Growth Exam

3. Growth by merger

- In practice similar to acquisitions - More common among large corporations - Post-deal integration is challenging (costs, conflicting interests and cultures) - antitrust law can prevent merger

How to measure growth

1. Financial performance Sales/Revenue Market Share Profit Headcount Assets 2. Non-financial performance Employee satisfaction Sustainability-related performance 3. The hidden costs Entrepreneurs not taking a salary or taking a low one Entrepreneurs well being Entrepreneurship penalty on the job market

People businesses and partnerships

A partnership allows individuals to take advantage of scale, and the efficiencies to be derived from working in close proximity wit hpeople with complementary skills, but it is still in essence a collection of indivudals each with personal relationships with a set of clients.

Create a growth culture, not a performance-obsessed one

Many leaders are focused on how to build higher performance cultures. The irony is that building a culture focused on performance may not be the best, healtihest or most sustainable way to fuel results. Instead, it may be more effective to focus on creating a culture of growth. Building a growth culture requires a blend of individual and organisational components: an environment that feels safe, a focus on continuous learning, time limited experiments, and continuous feedback. In a competitive, complex and volatile business environment, companies need more from their employees than ever. But the same forces rocking business are also overwhelming employees, driving up their fear, and compromising their capacity. Many leaders are focused on how to build higher performance cultures. The irony is that building a culture focused on performance may not be the best, instead it may be more effective to focus on creating a culture of growth. A growth culture focuses on deeper issues connected to how people feel, and how they behave as a result. People build their capacity to see through blind spots: acknowledge insecurities and shortcomings rather than unconsciously acting them out: and spend less energy defending their personal value so they have more energy available to create external value. how people feel - and make other people feel - becomes as important as how much they know. Building a growth culture requires a blend of individual and organizational component: an environment that feels safe, fueled first by leaders willing to tolerate model vulnerability and take personal responsibility for their shortcomings and missteps. A focus on continuous learning through inquiry, curiosity and transparency, in place of judgement, certainty and self protection. Time-limited, manageable experiments with new behaviors in order to test our unconscious assumption that changing the status quo is dangerous and likely to have negative consequences. Continuous feedback - up, down and across the organization - grounded in a shared commitment to helping each other grow and get better. By contrast, a performance-driven culture often exacerbates people's fears by creating a zero-sum game in which people are either succeeding or failing and winners quickly get weed out from losers. Results also matter in growth cultures, but in addition to rewarding success, they also treat failures and shortcomings as critical opportunities for learning and improving, individually and collectively. This can be hard in practice. Instinctively, we are each inclined to hide, rationalize, minimize, cover up and deny our weaknesses and mistakes because they make us feel vulnerable, at risk, and unworthy. These fears narrow and limit our perspective rather than enlarging it - at a time when the complexity of the problems we face often exceeds the complexity of thinking necessary to solve them. Fueling growth requires a delicate balance between challenging and nurturing, A growth culture asks "how much energy can we liberate?" and the answer is infinite.

Measuring and describing growth

Managers are more likely to achieve and sustain growth if they have a means of measuring it. But they must first decide what they are seeking to grow and why. Businesses are multidimensional and can grow in different ways aan directions. Companies at different stages of the revolution will experience different rates of growth and have different rates of growth and have different perspectives on it. A successful small company can grow by multiples over a single year and still make little impression o nanay market-share table. A bigger, mature company may be delighted with double-digit growth, but may be even more interested in its position in the pecking order relative to other big companies.

Going public

Obtaining a listing for the first time is known as a flotation or an initial public offering (IPO). Pros: it gives ocmapnis anotheri mportant toolf for financing business epxansion and corprotate acqusiiton, Instad of paying cash to the shareholders of a target company, a company can offer its shares shares and options are more flexible whne used an incentives for staff and managment, If there is a ready market for the shares, individuals can convert their holdings into cash, subject to scheme rules. There is littel that staff and management can do wiht shares and options ian a pricate vcompany other than wait until the bsuiness is sold - or listed. Listed companies and their directors are more highly respected than private businesses by the media, potential employees, customsers and creditors. Cons: businesses that succeed ton the markets must be confident that they can satisfy market expectations of stability and long-term growth; the markets, and the naalyst that interperet and ocmment on them, do not liek surprises. Usually businesses can be confident of such stability only once they have achieved a certain level of matutity. this partly explains why bigger companies often fare better on the makrte htan msller ones financial markets are notoruslly hsort-termist. The listing process is time consuming and expensinve mainting a listing is expensive there will be greater public scruitny of directiors and managments actiosn and a more oneruous set of regulations. z< a listed company is no longeri n control of its own destiny a listing provides the current owners wiht an opportunity to realise part of their investment, but it isn oti n itself an exit for the owners a flotation is easier t o achieve when the markets are doing well than when they are doing badly. a listed company is subject to the cagaries of the market. Share prices go down as well as up. Uusally takes 6 monts up to one year.

1. Organic Growth

Organic growth denotes growth achieved through internal processes and resources, i.e., excluding merger and acquisitions (M&A). - It relies on a consistent flow of ideas and development. - Generally found to drive long-term performance However, it is challenging and requires: - Continuously challenging existing thinking and practices, - Being turned in to changes in the market, - Rigorous customer monitoring, and - Efficient internal control and communication Innovation is a key driver of organic growth. There are three main types of innovation - Product innovation (R&D, most prominent think IBM) - Market innovation (Business model innovation think IKEA, Uber, Airbnb) - Process innovation (Operational efficiency think Ford, Porsche)

Organic growth

Organic growth is generated from within, it is growth that does not rely on an acquisiton, merger, or other form of association between two or more organisations. A busines relying on organic growth needs to be confident in its ability to grow its top line. Top-line growth cannot, of ocurse, be left to its own devices. It needs proactie management and stimulation. SOme factors are worth commenting on: Market share Geogrpahical expansion Follow the customer Companies that hcoose to pursue organic growth put a lot of faith in their ability to generate idea, markets, businsses, people and other resources internally. They run the risk of becoming stale, and if they are ambitious for growth they need to find ways of replicating the stimilus and injections of fresh ideas from outside that an acquisition strategy almost alywas provide. Such comapnies need coprotate planning processes designed in such way as to challenign existing thinking contisly corporate radar that is tuned into changes in the market and industry, and new staff who are rigorosuly debriefed shortly after arrival for any insigt they might have about changes outside customer intelligence programmes that are sensitive to customer feedback

The Adizes model

The Adizes model Ichak Adizes takes a very different approach to growth from both Greiner and Churhcill. Adizes is unusal in that he envisages a ten-stage corporote life cyckle charting the life ofa a bsuiness not just form birth to success, but also from success to death. 1. Courtship (the creation of the organinsation) 2. Infancy (the commencement of trading) 3. Go-go (energetic early hrowth with the chaos that can result) 4. Adolescence (the orgainsation is established but still evolving fast adn ahs recently established an identity indepedent of its founders) 5. Prime (the organisation has reached its "prime of life" and is therefore at its fittest, most compeititve and profitable) 6. Stability (though still effective, and often still proftiabel, the sign of devline are beginning to take market share, and maybe market trends are changing, leaving the organisation behind) 7. Artistorcracy (few doubt that the orgaisation has a powerful place in the market, but it is viewed as inflexible and conservative, nimbe new makret entrantrs are beginning to take makret share, and maybe market trends are changing, leaving the organsiation ebhind. 8. Early bearucracy ( called rescimination in som verisons - even the organisaiton itself acknowledges that something is wrong; doubts and internal squabbles ditract attention from customer service and the objectives of the organisation 9. Beraucracy (attention is focused inwards as the organisaiton struggles to stay alice, any outward attention is directed as possible exits or the sale of the organisation) 10. Death (or rather the commercial equivalient - one of the various forms of bankruptcy)

Stages off growth

When businesses grow they do not just get bigger. Growth delivers qualitative as well as quantitative change. A changing business makes changing demands of its managers. Is it possible to generalise about these changes? If so, might it be possible to anticipate the problems that growth will bring in the future and this reduce the risks associated with it?

Modelling growth

When those who study business growth have attempted to generalise about its implications, their thinking has often taken the form of a growth model, an analytical framework that describes the stages that businesses pass through as they evolve, the characteristics of each stage, and the changes necessary to facilitate the move of the company from one stage to the next.

