The Entrepreneurial Revolution
Introduction
Today's piece concludes this three-part article on Entrepreneurship
to honour the success of five Guyanese businesspersons in the Ernst &
Young Caribbean Entrepreneur of the Year 2001. While the myth that one is
born an entrepreneur has been exploded it is equally true that there is no
single manual of entrepreneurship applicable to all persons, businesses or
places. However, there is much that the examples and practices of the more
successful entrepreneurs can teach.
The economies of the world are enduring such dramatic changes
necessitating the re-writing of all the so-called best sellers on management
that no business can rely on any fixed formula to achieve and maintain
leadership positions in their industry. Maintaining that leadership position
requires that one simultaneously looks internally to achieve efficiency and
thereby increase profitability, and externally to benchmark one's business
practices against the highly successful, fast growth firms.
In this article we have shown that Guyana has not been short of
entrepreneurs - indeed we have made the point that we survived the seventies
and eighties because many ordinary women and men were prepared to take
extra-ordinary risks which ensured that Guyanese were provided with the
basic necessities for survival. We have noted however that many of these
persons did what they did not because they set out to save Guyana but rather
in response to the fact that they were unemployed and that their and their
families' survival was at risk. Fitting the description of lifestyle
entrepreneur, they were content to earning a living for themselves and
their families.
On the other hand, the high growth entrepreneurs, the ones that
pursue growth and in the process generate jobs, investments and the
development of human and financial capital set themselves ambitious goals
which they pursue with focus and passion. The outstanding ones want to
become the best in their field, sacrificing current income and returns for
long-term growth. They recognise that the extra effort - ignoring the pain,
the sacrifice and the fatigue - is what sets them apart from and ahead of
the competition.
As a country, we need to recognise the role which both groups can
contribute to the development of our country. We have to consider whether a
common economic policy will support the simultaneous development of both
groups or whether in addition to a stable macro-economic framework we should
be pursuing specific policies to promote and support the development and
growth of the two groups. After all, it is the success of these two groups
that attract the pool of aspiring entrepreneurs - university, high
school and community and technical colleges students about to enter the real
world.
The Importance of Growth
The mortality of start-ups is notoriously high and the starry-eyed,
inadequately prepared person soon recognises that it takes more than just a
smart idea to make a successful business. Research has shown however that a
firm's chances of survival double if it can grow by just ten percent
annually. But more than survival, growth increases market share, reduces
unit cost of production whether in products or services, increases
efficiency and profitability and increases the net worth of the owners. Fast
growth firms aggressively pursue market share although they may choose
different strategies such as penetration i.e. the sale of existing products
to existing customers and diversification i.e. new products and services
into new markets. Other businesses pursue the even riskier path of mergers
and acquisitions.
Growth however does not come from increased revenues only and successful
entrepreneurs pursue various growth goals the principal ones being market
share, turnover, profits, cash flows and net worth maximisation. Studies in
the USA have shown that market penetration is by far the most successful
growth strategy, followed by product development, market development and
diversification. It is however not a zero sum game and it is not impossible
to pursue several strategies simultaneously.
Survival and growth are therefore critical to success but there is far
more to entrepreneurial excellence than just these. Once growth, supported
by the entrepreneur and the top management team is properly planned,
carefully executed and constantly reinforced, there is nothing truly unique
or secret about their success but more to do with recognition and commitment
to business fundamentals. Accordingly, the entrepreneur along with his team
must focus on 1) Human Resource, 2) Planning, 3) Product and Marketing, 4)
Financial and 5) Management Practices.
Human Resource Practices
The successful entrepreneur seeks to expand her/ his capabilities by
building a team of motivated people who share the goals and objectives of
the entrepreneur leading the firm. The entrepreneur must help these people
to become successful, create clarity in the organisation, determine and
communicate the values and philosophies for which the firm stands, provide
appropriate reward systems for all levels within the organisation and create
a continuous experimental and learning attitude within the organisation.
Incentive pay, or pay tied to performance for any and all employees
consistently translates into substantial gains in sales. Research has shown
that a firm would be better off to offer no equity compensation whatsoever
than to offer it to the CEO only. Sharing rewards with those who produce
them via equity participation is not a matter of losing control of the
company, but rather doing what is necessary to sustain growth over time and
the success of the entity long after the original entrepreneur has passed
on.
Planning Practices
Clear mission statements embodying the values of the entity, long range
plans including clear and measurable long-term goals and carefully prepared
action plans enable the entrepreneur to compete aggressively. An
entrepreneur seeking to position the firm in a leadership role must conduct
detailed environmental and competitor analyses and identify the entities
with which to benchmark their operations.
Systems must exist for measuring and comparing actual performance not
only to adjust plans but management compensation as well. Information of
actual and planned performance should be shared with employees at all levels
in the organisation. Periodic strategic reviews should be undertaken
preferably done by independent experts who can offer objective criticisms
and value-added recommendations to the entity.
Product and Marketing Practices
The successful firm will seek to deliver to the market products and
services that are perceived to be the best value for money, and which are
offered with service benefits that can command premium price. There must be
a good mix whereby the bulk of revenue comes from existing products and
customers while flows from new customers/products account for between 20 % -
30%.
Continuous market and research and development expenditure must be
designed to ensure the product and services offered are useful, attractive
and are periodically upgraded and modernised. The sales force must be well
trained, know the product and appropriately remunerated. Ideally, the sales
force should account for approximately 60% of marketing expenditure.
Financial Practices
While there are huge sums available to the successful business, the
unsophisticated capital market and legal system are notoriously unforgiving
of businesses in distress. The entrepreneur must therefore anticipate
multiple sources and rounds of financing that reduce borrowing cost, allow
the entrepreneur to retain voting control while encouraging and rewarding
managers and employees with equity in the firm.
The entrepreneur must establish a sound system of accounting and
reporting ensuring that adequate, reliable and relevant information is
available.
Management Practices
While the early stages of the firm are characterised by strong individual
leadership, moving the firm to the next stage requires a balanced board of
executive and non-executive directors who meet regularly and are directly
involved in critical, strategic decisions. Entrepreneurial firms do not have
too many layers of management, and managers are allowed to make decisions as
well as mistakes.
All managers in the firm must themselves be entrepreneurial and the firm
must establish entrepreneurial competency in all functional areas of
management. The really successful entrepreneur is a developer and leader of
entrepreneurs who will ensure that the legacy endures.
Conclusion
In the midst of all our current difficulties we should be heartened by
the success of our entrepreneurs. We need to cultivate the culture of
entrepreneurship in our country, recognising the limited future of our
traditional products and sectors and that it is to the entrepreneurs that we
will have to look for the creation of jobs, new investment, growth and
development and the sharing of our resources and patrimony among all
Guyanese.
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