17 - 1 Copyright © 2009 The McGraw-Hill Companies, Inc., All Rights

Reserved.McGraw-Hill/Irwin

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Part Five

The Entrepreneur’s Journey

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Under Rapid Growth . . .

• Entrepreneurs face:• Challenges• Pressure• Physical wear and tear• Emotional wear and tear• A possible business harvest

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Chapter

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Leading Rapid Growth, Crises, and Recovery

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Traditional General Management

• Pyramidal/hierarchical• Incremental

improvement• Risk avoidance/embrace

stability• Avoid and punish failure• Resource allocation,

budget driven• Central command and

control

• Resource optimization• Cost oriented• Linear, sequential• Local focus• Compensate and reward• Manage and control• Zero defects/error free

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Entrepreneurial Leadership and Organization

• Flat, flexible, think/act like an owner

• Stepwise and disruptive change

• Fearless, relentless experimentation

• Specialize in new mistakes

• Opportunity obsessed• Frontline, customer

driven

• Creativity – capital• Resource frugality and

parsimony• Systems and nonlinear• Global perspective• Create and share the

wealth• People want to be led,

not managed• Manage risk, reward and

fit.

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Issues Leading to Possible Crises in Rapid Growth

• Opportunity overload• Choosing from among an abundance of sales or new market

opportunity

• Abundance of capital• Evaluating investors as “partners” and the terms of deals with

which they were presented

• Misalignment of cash burn and collection rates• Cash burn rates racing ahead of collections

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Issues Leading to Possible Crises in Rapid Growth

• Decision making• Executing functional day-to-day and week-to-week decisions,

rather than strategizing

• Expanding facilities and space . . . and surprises• Coping with surprises, delays, organizational difficulties, and

system interruptions spawned by space or facility expansion

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External Causes for Failure

• Recession

• Interest rate changes

• Changes in government policy

• Inflation

• The entry of new competition

• Industry/product obsolescence

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Internal Causes for Failure

• Inattention to strategic issues• Misunderstood market niche• Mismanaged relationships with suppliers and customers• Diversification into an unrelated business area• Mousetrap myopia• The big project• Lack of contingency planning

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Internal Causes for Failure

• General management problems• Lack of management skills, experience, and know-how• Weak finance function• Turnover in key management personnel• Big-company influence in accounting

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Internal Causes for Failure

• Poor planning, financial/accounting systems, practices, and controls• Poor pricing, overextension of credit, and excessive leverage• Lack of cash budgets/projections• Poor management reporting• Lack of standard costing• Poorly understood cost behavior

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Nonquantitative Signals of Trouble

• Inability to produce financial statements on time

• Changes in behavior of the lead entrepreneur

• Change in management or advisors, such as directors, accountants, or other professional advisors

• Accountant’s opinion that is qualified and not certified

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Nonquantitative Signals of Trouble

• New competition

• Launching of a “big project”

• Lower research and development expenditures

• Special write-offs of assets and/or addition of “new” liabilities

• Reduction of credit line

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Telltale Trends of Organizations in Trouble

• Ignore outside advice

• People (including and usual, most especially, the entrepreneur) have stopped making decisions and also have stopped answering the phone

• Nobody in authority has talked to the employees

• Rumors are flying

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Telltale Trends of Organizations in Trouble

• Inventory is out of balance

• Accounts receivable aging is increasing

• Customers are becoming afraid of new commitments

• A general malaise has settled in while a still high-stressed environment exists (an unusual combination)

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Turning Around a Troubled Company

• Diagnosis of the problem• Strategic analysis• Management analysis• Cash flow analysis

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Cash Flow Analysis

• Steps in identifying and quantifying the profitable core of the business• Determine available cash• Determine where money is going• Calculate percent-of-sales ratios for different areas of a

business and then analyze trends in costs• Reconstruct the business• Determine differences

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Potential Cuts/Improvements

• Most common areas for potential cuts/improvements• Working capital management• Payroll• Overcapacity and underutilized assets

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Longer-Term Remedial Action

• Systems and procedures

• Asset plays

• Creative solutions

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Organizational Climate

• Six basic dimensions• Clarity• Standards• Commitment• Responsibility• Recognition• Esprit de corps

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Common Approaches to Successful Leadership

• E-Leadership• Roles, tasks, responsibilities, accountabilities, and appropriate

approvals clearly defined• Leadership based on expertise, not authority• Emphasis placed on performing task-oriented roles

• Consensus Building• Emphasis placed on overall goals• Emphasis on participation and listening

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Common Approaches to Successful Leadership

• Communication• Information sharing• Willingness to alter individual views

• Encouragement• Encouragement of innovation and calculated risk-taking

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Common Approaches to Successful Leadership

• Trust• Do what they say they are going to do• Traits include openness, spontaneity, and straightforwardness

• Development• Develop human capital

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