1. MGT 710 Managing Entrepreneurial Organizations Steven E. Phelan

2. Overview of Tonight Pedagogy Syllabus Review Team Assignment Discuss team charter and client acquisition strategy Lecture on Growth Lecture on Consulting Models Consulting skills (Diagnosing with financials) Z scores Financial benchmarking (guest Debra Scanlan, NSBDC)

3. Pedagogy

4. Syllabus Assessment Weekly Deliverables (50%) Diagnosis Presentation (10%) Analysis Presentation (10%) Personal Log (20%) Client Satisfaction (10%) See BB for deadlines and grades

5. Team Formation Teams and assignments have been pre- assigned Team change requires agreement from both teams Team charter What will be each member's responsibility as far as coming prepared to class and meeting as well as doing assigned work? What will be the rules for resolving conflict or differences? How will members stay in touch with each other? Who will do the work?

6. Client Acquisition Strategy Some are ultimately responsible for finding your own client (5-50 employees, >$3m rev) What are you selling, who are you targeting? The NSBDC has agreed to email its clients to offer your services if you require This needs to be coordinated as a class A draft of the email needs to be sent to me for approval and then to Lisa Chan (lisa.chan@unlv.edu) You need to highlight the offering and the process

7. THE CHALLENGES OF GROWTH Managing Entrepreneurial Organizations

8. Under Rapid Growth... Entrepreneurs face: Challenges Pressure Physical wear and tear Emotional wear and tear A possible business harvest

9. Entrepreneurial Leadership and Organization Flat, flexible, think/act like an owner (ego?) Stepwise and disruptive change Fearless, relentless experimentation Specialize in new mistakes Opportunity obsessed Frontline, customer driven, niche markets Creativity – capital Resource frugality and parsimony Systems and nonlinear Global perspective Create and share the wealth People want to be led, not managed Manage risk, reward and fit.

10. Traditional General Management Pyramidal/hierarchical Incremental improvement Risk avoidance/embrace stability Avoid and punish failure Resource allocation, budget driven Central command and control Resource optimization Cost oriented Linear, sequential Local focus Compensate and reward Manage and control Zero defects/error free Economies of scale

11. Growth Stages

12. Greiner (1972)

13. 1.Creativity The birth stage of an organization. The founders are usually technically or entrepreneurially oriented. Communication is frequent and informal. Long hours of work are rewarded with modest salaries and the promise of ownership benefits. Decisions and motivations are highly sensitive to market feedback.

14. 1. Creativity (cont.) Eventual Problems: Informal communication becomes infeasible. Additional functions must be implemented. *The first critical decision in an organizations development is to locate and install a strong business manager. Drucker maintains that managers must fight urge to resist change.

15. 2. Direction Functional organizational structure. Different departments are designed. Formal communication results as hierarchy and employees increase. Increased efficiency. Systems need to be set up for inventory control, accounting, order processing

16. 2. Direction(cont.) Eventual Problems: “Crisis of Autonomy.” Impersonal environment. Lower-level employees often possess more knowledge about markets and machinery than management. *The next decision for management is decentralization. Once again, managers have difficulty relinquishing authority.

17. Issues Leading to Possible Crises Opportunity overload Choosing from among an abundance of sales or new market opportunity Abundance of capital Evaluating investors as “partners” and the terms of deals with which they were presented Misalignment of cash burn and collection rates Cash burn rates racing ahead of collections

18. Working Capital Gap

19. Issues Leading to Possible Crises Decision making Executing functional day-to-day and week-to-week decisions, rather than strategizing Expanding facilities and space... and surprises Coping with surprises, delays, organizational difficulties, and system interruptions spawned by space or facility expansion

20. External Causes for Failure Recession Interest rate changes Changes in government policy Inflation The entry of new competition Industry/product obsolescence

21. Internal Causes for Failure Inattention to strategic issues Misunderstood market niche Mismanaged relationships with suppliers and customers Diversification into an unrelated business area Mousetrap myopia The big project Lack of contingency planning

22. Internal Causes for Failure General management problems Lack of management skills, experience, and know- how Weak finance function Turnover in key management personnel Big-company influence in accounting

