Managing Growth and Exit Strategies

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Managing Growth and Exit Strategies

• March 25, 2004

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(No Transcript)
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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

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Distinctive Features of Small Firm Management
Founders asManagers
ManagerialWeakness
Small Firm Management
Constraints on Management
Stages of Growth andManagement
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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

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Organizational Stages of Growth
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Stages of Growth and Management Implications
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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
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The Nature of Managerial Work
Planning
Leading and Motivating
ManagerialWork
Controlling
Organizing
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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

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Types of Plans
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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

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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

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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

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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

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Line Organizations
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Line-and-Staff Organizations
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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)

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Exercising Control
Planning and Goal Setting
Establishing standards
Measuring Performance
Taking Corrective Action
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Stages of the Control Process
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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

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Hours per Week Worked by New Business Owners
Source National Federation of Independent
Business
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Time Management Matrix
(Stephen R. Covey, 1989 The seven habits of
highly effective people)
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Time Management Matrix Results
(Stephen R. Covey, 1989 The seven habits of
highly effective people)
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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
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Services Provided by Business Incubatorsto New
Firms
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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
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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

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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

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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

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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

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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

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Illustration of Private Placement
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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.

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Firm Valuation

• Asset-based
• Market-based
• Earnings-based
• Cash flow-based
• Non-quantitative factors

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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

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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?