Managing Small &

Medium Sized
Enterprises

Growing and Consolidating the Business

 Session Outline
• Assess strategies for monitoring the performance
of the business
• Debate different strategies for growth
• The process of growth
Case Study: a real
example
• The six key phases of company growth
• Financial growth, Strategic growth, Structural
growth and Organisational growth
• Defining consolidation
Case Study 2 – if time permits
The venture as a theatre for human growth

• Effective entrepreneurs never forget that their

businesses are not just mechanisms for creating
money, they are also ‘theatres’ in which
individuals play roles and live their lives
• The effective entrepreneur manages the venture
as a platform for social interaction and as a vehicle
for the self-development of the people within it
• This will be reflected in the
entrepreneur’s leadership and motivation
style and the organisational culture he or
she creates
As you assess your businesses consider these factors
 Controlling and Planning for Growth
• The desire for growth must be represented in
the control and planning procedures
• Growth will be reflected in a number of
decision- making themes:
 The desirability for growth must be explicit and shared.
 The direction for growth must be the subject
of consensus.
 The management of growth must be a central concern.
 The achievement of growth should be subject to
clear, unambiguous and accepted objectives

Steri + Activity; thinking about the business where you

currently work – is there a growth objective? Discussion
Growth as an objective
• Growth is an appropriate, ambitious,
but challenging objective for the
venture
• To be achieved it needs to be an explicit, well-
thought-out objective by the entrepreneur
and their supporters
• The challenges and rewards need to be understood
• There should be a strategy for expansion
Expansion Strategy
• Expansion requires resources
 The entrepreneur must be prepared to attract the
relevant resources into the venture and have plans
in place for their effective use
• There are risks associated with growth
 The entrepreneur needs to be aware of what the
risks may be and plan for these
 The process of growth
• The process is multi-faceted
• There are internal and external effects
• Four factors need to be considered:
1. Financial – the growth of the venture in terms of
income, expenditure profits and assets
2. Strategic – the growth of the venture in terms of its
strategy content and strategy processes
3. Structural – the growth of the venture in terms of its formal
structure and processes
4. Organisational – the growth of the venture in terms of
its human relationships and working culture.

Can you identify these in your business’s development?

Financial Growth
• Need for clear financial growth targets
• This helps set targets for managers and
manages expectations of investors
• Objectives might be set in the following terms:
• Growth in income
• Growth in expenditure
• Growth in profits
• Growth in assets
• Growth in market valuation

Did/Does your business have these? Should it have them?

Strategic Growth
• Strategic growth involves changes in both the
venture’s external relationships (through changes
in its strategy content) and its means of making
decisions (through changes in its strategy process)
• Growth in strategy content means growth of the
venture’s presence in its market through its occupancy
of product–market domains
• Growth in strategy process means changes in the way
in which the venture makes decisions, especially in the
degree to which the entrepreneur delegates decision-
making responsibilities within the organisation
Structural Growth
• Structural growth relates to the formal
structures, systems and procedures the venture
adopts
• Five contingencies linked to growth will
influence these:
1. The size of the venture, e.g. Number employed
2. The operational technology the venture is based on
3. The competitive strategy
4. The competitive environment
5. the entrepreneur’s leadership style, power
and organisational politics
Organisational Growth
• As the venture grows, more people will become
involved with it. This presents the opportunity
to gain efficiency by differentiating and
specialising roles
• The way this role specialisation, at both a formal
and an informal level, occurs is reflected in the
structure and processes adopted by the
business
• At a fundamental level, the structure and
processes exist to gain resources for the venture
Case Study
Case Study 1
• 123 Accounting has been trading for 15 years and
despite having what used to be a relatively steady
customer base the business has not grown at the
rate the owner had anticipated. Read the
following case study and try and determine the
constraints on growth that the business is facing.
 The six key phases of company growth

1. Stage 1: concept/existence eg femeda

2. Stage 2: survival eg mobilis
3. Stage 3: profitability and stabilisation
4. Stage 4: profitability and growth
5. Stage 5: take off
6. Stage 6: Maturity

Lets walk through these stages….

