Chapter 19 Managing growth and

harvesting

Learning Outcomes

On completion of this chapter you should be able to: • Distinguish between the various life cycles of a high growth venture• Identify the characteristics of a high-growth venture. • Identify and discuss the factors influencing entrepreneurial growth:

o Managemento Entrepreneurial strategyo Entrepreneurial objectiveso Marketo Moneyo Leading practices of high growth ventures

• Discuss harvesting as a strategic option by means of:o Setting up for harvesting o Identifying the advantages of having a harvesting strategyo Distinguishing between different harvesting options available to

entrepreneurso What happens after harvesting

Introduction • Achieving sustainable growth remains one of the great

mystery processes in organisational planning, yet it plays a

vital part in the existence of any organisation

• The entrepreneur needs to create a harvesting goal and

keep to it throughout the venture life cycle – it will assist in

creating real value to be able to sell the business at a later

stage

Business life cycles

• Stage 1: Seed or concept – the concept or invention stage, idea

generation and recognition takes place – entrepreneur decide whether

to remain small or grow into a large organisation

• Stage 2: Start-up – prototype developed, entrepreneurial team

identified and assembled, business and marketing plans finalised,

manufacturing established, sales of products and services initiated,

and funding sought

• Stage 3: Product, service, and organizational development –

achieve market penetration and expand initial sales, reaching break-

even

• Stage 4: Production and market development – achieving volume

production along with market penetration

Business life cycles

• Stage 5: Strategic planning and major financing: all systems are in

full operation and the potential for a major success is beginning to be

apparent.

• Stage 6: Rapid expansion: establishing formal management and

organizational structures, the venture is cash provider and cash-flow

management less critical

• Stage 7: Maturity and stability: strategic planning an integral part,

competitors build strategies around the venture and new ventures

could become a threat, market leadership is built on customer service

and loyalty and not on cost leadership

Characteristics of high growth ventures

• They are managed by entrepreneurs that can be described as hardy,

ambitious, goal-achieving dreamers

• They have entrepreneurial managers who have built an entrepreneurial

team consisting of experts

• The entrepreneurs who have started a high-growth venture recognize

their need for and dependence on certain outside players

• The business plan is like running the venture on paper, and the

entrepreneur and entrepreneurial team take time to ensure that they

are not wasting time and money.

Characteristics of high growth ventures

• Financing needs will change and business plans are adapted to reflect

changing needs

• After the opportunity has been identified, the venture team assembled,

and financing obtained, the entrepreneurial management of high growth

ventures will accept the challenge of making all the pieces fit

• They take advantage of advanced knowledge and information that is more

tightly and economically bundled

• Their products and (or) services incorporate high-technological know-how

or information.

Factors influencing entrepreneurial growth

• Management

• Strategy

• Objectives

• Marketing

• Leading practices of high growth companies

Influence of Management

• Creating a business vision• Management by objectives• Delegating• Careful expansion• Hiring for the future• Leading people and managing things• Monitor and respond• Managing the organisation culture

Entrepreneurial strategy

• Transform the customer experience

• Transform organisational offerings

• Redefine profit drivers

• Exploit industry shifts

• Enter new markets

Entrepreneurial objectives

• Establish and maintain a strong sense of purpose

• Understand the marketplace

• Build an effective growth planning system

• Develop customer-driven process

• Put power of technology to work

• Attract and keep the best employees

• See the future more clearly

Marketing • Market development: segment and target their markets and

employ direct selling combined with a secondary web-based

strategy

• Geographical diversification: enter into new geographical

areas and markets, especially beyond the local area.

Money – venture capital

Types of funding offered:

• Seed capital: capital that is used for research and

development of a concept, before commencement of the

business. This can include funding to develop a prototype.

• Start-up funding: capital that is used to start the business

• Early stage growth funding: capital that is used for by an

established business to grow the business to the next level.

Leading practices

• Marketing practices

• Financial practices

• Management practices

• Planning practices

Harvesting

• Final stage of entrepreneurial process

• Harvesting goal and crafting a strategy to achieve it are what

separate successful entrepreneurs from the rest of the pack

• The mind-set of an entrepreneur going into business with the

goal of later harvesting the business is totally different from

that of a small business owner

Setting up a business for harvesting

• The workload demanded by a harvest-orientated venture

versus one in a venture that cannot be harvested may be

less and is probably no greater

• A business that’s geared towards harvesting could be less

stressful

• The options seems to rise geometrically as investors, other

entrepreneurs, banker, and the market place respond

• Having a harvesting goal is about creating a sustainable

business that has real value.

Harvesting strategy guidelines

• Patience: building a successful company takes time frame

of 3-5 years and as long as 7-10 years

• Realistic valuation: impatience is the enemy of an

attractive harvest, then greed is its executioner – do not

think business is worth more than it really is

• Outside advice: find an adviser that can help developing a

harvesting plan with objectivity and without emotion

Harvesting options

• Capital cow

• Employee stock ownership plan

• Management buyout

• Outright sale

• Merger

• Acquisition

• Strategic alliance