module 4e7 enterprise and business development session 2 feb 4 2004 dr e garnsey n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
MODULE 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session 2 Feb 4 2004 Dr E. Garnsey PowerPoint Presentation
Download Presentation
MODULE 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session 2 Feb 4 2004 Dr E. Garnsey

Loading in 2 Seconds...

play fullscreen
1 / 72

MODULE 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session 2 Feb 4 2004 Dr E. Garnsey - PowerPoint PPT Presentation


  • 102 Views
  • Uploaded on

MODULE 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session 2 Feb 4 2004 Dr E. Garnsey. ENGINEERING TRIPOS PART IIB. Last week. How do under-resourced new firms make breakthroughs? What explains the success of many entrepreneurial innovators?

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'MODULE 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session 2 Feb 4 2004 Dr E. Garnsey' - agatha


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
module 4e7 enterprise and business development session 2 feb 4 2004 dr e garnsey
MODULE 4E7 – ENTERPRISE AND BUSINESS DEVELOPMENT Session 2Feb 4 2004Dr E. Garnsey

ENGINEERING TRIPOS PART IIB

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 1

last week
Last week
  • How do under-resourced new firms make breakthroughs? What explains the success of many entrepreneurial innovators?
  • Entrepreneurs pursue an “emergent strategy” (Minzberg’s term), with economy and flexibility, responding to opportunities as these arise and as they are able to secure resources. Effective in a rapidly changing scene.
  • In contrast, managers in established companies work out a strategy, allocate resources on the basis of the budget and implement their strategy. This is required to meet shareholder expectations.

To grow their new company, founders need to balance entrepreneurial and managerial approaches.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 2

today s session will improve your ability to evaluate a new tech based company
Today’s session will improve your ability to evaluate a new tech-based company
  • Situate its activity and its business model in relation to the main types of business activity and business model. Appropriate?
  • Identify the problems that must be solved if this enterprise is to achieve its objectives - grow and sustain growth.
  • Assess the role of the founding entrepreneur/s and whether this is changing appropriately as the business grows
  • Assess the enterprise’s track record in relation to typical growth paths of other similar companies.
  • Gain practice in relation to a case study firm - BioRobotics

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 3

slide4

COURSEWORK BRIEFINGA complete session on this Wednesday 25 Feb 2-3pmPreviewA report of around 2000 -3000 words. Aim is for you toapply knowledge gained in classes.There are several options.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 4

slide5

A. Case Study of a High Tech BusinessResearch a case study of a high tech company, drawing on press reports, websites and, if available, direct contact. Your case study should be in two parts; a factual summary of the development of the company and an analysis of the case, applying knowledge gained on the course. You may prepare two or three shorter cases and compare their experience, drawing out reasons for differences in their business success. Examples: Cedar Audio Systems, Cambridge Positioning Systems, C3 Ltd (Computer-based Telephony) One Ltd, Creature Labs (now Gamesware), Cambridge Silicon Radio,

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 5

slide6

B.Discuss the opportunities for enterprise offered by an emerging technology- based sector or industry. Examine the activities of selected firms in that sector.

  • Sectors examples: geographical information systems, global positioning systems, a telecommunications sector, voice recognition or imaging technologies, satellite technologies,display technologies, new materials, new instrumentation, environmentally sustainable technologies, etc

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 6

slide7

C. Evaluate a Business PlanProvide a detailed evaluation of a business plan, whether from a venture known to you or based on a plan available in the public domain. Examine the strengths and weaknesses of the plan in terms of the business opportunity identified and the business model proposed to exploit it.Marking criteria - have you effectively applied knowledge gained on the course?Marks are affected by business plan selected.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 7

part one types of business activity and business mode early growth paths
Part One Types of business activity and business modeEarly growth paths

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 8

slide9

Entrepreneurs juxtapose information on two planes: resources and opportunities

•Resource use:

Economy

Leverage

Combine

Create

• Opportunities

continually

scan and reassess

•Enlist others, create network to

open opportunities

& obtain resources

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 9

slide10

Enterprise

Opportunity

Space

Resources

Value

“Enterprise involves the pursuit of opportunities to create valueby combining resources in new ways in order to secure returns.”

