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Posts from the ‘Planning and Launching a New Business’ Category

30
Mar

Appreciating the Impact of Growth-Oriented Entrepreneurship

The "startup" gets all the attention; however, meaningful entrepreneurship that has a real impact on society focuses on innovation, sustainable job creation and strategic evolution into new markets.  This type of entrepreneurship, often referred to as "growth-oriented entrepreneurship", is defined and explained in a new chapter released by the International Center for Growth-Oriented Entrepreneurship and available for download here.

23
Mar

Academics & Policymakers Push Innovation Clusters as Engines for Entrepreneurship

Innovation Clusters is an important and fascinating topic among academics and policymakers interested in fostering entrepreneurship.  The International Center for Growth-Oriented Entrepreneurship has prepared a chapter on Innovation Clusters that is available for download here.  To learn a little more, see the Center's post on LinkedIn Pulse.

 

12
Nov

Business Strategies for Fast-Growth Small Firms

Storey reviewed and analyzed a dozen studies of “growing small firms” conducted during the late 1980s and 1990s to identify which specific elements of business strategy were most characteristic of a fast-growth small firm, with the criterion for growth generally being an increase in employment.  The researchers focused on thirteen elements and found that only the following four stood out as having a demonstrably strong positive relationship to growth: 

  • External equity ownership:  Entrepreneurs who shared equity ownership with external individuals and/or organizations were more likely to see their firms achieve rapid growth.  A number of small business owners are reluctant to share equity for fear of diluting their control and limit their external financing to short-term debt from banks and other financial institutions, strategies that limit the resources available as a foundation for growth and access to advice and contacts of outside investors.
  • Market positioning:  Faster growth was found among small firms who made a conscious choice to concentrate their efforts on specific niches or segments in which they were best positioned to leverage and exploit their core competencies and competitive advantage.  Generally such firms had an advantage with respect to quality and technological sophistication; however, Storey pointed out that it was difficult to identify a particular niche strategy that was most successful and that firms may position themselves in a number of different ways (i.e., quality, price etc.).
  • New product introduction:  Consistent with the importance of market positioning (i.e., identifying and exploiting a particular niche), the fastest growing firms tended to be those who were willing and able to introduce new products, preferably products that reflected some level of genuine, rather than “mundane”, innovation (i.e., products that were wholly new as opposed to products that were new to the firm but already well-known in the marketplace in which the firm was competing). 
  • Recruitment of non-founder managers: Entrepreneurs who were willing to recruit non-founder managers and delegate authority to those managers saw their businesses achieve more rapid rates of growth.  Expanding the management team and delegation was seen as necessary for entrepreneurs to cope with the increased complexity of decision making that accompanies growth and failure of the entrepreneur to reach out to others was likely to result in missed opportunities that would eventually stymie growth.  However, Storey noted that further research was needed on the best methods for selecting, motivating and retaining such individuals and creating a strong management team (e.g., what disciplinary or functional specializations are most necessary for growth; what are the preferred experiences and backgrounds; should management recruitment occur internally or externally and, if externally, from what types of firms).

Among the other elements of business strategy that were found to either not have a significant influence on growth or to have a negative relationship to growth were workforce training, management training, technological sophistication, use of “formal” strategic planning, state support, customer concentration (i.e., dependence on a single customer or a narrow customer case, the nature and/or intensity of competition, the collection and use of information and advice provided by private sector sources (i.e., attorneys, accountants, banks, consultants etc.) and the level of reliance on exporting activities.  Storey cautioned, however, that all of these elements were relevant to some aspect of the evolution of the firms that were part of the various studies.  For example, while workforce training did not appear to have an impact on the initial growth of firms, even among those who perceived their “skill base” as a competitive advantage, training become more important as firms successfully achieved their initial growth targets and sought to establish stability and continuity as larger companies.  Similarly, while the evidence was unclear to whether fast-growing firms were actually devising and implementing more sophisticated planning processes, it could be expected that once formal planning would increase as firm attained greater size and formality.   Finally, while there was no clear evidence that access to outside advice caused growth, the information from the studies confirmed that fast-growing firms were more likely to tap into information and experience available from private sector advisers.

