Entrepreneurship: Growth and Innovation
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WELCOME Entrepreneurship: Growth and Innovation Julian Campbell Lecturer in Business Management, University of East Anglia Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Why entrepreneurship? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 1 “We now stand on the threshold of a new age - the age of revolution. In our minds, we know the new age has already arrived: in our bellies, we’re not sure we like it. For we know it is going to be an age of upheaval, of tumult, of fortunes made and unmade at head-snapping speed. For change has changed. No longer is it additive. No longer does it move in a straight line. In the twenty first century, change is discontinuous, abrupt, seditious.” Gary Hamel (1994) “Neither the current policy mix, nor devaluation of currencies is succeeding in reviving the economy. Macroeconomic policies alone are not working and we now have to trust in the spirit of enterprise. Crises are periods of transition during which society undergoes deep change. Taking advantage of this "creative destruction" must form the core of economic policy.” Schuman Foundation (2013) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation What has influenced the ‘popularity’ of entrepreneurship? • Shift within global economies from manufacturing to service sector businesses • Technology – Opportunities – Easing communication – Reducing fixed costs – Flexibility • Economic, social & market trends – – – – Market niches Control Cultural and social change Business ‘heroes’ Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 2 Entrepreneurship: Growth and Innovation Course Introduction Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Course Introduction Course description This course combines the theoretical understanding and the practical application of entrepreneurship or entrepreneurial behavior. It examines the role of entrepreneurship as a key factor in the success of an SME and considers the Business Plan as a framework to capture entrepreneurial aspiration. It is aimed at students who either wish to understand entrepreneurship as a subject or who are considering starting their own business. An appreciation of entrepreneurial theory is critical in understanding the psychology and behaviour of the individual entrepreneur within the framework of developing a successful business. How entrepreneurs approach the challenges of starting, growing or developing an existing company and even prepare to exit a business are well-research areas of academic study. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 3 Course Introduction Learning objectives and outcomes LEARNING OBJECTIVES (What will I learn?) • Examine the history of the study of entrepreneurship • Understand entrepreneurship in the context of growing a business • Appreciate different types of entrepreneurial behaviour including intrapreneurship within larger organisations and social entrepreneurship • Comprehend the structure, content and development of a Business plan for a Start-Up company LEARNING OUTCOMES (What will I be able to do by the end of the module ?) • Recognise an entrepreneur – and an entrepreneurial venture vs. a managed venture • Write a business plan – achieving a balance between the financial and non-financial elements • Plan the growth of start-up enterprise Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Course Introduction Over arching themes of course • • • • • • • • Entrepreneurship not just about making money Entrepreneurs are different – and entrepreneurial ventures are different from conventional, managed organisations Psychology and behaviours are just as important as recognising and discussing the process Innovation – combined with an ambition for growth and a strategic approach – is the cornerstone of entrepreneurship Entrepreneurship is important in a classic economic sense Business Planning Explore concepts such as social entrepreneurship and intrapreneurship Growth within the context of entrepreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk YOUR CHALLENGE is to: 1. Think differently about the issue of making money 2. Recognise the importance of ‘balance’ in planning a new business 3. Understand nonprofit forms of entrepreneurial behaviour Entrepreneurship: Growth and Innovation 4 Course introduction Course structure Lecture Section 1 Definitions of Entrepreneurship • • • Section 2 The psychology of the Entrepreneur and their behaviours • • • • How are entrepreneurs different? Behaviours and personality traits Attitude to critical issues such as risk Start Up influences Section 3 The role of Innovation with entrepreneurship • • • What drives innovation Creativity Recognising commercial opportunity Section 4 Key aspects of the Business Plan • • • • Why plan? The content and structure of a business plan Non-financial and financial aspects The importance of the Death Valley curve Section 5 Government policy to support entrepreneurs • • • Different attitudes to entrepreneurship globally The political economic perspective How can Government support start-ups? Prof. Julian Campbell julian.campbell@uea.ac.uk What is it? History of the definition The entrepreneurial business Entrepreneurship: Growth and Innovation Module Introduction Module timetable Lecture Section 6 Social Entrepreneurship • • • Non profit-orientated entrepreneurship Civic entrepreneurship Social entrepreneurship construct Section 7 Business Growth Models for SMEs • • • Barriers to growth Strategic growth – shifting from start-up to growth Greiners Growth curve Section 8 Entrepreneurship and marketing • • • Strategic marketing planning Marketing and promotional planning Features and Benefits Section 9 Sources of Finance for Startup businesses • • • • Bank lending Factoring and invoice discounting Equity Crowdfunding Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 5 Module Introduction Module timetable Week Section 10 Entrepreneurial behaviour within larger organisations • • • • Leadership Intrapreneurship Corporate Ventures Business Architecture Section 11 Summary and Assessment • • • What have we learned? Presentation Essay Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Entrepreneurship: Growth and Innovation Section 1: Definitions of Entrepreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 6 The term ‘entrepreneur’… “the person who pays a certain price for a product to resell it at an uncertain price, thereby making decisions about obtaining and using the resources while consequently admitting the risk of enterprise” Richard Cantillion (1723) “An entrepreneur uses innovation to exploit change and opportunity for the purpose of making a profit.” Burns (2011) “The entrepreneur can be considered as (1) A manager undertaking an activity (2) an agent of economic change in the economy and (3) an individual in terms of psychology – personality and characteristics.” Wickham (1998) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation The entrepreneurial process - the difference between a small firm and an entrepreneurial business Growth potential Small business Small Business Innovation Strategic objectives Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 7 Development of the definition of Entrepreneurship • Cantillon – foresight and confidence (1755) • Say – shifts economic resources (1803) • Schumpter – innovator expands circle of knowledge; only extraordinary people (1928) • Knight – calculating risk taker (1961) • Kirzner – alert to opportunities (1973) • Casson – different skills and resources (1982) • Chell – personality and orientation (2008) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Srichand Hinduja • Pure entrepreneur - motivated by psychological and economic rewards. Seeks personal satisfaction. • Induced entrepreneur - induced to take up entrepreneurship by family pressure or policy measures of government • Motivated entrepreneur - desire for self fulfilment often through making or marketing a product • Spontaneous entrepreneur - they start their business out of natural talents and confidence in abilities. – Source: G20 Summit: London 2009, Proposals for solving the Global Economic Crisis Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 8 Entrepreneurship: Growth and Innovation Section 2: The Psychology of the entrepreneur and their behaviours Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation As a person do you… • Have lots of ideas • Enjoy a high risk approach • Think laterally and creatively • Never switch off • Tend to break the rules • Refuse to fail • Tend not to excel academically • Often feel socially ‘awkward’ BBC Science Yes to most of these? Then you might be an Entrepreneur! Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 9 What makes a successful entrepreneur…? • Luck? – seemingly chance happening • Risk? – degree of possible penalty • Opportunity? – sound business attraction • Passion? – an unyielding determination Need to be clear about the role that each of these factors/behaviours plays Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Why do individuals become entrepreneurs or start their own business? • Opportunity to control own destiny • Opportunity to make a difference • Opportunity to reach full potential • Opportunity to reap unlimited profits • Opportunity to contribute to society • Opportunity to do what you enjoy Musick (1999) ..a set of clear motivating factors Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 10 Start-up Influences (Burns) • Opportunistic Personal Character Traits • Need for independence • Need for achievement • Internal locus of control • Ability to live with uncertainty & take risks Situational Factors • Employment • Unemployment • Immigration • Economic opportunity Prof. Julian Campbell julian.campbell@uea.ac.uk • Innovative • Self-confident • Proactive & self motivated • Visionary with flair • Ability to live with uncertainty & take greater risks Start-up Influences Antecedent Influences • Family • Ethnicity • Gender • Education • Previous employment • Religion • Social group • National culture Entrepreneurship: Growth and Innovation Owner-manager DNA • • • • Need for independence Need for achievement Internal locus of control Ability to live with risk and uncertainty Are these necessarily all positive characteristics? Burns, 2011 Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 11 Character Flaws? • Need for personal control • Unwillingness or inability to delegate • Distrust of subordinates • Need for applause & recognition Success comes at a price? Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurial DNA • Opportunistic • Innovative • Self-confident • Proactive and decisive with high energy • Visionary with flair • Ability to live with greater risk and uncertainty Are we creating heros or myths? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 12 …or villains? • Opportunistic • Innovative • Self-confident • Proactive and decisive with high energy • Visionary with flair • Ability to live with greater risk and uncertainty …but aren’t these the same attributes? (Note the work of Sudhir Ventakesh) Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Gibb’s Entrepreneurial Attributes • Initiative • Achievement • Modest risk • Problem solving • Persuasiveness • Imagination • Flexibility • High self-belief • Creativity • Leadership • Independence • Hard work Gibb (1987) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 13 Baumol on Entrepreneurship Three considerations of Entrepreneurship within society: – Productive – innovation which advances not only the individual but society e.g. Gates/Branson/Zuckerberg/Besos – Unproductive – benefits only the individual and not society e.g. the bonus-driven banker/salesman/lawyer/estate agent – Destructive - benefits the individual and harms society e.g. Drug Cartels Baumol (1998) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Why do some individuals pursue ‘opportunity’ and others don’t? • Entrepreneurial opportunities exist – but are not known to everyone • People have different perceptions of the value of an opportunity • Some people will choose to pursue these opportunities - and some will not - because of their personalities and attitudes towards issues like risk • Acting on these opportunities will result in differing outcomes profitable and unprofitable - for different people Shane & Venkataraman (2000) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 14 Personality Traits Studies • Identify personality characteristics • Traits are similar to management skills • McLelland (1960s) - the pro-active individual, with vision, achievement orientation, risk taking and innovative behaviour • Meredith (1980s) – self confidence and flexibility • Kets de Vries (2000s) – socio-psychological behaviour – (a deviant personality) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Criticisms of character based studies • Characteristics change over time • These are often subjective judgements • Ignores the environment - all individuals chage their behaviour depending on their environment • Ignores learning • Ignores – gender, age, race, social class and education • Entrepreneurs in particular adapt and evolve based on experience Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 15 Ethnicity & Gender Start-up rates higher for: • Asians (Indian, Pakistani, Bangladeshi etc.) and Chinese Start-up rates lower for: • Black African and black Caribbean • Women….and….women-owned businesses are likely to perform less well than male-owned businesses Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Factors Associated with Growth Firms • More likely to be set-up by a group rather than an individual • More likely to be set-up by middle aged (or very young?) • More likely to be set-up by experienced managers Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 16 The impact of culture on growth Hofstede’s Dimensions of Culture: • Individualism v collectivism – the degree to which people prefer to act as individuals rather than as groups • Power distance – the degree of inequality accepted by the community • Uncertainty avoidance – the degree to which people avoid ambiguity/uncertainty & prefer structure • Masculine v feminine – quality of life issues like achievement & assertiveness v relationships & concern for others What do these mean in terms of entrepreneuship? Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk National Culture comparisons Low South America, Pakistan INDIVIDUALISM USA, UK, Germany, Scandinavia POWER DISTANCE Hong Kong, USA, UK, Singapore North Europe Prof. Julian Campbell julian.campbell@uea.ac.uk High USA, Australia, Canada, France South America, Malaysia, France UNCERTAINTY AVOIDANCE Greece, France, Portugal, Uruguay MASCULINITY USA, Austria, UK, Japan, Germany Entrepreneurship: Growth and Innovation 17 Entrepreneurship: Growth and Innovation Section 3: The key role of innovation within entrepreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Innovation and Entrepreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 18 Innovation, Creativity, Opportunity & Entrepreneurship ENTREPRENEURIAL ENVIRONMENT INVENTION Ability to be CREATIVE Ability to spot OPPORTUNITIES INNOVATION SUCCESS Prof. Julian Campbell julian.campbell@uea.ac.uk Burns (2011) Entrepreneurship: Growth and Innovation Ideas and Creativity…. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 19 Ideas and Creativity…. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Ideas and Creativity…. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 20 Ideas and Creativity…. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Ideas and Creativity…. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 21 Ideas and Creativity…. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Ideas and Creativity…. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 22 Schumpter’s Definition of Innovation • Introduction of a new or improved product or service (invention) • Introduction of a new process • Opening of a new market • Identification of a new source of supply of raw materials • Creation of new types of industrial organisation Schumpter (1951) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Drucker’s 7 sources of innovative opportunity • • • • • • • The unexpected Incongruity Inadequacy in underlying processes Changes in industry/market structure Demographics Changes in Perception New knowledge Drucker (1986) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 23 Innovation – big ‘moments’ or small steps? • Are real innovations single ‘mould-breaking’ developments that can be linked to a commercial opportunity? – new products or services – how they are produced – how or to whom they are marketed • Can frequent, incremental small-scale innovations can create similar competitive advantage with lower risk? What do you think the evidence suggests? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Innovation & Competitive Advantage Frequency of Innovation High Increasing competitive advantage Low High Degree of Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 24 Adaptor v Innovator Adaptor • Disciplined, precise, methodical approach • Concerned with solving, rather than finding, problems • Attempts to refine current practises • Tends to be means orientated • Capable of extended detail work • Sensitive to group cohesion and cooperation Innovator • Approaches task from unusual angles • Discovers problems and avenues of solutions • Questions basic assumptions related to current practices • Little regard for means; more interested in ends • Little tolerance for routine work • No need for consensus; often insensitive to others Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Invention & Entrepreneurship High Creativity or Invention Low STRUGGLER INNOVATOR STAGNATOR COPIER Low High Opportunity perception / Entrepreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 25 Innovation & Size • SMEs produce their fair share of innovations and do it more efficiently than large firms • Both small and large firms have advantages in producing different types of innovation – this has implications for the structure of organisations • SMEs tend to innovate in sectors where resources (ie. capital) are less important • Innovation is not entirely related to firm size - it also relates to business activity, industry, nature of innovation and type of company Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Innovation & Location • There is evidence of innovation ‘clusters’ • Geographical proximity facilitates the process of knowledge transfer • Clusters of small firms share ‘collective learning’ either through conscious or unconscious mechanisms • There is argument whether these are cultural or ‘organic’, largely created artificially by an external agency (e.g Government) or as a result of environmental ‘coincidence’ Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 26 Types of ‘innovation stakeholders’ • • • • • • • • • • Change Agent - thrives on change, independent, conjures up the strangest ways to solve problems, does not stick to what they are told. This is the innovative thinker – the entrepreneur Consolidator - rigidity and independence militates against innovative thinking Harmoniser - likes the challenge but does not disclose good ideas for fear of upsetting people Fire-fighter - flits from one idea to another in an imaginative but unpredictable way Co-operator - likes change but `goes with the flow’ Catalyst - good at thinking up ideas but soon loses interest Inhibited Innovator - brainwaves can be valuable but lacks confidence to push forward Incremental Innovator - dreams up radical ideas but likes to implement step-by-step, which can appear inflexible Spice-of-Life - dominant characteristic is the need to be doing something, anything, new Middle-of-the-Road - good at blending ideas but is ambivalent about them Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Creativity and Entrepreneurship • Creativity is a right brain activity • It involves lateral as opposed to vertical thinking. • It is intuitive, imaginative and rule breaking • It requires interpersonal and emotional skills and is people focused • It cannot be ‘forced’ but it can be encouraged • The is support for the concept of a ‘creative environment’…. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 27 Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Logical Thinking vs. Creative LOGICAL LEFT BRAIN Seeks answers (only one) Converges Asserts best or right view Uses existing structure Says when an idea will not work Uses logical steps Focuses on what is relevant Closed Fears mistakes Prof. Julian Campbell julian.campbell@uea.ac.uk CREATIVE RIGHT BRAIN Seeks questions Diverges Explores different views Restructures Seeks ways an idea might help Welcomes discontinuity Welcomes chance intrusions Open ended Experiments Entrepreneurship: Growth and Innovation 28 Characteristics of Creativity I • Conceptual fluency - Ability to produce many ideas • Mental flexibility – Ability to think laterally • Originality – Ability to produce atypical responses to problems • Suspension of judgement – Willingness not to analyse too quickly • Impulsive – Willingness to act impulsively to an idea, expressing ‘gut-feel’ • Anti authority - Willingness to challenge authority • Tolerance - High tolerance threshold towards the ideas of others Majaro (1992) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Characteristics of Creativity II • Abstraction – Ability to apply abstract concepts/ideas • Connection – Ability to make connections between things that do not appear connected • Perspective – Ability to shift perspective on a situation in terms of space, time and other people • Curiosity – Desire to change or improve things that others see as normal • Boldness – Confidence to push boundaries beyond accepted conventions. Also ability to eliminate fear of what others might think of you Paradox – Ability to simultaneously accept and work with statements that are contradictory Complexity – Ability to carry large quantities of information and manipulate and manage relationships between such information Persistence – Ability to keep trying to find more and stronger Creax, 2013 solutions even when good ones have already been generated • • • Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 29 Barriers to Creativity • • • • • • • • • • Fallacy that there is only one correct solution to a problem Fallacy that logic is important in creativity Tendency to be practical Tendency to follow established rules unquestioningly Tendency to avoid ambiguity in viewing a situation Tendency to assign blame for failure Unwillingness to recognise the creative power of play Tendency to think too narrowly and with too much focus Unwillingness to think unconventionally because of the fear of appearing foolish Lack of belief that you can be creative Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Sources of Commercial Ideas EXTERNAL INTERNAL Distributors and agents Research & development Competitors Engineering Suppliers Purchasing Production Marketing & sales Awareness and Ideas Reading Customers Universities, consultants, exhibitions Networks Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 30 The Creative Process Generating knowledge and awareness Incubation process Generating ideas Feedback loop Evaluation and implementation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Attribute or morphological analysis: a technique to aid creativity Task: Design a new type of car Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 31 Why? Why? Why? process Sales are Why? falling Deliveries unreliable Why? Lost best salesperson Why? Quality is suspect Why? Price not competitive Why? Production bottlenecks Why? Transport problems Why? Inadequate rewards Why? Inadequate checking Why? Materials not consistent Why? We use ‘cost plus’ pricing Why? Is this rational...or creative? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Systematic Innovation • Start with the analysis of opportunities. Information and knowledge are invaluable, timing is everything • Innovation is both conceptual and perceptual. Look at financial implications. Talk to people, particularly customers, and analyse how to meet the opportunity • To be effective, an innovation must be simple and has to be ‘focused’. Keep it simple. Don’t be too clever. Don’t do too many things at once. The slightly-wrong-but-can-be-improved idea can always be developed • To be effective, start small. Don’t be grandiose. Take an incremental approach. Minimise the commitment of resources for as long as possible • Aim at leadership and dominate the competition in the particular market as soon as possible Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 32 Safeguarding Ideas, Innovation and Creativity • Recognising the output as genuine Intellectual Property • Patenting • Trade mark ®,™ • Registered design • Copyright © Within the global economy, why is this of particular importance? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Entrepreneurship: Innovation and Growth Section 4: Key aspects of the Business Plan Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 33 The Business Plan Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Thoughts on business planning… “The business plan could be the most useful and important document, you as an entrepreneur, ever put together. When you are up to your ears in the details of starting the business, the plan keeps your thinking on target.” Megginson, Byrd & Megginson (2000) “Planning is a formalised procedure to produce an integrated system of decisions.” Mintzberg (1994) “Madam, Enclosed, please find the novel you commissioned, it is in two volumes. If I had more time I could have written it in one”. Voltaire (1750) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 34 Benefits of Business Plans • Organise and prioritise range of ideas • ‘Due diligence’ on required aspects of setting up a business • Useful vehicle for demonstrating to important stakeholders (e.g prospective funders) that all the necessary issues have been considered • Act as a reflective process for the entrepreneur • They are widely supported by banks, consultants, advisers for bringing consistency to business planning • They make explicit, what is essential - Structure, Marketing, Finance, HRM, and Strategy Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Key themes…. • Planning: helps set out ideas in a logical manner • Financing: is an aid to raising finance • Implementation: lays down what will be done, when it will be done and how • Monitoring and Control: allows managers to assess progress and control against projections relating to sales, outputs and finance Is all this consistent with the notion of the entrepreneur….? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 35 A successful Business Plan.. Analysis Communication Gaining stakeholder support Gathering and processing info. Success Wickham 2001 Action Synthesis Definition of projects and objectives Creating an original strategy: integration Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Criticisms of Business Plans • They are obsolete upon publication • They are rarely referred to after preparation • They are written to impress not to accurately describe • Only about 56% of successful businesses have a business plan • There is no evidence of causality with successful firms Monroy (1995) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 36 Structure of a Business Plan • Executive Summary - What, Why, When, Where & How much? • About the Company - Idea, Background, key people, legal structure • Operations - Premises, Organisation, Staff and team structure, supply and distribution • Management and organisation – teams and individuals, key roles • Marketing and Sales – market analysis, sales forecasts; SWOT; Competitors; marketing strategy and plan Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Structure of a Business Plan (cont) • Financial discussion: • – initial investment/start-up capital – Budget – profit and loss break-even or growth; – cash-flow over the period – 1,3 or 5 years Appendices – Supplementary market information, Detailed profit and loss or cash flow statements; cv’s of key people etc Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 37 Other Considerations • Length of the plan – depends on the audience, but usually 10 - 20 pages • The Author – best written by the entrepreneur, though some parts could be done by, for example, an accountant • Presentation – make it an appealing document, use a relatively conservative approach. Don’t oversell yourself or ideas – be prepared to defend yourself • The Audience – who is this written for? Has it been tailored to the whoever will read it? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Routemap for implementation Qtr1 Qtr2 Qtr3 Qtr4 Finalise funding * Agree premises * Recruit key staff * Prepare marketing plan * Implement promotion * * Key account negotiations Customer designs/services * Review advertising/promotion Review products/ services Prof. Julian Campbell julian.campbell@uea.ac.uk * * * * * * * Entrepreneurship: Growth and Innovation 38 Some further guidelines • Keep the plan relatively short • Orient the plan towards the future • Avoid exaggeration • Highlight critical risks • Identify the target market • Capture the readers interest Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Common problems with Business Plans The plan is far too slick Poorly prepared, and unprofessional Executive summary is too long - imprecise Business plan likely to be rejected if any factors are present Uncertainty with regard to the product Management team is unclear It is unclear why anyone would buy Prof. Julian Campbell julian.campbell@uea.ac.uk Market analysis is poor – esp. re Competitor Analysis Financial projections unreasonable are Entrepreneurship: Growth and Innovation 39 Death Valley Curve CASH £ Positive Sales Negative Cash flow TIME Maximum Borrowing £ Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation The Flow of Money Withdrawals or dividends Retained profit Net profit Taxation Prof. Julian Campbell julian.campbell@uea.ac.uk Loan interest & other nonroutine costs Obtain capital: Own capital, share capital, loans Money leaving