Opportunity = possibility of reaching a preferred state

Resources are means to achieve ends.

Entrepreneur - one who

engages in enterprise

(= entrepreneurial activity).

An enterprise - a business organization

Entrepreneurship:

study or practice of

entrepreneurial activity.

Economic value is created whenOutput > Input

Returns

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 10

enterprise wider than new firm creation
Enterprise - wider than new firm creation

There are temporary entrepreneurial projects: e.g. expeditions,events, which don’t involve setting up a business.

Some terms

Business - common usage - imprecise term.

Company - entity that is legally incorporated

Firm - economic terminology

Enterprise - business organization

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 11

not all entrepreneurial activity involves business creation

Secure / create

resources

reinvest

Business

Idea

Set up

new activity

Secure returns

distribute

exit

Create value

Not all entrepreneurial activity involves business creation.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 12

slide13
A company is a legal entity that can sustain activity and ownership over recurrent production cycles, cumulatively.

output

Firm

revenue

Customers

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 13

slide14
Business creation involves recurrent production cycles.Company itself may become valuable: develop productive capacity, financial assets

Productive base

Value creating

output sold

reinvest

Asset

base

distribute

exit

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 14

advantages of starting a business
Advantages of starting a business
  • Last time
    • Tax concessions
    • Limited liability
    • Protect ownership through incorporation
    • Demonstrate product viability
    • Embed learning in organization
    • Store resources
    • Create a community; create jobs
  • Possible to grow and accumulate wealth
  • But firm may be hostage to fortune
  • Paradox of enterprise

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 15

survival all us new firms 1970s 80s sba data
Survival all US New Firms 1970s/80s (SBA data)

Source Kirchoff 1994

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 16

slide17

Hard Model

Soft Model

Exposure

Create infrastructure

High

In house

manufacture

Mass

Market

Manufacturing

Product

sub-contracted

OEM's

Niche

Market

License IP

Technical services

Contract

R&D

Design studies

Consultancy

Testing reports

Low

Analytical reports

Resource commitment

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 17

some business models involve commitment and sunk costs
Some business models involve commitment and sunk costs

Product concept

The range of options being considered reduces over time

The cost of design changes increases over time

Graphic: J. Allwood

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 18

soft start services software licensing
Soft Start: services, software, licensing

Lower capital requirements

Fewer sunk costs - flexibility

Attractive when cost of capital is high.

So why manufacture?

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 19

hard start manufacturing
Hard Start - Manufacturing

Strengths: Automate, lower costs

Reach markets beyond reach of a service

Opportunities: Revenue growth

through economies of scale and scope

Strengths of in-house manufacture:

control

competitive advantage embedded in hard- to- imitate capabilities

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 20

slide21

Global Enterprise Monitor 2001, 2003 showsmanufacturing start ups that survive are more robust than service companies: survive longer grow larger

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 21

challenge of manufacturing
Challenge of Manufacturing

Upfront capital costs to create production base

Sunk costs may be irrecoverable

Flexibility limited

Expertise - multi-functional, difficult for start up team to develop

Difficult to apply entrepreneurial problem solving

- but possible, as shown by Oxford Instruments and BioRobotics

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 22

soft start example
Soft Start example

Cash Flow (£000s)

1000

500

Cumulative

Cash Flow

1

2

3

4

5

0

Years

-200

-500

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 23

Source: Presentation by M. Bullock of Barclays Bank to British Technology Group Conference, 1986

hard start example
Hard Start example

Cash Flow (£000s)

