Allen 8e PPT Ch17 Final

CHAPTER
17
Planning for
Growth and
Change
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CHAPTER OBJECTIVES
• Explain the stages of growth in a new venture.

• Discuss the differences between market
exploitation and market exploration.
• Explore ways to go global.
• Identify the various risks facing a growing
venture and how to mitigate them.
• Discuss how to plan for harvest and exit.
GROWTH
• Expansion is a natural by-product of a successful
startup.
• Growth helps a new business secure or maintain its
competitive advantage and establish a firm foothold in
the market.
• Growth is the result of an entrepreneur’s strong vision
that guides decision making and ensures that the
company stays on course and meets its goals.
• Some entrepreneurs shy away from growth because
they’re afraid of losing control.
• That fear is not unfounded; many businesses falter during
rapid growth because of the enormous demands placed on
the company’s resources.
GROWTH STRATEGY (slide 1 of 2)
• Any level of growth requires a successful

strategy, but it’s not the same type of strategy
that businesses have followed in the past.
• The business environment has changed so that
what we used to see as sustainable competitive
advantage—a unique product, a market niche, a
brand, or relationships with customers—in many
industries is becoming more challenging.
GROWTH STRATEGY (slide 2 of 2)
• There are three ways that strategies for growth are
changing:
1. Growth strategy is now about the general direction in which
you want to take your company based on its capabilities that
you plan to consistently improve on.
• The rapid pace at which the business world moves today means
that strategy and plans need to be more fluid.
2. Because of increasing uncertainty, it is not possible to predict
the future with any degree of confidence.
• That means your company has to be set up for change—fast
product development, testing, learning, and adapting.
3. Maintaining a flatter organizational structure that puts you,
your operational team, and the customer in close contact will
help you respond quickly to change.
STAGES OF GROWTH
17.1
IN A NEW VENTURE
• Rates and stages of growth in a new venture
vary by industry and business type; however,
there appear to be some commonalities that
suggest a pattern that will help you anticipate
events and requirements before they occur.
• The stages of growth are as follows:
1. Startup.
2. Initial growth.
3. Rapid growth.
4. Stable growth.
Stages of Growth
FIGURE 17.1
and Company Focus
17.1a Startup Success
• During startup, your main concerns are to:

• Validate your customer and your business model.
• Acquire sufficient capital.
• Design a way to deliver your product or service.
• At this point, you really are a jack-of-all-trades, doing everything
that needs to be done to get the business up and running.
• Although your primary goal in the first year or so is survival, some
of the following signs signal that you’re at the point where it’s time
to think about growth:
• Customers are coming to you faster than you expected; you don’t
have to go out and get them like you did in the beginning.
• You’re easily meeting your goals.
• Your sales have caught up to the capital invested and you have
enough money to spend on growth.
• You have the right team on board with the skills you will need to expand.
17.1b Initial Growth
• If your new venture survives startup, you now have a

business that is probably generating revenue and your
focus shifts to the issue of cash flow.
• At this point, your venture is usually relatively small,
there are few employees, and you are still playing an
integral role in all facets of the business, but
particularly in securing the resources for growth.
• This is a crucial stage, for the decisions made here will
determine whether your business will remain small or
move into a period of rapid growth, which calls for
some significant changes in organization and strategy.
17.1c Rapid Growth
• If the decision is to grow, sufficient resources must be gathered together

to finance that growth.
• This is a very risky stage because growth is expensive, and there are no
guarantees that you will be successful in the attempt to reach the next
level.
• Depending on your business, you may need a plan for scaling production
and distribution, and putting control systems in place to monitor quality.
• You will also need to hire the right talent because there will be no time to
do effective hiring during a period of rapid growth.
• If rapid growth is accomplished, it is at this stage that entrepreneurs often
sell the company at a substantial profit or, if appropriate, consider a public
offering to raise substantial growth capital.
• It is also at this stage that some entrepreneurs are replaced by their
boards of directors, investors, or creditors because the skills that made
them so important at startup are not the same skills the company needs
to grow to the next level and become a more professionally managed
company.
17.1d Stable Growth and Maintenance
• Once your business has successfully passed through

the phase of rapid growth and you are able to
effectively manage the financial gains of growth, your
business has reached the fourth stage: stable growth
and maintenance of market share.
• Here the company, which is usually large at this point,
can remain in a fairly stable condition as long as it
continues to be innovative, competitive, and flexible.
• If it does not, sooner or later it will begin to lose market share
and could ultimately fail or become a much smaller business.
17.1e Factors That Affect Growth (slide 1 of 4)
• The factors that affect the success of a growth strategy can be

grouped into three major areas:
1. Market and industry factors.
2. Management factors.
3. Scale factors.
Market and Industry Factors

