Marketing &

Financial
management

McGraw-Hill/Irwin
Entrepreneurship, 7/e
GROWTH STRATEGIES

• <<Insert Figure 14.1>>

PENETRATION STRATEGY

• A strategy to grow by encouraging existing customers to buy more

of the firm’s current products.

• Marketing can be effective in encouraging frequent repeat purchases.

• Does not involve anything new for the firm.
• Relies on taking market share from competitors and/or expanding the size
of the existing market.
MARKET DEVELOPMENT STRATEGIES

• Strategy to grow by selling the firm’s existing products to new

groups of customers.

• New geographical market: selling existing product in new locations.

• New demographic market: selling to a different demographic group.
• New product use: selling an existing product, which may have a new use, to
new groups of buyers.
PRODUCT DEVELOPMENT STRATEGIES

• A strategy to grow by developing and selling new products to

people who are already purchasing the firm’s existing products.

• Advantages:
• Chance to capitalize on existing distribution systems.
• Capitalizing on the corporate reputation firm has with these customers.
DIVERSIFICATION STRATEGIES

• A strategy to grow by selling a new product to a new market.

• Backward integration: a step back (up) in the value-added chain toward the
raw materials.
• Forwards integration: a step forward (down) on the value-added chain
toward the customers.
• Horizontal integration: occurs at the same level of the value-added chain
but simply involves a different, but complementary, value-added chain.
EXAMPLE OF GROWTH STRATEGIES (1
OF 2)

• Case: Early days of the Head Ski Company; only produced and sold
high-tech skis in the U.S. market.

• Penetration strategy
• Increase in marketing budget focused on encouraging existing customers to
“upgrade” their skis more often.

• Market development strategy

• Selling skis in Europe, Argentina, and New Zealand.
• Product development strategy
• Develop and sell new products (hats, gloves, boots, and other ski accessories).
EXAMPLE OF GROWTH STRATEGIES (2
OF 2)

• Diversification strategies
• Backward integration: design and manufacture of equipment used to make
skis.
• Forward integration: control of a chain of retail ski shops.
• Horizontal integration: ownership of ski mountains.
PRESSURES ON FIRM GROWTH

• Existing financial resources

• Firm’s resources can become stretched quite thin.
• Human resources
• Problems of employee morale, employee burn out, and an increase in
employee turnover.

• Management of employees
• May require change in management style and in dealing with employees.
• Entrepreneur’s time
• Diverting time to several activities can cause problems.
FINANCIAL PLANNING PROCESS

• Forecast financial statements under alternative operating

plans.
• Determine amount of capital needed to support the plan.
• Forecast the funds that will be generated internally and
identify sources from which required external capital can
be raised.

10
FINANCIAL PLANNING PROCESS
(CONTINUED)

• Establish a performance-based management

compensation system that rewards employees for
creating shareholder wealth.
• Management must monitor operations after
implementing the plan to spot any deviations and then
take corrective actions.

11
OVERCOMING PRESSURES ON
FINANCIAL RESOURCES
• Managing cash flow.
• Manage inventory.
• Manage fixed assets.
• Manage costs and profits.
• Taxes.
• Record keeping.
MANAGING CASH FLOW

• Entrepreneur should:

• Have an up-to-date assessment of the cash position.

• Prepare a daily cash sheet.
• Compare budgeted or expected cash flows with actual cash flows.
MANAGING INVENTORY

• Entrepreneur needs to:

• Determine value of inventory.
• Determine how inventory affects the cost of goods sold (income statement).
• Decide on LIFO (First Items In Inventory) or FIFO (Last Items In
Inventory).

• Factors to consider for converting to LIFO:

• Anticipate increased labor, materials, production costs.
• Business/inventory growing.
• Computer-assisted inventory control.
• Business is profitable.
MANAGING FIXED ASSETS

• Involve long-term commitments and large investments for the new

venture.

• Equipment
• require servicing and insurance.
• affect utility costs.
• depreciate over time.

• Leasing can be an alternative to buying.

MANAGING COSTS AND PROFITS

• Entrepreneur needs to:

• Assess each item to determine cost reduction

• Determine raising prices to ensure positive profits.
• Compare current actual costs with prior incurred costs.
• Allocate expenses as effectively as possible, by product.
• Avoid arbitrary cost allocation.
TAXES

• Entrepreneur will be required:

• Withhold federal and state taxes for employees.

• Pay a number of taxes (state and federal unemployment taxes and business
taxes).
• Allocate taxes as part of any budget.
• File end-of-year returns of the business.
• Consider use of a tax accountant.
RECORD KEEPING

• Helpful to consider using a software package.

• Maybe necessary to enlist the support and services of an
accountant/ consultant.
• Vitally important to use a system for storing and using customer
information.
OVERCOMING HUMAN RESOURCE
PRESSURES
• Preparation of job descriptions.
• Itemizing specifications.

• Outsourcing of HR responsibilities:
• Recruiting.
• Hiring.
• Establish benefit programs.
• Payroll.
• Firing.
• Permanent vs. part-time.
• Corporate Culture.
OVERCOMING PRESSURES ON
EMPLOYEE MANAGEMENT
• Activities to institute a more participative style of management:

• Establishing a team spirit.

• Communicating with employees.
• Providing feedback.
• Delegating some responsibility to employees.
• Providing continuous training for employees.
OVERCOMING ENTREPRENEUR’S
TIME MANAGEMENT PRESSURE
• Benefits of effectively managing time:

• Increased productivity.
• Increased job satisfaction.
• Improved interpersonal relationships.
• Reduced time anxiety and tension.
• Better health.
BASIC PRINCIPLES OF TIME
MANAGEMENT (1 OF 2)
• Principle of desire: a recognition of the need to change personal
attitudes and habits regarding the allocation of time.

• Principle of effectiveness: a focus on the most important issues.

• Principle of analysis: understanding how time is currently being

allocated, and where it is being inefficiently invested.
BASIC PRINCIPLES OF TIME
MANAGEMENT (2 OF 2)
• Principle of teamwork: acknowledgment that only a small amount
of time is actually under one’s control and that most of one’s time
is taken up by others.

• Principle of prioritized planning: categorization of tasks by their

degree of importance and then the allocation of time to tasks based
on this categorization.

• Principle of reanalysis: periodic review of one’s time management

process.