Managing the Growing Venture

Gaurav Karakoti – VLMP/04/07Gaurav Malhotra – VLMP/04/08

Kumar Anshul -VLMP/04/10Devidutt Mishra – VLMP/04/14

T Umashankar – VLMP/04/25Praveen Sharma – VLMP/04/21

AgendaLife cycle of a ventureProblems during growthImportant concepts for entrepreneurFramework for developing growth strategySummary

Life cycle of venture

Start-up Early Growth

Late growth and maturity

Pre Start-up

Sales

Time

•Ideation•Business plan •Seed fund•Legal issues

•Initial customers•Cash out flow

Profit

Problems with GrowthGrowth can dilute effective leadership and

controlIt might lead the venture , away from its

goals and objectivesLack of training and employee development

might lead to poor quality controlFinancial problemsCan lead to stress and burnout of founding

team“Two-thirds of new employer establishments survive at least two years, and 44 percent survive at least four years and 95 percent fail within five years” - Small Business Administration, US

Important concepts entrepreneur should know

How customers behave

Rogers - Adoption of innovation curve

Fixed capital arrangement

Fixed capital required for setting up offices, factory building and equipments

Equity through issue of shares (ordinary/preference)

Debt - Term loans – Issued by state financial banks, some

have option of conversion to equityIssue of debentures – Interest paid on maturity

Cash flow management Cash to cash cycle time = Sales receivables in

days + inventory in days- suppliers payable in days

Trade credit – Negotiate with supplier for extended credit period

Deferred credit – Any case of capital equipment purchase banks works a guarantor for deferred payment

Bill of exchange Bank Overdraft facility

Other FactorsDon’t neglect external macro factors like

changing regulation, labor market and monetary policies

Good time start some small CSR activities if you can afford it

Changing priorities Start UP Growth

Sales/Marketing Sales/Marketing

Obtaining external financing Internal financial management

Internal financial management Human Resource Management

General Management General Management

Human Resource Management Production/Operations management

“Entrepreneurial Start up and Growth: A classification of problems” Phillip Olson & David, Entrepreneurship Theory and practice, 1993

Questions to be answeredWhat

How

Who

Managing Growth – Dynamic Model

Vision and Strategy

People

Organization structure

and Process

Entrepreneur

Alternative growth strategiesDepends upon Products, Customers and

geography.

Existing

NewProducts

Customers

New

New New

New

Geography

13

Questions to answer

Which markets/customers will we serve, and which we will we not ?

What results do we endeavor to deliver to these customers ?

Balance value to customers and costTo determine Operational tasks and financing

requirementResource commitments What are the basis of competitive advantage

established and how to maintain it ?

The Entrepreneurial Strategy Matrix

Business Horizons 40 (May–June), 73–77. Sonfield, M. C., and Lussier, R. N. (1997). “The Entrepreneurial Strategy Matrix. A Model for New and Ongoing Ventures.” ©1997 by Indiana University Kelley School of Business.

Entrepreneurial Strategy Matrix

Organization Structure & ProcessesManaging by

Context(1)

Managing by results

(2)

Managing by behavior

(3)

Managing byContent

(4)“you know the product , you know the plants, work with sales/marketing team to determine appropriate quality level and then make these products as cost effectively as you can

I have developed this budget-in terms of quality, quantity and cost. Figure out how to make it happen

(2) Plus “ ..to achieve these results you will have to close plants A,B , start sourcing from Far East “

(3) Plus “ I will come with you to plant A,B to tell them what's going on”

Managing transitions in a growing enterprise, Michael Roberts, HBR

Organization Structure, and Processes

Management styleResponsibility

Content Behavior Results Context

Strategy & Operating

Do analysis, formulate plan , strategies and budgets

Prescribe analysis to be done, criteria's to be used assumptions to be made

Define results along financial, competitive and market dimensions

Define Mission

Organizing Group tasks. Define job units, structure and performance standards. Oversee and coordinate day to day activity

Prescribe actions and behavior

Define results required of specific organizational unit

Create Culture

Staffing Recruit , select and train

Prescribe approach, fix criteria for selection

Define performance standards personnel will be held to, as well as reward and punishment system

Instill values

Managing transitions in a growing enterprise, Michael Roberts, HBR

Alternative Managerial Approaches

Laissez-failure

Professional

Management

Bureaucratic Style

Entrepreneur Style

Use of Formal Coordinating Mechanisms

Del

egat

ion

Of

Res

pons

ibili

ty

Low High

Low

High

18

Organization structure and processWhat are the key tasks, and how can these be

broken down into positions that map onto the availability of staff in marketplace ?

What responsibilities can be delegated to the senior layer of management ?

How can I – as the entrepreneur maintain required degree of influence over these tasks and how can I build coordinating mechanisms ?

What are the key values to be institutionalized as culture, and how can this process be accomplished ?

PeopleWhat specific knowledge , skills, experience,

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

EntrepreneurThe entrepreneur’s vision largely determines

firm’s strategyThe entrepreneur’s value’s drive the firm’s

cultureThe entrepreneurs management style creates

the features of organization structure and process

Transitioning from doer to manager to leader

What is my existing model of management , and where it is likely to “ hit the wall” as we scale-up?

What changes are required and what tools do I need to be competent in?

How can I get feedback on my own performance ?

Do I even want to attempt, to make this transition?

Entrepreneur

SUMMARYGrowth forces companies through transitions

for which the management may be ill prepared

Dynamic fit between Vision & Strategy, Organization Process and structure, people and entrepreneur

Growth challenges the founding management team who may lack skills to lead a larger, more complex organization

Entrepreneur should also change himself according to the organization need

Thank you & Questions for discussion