managing growth for new venture for the subject of Entrepreneurship Management

1. Managing Growth
&
Transition
Managing Growth
&
Transition
Unit-Eight
By:Manish ojha
Farwestern university
Kanchanpur,Nepal

2. New ventures pass through
transitional stages that present new
challenges to their founders. These
transitional stages are represented by
an organizational life cycle. When new
ventures established it grow, mature,
and, in many cases, decline. As we
shall see, there are several important
challenges facing entrepreneurs
during different transition stages.

3. The Entrepreneur’s perspective
The life cycle is identified with five stages:
Start-up stage
Expansion stage
Consolidation stage
Revival stage &
Decline stage
These are explained in terms of three variables: growth,
product/market definition, and organization. As the venture
progresses from one stage to the next, condition
change, requiring different decisions for
managing growth, developing products and
markets, and organizing the company.

4. Business Life Cycle

5. Start-up Stage
During the start-up stage, growth is unpredictable. Sales not
often meet a founder’s expectations, and they can occur
haphazardly. In extreme circumstances, markets will be
disordered with exciting spurts and disappointing sputters.
This disorder can absorb entrepreneurs in daily struggles to
survive. In the worst-case scenario markets may be inactive,
leaving the entrepreneur confused. Inconsistent growth does
not provide a pattern of sales to help guide an entrepreneur’s
decisions. Although products and services are usually
targeted to narrow market niches, confusion persists. During
this initial stage, entrepreneurs modify their products,
change distribution systems, alter services and experiment
with marketing tactics in an attempts to survive; they are
“fighting fires” every day.

6. Expansion Stage
During the expansion stage, rapid growth results in a
pattern of success that is useful for evaluating market
position and new-product potential. The venture is
transformed from a single-line enterprise operating in
a limited market to a multiline company penetrating
new markets. Product and service line are broadened
through innovation and development, and the
organization expands through functional authority.
Decision making may be centralized during early
growth, but departmentalization ensues, leading to a
dispersion of authority. To meet these challenges,
entrepreneurs must enlarge the enterprise and delegate
authority for functional coordination.

7. Start-up Stage
Expansion Stage
Single product or
restricted line of
merchandise and service
Single product or
restricted line of
merchandise and service
Positioned in new
markets and among a
wider group of customers
or clients
Positioned in new
markets and among a
wider group of customers
or clients
Multiple products or
expanded line of
merchandise and services
Multiple products or
expanded line of
merchandise and services
Positioned to complete in
one market or to serve
limited clients
Positioned to complete in
one market or to serve
limited clients
Expansion of Products and Markets

8. Consolidation Stage
As competition intensifies within a
growing industry, businesses are faced
with marginally smaller incremental
shares of markets. The result is a
competitive struggle at a slower rate of
growth during what is often called an
industry shakeout period. Weaker
companies fail, some are sold or merged
with others, and many consolidate to
remain profitable.

9. Contd…..
Consolidation occurs differently for every
organization. Manufactures may trim back
operation, reduce product lines, or retreat
from marginally profitable markets. Service
companies reduce staff, simplify distribution
systems, and withdrew from high risk
markets. In all cases, organizations tend to
shift authority downward as middle-and
higher-level staff are reduced to improve
efficiency. The result is a flatter organization
that is indirectly described as “Leaner and
meaner”.

10. Revival Stage
The revival stage is one of “rekindling” organizational
growth. Rapid growth can be achieved by clever repositioning
of product lines and services through purposeful market
segmentation. Repositioning sets the stage for a strategy of
product or service diversification. In order to achieve rapid
growth, innovation is essential, and because the company
needs to incubate new ideas, greater responsibility is given to
division managers for independent development. In effect,
company executives attempt to receive a spirit of
entrepreneurship in their operational managers by
empowering them with authority for self-direction. As a
result, organizations are restructured through product,
geographic, or customer divisions, and the functional
hierarchy is subordinated to divisional leadership.

11. Decline Stage
Growth declines once again if revival strategies
are short-lived or ineffective. Companies in
decline often are those that have diversified too
widely or created excessively bureaucratic
organizations. Consequently, it is not unusual to
find that a declining venture has lost sight of its
distinct competency in products or services that
initially proved successful. Founding
entrepreneurs-if they are still with their ventures-
will have failed to adapt to leadership challenges
in previous stages and subsequently pushed their
companies to the brink of disaster.