• The degree of growth and the rate at which a new venture grows
are dependent on market strategy.
• If the niche market that your company is entering is by nature small
and relatively stable in terms of growth without new avenues to
expand, it will be more difficult to achieve the spectacular growth and
size of the most rapidly growing companies.
• On the other hand, if a product or service you’re offering can expand
to a global market, growth and size are more likely to be attained.
Market and Industry Factors (continued)

• Entering a market dominated by large companies is not in and of
itself an automatic deterrent to growth.
• A small, well-organized company is often able to produce its product
or service at a very competitive price while maintaining high-quality
standards, because it doesn’t have the enormous overhead of the
larger companies.
• As your company grows, you will need to tackle forces that may
work against you and turn them into advantages.
• Some industries, simply by virtue of their size and maturity, are
difficult for a new venture to enter and penetrate enough to make
a profit.
• Other industries are prohibitive to new entrants because the cost
of participating (plant and equipment, fees, and / or compliance
with regulations) is so high.
Management Factors
• When a new company has survived and is successful, there is a
tendency to believe that it must be doing everything right and
should continue in the same manner.
• That is a fatal error because change is a by-product of success.
• Most entrepreneurs have a difficult time moving from the
entrepreneur role to the executive role, which requires adapting
their leadership capabilities to the needs of the growing company.
• Four leadership tendencies seem to be a problem for
entrepreneurs attempting to manage growing organizations:
1. Too much loyalty to the original founding team and failing to see the
need for change.
2. Too much focus on details.
3. Too much focus on the destination.
4. Working in isolation.
Scaling Factors
• Growing your business is important, but finding ways
to scale the business is arguably more important.
• Growing requires adding resources to generate equivalent
revenue.
• By contrast, scaling adds revenue at an exponential rate
relative to the resources used.
• You’re rapidly increasing revenue while incrementally increasing
cost, which serves to increase your margins, resulting in more
profit.
• To effectively scale your business, you need to find
areas of your business model that can be replicated
and applied in new ways quickly and at relatively low
cost.
TABLE 17.1 A Framework for Growth
(slide 1 of 3)
STRATEGIES TACTICS
Scan and assess the 1. Analyze the environment.
environment. a. Is the customer base growing or shrinking?
Why?
b. How are competitors doing?
c. Is the market growing?
d. How does your company compare
technologically with others in the industry?
2. Do a SWOT analysis (strengths, weaknesses,
opportunities, threats).
(slide 2 of 3)
STRATEGIES TACTICS
Plan the growth strategy. 3. Determine the problem to be solved. Where is
the pain?
4. Brainstorm solutions.
a. Don’t limit yourself to what you know and
have done in the past.
b. Think about how you can innovate
strategically.
c. Choose two or three solutions to test.
5. Set a major goal for significant change in the
organization.
6. Set smaller, achievable goals that will put you on
the path to achieve the major goal.
7. Dedicate resources (funding and staff) toward
the achievement of these goals.
8. Examine your business model for scalable
aspects that will allow your company to grow
rapidly at lower cost.
(slide 3 of 3)
STRATEGIES TACTICS
Hire for growth. 9. Put someone in charge of the growth plan.
10. Bring in key professional management with
experience in growing companies.
11. Provide education and training for employees
to prepare them for growth and change.
Create a growth culture. 12. Involve everyone in the organization in the
growth plan.
13. Reward achievement in interim goals.
Build a strategy advisory 14. Invite key people from the industry who can
board. keep you apprised of changes.
15. Make industry partners and customers part of
the planning process.
16. Invite more outsiders than insiders onto the
advisory board.
Categories of Growth
FIGURE 17.2
Strategies
for Entrepreneurs
17.2 GROWING THE MARKET
• As your company grows, you will need to capture

