Unit-5

Entrepreneurial Growth

# Concept of Entrepreneurial Growth:

New entry is an essential act of entrepreneurship. A successful new entry provides
the opportunity for the entrepreneur to grow his or her business. For example;
 Introducing a new product into the existing market provides the opportunity to take
market share form competitors.
 Entry into a new market provides the opportunity to service a new group of
customers.
 A new organization has a chance to make and build upon its first sales.
Growth is the concept of expanding sales, operations or assets and usually a major
strategic objective.

# Transition from Startup to Growth:

The startup is the initial period of business for companies with products or services
to sell. It is the first phase into revenue generating activity. It is concerned with initial
business operations. This is the critical period of intense development when a venture is
given the acid test of operations. In this stage of growth ‘reality shock’ sets in as an
entrepreneur position the business to complete in the real world. There are two bench
work consideration in this stage:
 First, entrepreneurs want to meet operating objectives such as meeting revenue and
costs targets.
 Second, they want to position the venture for long term growth.
Once the venture is started or positioned, successful enterprises will experience further
growth. It is stage of early growth. This is a period of intense monitoring and growth can
occur at different rates. This growth may range from slow growth through incrementally
higher sales to explosive growth through quantum changes is consumer demand.
If the enterprise proves successful in the early growth stage and has a momentum, it
can find itself in competition with larger companies. This is the later growth stage. In it,
the rate of growth may be slower and the industry has attracted competitors. Companies
reaching this stage often go public with stock offerings. Family fortunes turn into
corporate equality position; private investors convert their holdings into publicly trades.
Securities and management replace the entrepreneurial cadre. It represents an evolution
into an established enterprise when the venture must be professionally managed.

# Choice between Growth and No Growth:

New entry is an essential act of entrepreneurship. A success entry provides the
opportunity to grow the business. For example:
 Introducing a new product into an existing market provides the opportunity to take
market share from competitors.
  Entry into a new market provides these opportunity to service a new group of
customers and
A new organization has a chance to make and build upon its first sales.
The term growth permeates strategic planning. It is consistently used to explain changes
in the organization. However, growth, in and of itself is not a strategic objective of is
only the means to an end. A venture grows for many different reasons such as
 Higher sales volume may be necessary to establish an image.
 Increase the firm’s assets base.
 Meet competition
 Improve profit satisfy an entrepreneur’s dream of heading a large organization.
 Adapt to environmental changes.

# No Growth:
Depending on an entrepreneur’s personal, preference and competitive
circumstances, growth may not be necessary. For a majority of small business, growth is
not a major consideration beyond the point of gaining stability. For example, an
independent retailer may have no desire to expand beyond his or her expectation to own
and manage a store independently and personality. A beautician may find personal
satisfaction with a single location and autonomy of ownership. Management consultants
can do quite well operating as proprietorship or small partnership without creating
bureaucratic organizations.
No growth strategy involves no change in products, markets and functions. So, it is
no change strategy. However, attempts are made to sustain profitability for survival.

# Economic Implication of Growth:

1. Aggregate sales increase.
2. Number of employees significantly becomes larger than the original number.
3. More time are created.
4. Private sector becomes more effective. Modest levels of growth by small business
can have dramatic impact on an economy.
5. Entrepreneurs who pursue growth opportunities even if such pursuit increases the
potential for failure, generates knowledge that stimulate improvements in
technologies and increases economic resilience.

# Financial Strategies to Support Growth:

To overcome pressures on existing financial resources, the entrepreneur could
acquire new resources. The acquisition of new resources is expensive whether in terms of
equality sold or the interest payments. The need for the magnitude of the new resources
required can be reduced can be reduced through better management of existing resources.
This requires appropriate financial strategies activities include
 Applying effective financial control
 Managing inventory and
  Maintaining good records.

# Organization Challenge During Growth:

Because growth makes a firm bigger, the firm begins to benefit from the advantage
of size. For example, higher volume increases production efficiency makes the firm more
attractive to suppliers and therefore increases in bargaining power. Size also enhances the
legitimacy of the firm because firms that is larger that often provided by customers,
financiers and other stakeholders as being more stable and prestigious. Therefore, the
growing of a business can provide the entrepreneur more power to influence firm
performance. It has customer challenges such as mentioned below:
1. Pressure on Existing Financial Resources: Growth has a large need for cash.
Investing in growth means that the firm’s resources can structured quite thin. With
financial resources highly stretched, the firm is vulnerable to unexpected expenses
that could push the firm over the edge and into bankruptcy. Resources lack
(resources in reserve) is required to ensure stability against most environmental
stocks and to faster further innovations.
2. Pressure 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 employees’ morale, employee burnout and on increase in employee
turnover. These employees’ issues could also have negative impact on the firms’
corporate cultures. For example, an influx of a large number of new employees’
necessities by an increase in the number of tasks and to replace those that leaves
will likely to change the corporate culture. It is a major concern especially if the
firm relates on its corporate culture as a source of competitive advantage.
3. Pressure on the management of Employees: Many entrepreneurs find that as the
venture grows they need to change their management style. Centralized decision
making, the entrepreneur can be decentralized. Otherwise there can be detrimental
effect to the success of a growing venture. To manage growth, one will need to
make some managerial changes.
4. Pressure on Entrepreneur’s Time: Time is the entrepreneur’s most precious yet
limited resource. It is a unique resource. Entrepreneur can’t store of rent if hire or
buy it. It is also perishable and irreplaceable. No matter what an entrepreneur does,
she has 24 hours a day. Growth is demanding of the entrepreneur’s time. As the
entrepreneur allocates time to growth, it must be developed from other activities
and this can cause problems.

