Strategies to Successfully Proceed Small Businesses Growth Life Model Strategic Management

International Project Management

Ahmet Zejnullahu

Asmir Tahmaz

Asoss Zaitali

Hafez Shurrab

Muhammad Mateen

CHALMERS TECHNICAL UNIVERSITY

Gothenburg, Sweden, 2014

ABSTRACT

This research investigates how small and new businesses implement strategies as they proceed

through the life model of growth. The paper describes different businesses stages within the

model of growth and what strategies are most commendable for different circumstances and

contexts. The overall sentiment is that small time businesses need to equally focus on starting up

properly, survive accordingly, grow patiently, expand strategically and finally develop maturely.

It is important that whatever strategies owner and managers acquire or resolve to, lies in the

greater value of the organization as opposed to the overall success. In conclusion, the aim of the

research is for businesses to reach complete maturity; this can be achieved by overcoming

different crises throughout the several stages of the growth cycle.

Table of Content

1. Introduction ......................................................................................................................... 1

1.1. Problem statement ....................................................................................................... 1

1.2. Scope and Delimitation ............................................................................................... 1

2. Methodology ....................................................................................................................... 1

3. Theoretical Framework ....................................................................................................... 2

3.1. Small Business ............................................................................................................. 2

3.2. Strategic Change .......................................................................................................... 2

3.3. Organizational Structure .............................................................................................. 2

3.4. Organizational culture ................................................................................................. 2

3.5. The Magnitude of Change ........................................................................................... 3

3.6. The pace of change ...................................................................................................... 3

3.7. Revolutionary change .................................................................................................. 3

3.8. Evolutionary change .................................................................................................... 3

3.9. Five Stage Model ......................................................................................................... 4

3.9.1. Inception Stage ................................................................................................................ 4

3.9.2. Survival Stage .................................................................................................................. 7

3.9.3. Growth Stage ................................................................................................................... 9

3.9.4. Expansion Stage ............................................................................................................. 11

3.9.5. Maturity Stage ............................................................................................................... 12

4. Cases Studies: ................................................................................................................... 14

4.1. Inception - Why companies rise and fall ................................................................... 14

4.2. Survival - A Content Business Weighs Becoming a Technology Business .............. 15

4.3. Growth - Preshafood Limited Case ........................................................................... 15

4.4. Expansion - The advertisement company .................................................................. 16

4.5. Maturity – Should a Small Retailer Stay as Small Mature Business......................... 16

5. Analysis ............................................................................................................................. 17

5.1. Inception .................................................................................................................... 17

5.2. Survival ...................................................................................................................... 18

5.3. Growth ....................................................................................................................... 18

5.4. Expansion .................................................................................................................. 19

5.5. Maturity ..................................................................................................................... 19

6. Discussion ......................................................................................................................... 21

6.1. Inception .................................................................................................................... 21

6.2. Survival ...................................................................................................................... 21

6.3. Growth ....................................................................................................................... 22

6.4. Expansion .................................................................................................................. 22

6.5. Maturity ..................................................................................................................... 22

7. Conclusion ........................................................................................................................ 23

References ................................................................................................................................ 25

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1. IntroductionThe success or failure of a business can be predicted by analysing the way it is managed and

the strategies used through its growth model. Scott and Bruce (1987) has done more research

in this area by complementing the famous model of entrepreneurial growth by Churchill and

Lewis (1983) but also other types of theoretical growth models, and came up with a proposed

model of their own. It shows that a business typically evolves through five stages of

development. These are inception, survival, growth, expansion, maturity. This research will

use a number of case studies that will be analysed and compared with each stage of the

proposed model made by Scott and Bruce (1987). The research shows that each phase

presents management challenges which need to be overcome through strategic

implementation in order for the business to proceed to the next stage.

1.1. Problem statement

Every business has to go through different stages and deal with several difficulties as they

evolve from the early start of the growth model until they become mature and able to expand

even further. Comparing strategic theory with real cases it will contribute to a wider

perception about strategic management. The question asked is following: do the theoretical

assumptions on strategy reflect on real case situations or do they collide?

1.2. Scope and Delimitation

Participation in this research is delimited to people who have basic knowledge in strategic

management and have the essence to attain a wider view of how small and new businesses

implement strategies in order to grow and overcome certain difficulties. The area of

characteristics of new and small businesses success are exceedingly broad, that’s why this

paper only focus on contributing to the research done by Scot & Bruce (2005), who describe

different stages and associated difficulties that new and small businesses have to manage in

order to grow. This means that this research doesn’t cover businesses that have reached

further then a certain stage. By contributing with other sources and cases of the same focus

and by further compering and analysing, this paper will provide a profounder insight in how

small and new businesses operate through these different stages.

2. MethodologyThis paper is review-based and collects empirical data from scientific articles and literature in

an attempt to investigate the relation between strategies used in the theory and when

managing small businesses in real life. This research uses the proposed growth model

developed and explained in the article of Scott and Bruce (1987) “Five stages of growth in

small business” as a main background for its purpose. The model describes five stages that

show the relationship between times, the size of the business and the stages of growth that the

business goes through, from a young to a mature business. In every stage, small businesses

have to deal with challenges dedicating different strategies in order to proceed to the next

stage. The methodology followed in defining each stage with the support of relevant articles

and real cases. The conclusion is experimental and influenced by personal opinions and

reflections from the research.

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3. Theoretical Framework

3.1. Small Business

Any organization which develops and sale its goods or services for getting money or services

or products in return is referred as business. The primary resources required for business is

investment and then the customers to whom the product or service can be sold out. Small

business is a relative term which could vary from country to country depending upon the

criteria for each. The criteria for measuring the size of business and declaring its as small

business can be either in terms of annual turnover, total employees in the organization or total

value of assets for the business (Scott & Bruce, 1987).

Scott and Bruce (1987) have described a few of characteristic of small business as:

Manager has independence with most of the choices as owner of the business.

The supply of capital in small business is done through either an individual or it could be a

small group as well.

The operation facility of organization is not global. Owner and worker of business are

located in same region but the markets captured by business can be global.

When talking about number of employees, Australian Fair Work Acts define a business to be

small if it has less than 15 numbers of employees, while the number for European Union and

USA is less than 50 respectively 500 employees (Scott & Bruce, 1987).

3.2. Strategic Change

With an always evolving global world, change is inevitable. As a business owner, change

should never be resisted but embraced. There are two major ways in which change can occur,

operational or strategic changes. For the purpose of this paper, a focus will remain on what

constitutes a strategic change and what implications such a change requires. Wit & Meyer

(2010) describe strategic change as something directed at creating an alignment between the

basic set-up of any business and the changing environment. The configuration of operational

changes is precautions necessary to maintain business systems, while strategic changes are

there to renew those (Wit & Meyer, 2010). The most common actions that constitute a change

in strategy involves a reorganization of the business, diversification through technology,

redesign of business processes and an adjustment in the project portfolio (Wit & Meyer,

2010).

3.3. Organizational Structure

In any given business, giving the organization a structure is a way to divide work into

functional units with different tasks and responsibilities (Wit & Meyer, 2010). These units

are usually set up with different criterion in mind, for example units can be given the specific

task of serving and maintaining contact with customers whereas others handle distribution

channels or target segments. The organizational structure can be balanced in many ways, most

being either vertical with clear hierarchies or others horizontal with diffuse roles. In either

case, the structure is significant when it comes to the business operations and how decisions

are delegated (Wit & Meyer, 2010).

3.4. Organizational culture

The culture of an organization refers to the worldview and behaviour shared by members in

the organization. It is a joint understanding that combines shared experiences and belief

systems. The culture encompasses an emotional charge that holds values and norms of the

organizational members. A common culture in an organization can work as a catalyst that

narrowly defines behavioural patterns and organizational “language”. It gives the business a

specific identity that is followed by all the members, it tells the members “this is how we do

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things here”. In conclusion, a culture serves a frame of reference for the members included

(With & Meyer, 2010).

3.5. The Magnitude of Change

As was mentioned earlier, strategic change refers to fundamental changes made in the

business or organizational system. The order of magnitude in such changes is very different

in size. Adding an extra Coca-Cola flavour to your product line is a change, however not a

strategic change. It is when you diverge from your traditional business system that constitutes

a strategic change. In the case of Coca-Cola adding bottled water to product portfolio would

be a strategic change of a larger magnitude. The magnitude of change refers to the amount of

steps needed to make a strategic change in your business, obviously the more steps the larger

the magnitude (Wit & Meyer, 2010).

Wit and Meyer (2010) divide the issue of change magnitude into two components. The

first component entails the scope of change that can be either broad or narrow. When many

parts of the business are altered simultaneously then change is broad, whereas a change in

marketing would be considered a narrow scope of change (Wit & Meyer, 2010).

The second component describes the amplitude of organizational changes and is explained

in terms of high or low. The amplitude is high if a new business system, structure or culture

differs radically from previous setup and is subsequently low in amplitude if said change is

moderate in comparison to previous circumstances (Wit & Meyer, 2010).

3.6. The pace of change

While the previous concept discussed focused on magnitude, this concept of change takes a

look at the pace of things. If the gradual onsets of change is planned and deliberate, then pace

is considered relatively steady. However when change is introduced in short quickly bursts

then pace is irregular and clustered (Wit & Meyer, 2010, p. 81). Similar to its counterpart

concept, the change of pace is also composed in two related parts. The first part is called

timing of change and can be intermittent or constant. If the change is intermittent then the

business needs to be able to time its new launch correctly, whereas if change is constant then

a product can be launched at any time (Wit & Meyer, 2010).

The second part refers to the speed of change and explains speed in terms of high and low.

If major changes to the business need to be implemented within a short time frame then speed

is considered high, on the other hand if change is less formidable and time is not of the

essence than implementation is longer and therefore speed is lower (Wit & Meyer, 2010).

The concept of pace and magnitude and its described variables all have an effect on the

possible strategic renewal paths. According to Wit and Meyer (2010), there are many ways of

bringing about strategic change, the million dollar question to pose is: which route is best?

3.7. Revolutionary change

Revolution process is realized due to sudden, rapid, abrupt and radical change over short

period of time where status quo is not a part of revolutionary process. Revolution processes

are adopted to overcome the changes which will reinvent the organization (Wit & Meyer,

2010).

3.8. Evolutionary change

Evolution is associated with longer period of time. In evolution process constant and

moderate changes take place over longer period of time. Although the changes in evolution

process might be small but when garnered they will produce bigger output (Wit & Meyer,

2010).

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3.9. Five Stage Model

While developing the business, organization has to come across the issues related to its

operations, products or services being offered. Scott and Bruce (1987) have the view that

these problems are quite similar to each other for different kinds of small businesses while

growing. The growth model drawn for these problems becomes more general for all kind of

small business to grow. The distinctive stages of business while growing are associated with

certain type of characteristics. Based on the type of problems and how small business grows,

Scott and Bruce (1987) have developed a five stages growth model. They claimed that every

business has to go through these stages when growing. The movement of growth from one

stage to another can only be achieved by implementing change in the organization. Scott and

Bruce (1987) suggest that implementation of change is associated with crises in each stage

which once are overcome by the organization will lead it into the next stage of growth. The

crises faced during each stage can be either internal or external. The five steps for growth of

small business are presented in the figure below (Scott and Bruce, 1987).

Figure 1: The five stages are: 1) Inception 2) Survival 3) Growth 4) Expansion 5) Maturity

The maximum possibility for failure of business is likely to happen when the crises at any

stage are mishandled and the strategy is not effective enough to deal the crises. Once the

crises are taken care of the growth of organization will move into next step where more crises

are expected to happen which upon handling will take the growth even further to the next

stage (Scott & Bruce, 1987).

3.9.1. Inception Stage

Starting new business ventures requires a lot of tinkering and tailoring and very seldom can

you find a one size fits all strategy that produces linear levels of success. To move from an

idea to a stable business requires a prolific volume of customers, money and mental fortitude.

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As a business owner, you become the source of capital and work with the important goal of

existing and surviving (Scott & Bruce, 1987).

At the start-up phase, getting more customers is priority number one. Sadly a lot of

business owners fail at this stage since they invest in all the wrong things such as business

cars, corporate refuge houses and fancy clothing. Even owners with engineering backgrounds

adhere too strictly to their delicately detailed product plans and forget to scrutinize the simple

act of identifying, attracting and selling to costumers (Scott & Bruce, 1987).

In the article Five stages of growth into small business, authors Mel Scott and Richard

Bruce describe the owner as the one responsible in driving main values through the business

(1987). The basic skill of the owner also affects the functional emphasis of the business, for

instance an engineer would probably focus on production whereas financial managers would

emphasize sales. In essence owners’ main efforts should be developing a commercially

acceptable product that has a chance of existing in the current market-place. Difficulties in

reaching this will vary from business to business (Scott & Bruce, 1987).

At the inception of the business, resources will be minimal meaning usually one operating

unit with limited communication and distribution channels. There will almost certainly be

difficulties receiving enough funds and the owner will have to rely heavily on “friends and

relatives” (1987, p.49) that can expect a high level of uncertainty in their risky investment

(Scott & Bruce, 1987).

In the same earlier mentioned article, the authors depict a most likely to happen scenario

that depending on what decisions are made in this stage, can either make or break your

business venture. Owners that come in agreement with the demands placed on their finances,

time and energy can settle into stage 2 enterprises where they confine themselves with the

rigors of simply surviving (1987,p.49). The same can’t be said for owners who underestimate

the demands it takes to occupy market-place. The business will eventually meet its expected

demise since spending time in the early stage will most likely sap resources and strength

(Scott & Bruce, 1987).

The gradual onset into simply surviving requires some emergent strategies that shift focus

to meeting the demands earlier discussed. Focus needs to be redirected from establishment

and product development to being able to generate a positive cash flow, this ordeal requires 1)

the emphasis on profit. Minimizing losses in this stage is crucial and will most certainly

require a new management style that places concentration on profitability (Scott & Bruce,

1987). This push for profit will undoubtedly require formalization of documenting and record

keeping. The demands for good administration skills will have to be met and if the owner

lacks the capacity he needs to make sure that the 2) administrative demands are met by

assigning a task force to handle such matters (Scott & Bruce, 1987).

Increasing profit and setting up administration means 3) increasing activity and the

demand on time which means excessiveness in work done. The owner will have to delegate

supervisory tasks to the managers and failure in doing so will cause backlogs, bottlenecks and

confusion in the organizational structure. It is evident that setting up shop requires skill,

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experience and patience. Setting up to survive is a better mindset than setting up to succeed in

the initial phase of business ventures (Scott & Bruce, 1987).

Strategic management in the start-up phase: founding a new business is a strategic decision

made by the entrepreneur, the nature of the decisions are non-routine and need to commit

resources that allows the existence of the new business theme (Cooper, 1981). The decisions

are according to this article, influenced by three broad factors: firstly by the entrepreneur and

his many motives and skills coupled with background and experience. In second by the

entrepreneurs’ previous work place whose characteristics will affect the nature of the new

business. In third there are various environmental facts that affect the individual and

organization externally (Cooper, 1981).

If ever there existed a cookie-cutter manual for business owners, the article written by Julia

A. Smith would be one. In the paper, a dozen high performing micro-business have been

thoroughly studied and their methods have been documented by Smith resulting in a

theoretical model that suggests patterns and behaviors that if applied by new business owners,

can turn the hands of time (1998, p.868). The strategies introduced according to Smith:

“...when implemented, help the owner-manager of a new small business to achieve growth

and profitability...” (1998, p. 868). The following strategies illustrate key goals and how they

should be approached when starting new businesses as predicted by author Smith (1998).

