GROWTH AND DEVELOPMENT OF A BUSINESS

IMPORTANCE AND NATURE

Entrepreneurs planning vary with the nature size and structure of a business. Emerging venture
that is rapid expanding without constantly increasing personnel size and market operations will
need to formalize its planning because a great deal of complexity exist.

Reasons for shifting entrepreneur's planning from an informal to a formal systematic style
include the following:

 With greater levels of uncertainty, entrepreneurs have a stronger need to deal with the
challenges facing. The venture and a more formal planning effort can help them to do
this.
 The strength of competition will add to the importance of more systematic planning in
order for a new venture to monitor its operations and objectives more closely.
 The amount type of experience may be a factor in deciding the extent of formal planning.

A strategy is like a bridge that links ''where we are now'' to ''where we would like to be in the
future''.

Strategic decision represents the steps than an organization takes in order to reach the other
side of the bridge.

There are three levels of strategies in the organization:

Corporate strategy: Looks at the overall suite of the business/product of an organization. it

involves the organization asking itself what kind of business should I be in? For instance,
should I be orange or apple seller? This is the level set by the top executives and
board of directors. Eg the decisions of setting the lending guidelines for the bank,
these guidelines will specify which industry the bank is interested in financing.

Business strategy: This is usually at the Strategic Business Unity (SBU) level and involves an
organization asking itself how it can achieve its corporate strategy, for instance, can I be
a better orange or apple seller? This level focuses on micro strategy of the organization
and it is set by the Executive/management. The management of the bank will identify
which companies in these industries they would be interested in dealing with.

Operational strategy: Involve an organization asking questions n how it can implement its
business strategy. For instance, how do I now go about selling oranges or apples? This
has a narrow focus and concerned with the day to day activities of the organization. It is
set by the management and employees.

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STRATEGIC PLANNING

This is the formulation of long range plans for effective management or environmental
opportunity and threats in light of ventures' strength and weaknesses.

Strategic planning steps

Examining environment: Clear review of the venture's internal and external factors is needed
and both set of factors must be considered when performing on environmental analysis.
There are various models for such an analysis, such as SWOT (Strength, Weakness,
Opportunity, and Threat). The analysis includes the internal factors (strength and
weakness) and external factors (opportunity and treat).

The entrepreneur decision involves matching the internal strengths and weaknesses to
the external opportunity and treats.

Formulate the ventures' long range and short range strategies (mission, objectives,
strategies and policies).

o Mission: Mission statement outlines the broad direction that the venture should
follow and outline the reasoning and values that lie behind it. It limits the scope of the
ventures' activities in terms of product or service offered, technology used and
market served.
o Objectives: Is an explanation of a concept that is concrete enough to allow one to
take specific action. They state clearly what is to be accomplished and when. All
objectives must follow the SMART (Specific, Measurable, Attainable, Realistic and
Time bound) model.
o Strategies: Is a comprehensive master plan stating how the corporation will achieve
its mission and objectives.
o Policies: These provide broad guidelines for decision making throughout the
organization. It links the formation of strategy with its implementation.

Implement the strategic plan: This is where strategies and policies are put into action through
the development of program, budget and procedures.

Evaluate the performance of the strategy: This is where organization activities and
performance results are monitored through comparing actual performance with
established standards. The results are used to make corrective measures where there is
deviation.

The follow up action through continuous feedback: This takes control and relies on the
feedbacks to make appropriate decisions. Any noted deviation or variations will
accordingly be corrected.

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FACTORS THAT SHAPE STRATEGIC MANAGEMENT ACTIVITIES.

a) Demand on strategic manages time.

