Marius Ghenea's presentation at Maastricht School of Management Romania on the 10th of March 2011

1. ENTREPRENEURSHIP
March 10, 2011
Maastricht School
of Management
Master Class
Marius Ghenea
Senior Adjunct Lecturer

2. AGENDA
 Strategies for Growth
 The Implications of Growth
 Managing Growth
 Pressure on Entrepreneurs/Managers and
Time Management
 Resources for Growth
 Projects for Entrepreneurial/Intrapreneurial
Education

3. The Learning Objectives
 To understand where to look for growth
opportunities after start-up
 To understand the main challenges of
business growth and how to manage them
 To recognize that different entrepreneurs (or
shareholders/stakeholders) want different
things for their businesses and to understand
how this impacts growth
 To understand the possibilities to achieve
growth through franchising, JV, M&A, LBO

4. Growth Strategies

5. Penetration Strategies
 Growing the company’s existing product in
the existing market
 Encouraging existing customers to buy
more of the company’s current products
 Marketshare increase, if any, comes from
direct competitors
 This strategy aims to better exploit the initial
market entry

6. Market Development Strategies
Selling existing products to new
groups of customers
New Geographical Market
New Demographic Market
New Product Use

7. Businesses by geo-Market
 Proximity Business (or “Neighborhood Business”):
customers are typically in walking distance, model is “pull”
(e.g. convenience store, shoe repair, drugstore, small
supermarket)
 Large Area Business: customers are within driving
distance, model “push&pull” (e.g. large supermarket or
hypermarket, DIY, sometimes a car dealer, if the network of
car dealerships is not too crowded)
 Long Distance Business: customers are everywhere and
they come to us remotely, model “push&pull” (mail order,
catalogue sales, telephone order, TV shopping, Internet,
eBay reseller)
 Direct Model Business: customers are everywhere and we
go to them with the salesmen model, “push” (e.g. cosmetics
or home appliances sold directly to consumers)

8. Product Development Strategies
 Developing and selling new products
to existing customers
 Capitalizes on existing reputation and
brand of the company
 Uses the experience with the existing
group of customers
 Benefits of the existing distribution
system, logistics, marketing etc.

9. Diversification Strategies
 Growing by selling a new product to a new
market
 In manufacturing, diversification
opportunities come from integration
 Bacward Integration, Forward Integration,
Horizontal Integration
 These concepts refer to the value-added
chain of production, but they also apply to
service or trade-related businesses

10. Diversification through Integration

11. The Trick about Diversification
 No matter if it goes forward, backward or horizontally, the
new product or products should be somehow related to
the existing ones
 Synergies come from using the raw-material in the
existing process (backward), manufacturing the finished
product or selling it directly (forward) or finally
manufacturing a new product that is complementary and
could be sold together with the existing one (horizontal)
 Again, these principles generally also apply to distribution
businesses or service-related businesses
 If the new product is completely unrelated, this is probably
just based on ego and is most likely to be a failure

12. Exercise: Growth Strategies

13. Implications of Growth
 Growth makes a firm bigger
 BIGGER = BETTER?
 Economies of scale in operations
 More attractive to suppliers
 More credible for customers, banks,
stakeholders
 More power of the entrepreneur to
influence company performance!
 But there is also growing pressure
resulting in challenges
CHANGE
CHALLENGE

14. Implications of Growth
 Pressure on Financial Resources
 Pressure on HR and Organization
 Pressure on Entrepreneurs
Growth means pressure!

