantity, and specific analysis to answer them. More generally:

1. What questions would you need to ask and find answers to, in order to more effectively optimize your business, and both to make it more agile and effective in the face of changing market demands, and to make it more profitable and consistently so?
2. Now what data would you need to answer those questions, and both by type and by quantity, and with what data quality control in place?

There are several ways to parse and categorize data but one that is particularly relevant here is:

• Data that is subject to direct statistical analysis, which can mean numerical, binary (e.g. yes or no) or similar
• And data that cannot be so coded and used, such as free form text responses.

For simplicity, let’s assume that all of the data to be gathered and used fits into the first of those categories, making straightforward statistical analysis possible. The more questions you seek to address through such statistical analyses, the more complex they become for types and combinations of data required to address them. And the greater the certainty in any conclusions reached when doing these analyses, the more data you would need in order to carry out these statistical analyses too. And this leads me to my third and fourth questions:

3. How much data do you actually need, in order to answer your statistical questions and do the statistical modeling that you would require?
4. And precisely what data analysis-based questions do you really have to ask in order to meet your business planning and performance review needs?

I will set question 4 aside for the moment and focus on number 3 of this list. Data becomes expensive and certainly in volume:

• To systematically gather it in and store it in usable forms in usable database records
• And with effective data management systems in place to clear out duplicated or defective records, and old and no longer reliable ones (e.g. for “current” customer identification and tracking) – and without adding in bias.
• And data analysis that is based on this, becomes expensive too and particularly when outside expertise is required for carrying out complex statistical tests, on appropriately scaled data sets.
• And the more complex the tests to be performed, the larger the data samples are required to be, and the larger still, the overall pool of raw data that those test samples would be at least semi-randomly drawn from.

Most retail stores would in fact look for outliers (e.g. items that all but fly off the shelf in sales, or that alternatively only gather dust there.) And costs and timing demands would constrain them to at most, doing only simple and even cursory data analyses and business performance modeling for all that lies between those extremes and with that largely based on aggregate analysis of product categories and not of individual item types. That definitely holds for smaller and even for medium sized businesses. Massive retail business systems, tend to be the ones that truly dive into the data, and with all of the effort and expenses involved as mistakes or lost opportunities take on scales of impact, financially, that they cannot leave to chance.

This posting and this series are about startups and businesses that are still small, even if growing, so that second possibility would only be a still-distant one for them. So I finish this posting with some open questions:

• What data is available and in what quantities and with what quality and reliability?
• What questions really have to be answered, and with what level of assurance in that, from this data? (Question 4 from above, expanded)
• And closely related to that, why are answers to those questions important, and specifically so? More specifically, what specific strategic and operational questions would they help address? This bullet point is all about keeping all of this focused and relevant and in a very practical value and returns on investment-oriented sense. And what would be the consequences of simply proceeding on without rigorously addressing them?

I rephrase that last question for a startup context, by asking:

• What really consequential decisions do you face as a business founder, and which of them are data driven and in ways that would be amenable to more rigorous analysis?

If this posting sounds too abstracted from real world businesses, for it to make meaningful sense when planning and executing their strategies and operations, and certainly in young new ones, I will at least attempt to bring its rationale into clearer focus in my next series installment. My goal there is to at least begin a discussion of when and how to add greater rigor and order into a new business, to facilitate its orderly development and growth as it moves forward. Everything, or at least seemingly everything might start out looking ad hoc and new and novel at first. When and how should order be developed and added to this mix? When and how should it take over and become the basic rule for how things are done there? I tend to write about organized and systematically structured systems, and about the ad hoc approach as an often problematical alternative. My goal in the next installment of this series is to at least begin addressing how that circumstance arises.

Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

Planning for and building the right business model 101 – 31: goals and benchmarks and effective development and communication of them 11

Posted in startups, strategy and planning by Timothy Platt on September 1, 2017

This is my 31st 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 1-30.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I have been actively and very specifically addressing the issue of value creation in a new business, and what that word means to various demographics and constituencies that can become involved there, in the most recent several postings to this series. And I have focused there on business founders and the startup building teams that they bring together, and different categories of possible outside investors. Then at the end of Part 30, I said that I would turn here to consider exit strategies. And I begin doing so here, by clarifying more precisely what I mean by that often unfortunately misnamed business development process:

• Exit strategies represent fundamental change and true transition points where same and linear evolutionary change in a developing business, gives way to fundamentally new and different.
• As such they represent new beginnings for businesses as much as they do ending points, where a once perhaps essential approach to running a business gives way to a distinctly different and new one, and one that probably would not have worked for it earlier even as it would offer a good and even best path forward now.
• An effective exit strategy leads a business into what would at least ideally be its best possible next step forward, and both strategically and operationally.

Why are these transitions generally referred to as “exit” strategies, and not “transition” strategies or something else that would be less bound by implicit assumptions? The first strategically defined transition points to rise to general attention as disruptive changes in this manner, were primarily ones in which a business’ owners sold their new venture and walked away from it, perhaps after some agreed to transition-in-leadership period, or after staying on as a consultant for some period of time. But most of the transitions that I would include here do not involve any walking away of that sort, even if they can and often do include a change (e.g. a widening) of the executive team and an increased diversity of perspective and action coming out of that.

I have at least occasionally touched on this aspect to business development in earlier postings and series here in this blog. But to round out these introductory notes to this topic for purposes of this series, I at least briefly list a few other possibilities here, that are all most likely to start to become viable as options for most businesses, as they starting becoming consistently profitable – if they are to do so at all:

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 to one in which they seek out and acquire larger 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.

Yes there are exceptions to my assertion that these exit strategy options all become more viable only after a business has achieved consistent profitability. Just looking to the performance track records of businesses pursuing the first of the above three options, consider Google and businesses that like it, have gone public with an initial public offering (IPO) before they have actually became consistently profitable, where this has worked out and for essentially all concerned. But businesses like that are still exceptions and other much-hyped ventures that have attempted to follow Google’s lead there have sometimes all but vaporized into failure – after bringing in outside shareholder investor money. So I still argue the case that these three scenarios all become more viable and certainly on an investor risk management level, only after a business in question has transitioned into becoming genuinely profitable and reliably so.

That contextual detail noted, these and other transitions from early development into maturing business, can be viable as next step options and even best choices for moving forward when they are well thought out, timed and executed upon. And of course these basic exit strategies can, in many cases be combined too, with for example an exit strategy goal 3, as just listed here, also seeking to raise working capital by going public, essentially simultaneously pursuing a goal 1 approach too. As a growth-oriented business, such a venture would probably be more inclined to orient its system of publically traded shares so as to return as much of the profits generated back into the business in order to expand it, creating future value for itself and for its investors rather than short-term returns on investment that could be drawn out of the business.

And of course, simply selling off a new venture that has begun to prove itself could be added here as a fourth possibility, but for purposes of this narrative, I focus on the above numbered three, just as I have only addressed a few possible stakeholder categories here (e.g. no marketplace consumer, or supply chain or related participants considered here, at least at this point in the series.) And with this note added as to how I am bringing this discussion into focus, and with these background notes offered, I turn back to further consider the issues cited in the title of this series installment: “goals and benchmarks and effective development and communication of them.”

I am going to continue this discussion in a next series installment, where I will more fully examine goals and benchmarks, and communications issues as they play out in businesses going through the above three stated exit strategies. 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.

