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Growing Your Venture

It is often stated that the entrepreneurial process begins with a good idea that
ultimately results in the start of a new venture. While not all ideas have the
stamina to become successful new ventures, the core process of
entrepreneurship is comprised of recognizing an idea as a viable opportunity and
developing it further by acquiring and deploying resources for its initial
exploitation and continued growth. Having recognized an opportunity, the
development of a new business venture follows a pathway that increasingly
refines the opportunity and how it can be exploited profitably through a series of
subsequent stages. The opportunity recognition stage is followed by evaluation
to ascertain that the market need exists; customers can be clearly identified; the
necessary resources can be acquired and the market need can be satisfied
profitably by creating sufficient new value. If the evaluation stage results in
opportunity validation it is followed by the creation of the business concept.
Subsequently, developing the business concept and taking it through subsequent
stages of desired growth can often be a long, arduous process, fraught with
many challenges for the entrepreneur. As such, the growth strategy followed is
typically guided by the type of business desired and the entrepreneurs ability to
manage the unforeseen factors that may impact that growth objective.

Learning Objective
Having embarked on the entrepreneurial process and successfully created a new
business venture, most entrepreneurs are faced with the prospect of determining
how to grow the blooming new business. Often dependent on the type of
business desired the strategy for growth can be quite varied. The strategy utilized
for life-style businesses with a typical strategy of sustainability over scaled
growth is quite different from that of a business, whether by design or through
circumstance, that is experiencing high growth. This weeks discussion builds on
the role of the entrepreneurial process in new venture growth and reviews some
considerations when deciding how to proceed with growing a new venture
beyond the creation stage.
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Discussion
Perhaps driven by the incredible success of high profile companies such as
Microsoft, Apple (especially in recent years), Google and Facebook, many
individuals construe high growth companies as the epitome of entrepreneurial
success. As such, many aspiring entrepreneurs dream of duplicating such
success by transforming their own grandiose idea into a wildly successful high
growth new venture. However, history suggests that a significant majority of new
businesses started each year can be classified as life-style businesses. Bill
Payne and Associates suggests that, of the estimated 500,000 new ventures
started in the US every year, over 90% are lifestyle companies [1]. While this
figure likely varies slightly from country to country, it can be reasonably assumed
that a similar disparity exists in most areas of the world. The University of
Montana School of Business Administration [2] cites businesses such as local
restaurants, Laundromats and barber shops as samples of Lifestyle Businesses
which they characterize as:
Local businesses that will likely never have yearly sales greater than $1-2
million
Businesses that are not primarily focused on increasing the wealth of
investors
Motivated by a desire for independence through working for ones self
Designed around the entrepreneurs lifestyle goals rather than financial
rewards
Contrastingly, they suggest, High Growth Businesses are characterized as:
Having the potential to be viewed as an attractive equity investment
opportunity by angel investors and/or venture capitalists
Having the potential to make an impact on the economy in which they
operate through significant job and wealth creation
Involved with developing a product or service that is innovative in nature
and has the potential to be sold internationally (i.e., sales for these
ventures are not limited to a single community, state, or region)
Often based on a breakthrough technology or the application of a
technology in a new way
Based on a business plan that is relatively focused on sales growth and
expansion
Regardless of where on the lifestyle high growth spectrum a new venture
falls, it can be argued that much of what is taught regarding the entrepreneurial
process, which can be casually defined as the process of transforming a
recognized opportunity into the creation of a successful business venture, is
applicable for any new venture creation.
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Entrepreneurial Process

Stevenson states that the entrepreneurial process is guided by the following
questions [3]:

Where is the opportunity?
How do I capitalise on it?
What resources do I need?
How do I gain control over them?
What structure is best?

When considering such broad decision criterion, it is reasonable to surmise that
all the questions posed are applicable when creating a new business venture
regardless of whether a lifestyle or high growth enterprise is targeted.

