CHAPTER 13
Preparing
for and Evaluating The Challanges of Growth
Most entrepreneurial firms wat 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 be succesful tomorrow.
This section focuses on three important things a business can do to prepare for
growth.
1. Appreciating thenature of business growth
Growing a business succesfully
requires peparation, good management, and an appreciation of the issues
involved. The following are issues about business growth that entrepreneurs
should appreciate. For example : Not all business have the potential to be
aggressive growth firms, a business can grow too fast, and business success
doesn’t always scale.
2. Staying ommitted to a core strategy
Is to stay commited to a core
strategy, which defines how it completes realtive to its rivals. A firm’s core
strategy i largely determined by its core
competencies, or what it does particularly well.
3. Planning ofor growth
Is to establish growth-related
plans. This task involves a firm thinking ahead and annticipating the type and
amount of growth it wants to achieve.
·
Reasons
for Growth
A firm’s pace of
growth is the rate at which it is growing on an annual basis. The six
primary reasons firm try to grow to increase their profitibality an valuation :
1.
Economic of
scale are generated when increasin production lowers the average cost of each
unit produced. Economies of scale can be created in service firms as well as
traditional manufacturing companies. Variable
costs are the cost a company incurs as it generates sales. Fixed costs are costs that a company incurs
whether it sells something or not.
2.
With Economic
of scope, the advantage a firm accrues comes through the scope (or range)
of a firm’s operations rather than from its scale of production.
3.
Market leadership
occurs when a firm holds the number one ot the number two poition in an
industry or niche market in terms of sales volume.
4. Influence, power, and survivability. Larger
business usually have more influence and power than smaller firms in regard to
setting standards for an industry, getting a “foot in the door” with major
customers and suppliers, and garnering prestige.
5. Need to accommodate the growth of key
customers. Sometimes firms are compelled to grow to accommodate the growth
of a key customer.
6. Ability to attrat and retain talented
employees is to attract and retain high-quality personel.
·
Knowing and
managing the stages of growth
1.
Introduction stage : start up phase
2.
Early growth stage : is generally
characterized by increasing sales and heightened complexity.
3.
Continuous growth stage : the need for structure
and more formal relationships.
4.
Maturity stage : when it growth slows.
5.
Decline stage : it i not inevitable that a business enter
the decline stage and either deteriorate or die.
- Basic model of firm growth
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