Building a startup for what you want it to become 25: moving past the initial startup phase 11

Posted in startups by Timothy Platt on July 31, 2017

This is my 25th installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Startups and Early Stage Businesses and its Page 2 continuation, postings 186 and loosely following for Parts 1-24.)

I focused in Part 24 on the terms “aggressive” and “conservative” as they are used in a business planning and execution context over time, and in the course of that discussion, used those terms in what at first glance might seem to be two different and even somewhat contradictory ways. My goal for this posting is to focus on making business analysis more effectively data-driven and I will primarily address that complex of issues here. But I wanted to begin this posting at least, by further considering what those two terms mean, and how they are used.

I stated in Part 24 that:

• Conservative in this does not necessarily mean building for reduced overall risk, and aggressive does not necessarily mean building from a more risk accepting and risk tolerant perspective, and it does not necessarily mean accepting more of it – even if that can be the case when making specific comparisons between specific businesses.
• The real distinction here can in fact simply be one of where the risk that is allowed for, is considered acceptable in the business’ overall operational systems.

And then I used these terms in a manner that might seem more consistent with an assumption that conservative does in fact mean less risk tolerant and aggressive means more risk tolerant, per se. When you consider overall risk and with both short and long term risk possibilities included, this alternative is not in general always valid. But when you focus on shorter term and even on mid-range risk and their management, conservative approaches do tend to be more risk aversive there, and aggressive tends to be more risk tolerant there. This understanding is consistent with my own experience and my own observations so it underlies how I use these terms as a practical manner. Most organizations and of all types tend to weigh shorter term risk potential more heavily than they do longer-term, and certainly given the perception of uncertainty and of plan-undermining change that longer carries. Overall, however and when all timeframe considerations are accounted for, conservative and aggressive can come to look more and more alike. And long-term strategy has to allow for that as well as explicitly considering the range of timeframes faced.

With that noted, I turn to consider data driven business analysis, and I do so by offering a basic empirically grounded assertion:

• Not all data is created equal – and the challenge of creating effectively useful knowledge out of raw data begins with effectively evaluating, organizing and prioritizing it.

And business analysis, of course, is a process of making useful actionable knowledge out of carefully selected and organized raw data. So this and the strategic and operational planning that come out of it have to be based on a finely tuned understanding of what data is being used, and of its value for this.

I begin addressing this by posing a basic starter set of questions that would apply to essentially any data or data sets that might come up for consideration:

• Is this data reliable, and if so for what? I parse that question, offered here as a general point of principle, into a set of more focused related questions.
• Where did it come from? And how reliable is its source from prior experience?
• Is it complete and unedited or has it been pre-filtered or re-represented in some way, by a stakeholder who might be bringing their own biases or agendas with them when offering it? Answers to this question would in most cases be more presumptive than conclusive but evidence of possible filtering or bias should raise red flags and should always be considered as a possibility. As an example of how pre-filtering can be carried out without any intent of adding bias into a data set but still end up adding that in, consider how data can be “cleaned up” before use by deleting from consideration, unexpected and seemingly out of pattern outliers and other “anomalies”, while removing second copies of duplicated records and the like. That happens and it should raise red flags.
• Is this data consistent with other data gathered and with expectations in place, or is it divergent from or contrarian to that? Note, new and different and unexpected should not rule out new data findings. But they should prompt closer and fuller examination and particularly if their inclusion would significantly shape conclusions drawn and actions taken.
• And of course, what would this data suggest and certainly when considered in the larger context of what is already known?
• And what are the consequences of that, and both if this data is correct and reliable and if it is not?

This type and depth of input analysis is almost certain to be carried out if a set of possible data under consideration is deemed a priori to that, to be actionably important and consequential. But this type of analysis is much less likely to take place and certainly with any thoroughness, at least a priori to using it in planning and execution, if it does not in some way stand out as potentially game changing. And in an increasingly emerging big data context that all businesses face, that means less and less of the data flow coming in faces even cursory review and quality control and can essentially become taken for granted.

I am writing here of a need to automate incoming data quality control, and as an increasingly vital risk management issue. And yes, big data is not just a possibility, or even a necessity for just big and established businesses. Small and new businesses can find themselves immersed in it too, and of fundamental necessity and as part of any realistic execution of their business plan.

I am going to discuss this set of issues in more detail in a next series installment where I will focus on specific types of raw data as business intelligence, and in the more specific context of an at least briefly sketched out working business example. Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

Planning for and building the right business model 101 – 30: goals and benchmarks and effective development and communication of them 10

Posted in startups, strategy and planning by Timothy Platt on July 21, 2017

This is my 30th 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 1-29.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I began a discussion of outside-sourced business funding, and the consequences of having outside business equity holders in Part 28, with consideration of venture capital and angel investors. I then turned to consider crowd sourced outside investors in Part 29, as a rapidly emerging business development funding option. My goal for this posting is to continue and complete, at least for purposes of this series, my discussion of crowd sourced funding, and to at least begin a more thorough discussion of the more in-house oriented issues of exit strategies as a business plan consideration.

I wrote about the finances of crowd sourcing and of how many people, each making an individually small and even tiny investment, can collectively lend a business a very large amount of money. And I wrote of the largely “no strings attached” nature of these investments where individual investors cannot make significant equity holder claims on a business they crowd source invest in: meaning their not individually having much if any of a say in the running of those businesses.

The one and only real exception to that second point, at least that I can think of off-hand, would arise if a significant group of crowd sourced investors in some particular business, all came to see its behavior and its use of their loaned funds as being so egregious as to prompt them to enter into a class action law suit against that business. This circumstance would probably arise, if it did, as a consequence of negative social media driven viral marketing against the business, with an initial smaller number of irate investors pulling in more and more other potential plaintiffs to such a legal action until they reached what amounted to a critical mass of collective discontent. And at some point in this process, this group would have to hire the services of a hungry law firm to represent them. But the most they could reasonably ask for in claims against this business would be a full refund of monies actually loaned out, and a sizable percentage of that would go to their class action suit lawyer and towards paying off a variety of filing and other legal fees related to their case. Crowd sourced financing loans start out small on a per-lender basis. These irate investors would get back even less than that starting amount potentially due to them, and perhaps a third or more less than they has initially paid out and even if the business paid out every penny received this way to end the suit. So no one would actually get much of anything back and winning here would be more of a moral victory than a financial one; this is probably one of the reasons why I have never heard of such a legal action actually taking place. And this single exception scenario simply reinforces a point that I just made above, of crowd sourced investors “not having much if any of a say on the running of those businesses” that they invest in through the crowd.

The one other aspect of crowd sourced investment that I at least made note of in Part 29 was the marketing value that this can create for a funded venture. Think of the above paragraphs as addressing an at least potential negative viral and crowd sourced marketing and its consequence. Here, I focus more on the positive side to this. And I am going to more fully explore what that means here, and by way of comparison with the at least potential positive marketing value of being able to claim to have received venture capital funding support, as a new and still largely unknown business venture.

Venture capitalists, essentially by definition make significant cash investments in the businesses that they select to work with. And they do this on the basis of in-depth reviews and analyses of the businesses that they consider investing in. So when a venture capitalist or venture capital group invests in a business, they add to that venture’s reputation, the fact that they have been objectively professionally reviewed and found to be a good bet for success. And this is always arguably a significant vote of approval as the investing business offering it, does so by “putting their money where their mouth is” for it. This has marketing and reputation building value for a business that is invested in and particularly when the venture capitalists involved have a good reputation for their own professionalism and for their investment savvy and success.

