Management Control System Assisted Decision-Making in Startups (Part 2)

[Management Control System Series]:

Part 1: Management Control in Early-Stage Startups.

Part 2: [This Article] Management Control System Assisted Decision-Making in Startups.

Part 3: Planning, Forecasting and Budgeting Approaches in Startups.

Decision making in startups is ideally a joint consideration among all founding members. Once the business grows with traction and then momentum; CXO positions are filled-in quickly. These are key people who are part of the core team; hence, their involvements also become critical. Founders are always in the mode of taking guidance from mentors, advisors, professional consultants, domain experts, and also employees. This feedback, suggestions help in the early identification of problems and challenges.

The core leaders in the organization who drive their respective functions find themselves in a better position for decision-making after implementing the Management Control System (MCS). The availability of multi-fold insights to facts and figures becomes possible due to structured planning, forecasting, and budgeting methodologies.

Let us look at two decision making approaches:

[A] Rational Decision-Making:

This is characterized by:

• Logical reasoning.
• Analysis based on information.
• Systematic analysis of alternatives (in financial terms)
• Characteristics: Slow and complex.

[B] Intuitive decision-making process:

This is characterized by:

• Conviction and feelings.
• Less systematic.
• Characteristics: Quick and simple.

At times, it may look like that it is a long-drawn-out process to decision making which may not be suitable for startups. Yes, it may be, but you have to choose between a ‘slow and complex’ or ‘quick and simple’ approach to decision making.

Generally, early-stage startups face situations where fast decisions need to be taken for day-to-day business operations and slow rational decisions for new opportunities.

Operational Decisions:

The operational decision making could be a combination of rational and intuitive depending upon the challenges you face in that particular situation. At times simple processes and informal communications may help make fast decisions but you have to touch upon all the key points of the processes. Such situations are plenty and provide challenges daily.

A few examples may include:

• Sales strategies concerning new regions (city or state etc).
• Marketing strategies for retail or enterprise products.
• Planning for sales model (distributorship etc.).
• Pricing across all product categories.
• People hiring — experienced, entry-level, or interns across functions.
• CRM strategies — for customer retention and credit collections etc.
• Go-global and digital marketing.
• Countering competitor pricing.
• Strategies for field/telesales, inbound/outbound calls.
• Planning sales incentives.
• Planning all staff benefits.
• Application maintenance and support framework.
• HR policies and processes.
• And the list continues…

Strategic Decisions (Short/Long Term New Projects):

Decision-making for new projects should be more rational for the overall benefit of the organization. Founders and other leaders may find it very easy to determine if there is a positive or negative business case to proceed or not. But it is not that simple all the time. Every project needs to be carefully analyzed, evaluated for long-term viability considering return on investment (ROI), and market risks. A few examples may include:

• Opening up new revenue streams.
• Partnerships with businesses.
• Application integration with other solutions.
• New product development and launch strategy.
• Strategies for going global.
• And the list continues…

Conclusion: When strong processes are established across all functions, the startup becomes process-driven rather than people-driven. The processes provide data and information in every step which are captured, processed, and aggregated in the reporting hierarchy to help leaders make the right decisions. Everyone knows where the startup heads when better decisions are taken backed-up by data and Management Control Systems. It is not a secret.

Key Takeaways:

Disclaimer: This article is based on experiences that might be generic or specific at times to business conditions. Please consult your advisors, mentors, certified consultants for needs related to your venture, raising money, strategies, planning, forecasting, processes, partnerships, etc. The takeaways are responsibilities for those embarking on a startup journey owning risks. All rights reserved.