Mastering Enterprise is about entrepreneurship. It is about the routes to the creation and ownership of a venture and the subsequent paths the business may take.
The purpose is twofold. First we want to say: it is not necessarily too late. Entrepreneurs come in all shapes and sizes, from different educational backgrounds, age and commercial experience. Despite popular perception, you do not have to be young and disadvantaged to have a go and to be successful.
Moreover, you do not have to do it on your own. As we will show, the entrepreneurial team is often as important as the leader and sometimes more important in the eyes of potential investors.
Second, we must issue a health warning. It is not easy. So the series will explore the process of founding a venture and highlight issues faced by those creating or remoulding an organisation, the commercial problems they confront, the family dilemmas that emerge as the business grows and the decisions they make.
Defining entrepreneurship
The debate over the definition of entrepreneurship continues to exercise academics. At one end of the spectrum are those who believe it is concerned solely with the creation of entirely new ventures that create significant wealth. Thus, they would differentiate between the classic entrepreneur and the small businessman, the distinguishing characteristics being motivation and attitudes to growth.
At the other end of the spectrum are those who would argue that any activity that is creative and changes an organisation is entrepreneurial.
This series is concerned with exploring the creation and management of those new ventures that result in significant wealth for the owners. In other words, the focus is upon the development of new or reformed significant businesses rather than the development of new products or services.
Clearly, this includes entirely new businesses developed by high-profile entrepreneurs, such as Richard Branson or Ted Turner, and by others less well known but equally successful. It also includes:
Management buy-outs (MBOs), the process by which the incumbent management team buys the business they are managing, often a subsidiary, from the owners. In the process, it may have changed size, have new systems or new arrangements with customers. It will certainly have new owner-managers and it will probably have new investors in the form of venture capitalists.
Management buy-ins (MBIs), the process by which a management team from outside the company purchases the company or subsidiary from the owners. Often, they will involve the incumbent management in the acquisition, a process sometimes, and unfortunately, called a Bimbo.
Franchising. In Europe this has usually been regarded as a small business activity whereby individuals purchase a single franchise outlet. This is certainly not the case in the US, where franchise entrepreneurs have built their businesses through the acquisition of multiple outlets, territories and franchises. So, for example, in a single town they may own both Pizza Hut and Burger King as well as the non-food Jiff-Lube.
As a result of a recent European Union directive, which allows the possibility of ownership of multiple units in all member states, this phenomenon is also emerging in Europe.
Clearly, franchising is also one of the mechanisms available to entrepreneurs to build wealth, based upon a business or product concept.
Indeed, one-third of retail businesses in the US are franchises.
However, because of the particular issues associated with the relationship between the two owners the franchisee and the franchisor and the commercial role of each, we deal with it as a separate aspect of entrepreneurship.
Corporate venturing. This is an activity some large organisations have used to inject enterprise and so revitalise their business portfolio. The aim is to find new windows of opportunity, evaluate their potential and invest in them for the long term. The latter may involve investing in existing early-stage businesses needing development capital, joint ventures or new subsidiaries within a venturing division.
For the large, mature organisation this means grappling with the questions of motivating and rewarding those directly involved, the corporate entrepreneurs.
However, this is just the tip of the iceberg. More interestingly, Mastering Enterprise will touch on the ways in which a number of companies trying to create new managerial systems in a rapidly changing environment are attempting to become entrepreneurial organisations.
Family businesses. Here we are interested in those businesses owned and managed by a family through more than one generation and the stresses and strains this places upon both the family and the business relationship, particularly during periods of succession. Clearly, the ways in which the business is managed and the extent of involvement of both children and extended family will vary according to the particular family culture.
Much of the literature in this area is drawn from the US or, latterly, Europe and so has assumed a western culture. So, for example, it is estimated that only 30 per cent of independent businesses pass to a second or third generation in the US. This is, in part, because parents are relatively flexible in their expectations that the children will continue the family tradition.
By contrast, a study by Narissa Chauvidul at Imperial College found that in Thailand more than 80 per cent of the top 100 companies are owned and managed by their Thai-Chinese founders and, of these, 97 per cent are run by the second generation. Therefore, Mastering Enterprise will also explore the ways in which national or ethnic cultures affect the family company.
