Frontiers of Entrepreneurship Research
1996 Edition
SUMMARIES

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A MODEL OF THE EARLY ORGANIZATION GROWTH AND DEVELOPMENT PROCESS: A CASE STUDY OF A TELECOMMUNICATIONS VENTURE


Sanford B. Ehrlich
Alex F. De Noble
Thomas R. Bilotta

College of Business Administration
Department of Management
San Diego State University
San Diego, CA 92182-8238

Telephone
619-594-4892

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619-594-1573

Principal Topics

In this research, we apply a three-phased model of early organizational growth to a case study of a telecommunications venture. The model is multidimensional and was developed to encompass elements from theoretical and empirical literature on strategic direction, organizational design, leadership and management competencies, and financial resources as each relates to early organizational growth and development. Since our interest was in examining the relevancy of the model to a "bootstrapping" situation, we chose to conduct a case study of a company attempting to transition from a consulting organization to a manufacturer of proprietary telecommunications products.

The company that we studied (herein referred to as GrowthCom) was founded in 1989 following the layoff of three employees from a wireless communications company. Early in the process of our study, we became aware of the evolving tensions that developed among key members of the management team. The primary issues that surfaced dealt with the managerial and organizational choices that had to be made to balance the demands of maintaining short-term cash flows while building proprietary products for larger market segments.

Method

We selected GrowthCom as an appropriate subject for analysis because the company is in the transitional stage of development and could provide insights into the effects of the bootstrapping process. GrowthCom is a small and growing organization in the high technology telecommunications industry. It is a six-year old company that has grown from an initial four employees at its inception to seven employees in 1992, twelve employees in 1993, and plans for a total of 30 employees by the end of 1995. Using

archival data and structured interviews with the founding members of the management team, we assembled a detailed analysis of this organization’s evolution.

Major Findings

GrowthCom exhibited the underlying characteristics of a consulting organization from its inception through the middle of 1993. We examined these characteristics in relation to each of the dimensional variables depicted in our model. The strategy chosen was to provide consulting services in order to build a base to finance the development of internal products. The management team recognized that the internal development efforts were not progressing at an acceptable rate. The management and leadership skills within the organization were predominately applicable to the management of technical projects and were not sufficiently broad to direct the activities of a evolving product provider organization. Thus, other business skills were acquired through the process of engaging in networking and using external service providers. The review of the financial records clearly supported the characteristics of a consulting organization through the middle of 1993. All revenues were a direct result of the consulting services provided. Our analysis clearly shows that the allocated time for external consulting and manufacturing services dominated the total time allotments. The organizational structure was typical of a consulting service provider. Titles were assigned more for legal reasons than anything else. The structure was flat and informal. All decisions were arrived at in consensus. It was understood that all members’ inputs on decisions counted equally. The climate supported individuality, innovation, and high productivity. This climate was, in addition to being a major part of why GrowthCom was founded in the first place, attractive enough to entice additional expertise into the organization. This organization, when coupled with the ability to attract additional services contracts, provided a platform for moderate growth.

Implications

This research showed that while bootstrapping was beneficial as a means for controlling overhead costs and increasing marginal income, it inhibited the ability to build infrastructure for creating long-term shareholder value. The contribution of this research is an expanded view of the bootstrapping process that will be used to develop a survey instrument to examine bootstrapping situations across a larger sample of high technology startups. For high technology entrepreneurs forced to use bootstrapping as an entry strategy, this study provides an in-depth look at the critical choices that need to be made to develop proprietary products and raise outside financing to fuel organizational growth.

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