The six key phases of company growth

Stage I: Concept/existence
• Can we get enough customers, deliver our
products and provide services well enough to
become a viable business?
• Can we expand from that one key customer to
a much broader sales base?
• Can we develop the product from a pilot
production process to a production
basis?
• Do we have enough money to cover the
considerable cash demands of this start-up
The six key phases of company growth
phase?
The six key phases of company growth

Stage II: Survival

• In the short run, can we generate enough cash to
break even and to cover the repair or
replacement of our capital assets as they wear
out?
• Can we, at a minimum, generate enough cash
flow to stay in business and to finance growth to a
size that is sufficiently large, given our industry
and market niche, to earn an economic return on
our assets and labour?
The six key phases of company growth

Stage III: Profitability and stabilisation

• The company has attained economic health
• The company is big enough and has enough
market penetration to ensure success
• The company has grown large enough to
need functional managers
• Cash is usually plentiful at this stage
• Many companies continue for long periods at
this stage
The six key phases of company growth

Stage IV: Profitability and growth

• Consolidation period; get resources needed
for more growth
• Important for the business to stay profitable and
not outrun its’ resources
• If successful the company can commit to a
higher growth rate and make the transition to
the next stage
 The six key phases of company growth

Stage V: Take-off
• Delegation
• Cash
 Debt equity
 Dilution of owners
equity
• Cost control
The six key phases of company growth

Stave VI: Maturity

• Consolidate & control the financial gains
gained through growth
• The company needs to professionalise and expand
the management force
• Engages in detailed strategic and operational planning
• The company now has advantages of size,
financial resources and management skills
• The challenge is to preserve the entrepreneurial spirit
• Avoid stage 7
 Growth options

New
Market Diversification
development

Market

Existing Market Product/service

penetration development

Existing New
Product/service
 Market development;
existing product to new
market
 To achieve economies of scale

 Key competency is your product/service

 Product nearing the end of its life in

existing markets
 Reduce risk of over dependency on one market
 Product development;
existing market with new
product
 Product modification

 Product expansion

 Product extension

 Completely new products

 Reasons for diversification;
products
new to new markets

 To gain rapid market dominance

 To reduce risk in privately
owned businesses
 Activity

 In pairs consider the methods of growth

and see if you can give examples of each
sector in the brands / products / services
that you know; perhaps choose one that
is close to the sector of your business
 Challenges of Growth; Greiners model
[covered in lecture 1]

Can you see Crisis of

examples in bureaucracy
Crisis of
your business? control
Crisis of
autonomy
Crisis of
leadership Collaboration
Co-ordination
Delegation
Direction
The challenge is to
facilitate collaboration –
Creativity The challenge is to
making people work
together through a sense of
coordinate decision-making mission or purpose rather
through appropriate than by reference to a rule
The challenge is to The challenge is to organizational structures book– and to develop an
give direction by develop an effective and culture that balance organization that balances
effective management team, and
leadership. delegate to them.
autonomy and control and
encourage collaboration.
the need for autonomy and
control, avoiding too much
Growth
bureaucracy.

https://www.tutor2u.net/business/reference/g
Video link reiners-growth-model also see notes below
Considering Structure – as growth occurs; what happened
in your business?

Think about this as you build understanding of your business; how did the
structure evolve?
Structure: Self-organizing team & simple hier

Self-organizing team
5 people/10
interactions Simple hierarchy
Structure: Spider’s web
Informal reporting lines
Structure: Hierarchy & matrix
Functional reporting lines

Department Geographic/product
reporting lines

Functional
reporting
Hierarchy Matrix
 Balance: control vs autonomy
CHAOS

Too little Too few Too much Too little

Direction Boundaries Space Support

Balance Balance Balance

Direction Boundaries Space Support

TOO
CONSTRAINED
 Structure: task &
Greater environment,
autonomy
control vs autonomy
Hierarchical structure Organic structure
Matrix sub-structures Autonomous sub-
Complex Adherence to structures
established protocols Considerable
freedom
Task

Machine
Simple bureaucracy Hierarchical structure
Hierarchical Matrix sub-structures
structure Tight Considerable
controls discretion
 Greater
autonomy
Greater Stable Changing
control
Environment (see notes below)
Coping with Crisis

Phase 1 Phase 2 Phase 3

Putting it
Immobilization together
Acceptance
Anger - testing new reality
Denial
Effectivenes

Depression
Ineffective transition

Time Kübler-Ross

As you investigate your business try to understand whether this model

has been experienced by the owners/founders; see notes below
 Evaluating performance