23. Internal Causes for Failure Poor planning, financial/accounting systems, practices, and controls Poor pricing, overextension of credit, and excessive leverage Lack of cash budgets/projections Poor management reporting Lack of standard costing Poorly understood cost behavior

24. Nonquantitative Signals of Trouble Inability to produce financial statements on time Changes in behavior of the lead entrepreneur Change in management or advisors, such as directors, accountants, or other professional advisors Accountant’s opinion that is qualified and not certified

25. Nonquantitative Signals of Trouble New competition Launching of a “big project” Lower research and development expenditures Special write-offs of assets and/or addition of “new” liabilities Reduction of credit line

26. Telltale Trends of Organizations in Trouble Ignore outside advice People (including and usual, most especially, the entrepreneur) have stopped making decisions and also have stopped answering the phone Nobody in authority has talked to the employees Rumors are flying

27. Telltale Trends of Organizations in Trouble Inventory is out of balance Accounts receivable aging is increasing Customers are becoming afraid of new commitments A general malaise has settled in while a still high- stressed environment exists (an unusual combination)

28. Turning Around a Troubled Company Diagnosis of the problem Strategic analysis Management analysis Cash flow analysis

29. Cash Flow Analysis Steps in identifying and quantifying the profitable core of the business Determine available cash Determine where money is going Calculate percent-of-sales ratios for different areas of a business and then analyze trends in costs Reconstruct the business Determine differences

30. Potential Cuts/Improvements Most common areas for potential cuts/improvements Working capital management Payroll Overcapacity and underutilized assets

31. Longer-Term Remedial Action Systems and procedures Asset plays Creative solutions

32. CONSULTING MODELS

33. Consulting Models

34. Peter Block “Flawless Consulting” Two aspects of implementation The technical work (the tangible) Technical changes, work processes, structure The question of building support for the change you are planning (the intangible) Relationships, faith, commitment The secondary goal of consulting: Teach clients how to solve the problem themselves next time Risk of being surrogate manager not consultant

35. Block ctd. Building emotional commitment: Design new ways for people to engage each other Balance between presentation & participation Full disclosure & public expression of doubt Real choice on the table New conversations A physical structure that supports community and common purpose

36. Block’s Values Choose learning over teaching See learning as a social adventure Know the struggle is the solution See the question as more important than the answer Mine moments of tension for insight Focus on strengths rather than deficiencies Take responsibility for one another’s learning Let each moment be an example of the destination Include ourselves as learners Be authentic

37. Covey’s Seven Habits Dependence to Independence (Self-Mastery) Habit 1: Be Proactive: Principles of Personal Choice Habit 2: Begin with the End in Mind: Principles of Personal Vision Habit 3: Put First Things First: Principles of Integrity & Execution Independence to Interdependence Habit 4: Think Win/Win: Principles of Mutual Benefit Habit 5: Seek First to Understand, Then to be Understood: Principles of Mutual Understanding Habit 6: Synergize: Principles of Creative Cooperation Continual Improvement Habit 7: Sharpen the Saw: Principles of Balanced Self-Renewal

38. Weiss “Ultimate Consultant” Problems in small business consulting The owner thinks he or she knows it all Money is always a problem – coming straight out of owner’s pocket The problem is often the owner (or a family member) Decisions will be influenced by non-business members Things can change quickly Nothing happens without the owner’s blessing (which can be a curse)

39. Ultimate Rules (Weiss) Relationship is even more important in small business market – no owner support = failure Scope creep and small “favors” are common. Guard against them like a junkyard dog. Your ultimate job is to improve your client’s condition – not protect your client’s feelings or yourself Small business has less margin for error. Keep the projects simple and focused. “The need to try something else” may be bankruptcy

40. CONSULTING TOOLS

41. Bankruptcy Rule

42. Altman Z-Model http://www.creditguru.com/CalcAltZ.shtml

43. Z-Model for Small Business http://www.bankruptcyaction.com/bankpred2.htm http://www.bankruptcyaction.com/bankpred2.htm An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction http://www.jstor.org/stable/2329929

44. FINANCIAL BENCHMARKING Debra Scanlan, NSBDC