Designing your new organisation from scratch...Operating Model perspective

Organisations can’t succeed in business without an operating model that delivers value to customers at a reasonable price, with an underlying cost that allows you to make a profit. There are no “shortcuts” – for example, very few businesses thrive just because they offer the latest technology, or the new fad, except maybe Facebook etc. 

This should seem logical for entrepreneurs, investors, venture capitalists, but what about organisations looking to reinvent themselves in tough times. Many investors have war stories  about startup funding requests with major business model elements missing. This often leads to many common failures, as the solution is just looking to solve the problem, whilst giving away the product. This is why devising an business and operating model is so crucial. 

Organisation's looking to reinvent need at least seven of the following ten principle elements to renew their organisation to capture new sources of value and revenue from customers. This is fundamental before an organisation embarks on a radical restructuring, talent renewal, performance overhaul without having the end-game designed and detailed. These elements are: 

1. Value proposition. What is the need you fill or problem you solve? The value proposition must clearly define the target customer, the customer’s problem and pain, your unique solution, and the net benefit of this solution from the customer's perspective.
2. Target market. Who are you selling to? A target market is the group of customers that the startup plans to attract through marketing and sales their product or service. This segment should have specific demographics, and the means to buy your product.
3. Sales/Marketing. How will you reach your customers? Word-of-mouth and viral marketing are popular terms these days, but are rarely adequate to initiate a new business. Be specific on sales channels and marketing initiatives.
4. Production. How do you produce your product or service? Common choices include manufacturing in-house, outsourcing, off-the-shelf parts. The key issues here are time to market and cost.
5. Distribution. How do you distribute your product or service? Some products and services can be sold and distributed online, others require multi-level distributors, partners, or value-added resellers. Decide whether the product is local or international.
6. Revenue model. How do you make money? The key here is to explain to yourself and to investors how your pricing and revenue stream will cover all costs, including overhead and support, and still leave a good return.
7. Cost structure. What are your costs? New entrepreneurs tend to focus only on product direct costs, and underestimate marketing and sales costs, overhead costs, and support costs. Test your projections against actual published reports from similar companies.
8. Competition. How many competitors do you have? No competitors probably means there is no market. More than ten competitors indicates a saturated market. Think broadly here, like planes versus trains. Customers always have alternatives.
9. Unique selling proposition. How will you differentiate your product or service? Investors look for a sustainable competitive advantage. Short-term discounts or promotions are not a unique selling proposition.
10. Market size, growth, and share. How big is your market in dollars, is it growing or shrinking, and what percent can you capture? Venture capitalists look for a market with double-digit growth, greater than a billion dollars, and a double-digit penetration plan.

Investors, shareholders, employees and even customers, will want to understand the business and operating models of the organisation as it embarks on renewing itself. Admittedly they will want to understand from different vantage points, but nonetheless they all have the basic denominating question. Where is the value in it for me from my vantage point? 

As organisations look to renew, stabilise, strengthen or just plain survive in this contracting economy, they must change their business and operating model, because knee-jerk changes like cutting off their face despite their nose. These principles just might help organisations with the how....