BUSINESS ENTREPRENEURSHIP

Problems Related to Managing Growth Individual Assignment

Zihuna Faiz (13185) 3/30/2011

Abstract

In Maldives the importance given to the development of small-medium enterprises has been increasing. The government has started to give special attention to the development of the SMEs in the Maldives, and has been providing financial aids and special programs has been conducted for the enhancing the growth of SMEs. This is as a result will bring a good opportunity for those small businesses that have been unable to grow and survive in the market. It is important to note that the support by the government alone will not lead to successful growth of the businesses. The small business owner and managers operating in the Maldivian environment faces with many challenges to successfully manage growth of their businesses. While some of the company fails due to inability to recognize the need for changes or growth of the business, others those who identify this need also faces with lot of issues. The main reason why its so difficult for them to manage growth is because these small business owners are not used to professional management, they mostly have been operating their business with informal controls and they make more centralized decisions. This report will be looking into these challenges or problems that are related to managing growth and how the difference between entrepreneurial management and professional management affects the growth of a business. While discussing theses challenges examples from the local environment has been made so that it will give a better understanding of whats being discussed.

Introduction

In Maldives it is not difficult to start up a business, especially for those who are seeking to establish a private limited company, which requires only Mrf.2000 to start up. This as a result has enabled many people to start their own business, however, a very few manages to stay in the market. The failure rates of the new businesses are high, and only a few of that business who have the entrepreneurial thinking and effective management are able to survive in the market. The entrepreneurs are very different from the normal businessmen; they come up with something different and bring innovativeness to their business. The way they operate their business is also very much different. In Maldives also there are few entrepreneurs who have come up with new ways of doing businesses. For example, the badhige.com is one of the unique services that have been established in the country. This was started by a very young group who have used the concept of online food delivery, this is the one & only business of its kind and they have been delivering foods ordered through online ever since 2008, (About Badhige.com, 2011). There are several other businesses that have started with this kind of entrepreneurial thinking. It is important to understand that the way these entrepreneurs think and do business differs very much from how others do. I have been emphasizing on this because they often don't fit well into the role of corporate executive and they are not good at dealing with controls, following formal procedures and structures. They are not likely to sit behind a desk to draw plans, identify strategies, making rules and implementing them. The entrepreneurs are more used to make instant decisions they are driven by an urge to do something. This is one of the reasons why these entrepreneurs face problems when managing growth. We have studied in different module of our course regarding the product life cycle (PLC). The PLC identifies different stages of the product, from introduction, growth, maturity, saturation and decline. If the product or service offered by a particular business comes through different stages then it is pretty clear that the business itself will be going through similar phases. But the question arises on whether these entrepreneurs can go on doing the business in the similar informal manner as they were doing the business when they started or they need to change how they have been managing their businesses. Looking in to the difference between an entrepreneur
3

management and a professional management we can say that indeed the business needs to manage in a more professional manner than it has been earlier manage if they are to grow successfully.

Entrepreneurial Management versus Professional Management

The entrepreneurial management is typically used when the company is young and small. There will be more of a centralized decision making and there will be informal control since the activities performed could be monitored. For example how difficult could it be to take decisions in a corner shop or a small expatriate agency in Maldives. In these kinds of small businesses there will be only a few employees whose work has to be monitored and in most of the cases these employees will be on of the employers friend or close-relative. This as a result makes it easier for the business owner to handle the business with little structure, formal procedures and systems. On the other hand, a large company like Villa Group in Maldives cannot be managed by one person. The complexity and different segments that the Villa Group operates their business in will make it very difficult for just only one person to manage and make the decisions. As a result, the owner of the company must delegate the decision-making responsibility to middle managers. Furthermore, the delegation is further supported by the formal control systems that these large firms establish. This enables the general manger or the owner to guide and evaluate the performance of those who are making the decisions and monitoring whether the companys objectives are being achieved or not. Stevenson, Roberts, Grousbeck, Bhide, (1999). It has been mentioned earlier in this report that an entrepreneur comes up with a new idea and do thing differently. The reality is that not every one of these entrepreneurs survive in the market, within a year or more many of the newly established companies start closing down. Thus, a true entrepreneurship could be distinguished by the successful growth of the business. The reason why these small-medium businesses fail to grow their business is because growing business will be challenging and there will be a lot of issues that need to be dealt with in order to survive and be successful. Coulter, (2003). So, before moving into the reasons why growing a business is difficult lets look into what growth means.
4

