Lets start at the beginning, shall we? A business starts with an idea. Simple really. Now, there was a time when the most common form of idea had to do with a production process or facility or material – a kind of ‘build it and they will come’ approach. This was prominent when the range of consumer choice, availability and price point made the delivery of value, a function of production. For many years, that has not been the case. Why? Well, because of innovation and global trade.
(Ahh, come on – its not that simple . . .)
Well perhaps not, but that is my argument. The innovation arose in large part because of cross-pollination of manufacturing techniques across sectors – internal technology transfers. The global trade impact arose because of the confluence of 3 things :
- multi-nationals technology transfers to foreign subsidiaries
- global trade policy
- under-utilised (and cheap) labour
One can no longer readily build sustainable competitive advantage through manufacturing processes – such advantages now require significant ongoing R&D budgets. The outcome of technology transfer and global trade is that buyers have a range of choice, price point and availability that puts them in the driver’s seat.
The end result is that the most common form of viable business idea now deals more with marketing, and the product meeting buyer’s needs. So in this discussion, we will talk about a product or marketing idea. So, we have a business idea – how do we establish that a viable business can be developed around this idea? Is the business feasible?
Taking the Idea to A Business Development Process
What makes a business feasible? Well, that should be an easy one, right? A business is feasible if it can sell stuff for more than it costs …Costs, hmmm. Well costs are what you pay for inputs. Those inputs can be direct (materials and direct assembly labour), indirect (facility operational expenses and management) and amortised costs (capital equipment and plant, product development, R&D and intellectual resources). For each of these costs input there are decisions to be made, or at least alternatives to be chosen. Broadly speaking, I can make or buy. In its simplest form, I can simply act as an agent or distributor of someone else’s product, and relieve myself of all of the other headaches.
On the sales side, there are also some questions. How many buyers might there be? What needs will the product satisfy, for which buyers? What value is being offered that will influence their decision? What price will they pay for that perceived value? What alternatives do they have?
All of these questions depend on each other – they do not stand in isolation. In the value chain design diagram above (see Porter, M.), the business is being designed as delivering value through buying-fulfillment, and through a customer network driven sales process. What might this operation be? Perhaps a distributorship moving offshore products to an internet connected sales base. Eliminating the inbound logistics and most of operations saves the customer a bundle, and generates surplus value which the operation keeps as profit. Most of the sales however, appears to go to domestic competitors who offer a different value mix.
So, to answer our feasibility problem, we need to start traversing this type of web, one of interconnected constructions of function execution (sales lead generation for instance). We need to do 2 things:
- The first is to map out the interconnected constructions such as cost of inputs to price of value – and we call this map a model.
- The second thing is to quantify the elements being connected – and we call this research.
Research Supports the Business Design Process
The broad phases of developing a business are design, research, and implementation. The design phase is primarily oriented to the purpose and structure of the business – its products, its processes, the resources that it draws on, and the value it provides. This includes strategy and tactical considerations.
Similarly, the broad phases of business planning are design, research and presentation. The design of the model will reflect the design of the business. The business plan modelling platform must conform to these design elements in as realistic a fashion as possible, in order to be useful. If it is not, you are really simply playing a form of alternate reality game. Unfortunately, some entrepreneurs are more comfortable moving straight to the presentation stage. Not sure this is a good path to success.
We already have the general model. Lets see what the research phase might involve.
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