Operating Model for Start-Ups – Thoughts

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After startups have done a deep dive in evaluating the business on the attractiveness of opportunity, ability to compete, evaluated the risk and synergies, and have a strategy to execute the plan, it is important to focus on the business principles and operating framework. 

I have tried to put together some business principles that may be considered in business building. I have consciously excluded the issues of capability, culture, community building, purpose, and values.

Here are some of my thoughts:

A. Product and Business Model:

  • Continuously move up the ladder of excellence, eventually becoming globally competitive 
  • Continuously evolve product features to align with new use cases
  • Continuously evolve business models in line with the congruence of different digital technologies
  • Understand technology trends (both physical and digital including AI and ML)
  • Become an IP factory (whether patented or not) 

B. Monetization, Revenue Streams, and Market Share: 

  • Be careful about choosing the market/geography or customer cohorts to create early successes before engaging in expansion activities
  • Run pilots for different use cases before burning a large pool of cash
  • Measure customer experience and drive virality
  • Innovate and optimize Return on Ad Spend (ROAS)
  • Think of monetization through PaaS and SaaS 
  • Continue to explore different options to diversify distribution channels

C. Operating Principles: 

  1. Business Principles
  • Asset Light
  • Variabalization (reduce fixed costs) and optimization of resources
  • Outcome-based pricing both for revenues and cost
  • Leverage Crowd Sourcing model in most functions 
  • Growth through Partnerships and Alliances
  • Build and leverage the ecosystem
  • Linear vs exponential thinking

2. Financial Prudence

  • Capital Structure (Debt and Equity) based on the risk profile of the business
  • Runway of 9 months when one goes out to raise capital
  • Create a safety pot for the worst-case scenario 
  • Trade-Offs between unit economics (profitability) vs scale 
  • Scale vs credit risk and extended credit 

In this article, I have tried to share a framework to initiate a discussion amongst the founders, management teams as well as investors. In order to get the best outcomes from this framework, one may do a quarterly review and track the movement (up, sideways, or down).

Oct 2020