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+ yearsA 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

venture’s 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. Take existing markets with sustaining innovations OR

2. 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 Don’t 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 can’t 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 ½ years Secure funding with room to increase Use financing vehicles that retain

entrepreneur’s 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 ClimateCritical 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 ManagementCritical 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 MANAGEMENTGetting 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 cont’d

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 cont’d

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 cont’d

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 AssetsWhere 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 troubleThe 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. Put accounts payable on hold2. Generate quick cash (discount AR, factor, fire sale)3. Negotiate with lenders4. Negotiate with trade creditors5. 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 PlanningStrategy 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 PlanningDelicate 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 cont’d Selection process is critical Have a written plan of action with

specific timelines Ownership vs. Management of the

company Revisit the plan