Professional Documents
Culture Documents
0024-6301/81
Strategic
Ventures
/OSOO3~~7SO~.OOI(,
Pergamon
Press Ltd.
39
Management:
New
and Small Business
Kvannert Graduate
New
and small
firms
provide
a distinctive
environment
for the formulation
and implementation of strategy. This paper, based upon a review
of the iiterature.
examines the processes by which
strategy is deveioped in such firms and the nature of
the resulting
strategies.
Because
new ventures
within
established
firms
have
many
of the
characteristics
of nev; and small businesses, strategic
management
within
this context
will also be
considered.
M03i
firms in the United
States. the United
Kingdom,
and other Western countries are small.
For instance, about 95 per cent ofall U.S. firms have
fewer than 20 employees.
However,
the diversity
among
these small firms is enormous,
so that
statements
which are descriptive
of some do not
appiy to others. They differ in types offounders.
m
management
sophistication,
in stage of dcvelopment, and in performance.
Vesper has suggested
that small, firms might be classified as mom and
pop companies,
stable high-payoff
companies, and
growth-oriented
companies.
School of Management?
Itzdiana
employees
and rely only on the proprietor
or
members of the family. Their founders often lack
formal managerial training, but may have technical
skills, such as being able to sell real estate, cut hair,
or do automobile
repairs. Capital barriers to entry
methods intuitive,
are usually low, management
and profits
moderate
or low.
Start-ups
and
discontinuances
are frequent and the founders often
move from blue-collar
or clerical jobs to entrepreneurship
and back again. Some such places of
business need revolving
doors, not for the few
customers, but for the entrepreneurs
who come and
go*
Some small retail and service firms and a higher
percentage
of small manufacturing
firms might be
classified as stable, high-payoff
companies.
Their
founders
often have more formal education
and
higher
expectations
than the mom
and pop
founders.
Often
they enjoy strong competitive
positions
deriving
from specialized
know-how,
patents. or a virtual monopoly
in a particuiar local
market. Management
methods, although informal
by large company standards, may be very effective.
Without the pressures ofgrowth,
the founder may
be able to engage in civic activities or achieving a
while maintaining
a high
lower golf handicap,
standard of living.
Long
40
Range
Planning
Vol. 14
October
These classifications
are duid and it is certainly
possible for a firm to move from one category to
another. However,
in general, these types of firms
btarr with different
resources.
folloti
different
and involve
different
internal
growth
paths,
environments
tor the formulation
&lnd implementdtion of strategy.
The context within which strategy is tnanaged also
varies by the stage of dtwelapmenr of the small
firm. In this paper, we shall think of three stages:
the strategic
(1) tlfe start-q2 stage. including
decisions to found a firm and to position it
within a particular industry with a particular
competitive strategy;
(2) &e early-grot.4 s?,.zge,when the initiaI productmarket strategy is being tested and when the
prqider& maintains direct contact with all
r~..r. activities.~ (many firms stabilize at this
stage);
(3) fhe la&r-g~cvth SZQ@, of%en characterized by
multiple sites f& retait and wrvice businesses
and by some diversification far manuf&turing
firms; orga&a.ticma.lIy the firm usually hss one
or moFe levels $06 middIe-management
and
Some delegasion of de&&an-making.
Ail of the types of firms just considered
pass
through
the start-up
stage and. if they are
successful.
move on to an early-growth
stage.
However, only the growth-oriented
firms are likely
to be found in the !ater-growth
stage.
As a firm grows, at what point is it no longer small?
Any answer to this question is somewhat arbitrary,
but the focus here, even for firms in the latergrowth stage, is upon organizations
with less than
300 empioyees.
Strategic
up
Management
in the Start-
Stage
1981
teristics influence the !ocatlon and C!ICnature of
new firms, as well as the likeiihood of spin-offs;
Uld
major Actor
influencing
whether
a
entrcprenCui
~111 start a ntw business is
the nature of the organization
for which he works.
which
tnight
be termed
an
This organization,
incubator.
scctns to pla_y a particularly
important
role in the founding ot high technology
firms. It
locates
the potential
founder
in a particular
geographic
area which may or may not have a
favorable
entrcprcncurial
chmatr.
