Summary Chapter 13

Chapter 13

Preparing for and Evaluating the Challenges of Growth

Sustained growth is growth in both revenues and profits over a sustained and outstanding.

Growth in sales revenue is an important indicator of an entrepreneurial venture’s potential to survive today and be successful tomorrow.

Preparing for Growth

1.      Appreciating the Nature of Business Growth

a.       Not all business have the potential to be aggressive growth firms

b.      A business can grow too fast

c.       Business success doesn’t always scale

2.      Staying Committed to a Core Strategy

3.      Planning for Growth : involves a firm thinking ahead and anticipating the type and amount of growth it wants to achieve

Reasons for Growth

A firm’s pace of growth is the rate at which it is growing on an annual basis. Sometimes firms are forced into high growth mode sooner that they would like.

This are the 6 primary reasons firms try to grow to increase their profitability and valuation:

1.      Economies of scale : generated when increasing production lowers the average cost of each unit produced.

2.      Economies of scope : the advantage a firm accrues comes through the scope of  a firm’s operations rather than form its scale of production.

3.      Market leadership : when a firm holds the number one or the two position in an industry or niche market in terms of sales volume.

4.      Influence, power, and survivability : larger businesses usually have more influence and power than smaller firms in regard to setting standards for an industry, getting a “foot in the door” with major customers and suppliers, and garnering prestige.

5.      Need to accommodate the growth of key customers

6.      Ability to attract and retain talented employees

Managing Growth

1.      Knowing and Managing the Stages of Growth

a.       Introduction Stage : the start-up phase where a business determines what its strengths and core capabilities are and starts selling its initial product or service.

b.      Early Growth Stage : generally characterized by increasing sales and heightened complexity.

c.       Continuous Growth Stage : the need for structure and more formal relationships increases as a business moves beyond its early growth stage and its pace if growth accelerates.

d.      Maturity Stage : a business enters the maturity stage when its growth slows. At this point, the firm typically focuses more intently on efficiently managing the products and services it has rather than expanding in new areas.

e.       Decline Stage : its not inevitable that a business enter the decline stage and either deteriorate or die.

Challenges of Growth

1.      Managerial Capacity : this knowledge leads to the expansion of a firm’s productive opportunity set. Which is the set of opportunity the firm feels it’s capable of pursuing.

Entrepreneurial services generate new market, product, and service ideas.

Managerial services administer the routine function of the firm and facilitate the profitable of the new opportunities.

2.      Day to Day Challenges of Growing a Firm

a.       Cash flow Management : a firm must manage its cash on hand to make sure it maintains sufficient liquidity to meet its payroll and cover its other short term obligations.

b.      Price Stability : if firm growth comes at the expense of a competitor’s market share, price competition can set in.

c.       Quality Control : as the firm grow, maintaining high levels of quality and customer service is one of the most difficult challenges. Because as a firm grows, it handles more service requests and paperwork and other contends with an increasing number of prospects, customers, vendors, and other stakeholders.

d.      Capital Constraints : the amount of capital required varies widely among businesses because the need for the capital is typically the most prevalent in the early growth and continuous growth stages of the organizational life cycle.