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MANAGING GROWTH OF NEW VENTURE . Strategies for growth. Internal strategies External strategies. Internal strategies . Involves efforts taken within the firm itself: New product development Other product related strategies International expansion
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Strategies for growth Internal strategies External strategies
Internal strategies • Involves efforts taken within the firm itself: • New product development • Other product related strategies • International expansion • Purpose is to increase sales revenue and profitability • The business relies on its own competencies, expertise, business practices and employees to grow • This type of growth strategy is called organic growth because the firm does not rely on outside interventions
New product development designing, producing and selling new product or service as a means of increasing a firms revenue and profitability necessary especially in computer soft ware industry where the average product life cycle is 14 – 16 months
Other product related strategies • growing by • improving the existing products or service, • increasing the market penetration of the existing products • or pursuing a product extension strategy
Improving existing product /service - enhancing quality, making it larger, smaller, making it more convenient to use, improving its durability or making it more up to date Means improving its value and price potential from the customers perspective
Increasing market penetration of existing product or service – actions are taken to increase the sale of a product/service through a greater marketing effort or through increased production capacity and efficiency An increase in greater market share is accomplished b increasing advertising expenditure, offering sales promotions, lowing the price or increasing the size of the sales force
Increased market penetration can also occur through increased capacity or efficiency which permits a firm to have a greater volume of products or services to sell n – can occur by expanding plant capacity or outsourcing part of the production process
Extending product line involves making additional versions of a product so that it will appeal to different clientele or making related products to sell to the same clientele . – e.g.. Different versions of laptops to appeal to different clienteles Geographical expansion - growth by simply expanding form one location to other additional sites n- common in retail business
External growth strategies These strategies relies on establishing relationships with third parties such as mergers, acquisition, strategic alliance, joint venture, licensing and franchising An emphasizes on external growth strategies result in a more fast paced collaborative approach toward growth than the slower paced internal strategies External growth strategies level the playing field between large an small firms
external growth strategies • These can be done through • Joint venture • Acquisitions • Mergers • Licensing • Strategic alliances • Hostile take over • Leveraged buy outs • Franchising
joint Ventures With increase in business risks, hypercompetition, and failures, joint venture have occurred with increased regularity and often involve a wide rage of variety of players A joint venture is a separate entity that involves a partnership between two or more active participants. Sometimes called strategic alliance, a joint venture involves a wide variety of partnership e.g. between motor vehicle producers, universities, banks and supermarkets e.g. going venture between nakumatt and Barclays for credit cards, joint venture of KISS and Classic FM on the Star Newspaper Joint venture could be to share technology and cut costs, to do cooperative research
Acquisation An acquisition is a purchase of an entire company or part of the company; by definition, the company is complementally absorbed and no longer exist independently e.g. shell acquired Agip oils
Mergers A transaction involving two or more possible companies in which only one company survives. Very similar to acquisition. An entrepreneur may want to merge for survival requirement, to protect him against market enlargement or low cost competition or unwanted takeover, to diversity and gain a market position in terms of financial strength, technology or managerial talent Merger of standard newspaper and KTN
Licensing Is the grant of permission by one company to another to use a specific form of intellectual property under clearly defined condition
Strategic alliances Is a partnership between tow or more firms that is developed to achieve a specific goal Alliances tend to be informal and do not involve the creation of a new entity E.g. strategic alliance to conduct research ( technology strategic alliance Marketing strategic alliance – typically match a company with as distribution system with a company that has a product to sell in order to increase sales of a product or service h
Hostile take over By ensuring that over time you get 51% shares in a company or majority share holding
Leveraged buyouts LBO occurs when an entrepreneur (or a group of employees) uses borrowed funds to purchase an existing venture for cash. Most LBO occurs because the entrepreneur purchasing the venture believes that he or she could run the company more efficiently than the current owner. The current owner is frequently an entrepreneur or other owners who want to retire. The venture owners may also be a large corporation desire to divest itself of a subsidiary that is too small or that does not fit in its long-term strategic plans
Problems of rapid growth As the new venture business to reach rapid growth phase, the entrepreneur needs to be sensitive to some of the resultant management problems. Usually rapid growth is seen as a positive sign of success and any attempt to establish important financial or management controls that were discussed above is abandoned for the sake of more business
rapid growth can quickly change the status of a new venture from profitable to bankrupt if the entrepreneur is not sensitive to certain growth issues. • What are these issues? • How can growth quickly turn a business into a failure? • How growth should be managed?
Problems of rapid growth: • It can cover up weak management, poor planning or wasted resources • It dilutes effective leadership • It causes the venture to stray from its goals and objectives • It leads to communication barriers between departments and individuals
Training and employee development is given little attention • It can lead to stress and burnout • Delegation is avoided and control is managed by only the founders creating bottlenecks • Quality control is not maintained
The entrepreneur can avoid these problems with preparation and sensitivity about handling early rapid growth when it occurs. If the entrepreneur finds that these issues cannot be internally resolved, then an outside consultant can be hired to provide an objective view of how to manage the venture during this stage of the venture life cycle It many are necessary to put a limit to the ventures growth. This may sound bad to a view venture, but it is important to try to stay within the capabilities of the firm
