Operation and Operation and Management of Management of Entrepreneurial Entrepreneurial OrganizationOrganization

Chapter 6Second Part

Entrepreneurial immaturityEntrepreneurial immaturity

Many entrepreneurs lack the depth of managerial skills Many entrepreneurs lack the depth of managerial skills necessary for running a multi-unit business. The necessary for running a multi-unit business. The common view held by entrepreneurs is that they common view held by entrepreneurs is that they managed to get this far without specialists and are wary managed to get this far without specialists and are wary particularly of the ‘particularly of the ‘money menmoney men’ – bankers and ’ – bankers and accountants. This can be called ‘accountants. This can be called ‘seat of the pants seat of the pants approachapproach’ to management or ‘’ to management or ‘entrepreneurial entrepreneurial immaturityimmaturity’. Many entrepreneurs revel in the seat of the ’. Many entrepreneurs revel in the seat of the pants approach, which really comes to the fore during pants approach, which really comes to the fore during the opening of a new operation. the opening of a new operation.

by the seat of one's pantsby the seat of one's pants :: using experience and intuition rather using experience and intuition rather than mechanical aids or formal theorythan mechanical aids or formal theory

This need for the entrepreneur to keep up with the This need for the entrepreneur to keep up with the complexities in management, such as the company complexities in management, such as the company organizational structure is described as the move organizational structure is described as the move towards entrepreneurial maturity. This takes place towards entrepreneurial maturity. This takes place when the entrepreneur is ready to delegate when the entrepreneur is ready to delegate responsibility to other managers and specialists in responsibility to other managers and specialists in the organization and recognizes that specialist help the organization and recognizes that specialist help is essential to the growth of the business. This is is essential to the growth of the business. This is termed as crises of leadership. termed as crises of leadership.

This is a critical juncture in a new This is a critical juncture in a new organization’s life-cycle as it marks the point organization’s life-cycle as it marks the point when the entrepreneurial drive needs to be when the entrepreneurial drive needs to be balanced with day-to-day management and balanced with day-to-day management and leadership. The successful companies are the leadership. The successful companies are the ones who recognize the need for strong ones who recognize the need for strong management executives to manage the management executives to manage the company and bring in required expertise.company and bring in required expertise.

Controlling the businessControlling the business

The need for strong operational control cannot be The need for strong operational control cannot be understated. Without control, all other understated. Without control, all other management functions become ineffective. management functions become ineffective. Entrepreneurs typically have a dislike of numbers. Entrepreneurs typically have a dislike of numbers. This is due to inexperience and the low educational This is due to inexperience and the low educational attainment of many entrepreneurs. Entrepreneurs attainment of many entrepreneurs. Entrepreneurs in hospitality, tourism and leisure are particularly in hospitality, tourism and leisure are particularly susceptible to this owing to the ‘craft’ nature of susceptible to this owing to the ‘craft’ nature of many enterprises. It is possible also due to the many enterprises. It is possible also due to the family business environment where staff are hired family business environment where staff are hired from within the family (nepotism) and may not be from within the family (nepotism) and may not be the most suitable or skilled for the job.the most suitable or skilled for the job.

Hospitality tourism and leisure students Hospitality tourism and leisure students provide a good study. The weakest academic provide a good study. The weakest academic subject amongst tourism students tends to be subject amongst tourism students tends to be finance and accounting. Consequently, when finance and accounting. Consequently, when these students graduate into market place these students graduate into market place and open their own operations, the financial and open their own operations, the financial weakness is carried over. weakness is carried over.

There is the misconception by many There is the misconception by many entrepreneurs that financial control is a function entrepreneurs that financial control is a function carried out by large organizations. Many fail to carried out by large organizations. Many fail to see that control is the way that they can assure see that control is the way that they can assure themselves. They and their employees conform to themselves. They and their employees conform to their plans and strategy by control. Other issues, their plans and strategy by control. Other issues, such as the mis-management of working capital such as the mis-management of working capital and failure to use efficient accounting practices, and failure to use efficient accounting practices, also lead to difficulties for entrepreneurs. Small also lead to difficulties for entrepreneurs. Small companies often have difficulties in collecting companies often have difficulties in collecting debts and do not have the procedures in place to debts and do not have the procedures in place to implement swift invoicing and money collection. implement swift invoicing and money collection.

Many small companies lack of knowledge of Many small companies lack of knowledge of alternative sources of finance and different alternative sources of finance and different methods of raising capital. Cost control and methods of raising capital. Cost control and costing data are often so poor the entrepreneur costing data are often so poor the entrepreneur frequently learns of an impending crisis only when frequently learns of an impending crisis only when the bank bounces cheques (checks). In less the bank bounces cheques (checks). In less serious cases, the lack of costing data makes it serious cases, the lack of costing data makes it very difficult for the entrepreneur to monitor very difficult for the entrepreneur to monitor factors such as the product mix, credit and stock factors such as the product mix, credit and stock control, and profit percentages. Compounding this control, and profit percentages. Compounding this is the group of ‘old school’ entrepreneurs who are is the group of ‘old school’ entrepreneurs who are reluctant to implement any form of computerized reluctant to implement any form of computerized control systems.control systems.

Smaller companies are considerably more likely to Smaller companies are considerably more likely to experience ‘resource poverty’ than the more experience ‘resource poverty’ than the more financially stable large organizations. One reason financially stable large organizations. One reason is high levels of competition to which the small firm is high levels of competition to which the small firm responds by cutting prices, thus reducing the responds by cutting prices, thus reducing the profits and cash flow. The effect of this is felt more profits and cash flow. The effect of this is felt more by companies with small amounts of working by companies with small amounts of working capital. One of the primary outcomes of resource capital. One of the primary outcomes of resource poverty, other than the demise of the firm, is the poverty, other than the demise of the firm, is the ‘burn out’ of the entrepreneur. The entrepreneur ‘burn out’ of the entrepreneur. The entrepreneur attempts to do more and more to overcome the attempts to do more and more to overcome the resource poverty and eventually burns out. resource poverty and eventually burns out.

