Introduction to Entrepreneurship,

8e
Donald F. Kuratko

Chapter 13
Strategic Growth In Entrepreneurship

Chapter Objectives
1.

To introduce the importance of strategic

planning for an entrepreneurial venture

2.

To discuss some of the reasons entrepreneurs

do not carry out strategic planning

3.

To relate some of the benefits of strategic

planning

4.

To discuss the five stages of a typical venture

life cycle: development, start-up, growth,
stabilization, and innovation or decline

5.

To explore the elements involved with an

entrepreneurial firm

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Chapter Objectives (contd)

6.

To examine the transition that occurs in the

movement from an entrepreneurial style to a
managerial approach

7.

To identify the key factors that play a major

role during the growth stage

8.

To discuss the complex management of

paradox and contradiction

9.

To introduce the steps useful for breaking

through the growth wall

10. To identify the unique managerial concerns

with growth businesses

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The Nature of Planning in Emerging

Firms
Most entrepreneurs planning for their

ventures is informal and unsystematic.

The need for formal, systematic planning
arises when:

The firm is expanding with constantly increasing

personnel size and market operations
A high degree of uncertainty exists
There is strong competition
There is a lack of adequate experience, either
technological or business

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Strategic Planning
Strategic Planning
The formulation of long-range plans for the effective
management of environmental opportunities and
threats in light of a ventures strengths and
weaknesses.
Includes:
Defining the ventures mission
Specifying achievable objectives
Developing strategies
Setting policy guidelines

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Strategic Planning (contd)

Basic Steps in Strategic Planning:
1.

Examine the internal and external environments of

the venture (strengths, weaknesses, opportunities,
threats).

2.

Formulate the ventures long-range and short-range

strategies (mission, objectives, strategies, policies).

3.

Implement the strategic plan (programs, budgets,

procedures).

4.

Evaluate the performance of the strategy.

5.

Take follow-up action through continuous feedback.

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Figure

13.1

The Strategic Management Process

Source: Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management: Competitiveness & Globalization, 8th ed. (Mason, OH:
South-Western Publishing, 2009), 5. Reprinted with permission of South-Western, a division of Thomson Learning: www.thomsonrights.com.

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Key Dimensions Influencing a Firms

Strategic Planning Activities
Demand on strategic managers time
Decision-making speed
Problems of internal politics
Environmental uncertainty
The entrepreneurs vision
Step 1: Commitment to an open planning process.
Step 2: Accountability to a corporate conscience.
Step 3: Establishment of a pattern of subordinate
participation in the development of the
strategic plan.
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The Lack of Strategic Planning

Reasons for the Lack of Strategic Planning
1. Time scarcity
2. Lack of knowledge
3. Lack of expertise/skills
4. Lack of trust and openness
5. Perception of high cost

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The Value of Strategic Planning

Findings of Strategic Planning Studies
Strategic planning is of value to a venture and that
planning influences a ventures survival.
Benefits of Long-Range Planning

Cost savings
More efficient resource allocation
Improved competitive position
More timely information
More accurate forecasts
Reduced feelings of uncertainty
Faster decision making
Fewer cash-flow problems

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Strategic Planning Levels (contd)

Strategic Planning Categories (Rue and

Ibrahim)

Category I: No written plan

Category II: Moderately sophisticated planning

Category III: Sophisticated planning

Results: More than 88% of firms with Category II or III planning

performed at or above the industry average compared with only
40% of firms with Category I planning.

All research indicates:

Firms that engage in strategic planning are more effective

than those that do not.
The planning process, rather than merely the plans, is a
key to successful performance.

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Fatal Visions in Strategic Planning

Fatal mistakes that entrepreneurs fall prey

to in their attempt to implement a strategy:

Fatal Vision #1: Misunderstanding industry

attractiveness
Fatal Vision #2: No real competitive advantage
Fatal Vision #3: Pursuing an unattainable competitive
position
Fatal Vision #4: Compromising strategy for growth
Fatal Vision #5: Failure to explicitly communicate the
ventures strategy to employees

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Figure

13.2

The Integration of Entrepreneurial and Strategic

Actions

Source: R. Duane Ireland, Michael A. Hitt, S. Michael Camp, and Donald L. Sexton, Integrating Entrepreneurship and
Strategic Management Actions to Create Firm Wealth, Academy of Management Executive 15(1) (February 2001): 51.