12. Conclusion
Successful ventures will not complete the life
cycle; by definition, they avoid decline. They
will have enjoyed growth through product or
market expansion, consolidated when necessary,
and experienced a revival of growth consistent
with their capabilities and the industry in which
they compete. The last stage implies
perpetuation of innovations through the
intrapreneurial process can described. In each of
these, successful entrepreneurs will have
adapted to new roles in concert with
organizational changes.

13. CHANGING ENTREPRENEURIALCHANGING ENTREPRENEURIAL
ROLESROLESBetween the initial start-up and revival stages,
entrepreneurs experience a metamorphosis. They change
from a persona of the founding entrepreneur to that of an
organizational executive. At the venture’s inception, the
entrepreneur and the new venture are bound as an equity ,
and as the business grows, if follows a biological pattern of
evolution that reflects the founder’s skill and aspirations. As
the company continues to expand, it requires business-
related skills often beyond those of the founder; functional
expertise is needed, marketing and operation skills are
required, and decision-making tasks are beyond the scope of
one person. Consequently, the biological growth cycle is
superseded by an organizational life cycle.

14. Contd….
The entrepreneur who adapts to this
environment, in effect, embraces the
necessary metamorphosis; the
entrepreneur who resist constraints the
organizations to the narrow limitations
of his her personal abilities. How
adaption occurs is unclear, but
research provides insights into the
prevalent role characteristics of
successful leaders at each stage in a

15. Founding the ventureFounding the venture
A composite role has been emphasized for
founding enterprise that encompasses all the
functions of a start-up business. The founder must
wear many hats. From a psychological viewpoint,
the founder’s personal life is not distinguishable
from the venture; entrepreneurs embody the
inspiration, objectives, emotion, and creativity of
their enterprises. They identify with every
problems and decision. Unfortunately, this intense
involvement does not mean entrepreneurs are
effective leaders of managers, and if they are good
in one role, there is no guarantee they are good in
another.

16. There is a difference between leaders and
managers. Leaders involved emotionally in
a venture, think strategically to create
opportunity and resolve conceptual, long-
term problems, and provide the
inspiration necessary for sustained
momentum. Managers, in contrast, have a
“transactional orientation” that permits
them to maintain psychological distance
between their personal lives and business
decisions.

17. Consequently, they tend to focus on operational
tasks and on solving organizational problems.
This distinction does not mean that managers
are not good leaders or vice versa, only that it is
difficult to integrate these roles consistently.
During the start-up stage, leadership probably
outweighs are importance of management
because the new venture is in a disordered state.
Success depends on shaping expectations,
developing creative ideas into marketable
commodities, and adjusting to individual
wonders.

18. Guiding The Venture ThroughGuiding The Venture Through
ExpansionExpansion
Disorder may persist into the early stages of expansion, but
if a company has progressed this far, then a great many
problems have already been resolved. The primary focus of
operations will have shifted away from survival in uncertain
markets to managing growth in well-defined markets. As the
rate of expansion increases, more emphasis is placed on
planning and controlling activities. Therefore, an
entrepreneur begins to experience the metamorphic effect of
transforming behavior from intuitive leadership to clear
management. As emphasized earlier, being oriented either to
a leadership or a management role does not mean one can
ignore the other; they are not mutually exclusive roles.

19. Management responsibilities surface rapidly as a
venture expands. An entrepreneur is seldom
capable of doing all that must be done with respect
to functional management activities. These
activities include marketing, cash-flow
management, inventory control, purchasing, credit
management, and human resource development.
Depending on the type and complexity of the
organization, many other functional activities are
possible, such as research and development,
production control, logistics and distribution, and
management accounting.

20. Entrepreneurs find themselves adapting to
many more management activities during
expansion stage, but in general, entrepreneurs
spend less time on operational activities and
more time on strategic management of
resources during expansion. In addition they
spend more time on coordination and
communication activities with their staff,
delegating incrementally more authority
consistent with the growth ventures.