15. Overcoming Financial Pressure
 Growth Require the Acquisition of
New Resources: expensive!
 Effective Financial Control: most
important is Cash-Flow Management!
 Good Inventory and Asset
Management
 Maintaining Good Records

17. Overcoming Financial Pressure
 Managing Cash-Flow
 Managing Inventory
 Managing Fixed Assets
 Managing Cost and Profits
 Managing Taxes
 Record Keeping

18. Common Mistakes (Financial)
 No Cash-Flow projections or control
 Lack of understanding in terms of ageing inventory
(slow-moving, non-moving, out-of-stock!)
 Confusing assets for equity!
 Taxes: entrepreneurs either pay too much taxes
(due to lack of tax structure) or too little taxes
(evasion!)
 The book-keeping software has no management
reports, no real-time analysis, the entrepreneurs
sees formal results 25 days after the month is over
(too late!)

19. Overcoming HR Pressure
 Every entrepreneur/manager says “if only I
had more time!”, but few act on this...
 There are dual pressures coming from the
team, one is the pure HR problem, the other
is the organizational issue
 An entrepreneur is initially the “de facto” HR
Manager of the company (advantage for
entrepreneurial teams, both in terms of
allocation and in terms of competence)
 The company culture grows (but could also
CHANGE) with the growth of the business

20. Overcoming HR Pressure
 Create a participative management style
 Grow and maintain the culture!
 Establish and foster team-spirit
 Communicate with employees
 Provide feedback
 Delegate responsibility to others
 Provide training, coaching mentoring

21. Overcoming Entrepreneurial
Pressure
 Time of an entrepreneur/manager: the scarcest
resource!
 Improvements possible through time management
 Results of better time-management:
1. increased productivity
2. increased job satisfaction
3. improved relationships
4. reduced time anxiety
5. reduced tension
6. better health

22. Time management

23. Basic Principles, Time Management
 Principle of Desire: recognizing the need to change personal
attitudes for time allocation
 Principle of Effectiveness: focus on the most important issues!
 Principle of Analysis: understand the current structure of the time
allocation and why/where this is inefficient
 Principle of Team-Work: understanding of the fact that most of our
time is taken up by others and the need to delegate
 Principle of Prioritized Planning: the categorization of tasks by
their degree of importance and urgency and a corresponding
allocation of time
 Principle of Reanalysis: periodic review of time allocation, to
make sure priorities have not changed or shifted

24. Time Management Chart
importance
START PLANNING ACT ON IT!
urgency
ELIMINATE DELEGATE

25. Common Mistakes (HR)
 The “I know better” attitude of some entrepreneurs/managers
(and the refusal to use third-party professionals in solving
various HR issues)
 Inadequate time-management (e.g. he’s there all the time, but
he is not prioritizing)
 Nepotism (intriguingly, this seems to be one of the BIGGEST
issues in entrepreneurial organizations, but corporations are
not much different!)
 No clear company culture, allowing any type of employee to
join, and creating later organizational clashes
 The false “family spirit”: the entrepreneur pays lower salaries
to employees, but treat them as family members to balance
the low wages

26. Growth by Entrepreneurial type

27. Growth by Entrepreneurial type
There is no “right” or “wrong” way about growing
one’s business, it all depends on the
entrepreneur(s) and his/her/their vision
Growth, however, is in the human nature, so it is
also deeply rooted in any business venture

28. Accessing External Resources for
Growth
 Franchising
 Joint Ventures
 Acquisitions
 Mergers
 Leveraged buyouts

29. Franchising
An arrangement whereby a franchisor gives exclusive rights of local
distribution to a franchisee in return for royalties and compliance to
standards
The franchisee may acquire certain things with a franchise agreement:

30. Franchising, Pros and Cons
 The Franchisee typically gets product acceptance, management
expertise, and increase operating control
 The Franchisee reduces capital requirements and market
knowledge requirements.
 The Franchisor reduces the expansion risk and the capital
requirements for this expansion
 The Franchisor can achieve cost savings through economies of
scale
 The Franchisee depends too much on Franchisor’s continued
success
 The Franchisee cannot control location, advertising or services
 There is no clear value in some franchises, and/or they start to
expand too early

31. Franchising, Types of
 Dealership (e.g. car dealerships, but
also most of the retail franchising)
 The Method Franchise, offering a
brand-name, an image and a method of
doing business (e.g. McDonalds)
 The Service Franchise: typically works
as an affiliation (the business already
existed and then applies to become a
franchise member, e.g. in Real Estate
agencies)

32. Franchising Trends
 Good Health franchises (bio, fresh-juice,
etc.)
 Time saving or convenience (home
delivery services, convenience stores)
 Health Care (franchised medical clinics)
 The new baby-boom (edutainment for
kids, playgrounds, etc.)

