MANAGING GROWTH AND

TRANSACTION

CHAPTER SEVEN

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 7.1.
7.1.1 Preparing
Record Keeping:for the New Venture Launch:
 It Early
is necessary Management
to have Decisions
good records for effective control and for
tax purposes.
 Thegoals of a good record keeping system are to identify key
incoming and outgoing revenues that can be effectively
controlled.
A. Sales (Incoming B. Expenses/Costs (Outgoing
Revenue): Revenue):
 Records of expenses are easily
 It is useful to have knowledge
maintained through the checking
about sales by customer both account. It is good business practice
in terms of units and for the entrepreneur:
dollars.  to use checks as payment for all
 As cash flow problems are the expenses in order to maintain records
for tax purposes.
most significant cause of new
venture failure, good payment
 In the early stage, it may be desirable
to make all payments on time to
records are necessary. establish credibility with suppliers.
C. Other Records: the entrepreneur should maintain information about
employees, records on all assets owned may be needed. With a good
record keeping system it is easy to maintain controls over cash
disbursements,
2 inventory, and assets.
 7.1.2 Recruiting and Hiring New Employees:
 The entrepreneur will generally need to establish procedures and
criteria for hiring new employees using internal and external
vacancies. For senior management the most effective strategy is
networking with friends and business associates. Personnel
agencies may also be considered if there are no other effective
options.
 Some criteria must be used in the resume evaluation. Factors
such as education, prior experience, entrepreneurial
activities, and interests can be used to assess candidates. From
the initial screening of resumes, a few candidates can be invited for
an interview. Most firms use an interview form with critical factors
listed for evaluating the interview candidates.
 Recruiting for Upper Management in an Entrepreneurial
Firm: Many executives choose to become part of the
entrepreneurial process rather than continue working in structured
big business. The entrepreneur should use all his or her contacts
and recognize that every potential candidate is different.
 If3the entrepreneur has no expertise in financial analysis, marketing
7.1.3 Motivating and Leading the Team
 Leadership is influencing and inspiring others in the
organization to strive to meet the mission of the
venture.
 The entrepreneur will usually be a role model for any
other employees.
 It is important that the founder assume the role of
leader to the management team and employees.
 Communication with managers and employees is
one of the most important leadership qualities.

 Good work ethic will go a long way toward

achieving financial and emotional success.
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  Some behaviors that can exhibit the
leadership qualities necessary for the new
venture:

 Set an example with an ethical set of values for other

managers and employees;
 Show respect and concern for the personal well- being of
employees ;
 Don’t try to do everything yourself;
 Recognize the diversity of employees and how they
should be treated;
 Encourage and praise others in the organization when
deserved;
 Provide incentives and awards for quality work effort and
new ideas;
 Recognize the importance of employees having fun at
their jobs; and
 Be aware of the need for future strategic planning.
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7.2 Rapid Growth and Management Controls
 Rapid growth may result in management problems.
 Before rapid growth occurs, the new venture is usually
operating with a small staff and limited budget.
 Rapid growth may also dilute the leadership abilities of the
entrepreneur.
 The entrepreneur’s unwillingness to delegate responsibility
can lead to delays in decision making.
 The entrepreneur can avoid these problems through
preparation and sensitivity.
 It may be necessary to limit the venture’s growth if the
future financial well being of the venture means a more
controlled growth rate.
 The limits to the growth of any venture will depend on the
availability of a market, capital, and management talent.
 Too rapid growth can stretch these limits and lead to
serious financial problems.
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Creating Awareness of the New
Venture:
 In the early stages, the entrepreneur should focus on
developing awareness of the products offered through:
 Publicity,
 Internet Advertising,
 Trade Shows, or
 Selecting an Advertising Agency.
 Publicity: it is free advertising provided by a media outlet.
Many local media encourage entrepreneurs to participate in
their programs.
 The entrepreneur can increase the opportunity for getting
exposure by preparing a news release and sending it to as
many media sources as possible.
 For radio or TV, the entrepreneur should identify programs
that may encourage local entrepreneurs to participate.
 Free publicity can only introduce the company. Advertising
can be focused on specific customers.
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 Internet Advertising:
 The internet is an excellent medium to create
awareness and to effectively support early launch
strategies.
 Creating a website is the most important first stage.
 The website should indicate:
 Background of the company.
 Its products, officers, address, telephone and fax
numbers.
 Contact names for potential sales.
 Direct sales from the website may also be available.
 Significant advertising is needed to create interest
and awareness of the existence of the website.
 It is important to change the content of the website
as necessary.
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 The entrepreneur may also consider using a banner ad, small
Trade Shows:
 Every industry has a trade or professional
association that sponsors annual trade
shows.
 Although creating a booth can be very
expensive, trade shows are where hundreds of
thousands of people observe or identify trends
in their industry.