21. Managing ConsolidationManaging Consolidation
Rapid growth cannot continue indefinitely, and at some
point industries go through “shakeout periods”. Managing
an enterprise in this environment is substantially different
from managing a growing venture. During rapid growth,
management is concerned with gaining new resources,
finding expansion capital, adding employees, and
developing new products or services. When things slow
down, these tasks are reversed. New resources may be
needed but in lesser quantities; capital becomes scare; and
the organization may have to be timed down in size.
Leader and manager roles are no less important during
consolidation than in other stages, but decisions are
seldom pleasant.

22. Managing during consolidation is
not a “gatekeeping” function to
maintain the status quo. To the
contrary, it is a fight for survival.
Perception and inspiration play
lesser roles, and rationalization
becomes a well-known concern as
managers understanding for
marginal improvements.

23. Turning The Venture AroundTurning The Venture Around
Reversing a company’s pattern of poor performance is
called turning it around, and turnaround begins for those
ventures suffering from reduced sales and profits, the
turnaround begins during the consolidation stage. More to
the point, decisions made to achieve to consolidation help
reposition the company so that it can be “turn around.” it is
during the revival stage, however, that turnaround efforts are
realized. This is the time when market segmentation
becomes more keenly focused through customer-oriented
activities. It is also when research and development begin to
pay off in high-yield products and services. And it is the
time when a streamlined organization can recover the
aggressive for competing effectively.

24. PERSPECTIVE ON STRATEGIC MANAGEMENTPERSPECTIVE ON STRATEGIC MANAGEMENT
Making effective strategic decisions is a theme that occurs
throughout the organizational life cycle, and as described
earlier, the nature of these decisions change as a company
evolves. Entrepreneurs are preoccupied with survival during
the start-up period; consequently, their strategies are limited
to making a single product or service successful. With rapid
growth, their strategic emphasis shifts to intense market
development. As growth slows and the industry begins to
shake out, entrepreneurs must adopt competitive strategies
that can require severe retrenchment decisions. As
entrepreneurs struggle to revive their ventures, they must
focus their companies on distinct competencies that, in the
long run, will stimulate growth and profitability.

25. Most strategic alternatives available to small, nonpublic
ventures are concerned with internal changes that can be
made through reallocation of limited resources; few small
ventures can consider acquisition, mergers, or complicated
strategic alliances with other companies. These internal
alternatives emerge from strategic planning to realign a
venture’s markets, refocus its research and development on
high-potential products, or redefine its image. In contrast,
large diversified corporations are more concerned with
leveraging their financial strength to after portfolios.
Smaller firms seldom have financial strength or portfolios
with which to be concerned. Consequently, there is a
fundamental difference in the nature of strategic planning
for small and large businesses; small-business planning is
not large-company planning on a smaller scale.

26. GrowthGrowth
Strategic
Objectives
•Profitability
•Significant market
position
•Income to founder or
investors
•Size for economies of
scale
•Product R & D
•Image
•founder’s personal
aspirations
Strategic
Objectives
•Profitability
•Significant market
position
•Income to founder or
investors
•Size for economies of
scale
•Product R & D
•Image
•founder’s personal
aspirations
Influence rate
of growth and
duration of
effort required
to expand
Influence rate
of growth and
duration of
effort required
to expand
When achieved,
satisfy strategic
objectives or
influence
changes
When achieved,
satisfy strategic
objectives or
influence
changes
Strategies for
achieving growth
•Market diversification
• Product development
and diversification
•Expansion of services
•Other alternatives
Strategies for
achieving growth
•Market diversification
• Product development
and diversification
•Expansion of services
•Other alternatives
Growth
rate
Growth
rate
Objectives and New Venture

27. Diversification
Market
diversification
Market
diversification
• Expand into new customer niches with
existing products
• Open new markets with similar products
and customers in new geographic areas
• Expand overseas by exporting
• Expand into new customer niches with
existing products
• Open new markets with similar products
and customers in new geographic areas
• Expand overseas by exporting
Product
diversification
Product
diversification
• Develop new products through R&D for
existing customers
• License or acquire products or expand
merchandise line for specific market
niches
• Expand services for clients
• Import products for domestic markets
• Develop new products through R&D for
existing customers
• License or acquire products or expand
merchandise line for specific market
niches
• Expand services for clients
• Import products for domestic markets
Combined
diversification
Combined
diversification
New product developed or acquired for new
market niches in local or new geographic
areas
New product developed or acquired for new
market niches in local or new geographic
areas