Storey also reported the results of a survey conducted by the Cambridge Small Business Research Centre in the early 1990s that assessed constraints on the ability of fast-growth small firms to meet their business objectives.  According to that survey the biggest challenges were the availability and costs of finance for expansion and overdraft facilities and access to management and marketing/sales skills.  Overall growth of market demand and increasing competition, while problematic for small firms that were stable or in decline, demanded less attention from the leaders of fast-growth firms than the issues mentioned above.  Another survey showed that as fast-growth firms matured they began to change the mix of elements in their strategies.  For example, while initial growth may have come from introduction of new products, further expansion was often driven by building on the original product base by identifying new markets in which to exploit existing products.  Exporting also became a more important part of firm strategy as companies completed their initial growth phases.

Sources: D. Storey, Understanding the Small Business Sector (London: Chapman and Hall, 1994), 144-156; The State of British Enterprise: Growth, innovation and competitive advantage in small and medium sized firms (Cambridge: Small Business Research Centre, Department of Applied Economics, University of Cambridge, 1992); and D. Smallbone, D. North and R. Leigh, "Growth Characteristics of Mature Small and Medium Sized Manufacturing Enterprises" in M. Robertson, E. Chell and C. Mason (Eds.), Towards the 21st Century: the Challenge for Small Business (Manchester, UK: Nadamal Books, 1992).

28
Sep

Project Management Tips for Launching a Startup

The goal of growth-oriented entrepreneurs is, or should be, the creation of a sustainable business that will survive, thrive and grow.  However, the reality is that the first few weeks and months often look more like an intense project management exercise focused on getting things up and running smoothly, getting a viable initial version of the product or service out the door and laying the foundation for the next step.  Acknowledging this means that some of the following “project management tips for launching a startup” offered by Rocheleau, originally intended for web designers but applicable to many other types of startups, can be extremely practical and valuable: 

  • There will always seem to be more things to do than there are resources and time to do them and this means that special care must be taken to select the essential tasks that need to be completed before venturing into other areas.
  • While creating a detailed business plan may be difficult at the startup stage, entrepreneurs must nonetheless invest adequate time and effort into identifying a target market share and setting some solid goals with respect to what the business hopes to achieve during the startup phase.
  • Set aside time to engage in marketing and branding every day from the very beginning including a concerted effort to find where prospective customers congregate in the online world and spreading the word about the company’s new product or service.  Don’t wait for them to find you—go out and grab their attention and curiosity.  Make sure that a healthy balance is struck between “nitty gritty” development work and outreach into the customer community.
  • While many companies swear by just getting the product “out there” and then relying on customers to help with fixes, the better course is often to be sure that every step of the development process is 100% focused on making sure that fundamental features are done well and provide immediate value without the customer having to wait for a subsequent version.  At the same time, care must be taken not to get bogged down in minor pieces of the new product that will take a long time to “get right” and don’t really have a large impact on the customer experience.
  • All products and services, regardless of complexity, begin with small and manageable pieces.  Prior to launching the new company, sit down and collect all the ideas regarding possible features and make sure they are recorded somewhere for easy access.  Then, select a handful of the most important and start with those, making sure they can be completed in a relatively short time frame to keep momentum going.  In other words, strive to do what Rocheleau referred to as "breaking down larger ideas" and remember that if a reasonable timetable for completing a feature is more than a week or 10 days it might be a good idea to take a closer look to see if the team is being asked to do too much.
  • Before things get started try and put together a competent team that can work together smoothly to accelerate the completion of all the initial steps mentioned above.  This will save time and facilitate scaling of the business; however, in order to for all this to work the founders need to understand and apply best practices for team management.
  • In addition to focusing on the initial development activities and marketing and branding, growth-oriented entrepreneurs need to keep an eye on where they want the company to be 12 to 24 months down the road and establish plateaus that represent validation of the development efforts and acceptance in the marketplace and stable launching pads for the next phase of growth.  While “stability” seems at odds with “disruption”, startups that can get to a point where they can “catch their breath” will have a much greater chance at achieving long-term success.
  • As mentioned above, offerings to customers should be complete and as close to “bug free” as possible; however, achieving those goals should not derail the company from working in quick development phases that get the offerings out into the market so that badly needed feedback can be gather quickly and changes in course can be made before too much time, capital and enthusiasm is wasted.  As long as the offering has a solid set of core features, customers will generally take the time to contribute ideas and thoughtful criticism that they hope will lead to a new version that will be even more useful.  Be sure to supplement the data you collect from your own users with research on how the market seemed to receive similar features from other firms.  It makes sense to try and learn from the mistakes of others.

