MB609F Activity 6 Small Businesses and Entrepreneurial Ventures

ACTIVITY 6

MB609 Capstone: Case & Industry Analysis

Lesson 6: Competitive Intelligence

Activity 6: Small Businesses and Entrepreneurial Ventures

Part AIn terms of strategic management, how does a new venture’s situation differ from that

of an ongoing small company?

Authorities in the field tend to agree that the typical ongoing small business firm is not as innovative as an entrepreneurial venture (Wheelen, Hunger, Hoffman, Bamford, 2016, p.130). The small company has worked hard to establish itself and is one of the few new small businesses to survive its beginning years. At this point, many owner/managers choose to stabilize their businesses at a manageable size and move from a strategy of growth to survive to a stability strategy so that the owner/manager can begin to enjoy some of the fruits of success (Wheelen et al., 2016, p.130). It may take all the owner’s ability just to keep the company on an even footing. The entrepreneurial mode is replaced by an adaptive or perhaps planning mode. After all, a company can be very successful living off one innovative concept if it has been able to find and satisfy a favorable niche (Wheelen et al., 2016, p.130). The new venture, in contrast, still must prove itself. It faces a situation in which it only has a 50% chance of survival, let alone of success. It must grow or die. Operating in the entrepreneurial mode, managers must think strategically when putting together a business plan (Wheelen et al., 2016, p.130).

Part BHow should a small company engage in environmental scanning? To what aspects of the

environment should management pay most attention?

The small company needs to be constantly monitoring its environment, but the process should be reasonably informal with the minimum of paperwork (Wheelen et al., 2016, p.14). Since most small businesses tend to be local in orientation, managers must pay close attention to developments in the local community and to competitive activities (Wheelen et al., 2016, p.14). Employees need to be constantly asking customers for feedback or suggestions – this is probably the most important source of new ideas and information about competitors.

Part CWhat considerations should small-business entrepreneurs keep in mind when they are

deciding whether a company should follow a growth or a stability strategy?

The most important consideration in deciding upon a strategy is to clearly delineate the company’s mission and objectives. The objective is the destination. The strategy is the route. The available alternative strategies include every road on the road map (Llopis, 2015). Too often a small business entrepreneur looks for a hot new strategy without thinking through its impact on the company and on the people involved. Personal objectives are extremely important in an entrepreneurial venture or an owner-operated small business (Llopis, 2015). Does the entrepreneur want the company to be listed on a stock exchange and for his/her face to be on the cover of Business Week or does the entrepreneur simply look for a decent living and in being the boss of a firm small enough that he/she can manage it comfortably (Llopis, 2015)?

Part DHow does being family-owned (as compared to being publicly owned) affect a firm’s

strategic management?

A family-owned firm pays a lot of attention to satisfying the personal objectives of the owners. Family needs often determine the dividend policy. Personnel decisions are often heavily affected by family needs (Llopis, 2015). The company is thus used as an instrument to satisfy family wants and needs. The family very likely owns a controlling interest in the stock if the company is publicly-held. The board of directors will thus represent the family. If the family also manages the company, no real distinction exists between the board and top management (Llopis, 2015).

In terms of strategic management, the family may not want non-family members’ involvement in planning for the firm. This can result in a very myopic view of the firm’s strategic situation. Nevertheless, the family-owned firm can operate free from fear of takeovers and can plan for the long run because management does not have to work against short-term profitability or ROI targets to please Wall Street investors (Llopis, 2015). In contrast to publicly-held corporations with widely dispersed stock, management must manage with the needs and wants of the family constantly in mind. Agency theory suggests that the top management of publicly held corporations with widely dispersed stock may run the corporation according to implicit personal objectives which may run counter to the desires of the stockholders (Llopis, 2015). Thus, salaries of executives become inflated and acquisitions take place to add to the CEO’s power base. The long term may be forgotten in favor of the short-term because executives do not have to build the corporation to survive and prosper beyond their death (Llopis, 2015). The owner-managers of family-owned firms, in contrast, feel a need to build the company for their grandchildren and beyond.

Part EIf the owner/manager of a small company asked you for some advice concerning the introduction of strategic planning, what would you tell her?

I would encourage that person to go ahead with the idea but would strongly encourage her to keep it simple and informal. Research does reveal that strategic planning is related to small business financial performance. Research in the area also concludes that the strategic planning process should be far more informal in small, developing companies than it is in large established corporations (Llopis, 2015). Some studies have found that too much formalization of the planning process can even result in reduced performance. Advise the entrepreneur not to get bogged down in trivia. Don’t waste time writing a comprehensive planning document, which will only be filed away and probably lost. The key is the process. Just get the key people together in a room and deal with the questions (Llopis, 2015): Where are we trying to go? How are we going to get there? What are the roadblocks keeping us from getting where we want to go? What do we do about them – run over them or go around them? What can each one of us do to get us on track and keep us there (Llopis, 2015)?

References

Llopis, G. (2015). Top 6 Ways to Sustain Business Growth. Forbes. Retrieved from https://www.forbes.com/sites/glennllopis/2015/09/29/top-6-ways-to-sustain-business-growth/#2fe8b4b467ee

Wheelen, T. L., Hunger, J. D., Hoffman, A. N. And Bamford, C. E. (2016). Strategic management and business policy (14th ed.). NJ: Prentice Hall.