(A number of
studies have shown that most cntrcprcneurs
start
their busintasses where they are already living and
potcntlal
Strategic
working;
it is the rare founder who moves
time he is starting a new business.)12
Management:
at the
The incubator
organization
also provides
the
entrepreneur
with the experience
which leads to
particular
managerial
skills and industry
knowledge. Since industries vary widely in the extent to
which they offer opportunities
for new ventures,
this means that the strategy
of the incubator
organization
determines
to a great extent whether
its employees
will ever be in a position to spin off
and start their own businesses. Thus an established
organization
in a mature
industry
with little
growth and heavy capital requirements
is unlikely
to have many spin-offs. Its employees,
no matter
how motivated,
are not acquiring the technical and
market knowledge
which can easily be translated
into the strategic decision to start a new business.
The policies of potential
incubator
organizations
also appear to determine,
to a marked degree, the
motivations
of the entrepreneur.
In brief surveys
such as questionnaires,
founders tend to report the
socially acceptable reasons as to why they became
entrepreneurs;
these include such factors as the
independence
and
financial
gain.
desire
for
However,
depth interviews
often disclose that the
founder was pushed from the parent organization
rates from
by frustration .3. Studies of spin-off
established organizations
show that internal factors
influence
spin-off
rates, with internal
problems
being associated
with high rates of spin-off and
placid times being associated with low rates. Thus,
the extent to which the strategic and operating
decisions of the established firm satisfy or frustrate
its employees
influences whether spin-offs occur.
A complex of factors external to the individual and
to the parent organization
also appears to influence
entrepreneurship.
Much of the research in this area
is only suggestive,
but it seems that climates can
change over time and that past entrepreneurship
makes future entrepreneurship
more likely. The
credibility
of the act of starting a company appears
to depend:
in part, upon whether
the founder
knows of others who have taken this step. Venture
capital availability
and particularly
the existence of
communication
well-developed
channels
vary
across geographic
regions and help to determine the
feasibility
of entrepreneurship.
The presence
of
experienced
entrepreneurs
also influences
future
entrepreneurship;
they serve as sources of advice
and venture capital and they sometimes
do what
they
know
best-start
additional
new
businesses.3.3
Their
companies
become
excellent
incubators
for other
spin-offs
and also offer
consulting
opportunities
for fledgling
founders
who are seeking income while trying to get started.
It seems clear that past entrepreneurship
influences
the climate for future entrepreneurship.
What is not
so clear and what deserves additional
research is
how an area begins to become enterpreneurially
New
Ventures
41
which
has
been
active
Competitive
Strategy
of the New
Firm
Antecedent Influences
Upon Entrepreneur
4.
Incubator
Organization
Entrepreneurs
Decision
1.
Geographic
Location
2.
3.
4.
5.
Experience
Setting
in a Small Business
Environmental
Factors
1.
Economic
Conditions
2.
3.
Examples of Entrepreneurial
Action
4.
Opportunities
5.
for Interim
Figure 1. Influences
decision
Consulting
upon
the entrepreneurial
I
L
42
Long
Range
Planning
supplies
Vol. 14
the expertise
October
rather
Strategic Management
Growth Stage
in the Early
1981
Sometimes,
the assumptions
underlying
the new
firms strategy
prove to be faulty, and the firm
seems likely to run out of cash before reaching the
break-even
point. It appears that founders often
change their strategies
at this point. Thus, an
electronics
component
manufacturer
switches to
sub-contract
work or an ice-cream shop becomes a
steak-house.
The entrepreneur
has the opportunity
to change
quickly
at this point;
there is no
organization
to convince
and there
is little
cotnmitment
to the status quo. However,
much
will depend upon how rhe entrepreneur
perceives
the environment,
whether he perceives it as it really
is or as he would like to see it. Founders
are
sometimes
stubborn people with a dream and not
really amenable to dispassionate
analysis of their
plans.
these disadvantages,
Strategic
Management:
New
Ventures
43
Strategic Management
Growth Stage
in the Later
43
Long
Range
Planning
Vol. 14
October
Strategic Management
in
Intracorporate
Ventures
A number of writers have suggested thatlarge firms
teem to be better at developing
existing businesses
than at growing new ones.3-)3 The large firm can
bring great resources to bear upon new opportunities and can absorb failures. However,
performance measurement
systems often penalize those
divisions and executives
who assume risks. New
ventures can disrupt existing manufacturing
and
New ventures often require
marketing
activities.
different
kinds of people and facilities and an
orientation
toward
working
closely with cusshort production
runs, and continually
tomers,
changing technology.3
An
increasing
number
of
corporations
have
1981
developed
new venture departments
to facilitate
entrepreneurship.