The growth corridor step 2

calculate the competitive growth rate (CGR)

what is Non-financial performance growth

- Employee satisfaction - Sustainability-related performance

What are the hidden costs with growth

- Entrepreneurs not taking a salary or taking a low one - Entrepreneurs well being - Entrepreneurship penalty on the job market

What is financial performance

- Sales/Revenue - Market Share - Profit - Headcount - Assets

From leadership to management

Abraham Zaleznik was one of the earliest to draw a distinction between creative, inspirational and enthusiastic types, and organised, disciplined, sensible managerial types, using the labels "leader" for the former and "manager" for the latter. Most businesses start high on leadership and low on management. If businesses are to stand a chance of developing into something sustainable, they will need even more of these leadership qualities - energy, inspiration and creativity. A business in its early stages will thus move from 1 to 2 if it is to evolve, dominated by individuals with these foundational qualities of leadership. Organization, discipline and governance in these early stages are often closely associated with the force of personality of the founders. The introduction of "management" heralds reporting timetables, appraisal schemes, formal agendas and other manifestations of the way to run a "proper" business. On the matrix, the business moves from 2 to 3, where leadership and management are in balance; where there is enough business disciplin a and governance to sustain the business, but not so much that the qualities of entrepreneurship and leadership are threatened or damaged. For many businesses, staying in 3 sounds good in theory but is difficult to achieve in practice. Some entrepreneurs (leaders) feel obliged to turn themselves into managers, or at least develop management capability, acknowledging both fundamental change in role and the need to acquire and utilise nwq skills. However it is rare to find an individual who can operate comfortably at both ends of the leadership/management spectrum. Businesses serious about sustainable growth must introduce a management infrastructure.

How should we divide the pie? Equity distribution and its impact on entrepreneurial teams

Abstract Drawing on a multiple case study approach and data in eight entrepreneurial teams observed over six months this article develops a dynamic model of the consequences of equity distribution among team members. Perceived justice of equity distribution emerged as a key variable influencing entrepreneurial team interactions and important entrepreneurial outcomes. high perceived justice trifferes positive team interaction spirals, whereas low perceived justices triggers negative interaction spirals. Teams exposed to external threats drifted from a positive spiral to a negative spiral despite high perceived justice. We discuss the implications of our study for research on entrepreneurial imprints, justice, and exit. Executive summary While equity ownership is important to entrepreneurs because of the connected financial rewards and the level of power and control within the firm, we know little about the consequences of equity distribution for the interaction within entrepreneurial teams and how these interactions develop over time. This is important to understand because a well-functioning entrepreneurial team is the key to a positive venture development and high level of performance. The key variable emerging in the interviews was the team members' perceptions of justice of equity distribution. Ihhg perceived justice triggered positive team interaction spirals consisting of an increase of theme attraction - the teams experience of being a strong entity - and a reciprocal decrease in team repulsion - the teams thought ,feelings and behaviors connected to a process of drifting apart. In contrast, low perceived justice triggered teams' negative interaction spirals in which team attraction decreased over time, while team repulsion reciprocally increased. Teams which were confronted with external threats in terms of corrosive impact by investors drifted from a positive spiral to a negative spiral despite high perceptions of justice. The negative spirals escalated over time and resulted in the exit of one team member. In contrast, we observed no team member exit in teams with positive spirals. Moreover, positive spirals were connected to high levels of team and venture performance whereas negative spirals resulted in lower levels of performance Entrepreneurial team members need to sustain their level of effort in order not to risk their ventures' performance which creates a frustrating dilemma for entrepreneurial team members. Team interaction can trigger exit. Introduction The split of equity usually takes place within the first weeks of the ventures foundation and can therefore be referred to as the first deal made by entrepreneurs. Previous research on equity ownership in entrepreneurial firms typically focused on relationships between entrepreneurs and investors and addresses the investor's interest to monitor the firms in their portfolio, the entrepreneurs willingness to grant investors the right to replace the entrepreneur, and the development of fault lines between entrepreneurs and investors. Moreover, equity ownership has been considered as an incentive to attract new entrepreneurial team members. Theoretical context Entrepreneurial team composition Entrepreneurial teams are often homogenous which has been associated with higher team stability. However research shows that ventures benefit from heterogeneity. Interactions within entrepreneurial teams Studies focusing on team interactions that have negative implications for teams or venture performance have found that relationship conflict is negatively related to team satisfaction, team decision quality, and venture performance. Moreover, conflicts were identified as one reason for team member exit. Work focusing on positive entrepreneurial team interactions showed that team cohesion is positively related to venture performance. Equity ownership and its distribution in entrepreneurial teams Entrepreneurial firms often addressed the distribution of equity with respect to investors or other helpers outside of the firm. In return for their financial investment, investors want to actively control and influence the firm- besides financial resources, entrepreneurs might also need to grant equity in exchange for non-financial resources such as contacts to suppliers and customers, advice and moral support. Moreover, entrepreneurs in young entrepreneurial firms which often lack legitimacy and financial resources offer equity as an incentive to attract potential co founders. The distribution of equity within the entrepreneurial team has been described as one item most complicated and tension filled decisions in an entrepreneurial team. The distribution is influenced by the team members prior experiences, social ties, capital investments, adn contributions to the idea for the new venture. 5. Results - Equity distribution, team interactions, and entrepreneurial outcomes Proposition 1a. An equal split of equity between entrepreneurial team members increases the likelihood that the equity distribution is perceived as just. Proposition 1b. A perceived match between entrepreneurial team members' contribution (equal or unequal) and equity distribution increases the likelihood that the equity distribution is perceived to be just. Proposition 1c. A closer personal relationship between entrepreneurial team members prior to founding the venture increases the likelihood that the equity distribution is perceived to be just. Proposition 2. High perceived justice of equity distribution triggers high team attraction - consisting of infra team trust and team cohesion - whereas low perceived justice triggers low team attraction. Proposition 3. Low perceived justice of equity distribution triggers high team repulsion . consisting of relationship conflict and social distancing - whereas high perceived justice triggers low team repulsion. Proposition 4a. High perceived justice of equity distribution triggers a reciprocal, positive tema interaction spiral consisting of am utually reinforcing relationship between increasing team attraction and decreasing team repulsion. Proposition 4b. Low perceived justice of equity distribution triggers a reciprocal, negative team interaction spiral consisting of a mutually reinforcing relationship between decreasing team attraction and increasing team repulsion. Proposition 5. A negative team interaction spiral triggered by low perceived justice of equity distribution can further reduce perceived justice of equity distribution over time. Proposition 6. External threats increase the likelihood that teams drift from a positive team interaction spiral emerging from high perceived justice of equity distribution to a negative team interaction spiral. Proposition 7a. Whereas positive team interaction spirals decrease the likelihood of entrepreneurial team member exit, negative team interaction spirals increase the likelihood of exit. Proposition 7b. Whereas positive tema interaction spirals enhance perceived entrepreneurial team performance, negative tema interaction spirals diminish perceived entrepreneurial team performance. Proposition 7c. Whereas positive tema interaction spirals enhance venture performance, negative tema interaction spirals idminish venture performance. Team members perceived justice of equity distribution left an imprint on the entrepreneurial teams interactions. High perceived justice triggered a reciprocal, positive team interaction spiral which consisted of an increase in team attraction and a decrease in team repulsion over time. Low perceived justice results in a reciprocal, negative team interaction spiral consisting of a decrease in attraction and an increase in repulsion. Triggered by external threats, some teams initially high in perceived justice could not maintain the positive interaction spiral over time but started drifting into a negative spiral. The two interaction spirals affected important entrepreneurial outcomes: team stability as well as tema and venture performance. Perceptions of justice appear to play an important role in the development of the team and the venture. This also affects entrepreneurial exit, by incorporating dynamic interaction spirals within the entrepreneurial team which are influenced by the team members perceptions of just or unjust equity distributions, and which, in turn, influence team member exit. 6. Discussion and conclusion Data revealed that it is not the equity distribution per se, but the team members perceived justice of this distribution was the crucial factor and substantially impacted the development of team interactions. For some teams - those high in perceived justice - the adjustment of the practices, processes and structures the new venture process if acilitied, whereas others - those low in perceived justice . experience substantial struggles because of his imprint. The distribution of censure equity within the entrepreneurial team is one of the first decisions team members need to make. High perceived distributive justice triggers reciprocal, positive team interaction spirals,while low perceived justice triggers negative tema interactions spirals. Moreover, negative tam spirals further reduce perceived justice of equity distribution. These results suggest the social imprint effect of perceived justice of equity distribution on entrepreneurial team interactions and take a dynamic perspective on the consequences of this effect. We hope that our study stimulates further research on the social consequences of early decision in the ventures life for entrepreneurs, their teams and the centuries employees.

