Unsexy? Think About it Again! Delivering on Startup Potential Through Operations

By Fernanda Arreola and Dr. Michel Philippart

Operational excellence is critical to entrepreneurial success, but it is too often ignored by aspiring entrepreneurs. In this article, we gather insights from incubator managers to explore why it pays to master operations fundamentals when launching a new venture. Furthermore, we gather how operational efficiency is not only a tool to strengthen the internal value of an organisation but also a powerful barrier to would-be imitators. 

Entrepreneurial ventures continue to have a large percentage of failures. The American Bureau of Statistics indicates that a staggering 70 per cent of startups will not survive the first five years. The causes of failure are usually associated with the market (non-existent market, lack of sufficient research to understand the customers, etc.), financial (not enough money to operate, cash flow issues, etc.), and human resource issues (mismatched team, conflicting views, lack of leadership, and poor management skills). Understanding and training for such issues has become the core focus of entrepreneurship education. Meanwhile, to our knowledge, little is said about what is somehow considered to be a less pressing topic: internal operations.  

It is no different when you talk to young entrepreneurs. They enthusiastically speak of their concept, and about how they will meet existing or new needs. If you ask them how they want to move forward, the discussion turns around the financing. But we have rarely observed them asking about the “How”, the essential operation, and performance values that must be put in place to make their idea work. Operations remains an unexplored dark box. 

Let’s define first what “operations” is for an entrepreneur. This is a broad subject, ranging from supplier strategy to quality management, that can be summarised as “the power to deliver”, or “the enablers”. It ranges from the daily routines that enable a business to satisfy value delivery to the long-term planning of relations within an ecosystem. It is a lot more than just the “supply chain”. It includes all that contributes to user experience, such as quality, consistency, process optimisation, timely delivery, and after-sales support. Necessary elements for success, even for web-based ventures. 

Unfortunately, operations does not appear to be on young entrepreneurs’ radar and is often not taught broadly in business schools. It is considered “unsexy”, a second order of priority. Consequently, operational aspects are too often overlooked by would-be entrepreneurs and their support systems. The following are some anecdotal examples. 

• Ana has a project proposing an entertainment kit for small children visiting luxury hotels. The content of the box, the potential to please children, and the benefits that it would represent for clients of upscale resorts are very detailed. However, when Ana is asked about the sourcing of the toys, she replies, “There is no problem, I will simply find them in China, I just need to send my specifications,” ignoring the intricacies of supplier management internationally. 
• Julio plans to launch an online sales platform aimed at artisanal food products. The site will consolidate hundreds of products, claiming to be “the best épicerie in France”. However, when asked about the delivery, Julio believes that “he can simply leave that to the producers”, ignoring the importance of consistency, transparency, and information to meet the expectations of customers already used to high standards. 
• Vanessa and Vladimir were aware of the challenge of paying fair prices for agricultural products coming from Africa and Latin America. Their project aims to guarantee products coming from these regions, claiming to be a “responsible business”. However, when asked about their positioning as an ethical and environmental firm, Vanessa and Vladimir were unable to measure the requirements and impact of shipping from such faraway locations. 
• Alex wants to develop and market a super-comfortable shoe that can also be marketed as a slipper for people working standing up. However, when asked about the initial inventory, Alex did not consider the cost of carrying all the different sizes and colours, resulting in hundreds of SKUs. He therefore underestimated the inventory costs associated. He also neglected the gap between supplier payments and revenues. 
• Constance wants to develop a personalised catering service for people with diabetes. Her idea is original and serves a growing market. She also wants to be the first meal delivery service that can be 100 per cent customisable. However, she has a hard time determining how much time it would take to assemble each personalised package reliably. 

Few would-be entrepreneurs realise that operations is one of the three legs of a successful business launch, alongside the development of the market concept and the financing. If entrepreneurs were to observe larger businesses, they would understand that operations management offers the potoential to increase the success rate of their venture. For instance, operational excellence is at the root of the success of Doctolib. The company was not the first in the field. A company in the USA, ZocDoc, had shown the way. Dozens of copycats existed in the French market before Doctolib launched but Doctolib out-executed its competitors. It captured its right to win in a crowded market by doing it better, by its operational excellence. Doctolib had the best booking management system, focusing on doing what the patients expected more efficiently than the competition ^{[1], [2]}. 

Insights from the field 

For this article, we interviewed incubator managers and entrepreneurs who successfully passed the first stage of growth, ready for, or already engaged in, a second round of fundraising. Our experience tutoring business school entrepreneurial projects shows that many problems are linked to operations, but we wanted to expand our view to incubator managers who have accompanied hundreds of diverse projects. 

