You think that you can win on talent alone?... gentlemen... you don’t have enough talent to win on talent alone...
~Herb Brooks - Coach
Men’s Olympic Hockey Team
After a long summer break, school’s back in session at San Diego State University.
For the past 7 years, I’ve had the privilege of acting as an alumni mentor, working with undergraduate students looking to gain some insights into the career world that awaits them upon graduation.
Each of the students that I’ve worked with have their own unique goals and aspirations; however there are also several similar questions that they typically pose to me each semester.
These questions might include:
- How can I build my professional network now so I can use it when I graduate?
- What type of internships should I apply for to gain practical experience?
- I want to begin my own business one day... but how do I begin?
As a serial entrepreneur, it’s the latter question that excites me the most. It is also where I might offer to them, the most useful insights.
I typically try to explain to the kids, that beyond the actual product or service... most, if not all, businesses are based on the same fundamental principles.
While the details of a new product, service or potential market might be exciting, understanding the basic business structure and principles are essential to creating a true business.
This understanding can make all of the difference in success or failure of any enterprise.
Now I can’t take credit for developing this model.
World renowned business leader, Verne Harnish, was the first to describe this methodology to me while I was at MIT studying entrepreneurial principles.
I’ve shared it with budding entrepreneurs hundreds of times since and today I’ll share it with you.
The Six Basic Functions of a Business
When you strip everything else away, there are only six basic things any business does... or at least should do.
Three of these things are task related...
Three of the things are people related...
The first task is making a product or providing a service.
The business actually needs to do something.
Sometimes the product or service is new and/or innovative. The new idea might have a lot of potential demand, but since the product or service doesn’t really exist yet, the market today doesn’t really exist.
However, most new businesses are not built around this concept.
More than likely, the product and/or service add to an unfulfilled niche in an existing market... or better put... a perceived unfulfilled niche.
For example, restaurant businesses have been around since the beginning of civilization... they are nothing new... however each day new restaurant businesses are opening.
The person in the company responsible for this area is typically the Chief Operating Officer.
The second task is sales.
There is an adage that I commonly use around our office, "nothing happens until a sale is made."
Even a great new idea needs to be sold.
Developing a professional sales team is critical to the success of any new or existing business.
The person in charge of this area is the VP of Sales.
The third task of any business is record keeping (accounting).
When I began my first business 25 years ago, I knew a lot about products and sales but I knew nothing about accounting.
I thought I was making money but I had no idea where the supposed profits were (hint: Accounts Receivables and Inventory).
The person in charge of this area is the Company Controller.
These three tasks, operations, sales, and accounting, are essential requirements by all businesses regardless of size.
Three types of people are required in any business.
The first group of people are your shareholder, investors, and/or financial people.
All businesses require a certain amount of capital to begin and grow.
Sometimes the initial capital investment is small so the business founders supply all of the money to begin themselves.
Other times a good deal of money is required, so either the entrepreneur finds investors or borrows money to start the business.
Sometimes, a business can use profits that it generates to fund the business... but this is very rare in start-up businesses as capital requirements usually are larger than profits (at first).
The person in charge of this area is the Chief Financial Officer (CFO).
The second group of people are employees or simply members of the business’s team.
All employees need to be recruited, trained and given performance feedback.
At first, the founders might be responsible for doing everything but eventually, the business will grow and help will be needed to perform all of the necessary functions.
Behind all great businesses are great people who work at the business.
The Director of Human Resources is typically responsible for hiring, training, and retaining employees.
The last group of people are customers.
This function differs from sales. Sales is a task... Customers are people.
This is the major difference between marketing and sales. As I’ve mentioned more than once in previous blogs, marketing is getting people to come to your business, sales is helping them to purchase something once they are there.
The Chief Marketing Officer (CMO) is responsible for finding and bringing customers through the door.
There is a huge difference between tasks and people.
...you manage tasks... but you lead people.
In managing tasks... the focus is in three distinct areas: Better, Faster, and Cheaper (aside: I hate the word "cheaper"... at OptiFuse, we always use the term "less expensive" in lieu of "cheaper").
In leading people... there are also three areas of focus, but these differ greatly from that of tasks. Leading people consists of: Finding, Growing, and Keeping.
In any successful business, special attention must be given to these six functions.
The success of each area is interdependent upon each of the other five.
A company can have great marketing and sales... but if the product or service isn’t high quality... then the business is apt to fail.
The same can be said about financing... if a company is under-capitalized and grows too fast... then the business won’t have the cash to pay for raw materials or hire the people it needs to complete the work.
For me, many of these lessons were learned the hard way... by trial and error.
Sometimes I wish I had a mentor who sat me down to explain business in a big picture way... before I began drilling down to the important details.
Business isn’t really that complicated... at least in theory...
...and there is a big difference in knowing what needs to be done... and actually executing it.
However... a good understanding of how it all works will make the task of implementation that much easier...
Thank you for your support of OptiFuse where we believe in the entrepreneurial spirit and in the people who make their dreams a reality.
Jim Kalb President
Email - firstname.lastname@example.org
Website - www.optifuse.com
Twitter - @OptiFuse