Small business management and entrepreneurship: Two key ingredients for sustaining success

The other day I attended an event at the Scibelli Enterprise Center that gave an overview of Deshpande Foundation efforts to encourage the creation of innovation-driven businesses. One topic that came up in the discussion was the distinction between small business management and entrepreneurship. After the meeting, a colleague encouraged me to explore this issue in my December blog post so I am, along with explaining why I think it’s important for every business to be able to apply each of these approaches and the related skill sets.

Small business management builds value using proven business models to produce goods and services that meet known market needs. For both existing and new businesses, the emphasis is on excellent execution to profitably attract and serve customers. Financing comes from profits and/or debt based on credit history and secured by assets ranging from real estate to receivables, and owners – most of whom work in the business.

In this context, small business executives work hard to minimize risk and gradually increase the value of the business by constantly working to continually improve operations, refine marketing efforts, strengthen existing product/service offerings, manage costs, and increase sales. Goals and incentives are set accordingly. New businesses that use this approach are often ones for which the general idea for the business is well understood with many other successful examples already in operation.

Entrepreneurship creates value by developing new ideas to address unmet and under-met needs.  For both existing and new businesses, the emphasis is on developing products and services that address these unmet needs, and proving that the product/service offering will attract enough customers and generate enough revenue to eventually lead to profitability. Financing comes from internal and/or external investors in exchange for ownership in the risky venture itself.

In this context, the entrepreneurial team works hard to implement and validate its ideas in the marketplace, trying new tactics as quickly as possible to find a formula that will successfully move the business toward positive cash flow, accelerate growth, create a sustainable competitive advantage, and achieve profitability with exceptional increases in valuation. Goals and incentives are set accordingly. Existing businesses that use this approach are often ones pursuing opportunities beyond the scope of the already successful business.

Although these two approaches may seem incompatible, they actually complement each other. The most resilient businesses consciously use both, taking the attitude that you need the right tool for the job and knowing the risks of each. For example, the small business management approach can lead to disaster when goods/services are becoming obsolete and the market is in permanent decline (think buggy whips and blacksmiths in the early 20th century) unless leaders recognize the need to use the entrepreneurial approach to redefine the business while it is still strong enough to do so. On the other hand, sticking too long to an exclusively entrepreneurial approach can snatch defeat from the jaws of victory (described in this article by Steve Blank on “The Peter Pan Syndrome – The Start Up to Company Transition” if the people and capabilities required to improve execution are not added as needed.

If your company mostly operates using the entrepreneurial approach, here is a question that will help you inject a useful bit of small business management when the time is right:

– Assuming we get some traction in the market, how will we develop our organization to manage our anticipated growth? Here is an example from an earlier blog post.

If your company mostly operates using the small business management approach, here are two questions that will help you inject an entrepreneurial perspective:

– What new opportunities do we see based on trends in our market and supply chain?

– How can we use our strengths beyond our current business? Even large companies do this. For example, see how Intel is applying its manufacturing expertise beyond its core business.

In my next post I’ll write about how established small businesses can balance new entrepreneurial initiatives with the demands of day-to-day management, which is necessarily dominated by the small business approach.

Until then… happy holidays and best wishes for a healthy and successful 2012.

___________

Karen Utgoff, principal of Karen Lauter Utgoff Consulting, is a market-oriented business strategist based in Amherst, MA. Learn more at http://www.utgoff.com.

© Karen Lauter Utgoff Consulting 2011. All rights reserved.

5 comments

  1. Sharon says:

    I think the entrepreneurial spirit is important for small business management, because you need to know when to depart from conventional knowledge to come up with a better model. Thanks for the comparison between the two.

  2. Karen Utgoff says:

    Thanks Sharon. I agree with your observation about entrepreneurial spirit.

  3. Eero Hull says:

    That was a very good article..For me Being consistent in small business and putting hard time is always been a key for a success.anyway good article 🙂

  4. Patrick Quinlan says:

    A past mentor cautioned me on working too hard. He said "Work smart, not hard". I came top realize it was a lot like the advice my math teacher in high school once told me, "If you can't get the homework problems done in 1 hour–stop!" What they meant is that the over-application of hard work has diminishing returns. A fugue state does not overcome problems. But the combination of hard work, managing priorities, asking questions, and stepping back periodically to be strategic works so much better.

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