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Strategies for Growth. Why do some new ventures achieve high growth while others don ’ t?. Some special talent of the founding team? A unique or business model or strategy? The ability to attract and retain high-performing, talented employees? A unique competitive advantage?
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Why do some new ventures achieve high growth while others don’t? • Some special talent of the founding team? • A unique or business model or strategy? • The ability to attract and retain high-performing, talented employees? • A unique competitive advantage? • Somehow they attain competitive advantage— • Answer: These and other factors, too
How Do they Attain Such Advantage New companies face stiff competition; and they have no reputation. But they can: • (1) produce better products • (2) at a better price • (3) offer higher quality • (4) do a better job of identifying markets • (5) do something their competitors are not doing –
So, What is Their Competitive Advantage? • What opportunity did they spot? • How did they develop it? • How did defeat their competitors? • Why did they grow so fast? • Will they always have an edge? • What could take it all away?
Unique Competitive Advantage continued The Furminator
Attractive Environments Attract Outstanding Employees: A Key Ingredient
Perks To Employees by Large Companies • Free Food • Flexible Work Hours • Child Care Leave • Places to nap! • Travel allowances • Choice in Tasks • Entertainment….
Why do new ventures seek rapid growth? • To build the egos of their founders??? • To attain economies of scale • The benefits of being a market leader • The benefits of a scalable business model—one in which increased revenues cost less to deliver than current revenues (the benefits of growth for profitability) • Survival! “If you don’t grow, you die…”
But Remember… • First Mover???This is not always the best route • 2nd or 3rd –to enter may have important advantages • Better products; lower costs • Established markets, etc.
Growth: Is It For Everyone? • Not for “life style” entrepreneurs or ones who can’t devote full-time to their businesses (e.g., Prof. Giaever) • Not for people whose managerial capacity will be exceeded if growth is rapid • Not if this makes it impossible to keep a hand on quality • An example of undirected growth— Au Bon Pain • What happens when you get it wrong!
A Few Things.. • Kill the catalog • Depressing stores • What’s their market? Lost track—“premium brands?” Killed the tool division—didn’t compete with Home Depot, etc. • Killed the appliance department—didn’t keep up with competition, etc., etc. • So what’s left? Not much…bye-bye Sears!
Sears—Headed to Oblivion??? Stock: Jan, 2007: $180.00 Now: $4.85 Why??? Identity? Unique competitive advantage? Past strengths?
Au Bon Pain (“Where the good bread is…”)—But Profits Weren’t! • In 1984 the first Au Bon Pain cafe outside of Boston opened in New York City. • In 1991, the company went public as Au Bon Pain Co. Inc. In 1999, Au Bon Pain Co. Inc. (later renamed Panera Bread Company) sold its Au Bon Pain division to Bruckmann, Rosser, Sherrill & Co., which then sold it to Compass Group in 2000[2]. • As of 2008 there were 230 cafes in the United States and abroad. Most of the stores in the northeast United States are company-owned, while international locations are typically franchised. Boston, New York City, Pittsburgh, Philadelphia, Washington DC, Detroit, and Chicago are all home to numerous Au Bon Pain locations.
Au Bon Pain Story, Continued • Many Au Bon Pain stores have been established in transportation facilities such as airports and train stations, as well as shopping centers and business districts in cities. Au Bon Pain has three locations in New York City's Port Authority Bus Terminal. The chain is also successful on college campuses: the University of Pennsylvania has four locations on its campus. • While it has focused on urban locations, the chain has begun expanding into suburban areas such as Woburn, Massachusetts, which opened in July 2004 as well as Pembroke, Massachusetts which opened the following year. • The future? Seems very limited
Why It Failed To Grow • Efforts to “simplify” bread baking so that it was not as time-consuming (or as good!) • Stayed in urban centers—did not move to suburbs • Expansion into other foods outside the French Café formula—no better than competitors, often worse • Loss of top management talent— RonSchaich—sold the company • Did not respond to competition—Panera Bread
Panera Bread—a Successful Strategy • Guess how many Panera’s there are? • Answer: more than 2,000 • Still growing!!! • Stock has zoomed And– recently sold $315/share—huge!
Ron Schaich…a savvy entrepreneur He did it right—planned for growth!