It is not sufficient to have a superb It is not sufficient to have a superb business idea, the ability to generate business idea, the ability to generate the necessary resources and to play ‘the the necessary resources and to play ‘the boss’. Indeed, managing does not mean boss’. Indeed, managing does not mean being the boss. Four requirements for being the boss. Four requirements for entrepreneurial management are entrepreneurial management are identified as follows:identified as follows:

a market focus;financial foresight and planning; building a management team;decision on own role and

responsibilities by the entrepreneur.

The new venture needs to focus on the market and The new venture needs to focus on the market and anticipate responses from competitors. There is a anticipate responses from competitors. There is a need for environmental scanning. Many need for environmental scanning. Many entrepreneurs have skills in recognizing market entrepreneurs have skills in recognizing market opportunities and capitalizing on them. However, opportunities and capitalizing on them. However, many also possess tunnel vision when it comes to many also possess tunnel vision when it comes to managing their business. As a company begins to managing their business. As a company begins to grow, one of the most serious issues is the lack of grow, one of the most serious issues is the lack of financial foresight by entrepreneurs. As attention is financial foresight by entrepreneurs. As attention is often focused on profits, areas such as cash flow, often focused on profits, areas such as cash flow, capital and controls are often forgotten. A growing capital and controls are often forgotten. A growing venture needs financial feeding. venture needs financial feeding.

Building a management team is crucial as the Building a management team is crucial as the company grows as the company outgrows the company grows as the company outgrows the entrepreneur. It is recommended that an entrepreneur. It is recommended that an entrepreneur starts building a top management entrepreneur starts building a top management team before the need is critical, as they take time team before the need is critical, as they take time to assemble. The management team can be to assemble. The management team can be established informally by ensuring that the right established informally by ensuring that the right people are in the organization ready to be called people are in the organization ready to be called upon as senior managers when the time is upon as senior managers when the time is appropriate. appropriate.

As the company grows, the time comes when As the company grows, the time comes when entrepreneurs need to make a decision as to entrepreneurs need to make a decision as to their role and responsibilities within the their role and responsibilities within the company. A decision must be made as to company. A decision must be made as to whether a professional management team and whether a professional management team and leader should run it. Understandably, many leader should run it. Understandably, many entrepreneurs are reluctant to let go and are entrepreneurs are reluctant to let go and are often instrumental in destroying the business often instrumental in destroying the business they set up. It is important for them to recognize they set up. It is important for them to recognize their own skills and where they are best able to their own skills and where they are best able to contribute.contribute.

The entrepreneur and human resource The entrepreneur and human resource managementmanagement

Small entrepreneurial companies have Small entrepreneurial companies have advantageous characteristics, such as loyal advantageous characteristics, such as loyal employees, which lead to harmonious employees, which lead to harmonious industrial relations. These advantages are industrial relations. These advantages are reduced as the company grows. Small reduced as the company grows. Small companies may exploit employees through companies may exploit employees through the sweatshop environment and can include the sweatshop environment and can include autocratic relationships between workers and autocratic relationships between workers and employers.employers.

Human resource management is clearly an Human resource management is clearly an important area for any business. However, in important area for any business. However, in many cases, entrepreneurs are not many cases, entrepreneurs are not particularly well-skilled in dealing with other particularly well-skilled in dealing with other personnel and employees. There are two personnel and employees. There are two stereotypes of employee relations for small stereotypes of employee relations for small businesses which represents the extreme businesses which represents the extreme situations. situations.

Firstly, there is a sweatshop image, where the Firstly, there is a sweatshop image, where the entrepreneur exploits employees by offering entrepreneur exploits employees by offering low wages and long hours. The sweatshop low wages and long hours. The sweatshop image is present in the hospitality and tourism image is present in the hospitality and tourism industries possibly more than leisure sector. industries possibly more than leisure sector. The use of young unskilled workers working The use of young unskilled workers working long hours in exchange for a minimal wage is long hours in exchange for a minimal wage is prevalent. Both large companies and smaller prevalent. Both large companies and smaller entrepreneurial operations can be guilty of entrepreneurial operations can be guilty of this.this.

A second alternative stereotype is when the A second alternative stereotype is when the small entrepreneurial firm is perceived as small entrepreneurial firm is perceived as ‘small is beautiful’ and the perfect ‘small is beautiful’ and the perfect environment with highly satisfying and environment with highly satisfying and conflict-free relationships. The problems of conflict-free relationships. The problems of communication are nil as the employee is able communication are nil as the employee is able to approach the entrepreneur in a friendly to approach the entrepreneur in a friendly manner, and the low rates of pay are manner, and the low rates of pay are counteracted by a family and homely working counteracted by a family and homely working environment. environment.

Contributing to the image of poor human resource Contributing to the image of poor human resource management by entrepreneurs is the theory of dual management by entrepreneurs is the theory of dual labor markets. This theory suggests that large firms labor markets. This theory suggests that large firms have a preference for certain types of employees – have a preference for certain types of employees – well-qualified, experienced, members of professional well-qualified, experienced, members of professional organizations, and with a stable work history. The organizations, and with a stable work history. The smaller firm cannot offer the same remuneration and smaller firm cannot offer the same remuneration and benefits offered by the large enterprise, they are benefits offered by the large enterprise, they are inclined to recruit from the secondary labor market. inclined to recruit from the secondary labor market. This means that they typically look to younger, less-This means that they typically look to younger, less-qualified and less-experienced employees, many of qualified and less-experienced employees, many of whom do not have a stable work history. Of course whom do not have a stable work history. Of course there are notable and successful exceptions to this. there are notable and successful exceptions to this.

