94 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
Startups are likely to experience the following crises during their growth
life-cycle:
◾ Crisis of ownership
◾ Crisis of strategy, mission, and vision
◾ Crisis of follow-on nancing, sales, and marketing
◾ Crisis of business model
◾ Crisis of management turnover; role of founder
5.4.2 Churchill and Lewis Growth Model
In 1983, Churchill and Lewis published their inuential framework on small
business growth.
4
The authors categorized the problems of growth pat-
terns in a systematic way. The startup capacity for growth is characterized
by independence of action, different organizational structures, and varied
management style, as shown in Figure5.3.
The Churchill and Lewis model is helpful in anticipating the key
requirements at the various growth phases, that is, the inordinate time and
effort expended by owners/entrepreneurs during the startup period. This
Crises and Startups
Modified after Greiner’s Model
Time Since Founding
Product Sales
Phase 1Phase 2Phase 3Phase 4Phase 5
Crises
Startups go through predictable
phases of growth, interrupted
by crises periods that need to be
overcome.
Figure 5.2 Crises and startups—Crises are inevitable periods of chaotic disruptions
during organizational growth.
New Venture Creation ◾ 95
is followed by the need for delegation and changes in managerial roles
as the organizations grow, and the organizations become larger and more
complex.
As Figure 5.3 indicates, when the size of the rm is plotted on the ordinate
axis, against the age of the rm on the abscissa, a clearer view of the ve
stages of development, each characterized by size, diversity, and complexity
as described by ve management and organizations factors, as summarized in
Table5.2.
The authors further identied factors related to the enterprise and the
owners as follows.
Four factors related to enterprise:
1. Financial resources
2. Personnel resources
3. Systems resources
4. Business resources
Four factors related to the owners:
1. Owners’ personal goals
2. Owners’ operational abilities
Key Requirements of a Startup
Modified after Churchill and Lewis
Age of Firm
Leadership
Autonomy
Control
Red tape
? ? ?
Collaboration
Coordination
Delegation
Direction
Creativity
Ownership
Size of Firm
Figure 5.3 Key requirements of a startup—As the rm ages, ownership by founders
declines, and delegation to experts becomes more critical.
96 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
3. Owners’ managerial abilities
4. Owners’ strategic abilities
5.4.3 New Product Life Cycles
Companies rise or fall, live or die by their sales. New product introductions
also have a life cycle. There was a time when new products had a life cycle
of 30 to 50 years (i.e., in the early 1900s: automobiles, airplanes, stainless
steel, etc. as seen in Figure 5.4). By the mid 1950s, product life cycles were
measured in less than a decade, see Table5.3.
Table5.2 Management and organizational changes as the rm size increases
Stage Management Crisis Organizational Growth
1 Existence Leadership Creativity
2 Survival Autonomy Direction
3 Success Control Delegation
4 Take-off Red tape Coordination
5 Resource maturity Leadership change Collaboration
Time from Founding (months)
Typical Product Life Cycle
Blunder under Plunder
Asunder
or
rebirth
60
48362412
Inspiration
Perspiration
Share, inspire
Myth creation
Phase 5
Re-growth/
decline
Phase 4
Maturity
Phase 3
Growth/
decline
Phase 2
Development/
abort
Phase 1
Concept/
test
Measure of Growth (e.g. sales)
Sales (arbitrary)
Figure 5.4 Typical product life cycle—Products, like ventures, display predictable
life cycles.
New Venture Creation ◾ 97
In the twenty-rst century, many new products’ life cycles are measured
in months (i.e., smart phones, laptops, iPads, coronary stents, robotic sur-
gery, medical imaging, etc.; Table5.3).
As Table5.3 indicates, worldwide devices (the combined shipments of
PCs, tablets, and mobile phones) are on pace to total 2.4 billion units in 2013,
a 9% increase from 2012, according to Gartner, Inc. Device shipments are
forecast to continue to grow, reaching more than 2.9 billion units in 2017, but
the mix of these devices will signicantly change over the forecasted period.
As consumers shift their time away from their PC to tablets and smart
phones, they will no longer see their PC as a device that they need to
replace on a regular basis. Thus, the life cycle of the once-mighty PC is
nearing its decline stage.
In general, new product life cycles follow a predictable pattern, as shown
in Figure5.5.
As an example, when PCs were rst introduced to the public during the
1970s, their users kept those computers for an average of 14 years. As more
computer power was added and prices decreased, computer manufactur-
ers saw their competitors introduce newer PC generations. By the start of
the twenty-rst century, fewer and fewer PCs are kept more than 2 years, as
seen in Figure5.6.
Meanwhile, sales of PCs are plummeting as consumers nd that disrup-
tive technologies (tablets and smart phones) can perform many of the func-
tions of modern desktop computers, but with more convenience and at
competitive prices.
Moreover, with their high-denition touch screens, wireless Internet con-
nections, and powerful processor chips, these mobile devices are more than
Table5.3 Estimated Decline in PC Sales
Device Type 2012 2013 2014 2017
PC (Desk-
Based and
Notebook)
341,263 315,229 302,315 271,612
Ultramobile 9,822 23,592 38,687 96,350
Tablet 116,113 197,202 265,731 467,951
Mobile Phone 1,746,176 1,875,774 1,949,722 2,128,871
Total 2,213,373 2,411,796 2,556,455 2,964,783
Source: Gartner, April 2013. Gartner Inc. is an information technology research and
advisory company (www.gartner.com).
98 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
adequate for reading e-mail messages, visiting websites, or even watching
TV shows and movies.
5
Unlike PCs, consumers are routinely upgrading to
newer, more powerful devices because of the two-year contracts offered by
all major providers.
Plummeting PC sales herald big disruptions for traditional suppliers
such as Hewlett-Packard, Dell, Microsoft, and Intel, whose microprocessors
0
2
4
6
8
10
12
14
16
1970s1980s 1990s2000s
Decades
Years of Expected Lifetime
Decreases in Computer Expected Lifetimes
Figure 5.5 Decreases in computers—By the start of the second millennium,
expected computer lifetimes are measured in a few months, not years.
• Y
ou cannot spend “profit” or “net income.” ese are accounting figures
only
• C
ash is what you receive and can be used to pay bills or reinvested
• C
ash flow does not equal net income. ere are timing differences in
acc
rual accounting when you record a transaction and when you actually
receive the cash
Figure 5.6 Cash is king.
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