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Managing Growth and Exit Strategies

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Title: Managing Growth and Exit Strategies


1
Managing Growth and Exit Strategies
  • March 25, 2004

2
(No Transcript)
3
Agenda
  • Chapter 14 Managing Growing Firms and Exit
    Strategies
  • Distinctive features of small firm management
  • The nature of managerial work
  • Time management
  • Outside management assistance

4
Distinctive Features of Small Firm Management
Founders asManagers
ManagerialWeakness
Small Firm Management
Constraints on Management
Stages of Growth andManagement
5
Management Styles
  • Founders as Managers
  • May have difficulty fitting into conventional
    organizational roles.
  • Innovative
  • Bold
  • Intuitive
  • Action-oriented
  • Focused on the long-term
  • Professional Manager
  • A manager who uses systematic, analytical methods
    of management.
  • Administrative
  • cautious
  • Analytical
  • Planning-oriented
  • Focused on the short term

6
Organizational Stages of Growth
7
Stages of Growth and Management Implications
8
Stages of Growth and Managerial Time
STAGE 1
STAGE 2
STAGE 3
STAGE 4
One-PersonOperation
Player-Coach
IntermediateSupervision
FormalOrganization
Time spent managing
Time spent doing
9
The Nature of Managerial Work
Planning
Leading and Motivating
ManagerialWork
Controlling
Organizing
10
Planning Activities
  • The Benefits of Formal Planning
  • Improved productivity
  • Better focus on goal attainment
  • Increased credibility with stakeholders
  • Planning Time
  • Tyranny of the urgent
  • Planning requires discipline
  • Planning should not be postponed
  • Employee Participation
  • Employees are an excellent planning resource

11
Types of Plans
12
Goal Setting
  • A key aspect of the planning process
  • Goals can be established using the S.M.A.R.T.
    criterion
  • Specific clearly state expectations
  • Measurable select goals that have concrete
    indicators
  • Acceptable the goals must be acceptable to those
    responsible for their attainment
  • Realistic the goals should be a stretch to
    achieve, but attainable
  • Time-framed a deadline should be indicated

13
Leading and Motivation
  • Personal Involvement of the Entrepreneur
  • Creates a significant personal relationship with
    employees based on loyalty and respect.
  • Directly influences employees understanding of
    how the firm operates (e.g., its ethics).
  • Makes the firm attractive to new employees.
  • Leadership That Builds Enthusiasm
  • Empowerment
  • Work teams

14
Effective Communication
  • Stimulating Two-Way Communication
  • Conduct periodic performance review sessions to
    get employee feedback
  • Use bulletin boards to keep employees informed
    about developments affecting them
  • Make suggestion boxes available to solicit
    employees ideas
  • Hold staff meetings to discuss current issues
    and problems

15
(No Transcript)
16
Structuring Organizations
  • Unplanned Structure
  • Initial structure evolves with little planning
  • Growth creates the need for organizational change
  • Chain of Command
  • The official, vertical channel of communication
    in an organization.
  • Unity of Command
  • Span of Control

17
Line Organizations
18
Line-and-Staff Organizations
19
Delegation of Authority
  • Granting to a subordinate the right to act or
    make decisions
  • Benefits of delegation
  • Frees up superior to perform more important tasks
  • Develops subordinates skills
  • Improves two-way communications
  • Stewardship vs. Gofer Delegation (Stephen Covey)

20
Exercising Control
Planning and Goal Setting
Establishing standards
Measuring Performance
Taking Corrective Action
21
Stages of the Control Process
22
Time Management
  • The Problem of Time Pressure
  • Many owner-managers work 60-80 hours per week.
  • Effect of overwork is inefficient work
    performance.
  • Time Savers for Busy Managers
  • Effective use of time (time management)
  • Analyze how time is normally spent
  • Eliminate practices that waste time
  • Carefully plan available time
  • Use a daily planner to prioritize activities
  • Dont avoid unpleasant or difficult tasks
  • Limit conference and meeting times

23
Hours per Week Worked by New Business Owners
Source National Federation of Independent
Business
24
Time Management Matrix
(Stephen R. Covey, 1989 The seven habits of
highly effective people)
25
Time Management Matrix Results
(Stephen R. Covey, 1989 The seven habits of
highly effective people)
26
Outside Management Assistance
Business Incubators
Student Consulting Teams
Other Business and Professional Services
Outside Management Assistance
Counselling Assistance to Small Enterprise (CASE)
Entrepreneurial Networks
Industry Canada
Management Consultants
27
Services Provided by Business Incubatorsto New
Firms
28
Harvest (Exit) Strategies
Exit Options
Selling the
Going
Releasing
Using
Firm
Public
Cash Flows
Private Equity
Liquidation
Financial
Employee
Strategic
Acquisition
Acquisition
Acquisition
LBO or MBO
29
Selling the Firm
  • Strategic Acquisition
  • A purchase in which the value of the business is
    based on both the firms stand-alone
    characteristics and synergies that the buyer
    thinks can be created by the strategic fit with
    another firm
  • Employee Acquisition
  • A method by which a firm is sold either in part
    or in total to its employees.
  • Frequently the exit method of last resort.
  • Motivates the employee-owners to perform

30
Selling the Firm
  • Financial Acquisition
  • A purchase in which the value of the business is
    based on the stand-alone cash generating
    potential of the firm being acquired.
  • Leveraged Buyout (LBO)
  • A purchase heavily financed with debt, when the
    potential cash flow of the target company is
    expected to be sufficient to meet debt
    repayments.
  • Bust-up LBOpurchasing with the intention of
    selling off assets
  • Build-up LBOpurchasing similar firms to make one
    larger company
  • Management Buyout (MBO)
  • A leveraged buyout by the firms top management

31
Releasing Cash Flows
  • Exiting by withdrawing cash from the firm
  • Advantages
  • Retain control of firm while harvesting
    investment.
  • No need to seek a buyer or incur expenses
    associated with sale of business
  • Disadvantages
  • Loss of development potential and opportunities
  • Tax disadvantages of cash withdrawal
  • Requires patience to siphon off cash slowly

32
Going Public (IPO)
  • The first sale of shares of a companys stock to
    the public in order to
  • raise capital to repay outstanding debt
  • strengthen the balance sheet to support growth
  • create a source of capital that can be
    selectively accessed to fund continuing growth
  • create a liquid currency to fund future
    acquisitions
  • create a liquid market for the companys stock
  • broaden the shareholder base
  • create ongoing interest in the company and its
    continued development

33
Private Equity
  • Private Equity (Capital)
  • Money provided by venture capitalists or private
    investors.
  • Factors in the Transfer of Family-Owned Firms
  • Liquidity for exiting family members
  • Continued financing for company growth
  • Maintenance of family control of the firm

34
Illustration of Private Placement
35
Liquidation
  • Founder manager would not typically choose to
    liquidate as the harvest value will be less.
  • Some businesses such as one person consulting
    firms cannot operate without the owner and
    therefore have limited value to potential buyers.
  • Some firms may not be attractive due to the
    deterioration of their customer base, leveraged
    financial positions, or aging and unproductive
    equipment.

36
Firm Valuation
  • Asset-based
  • Market-based
  • Earnings-based
  • Cash flow-based
  • Non-quantitative factors

37
Managing your exit
  • Motives for exiting
  • Money
  • Independence
  • Health of the company
  • Your management team
  • An heir apparent taking over
  • Personal identity and the business itself

38
Life After the Harvest
  • Will you experience serious regrets over the
    decision to harvest your investment in a company?
  • What will become your passion after the easy
    lifes where you play golf every day or travel
    to you hearts content novelty has worn off?
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