Now that you, the entrepreneur, know what your market wants and how you hope to satisfy that specific need, it is time for business modelling, to plan the operations and a cost structure of your business. (Luke 14:28)
There are different operating structures for different types of businesses:
If you offer a service, you may only need an office and a vehicle, as well as the general requirements of a bank account, phone and administration structure;
If you are manufacturing a product, however, you will need a premises and a manufacturing plant or labour force along with a sound administration structure;
If you run a retail store, you will need a show room, sales people as well as the necessary admin structure.
The 4 P's
People, product, price and position – the 4 P's are crucial elements to keep in mind when determining your operational structure.
Detailed knowledge of your product or service, your position and the customer’s perceived value of what you have to offer will allow you to plan the necessary overhead and operational structure.
Try to document each operational process in the business, such as:
How you would go about advertising your product;
How you would issue a quote or proposal;
How you would invoice the client; and
The different processes in the manufacturing process.
The reason for documenting each process is two-fold. Firstly, it will ensure you have a good understanding of the skill set required for each job.
This will guide you in the right direction when you employ other appropriately-skilled individuals who hold values that match your organisation’s ‘why’, as well as the machines, equipment and property you may need.
Secondly, you will have a detailed job description for each staff member on record, simplifying any labour issues in the future. This will also help quantify certain capital and running costs.
By knowing the precise processes, you will also be better equipped to cost your product.
(Check out The Springboard Academy’s next blog for detailed examples of cost structures)
Remember that entrepreneurs take calculated risks
For this reason, it is important to know what risks are out there - as far as the market, production and selling processes, and financial risk are concerned.
Don’t worry, there is no need for things to get complicated, but it is a good idea to have fairly accurate calculations to base your business decisions on. After all, this is all about business growth.
If any of these processes overwhelm you, get in touch with an experienced mentor or business advisor to assist you. Remember, however, to be clued up enough to understand what they did and why they did it.
You always plan for success: