Entrepreneur's Handbook
MANAGEMENT OF THE GROWTH PROCESS
Every business goes through critical stages after it is established. Based on the fact that not every business established has survived, the period from the birth of the business to its death is called the business life or development curve. Businesses have a life curve like all living things in nature, and the most basic goal of businesses is to survive. In each of these development stages, the company must identify critical points to survive, take action against them and develop solutions. Each stage contains risks and opportunities in itself. As long as the entrepreneur manages risks and opportunities well, the survival and growth of the company can be ensured. In the first part of this section, the points that the company should pay attention to in order to keep the growth of the company and solution suggestions are explained. In the second part, practices of companies that are constantly growing are included in order to make the growth permanent within the scope of the activities of the business.
2.1. Challenges of Growth and Solution Proposals
The birth of the business begins with creativity. At this stage, creating a product, service and / or market is the main goal. This business idea is developed by a technical or business oriented person or persons. These people spend all their time, resources and energy on producing and marketing the product. Communication between these people is intense, relaxed and informal. If success is achieved at this stage, which requires working long hours, income is also provided. Market feedback determines decisions and motivation. Business moves according to the movements of the customers. The business is flexible enough to act according to customer, market and industry expectations. These businesses, which we call "new venture" or "sprout business", are expected to be adaptable, flexible, agile and innovative. However, as the business is successful, sales increase and growth begins, all these features and activities can turn into problems. The problem at this stage is called "leadership crisis". Professional managers are needed to solve this problem. Entrepreneurs who want to overcome the leadership crisis should start hiring professional managers. Professional managers are essential to keep and manage the business. However, many entrepreneurs do not want to include professional managers in their businesses. They can see the professional manager as their competitor and either never involve professional managers or even if they do, they can prevent them from taking an active role in order not to remain in the background. If the founder(s) are willing to include a professional manager in management, the business can move on to the next stage. The second stage is the orientation stage. In the second stage, a formal organizational structure has been established and many organizational systems have started to be created. Accounting, production, human resources, innovation, purchasing and marketing systems have started to be established. As hierarchical levels have been formed, communication has started to become formal and institutionalized. As the business grows, a more centralized structure is adopted. This is also problematic if the enterprise becomes overly centralized. The problem of this stage is therefore the autonomy crisis. With the authority shifting to lower levels, decision-making authority should be given to lower levels. At this stage, if the centralized structure can be avoided and the decision-making authority we call decentralized can be distributed to all employees, the company can move to the third stage. The third stage is the delegation of authority stage. This stage requires more authority to be given to managers. The company has now started collaborating, mergers and acquisitions with other businesses to grow. Communication with senior management has become infrequent and communication is generally in writing. Management solutions of the previous stage will be useful for a while. However, new solutions are required at this stage. The problem at this stage is the control crisis. At this stage, senior managers may think that they have lost the power and control they have over the operations and processes of the business. Therefore, they may tend to rule with a centrist approach. Such a trend can have vital consequences for a business that has grown this large. Managing such a grown business with a centralized structure can pose a threat to the survival of the business. The solution to the control crisis at this stage is coordination. The fourth stage, the coordination stage, can be defined as the development and use of formal systems to ensure more efficient coordination. Establishing formal planning procedures, hiring more staff, considering each product group as an investment center, and planning financial management accordingly are the characteristics of this phase. Thus, the firm can distribute its limited resources more effectively and efficiently. The crisis of this stage, too, is the bureaucracy crisis stemming from the formation of too many bureaucratic systems within the company. The first symptom is that innovation is declining because bureaucracy delays the development and implementation of innovations. The solution to overcome this crisis is strong cooperation processes and mechanisms to be established between individuals. The fifth and final stage is collaboration. At this stage, speed and natural flow in management can be achieved through teams. Social control and self-discipline replace formal control. This stage requires a more flexible and behavioral approach in management. Teams are vital in problem solving and handling specialist jobs. The structure becomes flexible, allowing interdisciplinary teams to form and work together. Training is provided to employees and managers. Innovative practices, trial and error should be encouraged across the enterprise. The stages briefly described here and the requirements of each stage are important guides that will increase the awareness of managers in growing businesses. If the manager is aware of the stage of his own business, he can find problems and solutions for each stage. (Greiner,1998).
2.2. Growth Management
It is important for rapidly growing companies to be able to manage the entire process in order to sustain this growth. Although it is stated that many small and new companies do not plan (Miller, 1983), planning ability is claimed to be related to better performance in small enterprises (Birley & Westhead, 1990). The use of strategic planning is recommended in all companies regardless of their size (Kargar 1996).
