Mark Kellett, CEO of Magnet Networks, is an advocate of the so-called ‘Seven-S’ framework as an aid to anyone at the business plan stage of setting up.
Developed in the late Seventies by Tom Peters and Robert Waterman as consultants for McKinsey and Company, this is a model for managing an organisation based on the following factors: strategy, structure, systems, shared values, skills, staff and style.
Importance of having a framework
“Each ‘S’ is linked to all of the others. I used it when I was studying for my master’s and I find it’s a great way of forcing you to think of your business plan. When you look at business literature it’s not summarised in simplistic ways. Students, in particular, considering setting up a business typically don’t think in terms of simplified learnings so I think it’s important to give them a framework,” says Kellett, who recently gave a workshop to students in Dublin City University as part of its Enterprise Week.
Kellett goes through some of the ‘S’s to explain further. “When you’re looking at skills, you need to decide do you need a high degree of manual dexterity, for example, or perhaps linguistic skills. Systems don’t just cover your technological processes, but how you manage on a day-to-day basis in every way, for instance what system of selling you use.”
He suggests drawing a circle with the word ‘strategy’ in it with the other S’s coming out as spokes from this central point.
Strategy: superior product, customer intimacy and cost leadership
In general, when it comes to strategy, Kellett says there are three to choose from and typically it’s not possible to achieve all three at any one time. They are:
- Superior product
- Customer intimacy; and
- Cost leadership.
“Think about Ryanair and Virgin Atlantic. Ryanair is clearly an aggressive cost leader, while Virgin tends to be mainly known for being good with customers and with a superior product, but not the cheapest flights.”
Golden rule: register your idea quickly
Finally, Kellett has two pieces of key advice for start-ups, which he says resonated with the students he met.
“The golden rule when you come up with something new is to register your idea quickly to secure your innovation. Secondly, people always underestimate the amount of cash flow they will require and over estimate sales. They think they’ll make €10,000 in sales in the first month, but no business can capture market share like that.
“You need to multiply what cash flow you think you’ll need by a factor of three or four because payment terms are slipping from 30 to 60 or 90 days now.
“You literally have no leverage over your customers when you’re new – in other words, if they don’t pay you, you’re not part of their core offering and the likelihood of you getting paid in 30 days is next to zero. You need to have good financial support from wherever you can get it in the first six months.”
Photo: Mark Kellett, CEO of Magnet Networks
For more advice on starting a business, go to Bizstartup.ie.