2. Growth by Acquisition

Acquisitive growth denotes growth achieved through firm-external sources, typically taking control of, or merging with, other companies - relies on synergies or other added value (1+1>2) - often fails to deliver shareholder return due to integration-related challenges Generally unable to fully replace organic growth. Instead, acquisitions.. - should strengthen or transform present competitive advantage - may target under-valued companies or specific resources/competencies - may be a management buy-out (MBO, shareholders sell to existing managers) Firms primarily use acquisition to secure subsequent organic growth i.e. to: - quickly gain minimum scale in new markets (Think coca cola, costa coffee) - Gain access to specific capabilities (Apple, siri, beats, shazam) A growth mode that entails one firm (the acquirer) buying another firm (the target). Generally, the acquirer does not have to buy all shares of a target for the transaction to be considered an acquisition but rahter 50% + 1 of voting rights (enough to gain control over decision-making). Pros: - Can support rapid growth - May provides distribution channels and an existing customer base - Access to local management with knowledge about the market when expanding internationally - Reduces political risk when expanding internationally Cons: - High initial capital investments - Uncertain return on investment - Legacy of the acquired company. May be difficult to coordinate.

Pace and capacity

Another important variable is the pace of growth. Businesses can grow at the wrong spee.d Businesses that grow too slowly may lose advantage in the market to competitiors. Those that grwo too fast may lose control wiht dangerious consequences across several dimensions. A business growing too fast is also one that risks losing the confidence of its stagg. Driving an out-of control businessis jsut as scary as driving an out-of-cotnro ltrain, eith every change of it ending in disaster. Businesses that grow fast put pressure on their cash resources as growth consumes cash, which must be found fro mthe internal operations or form external financiers. Businsses go bust, not because they do not make enough profit, but because they run out of cash. What is an acceptable level of growth? There are three simple tests: - grwoth is ifnancially acceptable if management know in advance how it is going to be finances - growth is strategiaclly acceptabale if it contunius to secure and enhance the companys position in teh industry and marketplace - growth is operatioanlly acceptable if mangament know how it will be controlled and supported. Test for financial capacity, managments understand of the commercial envirnoment and mangements real understand of the businsses. Questions companies should ask are as follows: - growth - culture - information management The three rows in the figure are interlocking. High scores in all sections suggest a business that is growing fast, is becoming more complicated and is not under the control of managments.

Giving up the hats? Entrepreneurs role transitions and venture growth

At the start of a venture, most entrepreneurs wear many hats. However,entrepreneurs often cannot remain involved in every aspect of the venture process, and so they face important decisions about which roles to give up, which roles to retain, and which new roles to adopt. For many, this process is particularly difficult as roles represent more than just something entrepreneurs do but also an important part of who they are (role identities). There are three mechanisms - perceiving the entrepreneurs as someone who gives up the hats, discovering new meaning (new role identities) within the venture, and role identity imprinting - lead to a narrowing of onres roles set, which ultimately influences venture growth. Summary Entrepreneurship is not viewed as a singular activity, but as an amalgamation of numerous, highly varied activities. Entrepreneurship reflects a process often referred to as wearing many hats. Wearing many hats can allow the netrenrepru to conserve resources by relying on oneself to perform a broad range of activities rather than expending resources by hiring employees, it can also help improve an entrepreneurs holistic understanding of an organization by teaching them about various aspects of the business. Despite these benefits, entrepreneurs cannot remain involved in all aspects of business if they want their venture to grow. However, we plan and understand we lack an understanding for how and why entrepreneurs give up these hats ,and the important influence this has on venture growth. There are mainly three mechanisms - perceiving the entrepreneurs as someone who gives up the heats, discovering new meaning (new role identities) within the venture, and role identity importing - relate to a narrowing of ontes role set, which ultimately impacts venture growth. Introduction When entrepreneurs first launch a venture, most wear many hats. That is, nascent entrepreneurs often assume a wide array of roles and responsibilities in their firms. However, venture growth - a central goal of most organizations - exerts pressures on entrepreneurs and challenges them to adapt to their role sets. As their centuries grow , entrepreneurs often cannot remain involved in every aspect of the venture process, and so they face important decisions about which roles to give up, which roles to retain, and which new roles to adopt. This role transition process is difficult as many roles represent more than just what the pernetrenurs do, but roles can become meaningful and self-defining to entrepreneurs, this represents role identities. Just as growth influences entrepreneurs' role transition process, how entrepreneurs navigate these processes also affect the ventures ability to grow. Entrepreneurs who delegate key responsibilities free up bandwidth to enable growth, whereas those who continue wearing all the hats may limit their ventures' ability to grow. There are three role-related mechanisms (perceiving the entrepreneurial role identity, dis- covering role identities, and role identity imprinting) that explain how and why entrepreneurs give up roles, which allows their ventures to grow. Entrepreneurs have two drastically different entrepreneurial role identity perceptions - a wear all the hats or give up the hats perspective - which reflect entrepreneurs' understanding of what it means to be an entrepreneur. Entrepreneurs have different motivations for launching a venture, and as such, identify with specific aspects of the entrepreneurial process which is affecting how entrepreneurs negotiate and discover role identities within the venture. Roles and growth in new ventures Roles represent a fundamental aspect of life that individuals hold in their everyday life Within a work context, individuals assume many roles and constantly balance among them. In addition to possessing many work roles, individuals must also transition between roles over time. SOme role transitions can occur with relative ease - like taking off and putting on a hat - other roles become deeply meaningful and self-defining, this reflecting role identities, which can be difficult to relinquish. As organizations grow, the roles required of entrepreneurs change, as mangerially printed roles begin to take precedence. Organizational growth ultimately impacts individuals' roles, or what they do in their firms. Entrepreneurial activity is a singular task in which entrepreneurs engage. Entrepreneurial roles reflect the set of activities that are expectations and associate behaviors entrepreneurs attach to certain social positions. Role identities form when individuals internalize the meanings associated with roles and those meanings become self-defining. Entrepreneurial identity research primarily focuses on the notion that founders have a proclivity toward certain roles in their ventures. Prior works build on the notion of an entrepreneur identity. As the venture evolves, entrepreneurs must consider which hats to keep wearing, which to remove, and which new hats to adopt. Findings Entrepreneurs can either retain or subtract their existing roles, and they could either add or delegate these new roles. Subtracting refers to deleting, delegating, losing or eliminating roles; retaining involves a strengthening, affirming, or stabilizing of roles; and adding reflects to the process of forming, gaining or taking on new roles. The net effect of entrepreneurs subtracting, retraining and or adding was a narrowing or broadening of their overall roel set. Entrepreneurs who narrowed their role set ultimately allowed for venture growth, whereas those who broadened their role set did not grow their venture. Discussion Entrepreneurs possess highly-varied understandings of what it means to be an entrepreneurs. Therefore, although entrepreneurs certainly possess unique founder identities that are consistent with who they are and who they want to be, they also act in accordance with who they believe they are expected to be, which appears to hold distinctly different meanings among entrepreneurs. Existing entrepreneurial role identity work primary assumes that entrepreneurs either possess a singular identity, which c

Exit

Becuse financial investors are usually keenly interested in exit, the founders need to be too.

Debt finance

Borrowing the money allows a company to reaise cahs withou giving away any share capital or equity. The company can offsett interest paymenta gainst tax and thus theres is good reaso nto expect debt finance to be relaitevly cheap. In practice its is mor edifficult. - Overdraft. Risky for the bank and for the borrowe. Only to fun short-term cash flow shortfalls. - Loans against assets. Safer for the bank. - Cash flow lending. More for established business with good track record. The bank relies on the cash flow that the business expects to generate to give it the comfort it needs. - Corporate bonds and debentures. For big established busineses. A longer-term debt instrument with am atirutiy date, a redemption value and a coupon. - Gurantees. Small bsuiness owners are often asked for personal guranteees that put their own assets at risk if the company is unable to pay back the loan.

