Dr Ross McKenzie - Entreprenuer - The Startup Business

How To Implement The Right (Lean) Operating Model For Your Startup

We often hear that the rules of business have changed, or there are new rules, or we are living in disruptive times!

Many traditional businesses have been forced to change their operating models, while new entrants come from nowhere to market domination in basically no time at all. Some of these traditional businesses have been able to adapt, whereas others are no longer around.

I am sure you will have your own stories. For me, the first part of my professional career, was with established corporations as they grappled with this new economy.

In banking, they closed branches with the expectation people would go online. Then they re-opened branches because the customer experience was poor and of course now it is being reversed once again as technology and generational change encroaches the status quo. PayPal and Bitcoin is just the beginning for this banking transformation.

However, I do feel sorry (well just a little) for these CEO’s of traditional corporations, the captains of these huge ocean liners, I mean all these new players in town, they can move so fast, it’s just not fair!

But nimble does come at a cost and depending upon your research source, failure is high for startups. For example, as Harvard Business School’s Shikhar Ghosh shows, 75% of all start-ups fail.

But what about if you are just starting out?

What operating model should you consider implementing and when should you start paying attention to the operating model in your business?

Well I believe you should have this in mind from the very beginning – even if you are just a business of one person.

As the late Stephen Covey wrote as the second habit in his book The Seven Habits Of Highly Effective People: “begin with the end in mind”.

Now I get that in the early stages of your business you do not have all the facts, or at least insights.

Things are still very dynamic. You are building prototypes. You are testing. You are getting feedback from pilots and customers etc.

However, you can still put in place an overarching framework (operating model) that provides a holistic perspective. Even though at these early stages, your business is ambiguous. As you grow, this operating model can adapt to your needs while keeping you focused on your strategic direction.

In fact, one of the main purposes of an operating model is to tie your strategy to your business structure.

This is where the concept of the Lean Startup comes in, where the focus is first on the business model followed by the business plan (the business plan being more the traditional path of the old economy).

There are many examples of operating models you can find. However, for startups and entrepreneurs an elegant publication is the one by Alexander Osterwalder and Yves Pigneur – Business Model Generation. A very nicely presented and visually appealing book in which they present nine building blocks…

1. Customer Segments – who are the groups your business will serve (or client avatars)
2. Value Propositions – what are the bundle of products and services that create value for a specific client avatar
3. Channels – how will your business reach your specific client avatars to deliver the value
4. Customer Relationships – what sort of relationships will your business establish with your client avatars
5. Revenue streams – the earnings from each client avatar
6. Key Resources – the human, physical, informational, financial resources required
7. Key Activities – the capabilities, processes and tasks required in your business
8. Key Partnerships – your suppliers, affiliates, joint venture partners etc
9. Cost Structure – your defined costs to deliver the outcomes of your business

In my business, The Startup Business, I have developed a framework or operating model around what I call The Five Imperatives, or Five Business Challenges. These five business challenges of Strategy, Sales, Solutions, Support and Systems are another way to interpret a business operating model.

Regardless of whether it is the Nine Building Blocks or The Five Imperatives, a framework or business operating model is a must-have that will guide your business on day one as a Lean Startup and as you grow and scale and ultimately sustain your business in to the future.