Most venture capitalists are industry specialists and focus on businesses of types that they have expert familiarity in, when making their investment decisions. They know what to look for and what to look out for there, and both before making their specific investment decisions and as they seek to actively promote the success of their investment choices. And they have the expert familiarity to make meaningful positive contributions to the success of the ventures that they invest in that go beyond the offer of funding support alone, where for example it is common for venture capitalists to join the boards of directors of the businesses they invest in, or offer explicit business development advice to their owners and executives. They reduce their own risks and increase their possible and likely payouts and profits there, in all of this. But the marketing value that their funding and other participation offers to a venture that they invest in, is not going to primarily take the form of supporting their client businesses’ particular marketable offerings: their product or service specialization or what they particularly bring to market. It is going to be in support of those businesses themselves and their strategies and operations, and their capabilities as businesses per se.

The marketing and reputation building value that a venture can accrue from garnering crowd sourced funding support is going to oriented more towards the perceived value of their mission and vision goals and in what they actually produce that would at least attempt to fulfill those generally stated goals.

This distinction is telling, and it also connects in very strongly with where these funds come from:

• Business-oriented professionals and their venture funding businesses, for venture capitalists,
• And end users and consumers and people from the marketplace, in the case of crowd sourced funding.

In both cases these investors and groups of them evaluate and arrive at an understanding of value of a possible investment opportunity. And both categorical types of investors offer marketing support as they do that too, from the perspective of the demographics that they represent. It is just that they tend to use words like “value” there very differently, with venture capitalists focusing on cash flow and monetary return on investment, and crowd source investors focusing more on non-monetary returns, and societal and other “big picture” criteria for success.

And this brings me to the questions and issues of exit strategies as my next to-address topic here. I have been addressing the value and perceived value of a business and its potential, in the last few postings to this series, and in this installment to it too. But I have done so in terms of what could be a fundamentally immutable business development pattern, and with an initial and fundamentally unchangeable goal for the businesses under consideration. Exit strategies represent fundamental change and true transition points where same and linear evolutionary change in a developing business, give way to fundamentally new and different.

The term exit strategy is used in a variety of ways; I use it and certainly in a new and young business context, to represent the goals and strategy transitions that a business and its founders and owners can come to face as their new venture first reaches a point in its development where it is now bringing in at least some profits and at an at least largely consistent period-to-period pace (e.g. month-to-month, quarter-to-quarter, or whatever period the enterprise is strategically planned out for and on a routine basis.) With this brief orienting note in place, I am going to more fully address exit strategies in the context of this series, in my next installment to it. 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.

Building a startup for what you want it to become 24: moving past the initial startup phase 10

Posted in startups by Timothy Platt on June 15, 2017

This is my 24th installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Startups and Early Stage Businesses and its Page 2 continuation, postings 186 and loosely following for Parts 1-23.)

I began explicitly discussing three basic business model approaches in Part 22 and Part 23, that I continue to address here in this posting too:

• A conservative business model,
• A normative business model, and
• An aggressive business model.

And I begin this continuation by repeating a crucially important point of explanation made in Part 23, that is often overlooked as people make unexamined assumptions as to what words like “conservative” and “aggressive” mean, and certainly in a business context:

• Conservative in this does not necessarily mean building for reduced overall risk, and aggressive does not necessarily mean building from a more risk accepting and risk tolerant perspective, and it does not necessarily mean accepting more of it – even if that can be the case when making specific comparisons between specific businesses.
• The real distinction here can in fact simply be one of where the risk that is allowed for, is considered acceptable in the business’ overall operational systems.
• (Following up on my Part 23 new manufacturer example), would risk be best accepted in the form of reduced liquidity with its consequences, in order to better safeguard here-and-now production line continuity, or would it be best accepted in the form of allowing for greater risk there in order to safeguard liquidity levels – that would now be more readily available to meet other business needs? This is where business planning has to be comprehensively inclusive and where it has to take into account all anticipatable factors.

I began addressing a key defining and organizing term in Part 23 that I pick up upon here as I continue this narrative: “essential.” If I were to distinguish between the three basic business models under discussion here in terms of one word, it would be in noting how their owners and managers variously find meaning in that one. Business owners and managers, and from senior executives on down, seek to optimize what they are doing and what they are building for, in terms of their understanding as to what is essential and what is most essential and certainly in their immediate here-and-now. But they can systematically differ in where and how they use this type of word and both in that immediate here-and-now and as they plan forward and for their longer-term too, and certainly when making comparisons between same-type and same-level managers or executives as they work in businesses that follow different business models, according to the tripartite business model distinctions made here.

I have already been considering this from a risk management perspective, even as I have left out that terminology in the last two postings. I explicitly apply this label with its baggage of associated assumptions and presumptions here, where I will more generally consider the issues of stability and opportunity, as pressures towards them can come into alignment and as they can come into at least apparent conflict too. In anticipation of that discussion to come, I will continue to focus on first steps that businesses take when entering their first early growth phase and for the three basic business models under consideration here. And as part of that, I note here that where stability and opportunity and the benefits side to what would enter into a more traditional SWOT analysis, offer a roadmap to where a business seeks to go, risk and threats and potential weaknesses inform how and when and according to what timetable this might be carried out along.

I begin all of this with consideration of timeframes and the question of how far forward, strategic and operational planning would be carried out. The farther out you look and seek to predict and plan, the greater the uncertainty you have to accept and for reasons that arise both internally to your business and from its and your own outside contexts.

• Short term and even essentially here-and-now analysis and planning: tactical analysis and planning can offer real clarity of vision, but do so at the cost of not helping you prepare for new and emerging contexts or contingencies as they arise over time, and often even where simple longer-term change can accurately be predicted.
• Long-term planning has to be able to accept and even actively accommodate alternatively arising contexts, and the possibility that none of the predictive models considered might actually become the reality actually faced. Disruptive novelty and change can arise at any time and in a seeming instant; but the odds are greater that this will have to be faced, the farther forward you plan and predict into and the longer the timeframe you have to allow for.

And this brings me to the key words of this posting’s discussion: “stability” and “opportunity,” or at least planned for stability and predicted opportunity – where this means predicted paths forward in business development that would be expected to maximize value achieved, with ongoing stability while accomplishing that.

• New and still forming and developing businesses carry a significant level of risk in all of their decisions and actions that they take, and certainly insofar as those decisions would impact upon their working budgets and the levels of reserve funds that they might have.
• Ultimately, “essential”, “stability”, “opportunity” and I add “risk” and “cost” are all terms that are financially grounded, and that are most firmly grounded in liquidity terms.

That, I add is a very fiscally conservative assertion; when a business has lean financial reserves, a measure of such conservatism can be essential as a due diligence and risk management position. But let’s consider non-liquid assets, and assets that can only become explicitly financial assets of any sort, over time and as a business actually develops and begins to succeed. And the most important such assets in general and essentially categorically for any startup with potential, is the set of ideas and concepts, vision and understanding that could be developed into a unique value proposition that would make this new venture stand out.