the business Operating profit Buy assets: Fixed & current Sales Day-to-day operating costs Entrepreneurship: Growth and Innovation 40 Customer Credit Control Speed up payments: • Invoice promptly • Ask for part payment • Make payment terms clear in advance • Offer prompt payment discounts • Produce regular aged debtor listing • Chase-up by phone Choose credit customers and set credit limits : • Send statements • Trade references credit checks • Consider factoring • Bank references • Sales visits and published information • Network and word of mouth/recommendation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Customer Credit Control If all else fails: • With-hold supplies • Try reclaiming goods • Consider using debt collectors • Take legal action Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 41 Creditor Control • Agree best possible credit terms with suppliers and stick to them • Don’t pay early • Establish key suppliers and make certain they are paid on time • If there are problems : - Work with creditors (eg agree part payments) - Keep the bank informed - Remember that non-payment of tax is the most likely debt that will lead to liquidation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Financial Drivers and reporting • Sales Daily/weekly/monthly • Cash Daily/weekly/monthly • Profit Margins Monthly • Margin of Safety or Breakeven Monthly • Debtors or Stock Turnover Monthly • Productivity Monthly Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 42 Costs, Volume and Revenue Cost or revenue £ M C Break-even point A B Fixed costs L X Prof. Julian Campbell julian.campbell@uea.ac.uk Y Output volume Entrepreneurship: Growth and Innovation Profit–Volume Chart Profit £ Break-even point A Output volume Loss £ B Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 43 Entrepreneurship: Innovation and Growth Section 5: Government policy to support entrepreneurs Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Entrepreneurial Attitudes around the World See good prospects for start-up Fear of failure would stop Has required skills Desired career option % agreeing India 58 46 45 67 Turkey 47 39 44 72 France 34 53 25 63 Japan 13 44 4 26 UK 41 38 45 52 USA 44 28 48 63 Source Global Entrepreneurship Monitor (2011) 43 countries and 2000 adults in each (London Business School 2011) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 44 The Leftwing Perspective • Collective ownership of the economy for the benefit of the majority • Collective ownership manifests itself through state ownership of large assets • Extensive involvement of the state in economy policy as: – – – – an owner - a welfare provider an employer - a regulator a re-distributor aims to control excess wealth creation within the market …what does this imply for the entrepreneur? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation The Rightwing Perspective • Private ownership and self-interest is efficient • Highest levels of individual freedom paramount • Social and economic policy is subordinate to the market • State activities should be limited.. neutral stance – law and order, working of free market, small number of public goods • Promote innovation in products, processes, organisations and markets Pierson and Lesson (1994) …suggesting what for the entrepreneur this time? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 45 Economics of Entrepreneurship Traditional economist’s view: • Growth of SMEs is explained by attractiveness of market entry into an industry because of its profitability, growth, the barriers to entry and its concentration – – – – Simple, easy to understand Rational and logical Focus upon the traditional drive for profit and wealth creation Works in a variety of scenarios - sectoral, cultural etc Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Economics of Entrepreneurship Evolutionary/Darwinian view: • Links innovation to knowledge and attitude of the individual – which is uncertain, biased and focuses upon the financial motivation to set up a new business which in turn generates economic growth and takes business away from weaker competition – Appeals to the competitive nature of business – ‘survival of the fittest’ - helps to justify support investment and (arguably) support from Governments etc – Links with one interpretation of ‘entrepreneurial orientation’ Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 46 Economics of Entrepreneurship Schumpeterian view: • Entrepreneurs set up SMEs to exploit innovation and so create economic growth – a process of ‘creative destruction’ – – – – Appeals to a more ‘intelligent’ view of entrepreneurship Apt for high growth or creative industry sectors Often the basis of the stories of heroic entrepreneurs Concept of creative destruction recognised outside of the study of entrepreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Economics of Entrepreneurship Marxist economist’s view: • Growth of SMEs is explained by their dependency on dominant large firms who wish to mitigate risk & push down conditions for workers – Outdated view - but still prevalent in some political considerations of whether Governments should support business and wealth creation – Focuses on the moral arguments surrounding wealth creation by individuals and the exploitation of workers - relevant in developing economies – Ignore modern history of small companies rapidly being able to compete with large firms Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 47 Economics of Entrepreneurship Labour market economist’s view: • Analysis of the factors influencing individuals to set up an SME – character traits, antecedent influences, economic and social condition of the individual etc. – Sees the entrepreneur as another category within the labour market – Acknowledges that people sometimes shift between being self employed, employed and then self employed again - or mix employment with self-employment – Arguable weak when considering the small number of individuals who become catalysts for high-growth companies Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Economics of Entrepreneurship All economists agree however that entrepreneurship encourages economic growth because it: • Encourages competition • Is a mechanism for ‘knowledge transfer’ • Generates diversity • Provide opportunity for the individual • Generate necessary ‘churn’ in the economy • Is a vital support part of any supply chain for large organisations • Is vital for developing economies - survival economics etc Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 48 Why are Entrepreneurs important to the Economy? • They provide a productive outlet • They add variety to products and services • They are specialist suppliers to large firms • They provide essential competition • They are breeding ground for new industry • They provide a means of entry to business Bolton (1971) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation …but also consider the following statistics • 2.08M enterprises in the UK economy (VAT registered) • 1.83M (88.8%) employed less than 10 people - with 484k (23.3%) listed as sole traders • 2.04M (98%) employed less than 50 people • Only around 8,000 enterprises (0.4%) employed more than 250 people • 14.7% of enterprises were less than 2 years old; 27.7% were less than 4 years old… • AND the top 1% (c20,000 enterprises) generate 81% of tax revenue (CBI, 2012) So should Governments spend taxpayer’s (ONS, March 2011) money on supporting entrepreneurs? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 49 Government Policy Options for supporting small businesses Frequency Policy option 1: Simply increasing the number of entries Policy option 2: Increasing capability for opportunity exploitation Never reach producti on stage Enter then fail Enter and succeed Growth firms High Low Exploitation of opportunities Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Entrepreneurship: Innovation and Growth Section 6: Social Entrepreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 50 Social Enterprise Themes Combining income generating activity with a social goal Creating social change at a community level Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Integrated Social Enterprise When the surplus generating enterprises simultaneously create social benefit, with one objective not getting in the way of another – marrying the development agenda with the market opportunity so as to obtain synergy: • Having a primary social purpose with a secondary commercial activity • Achieving that purpose by engaging in trade • Reinvesting profits in the enterprise or new social ventures • Democratically involving members in governance • Open accountability Pearce Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 51 Social Entrepreneurs Socially driven, ambitious leaders, with great skills in communicating a mission and inspiring staff, users and partners. In all cases they have been capable of creating impressive schemes with virtually no resources Create flat and flexible organisations, with a core of full-time paid staff, who work with few resources but a culture of creativity Thompson Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Qualities of Civic Entrepreneurs Similar to an intrapreneur, they must: • Work collaboratively with those who have complimentary skills • Work across traditional boundaries, within and outside their organisation • Be adept at dealing with complex, political situations • Communicate effectively with a wide range of stakeholders • Either be highly placed or with a high level sponsor Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 52 Civic Entrepreneurship In most cases the process of revitalisation began with a joint effort by political leaders, managers, staff and users to rethink the organisation’s goals and purpose The strategic sense of purpose was not confined to senior managers. They understood that this sense of purpose needed to be shared, ideally from the outset, by politicians, staff and users Leadbeater & Goss Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Three Dominions of Entrepreneurs 2nd System: Public