Resource Allocation in start-ups

Thought most start-ups have limited resources, hardly any started with nothing! So what makes the difference between the ones that survived and the ones that died along the way? It is fairly easy to guess, isn’t it? Common sense says that the primary difference is in how the limited resources are put to use. But as the cliché goes, common sense is the most uncommon; most start-ups don’t seem to think too much about the resource allocation process.

Resource allocation is an important aspect of enterprise creation and management. Where and how an enterprise applies its resources is an important aspect of business strategy as well – but entrepreneurs rarely like discussing strategy. Most entrepreneurs don’t want to strategize, they want to implement. While I don’t disagree that implementation is key to realizing strategic intent, the former without the latter seems like shooting in the dark.

For entrepreneurs with access to limited resources, it becomes all the more critical to focus efforts on resource allocation. ‘Where’ and ‘How’ resources are to be used should be a call that the entrepreneur must himself / herself take, based on ‘What’ they are trying to create.

Think of resource allocation as a fall out of strategy formulation. It helps keep ‘focus’ which is so important for a start-up.

Think about it!

Losing entrepreneurs to the Perennial Dilemma

Where we lose our entrepreneurs? Here: I want to be a product company! But I will start as a services company for now and fund my product creation! Soon my product will be ready and then i will focus on selling my product and move from a services company to be a full-fledged product company.

How many times have you heard this from entrepreneurs? I soak myself up in the start-up ecosystem quite a bit and so I get to hear this quite often. When I detest this thinking as ‘lack of focus’ – many entrepreneurs aggressively raise questions if this approach is totally wrong? In my recent workshop at Kolkata we had this discussion again, especially because we were discussing ‘Go to Market’.

Nothing is absolutely right or wrong, but many decisions can lead you down one of the paths.

Most entrepreneurs get caught up in the above thinking, which by itself is not wrong totally. Why not do what you know and quickly raise cash for building the dream product? The trouble is not at the start of this thought process, but somewhere along the way. Most often in a few years the above route produces enough cash flow and makes the entrepreneur think that services is an interesting business and it should be a division by itself. They invest in many activities like setting up an office, building a marketing force for services, creating P&L responsibilities for it and still keep the product initiative going, albeit at a reduced momentum. Soon the product takes the back seat as a paying customer is not going to keep quite. The entrepreneur being one who loves taking on challenges gets fully involved in growing the services business and eventually loses focus on the product. At some point in time the goal moves from creating the best product to creating a large profitable company! This is the place we lose the battle.

If you do decide to take the above route here is my advice:

  • Ensure enough checks to ensure services income is being used only for product development.
  • Ensure no extra services business is being taken-on beyond what is needed to keep the product development funded.
  • Ensure there is enough wise counsel to stop you in case you are over stepping towards quick money and compromising on the long term bounty.

It’s not an impossible route, but one needs to be extremely focused and avoid distractions. We need more companies that grow on purpose and for that we need mentors / coaches who will ensure they help their CEO’s keep focus. I enjoy doing this with my entrepreneurial CEO’s, especially because they are early stage high growth ventures where distractions are too many. Hope to see many of them blossom!

Did You Revisit Your Strategy?

The rupee is tumbling. Trade deficits are widening. There is a greaterstrategy call for local protection through trade barriers and other softer controls. Cash flow remains a concern. Raising money (quality money) is getting tougher. Long term research and development, organization development and strategic initiatives are all being shelved and postponed.  While many of these responses have been tactical efforts to handle the short term pressure and medium term impact on surviving the turbulence, most enterprises atleast the emerging ones and small businesses don’t seem to have revisited their strategies. Strategy is a tool that helps a company aspire correctly, reassess the context, align resources and enables the company thrive.  While strategy is not making documents, it is definitely not dreaming either. It is about making choices within the context in which the business operates. As the context changes the strategy needs revisit.

During the last few months, most of my speaking requests from corporate as well as industry associations have been on the topic of growth and strategy. But the number of people who turn up for strategy related talk with interest and belief are very few.  However with those who turn up, I have been having very interesting discussions and thought share. A handful of CEOs and entrepreneurs of emerging businesses are slowly beginning to understand what strategy is and how to utilize it to make their organizations healthier and perform better. This is a slow but a welcome change!

As I head out today to one more institution to kick start their strategy process, I am excited at the possibility  of moving one more organization beyond their self imposed boundaries. After all turbulence creates an equal number of opportunities for entrepreneurs to leverage.

Interesting Links This Week: 28th July 2013

Stumbled onto to these that made their way to my top links this week800px-Bhedaghat_Water_Fall

Found this a very informative read with a wholly different perspectives for leaders on how they can leverage social media strategy http://www.mckinsey.com/insights/high_tech_telecoms_internet/six_social-media_skills_every_leader_needs

You could use of the 12 to wake yourself up in lieu of dunking another round of coffee http://www.inc.com/kevin-daum/12-non-caffeinated-ways-to-wake-up-at-work.html?cid=em01017week22a&nav=su

A long but highly insightful interview of Cynthia Montgomery the strategic thinker, teacher and writer http://www.strategy-business.com/article/00163?gko=f0c49&cid=TL20130319&utm_campaign=TL20130319 opens up a lot of practical perspective for business owners and academics alike on strategy and business

Plans gather dust

I am very surprised that this is used as as reason for skipping planning sessions. The reason people don’t invest money in filesplanning sessions and strategy making is because most of the time, they gather dust. But the reason they gather dust is because of only two reasons:

(i) They have not been developed in such a way that they degenerate into action

(ii) The team to execute it (starting with CEO) don’t have the discipline to follow it

Both of these are not the problem with planning and strategy formulation as activities. They are skill issues that can be handled by engaging the right resources.  But if a company fails to address these two issues, the loss is just too large to measure.