The growth corridor step 3

Calculate the sustainable growth rate (SGR)

Possible growth situations

Cash-starved - Lack the financial means to grow (SGR < CGR) - Can either grow to CGR and go bankrupt or grow at SGR and lose market share - Typical resolution: a) sell off non-core2 business and b) focus on efficiency in core Growth laggard - Outgrown by competition and persistently lose market share (sales growth < CGR) - Typical resolution: Organic growth through innovation (product/market/process) Excessive growth - Grow beyond their mean, losing managerial and financial control - Typical resolution: stabilization through retrenchment with debt restructuring, focus on organic growth, and control and integration

The growth corridor step 1

Collect data (from annual report)

7. Franchising

Contract-based entry mode A franchisee operates the business under the name of another company. A business concept: the franchisor provides the right to use trademarks, operating system, equipment, and continuous support system like advertising, employee training etc. The franchisee pays a fee to start up operations. The franchisor typically takes a cut out of the sales (royalty + advertising) Pros: (for franchisor) - Low risk and low cost - Usually highly motivated business contact with local market knowledge - Economies of scale in marketing to international customers - Enables relatively rapid in both domestic and foreign expansion Cons: - Searches for competent franchisees can be expensive and time consuming - Lack of full control over franchisees operations - Cost of protecting property rightsMcDonalds, 7 eleven

8. Licensing

Contract-based entry mode. A licensing agreement is an arrangement wherein the licensor gives something of value to the licensee in echange for a financial payment. Object of a license egreement: patent, trademark. Usuallty licensing agreements are less restrictive (on the licensee) than franchising agreements. Pros: - Increases in income on products already developed - Locally made-image may assist sales and dealing with authorities when expanding internationally - Circumvents trade barriers when expanding internationally Cons: - When the licensor agreement expires the company may have created a competitior - Licensee may underperfroms and termination of the contract can be difficult - License fees are usually a small percent of turnover and may compare unfavorable to if the company would run its own operations Walt Disney, Hello Kitten

6. Strategic alliances

Contract-based entry mode. Samsung - Spotify

Platform Scaling, Fast and Slow

Conventional wisdom says digital platform businesses should scale quickly, but that's a mistake in some markets. Rapid scaling is a core element of platform strategy, with speed considered the decisive doctorin the race to succeed in winner-takes-all and winner-takes-most markets. But we've found that rapid scaling may not be the best strategy for all platforms. In some cases, a more careful, incremental, and thus slower approach to scaling is more beneficial. In studying platform businesses we found that regulatory complexity and regulatory risk are two significant but often neglected factors in platform scaling decisions. Moreover, they are likely to become increasingly important in the years ahead as efforts to regulate tech companies gain momentum and as more companies in a greater variety of sectors and markets seek to capture the benefits of platforms. Plotting regulatory complexity and risk Regulatory complexity describes the current level of legal and regulatory barriers that govern platform entry and operations in a sector. The costs of operating in sectors with high levels of regulatory complexity can be significant, but legal and compliance teams can analyze and accurately predict them. Regulatory risk refers to the probability of an increase in legal and regulatory costs and complexity in the future. It includes a higher degree of uncertainty than regulatory complexity. It is notoriously difficult to predict policy outcomes or even attribute odds to different outcomes. But there are some objectives and quantifiable metrics for calculating regulatory risk, such as ongoing legal cases, probes and inquiries by government agencies, and the number and political influence of lawmakers who argue for tighter regulations. A simple way for platform owners and operators to understand the potential combinations of regulatory complexity and risk is to think of the two factors as the axes in a 2x2 matrix. Platforms occupying the quadrant with low regulatory complexity but high regulatory risk include more and more companies, such as Airbnb, Amazon, Facebook, Google, and Uber. A closer look reveals that many of them are operating in a regulatory void - that is, a contest without established and powerful regulatory authorities, a tight net of rules and strict barriers to entry, Accordingly, there is a higher degree of uncertainty regarding how regulators may react, which makes it difficult for these businesses to develop a discrete policy scenarios, attribute probabilities, and make robust assumptions on timing. Scaling decisions in the Four Quadrants Daniel Kahneman made a distinction between "fast" and "slow" thinking to illustrate two very different modes in which the brain operates under different circumstances. He asserted that fast thinking prevails in situations requiring rapid and initiative action (such as if you hear a rattlesnake), whereas slow thinking occurs in situations requiring more delivatre, orderly, and computational mental work (such as when you calculate your annual income tax). Analogous to Kahneman's distinction, we argue that platform owners and operators should explicitly decide whether to scale their user base fast or slow. Fast scaling, which has also been called blitzscaling by Reid Hoffman and Chris Yeh, means prioritizing speed over efficiency. The strategic objective in fast scaling is to grow rapidly, experiment quickly to import product-market fit, and leverage strong network effects to attain and maintain a leading market share. Slow scaling details detailed scenarios planning and actor analysis, careful risk management, incremental geographic expansion, and continual investment in the platform's reputation and trustworthiness. It does not exclude the pursuit of network effects, which are prerequisite of success for platform businesses, but it prioritizes analysis, iterative growth, and risk minimization over speed. Increasingly, regulatory complexity and risk are becoming the determining factors in the choice between fast and slow scaling. Legislators and regulators were initially slow to react to the disruptive effects of the platform economy, but that is changing: currently, there are vivid debates on the appropriate policy landscape for platform businesses in countries. These debates are resulting in legislative and regulatory changes at an accelerating pace. In low risk regulatory contexts, fast scaling is necessary to activate three interrelated positive feedback loops: a network loop, in which growing numbers of users make the platform more useful and valuable to new users a data loop, in which more data yields more insight regarding consumer preferences, market structure, and market trends, which are used to improve the platform's product-market fit, making it more attractive to new users. a capital loop, in which high growth rates make the platform more attractive to investors - generating the funding and know-how needed to support continued growth. I fany of these loops cannot be activated, scaling takes longer or becomes impossible to achieve, and the platform can become an also-ran. Fast scaling is the most appropriate strategy for platforms facing low regulatory complexity and high regulatory risk. This seems counterintuitive in a context where fast sailing may arouse the attention of policy makers and regulators, however the powerful advantages of the three feedback loops outweigh the regulatory risks, at least in the short term. Many of the big platform companies started out in a context of low regulatory complexity and low regulatory risk, and they scaled fast. Now because of their success and the dominant market positions they have attained, they have increasingly attracted the attention of lawmakers and oversight authorities. In reaching scale, however, they have also gained a powerful resource that helps mitigate regulatory risks. a huge base of users, who can serve as powerful political advocates. Therefore the ability to leverage a scaled-up user base as advocates in the potivial sphere provides a strong incentive for companies facing low regulator complexity but high regulatory rik t o'scale fast .Moreover, in the short term, the risks of slow scaling in terms of networks, data, and capital outweigh the risk of attracting regulatory scrutiny. Ut us issue that the benefits of a switch to slow scaling may be substantive in the long term. but that is neither clear nor tangible given the residual uncertainty in this context. In arenas eit both high regulatory complexity and high regulatory risk, however, slow scaling is the most prudent strategy. Fast scaling within this quadrant can lead to a quick shutdown by powerful financial market supervision. A slower, more careful scaling strategy would have been less controversial and more likely to lead to success. How to scale slow Platform businesses operating in high-risk, high-complexity environments might avoid the challenges faced by the libre initiative by using a slow-scaling strategy that has four key ingredients: analysis of the macro environment, careful risk management, investment in stakeholder trust, and incremental geographic expansion. Analysis of the macro environment: Analysis begins with the section of the strategy team. In the context of high regulatory risk, platform owners and operators need to predict policy dynamics and identify potential regulatory scenarios. This requires that they supplement htir legal, technical, and business teams with policy experts, risk analysts, and scenario planners. These experts should provide in-depth analyses to identify relevant institutional actors and understand their mandate and priorities along with the broader economy, social, and political effects and implications of the platform. Such analyses are a prerequisite for identifying risks, making underlying probabilities assumption, and developing strategic responses. Careful risk management: As a natural extension of the above analysis, platforms need to identify risks and develop a sound risk management system in the context of high regulatory complexity and risk. Introducing a risk management system too late can be costly in terms of time, money, and reputation. Investment in trust: Too often, companies focus their efforts on innovative technology and attractive user interfaces but neglect the potential societal consequences of their platforms. Trustworthiness is especially important in contexts of high regulatory complexity and high risk. To attain this status, platform operators should understand the underpinning of public and institutional trust, and invest resources to maintain and enhance trust from regulators to consumers. Narrow geographical focus, incremental expansion: Because trying to achieve global scale in sectors typified by high regulatory complexity and high risk is hazardous, platform expansion should be more cautious. Experimental techniques that have become a mainstay of improving product-market fit can be difficult or strongly limited in highly complex and risky regulatory contexts. One alternative is to test the water in selected jurisdictions which can provide important insights and highlight previously undetected risks. Successful tech businesses need to understand how to navigate through the complex, and now always coherent, regulation that global lawmakers are rolling out . Daniel Kahnemand has proposed a more nuanced understanding of human cognition based on the idea that thinking fast is advantageous in some situations while thinking slow is better in others. A more nuanced understanding of platform scaling is needed. Understanding should include regulatory complexity and regulatory risk - two parameters that enable platform operators to plumb the macro environment and design sound and interspecific scaling strategies. This will probably become more important for tech companies in the future, especially as digital disruption expands to more strictly regulated sectors, and policy makers and regulators increasingly redesign legal frameworks in the era of the platform economy.

