The content below is no substitute for an MBA or other formal training, and no certainly no substitute for immersion in the world of business, but it will provide some structure for those of you who are new to this.
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| Building blocks for a strong foundation. (These Roman bricks are 1,500 years old!) |
Here are the topics we intend to cover in this blog:
- Understanding market demand: The point of a business is to serve needs. Start by understanding the actual or potential unmet need, and hence the market opportunity that the business is supposed to pursue.
- Identifying the activities that create value: At its core, business is a set of activities that convert an input into a more valuable output, and sell that output to those who demand it. There are an infinite number of ways for a company to deliver a product or a service, but the specific way that the company chooses to do this, is its business model.
- Analysing the "machine" that has been built to turn inputs into outputs: A business organisation is a collection of processes for meeting demand. These processes can be grouped into functions for efficiency and ease of administration. Looking at the functional anatomy of a business organisation can give you clues to its strengths and weaknesses, and to the location of its true power base.
- Measuring the performance of the business: In addition to monitoring profitability and cash flow, there are a number of other ways to assess the performance of a business. By being able to read and interpret these, you will be able to understand how managers think about their own business, versus how analysts and investors think about those same businesses.
- Basic survivability and sustainability: Having decribed the business model and the activities it involves, you can start thinking about how much it costs to carry out each of those activities in the steady state. At the bare minimum, a business should eventually 1) earn more from selling products and services, than it costs to deliver those products and services and 2) it should generate enough cash to fund its own operations. The two key concepts here are margin and net cash flow. Being able to figure these out will tell you whether the business can survive in the short term and sustain itself in the long term. It is effectively the test of whether this business is worth running.
- Sources and uses of funds: But hold on! Assuming the business is worth starting and running, how does it get to that steady state? They'll need to face some fixed costs to get things moving. Understanding how much money is required, as well as /when/, is crucial to understanding the financial arrangements that support the company. In this section we will go a little deeper into the "colours" or "flavours" of money, and understand how the different characteristics of trade finance, debt and equity make them appropriate for different parts of the funding solution.
- Understanding who owns the machine, and who gets to steer it: Finally we are back on familiar territory for lawyers: Ownership and control. I don't have too much to tell you about this, but I will try to put these topics into the context of governance and strategy.