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Entrepreneurship Campus

You are invited to receive free training at the Entrepreneurship Campus. This online training provides methods and techniques for developing ideas into solid business models, to turn a budding idea into a fully developed concept, or to improve on an existing business model.

Start-ups with wings

Sometimes it’s necessary to make a radical break with familiar ideas.

The dream of flying is probably as old as mankind itself. Until about 1890 all attempts to fly were based on observing birds in flight and devising constructions that imitated the flight of birds, that is, apparatuses with movable wings. All struggled with the problem of making those wings strong enough to compensate for the weight of humans.

The breakthrough for flying came about very differently, with fixed wings. It was fixed wing construction that succeeded in working with either pull (propellers) or later with push (jet engines). Let’s draw an analogy. The prevailing notion is that a company is a tangible entity made up of buildings, staff, and workplaces. It makes products or provides services. This requires organization and management.

For the moment let’s erase the notion of “company” from our brains. We can now approach the subject of “founding” a business very differently.

 

The question we must ask ourselves is: What new entity can I create out of the many components that already exist? Whether this new business will require premises, whether it will need a staff, and what resources will be necessary -- all these questions remain open at first. The crucial work is taking place in your head.

What is critical is discovering new combinations and more efficient processes – in any possible mix you can imagine – using the building blocks that are available to you, a kit that’s growing by the day in terms of the number and variety of its components.

Economists may prefer to explain this paradigm change through the theory of transaction costs. In the past, in light of the high transaction costs it made sense to keep most activities within the company. These days, however, because of increasing specialization and the low cost of communications, you can take advantage of pre-existing components outside the company.

 

The “company” that is the theme of this book consists of the intellectual agility required to fit external components into a concept. What remains as the management task is coordinating these components and harmonizing them with one another. This is possible under the technological and organizational conditions that are evolving today, and thinking in terms of a virtual company will become something we’ll take completely for granted. The old question was, “What do I need to establish my company and organize it successfully?” The new question is, “What new thing can I compose out of modules that already exist?”

An Example

  • Production
  • Filling
  • Entrepreneur
  • ebuero AG coordinates & controls availability
  • Projektwerkstatt GmbH
  • Shipping
  • Accounting

A start-up created out of components: let’s use RatioDrink AG as an example.
The diagram illustrates the components of a company modeled on the already-mentioned RatioDrink. Moving clockwise from the upper left, the apple juice concentrate is purchased from the producers and put into 3-liter bag-in-box containers at a filling plant. Ebuero takes the orders, and all bookkeeping tasks are handled by Projektwerkstatt. Shipping is also outsourced.

All the components mentioned here are offered by professional operations or by professional service providers. In a model like this the founders’ job involves: (1) conceiving a concept that can be put together from components; (2) finding partners who offer these components at a professional level; (3) coordinating and controlling the interplay of these components. You can see immediately what tremendous advantages the component model offers:

Creating a company with components

  • Almost no investment of your own required
  • Almost no fixed costs
  • Variable costs accrue only on actual sales
  • Large savings as compared with established competitors
  • Professional, highly efficient, virtual and global from the very start

Instead of making you into an overworked small business owner, this model transforms you into a powerful entrepreneur. Almost no investment is necessary. Your operation functions at a highly professional level from the very beginning. As a rule, variable costs arise only if actual orders are received. You don’t have a large administrative apparatus that you must set up and finance.

Instead, you are professional and highly efficient from the start because your components are provided by experienced partners who themselves have already achieved economies of scale. Compare for yourself the contrast between this and starting a company in the conventional manner with respect to the financial expenses, risks and workload for the founders.

Professional support for founders is an absolute necessity. Studies of successful start-ups highlight repeatedly how important is the division of roles among the lead entrepreneur and the professional management team. The founder as lead entrepreneur must be able to concentrate fully on the concept and its further development, while the management must handle the day-to-day business operations.

 

If a founder cannot establish this type of professional support, his start-up concept is, in my opinion, not workable. This does not necessarily mean that you need large amounts of capital for start-ups. “Workable” means that the concept is distinguished by clearly identifiable market advantages that will permit the business to attract customers and generate the revenue it needs to pay for professional staff. Anyone who believes that he cannot afford professionals should give it a try with “unprofessionals!”

If you are now in the mood to jump up and get started, armed with your laptop: go for it! You are not reading a novel, an economic fiction; you are firmly based in reality, with both feet on the ground.

 

 

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