# Entrepreneurial Skills and Strategies:

1. Record Keeping: Record keeping can be enhanced using a software package. With a
growing venture may also be necessary to enlist the support and services of an
accountant or a consultant to support record keeping and financial control. These
external and most appropriate technologies to meet the record keeping needs of the
venture.
 A system for storing and using customer’s information becomes vitally
important for growing firm. Growth typically involves marketing to new customers
and large influx of new customers can overwhelm more primitive system. For
example previously customer information may have been stores in the memory of the
different salesperson. However, as the share number of customer increases the
memory capacity of a salesperson may be exceeds and important information could be
lost.
A database increases the capacity to hold and process information. It also
accumulates bit of knowledge contained within different individuals into an
organization knowledge that is accessible to everyone within the firm. By having
organization knowledge, the entrepreneur is less dependent upon any one individual.
Specially, customer information should be retained in a base that includes information
on a contact person as well as important than on the number of units and the amount
of business conducted/translated, beach account, new accounts should be diagonized
for follow up such as welcoming customers and providing them with important
information about the company and as products and services.

2. Financial Control: To overcome pressure on existing financial resources, the

entrepreneur should apply more effective financial control among with record keeping
and inventory management technicians. Entrepreneur needs some knowledge on how
to provide appropriate control to ensure financial goals are met. They should hold
financial skills to manage the venture cash flows, income statement and balance sheet
are the key financial areas that will need careful management and control.
3. Inventory Control: During the growth of a new venture, the management of
inventory is an important task. Too much inventory can be drain on cash flow since
manufacturing, transportation and storage lost must be borne by the venture. On the
other hand, too little inventory to meet customer demand can also cost the venture in
lost sales or a cash create unhappy customers who may choose another firm of their
needs are not met in timely manner growing ventures typically tie up more cash in
their inventory than at any other party of the business. Computerized inventory control
system can be installed that allows the firm to maintain records of inventory on a
capability, the system allows the company to monitor gross margin return on
investment, inventory turnover, percentage of the orders shipped on time to fill back
orders and percentage of customer complaints to shipped orders. Software to compare
these parameters is readily available and in many cases can even be modified to meet
the exact needs of the business. The reports from this system are generated every two
to four weeks in normal sales periods and weekly in heavy sales period. EDIs
(Electronic Data Interchanges) among producers, wholesalers and retailers can enable
firms to communicate with one another linking the needs of a retailer with those. The
wholesaler and producer allows for a fast order entry and response. These systems
also allow the firm to track shipments internationally. Transport mode selection can
also be important in inventory through management. Careful management of
 inventory through system and by working with customers and other channel members
can minimize transportation costs.

4. Human Resources: Generally the new venture does not have the luxury of a human
resource department that can interview, hire and evaluate employees. Some
entrepreneurs are using professional employer organization (CEOs) to perform most if
the human resource takes of the new venture, e.g. recruiting, hiring, setting up benefit
program, payroll and even hiring decisions. There are many HR function/process,
outstanding companies.

5. Marketing Skills: This section should describe how the products and services will be
priced, promoted and distributed. It ensure that a market exist for the proposed
venture. Entrepreneurs must provide a credible summary of potential customers,
market competitors and assumptions about pricing, promotion and distribution. It
should describe and entrepreneur’s intended strategy as well. It builds on market
research and distinct characteristics of the business to explain how the venture will
succeed. This section usually focuses on specific marketing activities. It describes
pricing politics, quality image, warranty policies, promotional programs, distribution
channels and other issues such as services after sale and marketing responsibility.

6. Strategic Planning Skills: The strategic skill of an entrepreneur is his or her ability to
develop and maintain a strategic fit between the firms goals and capabilities and its
changing marketing opportunities. Strategic planning sets the stage for the rest of the
planning in the firm. It involves
 Defining a clear mission of the company.
 Setting supporting objectives of the company.
 Designing a sound business portfolio and Coordinating functional strategies.