Starting a business? Understand these 6 areas of business management
When starting a business, you must have a business plan. This plan is not, as many believe, merely a document prepared for lenders and other investors. It's also a guide to how the business will be shaped and managed. A plan forces the person starting a business to examine and understand all aspects of organizing and running it, so is an important management tool.
Many new business operators caught up in the euphoric atmosphere of creating their own business avoid such essential pre-planning because it's not as exciting as devising a product or selling a service. However, since about 80% of businesses fail within five years, largely because they were not planned and managed well, pre-planning greatly enhances the chance of success.
Generally, the six functional areas of business management involve strategy, marketing, finance, human resources, technology and equipment, and operations. Therefore, all business planners should concentrate on researching and thoroughly understanding these areas as they relate to the individual business.
Although the traditional business planning format does not strictly adhere to this approach, it can easily be adapted for research purposes. Our site has a business plan template that can act as a guideline. Another source for business planning tools and resources can be found at the Canada Business Network.
Researching and designing a business involves a thorough analysis of the business in these areas.
This important area is, in a sense, the "brain" of your business operation. All potential business operators should create vision and mission statements so they understand what they want to do, why they want to do it and how they will do it.
Also, strategists should analyze the competitive landscape and markets to determine where the opportunity for the business lies, and how they will access that opportunity.
When forming a strategy, determine exactly in what market you will be operating, and then perform a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis on your main competitors and yourself. This will provide a good picture of where you fit in the competitive landscape. This will also help you determine your market access strategy, which involves positioning, differentiating from competitors and branding.
Since marketing and sales will generate revenue, planners should also thoroughly understand their potential customers and determine how they will reach them. Most new business operators mistakenly use an "inside-out" approach to marketing in that they plan their product or service first and then look for some way to sell it to a vaguely defined group that is "out there."
However this "build it and they will come" approach usually results in much wasted effort, fierce competition from others who have the same idea and, often, failure. Before designing a product or service, business operators should study the market and assess the needs of customers. Find underserved areas. Then shape the marketing of the product or service, and sometimes the product or service itself, to answer those needs.
Most business plans concentrate on this area because they need loans or investment, as well as for forecasting and budgeting purposes. Since money is the blood that keeps a business alive, a business operator should always know how healthy he or she is financially. This requires a realistic prediction of cash flow, even though it can be difficult to forecast the future. To do so, a planner should form an expenditure budget and then a picture of potential revenue. Much of this information can be found by studying similar businesses and adapting their information to the new business.
4. Human resources
A common mistake planners make is to stop at the financial aspect of hiring staff. Of equal concern should be the ability to hire, and whether those hired fit the roles for which they are chosen. For example, some industries are facing acute labour shortages. Therefore the planner may have to understand what attracts workers, and offer them what they want. Today, managers must treat employees like customers, with the same understanding of what motivates their behaviour.
5. Technology and equipment
This involves not only equipment needed to operate the business, but such concerns as communications technology for marketing and sales purposes, or transportation requirements. Understand your needs and balance them with budget demands. Also, the planner may have to be creative when managing technology and equipment. For example, some equipment may be expensive and sit idle most of the time. The planner should then consider renting it as needed, or subcontracting that aspect of production to another company that has that equipment.
In most businesses, this not only involves equipment, but processes. Essentially, business operations are those that create and deliver the products or services to customers. In most start-up situations the business owner performs many roles, including operations. In fact, a familiarity with operations is often why most people start businesses.
In most new businesses, the owner is also the person who performs the operation. But there is a danger in this: The operator must always remember that he or she is managing a business, not working in a job. So management of all aspects of the business should carry equal weight with actual performance of the service or manufacturing of the product. It can be argued that this is also a very common reason for business failure: The operator is more comfortable "doing" and so ignores other important aspects of management.