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A Note on Managing the Growing Venture

The earlier modules of The Entrepreneurial Manager have focused primarily on getting into businessfinding an attractive
opportunity, developing a viable business model and systematically reducing the risks associated with it, attracting financial and
other resources required to actually start the venture, and managing the early phase of operations.
In this module of the course we will move beyond that initial phase to a stage in the life of the venture where the original business
model is arguably proven, and the concern of the entrepreneur as well as the management team and investorsshifts to
growing the venture. Typically, this involves expanding the scope of activities to new geographic or product markets and/or
finding new groups of customers to serve. For an organization that has been focused solely on its survival, this impetus for
growth represents a newand fundamentally differentset of challenges for the entrepreneur and the organization.
Creating a venture and leading it through a prolonged period of growth may require different skills. By definition, many startups must rely on assets not controlled by the entrepreneur. The vision and values of the founder can be communicated directly by
an entrepreneur who may perform many tasks personally while directly supervising an entire implementation effort. By contrast,
the challenges facing an entrepreneurial manager in the high-growth phase are those of organizing tasks, attracting talent,
delegating responsibility and authority, fighting bureaucratic "creep" and the natural tendency to acquire assets vs.
leveraging others' assets, and in general maintaining momentum while communicating the vision and values to a larger and
larger number of people.
The fact that many organizations fail to make the transition to a sustainable, financially successful business is well-known. Even
the most successful venture capital firms rarely "make money" on much more than 50% of their investments. Firms fail for a
wide variety of reasons including those related to strategy, organization, and execution.
During the growth phase, many things are changing at once. The tasks of developing new products or services, as well as
serving new customers in new markets, create more complexity within the firm. As the number of employees grows, the
existing, largely informal organization is taxed in new ways, and typically some of the classic tools of professional management
budgets, organization charts, formalized policies and proceduresare introduced for the first time. The entrepreneur must begin
to develop new ways of getting work doneand must institutionalize some of what is in her heador the task of managing
the firm's day-to-day operations will become overwhelming.
In this note we describe a systematic way to think about and analyze the challenges of managing a growing entrepreneurial
venture. We begin with analysis of the venture's growth strategy and the risks of that strategy. We then move to the changes that
this growth strategy requires in the areas of People, Opportunity, Context, and Deal, which we refer to collectively as the POCD
framework.1 Finally, we discuss how achieving a growth strategy and the associated changes in POCD inevitably requires
management to display considerable execution skills. Figure A summarizes this framework.
Figure A A Framework for Managing a Growing Venture

G ro w th S tra te g y

P e o p le
O p p o rtu n ity

D eal

E x e c u tio n S k ills

C o n te x t

Source: Authors.

Growth Strategy
As a venture enters the growth phase, its business model becomes more stable. This stability, however, does not reduce the need for
critical strategic choices. And growth by itself raises new strategic challenges.
The first set of strategic choices deals with how the venture is to grow. Most ventures begin by proving their business model in a
narrowly defined product/market space, achieving market and/or operating focus that can result in either a low-cost or
differentiated result for customers. As shown in Figure B, growth can be achieved by extending the venture's geographic markets,
its product line, or its customer base.2 Each of these paths poses challenges and risks. Geographic growth can be as

straightforward as entering a new city or state, or as complex as starting operations in a foreign country. Product
growth can range from simple product-line extensions, to adapting current products to new markets, to using
existing capabilities to enter entirely new product/market areas. All of these growth strategies assume that the basic
business model remains stable. If the growth strategy requires a fundamental shift in the business model, this becomes
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an additional source of risk.

Figure B Alternative Growth Strategies







Source: Adapted from Figure B in Michael J. Roberts, "Managing the Growing Venture," HBS No. 803-137 (Boston: Harvard Business School
Publishing, 2003), p. 4.

Generally, knowledge of markets and reputation among potential customers are precious resources; companies typically
have a much easier time selling new products to markets and customers they already know and who, in turn, know them. A
riskier strategybut one potentially offering a higher payoffis to attempt to serve new customers 3 with new products.
Growth strategies requiring the establishment of new channels of distribution can also become particularly complex and

As the nature of how work is accomplished changes within the firm, the type of person who is required to do that work also
changes. As the previously informal, organic work structure is parsed into more narrowly defined, formalized, standardized tasks,
it is necessary to find the right people to fill these roles. Early in the life of the enterprise, people might have been selected for
their energy, enthusiasm, and flexibility. This made sense, as the uncertainty surrounding the venture made it impossible to
accurately predict what would be required of individuals. Moreover, had it been possible to predict the specialized skills and
abilities required, it would have likely been too expensive to hire people with those skills. But as the firm commits increasingly
heavily to its strategy and the organization falls into place to support it, this changes. The firm now knows what kinds of deeper
knowledge, expertise, and experience are required to fill the more narrowly defined roles that are taking shape, and it begins to hire
more people with such skills.
Moreover, as the entrepreneur delegates more responsibility, skilled subordinates must be in place to accept that larger role.
The history of growing enterprises is full of examples of loyal lieutenants who were found wanting once the entrepreneur was
forced to begin delegating real responsibility. Similarly, members of the founding team often bristle as the organization
becomes more formalized, looking back on the "good old days" before there were policies and procedures.
In summary, as the firm grows and its requirements for people change, the entrepreneur needs to address several fundamental

What specific knowledge, skills, experience, and aptitudes are required for the set of positions that have been identified?

