MANAGING GROWTH AND

TRANSACTION

CHAPTER SEVEN

1
7.1. Preparing for the New Venture Launch: Early
Management Decisions
7.1.1 Record Keeping:
 It is necessary to have good records for effective control and for tax purposes.
 The goals of a good record keeping system are to identify key incoming and
outgoing revenues that can be effectively controlled.
A. Sales (Incoming Revenue): B. Expenses/Costs (Outgoing
Revenue):
 It is useful to have knowledge  Records of expenses are easily
about sales by customer both maintained through the checking
in terms of units and dollars. account. It is good business practice for
the entrepreneur:
 As cash flow problems are the  to use checks as payment for all expenses
most significant cause of new in order to maintain records for tax
purposes.
venture failure, good payment  In the early stage, it may be desirable to
records are necessary. make all payments on time to 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, inventory, and assets.
2
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.
 If the entrepreneur has no expertise in financial analysis, marketing
research, or promotion, he or she should hire outside experts.
3
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.

4
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.
5
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.

6
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.
7
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.
 The entrepreneur may also consider using a banner ad, small rectangular ads
similar to billboard ads that appear on browser websites.

8
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 from a personal sales call.

9
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.
10
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.

11
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 a “we” spirit not a “me” spirit in meetings and memoranda to
employees.
12
Entrepreneurial Skills and Strategies
 It needs 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.

13
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

14
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.

15
 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 response to relaxed,
almost innocent questions.

16
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
university researchers want to make the knowledge available.
17
 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.

18
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.

19
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 already have established relationships with customers, suppliers, and
channel members and more opportunity to be creative.
20
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.

21
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 mutual trust.
22
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.
23
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.

24
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.
25