Targets - set long-term targets with quantifiable financial goals that are adjusted and

compared to forecasts figures. Improve shortcomings and hinder shortfalls by analyzing

performance and where problems might arise; this includes the performance of employees.

Objectives - clear future objectives with business goals not being overzealous. Aim for long-

term profit within a specific niche. Cut costs wherever possible and differentiate your product

from your competition.

Policies - Always learn from experience and have the willingness to go along with change. Be

adaptable and flexible and listen to the waves of change that occurs in the market-place.

The above-mentioned suggestions take on a more holistic approach to starting up new

businesses. The article written by Smith goes on to describe secondary attributes that can be

internally used within the business. They include the following suggestions: Decision-making

should be autonomous and considerate of employees’ propositions, whilst being short overall

and not too time consuming (Smith, 1998). Furthermore, the quality of the work should be

high and monitored on a regular basis, awareness of new products and keep-up to date with

new market products is also a must for owner-managers. If possible, give guarantees to

customers that their product is not a disservice but a luxury (Smith, 1998).

Communications within the business should be efficient, swift and verbal with meetings

always being prioritized, discussions should be documented however don’t get stuck on every

formality. The two final attributes consider the use of IT and financial tools to aid the

business, these two pose an eminent importance when handling businesses in any scale

(Smith, 1998, p.868). The setting up, following up and correct use of these two guiding tools

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is of outmost desirability when planning to work in a business that wants to stay in business

for a very long time (Smith, 1998).

To end the article author Smith finally suggests three fundamental principles that are

intangible in nature and focus on improving a cognitive ability that successful small

businesses have used in the past. Smith describes Awareness, commitment and motivation as

three beneficiary facts that need to be imprinted in the minds of both owner-manager and

employees (Smith, 1998). Understanding the demands of the market, the development of the

market-place and generating profitable outcomes are all very dependent on personalities that

are motivated and driven to take the business to new heights (Smith, 1998).

3.9.2. Survival Stage

The survival stage describes itself; it’s all about surviving and to establish a solid business

base for the future. If a business reaches this stage it’s probably a workable business entity.

As the business expand and grow the need of making a working capital is fundamental, this

requires the ability to finance increased inventories and receivables. This may lead to that the

owners and his personal sources of finance continue to bear, that’s why short-term loans are

common at this stage (Scot & Bruce, 2005). At this stage the level of competitions is

uncertain but it’s highly likely that if the market is coveted it will be attracting competitors.

Often at the early stages the barriers for entry this market are low which means that the entry

of new competitors will be simplified, which will making the success entirely based on

differentiation more difficult. Here it’s important that the business idea is feasible and that

there is a credible business model to deliver the product or service to an attractive market,

which was created in the previous stage. Most likely will the product line be specific with the

possibility of growth appearing with the market expansion and the network distribution.

According to research done by Scot and Bruce (2005) the most likely crises for a business

at this stage is to remain in the survival stage for some time earning margin returns and in this

way reduce the chance of growth. That’s why at this stage it’s vital for the business to decide

on their own or because the competition intensifies, to grow and to move on to the next stage.

Before moving on to the next stage Scot and Bruce (2005) explain that there are other

possible crises that the business needs to deal with.

Overtrading often occurs when companies expand their own operations too aggressively

and enter a negative financial cycle which consists of interest expenses negatively affecting

the profit and borrowings which in time will consume the working capital. This negative

cycle will prevent the business of moving on to the next stage or in the worst case even cause

liquidity. There are two ways of preventing this uncontrolled growth; 1) curb the growth, but

this also leads to that the business stays in the survival stage; 2) continue to grow, but to bring

the growth under control, this requires a more controlled system which will require the

business to move to the next stage.

As the drive for sales growth increases, so the existing customer base will need to be

expanded. The increased complexity of expanded distributed channels requires the business to

operate in other areas or selling to a different type of customer. In order to succeed at this

part, the management needs to adapt its practice accordingly to the different norms of the

targeted market/industry.

When a market is coveted and attracts new and competitive companies, the importance of

maintaining market, strengths and advantages becomes vital for the business. Change in the

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basis competition will lead the business to stretch spans of control, and the need of new

knowledge and financing will be required. In order to maintain an equity base, further capital

need to be issued, and in the case of considering new partners it’s likely to lead to new

demands on the business and management.

All of the above mentioned crises will put huge demands on the business’s information

systems. The pressure for information will lead to price competition and the market will

demand cost control systems. In that case budgetary control will be included and the business

needs to bring in financial expertise. This will cause a change in management and threaten the

existing power base. But if the business can handle and overcome these crises, the urge for

growth will lead the business into the next stage.

As a new business get established and have a solid base for continuity, the responsibilities

and business decision made by the management become more vital for the survival of the

business. Often it’s typically for the founder to attain the most responsibilities of the business

such as direct contact of activities and decisions. According to Cooper (1981) the many

businesses of modest potential stabilize at this point with often no employees, while other

businesses continue to grow by expanding the knowledge and experience within the business.

At this time the founders should delegate decision to be made, but not particularly strategic

decisions, that’s why it’s appropriate to sometimes according to Cooper (1981) have

additional management for specialization in areas where the founder don’t have the required

knowledge. Research done by Duchesenau & Gartner (1988) supports the fact that in

successful businesses the use of outside professionals such as consultants and advisors was

important when solving specific problems. The success of new ventures was also dependent

on advice and information provided by other participants, specially customers and suppliers.

Furthermore Cooper (1981) also claims that for early start-ups there are issues that can cause

companies to get stuck at the same stage and hinder growth. Sometimes the assumptions of

the underlying strategy for the business prove to be flawed, and the business eventually

consumes the working capital before reaching the break-even point. The research shows that

it’s at this point the founder often change their strategy. However, much will depend on the

“improved” strategy, because founders often seem to be stubborn people with a dream and not

really accepting or understanding the actual requirements of adjustment. Duchesenau &

Gartner (1988) also confirm that successful entrepreneurs sought out information, both good

and bad, but also they were aware for any information that could help them to improve the

ventures performance. Less successful entrepreneurs were personally rigid and less willing to

recognize problems and willing to accept advice from others.

When dealing with the stage of survival of a venture the meaning of change could become

vital in order to grow and move on to the next stage. When changes do not build on the status

quo but overthrow it there is a revolutionary change. These changes revolt against the existing

business strategy and organizational systems to make a discontinuity in the development plan

of the business (Wit & Meyer, 2010). These changes are generally needed if the business

wants to grow and overcome crises. If it appears that the business is so rigidly rooted in the

same structure and organizational strategy that smaller “pushes” don’t influence a movement

in the management of the business or that they threaten the business to become paralyzed,

then the only solution to grow and survive at this stage is to break from the past and step

outside the comfortable zone. According to Wit and Meyer (2010) there are some difficulties

called “resistances or pressures” to change and are described below.

Probably the most likely resistance of causing a business to get paralyzed and in worst case

can lead to liquidation is psychological resistance to change. As people become comfortable

with and personally fixed to the routines and habits of the business, there are most likely some

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uncertainties and ambiguities when it comes to changing a business’s organizational structure.

In order to overcome difficulties there must be a necessity to break through this psychological

resistance in order to approve a revolutionary change for the better (Wit & Meyer, 2010).

When the market is changing the position of the business could be threatened from the

pressure of the competition. This could also set the business into a downwards spiral into

insolvency, which can only be solved by a short time strategic modification for a larger

change. This requires a rapid and dramatic response that possibly will lead to a disconnection

from the spiral and reverse the moving direction. Competition have a huge impact on a

business’s success or failure, it can contribute to structural change and change the

performance of a business (Wit & Meyer, 2010).

The competitive strategy of a business is an extremely important tool if the business wants

to have a pleasing share of the market. In any industry, whether its product, service, domestic

or international the competitive strategy of a business should manage five competitive forces;

the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the

bargaining power of suppliers and the rivalry among the existing competitors. The collective

strength of these five forces can determent the market share and market success of a business.

Keep in mind that these forces can vary and change as an industry evolves. Because every

industry is unique the importance of the five forces will vary and though a business’s

competitive structure can rest on understanding the five forces better than the competitors, the

business should not be a prisoner of its industry’s structure. This should allow the business to

see through the complexity and use the five forces in order to create an advantage and

pinpoint critical factors that will improve the business’s profitability in order to grow and

advance (Wit & Meyer, 2010).

3.9.3. Growth Stage

When the business moves in to Growth stage from Survival after overcoming all the crises

encountered, it starts to earn profit. Scott and Bruce (1987) suggest that the profit earned at

this stage has to be spent back in organization for providing it with bigger financial and

capital resources. At this stage the role of financial manager becomes more demanding. The

financial resources find its major flow towards research and development unit of organization.

How well organization performs and continue to grow depends on largely upon the

management if they have taken some good steps for handling all the crises arose during this

stage. The most likely crises as of Growth stage as described by Scott and Bruce (1987) are

1) Entry of large competitors 2) The Demand of expansion into new market.

As the organization continues to grow there are the possibilities of crises as increased

competition from the market. The competition in this stage will be different in previous stages

like in inception and survival stage. In Growth stage the competition from market have

benefits of economic power. The big giants who are already dominating the market will use

weapon of economics to capture the market for which the organization is growing itself. Scott

and Bruce (1987) have the view that this economic war will directly impact and create

pressure on the products or services being offered by organization while growing. To handle

the competition in growth, considerable amount of time and competitive resources are

required.

The response of organization to entry of competitors while growing will give rise to

another issue of expansion in new markets or to come up with new product or services

innovation. To expand in new market or to come up with new products in existing market will

requires meticulous planning and huge amount of resources utilized more efficiently. The

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utilization of financial resources for growing while having effective control over the

operations becomes a key issue for management of organization. The management’s efforts

are more focused towards control and co-ordination as the organization grows in different

areas. At this stage somewhat decentralization is considered to be good for overcoming the

key issues and growing in new market areas.

The article by Cooper (1981) has focused on the process for developing the strategy in new

and small businesses for growth and the resultant strategy as response to initial strategy. Also

the new ventures within already existing growing business have been taken in to

consideration while discussing the strategy because new ventures finds analogy with new and

small growing business. Cooper (1981) explained that decision making becomes more crucial

for management as the business is established and continue to grow. Cooper (1981) defines

the strategy context for business at three stages which he classifies as: 1) The start-up stage 2)

The early growth stage 3) The later growth stage. After the successful launch of new venture

by, organization will enter into early growth stage but then organization will be in need of

effective strategy to continue the pace of growth. Here the two stages of growth are discussed.

Strategic decision taken by organization by time it gets stable might vary from industry to

industry. In the early stage of growth, the resources available to organizations are limited. The

financial resource is becomes the main limitations. Due to small economic power

organization is only managing small products and market which becomes a risk as it doesn’t

provide enough cushion to handle the bad decisions taken. The good strategy at this stage is to

go for finding new markets with new products. The steps taken for innovation by organization

for development of new markets and products are effective at this stage. Also, at this stage of

growth the decision making is rather quick this becomes the strength of organization. Cooper

(1981) recommends that at this stage of growth, organization needs to focus on its

competitive edge over existing competitors and it must avoid a direct competition. The key to

success at this stage is to focus on specialized markets by evaluating a rapid market change.

The strategic planning during early stage of growth is important for organization with more

focused towards mechanism for identifying the problems and to evaluate the implications of

current strategy (Cooper, 1981).

At this stage as the organization size increases to high level, the internal environment level

undergoes a change process in which the roles and responsibilities are dispersed among the

functional levels of organization. The need of formal processes becomes demanding to have a

control over the operations of organization. The changing internal environment contributes for

making strategic management more effective at this stage. The organization has plethora of

financial and human resources at this stage. The increased competition from market can be

handled by effective usage of resources available to organization.

Although there are plenty of characteristics which contribute for growth of organization

but the most important one is the commitment to achieve the growth. Therefore specific

business growth objective is important in business performance and the growth of

organization. Dobbs and Hamilton (2006) have explained following approaches for growth of

organization for new ventures.

The more successful organization in developing and retaining the skills the more

probability to implement and maintain a growth oriented strategy more effectively (Barringer

& Jones, 2004). Management of the HRM (human resource management) practices is critical

for organization to achieve and maintain rapid growth.

Organization at their early stage have less economic resources available comparable to

larger competitors therefore their growth is more associated with innovation rather than price

of products. Organizations that put their efforts for developing new products in already

11

existing markets or finding new markets for their existing products will experience the growth

(Barringer & Jones, 2004).

Financial resources particularly cash imparts good value to business growth because it will

give the opportunity to get other resources. If organization is unable to make sure the

availability of cash or any external finance then it will restrict organization to fund for

operational and getting the new markets or innovating new products (Barringer & Jones,

2004).

The characteristic of flexibility in terms of response to market change is quite important for

new venture to grow. It is of most importance for organizations to grow that they predict

possible market changes in advance to adapt their operations and product accordingly thus

securing valuable position and continue to grow (Barringer & Jones, 2004).

The growth stage of organization could come up across several issues which have to be

overcome for continuity of growth. The growth of organization could be hindered due to

pressure of competition. The extensive competition could lead the organization to insolvency

for which short but emergent strategic plans can rescue the business from falling down

(Barringer & Jones, 2004).

Wit and Meyer (2010) explained business system as interrelated configuration of its

resources, activities and product/services being offered to customers. The competitive

advantage of organization is solely dependent on the superiority of its products/services

available for customers. Therefore success of new business, the superior value of organization

is most important key factor. At growth stage the strategy must be to provide the products and

services more customers focused rather being competition focused with already existing

organizations. Product offering by organization gives competitive edge over already existing

suppliers thus making the success factors higher for growth. The other factor which enables

organization to have competitive advantage is Resources. The resources which could be

acquired for growth by gaining competitive advantage could be facilities and money.

Facilities include human resource, operations and innovation capacity of organization. All

these factors contribute towards product offering to be competitive.

The competitive strategy of a business is most pertinent tool for gaining market share. In

any industry, whether its product, service, domestic or international the competitive strategy

of a business should manage five competitive forces; the entry of new competitors, the threat

of substitutes, the bargaining power of buyers, the bargaining power of suppliers and the

rivalry among the existing competitors. When combine together five forces, it will determine

how well organization manages to overcome these forces will give market share and growth

success (Wit & Meyer, 2010).

3.9.4. Expansion Stage

In this stage it is crucial to restructure and systemize the project management structure of the

organization, business politics will become a major issue for the first time. Budgetary control,

regular management reports and decentralized authority accompanied by formalized

accounting systems are the basic features that are included (Bruce and Scott 1987).

Long term funds now becomes an necessity just as in the growth stage and all the equity

partners that were not introduced in that stage will now have to be sought of and have a

position in the organizations development. Instead of putting all focus on retrained earnings in

the finance perspective, dividends now become more important in order to attract new

investors. The business has now the opportunity to seek out for long term debts which will

help the expansion of the organization, this also means that security has to be provided in

form of the business’s assets (Bruce and Scott 1987).

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Experienced and professional managers will have to be introduced that does not share the

same commitment with the managers that were involved in the business from the early stage.

This can cause a potential dangerous situation since the new managers will unlikely make

sacrifices “for the sake of the business”. This situation can be referred as a crisis of culture. If

the firm is not managed in a proper way there is a high risk of dropping back to the growth

stage or even disappear completely if growth has got out of control (Bruce and Scott 1987).

On the other hand, depending upon the competitive environment, the business may

continue to operate successfully. If the industry is growing then the business has the

opportunity to take capital gain. As long there is an opportunity for growth, the business may

proceed to the next stage if they have a desire for it (Bruce and Scott 1987).