Even if growth is a consequence of success, it brings organisational challenges that threaten the success that caused it

Conversely, to sustain growth it is important to realise that what worked last year will not necessarily work next year; an organisation that wants to manage growth successfully needs to change things that are not yet broken. The problems brought by change inside an organisation are compounded by changes outside out. Indeed, growth in business itself often triggers changes in a market and industry, which in turn demands further change in the business.

Determining profit

Determining profit is even more subjective than determining revenue, as it is influenced by accounting regulation and policit and the choices made by management affect expenditure as well as revenue. Wheter or not to capitalise expenditure - that is, enter it on the balance sheet as an asset rather than write if off against revenue as a cost on the income statement - can have a significant impact on reported profit. Just us an undue focus on revenue can lead to an unstainable growth oath, so can an undue focus on profit to the detriment ofo other measures damande a bsiness longterm prospect. Profit in the short erm can be increased by cutting costs. Tahen too far, cutting costs ill comprpmise the long-term growth of the business. Whe nconsidering profit as a mwasue in a growing business it is important ot consider the conecpt of break-even. When a company, or a bsuiness within the company, breaks even it has reached a size sufficient to cover its fixed costs and make a contribution. Fixed costs / gross margin. Break-even is a crucial momenti nthe avolution of a business and its relationshiå when its fdinancial stakegolers. It also highlights the importance of margin or profit.

Growth gives rise to problems for businesses of all sizes.

Different divisions in a big business evolve at different speeds and may therefore be at different stages of evolution, each its own problems, presenting additional challenges to the organisation as a whole: how to reconcile the competing and contradictory plans of one division with another is a particular growth challenge for the bigger business. Mergers, joint ventures and acquisitions - inorganic rather than organic growth options - present even more challenges, not least with integration.

Growth Mode Strategy

Dominant entry mode: many companies have a dominant entry mode, a mode they use most times/always: H&M (organic), Subway (franchising) Hello Kitty (licensing). Mixed entry mode: many companies alternate modes depending on the brand and geographical location. Growth modes decisions relate to the general firm strategy: One reason Starbucks entered several licensing deals with Nestle and PepsiCo and sold Tazo to Unilever, was to generate money for their expansion in China.

Different companies, a trip to the zoo

Elephant - more than 500 employees Mouse - fewer than 20 employees Antilope - Annutal TO: ca 250 000usd Annual revenue growth over 4-year period: 20% Unicorn - Privately held start-up with a valuation exceeding 1 billion USD

The growth corridor step 4

Establish and plot the Growth Corridor

The growth corridor step 4

Establish and plot the Growth Corridor - Rapid growth at the beginning of the period - Followed by slow growth, and finally high growth again - Fall above the SGR for the examined time period -Indicated Exessive Growth X

Excessive growth

Excessive growth - Grow beyond their mean, losing managerial and financial control - Typical resolution: stabilization through retrenchment with debt restructuring, focus on organic growth, and control and integration

Evolution and revolution: the Greiner model

From 1972, this is not the first growth model, but it is the earliest one still in common use in the classroom and in the business strategists office. Greiner initially proposed five phases of growth through which business passed, adding a sixth stage in 1998. Although each of Greiner's phases starts with a period of evolution, it ends in revolution, a period of substantial organisational turmoil and change. How each revolutionary period is resolved determines whether or not the organisation will develop further. The periods of revolution are the heart of the model. Greiner's notion of revolution draws attention to the difficulty as well as the inevitability of change in the development in each revolutionary period is to find the new set of practices that will become the basis of managing the next period of evolutionary growth. But in so doing managers "experience the irony of seeing a major solution in one period become a major problem in a later period". The five phases are: Creativity. In the phase of creativity, the founders' energies are consumed by doing rather than managing and decisions are taken quickly and reactively. It ends in a crisis of leadership, in which the business addresses the question of who will establish some necessary order in the chaos. Resolution of the crisis might well involve the recruitment of a "capable business manager". Direction. The first revolution will be followed by a phase of direction, in which management systems and processes are introduced and developed and communication and management become more formal. As the organisation grows, however, such systems, designed initially to support growth, end up constricting it. There is a crisis of autonomy, in which middle managers are "torn between following procedures and taking initiative on their own ''. Delegation. The second revolution is resolved by the establishment and development of a more decentralised structure in a phase of delegation, during which senior executives manage by exception and junior managers have budget and profit responsibility for divisions and departments. But the revolution, a "crisis of control", occurs when senior executives sense that they are losing control of a business with more and more offshoots. FOr some a reimposition of central control is the obvious way forward. Coordination. However, going backwards is rarely an option for a business with ambition. The third revolution results in a phase in which senior managers use formal systems for achieving coordination. Some functions are centralised, capital expenditure is carefully controlled, formal planning processes are established, and share options and company-wide bonus schemes may be used to "encourage employees to identify with the organisation as a whole". But this focus on systems and coordination ends in a crisis of red tape, in which "procedures take precedence over problem solving." Collaboration. The fourth revolution results in a phase of collaboration in which teamwork, social control and selfdissipline replace "formal control". The focus shifts from process to problem solving, and from headquarters to interdisciplinary teams. Matrix structures (Ch 4, Figure 4.1) are established to balance and resolve the competing thinking of different interest groups. Above all, there is a shift from individuals and systems to collective. Greiner, in his first article on the subject, said he did not know how phase five would end. He is attempting to describe what many writers have discovered about growth: that the early phases of growth are a lot easier to describe and analyse than the later phases. Later Greiner said that phase five is likely to be the realisation that there is no longer an internal solution - to keep growing the organisation needs to look outside itself. Here Greiner also suggests that maybe there is a sixth phase of growth dependent on such "extra-organisational solutions' '. Managers can benefit from knowing where they are in the development sequence and understand when the time is to act. They should recognise the limited range of their own solutions, and that their interventions are time- and context-specific. It can help understand the problems it survived last year and anticipate what might be around the corner.

Types of profit

Gross profit Gross profit (turnover minus cost of sales - that is, the costs directly attributable to each sale) and gross marking (gross profit as a percentage of sales) indicate the health of teh essential enginge that underpings the bsuiness. best used to measure against projections and against similar businesses in similar industries. High-margin and low-margin products and services often have complementary relationships within the same company (ex Gilette). Gros profit is profit after deducting only the cosrts directly associated with the sale. It ifgnoes the costs associated with the back-office functions: the overheads. Gross profit is a measure of interest to cmpanies in the same industry that may wish to buy the business; they may see much of the back office doubling up resources that they already possess. Deciding which sosts to deduct when calculating fross profit is oftena a mteer of judgement. Net Profit Net profit (and net margin - net profit as a percentage of revenue) is profit after all costs, including back-office costs, have been deducted. Net profit indicated the ability of a business to generate a return.

Magaging the investment in growth

Growth is costly. In the long term it may be the only way to secure a sutanaible business, but in teh short term it will cost money. Many growing bsuiness take advantage of asset-based fianc,e borrowing mainly against debtors adn occasionally against inventory as well. Borrowing against working capital is a particularly effective form of ifnance for a growing bsuiness as its capacity to borrow effectibely groes with the business. However borrowing against working capital is often expensiv.e Moreover, every business has a debt capacity beyond which, if it isn incapable of genereating any mroe cash from its påeration, it will be in fanger of overtrading - or trading at a level beyond its own financial capacity. RThere are essential principbles that should be followed: - a business that ties up cash unnecessarilt on the balance shset in the form of exess inventory or uncollected debtors is putting itself under unnecessary cas håresusre - a business that is paying its suååliers more quickly than necesary is putting itself under unnexessary cash pressure - the higehr a businesses margins, th egreatee its cash-genereating capability is likely to bethe faster a business grows, the more pressure it will put on its cash resources Growing too fast A business that is growing to ogats is overtrading. It is trying to do too much with the cas resources at its disposal. Too much wealth is in non-cash asstes. A business facing overtrading has three options: - to generate more cash faster from the business iteslf. - To slow growth down for example higher prices - Seek ectenral financing prob equity finance, as debt capacity is liekly to have been rached. Signs for overtrading are cash balances trending downwards, payment terms to suppliers lengthening and the overdraft dacility being use more frequently.

Hypergrowth

Growth is what happens when the graph slopes upwards. The increasing use of the label hypergrowth for those whose hrowth graph slopes particularly steeply is an acknowledgment that fast growing companies experience of growth is qualitavetly as well as quantitatively different. Managers experiencing hyper growth need to do more than jsut hang on to their htas. They need to consider wheter the growth they are eperiencing is a consequence of internal or exernal drivers. Externally driven growth is likely to hide internal wekensses. Strategies for sutaitning an organisation experinecing hypergrowth should seek to decentralise management fast while making sure that decision contunie to be cordinated and consistent. Investment in internal commuication methodology is also critical, ensuring the rapidly growing and decentralising orgnaisiton does not explode as centrigugal force gets the better of the control system.