Panera Bread—A company with a strategy… • More than 2500 bakery-cafes in 46 states and 20 countries around the world • Specialize in fresh, authentic artisan bread served in a a warm environment • Stock up 20 x since 1999—now 50 times • They recognized an opportunity: growing interest in Artisan bread, “home-made deserts” in U.S., “real food”, etc
Characteristics of High Growth New Ventures: What Do they Have That the Others Don’t? • Founders who possess passion and vision—and who know how to attract resources • A company vision that is strongly “pro-growth” • Plans for growth—they don’t just expect it to happen • They create something unique (unique value) for customers • Highly motivating human resource practices—e.g., stock options, profit sharing • They obtain financing through “bootstrapping”
Characteristics of high growth founders… • Watch out: this is like the search for what makes leaders great! • But still, these people do have something in common: • They have passion for their work and company (which means that their self-identify is tied closely to it) • They have tenacity—won’t give up • High in self-efficacy (“I can do it!”) • More industry experience • They set growth-related goals—in life, you get what you seek (sometimes)
Passion for their work and company Growth Vision New Resource Skill Indirect Effects Specific Growth-Related Goals New Venture Growth Direct Effects Tenacity Self-Efficacy
Bootstrapping: Growth without Obligations • Techniques that are customer-related (e.g., charge interest on overdue payments, offer discounts on upfront payments), delaying payments (e.g., use bartering for goods and services, buy used instead of new equipment), • Owner-related techniques (e.g., withhold founder’s salary, user founder’s personal credit card), and • Joint-utilization—techniques that use the resources of other companies (e.g., borrow equipment from other businesses, hire temporary employees, share business space with another firm).
What makes high-growth companies special? Reviewing… • They seek growth—slow-growing companies don’t • They partner with other companies • They plan for growth—set specific goals, develop strategies • Provide something special/unique for customers • They adopt human resource practices that encourage growth
Question: What’s the difference between an ordinary company and an extraordinary one? • Resources? • Technology? • Innovation? • All are important—but there is one other ingredient: • They develop outstanding, motivated, and highly committed work forces—remember the perks above??? • How? Several things…
Strategies for Growth Internal Strategies: • Efforts within the company itself—more efficient • New Products or Services • Improving the Ones They Already Have • Expanding Markets or Market Penetration • Going Global • Adoption of innovative business practices
External Strategies: Forming Relationships With Other Companies External Strategies • Mergers and acquisitions • Licensing • Strategic Alliances: partnerships between 2 or more companies to attain a specific goal— • Marketing allliances • Technological alliances • Joint Ventures: new business entities created by 2 or more companies
Growth—and “Staying (Survival) Power • Marketing and Sales • Loyalty programs: airlines; Cox; Stores—e.g., • Customer Retention—special sales, not models of products, build “imaged” • Diversifying • Once you have a market, expand to other products/markets • Nike from running to tennis, etc. • Building for the Future: Professionalizing the Business • Bringing in Seasoned Management • Leveraging Organizational Learning • Engaging in Scenario Planning
Innovative Ecosystems • These are networks of small companies, set up by much larger one: Apple, Boeing, etc. • Small companies are entrepreneurial • They are told to work on specific projects • If they succeed and the “hub” company is happy—they can remain in the ecosystems—and reap large rewards
What Kind of Rewards? • Steady source of income • Enhanced reputation—they have been accepted by large companies • Basking in reflected glory! • Profits: number of downloads of something they have generated • Learning—they can acquire lots of information from working with the hub company
Downside, too • They must work on the projects the hub company requires • They can’t pursue their own projects—or limited time to do so • They lose their independence • They lose their identity as an independent company • So, do the costs outweigh the benefits? Only the entrepreneurs can decide
New Product Development Improving Existing Products of Services Expanding Market Penetration Seeking New Markets Rapid growth Going Global—Seeking International Markets Adoption of Innovative Business Practices
Founder Characteristics Vision Self-Efficacy Education Industry Experience Company Characteristics High-Growth Vision Relationships with Other Companies Planning for Growth High Growth Business Practices Creating Unique Value for Customers Innovation Superior Products Human Resource Practices Hire Selectively Offer Meaningful Incentives Profit Sharing Plans Stock Option Plans