The main issue regarding the lack of operational awareness is the lack of entrepreneurial training in this sense. Let’s begin by talking about entrepreneurial education. Entrepreneurship training is an effective way to increase the success of entrepreneurial ventures ^{[3], [4]}. As we mentioned previously, many of the subtopics that are encompassed in operations as a management field are not attractive or exciting. For students willing to discover the world of entrepreneurship, the key focus becomes the innovativeness of the idea and the viability of the “market side” of the business model. Also, for many, entrepreneurial studies should favour passion over a precise skill set, which means that the academic components are often granted less importance than the fact of generating a prototype. Finally, there is a lack of specific competency in terms of entrepreneurial professors who are also experts in the field of operations, which reduces the ability of programme managers to dedicate more time to this subject. 

As witnessed by the incubator manager, this issue is also encountered in incubators, which must be structured to offer expertise in operations alongside finance and market understanding. Incubators provide coaching by mentors, but the choice of a mentor usually privileges a business sector over a precise skill set. As is the case in academia, there are few experts in entrepreneurial operations. Therefore, even when startups must develop their operational readiness for launch and growth, they are unlikely to easily access the type of expertise that will equip them with a learned approach. 

What it takes to be operationally smart 

However, creating an operating environment that will help startups succeed is possible. In our review, the first key is to build a business model that includes the targeted operational parameters from the first day. Second, all businesses must undergo the exercise of designing a complete delivery cycle. The analysis must begin with the customer’s journey, with this basic question: “What do I need to do to receive five stars from my customers?” The answer must drill down to identify the components of satisfaction, such as: 

• Ease of ordering and delivery. 
  • How accessible am I? 
  • What are the outbound logistics (making it to your distributor or final customer)? 
  • Does it meet customer expectations in terms of ease and effectiveness? 
• What is your value chain? 
  • Does the building / assembly / order preparation allow customer expectations to be met? 
  • Where do you source? Is it reliable, ethical, and sustainable? 
• Actual and perceived product quality. 
  • Are the products you sell and the services you deliver consistent in meeting customers’ expectations? 
• Service components, such as support and personalisation. 
  • What are the distinctive components of your commercial strategy, targeted to your specific clients? 
  • What are the expectations of your customers in service and what have you implemented to deliver them? 

The next step is for the entrepreneurs to analyse what they need to build in their operations to meet these targets every time, for every customer. This means giving early attention to service processes, production methods, supplier selection, delivery infrastructure, staff training, and more. These elements must be laid out in the business plan, to demonstrate to the potential investors that the business model is sound and includes the right operational considerations to make the venture stand out in a crowded competitive field. In a nutshell, the first step that would-be entrepreneurs need to accomplish is the “pre-certification” of their idea ^[5]. Finally, retrace the customer journey considering these elements and define the key success factors and what it takes to satisfy the customer every time they interact with us. 

The best news is that a great operational design provides an edge. Our interviews with The Ridery and Comme Avant, two startups that have successfully passed the first hurdles of growth, indicate that an additional bonus of efficient operations is the creation of barriers to entry. Our interviews show that ideas can be easy to copy but perfect implementation is much more difficult to replicate. Therefore, superiority in operations is a predictor of market success, better margins, and a higher return on investment, arguments that investors are sensible to. So, building a successful operations system is more than “the power to deliver”; it can become “the right to win” in a competitive marketplace. 

Conclusion 

The field of operations is probably the most powerful, but also the least exploited, lever to success for entrepreneurs. Enlightened startups have identified the link between optimal satisfaction of customers’ expectations and operational enablers and included operational expertise in their initial staff. This enlightenment comes either from experience or from effective coaching. So, the role of operational guidance is essential in entrepreneurship education and incubation. The coaching chain, from education programmes to entrepreneurial ecosystems, must be geared to developing those operational competencies for the entrepreneurs and adding the required expertise early on in the incubation process. 

About the Authors

Fernanda Arreola is a Professor of Strategy, Innovation, and Entrepreneurship at ESSCA and a researcher focusing on service innovation, governance, and social entrepreneurship. Fernanda has held numerous managerial posts and possesses a range of international academic and professional experience. 

Dr. Michel Philippart shares 40 years of experience in production, consulting procurement, then academia. He was Associate Principal at McKinsey, Global Purchasing Director for GSKBiologicals, Director of the MSc SOC at EDHEC andManaging Director of Glion IHE. He focuses on procurement strategies, digital transformation and competitiveness through operations.

References

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