Headcount and asset capacity

Headcount, the number of staff on the payroll, is one of many measures that gauge the extent of the resources deployed by an organisation. Government bodies often use headcount as a proxy indicator of an organisation sixe. Headcount is for many industries a good procy for the size- and complecity - of an organsition. Asset-capasity measures and profitibility measures can be connected by measruing the return to a particular asset category by dividing the net profit by the cost of fixed assets to asses hwo mcuh profit fices assets are genereating. The annual profit can be divided by annutal total emploument cost, givign am easure of profit generated per employee dollar. An early indicator of the changing fortuines of a business ambitiousfor growth is a declining value added per employee - dollar ratio. As with revenue, an organisation wage bill si influenced by prise (salary levels) as well as by headcount. Employee turnover, or the rate at whcih employees are leaving the business (calculated by dividing rthe number of empluyees wh oahve left in the year by the number of employees in employment at the end of the year, and expresses as percentage) is also a useful measure in a growing business attempting to increase its headcount.. It is not sufficient for a growing business to be good at recruting new staff; it also ahs to be good at retaining staff.

Private companies

In private ocmpanies valuation si more complicated. Before attempting to calue a private bsiness, it is important to determine who wants to know and why.

3 main types of innovation

Innovation is a key driver of organic growth. There are three main types of innovation - Product innovation (R&D, most prominent think IBM) - Market innovation (Business model innovation think IKEA, Uber, Airbnb) - Process innovation (Operational efficiency think Ford, Porsche)

Nondisruptive creation: Rethinking Innovation and Growth

It is time to dispel the myth that innovation must be disruptive. Nondisruptive creation is an alternative path to growth. In recent years disruption has become the battle cry of business. Disruption occurs when innovation creates a new market and business model that causes established players to fall. Not surprisingly, many have come to view disruptions as a synonym for innovation. but is disruption the only way to innovate and grow? Is it even the best way? Our research and analysis over the last three decades suggest that the answer is no. Disruption ,auy be what people talk about, and it's certainly important and all around us. But we found that a single-minded focus on disruption leads companies to overlook another building block of innovation and growth. That building block is nondisruptive creation, which offers a new way of thinking about what's possible. It highlights the immense potential for creating new markets where none existed before. This is creation without disruption or destruction. all the demand generated by this kind of innovation is new. Nondisruptive creation breaks the existing frame of nonnivatio 90nand growth and allows for a much broader view of how they are generated. It expands the conversation about where real opportunities reside. Understand nondisruptive creation Although the term is new, the existence of non disruptive creation is not. When you put on the lens of nondisruptive creation, you quickly discover that it is all around us. Whether in advanced nations or in developing countries, history has shown nondisruptive creation to be key to innovation and growth as disruption has been. Despite all this, our recognition of the significance of non disruptive creation is little more than nascent Going beyond disruptive trade-offs Disruption unlocks growth and creates compelling value for end users, but at painful adjustment costs for societies. It imposes a trade-off. Shuttered companies, lost jobs, and hurt communities are inherent by products, as market creation and market destruction are inextricably linked. Part of nondisruptive creation's appeal is that it breaks this trade-off. It increases the economic pie with minimal to no social pain. It's a positive-sum approach to innovation, as opposed to the zero-sum nature of disruption. The rise of the fourth industrial revolution, when smart machines will replace many existing human jobs, makes it all the more imperative that society moves beyond disruptions trade-off between market creation and market destruction. Unlike disruption, nondisruptive creation aööpwes organisations to pursue growth without imposing social costs on our community. The advantages of nondisruptive creation Most companies today focus their efforts on what it would take to disrupt existing markets This narrows their vision and blinds them to the wealth of non disruptive, market-creating innovations they could unlock. For established companies and startups alike, a nondisruptive approach creates several distinctive advantages: Making execution emotionally and politically easier. Established companies face high execution hurdles when disruption is the wau, because it means destroying their own existing business. Offering a good counter response to disruption Avoiding Goliath Reducing conflicts with social interest groups and government agencies. When the social costs incurred by disruption become too great, social interest groups and government agencies often lobby against, clamp down on, rein in or tax the disruptor. And expanded view of innovation and Growth The moment for a broader view of innovation has arrived. We need models that recognize and embrace both disruptive and non disruptive creation, since they are complementary engines of growth. Focusing on only one leads to a biased view of what's possible and limits a company's potential to create the markets of tomorrow. There are three basic ways to pursue innovation. Companies can: offer a breakthrough solutions to an industry's existing problem (disruptive creation) identify and solve a brand new problem or seize a brand new opportunity (nondisruptive creation) redefine an existing industry problem and solve the redefined problem (disruptive creation and nondisruptive creation) How to spot potential for non disruptive creation What makes some leaders effective at identifying brand-new problems to solve or brand new opportunities to seize is that they think about innovation in a distinctive way. Fundamentally, they follow three steps: First, they tend to think deeply about burning but overlooked issues in the world, in their industry, or in their vocation that they truly care about and that people or organisations are struggling with, Caring deeply is fairly reliable indicator that an issue of central importance and if people or organizations are struggling with it , that suggests a gateway to an unaddressed problem or a brand new opportunity. Stef two isto understand which organisation or industries would typically address the problem or opportunity to figure out why they have overlooked it. Understanding why is an issue overlooked will often provide insight into what your innovation must address to unlock a non disruptive market. The third step is to look for new technologies, platforms, and/or methods that allow you to solve the problem or seize the opportunity in a high-value low-cost way. Areas ripe for nondisruptive creation Numerous areas are ripe for non disruptive creatoon with the three steps above. Many of them are in the social and human economy. They include mental and emotional wellness,, cybersecurity, privacy, upskilling åpeople most likely to be replaced by smart machines, and meeting the needs of those at the bottom of the financial pyramid.

4. Minority investments

Klarna

Market share

Market share indicates the success of the business compared with the competition. For small businesses, or businesses ina fragmented industry in which no company dominates, market share is a less meingsful indicator. In a frowing industry i ™ ight be argued that it is easier to grow the top line. In reality, however, a growing industry is one that will attract new entrants. A business in such industyr may be aböe to grow its top line while reducing its market share. Conversely, in a shrinking industry companies may find themselves competing ever more aggressively over a smaller amount of business, putting pressure on sales price as well as volume.

Small business growth: the Churchill model

Neil Churchills article "Five stages of small business growth" was first published in 1983. It is built on the work of five previous thinkers, including Greiner, but takes the thinking further by testing his original hypotheses against 83 responses to a questionnaire distributed to 100 owners and managers of successful small-company management programmes. They concluded that growth models can and do help businesses. When looking at growth of small businesses, "points of similarity can be organised into a framework that increases our understanding of the nature, characteristics and problems of businesses' '. Such a framework can help in "anticipating the key requirements at various points' ', and can provide bases for evaluating the impact of present and proposed governmental regulations and policies on one's business". Frameworks can also "aid accountants and consultants in diagnosing problems and matching solutions to smaller enterprises' '. Like Greiner, Churchill describes five phases. He as little truck with Greiner's crises, however, and his phases are presented as discrete stages of evolution: Existence. In the first stage the organisation is fighting for customers and meeting customers needs. Businesses cannot stay at this stage; they get to stage two or they fail. Survival. The business has shown that it works, nut its main concern is still to cover its costs. In anthropological terms it is eking out a subsistence living. Many businesses stay at this stage, including, Churchill argues, "Mom and Pop Stores .. (and) manufacturing businesses that cannot have their product or process sold as planned. Success. In the first version of his model Churchill cals the this stage the success stage. The business is established and sustainable, and this success offers the owner alternatives. the tuccess stage comes in two form. III-G is the "success-growth-substage", during which the owner

Profit/income: gross and net

No business can survive in the long term wihtout generating profit or income. Growth in profit may come as a consequence of business decisions that lead to decreases in revenue. Busines wihsing to cut costs often seek to cut staf,, which might then mean the withdrwal fro mless profitable or unprofitable lines of business. THe organisation might end up much smaller according to some measures that it was, but if its profits have increased, in one important sense the business has still grown.

