Managing and Growing A New Business Venture
Key Points to Consider
Why is having a competitive advantage so important?
What are the different legal forms an entrepreneur can use for organizing a startup?
What are the key entrepreneurial management functions?
What is the difference between entrepreneurial management and professional management?
Why do so many small companies fail to escape their initial entrepreneurial phase?
How can a business plan aid in the transition from entrepreneurial doers to entrepreneurial leaders and coaches?
What motivates entrepreneurs? How do entrepreneurs motivate their employees?
What are the characteristics of a successful entrepreneurial management team?
How should companies approach the process for tailoring a board of directors to fit their needs?
Why do startups fail? How can the entrepreneur use strategic planning to reduce risks?
When combined, goals and strategies define the scope of operations and the relationship with employees, customers, competitors, and other stakeholders. The term “strategy” is widely used in the business world today. It is one of those words that people define in one way and often use in another, without realizing the difference. It is derived from the ancient Greek word meaning “the art and science of the general deploying forces for battle.”
Winning business strategies are grounded in a sustainable competitive advantage. A new business venture has a competitive advantage whenever it has an edge over rivals in attracting customers, attracting investors, and defending against competitive forces and industry risks. With a competitive advantage a new business venture has good prospects for above-average survivability, long-term profitability, and success in the industry. Without one, a new business venture risks being out-competed by strong rivals and locked into poor, to at best, average performance.
A business model is a consistent, economically sound configuration of the elements comprising a venture’s goals, strategies, processes, technologies and organizational structure, conceived to create and consistently add value for the customers identified. In other words, it is the entire system that allows a business venture to capture and deliver value to targeted customers in a profitable business activity.
But it takes little time to destroy a high growth-potential venture with a sound business model. One turn-around expert says, “Ninety-five percent of the failures are due to internal problems. I can’t tell you how many companies I’ve been to that have the fast-growing-company plaque on the wall and are about to go under. They don’t have the systems and the people in place. Accounting is lagging. Purchasing is not done in the most efficient manner. Inventory gets out of control. All of a sudden, all these mistakes compound, and the least little burp kills them.”
Michael Dell of Dell Computers discovered this, “As success followed on success, it was hard to imagine that growth would at some point become our greatest vulnerability. We didn’t understand that with every new growth opportunity came a commensurate level of risk—a lesson we learned the hard way.”
This unit looks at what happens after startup, such as managing rapid growth and establishing formal management practices. The set of changes that startups need to make as they rapidly grow is often termed the transition from entrepreneurial to professional management. This unit only begins to address the issues that startups must deal with in making the transition.
The growth of any new business venture is a product of both the opportunity selection and management factors. The true mark of a good venture is how it manages growth and whether it can sustain it. Centralized decision making and informal controls characterize entrepreneurial management. In startups, one person can comprehend all the information required for decision making and there is little need for formal procedures. The venture is small enough that business activity can be monitored via the supervision of the entrepreneur. The ventures that survive the growth phase have a disciplined team with intellectual honesty; they know what they know and do not know. Their honesty prevents a myopic vision that might be intoxicated by current success. They are also quick to delegate decision-making responsibility.
The entrepreneurial challenges of leadership and the job of management in a fast-growing venture can be complex and difficult. Entrepreneurs new at leadership often feel that they must have all the answers and must dictate policy or they will be seen as weak. But breaking through the growth wall requires an organization-wide transition from a culture of entrepreneurial doers and managers to entrepreneurial coaches and team leaders. Leadership is about knowing when to lead and when to step aside. Leaders should manage through directions, discussion, and suggestions.
The selection of stakeholders and organizational structure for any business venture requires some major decisions that will affect long-term effectiveness and profitability. When it comes to successful entrepreneurs and entrepreneurial teams, most investors will agree that they prefer a grade A entrepreneur with a grade B business idea to a grade B entrepreneur with a grade A idea. In other words, they prefer to bet on the jockey and not the horse. Since no one individual can possess all the attributes that venture capitalists and academics say are important for success, it is generally a strong entrepreneurial management team, not the lone entrepreneur, which investors will back. Regardless of how great the opportunity may seem to be, it will not become a successful venture unless a venture team with strong entrepreneurial and management skills develops it.
Coordinating profitable, rapid growth requires a detailed plan and budget. Also, employees who are capable of delivering the desired outcomes in the growth plan must be hired. Entrepreneurs of startups should know that it is never too late to start developing smart tactics/practices for finding workers. Startups must be prepared, as they enter the battle for talented workers, with a plan, creative compensation packages, capital budgets with room for human capital investment, and other powerful strategic weaponry. Just as the most successful startup ventures have business plans, operational or manufacturing plans, and financial plans, companies that grow to the next level, breaking through the growth wall, also have internal plans for expansion.