Source: J. Rocheleau, “Project Management Tips for Launching a Startup”, Web Design Ledger (blog), August 1, 2012, http://webdesignledger.com/tips/project-management-tips-for-launching-a-startup [accessed July 3, 2015].

 

 

 

14
Sep

Work-Life Balance Programs: Challenges and Opportunities

In an op-ed article appearing in The New York Times in August 2015 Weisberg discussed a “new raft of ‘perks’” announced with great fanfare by private equity firms and well-known businesses such as IBM, Facebook and Apple that have been framed as an effort to accommodate the needs of working mothers and women who want to be mothers and maintain their fast-paced career paths.  Working women with newborns now have opportunities to have their companies pay for both their baby and a nanny to tag along on business trips during the first year after the baby is born and companies are also willing to ship home breast milk pumped on a work-related junket.  Companies have also implemented programs for reimbursement of costs incurred by employees who want to freeze their eggs so that they concentrate on their jobs but keep open the option of getting pregnant in the future.

While Weisberg conceded that progress has been made on providing support for working mothers, she pointed out that while most married workers are dual-income couples, a majority of business leaders, about 80% of whom are men, are not significantly involved in providing care for their children and are able to rely on spouses who do not work full-time outside of the house.  Weisberg argued that this situation makes it difficult for male business leaders to understand the multiple roles that most of their employees, particularly women, have to fill it they want to have and support a family and advance and thrive in their careers.  Research showing that giving power to people reduces their ability to appreciate the perspective of others only exacerbates the problem.

Weisberg described several surveys that illustrate the challenges associated with effectively implementing work-life balance policies.  For example, a survey of over 1,000 men and women in various stages of their careers conducted by Bain & Company uncovered “a deeply ingrained ‘ideal worker’ model” in which the most important characteristics for promotion were “maintaining a high profile in the organization, and an unwavering commitment to long hours and constant work.”  As for stubborn adherence to traditional gender roles, while 51% of the respondents in a Pew research survey believed that children were better off if their mother stayed home to care for them, just 8% of the respondents said that children would be better off if their fathers stayed home.  Another study of close to 1,000 male managers found that “men in traditional marriages are more likely to have negative attitudes toward women in the workplace” than men in dual-income marriages and rely on their own personal beliefs and marriage structures when they evaluate work-life policies in the workplace.

The bottom line for Weisberg, a senior vice president of the Families and Work Institute at the time the article was written, was that the perks described above were not enough to achieve the work-life balance eluding many women and men in the workplace and that leaders needed to embrace and publicly practice a new set of behaviors that break down the long-standing ideal worker paradigm and empowers people at all levels of the organizational hierarchy to get their work done effectively, remain on their chosen career paths, and confidently step away from their jobs at a reasonable time without guilt or angst to be meaningfully and fully present for their families.

Many companies have adopted work-life policies that are less dramatic than paying for traveling nannies and storing eggs: flextime, telecommuting and other types of working remotely flexibility, paid leaves for parents of newborns, job switching flexibility and childcare subsidies.  These are certainly positive steps and a global study of management practices and work-life balance practices involving 732 medium-sized manufacturing firms in the US, France, Germany and the UK found that the best managed firms tended to also have the most progressive work-life policies.  While the same study failed to uncover a positive correlation between implementation of such policies and high productivity after adjusting for quality of management, other surveys have provided support for the proposition that businesses that are able to effectively address and management work-life balance issues will see significant increases in productivity among their workers. 