adjacent markets beyond the first market.
• If a growing company spends too long in its target market,
ignoring exploration beyond what it knows, it could end up in
an inertial situation that will ultimately destroy its business
model and its competitive advantage.
• One of the critical tasks of growth is to constantly
monitor and refine your business model and the
marketing strategy that helps you execute that model.
• There are generally two broad methods for
implementing growth in the market:
1. Market exploitation.
2. Market exploration.
17.2a Market Exploitation
• With market exploitation, you attempt to increase sales by using

more effective marketing strategies within the current target
market.
• Under this strategy, your company would expand gradually from
the initial target market, whether it is a geographic area or a
customer base.
• To implement a market exploitation strategy, you might do the
following:
1. Get your first customers solidified and happy and then gradually
move on to other target customers.
2. Attract customers from competitors by offering a value proposition
that better meets their needs.
3. Once your product is firmly established in the market, go after
noncustomers who typically have not purchased because the product
or service is too costly, has too steep a learning curve, or has high
switching costs.
17.2b Market Exploration (slide 1 of 5)
• Market exploration strategies involve seeking out new markets,

using new approaches, or launching new products or channels of
distribution.
• Market exploration consists of taking a product or service to a
broader geographic area or innovating new products even in
areas where the company has not played previously.
• Two effective ways to expand a market geographically:
1. Franchising.
2. Licensing.
Franchising
• Franchising enables a business to grow quickly into several
geographic markets at once.
Franchising (continued)
• The franchiser sells to the franchisee:
• The right to do business under a particular name.
• The right to a product, process, or service.
• Training and assistance in setting up the business.
• Ongoing marketing and quality control support once the business is
established.
• The franchisee pays a fee and royalty on sales, typically 3 to 8
percent, and in return may get:
• A product or service that has a proven market.
• Trade names and / or trademarks.
• A patented design, process, or formula.
• An accounting and financial control system.
• A marketing plan.
• The benefit of volume purchasing and advertising.
• Although it is a popular vehicle for growth, franchising
a business is not without its risks.
• It is much like creating a whole new business, because the
franchiser must carefully document all processes and
procedures in a manual that will be used to train the
franchisees.
• Potential franchisees need to be scrutinized to ensure that
they are qualified to assume the responsibilities of operating a
franchise.
• The cost of preparing a business to franchise is considerable
and includes legal, accounting, consulting, and training
expenses.
• It may take as long as three to five years to show a profit.
• A successful franchise system will need to have the following
characteristics:
• A successful prototype with proven profitability and a good reputation
so that the potential franchisee will begin with instant recognition.
• A registered trademark and a consistent image and appearance for
all outlets.
• A business that can be systematized and easily replicated many times.
• A product that can be sold in a variety of geographic regions.
• Adequate funding.
• A well-documented prospectus that spells out the franchisee’s rights,
responsibilities, and risks.
• An operations manual that details every aspect of running the business.
• A training and support system for franchisees.
• Site selection criteria and architectural standards.
Licensing
• Licensing is a way to grow a company without
investing large amounts of capital in plant, equipment,
and employees.
• A license agreement is a grant to someone else to use
your company’s intellectual property and exploit it in
the marketplace by manufacturing, distributing, or
using it to create a new product.
• Anything that can be patented, copyrighted, or
trademarked, and anything that is a trade secret, has
the potential to be licensed.
17.3 GROWING WITHIN THE INDUSTRY
• There are many opportunities for entrepreneurs to pursue

integrative growth strategies by growing their ventures through
acquisition.
• Acquisition is in many respects less about your financial ability to
purchase another company and more about the ability to
negotiate a good deal.
• In general, you want to target opportunities that:
• Integrate well with your core business.
• Can be implemented quickly.
• Ensure the continuation of smooth operating processes.
• Entrepreneurs typically use three strategies to grow within their
industries:
1. Vertical integration strategies.
2. Horizontal integration strategies.
3. Alliance strategies.
17.3a Vertical Integration Strategies
• An entrepreneurial venture can grow by moving