How can individuals be hired, trained, evaluated, and rewarded to motivate superior performance?

What attitudes towards customers, suppliers, and fellow employees must new hires possess if they are to fit into the culture
and be effective contributors to strategic success?

The kind of leadership required for the growth phase may not be compatible with the interests and capabilities of the
entrepreneur. While a founder may have a promising idea and an ability to infuse a small group of others with a "vision" for the
enterprise, the entrepreneur may not be able to set priorities, delegate operational tasks, or assemble the resources needed to take
an organization to the next level of activity. And these inabilities can hamper the growth of the enterprise. Clearly, there are some
founders who are capable of leading their ventures through the growth phase and even beyond. Bill Gates and Michael Dell
stand out as successful examples of founders who have built multibillion dollar enterprises. More often, however, several
leadership transitions are required for a new venture to reach its full potential. 4 For example, Cisco Systems was founded by a
husband and wife team from Stanford's research laboratories, but the founders were succeeded by John Morgridge, the
CEO who led Cisco through its early growth, and then by John Chambers who led the company through the explosive 1990s.
Similarly, Intuit has seen a transition from its founder, Scott Cook, who grew the company to $200 million in sales, to Bill
Campbell, who took it to $1 billion, to Steve Bennett, who is the current CEO.
While some aspects of leadership are likely to change during the growth phase of a venture, it is also important to maintain many
of the earlier features of entrepreneurial management. For example, it is the responsibility of leadership to assure that the
introduction of formal systems and processes not be allowed to delay decision-making and result in bureaucratic behaviors.
Similarly, while the growing venture is likely to accumulate more resources, leadership must still stress the importance of
conserving cash. Finally, it is critical that the leadership team maintain a focus on opportunity, and not fall into a mode of simply
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managing their newly acquired assets and resources. The leadership challenge during the growth phase is to systematize the
operations of the business to achieve efficient operations while maintaining an entrepreneurial, opportunity-focused culture.
The main opportunities during the growth phase are derived from the choice of the venture's growth strategyi.e., geographic,
product line, or customer base. The nature and challenges of each strategy must be carefully assessed. Equally important, the
original business model, which has now gained some traction, may also need to be reconsidered.
When a venture is just beginning, it may not encounter much direct competition. But with initial success and continued growth,
competitive responses are inevitable. This may take the form of direct imitation, strategic leapfrogging, or the application of
large resourcessuch as a sales force or financial strengthby a large company. These competitive challenges require
leadership that can think beyond the creation of a viable business model to how sustainable competitive advantage can be
achieved. Whereas the original business model may have met with success because of its uniqueness, succeeding amidst
competition requires that a venture has an underlying and durable competitive advantage.
Two examples illustrate how the nature of the opportunity can shift in the growth phase. The first deals with scale and
demonstrates how capitalizing on initial success can require the rapid achievement of national or global scale. For example,
a medical device company might make significant progress at a few leading hospitals. But long-term success and growth
requires that it achieve manufacturing and distribution capacity on a large scale. Indeed, many medical device startups conclude
they cannot achieve scalability fast enough and end up selling to one of the large integrated health-care companies.
Similarly, businesses requiring high levels of customer responsiveness and satisfaction need to move beyond the enthusiasm and
dedication of the founding team to a systematic way of hiring and training for customer service. For example, when Meg Whitman
joined eBay as CEO in 1998, sales were $6 million and customer service was haphazard at best. Whitman, who previously
worked at Proctor & Gamble, Disney, and Hasbro, instituted powerful systems to institutionalize customer service and by 2004,
sales exceeded $3 billion.5
Just as the original venture idea exists in a context, so does the opportunity to grow the venture. Sometimes a change in context
can increase the size of an opportunity. For example, changes in tax laws tend to increase the demand for tax services. On the
other hand, tougher regulatory enforcement by governmental agencies such as the FDA can limit the opportunity of new healthcare ventures to grow.
One essential element of context for a rapidly growing venture is the set of conditions in the private and public capital
markets. Rapid growth almost always requires large infusions of new capital, but venture capital investing and the frequency of
IPOs are notoriously cyclical and can have a large effect on how aggressively a venture can grow.
A venture's growth phase nearly always requires considerable capital. While it is easier to attract capital once a venture has
demonstrated early success, the availability of larger amounts of capital from a broader variety of sources makes the choice of a
financing strategy complicated. Financing alternatives can range from additional venture capital and equity funds, to debt
financing, to a public offering, to the outright sale of the venture to a larger company. Each of these options has different financial
terms and implications for loss of control.
Given the complexity of deal options and the need for larger amounts of capital, a venture may sometimes need to bring in a
professional CFO during the growth phase.

