Strategic planning

Entrepreneurial strategy is a design or plan that integrates an entrepreneurial team’s

intent into goals, policies and action sequences to build a cohesive business model. A

well-formulated strategy helps to marshal and recruit resources, complement team

competencies, compensate for relative shortcomings, anticipate changes in the

environment and contingent moves by intelligent opponents, and to form an organization

with a unique and viable posture.

Key five steps of formulating entrepreneurial strategy are:

• Examine the internal and external environments of the venture (strengths,

weaknesses, opportunities, threats).

• Formulate and define the venture’s long-range and short-range strategies (vision,

mission, strategic intent, objectives, business model design, tactics, budgets and

policies).

• Implement the strategic plan (programs of recruitment to acquire resources and

capabilities, engage in market entry activities, develop procedures, alliances,

partnerships, supplier relationships, etc.).

• Evaluate the performance of the strategy against strategic intent and desired

returns.

• Take follow-up action through continuous feedback.

Lack of strategic planning

The importance of new ventures to the economy is substantial in terms of innovation,

employment and wealth created, and effective planning can help these new companies

survive and grow. Unfortunately, research has shown a distinct lack of strategic planning

on the part of new ventures. Five reasons for this deficiency have been found.

• Time scarcity: Managers report that their time is scarce and difficult to allocate to

strategic planning in the face of day-to-day operating schedules.

 • Lack of knowledge: Small firm owners/managers have minimal exposure to and

knowledge of the planning process. They are uncertain of the components of the

process and the sequence of those components. The entrepreneurs are also

unfamiliar with many planning information sources and how they can be used.

• Lack of expertise/skills: Small-business managers typically are generalists and

they often lack the specialised expertise necessary for the planning process.

• Lack of trust and openness: Small firm owners/managers are highly sensitive and

guarded about their businesses and the decisions that affect them. Consequently,

they are hesitant to formulate a strategic plan that requires participation by

employees or outside consultants.

• Perception of high cost: Small-business owners perceive the cost associated with

planning to be very high. This fear of expensive planning causes many business

owners to avoid or ignore planning as a viable process.

Value of strategic planning

Does strategic planning pay off? Research shows it does. A number of studies have

focused on the impact of planning on entrepreneurial businesses. These studies support

the contention that strategic planning is valuable; indeed it influences a venture’s survival.

Lack of planning is one of the top reasons for small business failures; firms engaged in

strategic planning outperformed those that did not use such planning. In Australian small

and medium enterprises (SMEs), strategic thinking and action seem to be undertaken

through the use of a written business plan as a strategic framework; however, few other

sophisticated strategy making techniques appear to be employed.

Fatal flaws in strategic execution

The actual execution of a strategy is as important as the strategy itself. Many

entrepreneurs make unintentional errors while applying a specific strategy to their own
specific venture. Competitive situations differ and the particular application of known

strategies must be tailored to those unique situations.

Porter has noted five fatal strategic flaws (FSFs) entrepreneurs continually fall prey to in

their attempt to implement a strategy. Here are these mistakes and an explanation of

them.

• FSF 1: Misunderstanding industry attractiveness. Too many entrepreneurs

associate attractive industries with those that are growing the fastest, appear to be

glamorous or use the fanciest technology. This is wrong, because attractive

industries have high barriers to entry and the fewest substitutes. The more high-

tech or high-glamour a business is, the more likely a lot of new competitors will

enter and make it unprofitable.

• FSF 2: No real competitive advantage. Some entrepreneurs merely copy or imitate

the strategy of their competitors. That may be an easy tactic and it is certainly less

risky, but it means an entrepreneur has no competitive advantage. To succeed,

ultimately new ventures must develop unique ways to compete.

• FSF 3: Pursuing an unattainable competitive position. Many aggressive

entrepreneurs pursue a position of dominance in a fast-growing industry. However,

they are so busy getting off the ground and finding people to buy their products

that they forget what will happen if the venture succeeds. For example, a

successful software program will be imitated quickly. So the advantage it alone

gives cannot be sustained. Real competitive advantage in software comes from

servicing and supporting buyers, providing regular upgrades and getting a

company online with customers so their computer departments depend on the

organization. That creates barriers to entry. Sometimes, small companies simply

cannot sustain an advantage.