 There is strong evidence to indicate that the

cost per sale from a trade show is
significantly less than the cost per sale
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from a personal sales call.
Advertising agencies
 Advertising agency is an independent business
organization composed of creative and business
people who develop, prepare, and place
advertising in media for its customers;
 Provide many promotional services;
 Can provide assistance in marketing research;
 It is important to determine whether the agency
can fulfill all of the needs of the new venture;
 A checklist of items that the entrepreneur may
consider in evaluating an agency is useful;
 The agency should support the marketing
program and assist the entrepreneur in getting
the product effectively launched.
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7.3. Managing Early Growth Venture
To grow or not to grow: should be an important part of the
entrepreneur’s strategic plan.
For those who choose to grow their venture, it is
necessary to be prepared for growth and to
understand its implications.
In many cases the growth may not be entirely
voluntary.
Customer may demand more goods, better services
and even better prices.
Organizational Changes during growth: many
entrepreneurs find that as the venture reaches the growth
stage they need to change the organizational culture, internal
venture atmosphere based on employees attitudes.
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Some of the important guidelines to cultural
change during growth involve the following:
 Communicate all matters to key employees. Trust and understanding by
employees are important so that their roles and responsibilities during this
stage of business are clear.
 Be a good listener. Learn what’s on the mind of your employees and what
they would do if they ran the company.
 Be willing to delegate responsibility. The entrepreneur cannot always
be available to assess every management decision. Give key employees
the flexibility to make decision without the fear of failure.
 Provide feedback consistently and regularly.
 Provide continuous training to key employees. They in turn will be
able to train others in the organization.
 Emphasize results to key managers with incentives built to
encourage them to train and delegate within the roles.
 Maintain a focus by establishing a mission with goals and using
consensus in management decision making.
 Establish
12 a “we” spirit not a “me” spirit in meetings and memoranda
 Entrepreneurial Skills and Strategies
Itneeds different skills and strategies to run the business
activities:
Record keeping and financial control: with growing venture it is sometime
necessary to enlist the support and services of an accountant or consultant to support
record keeping and financial control.
Inventory control: efficient electronic data interchange (EDI) among producers,
wholesalers, and retailers can enable these firms to communicate with one another.
These systems also allow the firm to track shipments
internationally. Transportation mode selection can also be important in inventory
management.
Human resources: generally, the new venture does not have the luxury of a human
resource department that can interview, hire and evaluate employees. Most of these
decisions will be the responsibility of the entrepreneur and perhaps one or two key
employees. Some entrepreneurs are managing this issue by hiring
professional employer organization.
Marketing skills: As the company grows, it will need to develop new products and
services to maintain its distinctiveness in a competitive
market. This should be an ongoing process based on information regarding changing
customers’ needs and competitive strategies.
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Strategic planning skills: planning is continual process,
particularly in a rapidly changing environment. It is unlikely that a plan
that worked yesterday will be effective in today’s marketplace. In
strategic planning, three to five year plan that includes all
functions of an organization outline should be prepared including:
 Business mission
 Situation analysis
 Internal environmental analysis
 External environmental analysis
 Goal formulation
 Strategy formulation
 Formulation of programs to meet goals
 Implementation, feedback and control
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Time management: time is the entrepreneur’s most precious
yet limited resource. It has unique qualities: an entrepreneur cannot store
it, rent it, hire it, or by it. Entrepreneurs can always make better use of
their time, and the more they strive to do so, the more it will enrich
their venture as well as their personal lives.
Negotiation: negotiation is the process by which parties attempt to
resolve a conflict by agreement. There are two type of negotiation:
Distributive bargaining (competitive negotiation) and Integrative
bargaining (cooperative negotiation).
 Integrative bargaining (cooperative negotiation) - in this
situation the entrepreneur is willing to let the other side
achieve its desired outcome while maintaining a commitment
to his or her own goals.
 Rational decision model is method of resolving conflict
through objectives, analysis of alternatives and actions.
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 Competitive negotiation (Distributive bargaining)-
does not allow the other party to achieve his or her goals. There is a
fixed pie to be divided which means that the larger the opponent’s
share, the smaller the entrepreneur. In this competitive adversarial
bargaining arena, each party tries to discover the others goals, values
and perceptions.
 The methods used to collect information are indirect methods and
direct methods.
 Indirect methods - include discussing the person with anyone who
has had previous contact, such as your own employees, the party
employees, or outside individuals.
 Direct methods - whenever possible, he or she should meet
informally with
representatives of the other company, probing them to determine
their levels of preparation. Frequently, insight can be obtained from
16response to relaxed, almost innocent questions.
7.4 New Venture Expansion Strategies and Issues
A. Joint Ventures:
 A joint venture is a separate entity involving two or more participants as
partners.
 With the increase in business risks, hyper-competition, and failures, joint
ventures have increased.
 They involve a wide range of partners, including universities, businesses, and the
public sector.
 Types of Joint Ventures
 The most common type is that between two or more private-sector
companies.
 Some joint ventures are formed to do cooperative research. Another
type of joint research for research development is the not-for profit
research organization.
 Industry-university agreements for the purpose of doing research
are also increasing.
 Two problems have kept this type venture from increasing even faster.
o A profit corporation wants to obtain tangible results-such as a
patent-from its research investment and universities want to share
in the returns.
o The corporation usually wants to retain all proprietary data while
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university researchers want to make the knowledge available.
 International joint ventures are increasing rapidly due to their relative
advantages.
 Both companies can share in the earnings and growth.
 The joint venture can have a low cash requirement.
 Also, the joint venture provides ready access to new international markets.
 Such a venture causes less drain on a company’s managerial and
financial resources than wholly owned subsidiary.
 There are drawbacks in establishing international joint ventures .
 The business objectives of the partners can be quite different.
 Cultural differences can create managerial difficulties.
 Government policies sometimes can have a negative impact on the
venture.
 The benefits usually outweigh the drawbacks .
Factors in Joint Venture Success
 One critical factor for success is the accurate assessment of the
parties involved and how best to manage the new entity.
 A second factor involves the symmetry between the partners.
 Another factor is that the expectations about the results of the joint
venture must be reasonable.
 The final factor is the timing. A joint venture should be considered as one
of many options for supplementing the resources of the firm.
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B. Acquisitions:
 Acquisition is the purchase of a company or a
part of it in such a way that the acquired company
is completely absorbed and no longer exists.
 Acquisitions can provide an excellent way to