According to Scott and Bruce (1987), there are two crises that will most likely occur

during the expansion stage, these are:

(1) The distance of top management from the ”action”: If growth is maintained to long,

the entrepreneur/founder will eventually put himself further and further from the goal and lose

his role as a decision maker, and instead put more focus on watching and planning. The

founder will in other words put himself in a position that is completely against his nature, the

nature that allowed him to set up a new business with the traditional power base of an

entrepreneur. The professional managers will instead gather more power and have a more

significant role when it comes to decision making.

(2) The need for external focus: To maintain a competitive advantage, a differentiated

product that exceeds the competitors is needed. To do this, the business has to put more focus

on the customer needs and adapt the product, including the promotion to those needs. By this

stage of the model many firms have only been internally focused with the product dominant.

What is important to know in this stage is that, while the industry is maturing so does the

competition for sales. An intensified and turbulent operation environment is inevitable, and

this increases the need to be proactive and anticipatory. External emphasis and adaption of

management style helps the organization to proceed.

3.9.5. Maturity Stage

A small business may keep growing until it is so close to the outer edge of small businesses,

from where businesses could be considered small anymore. The conventional lifecycle

concept defines this phase where this edge is located as maturity, whereas Scott and Bruce

(1987) think that small businesses are still growing in the maturity phase. There are three

main issues need to get some management attention during maturity stage including

productivity, control and find further growth opportunities. There are two main common

strategy choices regarding how to control a small business in the maturity phase. It could be

that the authority lines are reorganized along product lines or kept organized along functional

lines (Scott & Bruce, 1987).

According to Cooper (1981) in the discourse of organizational control and governance, the

behaviours of small businesses in this stage is characterized by stabilizing and maintaining the

environment in which the main entrepreneur together with a small management team are in

direct contact with the key functional activities, where each member in the management team

is responsible for a specific function. On the other hand, small businesses that have

orientation toward growth may decide to add additional management level, preparing for

further growth. The international environment of growth oriented small businesses is then

more exposed to changes. A lot of operational responsibilities that are directly executed by

the management team will be delegated, while their work will involve more managerial

responsibilities than before. However, team managers should be still involved in significant

13

and pivotal strategic operational decisions. Developing different or standard formal ways of

communication with employees becomes necessary at this point. In small businesses, there is

a direct contact between managers and employees, but this seems to be difficult to only rely

on as a way of receiving information and updates related to many products and customers. In

the same discourse of organizational control, growth oriented small businesses should

consider developing policies whereby more formality is occurs. Furthermore, since many

entrepreneurs have shortcomings in doing the managerial tasks, the growth may experience

hard time. Therefore, it is very necessary for management teams to see the need for

developing their skills in managing through others and developing a reliable organization

(Cooper, 1981).

The underlying changes in the internal environment may bring both benefits and

limitations in terms of effective strategic management. While there is an advantage behind the

fact that management teams will have more time for planning and the growing business

increasingly needs additional resources to support particular activities and withstand

competitors’ challenges, growth however decreases the stability of operational control.

Besides, growth may undermine management’s feel for competitors, markets, and

organizational capabilities (Cooper, 1981).

The second main issue managers experience during this phase is the price competition that

calls for certain enabling levels of productivity. Otherwise, it will be difficult to compete with

businesses connected to large enterprises and create success and innovative thrust. To reach

such competitive productivity level, major investments maybe required in both marketing and

operational infrastructure areas. Usual profit earnings could be seen as input for such changes.

Nonetheless, the risk to continue losing the advantage of competitive prices may be sustained

from the fact that large businesses are in general improving in a rocket pace (Scott & Bruce,

1987). Additionally, according to Cooper (1981), growth-oriented small businesses are mostly

thriving in newly-developing industries, in which market demands are changing rapidly.

Therefore, the strategic implications of industry lifecycles are extremely important to be

aware of; otherwise many new small businesses are more likely to experience a shake-out as

the stronger competitors seem to enlarge their market shares.

“The extent to which small firms survive and prosper as an industry matures appears to

vary widely, but the reasons for these differences have not been examined

systematically” (Cooper, 1981, p 44).

Therefore, major relevant investments could be seen in particular contexts as a surviving

option. For instance, a business that completely relies on products, it must develop new ways

to grow the value of its business in the maturity stage. If the earnings for a small business are

sufficient enough to continuously invest in the changes in order to stay competitive, it is more

likely that the maturity phase will be passed smoothly toward the world of medium and large

businesses. However, such underlying profit margins are not that common in the world of

today where fierce competition could be found in almost every single industry. Therefore, in

this stage, it is expected that a business will shrink its operations to tightly cut costs.

Moreover, there will be a main couple of strategy option including flotation and acquisition.

In both cases, the business management will no more execute entrepreneurship; instead, they

have to deal with shareholders’ pressure. It is though a fact that the entrepreneurs of small

businesses should be aware of since after making a decision toward either flotation or

acquisition, it is extremely difficult or sometimes even impossible to come back and play the

entrepreneurial role again (Scott & Bruce, 1987).

Innovative strategies are for many growth-oriented small businesses their most important

asset to succeed. There are many environmental conditions suggested by many authors as

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conducive to innovation. One factor lies in having more information decision process, which

is not an attractive condition for many executives. The other factors include lack of

commitment to the status quo, low costs of development, low sales requirements to be

successful. Nevertheless, innovative small business should beware of the growing competition

that may rapidly turn into a fierce one (Cooper, 1981). In other words, if it is assumed for

instance that a small business manages to have the advantages of financial resources,

experienced and well-trained staff, and well-developed systems, there would still be a need to

consolidate and control the results of growth. Besides, retaining the advantages of

entrepreneurship such as the entrepreneurial spirit and flexibility becomes more challenging

as the size of a small business increases. Furthermore, other forms of challenges may include

the owner’s strategic ability, his/her financial resources and management skills, his/her

business and personal goals, management personnel, and established systems. Finally,

maturity stage maybe skipped for some special cases (Eggers et al., 1994).

4. Cases Studies:

4.1. Inception - Why companies rise and fall

Blog and website Readwrite asked and interviewed eight different start-up founders from the

Young Entrepreneur Council (YEC) why their businesses failed at start-up and what they

would’ve done differently. The majority of these founders worked in the Silicon Valley, home

to some of the world's most innovative companies.

- The first business worked with sustainability and tracking peoples’ habits when it comes

to recycling and taking sustainable actions in general. The reason for the failed start-up was

not having a narrow focus, we should have focused only on one aspect of sustainability says

founder Aaron Schwartz.

- The second business claimed they entered the market too early because they had a

concept that was unheard of at the corporate level at that time; namely the invention of social

medias explains Benish Shah.

- The third business attributes its demise to not looking at the vital signs of the business in

terms of numbers. The reason for the decline was not managing cash flow correctly says

founder Ken Healy.

- The fourth business wanted to promote a site that allowed job advertising. The reason for

its failure was bad timing explains founder Kasper Hulthin who created a concept during a

time in which jobs where modestly attainable.

- The fifth business attests to the fact that having an audience is key. It matters not how

innovative your product is if it doesn’t receive the attention it demands. We didn’t have an

audience explains founder Brian Moran.

- The sixth business became a victim to mutiny with employees taking completely over. Be

careful about who you hire says founder Ziver Berg who since then always protects himself

legally.

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- The seventh business wanted to launch a apartment listings website, things went south

when management had conflicting motivations about what direction to take. We had different

motivations explains founder Nathan Lustig. The morale is to hire people who are committed

to your ideals and are willing to do the work.

- The final business confesses its failure to not spending enough time on worst-case

scenarios. Planning without risk analyzing is planning to fail explains founder Trevor Mauch.

The format of this case-study is perhaps unusual and unique but it brings to light not only

one but eight different reasons why start-ups can fail during its first voyage. The reasons

evidenced are very much in agreement with the suggestions that have been given earlier in

this first stage paper.