Services, Global Government Illegal economy Legal Economy Local authorities, National Health Service, education Family Social economy enterprise Voluntary charities National Civic Entrepreneurs Entrepreneurs 1st System: Private, profit concentrated Regional Local Community 3rd System: Social economy Social Entrepreneurs TRADING: MARKET Prof. Julian Campbell julian.campbell@uea.ac.uk NON-TRADING: PLANNED Entrepreneurship: Growth and Innovation 53 Social Entrepreneurship Construct risk tolerance proactiveness innovation social opportunity recognition social entrepreneurship judgement capacity entrepreneurially virtuous Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Virtuous Circle of Social Capital Further social capital Initial endowment of social capital Physical capital Dividends or interest Financial capital Organisational capital Human capital Leadbeater Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 54 Social Entrepreneur Life Cycle Organisational growth Stage 1: Endowment of social capital 2: Investment of social capital 3: Dividends of social capital Growth: • Set mission • Recruit team • Acquire physical capital Growth: • Set mission • Recruit team • Acquire physical capital Growth: • Set mission • Recruit team • Acquire physical capital Risks of failure; Risks of failure; Risks of failure; • Wrong mission • Mission explosion • Stagnation • Wrong staff • Financial strain • No succession • Wrong product mix • Mgmt overload Type of skill Execution, Creativity, development vision evaluation Type of trust development Prof. Julian Campbell julian.campbell@uea.ac.uk Belief, credibility Track record of competence Entrepreneurship: Growth and Innovation Dangers of Social Entrepreneurship • Mixing social and commercial values – what is core mission? • Conflict of social and commercial behaviour – which comes first? • Over dependence on aid - sustainability? • Impact of market values on democracy and citizenship – How to accounting for both market and social activities? • The market model places too little emphasis on democratic ideals like fairness and justice Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 55 Entrepreneurship: Innovation and Growth Section 7: Business Growth Models for SMEs Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Blocks to Start-ups Idea Trigger PUSH Unemployment Disagreement ‘Misfit’ No alternative Prof. Julian Campbell julian.campbell@uea.ac.uk Action PULL Independence Personal development Personal wealth Recognition Entrepreneurship: Growth and Innovation 56 Ingredients of Success Entrepreneurial Character Business Culture LUCK Business Decisions Company Strengths Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk SLEPT Analysis Social Legal Economic Political Technological Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 57 Strategic Planning Process VISION Continuous, multi-level activity, informed by realtime, realistic information STRATEGIC ANALYSIS Continuous, multi-level activity with selection made by management STRATEGY FORMULATION Incremental & adaptive decision-making to maintain maximum flexibility STRATGY IMPLEMENTATION Prof. Julian Campbell julian.campbell@uea.ac.uk Feedback loops Enduring Entrepreneurship: Growth and Innovation Strategy Imperatives Selling on low price Maintaining cost leadership Continually driving down costs Volume Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 58 Strategy Imperatives Selling on high differentiation Understanding basis of the advantage Reinforcing & building upon advantage Brand Continual innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Strategy Imperatives Selling to a focused, narrow market Keeping in touch & understanding changes in that market Maintaining close relationships with customers Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 59 The Product Life Cycle Sales value Introduction Growth Maturity Low sales Increasing sales Static but high sales Low growth Rapid growth Low profits or High profits as losses as costs costs come down are high Few competitors Competitors emerging & competition intensifying Decline Declining sales Static but high profits Focus on cost reduction Fight for market share Declining profits or losses Established competitors Competitors exiting 0 Time Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Grow fast Attain cost leadership Defend position Attain cost ledshp. Review Defend posn. Renew Grow with industry Differentiate Grow fast Grow fast Catch up Differentiate Reduce costs Differentiate Grow with ind. Hold niche Grow with ind. Harvest profit OK Differentiate Focus Grow fast Differentiate Focus Grow with industry Harvest profit Find niche Grow with ind. Consolidate Cut costs Weak Focus Grow with industry Harvest Catch-up Hold niche Harvest profit Turn around Find niche Consolidate Divest Find niche Grow with industry Turn-around Consolidate Withdraw Divest Withdraw Strong Dominant Grow fast Very weak Life Cycle & Competitive Position Start-up Prof. Julian Campbell julian.campbell@uea.ac.uk Growth Maturity Decline Entrepreneurship: Growth and Innovation 60 The Boston Matrix Problem Child Market Attractiveness Introduction Growth Failure Product / Service launch Star High Maturity Decline Cash Cow Low High Prof. Julian Campbell julian.campbell@uea.ac.uk Dog Market Strength Low Entrepreneurship: Growth and Innovation Cash Cow DEVELOP OPPORTUNITIES • Be critical of prospects • Invest heavily in selective products/services • Specialise in strengths • Shore up weaknesses MANAGE FOR EARNINGS • Maintain market position with successful products/services • Differentiate products/ services to keep share of key segments • Prune less successful products/ services • Stabilise prices, except where a temporarily aggressive stance is required to deter competitors GENERATE CASH • Monitor carefully and judge when to discontinue • Live with low growth • Improve productivity • Reduce costs • Look for ‘easy’ growth segments Prof. Julian Campbell julian.campbell@uea.ac.uk Cash Dog INVEST FOR GROWTH • Penetrate market • Accept moderate short-term profits • Sell and promote aggressively • Expand geographically • Extend product range • Differentiate product/ service Problem Child Star Strategy Implications Entrepreneurship: Growth and Innovation 61 Product Life Cycle Management Star Problem Child Product extensions Product expansions Product modifications Cash Cow Prof. Julian Campbell julian.campbell@uea.ac.uk Dog Entrepreneurship: Growth and Innovation The Boston Matrix – Cash Flow Star Problem Child Revenue +++ Revenue + - - - Expenditure Expenditure _________ _________ Cash flow neutral Cash flow - Cash Cow Revenue Dog Revenue Expenditure ++++ - Expenditure_________ Cash flow ++ Cash flow Prof. Julian Campbell julian.campbell@uea.ac.uk + _________ neutral Entrepreneurship: Growth and Innovation 62 ABC Analysis High Class B Class A High value to the business Sales Low value to the business Low Low Class C High Contribution Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Futures Thinking • Holistic perspective • Avoids a rigid approach to strategic planning • Develops a vision about a desired future state • Plans backwards from that state • Scenario planning is similar Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 63 Strategic Intent To define strategic intent, the entrepreneur asks questions about the future of the business (re-defines the vision) • What new types of customer benefits should we seek to provide in 5, 10 or 15 years? • What new competencies will we need to build or acquire to offer these benefits? • How will we need to reconfigure our customer interface over the next few years? Hamel & Prahalad Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Successful Strategies • Strategy should emphasise something that makes you as unique as possible and delivers as much value as possible to the customer • The best chance of doing this comes from differentiation with the aim of dominating your market and to do this effectively and quickly • Then to continue to innovate based differential advantage Prof. Julian Campbell julian.campbell@uea.ac.uk upon your Entrepreneurship: Growth and Innovation 64 But Also…. • Strategy should be clear and focused • Supported by - culture that aims high - structure that is flexible & responsive • A good strategy is important but effective strategy execution is vital (and often ignored) Prof. Julian Campbell julian.campbell@uea.ac.uk C O N S G C O R R L O I I W S D TI A H S T I O N Entrepreneurship: Growth and Innovation The strategy formulation cycle Deliberate strategy formulation Emergent strategy formulation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 65 Strategy Development • Likely to be both deliberate and emergent • Strategic intent provides a strong common vision which directs behaviour • Continuous strategising takes place • Development of multiple strategic options • Decisions based on opportunistic circumstances at the time • Decentralisation is the response to turbulence Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Stage Models of Growth STAGE 1 Size Large Small STAGE 2 Existence Survival Spiders-web Informal Direct supervision Opportunity driven Spiders-web Informal Supervised supervision Generate repeat sales STAGE 3 Success Growth Improving systems Increasing formality Strategy Obtain resources for growth Relationship based management Young Prof. Julian Campbell julian.campbell@uea.ac.uk STAGE 4 STAGE 5 Maturity Take-off Strategy Big company Professional Systems & controls Return on investment Systems & controls Delegation Decentralisation Increasing formality Age Mature Entrepreneurship: Growth and Innovation 66 Greiner’s Growth Model Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Change and Effectiveness STAGE 1 Getting used to new situation Denial Effectiveness High Low CHANGE EVENT STAGE 2 STAGE 3 Relearning Becoming effective Putting it together Immobilisation Depression Testing new reality Letting go Short Prof. Julian Campbell julian.campbell@uea.ac.uk Long Time Entrepreneurship: Growth and Innovation 67 Entrepreneurship: Innovation