backward or forward within the distribution channel.
• This is called vertical integration.
• With a backward strategy, either your company gains control
of some or all of your suppliers or the company becomes its
own supplier by starting another business from scratch or
acquiring an existing supplier that has a successful operation.
• With a forward strategy, your company attempts to control the
distribution of its products by either selling directly to the
customer or acquiring the distributors of its products, the
wholesalers.
17.3b Horizontal Integration Strategies
• Another way to grow your business within the

current industry is to buy up competitors or
start a competing business (sell the same
product under another label).
• This is known as horizontal integration.
• Example: If you own a chain of sporting goods
outlets, you could purchase a business that has
complementary products, such as a batting cage
business, so that customers can buy their bats,
balls, helmets, and other items from your retail
store and use them at your batting cage.
17.3c Alliance Strategies
• Another way for your company to grow within

its industry is for you to focus on what you do
best and let others do the rest.
• You do this by forming alliances or partnerships
with entities that offer some capability or product
that you need.
• Typically, an alliance involves less interaction and
coordination than a merger but more than a license
agreement.
• They are usually formed as joint ventures to develop new
technology, conduct research, produce products, or co-
market products.
GROWING BY GOING GLOBAL
17.4
(slide 1 of 2)
• Today, the question for a growth-oriented

company is not “Should we go global?” but
“When should we go global?”
• Some entrepreneurs will launch companies
that are born global.
• The term born global usually denotes a company
that generates at least 25 percent of its sales in the
first three years from the international marketplace
and that derives a competitive advantage from
outsourcing and selling in several countries.
GROWING BY GOING GLOBAL
17.4
(slide 2 of 2)
• Research has found the following seven characteristics of a

successful global startup:
1. A global vision from the start.
2. Internationally experienced managers.
3. Strong international business networks.
4. Preemptive technology.
5. A unique intangible asset, such as know-how.
6. Closely linked product or service extensions.
7. A closely coordinated organization on a worldwide basis.
• However, going global is a risky proposition.
• Building a customer base and a distribution network is a colossal
challenge in foreign markets.
• Financing is more difficult in global markets because of currency
fluctuations, communication problems, and regulations that vary from
country to country, to name just a few of the challenges.
17.4a Finding the Best Global Market
• Finding the best market for a product or

service can be a daunting task, but consulting
certain sources of information can make the
job easier.
• A good place to start is the International Trade
Statistics Yearbook of the United States, which can
be found at any major library and also online.
• With the United Nations Standard Industrial
Trade Classification (S I T C) codes found in this
reference book, it is possible to locate
information about international demand for a
product or service in specific countries.
17.4b Export Financing
• To make a sale in the global market, your company

needs funds to purchase the raw materials or inventory
to fill the order.
• Entrepreneurs who want to export can look for capital from
several sources, including:
• Bank financing.
• Internal cash flow from the business.
• Venture capital or private investor capital.
• Prepayment, down payment, or progress payments from
the foreign company placing the order.
• Asking buyers to pay a deposit upfront, enough to cover the
purchase of raw materials, can also be a real asset to a
young company with limited cash flow.
17.4c Foreign Agents, Distributors,
and Trading Companies (slide 1 of 2)
• Every country has a number of sales

representatives, agents, and distributors who
specialize in importing U.S. goods.
• Sales representatives work on commission; they do
not buy and hold products.
• Consequently, you are still responsible for collecting
receivables.
• Agents purchase a product at a discount off list
price and then sell it and handle collections
themselves.
• However, using an agent means losing control over what
happens to the product once it leaves your hands.
17.4c Foreign Agents, Distributors,
and Trading Companies (slide 2 of 2)
• Entrepreneurs who are just starting to export or are

exporting to areas not large enough to warrant an
agent should consider putting an ad in U.S. trade
journals that showcase U.S. products internationally.
• Another option is to use an export trading company
(E T C) that specializes in certain countries or
regions where it has established a network of sales
representatives.
• What typically happens is that a sales representative may
report to the E T C that a particular country is interested in
a certain product.
• The E T C then locates a manufacturer, buys the product,
and sells it in the foreign country.
17.4d Choosing an Intermediary
• Before deciding on an intermediary to handle the exporting of