Recognizing the need for change

For some businesses the main reason why they fail the because due to the failure to recognize the need for change. In some cases it is the occurrence of a crisis that draws attention towards the need for change. Stevenson, Roberts, Grousbeck, Bhide, (1999). In a small business, there is a life cycle in which the business tends to follow or a certain pattern of growth that the business goes through. Star Maldives is a company that was started earlier this is year in January by very 3 young Maldivians, currently with only five employees travel. The company provides resort supplies to 10 resorts and they also make holiday packages for resorts and hotels in Male. Since the company is in the travel and tourism industry there is a potential that the business can be successful if they are coordinating their activities in an effective and efficient manner. Assuming that Star Maldives has been in the business for a couple of years and the company has been doing well. However, after some time the business starts to slow down and its sales at much the same level. The reason for the slowdown in the companys sales might be because some of the resources of the company are being used to their limit. For example, with only 5 employees it will be very difficult for them to handle an increase in demand. They can response to a certain level of demand and be able to utilize there resources only for certain extent. If the business continues like this without taking any actions, the business will go on the same level and then start a decline which may lead to closure of the business. However, if the management of the Star Maldives is able to take the necessary actions then the result will be growth of the business to some level. Reynolds, Savage, Williams, (1989). What is growth? Growth in a small business can be any increase in the level, amount, or type of the organizations work and outputs. Referring back to the example of Badhige.com, growth in this business could be defined in terms increasing their staffs or increasing their marketing and sales efforts. We can further define the growth in the Badhige.com by the number of customers they serve, products and locations they serve (expansion of their target market to nearby islands like Villingili and Hulhmale). Coulter, (2003).
5

Problems related to managing growth

1. Managerial competence For any small business it will be not such an easy task to expand their business, especially if the business has been used to entrepreneurial management. When looking into the Maldivian business environment we would see that several of the business founders do not have the professional management skills. They typically start their business with their personal savings or come with a partnership with a family or friend and do business. Some of them might be specialist in certain field, like sales or technical areas. They need to understand the nature and relevance of major functions that could hinder the successful growth. Wilson, Bates, (2003). Although there is no best way a business owner can manage growth, the important thing that can be done is to seize opportunity through proper planning, setting directions and the speed at which the business will grow. Growing a small business is a desirable thing however; it can bring various problems and challenges. As small companies like a travel agency or a business consultant with few employees grows larger by employing more staffs and making more sales, the role played by the owner/manger of the company also changes. The consultant may be a selfemployed worker but if he/she needs to expand his service than he must become a professional manager. Often however, the manager or business owner fails to cope with this change and as a result have to suffer more stress when they are unable to properly manage the larger and complex business. Reynolds, Savage, Williams, (1989).

2. Managing and developing the human resource of the company If the online delivery of foods by Badhge.com is to be expanded to nearby islands of Male or they increase their customer base then they are going to need additional employees. It is important to plan the number of employees and the areas in which they need to be identified when the business grows. Coulter, (2003). When they employee more staffs the activities performed by them need to be supervised. The administration work will increase and you will need to maintain wage books, staff records and with recent policy of pension schemes and
6