I return here to the absolute essentials here: if you want to build a startup and make a successful go of it, find a path forward in what you could offer to a marketplace that would be uniquely yours, and develop your business into that. Don’t strive to be the 17th best business in town in the business sector that you would build into and the 17th best for offering an already readily available product or service; plan for and strive to be the best, and even the first and the best possible for what you can specifically offer, and with a point of distinction in what you do and offer that the consumers of a marketplace would see as offering special new value to them. And this brings me back to the main thrust of argument of this posting, and to stability and to the uncertainties of longer timeframes:

• On the one hand you need to be prudent and even conservative in managing your resources,
• But on the other hand and at the same time, if your do not take risk and invest towards fulfilling the potential of your initial dream: building to realize your new and novel and value creating vision of what you could accomplish, then conservative management of the resources that you have in place will not help you and certainly long-term.

Success here means finding and reaching an effective balance between taking a conservative and a risk-taking approach. And with this, I return to the notion raised in Part 23 of the normative business model, as noted at the top of this posting, as representing finding an effective balance point between conservative and aggressive, and with a goal of taking the best of both in finding what is hopefully a best combination for you.

I am going to continue this discussion in a next series installment where I will focus on making business analysis more data-driven. And I will delve into the questions and issues of where this source of raw material for insight would come from in a new business setting – and how it would be used there. Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

Planning for and building the right business model 101 – 29: goals and benchmarks and effective development and communication of them 9

Posted in startups, strategy and planning by Timothy Platt on June 5, 2017

This is my 29th 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 1-28.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I began Part 28 with a briefly stated, essentially checklist formatted outline of how a strategically considered and planned startup would be launched, and in a manner that could lead to stable growth and development from there:

1. Start with as clear as possible a statement of what the new business’ founder and their founding team seek to develop as a business. Couch this in general goals-oriented, mission and vision terms for what this venture would offer to its markets, and for what would competitively set it apart there.
2. Then reality check that characterization of intended overall goals, against an equally clearly stated inventory listing of the resources and assets that that founder and their team can bring to this effort, and starting with what these people personally bring to the table as far as skills and experience are concerned that would support and enable this venture, as well as any financial or other resources that they can commit and devote to it. And to complete this list, include any negatives as well (e.g. anything like non-compete agreements with previous employers, as that would impact upon one or more members of this group actually being able to perform in this new venture as intended and desired.)
3. And now bring this all into more specifically actionable terms with at least the initial planning, outline details of their business plan thinking, that would help them leverage their Point 2 resources in developing a venture towards achieving their Point 1 goals. The goal in this step is to build a foundation for iteratively, step by step fleshing out the business plan that is to be followed here, with a consistent, orderly, mission and vision statement-oriented focus,
4. And to identify where possible, any places where Plan B refinement or initial-idea replacement updates might more predictively be called for, to make this new venture as secure in its succeeding as possible; plan for flexibility and resiliency here. That means being ready to step back and make changes and corrections as needed, and with a goal of making the business plan followed, a dynamic adaptable game plan for moving forward.
5. And this (ongoing) effort enters into completing a full business plan that all involved stakeholders can comfortably sign off upon. And it also enters into early development stage planning and strategic reviews as both the expected and as the unexpected arise and have to be dealt with and resolved too.

Then after concluding, at least for now, a discussion of in-house considerations as to how this would play out, I turned to consider outside forces and factors that can significantly shape a new business and both for what it seeks to do and become, and for how it would build towards that goal. I focused there on the roles that venture capital and angel investors can play in this as they take on what can become significant equity shares in a new venture. And as part of that, I at least briefly addressed a potential source of conflict that can arise between in-house business executives and owners, and outside investors and particularly as their timing and priorities expectations and requirements might differ.

I stated at the end of Part 20 that I would a discuss wider range of in-house and insider, and outside forces and factors that can help shape how the goals of the above numbered list of business development steps would be understood and carried out. In anticipation of that, I added that I would more explicitly discuss crowd sourcing as an outside investor option and from both the crowd sourced investor side and from the side of the business invested in, as a first such example. And to repeat an orienting note that I appended to this, I observed that:

• The factors that hold importance here are those that directly and specifically influence and shape that business’s capacity to create value. That is where these factors impact upon and influence and even shape the business at its most fundamental level, and outward from there.

Angel investors, and venture capital investors in particular: more traditional sources of outside investment besides supportive funding from immediate family and friends, involves significant levels of funding that comes from a small number of sources and certainly for any given venture that is invested in.

• A new business venture that has an arguably exciting mission and vision to offer might capture the interest and funding of a small group of angel investors but even there, that number is going to be limited and very much so, in all but the most exceptional cases.
• A venture capitalist, or more likely a venture capital company that is considering investing in a later stage startup or early growth business is in most cases going to want to be their exclusive source of outside investment funds. Their due diligence analyses would argue against their putting themselves in a position where they might face conflicting claims from other investors, to ownership rights to a share of the overall value of the businesses that they invest in, that would match and cover the investments that they have made there. So here, a limited number of these investors generally means just one and even with second round venture capital investment explicitly considered where the business that is being invested in has already proven itself.

Crowd sourcing reverses all of this. Investment funding from this type of source means small and even minuscule loans of invested funds from what can be hundreds, thousands, tens of thousands or more individual investors.

• Individually, none of them do or can claim hold to any significant share of the equity that a new business they invest in might hold.
• None of them individually would have much if any say in how the business is run and either operationally or strategically.
• Like angel investors, crowd source investors tend to be drawn to what they see as positive and affirming missions and visions as offered by the business investment opportunities that they pursue.
• And at least collectively, like venture capital investors, a community of involved crowd sourced investors can bring together very large pools of investment funds. Individually they might only modestly invest but when thousands and more of them all invest small, the overall result can become very large.

This process has all become a lot more streamlined in recent years, with the advent of crowdfunding platforms such as Kickstarter, RocketHub, GoFundMe and I add quite a few dozen more – and with that just considering funding platforms that have shown significant levels of actual activity and with real investment ventures and real investors. These platforms provide a number of services and both to the crowdfunding community and to ventures that seek such support. One of them, that holds value from the fund provider perspective can be found in how they vet and validate legitimate new ventures that meet their standards as legitimate places to invest money. And one that holds value from the perspective of businesses and organizations that would seek out this funding, is marketing and increased visibility, and through channels that crowd sourced investors would look to when selecting ventures to invest in. These organizations serve as middlemen in the crowd sourced funding arena, but ultimately the people who invest in the businesses they highlight, invest with those new ventures and as small investment level individuals. So the basic points just noted about crowdfunding still apply.

From a new business perspective, crowd funding provides a great deal more than just readily available liquidity, as important as that can be. It creates a marketing presence and market buzz, with all of the additional viral marketing reach that connecting positively with an online and social media-connected crowd can bring. And it does this with minimal loss of control over business decisions as they are prioritized and made.

• Decision making pressures from the funding crowd that has been reached out to, is primarily a matter of meeting a due diligence requirement of actually striving to reach the mission and vision statement goals that their crowd funding campaigns were built around, where an apparent good faith effort would meet the requirements and expectations of most of these investors.
• If a desired goal that was being funded towards were easy, it is unlikely that many would see crowd sourced funding in support of it as being necessary; it is the difficult-appearing challenges that get this type of funding, where real overall success can never simply be taken for granted.

I am going to continue and conclude my discussion of crowd sourced funding in the next installment to this series, at least for the issues that would be addressed here. And then I will turn to consider a more in-house set of issues and factors that can rise to real importance here: exit strategies and what the owners of a new venture seek to build it into, and from when it really begins to bring in consistent profits and moving forward from then. And as a part of that, I will explicitly discuss the issues of growth companies and businesses that really pursue that vision, and profit center companies and businesses that really pursue that vision.