1000

Cumulative

Cash Flow

500

Net Cash

Product Launch

Flow

Quarterly

3

4

1

2

5

Years

0

-

500

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 24

Source: Presentation by M. Bullock of Barclays Bank to British Technology Group Conference, 1986

revenues make a company
“Revenues make a company”
  • "How do you like our new offices?.. Now we look like a real company. But we're missing one thing ... Revenues. We look like a company, but we are only a venture. Ventures have investors, while companies have revenues. Every month we delay a revenue stream, we have to sell off more equity to stay alive. If we delay too long, the price of the equity goes down.. eventually no one wants to buy..."
  • Kaplan p 93

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 25

internet hope and hype
Internet - Hope and Hype
  • Concept of business model originated with the Internet
  • Usually involved an existing activity, reconfigured for Internet
  • Focus was on how to achieve returns
  • Network of alliances created to produce and deliver by e-business
  • Often customers were not users, but advertisers
  • Miscalculated transaction costs of alliances
  • Miscalculated marketing costs of attracting and retaining customers
  • Few early entrants succeeded in achieving and sustaining revenues

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 26

slide27
Other new business models - configured to reduce resource intensity and improve rate of return. Facilitated by Internet.

• Contract research, consultancy for specific customers (biotech ventures)

• Licensing designs and inventions to manufacturing partners

e.g. ARM - revenues from customer support

• Development Company - raise funds with partners to develop future product/service - e.g. biotech ventures, CDT, Plastic Logic

• Production company - with various outsourcing arrangements

e.g. BioRobotics

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 27

e g cambridge display technology activity and business model
e.g. Cambridge Display Technology:activity and business model
  • Founded in 1992 as spin-out from University
  • Work by Richard Friend (Cavendish) and Andrew Holmes (Melville)
  • Developing Light Emitting Polymer technology
  • Acts as systems integrator bringing together key

technologies and competencies

  • Relies on web of alliances - initially no manufacture
  • Partners include: Seiko-Epson, Phillips, DuPont

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 28

slide29
Every new firm is uniqueSo how do we compare them? Business realities provide a basis for comparing cases

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 29

new firms must solve a common set of problems as input output systems in a market environment
New firms must solve a common set of problemsas input-output systems in a market environment
  • Search for and choose a business opportunity
  • Secure resources for productive activity
  • Set up productive base and organize productive activity
  • Sustain inputs and outputs

to survive in competitive market economy

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 30

compare growth measures
Compare growth measures
  • Inputs - employees, investment, equipment, premises.

R&D budget, patents

  • Outputs - sales, revenues, profits
  • Value - tangible assets, intangibles, market valuation
  • Throughputs: sales per employee, lead time to market
  • All measures have limitations - qualitative evidence
  • also needed

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 31

slide32

Relative employment growth of 6 Cambridge software companies

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 32

comparing cases evidence
COMPARING CASES - evidence

THROUGHPUT measures: productivity p.e. WIP, stocks/ sales, lead times

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 33

from start up to self sustaining business
From start up to self sustaining business
  • Early learning and problem-solving may be sequential

- e. a new product is designed and production facility required

  • Solutions needed before next problems can be dealt with?
  • Dominant problems may give rise to phases of activity.
  • As problems are solved, further ones arise.
  • Stages of growth - common idea in literature.
  • In practice there are often overlapping processes (chains of related activity) rather than distinct stages or phases.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 34

slide35

Generate & Sustain Revenues

Secure Resources & Set Up

Search & Select

It simplifies comparison to look at problem-solving sequentially

But in practice: there may not be separately identifiable phases.

Entrepreneurial problem solving is iterative.

Length and distinctiveness of specific problem solving processes depend on

activity and business model.

E.g. spin outs or de-mergers: start with ability to generate revenues through

activity and customers inherited from a parent organization

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 35

opportunities selected or created
Opportunities - Selected or Created?