Weisberg is one of many who continue to push for changes in organizational culture so that work-life balance coupled with unfettered access to advancement opportunities is embedded among the values and norms of the organization and its members.  In many cases, adoption of work-life policies is a response to employee requests or an attempt to remediate problems that have already arisen due to challenges that employees have encountered juggling their personal and professional lives.  Rather than being reactive, companies should proactively implement reasonable work-life policies that are responsive to the specific needs of their target human resources pool.  The best way to approach this is for the founders of the company to explicitly focus on the type of experience they want workers with families, both women and men, to have if they choose to come to work for the company.  This means going beyond the usual elements of the employment relationship—salaries, bonuses, insurance benefits, stock options—to consider the full palette of professional and personal needs of the employee. 

Founders should consider that surveys have consistently shown that employees attach great importance to work-life balance, second only to compensation, and that one in five workers would be willing to give up 5% of their salary in exchange for the flexibility to work offsite one or two days a week.  Another important factor to consider is that companies that have embraced work-life balance policies have enjoyed higher levels of employee satisfaction and retention, bringing stability to the workplace and allowing firms to retain valuable employees who have built up firm-specific knowledge and experience that would be difficult and expensive to replace.  Work-life policies are a natural extension of very real values with an organizational culture—a sense of familial connection in the workplace, loyalty and mutual respect and understanding—and thus must and should be nurtured from the day that the company is launched.

Sources and other resources for this article included A. Weisberg, “What Flying Nannies Won’t Fix”, The New York Times (August 24, 2015); N. Bloom, T. Kretschmer and J. Van Reenen, “Work-Life Balance, Management Practices and Productivity” (April 2006); Work-Life Balance Programs Benefit Employers and Employees; and The Society of Human Resource Management, Workplace Flexibility in the 21st Century (2008).  Further information on human resources management is available from the Growth-Oriented Entrepreneurship Project and those interested in receiving regular updates on topics of interest to growth-oriented entrepreneurs are welcome to send a connection request to the author.

13
Aug

New Chapter on Leadership Styles & Practices in Business Transactions Solution

Leadership is a universal phenomenon that has preoccupied scholars, politicians and others for centuries.  In the management context leadership has been consistently identified as playing a critical role in the success or failure of organizations and some surveys have pegged up to 45% of an organization’s performance on the quality and effectiveness of its leadership team. Apart from organizational performance, researchers have consistently found a strong correlation between leadership styles and behaviors and the job satisfaction and performance of subordinates. 

In practice, leadership is more than just personal traits and attributes or issuing directives from a list and, in fact, the reality is that leaders must be able to mix creative visioning with the often difficult and time-consuming tasks that must be completed to engage followers and enlist their support to move their organizations, and themselves, through turbulent changes.  Practicing leadership begins by recognizing that four primary factors must be considered: the “leader”, who must understand who he or she is and what he or she knows and realize that his or her success is dependent on the leader’s ability to build trust and confidence among the followers and convince them to follow the leader’s directives; the “followers”, who all have their own needs and require different styles of leadership that can only be identified if a leader is attuned to understanding human nature and the factors behind the needs, emotions and motivations of the followers; the form and content of “communications” between the leader and his or her followers, which is interactive (i.e., two-way), frequently non-verbal and central to the development and maintenance of effective relationships; and the “situation” or “context”, which determines the actions that should be taken by the leader and the style that the leader should employ.

Each of these factors is subject to a variety of forces that may impact the choices that a leader makes regarding his or her behaviors.  For example, while the idea that a person must have certain inherited traits in order to be a leader has fallen into disrepute, the personality characteristics of the leader will invariably come into play as he or she assesses problems and opportunities and decides what steps need to be taken in working with followers.  Other forces that will likely be relevant include the skills and experiences of the followers and how they interact with one another; the history, internal culture and structure of the organization; the societal culture in which the organization operates; and competitive conditions, particularly the strategies being used by peer organizations to motivate their employees.  Leaders must approach these factors, and the forces that influence them, with a solid analytical framework that can be referenced from time-to-time to ensure that they are paying attention to the things that really matter.  A framework suggested by surveying the literature on leadership might include several elements: the requisite “skill set”, which should be constructed and nurtured by reference to the appropriate performance imperatives for executive leadership; the roles and activities expected from an effective leader; personality traits and attributes which can be learned and perfected by persons aspiring to leadership positions; and styles of leadership, which encompass the strategies used by leaders to engage with their followers. 