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.

Building a startup for what you want it to become 23: moving past the initial startup phase 9

Posted in startups by Timothy Platt on April 26, 2017

This is my 23rd installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Startups and Early Stage Businesses and its Page 2 continuation, postings 186 and loosely following for Parts 1-22.)

I began discussing new businesses that have just entered into a state of achieving consistent if perhaps still modest profitability, and their first early growth phase in Part 22, there focusing on three characteristic if somewhat stereotypical business model approaches which I identify as following:

• A conservative business model,
• A normative business model, and
• An aggressive business model.

My focus of attention there was on how these types of businesses variously approach issues of volatility, and with a focus in that on how supplies of externally sourced resources are secured, as a working example of an area of possible concern as would apply in a standardized manufacturing or a more custom production context. Note: this does not necessarily mean large scale or assembly line production, and for a new young business it probably would not and certainly at first. It simply means developing and selling product offerings that are constructed and assembled in this new business, for sale through a market to end-user consumers or to other manufacturers for use in their products.

I specifically addressed the conservative and aggressive models in Part 22, leaving consideration of the more normative business model approach for here. And I will in fact significantly focus on that in this posting’s discussion. But before doing so I want to continue, and for now at least complete, my discussion of the first two business model options under consideration here, as well as offering some more-general comments that would address all three of these approaches.

First of all, it is important to note that while externally sourced resources such as raw materials that would go into finished products, are essential for the ongoing performance of a manufacturing business and are of vital concern there, they do not constitute the only possible sources of volatility that have to be considered by those ventures. I also made note of volatility in marketplace interest in what is offered and of sales potential in Part 22 too, and the market face of volatility. But even with that added into consideration, market-sourced and supply chain and resource acquisition sourced volatility combined do not even begin to fully address the possibilities here.

Let’s set aside considerations such as change in law or in outside regulatory constraints here, as a new business is not likely to have developed consistent processes or practices under an older system. This area of consideration might still be important if the founders and managers of such an enterprise have developed their business model in its specifics with regulatory, for example, assumptions build into it that will perhaps suddenly no longer apply. But let’s set this source of potential volatility aside here at least for now and consider other additional possibilities. And with that, I turn to consider new businesses that would operate in innovative industries and that would seek to meet the needs and demands of a marketplace that demands change and invention and on an ongoing basis – as applies in a wide range of consumer oriented technology-provider arenas.

• For a rapidly changing innovative industry in particular, the most important driver of volatility level and risk for a business, and particularly for a young one with still-limited financial resources, can come from disruptive innovation as it might arrive to market from a competitor.

New businesses, in general seek to devise and offer new sources of value, as value would be seen by potential markets and customers, that would set them apart from their competition. Novel and even unique niche defining value of this type creates opportunity to grow and succeed. But this often means new businesses seeking to fulfill an unmet need that others might also be trying to build and market and sell to as well. What happens if a young company suddenly finds that its new business defining source of value is not going to be as uniquely defining for it as they wanted or planned for it to be? What happens if this degradation in realizable opportunity arises before they can develop a strong first mover, name advantage as a known and hopefully preferred source of what they offer, as their consumer facing new source of special value?

• Volatility and the risk (and opportunity) that it can engender can take a variety of forms, and some of them are both predictable and industry-dependent, or at least dependent on a predictable pace of change that an industry and its markets operate in. But even then, volatility can arise unexpectedly and certainly in any actionable, specific incidence detail too. So it is vitally important to think through where this type of overall categorical challenge can come from, and from all possible anticipatable directions.

The second more fundamental, general point that I would explicitly address here in this posting is the simple fact that it is young businesses that I am holding under consideration here, with limited financial resources: liquidity and reserves, and limited performance track records that could be cited as sources of surety of more likely positive performance ahead. I have at least touched upon the cash-available, liquidity side of this in Part 22 and here in this posting as well, and on how a lack of buffering reserves creates risk in and of itself. Limited track records can create parallel risks, and ones that might only be partly off-set by the personal reputations and work histories of the entrepreneurs who are building this venture – and particularly if they are young entrepreneurs who seek to move from more hands-on and low-level management positions in larger organizations to ones of stand-alone, independent business building.

So I begin the main line of discussion of this posting by expanding out the basic set of issues addressed in Part 22. And with that in mind, I turn to consider the more normative business model – which I position here as taking what can be considered a mixed-strategy approach in picking from the conservative and aggressive business model approaches for what would hopefully be a more effective blend.

First, let’s consider those externally sourced resources again, and raw materials and preassembled, third party components that would go into a normative business model enterprise’ own finished marketable products. I wrote in Part 22 of how a conservative approach would more likely lead a business to storehouse at least essential supplies of this type, as would be fiscally prudent, in order to insure their being able to maintain their own production lines – and certainly as they are just getting started and trying to prove themselves to their markets, where any gaps in their production would raise grave concerns as to their reliability. Conservative here, would mean their holding larger overall production input reserves of this type and particularly if the owners of such a venture felt any real concern regarding their supplies availability. An equally still cash-strapped aggressive model business would push this envelop much more towards taking a just in time approach to supplies acquisition and management.

For small, young businesses this might only involve small levels of supplies inventory acquisition and storage and regardless of which of these three basic business models is being followed, and certainly when compared to what a more established larger enterprise would face and even when both new and established pursue what is in principle the same business model approach (e.g. a same basic lean and agile approach.) But that point of comparison and the overall levels and monetary values of stocked materials held at any given time are not important here; what is, is that the level of manufacturing raw materials invested in and held at any given time can represent a challenging scale of investment for any new young business as it seeks to allocate its resources and risk faced – and sometimes even for one pursuing a more just in time approach too. The proportion of potentially available overall liquidity is the more important consideration here. And lean liquidity is after all, lean liquidity.

• What would the normative business model approach dictate here? Answering that begins with asking a series of basic due diligence questions, and ones that the owners and senior managers of such an organization would focus upon in their planning.
• What are the sources of volatility faced and what are their priorities?
• Priority determinations for this would be arrived at on the basis of an analysis of the likelihood of specific problematical events arising and an analysis of their likely cost-impact if they do, and according to a single unifying standard scale: arrived at by multiplying likelihood probabilities of occurrence of possible adverse events, by likely costs if they do arise. And as this involves significant potential unknowns and for both of these basic factors, a prudent approach for implementing this would be to develop best case, worst case and normative analytical risk management models here and to choose which to assume here on the basis of the overall level of risk that would be considered acceptable for the business.
• Supplies acquisition and use would certainly be included there for any business that seeks to manufacture and bring to market their own products. What areas of their production supplies input would best be managed more conservatively and where would a more aggressive approach make the most sense? Volatility in supplies availability for certain types of input resources might dictate pursuing a more conservative course there, while ready reliable and even contractually guaranteed availability might dictate a more aggressive one, and certainly if the range of available sources for these resources was steady and similar across both of these areas of resource acquisition and not a defining factor that might also distinguish between them and when they might best apply.
• But switching directions in this narrative to add in a critically important business model parameter, I repeat a crucially important point that I made in Part 22, but that I did not elaborate upon there. Conservative in this does not necessarily mean building for reduced overall risk, and aggressive does not necessarily mean building from a more risk accepting and risk tolerant perspective, and it does not necessarily mean accepting more of it – even if that can be the case when making specific comparisons between specific businesses. The real distinction here can in fact simply be one of where the risk that is accepted, is accepted in the business’ overall operational systems. Here, would risk be best accepted in the form of reduced liquidity with its consequences, in order to better safeguard here-and-now production line continuity, or would it be best accepted in the form of allowing for greater risk there in order to safeguard liquidity levels – that would now be more readily available to meet other business needs? This is where business planning has to be comprehensively inclusive and take into account all anticipatable factors.

