Step-by-step explanation:
Of the hundreds of thousands of business ventures that entrepreneurs launch every year, many never get off the ground. Others fizzle after spectacular rocket starts.
A six-year-old condiment company has attracted loyal customers but has achieved less than $500,000 in sales. The company’s gross margins can’t cover its overhead or provide adequate incomes for the founder and the family members who participate in the business. Additional growth will require a huge capital infusion, but investors and potential buyers aren’t keen on small, marginally profitable ventures, and the family has exhausted its resources.
Another young company, profitable and growing rapidly, imports novelty products from the Far East and sells them to large U.S. chain stores. The founder, who has a paper net worth of several million dollars, has been nominated for entrepreneur-of-the-year awards. But the company’s spectacular growth has forced him to reinvest most of his profits to finance the business’s growing inventories and receivables. Furthermore, the company’s profitability has attracted competitors and tempted customers to deal directly with the Asian suppliers. If the founder doesn’t do something soon, the business will evaporate.
Like most entrepreneurs, the condiment maker and the novelty importer get plenty of confusing counsel: Diversify your product line. Stick to your knitting. Raise capital by selling equity. Don’t risk losing control just because things are bad. Delegate. Act decisively. Hire a professional manager. Watch your fixed costs.
Why all the conflicting advice? Because the range of options—and problems—that founders of young businesses confront is vast. The manager of a mature company might ask, What business are we in? or How can we exploit our core competencies? Entrepreneurs must continually ask themselves what business they want to be in and what capabilities they would like to develop. Similarly, the organizational weaknesses and imperfections that entrepreneurs confront every day would cause the managers of a mature company to panic. Many young enterprises simultaneously lack coherent strategies, competitive strengths, talented employees, adequate controls, and clear reporting relationships.