products, you should undertake some due diligence.
• Check the intermediary’s current listing of products to see whether
there is a good match.
• Understand the competition and question whether the intermediary
also handles these competitors, a potential conflict of interest.
• Find out whether the intermediary has enough representatives in the
foreign country to handle your market.
• Look at the sales volume of the intermediary, which should show a
rather consistent level of growth.
• Make sure the intermediary has sufficient warehouse space and up-
to-date communication systems.
• Examine the intermediary’s marketing plan, and make sure the
intermediary can handle the servicing of your product.
• Once a decision has been made, an agreement detailing the
terms and conditions of the relationship should be drafted.
17.5 PREPARING FOR CHANGE (slide 1 of 2)
• There is no way to avoid change in today’s

global environment; therefore, you must be
ready and willing to adapt to new conditions,
new threats, and new opportunities.
• To deal with change, an entrepreneur must
have a contingency plan in place.
17.5 PREPARING FOR CHANGE (slide 2 of 2)
• An effective contingency plan will answer the following questions:

1. In the event of a problem, which suppliers will be willing to extend
your repayment time and for how much?
2. What nonessential assets does the business have that can be turned
into cash quickly?
3. Is there additional investment capital that can be tapped?
4. Does the business have customers who might be willing to prepay or
purchase earlier than planned?
5. Has a good relationship with a banker and accountant been
established? How can they help the business get through the crunch?
• After answering these questions, you can:
1. Identify the potential risks associated with your venture.
2. Calculate the probability that those identified risks will in fact occur.
3. Assign a level of importance to the losses.
4. Calculate the overall loss risk.
FIGURE 17.3 Managing Risk in a
New Venture
17.5a Identifying Potential Risks (slide 1 of 6)
• Risk is a fact of business life, and your company’s

exposure to risk increases as it grows.
• Understanding where the risk lies enables you to
respond effectively through process improvement
strategies and buffer strategies.
• Process improvement strategies involve reducing the
probability that the risk will occur by forming strategic
alliances with strong partners or by developing backup
suppliers and better communication with suppliers.
• Buffer strategies are used to protect a company against
potential risk that can’t be prevented.
• Examples: Maintaining sufficient inventory and alternative
sources of supply.
Supply Chain Risks

• The financial health of a supplier is critical to the stability of the
business.
• When a supplier faces financial hardships and cannot provide
supplies, raw materials, and so forth in a timely manner and you
have no backup, the results can be loss of customers and, in some
cases, the failure of your business.
• When demand fluctuates or increases precipitously, suppliers
may not be able to ramp up quickly enough to meet the demand.
• Quality-related risks and the inability of suppliers to keep up with
technological change can raise the cost of producing a product.
• Changes in customer needs can affect product design and, by
extension, the types and quantities of supplies needed.
• Disasters—floods, fires, earthquakes—can disrupt supply chains
and affect your ability to manufacture and distribute products.
Taxes and Regulations

• During the life of every business, new laws, regulations, and rules
will be enacted, and frequently there is no way to prepare for
them.
Intellectual Piracy
• Although piracy cannot be completely stopped, small companies
can fight back by:
• Investigating suppliers and manufacturers before doing business with
them.
• Contractually requiring their foreign partners to submit to
international binding arbitration to avoid having to navigate the local
courts of a country.
• Registering all trademarks in whatever country your company is
doing business in.
Product Liability
• More and more of the risk of product-related injuries has been
shifted to manufacturers, creating a legal minefield that could
prove disastrous to a growing company.
• Most product liability insurance covers the cost of defense,
personal injury, or property damage, but not lost sales and the
cost of product redesign.
Cyber Risk
• Cyber risk includes:
• Hacker attacks.
• Phishing attacks.
• Spy bots.
• Viruses and worms.
Cyber Risk (continued)