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Strategic Positioning:
The Entrepreneurial Edge
Strategic Positions

Are often not obvious, and finding them requires

creativity and insight.

Are unique positions that have been available but

simply overlooked by established competitors.

Can help entrepreneurial ventures prosper by

occupying a position that a competitor once held but
has ceded through years of imitation and straddling.

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Table

Strategic Approaches: Position, Leverage,

Opportunities
13.1

Position

Leverage

Opportunities

Strategic Logic

Establish position

Leverage resources

Pursue opportunities

Strategic Steps

Identify an attractive
market Locate a defensible
position Fortify and defend

Establish a vision Build

resources Leverage across
markets

Jump into the confusion

Keep moving Seize
opportunities Finish strong

Strategic Question

Where should we be?

What should we be?

How should we proceed?

Source Of Advantage

Unique, valuable position

with tightly integrated
activity system

Unique, valuable, inimitable

resources

Key processes and unique

simple rules

Works Best In

Slowly changing, wellstructured markets

Moderately changing, wellstructured markets

Rapidly changing,
ambiguous markets

Duration Of Advantage

Sustained

Sustained

Unpredictable

Risk

It will be too difficult to alter

position as conditions
change

Company will be too slow

to build new resources as
conditions change

Managers will be too

tentative in executing on
promising opportunities

Performance Goal

Profitability

Long-term dominance

Growth

Source: Reprinted by permission of Harvard Business Review from Strategy as Simple Rules, by Kathleen M. Eisenhardt and
Donald N. Sull (January 2001): 109. Copyright 2001 by the Harvard Business School Publishing Corporation; all rights reserved.

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Figure

13.3

The Entrepreneurial Strategy Matrix: Independent

Variables

Source: Matthew C. Sonfield and Robert N. Lussier, The Entrepreneurial Strategic Matrix: A Model for New and Ongoing Ventures.
Reprinted with permission from Business Horizons, May/June 1997, by the trustees at Indiana University, Kelley School of Business.

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Figure

The Entrepreneurial Strategy Matrix: Appropriate

Strategies
13.4

Source: Matthew C. Sonfield and Robert N. Lussier, The Entrepreneurial Strategic Matrix: A Model for New and Ongoing Ventures.
Reprinted with permission from Business Horizons, May/June 1997, by the trustees at Indiana University, Kelley School of Business.

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Venture Development Stages

Life-Cycle Stages of an Enterprise

(Chandler)
1.

Initial expansion and accumulation of resources

2.

Rationalization of the use of resources

3.

Expansion into new markets to assure the continued

use of resources

4.

Development of new structures to ensure continuing

mobilization of resources

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Figure

13.5

A Ventures Typical Life Cycle

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The Entrepreneurial Company in the

Twenty-First Century
Major Challenges:

Building dynamic capabilities that are differentiated

from those of emerging competitors

Internalutilization of the creativity and knowledge

from employees

Externalthe search for external competencies to

complement the firms existing capabilities.

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Figure

13.6

The Entrepreneurial Mindset

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Table

13.2

The Managerial versus the Entrepreneurial Mind-

Set
Managerial Mind-Set

Entrepreneurial Mind-Set

Decision-making
assumptions

The past is the best predictor of the future.

Most business decisions can be quantified.

A new idea or an insight from a unique

experience is likely to provide the best
estimate of emerging trends.

Values

The best decisions are those based on

quantitative analyses.
Rigorous analyses are highly valued for
making critical decisions.

New insights and real-world experiences

are more highly valued than results based
on historical data.

Beliefs

Law of large numbers: Chaos and

uncertainty can be resolved by
systematically analyzing the right data.

Law of small numbers: A single incident or

several isolated incidents quickly become
pivotal for making decisions regarding
future trends.

Approach to problems

Problems represent an unfortunate turn of

events that threaten financial projections.
Problems must be resolved with
substantiated analyses.

Problems represent an opportunity to

detect emerging changes and possibly new
business opportunities.

Source: Mike Wright, Robert E. Hoskisson, and Lowell W. Busenitz, Firm Rebirth: Buyouts as
Facilitators of Strategic Growth and Entrepreneurship, Academy of Management Executive 15(1): 114.

