QUESTION
Find the following article:
Verreynne, M-L 2012, ‘The secret to running a successful small firm? Mind your own business’, The conversation, 23 January, viewed 24 January 2012, http://theconversation.edu.au/the-secret-to-running-a-successful-small-firm-mind-your-own-business-4917 .
This article can be found using the following instructions. Go to The Conversation at http://theconversation.edu.au/. In the searchbox, enter the name of the author Verreynne, and select the article “The secret to running a successful small firm? Mind your own business”.
Read the article and answer the following questions:
1. Explain the differences in goals and management of “lifestyle firms” and growth-oriented firms.
2. Discuss how the management of small firms as described in this article aligns with or differs from management of firms described in the course to date. In your answer you should address areas such as:
- The personal goals of the manager of the business versus professional management goals
- Measures of performance
- Treatment of employees
- Range of management practices.
3. Conclude with an explanation of how reading this article and comparing it with the course material has increased your knowledge of the management of a variety of firms.
4. Present you findings as a report.
- Begin your report with an introduction that tells the reader what the report is about.
- In the body of the report, present your findings to the two questions above.
- Conclude your report with a summary of what you have learnt by reading the article and comparing it with the course material.
- Reference articles as appropriate throughout your report and provide a list of references at the end.
Provide an executive summary and a table of contents at the front of the report.
SOLUTION
Introduction
Entrepreneurs or CEOs do not always have any clear vision for their businesses. However, what they want for or from their business would evolve over a time. Difference in perceptions, motivation and financial scale contributes in driving force for the business, which may be intended to support a certain lifestyle. In other perspective, an entrepreneur aims to build and develop an asset, in order to ultimately monetize for large scale goals and growth. Both types are important in their individual rights and carry risks and rewards. For owners to maximize the value of their firms to meet their personal objectives, it is important that they first decide to be either an asset firm or lifestyle firm, and then manage the venture accordingly.
In this report we will discuss about the key characteristics of a lifestyle firm and growth-oriented firms, the differences and similarities between them and the importance of determining and classifying your business type as lifestyle or asset firm in order to manage it correctly and successfully. The article will also discuss how management of small firms aligns or differ with management system of asset firms.
Characteristics of a Lifestyle and Growth-Based Firm
Lifestyle Firms
(Fischer, R. Rose, M. 2011) Perception: A major characteristic that determines the type of business is the perspective of owners of the businesses. Entrepreneur, who may be running their business to support their certain lifestyles, view the growth of the business as extensions of themselves and not of the business. If a business is providing the owner with the income, which allow them to live their desired lifestyle, then it is probably a lifestyle firm type of business.
(Fischer, R. Rose, M. 2011) Emotions: When the owners are passionate about their work and are emotionally attached to the venture, they want to establish close relationship with their few clients. The future plans may involve decisions like passing on the business to loyal partners and heirs. These characteristics also describe the business to be a lifestyle-type firm.
These firms only focus on status quo, can reduce their operations, and only aimed success which could satisfy their customers, pay their initial investment and make a profit. Besides that in lifestyle firms, managers or owners lay more importance on happiness, retirement provisions and emotional beatings.(Verreynne, M.L.2012). Lifestyle firms have very few innovation and growth strategies and plans.
Most new ventures are lifestyle firms and represent of 80 percent of all business in USA. One common drawback to lifestyle firms is that they rarely have competitive advantage and so they often lack market opportunity. They tend to reduce operations so that they work is within their manageable limits (Harper, S.C. 2005)
Growth-oriented Firms
Firms or entrepreneurs, who show intentions of growth beyond just making profits or supporting lifestyle, are asset firms or growth-oriented firms. The CEOs of such firms show more focus for expanding the range if their stakeholders, customers, employees and share holders. They intend to delegate decision making and invent new sales methods, services and production from innovation and by training staff for better performance and growth (Verreynne, M.L.2012). CEOs of asset businesses would transit away from the business after attaining desired funds to venture into other ventures or interests. They would want to use the efficiency of other management or company to allow the firm be more profitable, innovative and attractive (Fischer, R. Rose, M. 2011).
Business Planning and Management
Business planning is one of the important factors in business success (Burns, P. 2001). Business planning is directly linked to growth and performance (Schwenk, C. R. and Shrader, C. B. 1993). For a small firm, a business plan serves as a strategic planning document for the entrepreneur. It guides the business and helps in making strategic decisions and works as a monitoring instrument.
It has been noticed that there has been a lack of business planning in small or lifestyle firms, but it does not mean that small firms are poorly managed. It only suggests that absence of business planning lead lifestyle businesses miss out a direction of the business, which may lead to poor management decisions.
Business Management Strategies
Both lifestyle and asset firms share similar issues while managing their businesses. However, each type must deal with the management issues from different perspectives and approaches.
Management of Small Firms
Considering the complex performance profile of a lifestyle or small firm, its management has to be multi-dimensional in scope and character (Scase, R. Goffee, R., 1984). Small firm businesses may lack of enough resources, funds and clear vision to pursue a business. These are often faced with inefficient management, unlike large businesses. This section focuses on good management practices, which are as essential for small firms as are for large firms.
Managing the External Environment
The present day organization system has become more transitory, where authority of firm has been taken over by an individual manager. This has raised the need for entrepreneurs to internalize the complex organizational functionality. Besides, every organization, small or large deals with government agencies. The effect and influence of government agencies on the conduct of business firms is pretty apparent and needs to be dealt with carefulness.
In order to keep cooperative relationship with government agencies, a manger needs to analyse the following:
- Which agency might judge the conduct of your business?
- Do you have substantial key contacts in various agencies?
- What all regulations apply to your business and organization?
- Is there any recent or past public policy existing, which might tighten the control of a particular agency on your business?
- Are you equipped with enough reasoning and evidence to challenge any agency’s finding?
- Can you use your attorney well?
- Can you maintain long-term association with an agency? (Bishop, J.L., 2009).
Internal Management
Managing a small firm may follow a basic management structure but it is very different from managing at corporate level with hundreds or thousands of employees. Small firms face complex challenges when economic changes take place and lead to shift in project type and demand. Management of small firms must prepare strategies to make them resilient and flexible to deal with various changing phases of market. It was important for a small firm’s manager to improve operationally over long run.
Objectives of a Manager
- To structure the firm to be flexible and diverse to broaden the type of services offered in the market
- Determine which project types are more active in uncertain economic state and how to market the business to those who seek your type of services.
- Creating an internal team structure to assist, improve and be productive in management and marketing of the business under any economic condition.
Factor that differ small firm management from professional management
Small firms are less likely to use strategic management structure, since they are often family-owned and put more focus on day-to-day operations, unlike large or medium firms, which lay high importance to strategic management. Small businesses suffer from under capitalization and have lesser funds for training and strategizing. Small firm entrepreneurs do not often organize routine process and procedures to plan, strategize and establish a dynamic management structure. However, management of large businesses set up strategic planning department and employ large number of people in the management. Still, to improve their success rate and growth prospects, small firms are suggested to adopt strategic management approach.
Strategic Management Model by Pryor, M. G, et al. 1998 proposes small business managers and owners to apply strategic management techniques to manage their business. It involves SWOT analysis to analyse firm’s strengths and weaknesses along with external influences and prospects. The model helps a firm to set up its mission, goals and objectives and provision feedback and evaluation of success or failure factors.
Several studies suggest that strategic management is essential for quality improvement and maintenance.
Management Strategies for Lifestyle Firms
The main approach of management for lifestyle should be to enable the business to sustain revenue and profitability to constant income over a long time.
