Entrepreneurs develop businesses out of ideas and hope for growth and success. However, sometimes the business can grow beyond the expectations causing varied challenges. These challenges might hinder business sustainability if not addressed at the early stages. Therefore, entrepreneurs must always analyze available growth strategies and choose whichever presents more opportunities.
- Seven months ago, Peter launched a chain of kiosks located in malls that sell smartphone accessories. His first kiosk was in a mall in Washington, D.C., and he is now expanding into Maryland, Virginia, and Pennsylvania. Peter’s company has grown quickly from one kiosk to 142, and he hopes to add 200 kiosks per year over the next five years. Recently, a Virginia business periodical ran an article on Peter’s business, focused primarily on whether the business was growing too fast. Peter was upset when he read the article, and he called you to vent his irritation. After he calmed down he said to you, “Tell me the truth. Is there something to what these guys are saying? I’m opening new kiosks as fast as I can. Isn’t that a good thing?” What would you say in response to Peter’s questions? Explain your answer.
Firm growth is a good thing but can also be a burden. It is always necessary for entrepreneurs to know when to expand their businesses. An expansion that does not follow the right strategy can cost the firm its sustainability. Peter needs to consider the ramifications of his business growth, not just the profits it would bring.
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In response to Peter’s questions, I would advise him to listen to the arguments raised by the periodical. Yes, there is something to what they are saying because the business is expanding too fast. I would seek to know how Peter has managed to get employees for the new kiosks and keep them focused on the core strategy. If the business has exhibited signs such as customer complaints filing up, borrowing money to cover expenses, declining quality of the product and service, over-stretched staff, or extremely tight profits. Any of these signs would imply that Peter’s business is growing too fast, possibly exposing him to more problems that could harm its sustainability. Growing too fast is not entirely a good thing for a business. There are managerial capacity problems that ensue and daily challenges such as cash flow management, price stability, and quality control (Council, 2018). For instance, as the business grows, Peter may realize that it is increasingly difficult to find the right employees and place them in the right positions.
Peter needs to understand that a business that is growing too fast could result in challenges that might harm the business’s sustainability in the long term. It would be reasonable to create a strategy that ensures growth matches the resources and is accomplished in the right and at the right time. Without this, Peter’s business could end up with managerial and daily challenges that might cause him to shut down eventually.
- Melinda is a food products engineer who has developed an innovative approach to the packaging of meat. Her approach will extend the shelf life of most meat products by about 30 percent. Melinda is getting ready to try to sell the idea to investors. What could Melinda tell the investors that would give them confidence that she is prepared to cope with the challenges of rapid growth? Explain your answer.
There are challenges when a business is growing too fast. Entrepreneurs need to understand these challenges and come up with ways to solve them. Fast growth is often the cause of many businesses’ inability to succeed. They must be prepared to answer investors’ questions on managing the growth and ensuring the business is sustainable.
Failure is a strong possibility when a firm is not flexible enough to adapt to changes associated with rapid growth (Gundry & Kickul, 2007). Melinda should inform the investors that she is aware of the challenges that may arise from the business growth. She should point out the need to have the managerial capacity that would oversee the expansion units. She should also explain that the growth would be supported by an increase in cash flow, enabling her to take care of expenses. She has to explain how she will manage the recruitment and selection of employees in the growing business and ensure they are rightly placed to combat the challenge of adverse selection. Melinda could best draft a strategic plan on training employees to be motivated to work extra hours if necessary. Finally, she should explain that in case the demands outgrow the business capacity, she could use the licensing or joint venture to have third parties address certain markets or segments.
In conclusion, Melinda’s invention could offer a critical advantage to the business and result in fast growth. However, without proper strategies to manage the exponential growth, the business could face challenges that would put the investment at risk. Therefore, Melinda must explain to investors the necessary strategies to deal with the growth.
- Zynga is a social network game developer that develops browser-based games that work both as stand-alone games and as application widgets on social networking sites such as Facebook. What are the pluses and minuses of Zynga’s approach to launching games that rely on another company’s platform (i.e., Facebook) to reach its intended audience? Is Zynga growing primarily via internal or external growth strategies? Explain your answer.
There are several growth strategies available for entrepreneurial firms. These strategies can be divided into internal growth strategies and external growth strategies. Each of these strategies has its pros and cons. Therefore, entrepreneurs must understand the opportunities and challenges associated with whatever strategy they decide to pursue.
Zynga’s approach has various advantages. Through Facebook, Zynga enjoys economies of scale because it can handle volumes of customers at the same time by relying on the powerful capabilities of the social networking site. Zynga also enjoys risk and cost-sharing with Facebook such that the amount paid is dependent on the total revenue made in a particular period. It also gains access to foreign markets, which would be difficult on its own. Finally, it enjoys speedy growth and the ability to neutralize competitors. The disadvantages include the potential loss of proprietary information to Facebook, management complexities, risk of becoming dependent on the social networking site, and partial loss of decision autonomy (Tjemkes et al., 2018). Zynga is growing primarily via external growth strategies, particularly, strategic alliances. External growth strategies rely on establishing relationships with third parties, which is the case between Zynga and Facebook.
