Strategic Issues in Entrepreneurial Ventures and Small Business Chapter 12 Strategic Issues in Entrepreneurial Ventures and Small Business Dr.Vijaya Kumar Skyline College Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Small businesses: 22 million >95% of all businesses 85% new jobs created by small firms 2X R&D dollars on fundamental research compared to large firms 50% of businesses found in any given year, not in business w/i 5 years Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Small business firm: One that employs fewer than 500 people and has sales of < $20 million annually. Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Small business firm: Independently owned and operated Not dominant in its field Not engaged in innovative practices Entrepreneurial Venture: Primary goals profit and growth Innovative strategic practices Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business A person who organizes and manages a business and who assumes risk for the sake of profit. Ultimate strategist Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Informal Questions to Begin the Strategic Management Process in a Small Company or Entrepreneurial Venture Formal Informal Define mission What do we stand for? Set objectives What are we trying to achieve? Formulate strategy How are we going to get there? How can we beat the competition? Determine policies What sort of ground rules should we all be following to get the job done right? Establish programs How should we organize this operation to get what we want done as cheaply as possible with the highest quality possible? Prepare pro forma budgets How much is it going to cost us and where can we get the cash? Specify procedures In how much detail do we have to lay things out, so that everybody knows what to do? Determine performance measures What are those few key things that will determine whether we can make it? How can we keep track of them? Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic planning: Strongly related to small-business financial performance Many small firms do not use the process Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Not enough time Small Business Reasons for Not using Strategic planning Unfamiliar Lack of skills Lack of trust Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Develop the basic business idea A product and/or service having target customers and/or markets Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Scan the external environment Locate factors in the societal and task environments that pose opportunities and threats Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Scan the internal factors Objectively consider personal assets, expertise, abilities, and experience Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Analyze the strategic factors SWOT and SFAS Table (Figure 5.1) Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Decide go or no go Feasibility to go or further development Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Generate a business plan Specify how the idea will be transformed into reality Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Contents of a Strategic Business Plan for an Entrepreneurial Venture I. Table of Contents X. Human Resources Plan II. Executive Summary XI. Ownership III. Nature of the Business XII. Risk Analysis IV. Strategy Formulation XIII. Timetables and Milestones V. Market Analysis XIV. Strategy Implementation—Action Plans VI. Marketing Plan XV. Evaluation and Control VII. Operational Plans—Service/Product XVI. Summary VIII. Financial Plans XVII. Appendices IX. Organization and Management Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Strategic audit Framework oriented toward future Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Implement the business plan Action plans and procedures Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Strategic Decision-Making Process: Evaluate the implemented business plan Compare actual performance against projected performance results Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Corporate Governance: Simpler in entrepreneurial firms Owner as manager No board unless incorporated Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Corporate Governance: Closely-held firms have passive boards Advisory board A group of external business people voluntarily meeting with owner to discuss strategic issues Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Sources of Innovation: Within the Industry— The unexpected The incongruity Innovation based on process need Changes in industry or market structure Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Sources of Innovation: Societal environment— Demographics Changes in perception, mood, and meaning New knowledge Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Factors – New Venture’s Success: 3 Factors: The structure of the industry entered New venture’s business strategy Behavioral characteristics of the entrepreneur Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Some Guidelines for New Venture Success • Focus on industries facing substantial technological or regulatory changes, especially those with recent exits by established competitors. • Seek industries whose smaller firms have relatively weak competitive positions. • Seek industries that are in early, high-growth stages of evolution. • Seek industries in which it is possible to create high barriers to subsequent entry. • Seek industries with heterogeneous products that are relatively unimportant to the customer’s overall success. • Seek to differentiate your products from those of your competitors in ways that are meaningful to your customers. • Focus such differentiation efforts on product quality, marketing approaches, and customer service—and charge enough to cover the costs of doing so. • Seek to dominate the market segments in which you compete. If necessary, either segment the market differently or change the nature and focus of your differentiation efforts to increase your domination of the segments you serve. • Stress innovation, especially new product innovation, that is built on existing organizational capabilities. • Seek natural, organic growth through flexibility and opportunism that builds on existing organizational strengths. Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Small Business Development: Sub-stages: Existence Survival Success Disengagement Growth Take-off Resource maturity Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Family Businesses: > 1/3 of Fortune 500 family owned or dominated World percentage = 50% Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Family Businesses: Why family businesses fail Inherited wealth No allowance for changing firm Family is neglected Family lifestyles Family not prepared to run business Arena for family conflicts Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Family Businesses: Transfer of Power Phase 1 Owner-managed business Phase 2 Training and development of new generation Phase 3 Partnership between generations Phase 4 Transfer of power Prentice Hall, 2002 Chapter 12 Wheelen/Hunger

Entrepreneurship and Small Business Family Businesses: Issues in evaluation and control Line between debt and equity is blurred Lifestyle is part of financial statements Standard financial formulas don’t always apply Personal preference determines financial policies Banks combine personal and business wealth Prentice Hall, 2002 Chapter 12 Wheelen/Hunger