With the growth of the company, an area that management should pay attention to is the management of human resources. The positive effect of human resources management on the performance of businesses is known (Lussier & Pfeifer, 2001). In general, small business owners attach less importance to human resources than finance and production (Deshpande & Golhar, 1994). The main concern of the small business manager in the context of human resources is on staffing, compensation and rewarding (Cardon ve Stevens,2004). To be successful, small businesses must have the characteristics to attract and retain a skilled workforce (Barringer et al., 2005). Human resources practices of small businesses and large enterprises are different. Therefore, it is normal for small and new businesses to have simpler and leaner human resources practices, to not have a separate human resources department, and to have human resources practices generally performed by the manager (Cardon & Stevens, 2004). Businesses that want to make their growth permanent should work on finding and retaining qualified personnel. In addition, the human resources required by the firm during the growth stages may change in terms of quality and quantity (Thakur, 1999). In order to successfully manage the growth phase, it is important for the entrepreneur to plan human resources in advance. In the first place, the company's need is employees with technical competencies, while this need can turn into employees with more specific knowledge and experience in the growth phase (Cardon, 2003). In the selection of employees, attention should be paid to the cultural suitability of the candidate to the company as well as the characteristics specified in the job description. Small businesses should attach importance to compensation and especially incentives in order to retain their employees (Deshpande & Golhar, 1994). Growing companies can also make growth permanent by providing financial incentives, training and self-development opportunities to their employees. At this stage, it is also important to encourage employees who contribute to the growth of the company through remuneration policies (Barringer et al., 2005).
Businesses that want permanent growth should give importance to Research and Development (R&D) activities. Giving importance to R&D activities will enable small businesses to produce different products and to compete in the market (Siegel et al., 1993). In addition, with R&D activities, the new enterprise will be able to develop new technology as well as improve its technological competencies (Lee et al., 2001). In summary, R&D activities play a vital role in the growth of new and small businesses. Looking at the production capabilities, it is seen that quality, delivery, flexibility and costs are the most important criteria that affect the success factors of small businesses. Especially flexibility in production provides competitive advantage to small businesses. Flexibility can be defined as the company adapting to changes in its environment with the least cost. Firms should take care not to lose their sensitive structure in production while growing. Considering the purchasing ability, the number and quality of the suppliers with which the small business works gain importance. Successful small businesses are able to build close relationships with their suppliers, which positively affects their performance. As companies grow, they need to give importance to supply chain management (Chang, Yang, Cheng, & Sheu., 2003).
When looking at financial capability, it was found that small businesses that can find and use outsourcing during the growth phase are more successful (Birley & Westhead, 1990). In order to grow, the small business must invest. Financial resources for investment in small businesses come from the founder or external sources. The founder's financial resources are limited. Therefore, companies that invest only with their own resources may have a lower chance of seizing the opportunities in the market. If small businesses want to grow, they must take advantage of external resources such as banks, investors and government subsidies (Barkham et al. 1996).
Another important factor in the management of growth is marketing activities. As the company grows, it starts to move away from the founder, market and customer. For this reason, new businesses in the process of growth need to allocate especially time and resources to market research. It is important for the permanent growth of the founders to take care of collecting information about the market regularly and to use this information in decision-making processes. In addition, the growing company must try to find new customers and markets as well as existing customers. Placing advertisements in sector magazines and participating in sectoral fairs are activities that can help companies in this regard (Barkham et al., 1996). Firms that aim to maintain steady growth should also pay attention to their pricing and distribution channels. Following the price policies of competitors and applying competitive pricing policies will support healthy growth. The most important advantage of being new and small is to establish close relationships with the companies in the distribution network. Entrepreneurs of successful companies attach importance to distribution channels and can reach companies that will distribute their products whenever they need (Vorhies & Harker, 2000). In summary, founders of successful new and small businesses give the necessary importance to marketing.
An organic organizational structure is essential for success, as small and new businesses often operate in a dynamic and competitive environment. In order to make the growth permanent, it is important for the entrepreneur to harmonize the internal structure with the growth. Especially since specialization provides knowledge in a specific field, it positively contributes to the growth of new businesses. It is important for the manager to make good job descriptions in the company, to determine who will do what job and to provide this knowledge. Achieving this specialization in the early days of the business may not be necessary because the work to be done is limited and it can be argued that everyone has enough experience, time and knowledge for the jobs. However, as growth begins and new challenges arise, new jobs and tasks will emerge within the firm. For this reason, specialization becomes important. With specialization, it will be ensured that employees collect information about their jobs from the outside environment. Thus, it will be possible to identify opportunities outside and benefit from them. This will allow sales to increase. With specialization, planning will increase and the growth process will be managed better. In the growth phase, it is also important that decision-making mechanisms and information flow are flexible and not evolving into a controlling structure (Kazanjian & Drazin, 1990). It should not be a decision-making center, but it should also provide the entrepreneur with the opportunity to control so that the growth process can be managed properly (Gilbert, McDougall, & Audretsch, 2006). No matter how big the company grows, it should take care to protect the entrepreneurial organizational culture. Entrepreneurial organizational culture positively affects performance by promoting ideas, creativity, trial and error (Stevenson & Jarillo, 1990).