Organising the Business
Organising your business involves the wide range of considerations about organisational relationships between staff in the business, the location of the business, strategic alliances and partnerships, and the establishment of formal processes for accounting and financial management.
At this part of the Start-Up Stage, the business has the agreement of owners and investors to hire the staff and talent to grow the business, applying the capital that is available. Key challenges include setting up a basic form of organisational structure that does not take away the flexibility, fun and autonomy typical of start-ups. Organisations today try to be flat and lean, avoiding unnecessary hierarchies.
During this stage, your feasibility study should be developed into a skeleton business plan, and you should develop and revisit this business plan regularly. Within this business plan is further development of the marketing strategies for targeting and keeping customers. To make all of this happen, having a defined company structure helps ensure that certain roles and activities are allocated to people with the time and skills to do them well.
Organisational Structure is a statement of the roles and reporting relationships between people or teams in the business. The old adage is that structure follows strategy. At the Start-Up Stage, the competitive advantages of the business are much about its small size, flexibility, agility and responsiveness. At the same time, in thinking about structuring, there should be general agreement on answers to the following five questions:
- who is to take responsibility for what?
- who has authority over whom?
- what are my roles?
- what can I be delegated or empowered to do?
- what organisational structures best suit the business strategies we are putting in place?
Location involves decisions about locating the business in a specific town or city with related choices about leasing or buying space. Initially, you should consider the merits in staying where you are. Re-locating is expensive and draws resources away from other important aspects of your business, such as marketing and prototype development.
In considering a new location, current as well as future space needs are important. Ask the following questions:
- Is our business location-dependent?
- Where do we need to be located to meet the needs of our customers or to get their business?
- Is the space of sufficient size to meet current and likely future needs?
- Is there space for storage?
- Where can customers or clients park?
- Is the location easily accessible by bus, train, ferry etc. for other types of customers?
- Is the location visible to our clients (or does it need to be)?
- Will staff be comfortable, satisfied and motivated working in this location?
Incubators are regional economic development tools that offer start-up firms and other newly formed enterprises numerous tangible and intangible benefits in an effort to help them grow. Tangible services provided by many incubators include lower operating costs through the provision of flexible, sub-market rental space and shared administrative services. Intangible benefits include services such as moral support, networking opportunities and access to advice and information.
Incubators exist in Australia’s large cities. Often they are found in industrial parks, universities or business enterprise centres. Start-Up companies often stay in the incubator for two to five years as they progress through the various steps of the Start-Up Stage. Others will choose not to be in incubators, but to lease shared office space elsewhere.
Leasing is a legal arrangement in which a landlord agrees to allow a tenant to occupy a defined space for a certain period of time in exchange for regular payments of rent. It is possible to lease anything from vacant land to a small office area in a large inner city office building.
Leasing premises rather than buying them means that you pay only for the notional cost of occupying the premises from year to year, rather than the cost of actually buying them as well as occupying them. This has important consequences for the limited cash-flows of a start-up business.
Strategic Alliances, Partnerships and Joint Ventures involve the establishment of informal and formal relationships with other individuals or businesses to share resources, ideas or capital. The aim is to establish a competitive edge or advantage that does not exist when the businesses operate independently.
Many strategic alliances and partnerships today are between businesses and suppliers towards guaranteeing continuity and quality of supply. The keys to these successful alliances are:
- the support of senior people
- a high level of trust
- openness of communication
- the promotion publicly to staff of the benefits to emerge from the alliance or partnership
Other alliances are formal agreements established through legal relationships, contacts and ownership. This relationship can include joint ownership by the partners of the other businesses.
Many of Australia’s largest public companies establish the significance of the relationship by sharing ownership in other companies that are often suppliers. This form of vertical integration involves the company gaining control of some or all of its suppliers. This formal relationship provides cost cutting, just-in-time inventory management, and access to a wide range of ways to control the distribution of its products and services to customers.
Strategic Alliances are formal relationships between businesses that often involve a short-term arrangement between start-ups and other groups to capture a niche product or market. Businesses often have numerous strategic relationships with different players for different products or services.
The concepts of partnership and strategic alliance are often used interchangeably. Indeed they have many characteristics in common. However, a strategic alliance is often:
- more specific in its business focus
- strategically focused on winning or gaining some market
- more aggressive in its intentions
- more time-consuming in that the strategic partners are actively working together to jointly offer customers a new innovation that serves a need, or solves a problem better than their competition
Partnerships are formal or informal relationships established with suppliers, competitors and others in your industry that bring competitive benefits to your company. Whether the partnership is formal or informal, they are typically set up for the longer-term.
The goal of the partnership is to enhance the performance and competitiveness of the start-up. Usually key players like founders of various businesses who respect the performance of another group decide to establish a working relationship. Informally, they share ideas, even staff, and possibly engage in joint business ventures in seeking new business. Legal issues may only come into play when they draw up contracts to jointly deliver a product or service to a group of customers.
Partnerships can also mean something a little different. A partnership can also be a sole proprietorship involving two or more people, where the partnership brings benefits in the treatment of income, expenses and taxes. Partnerships in this form are a common legal structure used by lawyers, doctors and accountants in setting up their businesses with other professionals. Most of these partnerships use a written partnership agreement.
It is important to note that certain legal implications can flow from strategic alliances and partnerships. In some cases, the law can presume or “deem” partnerships to exist, meaning that the partners may bear unlimited liability for any debts that the partnership may generate. This is a significant risk. It is therefore vital to seek legal and financial advice before considering any structuring issues in order to ensure that you are properly protected.
Joint ventures are more formal relationships developed between legal entities (usually companies), and are created either as unincorporated joint ventures (using a legally-binding agreement) or as an incorporated joint venture (using a company established for the purpose of the joint venture, with the joint venturers acquiring shares in the company). Joint ventures are more complex arrangements. If you are thinking about creating one, or have been asked to enter into one, you should seek legal and financial advice before you do, sign or say anything.