Private or public. Inherent in all the above is the apparent notion that enterprise is by definition a private sector activity. Not so. It is alive and well in the public sector also. Indeed, the distinction between the two is increasingly unclear. Take, for example, the notorious PSA (Property Services Agency) in the UK, responsible for the management of the fabric of all government buildings, bought by the management in 1994 for a fraction of its selling price in 1996.
Witness also the variety of privatisations in Eastern Europe over the first half of the 1990s.
The entrepreneurial process of creating a new venture does not usually happen overnight. Whatever the eventual form of organisation the entrepreneur founds, whatever the route to market, entrepreneurship is the study of a process through:
the origins of the idea;
its testing and validating;
the selection of a route to market through, for example, subcontracting, franchising or buy-out;
the assembly of the necessary resources money, customers, suppliers, premises and employees;
the market entry opening for business and the first sale;
the choice of growth strategies and possibly
exit through flotation, failure, voluntary closure, sale to the management or trade sale.
All of these take time and there are no rules as to how long each stage may take.
A manager may have a growing awareness of the possibilities of a buy-out through press coverage but may be unsure how his or her employers would react until they suddenly announce the business is for sale!
The embryo entrepreneur may always have had a latent desire until the right opportunity came along.
Having recognised a potential opportunity, convincing others as well as yourself that it may be viable is usually an uphill struggle that can also take months or even years. Persuading investors not only that it is a good idea but also that you are the one to make it happen, will require patience, contacts, probably a business plan and certainly time. In short, you will mount the credibility roundabout.
Marketing position
As the business grows two very important things usually happen, both of which are concerned with power and ownership and both of which we will explore in the series:
The customers begin to rely upon the business rather than always insisting on dealing with the founder. A business that others can recognise as an entity has been created. Credibility has shifted from the founder to the business and hopefully the entrepreneur will have changed personal guarantees for business guarantees!
An organisation structure develops. Managerial decisions, and sometimes equity, will be devolved to employees. Managerial responsibility and ownership slowly separate.
Assuming that it continues to survive, we know that the rate at which the business grows will be determined by three factors:
The market positioning and market demand quite simply, without enough customers prepared to buy there is no business;
The attitude of the owner or owners to growth;
The size of the business at the start the larger, the more stable, the more likely to survive and to grow.
The last is important. It is no real surprise that many venture capital funds have migrated to investing in buy-outs where both the team and the business have an established track record and, usually, considerable critical mass. Equally important, the time to exit is significantly shorter than for a start-up or early-stage investment.
So who are these entrepreneurs? How can we recognise them?
Is there a limited supply? Are they born or made?
Unfortunately the answers are not simple. We (westerners) used to believe they were drawn from people who were socially marginal the uneducated, the immigrant or the poor and who had an overwhelming need to prove themselves.
Consequently, early studies in the field describe the characteristics of those who started businesses in terms of both demographics and motivations in an attempt to arrive at an identikit entrepreneur.
It did not work the environment changed and their characteristics changed.
Take, for example, the experience in the UK. The successful entrepreneur is just as likely to be highly educated and have worked in a large corporation in a senior management position before becoming an owner-manager, than to have left school and started a business at the age of 16.
In other words, the entrepreneurial supply is marvellously heterogeneous and variable. It is influenced in part by genetic factors, by family background and early business experiences and by the economic environment.
Economic policy, provision of low-cost resources, training, high-profile role models are all mechanisms that have been shown to move the goal posts.
Indeed, that is exactly what most governments throughout the world are attempting to do.
Who might be interested in Mastering Enterprise? Almost everyone likely to be involved in some way as:
Potential entrepreneurs with a small itch waiting to be scratched who are wondering how to go about it and what it is like or a senior executive speculating about the possibilities of a buy-out.
Owner-manager/entrepreneurs or members of a family business interested in the experiences of others.
Investors not only those who provide money but anyone who makes a commercial decision to supply or buy from an embryo or growing business.
Advisers consultants, accountants, bankers.
Policy-makers involved at national or local government level in determining the fiscal and economic policies that will advantage, or disadvantage, this sector.
The curious.
Quite simply, a healthy entrepreneurial environment is critical to a healthy economy and we are all involved. More importantly, from our perspective, it is the best game in town n
The entrepreneurs role is to be creative in structuring a business around an opportunity and then implementing the ideas media baron Rupert Murdoch has shown this in more then one way
