There is a vast range of problems that founders of your businesses confront. Lack of coherent strategies, competitive strengths, talented employees, adequate controls and clear reporting relationships is just the beginning.
Bhide (1996) proposed a useful framework to tackle those problems. First, analyse situation you are in. Second, establish priorities among opportunities and problems. Third, make rational decisions about the future. Forth, see the bigger picture issues before thinking about refinement and details. These stress the need to clarify current goals, evaluate strategies for attaining those goals and assess capacity to execute the strategy.
Personal and business goals are closely linked. When launching a new venture, an entrepreneur should be looking to fulfilment of his own goals, as well as seeking investors with similar views. One should also periodically ask if those goals are fulfilled. Entrepreneur’s financial may vary from looking to leverage business with quick profit, generate sufficient cash flow or build and sell the business. One might also give no high priorities to financial goals and operate on different conditions.
If an entrepreneur looks for long-term sustainability business, a business that can survive without their presence, they should build companies large enough. This is required to support an infrastructure that will not require day-to-day intervention.
New ventures are risky long-term bets. If founders do not trust employees to make crucial decisions, they may become locked into their business and face financial distress. Eventually, one may simply become sick or burnout.
Business should not require to take more risks and sacrifices than they are willing to accept. New venture should be able to satisfy entrepreneur on personal terms.
Many start businesses seize short-term opportunities without thinking about long-term goals. Successful entrepreneurs manage to make a transition from tactical to strategic orientation and begin to build critical capabilities and resources. A sound strategy should resolve hiring issues, design control systems, set reporting relations and clearly define founder’s role.
A comprehensive strategy should have clear direction for enterprise, be broad and explicit, have specific long-term policies, geographical reach and technological capabilities. This should imply vision of where company is going instead of where it is. Statements should also be concise and easily understood by key constituents, employees, investors and customers.
Entrepreneurs must determine if strategies will allow being profitable and growing to a desirable size. Competitive edge and differentiation, as well as market size issues should be addressed. Entrepreneurs who are stuck in ventures that are unprofitable and cannot grow satisfactory must take radical actions to find a new industry and develop innovative ways to utilise economies of scale and scope.
A sound strategy should be able to keep up with demand and therefore serve business over the long term. Entrepreneurs must develop systems that incorporate many distinct and complementary capabilities such as attractive product line, well-integrated manufacturing and logistics, close relationship with distributors, culture of responsiveness to customers and capability to produce continuing stream of product innovation.
The founder should address the need for optimal growth rate and set the right pace. Too fast or too slow growth may conclude in failure. This depends on economies of scale, scope and customer network. The greater the returns, the stronger the case of pursuing growth. Ability to lock in customers and scarce resources is another growth determinant. If customer sticks with the company and resources see a large expense of switching to another company, the venture is likely to grow. Competitors growth, resource constraints, internal financing capability and tolerant customers, as well as entrepreneur’s tolerance for stress and discomfort, are additional factors to consider then managing growth.
Many entrepreneurs fail because they run out of cash or end up being unable to generate sales or fill orders. Three dimensions should, therefore, be assessed: resources, organisational capabilities and personal roles.
Internal resources refer to talented people. In start-up phase, founders perform crucial tasks and recruit whomever. In later phases, however, they seek for talent. Entrepreneurs should choose between recruiting competent individuals for specific slots or creating new positions for promising candidates. In the starting phase, entrepreneurs may also consider customers as their source of capital. For a new venture to survive, however, some resources that were initially external may need to become internal. To build a durable company, entrepreneur may have to integrate vertically or replace subcontractors with full time employees.
Organisational strength depends on capacity to integrate hard and soft strategy. Hard infrastructure refers to organisational structure that depends on goals and strategies such as share of resources among business units, establishment of first-mover advantage through rapid growth and desire to go public. Investing in organisational structure requires delegation of tasks, specialising in clearly defined roles and organisational units, mobilising funds for growth and creating a well-kept financial track record.
Soft strategy is concerned about culture and norms infrastructure and depends on subjects such as giving employees considerable responsibility and ability to monitor finances, as well as the level of autonomy that they can handle while maintaining right level of control. Culture determines the degree to which an individual employees and organisational units compete and cooperate and how they treat the customers. It is custom built and once established – difficult to change.
Founder’s role should include management of perceptions of resource providers, potential customers, employees and investors. It should evolve from doing the work, to teaching other how to do it, prescribing desired results and eventually managing overall context in which they work.
Westhead, P., Wright, M. and Mcelwee, G., 2011. Entrepreneurship: Perspectives and cases. Pearson.