Pros and Cons stage models

Pros: Many entrepreneurs.. - can locate their venture in one of the stages - find the models useful to pinpoint potential problems and think about solutions Cons: Models suggest that.. - there is ONE path - firms to through all stages - best suited for organic growth - limited empirical evidence

Growth: the shareholders' perspective

Revnue, prift, asset and employee measures consider the performance of a bsuiness from the insitue out. But for those who beleive that a business exists to genereate returns for the owners or the shareholders, the most important measures ar ethose that look at the company from the owners perspective. Growth is determined b yan asseessment of the underlying asets together with the dividends and other cash payments expected to be paid to shareholders, which in turn are underpinned by business fundamentals, which will take an nalyst back to actual and forecast profits, revenue and headcount. Investment that might have earned if they ahd been investes elsehwere also need to be taken into consideration. The share price of a listed business is an obvious indication of its worth, reflecting the calue the markets puts on future returns to shareholders. Bbut even ina a listed bsuiness, value is a more slippery concept than the share price might suggest. a listed company wishing to take control of or buy anotherl isted company will often have to pay a åremium to persuade enpugh of the shareholders to give up their shares. Tif more than one acquirer is interestes, the pricem ight go higher still.

Revenue, turnover and sales

Revnue/turnover/sales is a measrure fo how muchj product or service is being sold and at twhat price, but it says little aboyt the efficienct of the operation, is ability to turn sales into prodit adn then cash. A businesss that grows revenue byt pays insufficiciecnt attention to pordit and cash measures is one whose growth is likealy to be unstainable and whose future is uncertain. REvenue is vanity, profit is sanity but cashflow is reality. In the US the terms revenue or fross sales are used, whereas in the UK turnover is commonly used. Revenue appears satt the top of a companys income statement and has the nicnmacke (top of the line). Thus a business whose revenue is growing is exhibiting top-line growth. Revenue growth can be called "sine qua non of growth". Turnover suggest more than sales volume; it also implies a measurement of the rate of activity in the businesss, the speed with which the enginge of a business is turning over. Regardless of its label, however, the revenue/sales/turnover figure in the accoutns is ap roduct of price and volume. It is therefore possible to show an increase in revenue by increasing prices while volume stays the same, or eve ndecreases. Furthermore, increases in revenue mean more in realtive than in absolute terms. An increase in revenue also needs to be considered in teh context of the rate of inflation. Revenue is sensitive to changes in accounting policity. Industry.specific answers are usually apply but sometimes prescibed accounting regulation will occasionally leas to accounting treatments that make less sense when applied t othe specific sicurmastens.A company may report figures in its publiches accounts that are different fro mthose it uses to run the business. Assuming the same accounting pliciy is applied consistently form year to year and businesss is farly consistent, different policies are unlikely to have much impact on publiches numbers in the long term.

Having a growth mindset makes it easier to develop new interests

Summary Much innovation happens when people combine knowledge from different disciplines. But some people are more likely to reach outside of their areas of interest and expertise than others. Researchers investigated why by studying people's mindsets about interest and their impact they found people vary - some people lean more towards the view that streets are inherent in a person, simply waiting to be awakened or found (a fixed mindset of interest). Others lean more toward the view that interest can be developed and that, with commitment and investment, they can grow over time (a growth mindset of interest). They reasoned that these mindsets might affect how open people are to new or different interests whether they be in arts, science, business, athletics, or other areas. In studies, they found that students with a stronger growth mindset reported being more open to areas outside of their interest than those with a stronger fixed mindset. Their research also suggests that a growth mindset may promote resilience in maintinga interest when a subject becomes challenging and that a growth mindset may be cultivated. To understand why some people are more likely to reach across disciplines than others, you can investigate people's mindsets about interest and their impacts. People carry in these mindsets. Some people lean more toward the view that interest is inherent in a person, simply waiting to be awakened or found - this is what we call a fixed mindset of interest. Others lean more toward the view that interests can be developed and that, with commitment and investment, they can grow over time - we call this a growth mindset of interest. These mindsets might affect how open people are to new or different interests. If interests are viewed as inheren and fixed - and an interest has already been found - then exploring elsewhere might not seem fruitful. But if interest can be developed, then having strong interests in one area would not preclude the development of interest in other areas. A growth mindset does not appear to create dilettantes. Instead, it may expand people's interest repertoire, which perhaps can be helpful for making connections across areas and generating novel ideas. Some companies have seen the value of cross-disciplinary problem-solving and have implicitly adopted a growth mindset of interest. A growth mindset of interest may be relevant to innovation in virtually any field. This can also be analyzed for how people expect motivation once they discover their passion. Those with more of a fixed mindset were more likely to say once you find your passion, it should come with boundless motivation, making its pursuit relatively easy. By contrast, people with more of a growth mindset were more likely to believe that pursuing that passion involved some setbacks and difficulties. These expectations can play a role in whether people meet a new found passion or not. People with a fixed mindset can become uninterest of their interest, unlike those exposed to a growth mindset. Innovation requires both reaching across fields and, often, acquiring more than a surface level understanding of those fields. This means that when people reach across fields they must maintain that interest even when the material becomes complex and challenging. A growth mindset of interest may help promote this kind of resilience. A growth mindset of interest can be cultivates. Like every belief system, mindsets can arise from messages we get from others. In real world settings, encouraging people to stick with a new interest even as it becomes challenging subtly suggests that encountering difficulty is normal in the development of a new interest; it is not a sign that one should move on. Furthermore, ubiquitous mantras like "find your passion" could be replaced with "develop your passion". The latter phrase suggests that interests and passions are not simply lingerie within, waiting to be revealed. They can be developed with involvement and persistence. There is still much to learn about the benefits of cultivating a growth mindset in organisational settings. For example how it can enhance task performance in budding areas of interest, how it can boost interdisciplinary problem-solving. In medicine doctors might choose to treat patients more holistically by combining traditional pharmacological methods with efforts to address their social and psychological needs. Managers and organizational cultures often signal employees what types of mindsets are values on the job. As the world continues to globalize, we need novel solutions to new and old problems, and other solutions will be driven, in large part, by people with deep interest who also draw connections across disciplines. Encouraging employees to adopt toa growth mindset of interest may help spark that process.

The DIAMOND model

The aim of the DIAMOND was to synthesise the best of the rest, and produce something business leaders and their advisers could use. The model envisages seven stages in the growth of the business. Dreaming up the idea ofa new business, developing plans and defining start-up requirements Initiating the business plan and inspring other ins order to establish a presence in the market. This is the implementatin of the dream. Attacking the first problems of growth and coping with adolescence. During this stage the business has the ability to survive and it can provide a good living for its owners. However, it is not robust enough to sustain major change in its market or operating environemnt. Here the pressure of growth accelarete can lead to failure if this isnt recognised. Maturing the business with an emphasis on sestablishing controls, systems and methodlogies. Overhauling the organisation witha aclear focus on objectives. There has to be a reaction against the tendency to over-manage and stifle creativity and enterprise if hte business is to make a big time. Networking the units of the business. Diversifying into new products and markets, driving growth thorugh strategic alliances and commercial interdependencies that enable rapid responses to market opportunities. DIAMOND takes crises further, turning them into transitional issues, and envisaging thebusinesses can be in more than one stage of evolution at the same time. Growth is not linear.

Angels - and dragons and sharks

The first arm-lengt equity investment are more likely to come from an indivudal - a bsuiness angel - than an ntiution.

Friends and family: the first to turn yp

The first source of equity for aa start up is usually the founder. Then call for the 3 Fs for initial founding: Family, friends and fools.

The 6 ways to grow a company

The first step to generating real growth is to understand where it comes from. It can be boiled down to six simple categories: new processes, new experiences, new features, new customers, new offerings, and new models. Deciding which ways to grow needs to be intentional - not driven by luck. Innovation budgets are finite, so allocations of your scarce resources should reduce risk and focus on the best bets. It needs to be balanced for maximum return the same way a retirement fund needs to be balanced among high and low risks and rewards.

Generating and managing cash

The most discussed sources of finance for a business are external, in the form of debt or equity, but the first place to look for cash is inside the business itself. Cahs management is closely realted to the effective management of margin, which in turn is closely associated with cost of control. Sometimes margin and cash amanagemnt pull in different directions. offering discoutns to encourgage swift payment on the part of the customers may speed up the flow of cash into the business sifnigivantly. But such discounting can cut heavilit into margins as with all price cuts will go straight to the bottom line. The converse is also true of purschase discoutns. Taking advantage ofa purschase discount by paying suppliers quickly may improve margins but it mights put pressure on on a business cash resources as cash will ahve to leave the business sooner.

Equity finance

The other principal source of finance, for businsses of all shapes and sizes, is equity, referred to asa a share ownership or stock ownership. The most common are common stock or ordinary shares. entitles its holder to all income and capital after the holders of other classes of shareholders and debt holder have been satisfied. Entitled to vote on key corporote matter.s preferred or preference shares or stock. Holders of these shares have preferential .rights over th holders of ordinary shares. Ex entitled to a dividend before an ordinary shareholder and is paid of first in the event of liquidation. Normally no vote. Preferred ordinary shares or stock. Entitled to the bst feautres of ordinary and preffered shares. They have a vote but also preferential rights. Cumulative shares or stock. If dividens on th these shares are earned but not idstributed, the ntitlement to the dividen may be aggregated cumulatively and paid out at a later date. convertible shares or stock. Convirtible into another class of share. Participating shares. Refers to the right to participate in any divident or distrubtion paid to the holders of ordrinary shares. Any combination of the above.