Success in the growth phase ultimately depends on the venture's ability to execute the numerous tasks required to achieve rapid
growth. Successful execution requires a more disciplined approach to management than is usually seen in the early phase of a
business.6 For example, successful execution usually requires a more hierarchical organizational structure, with clearly defined
tasks and responsibilities, as discussed in the section on People on p. 4.
Successful execution during the growth phase also brings the need for more and tighter control mechanisms. During the start-up
phase, flexibility to experiment and learn quickly is key to success. As the business model becomes stable and size increases and
growth accelerates, however, it becomes critical to have systems that assure that all parts of the organization achieve their
objectives in a coordinated manner. As a result, more detailed budgeting procedures are often introduced, MBO (Management
by Objectives) systems are put in place, and managers are held accountable (often quarterly) to achieve specific objectives.
Ultimately, executing a successful growth strategy requires attention to numerous operating details. The task requires
entrepreneurial leadership with tremendous energy and discipline. The establishment of growth and profitability objectives is
only the starting point of execution. It then requires a clear articulation of the accomplishments that must be achieved to meet the
objectives and finally taking the actions needed to make those accomplishments a reality.

Conclusion: Discipline and Entrepreneurship

This note has reviewed the range of growth strategies available to new ventures and how achieving a growth strategy often
requires changes in the organization's processes and people, as well as excellence in execution throughout the firm. (See Exhibit
1 for a list of questions for assessing a venture's growth potential.) In general, each of these tasks requires a more disciplined
approach to management than was needed in the startup phase. If taken to an extreme, the growth phase can bring an end to
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the opportunity-driven entrepreneurial approach to management that made the venture successful in the first place. To some
degree, it is inevitable that ventures will lose some of their focus on opportunity as they concentrate more on the challenge of
building a larger sustainable enterprise. But this does not mean that entrepreneurial management is no longer necessary. This,
then, is the ultimate leadership challenge of managing the growing ventureto establish the discipline within the
organization to remain in control and grow while remaining driven and open to the opportunities in the environment. Achieving
both of these objectives isn't easy. But achieving only one of them leaves the company vulnerable to either an inability to perceive
and respond to new opportunities or an inability to execute the many tasks required to grow profitably.
Exhibit 1 Questions for Assessing Growth Potential


Will the venture grow via new customer segments, new geographic markets, or new products and services?

If growth is to be achieved via new customer segments, how much emphasis will be placed on delivering results for
existing versus newly-targeted customers?

What groups of customers, geographies, or technologies are excluded from new product/market targets, thus
providing the basis for market and operating focus?

What share of the newly-defined growth opportunity must be captured to achieve (a) break even and (b) profit goals?


Does leadership possess the values, character, and behaviors necessary to execute the vision for growth?

Has the organization evolved to facilitate expertise in specific functional areas?

Have job responsibilities been clearly defined?

Is the chain of command and degree of individual autonomy clearly defined?


What is the total potential for the new product/market opportunities being targeted, as well as the realistic share to
which the organization might aspire?

What are the major risks of the growth strategy?

What could go right? What could go wrong?

Are competitors likely to respond to the venture's initial success?

What scale needs to be achieved for the venture to sustain success?

How can high levels of customer responsiveness be maintained?


Have there been any changes in the macro-economy, tax laws, regulation, or sociopolitical environment that could
affect the venture's ability to grow?

Is the context for target growth opportunities different than that for markets in which the organization has been
competing thus far?

Is the free cash flow sufficient to fund the desired rate of growth as well as investment in innovation? If not, does the
organization have sufficient access to capital markets and the capital structure to obtain the funding needed to support
the desired rate of growth?

Does management track the rate of growth in enterprise value in relation to the perceived level (among investors) of
prospective growth opportunities?

Is an effort made to identify points at which a change in ownership would be advisable?


Have key processes, especially for dealing with customer interactions, been defined?

Are systems and measures in place to evaluate departmental and individual performance?

Are all individuals aware of their key performance metrics and how they relate to the overall goals of the organization?

Are critical tasks being accomplished?

Is the decision process fast and thorough?

Is the entire management team able to translate the company's objectives into specific accomplishments and action
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