CONTEXT
* Distinguish between:

• Small businesses
• Not large (one guideline - Small Business Administration - is fewer than 500 people and annual sales of less than $20 million)
• Over 95% of all businesses in the USA
• The National Science Foundation estimates that 98% of "radical" product developments result from the research done in the labs of small companies
• Entrepreneurial - characterized by:
• Innovation [ "Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen." - Peter Drucker]
• Primary emphasis on growth and profitability
• Often taking greater risks (in order to pursue opportunities)
• Note that it is possible to have an entrepreneurial large organization or a fairly independent entrepreneurial portion of a large organization (although this is harder than in a small, new organization), and many small businesses are not entrepreneurial

NEW VENTURES
* New ventures have small chances of success (of the order of 1 chance in 4 to 8). How can we improve the odds?

1. Dunn & Bradstreet failure rate study found that the key feature differentiating successful new ventures from failed new ventures was that the successes had substantially more of the following:
• Technical competence (in the business you have chosen)
• Marketing competence (know how to find your special niche in the market, how to identify your customers, and how to sell enough of what you offer at a price that will return an adequate profit for your efforts)
• Financial competence (know how to plan for, get, and manage the money you will need to start and keep it running)
• Management skills (to manage it once it is started, including developing and implementing a strategic business plan)
2. Make use of strategic management (but adapted - see final major section)
3. Make use of an appropriate business plan
• To force you to think through key questions and create plans to deal with major issues
• Not just when you need to seek financing
• Are many aids available (books, software, examples)
4. Capitalize on sources of innovation. Drucker identifies seven, listed in descending order of reliability and predictability:
1. The unexpected
2. An incongruity or discrepancy between what is and what ought to be
3. A problem or need in an existing process
4. Changes in the underlying industry or market structure
5. Changes in demographics
6. Changes in society's attitudes, beliefs, priorities
7. New knowledge or technology that can be applied creatively
5. Some suggestions for generating new ideas:
• Hobby or personal interest
• Why isn't there a...
• Shortcomings in existing products/services
• Extraordinary uses for ordinary things
6. Three things to watch out for in a new venture, if you want to increase your chances of surviving (Drucker again):
• Don't try to be too clever
• Don't try to do many things
• Don't try to innovate for the future (it is hard enough to excel in meeting an established need, without also trying to create both the need and the solution)
7. Some environment factors that improve the chances of a new venture's success:
• Rapidly changing industry
• Early, high-growth stages
• One big, dominant competitor
• Product is not vital to buyers' success
8. Make use of the Growth Vector Matrix in considering expansion plans:
   • Is a 2D matrix with 3 market options (existing, expanded, new) in one dimension and 3 product alternatives (present, improved, new) in the other
   • As you move from the corner with present products and existing markets, risk & cost increase progressively as you move farther from the present

ADAPTING STRATEGIC MANAGEMENT TO SMALL & NEW BUSINESSES

• Key principle is K.I.S.S.
  (keep it simple, stupid ...or, if you prefer, keep it simple, Sam/Sue)
• Some examples of translating formal/large organization considerations into informal/small firm considerations:
  formal - informal comparisons below
  (a) Define mission - What part of the universe are we targeting?
  (b) Set objectives - What are we trying to achieve?
  (c) Formulate strategy - How are we going to get there (to our objectives)? How can we beat the competition?
  (d) Prepare an implementation plan - How should we organize this operation to get what we want done as cheaply as possible with the best quality needed?
  (e) Prepare proforma budgets - How much is it going to cost us, over what time period, and where/how can we get the cash?
  (f) Specify procedures and rules - What few, key things do we have to define so that everybody knows what to do?
  (g) Determine performance measures - What are those few key things that will determine whether we can make it? How can we keep track of them?
• It still useful to use the same three-phase strategic management process: diagnosis, formulation, implementation
• Still makes sense to take stock of your SWOT, including a realistic assessment of the environment in which you are trying to operate and compete
• Still need an ongoing list of the critical few issues that you will give major attention
• Still need constant focus on and attention to deal with the critical issues
• Still need strategies and plans
• Energetic, creative, persistent implementation is even more important in a small and new venture than in an established company (you have much less "slack" and margin for mistakes)

| Strategic Mgt. Resources | Home | * Or press the BACK button on your browser to return to your (different) access point *

Last modified October 25, 2008

Copyright 1985-2008 Rex Mitchell