Operations Management And The Startup Company
March 25, 2017
What’s the product? Is there a market? Where is the initial funding coming from? How experienced is the management team? These are some of the first questions investors and lenders want answered when investigating a startup company, and rightly so. The business plan typically addresses these and other related questions in some detail, but what about an Operations Plan? If Operations is mentioned at all, details are likely to be sketchy at best. Does Operations Management play a role in the startup firm, and if so, what is the role? As we look into the role of Operations Management in the startup firm, we need to address the roles and responsibilities of two key players; the entrepreneur and the operations management professional.
First, we need to realize the truth that Operations might not play an important or significant role in a startup firm. It depends on the type of product or service the company is producing and the stage of development that the company is at. But then again, Operations might play a vital role, and when it does operations management professionals need to be prepared. This is where the entrepreneur or owners come in. It is the responsibility of the entrepreneur to understand the needs of the organization at any given time and the skills and experience that need to be brought on board at different stages of development. Entrepreneurs are often experts in their fields, and tend to be creative “idea people” who see the big picture and can visualize the future of the business. Many entrepreneurs struggle with the day-to-day details of running a business, and many have no formal operations management education or experience. These entrepreneurs need to understand the skills that operations management professionals bring to the table and where and how they fit in to the startup organization (and when). It is the responsibility of the operations management professional, who is at home in the details, to adapt their skills and knowledge to the entrepreneurial environment and to develop the systems and day-to-day operations that will help guide the organization to long term success.
There are significant differences between a mature, established organization and a startup company, and many operations management professionals might not have the skills and experience required to help guide the startup on it’s way to success. If you’ve spent your career working in large, well established, bureaucratic organizations, you might be ill prepared for life in an entrepreneurial organization. The speed at which decisions can be made and changes in direction can occur in a small or startup company can be mind boggling for those used to bureaucracy. Detailed analysis and lengthy planning are luxuries that few entrepreneurs or managers of startups can afford. Experience, gut feelings, and back of the envelope calculations often rule the day. Operations management professionals need to be able to adapt to this environment, and have the confidence to act without the detail and support that they’re often used to.
As for the entrepreneur, how do you determine when and if you should consider a larger role for Operations, and how do you go about developing an Operations Plan? Well, the first thing that must be done is understand just what we’re talking about when we talk about Operations and Operations Management. In a nutshell, Operations Management concerns the processes and procedures that an organization uses to produce their product or provide their service. Quality and customer service are important components that fall under the operations umbrella. For the organization to be successful, Operations must have well integrated linkages with all the other functional areas, including strategic planning, marketing and sales, and accounting and finance. There must be formal integration even if all of these functions fall under one or just a few people.
You have to have a viable product or service, you need a good marketing strategy, you need funds, and you need to be able to deliver the product or service. You can have a wonderful product, a continuous stream of new products, an exciting marketing campaign, and plenty of cash, but if you can’t satisfy your customers by delivering the product or service with the highest quality, with the highest level of service, you’ll fail. Delivering the product or service is in the realm of Operations. The role of Operations will vary, of course, depending on the nature of the business and the life stage of the firm. A software development company in the initial stages of writing code will not need to pay much attention to Operations. The firm that is in the R&D stage of integrating that software into components for original equipment manufacturers needs a well-developed operations strategy. The device manufacturer that is at the stage of transitioning from R&D and prototyping to full production must have a highly developed and highly detailed operations plan in place if they expect to compete in today’s global marketplace. The device manufacturer should have an operations strategy and plan in place from day one, since operations is such an important component of their future success. Even if it will take several years to get to the full production mode, you should begin to develop your operations plan in the early stages of the company. You’ll have an advantage over any competition if you’ve developed your operations plan and strategy as you grow, rather than waiting until you’re ready to ramp up production. If you wait, it may already be too late.
I’ve been working recently with a small contracting company. The owner approached me to help him with his business plan for a new line of business. Although I have no knowledge of or experience in his industry, he understands the value that Operations Management and how it can help improve his existing business and help get the new line of business off on the right foot. The existing business would have benefited from Operations planning and management at earlier stages, but the new line of business will have an advantage by beginning this planning at the earliest stages of development. The Operations Management profession as a whole has a largely untapped market in startup companies in almost any industry. Operations management professionals need to adapt their knowledge and skills to this audience.
Also, as I stated earlier, it’s probably a pretty safe bet to say that many, if not most, entrepreneurs don’t come from an Operations background, so what should be considered in the Operations Plan? Operations encompasses everything from the procurement of the materials and resources needed to produce the product or provide the service, through to the delivery of the product or service to the customer or final consumer. The Operations Plan must address how the organization will perform these tasks. The field of Operations Management is littered with buzzwords (value stream, process mapping), various systems and techniques (Lean Manufacturing, Six Sigma), and three letter acronyms (ERP, for Enterprise Resource Planning, generally meaning a computer system, and SCM for Supply Chain Management). The Operations Plan has to cut through the clutter and simply state how the organization will satisfy their customers and drive profitability.
Some elements of the Operations Plan to look for are:
o Sourcing strategy – including vendor selection criteria and supplier evaluations
o Quality system – how will processes be monitored and controlled? How will authority and responsibility for quality be assigned and dispersed throughout the organization? What results are expected?
o Production and Inventory Management (applies to products and services) – where will you meet the customer – will you build to order, build to stock, or what? What is the production and production control methodology? What are the materials and information flows?
o Logistics and delivery – will warehousing and delivery services be performed in-house or outsourced? What are the delivery channels?
o Customer service – how much authority will be granted to customer service personnel? Will there be dedicated customer service personnel or will it be the responsibility of operations, sales & marketing, or who? What are the expectations for customer satisfaction?
o Integration – How will operations be integrated with the other areas of the organization?
Operations is a vital component of every organization. The role and responsibilities of Operations will vary depending on the organization, the industry, and the life stage of the organization, but the importance will not. Every organization, product manufacturer or service provider, for-profit or non-profit, government or private, must effectively produce and deliver their product or service to satisfy their customers and investors. Operations plays a key role in every business and should be given the commitment that is needed to ensure success. Every business plan should include a detailed and well developed Operations Plan, and every business owner should have an understanding of the role of Operations in their organization.