Chap#13

Strategies for Growth and Managing the implications of growth

Contents
 GROWTH STRATEGIES: WHERE TO LOOK FOR GROWTH
OPPORTUNITIES
• A successful new entry provides the opportunity for the entrepreneur
to grow his or her business.
• It is difficult to provide direct guidance to entrepreneurs on a step-by-
step process for generating a highly attractive opportunity.
• Sustainable(check and balance) competitive advantage
• Negotiate for resources from external sources to sustain firm growth.
• Entrepreneur and the firm have knowledge about the
product(Aspects)
• These growth strategies are (1) penetration strategies, (2) market
development strategies, (3) product development strategies, and (4)
diversification strategies.
Penetration Strategies
• A penetration strategy focuses on the firm’s existing product in its
existing market. The entrepreneur attempts to penetrate this product
or market further by encouraging existing customers to buy more of
the firm’s current products.
• Marketing can be effective in encouraging more frequent repeat
purchases.
• growth strategy attempts to better exploit its original entry
Market Development Strategies
• Market development strategies involve selling the firm’s existing products to new groups of
customers(geographics or demographics and/or on the basis of new product use).
• New Geographical Market:This simply refers to selling the existing product in new
locations(city,country).Potential of increasing sales by offering products to customers who have
not previously had the chance to purchase them(customer preferences, language, and legal
requirements).
• New Demographic Market:Demographics are used to characterize (potential) customers based
upon their income, location, education, age, and gender.Business could grow by offering the same
product to a different demographic group.
• New Product Use:An entrepreneurial firm might find out that people use its product in a way that
was not intended or expected. This new knowledge of product use provides insight into how the
product may be valuable to new groups of buyers. Recognition of this new product use could open
up a whole new market. Knowledge of this new use allowed the producers to modify their product
slightly to better satisfy customers who used the product in this way.Expertise in a particular
technology and production process.
Product Development Strategies
• Product development strategies for growth involve developing and
selling new products to people who are already purchasing the firm’s
existing products.Customer group is a source of knowledge on the
problems customers have with existing technology and ways in which
customers can be better served.
• Product development strategy is the chance to
capitalize(funding,compete) on existing distribution systems and on
the corporate reputation the firm has with these customers.
Diversification Strategies
• Diversification strategies involve selling a new product to a new market.
• Value-added chain captures the steps it takes to develop raw materials into a product
and get it into the hands of the customers. Value is added at every stage of the chain.
For the value added, each firm makes some profit.
• Backward integration refers to taking a step back (up) on the value-added chain
toward the raw materials(firm as supplier).
• Forward integration is taking a step forward (down) on the value-added chain toward
the customers, which in this case means that the firm also becomes a finished goods
wholesaler(firm as buyer).
• Horizontal integration Occurs at the same level of the value-added chain but simply
involves a different, but complementary, value- added chain(new element).
• Fig 13.2
IMPLICATIONS OF GROWTH FOR
THE FIRM
• Because growth makes a firm bigger, the firm begins to benefit from the advantages of
size.
• firms that are larger are often perceived by customers,financiers, and other stakeholders
as being more stable and prestigious(honored).
• Growing of a business can provide the entrepreneur more power to influence firm
performance.
• changes introduce a number of managerial challenges.
These challenges arise from the following pressures.
• Pressures on Human Resources
• Pressures on the Management of Employees
• Pressures on the Entrepreneur’s Time
• Pressures on Existing Financial Resources
Pressures on Human Resources
• Growth is also fueled by the work of employees.
• If employees are spread too thin by the pursuit of growth, then the firm will face problems of
employee morale, employee burnout and an increase in employee turnover.
• These employee issues could also have a negative impact on the firm’s corporate culture(resolve
timely).
Pressures on the Management of Employees
• Management decision making that is the exclusive domain of the entrepreneur can be
dangerous to the success of a growing venture.
Pressures on the Entrepreneur’s Time
• Time is the entrepreneur’s most precious yet limited resource. It is a unique quantity.
• Growth is demanding of the entrepreneur’s time, but as the entrepreneur allocates time to
growth(problem handler).
Pressures on Existing Financial Resources
• Financial resources highly stretched, the firm is more vulnerable to unexpected expenses that
could push the firm over the edge and into bankruptcy(innovation).
• Estimation and ROI
OVERCOMING PRESSURES ON EXISTING HUMAN
RESOURCES
• Most of these decisions will be the responsibility of the entrepreneur and
perhaps one or two other key employees(interview, hire, firing decisions,
pay,benefits and evaluate employees).
• procedures for preparing job descriptions and specifications for new employees.
• Workforce should be permanent and what proportion should be part time(cost,
flexibility)
• Employees should be given feedback on a regular basis, and any problems
should be identified with a proposed solution agreeable to the employee and
the entrepreneur.
• Growing the business must take into consideration how to maintain the culture
despite of the new employees(early training sessions).
OVERCOMING PRESSURES ON THE MANAGEMENT OF
EMPLOYEES