The increasing demand on key owned managers' time that accompanies the complexity
brought on by growth of entrepreneurial firm brings about a need for more rigorous
strategic management practices.
b) Decision making speed.
As the firm expands, the decisions to be made can be expected to increase in number
and frequency. More systematic strategic planning practice is needed to guide and
control the increasing decision making within the firm.
c) Problem of internal politics
Strategic planning strategies are the ones to alleviate difficulties associated with the
effect of internal politics in the organizational decision making.
d) Environmental uncertainty
The need of strategic planning is greater in presence of increased environmental
uncertainty.
e) Entrepreneurs' vision.
To a large degree, venture planning is an extension of entrepreneurial ego. Planning is
the process of transforming entrepreneurial vision and ideas into action.

WHY VENTURES FAILS STRATEGIC PLANNING

Time scarcity: Managers has their time scarce for planning.

Lack of knowledge: Small firm owners have minimal exposure to and knowledge of planning
process.

Lack of expertise: Managers of small ventures mostly lack specialised expertise necessary for
the planning process.

Lack of trust and openness: Small venture owners are hesitant to formulate a strategic plan
that requires participation by employees or trade consultants in fear to reveal their trade secrets.

Perception of high cost: Normally business owners perceive the cost associated with planning
to be very high causing them to avoid or ignore planning.

The benefits, values and importance of strategic planning

 Planning expands options and ability to respond to change.

 It generate more information and reduces and reduces uncertainty through better
understanding
 It motivates, increases the ability of organization to understand how business performs
and reduces unconstructive guessing to what is going on.
 Planning allow others to better understand the need of change
 It anticipates inevitable change and better implements required change
 Helps to conserve valuable resources
 Helps to perpetuate the institution beyond the lives of key managers
 Confirms many assumptions while addressing those that must change with times.
 Encourages the business to compete
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THE LIFE CIRCLE OF A BUSINESS

Ventures evolve through various stages from start-up, development and growth through to
decline and closure. The venture changes its characteristics in each of these stages in a way
that it requires different skills, structures and resources to manage them.

The following is the business life circle:

a) Concept/test: (new venture development) Before business is launched, it undergoes

some form of conception and planning. This may involve a market test or running a
business as a part time operation before the owner places complete dependence on it.
Creative thinking, information gathering and networking is key activities in this stage.
b) Development/abort stage (startup activities): The business is launched and either
develops to a viable size or it is aborted at early stage. This will depend on the
sufficiency of customers and either they have adopted the product or not. Marketing
and Financial (cash flow) management are key functional activities at this stage. The
entrepreneurs manage the venture through their own efforts.
c) Growth or decline stage: The rapid growth strains the internal structure of the venture;
the one person management style may prove inadequate to fully sustain the
growth. The management of internal processes and people is critical function.
The division of managerial tasks, recruitment of non-owner managers and the
development of a functionally organized team are often important in this phase,
without which it may struggle and close.
d) Maturity or business stabilization: Most surviving business goes to the period of
stability, when growth flattens and the enterprise matures. It loses its simple
structure of centralised decision making, use more sophisticated business
processes and become more bureaucratic in its procedures. Sales stabilize and
the entrepreneur thinks where the venture will go over next three to five years.
During this stage innovation is often a critical to future success.
e) Re-growth or decline (innovation and decline): Firms that fail to innovate will die.
Financially successful venture will try to acquire other innovative firms to ensure
their own growth.

All of ventures' life circle stages are important strategic points and each requires a different set
of strategies.

MANAGING BUSINESS GROWTH

Managing entrepreneurial potential growth may be the most critical tactic for the future success
of the ventures. After initiation of a new venture, the entrepreneur needs to develop an
understanding of management change.

The growth stage signals the beginning of the metamorphosis from a personal venture to a
group structure operation. Domination by lead entrepreneur gives way to a team approach
based heavily on cordination and flexibility.