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Building the Adaptive Firm

An Adaptive Firm
One that Increases opportunity for its employees,
initiates change, and instills a desire to be innovative.
How to remain adaptive and innovative:
Share the entrepreneurs vision
Increase the perception of opportunity
Institutionalize change as the ventures goal
Instill the desire to be innovative:

A reward system
An environment that allows for failure
Flexible operations
The development of venture teams

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The Transition from an Entrepreneurial

Style to a Managerial Approach
Impediments to Transition:
A highly centralized decision-making system
An overdependence on one or two key individuals,
An inadequate repertoire of managerial skills and
training
A paternalistic atmosphere

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Table

The Entrepreneurial Culture versus the

Administrative Culture
13.3

Entrepreneurial Focus

Administrative Focus

Characteristics

Pressures

Characteristics

Pressures

Strategic
Orientation

Driven by perception
of opportunity

Diminishing opportunities
Rapidly changing technology, consumer
economics, social values, and political rules

Planning systems
and cycles

Social contracts
Performance measurement
criteria

Commitment
to Seize
Opportunities

Revolutionary, with
short duration

Action orientation
Narrow decision windows
Acceptance of reasonable risks
Few decision constituencies

Evolutionary, with
long duration

Acknowledgement of multiple
constituencies
Negotiation about strategic
course
Risk reduction
Coordination with existing
resource base

Commitment
of Resources

Many stages, with

minimal exposure at
each stage

Lack of predictable resource needs

Lack of control over the environment
Social demands for appropriate use of
resources
Foreign competition
Demands for more efficient use

A single stage, with

complete
commitment out of
decision

Need to reduce risk

Incentive compensation
Turnover in managers
Capital budgeting systems
Formal planning systems

Control of
Resources

Episodic use or rent

of required
resources

Increased resource specialization

Long resource life compared with need
Risk of obsolescence
Risk inherent in the identified opportunity
Inflexibility of permanent commitment to
resources

Ownership or
employment of
required resources

Power, status, and financial

rewards
Coordination of activity
Efficiency measures
Inertia and cost of change
Industry structures

Management
Structure

Flat, with multiple

informal networks

Coordination of key noncontrolled resources

Challenge to hierarchy
Employees desire for independence

Hierarchy

Need for clearly defined

authority and responsibility
Organizational culture
Reward systems
Management theory

Source: Reprinted by permission of the Harvard Business Review. An exhibit from The Heart of Entrepreneurship, by Howard H. Stevenson
and David E. Gumpert, March/April 1985, 89. Copyright 1985 by the President and Fellows of Harvard College; all rights reserved.

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Balancing the FocusEntrepreneurial

versus Manager (Stevenson and
Gumpert)
The Entrepreneurs

Point of View

Where is the opportunity?

How do I capitalize on it?
What resources do I need?
How do I gain control over
them?
What structure is best?

The Administrative

Point of View

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What resources do I
control?
What structure determines
our organizations
relationship to its market?
How can I minimize the
impact of others on my
ability to perform?
What opportunity is
appropriate?

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Understanding the Growth Stage

Key Factors During the Growth Stage
Control
Does the control system imply trust?
Does the resource allocation system imply trust?
Is it easier to ask permission than to ask forgiveness?

Responsibility
Creating a sense of responsibility that establishes flexibility,
innovation, and a supportive environment.

Tolerance of failure
Moral failure
Personal failure
Uncontrollable failure

Change

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Understanding the Growth Stage (contd)

Managing Paradox and Contradiction
Bureaucratization versus decentralization
Environment versus strategy
Strategic emphases: Quality versus cost versus
innovation

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Confronting the Growth Wall

Successful growth-oriented firms have exhibited

consistent themes:

The entrepreneur is able to envision and anticipate the firm as a

larger entity.

The team needed for tomorrow is hired and developed today.

The original core vision of the firm is constantly and zealously

reinforced.

Big-company processes are introduced gradually as

supplements to, rather than replacements for, existing
approaches.

Hierarchy is minimized.

Employees hold a financial stake in the firm.

