MANAGING GROWTH

Twas the best of times and

the worst of times

STAGES OF GROWTH
R & D pre-start up
Start-up 0 to 3 years
Growth 4 to 10 years
Maturity 10 to 15 years
Stability/decline/harvest 15+ years
A Theoretical View

THE CHALLENGE OF GROWTH

Scope, volume of operating activity

increasing; new customers, markets,
products, competitors, technologies
Range, complexity of tasks increasing
Number, variety of people increasing
Everything changing at once
Time is SCARCER and SCARCER
By doing everything right, the entrepreneur
creates opportunities for new companies to
take away markets

MANAGING
CONTRADICTIONS:

Bureaucratization vs Decentralization
increased hiring needs formalized
procedures BUT increased diversity of
product needs greater decentralization
Environment vs Strategy environment
of turbulence vs need for clear
strategies to compete
Quality vs Cost vs Innovation

IMPLICATIONS FOR
MANAGEMENT:

Rapid growth = indicator of

management success; reinforces
current behaviour
At each transition stage, potential for
crises
Managing rapid growth usually means
management moves from entrepreneur
to administrator
BUT need to remain flexible

BUILDING THE ADAPTIVE

FIRM

Share the vision

Increase perception of opportunity
keep the focus on the customer
Institutionalize change as the ventures
goal
Instill the desire to be innovative:

Reward system
Allow for failure
Flexible operations

BUILDING GROWTH
COMPANIES:
Grow from the core build core
competencies BUT
Move beyond the core keep an eye on
peripheries
Growth choices:

1.

2.

Take existing markets with sustaining

innovations OR
Take on a competitor with disruptive innovations

Disruptive innovations establish a new

performance trajectory

BUILDING GROWTH
COMPANIES:

Disruptive businesses create new markets or

take low end of established markets
Disruptive opportunities require separate,
parallel business planning
Dont try to change customers help them!
Let tasks people are trying to get done inform
design of products/services
Be patient for growth but not for profitability
disruptive businesses cant get very big very
fast!

MARKETING PRACTICES OF FAST

GROWTH FIRMS

Deliver product and services of highest

quality
Cultivate new products and services that
stand out in market
Deliver products and services that demand
higher pricing
Revenue from existing customers = 80%
total revenues
High yield sales force

LEADING FINANCIAL PRACTICES OF

FAST GROWTH FIRMS

Anticipate multiple rounds of financing

every 2 years
Secure funding with room to increase
Use financing vehicles that retain
entrepreneurs control
Grant stock ownership to employees,
but maintain control

LEADING MANAGEMENT PRACTICES

OF FAST GROWTH FIRMS

Use collaborative decision-making

Develop top management team
Establish management competence in
finance, marketing, operations
Assemble Board of Directors with
internal and external members
Involve Board heavily in strategic policy
decisions

RAPID GROWTH CRISES:

Too many opportunities

Too much money/capital
Lack of cash control and collections
Short term decision making
Expanding facilities and space
Industry turbulence - high growth firms
usually in high growth industries

The Importance of Culture

and Organisational Climate
Critical dimensions to how the firm will handle
growth
Clarity- organised, concise, efficient
Standards expectations, excellence
Commitment goals and objectives
Responsibility accomplishing goals
Recognition reward vs punishment
Espirit de corps- cohesion, team spirit

Approaches to Management
Critical to achieving the entrepreneurial culture
and climate
Leadership expertise, no competition
Consensus Building- balancing multiple views
Communication- share information, listen
Encouragement support peers and others
Trust straightforward, honest
Development grow human capital

When the Bloom is off the

Rose
Ultimately it is not how many
touchdowns you score but how fast and
often you get up after being tackled
Jim Hindman (Jiffy Lube)
This captures the essence of the ups and
downs that can occur during the growth
and development of a new venture

CRISIS MANAGEMENT
Getting into trouble- The Causes
External recession, interest rates,
technology, competition, government
policy, inflation, competition, product
/service obsolescence
External shocks impact all companies in an industry
and only some of them fail
Others survive and prosper

CRISIS MANAGEMENT contd

Internal -Most causes can be found in
company Management
Inattention to strategic issues

Misunderstood market niche

Mismanaged relationships with suppliers and
customers
Diversification into unrelated areas
Mousetrap myopia
Lack of contingency planning

CRISIS MANAGEMENT contd

General management problems

Lack of management skills and expertise

Weak finance function
Turnover in key management personnel
Focus on accruals rather than cash

CRISIS MANAGEMENT contd

Poor Planning, Financial/Accounting
Systems, Practices and Controls

Poor pricing, overextension of credit,

excessive debt
Lack of cash budgets/projections
Poor management reporting
Lack of standard costing
Poorly understood cost behaviour

Predicting trouble

Net-Liquid Balance to Total Assets Ratio

=NLB/Total Assets
Where NLB = (cash+ marketable securities) (Notes
Payable+ Contractual obligations)
Uncommited cash

Nonquantitative Signals
late financial statements, behavioural change,
change in key advisors and professionals,
reduction of credit line, optimism paradox

Other Telltale signs

Employees notice trouble developing

Employees lose confidence in
management
Grapevine takes on credibility
Turnover increases
Morale is eroding
Entrepreneur behaves optimistically

Getting out of trouble

The good news is that many
companies , even those that are
insolvent or have negative net worth or
both can be rescued and restored to
profitability

RESPONDING TO CRISIS:
Initial reactions:

Ignore problem and advice

Admit but avoid
Misrepresent the truth

Quick turnaround plan:

1.

2.
3.
4.
5.

Put accounts payable on hold

Generate quick cash (discount AR, factor, fire sale
Negotiate with lenders
Negotiate with trade creditors
Workforce Reductions

RESPONDING TO CRISIS

Diagnosis:

Strategic analysis
Management analysis
Financial analysis

Succession Planning

Succession planning is a process rather than

an event. The greatest advantage a family
business leader can bring to this process is
lead time. Unhurried planning will minimize
opportunities for sibling rivalry, and protect
the family and the company in case
something unexpected happens to the leader.
It also creates confidence with customers,
lenders, employees and key suppliers.

Succession Planning
Strategy for transferring the trust,
respect and goodwill built by the
entrepreneur to the next leader

Succession Planning: The last

test for successful entrepreneurs

New Interests
Retirement
Business can collapse due to failure to plan
After death or disability of key entrepreneur
the value of the business can fall rapidly
Lack of planning can lead to liquidation at
fire sale prices
Control of the process will shift to lawyers
and government

Succession Planning

Delicate and difficult process that takes time

and is more than an estate plan and life
insurance policies
Key elements in the process
Communication open, honest, inclusive
Intentional process everyone understands
Outside advisors objective opinions

Succession Planning contd

Selection process is critical

Have a written plan of action with
specific timelines
Ownership vs. Management of the
company
Revisit the plan