Why Startups Should Establish The Management Control System (MCS) Early? (Part 1)

[Management Control System Series]:

Part 1: [This Article] Management Control in Early-Stage Startups.

Part 2: Management Control System Assisted Decision-Making in Startups.

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

Have you seen a startup that does not expect high growth in a short period?

You will rarely find one.

Have you seen a startup that has grown fast in a short period?

You will find many journey stories of these startups circulated for motivation.

So, what makes some startups successful? Well, there are uncountable numbers of books, articles written; but a similar success-failure cycle continues. After all, the startups must follow the basic philosophy of constantly performing at the top with a high level of risks and mostly negative cash flows.

When? According to industry experts, the key ingredients for growth and scale are Vision, Strategy, People, Communication, Systems & Processes, and Cash flow. The fifth aspect is the most neglected one in early-stage startups. That is why there comes an important decision to integrate Management Control System (MCS) with the organizational processes at an early stage.

Founders may give reactions like…

What, now?

There is a simple answer to it.

‘Yes, Now!’

Why? Your startup is small; hence implementing Management Control is easier than you think. As the organization grows, let the processes and systems grow and get mature eventually. When the startup grows faster, organizational performance monitoring becomes one of the key necessities along with other priorities. Establishing Management Control in a startup may look huge but is essential when your products mature; when you enter new markets and when you attempt to open up new revenue streams.

How? The Management Control System can be established in a startup using a formal or informal framework. In either way, the objective is to measure the performance of the organization by comparing its actual outcomes against the planned strategies and goals.

Many conceptual models exist such as (Zani’s, Anthony’s, Macintosh’s, Lowe’s, Simon’s, and Otley & Berry’s) framework for MCS/MIS. These are decades-old models but still may be referred to evaluate a startup’s fitment for adopting a framework; which can be modified and extended to your needs.

For a startup with fast-changing market scenarios; the below list might help in establishing the initial structure of the management control system to help in decision making:

[A] Vision, Mission:

* Define vision and mission statements.

* Define the goals and objectives of the organization along with success metrics.

* Define roadmap (both short-term and long-term)

[B] Management Control System (MCS):

* Cost identification, classification, allocation to responsibility centers.

* Establish planning, forecasting, and budgeting processes.

* Establish a structural approach for evaluating programs/projects and analysis for a) Investment decision, b) Execution of strategies and c) Operational decision making.

* Establish an accounting report and budgetary control mechanism.

[C] Operations Control and Processes:

* Develop processes across functions for capturing valuable business data.

* Define KPIs for multiple roles and responsibilities.

* Cash Monitoring (Working Capital Management).

* Monitoring System for key functions (Sales, CRM, HR, Customer Support, Product Management, etc.)

Need? At the early stage of your startup, a Management Control System and a formal Roadmap are a true combination to keep your business purely on the track for success. Founders need to take care that these are closely monitored, updated, and followed diligently and never overlooked.

The need at different stages of the startup:

* Early-stage startups: For strategies associated with sales, new market, new revenue stream, human resource planning, and financial planning, etc.

* Growth-stage startups: For performance monitoring, forecasting, and safeguarding.

* Late-stage (mature) startups: For structured diagnostics.

Conclusion: Every organization needs a strong internal framework of processes for operations. You will have it one day, but ignoring it at an early stage may give you more pain in the future than the pain you take early to establish and evolve it. Remember that equity investors value the adoption of a Management Control System in a startup as they believe it leads to better decisions and better execution.

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.