Dynamics of growth of the entrepreneurial venture

Introduction

There are four perspectives from which the dynamics of growth of the entrepreneurial venture can be viewed. These are financial growth, strategic growth, structural growth and organisational growth. The following components are evaluated in the evaluation of growth in a business venture:

1. Why do organisations grow?
2. Four perspectives from which the dynamics of Growth of the Entrepreneurial venture can be viewed

1. Financial Growth
2. Strategic Growth
3. Structural Growth
4. Organisational Growth

1. How can organisations prepare for growth?

 

Why do organisations grow?

There are a myriad of reasons why an organisation wants to grow, and one of the primary reasons is to bring wealth to its shareholders via increased profits. Some of the other reasons why an organisation wants to grow are:

1. Maximization of Profit (maximizing profit for shareholders),
2. Providing a unique service which pertains to a ”gap” in the market,
3. Expansion into new markets due to the current market becoming saturated with their product, or too many competitors (to survive)

(Burns, 2007) states the following reasons for growth:

1. Capturing Economies of Scale,
2. Capturing Economies of Scope,
3. Market Leadership,
4. Influence, Power, and Survivability,
5. Need to Accommodate the Growth of Key Customers and
6. Ability to Attract and Retain Talented Employees (Burns, 2007, pp. 438-441)

Organic (Internal) Growth strategies are based on market structure and current state of market.

(Louw & Venter, 2009) Defines the term as: Internal Growth as: Organic Growth (growth from within) or intensive growth, internal growth expands sales of existing products. The primary aim of organic growth is to retain the current customer base by providing them with new products or services, and seeking new customers. (Louw & Venter, 2009, pp. 215-216)

Thus organic growth can be classified as the strategies which the organisation employs to grow from within the organisation. When an organisation uses organic growth as a growth strategy then it usually re-invests profits to increase production or operations capacity, which enables them the ability to sell more products to customers

(Barringer & Ireland, 2012) indicates that The majority of businesses go through a discernible set of stages referred to as the organizational life cycle. These include introduction, early growth, continuous growth, maturity, and decline. Each stage must be managed differently. It’s important for an entrepreneur to be familiar with these stages, along with the unique opportunities and challenges that each stage entails. (Barringer & Ireland, 2012, p. 442)

Figure 2 - (Barringer & Ireland, 2012, p. 442)

 

 

Four perspectives from which the dynamics of Growth of the Entrepreneurial venture can be viewed

(Wickham, 2001) argues that business growth is critical to entrepreneurial success and growth is the defining feature of a new venture. Growth is a dynamic process and changes in the way the organisation interacts with the environment. The following components of growth for an entrepreneurial venture will be evaluated:

1. Financial Growth,
2. Strategic Growth,
3. Structural Growth, and
4. Organisational Growth (Wickham, 2001, p. 304)

 

Figure 3 - (Wickham, 2001, p. 304)

 

Financial Growth

(Barringer & Ireland, 2012) states that financial growth is essential for any new organisation, and these elements can be evaluated by initially a feasibility study and later on by audits.  The financial growth factors can be summarized as:

1. Steady and rapid growth in sales during the first five to seven years in a clearly defined market niche,
2. High percentage of recurring revenue—meaning that once a firm wins a client, the client will provide recurring sources of revenue,
3. Ability to forecast income and expenses with a reasonable degree of certainty,
4. Internally generated funds to finance and sustain growth,  and
5. Availability of an exit opportunity (such as an acquisition or an initial public offering) for investors to convert equity into cash (Barringer & Ireland, 2012, p. 95)

 

(Wickham, 2001) indicates that financial growth is related to the development of a business and evaluates the increases in turnover, profits and assets of the business venture. Financial growth is equal to the measure of success of the organisation and the value it brings in for its shareholders.

Financial Growth can be measured in:

1. Assets - Increases in Assets,
2. Income - Increases in organisational profit,
3. Value - Market value of organisation, and
4. Capital – Amount of Capital spend in the organisation

(Wickham, 2001, p. 304)

Financial information can be obtained from the financial reports (Balance sheet, profit and loss accounts and supplementary information) and can be translated into financial ratios to determine the performance and financial statements of the organisation

 

 

Strategic Growth

(Wheelen & Hunger, 2012) Defines the definition of a strategy as a comprehensive master plan of an organisation which states how the organisation will achieve its goals, mission and objectives. The organisational strategy maximized the competitive advantage and minimises the competitive disadvantage (Wheelen & Hunger, 2012, p. 19)

 

An organisations growth can be measure by evaluating the Market Share, Volume of Sales, Profits Made, Company Value and the number of employees in the organisation. An organisation must ensure good Governance via King 3 and setting the standards for suppliers and supporting the customer needs. They have a can do attitude, and have ongoing development of people.

(Wickham, 2001) argues that strategic growth is related to the interaction between the organisation and its micro and macro environment. This interaction is characterized by exploiting opportunities and acquiring assets to create sustainable competitive advantage (Wickham, 2001, p. 403)

 

(Council, 2014) defines the following components for Strategic Growth:

1. Advance Strategic Leadership,
2. Develop Growth Strategy,
3. Increase Customers & Members,
4. Differentiate Products & Services,
5. Establish Strong Value Proposition,
6. Grow Workflow Systems & Processes,
7. Implement Performance Measures, and
8. Improve Ability to Execute

 

Figure 4 - (Council, 2014)

 

 

Strategic growth enables the organisation to strategically plan and implement the usage of its resources and capabilities, which enables the organisation to develop its capabilities and to exploit new or existing opportunities in the market.

