Although organizational growth is a desirable and important goal for entrepreneurial ventures what happens when things turn sour – when the growth strategies don’t result in the intended outcomes and in fact result in a decline in performance? Nobody likes to fail especially entrepreneurs. However, when an entrepreneurial venture faces times of trouble what can be done? The first step is recognizing that a crisis is brewing?
Recognizing crisis situations
An entrepreneur should be alert to the warning signs of a business in trouble. Some signals of potential performance decline include inadequate cash flow, excess number of employees, unnecessary and cumbersome administrative procedures, fear of conflict and taking risks, tolerance of work incompetence, lack of a clear mission or goals and ineffective or poor communication within the organization.
Another perspective on recognizing performance declines revolves around what is known as the boiled frog phenomenon. The boiled frog is a classic psychological response experiment. In one case a live frog that’s dropped into a boiling pan of water reacts instantaneously and jumps out of the pan. But, in the second case, a living frog that’s dropped into a pan of mild water that is gradually heated to the boiling point fails to react and dies. A small firm may be particularly vulnerable to the boiled frog phenomenon because the entrepreneur may not recognize the water heating up – that is, the subtly declining situation .When changes in performance are gradual a serious responses may never be triggered or may come too late to do anything about the situation . Entrepreneurs need to always be alert to the signals that the venture’s performance may be worsening. Entrepreneurs cannot wait until the water has reached the boiling point to react.
When the things turn for the worse
Although an entrepreneur hopes never to have to deal with the organizational downturns, declines or crises time may come when he or she must do just that. After all nobody likes to think about things going bad or taking a turn for the worse, but that ‘s exactly what the entrepreneur needs to do – think about it before it happens using feed forward control. It’s important to have an up to date plan for covering bad times. It’s just like mapping out exit routes from your home in case of a fire. An entrepreneur wants to be prepared before an emergency hits. This plan should focus on providing specific details for controlling the most fundamental and critical aspects of running the business – things such as revenues, costs, and debt. Beyond having a plan for controlling the venture’s critical financial inflows and outflows other actions would involve identifying specific strategies for cutting costs and restructuring the venture.
How does the entrepreneur exit the venture?
When an entrepreneur hopes to cash out on the investment he or she made in the business.
Getting out of an entrepreneurial venture might seem a strange thing for an entrepreneur to do. However, the entrepreneur may decide at some point that it’s time to move on. That decision may be based on the fact that the entrepreneur hopes to cash out on the investment in the venture called harvesting or that the entrepreneur is facing serious organizational performance and wants to get out. It may even be the entrepreneur’s desire to focus on other pursuits (either personal or business related) the issue involved with exiting the venture includes choosing a proper business valuation method and knowing what’s involved in the process of selling a business.
Business evaluation method: Valuation techniques generally fall into three categories (1) asset valuations (2) earnings valuations and (3) cash flow valuation. Setting a value on a business can be little tricky. In many cases, the entrepreneur has scarified much for the business and sees it as his or her baby. Calculating the value of the baby based on objective standards such as cash flow or some multiple of net profits can sometimes be a shock. That’s why it’s important for an entrepreneur who wishes to exit a venture to get comprehensive business a valuation prepared by professionals.