Since 2012 is “the year of the startup”…

I’ve read a good number of headlines and articles lately that proclaim 2012 to be the year of the start-up. I suppose there are optimistic and cynical ways of viewing why that might be, but I thought I’d use this as the inspiration for putting my thoughts down in some blog posts aimed at the newer business.

Decide, Design, Deliver

We do a wide range of work, sometimes with long-established businesses, sometimes with start-ups. Our approach splits business improvement into three areas:

• Commercial Imperative - what’s the case for doing it - the “why”
• Planning Improvements - the what, where, how of action/change
• Taking Action - the who and when to make change happen

Building Your Case, Making Decisions

The Commercial Imperative has three components - profitability, risk and differentiation.

For a start-up business, you have to be creative to figure out how life will go with these three for the first 6-18 months. It’s definitely worth doing though, because we see a lot of mature businesses which have lost the clarity they once had on these things. I’d love for you to avoid some of that pain right from the get-go.

Profitability

Simply put, your profitability is your ability to maintain a (positive!) difference between your income and expenditure. Reduce costs, increase prices. But it’s rarely that black and white. Get a sheet of paper, your iPad, whiteboard or whatever, and start writing down all the things you can think of that affect your profitability, and its cousin - cashflow. What do you need to spend, when, why? How does what you spend clearly link with money coming in? How will you set prices (see also Differentiation below) that people will pay? What will you do if someone needs a refund or return? If you grow really quickly, will you not have enough profit to pay increased production costs - how will you get more cash? How can you charge a premium for your product or service? Can you complement one with the other - a maintenance service that goes with your product, or a product that makes more of your service? Could you re-sell someone else’s product or service so they have the production pain?

We’re looking to get a list of things that could make you more money, and a list of things that could cost you. Plan to do more of the former, and fewer of the latter…

It sounds like a lot of stuff to worry about - but remember, we’re not necessarily looking for all the answers here, just a list of things to think about to make sure you’ve at least thought about how they could affect your business. This leads nicely on to…

Risk

Risk is basically “what do we not know and/or not control” - and how do we stop little bad things turning in to big bad things. Think of it this way - you have motor insurance and a mobile phone so that a car accident doesn’t turn into a £15,000 loss (wrecked car) and prolonged pain (not able to call the emergency services). However, you may not buy the expensive “product protection” insurance retailers pitch every time you buy a toaster or kettle, because you can live with buying a new toaster. You’ve made judgements on the relative risk and the “mitigation” - how you will reduce your overall exposure to bad stuff happening.

Grab another sheet of paper and begin to figure out what bad things could happen and what knock-on bad things could happen. Once again, this is about being aware of the big wide world out there so you can spot things going right or wrong, early. As you write, think of “if this happens, then I’d do this…” and add that to the paper - these are your “plan Bs” and are what makes your business flexible and adaptable.

Maybe one or two risks will leap out at you. Write them on post-its and stick them on the wall in front of your desk. Just keep an eye on them - don’t obsess about them, but make sure you are not burying your head in the sand. Review your overall risks every 6-12 months - this helps you to avoid gradual changes in your situation that end up making you very exposed.

Differentiation

Put simply, why will someone buy from you rather than an established or alternative provider. Wrapped up in this is market positioning, marketing communications, USPs and a host of other business jargon.

You need to be able to answer the questions your customers and investors will ask:

• Who will buy it, when
• How and where will they find out about it
• What makes them feel they need to have it
• Why choose to buy it from you, and
• Why is the price right?

For me, these are the basic points you need to have nailed to make a success of your business.

Personally, I think that Differentiation can be the hardest thing to get right, because in the early stages of business, we tend to see everything through our own eyes. You need to get as wide a set of opinions as you can on this one, not just your nearest and dearest. Unless you have serious intellectual property to protect, I’d use every conversation you have with people to discuss what you plan to do and ask them to comment on the five questions above. Above all, listen to what people say, and try to be honest about whether your potential customers are telling you something different to what you think - if you want to sell to them, they are right, not you…

Next time, I’ll blog on Planning Improvements - what to do with your People, Process and Technology.