Interesting Links This Week: 7th July 2013

This week it is four and not three which made it to my top list:800px-Arashiyama_Hanatōro

A lot of the entrepreneurs and small business CEOs shy away from strategy. This is because they don’t understand it and more because they have been given a lot to misunderstand about it by people who are not so well informed about the subject. Here is a short and succinct post on “What Strategy is not?” – I would recommend CEOs to start knowing what it is not – in the hope that it will increase their curiosity to know what it could be? Link: http://ldrlb.co/2013/07/three-things-strategy-is-not/

If you are a writer of any sort (probably an artist of any sort) you may find this interesting. How can new media be used for enhancing creativity? This is an evolving area and any help is welcome. Hope you will find it as interesting as I did. Link: http://www.ohsopinteresting.com/writers-using-pinterest-for-inspiration-and-marketing-osp-episode-22/

Africa is quietly emerging. Here is another short write up on the many opportunities it could throw up to entrepreneurs. Link: http://www.gsb.stanford.edu/news/headlines/making-business-case-africa?utm_source=Twitter&utm_medium=Social%20Media&utm_campaign=bestof

Low cost may not be the best way to compete especially if you are small. So what do small and medium enterprises do to not just survive but thrive? Here is a beautiful case on what you can do!! Link: http://www.fastcompany.com/3012591/marlin-steel-metal-baskets?utm_source=twitter#1

Books and Me: The Upside of Turbulence

Book Title: The Upside of TurbulenceThe Upside of Turbulence

Author:  Donald Sull

If strategy does not result in action that strategy is of little use to anyone. One of the biggest qualms against strategy has been its perceived abstractness. This is one of those books on strategy that’s definitely an exception.

Unlike books that are centered around a single framework, this book contains a whole bunch of frameworks that can be put to use by entrepreneurs as well as CEOs. Understanding turbulence has almost become a necessary skill for every business leader. What differentiates the winners from the rest is the ability to see changes quickly, be agile to handle them and resilient in responding to them. The book contains simple tools to help leaders handle all the three skills mentioned above. How reinforcing commitments results in active inertia, how ingrained traits and practices blind us from recognising anomalies, how organizational structure can help stay nimble and responsive, how agility can be achieved in a repeatable manner at all levels of the enterprise, how constantly maintaining alignment between intent and action can help build agile institutions, how to avoid corporate mid-life crisis and so on….

Each of the above aspects and many more are detailed with clear actionable advice. The discussion across all topics start at the strategic level and clearly translates to last mile tactics.  At many timnes during the reading of the book, you will be forced to stop and do a quick check on some aspect of your business. Every time you do this some surprising trigger is bound to tick off.  The book is filled with examples of a variety of kinds. The writing is intellectually stimulating and the style that of a true scholar.  This is definetly not the easy book on strategy to read, but who said anything worthwhile is easy?

Environment Scanning

Entrepreneurs and CEOs have to learn to see beyond their existing business. Not just to grow but even to stay afloat. The rate at 800px-Binoculars_(PSF)which the socio-economic forces keep changing is making the ride of entrepreneurship more a matter of managing risks than managing opportunities.

To ensure tbat an enterprise stays relevant and thrives in such turbulent environments, fresh skill sets are being explored for leadership. Specifically the aspects of agility and resilience are being discussed more frequently than others. All this is leading to the base assumption that leaders will constantly scan the environment for changes.

From my limited exposure of working with small and medium enterprises and the larger entrepreneurship ecosystem, one thing that I am fairly sure about is that most of the leaders at these companies don’t have any formal and organized approaches to scanning the environment. While agility and resilience are useful skills to develop, without a sound scanning mechanism the intelligence of the response will always be a question. With the information revolution strongly in place and innumerable tools available for free,  the function of scanning should be fairly easy to put in place.  This will throw open early indicators not only for opportunities but for threats as well!

Internationalization – Beyond The Internet

Looking at the hype around ecommerce and the moderate success being enjoyed by some of the companies, a lot of traditional Rotating_earth_(large)businesses are foraying into the web. While enticing a lot of these businessmen to create website, fan page, twitter handles etc,  is serious business for web development companies, what is it for these traditional enterprises themselves?

Does an ecommerce enabled website a proven route to going global? Is a well designed and enabled website a strategy to gain a share of international trade? What could happen to the web if every enterprise decides to have web presence? Internationalization especially for the emerging enterprise is a luring alternative to tough strategic thinking. While distances have reduced, access has not proportionally increased. This has only led to the rapid proliferation of bad strategy. Going beyond borders should be the result of a well thought out reason and plan .Especially if you are a startup or a small business, whose resources are limited, and for whom wrong experiments can be fatal, time must be spent on why, where, how and for what of going international?

In about a week from now I will be addressing over twenty CEOs from various developing countries on the topic of internationalization. As I  fine tune my thoughts for the presentation I shall also share aspects that I come across on this forum! I am excited about the possible discussions, learning and interesting questions that may crop up at the session. I shall attempt to capture and share these for continued and more lively discussion in this forum post the session!

Interesting Links This Week: 21-Apr-2013

Interesting reads on innovation, Entrepreneurship and Strategy on this weeks favorite links: Bigsurflowers

a) How peripheral knowledge is aiding companies to exploit the power of innovation http://bit.ly/TYgA3N

b) How did John Mackey made it big with Whole Foods? Hear it from the man himself http://bit.ly/106OqzW

c) The fate of Apple is one that will continue to be predicted and debated. But I liked this article for it’s view on strategy in general  http://bit.ly/XHWqWd