Understanding Enterprise

Entrepreneurship and Small Business, fourth edition

by Simon Bridge and Ken O'Neill

Case study: chapter 9

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Vince has ten years experience working for a leading public relations firm and has recently decided to make the move to self employment. Based on the following case study examine Vince's proposed approach to managing and developing his enterprise and suggest how his approach may differ from the more traditional view of entrepreneurial management

Vince has arranged to meet a friend Patrick for lunch in order to discuss the business plan for his new enterprise. Patrick was no stranger to business start-up having successfully established a number of ventures before selling the companies to larger competitors at a healthy profit. Having been the product of a graduate scheme before quickly rising up the firm, Vince has no experience of working for a small business and is unsure about exactly how to strategically manage the development of his own company. It was for this reason that he was eager to get Patrick's input and so the two men began to pour over the business plan he had prepared.

From the beginning Vince wanted to steer the conversation towards the planned growth of the firm. Having witnessed the success of Patrick among others he is determined to grow the firm rapidly with the aim being that after year one, the company would begin to acquire smaller competitors in the marketplace and place a manager in charge of each branch so that he could be present at the headquarters. The rationale behind this was that by strategically selecting competitors in different geographical markets, the company would be able to grow at a much faster rate, gaining a customer base and reputation that would make the next acquisition all the easier. Due to his experience and connections he is convinced that by year 4 the company can be the market leader or at least in the top five nationwide. In year five the plan is to target the rest of Europe again by taking over smaller local firms in order to gain not only their customers but also their knowledge of the local market.

His companion was taken aback. Patrick politely pointed out that it was not quite as simple as that and that there were many factors that went into the acquisition of other firms that can make it a long drawn out process. Apart from that he believed that Vince should not be worrying about growth before he has actually established his proposed business in the first place. Undeterred by his friend's apparent 'lack of ambition' Vince moved on to discuss how he plans to coordinate the day- to-day running of the business. Having worked for his previous firm for a number of years he is convinced that the procedures and systems that they had in place would be ideal for his fledgling organisation. He wants to establish a separate marketing and sales team in order to build up an adequate clientele and plans to have a manager that will report directly to him. The accounting department will be made up of one qualified accountant and two trainees with an additional three to be recruited midway through year two in anticipation of his proposed takeover spree. An IT department was also going to be necessary as Vince had always been impressed with how his previous employers had all documentation and client files accessible from any computer on the network allowing staff to assist clients with their enquiries over a number of areas rather than just parts of the job specific to themselves.

Patrick, although in admiration of his friend's confidence and ambition, was concerned that Vince may be taking on too much at the start up phase for someone that has no experience running a business. Starting off with a relatively large number of staff and its associated cost is a significant commitment considering the business has yet to generate any revenue. Vince was unmoved. He believed that by having in place a number of differentiated departments with their managers reporting to him would increase accountability and allow each department to concentrate on being responsible for what they specialise in rather than having a few employees spreading themselves too thinly to be effective. In addition to this he was convinced that in order to attract the best staff in the labour market he was going to have to show that working for him would be a good career move rather than just a nine-to-five job. By putting in place a similar organisational structure to that of his previous workplace, his employees would be able to map out their career progression and as a result would be motivated in their work and hence be more productive. All relevant job descriptions, organisational charts and procedures relating to employee grievances had also been practically cut and pasted from his previous employee handbook with a number of adjustments being made in the appropriate places.

Patrick was uncomfortable with his friends 'one size fits all' approach to starting up a business. He tried in vain to convince his friend to scale back his plans and concentrate on the here and now although he could tell that he was not being listened to.

Examine Vince's proposed approach to managing and developing his enterprise and suggest how his approach may differ from the more traditional view of entrepreneurial management.

Suggested solution

Values, beliefs and goals

  • Growth by acquisition - Rather than opt for the perhaps more organic form of growth with incremental changes over time, Vince has ambitiously set his sights on growing as large as possible, as soon as possible. This form of growth would require the relinquishing of control at perhaps an earlier stage in the business's development than normal. In order to do this control of aspects of, for example, of operations are going to have to be relinquished so that the entrepreneur is in a position to make decisions on a strategic level. Relinquishing control is a notoriously difficult process for entrepreneurs and is not one that many of them are eager to rush into.
  • Long time horizons - Looking to the long-term is not something that, typically, entrepreneurs are able to do, especially at the start-up phase. As the entrepreneur usually has to be involved in every area of the business, from operations to administration, their focus is survival rather than 'where will we be in 5 years time'. It will more than likely be the case that once Vince has started trading, he will find himself having to react to unexpected opportunities and threats presented by the market rather than respond to them simply by carrying out the predetermined actions outlined in his business plan. As a small business owner he may well find that the accomplishment of strategic goals is better measured by the successful completion of a number of small tasks at a time and hence smaller time horizons may be more appropriate.
  • Formalised planning systems - There could be an argument that as Vince has significant experience working in a leading PR firm, that has well established familiar process and procedures with which he is familiar, he is quite right in not trying to reinvent the wheel by creating his own systems. However there are a number of assumptions here that could be dangerous. For a start, while his proposed enterprise will be operating in the same industry, that is not to say that replicating the behaviour of a larger successful organisation is necessarily the correct path to choose. As highlighted by Penrose, the assumption that small businesses are smaller scale versions of larger organisations is not necessarily true. Vince will probably find that the more rigid and bureaucratic systems of large businesses will be inappropriate for smaller firms who as a rule need to be flexible. It may be more beneficial to let the systems of policy and practice emerge - simultaneously being influenced by and influencing in turn the culture of the organisation.
  • Seeks large-scale development - The ambition being illustrated by Vince is admirable and indeed not something that would suggest he is a corporatist manager per se but the means by which he hopes to accomplish his targets are not the actions of a typical entrepreneur. Rather than grow the business organically at a slow pace in order to minimise the risk faced by the organisation, he instead has an extreme confidence that he will be able to grow the enterprise quickly and reduce the risk by gathering, processing and analysing as much information as possible. This approach to managing risk may prove particularly detrimental to the business's performance if the environment in which it operates turns out to be particularly volatile - although it can be successful, albeit less so in sectors where creative/artistic talent dominates over process as a key success factor.

Organisational contrasts

  • Hierarchal organisational structure - It is clear that Vince has been operating in a rather bureaucratic organisation for much of his career. He is very keen to ensure that the roles and responsibilities of all his employees are clearly defined and intends to maintain control and ultimately power by employing a reporting system that will keep him informed of all that is happening in the company. His insistence on recruiting so many employees from the beginning means that the company shall probably be large enough to justify having a number of tiers in the organisation. The problem however is that due to the embryonic nature of the enterprise, will it actually harm the business rather than assist in control and accountability? It could be argued that he is taking the position that he wants his business to be at as his starting point rather than form an organisation in a way that will allow it to develop naturally to this stage.