 

For any organisation to maintain its competitive advantage through cost and growth it must implement the following cycle, from Lowering Cost to lower price which leads to increased demand, Increased demand lead to increase in output and profits, which finally leads to lowering overall costs due to experience curve cost reduction.

 

Structural Growth

(Wickham, 2001) argues that structural growth is the relation and in which managerial roles and responsibilities, reporting relationships, communication links and control systems are organized (internal systems)  (Wickham, 2001, p. 304).

 

Structural growth is driven by the changes in the business ventures internal systems which includes: management responsibilities, expanding reporting relationships, expanding communication paths and implementation of more efficient resource control systems. Structural growth is thus the response of the business venture to the changing micro factors (internal factors) which the organisation must adapt to, to enable the organisation to achieve growth and the ability to be able to respond to new market opportunities.

 

Structural design is usually influenced by the contingency theory. The contingency theory revolves around the organisation’s size, operational technology it uses to create value, supporting strategy, environment the venture finds itself in, and finally the power utilization factors in the venture.

(shkaminski, 2014) defines the following additional factors for the contingency theory:

1. Technology - Tools, techniques and actions used to transform inputs into outputs.  Can be processes and procedures as well as machinery and computers
2. Interdependence between Units -   The degree to which the parts of the process must work together to transform inputs to outputs
3. Organizational Environment -  Environment is everything outside the organization’s boundaries (Domestic and foreign competitors, Customers and clients, Government agencies and regulators, General economic conditions, Technologies, Financial resources,  Labour markets,  Raw materials suppliers and General culture)
4. If variables conflict—e.g. non-routine technology and simple, stable environment—two possible solutions: Adopt the most complex solution to be ready for the most difficult challenge and the organization must under-perform because it is faced with contradictions. (shkaminski, 2014)

 

Organisational Growth

(Wickham, 2001) defines organisational growth as to the natural changes in the organisation as it grows. Organisational growth usually leads to better processes and systems to enhance the operations and manufacturing capabilities of the organisation. (Wickham, 2001, p. 304)

 

Stages of Organisational Growth

Figure 5 - (accel-team, 2014)

 

(accel-team, 2014) indicates the following stages of organisational growth:

1. Creativity/ Leadership - This stage is dominated by the founders of the organization, and the emphasis is on creating both a product and These "founders are usually technically or entrepreneurially oriented, and they disdain management activities; their physical and mental energies are absorbed entirely in making and selling a new product."
2. Direction/ Autonomy - It is at this point that the crisis of leadership occurs and the first revolutionary period begins. "Who is going to lead the organization out of confusion and solve the management problems confronting the organization?" The solution is to locate and install a strong manager "who is acceptable to the founders and who can pull the organization together." This leads to the next evolutionary period-growth through direction
3. Delegation/ Control - When an organization gets to the growth stage of delegation, it usually begins to develop a decentralized organization structure, which heightens motivation at the lower levels. Yet, eventually, the next crisis begins to evolve as the top managers "sense that they are losing control over a highly diversified field operation?”
4. Coordination/ Red Tape - the use of formal systems for achieving greater coordination with top management. But this can cause the implementation of too much red-tape to perform the operations
5. Collaboration - emphasizes greater spontaneity in management action through teams and the skilful confrontation of interpersonal differences. Social control and self-discipline take over from formal control (accel-team, 2014)

 

How can organisations prepare for growth?

(Burns, 2007) states that Most entrepreneurial firms want to grow. Especially in the short term, growth in sales revenue is an important indicator of an entrepreneurial venture’s potential to survive today and be successful tomorrow.

The organisation can do the following to promote growth:

1. Appreciating the Nature of Business Growth
   • Not All Businesses Have the Potential to Be Aggressive Growth Firms
   • A Business Can Grow Too Fast
   • Business Success Doesn’t Always Scale
2. Staying Committed to a Core Strategy
3. Must Plan for Growth (Burns, 2007)

 

Conclusion

Primarily organisations wants to grow, and if they are successful in growing the business venture then it must accept and adapt to their internal changing environment and cate for Financial Growth,  Strategic Growth, Structural Growth and Organisational Growth. If the organisation is aware of these kinds of changes then it can adapt but if they are not able to adapt to their changing Internal environment then they stand to lose their culture and competitive position in the market.

 

Bibliography

accel-team, 2014. accel-team. [Online]
Available at: http://www.accel-team.com/techniques/orgGrowth.html
[Accessed 23 09 2014].

Barringer, B. R. & Ireland, D. R., 2012. Entrepreneurship - Successfully launching new ventures. 4th ed. s.l.:Pearson.

Burns, P., 2007. Entrepreneurship and Small Business. 2nd ed. s.l.:Palgrave Macmillan.

Council, C. B. R., 2014. Community Business Resouce Council. [Online]
Available at: http://www.cbrchelp.org/Strategic%20Corporate%20Growth.htm
[Accessed 22 09 2014].

Louw, L. & Venter, P., 2009. Strategic Management - Winning in the Southern African Workplace. 3rd ed. s.l.:Oxford - Southern Africa.

shkaminski, 2014. shkaminski. [Online]
Available at: http://www.shkaminski.com/Classes/BJU_MBA_665/LectureNotes/CP%20Chapter%205.htm
[Accessed 23 09 2014].

Wheelen, T. L. & Hunger, D. J., 2012. Strategic Management and Business Policy. s.l.:Pearson.

Wickham, P. A., 2001. Strategic Entrepreneurship. A Decision Making approach to New Venture Creation and Management.. 2nd ed. s.l.:Prentice-Hall.