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 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
Stage 7
Break 10 mins
 Growth options

Market Diversification
New
development

Market

Market Product/service
Existing
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; new
products 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

bureaucracy
examples in your Crisis of
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 autonomy and control and
leadership. delegate to them. 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 hierarchy

Self-organizing team Simple hierarchy

5 people/10
interactions
Structure: Spider’s web

Informal reporting lines

 Structure: Hierarchy & matrix
Department
Functional reporting lines
Hierarchical structure Geographic/product reporting lines
Department Geographic/product
F12.8 Matrix structure
reporting lines

reporting lines
Functional
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 & environment,
Greater
autonomy
control vs autonomy
Hierarchical structure Organic structure
Matrix sub-structures Autonomous sub-
Complex Adherence to established structures
protocols Considerable freedom

Task

Machine bureaucracy Hierarchical structure

Simple Hierarchical structure Matrix sub-structures
Tight controls Considerable 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
Denial new reality
Effectiveness

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 Diversification
By 2014 it exported 80% of ➢ Own stores (forward
bikes to 44 countries. It sells vertical diversification).
through bicycle retailers in ➢ Bike rental (horizontal
New some countries & diversification).
distributors who operate
their own dealer networks.
Market Market penetration Product development
Originally it sold bikes direct Original bicycle developed
public. Then it sold to its into seven basic models at
Existing network of retail outlets. It prices from £800 to over
still sells direct through its £2000. Each can be
website. customized.

Existing New
Product/service
 Brompton Bicycle
Market development Diversification
By 2014 it exported 80% of ➢ Own stores (forward
bikes to 44 countries. It sells vertical diversification).
through bicycle retailers in ➢ Bike rental (horizontal
New some countries & diversification).
distributors who operate
their own dealer networks.
Market Market penetration Product development
Originally it sold bikes direct Original bicycle developed
public. Then it sold to its into seven basic models at
Existing network of retail outlets. It prices from £800 to over
still sells direct through its £2000. Each can be
website. customized.

Existing New
Product/service