Strategic Issues in Entreprenuerial Ventures

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Chapter 13

The Importance of Small-Business and Entrepreneurial Ventures A.Definition of Small-Business Firms and Entrepreneurial Ventures

The most commonly accepted definition of a small business firm is one that employs fewer than 500 people and that generates sales of less than $20 million annually. According to the U.S. Small Business Administration, “A small business is one which is independently owned and operated, and which is not dominant in its field of operation.”

Although there is considerable overlap between what is meant by the terms small business and entrepreneurship. The concepts are different. The small-business firm is independently owned and operated, not dominant in its field, and doesn’t engage in innovative practices. The entrepreneurial venture, in contrast, is any business whose primary goals are profitability and growth and that can be characterized by innovative practices. The basic difference between the small business firm and the entrepreneurial venture, therefore, lies not in the type of goods or services provided, but in their fundamental views on growth and innovation. Thus, according to Donald Sexton, an authority on entrepreneurship, strategic planning is more likely to be an integral part of an entrepreneurial venture than of the typical small-business firm:

“Most firms start with just a single product. Those oriented toward growth immediately start looking for another one. It’s that planning approach that separates the entrepreneur from the small-business owner.”

B.The Entrepreneur as a Strategic Manager

Often defined as a person who organizes and manages a business undertaking and who assumes risk for the sake of a profit, the entrepreneur is the ultimate strategic manager. He or she makes all the strategic and operational decisions. All three levels of strategy – corporate, business, and functional – are the concerns of the founder and owner-manager of the company. As one entrepreneur puts it, “Entrepreneurs are strategic planners without realizing it.”

Use of Strategic Management
Research shows that strategic planning is strongly related to small-business financial performance. Nevertheless, many small companies still do not utilize the process. Four reasons usually are cited for the apparent lack of strategic planning by many small-business firms. 1. Not enough time. Day-to-day operating problems take up the time necessary for long-term planning. It’s relative easy to justify avoiding strategic planning on the basis of day-to-day crisis management. Some will ask, “How can I be expected to do strategic planning when I don’t know if I’m going to be in business next week?

2.Unfamiliarity with strategic planning. The small-business CEO may be unaware of strategic or view it as irrelevant. Planning may be viewed as a straitjacket that limits flexibility.

3.Lack of skills. Small-business managers often lack the skills necessary to begin strategic planning and don’t have or want to spend the money necessary to bring in consultants. Future uncertainty may be used to justify a lack of planning. One entrepreneur admits, “Deep down, I know I should plan. But I don’t know what to do. I’m the leader but I don’t know how to lead the planning process”

4.Lack of trust and openness. Many small-business owner-managers are very sensitive about the business’s key information and unwilling to share strategic planning with employees or outsiders. For this reason also, board of directors often are composed only of close friends and relatives of the owner-manager people unlikely to provide an objective viewpoint or professional advice.

Value of Strategic Management
There is some evidence, however that an increasing number of small businesses are introducing strategic management very early in their existence. A 1990 survey by the national accounting and consulting firm of BDO...
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