Business Operations 101 that they don't teach at business school

As I deal with structuring projects into companies and companies into companies ready for funding and companies ready for funding into funded operating companies, I run into business operators who have no clue as to how to structure their new endeavor. This series of articles, “Business Operations 101 that they don't teach at business school”, intends to answer the questions facing new business owners.

Starting a business

So you've come up with the perfect business idea and want to separate yourself from others who always have ideas but never do anything – you are an entrepreneur. Even the most seasoned entrepreneurs can truthfully admit, “we just did it,” but the really successful stories always start out with a “we got together over coffee and wrote up our idea on a napkin.” A great example was how Compaq Computer was founded in 1982 when the architecture of the original Compaq PC was sketched out on a placemat by founders Rod Canion, Jim Harris and Bill Murto, while dining in the Houston restaurant, House of Pies1. Make sure that you know what your end goal is, which is really tough when you are just getting started with an idea. Try these questions:

Do you want to create a fulfilling job for yourself or an organization?
Do you want to own it all, forever or for now, or do you want to have partners?
Do you want to keep it small or grow it large?
Do you want to have a legacy or want to maximize your current earnings?
How much of your time are you willing to invest? 40, 50, 60, 90 hours per week for 2, 5, 10, 20, or 50 years?
How much must you make on the business? How much would you like for the business to provide you? How would you like the business to yield that amount – salary, selling the business, business paying your expenses, or year end profit distribution.

These were just some starter questions but you should get the picture – decide what you are willing to put into the business and what you want out of the business. Knowing where you're going will help you make a plan to get there. The second step in any business endeavor (first step is knowing where you are headed) is to write up a plan. Put the idea on paper. We're not talking a 50 page business plan – just start with a single page of:

- WHAT your business will do,
- WHO will help,
- WHERE your business will operate,
- HOW to fund operations, and
- WHEN will the above be accomplished

Now you are ready to begin. Once you have this “business statement”, think about it for awhile. Talk about it with some of the stakeholders (partners, employees, clients) you want to include in your business. Doing this before diving into a full business plan will yield savings in time – lame ideas will be exposed, new ideas will pop up, and other viewpoints will always help explore how others will interact with the new business. There is no right or wrong way to accomplish this initial focus group, but rushing to the business plan, business entity creation, and funding will almost always lead to wasted time in the future.

Although you don't want to lose your enthusiasm for your new idea and enter the “analysis paralysis zone”, you do want to write out your operational business plan before going on. Here is the line of events we at Rhodes Holdings LLC recommend for new businesses:

1.Create a single page business statement (1 page), which will become your executive summary.
2.Perform an informal stakeholder focus group.
3.Create an operational business plan.
4.Create the business entity.
5.Fund the new business entity.
6.Start operations...

Volumes can and have been written on each step above. In this series of articles, we will skip around to keep things interesting and to keep your interest. Our next article will be on “creating the business entity” as focusing on the business plan to begin with is too complex too soon.

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