• A participative style of management is one in which the entrepreneur

involves others in the decision-making process(Managing change).
• First, the complexity of growing a business and managing change
increases the information-processing demands on the entrepreneur.
• Second, highly qualified managers and employees are an important
resource for coming up with new ways to tackle current problems.
• Third, if employees are involved in the decision-making process, they are
more prepared and motivated to implement the decided course of action.
• Finally, in most cultures,employees enjoy the added responsibility of
making decisions and taking initiative.
• Establish a Team Spirit:A team spirit involves the belief by everyone in the organization
that they are “in this thing together” and by working together great things can be
achieved. Small but important actions by the entrepreneur can create this team spirit.
• Communicate with Employees:Open and frequent communication with employees
builds trust and diminishes fear. The entrepreneur must listen to what is on the minds
of his or her employees (suggestions,effectively manage growth,better performance).
• Provide Feedback:The entrepreneur should frequently provide feedback to
employees.It improve the quality of a particular task but does not attack the person
and create a fear of failure(open and honest communication).
• Delegate Some Responsibility to Others:Key employees must be given the flexibility to
take the initiative and make decisions without the fear of failure. This requires the
entrepreneur to create a culture that values and rewards employees for taking initiative
and sees failure as a positive attempt rather than a negative outcome.
• Provide Continuous Training for Employees:By training employees, the entrepreneur
increases employees’ ability and capacity to improve their own performance at a
particular task and, as a result, improves the chance of successfully growing the firm.
OVERCOMING PRESSURES ON
ENTREPRENEURS’ TIME
• Entrepreneurs can always make better use of their time, and the more
they strive to do so,the more it will enrich their venture as well as
their personal lives.
• Time management is the process of improving an individual’s
productivity through more efficient use of time.
• Increased Productivity:Time management helps the entrepreneur
determine the tasks of greatest importance and focuses his or her
attention on successfully completing those tasks. This means that
there will always be sufficient time to accomplish the most important
things.
• Increased Job Satisfaction:Getting more important things done and
being more successful in growing and developing the venture will give
the entrepreneur more job satisfaction.
• Improved Interpersonal Relationships:Time spent will be of a higher
quality (quality time), allowing him or her to improve relationships
with others inside and outside the firm (including family).
• Reduced Time Anxiety and Tension:Effective time management
reduces concerns and anxieties, which “frees up” information
processing and improves the quality of the entrepreneur’s decisions.
• Better Health:Time management can also include scheduling time to
eat well and exercise. Good health, and the energy that it brings, is
vital for an entrepreneur growing his or her business.
Basic Principles of Time Management
• Time management provides a process by which the entrepreneur can
become a time saver(expand business, increase personal and firm
productivity)
• Principle of Desire:Time is an important resource, and that there is a
need to change personal attitudes and habits regarding the allocation of
time(willpower, self-discipline, and motivation).
• Principle of Effectiveness:The principle of effectiveness requires the
entrepreneur to focus on the most important issues, even when under
pressure(task completion, improvement).
• Principle of Analysis:The entrepreneur should track his or her time over
a two-week period, using a time sheet(evaluation).
• Principle of Teamwork:The principle of teamwork acknowledges the
increasing importance of delegation for an entrepreneur of a growing
firm; that is, the entrepreneur must require others to take
responsibility for the completion of tasks previously undertaken by
the entrepreneur(accessibility of others).
• Principle of Prioritized Planning:The principle of prioritized planning
requires the entrepreneur to categorize his or her tasks by their
degree of importance and then allocate time to tasks based on this
categorization.
• Principle of Reanalysis:In this reanalysis, entrepreneurs can often
improve their time management by investigating more systemic
(systemwide) issues and revisiting potential opportunities for
delegation(training).
 OVERCOMING PRESSURES ON EXISTING FINANCIAL
RESOURCES
• To overcome these pressures on existing financial resources, the entrepreneur could acquire new
resources. The acquisition of new resources is expensive(sale,debt).
• Financial Control:The financial plan, as an inherent part of the business plan(three years how to met goals).
• Managing Cash Flow:Entrepreneur should try to have an up-to-date assessment of his or her cash position.
This can be accomplished by preparing monthly cash flow statements, and comparing the budgeted with
the actual results.
• Managing Inventory:During the growth of a new venture, the management of inventory is an important
task(manufacturing, transportation, and storage costs).
• Managing Fixed Assets:Fixed assets(equipment) generally involve long-term commitments and large
investments for the new venture. As with any other make-or-buy decision, the entrepreneur should
consider all costs associated with the decision as well as its impact on cash flows.
• Managing Costs and Profits:The entrepreneur should assess each item to determine whether these costs
can be reduced or whether it will be necessary to raise prices to ensure future positive profits(analyze,
Comparisons, evaluate).
• Taxes: Federal taxes, state taxes(governing members), Social Security, and Medicare are withheld from
employees’ salaries and are deposited later.
• Record Keeping:With a growing venture, it may also be necessary to enlist the support and services of an
accountant or a consultant to support record keeping and financial control(Security).
 A Categorization of Entrepreneurs and Their Firms’ Growth
• Actual Growth of the Firm: Entrepreneurs both the necessary abilities to make the
transition to a more professional management approach and the aspiration to grow their
businesses. These are the entrepreneurs who are the most likely to achieve firm growth.
• Unused Potential for Growth: These are the entrepreneurs of firms that have unused
potential(abilities).Pursue a low-growth business that satisfies their personal lifestyle
choice rather than attempt to maximize personal wealth.
• Constrained Growth:Entrepreneurs in the lower-right quadrant aspire to grow their
businesses but do not possess sufficient abilities to successfully satisfy this
aspiration.Entrepreneur might manage R&D, new products, and/or new markets where
his or her strengths are highly valued and enhance rather than constrain the growth of
the firm.
• Little Potential for Firm Growth:Entrepreneurs in the lower-left quadrant possess neither
the necessary abilities to make the transition to a more professional management
approach nor the aspirations to grow their businesses. These businesses have little
potential for growth, and due to the limited abilities of the entrepreneur to manage
growth, these firms may actually perform better if they remain at a smaller scale.