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Unique Managerial Concerns of Growing

Ventures
Distinction
Distinction
of
ofSmall
SmallSize
Size

Continuous
Continuous
Learning
Learning

One-Person-Band
One-Person-Band
Syndrome
Syndrome

Growing
Growing
Venture
Venture

Time
Time
Management
Management

Community
Community
Pressures
Pressures

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The International Environment:

Global Opportunities
Global Entrepreneurs

Rely on global networks for resources, design, and

distribution.
Are adept at recognizing opportunities that require
agility, certainty, and ingenuity with a global
perspective.
Must be global thinkers in order to design and adopt
strategies for different countries.

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Figure

Share of the World Population Engaged in

Entrepreneurship
13.7

Source: Niels Bosma, Kent Jones, Erkko Autio, and Jonathan Levie, Global Entrepreneurship
Monitor (Babson College, Babson Park, MA, and London Business School, London, 2007).

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Achieving Entrepreneurial Leadership

in the New Millennium
Entrepreneurial Leadership
Arises when an entrepreneur attempts to manage the
fast-paced, growth oriented company.
Components of Entrepreneurial Leadership
Determining the firms purpose or vision.
Exploiting and maintaining the core competencies.
Developing human capital.
Sustaining an effective organizational culture.
Emphasizing ethical practices.
Establishing balanced organizational controls.
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Table

13.4

Strategic, Visionary, and Managerial Leadership

STRATEGIC LEADERS

synergistic combination of managerial and visionary leadership

emphasis on ethical behavior and value-based decisions
oversee operating (day-to-day) and strategic (long-term) responsibilities
formulate and implement strategies for immediate impact and preservation of long-term goals to

enhance organizational survival, growth, and long-term viability

have strong, positive expectations of the performance they expect from their superiors, peers,

subordinates, and themselves

use strategic controls and financial controls, with emphasis on strategic controls
use, and interchange, tacit and explicit knowledge on individual and organizational levels
use linear and nonlinear thinking patterns
believe in strategic choice, that is, their choices make a difference in their organizations and

environment

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Table

13.4

Strategic, Visionary, and Managerial Leadership

Visionary Leaders

Managerial Leaders

are proactive, shape ideas, change the way people think about
what is desirable, possible, and necessary

are reactive; adopt passive attitudes toward goals; goals arise out
of necessities, not desires and dreams; goals based on past

work to develop choices, fresh approaches to long standing

problems; work from high-risk positions

view work as an enabling process involving some combination of

ideas and people interacting to establish strategies

are concerned with ideas; relate to people in intuitive and

empathetic ways

relate to people according to their roles in the decision-making

process

feel separate from their environment; work in, but do not belong to,
organizations; sense of who they are does not depend on work

see themselves as conservators and regulators of existing order;

sense of who they are depends on their role in organization

influence attitudes and opinions of others within the organization

influence actions and decisions of those with whom they work

concerned with insuring future of organization, especially through

development and management of people

involved in situations and contexts characteristic of day-to-day

activities

more embedded in complexity, ambiguity, and information overload;

engage in multifunctional, integrative tasks

concerned with, and more comfortable in, functional areas of

responsibilities

know less than their functional area experts

expert in their functional area

more likely to make decisions based on values

less likely to make value-based decisions

more willing to invest in innovation, human capital, and creating and

maintaining an effective culture to ensure long-term viability

engage in, and support, short-term, least-cost behavior to enhance

financial performance figures

focus on tacit knowledge and develop strategies as communal

forms of tacit knowledge that promote enactment of a vision

focus on managing the exchange and combination of explicit

knowledge and ensuring compliance to standard operating
procedures

utilize nonlinear thinking

utilize linear thinking

believe in strategic choice, that is, their choices make a difference

in their organizations and environment

believe in determinism, that is, the choices they make are

determined by their internal and external environments

Source: W. Glenn Rowe, Creating Wealth in Organizations: The Role of Strategic Leadership, Academy of Management Executive 15(1) (2001): 82.

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Key Terms and Concepts

adaptive firm

new-venture development

entrepreneurial leadership

one-person-band syndrome

entrepreneurial strategy

perception of high cost

matrix
global entrepreneur

personal failure
stabilization stage

growth stage

start-up activities

growth wall

strategic planning

innovation

strategic positioning

lack of expertise/skills

SWOT analysis

lack of knowledge

time scarcity

lack of trust and openness

uncontrollable failure

life-cycle stages
moral failure

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