Entrepreneurship is just a stage in the enterprise lifecycle

A temporary phenomenon

Most new businesses commence with someone seeing an opportunity and developing the resulting idea into a visualized product, service, or event in the future. This is the result of perception, an interpretation, combining perceptions and interpretations with prior knowledge into an idea, and the development of the motivation to take action upon that idea. In most cases the idea does not exactly fit the metaphorical dimensions of the opportunity and the manifested products, strategies, resources, capabilities, and organization must be manipulated until there is a tight fit. These actions when yielding positive results create a new source of value which the
enterprise is able to benefit from. This dynamic construct can be seen as the product of an entrepreneurial mindseti, and the resulting actions as entrepreneurial behaviorii.

The eventual match between the enterprise and the opportunity will lead the firm on a growth trajectory. As the enterprise develops from a haphazard string of activities to a much more formalized organization, strategy will begin to become formalized into procedure and the founder will begin the process of managing it. The focus will turn from opportunity to operations. Founders become absorbed with accounting, manufacturing, customer service, sales, and forget to develop the business. The very people who brought success to the enterprise become involved in every crisis that comes along. Thus the start-up stage transcends into the growth stage where organizational development entails greater bureaucracy with added procedures that bring rigidity to the firm.

In the early life of the enterprise conventional rules of management and strategy are ignored in a scramble to develop a product or service and get it quickly to the marketplace to generate enough sales to survive. This is very haphazard where best practices and production efficiencies are almost irrelevant in the mind of any founder, particularly an SME. Strategy to date has been intuitively based upon a vision that keeps the founder and the enterprise moving forward. This is where creativity and innovation is at the maximum.

As the enterprise grows research and new product development becomes more of a formal process based upon the products and themes that gave the firm initial success. Consequently the new product development process itself becomes a ‘built in’ rigidity that locks the enterprise into its current trajectory. The enterprise will tend to cease looking for new opportunities, choosing to focus on extending, modifying, renewing, and diversifying what it already has. Once a firm starts looking back upon its past successes and becomes guided in its future actions by the past, the firm losses its ability to act entrepreneurially. In the way the new product development process
actually inhibits innovation keeping firms on past trajectories.

A leader after a period of time often becomes tired and complacent. This is very common in founder/entrepreneurs who have led a company from initial start-up and corporate leaders who have been in their position for a long period of timeiii. The phenomena of complacency can be seen as a major reason contributing to the changeover of governments at elections within some democratic systemsiv. After some time, governments become perceived as being out of new ideas, tired, complacent and arrogant, where they are voted out of office.

Complacency is a characteristic that gradually sets into a person who becomes very comfortable, gets bored, and is tired of the same issues and problems each day. Past success tends to bring high self confidence in people, where they are satisfied with their success and wish to ‘rest on their laurels’. Sometimes this over confidence brings arrogance. Leaders believe that they know all there is to know about the market and cease to scan the environment for new threats and opportunities. Within this scenario, motivation will slowly decline and new ideas, self discipline, general focus and concentration will wane. The leader’s complacency will eventually spread to
the rest of the organization where subordinates also lose interest, their sense of creativity, motivation and passing of information around the organization. This affects general productivity, customer service, supplier and other stakeholder relationships.

Complacent people never see themselves as complacent as they are proud of their past success, believe that they are invincible and that life will go on as it is. In an organizational context, the meaning of its very existence and the qualities which gave it the original success start eroding. The company will begin falling behind its competitors without company members really realizing it. The ambition to do new things lessens, opportunities and threats start being ignored, and a bias for action becomes a bias for complacency – the opposite quality to what made it once
successful. Complacency is a state of mind and becomes a screen hiding the environment. The founder/manager becomes personally scared of the consequences of any change that involves taking risks again.

Judith M. Bardwick argued that complacency has seeped into Western corporations through the loss of traditional work ethics. The work culture that has evolved since the 1950s has developed a number of informal ways in which people avoid taking risks. Organizations have developed bureaucracies, hierarchies, rules and procedures which make people comfortable, where good, bad, and no performance are all treated the same. People are encouraged to do ‘pseudowork’ to look goodv, following rules rather than achieving goalsvi. People look at their leaders for direction rather than building strategy upon the environmental situation.

