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Chapter 13. Preparing for and Evaluating the Challenges of Growth


Chapter 13. Preparing for and Evaluating the Challenges of Growth
·         Preparing for Growth
Most entrepreneurial firms want to grow, especially in the short term, growth in sales revenue is an important indicator of an entrepreneurial venture’s potential to survive today and successful tomorrow. These are 3 important things for a business to prepare for growth:
1.       Aprreciating the Nature of Business Growth
The first thing that a business can do to prepare for growth is to appreciate the nature of business growth. Sometimes businesses grow at a measured pace and then experience a sudden upswing in orders and have difficulty keeping up.
2.       Staying Committed to a Core Strategy
A firm’s core strategy is largely determined by its core competencies.
3.       Planning for Growth
A business owner should step back and measure the company’s growth plans against his or her personal goals and aspirations.

·         Reasons for Growth
Although sustained, profitable growth is almost always the result of deliberate intentions and careful planning, firms cannot always choose their pace of growth. These are 6 primary reasons firms try to grow to increase their profitability and valuation;
1.       Economies of scales
2.       Economies of scope
3.       Market leadership
4.       Influence, power, and survivability
5.       Need to accommodate the growth of key customers
6.       Ability to attract and retain talented employees

·         Challenges of Growth
There is a consistent set of challenges that affect all stages of a firm’s growth.
1.       Managerial Capacity
As the entrepreneurial venture grows, it encounters the dual challenges of adverse selection and moral hazard. The reality of the managerial capacity problem is one of the main reasons that entrepreneurs and managers worry so much about growth.
2.       Day-to-Day Challenges of Growing a Firm
There are 4 most common challenges of growing a firm;
a)       Cash Flow Management
Growth usually increases rather than decreases the challenges involved with cash flow management because an increase in sales means that more cash will be flowing into and out of the firm.
b)      Price Stability
The best thing for a small firm to compete head-to-head against a much larger rival is by serving a different market and by serving that market particularly well.
c)       Quality Control
One of the most difficult challenges that businesses encounter as they grow is maintaining high levels of quality and customer service.
d)      Capital Constraints
Although many businesses are started fairly inexpensively, the need for capital is typically the most prevalent in the early growth and continuous growth stages of the organizational life cycle.


Theodorus Tanusaputra
2201776804

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