insurance policy in Maldives this will increase the companys overheads. Further, with the changes occurring as a result of the growth and as new staffs are employed they also need to be trained and developed, which will all require additional money and time. Reynolds, Savage, Williams, (1989). One of the difficulties in faced in managing the human resource in small business is that there are few who are ready to take the responsibilities and be accountable is not present. Most of the employees would, be those people who have been hired by the owner because they were friends of the owner or close relative. However, many of them may not be able to develop their skills need to grow with the company. The business owners need to overcome the loyalty towards them and need to hire professionals with good management skill. In some cases the company may not have to proper resource to attract the professionals. The Star Maldives, for example was started by 3 friends, since they are a young company they may not be able to attract and hire those with proper management talent. Stevenson, Roberts, Grousbeck, Bhide, (1999). 3. Delegation Crisis One of the key dimensions describe in the strategy of coordination is the delegation of responsibility. In a small business say for example a garment shop like Berries in Male could be handled by it owner with little difficulties and make the day to day operations decisions personally. If Berries business prospers and the owner decides to start a huge shopping complex or set up its branches in other islands than it would become difficult for just for its owner to handle the responsibility. As a result he has to delegate some of the responsibilities to someone else. This may be those close to the customers, in the sales department or those are involved in the daily operations. Stevenson, Roberts, Grousbeck, Bhide, (1999). The reason why delegation of responsibility became a crisis is because of the personality of the entrepreneurs. Most of the entrepreneurs desire to be independent as a result psychologically or emotionally also they are unable to hand over the responsibility to another person. They may not be willing to give the decision makings, however by delegating these owners no longer have the complete control over the decision making, since they need to give up this responsibility to someone else. This is a problem that arises in business as the owner fears that they might lose their independence and control over the company. However, it must be understand that by
7

delegation does not mean that the owner has to abandon all the control of the business. They need to learn how to doing things through others. Reynolds, Savage, Williams, (1989). 4. Organizational controls With increase in the number of staffs and the giving up of responsibilities to those at the lower levels of the management means that there is a possibility of things going wrong if proper controls are not taken. Earlier when the business was small it has been easier for the owner to control the business and operational activities through the personal supervision. Conversely, as the business grows, there will be a need for more formal controls. In the Star Maldives company if they expansion of the business will mean that there will be more number of employees and in the organization will have to be more structured with different departments such marketing, financing, human resource, administration all these functions need to be separated. The 3 owners of the business may not be enough to control and look after every single thing that happens within these departments. As a result, they will need to delegate the responsibilities to the departmental heads, yet they also need to control the behavior of the individuals in the organization through professional management. In order to achieve this first of all it is important there is a well structured organization and the objectives and goals of the company needs to be communicated to employees at all levels. Further, the management needs to formulate procedures and strategies thorough which the each department is going to be contributing to the overall goals of the company, at the same time they need to coordinate with each functional areas. This can be done only if there is formal control over things within the company. Systems and procedure need to be set to evaluate the performances and guide those who are involved in the decision making. Strengthening the organizational culture In addition to these problems that businesses faces when managing growth, some other areas that they face difficulty in includes creating positive and growth oriented culture. This becomes difficult to achieve when things are happening rapidly. However, this is important to enhance the opportunities that a company will get to successful both organizationally and individually. Coulter, (2003).

Problems related to restrained and rapid growth Looking at the two extremes of growth, the first one that is the restrained growth involves making difficult choices regarding what, how and when to do things. The drawbacks of restrained growth are that it will create difficulties for the company to hold on to talented people. Employees may get frustrated and bored of the pace at which the company is making changes, especially if the employees are looking for changes and are ready to adapt to changes and be innovative. It will also lead to the company being left behind, and getting out of touch with the new technological and other developments in the markets. Coulter, (2003). At the other extreme also the entrepreneur will face some challenge when making rapid growth decisions. They will find it difficult to find people and capital and the importance of managing the cash flow, inventory and other operations of the company becomes very important. It can result in the company becoming more complex and the procedures and process will also become more complicated. Coulter, (2003). In conclusion I would say that although growth is a desirable thing, if it is not implemented and managed in an efficient and effective manner than there are many things that can go wrong and make it more difficult for those small business owners to survive. This is mainly because going from a simple and informal business operation to adapting formal strategies and appointing people to work under the owners by making them more responsible is not an easy job. Especially, managing growth can be a challenge for the entrepreneurs since the way that a large business is operated which is through professional management is very much different from how an entrepreneur manages the business.

References

About Badhige.com, 2011, retrieved on 28th March 2011, from http://badhige.com/pages.php?pageid=4 Coulter, (2003), Entrepreneurship In Action, 2nd Edition, Library of Congress Cataloging-inPublication Data. Reynolds, Savage, Williams,(1989), Your Own Business, A practical guide to success, National Library of Australia Cataloging in Publication Data. Wilson, Bates, (2003), British Library Cataloguing in Publication Data. Stevenson, Roberts, Grousbeck, Bhide, (1999), New Business Ventures and the Entrepreneur, 5th Edition, Craig S. Beytein.

10