278 Planning and Forecasting
Operations Plan (2–3 pages)
The operations section of the plan has progressively shortened as more com-
panies outsource nonvital aspects of their operation. The key in this section is
to address how operations will add value to your customers and, furthermore,
to detail the production cycle so that you can gauge the impact on working cap-
ital. For instance, when does the company pay for inputs? How long does it take
to produce the product? When does the customer buy the product and, more
importantly, when does the customer pay for the product? The time from the
beginning of this process until the product is paid for will drain cash f low and
has implications for financing. Counterintuitively, many rapidly growing new
companies run out of cash, even though they have increasing sales, because
they fail to properly finance the time that cash is tied up in the procurement,
production, sales, and receivables cycle.
Operations Strategy
The first subsection provides a strategy overview. How does your business
win/compare on the dimensions of cost, quality, timeliness, and f lexibility?
The emphasis should be on those aspects that provide your venture with a
comparative advantage.
You should also discuss geographic location of production facilities and
how this enhances the firm’s competitive advantage. Discuss available labor,
local regulations, transportation, infrastructure, proximity to suppliers, and so
forth. The section should also provide a description of the facilities, how the
facilities will be acquired (bought or leased), and how future growth will be
handled (e.g., renting an adjoining building).
Scope of Operations
What is the production process for your product or service? A diagram power-
fully illustrates how your company adds value to the various inputs (see Exhibit
9.10a). Constructing the diagram also facilitates the decision of which produc-
tion aspects to keep in-house and which to outsource. Considering that cash
f low is king and that resource-constrained new ventures typically should mini-
mize fixed expenses on production facilities, the general rule is to outsource
as much production as possible. However, there is a major caveat to that rule:
Your venture should control aspects of production that are central to your com-
petitive advantage. Thus, if you are producing a new component with hard-
wired proprietary technology, let’s say a voice recognition security door entry,
it is wise to internally produce that hardwired component. The locking mecha-
nism, however, can be outsourced to your specifications. Outsourcing the as-
pects that aren’t proprietary reduces fixed cost for production equipment and
facility expenditures, which means that you have to raise less money and give
up less equity.