2Figure 13.1 - Growth Strategies Based upon Knowledge of Product and/or Market
3Growth Strategies Penetration Strategy A strategy to grow by encouraging existing customers to buy more of the firm’s current products.Marketing can be effective in encouraging frequent repeat purchases.Does not involve anything new for the firm.Relies on taking market share from competitors and/or expanding the size of the existing market.
4Growth Strategies (cont.) Market Development StrategiesStrategy to grow by selling the firm’s existing products to new groups of customers.New geographical market - Selling in new locations.New demographic market - Selling to a different demographic group.New product use - Selling an existing product, which may have a new use, to new groups of buyers.
5Growth Strategies (cont.) Product Development StrategiesA strategy to grow by developing and selling new products to people who are already purchasing the firm’s existing products.Provides opportunities to capitalize on existing distribution systems and on the corporate reputation the firm has with these customers.
6Growth Strategies (cont.) Diversification StrategiesA strategy to grow by selling a new product to a new market.Backward integration - A step back (up) in the value-added chain toward the raw materials.Forward integration - A step forward (down) in the value-added chain toward the customers.Horizontal integration - Occurs at the same level of the value-added chain but simply involves a different, but complementary, value-added chain.
7Figure 13.2 - Example of a Value-Added Chain and Types of Related Diversification
8Growth Strategies (cont.) Example of Growth StrategiesCase: Early days of the Head Ski Company; only produced and sold high-tech skis in the U.S. market.Penetration strategy - Increase in marketing budget focused on encouraging existing customers to “upgrade” their skis more often.Market development strategy - Selling skis in Europe, Argentina, and New Zealand.
9Growth Strategies (cont.) Product development strategy - Develop and sell new productsDiversification strategiesBackward integration - Design and manufacture of equipment used to make skis.Forward integration - Control of a chain of retail ski shops.Horizontal integration - Ownership of ski mountains.
10Figure 13. 3 - A Follow-Up of Inc Figure A Follow-Up of Inc. Magazine’s 1984 Fastest-Growing Ventures
11Implications of Growth for the Firm Pressures on Existing Financial ResourcesFirm’s resources can become stretched quite thin.Pressures on Human ResourcesProblems of employee morale, employee burn out, and an increase in employee turnover.
12Implications of Growth for the Firm Pressures on the Management of EmployeesMay require change in management style and in dealing with employees.Pressures on Entrepreneur’s TimeDiverting time to several activities can cause problems.
13Overcoming Pressures on Existing Financial Resources To overcome pressures, the entrepreneur could acquire new resources.The acquisition of new resources is expensive, whether in terms of the equity sold or the interest payments from debt.The need or the magnitude of the new resources required can be reduced through better management of existing resources.
14Financial Control Managing Cash Flow The entrepreneur should have an up-to-date assessment of the cash position.A daily cash sheet would provide an effective indication of any daily shortfall and of problems or errors that might have occurred.Compare budgeted or expected cash flows with actual cash flows.
15Financial Control (cont.) Managing InventoryPerpetual inventory systems can be structured using computers or a manual system.To check the inventory balance, it may be necessary to physically count inventory periodically.Link the needs of a retailer with the wholesaler and producer allowing for a fast order entry and response.Transport mode selection can also be important.
16Financial Control (cont.) Managing Fixed AssetsGenerally involve long-term commitments and large investments for the new venture.Equipment will require servicing and insurance and affect utility costs; will also depreciate over time.Leasing can be an alternative to buying depending on:Terms of the lease.Type of asset.Usage demand.Lease payments can be used as a tax deduction.
17Financial Control (cont.) Managing Costs and ProfitsCompute net income for interim periods during the year.Assess each item to determine cost reduction.Consider raising prices to ensure positive profits.Compare current actual costs with prior incurred costs.Allocate expenses as effectively as possible, by product.Avoid arbitrary cost allocation.
18Financial Control (cont.) TaxesWithhold federal and state taxes for employees.Pay a number of taxes (state and federal unemployment taxes and business taxes).Allocate taxes as part of any budget.File end-of-year returns of the business.Consider use of a tax accountant.
19Financial Control (cont.) Record KeepingIt is helpful to consider using a software package.It may be necessary to enlist the support and services of an accountant/ consultant.It is important to use a system for storing and using customer information.Build organizational knowledge to reduce dependency on any one individual.
20Overcoming Pressures on Existing Human Resource Some entrepreneurs are using professional employer organizations (PEOs) for various HR activities.Decisions regarding the proportion of permanent and part time employees should be made; involves several trade-offs.Give employees regular feedback; identify problems along with a proposed solution.Maintain the corporate culture despite the influx of new employees.
21Overcoming Pressures on Existing Human Resource (cont.) Activities to institute a more participative style of management:Establish a team spirit.Communicate with employees.Provide feedback.Delegate some responsibility to employees.Provide continuous training for employees.
22Overcoming Pressures on Existing Human Resource (cont.) Benefits of effectively managing time:Increased productivity.Increased job satisfaction.Improved interpersonal relationships.Reduced time anxiety and tension.Better health.
23Overcoming Pressures on Existing Human Resource (cont.) Basic Principles of Time ManagementPrinciple of desire - A recognition of the need to change personal attitudes and habits regarding the allocation of time.Principle of effectiveness - A focus on the most important issues.Principle of analysis - Understanding how time is currently being allocated, and where it is being inefficiently invested.
24Overcoming Pressures on Existing Human Resource (cont.) Principle of teamwork - Acknowledgment that only a small amount of time is actually under one’s control and that most of one’s time is taken up by others.Principle of prioritized planning - Categorization of tasks by their degree of importance and then the allocation of time to tasks based on this categorization.Principle of reanalysis - Periodic review of one’s time management process.
25Figure 13.4 - Four Types of Entrepreneurs and Firm Growth