4.2. Survival - A Content Business Weighs Becoming a Technology

Business

As a new venture with business potential and a decent business strategy, the urge for growth

and success are important factors. The empirical part describes a case business on a path to

create a solid profitable business (Borzykowski, 2014), but with some upcoming crises. As

described in the description of the survival stage (Scott & Bruce, 1987), common crises occur

where most companies have to make a change in order to overcome the interference. The

business enters a clear case of the most common crises, remaining in the same stage for some

time and only earning margin revenues and reducing the chance of growth (Borzykowski,

2014). At the same time a change in the basis competition or by a different name the pressure

of the competition (Wit & Meyer, 2010), is happening, where similar companies enter the

same market and occupies possible clients and limit the actual revenues that the business

could have made. Not included in the article but is a fact, this event leads to a more

competitive market where pressure for information cause a price competition and in time

price control (Wit & Meyer, 2010), this also limit the actual profit that the business could

have made. The biggest pressure is on the owner, who has to deal with the crises and make

hard decision what to do next in order to overcome these crises. One of the proposed options

is to increase complexity of expanded distributed channels (Borzykowski, 2014), which will

lead the business to operate in other markets or selling to different type of customers. This

solution requires the management of the business to become flexible and adapt to the norms

of other markets. At this point the owner must avoid so called psychological resistance to

change, because a change is the only thing that could save the business (Wit & Meyer, 2010).

Another possible factor that could have a huge impact is that the business stands rigged rooted

in the same market and only offer a limited type of service (Wit & Meyer, 2010). This leads

to that the chances are vast that the business becomes paralyzed at this crisis and the only way

to overcome is to change.

4.3. Growth - Preshafood Limited Case

Business strategy provides a competitive edge for the organization in market. Strategy

provides a path to follow for achieving the goals of organization. The business discussed here

for empirical review is Preshafood limited, Australian based organization, established in 2006

and launch of fruit-based products in 2007. Preshafood started its operation as small

organization but gained market-position by growing faster within couple of years. Preshafood

growth was influenced by below enumerated strategy factors, which enabled a small business

to grow into one of market leading organization of its type. The key focuses were:

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innovation,

new product development,

market development,

and financial resources.

Preshafood came up with innovating processing of fruits with technology called High

Pressure Processing of juices which is not a traditional way of manufacturing juices.

Preshafoods claimed that this new product development is result of innovation and its

technology is the reason for the taste of juices and market rapid growth. Preshafoods had

developed its initial product development at Food science Australia’s Innovative Foods

Centre. This joint venture of innovating new product has enabled the limitation of less

expertise as a new organization in market for Preshafoods. After a successful business in

Australia, Preshafood had expanded its business in new emerging markets of Singapore, Hong

Kong, United States and Europe. The growth of business for Preshafoods can be seen its race

with big competitors where it had beaten many of global giants already in the business of

beverages and Juices such as Pepsi and Coca-Cola by winning the award of International

Beverage Innovation Awards in 2009. As the growth requires plethora of financial resources

and Human resources, Preshafoods had managed for cash flow through the platform of

Australian Small Scale Offerings Board (ASSOB). Thus overcoming the problem of working

capital for growth, Preshafoods had managed to invest in day-to-day operation of its business

(Sykes & Crawford, 2012).

4.4. Expansion - The advertisement company

Rich Kramarik (2008) presents a case study in which this unspecified advertising agency

CEO with 25 years of experience expands her business. She started by hiring a staff of senior

advertising executives from around the country and she only hired those who were considered

to be the best. She kept the company from growing beyond the level it was currently in,

because based on her research, the stress on margin would become significantly higher. She

later on decided to add more creative and sales staff in order to grow the business; this is

when big problems emerged. She had proved what she had learned in her research. The

margin went beyond control and the sales were not growing as she had anticipated. The new

staff was not following and taking advice from the older experienced staff because they

wanted to live up to their expectations and make a mark in the industry. Decisions were made

consensus, and she had no managers to help her manage her company. By hiring people with

different culture that opposed her own company’s she created more problems than solutions.

Her research made it clear that she would lose cash, but she didn’t expect it to be in this

magnitude. She did not have a clear management structure to assist her business.

4.5. Maturity – Should a Small Retailer Stay as Small Mature Business

A small retailer business in Australia experienced a failure of managing the maturity stage of

the business life model. The sales curve experienced a stable performance before the gradual

decline occurred. In fact, the profits stayed stable over the beginning of the decline period,

which deluded the owner of the business. The growth of sales started to diminish after the

large retailers entered the areas that were representing the major parts of sales for the small

retailer. Large retailers could as expected offer lower prices in these areas. Moreover,

investing on innovation and customer service was relatively modest. The investment strategy

was based on the business’s profit or earnings. The management style of the owner was

17

purely entrepreneurial. He preferred controlling employees using his intuition and a direct

contact, keeping the management level tightly centralized in order to ensure the stability of

the internal environment of the business (Sykes & Crawford, 2012).

As a result, the better service and products the competitors offered caused a tragic ending

since a bigger retailer acquired this smaller one. The small retailer organization has been kept

as it was, but a five-year business turnaround program has been undertaken to grow the values

of the business. In 2010, the small retailer became no small anymore, having 95 hotels, 775

liquor outlets and 763 supermarket stores among other customers. The humanistic force has

hugely grown up to 113 thousands of workforces approximately.

The key factors behind that remarkable success had been built upon the turnaround

program. First, in-store offerings have been radically improved so that they meet the needs of

the customers including bakery, dairy, and delicatessen. Similarly, products’ on-shelve

availability has been also improved. In addition to that, prices have been cut by approximately

2% within one year, 2009/2010.

Secondly, the turnaround business led to respectful customer service, even though it took a

while, customer service level started to be perceived as premium one as the case for the large

competitors. To enable such improvement, the right productive training has been conducted

using the same techniques that the managers were familiar with including enabling

certification-based online instruction, providing video instruction to customer service

standards wanted, and staff mentoring from department managers. The rewarding system of

the business also included rewards such as merit certificates and performance-based bonuses

to whom are strictly following the high standards.

The new senior management has in the first stage of the turnaround strategy invested in

changing the business culture, building a strong leadership, improving the standards of a store

renewal program and product availability. After that in the next phase, the emphasis is on

embedding the new store-focused culture, improving in-store customer service, enhancing in-

store value and fresh offering, driving higher business efficiencies, and moving to a new store

formats facilitating scale roll-out.

The revenue showed extraordinary results. It was clear that the turnaround strategy was

successful to first push the business back to the maturity stage, and then enter the world of

medium then large businesses (Sykes & Crawford, 2012).

5. Analysis

5.1. Inception

The difference between theory and the case studies is subtle and self-evident. There are

probably a thousand ways in which start-ups can fail for new business ventures; however the

reasons discussed in this paper are realistically more pronounced in the business world. You

reap what you sow is a common theme in all articles that come with suggestions for new

owner-managers.

If we look at the case-study made by Readwrite.com all the founders had initial conflicts

with the businesses they were trying to start, the majority of them are now happy in new

successful business ventures as per according to the article (Real world stories, 2013). It

18

seems that yes you can learn from your mistakes, and the take-away message here is maybe

that new business founders shouldn't get too caught up in every intricacy that they encounter

during the setting up of shop.

The overall sentiment or "tone" if you will it in most of the theory discussed is that owner-

managers should take a more holistic view into account when approaching their first project

businesses. If we look at the writings of author Julia Smith in the article Strategies for Start-

ups (1998), she reserves a great deal of her paper discussing external factors that are very

cognitive based. Smith also talks about being aware of your surroundings and taking a

perspective that allows total commitment (1998, p.868).