Investment: Lifestyle firms enjoy greater flexibility of investment as compared to asset or growth-oriented firms. They can invest as per their suitability, happiness and profit prospects. Investing on people or programs, they can choose when and how much they feel fit to invest. For instance, if they need funds to meet their personal needs, they may invest lesser in the business for the time being or reduce operations to make it more manageable (Fischer, R. Rose, M. 201).
Develop a senior management team: In order to grow and built asset and equity, a lifestyle firm should seek to develop a senior management team capable of leading the business with more efficiency than the owner. It is important to motivate and retain the key staff to attract opportunity for equity ownership (Fischer, R. Rose, M. 2011).
Innovation: Innovation plays an important role in framing success of emerging ventures. Designing and offering leading-edge products and services is the key. However, this is not the ultimate goal for success and growth but a lifestyle firm also needs to find leading-edge users. The entrepreneur and his management should be able to find a gap in the market and fill it (Harper, S.C. 2005).
Internationalization: Usually, lifestyle firms do not expand beyond their limits as it may stress out their functionality and require investment in administrative functions. In this case, if small firm owners wish to expand overseas but do not prefer to make investment, they should manage the operations so that senior managers are handed over with the responsibility of handling operational responsibilities and client service (Fischer, R. Rose, M. 2011).
Change in Management Framework for Small Firms
Every company or firm goes through various types of changes. When a firm is prepared for certain changes, it can only benefit from those changes. The manager should learn to identify the need to change and then manage the business accordingly. It will allow management to address future changes and challenges to turn them in their favour before their competitors. Changes may be brought about by either generative learning or adaptive learning. Generative learning requires deep understanding and analysis of collective data, discovery, experimentation to reflect and find progressive solutions to tackle with the current and future problems (Wittrock, M. C. 1974). In order to be generative learner, the manager needs to delve into the reason behind the findings of analysis instead of justb accepting the status quo. Generative learning helps in sustaining deep and long-run benefits for the business.
The manager should analyse the following question to develop a generative learning of the business:
- Who is your customer base?
- What value your product or service holds your customers?
- What is the best mode to deliver the product or service to the customer?
- How to treat employees and customers for cordial internal and external organizational relationship?
In small firms managers assume that they know answers to these questions, but rarely examine those answers to use the findings to plan business strategies. Examining these questions can help managers evaluate their current practices to keep track of the performance, growth and profits.
Conclusion
Both lifestyle and growth-oriented firms contribute to the development of an economy and create substantial employment opportunities. However, not every small firm is a success because of absence of efficient strategic management. Small firms, after understanding and identifying key complexities of their business can view success not only as profitability but as broad range of goals and growth prospects. It is important that an owner of a firm decides on the vision of the business to classify it as a lifestyle firm or growth-oriented firm and then apply appropriate management technique to manage it.
References
Bishop, J.L.,2009. Helping Small Business Start, Grow and Succeed. U. S. Small Business Administration.
Burns, P. 2001. Entrepreneurship and Small Business. Basingstoke: Palgrave.
Fischer, R. Rose, M. 2011. Maximizing the value of your business as an asset or a lifestyle.OptionA Advisors.
Harper, S.C. 2005. Extraordinary Entrepreneurship. The Professional’s Guide To Starting an Exceptional Enterprise. John Wiley & Sons. New Jersey. Canada.
Pryor, M. G., White, J. C., & Toombs, L. A. (1998). Strategic Quality Management: A
Strategic, Systems Approach to Quality. Thomson Learning.
Scase, R. Goffee, R., 1984. The Real World of the Small Business Owner. London.
Schwenk, C. R. and Shrader, C. B. (1993) ‘Effects of Formal Strategic Planning on Financial Performance of Small Firms: A Meta-Analysis’, Entrepreneurship: Theory and Practice 17(3): 53–65.
(Verreynne, M.L.2012).Small business success defined by growth or lifestyle: Academic . University of Queensland
Wittrock, Merlin C. 1974. Learning as a generative process. Educational Psychologist, 11(2),87-95.
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