Analysis, Telecomms Consulting founded by David Cleevely in 1986

Spin-out from CUED

1980s, rapid technology change and deregulation - policy challenge

Analysys provided decision-support software for telecommunications policy makers at the European Commission, Brussels

Analysys created demand for what they could supply: decision support software and telecomms industry analysis

Success of European mobile phone industries - policy re common standards

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 36

search and select
Search and Select
  • Resources and opportunities - both are relative (means/ends)
  • Matching process - difficult because both are in flux
  • Scientists have difficulty selecting a business opportunity
    • Generic technologies - too many options
    • E.g. holonic technology
  • At some point, entrepreneurs have to target and commit to a specific opportunity, narrowing their options.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 37

burn rate can exhaust endowment resources
Burn rate can exhaust endowment resources

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 38

firms that grow early and fast
Firms that grow early and fast

Often incubated in an existing organization

where early problems can be solved

with less risk of early mortality

e.g. BioRobotics

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 39

firms that solve initial problems often grow for a while but do not sustain growth
Firms that solve initial problems often grow for a while … but do not sustain growth.

o

R?

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 40

this spin out entrepreneur from cued did not want a big company
This spin out entrepreneur from CUED did not want a big company:
  • "I want to keep the personal feel because it's my life, this business, and I want it to be enjoyable and for the staff to enjoy it."
  • … I see my job as people management and for me that means keeping the excitement running. They are very competent people and if they are excited and bouncy then they are extremely productive.”
  • Comfort zone? Uncomfortable as soon as conditions change

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 41

most cambridge tech firms remain small
Most Cambridge Tech Firms Remain Small

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 42

Source: CCRU Database

paradox of enterprise
Paradox of Enterprise
  • Greater the success of the enterprise, more difficult it is to remain entrepreneurial
  • Once returns are achieved, there is more to lose
  • Pursuit of opportunity may endanger what has been gained
  • Innovative entrepreneur often turns into conservative small business owner
  • Habitual entrepreneurs often leave and start again once company has grown

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 43

unable to grow though aim to do so
Unable to grow though aim to do so
  • Can’t obtain development capital
  • Cant overcome scale-up problems
    • Manufacturing - initial sunk costs before returns on scale
    • IT products

High initial fixed cost, low variable cost of reproduction

    • May run out of cash before transition to lower costs is achieved

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 44

under and over production in young firms capacity build is uneven demand is unpredictable
Under and over production in young firms.Capacity-build is uneven; demand is unpredictable

Demand

Output

Capacity

Time

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 45

early growth problems
Early growth problems

o

R

  • Returns from output may not keep up with inputcosts (scale and scope issues )
  • Timing and coordination (resource mix) problems
    • under-production and over-production problems
    • delay in recovery of resources from output - cash flow blocked
  • Output does not create real or perceived value
    • Quality problems (does output create value for customers?)
    • Demand below forecast

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 46

quality crisis at domino
Quality Crisis at Domino

At Domino Printing Sciences, the initial product, an industrial ink jet printer was the first of its kind. It was very carefully designed. However in production, one small component among hundreds had not been inserted. This was vital to the automatic shutdown system if the machine went wrong. When Domino’s engineers tested the machines on-site before shipping them, they worked perfectly. The designers had never had occasion to use the automatic shutdown mechanism. But their customers proved less skilled at using the equipment. Before long, three international customers phoned in urgently on the same day. In each case a fire had started in the equipment, with smoke and melt-down of components.

What would be a worst case scenario? How could this be averted?

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 47

growth and quality problems in new firms
Growth and Quality Problems in New Firms

Sales

revenues

+

Time 1

Customer

demand

+

Time 3

+

Firm Growth

+

-

expanded volume of work

+

competitor

Time 2

products

Quality defects

Staff Shortages

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 48

revenue generation does not sustain growth until
Revenue generation does not sustain growth until:
  • Fix /sell Version One of product (takes some inventors years)
  • Ensure recurrent production cycles
  • Routines, rules and roles save time & effort. ‘Store’ (embed) knowledge
  • Repeat custom and/ or market expansion provide revenues and credibility (early quality problems sorted out)
  • May take a long time
    • e.g. biotech firms’ lengthy gestation
  • If so, need interim funding/ revenue while product is developed