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Specific managerial actions necessary during growth stage (FACTORS TO CONSIDER IN
MANAGING VENTURE GROWTH)

a) Control: Growth creates problems in command and control.

b) Responsibility: The distinction between authority and responsibility becomes clear and
apparent. This is because the authority can always be delegated but it is important to
create the sense of responsibility. People tend to look beyond the job alone if the sense
of responsibility is developed.
c) Tolerance of failure: The level of failure the experienced and learned from the start of
the venture should be the same level expected, tolerated and learned from in the growth
state.
d) Change: Planning, operation and implementation are all subject to continual changes as
the venture moves through the growth stage and beyond. It is important during growth
that the flexibility regarding change be preserved.

TYPES/FORMS

Business growth may be organic growth (internal growth): where a business increase or
improve one or more aspects within the organization eg improvement of existing product or
opening new outline. External growth is the growth when the business expands through
acquisition such as merge and takeover.

The business growth may also be classified as follows:

a) Quantitative/Vertical growth: This has to do with size of employment, investment,

sales volume, profits, capacity utilization etc.
b) Qualitative/Horizontal growth: This involve the number of establishments which
emerges over time, changing from owner operated , owner managed to owner direction.
c) Passive growth: This is the growth occurring unexpectedly.
d) Planned growth: Occurs in some form of sequential and projections.

VENTURE EXPANSION OPPORTUNITIES AND EVALUATION

Some entrepreneurs are seeking to purchase ventures than starting up. This decision should be
done correctly and with reasonable assurance. The following are the steps to be undertaken:

a) Personal preference: Entrepreneurs need to recognize certain personal factors and to

limit their choices of ventures accordingly. An entrepreneur background, skills, interest
and experience are all important factors in selecting the type of business to buy.
b) Examination of opportunity: Should examine the available opportunity through various
sources like business brokers, news papers, trade sources and professional sources.
c) Evaluation of selected ventures: This is done through the analysis of business
environments, sales and profits produced and business owned assets.
d) Key questions to ask: The entrepreneur should ask himself before making the decision
to acquire the venture;
 Why the business is sold?
Establish the owners' motive to sell the business.
 What is the physical condition of the business?

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 The condition of facilities must be carefully assessed to avoid major
expenses after the purchase. Sometimes owners sell the venture to avoid
remodeling the entire location.

 What is the degree of competition?

How many competitors and their strength
 What is the condition of the lease?
When the business is sold but not a building, it is vital to know all
conditions of the present lease and land lords' future plan.

 Will the owner sign the covenant not to compete?

The law agrees a reasonable covenant to cover the time and distance
which the seller agrees not to compete.
 Is there any special license required?
Verify the state of local requirements pertaining to the type of business
you acquire.
 What are the future trends of business?
This is the overall look of the industry trend and how this business will fit
to them.
 How much capital is needed to buy?
The buyer should consider the repairs, new inventory, opening expenses
and working capital in top of the purchasing price.

VALUATION OF THE BUSINESS VENTURE

There are several methods that can be used to determine the value of the venture to be
purchased. The following are the methods mainly used:
a) Asset based valuation/Adjusted tangible book value
This looks at the realizable value of company's' assets and liabilities (net worth). The
effects of inflation and depreciation are taken into account which forces some assets to
be adjusted.

b) Price earnings ratio.

This focuses on the cash flows generation. It is a common method used in publicly
owned corporations. This method appreciates dividing profits (earnings) by the market
price of the common stock.

c) Discounted earning.
This attempts to determine the best true value of the firm by portraying the ventures
potential earnings. It discounts the estimated cash flows for a predetermined number of
years based upon a required rate of return known as discount rate.

While all approaches may be applicable under certain circumstances and depending on the
nature of the business, the cash flow based (price earnings ratio and discounted earning) are
more widely used and applicable in more situations.

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Mtotowakhasi To win, you must beat the best!
IMPORTANCE OF BUSINESS VALUATION
 It leads in avoiding the start-up costs
 Enables accurate projections since critically business trends will be examined.
 Enables to determine control factors
 Enables to determine the real value of the business
 It's easy to determine the value of business in comparison with other competitors
 Enables going public or private placing the stock

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