Normative business models are explicitly developed around that understanding and with a goal of intelligently managing and reducing risk on a functional area by functional area, and a process system by process system basis – and with overall risk reduction added in there where it can be. And this is also where timing constraints can become vital – and the pace and timing in which positive opportunity and business success, and risk and loss might arise. A normative business model is also built explicitly around recognizing and planning for the timing possibilities here, and both for maintaining business strength in its still early and fragile here-and-now, and for building for its longer-term. Normative business models explicitly seek to pace out the risk that has to be accepted, spreading its emergence over time. And they seek to distribute it more effectively within their systems as it does arise so no one area of their enterprise is avoidably more explicitly prone to single point of failure or other avoidably increased harm. All three of these models take this type of analysis into consideration. But normative business models carry out this type of analysis as a more fundamental element of their overall planning and execution as they are more fully built around finding effective business model compromise and balance point solutions.

I stated at the end of Part 22, that I would explicitly address the issues raised by a single key word that I used there, and I turn to do so here. The word in question is “essential.” And if I were to distinguish between the three basic business models discussed here, in terms of one word, it would be in noting how their owners and managers variously find meaning in that one. Businesses that follow these three approaches all seek to optimize what they are doing and what they are building for, in terms of their understanding as to what is essential and what is most essential and certainly in their immediate here-and-now. But they can systematically differ in where and how they use this type of word and both in that immediate here-and-now and as they plan forward and for their long-term too.

I have at least begun to explore what is essential in this posting, and will continue to do so in a next series installment where I will more generally consider the issues of stability and opportunity, as pressures towards them can come into alignment and as they can come into at least apparent conflict too. In anticipation of that discussion to come, I will continue to focus on first steps that businesses take when entering their first early growth phase and for the three basic business models under consideration here. And as part of that, I note here that where stability and opportunity and the benefits side to what would enter into a more traditional SWOT analysis, offer a roadmap to where a business seeks to go, risk and threats and potential weaknesses, inform how and when and according to what timetable this might be carried out along.

Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

Planning for and building the right business model 101 – 28: goals and benchmarks and effective development and communication of them 8

Posted in startups, strategy and planning by Timothy Platt on April 16, 2017

This is my 28th 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 1-27.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

In Part 27 of this, I focused on planning and building a new business venture from its initial planning stages outward, from the perspective of the initiating founder and the founding team as they assemble such a group around this endeavor. And I did so in terms of what amounts to a checklist of steps and considerations that I further adjust as to wording here, as follows:

1. Start with as clear as possible a statement, of what the new business’ founder and their founding team seek to develop as a business. Couch this in general goals-oriented, mission and vision terms for what this venture would offer to its markets, and for what would competitively set it apart there.
2. Then reality check that characterization of intended overall goals, against an equally clearly stated inventory listing of the resources and assets that that founder and their team can bring to this effort, and starting with what these people personally bring to the table as far as skills and experience are concerned that would support and enable this venture, as well as any financial or other resources that they can commit and devote to it. And to complete this list, include any negatives as well (e.g. anything like non-compete agreements with previous employers, as that would impact upon one or more members of this group actually being able to perform in this new venture as intended and desired.)
3. And now bring this all into more specifically actionable terms with at least the initial planning, outline details of their business plan thinking, that would help them leverage their Point 2 resources in developing a venture towards achieving their Point 1 goals. The goal in this step is to build a foundation for iteratively, step by step fleshing out the business plan that is to be followed here, with a consistent, orderly, mission and vision statement-oriented focus,
4. And to identify where possible, any places where Plan B refinement or initial-idea replacement updates might more predictively be called for, to make this new venture as secure in its succeeding as possible; plan for flexibility and resiliency here. That means being ready to step back and make changes and corrections as needed, and with a goal of making the business plan followed, a dynamic adaptable game plan for moving forward.
5. And this (ongoing) effort enters into completing a full business plan that all involved stakeholders can comfortably sign off on. And it also enters into early development stage planning and strategic reviews as both the expected and as the unexpected arise and have to be dealt with and resolved too.

This only represents a bare bones outline to the start of what would in practice become a much more complex, and I add individualized agenda, with that individualization based on a detailed understanding of the business itself and its particular mission and vision, and of the people building it, its intended markets, and any other internal and outside contextual factors that might realistically be expected to hold importance there. And this list of issues and considerations and a more individualized and fleshed out variation of it, complete with a more fully developed business plan, constitutes the basic road map resource that would best be pursued over a significantly more long-term timeline than would usually be included in any initial new business, startup framework per se.

I offer the above approach as a de facto starting point for adding due diligence into business and its planning and execution. And I would contend that the basic issues and approaches that I offer there do make practical sense, and they in fact do at least as measured against my own experience when working with entrepreneurs and their startups and early stage businesses. But this discussion up to here still primarily only addresses one side to a still-larger story: the insider perspective, and with outside considerations added in more as pro forma side notes. My goal in this posting is to expand upon that narrative to include an at least somewhat more detailed initial consideration of one of the categorical level outside forces that can also enter into and shape this process.

I stated at the end of Part 27 that I would turn here to consider outside stakeholders such as angel or venture capital investors as they might become involved here, and in ways that mean their holding an equity stake in a new business venture. My goal here is to at least briefly explore how differences in overall goals and priorities that would drive business development, can and do play out in building a new business, and how those differences can arise in this insider plus outsider context and in general. That, among other details means really thinking through and understanding where outside guiding and shaping forces and sources of influence come from. And with that in mind I point out that:

• A founder and their team cannot plan for or effectively develop a new venture in ways that effectively, proactively response to factors that they have not explicitly identified and considered.
• They can only address the unexpected and un-prepared for reactively and after the fact, and even when retrospect would indicate that they should have seen at least some of those at-least potentially impactful “unexpected” circumstances coming. And that type of business-as-reaction and business-as-remediation as needed, is not planning.

I have written a number of times in this blog about venture capitalists and in this general context. And add that I have come to know a number of people active in this field as venture capitalists, and entrepreneurs who have turned to them for support. So I will share some thoughts concerning their type of outside participation in the issues that I raise here, in the course of what follows. But I also want to shed some light on how angel investors can significantly influence and shape a new business venture here too, and even with their lower levels of investment and thus ownership share, and even when they take a much less hands-on approach to the building and day-to-day running of a new business that they would invest in. I begin with the venture capitalists and with their larger and even vastly larger capital investments in the businesses that they agree to work with.