In addressing the decision criterion suggested by the questions posed in creating
a new business, the entrepreneurial process is often divided into a sequence of
stages often referred to as conceptualisation, start-up and growth that, when
executed, transform a good idea into a successful new business venture. For
example, while utilising slightly different terminology, Moore proposes an
entrepreneurial process model which consists of the following three phases [4]:

Innovation phase: time when entrepreneurs generate and select ideas
for new products or services.

Implementation phase: a triggering event and the acquisition of capital and
other resources.

Growth phase: the success of the new venture and the need to
acquire new managerial skills.

In addition, he proposes that each of these phases is influenced by a number of
factors such as personal characteristics, the environment and the characteristics
of the innovation as shown in figure 1.

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Similar to the questions posed by Stevenson and Gumpert, each of the phases
suggested in the Moore model also invoke considerations that must be
addressed by the entrepreneur despite the type of business that is being created.
However, having created a new venture, it is the growth stage where significant
distinction is often made in how to proceed between a lifestyle business and a
high growth business given the inherent growth objectives of each.
Growing your venture

Quite often the decision to grow a new venture is based on the attitude and
motivation of the entrepreneur and management team. Wiklund et. al. propose
eight key considerations for growing a business based on literatures suggestion
of what issues are important to small business managers and how they are likely
to be affected by growth [5]. They include:

How growth would affect their own workload
How growth would affect the time they spend on favored work tasks
How growth would affect employee work enjoyment
How growth would affect their income and other disposable economic
benefits
How growth would affect their ability to survey and control operations
How growth would affect the firms independence in relation to customers,
suppliers and lenders
How growth would affect the firms ability to survive a severe crisis
How growth would affect the firms ability to maintain the quality of
products and services

Figure 1: Moores Entrepreneurship Process Model
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Such a personal perspective on the growth strategy seems particularly conducive
and easily managed for a lifestyle business, however, would such seemingly
simple decision criteria be as applicable on a high growth business. While the
growth strategy opted for is typically decided on by the entrepreneurs involved, in
high growth businesses, the decisions made regarding growth are often
impacted by both internal and external factors. Scott and Bruce suggest that not
all businesses that survive grow to be large businesses due to either the nature
of their industry or simply the personal desires or ambitions of the
owner/manager [6]. As such they propose a five-stage growth model as shown
in figure 2.



Figure 2: Scott and Bruce Five Stage Growth Model
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Size, as presented in the model, is not defined as any single measure (i.e. total
sales), which, when achieved, precipitates change from one stage to the next.
Instead, they propose that change results from a combination of all internal
factors, such as the aspirations of management or the state of the plant,
accompanied by some external factor, such as the entry of a new competitor into
the market or a change in technology, that forces a business into the next stage if
it is to survive. They further suggest that the actual combination will vary from
one business to the next depending on what the internal and external factors are.
In the Scott / Bruce model, each stage presents unique key issues that need to
be addressed and when affected by external and/or internal change creates a
crisis that can result in either failure or progression to the next stage if managed
properly. Table 1 illustrates the key issues of each stage and a likely crisis that
may precipitate a change to the next stage.


Stage Key Issues Likely Crisis
Stage 1 Obtaining customers,
economic production
Demands placed on finances, energy and
time
Stage 2 Revenue and
expenses
Overtrading
The increased complexity of expanded
distribution channels
Change in the basis of competition
Pressures for information
Stage 3 Managed growth,
ensuring resources
Entry of larger competitors
The demands of expansion into new
markets or products
Stage 4 Financing growth,
maintaining control
The distance of top management from the
action
The need for external focus
Stage 5 Expense control,
productivity, niche
marketing if market
declining


For high growth businesses, managing the growth stages requires a strong
management team and a resource base that can support such growth, as one
key element in sustaining growth is continued product and service development
to support market expansion. As such, finding a way to generate sustainable
revenues from the supply of a product or service is necessary. Moore proposed
what he deemed the crossing the chasm model, which is demonstrated in
figure 3 [7].
Table 1: Key Issues and Likely Crises
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Demonstrating the typical phases of market adoption and specifically focusing on
high tech companies, Moore suggests that the high growth company should
focus on one group of customers at a time, using each group as a base for
marketing to the next group [8]. Regardless of the growth strategy chosen, it
must be emphasised, however, that the implications of such growth have far
reaching ramifications to many other aspects of how the new organization is run.
In their small business growth model, Scott and Bruce [6] demonstrate how
growth can impact other attributes of an organization as shown in table 2.
Figure 3: Crossing the Chasm Model
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Conclusion