In most small operations, the primary control In most small operations, the primary control of the operation is in the hands of the of the operation is in the hands of the entrepreneur. Consequently, the personality entrepreneur. Consequently, the personality and psychology of the entrepreneur has an and psychology of the entrepreneur has an impact on employee relations and operations impact on employee relations and operations in the entrepreneurial firm. It is noted that in in the entrepreneurial firm. It is noted that in many entrepreneurial ventures the managerial many entrepreneurial ventures the managerial style is autocratic, impulsive, egocentric, and style is autocratic, impulsive, egocentric, and unpredictable. unpredictable.

This is compounded by the frequent lack of any This is compounded by the frequent lack of any formalized job description and job definition in formalized job description and job definition in an entrepreneurial operation. The result is that an entrepreneurial operation. The result is that employees have to be a ‘jack of all trades’ employees have to be a ‘jack of all trades’ working with a high degree of role ambiguity. working with a high degree of role ambiguity. This can provide role conflict and a difficult This can provide role conflict and a difficult working environment, but it can also prove to working environment, but it can also prove to give excellent opportunities for career give excellent opportunities for career succession if the organization goes on to be succession if the organization goes on to be highly successful. highly successful.

It is suggested that there are three human relations It is suggested that there are three human relations skills particularly necessary for successful skills particularly necessary for successful entrepreneurs: communication, motivation, and entrepreneurs: communication, motivation, and leadership. Communication involves the transmission of leadership. Communication involves the transmission of messages between two or more people. Many employers messages between two or more people. Many employers are not natural communicators as they often make are not natural communicators as they often make decisions without much input from other employees. decisions without much input from other employees. The informal structure of the entrepreneurial The informal structure of the entrepreneurial organization plays an important role, as there are organization plays an important role, as there are typically no recognized lines of communication. typically no recognized lines of communication. Motivation of staff is necessary for a successful Motivation of staff is necessary for a successful business. Growth firms will involve entrepreneurs who business. Growth firms will involve entrepreneurs who have the ability to motivate their staff to achieve high have the ability to motivate their staff to achieve high performance. performance.

As the firm grows, the call for entrepreneur to As the firm grows, the call for entrepreneur to delegate authority increases, and the importance delegate authority increases, and the importance of motivated staff cannot be underestimated. of motivated staff cannot be underestimated. Independence is a motivating factor for Independence is a motivating factor for entrepreneurs bur can actually act as a entrepreneurs bur can actually act as a demotivating factor for employees, who generally demotivating factor for employees, who generally dislike working on their own with little guidance. In dislike working on their own with little guidance. In any business, an entrepreneur with a good, any business, an entrepreneur with a good, positive leadership style is likely to have positive positive leadership style is likely to have positive results. results.

Entrepreneurial leadership often differs from Entrepreneurial leadership often differs from leadership in larger organizations as leadership in larger organizations as entrepreneurs tend to be autocratic, entrepreneurs tend to be autocratic, commanding, and expect employees to work commanding, and expect employees to work with only little feedback. One major reason for with only little feedback. One major reason for this is rooted back in the entrepreneurial this is rooted back in the entrepreneurial personality and traits such as need for personality and traits such as need for achievement, strong internal locus on control, achievement, strong internal locus on control, and a driving ambition. They expect others to and a driving ambition. They expect others to work at the same level and pace as themselves.work at the same level and pace as themselves.

Other issues relating human resource management Other issues relating human resource management within entrepreneurial organizations include staff within entrepreneurial organizations include staff turnover, absenteeism, and staff training. In turnover, absenteeism, and staff training. In entrepreneurial organizations staffing levels are entrepreneurial organizations staffing levels are usually very tight, with just the minimum of staff usually very tight, with just the minimum of staff necessary to do the job and keep the costs down. necessary to do the job and keep the costs down. When staff are absent the remaining staff are asked to When staff are absent the remaining staff are asked to work even harder or work extra shifts, which can affect work even harder or work extra shifts, which can affect overall product quality. Training new staff in an overall product quality. Training new staff in an entrepreneurial operation can be costly and time entrepreneurial operation can be costly and time consuming. As many entrepreneurs do not possess consuming. As many entrepreneurs do not possess goof training skills, staff training is often ignored, goof training skills, staff training is often ignored, placing undue strain on both new and existing placing undue strain on both new and existing employees. employees.

Organization structureOrganization structure

Entrepreneurs tend to run informal and Entrepreneurs tend to run informal and unstructured organizational structures. The unstructured organizational structures. The entrepreneur is the primary decision maker entrepreneur is the primary decision maker and typically there is no recognized chain of and typically there is no recognized chain of command other than to approach the command other than to approach the entrepreneur. In some cases, the entrepreneur entrepreneur. In some cases, the entrepreneur is the only decision maker. Usually is the only decision maker. Usually entrepreneurs prefer a large horizontal span of entrepreneurs prefer a large horizontal span of control and tend to have an inbuilt aversion to control and tend to have an inbuilt aversion to structured companies. structured companies.

A crisis of autonomy is identified as the A crisis of autonomy is identified as the business grows. With the introduction of business grows. With the introduction of mainstream management, the organization mainstream management, the organization needs to adopt a more formalized organization needs to adopt a more formalized organization structure. The requirement for a more structure. The requirement for a more formalized structure is clear but a potential formalized structure is clear but a potential impact is that it can inhibit creativity and start impact is that it can inhibit creativity and start to demoralize lower-level management and to demoralize lower-level management and employees. This is especially true for those employees. This is especially true for those members who have been with the company members who have been with the company from the beginning, and indeed may have been from the beginning, and indeed may have been attracted to the informal and unstructured attracted to the informal and unstructured nature of the organization. nature of the organization.

Structures can range from one Structures can range from one which is unplanned and sporadic which is unplanned and sporadic

to a recognized line organization.to a recognized line organization.

1 Pioneer structure:1 Pioneer structure: This is when the This is when the entrepreneur is the total center of the operation entrepreneur is the total center of the operation and all decisions radiate from the core. and all decisions radiate from the core.

