Not all businesses are created equal. When an entrepreneur or group of would-be co-founders set out to start a new venture, their business idea and mindset will often define where on the enterprise spectrum their startup will sit.
At one end, we have the lifestyle business. Using the analogy of the visible light spectrum, this will sit at the low energy red/infrared end. The lifestyle business is, after all, supposed to be relatively easy-going; generating income by doing something that is enjoyable and not over-demanding on time.
Next along, in the relatively low energy orange region, is the consultancy / professional services business. I know accountants, solicitors, management consultants, and so on will be up in arms with this verdict, but frankly these businesses are fairly simple. They may demand plenty of continuous professional development on a personal level to stay up-to-date with legislation and sector developments, but from a business perspective things are relatively straight forward.
The UK is often referred to as a nation of shopkeepers, but these type of businesses are a little more complex. Although effectively a reseller, this business needs product knowledge as well as the ability to efficiently monitor stock, deal with logistics, process returns and even offer on-line e-commerce options. We’ll place the shop business in the yellow region of the spectrum.
Middle of the road, in the green region, is the systems integrator; offering specialist knowledge to create and install systems of products that work well together. All the skills and attributes of the aforementioned businesses apply along with some technical competence to effectively source, deliver and support bespoke options.
Once a business starts to manufacture products, so the complexity really goes up. Sitting squarely in the relatively high energy blue region are, I believe, software companies. Their virtual products don’t require much capital equipment to create, but they do need stage gates to specify, code, support and deliver. This applies equally to web applications, mobile applications, and software as a service (or indeed the older approach of software in a box). This type of business is also highly scaleable and can grow across the globe relatively quickly. Doing so adds complication in customer support, language support, and dealing in different jurisdictions.
Manufacturing physical products (even traditional products like furniture and food) are in the high energy part of the spectrum; shades of blue and indigo. Why? Because the business needs to deal with the bill of materials, a supply chain, the production process, all the associated quality control, warehousing and delivery logistics. As the enterprise grows, along come warranty returns, export controls and worldwide distribution networks. This is all tricky and demanding stuff requiring diverse skills, fantastic management, facilities of equipment, and plenty of resources.
So, what can possibly be worse and command the violet / ultraviolet end of the spectrum? Well that would be the high technology start-up. It’s all of the above, with specialist knowledge, R&D unknowns, patents, and early-stage venture capital thrown in for sure.
Before you start your business, look at your plan through a prism and see what colours come through. Understand the nature of what you might be letting yourself in for, and hopefully the pot of gold will be there for the taking at the end of the rainbow!
Start to Exit is due to be published in 2017.