Complacency is based on fear and anxiety about being helpless and having no control over what is happening. People seek power over others to protect their own existence through controlling their immediate internal environment. This leads to ignoring the outside environment where strategy becomes very passive due to denial of change and the wish to cling to the presentvii. People use up all their psychic energies to cope with the anxiety and fear of feeling helpless. This brings on narcissism, paranoia, rigidity, cynicism and politics where people become too burned out to deal with the external environment.

John Kotter elaborated of the concept of pseudowork and described a phenomenon opposite to complacency called ‘false urgency’’viii. False urgency is a situation where the organization is busy undertaking tasks for things that are not important to its progress or survival. False urgency takes up a lot of energy for what many see as causeless activities. Employees become angry, anxious, frustrated and tired. Similarly, leaders who continually drive their staff to higher and higher levels of activity, drain their energy until fatigue sets in. Both these situations takeaway focus from the environment where potential threats and opportunities that may emerge are not
seen, and if seen, ignored.

Complacency can be widely seen in many government departments, where there are no alternative services available to the client. Complacency was tackled through benchmarking and customer quality programs in the 1980s. Complacency can also be seen in industries that are highly regulated and/or a near monopolistic or oligopolistic situation exists. Examples include telephone services, which held monopolies before deregulation and the advent of mobile services, the post office, before the advent of couriers, facsimile and email and airlines and public transport before deregulation and privatization was implemented.

One of the symptoms of complacency is blindness to changes in the outside environment and a tendency to believe ‘that the future will just be like the past’. This was at great cost to the US auto-industry in the 1980s. The large number of firms dropping off the ‘500 lists’ each year is testimony that this is a common problem within corporationsix.

If a firm remains blind to the environment, failing to notice diminishing and emerging
opportunities, it will slowly decline until it is no longer sustainable. This clinging to the desire of permanence leads to ignorance of the realities within the environment, leaving the organization susceptible to competition from other organizations, and emerging technologies. This can be clearly seen in the bankruptcy of Bethlehem Steel Corporation that failed to deal with internal employee superannuation issues and the advance of overseas competition, new technologies, and business models in the industry that were more cost effective. However if a firm through some form of shock or catastrophe comes to the realization of crisis, it may have the chance to act, i.e.,
this metaphorical mid-life crisis may bring on a second entrepreneurial period to the firm. The second entrepreneurial period may allow the firm to undergo regeneration where it becomes relevant to the environment again. However this in reality is an exception to the rulex. The highly desirable strategies of today may be losing strategies of tomorrow just as Fletcher Jones, Blockbuster Video, and Bethlehem Steel encountered, leading to their demise.

Although new product development is one of the most important strategies for sustainability of a company xi, too many companies turn away from innovation and cut costs and expenses as a reaction to declining performance, without looking into the root causes, which may be product life-cycle based or competitive based, which require an entrepreneurial solution. Usually a panic response further stifling innovation of the company. The ability to become entrepreneurial once
again is a difficult alternative, as under pressure, the following problems arise;

 Finding the right opportunities and appropriate innovation necessary to develop them,
 Reducing development times without reducing quality and innovation,
 Building and maintaining brand equity through a strong product,
 Integrating market, design engineering and production processes to produce, and products that are considered useful and desirable by consumers.

The above is the trap for enterprises that don’t see entrepreneurial management as a continuous process, even if it is an implicit and background process, within the company and the minds of those who manage it. The entrepreneur, especially after start up and turning into an SME can be trapped by the scenario above, lending support to Drucker’s postulation that entrepreneurship is only a stage in the development of a firm and the entrepreneurial state can be grown out ofxii.
This is compounded by the small firm’s lack of resources, time, technology and expertise to research new ideas and innovations to develop the businessxiii.