This month we've added a new chapter to Business Transactions Solution (§§ 23:1 et seq.) that will provide lawyers with an introduction to definitions and conceptions of leadership and a basic understanding of leadership functions and activities, leadership traits and attributes, leadership styles and performance imperatives for organizational leaders. The chapter also covers the history and evolution of leadership studies, cross-cultural leadership studies and leadership practices and styles in developing countries.  The chapter includes checklists performance imperatives for organizational leaders, core leadership roles and activities, functions and activities of transformational leaders and leadership traits and attributes.  The chapter also includes a slide deck presentation on leadership to be used for law firm training purposes and several guides relating to various aspects of practicing leadership from the Business Counselor's Mini-MBA Program. 

10
Aug

Must-Have Skills for a Startup CEO

Writing for Forbes, Deeb argued that being a “startup CEO” was one of the hardest jobs in the business world given the wide range of skills that were needed in order to be successful and the enormous odds against the new company surviving, and the lack of resources relative to a CEO at a Fortune 500 company.  He noted that there is no universal profile for “the best startup CEO” and that people differ in terms of skills, style and personality and companies face different challenges with respect to market conditions; however, in his view there were a handful of “must-have” skills for increasing the chances of being a successful startup CEO that included the following:

  • “A clear vision of where the ship is sailing”, which means the ability to articulate and execute a plan for creating a unique and competitive solution to a real world problem for potential customers
  • “A finger on the pulse of the industry and competitive trends”, which involves staying on top of trends and collecting information that can be used to steer the company in the direction it needs to stay afloat once the journey has been launched
  • “Solid team management skills to keep all employees sailing in the same direction”, which includes articulating the vision to employees, building a consensus for the vision among employees and listening to and implementing ideas from employees about how to improve and achieve the vision
  • “Impeccable sales and motivational skills, while maintaining credibility with clients, investors and employees”, which means acting as the “Chief Evangelist” for the new business and generating excitement for the vision while simultaneously demonstrating business judgment, intelligence and credibility
  • “Keep the business on plan and budget”, which involves setting and pursuing “achievable proof-of-concept points”, creating strategies for the key drivers of success and putting the right people in place to manage them and relentless tracking progress to spot and address problems quickly
  • “Keep the company liquid”, which starts with setting the right proof-of-concept points and then establishing a reasonable timetable to achieve those points and making sure that the company has enough capital, including a cushion, to achieve those goals 

Deeb’s suggestions obviously overlap and the startup CEO has to keep each of them in mind as he or she runs the business and interacts with employees, customers and investors.  For example, as a practical matter the most important concern of the CEO at the beginning is to “keep the company liquid and in business” and the best way to do this is to be sure that the launch phase business plan is focused on attainment of proof-of-concept points that prospective investors have accepted as reasonable triggers for providing additional funding.  At the same time, when budgeting for the pursuit of the initial goals the CEO must be realistic and anticipate the problems will inevitably arise as they usually do for startups.  This means that the CEO must have a “Plan B” in mind and must be prepared to make difficult decisions, including salary reductions and even layoffs, in order to keep the company going long enough to find smoother waters.

Source: G. Deeb, “The 6 Must-Have Skills For A Startup CEO”, Forbes (February 12, 2014),  [accessed June 24, 2015] 

13
Jul

Are Business Plans Relics of the Old Economy? Don’t Jump to Conclusions

An article in The New York Times in late 2014 examined the trendy premise that business plans are “an old economy relic” and that because business is moving faster than it was a decade ago entrepreneurs are dispensing with plans, going straight to market with their new product or service and then using feedback from customers to chart their next moves.  Apparently the justification for this approach is that entrepreneurs don’t have enough information to prepare a plan; however, this misses many of the key advantages associated with taking a little time to think beyond the present moment.  Another reason that some entrepreneurs in the tech industry aren’t interested in a voluminous business plan is that their main goal is developing a new app goes viral and gets them acquired and hired by a larger and more established company.  In that situation, the relevant issue really boils down to project management and an intense marketing blitz.