6 ways to grow a company Chirio, 2018

The setup Type of paper: Data: Purposeful sample to include firms with varying rates of growth and age Theories employed: Research questions(s): New processes - associated with cost reduction New experiences - sell more of the same stuff to the customers, focusing on retaining customers and customer loyalty New features - sell enhanced stuff to the same people, focus on incremental innocation e.g. the incremental updrages that mobile and camera producers implement New customers - sell more of the same stuff to new people - focus tends to be an attracting new customers New offerings - develop nre products that are not just incremental improvement of existing products New (business) models - sell stuff in a new eay, docus on business model innovation Key Insight:

How venture capitalists make decisions Gompers, Gornell, Kaplan and Strebulaev, 2021

The setup Type of paper: Data: Purposeful sample: Theories employed: Research questions(s): Key Insights: Practical Recommendations - Because VCs rely on their networks to source investment opportunities, entreprenurs should try to get an introduction to a VC from someone in the VCs networks. - Since the entrepreneurial team weighs so heavily in - VCs decisions to invest, entrepreneurs need to think carefully about how they present themselves to investors - VCs looks at more than 100 opportunities for each one they invest in; thus, entrepreneurs should be prepared to pitch to many VCs - Because of networks affect, entrepreneurs located outside "VC hubs" and entrepneurs belonging to minority groups face increases challenges in fundraising

Nondisruptive creation: rethinking innovation and growth Kim and Mauborgne, 2019

The setup Type of paper: Data: Purposeful sample: Theories employed: Research questions(s): Nondisruptive innovation - innovation that creates new markets wihtout disrupting (change) existing markets Disruptive is not the same as radical Nondisruptive innocations: aspirin, crowdfunding, x-rays, online dating Disruptive innovations: uber (over taxi companies) digital photoprahy (over film photograpgy) Nondisruptive innovation often focuses on customer groups with unmet needs benefits of the nondisruptive innovation for firms- less opposition from government agencies, unions and the civil society- avoiding Goliath, the firms in the market you are disrupting.

The Growth Mindset O'Keefe, Dweck, and Walton, 2018

The setup Type of paper: Data: Purposeful sample: Theories employed: Research questions(s): Two mindset examined: - Fixed mindset: interests are inherent in a person, simply waiting to be awaked or found - Growth mindset: Interests can be developed and with commitment and investment, they can grow over time. Key insight - Students with a growth mindset show more interest towards new fields/topics than students with a fixed mindset - Students with a growth mindset report a lower drop in interest in a topic than students with a fixed mindset after being exposed to complex materials about the respective topic. - A growth mindset can be cultivated: Develop your passions instead of finding your passion.

Inclusive Growth, Kaplan et al. 2018

The setup Type of paper: Data: 30 interviews with Chief Sustainability Officers (CSOs) Purposeful sample: Theories employed: Research questions(s): Recommendations: 1. Search for systemic, multi-sector opportunities e.g. Nile Breweries, grain traders, farmers & Carana in Uganda 2. Mobilize complementary partners e.g. local training providers, regional corporatiosn & Caran in El Salvador 3. Obtain seed and scale-up funding e.g. USAID for small funds followed by corporations funding after an initial proof of concept, impact investment funds and foundations 4. Build out ecossytem relationships 5. Align and govern the ecosystem participiants to a new common strategy Key insight

Giving up the hats? Entrepreneurs' role transitions and venture growth Mathias and Williams, 2018

The setup Type of paper: qualitative paper Data: interviews with 45 entrepreneurs Purposeful sample: Theories employed: roel identity, entrepreneurial identity, role imprinting Research questions(s): How and why entrepreneurs role-related decisions and actions influence venture growth? Key insights - Entrepreneurs have different understanding of what it means to be an entrepreneur (entrepreneurial identity) - There is a difference between a role and role identity. A role is a set of activities. Role identities form when individuals internalize the meanings associated with these roles. - Entrepreneurs possess a myriad of role identities and may give up some, enact others through the venture development process. - Entrepreneurs possess a myriad of role identities and may give up some, enact others through the venture development process. - Entrepreneurs may physically disengage from role identities, but this does not automatically mean they psychologically disengage from them. Role identities have important implications for firm growth - Entrepreneurs imprint others (employees) with their role identities which enables them to move on to new roles and identities. - most entrepreneurs in the sample that experienced moderate to high growth, did give up hats (as opposed to try wearing all hats), discovered new role identities, and multiplied through others (as opposed to enacting role identities themselves)

How should we divide the pie? Breugst, Patzelt and Rathgeber, 2015.

The setup Type of paper: qualitative paper Data: interviews with members of 8 entrepreneurial teams over a 6-month period (35 interviews in total for model development), tracking key events (e.g. member exit) for 18 months after Purposeful sample: start-ups still managed by the founding team, located in business incubators in Europe, some with equal, some with unequal equity distribution among the members of the entrepreneurial team, only start-ups with exactly 2 co-founders Theories employed: (perceived) justice in organizational context Research questions(s): how does the equity distribution in the entrepreneurial team shape interactions among its members over time. Key insights - A key antecedent of perceived justice of equity distribution was equal equity distribution (50-50) - When perceived justice of equity distribution matched the co-founders perceived pat and present contributions to the start-up, an unequal split was also perceived as just - High/low perceived justice of equity distribution triggers high/low team attraction (intra team trust and team cohesion) and low/high team repulsion (relationship conflict and social distancing). - When the negative interaction spirals start, they further reduce the perceived justice of equity distribution, and sometimes lead to co-founder exit. - The positive/negative team interaction spirals positively/negatively affect team and firm performance. - "Injustice is like a corrosive solvent that can dissolve bonds within the community". Practical recommendations for equity distribution What may feel like a just/unjust equity distribution to you, may not appear so to your co-founder. - Make sure your co-founder sees the equity distribution as fair to avoid trouble later. If someone accepts a deal it does not automatically mean he/she is happy with it. - If your co-founder proposes a deal that you see as unjust, voice your concerns When you discuss contributions to the venture, consider future contributions not only past and present ones! Think about whether contingency contracts would be useful, or at least have a discussion about contingencies. - What happens if one co-founder wants to diminish his/her work contribution, to engage in another entrepreneurial project or employment? - What happens with equity if one co-founder decides to leave? - How will you evaluate the company for a co-founder exit?

Growth Rate: The Growth corridor, Raich and von Krogh 2007

Type of paper: Data: Purposeful sample: Theories employed: Research questions(s):

5. Joint Ventures

Two or more firms create a new business entity that is legally separate from its parents. The parent firms share ownership of the business entity. Examples are: Pfizer and GlaxoSmithKline 2019 for consumer health care Volvo / Daimler 2020 announced for fuel cell production Panasonics & Scrum venture capital firm 2018 for a start-up accelerator in Japan Marriott & Alibaba 2017 for a digital travel service in China Pros: - Access to expertise and contacts in local markets when expanding internationally - Reduced political risk when expanding internationally - Shared resources and risks - Possible win-win Cons: - Potential conflict due to different objectives the importance of the venture to each party may change over time - Lack of full control over the joint venture operations

What does it mean organisations are transient and in a permanent state of flux.

Too much business thinking implies a future state when the business will have "arrived": more than just achieving stability, it will have reached a stage where the principal management challenge will be to keep it going. But this sort of stasis, even in a successful company, is illusory.

Venture Capitla and private equity

Venture capitalits and private qeuity hoiuses are run by mangment teams that seek to put togehter partnershisp of investors interested inthe high and risky returns that ambitious small or growing companies can provide. When part-financed bya asignificant injection of debt finance, the deal will be called leveraged.

Start-ups Growth

What is a start up? What make it different from SMEs (esp small enterprises? - Up to 5 (or maybe 8) years old - Still working on identifying/refining its core business - Finances by to founder and/or outside investors/creditors - Able to grow very rapidly Rapid growth required, up to a point. Rule of thumb for start-up (Y-combinator): - Good 5-7% week - Excellent >10% week - Successful IPO asoicated with higher growth (notablyfor smaller firms) Limits: - Loss of financial control (e.g., budget, cash flow) - Loss of operational control (e.g., client complaint, poor hiring) - Loss of strategic control (e.g., leaving your core business, losing track of your vision, burnout)