Managing for Efficiency
Embracing concepts like economies of scale and design/build can really benefit a startup.
Keith Twitchell spent 16 years running his own business before becoming president of the Committee for a Better New Orleans. He has observed, supported and participated in entrepreneurial ventures at the street, neighborhood, nonprofit, micro- and macro-business levels.
For most small business owners, economies of scale are difficult to achieve because whatever an owner is not doing his or herself (or doing in-house), is typically being contracted out to another small, local businesses. This creates obvious financial disadvantages compared to larger businesses and especially to chain operations, where everything from advertising to legal services to accounting is typically done on a combined basis.
Some merchant associations, however, are able to provide assistance in certain areas, like marketing or insurance. If you are not a member of your local merchant association, it is definitely worth looking into. Small business support organizations like StayLocal can also offer some valuable help here and there.
Given the need to keep expenses as closely controlled as possible, this situation challenges entrepreneurs to combine the management of their business needs for maximum efficiency and savings.
One obvious, yet frequently overlooked opportunity is the connection between marketing and sales. These are NOT the same thing, as any salesperson will tell you (loudly). Creating a marketing campaign – even as basic as building a website and generating electronic newsletters — without talking to your sales person/staff/consultant can increase costs while reducing impact.
“In every aspect of your business, you have to make sure your left hand and right hand know what the other is doing,” said Jordan Friedman, partner at Bond Moroch. “This is true even when they are both your hands.”
Another aspect of business where you may be able to save time and produce better results relates to financing your operations. Many entrepreneurs have both investors and lenders helping to fund their business, yet it is surprising how rarely these two sides of the equation are brought together. A lender who is confident a business is well capitalized might be able to offer a lower loan rate. Conversely, a potential investor might feel more comfortable backing a business if s/he sees that a lender has already vetted and financed you.
Perhaps the ultimate example of this comes from the construction industry, where the design/build concept is becoming ever more popular.
According to Ryan Noland, principal at local general contractor NFT Group, “Taking a design/build approach means having both the architect and the contractor at the table right at the very beginning of a project, working in close collaboration.” This applies whether they are from the same firm or different ones.
Noland cited a recent study from Penn State University that demonstrated that construction projects using the design/build approach on average cost 6% less and were completed 33% faster. While the cost savings are useful, finishing construction and launching operations in one-third less time is truly significant.
“Many project owners will sit down with architects or contractors separately to chart the course for a project, only to learn that it would have been more time- and cost- efficient to have everyone together at the outset,” continued Noland. “Using the design/build approach, the true cost of the project is established much earlier, and this reduces the chance of costly design changes, code compliance challenges and other related problems.”
While many people think of design/build as something that applies only to larger projects or new construction, Noland disagrees. In fact, his firm is currently working to convert an existing space into a new restaurant for a prominent local chef, using the design/build approach. Any renovation, remodeling or build-out is likely a good candidate for this method.
Running a startup or small business can feel like an endless game of Whack-A-Mole, given the myriad operational components that must be managed successfully. Looking for these kinds of synergies can make your company more efficient from both a time and cost standpoint. Plus, you get the satisfaction of whacking two of those moles at the same time!