The article begins with the story of an entrepreneur who found that all the hours that she’d spent on her business plan got her nowhere when she couldn’t land the location she was hoping for.  The experience caused her to swear off ever doing the same thing again in terms of business plan preparation; however, when a different opportunity came up a year later she found that the work previously done was invaluable as a starting point for selecting and building a brand for her new venture and provided a foundation for e-mail contact platforms, loyalty programs, customer-management strategies and social media promotions.  The article provided several other nuggets about the planning process that should give growth-oriented entrepreneurs pause before “winging it”: 

  • View the planning exercise as an opportunity to think through various scenarios that might play out after you have taken the initial step.  As noted in the article, planning allows you to “make your mistakes on paper, rather than in real life”.
  • Even when you believe that the market will guide you if you can only get that product or service into the hands of customers, you need to have some general idea about basic business life-and-death issues such as revenues, pricing and the initial target market.
  • Planning is what’s most important, not necessary the plan itself, and entrepreneurs need to establish priorities—figure out the most important thing they need to do next—and focus on action steps for those priorities.  The planning process is also the best time to take a hard look at what might not be working so that scarce resources are not wasted.
  • Even if you aggressively move into the market, treasure the feedback you get from initial customers and use it as a basis for gaining a solid understanding of how those customers see your product or service.  This will allow you make changes to improve the customer experience and demonstrate to investors and other business partners that you have a grasp of how the market works.

The article noted that the format of business plans has shifted from the thick binders to short videos or slide decks; however, this has not changed the need for entrepreneurs to be able to provide the important metrics of the proposed business and explain in detail the assumptions they have relied upon in deciding to press forward.

Source:  E. Zimmerman, “As Start-Up Strategies Evolve, So Does the Role of a Business Plan”, The New York Times (December 4, 2014), B6.  Resources referred to in the article include B. Cooper, P. Vlaskovits and E. Ries, The Lean Entrepreneur: How Visionaries Create Products, Innovate with New Ventures, and Disrupt Markets (New York: Wiley, 2013); and R. Abrams, Successful Business Plan: Secrets and Strategies (6th Ed) (Palo Alto: PlanningShop, 2014).

15
Jun

Vetting & Selecting a Trusted Business Counselor

While it is understandable that entrepreneurs are primarily focused on identifying and developing their ideas for a new product or service, eventually it becomes necessary to nestle those ideas inside a legal entity that will serve as the structure for launching a new business.  While entrepreneurs are often put off by the notion of having to deal with attorneys and “legal stuff”, those who are committed to building a sustainable company realize that finding and engaging an experienced, thoughtful and creative legal adviser is extremely important.

Many entrepreneurs rely heavily on suggestions of their peers for recommendations of prospective lawyers and the experiences of colleagues can certainly provide useful information.  However, forming a strong and reliable team of professional advisers is so “mission critical” that entrepreneurs should settle on a process to follow that covers several key features: identifying and understanding the legal advice that the entrepreneur will need during the launch phase; orderly exchange of information between the entrepreneur and the prospective attorney to determine the quality of fit and sketch out the scope of the initial activities and projects if the engagement moves forward; several conversations between the parties to assess “personal chemistry” and the ability and willingness of the attorney and his or her firm to take on the engagement and structure the relationship in a way that fits the entrepreneur’s financial situation; and negotiation of formal engagement letter that lays out the scope and terms of the attorney-client relationship.  If the business involves multiple founders, the attorney should be able to counsel the group on prospective conflicts of interest to ensure that the specific needs and expectations of each founder are taken into account upon formation and organization of the new business.  Finally, the entrepreneur should get a sense of how the attorney intends to build and manage the attorney-client relationship and grow to become a trusted business counselor of the entrepreneur.

The Growth-Oriented Entrepreneurship Project (www.growthentrepreneurship.org) has put together a toolkit that entrepreneurs can use to intelligently navigate the process of vetting and selecting trusted business counselors.

 

18
May

Entrepreneurship in Vietnam

Entrepreneurship is an exciting and dynamic factor in Vietnam and this report provides an introduction to some of the drivers of entrepreneurial activity in that rapidly growing economy, including the influence of cultural and socioeconomic factors and the role of the State with respect to supporting and encouraging entrepreneurism.