grow a business and enter new markets.

 A key issue is agreeing on a price. Often the

structure of the deal can be more important to the

parties than the actual price.
 A prime concern is to ensure that the acquisition

fits into the overall direction of the strategic plan.

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 Advantages of an Acquisition
 Established business; the acquired firm has an established
image and track record.
 The entrepreneur would only need to continue the existing
strategy to be successful.
 Location is already established and established marketing
structure; an important factor that affects value of a firm is its
existing marketing channel & sales structure.
 The entrepreneur can concentrate on expanding to new
target markets.
 The total cost of acquiring a business could be lower than trying
to buy a franchise.
 Existing employees of an existing business can be important
assets because they know the business and can help the
business continue.
 Employees
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already have established relationships with
customers, suppliers, and channel members and more
 Disadvantages of an Acquisition
 Marginal success record- most ventures for sale have an
erratic or even unprofitable record. It is important to review the
records and meet important constituents to assess the future
potential.
 Overconfidence in ability - even though the entrepreneur
brings new ideas, the venture may never be successful for
reasons not possible to resolve.
 Key employee loss -often when a business changes hands key
employees also leave. In a service business, it is difficult to
separate the actual service from the person who performs it.
Incentives can sometimes be used to assure that key employees
will remain with the business.
 Overvalued-if the entrepreneur has to pay too much for a
business; the return on investment will not be acceptable. The
entrepreneur will need to establish a reasonable payback to
justify the investment.
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C. Mergers:

