Financial Clarity for Entrepreneurs

Unbundling Business

John Hagel of Edge Perspectives analyzes Dell’s possible spin-off of its manufacturing operations and puts it in the larger context of corporate restructuring through unbundling business types.

In brief, most companies today are still an unnatural bundle of three fundamentally different, and often competing, business types:

  • Infrastructure management businesses – high volume, routine processing activities like running basic assembly line manufacturing, logistics networks or routine customer call centers.
  • Product innovation and commercialization businesses – developing, introducing and accelerating the adoption of innovative new products and services.
  • Customer relationship businesses – building deep relationships with a target set of customers, getting to know them very well and using that knowledge to become increasingly helpful in sourcing the products and services that are most relevant and useful to them.

What’s this mean for the entrepreneur trying to grow his or her business and shore-up cash flow and profitability?

If even a company with the resources of Dell recognizes the difficulty of trying to do all three, how much more challenging must it be for the business owner with a dozen employees, a stretched-to-the-limit line of credit, and 20 urgent items on their daily To Do list?

The Sweet Spot for the Smaller Company

It seems logical to me that a Customer Relationship business type is the natural competitive advantage for the entrepreneur.  Personal relationships with customers and nimbleness are the smaller company’s strengths.

Product Innovation is a feast or famine endeavor with high risk and is probably best handled by “two guys in a garage” who keep their day jobs or the start-up designed specifically for innovation and with deep-pocketed investors.

You can read more about my thoughts on this in a subsequent post: Innovating and the Smaller Company, and in a previous post: Luck and Success.

Infrastructure Management is best left to the large organization that can take advantage of economies of scale. If you’re in manufacturing, distribution, or similar business, you’d have more success concentrating on flexibility and customization.  Which is really just another facet of customer relationship management.

Now Is As Good A Time As Any…

To question the assumptions you hold about the business you’re in.  The economy is going through a rough patch, credit is less available, and your customers are hesitant to take on significant new obligations.

It’s your job to use your limited resources in the most effective way possible.  The first step is concentrating on what you do best.

And speaking of tough economies, you might want to read my series on Surviving and Thriving in a (Possible) Recession.  Part 1 can be found here.