• Venture capitalists, as just noted, make major investments in the businesses that they invest in, and at levels that often extend upwards into the millions of dollars now. And they seek out ventures that they would work with in this, with a great deal of care in order to minimize their risk of loss of invested funds, and in order to increase their likely profitable return on investments. If they gamble, and investing in new business ventures always has at least a gambling element in it, they do so with care so as to control the odds in their favor from their selection of where to place these bets and how.
• And on the how side of that, they often seek to actively improve their odds by working with the founders and founding teams that they invest in, as mentors and even as active participants. It is not unusual, for example for a venture capitalist or venture capital firm to agree to offer investment funds to a later stage start-up or early stage business – but only if the owners of that business agree to bring in a Chief Financial Officer of their choosing, who they have vetted for their expertise and experience in shepherding new business ventures of their industry, through their early stages. This possibility in fact offers real value to all concerned.
• It is least as common and probably more so for venture capital supporters to want and even insist upon having one or even two of their representatives on the board of directors of the businesses that they invest in, to offer guidance and support through that channel too, as well as for giving them a say in how their investments are used. And this can offer real value to all concerned too, and particularly where these added-in board members offer real depth and breadth of specifically relevant experience – as they usually do.
• The issue that I would focus in on here, and certainly in this context when considering these outside investors, is that of possible conflicts of interest and particularly when the founder and leading team members of a new business venture seek to map out their new enterprise in accordance with a process flow of the type I just outlined above in my five point list.
• Outside, venture capital sourced board members come in very explicitly as representing the interests of the investors who they work for, and even if this is specifically couched in terms of helping to increase the likelihood of success for the new business itself. But when a business takes on – brings in a C level officer such as a Chief Financial Officer, and as a full time member of their team – not just short-term as an interim hire, they are bringing in someone who should be a true insider there.
• A business’ Chief Financial Officer is supposed to hold to and honor a genuine fiduciary responsibility towards the business they work for and in all of their dealings there and should carry out that responsibility as a true member of the team that owns and runs the business. What happens if and when the owner and leading managers and executives of a new business come into conflict with the venture capital investors who have bankrolled them and who now hold an ownership stake in the business and perhaps even a significant one? Who should the CFO support in this situation when they are part of the business and its leadership but when they were selected by and for outside investors? A best answer to that might or might not be easy to discern, and the issues and priorities that arise there might not be clear cut, and particularly where differences in proposed paths forward for the business stem at least in part from differences in understanding as to the likelihood and nature of perceived risk and benefit faced.
• I have seen disagreements of this type develop and this is where possible divisions of loyalty will become problematical if they ever do – and with officers such as that CFO potentially caught in the middle. Owners and their founding teams do not always know best and neither do the venture capitalists who support them – and particularly where these groups of necessity focus on differing timelines to success in how a business is built and developed.
• Owners and their founding teams at least should be focusing essentially entirely on the long-term and on building to last and with as much of the revenue coming in, going into the business itself as is possible to ensure that happening, and certainly when they are just beginning to bring in revenue. Prudent and certainly conservative entrepreneurs tend to be willing to wait before seeking their own profits from these ventures, to ensure that their new businesses survive and thrive – and become steady reliable sources of profitable value to come and for all stakeholders.
• Venture capitalists want to see the businesses that they invest in to succeed too. But they also follow a business model of investing that is built around their capturing large returns on investments made, and as quickly as might be realistically possible and both to cover any loses from other investment ventures that they enter into that do not work out for them, and to bring in liquid profits for themselves – much of which they would reinvest in next-cycle business investment ventures.
• This timing difference in and of itself can reframe how these two differing if collaborating groups would view the actual carrying out of the type of five point to-do list that I offered at the top of this posting.
• And I leave off discussion of venture capitalists as outside participants – and as forces of shaping influence in this with that point, and turn to consider angel investors.

I have probably cited and made note of angel investors at least as often as I have venture capitalists and their business models in this blog. But I have devoted a great deal more of my overall discussion in this blog to the venture capitalists, and for a simple reason. They actively seek to influence operational and strategic planning and follow-through, and in ways and to degrees that angel investors per se would never even consider. And I do spend a fair amount of my time in writing here, focusing on operations and strategy.

Angel investors tend to make significant smaller investments in new ventures than do venture capitalists. And they tend to focus their investment efforts on supporting new business founders who present them with missions and visions that they find compelling, as a driving impetus for their becoming involved with them. A great deal of angel investment activity ends up being directed towards new ventures that hold forth mission and vision statements that smaller but still significant investors would see as being societally important in some way. Angel investors are more mission and vision driven than they are operations and strategy driven.

I tend to write about outside investors for their impact on operational and strategic considerations, and those considerations are tremendously important in any business and of any type and at any stage or state in its development. But even the most day-to-day and strategic planning, hands-off angel investor can still come to have a large and even a tremendously significant impact upon a business, and from the earliest, first step of the type of business development model I raised in my above five point list. Their participation and their vision and understanding can come to shape and even fundamentally bring into focus the underlying mission and vision of the new business as whole – shaping the starting point of that list, that all else would be built from. This certainly holds when a prospective angel investor has themselves, a compelling story to share that would enter into and inform that mission and vision, and one from their own experience or from that of their family. And that certainly holds when an already aware business founder and owner finds themselves facing a voice of parallel experiences and perspectives, that could resonate with their own thinking and expand on their vision or give new focus to it. Venture capitalists and other larger scale investors tend to focus on Points 2 and following as touched upon in my above-stated list, and on the issues and tasks that enter into them. Angel investors can in effect help to set the entire playing field for all of this by influencing and even helping to form the initiating Point 1 step that all subsequent effort stems from.

I stated at the top of this posting that I would discuss in-house and insider, and outside forces and factors in general in this narrative, and I will expand out my list of what I would address of that in a next series installment. In anticipation of what is to come there, I will begin that posting by rounding out the financial influence portion of this discussion that I began delving into here, by raising the issue of crowd sourced funding as a third outside funding alternative. And with that added as a third area of financial and funding impact, I will move on to more fully consider how outside factors per se enter into business planning and development; I will at least briefly consider other non-financial outside factors that commonly arise as holding importance for new businesses. And I will at least briefly outline a few of the key details as to what this range of perhaps seemingly disparate outside forces and factors, in fact all hold in common in a new business context. And to pick up on a detail that will prove important there, I explicitly note here that the only way to really understand what has impact in this is by:

• Explicitly understanding where and how these factors directly and specifically influence and shape that business’s capacity to create value. That is where these factors impact upon and influence and even shape the business at its most fundamental level, and outward from there. I will discuss this too.

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.

Building a startup for what you want it to become 22: moving past the initial startup phase 8

Posted in startups by Timothy Platt on February 15, 2017

This is my 22nd installment to a series on building a business that can become an effective and even a leading participant in its industry and its business sector, and for its targeted marketplaces (see Startups and Early Stage Businesses and its Page 2 continuation, postings 186 and loosely following for Parts 1-21.)

• I began addressing the question of knowing when a new venture has reached a point in its development, where it can be said to be consistently profitable in Part 20 and Part 21 of that, and note in this context that a transition from pre-consistent profitability to generating reliably consistent profits marks a transition into a business’ first early growth phase.
• I then went on to at least begin discussing how different types of businesses would make use of this early developing flow of profits, as liquidity that can retained in the business itself to enable its growth, or that could be taken out of the venture for personal enrichment and profit.

I have been discussing a range of basic due diligence issues that enter into addressing these points, in terms of three basic business model approaches that I identify in this series as following:

• A conservative model,
• A normative model or
• An aggressive model approach.

And my goal here is to at least begin to look more specifically into each of these models. And in anticipation of that discussion to come, I note here that I will at least initially focus in this narrative on two business-shaping criteria: volatility and external timing constraints. And I begin that with volatility.