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 49

no growth plateau or struggle to survive when
No Growth - Plateau or struggle to survive - when:
  • New firm does not reach minimum efficient scale (MES) to achieve return on assets
  • Resources are all absorbed maintaining current activity
  • Plateau may be a prelude to growth, decline, failure, or merger
  • Growth is least common scenario

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 50

growth of new instruments firms in cambridge 1990 99
Growth of new instruments firms in Cambridge 1990-99

Employees

Age of Co.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 51

slide52

INPUTS

Activity

Firm’s

Business idea

OUTPUT

RETURNS

Over time, firm’s activity drives its growth path

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 52

slide53

Micromuse attracts major Internet firms as customers

IT industry network

error-management

software required

Specific customer

needs at BT -

Peter Shearan

Industry and technology

knowledge of CTO,

develops software

Business process

knowledge of

Stephen Allott

Brokerage by

entrepreneur,

early CEO

who founded

Micromuse (Chris Dawe)

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 53

micromuse case
Micromuse case
  • In early 1995, Micromuse made its first sales of its in-house developed Netcool IT network software. These were quite large and prompted the founder to plan an accelerated transition from the VAR business (distributing SUN software) to the Netcool business. He announced that the VAR business was no longer mainstream and that the company's future lay with Netcool. The VAR sales started to dwindle quite fast and key people in it started to leave. Meanwhile the strong Netcool sales in the March 95 qtr were a false dawn. Implementation and development resource constraints plus software bugs meant that no further Netcool sales occurred in the June and Sept qtrs.
  • Stephe Allott was appointed CFO in Sep 95. He found:
    • falling sales were feeding through to weak cash receipts and a £1m overdraft.
    • The company could not meet its obligations and was in danger of failing.
  • What should Stephen do?

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 54

part two
Part Two
  • Problems of successful growth

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 55

what was done solving the cash flow crisis
What was done - Solving the cash flow crisis
  • Re-organise the company into Business Units, with a focus on re-launching the VAR business.
  • Going to see the bank to explain their plan and get their agreement to maintain their overdraft.
  • Re-assign salespeople to focus on the best short term prospects.
  • Implement more effective management information systems to prioritize revenue-generating activity.
  • Work flat out to bring in VAR custom.
  • Sign up a strategic deal with Sun Microsystems to develop Internet infrastructure business (ISP companies to become customers).

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 56

slide57

Micromuse Inc

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 57

strong growth can create further growth pressures
Strong growth can create further growth pressures
  • Internal pressures for growth
  • After effort of start-up, resources are released for growth
    • Under employed or under-used staff
    • Uneven resource mix: continual shortages and surpluses
      • Lead-lag growth dynamic (Penrose theory)
  • External pressures for growth from:
    • funders
    • customers
    • distributors
  • Excitement, high morale, stimulus to further effort

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 58

riding high
Riding high
  • A new enterprise has been performing well, though only five years old. Growth record is impressive (sales and revenues employee numbers). Early success makes it possible to expand further through retained earnings and externally obtained funds. Investors view its prospects favourably. Morale is high among its members their prospects are excellent in the expanding enterprise.
  • One of its members is taken ill. After 6 months hospital and recovery he returns to work. He finds:
  • Sales are down and unsold stocks have built up. The banks have withdrawn loan facilities. Creditors are demanding payment. There have been lay-offs and more are expected. The enterprise faces an enforced sell-out or bankruptcy.
  • How could this happen?

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 59

growth reinforcement in a young company can easily tip into reverse why
Growth reinforcement in a young company can easily tip into reverseWhy?