5.2. Survival

As a new venture with business potential and a decent business strategy, the urge for growth

and success are important factors. The empirical part describes a case business on a path to

create a solid profitable business, but with some upcoming crises. As described in the

description of the survival stage, common crises occur where most companies have to make a

change in order to overcome the interference. The business enters a clear case of the most

common crises, remaining in the same stage for some time and only earning margin revenues

and reducing the chance of growth. At the same time a change in the basis competition or by a

different name the pressure of the competition, is happening, where similar companies enter

the same market and occupies possible clients and limit the actual revenues that the business

could have made. Not included in the article but is a fact, this event leads to a more

competitive market where pressure for information cause a price competition and in time

price control, this also limits the actual profit that the business could have made. The biggest

pressure is on the owner, who has to deal with the crises and make hard decision what to do

next in order to overcome these crises. One of the proposed options is to increase complexity

of expanded distributed channels, which will lead the business to operate in other markets or

selling to different type of customers. This solution requires the management of the business

to become flexible and adapt to the norms of other markets. At this point the owner must

avoid so called psychological resistance to change, because a change is the only thing that

could save the business. Another possible factor that could have a huge impact is that the

business stands rigged rooted in the same market and only offer a limited type of service. This

leads to that the chances are vast that the business becomes paralyzed at this crisis and the

only way to overcome is to change.

5.3. Growth

All the theories for growth stage of small business have discussed factors which if

implemented as strategy will lead to successful growth of organization. The case study used

here for describing the strategy for growth is Preshafoods. When small business starts to

grow, the good strategic act will be to invest back all the profits earned into business for

providing sufficient availability of financial resources for business growth (Scott and Bruce,

1987). The early stage of growth for small business has more limitations for financial

resources and the focus of business is directed towards more innovative products or services

for customers giving it a competitive edge over already existing market share holders. The

case study used here for describing the strategy for growth is Preshafoods. The product

offered by Preshafoods to its customers was based on highly innovative process for juice

packing which was not used by any of already existing market leaders thus giving a new

direction of taste in juices for customers. New innovating idea of Preshafoods was its key to

find a place in market. The finances required for bringing up the innovating product was

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acquired with help of ASOOB who had been working as fund raiser for small growing

businesses by finding the investors. Cook (1981) suggested that during early stage business

strategy must involve the steps to avoid direct competition with market giants. Preshafoods

started to focus on customers of other giants of juice manufacturing including Coca-Cola and

Pepsi which could have affected its growth if its competitors have brought up the products of

same innovation because financial economics would have not been issue for these kinds of

competitors who were the market leaders of time. Dobbs and Hamilton (2006) stated that in

later growth stage of small business good strategy to grow would be to find and develop new

emerging markets. The strategy of Preshafoods for developing new markets was based on fist

gaining market share in Australia then expanding in other markets and it had successfully

developed and captured new customers in Singapore, Hong Kong, United States and Europe.

The strategy of small growing business must not ignore the factor of flexibility to adapt its

innovation and product to changing market demands. The strategy of Preshafoods lacks the

flexibility for having different innovating products with different target customers.

Preshafoods must not depend only on its one innovative product while competitors have edge

of having larger portfolios of products with more customers focused depending on market

demand.

5.4. Expansion

The case of the advertisement business was used to underlie the assumptions made by Scott

and Bruce (1987). The case describes a business that has a high ambition to expand, but is

now on the verge of dropping back to the growth stage and maybe even worse, disappear.

Scott and Bruce (1987) states that the structure of the organization will change, business

politics will become a major issue for the first time. In this case the CEO hired staff that did

not cope with the already existing one, created what Scott and Bruce refers to as “the crisis of

culture”. The need for external focus was not reflected upon which resulted a lack of

budgetary control, sales were not growing as anticipated. Regular management reports were

lacking because of the centralized authority and lack of structure in the management

department. The CEO did not trust her experience and research.

5.5. Maturity

The case of the Australian small retailer reflects a lot of theoretical opinions regarding

strategic management in the maturity stage of small business growth life model. According to

Scott and Bruce (1987), in the maturity stage a small business is doing a good job and making

the best of the available resources. They however emphasize the significance of choosing a

strategy by which a business owner decides either to keep everything stable, focusing on

improving the organizational efficiency, or keep growing until exceeding the outer edge of

small businesses to be a medium or large enterprise after that. Both strategies are visible in

the small retailer case. The business owner made a decision to keep the organization in the

maturity stage in order to gain more profit and avoid additional cost required for various

investments, even if they are relevant to the business. As a result, the big guys (large retailers)

were expanding their market share naturally to collide with the areas that represented the most

profitable for the small retailer. The performance of large retailers outweighed the small

retailer. Therefore, there is a high hidden risk in waiting long time in the maturity stage,

especially if the competitive advantages of a small business are not core ones that touch

customers’ needs, or even easy to be recognized and rectified by the big competitor in a way

makes them, for these competitive advantages, even with that small business from a customer

point of view.

To continue growing in the maturity stage as a strategy is also clear in the case after the

small retailer has been acquired. The investment was set in form of a turnaround program by

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which the three main issues addressed by Scott and Bruce (1987) including productivity,

control and further growth opportunities are resolved.

Scott and Bruce (1987) suggested two main common strategy choices regarding how to

control a small business in the maturity phase, which maybe that the authority is organized

along either product lines or functional lines. As found clear in the case, the business owner of

the small retailer preferred to keep the authority organized along functional lines in order to

personally control everything using his intuition and direct contact with all employees. That is

very close to what Cooper (1981) discussed as the control behaviour of entrepreneurs that are

not eager to grow and compromise the organizational stability. At one extreme, that is

sympathetic to the non-growing strategy. At another extreme, Cooper (1981) mentioned that

small business that have orientation toward growth may decide to involve additional

management level, preparing for further growth by having a management team and delegating

many operational decisions to a lower management level. Moreover, to enhance growth and

create a reliable organization, Cooper (1981) also suggested developing formal ways of

communication with employees rather than a direct contact maybe followed by a business

owner, and improving the managerial skills of the management members as many of the

entrepreneurs lack the required skills to be good managers. According to the case, the

turnaround program dedicated productive training using the same techniques that the

managers were familiar with including enabling certification-based online instruction,

providing video instruction to customer service standards wanted, and staff mentoring from

department managers.

According to Cooper (1981), one benefit for changing the internal organizational

environment is withstanding competitors’ challenges. The case shows obviously that benefit

as after the success of the turnaround program that involved a lot of changes in the internal

organizational environment, challenging competitor became more possible to be at least even

in most areas of competition.

Cooper (1981) also said that the second main issue managers experience during maturity

stage is the price competition that calls for certain enabling levels of productivity. That

challenge was one of the market winners for the large Australian retailers when they entered

the area of the small retailer. The high level of sales enabled them to offer lower prices, while

that was impossible to offer by the small retailer. However, the turnaround program

dramatically improved the efficiency of the small retailer cutting some costs and getting the

advantage of the gradual growth. They could have decreased their prices by 2% during

2009/2010, and that enabled them to be more competitive.

Cooper (1981) discussed two main strategies to fund the investments required for a small

business to further grow in the maturity stage. One strategy is to use the usual earnings, and

the other one is to use external fund of whether long-terms loans or new shareholders. The

first strategy seems to fit the case of the small retailer before the acquisition, as the business

owner that time preferred to use the earnings as input to fund investments. The later strategy

is seen to fit the case when the small retailer has been acquired and the fund of shareholders

have been used as a funding source for different investments required for scale roll-out or

even innovations.

According to Cooper (1981), the type of industry determines how long may a small

business rely on staying in the maturity stage. Retail industry, as shown in the case, relies

more on quantity than quality, which in this case lies basically in service and availability.

That makes the prices level more crucial to this kind of business. Therefore, what Cooper

(1981) discussed regarding how investments could be the only solution for some contexts

21

may fit retail business. The new senior management has in the first stage of the turnaround

strategy invested in changing the business culture, building a strong leadership, improving the

standards of store renewal program and product availability. After that in the next phase, the

emphasis is on embedding the new store-focused culture, improving in-store customer

service, enhancing in-store value and fresh offering, driving higher business efficiencies, and

moving to a new store formats facilitating scale roll-out.

