Strategy in Entrepreneurial Companies

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Strategy in Entrepreneurial Companies

• Dr. Alan Carsrud
• The FIU Center for Global Entrepreneurship
  Innovation
• Based on the work of Professor Neil Churchill and
  others

2
The Function of Strategy

• To Provide a general, broad sense of direction.
• To Create a sense of purpose and builds
  commitment.
• Translates the Corporate Vision into plans and
  action steps
• Mobilize the company if only if the strategy
  vision are communicated.

3
An Entrepreneurial Company

• Exists by developing value from identified
  opportunities.
• Grows by continually seeking new opportunities.
• Which means it must allocate and reallocate
  resources from existing to new opportunities.

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An Entrepreneurial Growth Company
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Strategy in Entrepreneurial Companies

• Strategy is Value-based focusing on creating
  value through innovation and opportunity.
• Strategy must be Emergent as we cant always
  predict when or where innovations will occur.
  Thus strategy cannot be very specific. It
  evolves, in part, from what we do.

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Characteristics of Effective Strategy

• It is based on the concepts of
• Dont compete, differentiate.
• Development and exploitation of Core
  Competencies
• You have to know what you are good at and what
  you are not so good at.
• You have to know where you need to be good and
  develop these areas - an aspect that is getting
  more and more important.

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Additional Characteristics of Effective Strategy

• Continuous investment in innovation.
• Generalized search for opportunity at all levels
  of the organization.
• Pivot on Technology/Capabilities into adjacent
  markets.
• Be Value Oriented.

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Development of New Product / Customers/Markets
Customers or Markets
Nature of Technology
Old
New
Old
No Brainer
Promising
Great Potential
New
Risky
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History of Success at 3M
Customers or Markets
Nature of Technology
Old
New
Old
40
100
New
1
30
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Value Oriented Strategy

• A basic tenet of entrepreneurship -- do not
  compete, innovate.
• Practice Value Pricing -- and be sure to share
  some of the value you deliver to your customer.

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Value Pricing
Value Pricing
High Margins
Give Customer Value
Require
R D
New Products
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MORE ON VALUE ORIENTED STRATEGY

• But charge enough to keep some value for yourself
  - new companies usually charge too little.
• Pick your price niches.

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Entrepreneurial Pricing
COST
PRICE

High
Low
Very Nice
High
Bad
Great if you can get it
Usually not worth it
Low
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More Characteristics of an Effective Strategy

• Keep a look out for new and promising areas for
  innovation. It can put a safety net under your
  present strategy.
• Aim at the sweet spots of the product life-cycle
  curve.

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Basic Product Life Cycle
Bad
Good
Great
Risky
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Additional Characteristics of an Effective
Strategy

• Adopt a options model for project expenditures.
  You then pay to learn more and thus make better
  decisions.
• Keep a reserve for the hidden unknowns.

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Venturing into the Unknown

Problem B
Problem A
Problem C
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More Characteristics of an Effective Strategy

• Know your Strengths.
• Know your Weaknesses.
• Understand where and how you make money -- Know
  Your Cash-Value Chain.

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Other Dimensions of Owner-Managed Business
Strategy

• Match the Company Strategy to the Owner-Managers
  Goals
• And these depend on where he/she is in the human
  life cycle
• The formalization of the strategy setting and
  communication process change with the size of the
  company

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Strategy as the Owner-Managed Company Grows

• It is informal at the beginning -- it is largely
  self evident -- everyone knows why the company
  was started.
• The strategy is dynamic and responsive to new
  knowledge but it is basically informal and
  owner-manager driven as the company grows.

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More Strategy as the Owner-Managed Company Grows

• It transitions to a more formal iterative
  process as company gets larger and/or more
  complex because others in company have critical
  knowledge that influences the companys
  direction.
• Thus they have to be a part of strategy
  formulation.

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In Conclusion (first part)

• To most entrepreneurs, what they experience in
  starting and growing a company is almost totally
  new.
• It is new to them but not to the world.
• Use your network and find a mentor, someone who
  has been where you are going.
• Planning is key and a written plan is better

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In Conclusion (second part)

• Supplement your teams and your skills with a
  board of directors.
• Why not make your mentor a member of your board?

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In Conclusion (part three)

• Do not try to do everything yourself.
• Form joint ventures, strategic partnerships, and
  the like.
• Cooperate with other firms in mutually beneficial
  relationships even while competing with them in
  other areas.
• The bottom line is to go where you want to go --
  and set your sights a bit high.

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In Conclusion (fourth but not final)

• Each organization has its core competencies
• Each organization has its core incompetencies
• Death by non-opportunity -- not making choices
• Analysis paralysis -- fear of opportunity
• Not changing focus as the world changes.

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In Conclusion (finally)

• Opportunity costs are relevant in good times
• You dont want to slow sales down in a sellers
  market. High margins will cover inefficiencies.
• Cash Costs are relevant in bad times
• You have to watch the pennies in investments and
  in products in a buyers market.

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In Keeping a Company Entrepreneurial, Remember
One the greatest pains to human nature is the
pain of a new idea. - Walter Bagehot
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More on Keeping a Company Entrepreneurial
Thus you have to make identifying and capturing
opportunities a joyous and fulfilling experience.
- Dodge Morgan