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Scope of Operations
What is the production process for your product or service? A diagram of the operations flow
facilitates the decision as to which production aspects to keep in-house and which to outsource (see
Exhibit 14.10a). Considering that cash flow is king and that resource-constrained new ventures
typically should minimize 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 competitive advantage. Thus, if you are
producing a new component with hardwired proprietary technology—let‟s say a voice recognition
security door entry—it is wise to internally produce that hardwired component. The locking
mechanism, however, can be outsourced to your specifications. Outsourcing the aspects that aren‟t
proprietary reduces fixed cost for production equipment and facility expenditures, which means that
you don‟t have to raise as much money and give up as much equity.
Exhibit 14.10a Operations flow.
Source: Adapted from Professor Bob Eng, Babson College.
The scope of operations should also discuss partnerships with vendors, suppliers, and partners.
Again, the diagram should illustrate the supplier and vendor relationships by category (or by name if
the list isn‟t too long and you have already identified your suppliers). The diagram helps you visualize
the various relationships and strategies to better manage or eliminate them. The operations diagram
also helps entrepreneurs to identify personnel needs. For example, the diagram provides an indication
of how many production workers might be needed depending on the hours of operations, number of
shifts, and so forth.
Ongoing Operations
This section builds on the scope of operations by providing details on day-to-day activities. For
example, how many units will be produced in a day, and what kinds of inputs are necessary? An
operating cycle overview diagram graphically illustrates the impact of production on cash flow (see
Exhibit 14.10b). As entrepreneurs complete this detail, they can start to establish performance
parameters, which will help monitor and modify the production process in the future. If this is an