Eggers et al. (1994) assumes that even if a small business is growing using the right

resources and expertise, the results of growth should be consolidated benefiting from, and not

losing, the entrepreneurial spirit and flexibility, as they are difficult to be retained due to the

continuous growth of the organizational size. That was a challenge for the turnaround

program. It took a long time to embed a new set of business concepts. Reusing familiar

techniques to the employees in the small retailer mixed with new business concepts

contributed to the happy ending. However, the flexibility of the small retailer has been

compromised when it turned into a widely distributed retailer.

6. Discussion

6.1. Inception

The demands that owners are faced with aren’t horribly uncalled for, with the right mindset

business can assume as usual. Yes there needs to be a balance in the universe with stars

properly aligned and in perfect constellations, but with some stubbornness and a keen mind

that reflects on the trends of the market, any product or invention can be made a success if the

owner agrees to time it right, show its might and control its preface. This notion is very

aligned with the problems that were discussed in the case-study.

The overall attitude in new owner-managers should be to look up how others failed and try

to avoid the same pitfalls, moreover they should also embrace the fact that mistakes can and

will most certainly be made along the road, but instead of putting too much energy on those

obstacles or worse; not paying attention to them all, owners should reflect strategically and

bring forth only their finest senses in order to deduce new emergent strategies that will turn

businesses fruitful.

Something that perhaps authors Scott and Bruce can elaborate on in the future is that there

are always second chances it seems, at least if we look at the successful eight that are now

residing in Silicon Valley with new business that are flourishing (Real world stories, 2013).

6.2. Survival

In order to overcome the crises that the business has at the stage of survival, a major change

to the business strategy has to occur. As described above the business has entered a critical

cycle where in worst case can lead to insolvency. The major solution is that there must be

some kind of change for the better. As the owner of the business said; “You have to think

about it,” she said. “You cannot change direction on a dime.” means that she’s afraid of doing

the wrong decisions. But at the same time, the sooner she decides, the sooner the change can

get in motion. The three options that are described can both do miracles for the business and

reverse the direction, but can also result in the total opposite. The best suggestion is to rely on

the research done by Duchesenau & Gartner (1988), that supports the idea of using outside

professionals such as consultants and advisor in order to have reliable information to choose

the right option, or to use their experience and knowledge to develop a better suitable option.

22

Also keep in mind as Duchesenau & Gartner (1988) research confirms that successful

entrepreneurs seek out both good and bad information, and to be aware of any other

information that could help.

6.3. Growth

Small business can grow by taking steps more meticulously as part of its strategy. Small

business passes through different stages over period of life while growing. The crises handled

by small business determine the growth rate for organizations. For small business, cash is

always issue as it provides base pillar for getting other resources required to continue

business. Even if organization manages to find solution to financial issues it will come up

across many issues which if mishandles due to lack of good strategy will lead the organization

to dwindle and downfall at stage of growth. Innovation is something which provides small

business with competitive edge and then the need of developing markets is crucial for

organization growth. No matter if organization is small; the growth strategy must not be to

rely only on one kind of innovative product. Organization has to continue to innovate at rapid

space with diversified range of products due to more demanding and changing environments

of markets as there would be different competitions with ranges of products that might have

bigger market share and hindering the growth for small business by restricting them to smaller

share of market.

6.4. Expansion

A business should evaluate if it should consider finding ways to expand or strengthen its

current position. Expansion has its risks and if the right strategy is not provided then stability

and profit declines, planning is crucial to this fact. Strengths and weaknesses should be

identified but also the threats and the opportunities. This will be the foundation to create a

strategy for expansion. When developing a business more resources will be spent and

additional staff will be taking part of the development, therefor it is also important to make

sure that the core of the organization is performing well even before growing.

6.5. Maturity

The criticality of maturity stage for small business growth is that owners may become

comfortable with their achievements as the business in the maturity stage is running smoothly.

Therefore, the first recommended strategy stems from a belief that staying as a small business

in maturity stage would never be a guaranty to any kind of business, whatever long it takes

from a competitor to realize the competitive advantage of a small business. Therefore, it is

highly recommended for a small business to consider and plan for when and how the

transition to the arena of medium and large enterprises will be. The complacency levels for all

the owner, managers, and employees should be kept as low as possible, especially when a

sign for the maturity stage appears. Otherwise, the momentum of the organizational growth

will be lost and it will take relatively long time to set it up again since people should be then

re-motivated and moved out of their comfort zones.

It could be sometimes relevant to say that the incremental fund dedicated for investing in

opportunities is not enough to survive. Therefore, it is highly recommended to invest in

opportunistic projects as long as they are core to the business and can obviously add value or

competitive advantage even if the sources of fund are unnatural such as bank loans or shares.

Since the renewal strategy is a key strategy for sustainable business, it is recommended to

look for new products and services, new customers, new ways of delivering a service even if

23

that does not support the growth itself. The competitors will chaise your marketplace before

you expect. However, the renewal strategy could be risky if it is not efficiently applied.

Innovative strategies are getting trendy and it is highly recommended to combine them

with the renewal strategy. Some preconditions are recommended to have as inherent internal

environmental aspects including wide decentralized information decision process, lack of

commitment to the status quo, low costs of development, low sales requirements to be

successful.

In short, a small business in maturity stage needs to review the whole strategy and pose

two main questions including if the business model and market strategy are sustainable and if

the owner’s long term goal will be realised by continuing the same way.

7. ConclusionThe level of success will be dependent on the sensible acts of its owners. Failure in meeting

the demands that emerge from starting new business ventures will surely lead to the inevitable

demise of the entire establishment. Moving from the first stage of inception is perhaps the

most difficult one but with some mental fortitude, you can expect as an owner to ride the

momentum into stargazing success.

When a business reaches the stage of survival it’s probably a workable business entity. As

the business expand and grow there are some crises and problems that will occur. This paper

describes what has to be done in order to overcome these and move on to the next stage. The

paper also confirms that there are importance factors that have to been incorporated in the

business strategy before moving on the next stge. The importance of recognize and accepting

the desire to change for the better has been proven in the paper with a case study and

contribute facts. In a perfect world these crises would be easy to overcome just by following

facts and information, but in the real world there are probably other critical that need to be

included and can hinder the business from moving on to be a profitable business entity.

For small business to grow, financial resources act as backbone of strategy. Once the

acquired resources are available, the organization can work to develop innovating

product/service for customers. The innovation of organization act as strength against

competitors thus it helps in enticing customers and to grow in the market. Once the pace of

growth starts to incline, the organization can start to look for more markets. The development

of new market gives opportunity to grow more rapidly.

What characterizes the expansion phase is the ability to grow into new markets and

distribution channels. The business founders will give an effort in gaining larger market

shares and seek profit in additional channels. Expansion requires a lot of planning and

research right from the inception phase. The CEO will put all effort in expanding the business

into directions that brings growth, though it is most likely not wise to spread into businesses

that is not related to the one you’re in, it is more wise to research new products and services

that complement the current business, same goes with the culture stand of the organisation,

new staff should not necessarily have the same background as the existing staff, but

preferably long experience in the field. It is also important to know that margin and resources

becomes stressed and is often underestimated during the expansion phase.

Small businesses have to make crucial decisions in maturity stage as the overall

organizational performance seems to run smoothly, hiding serious potential risk stems from

evolving alternative industries and stronger competitors. Therefore, further growth could be

24

delayed but not avoided and investments have to be made in opportunistic projects that are

core to the business to improve both business efficiency and effectiveness. Business

innovation is a strategic asset to sustain business differentiating and hamper competition. It

however needs preconditions inherent in the internal environment of a small business

including decentralized information decision process, lack of commitment to the status quo,

low costs of development, low sales requirements to be successful.

25

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