and Growth Section 8: Entrepreneurship and marketing Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Remember the basics - Porter’s Five Forces Barriers to Entry: Economies of scale Product differentiation Capital requirements Legal agreements Switch costs Power of Suppliers: Concentration Extent of substitutes Importance of supplier Extent of differentiation Forward integration Competitive rivalry: Number & size Industry growth Extent of differentiation Capacity increments Exit barriers Power of Buyers: Numbers & concentration Extent of differentiation Switch costs Margin they earn Backward integration Threat of substitutes: Changing technology Changing market Changing tastes Switch costs Extent of differentiation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 68 Capital within the business – where is your key advantage? Financial Capital Human Capital Prof. Julian Campbell julian.campbell@uea.ac.uk Social Capital Entrepreneurship: Growth and Innovation Create something that is unique … If you set up a company selling widgets like the bloke down the road and the only difference is that yours are cheaper, you’ll make a living, but that is all you’ll achieve. If you can be truly differentiated and unique, then you’ve really got something. Martyn Dawes, founder of Coffee Nation 69 Economy of scale challenge How can you compete? Average cost per unit What is this point? Large firms low cost per output Small firms high cost per output Output volume Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Marketing Strategy Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 70 Generic Marketing Strategies Broad market COMMODITY SUPPLIER OUTSTANDING SUCCESS High price Low price Low differentiation High differentiation NICHE PLAYER MARKET TRADER Focused market Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Niche Strategies • Selling a differentiated product/service to a welltargeted, narrow market segment • Emphasising non-price elements of the marketing mix • Specialising in customers or products rather than methods of production • Stressing the inherent advantages of the firm over its competitors Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 71 Credibility Merry-go-Round Bank Suppliers Landlord Maintaining the credibility of your business with key stakeholders is key. Both for sources of new business… Customers Employees …but often more because Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Networks are critical for Start-Ups • You gain customers by developing relationships based upon trust, often based upon reciprocity • You gain knowledge of completely new markets and help find contacts to market your product or service • You gain knowledge and information that helps you keep abreast of changes in your market place • You share knowledge and information that helps you keep abreast of innovation in your sector and move forward with partnerships developed in these networks to exploit these opportunities • You gain confidence in your abilities by mixing with a supportive group of similarly minded individuals Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 72 Innovation Networks Zone 2 Radical Innovation Incremental Innovation • Innovation networks for new product development • cross sector development consortia Zone 1 Zone 3 • Sector networks • Learning and development programmes Similar organisations Prof. Julian Campbell julian.campbell@uea.ac.uk Zone 4 • Strategic alliances • Sector Consortium • Regional clusters • Best practice clubs • Topic network Different organisations Entrepreneurship: Growth and Innovation Marketing Planning Customers buy BENEFITS...not features Standard Benefits Our shop accepts all leading credit cards...which means you can budget for your purchases to suit your pocket Company Benefits Our shop is a family business...which means that you get individual, personal attention from somebody who cares Differential Benefits We are sole agents for that product...which means you can’t get it anywhere else Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 73 Marketing Mix Product Design, sizes, colours Materials, quality Specification After-sales service Price List price Discounts, special offers Payment terms Service & spares prices Promotion Advertising Point-of-sale displays Leaflets, brochures etc. Personal selling Telephone, internet, post People Service Advice Support Relationships Place Location Layout, design Channels of distribution Routes to market: telephone, internet, post Prof. Julian Campbell julian.campbell@uea.ac.uk The Pricing Range Average cost per unit Variable cost per unit ‘Too-low’ price Value to the customer ‘Going-rate’ price ‘Too-high’ price Pricing Range Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 74 Launch Pricing Options Cheapest - undercut the competition Going rate pricing - matching prices in market place Skimming - charging higher price because of inelasticity of demand Penetration - charging lower than going-rate because of elasticity of demand to gain market share quickly Most expensive – quality statement Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Advocate Supporter Regular Customer Customer Prospect Prof. Julian Campbell julian.campbell@uea.ac.uk Increasing Loyalty Customer Loyalty Ladder Entrepreneurship: Growth and Innovation 75 Segmentation Industrial Type of business Size of business Quantity of purchase Credit worthiness After-sales service Usage rate Prof. Julian Campbell julian.campbell@uea.ac.uk Consumer Socio-economic group Age Sex Home location Occupation Stage in family life-cycle Benefit required Entrepreneurship: Growth and Innovation Segmentation • Segment must be distinctive and significantly different from any other - otherwise segment boundaries are likely to be too blurred • Segment must be of sufficient size to make it commercially attractive. It may be that a gap in the market exists because it is not commercially attractive • Segment must be accessible. Gap in market might not exist in reality because segment cannot be reached • Segment must be defendable from competitors Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 76 Relationship v Transactional Marketing Relationship Marketing Encourages close, frequent contact Transactional Marketing Encourages repeat sales Orientated toward single purchase Focus on service Limited service Focus on value Focus on benefits Focus on quality of total offering Focus on quality of product Focus on long-term Prof. Julian Campbell julian.campbell@uea.ac.uk Limited contact Focus on short-term Entrepreneurship: Growth and Innovation Entrepreneurial Marketing Planning Determine future organisational performance objectives Review conventional influences on performance Can marketing conventions deliver performance goals? Yes CONVENTIONAL PLAN Prof. Julian Campbell julian.campbell@uea.ac.uk No ENTREPRENEURIAL PLAN Entrepreneurship: Growth and Innovation 77 Remember the basics of ‘selling’ • Know what customers want • Know how to match this to the product/service you have to sell • Know how to build up argument that it does indeed meet their requirements • Know how to close the sale Why is this particularly important for the entrepreneur? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Internet Retailing • Providing something different • Business must be clearly focused but be sufficiently flexible to change quickly to sustain growth • Management must be good with a good plan, a grasp of critical issues and credibility with financiers • Business must develop a strong brand and, on the back of this, create and maintain very high levels of service • Delivery must be on time • Site must be accessible, orders must be simple to place and easily tracked whilst in the system Brady (2011) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 78 Entrepreneurship: Innovation and Growth Section 9: Sources of Finance for Start-up businesses Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Which type of finance do businesses need? Why do they need the money? How long does the business need the money for? What type of business are they? How much money do they need? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 79 Sources of Finance Internal Long-Term External Retained profits Ordinary shares, Preference shares Bonds/Debenture Medium Finance lease Hire purchase Securitisation Short-Term Reduce inventories Bank overdraft Delay payments to trade payables Debt factoring Tighter credit control Invoice discounting Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Risk/Return Characteristics Ordinary Shares Preference Shares Development Loans Return Loan Capital Risk Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 80 Ordinary Shares – Ordinary shares represent the equity share capital of the firm – No agreement between ordinary shareholders and the company that the investor will receive back the original capital invested – Owners of the firm – The right to exercise control over the company – Vote at shareholder meetings – Share in the rising prosperity of a company – A right to receive a share of dividends distributed – What ordinary shareholders receive depends on how well the company is managed Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Sources of Equity Capital Sources of Equity Capital Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 1 6 9 81 Early Stage Equity • Business Angels – – – – Wealthy individuals investing on average £25,000-£30,000 Mostly in form of equity finance Usually not a controlling interest Rejection rate of companies by angels is 90% • Government Assistance – Regional Growth Fund: £3.2 billion fund operating across England from 2011 to 2017 https://www.gov.uk/understanding-the-regional-growth-fund – Capital for Enterprise: £6.5bn through SME loans and V.C type funds http://www.capitalforenterprise.gov.uk/ – Large support organisations e.g. Scottish Development Agency Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Venture Capital • Venture Capital (VC) – Funds provide equity and debt for high growth firms – Types of capital: • Seedcorn • Start-up • Early Stage • Development • Management Buy-Out (MBO)/Management Buy-in (MBI)/ Public to Private (PTP) – Out of 10 investments, 2 will perform excellent and 2 will fail – Expected annual returns 26% Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 82 Encouraging Investors • Enterprise Investment Scheme (EIS) – Income tax relief at 20% – Capital gains tax relief – Must hold for 3 years to get tax benefits – Seed Enterprise Investment Scheme (SEIS) • 50% upfront tax relief • No capital gains tax on sale – http://www.seiswindow.org.uk/new-investor/ Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Other Sources of Equity Capital • Venture Capital Trusts (VCT) – VCTs can invest up to £5m in any one company – VCTs shares are traded on the stock exchange – Attractive to investors because of tax relief • Investors can put up to £200k p.a. into VCTs • Immediate tax relief 30% • Investee companies must have gross assets less than £15m Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 83 Innovative Financing - Crowdfund Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Where does Crowdfunding sit? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 84 Where does Crowdfunding sit? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Where does Crowdfunding sit? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 85 Where does Crowdfunding sit? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Where does Crowdfunding sit? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 86 Bank Borrowing • Overdraft – An overdraft is a permit to overdraw on an account up to a stated limit – Flexibility – Cheapness • Drawbacks of an overdraft – The bank retains the right to withdraw the facility at short notice – Security Prof. Julian Campbell julian.campbell@uea.ac.uk Short & Medium Term Debt • Advantages of overdrafts Entrepreneurship: Growth and Innovation Longer Term Bank Borrowing/Term Loan • Loan of a fixed amount for a fixed time period on agreed terms • Term between 1 and 20+ years although commonly 3 to 7 years • Drawdown may be over a period of years e.g. construction project • Repayment can be in instalments e.g. annuity, equal or cash flow driven – Loans are tailored to the company’s specific needs and there is a closer relationship with lenders than with a bond structure Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 87 Bank Borrowing Factors to Consider • Costs – Arrangement fee – Interest rate can be either fixed or floating – If it is floating then the rate will generally be certain percentage points above the banks’ base rate or LIBOR – Floating-rate borrowings have advantages: • If interest rates fall the cost of the loan falls • Fixed rates are usually above floating rates • Returns on the firm’s assets may go up at times of higher interest rates – Floating rates have some disadvantages • The firm may be caught out by a rise in interest rates • Uncertainty about the precise cash outflow Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Bank Borrowing Factors to Consider • Security • Banks concerned about the borrower’s competence • ‘Asymmetric information’ – One party in the negotiation is ignorant of, or cannot observe, some of the information which is essential to the contracting and decision-making process • Companies may overcome bank uncertainty to some degree by providing as much information as possible • Collateral • Loan covenants place restrictions on managerial action • Personal guarantees of directors Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 88 The Bankers’ Anagram Character Ability Management Purpose Amount Repayment Insurance Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Banking Relationships • Trust and respect • Personal relationship - regular contact • Regular information - from firms: accounts. budgets, etc. - from banks: new facilities, rate charges etc. • No surprises - from firms: keep to agreed borrowing - from banks: notification well in advance of changes in borrowing arrangements Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 89 What Worries Bank Managers • • • • • • • • • • Frequent excesses on the account Losses Lack of financial information Developing hard-core borrowing Diminishing or rapidly increasing turnover Declining margins Inability to meet forecasts Over-reliance on too few customers or suppliers Unavailable directors Poor credit control Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Advantages/Disadvantages of Debt and Equity Capital DEBT CAPITAL Advantages EQUITY CAPITAL + costs are lower than raising equity + risk capital, doesn’t need to be repaid (lower transaction costs and lower rate of + no fixed return (dividends don’t need to return) be paid, although for pref. shares there is + debt holders don’t have votes (usually) an understanding that they will be) + interest is tax deductible Disadvantages - obligation to repay (principal and interest) - due to the risk taking the cost i.e. return on equity is higher than debt - obligation to repay increases risk – debt holders can ultimately force liquidation - dilution of existing shareholders ( loss of control) - use of secured assets for borrowing may - high cost of issuing shares – 10-25% of be onerous on management action the amount raised - Covenants can restrict management Prof. Julian Campbell julian.campbell@uea.ac.uk - dividends cannot be used to reduce taxable profit Entrepreneurship: Growth and Innovation 90 Top Tips for Raising Finance • Make sure you have a business plan with a viable cash flow • Use your own capital to prove the business model if possible • Beware of giving personal guarantees for loans • Don’t give up • Use your network Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Small Firms in Europe • Over investment in debtors and stock • Under investment in fixed assets • Over reliance on creditor finance • Over reliance on short-term, particularly overdraft finance • Under investment in shares and reserves Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 91 Factoring • Sales ledger completely handed over - no bad debt cover or 100% cover possible • 75% to 80% advance: balance (less charges) when customer settles • Finance charge: Base +2 to 4% on advance • Administration charge: 0.5% to 2.5% of turnover - depending on service required, turnover, average size of invoice and level of work • Subject to conditions (eg spread, invoice value) Prof. Julian Campbell julian.campbell@uea.ac.uk minimum turnover, Entrepreneurship: Growth and Innovation Invoice Discounting • Sales ledger maintained by firm - Disclosed: debtor pays financier - Confidential: debtor unaware of financier • 75% to 80% advance: balance (less charges) when customer settles • Finance charge: Base + 2% to 4% on advance • Administration charge: 0.15% to1.5% of turnover, depending on service required • Subject to conditions Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 92 Factoring & Invoice Discounting Advantages • Security is on debts generated by sales – perfect for a growing business • Interest & charges deducted from balances paid to firm – no chance of non-payment Prof. Julian Campbell julian.campbell@uea.ac.uk Disadvantages • Expensive • Conditions can be problematic Entrepreneurship: Growth and Innovation Are you sure it’s the fault of Financiers? Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 93 Entrepreneurship: Innovation and Growth Section 10: Entrepreneurial behaviour within large organisations: Intrapreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Entrepreneurial Transformation Concerned with: • The need form large firms to adapt to an ever-changing environment • Changes in systems, structures & cultures that encourage entrepreneurship • Leadership & strategies that encourage entrepreneurship Peters & Waterman (1982), Ghoshal & Bartlett (1997), Kanter (1989), Tushman & O’Reilly (1996), Burns (2005) How to do it: • Replicate the entrepreneur’s character traits in the company • Replicate the entrepreneur’s approach to managing change through uncertainty Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 94 Change and Effectiveness Jeffrey Timmons Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurs are patient leaders, capable of instilling tangible visions and managing for the long haul. The entrepreneur is at once a learner and a teacher, a doer and a visionary Entrepreneurship: Growth and Innovation The Leader’s Job and Kotter’s communicating vision • Have vision & ideas • Long-term, strategic planning • Communication: Internal and External • Create culture by example • Monitor & controlling performance • • • • • • • Prof. Julian Campbell julian.campbell@uea.ac.uk Keep it simple Use metaphors, analogies and examples Use many different forums Repeat the message Lead by example Address small inconsistencies Listen and be listened to Entrepreneurship: Growth and Innovation 95 Corporate Entrepreneurship John Naisbitt Prof. Julian Campbell julian.campbell@uea.ac.uk Corporations have to dismantle bureaucracies to survive. Economies of scale are giving way to economies of scope, finding the right size for synergy, market flexibility and, above all, speed…. Entrepreneurship: Growth and Innovation Corporate Entrepreneurship John Naisbitt To survive, big companies today are all deconstructing themselves and creating new structures, many as autonomous units Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 96 Corporate Venturing Concerned with: • The need for larger firms to manage new, entrepreneurial businesses separately from mainstream activity • Investment by larger firms in strategically important smaller firms • Organisation structures needed to encourage new businesses • Management of disruptive technologies Galbraith (1982), Burgelman (1983), Drucker (1985), Christensen (1997) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Intrapreneurship Concerned with: • How individuals may be encouraged to act more entrepreneurially in a large organisation • Systems, structures & cultures that inhibit entrepreneurship • The character & personality of the individual behaving in this way Kanter (1982), Pinchot (1985) Concerned with: • Structural changes needed to encourage entrepreneurial behaviour • Market approach to resource allocation & people management • Spin offs & venture capital operations Hamel (1999), Foster & Kaplan (2001) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 97 Architecture Architecture is the relational contracts within and around an organisation with customers, suppliers and staff. It is based on trust and underpinned by mutual self-interest Kay (2003) • It replicates the entrepreneur’s ability to build relationships • It is informal • It allows organisation to act quickly • It creates organisational learning and knowledge • It is difficult to copy • It creates barriers to entry Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Building Architecture LEADERSHIP CULTURE STRATEGIES ARCHITECTURE STRUCTURES Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 98 Creating a Learning Organisation A learning organisation is one that: ‘facilitates the learning of all its members and continuously transforms itself….adapting, changing, developing and transforming themselves in response to the needs, wishes and aspirations of people, inside and outside.’ Pedler, Burgoyne and Boydell • True learning is by acquiring both know-how & know-why through the wheel of learning, thus understanding causality • Mental models are shaped by & help shape experience • Learning happens when you share, examine & challenge mental models • The most effective learning is social & active – not individual & passive • The most important things to learn are tacit – intuition, judgement, expertise Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Wheel of Learning KNOW-HOW Form concepts Daniel Kim 1993 Test concepts Reflect KNOW-WHY Experience World view (assumptions, beliefs etc) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 99 Traditional Leadership See change as a threat Avoid risk Uniformity Training Control Conformity Effectiveness Long-term planning Functional management Efficiency Create certainty Compartmentalised knowledge Contracts Discourage failure Discipline Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurial Leadership Embrace change Take risk Opportunity seeking Innovation Rapid transfer of knowledge Question status quo Relationships Strategising at all levels Co-operation Learning Drive Tolerate uncertainty Vision Allow failure Prof. Julian Campbell julian.campbell@uea.ac.uk Not controlling Entrepreneurship: Growth and Innovation 100 Building Architecture LEADERSHIP STRATEGIES CULTURE ARCHITECTURE STRUCTURES Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Entrepreneurial culture Measured risk-taking Creative, innovate Strong relationships Continual learning Empowered can-do staff Acquiring Sharing Achievement People are orientation Opportunistic information & information & important knowledge knowledge Open communication Charge is normal Shared visions SelfDoing the confident ‘right thing’ but realistic Close relationship s with staff Prof. Julian Campbell julian.campbell@uea.ac.uk Time for Egalitarian learning and innovation Belief in teamwork Commitment Celebrate success Attention to Belonging, basics ownership ‘Work is fun’ Emphasis on future Close Building Personal Hands-on supplier networks responsibility managementrelationship s Close customer relationship s Entrepreneurship: Growth and Innovation 101 Culture in the Growing Firm Move from high ‘individualism’ to high ‘collectivism’ - encouraging ‘ingroup’ feeling with strong sense of identity that encourages cooperation, building of relationships & networks Have low ‘power distance’ - egalitarian, informal and open relationships, information flows & flat organisational structures Have low ‘uncertainty avoidance’ - a tolerance of risk & ambiguity, preference for flexibility & personal choice & decision making Achieve a balance between ‘masculine v feminine’ - between ‘outgroup achievement orientation & ‘ingroup’ relationship & network building Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Building Architecture LEADERSHIP CULTURE STRATEGIES ARCHITECTURE STRUCTURES Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 102 Size and Structure • Size matters – small is beautiful • Structure matters – but relates to other factors (eg task complexity or environmental turbulence) …but relationships are the important thing …and all this influences and is influenced by the management/leadership style • Size and structure directly impact on culture • Direct impact on performance • Determine whether a firm remains entrepreneurial.. or bureaucratic! Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Spider’s Web Employee Employee Employee Employee Employee Entrepreneur Employee Employee Employee Employee Employee Prof. Julian Campbell julian.campbell@uea.ac.uk Employee Entrepreneurship: Growth and Innovation 103 Organic Structure Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Organisation Structure & Management Style Organic structure Mechanistic structure Open free-flowing communication Highly structure & restricted communication Allows many operating styles Stresses uniform operating styles Authority based on expertise Authority based on role & position Free to adapt to change Emphasises getting things done Loose and informal control Behaviour shaped by situation & personality Participative decision-making Entrepreneurial management style Prof. Julian Campbell julian.campbell@uea.ac.uk Reluctance to change Emphasises compliance with processes & procedures Tight control Behaviour constrained by job description Hierarchical decision-making Bureaucratic management style Entrepreneurship: Growth and Innovation 104 Structure, Style and Cycling Organisation structure Management style Bureaucratic Entrepreneurial Mechanistic Organic Pseudo- entrepreneurial Effective entrepreneurial firm firm Effective bureaucratic firm Unstructured unadventurous firm Entrepreneurship: Growth and Innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Freedom v Control SPACE Too much BALANCE Too few CHAOS BALANCE Too little CONSTRAINT BALANCE BALANCE DIRECTION BOUNDARIES CHAOS CHAOS CHAOS Too little SUPPORT Prof. Julian Campbell julian.campbell@uea.ac.uk Adapted from Birkinshaw (2003) Entrepreneurship: Growth and Innovation 105 Building Architecture LEADERSHIP CULTURE STRATEGIES ARCHITECTURE STRUCTURES Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Other Strategies that encourage Corporate Entrepreneurship • Intrapreneurship • Corporate Venturing • Bring the market inside – spin offs etc. Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 106 Intrapreneurship Concerned with: • How individuals may be encouraged to act more entrepreneurially in a large organisation • Systems, structures & cultures that inhibit entrepreneurship • The character & personality of the individual behaving in this way Kanter (1982), Pinchot (1985) Concerned with: • Structural changes needed to encourage entrepreneurial behaviour • Market approach to resource allocation & people management • Spin offs & venture capital operations Hamel (1999), Foster & Kaplan (2001) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Intrapreneurs • Goal orientated • Ambitious • Competitive • Questioning • Self motivated • Dislike bureaucracy • Comfortable with change • Adept at politics • Good at resolving conflict • Able to work with others Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 107 Encouraging Intrapreneurship • High level sponsor • Space to break the rules • Slack to pursue project • Motivation to pursue project • A culture that ‘tolerates’ intrapreneurship Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Corporate Venturing Concerned with: • The need for larger firms to manage new, entrepreneurial businesses separately from mainstream activity • Investment by larger firms in strategically important smaller firms • Organisation structures needed to encourage new businesses • Management of disruptive technologies Galbraith (1982), Burgelman (1983), Drucker (1985), Christensen (1997) Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 108 Corporate Venturing Key to success is good ‘strategic fit’: • Strong relationship with core competencies of venturing company - effective synergy or • Acquiring skills, technologies or customers that compliment the strategic direction of venturing company - effective knowledge transfer Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Special Business Unit Independent Business Unit Complete Spin-off Partly related New Product Business Department New Venture Division Contracting Very related Direct Integration Micro New Business Department Nurturing and Contracting Very important Uncertain Not important Operational Relatedness Unrelated New Venture Developments Strategic Importance Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 109 Advantages & Disadvantages of Corporate Venturing • Facilitates innovation and knowledge import • External sources of finance may be easier to access • Facilitates creation of semi-autonomous units with their own cultures, incentives and business models • Often involves highly motivated staff However… • Requires investment, normally equity, which can be risky • Requires investment in venture mechanisms that set up venture management and networks that search out, evaluate and generate deal flows • Investing company will not be in complete control of innovation Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation Entrepreneurship: Innovation and Growth Section 11: Summary Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 110 Further reading • Burns P. (2011). Entrepreneurship and Small Business. Palgrave MacMillan. • Wickham P A (2006). Strategic Entrepreneurship Prentice Hall. • Hisrich and Kearney. (2013). Managing Innovation and Entrepreneurship). Sage Publications. • Deakins and Freel (2006). Entrepreneurship and Small Firms. McGraw Hill • Drucker P (2007). Innovation and Entrepreneurship. Harper Collins. • Storey and Greene (2010) Small Business and Entrepreneurship. Pearson Prof. Julian Campbell julian.campbell@uea.ac.uk Entrepreneurship: Growth and Innovation 111
