Building your business one cookie at a time
Many businesses are self-contained economic units. Restaurants,
retail outlets, day care centers, bowling alleys and movie theaters are some
obvious examples. Each unit has a limit to its growth – physical
capacity, production capacity, geography, hours in a day, legal limits on hours
of operation, etc.
Regardless of the growth strategy, in my opinion, the
initial steps can be very similar:
Develop a plan, get constructive criticism by those
knowledgeable in the business, and launch the first unit. One of the primary purposes for this
first unit is to find out whatÕs right and wrong with your plan.
If youÕve already had profit and loss responsibility for a
unit of an existing chain (which I highly recommend), you are still likely to
experience some surprises with the start up process, and you will definitely be
challenged by cash flow management.
If you have never run a business like the one you are
starting (as is often the case with restaurants and retail outlets), you will
be on a steep learning curve. You are likely to be amazed by the differences
between reality and your plan.
Now that the real world has infiltrated your dream, you need
to make the necessary adjustments and confirm their effectiveness. Depending
upon many factors, it is possible (although unlikely) that a second unit is all
that will be necessary.
The primary purpose of this step is to determine the
ÒcookieÕs recipe,Ó so to speak.
What needs to be done so that a single unit will financially and
operationally attractive.
This is the critical step in the process. Your personal
involvement in the prior steps will be a significant factor in their
success. In order to grow, you
will need to package the process and confirm that someone can be taught to do
what youÕve done.
Among other things, during this step you will develop a
training program and an operations manual. The manual will be a ÒcookbookÓ for starting and running a
single unit. This is not a trivial task. It needs to go into excruciating
detail so that a unit manager can refer to it whenever she has a question.
In order to grow, you will need to put certain resources in
place. Someone with experience will have to prepare the aforementioned
operations manual and training program.
These might be consultants, or people you hire. Someone has to do the
training. Systems infrastructure will have to be selected and installed. The overall complexity of everything
will stress your ability to manage it.
One of the critical skills that you will have to develop is
that of site selection. ÒLocation, location, locationÓ will be a critical
factor in the success of your operating units. You may be able to base your first few locations based upon
your Ògut,Ó but ultimately you will have to reduce it to a disciplined,
data-based process.
Other activities depend on your growth strategy. Company-owned stores will require
sophisticated financial management, for example. Franchising will require a franchisee solicitation marketing
program, and people to implement it.
As I believe you have surmised, these steps require a great
deal of effort, advanced planning, and resources (capital).
Next week weÕll take a look at the financial considerations
for each path.
Frank Demmler is Associate Teaching Professor of Entrepreneurship at the Donald H. Jones Center for Entrepreneurship at the Tepper School of Business at Carnegie Mellon University. Previously he was president & CEO of the Future Fund, general partner of the Pittsburgh Seed Fund, co-founder & investment advisor to the Western Pennsylvania Adventure Capital Fund, as well as vice president, venture development, for The Enterprise Corporation of Pittsburgh. An archive of this series of articles can be found at my website.