 Mergers is a transaction involving two or more companies

in which only one company survives.
 Acquisitions are so similar to mergers, that the terms are

often used interchangeably.

 A key concern in any merger or acquisition is the legality

of the purchase.
 There are legal guidelines for horizontal, vertical, and

conglomerate mergers.
 Merger motivations range from survival to protection to

diversification to growth.
 A merger requires sound planning by the entrepreneur.
 Merger objectives must be spelled out with the resulting

gains for the owners of both companies delineated

and the entrepreneur should establish a climate of
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mutual trust.
D. Hostile takeover:
 One form of acquisition, hostile takeover has

received increasing attention recently. Three

items make hostile takeover possible.
 A low stock evaluation coupled with a strong
performance;
 A low debt/equity ratio, allowing the entrepreneur to
use the assets of the company to fund the takeover; and
 The percentage of institutional investors holding the
company stock.
 Since the objective of institutional investors is to
make a profit they will frequently vote in favor
of hostile takeover due to the anticipated gain
in stock price and firm evaluation.
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E. Leverage buyouts (LBO):
 It occurs because an entrepreneur purchasing the
venture believes that he/she could run the
company more efficiently than the current owner.
 It occurs when an entrepreneur/employee/group

used borrowed funds to purchase an existing

venture for cash.
 The current owner is frequently an entrepreneur or

owner who wants to retire.

 The owner may also be large corporation desiring

to divest itself in a subsidiary that is too small or

that does not fit its long term strategic plan.

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F. Franchising:
 Franchising also represents an opportunity for
entrepreneurs to expand the business.
 In the context of franchising, the entrepreneur

will be trained and supported in marketing by

the franchisor and will be using a name that
has an established image.
 Franchising is also an alternative means by

which an entrepreneur may expand his/her

businesses by having others pay for the use of
the names, process, products, and service
and so on.
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 CHAPTER FIVE
MARKETING IN SMALL BUSINESS
5.1. The Marketing Perspective
It is all well and good having a product or service idea, but will
it prove to be a profitable business? Too many businesses are
set up without thinking about this essential question.
The answer revolves around the most important person in any
business – the consumer. Marketing is the process of
matching the needs of the consumer to the capabilities and
resources of the firm. When John Egan was MD of Jaguar, he
said:
Marketing is about making money from satisfied customers –
without satisfied customers there can be no future for any
commercial organization.
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 cont’d
Marketing, then, is about making profits by anticipating and
meeting the needs of the customer.
First and foremost, though, marketing is an attitude of mind
about satisfying the customer rather than a set of sales
techniques, and to understand the customer you need to
take what is called a marketing perspective.
However, whilst the customer is the most important person
is any business, you need to be clear about what that term
means. The customer is the buyer of the product or
service. This person may not be the same person as the
consumer, or user of the product or service.

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 The Marketing Mix Elements/ 4p’s/
1. Product: Product includes physical objects or services being
sold, together with packaging, image, brand name and warranty
and attributes that influence consumer’s perceptions, such as
colors, shapes, sizes and materials.
2. Price: Price is the monetary unit required for a purchase, and
from an entrepreneur’s view point, it is the unit of income.
Prices communicate information about value, image and
competition, and they influence decisions.
3. Promotion: The act of communication that provides
consumers with information about a company’s products, its
services or the venture itself is promotion. They include
advertising, personal selling, direct marketing, public relations.
4. place /Distribution/ : It is concerned with how products or
services are made available to customers.
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 cont’d

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