Term
| Name the Five Stages of Small Business Growth |
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Definition
1. Existence
2. Survival
3. Success
4. Take-Off
5. Resource Maturity |
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Term
| Why are these frameworks inappropriate for small businesses on at least three counts: |
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Definition
- First, they assume that a company must grow and pass through all stages of development or die in the attempt
- Second, the models fail to capture the important early stages in a company’s origin and growth
- Third, these frameworks characterize company size largely in terms of annual sales and ignore other factors such as value added, number of locations, complexity of product line, and rate of change in products or production technology |
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Term
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Definition
- Main problems of the business are OBTAINING BUSINESS CUSTOMERS and DELIVERING the product or service contracted for.
- The organization is a SIMPLE one – the OWNER DOES EVERYTHING and directly supervises subordinates, who should be of at least average competence
- Many companies never gain sufficient customer acceptance or product capability to become viable. In these cases, the owners close the business when the start-up capital runs out and, if they’re lucky, sell the business for its asset value
- Those that remain in business become Stage II |
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Term
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Definition
- By reaching this stage, it has illustrated that it is a workable business entity, with enough customers and satisfying products or services
- Key problem thus shifts to the RELATIONSHIP BETWEEN REVENUES and EXPENSES
- Systems development is minimal, formal planning is at best, cash forecasting
- The major goal is still SURVIVAL and the owner is still SYNONYMOUS with the business
- It may grow in size and profitability and move on to stage III, or it may remain at this stage for some time, earning marginal returns on invested time and capital and eventually fall out of business when the owner gives up or retires |
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Term
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Definition
- Decision facing owners is whether to:
(1) EXPLOIT the company’s accomplishments and EXPAND; or
(2) Keep the company STABLE and PROFITABLE, providing a base for alternative owner activities
- Key issue is whether to use the company as a platform for GROWTH (a sub stage III-G company) or as a means of support for the owners as they completely or partially DISENGAGE from the company (a sub stage III-D company) |
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Term
| Sub stage III-D (In Success-Disengagement sub stage) |
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Definition
- Company has attained TRUE ECONOMIC WEALTH, has sufficient size and product-market penetration to ensure economic success, and earns AVERAGE OR ABOVE-AVERAGE PROFITS
- Company can stay at this stage indefinitely, provided ENVIRONMENTAL CHANGES DOES NOT DESTROY its market niche or ineffective management reduce its competitive abilities.
- Company has grown large enough, and may require functional MANAGERS to take over a certain duties performed by the owner
- Cash is plentiful and the main concern is to abode a CASH DRAIN in inevitable rough times
- If the company can continue to ADAPT to environmental changes, it can CONTINUE AS IS, be SOLD or MERGED at a profit, or subsequently be stimulated into growth
- If the company cannot adapt to changing circumstances it will either FOLD or DROP BACK to a marginally surviving company |
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Term
| Sub stage III-G (In Success-Growth sub stage) |
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Definition
- Owner consolidates the company and MARSHALS RESOURCES for GROWTH.
- Important task is to make sure the basic business STAYS PROFITABLE so that it will NOT OUTRUN its source of CASH and to DEVELOP MANAGERS to meet the needs of the growing business
- SYSTEMS should be installed with attention to FORTHCOMING NEEDS
- If it is successful, the III-G company proceeds into Stage IV
- It is unsuccessful, cause may be detected in time for the company to shift to III-D
- If not, retrenchment to the survival Stage may be possible prior to BANKRUPTCY or DISTRESS SALE |
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Term
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Definition
- Key problems are how to GROW RAPIDLY and how to FINANCE THAT GROWTH
- Most important questions focus on DELEGATION and whether there is sufficient CASH
- Decentralized and in part DIVISIONALISED (usually in either sales or production)
- Owner and the business have become REASONABLY SEPARATED
- If the owner rises to the challenges of a growing company both financially and materially, it can become a big business
- If not, it can usually be sold provided the owner recognizes his or her limitations soon enough
- Too often, those who bring the business to the Success stage are unsuccessful in Stage IV either because they try grow too fast and run out of cash, or are unable to delegate effectively enough to make the company work
- If the company fails to make the big time, it may be able to RETRENCH and continue as a successful company at a state of equilibrium or may drop back to Stage III, or if the problems are too extensive it may drop to the Survival Stage or fail |
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Term
| Stage V: Resource Maturity |
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Definition
- Concerns include CONSOLIDATION and CONTROLLING the financial gains brought on by rapid growth, and retaining the advantages of small size, including flexibility of response and the entrepreneurial spirit