I began addressing volatility in general terms, in Part 21, and recommend you’re reviewing that line of discussion to put this continuation of it in fuller perspective. But in brief and selective summary of what I wrote there, this is a context where you have to be able to identify and evaluate, and plan in terms of resource need and availability, and as these issues arise in all directions and both within your organization and in its connected context. That, of course means raw materials and preprocessed and assembled parts that you might acquire from other businesses for inclusion in your own products, and parts and supplies that might not end up in your finished products that you need in order to produce them, or to manage their processing and distribution for sale. That includes volatility in your marketplace, and the possibility of rises and fall-offs in the levels and pace of sales made there for the types of products that you offer. Actually, this includes and can include essentially any benchmarked availability criteria that would be of importance to your business, whether that means parts or customers, or shifts in regulatory or other legal requirements that would impact upon your business’ performance and success. And I have only noted a few possibilities here, from what for most businesses would be a longer list. I have, for example, mentioned factors such as weather uncertainties in this type of context, in this blog when severe weather can mean loss of usual and planned for sources of essential raw materials such as citrus fruit, for companies that use them in their products. How does this type of consideration take shape and play out in businesses that pursue each of the three business model types, as identified above?

I will take that at least somewhat out of the abstract here by focusing on necessary raw materials and pre-manufactured and assembled parts that your business would have to acquire for inclusion in your finished products.

• A business that follows a conservative model when addressing that, would plan ahead and according to an expectation of at least some delays and other irregularities in their critical needs supplies flows for this. And the more volatile supply chain and original supplier support is for their production line input, the more incentive they would have as a risk management consideration, for preparing for problems. That, at the very least would mean stockpiling essential materials and parts where that is possible, in order to keep their own production lines active and productive. And where that is not as possible, it would mean actively preparing to switch sources of these necessary goods and materials so if delivery problems arose from one expected source, other such sources will have already been planned for and prepared for.
• There are real trade-offs here, insofar as warehousing what might prove to have been excessive levels of supplies in advance, carries its own costs – from the cost of warehousing per se with the storage space and labor involved, increased likely spoilage and loss, and the prospect of ending seasonal production runs (where seasonality applies) with excess materials in inventory that might not be needed – and even ever. But a conservative business model approach here, would accept a measure of additional costs up-front, as an insurance offset to possible greater costs that would be faced if they had not so prepared – and then found they should have.
• There is, of course a lot more to this system of trade-offs than I have noted here. Adding in two more possible considerations here, that can at least contextually become very important:
• Buying such supplies in larger volumes as bulk purchases can also mean lower per-unit costs from entering into volume purchase sales agreements. And if a raw materials or parts provider can achieve a sufficient stable, reliable sales volume that they can plan in terms of, they are going to be that much more incentivized to customize what they offer – at least for that manufacturer customer, and for precisely what they offer for sale, or in how it is packaged and shipped.
• Conservative model businesses of the type that I write of here can be in a strong position to in effect become the sole customer for at least certain types of goods, from their suppliers – though this possibility can also raise risk management concerns for these providers too.
• And risk management considerations of the type I address here, do not necessarily remain localized for their impact, entirely within the businesses that enter into an agreement. They can have wider-ranging impact that radiates out through larger networks as other businesses have to make adjustments to accommodate change taking place throughout their supply chain systems.

This set of points at least briefly examines how a conservative model business can develop its strategy, tactics and operational systems for managing its flow of manufacturing line supplies in the face of cost and availability volatility (where supply and demand pressures leave those two factors closely linked.) I turn now to consider an aggressive business model approach – and also for managing acquisition and ongoing availability of essential manufacturing supplies. And I begin addressing this scenario by noting a critically important point that is held in common by all manufacturing businesses here, and even on the extreme ends of conservative and aggressive spectrum – at least if they are well run. All of the decisions that I address here and for all business models under consideration, have to be solidly grounded in financially based costs and benefits analyses.

• Now let’s consider an aggressive model business and its supplies and parts acquisition and storage and utilization process flows. Where the conservative model business approaches costs and benefits concerns here, from an insurance-like approach and with a primary goal of maintaining continuity of production in its own systems, the aggressive model business focuses more on immediate cash flow issues, and on limiting the levels of financial assets that could be kept liquid, that it would have tied up in warehoused and otherwise stored goods and materials at any one time. And with that, I address both a key consideration that enters into aggressive business model thinking per se – and a significant factor in shaping the decision making processes and their actionable follow-through at a conservative model business. The conservative model business, in its extreme can keep large amounts of what could be its immediately liquid cash assets, tied up as supplies that have yet to be used and that cannot always be sold off for cash as is, without a loss.
• So the trade-offs that a conservative model business makes, include financial risk trade-offs too. And couched that way, one approach to thinking about them and their aggressive model counterparts is in where they each position their risk – not in how one necessarily acts in a more risk-aversive manner than the other.
• But let’s consider the aggressive model business itself here. And in this context, and for a variety of reasons, they commonly chose to limit or even essentially eliminate in-house managed and owned warehousing of the manufacturing supplies that they would need. And this is where just in time manufacturing enters this narrative.
• Just in time manufacturing, seeks to streamline and speed up both manufacturing, and distribution and sales systems – and as a component of that it seeks to keep invested funds that support all of that flowing, and as liquid as possible while doing so. Just in time here, is supposed to be agile and efficient and very, very quick.
• Think about the additional steps and delays that enter into planning and committing to in-house supplies warehousing, with the purchasing and storing and keeping track of and managing warehoused supplies inventories – with all of the extra staffing and operational processes and systems, and all of the physical space and other capital and expendable resources that all of that entails.
• And add to that, consider how advance purchasing of essential manufacturing supplies that would go into products to be produced, can limit a manufacturer’s ability to change its product line to meet anything like sudden changes in market demand. Warehoused production line supplies can even commit a manufacturer to a production line product portfolio that market change can render obsolete – unless that business is willing to absorb risk created additional expenses in order to update its intended product lines. (The conservative model as discussed here would, as such prove risky as a pure play for businesses that seek to service volatile markets that expect rapid, ongoing change in what is offered there.)
• If a business seeks to follow an agile just in time, and a here-aggressive business model approach, it is no wonder that one of their first steps in transitioning to that would be in mapping out where they pool and store resources and of all types, that could be kept moving and that could be maintained in-house only when they are actually going to be needed.
• So how do they maintain an assured supply of these just in time delivered supplies, so they can be sure they can keep their production lines running too? If they only store necessary supplies a brief period of time in advance, and even just a very brief one, the main risk management approach left to them is to always have a rich system of back-up suppliers and providers available and on short notice to fill in any possible gaps in what they have that they will imminently need.
• Conservative model businesses participate in supply chain systems. An aggressively positioned just in time manufacturer needs to develop a much more robust and wide ranging supply chain and business-to-business ecosystem – with that filling in any potential due diligence gaps that could arise in-house from their business model and its execution, with externally managed and owned alternatives.

I am going to continue this discussion in a next series installment where I will, among other things consider normative model businesses and mixed strategies, and how all three business model approaches under discussion here, approach lean and agile. And I will also pick up on and explore a key word that I used in this posting just before starting my bullet point listed conservative model discussion: “essential.”

Meanwhile, you can find this and related material at my Startups and Early Stage Businesses directory and at its Page 2 continuation.

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