33. Joint Ventures
 Two or more companies forming a new separate
entity for a specific business purpose
 Private sector joint ventures (most common)
 Industry-University joint ventures
 International joint ventures
 Problem: business objectives can be quite different,
this could result in problems of direction and growth
of the new entity
 Joint ventures should be signed for increased
profitability, not for lower profitability

34. Success Factors in Joint Ventures
 The chemistry of the two (or more) parties: an honest
initial assessment is necessary!
 The degree of symmetry between partners (it is usually
good that both partners bring symmetric value to the table)
 Reasonable expectations (don’t expect this to be a cure-all
for other company problems)
 The timing must be right (the business environment is
dynamic, so the right time is needed for a joint venture to
succeed)
 The joint venture is not a panacea for expanding
entrepreneurial venture, but rather one of many options to
supplement resources and responding quicker to
challenges and opportunities...

35. Acquisitions
 Acquisition = purchasing all or part of a
company
 Acquisition as seen from the acquirer
is a resource for growth
 Acquisition as seen from the acquired
is an exit route

36. Acquisitions, Pros and Cons
PROS
 Established business (instead of starting from scratch)
 Location (the business is there already)
 Cost (normally, it should be lower cost compared to other organic methods of expansion,
or else the acquisition is difficult to justify)
 Existing employees (an asset, if they can work in the new environment, depending on
company cultures)
 More opportunity to be creative (spending time on creativity rather than on creating the
business and the processes)
CONS
 Marginal success record (most ventures that are for sale only have marginal or erratic
track record)
 Overconfidence in ability (buying an established business creates the impression that
“they know what they are doing”, and maybe they just don’t)
 Key employee loss (especially if they cannot work in the new environment, because of
discrepant company cultures)
 Overvaluation (depends on the due-diligence and the negotiation process)
Is the whole greater than the sum of the parts?

37. Mergers
Merger = the joining of two or more company
Reasons for mergers:

38. M&A’s, golden rules
1 + 1 ≥ 2 on the revenue side
1 + 1 < 2 on the cost side

39. Conclusions, Resources for Growth
 ANY partnership (franchise, JV, M&A, etc.) should be done
for “spreadsheet” reasons and for no other reason!
 Too often shareholders fall into the “we need a partnership”
trap: they see a problem they cannot solve, so they hope a
merger or a JV will solve that problem
 1 + 1 rarely = 2 or more on the top line!
 1 + 1 rarely = less than 2 on the cost line!
 These equations need to be considered in any merger or
acquisition, but also in other forms of accessing external
resources for growth, before going into such a deal

40. Other resources for growth
 LBO’s, Leveraged Buy Outs: purchasing of an
existing company by an entrepreneur or an employee
group
 MBO, Management Buy Out: when the buyers are
the management team of the company
 Most of the funds in an LBO comes from external
financing (banks)
 The idea is that the buyers believe they could run
the company better and deliver better results

41. Profile: www.ghenea.ro
(or Google search)

42. The new book on entrepreneurship

43. SOCIAL ACTIVITIES

44. TEACHING
ACTIVITIES

45. TEACHING
ACTIVITIES
 The course I teach for the
Executive MBA program of
Maastricht School of
Management is:
Innovation and
New Business Ventures
 Basically, this is a course
on Entrepreneurship and
Intrapreneurship (so it is
for both entrepreneurs and
corporate managers)

48. Q&A