Pioneer StructurePioneer Structure

2 Unplanned structure:2 Unplanned structure: This occurs when the This occurs when the structure of the organization tends to evolve structure of the organization tends to evolve haphazardly with little conscious planning. As the haphazardly with little conscious planning. As the company grows, people who initially started company grows, people who initially started performing certain functions within the small company performing certain functions within the small company tend to retain these functions, often outside their skill tend to retain these functions, often outside their skill levels. Within this type of structure, the entrepreneur levels. Within this type of structure, the entrepreneur may find positions for people as favors, or because may find positions for people as favors, or because they are the most available person at the time, rather they are the most available person at the time, rather than them being the right person for that job. This type than them being the right person for that job. This type of structure can work while the organization is still of structure can work while the organization is still small, but once the firm grows beyond a certain size small, but once the firm grows beyond a certain size an organizational change is necessary for success. an organizational change is necessary for success.

Unplanned StructureUnplanned Structure

3 Formalized structure: A more formalized structure is where a specific chain of command exists, typically in a small firm in a line management configuration. In small entrepreneurial companies there is the tendency to be informal and ignore organizational lines. Where an entrepreneur is actively involved in a hands-on manner problems can arise if employees are dealt with directly, without going through the appropriate line manager.

Formalized StructureFormalized Structure

Delegation of AuthorityDelegation of Authority

Typical of an entrepreneurial operation is the Typical of an entrepreneurial operation is the reluctance of the entrepreneur to relinquish reluctance of the entrepreneur to relinquish authority to line managers. This represents a authority to line managers. This represents a weak link in small businesses. For many weak link in small businesses. For many entrepreneurs, the business is ‘their baby’, and entrepreneurs, the business is ‘their baby’, and they do not want to let go. This is evident that they do not want to let go. This is evident that the entrepreneurs want to retain control. The the entrepreneurs want to retain control. The “headless chicken scenario” develops where “headless chicken scenario” develops where the entrepreneur tries to do everything the entrepreneur tries to do everything him/herself, leading to a poorly organized him/herself, leading to a poorly organized operation and often physical and mental operation and often physical and mental burnout. burnout.

Frequently the entrepreneur is the one who Frequently the entrepreneur is the one who created the business, made all the contacts, and created the business, made all the contacts, and knows more about it than any other person and, knows more about it than any other person and, in order to protect the business, wants to hold in order to protect the business, wants to hold onto the reins leadership. The upshot of this is onto the reins leadership. The upshot of this is that too mush time is spent dealing with day-to-that too mush time is spent dealing with day-to-day matters which can lead, not only to day matters which can lead, not only to breakdowns and burnouts, but to neglecting breakdowns and burnouts, but to neglecting planning, financial, and personal issues. planning, financial, and personal issues. The problem of delegation and loss of control The problem of delegation and loss of control has actually served as a constraint for has actually served as a constraint for entrepreneurial companies with the potential for entrepreneurial companies with the potential for growth. growth.

This ability to delegate is critical and enhances the This ability to delegate is critical and enhances the importance of forming a management team that can importance of forming a management team that can participate in decision making. This is termed as a participate in decision making. This is termed as a crisis of control, typified by entrepreneurs not wanting crisis of control, typified by entrepreneurs not wanting to relinquish the reins, and trying to re-centralize in to relinquish the reins, and trying to re-centralize in order to try to restore a sense of control. This type of order to try to restore a sense of control. This type of organization can be a difficult working environment for organization can be a difficult working environment for employees. The entrepreneur often hoards in formation employees. The entrepreneur often hoards in formation in an attempt to retain control, and he/she exhibits in an attempt to retain control, and he/she exhibits erratic behavior, leaving employees not knowing where erratic behavior, leaving employees not knowing where they stand. Furthermore, the entrepreneur may play they stand. Furthermore, the entrepreneur may play ‘favorites’ with certain members of staff and create an ‘favorites’ with certain members of staff and create an ‘inner circle’ of employees, ignoring any organizational ‘inner circle’ of employees, ignoring any organizational structure. structure.

Entrepreneurial decision makingEntrepreneurial decision making

Decision making generally is determined by the Decision making generally is determined by the type of decision to be made (from sample to type of decision to be made (from sample to complex), and the time available (the degree of complex), and the time available (the degree of urgency of the decision). urgency of the decision). The entrepreneurial approach to decision making is The entrepreneurial approach to decision making is normally made against the background of limited normally made against the background of limited margins for absorbing error but with equally limited margins for absorbing error but with equally limited time to seek quality information to help with those time to seek quality information to help with those decisions.decisions.

There are two broad bands of There are two broad bands of decision making for decision making for

entrepreneursentrepreneurs. .

First, there are those decisions made on a First, there are those decisions made on a continuum with highly structured planning at one continuum with highly structured planning at one side and informal unplanned decision making at the side and informal unplanned decision making at the other. Second, there are those decisions where, at other. Second, there are those decisions where, at one extreme, the entrepreneurial character is one extreme, the entrepreneurial character is reflected in a haphazard and uncoordinated reflected in a haphazard and uncoordinated approach which tends to be reactive and where the approach which tends to be reactive and where the level of risk is low. The other extreme is where the level of risk is low. The other extreme is where the opportunistic approach tends to be proactive and opportunistic approach tends to be proactive and where the amount of risk is substantially higher. where the amount of risk is substantially higher.

Laissez-faire decisionsLaissez-faire decisions

There are always some simple and easy jobs in There are always some simple and easy jobs in any environment which need little skill and any environment which need little skill and supervision. These jobs are highly routine and supervision. These jobs are highly routine and non-urgent, low-risk areas of decision making. non-urgent, low-risk areas of decision making. An example of such task would be to count the An example of such task would be to count the number of towels returned in a leisure center at number of towels returned in a leisure center at the end of the day. Any junior member of staff the end of the day. Any junior member of staff could perform this task without much concern could perform this task without much concern from the entrepreneur. from the entrepreneur.

