Marketing Strategies and Niche Markets Quiz

Entrepreneurship: Managing, Growing, and Harvesting the Entrepreneurial Firm

• This unit discusses the management of firms during different growth stages.
• Firms need to prepare properly for growth, anticipating challenges.
• Not all businesses have the potential or the need to be aggressive growth firms.
• Businesses can grow too fast.
• Growth does not guarantee business success

Three Things a Business Can Do to Prepare for Growth

• Stay committed to a consistent core strategy.
• Plan for growth, develop growth-related plans, and use business plans to assist in growth.
• Determine growth strategies as soon as possible.

Warning Signs That a Business is Growing Too Fast

• Borrowing money for regular operating expenses.
• Severe profit margin constraints.
• Overworked or stretched employees
• Declining product quality.
• Negative customer feedback
• Increased employee stress or anxieties
• Productivity decreases
• Frequent crisis situations
• Financial structure personnel showing concern

Reasons for Growth

• Economies of scale: Increasing production reduces the average cost per unit.
• Economies of scope: Expanding operations creates efficiencies.
• Market leadership: Holding the top or second position in an industry/niche, relating to sales volume.
• Influence, power, and survivability: Larger firms typically have more market influence and power than smaller ones
• Accommodating key customer growth: Growing to support larger customers
• Attracting and retaining talent: Expansion as a way to attract suitable employees

Managing Growth

• Understanding growth stages (introduction, early growth, continuous growth, maturity, decline) is crucial for business owners
• Each stage has unique opportunities and challenges.

Stages of Growth

• Introduction: Initial phase, establish core strengths and capabilities, ensure the product or service is suitable. Documentation of effective practices is necessary.
• Early growth: Characterized by increasing sales and complexity. Founders transition from operational roles to strategic leadership. Formalization of procedures and policies is essential.
• Continuous growth: Structure and formalization increase, development of additional products/services, toughest decisions occur regarding experience and ability to take the business further.
• Maturity: Growth stalls, focus shifts towards efficiently managing existing products/services, opportunities for partnerships & acquisitions.
• Decline: Business enters the decline stage after peaking, often requiring adaptation to maintain profitability.

Challenges of Growth

• Managerial Capacity Problem: Firms comprising productive resources organized administratively, require entrepreneurial and management services to identify and execute new opportunities. Insufficient managerial services or capacity, can limit growth potential.
• Firms not prepared for growth, due to limited managerial capacity
  • Adverse selection increases as more employees are required. The firms need to find suitable employees, place them correctly, and provide adequate supervision. Finding the right people is harder with more people needing hiring.
• Moral hazard increases. New employees typically don't have the same ownership incentives of the original founders. The new hires may not be as motivated as the founders or have long hours.

Day-to-Day Challenges of Growing a Firm

• Cash flow management: Growing firms need more cash.
• Price stability: Growth could lead to price wars if it affects competitors' market share.
• Quality control: Increased activity might lead to quality control issues if resources are insufficient.
• Capital constraints: Access to capital is always a problem for growing firms.

Internal and External Growth Strategies

• Internal growth: Focuses on strategies within the firm (new product development strategies, other product-related strategies, international expansion)

• External growth: Establishing relationships with other firms (Mergers & acquisitions, licensing, strategic alliances, joint ventures, franchising)

Internal Growth Strategies

• New product development: Creating and selling new products/services to increase revenue.
• Other product-related strategies: Improving existing products/services, increasing market penetration, extending product lines, and geographic expansion.
• International expansion: Using resources to sell products/services in multiple countries.

Advantages and Disadvantages of Internal Growth Strategies

• Advantages: Incremental growth, maximization of internal control, preservation of organizational culture, encourages internal entrepreneurship, promote from within

• Disadvantages: Slow growth, need for new resources, difficult to recoup failed strategies, adds to industry capacity.

New Product Development

• Creating and selling new products to increase firm revenue. New product development is crucial in fast-paced industries. Product life-cycle times are often shorter in these sectors.

Other Product-Related Strategies

• Improving existing Products/services: Increase revenue by improving quality.
• Increasing market penetration: Increase sales through marketing, higher production capability.
• Extending product lines: Creating variations of existing products to appeal to a wider customer base.
• Geographic expansion: Expanding to new locations.

International Expansion

• A common growth strategy, involve selling products/services in multiple countries.
• Complex process but with significant potential.

Foreign-Market Entry Strategies

• Exporting: Producing + shipping products/service to overseas markets.
• Licensing: Agreement to allow another company to manufacture the product, in exchange for royalties or payments.
• Joint Ventures: Establishing a new firm jointly owned by two or more organizations.
• Franchising: Agreement between a franchisor (e.g. McDonald's) and franchisee (business owner).
• Turnkey Project: A contractor builds a facility and trains the local personnel.
• Wholly Owned Subsidiary: A company establishes its own, permanent presence in a foreign market.

External Growth Strategies

• Mergers and acquisitions: Combining companies (merger) or purchasing a company outright (acquisition).
• Licensing: Agreement to grant permission to use a product, trademark, or technology to another entity.
• Strategic alliances and joint ventures: A partnership involving two or more firms.
• Franchising: A business model where one party (franchisor) grants the right to operate a business to another (franchisee).

Advantages and Disadvantages of External Growth Strategies

• Advantages: Reducing competition, access to proprietary products, new market access, new tech experience, established brand name, economies of scale.
• Disadvantages: Incompatible management, clash of company cultures, operational issues, increased complexity, loss of organizational flexibility, antitrust implications

Mergers and Acquisitions

• Combining companies (merger) or purchasing a company outright (acquisition)

• Purpose of Acquisitions: Fulfill various company needs, such as expanding the product line, gaining access to distribution channels, and achieving economies of scale.

The Process of Completing an Acquisition

• Steps involved in completing an acquisition (meetings, evaluating feelings, financing, non-compete agreements, negotiating, legal review, employee communication, integration)

Licensing

• Granting permission to another company to use a specific form of intellectual property.

Strategic Alliances

• Partnerships between two or more firms to achieve a specific goal. Includes informal, non-entity creation partnerships. Boosted product innovation and foreign sales rates.

Joint Ventures

• Firms pool resources to create a separate, jointly owned organization. Often used for gaining access to foreign markets in combination with a local partner.

Advantages and Disadvantages of Participating in Strategic Alliances and Joint Ventures

• Advantages: Resource access, economies of scale, risk/cost sharing, faster market entry, knowledge/skill-sharing, neutralizing/blocking competitors
• Disadvantages: Loss of proprietary info, Management complexities, financial & organizational risks, partner dependency, loss of decision autonomy, varying cultural values, flexibility loss