Key Operations Practices for Start-Ups

This is the third in a series of blog postings about various aspects of running a start-up:  Finance, Human Resources, Operations, and Marketing.

Operations:  who should manage operations at the beginning?

Operations can be difficult, because the entrepreneur must balance his or her time and efforts between assuring the supply of product needed in the months to come, and spending time creating a strategic plan for how to grow the business and how to operate the business once it is up and running at full speed.   If the business founder gets too immersed in day-to-day production issues, it may leave him or her too little time to plan future Operations. never mind other key activities such as Sales, Marketing, and meeting with potential investors.

One strategy would be for the founder to get a great Operations lead early on to supervise day-to-day production.  If the Operations lead has expertise in logistics planning, sourcing and/or quality control, so much the better, because then they can also support the entrepreneur in planning for more strategic aspects of Operations going forward.

Key operations questions to be answered in planning for growth of a start-up include:

• Sourcing: Is it more appropriate to self-manufacture or engage a third-party manufacturer?  Both have pros and cons.  Either way, it is important to ensure that the capacity will be available as demand builds, to avoid missing out on sales opportunities, and possibly leaving an opening for competitors.  If the product is going to be made at multiple locations, there needs to be unambiguous specs and standard operating procedures, to assure a consistent product.
• Logistics: What are the shipping and warehousing solutions that meet the business needs at the onset, and will they be sufficient as volume grows, due to business expansion into new geographies and/or channels?  As mentioned above, a strong operations lead can help with questions such as these, as well as just managing day-to-day production.
• Cost Management: How to develop needed understanding of product costs across the organization?  Having a bookkeeper on board, even part-time, who has worked with other manufacturers can be an important help.  Further, the production team has to be willing and able to keep and share records about crewing, shift output, use of raw ingredients and waste.
• Automation: How should the start-up reduce cost of goods sold in the longer term?  Often, automation is a key to bringing down costs.  With this as a consideration, the initial packaging should be chosen with subsequent automation opportunities in mind. The Operations resource also has to work closely with the Financial resource to decide on when to invest in automation or other cost reducing technology.