Shared decisionsShared decisions

These are routine decisions with a strong These are routine decisions with a strong operational focus. These decisions are of low operational focus. These decisions are of low urgency, complexity, and risk. Typically, such urgency, complexity, and risk. Typically, such decisions may deal with improvements of decisions may deal with improvements of routine tasks. An example of this would be routine tasks. An example of this would be altering the fitness class timetable to altering the fitness class timetable to accommodate an extra step class. accommodate an extra step class.

Consultative decisionsConsultative decisions

These are important decisions which have the These are important decisions which have the potential to impact on the future prospects of a potential to impact on the future prospects of a business. The level of risk of these non-routine business. The level of risk of these non-routine decisions is high and, as they are of a strategic decisions is high and, as they are of a strategic nature, they are more complex and the outcome is nature, they are more complex and the outcome is somewhat uncertain. The availability of up-to-date somewhat uncertain. The availability of up-to-date quality information is crucial and sufficient time quality information is crucial and sufficient time needed for the decision-maker to consult with needed for the decision-maker to consult with colleagues before making the ultimate decision. A colleagues before making the ultimate decision. A typical example is when an entrepreneur wishes to typical example is when an entrepreneur wishes to diversify the firm’s product or service. diversify the firm’s product or service.

Entrepreneurial decisionsEntrepreneurial decisions

Entrepreneurial decision making is usually Entrepreneurial decision making is usually highly personalized. It can also be autocratic, highly personalized. It can also be autocratic, when the individual entrepreneur makes critical when the individual entrepreneur makes critical decisions with little information and within a decisions with little information and within a turbulent environment. These decisions tend to turbulent environment. These decisions tend to be be ad hocad hoc and made with gut feeling and and made with gut feeling and intuition. intuition.

Reactionary and gut feeling as Reactionary and gut feeling as operational advantagesoperational advantages

Small firms are often the first to offer new products, Small firms are often the first to offer new products, innovative themes, and revolutionary concepts in the innovative themes, and revolutionary concepts in the market place. One of the primary advantages of market place. One of the primary advantages of entrepreneurial firms have operationally is that they entrepreneurial firms have operationally is that they can respond for more quickly than big companies and can respond for more quickly than big companies and they can adapt their products and services at a lower they can adapt their products and services at a lower costs than their larger counterparts. The costs than their larger counterparts. The entrepreneurs are close to the market, can feel entrepreneurs are close to the market, can feel intuitively trends as they evolve, and are closer true intuitively trends as they evolve, and are closer true customer feedback. This enables them to redefine customer feedback. This enables them to redefine their product/service speedily whenever and however their product/service speedily whenever and however necessary. necessary.

Even some of the standardized franchise Even some of the standardized franchise operations allow the franchisee a certain level of operations allow the franchisee a certain level of flexibility. Some franchise operations recruit flexibility. Some franchise operations recruit master franchisees that are responsible for master franchisees that are responsible for ‘subfranchising’ to other individuals within a ‘subfranchising’ to other individuals within a particular geographical area or developing units particular geographical area or developing units themselves. The requirement is that the master themselves. The requirement is that the master franchisee lives in the geographical area so franchisee lives in the geographical area so therefore they are close to the market and therefore they are close to the market and understand the customer. They are the best-understand the customer. They are the best-placed person to identify the most suitable sites placed person to identify the most suitable sites for development. for development.

For the same reasons, entrepreneurs are the most For the same reasons, entrepreneurs are the most effective in locating a niche in the market. effective in locating a niche in the market. Sometimes the niche is not easy to spot – it is Sometimes the niche is not easy to spot – it is sometimes a question of market knowledge, sometimes a question of market knowledge, confidence, and guts. confidence, and guts. Recent years have seen expansion of multi-Recent years have seen expansion of multi-national companies (MNCs), such as McDonald’s, national companies (MNCs), such as McDonald’s, Mariott Corporation, and the Rank Organization, Mariott Corporation, and the Rank Organization, and much has been written on their new and much has been written on their new products/services. These companies –large or products/services. These companies –large or small- remain entrepreneurial and are at the small- remain entrepreneurial and are at the frontiers of innovation. Their closeness to the frontiers of innovation. Their closeness to the market and customer, plus their willingness and market and customer, plus their willingness and ability to experiment, results in innovative ability to experiment, results in innovative concepts and services.concepts and services.

TeamworkingTeamworking

Entrepreneurship is usually associated one individual Entrepreneurship is usually associated one individual setting up a new business. However, new ventures are setting up a new business. However, new ventures are just as apt to be started by a team of entrepreneurs. The just as apt to be started by a team of entrepreneurs. The primary belief is that, in joining forces with another primary belief is that, in joining forces with another person with different but complimentary skills, the sum person with different but complimentary skills, the sum of human capital will be greater than the parts. of human capital will be greater than the parts. Partnerships are often the only way entrepreneurs can Partnerships are often the only way entrepreneurs can raise sufficient capital to start their own business. A raise sufficient capital to start their own business. A research shows that partnerships with three or more research shows that partnerships with three or more partners have a better chance of survival than the more partners have a better chance of survival than the more typical two-person business. The primary reason being typical two-person business. The primary reason being that there are more heads focused on each issue and that there are more heads focused on each issue and less risk of confrontation than in partnerships between less risk of confrontation than in partnerships between two people. two people.

The team approach may often be the most effective The team approach may often be the most effective way of generating sufficient resources to get the new way of generating sufficient resources to get the new venture off the ground and to add a broader variety of venture off the ground and to add a broader variety of skills to the new venture. One of the most critical skills to the new venture. One of the most critical issues for new firms is achieving management depth issues for new firms is achieving management depth and finding talent. This can be resolved through and finding talent. This can be resolved through teams of entrepreneurs as opposed to the individual. teams of entrepreneurs as opposed to the individual. Firms founded by teams of entrepreneurs are more Firms founded by teams of entrepreneurs are more likely to grow than those founded by an individual. likely to grow than those founded by an individual. Not only do team start-ups have a higher level of Not only do team start-ups have a higher level of capitalization but when entrepreneurs bring in capitalization but when entrepreneurs bring in complimentary skills they are less likely to be complimentary skills they are less likely to be overstretched by the opening and running of overstretched by the opening and running of business.business.

