HOW MANAGEMENT FACTORS CAN AFFECT BUSINESS GROWTH
The degree of growth and the rate at which a new venture grows is apart from marketing also dependent on the management strategy. Management factors that affect a firm’s ability to grow:
The Inertia of Success
When a new venture has survived and is successful, even as a new venture, there is a tendency to believe that it must be doing everything right and should continue in the same way. That is a fatal error on the part of many entrepreneurs who don’t recognize that change is a by-product of success. Many times it isn’t until the venture is in a crisis that the entrepreneur realizes the time has come to make a transition to professional management, a step that requires of the entrepreneur a fundamental change in attitudes and behaviours.
The Entrepreneur’s Ability to Delegate Authority and Responsibility
Rapid growth requires skills different from start-up skills. At the beginning of a new venture, the entrepreneur has more time to take part in and even control all aspects of the business. But when rapid growth begins to occur, systems must be in place to handle the increases demand without sacrificing quality and service. Unless the entrepreneur is able to bring in key professional management with experience in high-growth companies, chances are good that growth will falter, the windows of opportunity will be lost, and the business may even fail endlessly. Many entrepreneurs have found that at some point in the business’s growth, they must step down and allow experienced management to take over.
The Ability to Encourage Entrepreneurship in the Entire Venture Team
Growing the business does not have to mean that the entrepreneurial spirit is lost, only that the entrepreneur must become very creative about maintaining that sense of smallness and flexibility while growing. Subcontracting some aspects of the business is one way to keep the number of employees down and retain team spirit. Developing self-management teams is another way.
Stages Of Growth In a New Venture
Rates and stages of growth in a new venture vary by industry and business type; however, there appear to be some common issues that arise in the area of strategic, administrative, and managerial problems. The importance of knowing when these issues will surface cannot be overstated, for it should be part of the entrepreneur’s well-orchestrated plan to anticipate events and requirements before they occur.
Research results suggest that organizations progress sequentially through major stages in their life and development. Still, other studies have noted that at each stage of development, the business faces a unique set of problems. For example, the start-up state is characterized by marketing and financial problems, whereas the growth phase is associated with strategic, administrative, and managerial problems.
One study corroborated these findings by learning that the number of organizations that claimed their most difficult problem was obtaining financial decline from 17 per cent at start-up to 1 per cent in the growth phase, and that the percentage of firms with human resource problems increased from 5 per cent at start-up to 17 per cent in the growth phase.
During start-up, the first stage, the entrepreneur’s main concerns are to ensure sufficient star-up capital, seek customers, and design a way to deliver the product or service. At this point, the entrepreneur is a jack-of-all-trades, doing everything that needs to be done to get the business up and running. This includes securing suppliers, distributors, facilities, equipment, and labour.
The very complexity of start-up is one reason why many new ventures fail. Complexity also suggests that a team-based venture is better equipped to achieve a successful launch than a solo effort. If the company survives to achieve a positive cash flow from the revenues it generates, it is in a good position to grow and expand its market. If, however, revenues generated fail to cover company expenses, it will not be possible to grow without seeking outside capital in the form of equity or debt.
If the new venture makes it through the first stage, it enters the second level of activity with a viable business that has enough customers to keep it running on the revenues it generates. Now the entrepreneur’s concerns become more focused on the issue of constant cash flow. Can the business generate sufficient cash flow to pay all its expenses and at the same time support the growth of the company? At this point, the venture is usually relatively small, there are few employees, and the entrepreneur is still playing an integral role. This is a crucial stage, for the decisions made here will determine whether the business will remain small or move to the next level, rapid growth, which entails some significant changes in organization and strategy. The entrepreneur and the team need to decide whether they are going to grow the business to a much larger revenue level or remain stable yet profitable.
If the decision is to grow, all the resources of the business have to be gathered together to finance the growth of the company. This is a very risky stage because growth is expensive, and there are no guarantees that the entrepreneur will be successful in the attempt to reach the next level. Planning and control systems must be in place and professional management hired because there will be no time to do that during the period of rapid growth.
The problems during this stage centre on maintaining control of rapid growth. They are solved by delegating control and accountability at various levels; failure usually is due to uncontrolled growth, lack of cash, and insufficient management expertise to deal with the situation. If growth is accomplished, it is at this stage that entrepreneurs often sell the company at a substantial profit. It is also at this stage that some entrepreneurs are displaced by their board of directors, investors, or creditors because the skills that made them so important at start-up are not the same skills the company needs to grow to the next level.
As a result, many entrepreneurial ventures reach their pinnacle of growth with a management team entirely different from the one that founded the company. To the extent that the entrepreneur is a vital part of the vision of the company and can identify an appropriate new role in the now larger company, he or she will remain the primary driver of the business. Bill Gates, the Microsoft co-founder, is one example of an entrepreneur who stayed at the helm and took his company from start-up to a global corporate giant. Several years later did he step out of the CEO position in favour of one of the founding team members, Steve Ballmer.
Stable Growth and Maintenance
Once the business has successfully passed through the phase of rapid growth and is able to manage effectively the financial gains of growth, it has reached Phase 4, stable growth and maintenance of market share. Here, the business, which usually is now large, can remain in a fairly stable condition as long as it continues to be innovative, competitive, and flexible. If it does not, sooner or later it will begin to lose market share and could ultimately fail or revert to being a much smaller business.
High tech companies seem to be an exception to traditional growth patterns. Because they typically start with solid venture capital funding and a strong management team (dictated by the venture capitalists), they move out of Phases 1 and 2 rapidly. During the Phases 3 and 4, if the structure is effective and their technology is adopted in the mainstream market, they become hugely successful. If, on the other hand, the structure is weak and the technology is not rapidly adopted, they can fail rapidly.