External growth strategies offer various advantages over the internal strategy. However, some drawbacks could be consequential to the business’ sustainability. Zynga’s dependent on Facebook is equally good and bad from various perspectives. However, its benefits could easily outweigh the associated cons.
- Brian is an entrepreneur who has invented several devices that are used in the telecommunications industry. He has patented the devices and manufactured them in a job shop in Oklahoma City. Brian sells the devices directly to AT&T and Verizon. Last week, Brian got a certified letter in the mail from Nokia, indicating the firm’s interest in licensing the technology that is represented in one of his devices. Brian doesn’t know anything about licensing and has turned to you for help. What would you tell Brian about licensing, and how would you suggest that he respond to Nokia’s letter?
There are many external growth strategies available for entrepreneurial firms. Yet, entrepreneurs must evaluate every option and determine which presents more opportunities to the business. These strategies include joint ventures, exporting, strategic alliances, licensing, etc. As in the case of Brian, understanding these pros and cons could be consequential to making profitable deals with third parties.
Licensing is an arrangement whereby a firm with the proprietary rights to a product grants permission to another firm to manufacture that product for specified royalties or other payments (Barringer & R Duane Ireland, 2016). The licensing is an opportunity for Brian to grow his inventions and make more profit. He would enjoy economies of scale because Nokia has resources and production capacities that he can use to produce new devices. He would be sharing the risk and cost with Nokia, and also be able to learn new things from the company. However, it could also have some cons, including possible loss of proprietary information used in producing his devices. He could also lose some flexibility in making the devices and enforcing certain requirements that may not conform to the agreement. I would suggest that Brian obtains a copy of the intended agreement by Nokia or the motives behind the approach and analyze it carefully. He must understand the objectives behind the strategy and ensure that Nokia’s goals do not overshadow his objectives.
Brian could enter or not enter into the proposed agreement with Nokia depending on many factors. However, the key thing to prioritize is his aspirations and motives behind the products he develops. He must carefully analyze the license agreement terms to ensure they do not constrain him and make the work he has done for years, almost worthless.
Study the popular social networking site LinkedIn. What growth strategies has the company employed? What are the most appropriate growth strategies for this firm to use going forward? Why?
LinkedIn is among the popular social networking sites in the market today. Despite its focus on connecting employers and potential employees, it still rivals Facebook and Twitter on most fronts. The company grew from humble beginnings and has successfully employed various growth strategies since it went live in 2003.
LinkedIn’s major growth strategy has been innovation. LinkedIn transformed from a job portal to a professional network with industry-relevant content and professional office solutions. The company has developed new ways to increase engagement on the platform. For instance, it launched the “video Cover Story” that allowed people to make talking about themselves on their home pages. It teamed up with Microsoft to launch the educational program and announced a new Teams-based app called Career Coach that uses AI from LinkedIn to identify what they are interested in and link them to relevant learning content for their career growth. It has sought to increase its revenue source through expansion, such as the introduction of the Sales Solution that helps sales representatives to use its advanced search capabilities to create new opportunities. For future growth, the company needs to focus on marketplace efforts toward workers and job seekers to help them re-skill and transition to future needs. It must consider the significance of machine learning and AI to transform its platform and help businesses and job seekers make better use of market data.
LinkedIn remains a top social networking site, with a market segment that remains unique from those occupied by Facebook, Twitter, and Instagram. Various growth strategies have enabled its growth. Focusing on future growth and employing the right strategies could result in greater achievements by LinkedIn in the future.
Understanding the cons and pros of various internal and external growth strategies is crucial. Entrepreneurs must understand the signs of a business’s rapid growth and avoid its consequences as early as possible. The essence is to understand strategies one can use when demand outgrows the business capacity. Whether joint venture, licensing, or any other strategy, it should improve the firm’s profitability and potential long-term benefits.
Barringer, B. R., & R Duane Ireland. (2016). Entrepreneurship: successfully launching new ventures. Pearson.
Council, Y. E. (2018). Council Post: The Challenges Faced By Fast-Growing Companies, And How To Solve Them. Forbes. https://www.forbes.com/sites/yec/2018/10/09/the-challenges-faced-by-fast-growing-companies-and-how-to-solve-them/
Gundry, L. K., & Kickul, J. R. (2007). Entrepreneurship strategy: changing patterns in new venture creation, growth, and reinvention. Sage Publications.
Tjemkes, B., Pepijn Vos, & Koen Burgers. (2018). Strategic alliance management. London; New York Routledge.