The negative aspect of this approach is the desire for The negative aspect of this approach is the desire for autonomy many entrepreneurs possess which can autonomy many entrepreneurs possess which can lead to disharmony between partners. The lead to disharmony between partners. The entrepreneurial personality may be extremely self-entrepreneurial personality may be extremely self-confident and results-oriented, making it difficult to confident and results-oriented, making it difficult to work as a team player. Ego and self-mindedness work as a team player. Ego and self-mindedness often separate two partners in an entrepreneurial often separate two partners in an entrepreneurial venture, as one or both entrepreneurs decide to go it venture, as one or both entrepreneurs decide to go it alone. For this reason, many people advice against alone. For this reason, many people advice against taking a partner and many entrepreneurs remain taking a partner and many entrepreneurs remain adamant that they would be unable or unwilling to adamant that they would be unable or unwilling to enter into a partnership even if it was a very good enter into a partnership even if it was a very good opportunity. opportunity.

Entrepreneurs and quality Entrepreneurs and quality

managementmanagement

Quality management represents a large Quality management represents a large operational challenge for entrepreneurs. Whilst operational challenge for entrepreneurs. Whilst many entrepreneurial companies are able to many entrepreneurial companies are able to achieve high levels of product quality, the achieve high levels of product quality, the difficulty lies within the area of achieving difficulty lies within the area of achieving consistently high levels of quality. consistently high levels of quality.

Within service businesses it is Within service businesses it is relatively difficult to consistently relatively difficult to consistently achieve quality, as highlighted by achieve quality, as highlighted by the following points:the following points:

◦service workers are often viewed as short-term, disposable workers and as such are often undertrained and unmotivated;

◦there is more chance of making errors in service operations owing to the complexities of production and delivery process and the involvement of the customer during the process;

◦the customer consumes the service as it is produced which does not always allow time for the producer to correct mistakes.

Controlling quality is one of the most important Controlling quality is one of the most important management responsibilities, given the competitive management responsibilities, given the competitive nature of the industry and the increasingly nature of the industry and the increasingly sophisticated and discriminated consumer. sophisticated and discriminated consumer. There is nothing intrinsic in these tasks and There is nothing intrinsic in these tasks and methods which make them more difficult to methods which make them more difficult to implement in new entrepreneurial ventures rather implement in new entrepreneurial ventures rather than in established organizations. The than in established organizations. The entrepreneur’s closeness to the market, owing to entrepreneur’s closeness to the market, owing to the hands-on involvement with the business may the hands-on involvement with the business may keep them in tune with customers and compensate keep them in tune with customers and compensate for the lack of a strategic approach to quality for the lack of a strategic approach to quality systems.systems.

The entrepreneur and The entrepreneur and

management of the life-cyclemanagement of the life-cycle

The entrepreneurial characteristics needed to create The entrepreneurial characteristics needed to create and get a new operation off the ground are often not and get a new operation off the ground are often not the same characteristics required to manage a the same characteristics required to manage a growing organization. In many cases the entrepreneur growing organization. In many cases the entrepreneur is not able to make the transition from a small is not able to make the transition from a small organization to one that is growing in size and organization to one that is growing in size and complexity. The management style of the complexity. The management style of the entrepreneur needs to change as the organization entrepreneur needs to change as the organization progresses through its life-cycle and the entrepreneur progresses through its life-cycle and the entrepreneur needs to plan its further development systematically needs to plan its further development systematically and apply management controls effectively.and apply management controls effectively.

Introduction/creation stageIntroduction/creation stage

This is the birth of the organization. The founder –the This is the birth of the organization. The founder –the entrepreneur- recognizes a market opportunity and entrepreneur- recognizes a market opportunity and offers a service, usually at a single location. Sales are offers a service, usually at a single location. Sales are low and profits are either low or non-existent. Most low and profits are either low or non-existent. Most companies are struggling just to stay alive. companies are struggling just to stay alive. Typically this is the period when 18 hours of working Typically this is the period when 18 hours of working days are common to get the business up and running. days are common to get the business up and running. The entrepreneur is personally responsible for all major The entrepreneur is personally responsible for all major decision making and in full control. The organizational decision making and in full control. The organizational structure tends to be highly centralized. The structure tends to be highly centralized. The entrepreneur determines the culture and team spirit entrepreneur determines the culture and team spirit within the organization.within the organization.

Employees who best fit with the entrepreneur’s personality and philosophy are hired. Most employment of staff is done on an informal basis. Few entrepreneurial organizations have contracts of employment, job descriptions etc. at this stage in the life-cycle, there is little complexity in the organization. Management functions are performed by a small core of personnel, closely supervised by the entrepreneur. Generally, there is low formalization within the organization with a few systems and procedures.

Growth stageGrowth stage

This is the stage when the product or service starts This is the stage when the product or service starts to become popular and sales start to grow rapidly. to become popular and sales start to grow rapidly. In food service and hotels the growth stage of a In food service and hotels the growth stage of a business is when a single operation grows to two business is when a single operation grows to two or more units, often by replicating the original unit or more units, often by replicating the original unit in a different location. Franchising and licensing in a different location. Franchising and licensing arrangements may be very successful way of arrangements may be very successful way of expanding a business quickly without requiring a expanding a business quickly without requiring a vast capital investment. vast capital investment.