i An entrepreneurial mindset could be made up of a number of socio-psycho factors which influence opportunity recognition and behavior. These facets or personal paradigms include a person’s alertness, motivation, prior knowledge, strategic outlook, creativity, propensity to action, talents and abilities, and interpersonal skills. These are Size Pre start-up Start-up Growth Maturity Decline or rebirth Profit Sales
An era of complacency and rigidity Mid-life crisis Regeneration First entrepreneurial phase Possible mature entrepreneurial phase
Decline Usually time of increasing organizational rigidity Usually NPD strategies
Enterprise begins to take a ‘past orientation’ interrelated to a person’s sense of self, ego, encoded assumptions, beliefs, and values, expectations, goals, and other
restraints. These facets will be influenced by external events, perceptions, feedback from current actions, and motivational triggers based upon the strength of the gap between a person’s present situation and vision. For a deeper explanation see: Hunter, M. (2012), Opportunity, Strategy, & Entrepreneurship: A Meta-Theory, Vol. 1, New
York, Nova Scientific Publishers, pp. 322-327.
ii Peter Drucker describes entrepreneurship as a behavior due to the inability of personality traits to accurately describe an entrepreneur. See: Drucker, P., F., (1984), Innovation & Entrepreneurship, New York, Harper Business, P. 26.
iii It is not uncommon for shareholders to dismiss a founder CEO from his/her position, even where the company was formed from this person’s ideas and they were responsible for the company’s early successes. One example is in Australia where Jim Penman, the founder of the highly successful Jim’s Mowing Group, which owned 28 different franchises, faced being forced out of the company through a franchisee referendum, resulting from a class action.
iv This can be clearly seen in countries like Australia, New Zealand, Britain, Italy, US Congress majorities and the Presidency. In East Asia the KMT Government was defeated a few years ago by the opposition, only to return again in another election. In Japan the LDP Government which ruled for the last 50 years was defeated by the opposition.
v Bardwick. J. M. (1995). Danger in the Comfort Zone: From the Boardroom to the Mailroom – How to Break the Entitlement Habit That’s Killing American business, New York, American Management Association, P. 25.
vi Bardwick ibid., (P. 27) explains pseudowork as forming committees to examine issues, holding meetings, where the appearance of being busy is all that is important. Long reports which nobody reads are prepared and follow up rarely occurs. People lose sight of what is important and success in the marketplace is of secondary importance. Pseudowork is preoccupied with meeting schedules, rules and procedures.
vii Bardwick ibid., P. 41.
viii Kotter, J. (2008). A Sense of Urgency, Boston, Harvard Business Press.
ix Foster and Kaplan showed in their study, the turnover rate of S&P companies is nearly 10% where a firm may survive in the S&P 500 list for no more than 10 years. Therefore by 2020 around 75% of companies on the S&P list will consist of companies we don’t know today. These will be new companies that have aligned themselves with
newly discovered opportunities. Thus competitive advantage in an industry will depend upon how well a company’s goals, strategies, networks, organization and business models, skills, competencies and technologies and resources
are aligned with the identified opportunity. Older companies formed around an opportunity identified in the past will tend to be aligned with that past opportunity. But the opportunity itself slowly drifts as consumer tastes evolve,
demographics change, and technologies evolve, etc. Foster, R. and Kaplan, S. (2001). Creative Destruction, New York, Currency.
x Markets and industries are changing so rapidly that 40% of the Fortune 500 companies that existed in 1975 do not exist in 1995. Griffin, A., (1997), The Drivers of NPD Success: The PDMA Report, Chicago, Product Development & Management Association.
xi On average, new products (those introduced into the market within the last 5 years) represent 33% of a company’s sales. In some markets, mobile phones, televisions, white goods, automobiles, etc., this figure is 100%. Foster, R., N., (2000), ‘Managing Technological Innovation for the Next 25 Years’, Research-Technology Management, 43, 1., Jan/Feb., P. 20.
xii Drucker, P., F., (1984), op. cit.
xiii Johnson, D. and Tilley, F., (1999), ‘HEI and SME Linkages: Recommendations for the Future’, International Small Business Journal, Vol. 17., No. 4., pp. 66-81.

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Published in WiWi-Online.de, Hamburg, Deutschland, 2012