- The corporation must EXPAND the MANAGEMENT FORCE fast enough to ELIMINATE INNEFICIENCIES that growth can produce and professionalize the company by use of such tools as budgets, strategic planning, management by objectives, and standard cost systems
- Management is DECENTRALIZED, adequately staffed, and experienced
- Systems are EXTENSIVE and well developed
- If it can preserve its entrepreneurial spirit, it will be a formidable force in the market
- It not, it may entre a sixth stage of sorts: ossification (lack of innovative decision making and avoidance of risks)
- Unfortunately for these businesses, its usually their RAPIDLY GROWING COMPETITORS that notice the environmental change first |
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Term
| Four ENTERPRISE factors which prominent in determining ultimate success or failure of a business: |
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Definition
1. FINANCIAL resources, including cash and borrowing power
2. PERSONNEL resources, relating to numbers, depth, and quality of people, particularly at the management and staff levels
3. SYSTEMS resources, in terms of the degree of sophistication of both information and planning and control systems
4. BUSINESS resources, including customer relations, market share, supplier relations, manufacturing and distribution processes, technology, and reputation (all of which give the company a position in its industry and market). |
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Term
| Four OWNER factors which prominent in determining ultimate success or failure of a business: |
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Definition
1. OWNER'S GOALS for himself or herself and for the business
2. OWNER'S OPERATIONAL ACTIVITIES in doing important jobs such as marketing, inventing, producing and managing distribution
3. Owner’s MANAGERIAL ABILITY and WILLINGNESS TO DELEGATE responsibility and to manage the activities of others
4. Owner’s STRATEGIC ABILITIES for looking beyond the present and matching the strengths and weaknesses of the company with his or her goals |
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Term
| We might view the factors as alternating among three levels of importance: |
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Definition
- First = key variables that are essential for success must receive high priority.
- Second = factors that are clearly necessary for the enterprise’s success and must receive some attention
- Third = factors of little immediate concern to top management
If we categorize each of the eight factors listed previously, based on its importance at each stage of the company’s development, we get a clear picture of changing management demands. |
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Term
| What are the Eight Management Factors? |
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Definition
1. Owner's ability to...
2. Cash
3. Matching of business and personal goals
4. People - quality and diversity
5. Strategic Planning
6. Systems and controls
7. Owner's ability to delegate
8. Business Resources |
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Term
| Explain the varying demand of Owner's Ability to do... Factor |
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Definition
- In the early stages, small business are built on the owner’s talents: Owner’s ability to sell, produce, invent etc. This factor is thus of highest importance.
- As the company grows, other people enter, thus reducing the importance of ‘Owner’s ability to’ factor. |
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Term
| Explain the varying demand of Owner’s Ability to Delegate |
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Definition
| As the company grows, other people enter, thus reducing the importance of ‘Owner’s ability to’ factor. He or she must increase the amount of work done through other people, which means increase in Owner’s Ability to Delegate (The inability of founders being able to do this explains the demise of many businesses in sub stage III-G and Stage IV). |
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Term
| Explain the varying demand of Cash factor |
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Definition
| The importance of Cash changes as the business changes. It is an extremely important resource at the start, becomes easily manageable at the Success Stage, and is a main concern again if the organization begins to grow. |
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Term
| Explain the varying demand of People, Strategic, Planning and Systems factors |
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Definition
| The issues of People, Strategic Planning and Systems gradually increase in importance as the company progresses from slow initial growth to rapid growth. These resources must be acquired somewhat in advance of the growth stage so that they are in place when needed |
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Term
| Explain the varying demand of Goal Matching Factor |
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Definition
| - A second serious period for Goal Matching occurs in the Success Stage. Does the owner wish to commit his or her time and risk the accumulated equity of the business in order to grow or instead prefer to savor some of the benefits of success? |
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Term
| Explain the varying demand of Business Resources Factor |
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Definition
| Finally, Business Resources are the stuff of which success is made; they involve building market share, customer relations, solid vendor sources, and a technological base and are very important in the early stages. In later stages the loss of a major customer, suppliers, or technical sources is more easily compensated for. Thus, the relative importance of this factor is shown to be declining. |
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