At this stage, most entrepreneurs must start to At this stage, most entrepreneurs must start to delegate some responsibility and qualified managers delegate some responsibility and qualified managers need to be recruited. The new, growing firm operates need to be recruited. The new, growing firm operates in an uncertain, unpredictable, and often ambiguous in an uncertain, unpredictable, and often ambiguous environment. The entrepreneur needs to remain the environment. The entrepreneur needs to remain the risk-taker searching for new market opportunities but risk-taker searching for new market opportunities but also develop the team and delegate responsibilities. also develop the team and delegate responsibilities. Emphasis shift from entrepreneur to the management Emphasis shift from entrepreneur to the management team as specialist skills are brought in to support team as specialist skills are brought in to support finance, marketing, and human resource activities. finance, marketing, and human resource activities. Communication channels require to be formally Communication channels require to be formally defined and structured training introduced. Strategic defined and structured training introduced. Strategic planning is necessary to manage the company’s planning is necessary to manage the company’s growth. growth.

This stage of the life-cycle often attracts new This stage of the life-cycle often attracts new entrants to the industry, therefore monitoring of entrants to the industry, therefore monitoring of competition is essential. The operations of business competition is essential. The operations of business become more complex as the entrepreneur has to become more complex as the entrepreneur has to maintain the smooth running of the business whilst maintain the smooth running of the business whilst continuing to find new sites. Operations are still continuing to find new sites. Operations are still fairly informal but some thoughts need to go into fairly informal but some thoughts need to go into standardizing operating procedures. Operations standardizing operating procedures. Operations usually become the first managerial function to be usually become the first managerial function to be fully delegated. This signals the transition of the fully delegated. This signals the transition of the organization from a simple structure to a more organization from a simple structure to a more complex form. complex form.

Many entrepreneurial operations become over-Many entrepreneurial operations become over-ambitious and grow too quickly. Many over-extend ambitious and grow too quickly. Many over-extend themselves financially and do not develop the themselves financially and do not develop the management structures necessary to run a more management structures necessary to run a more demanding and complex business. When demanding and complex business. When companies grow quickly they frequently lack the companies grow quickly they frequently lack the formal control systems necessary and the formal control systems necessary and the entrepreneur is more concerned with day-to-day entrepreneur is more concerned with day-to-day issues as opposed to strategic and operational issues as opposed to strategic and operational planning. As the organization moves towards planning. As the organization moves towards greater complexity and decentralization, different greater complexity and decentralization, different challenges are presented for the entrepreneur. challenges are presented for the entrepreneur.

The entrepreneur must strive to achieve higher level The entrepreneur must strive to achieve higher level thinking, rise above the operational thinking which thinking, rise above the operational thinking which may be based largely on common sense and may be based largely on common sense and intuition, towards more complex issues as financial intuition, towards more complex issues as financial accounting, marketing planning, and strategic accounting, marketing planning, and strategic planning. During the growth stage, many planning. During the growth stage, many entrepreneurs are either pushed out of the company entrepreneurs are either pushed out of the company or feel that they are better suited elsewhere. The or feel that they are better suited elsewhere. The formalized and bureaucratic structure of a large formalized and bureaucratic structure of a large organization typically stifles entrepreneurship and organization typically stifles entrepreneurship and creates an environment which is the opposite of creates an environment which is the opposite of what the entrepreneur set out to create in the first what the entrepreneur set out to create in the first place. place.

Maturity stageMaturity stage

As the market becomes saturated, sales and growth As the market becomes saturated, sales and growth tend to level off. This period may last for many years tend to level off. This period may last for many years or can be relatively short. At this stage marketing or can be relatively short. At this stage marketing comes into its own as advertising and promotional comes into its own as advertising and promotional efforts are devoted to boosting revenues. Financial efforts are devoted to boosting revenues. Financial control is crucial as the organization tries to manage control is crucial as the organization tries to manage variable costs and a need to consolidate. Some variable costs and a need to consolidate. Some streamlining of staff may be required and few new streamlining of staff may be required and few new people will be hired. Issues such as quality control people will be hired. Issues such as quality control and productivity play a more important role than and productivity play a more important role than location analysis. At this stage the company often location analysis. At this stage the company often strives to rekindle the entrepreneurial spirit which strives to rekindle the entrepreneurial spirit which may have been lost as the company increased in may have been lost as the company increased in formality and complexity during the growth stage. formality and complexity during the growth stage.

Decline and failureDecline and failure The reasons for business failure in the hotel and The reasons for business failure in the hotel and catering sector have a different profile of causes of catering sector have a different profile of causes of business failure than other industries. The most business failure than other industries. The most frequent cause of failure is undercapitalization, frequent cause of failure is undercapitalization, particularly significant in industries such as particularly significant in industries such as construction and manufacturing. In the hotel and construction and manufacturing. In the hotel and catering sectors, operations and management catering sectors, operations and management problems are also a primary cause of failure. This problems are also a primary cause of failure. This reflects the fact that these businesses are difficult to reflects the fact that these businesses are difficult to control. Since the entrepreneur is often physically control. Since the entrepreneur is often physically involved in the entrepreneurial venture, problems can involved in the entrepreneurial venture, problems can all too easily result in fatigue and the neglect of all too easily result in fatigue and the neglect of management issues.management issues.

The entrepreneur and business The entrepreneur and business failurefailure

The role of entrepreneur in firm failure was The role of entrepreneur in firm failure was researched. It was found that many firm researched. It was found that many firm characteristics –particularly decision-based ones- characteristics –particularly decision-based ones- were directly related to entrepreneurial characteristics. were directly related to entrepreneurial characteristics. These included lack of insight, inflexibility, and These included lack of insight, inflexibility, and emphasis on technical skills. Additionally managerial emphasis on technical skills. Additionally managerial deficiencies and financial shortcomings of the deficiencies and financial shortcomings of the entrepreneur also contribute to failure. Lack of entrepreneur also contribute to failure. Lack of management expertise along with financial matters management expertise along with financial matters was the most common causes of business failure. was the most common causes of business failure. Poor management skills were most frequently Poor management skills were most frequently identified as a common theme in small business identified as a common theme in small business failure. failure.