When pursuing the entrepreneurial process, the growth strategy is often an after
thought, in that, the major objective of the entrepreneur is to simply provide the
products and services being offered to wanting customers. However, regardless
of whether the objective is to create a lifestyle or high growth business, failing
to consider the growth strategy early on can result in major set backs and even
failure if not properly managed. While these set backs are often manageable for
lifestyle businesses, with their sustainable growth focus, they can often be
insurmountable for a high growth business. For example, one of the issues that
led to the failure of Internet sensation e-Toys in the late nineteen nineties was a
failure to anticipate demand which resulted in many toy deliveries arriving after
the holiday season. As such, it is critical for a high growth company to plan a
growth strategy and plan how it may affect all key aspects of the organization.


Table 2: A Model for Small Business Growth
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Discussion Questions

The following questions are provided to provoke additional thought about the
subject topic:

What is the difference between a lifestyle and high growth company?
What characteristics might inspire an individual to initiate a lifestyle
business versus a high growth business?
What are the differences in growth strategies related to each?
How much control does the entrepreneur have over the growth strategy
chosen?
What ramifications does high growth have on the new venture?

Value Added Learning Material

The following reference material is suggested for this weeks topic:

Any of the cited sources in this document are recommended for additional
reading.
A Taxonomy of Business Start-up Reasons and Their Impact on Firm
Growth and Size, S. Birley and P. Westhead, Journal of Business
Venturing, January 1991, 9(1), p7-31
Content and Performance of Growth-Seeking Strategies: A Comparison of
Small Firms in High and Low Technology Industries, J.G. Covin, D.P.
Slevin, T.J. Covin, Journal of Business Venturing, November 1990, 5(6),
p391-412
Founding Strategy and Performance: A Comparison of High and Low
Growth High Tech Firms, H.R. Feeser and G.E. Willard, Strategic
Management Journal, February 1990, 11(2), p87-98
The entrepreneurs business model: toward a unified perspective, M.
Morrisa, M. Schindehutteb and J. Allenc, Journal of Business Research,
June 2005, 58(6), p726-735
References

[1] Bill Payne & Associates, (July 17, 2011), How Do Lifestyle Businesses
Differ from Growth Companies?, Enabling Entrepreneurs,
http://billpayne.com/2011/06/17/how-do-lifestyle-businesses-differ-from-
growth-companies.html

[2] School of Business Administration, High Growth & Lifestyle Divisions, The
University of Montanna,
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http://www.business.umt.edu/DegreesPrograms/MADE/MADEPrograms/MA
DEBusinessPlanCompetition/HighGrowthAndLifestyleDivisions.aspx

[3] Stevenson, H.H. and Gumpert, DE.E., (1985), The Heart of
Entrepreneurship, In H. Levinson (ed.), Designing and Managing Your
Career, p. 89-104, Boston, MA: Harvard Business School Press

[4] Moore, F., (1986). Understanding Entrepreneurial Behaviour: A Definition
and Model. Academy of Management Proceedings, 46, p66-70

[5] Wiklund, J., Davidsson, P. and Delmar, F., (2003), What do they think
and feel about growth? An Expectancy-value approach to small business
managers' attitudes towards growth , Entrepreneurship Theory & Practice,
27(3), p247-269.

[6] Scott, M. and Bruse, R., (1987), Five Stages of Growth in Small Business,
Long Range Planning, 20(3), p45 52

[7] Phadke, U., (2011), Triple Chasm Concept presented in How to Build a
Senior Team, at the Centre for Entrepreneurial Learning, Cambridge Judge
Business School

[8] Moore, G. A., (1991), Crossing The Chasm, Harper Collins, New York, NY