Two
surveys,
intracorporate
both publishsd in 1973, indicated that the number
of new venture departments was increasing.3.3h As
might be expected, large tirms have adopted formal
intracorporate
entrepreneurship
programs
to a
greater dcgrce than smaller firms. However,
more
recent research suggests that many new venture
departments
are short-lived.
New venture department
organizations may range
from ffn ~OCtask forces with.no formal training, to
departments wirh estabIished budgets, to separate
legal entities.
Typically,
these intracorporate
tmtrepreneurial groups study proposed ventures
and sometimes proceed to start new businessesdeveloping, prodtxing, and mzrketing new products. They usually can. c&l upon the Pesources of
the Iarger organization, afthough this sometimes
presenrs problems because of lack ofauthority over
otherdepartments.
The performance measurement
system may be modified to place less emphasis on
short-run. profits. If the product is promising OF
becomes firmly estabEshed, it may be transferred to
an existing department or become rhe basis for a
new department.
Practices vary in the extent to which new ventures
are separate,
the timing
of when products
arc
transferred
to chc regular organization,
and how
venture managers are rewarded.
An extreme form
of venture management
might be termed sponsirred s.pi+offs
in which. with the parent firms
blessing,
a separate
new enterprise
is created,
possibly with the parent company holding some of
the equlty.3
Some of the issues associated
with organizing
venture
management
departments
include
dctcrmining
how- managers are to be rewarded and
how their careers are affected if they return to the
main organization.
Other issues relate to the estent
to which they can call upon resources from the main
orgamzation
dnd the degree of delegation-the
extent
to which they cm act as if they were
managing their own firms.
Research
by Fast indicates
that new venture
departments
usually evolve, becoming
operating
divisions,
staff departments,
or new venture
departments
which differ in size, objectives,
and
corporate
impact
from their earlier vcrsions.3
Sotnetimes
the departments
are disbanded.
The
two major in8uences upon the evolution
of a new
venture
department
appear to be the changing
nature of the firms strategy and its political support
within the organization.
In general, these approaches
have demonstrated
some success. but many companies are expcrimenting with different ways of creating an environment
for intracorporate
entrepreneurship.
Strategic
Management:
New
Ventures
45
Conclusion
(15)
Arnold Cooper and Albert Bruno, Success among hightechnology firms, Business Horizons, 20 (2). April (1977).
Small businesses
differ greatly in their resource
positions, the goals of their founders, their stages of
development
and their potential.
Yet, within this
diversity,
we can note certain common
characteristics.
These
result in an environment
for
strategic
management
which creates both constraints and opportunities
different from those in
large organizations.
(16)
(17)
(16)
(19)
(20)
(21)
,4cknou,ledgeRlent.c-This
paper is adapted from a chapter in D.
Schendel and C. Hofer (Eds.), Strategic Management:
A Neuj
Vieus qf Busirzers Policy, Little, Brown Br Co., 1979.
Harvard
References
Printing
DC (1972).
Hosmer, Arnold
Cooper and Karl Vesper, The
EntrepreneuriaialFunction. Prentice-Hail, Inc., Englewood Cliffs
(1977).
(2) LaRue
Milwaukee
(1971).
(5)
Makers,
(6)
(7)
(1971).
(1957).
November-December
(27)
(26)
(29)
(30)
(31)
(9)
(32)
(10)
(33)
(11)
(34)
(35)
Jeffrey Susbatier, U.S. industrial intracorporate entrepreneurship practices, R & D Management, 3 (3). June (1973).
(36)
(37)
Arnold Cooper and Arthur Riggs, Jr., Non-traditional approaches to technology utilization, Journal of the Society of
Research Administrators, VI (3), Winter (1975).
(12)
(13)
(14)
William
Hoad and Peter Rosko. Management
Factors
Contributing
to the Success or Failure of New Small
Manufacturers, University of Michigan, Ann Arbor (1964).