MGT 710Managing Entrepreneurial Organizations
Steven E. Phelan
Overview of Tonight
Pedagogy Syllabus Review Team Assignment
Discuss team charter and client acquisition strategy Lecture on Growth Lecture on Consulting Models Consulting skills (Diagnosing with financials)
Z scores Financial benchmarking (guest Debra Scanlan, NSBDC)
Pedagogy
Syllabus
Assessment Weekly Deliverables (50%) Diagnosis Presentation (10%) Analysis Presentation (10%) Personal Log (20%) Client Satisfaction (10%)
See BB for deadlines and grades
Team Formation
Teams and assignments have been pre-assigned Team change requires agreement from both
teams Team charter
What will be each member's responsibility as far as coming prepared to class and meeting as well as doing assigned work? What will be the rules for resolving conflict or differences? How will members stay in touch with each other? Who will do the work?
Client Acquisition Strategy
Some are ultimately responsible for finding your own client (5-50 employees, >$3m rev)
What are you selling, who are you targeting? The NSBDC has agreed to email its clients to
offer your services if you require This needs to be coordinated as a class A draft of the email needs to be sent to me for
approval and then to Lisa Chan ([email protected])
You need to highlight the offering and the process
THE CHALLENGES OF GROWTH
Managing Entrepreneurial Organizations
Under Rapid Growth . . .
Entrepreneurs face: Challenges Pressure Physical wear and tear Emotional wear and tear A possible business harvest
Entrepreneurial Leadership and Organization
Flat, flexible, think/act like an owner (ego?)
Stepwise and disruptive change
Fearless, relentless experimentation
Specialize in new mistakes
Opportunity obsessed Frontline, customer
driven, niche markets
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.
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 Economies of scale
Growth Stages
Greiner (1972)
1. Creativity
The birth stage of an organization. The founders are usually technically or
entrepreneurially oriented. Communication is frequent and informal. Long hours of work are rewarded with modest
salaries and the promise of ownership benefits.
Decisions and motivations are highly sensitive to market feedback.
1. Creativity (cont.)
Eventual Problems: Informal communication becomes infeasible. Additional functions must be implemented.
*The first critical decision in an organizations development is to locate and install a strong
business manager. Drucker maintains that managers must fight
urge to resist change.
2. Direction
Functional organizational structure. Different departments are designed. Formal communication results as
hierarchy and employees increase. Increased efficiency. Systems need to be set up for inventory
control, accounting, order processing
2. Direction(cont.)
Eventual Problems: “Crisis of Autonomy.” Impersonal environment. Lower-level employees often possess more
knowledge about markets and machinery than management.
*The next decision for management is decentralization.
Once again, managers have difficulty relinquishing authority.
Issues Leading to Possible Crises 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
Working Capital Gap
Issues Leading to Possible Crises 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
External Causes for Failure Recession Interest rate changes Changes in government policy Inflation The entry of new competition Industry/product obsolescence
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
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
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
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
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
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
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)
Turning Around a Troubled Company
Diagnosis of the problem Strategic analysis Management analysis Cash flow analysis
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
Potential Cuts/Improvements
Most common areas for potential cuts/improvements Working capital management Payroll Overcapacity and underutilized assets
Longer-Term Remedial Action
Systems and procedures Asset plays Creative solutions
CONSULTING MODELS
Consulting Models
Peter Block “Flawless Consulting”
Two aspects of implementation The technical work (the tangible)
Technical changes, work processes, structure The question of building support for the
change you are planning (the intangible) Relationships, faith, commitment
The secondary goal of consulting: Teach clients how to solve the problem
themselves next time Risk of being surrogate manager not
consultant
Block ctd.
Building emotional commitment: Design new ways for people to engage each
other Balance between presentation &
participation Full disclosure & public expression of doubt Real choice on the table New conversations A physical structure that supports
community and common purpose
Block’s Values
Choose learning over teaching See learning as a social adventure Know the struggle is the solution See the question as more important than the
answer Mine moments of tension for insight Focus on strengths rather than deficiencies Take responsibility for one another’s learning Let each moment be an example of the destination Include ourselves as learners Be authentic
Covey’s Seven Habits
Dependence to Independence (Self-Mastery) Habit 1: Be Proactive: Principles of Personal Choice Habit 2: Begin with the End in Mind: Principles of Personal
Vision Habit 3: Put First Things First: Principles of Integrity &
Execution Independence to Interdependence
Habit 4: Think Win/Win: Principles of Mutual Benefit Habit 5: Seek First to Understand, Then to be Understood:
Principles of Mutual Understanding Habit 6: Synergize: Principles of Creative Cooperation
Continual Improvement Habit 7: Sharpen the Saw: Principles of Balanced Self-
Renewal
Weiss “Ultimate Consultant”
Problems in small business consulting The owner thinks he or she knows it all Money is always a problem – coming straight
out of owner’s pocket The problem is often the owner (or a family
member) Decisions will be influenced by non-business
members Things can change quickly Nothing happens without the owner’s
blessing (which can be a curse)
Ultimate Rules (Weiss)
Relationship is even more important in small business market – no owner support = failure
Scope creep and small “favors” are common. Guard against them like a junkyard dog.
Your ultimate job is to improve your client’s condition – not protect your client’s feelings or yourself
Small business has less margin for error. Keep the projects simple and focused. “The need to try something else” may be bankruptcy
CONSULTING TOOLS
Bankruptcy Rule
Altman Z-Model
http://www.creditguru.com/CalcAltZ.shtml
Z-Model for Small Business
http://www.bankruptcyaction.com/bankpred2.htm
An Empirical Test of Financial Ratio Analysis for Small Business Failure Prediction http://www.jstor.org/stable/2329929
FINANCIAL BENCHMARKING
Debra Scanlan, NSBDC