Creating and Growing Organizations

definition entrepreneurship Schüßler

entrepreneurship is about assembling/organization-creation: planning, coordinating, resources, people, ideas, establishing routines, structures and systems through ongoing interactions that are socially embedded and context-specific

early framework for new venture creation

• creating a new venture = creating a new organization

• pocess takes time and unfolds in the environment

Gartner, 1985

cycles of entrepreneurial activity

1. organization creation

   • enactment ↻ selection ⇒ emergence

2. establishing routines

   • selection ↻ retention ⇒ newness

3. changing routines

   • newness ↻ emergence ⇒ transformation

Gartner & Brush, 2016

entrepreneurship as a verb

bringing an organization into being

variance view entrepreneurship

• focus on the differences between individual entrepreneurs and their outcomes

• assumes that entrepreneurs are either succesful or unsuccesful

• focus on traits, variables and variables between relationships

⇒ entrepreneurship as an act

process view entrepreneurship

• focus in the underlying processes that drive entrepreneurial outcomes (e.g. learning, adaption, innovation)

• recognizes that entrepreneurial outcomes and entrepreneurial individuals are shaped by a complex interplay of factors

• focus on sequences, events and feedback loops

⇒ entrepreneurship as a journey

valley of death

space between opportunity discovery and product development

• shift from invention to commercial innovation

  • organization variables (legal, supply chain, finance, …) begin to matter

• shift in roles

idea journey

1. idea generation

   • need: cognitive flexibility

2. idea elaboration (evaluating idea’s potential)

   • need: support

[valley of death]

3. idea championing (convincing investors)

   • need: influence and legitimacy

4. idea implementation (producing a tangible outcome)

   • need: shared vision and understanding

five phases of growth model (Greiner, 1998)

each phase involves growth and a crisis

1. creativity; leadership

2. direction; autonomy

3. delegation; control

4. coordination; red tape

5. collaboration; variable

maturity increases throughout the stages

critique and limitations to Greiner, 1998

• focusses only on moderately growing, industrial and consumer goods industries -> different problems e.g. in knowledge-based firms

• failure is possible at all stages

• additional stages exits, overlaps across phases

• past-oriented and deterministic; neglects role of future-making

IPO

Börsengang

life cycle entrepreneurial firm: ideal type model

1. startup: define and validate business concept

2. transition: lay the foundation for a scalable business

3. scaling: add resources to profitably scale the enterprise

4. exit: harvest the venture through IPO, private sale, merger or acquisition

Picken, 2017

ideal type model: startup (1)

define and validate the business concept

• understand the market opportunity, the offering, the business model and go-to-market strategy

• organization: informal, loosely structured, founder-driven

Picken, 2017

ideal type model: transition (2)

lay the foundation for a scalable business

• get the product-market fit and organizational structures in place

• engage customers

• organization: develop new organization capabilities, build repeatable processes and lay foundation for growth

Picken, 2017

ideal type model: scaling (3)

add resources to profitably scale the enterprise

• leverage partnerships to grow the business within the framework of the validated business concept geographically/market segments

• organization: professionalized functions

Picken, 2017

ideal type model: exit (4)

harvest the venture through IPO, private sale, merger or acquisition

• realize returns for funders and investors through a succesful exit

Picken, 2017

transition challenges

1. setting a direction and maintaining focus

2. positioning products in an expanded market

3. maintaining customer/market responsiveness

4. building an organization and management team

5. developing effective processes and infrastructures

6. building financial capital

7. developing an appropriate culture

8. managing risks and vulnerabilities

Picken, 2017

transitional challenge managing risks and vulnerabilities

• managing technical, market, competitive and execution risks through proactive risk management

transition challenge developing an appropriate culture

• shape values, beliefs and norms early on

transition challenge building financial capital

• prudently manage capital

• don‘t overpromise and underdeliver

• focus on returns for investors

transition challenge developing effective processes and infrastructures

• further develop structures, planning, accounting, HRM, and performance management

transition challenge building an organization and management team

• align staffing and structure with strategy

transition challenge maintaining customer/market responsiveness

• maintain responsiveness despite growing standardization

• focus on organizational design and communication

transition challenge positioning products in an expanded market

• adjust and reposition product offering beyond initial core

• develop sales, marketing, production and management processes

transition challenge setting a direction and maintaining focus

• validate the business concept in the market

• test value creation & value capture in the context of competition

growth ambitions: start-up

growth ambitions: yes

right business model: no

⇒ find a model

growth ambitions: scale-up

growth ambitions: yes

right business model: yes

⇒ scale the model

growth ambitions: shape-up

growth ambitions: no

right business model: no

⇒ reinvent the model

growth ambition: stand-up

deliberate strategic choice

growth ambitions: no

right business model: yes

⇒ secure the model

rapid growth

incremental growth

episodic growth

plateau growth

difference between growing and scaling

growing: increasing revenue with incrementally increasing costs

scaling: adding significant numbers of clients/customers/users, increasing revenue without necessarily expanding costs

⇒ scaling as a high-growth strategy, significant in digital economies

pathways of growth

affected by:

• management

• marketing

• money

blitzscaling

• measure when you need to grow really quickly

• rapidly building out a company to serve a large (usually global market) with the goal of becoming the first mover at scale

timing of scaling

• is important

• scaling early

  • benefit: decrease imitation risk

  • cost: increase commitment risk

  • both increases if scaled earlier

specific challenges of scaling, compared to continuous growth

• sense of turmoil and chaos instead of path dependence and rigidity (lack of an internal organization)

• no possibilities to learn from prior experience

• scaling early may reduce imitation risk, but prematurely curtails learning through experimentation

• bringing a “minimum viable product” (MVP) to market means that competitors can move ahead and quickly bring a better product to market

• launching an MVP product is only acceptable in a limited number of industries – mainly software

• compromising on ethics – i.e. a lack of HRM, dysfunctional corporate cultures, unethical business practices