PREPARING FOR AND EVALUATING THE CHALLENGES OF GROWTH

Preparing for Growth

Growth in sales revenue is an important indicator of an entrepreneurial venture's potential to survive today and be successful tomorrow. While there is some trial and error involved in starting and growing any business, the degree to which a firm prepares for its future growth has a direct bearing on its level of success.

🙋 Appreciating the Nature of Business Growth

The following are issues about business growth that entrepreneurs should appreciate :

➸ Not All Business Have the Potential to Be Aggressive Growth Firms

The lists of fast-growing firms are often dominated by health care, technology, social media, and entertainment companies.

➸ A Business Can Grow Too Fast

Many businesses start fast and never let up, which stresses a business financially and can leave its owners emotionally drained. Sometimes businesses grow at a measured pace and then experience a sudden upswing in orders and have difficulty keeping up. This scenario can transform a business with satisfied customers and employees into a chaotic workplace with people scrambling to push the business's product out the door as quickly as possible.

➸ Business Success Doesn't Always Scale

Businesses that are based on providing high levels of individualized service often don't grow or scale well. There is also a category of businesses that sell high-end or specialty products that earn high margins. These businesses typically sell their products through venues where customers prioritize quality over price.

🙋 Staying Committed to a Core Strategy

A firm's core strategy is largely determined by its core competencies, or what it does particularly well. The way most businesses typically evolve is to start by selling a product or service that is consistent with their core strategy and then increase sales by incrementally moving into areas that are different from, but are related to, their strengths and core capabilities. Rather than moving swiftly in all directions, successful businesses keep their heads down and do one thing particularly well.
🙋 Planning for Growth
Many businesses periodically revise their business plans as a foundation for helping them guide their growth-related decisions. It's also important for a business to determine, as early as possible, the strategies it will choose to employ as a means of pursuing growth. If a business has the potential to grow rapidly, the owner should know what to expect if the fast-growth route is chosen.

Reason for Growth

✊ Capturing Economies of Scale
Economies of scale are generated when increasing production lowers the average cost of each unit produced. Economies of scale can be created in service firms as well as traditional manufacturing companies. This phenomenon occurs for two reasons :
↳ if a company can get a discount by buying component parts in bulk, it can lower its variable cost per unit as it grows larger.
↳ by increasing production, a company can spread its fixed costs over a greater number of units.
✊ Capturing Economies of Scope
With economies of scope, the advantage a firm accrues comes through the scope (or range) of a firm's operations rather than from its scale of production.
✊ Market Leadership
Market leadership occurs when a firm holds the number one or the number two position in an industry or niche market in terms of sales volume.
✊ Influence, Power, and Survivability

"Size gives us another big advantage; our reach and resources enable us to go to bat more frequently, to take more swings, to experiment more, and unlike a small company, we can miss on occasion and get to swing again." -Jack Welch-

✊ Need to Accommodate the Growth of Key Customers
✊ Ability to Attract and Retain Talented Employees
In knowledge-based industries, a company's number one asset is the combined talent, training, and experience of its employees.

Managing Growth

〰 Knowing and Managing the Stages of Growth
🔔 Introduction Stage
This is the start-up phase where a business determines what its strengths and core capabilities are and starts selling its initial product or service. It's a very "hands-on" phase for the founder. The business is typically very nonbureaucratic with no (or few) written rules or procedures. The main challenges for a business in the introduction stage are to make sure the initial product or service is right and to start laying the groundwork for building a larger organization.
🔔 Early Growth Stage
Is generally characterized by increasing sales and heightened complexity. The initial formation of policies and procedures takes place. For a business to be successful in this stage, two important thins must take place. First, the founder must start transitioning from his or her role as the hands-on supervisor of every aspect of the business to a more managerial role. The second thing is that increased formalization must take place.
🔔 Continuous Growth Stage
The need for structure and more formal relationships increases as a business moves beyond its early growth stage and its pace of growth accelerates. Often the business will start developing new products and services and will expand to new markets. Well-developed policies and procedures lead to order, which typically makes the process of growing a business more organized and successful.
🔔 Maturity Stage
A business enters the maturity stage when its growth slows.
🔔 Decline Stage
A firm enter the decline stage if it loses its sense of purpose or spreads itself so thin that it no longer has a competitive advantage in any of its markets.

Challenges of Growth

🔆 Managerial Capacity

"Firms are collections of productive resources that are organized in an administrative framework." - Edith T. Penrose-

A firm's productive opportunity set is the set of opportunities the firm feels it's capable of pursuing. The firm's administrative framework consists of two kinds of services that are important to a firm's growth : Entrepreneurial services which is generate new market, product, and service ideas ; and managerial service which is administer the routine functions of the firm and facilitate the profitable execution of new opportunities.
Managerial capacity problem suggests that firm growth is limited by the managerial capacity (personnel, expertise, and intellectual resources) that firms have available to implement new business ideas. The basic idea is that it does a firm little good to have exciting ideas about growth when it lacks the managerial capacity to implement its ideas.
🔆 Day-to-Day Challenges of Growing a Firm
☇ Cash Flow Management
the challenge of continuously verifying that the firm has sufficient cash on hand to meet its needs.
☇ Price Stability
this challenge surfaces when a firm competes successfully against larger competitors who respond by making the new venture compete on the basis of price, a competitive dimension on which it is at a disadvantage compared to large, established competitors.
☇ Quality Control
with growth, the entrepreneurial venture may find it increasingly difficult to maintain the quality of its product or service as demanded by customers.
☇ Capital Constraints
here the challenge is to find the financial capital needed to support early and hopefully continuous firm growth.