So you’ve worked on your idea until you feel it has begun to represent a business opportunity. You’ve spoken to lots of potential customers, and you’re feeling more and more confident that you’re building something that the market really wants. What comes next?
The financial and operational side of your business is everything that the customer doesn’t see – and as a result can often be overlooked – but it can also be the place where you do your most creative thinking in differentiating yourself from the competition. The goal is to build a mechanism that consistently delivers on the promises you make to your customer and creates a profit.
There is as much of a discovery process involved in designing your operation as there is in finding out if there are customers for your idea. It would be a miracle if you got it right first time, so don’t be discouraged. Just like with customer research, you’ll need to act, test, review, learn and change. It’s worth the time to get it right. A very small percentage of successful businesses are offering something totally unique. A far greater number become successful by reshaping the traditional model of their industry, spotting a key process that can make them far more efficient and give them an unfair advantage over their competition in the marketplace. It may seem less glamorous, but revolutionary or disruptive operations are as much an innovation as a disruptive product or brand.
The effects of rethinking your industry’s operational model can be huge. The computer hardware giant Dell built their empire by streamlining the process by which customers ordered, paid for and were delivered their products. Dell’s hardware is assembled to order, drastically reducing the costs associated with inventory and storage of parts. As a result, the company’s operating costs are less than half that of its competitors. Because Dell receives its order specifications directly from the customer, it spends less money on its sales force, and it relies on technology partners like Microsoft and Intel to bear the burden of research and development. By making these savings, it can afford to sell hardware to the consumer at a much lower price than competitors, resulting in more sales.
The imperative, of course, is to design a model that is worth it, and then to continuously test that it remains so. First off, you will need to work out how much money you will need to get yourself up and running, and then you will need to know that money is coming in at the right time to cover your running costs.
Finance isn’t just about money, though. It’s an all-encompassing dynamic that includes routines, measurement and records. Your priorities have to include determining what to measure, how much to measure, and finding a recording process that delivers the insight you want, when you want it. At the same time, when you’re just starting out you can’t afford to be buried with information overload. You will need to experiment to find out what works for you, and this could be the right moment to speak with an accountant and determine what expertise is on hand to help build your business.
Jane Baker is the Sussex Innovation Centre’s Finance Manager, and heads up the Accounts team that help members to understand the finances underpinning their business. “When you start a company, there are a number of vital elements of the finances that require professional support,” she says. “Documents like shareholders’ agreements and company secretarial, as well as reporting to HMRC – you can’t expect to tackle those on your own if you’re not a specialist.
“When we’re working with our members, we help them to get those things out of the way, following best practice guidelines, so that the entrepreneur can concentrate on managing their business. We also set up robust accounting systems, and ensure that they have a working knowledge of the principles of profit and loss and cash flow, so that they can begin to see the effect that any operational changes are having on their finances.”
While delegating some of this responsibility will help you to focus on all areas of the business, it is still essential that you understand the basic principles of what is happening, and can communicate them to your team, helping them to understand what works and what doesn’t. There are key metrics to get to grips with beyond the simple question of whether you are profitable: customer acquisition rates, cost of acquisition, lead generation and conversion.
You will need to create a process for delivering your product or service to the customer at a consistent speed and quality. Once you have designed this process, you never stop improving upon it, but it pays to have the model clear from the start.
Try walking through the customer experience in your mind’s eye, from the point where they hear about you, through the enquiry and sale, to payment, delivery and beyond. What does that story look like from your side? What tasks need to be completed, what people do you need to carry them out, and what resources will they need? All of this will need to be identified and understood, and then perfected at the minimum cost to the operation. It might help to draw this out – literally – a picture of how it might work and how you will get there. Getting the whole process out of your head and onto paper will help you to clarify everything that needs to be done. It’s always wise to test your assumptions, and it might be prudent to follow your first few transactions closely to check that your picture is correct.
By building a model that answers the question ‘what does my customer want?’ you might end up with a radically different operation to the one that has become commonplace in your industry. As Dell discovered when they disrupted the delivery model for computer hardware, the effects can be revolutionary.
A word of warning, though. In recent years, Dell has been slow to react to the changes in home and enterprise computing created by the advent of mobile computing and cloud storage, and revenues have fallen as a result. While operational innovation can give you an immediate advantage, good market intelligence can sometimes be key to sustaining it.
With that in mind, next month we’ll look at ways to research your market, consider future trends and try to stay one step ahead of the competition.
Joseph Bradfield is a communications specialist at the Sussex Innovation Centre, an incubator for high-growth businesses based at the University of Sussex, where he works with growing businesses to help share their innovative ideas with the world. He writes a monthly column for entrepreneurs and start-up companies, drawing on the experience of the Centre’s dedicated business support team to provide step-by-step advice and insight, helping readers to navigate some of the challenges involved in launching a new enterprise.