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 60

slide61
System dynamics in an open input-output system (Dissipative system requiring continual input of resources)

In natural language:

  • If positive feedback (self reinforcing process) is interrupted for any reason, output falls. Inputs depend on revenue from outputs, so this reduces input availability.
  • Input shortage prevents output growth.
  • Positive feedback moves into reverse - unless there are reserves to draw on.
  • Young companies have seldom built up reserves.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 61

slide62
Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 62

changing role of founder
Changing role of founder
  • Qualities required for opportunity detection and start up a company - last week, lecture one
  • As company grows, change of mind set required in leader. Qualities required to grow and increase returns include
    • Project management skills
    • Ability to delegate
    • Ability to interface with partners and retain investors’ confidence
    • Difficult to change mindset. Crises often force changes.

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 63

growth reversal internal pressures
Growth Reversal - internal pressures
  • Increased complexity is hard to manage
  • Rapid growth - shortages, bottlenecks - decision making impaired.
  • People problems
    • Constraints on co-ordination and decision making - cannot be remedied from outside
    • Jobs outgrow people and vice versa
    • Burn out and disaffection

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 64

case studies

Tadpole Technology

35000

30000

25000

20000

15000

10000

5000

0

-5000

-10000

-15000

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

Sales

Pre-tax Profit

Datapaq

Linx

4000

18000

16000

3500

14000

3000

12000

2500

10000

2000

8000

1500

6000

1000

4000

500

2000

0

0

-2000

-500

1988

1989

1990

1991

1992

1993

1994

1995

1985

1986

1987

Sales

Pre-tax Profit

Case Studies

Oxford Instruments

Last week

100000

80000

60000

40000

20000

0

-20000

1988

1989

1990

1991

1992

Sales

Pre-tax Profit

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 65

slide66
Cambridge high tech firms have relatively high survival ratesGarnsey and Heffernan 2002 on CTM CUED website

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 66

Source: Garnsey and Heffernan 2002

slide67

But growth reversal was common even among ten year survivors

Continuous growth

Growth reversal and three subsequent alternatives

6%

34%

Size (e.g. sales)

Size (e.g. sales)

Time

Time

Early growthand plateau

Delayed take-off and growth

12%

Size (e.g. sales)

Size (e.g. sales)

28%

Time

Time

Growth paths of 237 high tech ten year survivors, founded c 1990

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 67

ways of limiting pressures of growth
Ways of limiting pressures of growth
  • Managing rapid growth requires embedding problem-solving in effective procedures Avoid growth pressures through segmentationor spin-out.
  • Oxford InstrumentsTTP - “grow without getting too big”

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 68

surviving setbacks
Surviving Setbacks

Growth reversal processes induce intense strain.

Reversal after rapid growth can be a learning experience

Double-loop learning: challenge own assumptions

Build reserves against setbacks; continue to pursue opportunity

Firms that survive may become leaders

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 69

accumulation
Accumulation :
  • Resource recovery (outputs-> inputs) exceeds demands of growth
  • Reserves build up and allow firm to weather storms
  • Can expand by buying other companies (O.I.,Domino,Microsoft, Cisco)
  • Growing to be a dominant firm is an improbable event
    • 5% of firms provide 50% + jobs after 10yrs (Storey 1994)
    • 5% of firms provide VCs with 90% of their profits

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 70

attributes of success
Attributes of Success
  • Studies have shown startup more likely to succeed with
    • Team of entrepreneurs with right skill mix, education
      • Growth ambitions for venture
      • Business experience
    • Well endowed start up, founders share equity with investors
    • Protected technology
    • Fast growing market

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 71

beware circular reasoning on success
Beware circular reasoning on success
  • Success attribute studies of start ups leave 75+% of variance in performance unexplained
  • Some ventures start with better odds than others
  • Can identify losers more easily than winners. Self fulfilling aspect.
  • Investors have not cracked secret of success
  • Luck is a factor - but who makes the most of it?
  • Solutions give rise to new problems (Greiner)

But problems can be a source of novel entrepreneurial

solutions - Oxford Instruments, Psion, Hotmail

Module 4E7 2004

Elizabeth Garnsey Session 1 Slide 72