BUSINESS PAGE is dedicated to providing objective information and issues of intrest to the business community and the public at large. The articles in Business page are prepared and contribuated by CHRISTOPHER RAM. Christopher Ram is the Managing Partner of Ram & McRae. Chartered Accountants, Professional Services Firm.

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 extraordinary 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 per cent 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 Resources, 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 per cent to 30 per cent.

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.