• FSF 4: Compromising strategy for growth. A careful balance must exist between

growth and the competitive strategy that makes a new venture successful. If an
 entrepreneur sacrifices their venture’s unique strategy in order to have fast growth,

then the venture may grow out of business. Although fast growth can be tempting

in certain industries it is imperative that entrepreneurs maintain and grow their

strategic advantage as well.

• FSF 5: Failure to explicitly communicate the venture’s strategy to employees. It is

essential for every entrepreneur to clearly communicate the company’s strategy to

every employee. Never assume employees already know the strategy. Always be

explicit.

Managing entrepreneurial growth

Managing entrepreneurial growth may be the most critical challenge for the future

success of business enterprises. After initiation of a new venture, the entrepreneur needs

to develop an understanding of management transition. As ventures grow, entrepreneurs

must remember two important points. First, an adaptive firm needs to retain certain

entrepreneurial characteristics in order to encourage innovation and creativity. Second,

the entrepreneur needs to translate this spirit of innovation and creativity to their

personnel while personally making a transition towards a more managerial style.32

Thus, the survival and growth of a new venture requires the entrepreneur to possess both

strategic and tactical skills and abilities. Which specific skills and abilities are needed

depends in part on the venture’s current development.

Venture development stages

The traditional life cycle stages include new-venture development, start-up activities,

growth, stabilization and innovation or decline. Other authors have described these

stages in different terms that may range from four33 to six.34 In short, authors generally

agree that ventures do experience a life cycle, although the number of stages may not

always be agreed. Here we summaries five stages. By turning to the venture life-cycle

exercise at the end of the chapter you can test your awareness of what the different

stages will mean for an entrepreneur.

• Stage 1: new-venture development: The first stage, new-venture development,

consists of activities associated with the initial formulation of the venture. This initial

phase is the foundation of the entrepreneurial process and requires creativity and

assessment. In addition to the accumulation and expansion of resources, this is a

creativity, assessment and networking stage for initial entrepreneurial strategy

formulation. The enterprise’s general philosophy, mission, scope and direction are

determined during this stage.

• Stage 2: start-up activities: The second stage, start-up activities, encompasses the

foundation work that would contribute to creating a formal business plan and includes

searching for capital, carrying out marketing activities and developing an effective

entrepreneurial team. These activities typically demand an aggressive entrepreneurial

strategy with maximum effort devoted to launching the venture. It is typified by strategic

and operational planning steps designed to identify the firm’s competitive advantage and

to uncover funding sources. Marketing and financial considerations tend to be paramount

during this stage as the business struggles with survival.

• Stage 3: growth stage: The growth stage often requires major changes in

entrepreneurial strategy. Competition and other market forces call for the reformulation of

strategies. For example, some firms find themselves ‘growing out’ of business because

they are unable to cope with the growth of their ventures. Highly creative entrepreneurs

sometimes are unable, or unwilling, to meet the administrative challenges that

accompany this growth stage. As a result, they leave the enterprise and move on to other

ventures. This growth stage presents newer and more substantial problems than those

the entrepreneur faced during the start-up stage. The growth stage is a transition from an

entrepreneurial informal ‘one-person’ leadership to managerial formalised and team-

oriented leadership. This transition for the entrepreneur, as discussed earlier, requires

developing a different set of skills while maintaining an entrepreneurial perspective for the

organization.
• Stage 4: business stabilization: The stabilization stage is a result of both market

conditions and the entrepreneur’s efforts. During this stage a number of developments

commonly occur, including increased competition, consumer indifference to the

entrepreneur’s good(s) or service(s) and saturation of the market with a host of ‘me too’

look-alikes. Sales often begin to stabilize and the entrepreneur must begin thinking about

where the enterprise will go over the next three to five years. This stage is often a swing

stage in that it precedes the period when the firm either swings into higher gear and

greater profitability or swings towards decline and failure. During this stage, innovation is

often critical to future success.

• Stage 5: innovation or decline: Companies that fail to innovate will die. Financially

successful enterprises will often try to acquire other innovative firms, thereby ensuring

their own growth. In addition, many companies will work on new product/service

development in order to complement current offerings.