Growing a young business
Lecture 1: establishing a new organization
Entrepreneurship – defitiniotn
“The process of creating value by bringing together
a unique combination of resources to exploit an
opportunity” (Stevenson & Jarillo-Mossi, 1986)
Design thinking approach
- Empathize
- Define
- Ideate
- Prototype
- Test
Entrepreneurial journey
1
,Defining business growth
Growth can be defined either as an ‘increase in amount’ or as an ‘internal process of
development’. (Achtenhagen et al, 2010).
- Entrepreneurship field focuses mainly on growth as increase in amount
Measures include, for example, growth of sales, employees, assets, profit, equity,
etc. (Wiklund et al, 2009)
- Time span from one to several years
- Measured in absolute or relative terms
Why is business growth important?
Why growth important
1. market share: increase competitiveness and capture a larger share of the
market
2. Economies of scale: reduce costs per unit and boost profit margins
3. Top talent attraction: draw in skilled employees for career advancement
opportunities
4. Funding access: attract investors and financial institutions for capital
expansion
5. Diversification: reduce risk by expanding product or service offerings
Some growth-oriented ventures
- ADYEN
- CoolBlue
- Bunq
- N26
- Swapfiets
- Gorillas
Liability of newness and smallness
New business survival: ongv. 25%
Startup funding rate: ongv. 1-5%
Liability of newness:
the precarious existence of emerging
organizations, implying that many
would not survive their early days
(Stinchcombe, 1965); why?
- Due to facing complex
challenges limiting their
viability, including managing
relationships among
strangers, assembling
resources quickly, and coping
with difficult environments.
- In other words, lack of normative supports (e.g. industry associations),
powerful incumbents, institutional inertia (existing structures favor
incumbents)
Legitimacy: an important mechanism
2
,Liability of smallness:
Limitedness in terms of resources and capabilities, and thus vulnerability to
environmental changes.
The assumption: large new businesses have better survival prospects than small new
businesses (Hannan and Freeman, 1983).
Possible solutions:
- Leveraging networks (professional/social)
- Spending time and efforts on building a network
- Forming alliances and partnerships
- What else?
What is legitimacy?
Definition: a generalized perception or assumption that the actions of an entity are
desirable, proper, or appropriate
within some socially constructed
system of norms, values, beliefs, and
definitions. (Suchman, 1995; 574)
Legitimacy can reduce the negative
effects of liability of newness and
smallness on survival.
- More chances to access
much needed resources
How to garner legitimacy
How can startups and scaleups garner legitimacy?
- Experience and reputation of founders
- Narratives and stories
- Claiming membership in an existing category
- Conformance with an institutional environment
- ‘optimal distinctiveness’
- Customer validation
Growth strategies: a categorization
Organic versus inorganic growth:
- Definition: business expansion by increased output, customer base expansion
and innovation as opposed to merges and acquisitions
Why is organic growth important?
- A good indicator of how well management has used its internal resources
- Whether managers have skills and abilities to create a successful business
3
, Types of organic growth
Value innovation
Kim and Mauborgne (1997) observed that high-growth firms paid little attention to
matching or beating their rivals
Blue ocean strategy canvas
A blue ocean strategy is a
business strategy that seeks to
create uncontested market space
by targeting and serving untapped
or underserved customer
segments. The term "blue ocean"
is used to describe a market that
is unexplored or uncontested, as
opposed to a "red ocean" where
competition is fierce and markets
are saturated.
The blue ocean strategy involves identifying new customer needs and creating
innovative products or services to meet those needs, rather than competing with
4
Lecture 1: establishing a new organization
Entrepreneurship – defitiniotn
“The process of creating value by bringing together
a unique combination of resources to exploit an
opportunity” (Stevenson & Jarillo-Mossi, 1986)
Design thinking approach
- Empathize
- Define
- Ideate
- Prototype
- Test
Entrepreneurial journey
1
,Defining business growth
Growth can be defined either as an ‘increase in amount’ or as an ‘internal process of
development’. (Achtenhagen et al, 2010).
- Entrepreneurship field focuses mainly on growth as increase in amount
Measures include, for example, growth of sales, employees, assets, profit, equity,
etc. (Wiklund et al, 2009)
- Time span from one to several years
- Measured in absolute or relative terms
Why is business growth important?
Why growth important
1. market share: increase competitiveness and capture a larger share of the
market
2. Economies of scale: reduce costs per unit and boost profit margins
3. Top talent attraction: draw in skilled employees for career advancement
opportunities
4. Funding access: attract investors and financial institutions for capital
expansion
5. Diversification: reduce risk by expanding product or service offerings
Some growth-oriented ventures
- ADYEN
- CoolBlue
- Bunq
- N26
- Swapfiets
- Gorillas
Liability of newness and smallness
New business survival: ongv. 25%
Startup funding rate: ongv. 1-5%
Liability of newness:
the precarious existence of emerging
organizations, implying that many
would not survive their early days
(Stinchcombe, 1965); why?
- Due to facing complex
challenges limiting their
viability, including managing
relationships among
strangers, assembling
resources quickly, and coping
with difficult environments.
- In other words, lack of normative supports (e.g. industry associations),
powerful incumbents, institutional inertia (existing structures favor
incumbents)
Legitimacy: an important mechanism
2
,Liability of smallness:
Limitedness in terms of resources and capabilities, and thus vulnerability to
environmental changes.
The assumption: large new businesses have better survival prospects than small new
businesses (Hannan and Freeman, 1983).
Possible solutions:
- Leveraging networks (professional/social)
- Spending time and efforts on building a network
- Forming alliances and partnerships
- What else?
What is legitimacy?
Definition: a generalized perception or assumption that the actions of an entity are
desirable, proper, or appropriate
within some socially constructed
system of norms, values, beliefs, and
definitions. (Suchman, 1995; 574)
Legitimacy can reduce the negative
effects of liability of newness and
smallness on survival.
- More chances to access
much needed resources
How to garner legitimacy
How can startups and scaleups garner legitimacy?
- Experience and reputation of founders
- Narratives and stories
- Claiming membership in an existing category
- Conformance with an institutional environment
- ‘optimal distinctiveness’
- Customer validation
Growth strategies: a categorization
Organic versus inorganic growth:
- Definition: business expansion by increased output, customer base expansion
and innovation as opposed to merges and acquisitions
Why is organic growth important?
- A good indicator of how well management has used its internal resources
- Whether managers have skills and abilities to create a successful business
3
, Types of organic growth
Value innovation
Kim and Mauborgne (1997) observed that high-growth firms paid little attention to
matching or beating their rivals
Blue ocean strategy canvas
A blue ocean strategy is a
business strategy that seeks to
create uncontested market space
by targeting and serving untapped
or underserved customer
segments. The term "blue ocean"
is used to describe a market that
is unexplored or uncontested, as
opposed to a "red ocean" where
competition is fierce and markets
are saturated.
The blue ocean strategy involves identifying new customer needs and creating
innovative products or services to meet those needs, rather than competing with
4