 Financial evaluation

 Forecasts

 Trends over time

 Industry norms

Activity: In your experience and studies to date what

have you learnt about evaluation of business – discuss in
pairs and provide 3 examples
The Financial Evaluation of Growth

• Financial growth is a fundamental objective

• A good financial performance for the
venture is necessary if its stakeholders are to
be rewarded
• Financial performance is not the only
concern of many entrepreneurs, but it is
a critical measure of the entrepreneur’s
success
The Financial Evaluation of Growth

• Most businesses will have to produce

financial statements including the P&L and
the Balance Sheet
• The figures given in both these accounts can
be subjected to a financial analysis that reveals
important facts and enhances understanding
• Fundamental to this analysis is the relating of
particular figures to each other through
ratios
Ratio
Analysis
• Ratios can be used by managers as a basis
for decision making
• They are best used comparatively:
• Trends: in relation to past performance
• Cross-sectional: in relation to how others are doing
Ratio
Analysis
• Three sorts of ratio are important:
1. Performance ratios – those that relate the profits
gained to sales, assets used or capital used. They
indicate how well the venture is using the resources it
has to hand
2. Liquidity ratios – those that relate the exposure of
the venture through its debts to its ability to pay off
those debts. They indicate risk
3. Stock market ratios – those that relate the market
valuation of the venture to its underlying performance.
They indicate the risks and rewards investors can
expect from the venture as an investment opportunity

When assessing your business, establish how it has measured

performance
Break 10 mins
Consolidating the Venture
What consolidation means
• Maturation is a part of growth. As with
growth generally, maturation has financial,
strategic, structural and organisational facets
 Financially, maturation means that the venture will
slow the rate of increase in its income. Profits will
stabilise. Investment in future growth will be reduced
and so the venture’s stakeholders can begin to enjoy
financial rewards
 Strategically, the venture will be establishing its location
in its product–market domains and it will move from an
aggressive market capturing posture to a more
defensive one in the niche it has secured
What consolidation means Cont.
 Structurally, the systems and procedures that may well
have been in a state of flux as the organisation has
been growing will stabilise and become fixed
 Organisationally, roles, responsibilities and
relationships, which again may have been in a state of
flux, will become more permanent. The venture will not
be so interested in increasing overall staff levels and
will shift largely to replacing those who leave
• Each of these presents the entrepreneur with
the need to address key decisions.
Building Success into Consolidation

• The rules of success change as the

business consolidates
• Success will be less sought through radical leaps
forward and the opportunity for more
measured, incremental growth becomes more
important
• Success will be less based on promises for
tomorrow and more on what is being
achieved today
Building Success into Consolidation

• The interests of all stakeholders will change:

 Investors will want to see actual returns from their
initial investments.
 Employees will look less towards future development
possibilities and more to what the venture can offer in
terms of financial rewards and job security. This may
not be what all employees want!
 Customers and suppliers who supported the venture
in its early stages will expect the venture to be a good
supplier and a reliable high volume buyer.
Case Study – 2
Examine Vince's proposed approach to managing
and developing his enterprise and suggest how his
approach may differ from the more traditional view
of entrepreneurial management.
 Brompton Bicycle
Market development website.
By 2014 it exported 80%
of bikes to 44 countries. It
sells through bicycle
New retailers in
some countries &
distributors who operate
Market their own dealer networks.
Market penetration
Originally it sold bikes
Existing direct public. Then it sold
to its network of retail
outlets. It still sells direct
through its

Existing New
Product/service
 Brompton Bicycle
Diversificatio ward seven basic models at
n verti prices from £800 to over
 O cal £2000. Each can be
w diver customized.
n sifica
tion).
s  Bike rental (horizontal
t diversification).
o
r
e
s Product development
Original
( bicycle
f develop
o ed into
r
Existing New
Product/service
 Brompton Bicycle
Market development website.
By 2014 it exported 80%
of bikes to 44 countries. It
sells through bicycle
New retailers in
some countries &
distributors who operate
Market their own dealer networks.
Market penetration
Originally it sold bikes
Existing direct public. Then it sold
to its network of retail
outlets. It still sells direct
through its

Existing New
Product/service
 Brompton Bicycle
Diversificatio ward seven basic models at
n verti prices from £800 to over
 O cal £2000. Each can be
w diver customized.
n sifica
tion).
s  Bike rental (horizontal
t diversification).
o
r
e
s Product development
Original
( bicycle
f develop
o ed into
r
Existing New
Product/service