Seven potential reasons for failure Seven potential reasons for failure connected with characteristics of connected with characteristics of the owners, and four reasons the owners, and four reasons connected with the management connected with the management team are:team are:

Owner inflexible to change;

Resisted advice from qualified sources;

Problem of an autocratic dominating principal owner-managed;

Owner did nor seek outside help or advice;

Owner did not innovate; Decision-making based

upon intuition/emotion; Excessive remuneration

paid to owner-manager.

Poor operations management;

Owner had insufficient management experience;

Management teams were not balanced;

Inability to delegate managerial responsibility.

The attitudes and actions of the entrepreneur The attitudes and actions of the entrepreneur rather than their technical managerial skills rather than their technical managerial skills were to blame for the decline. The most serious were to blame for the decline. The most serious problems were reliance on intuition and problems were reliance on intuition and emotion in decision making and inflexibility of emotion in decision making and inflexibility of entrepreneur.entrepreneur.

Personal and managerial Personal and managerial characteristics leading to failure are characteristics leading to failure are

defined as:defined as: Exhibits exaggerated opinion of business

competency based on knowledge of some skills;Limited formal education;Inflexible to change and nor innovative;Uses own personal taste and opinion as

standard to follow, decision making based on intuition, emotion, and non-objective factors;

Oriented to past, ignores future;Does little reading in literature associated with

business;Resist advice from qualified sources but will

accept it from the least qualified.

There seems to be little consistency in research There seems to be little consistency in research findings regarding business failure. The research findings regarding business failure. The research area is fraught with difficulty since people are area is fraught with difficulty since people are naturally reluctant to talk about the traumas of failure. naturally reluctant to talk about the traumas of failure. A further management trap for entrepreneurs is when A further management trap for entrepreneurs is when a hobby is converted to a business. This is especially a hobby is converted to a business. This is especially so in the hotel, tourism and leisure industries. There so in the hotel, tourism and leisure industries. There are many cases where new businesses are started on are many cases where new businesses are started on the back of a hobby (sports gyms and restaurants). the back of a hobby (sports gyms and restaurants). The entrepreneur may have little or no business The entrepreneur may have little or no business acumen, just a love for the activity. There are acumen, just a love for the activity. There are numerous cases where a person loves cooking or has numerous cases where a person loves cooking or has a deep interest in wines and decides to ‘do it for real’ a deep interest in wines and decides to ‘do it for real’ by setting up a business. by setting up a business.

The entrepreneur and business The entrepreneur and business growthgrowth

In the analysis of small business growth, five In the analysis of small business growth, five stages of development –existence, survival, stages of development –existence, survival, success, take-off, and resource maturity, are success, take-off, and resource maturity, are identified. Small business owners who can identified. Small business owners who can assess the stage at which their companies are assess the stage at which their companies are operating can use the framework to enable operating can use the framework to enable them better understand any existing problems them better understand any existing problems and help anticipate future challenges. and help anticipate future challenges.

Each of the five stages of growth is Each of the five stages of growth is characterized by an index of size, diversity, and characterized by an index of size, diversity, and complexity and described by five management complexity and described by five management factors –managerial style, organizational factors –managerial style, organizational structure, extent of formal systems, major structure, extent of formal systems, major strategic goals, and the owner’s involvement in strategic goals, and the owner’s involvement in the business. An alternative life-cycle model the business. An alternative life-cycle model identifies the primary management style and identifies the primary management style and organization required at each stage of organization required at each stage of introduction and growth in addition to the introduction and growth in addition to the marketing and financial problems. marketing and financial problems.

Many businesses in the hospitality, tourism, and Many businesses in the hospitality, tourism, and leisure industries may never progress beyond leisure industries may never progress beyond the initial existence stage, where the the initial existence stage, where the entrepreneur performs all important tasks entrepreneur performs all important tasks individually. Many such organizations do not individually. Many such organizations do not have sufficient customer acceptance and/or have sufficient customer acceptance and/or product capability to become viable. product capability to become viable.

If the organization makes it to the survival stage, the If the organization makes it to the survival stage, the key problems center around revenues and expenses. key problems center around revenues and expenses. Many small businesses sit well into this category, Many small businesses sit well into this category, earning marginal returns on time and capital. The third earning marginal returns on time and capital. The third stage –success- requires the decision to be made stage –success- requires the decision to be made whether to exploit the company’s success and expand, whether to exploit the company’s success and expand, or keep the business as a stable base for alternative or keep the business as a stable base for alternative owner activities. This is a critical time as the owner activities. This is a critical time as the management challenges are very difficult, often management challenges are very difficult, often requiring a change of ownership or management, requiring a change of ownership or management, delegation, and substantial cashflow. The final stage, delegation, and substantial cashflow. The final stage, resource maturity, is mainly concerned with resource maturity, is mainly concerned with consolidating the previous rapid growth stage and consolidating the previous rapid growth stage and ensuring sufficient human and financial resources. ensuring sufficient human and financial resources. Formal planning and systems are key issues. Formal planning and systems are key issues.

Typology of business growth was updated. It was Typology of business growth was updated. It was found that there was still support for the original found that there was still support for the original typology but there was considerable variability and typology but there was considerable variability and individuality in the way some firms develop. It is individuality in the way some firms develop. It is suggested that companies do not follow the same suggested that companies do not follow the same life-cycle sequence and that the most common life-cycle sequence and that the most common conditions originally referred to as ‘Stages of conditions originally referred to as ‘Stages of Growth’ should be referred to as ‘Phases of Growth’ should be referred to as ‘Phases of Management’ instead. Management’ instead. The situation regarding business growth in global The situation regarding business growth in global trading conditions is far from stable. Organizations trading conditions is far from stable. Organizations are quite likely to prosper and fall away in dynamic are quite likely to prosper and fall away in dynamic ways over short-time frames. The complexity and ways over short-time frames. The complexity and challenge of managing entrepreneurial firms during challenge of managing entrepreneurial firms during such intense changes is very considerablesuch intense changes is very considerable