• Here are a few things you must do to protect your business:
• Back up all your data to a secure location, whether to cloud storage
or an offsite server.
• Work with your website developer to ensure that the platform you’re
using is secure.
• Do not publicize a company client list, as it may make your company
vulnerable to attack by hackers.
• Be careful to guard customer data; you could be held accountable if
your systems are breached and sensitive customer data becomes
public.
• Use different passwords for every one of your accounts and change
them regularly.
• Train your employees to spot phishing attacks and other unusual
behavior that could signal that someone is attempting to gain access
to your business data.
Decline in Sales
• When there is a decline in sales, it is especially important to look
not only at the economy but at the following sources as well:
• The credit status of customers and distributors.
• Your inventory turnover rate.
• Any new competitor(s) that offers a product or service more in line
with current tastes and preferences.
• To prepare the best defense against a cash flow crisis:
• Remain committed to producing exceptional-quality products.
• Control the cost of overhead, particularly where that overhead does
not contribute directly to revenue generation.
• Keep production costs down by subcontracting and being frugal
about facilities.
• Make liquidity and positive cash flow the prime directive, so that your
company can ride out temporary periods of declining demand.
17.5b Calculating Risk Probability
and the Cost to the Business
• It is extremely difficult to calculate the probability that a

given risk will occur with any degree of accuracy.
• Nonetheless, it is important to gauge, based on industry and
customer knowledge, the chance that a particular risk will
occur and what the impact of that occurrence will be on the
company.
• The overall risk of loss can be found by the following
formula:
Risk of Loss  (P  C  S )
where
• P = The probability the risk will occur.
• C = The impact to the business.
• S = The level of significance of that impact.
17.6 LEADERSHIP SUCCESSION
• No company can count on keeping the same

management team over the life of the business.
• Succession planning—identifying people who can
take over key company positions in an emergency or in
a change of ownership—is an important part of
planning for change.
• Ideally your replacement will come from within the company, a
person who has worked his or her way up the ladder.
• Unfortunately, lean startups and growing companies often don’t
have a strong bench of potential candidates to tap so they need
to seek qualified outsiders.
17.6a Change of Ownership in
Small Enterprises (slide 1 of 3)
• Employing a simple process for succession

planning will increase the likelihood that the
process will actually result in an effective
succession plan.
1. Situation assessment.
• You need to determine:
• The timing of succession.
• The criteria for selection.
• The likely internal candidates.
• A plan for identifying possible external candidates.
• Plans for engaging the appropriate stakeholders in the
process.
17.6a Change of Ownership
in Small Enterprises (slide 2 of 3)
2. Announcement of the process.

• Once the company’s situation is assessed, you should
announce the plans and process to relevant stakeholders
such as board members, advisors, and employees.
3. Execution of the search.
• At this stage, management moves forward to search and
select either an internal or external candidate.
• This can be accomplished through referrals or by employing
a search firm.
4. Transition.
• Once the selection has been made, you need to help the
new leader during the transfer of power, smooth the
transition with important stakeholders, and make a graceful
exit at the appropriate time.
17.6a Change of Ownership in
Small Enterprises (slide 3 of 3)
• To prepare for the possible unexpected loss of a key

employee like the C E O or C F O, it is a good idea to
purchase key-person insurance, which will cover the
costs associated with abruptly having to replace
someone.
• Bringing in a consultant to guide your management
team in succession planning is a valuable exercise for
any growing venture.
• Another solution is to cross-train people in key
positions so that someone can step in, at least for the
short term, in the event of an emergency.
17.6b Succession Planning in
Family-Owned Businesses (slide 1 of 2)
• About a third of all family businesses survive the transition from
first- to second-generation ownership, and only about 12 percent
remain viable into the third generation.
• This is partly because the owner must deal not only with business
issues related to succession—ownership, management, strategic
planning—but also with the unexpected, such as a death or
relationship issues with family members.
• Succession planning tends to expose family issues that may have
been kept in the background but have been building over time.
• Succession planning in family businesses takes a long time due to:
1. Physiological and emotional issues that stem from the interrelations
of family members.
2. The complexity of succession, particularly since the owner typically
has no experience in this area.
3. Relevant laws and taxation that impact the financial status of the
company.
17.6b Succession Planning in
Family-Owned Businesses (slide 2 of 2)
• To start the process of succession planning, all the active family
members should participate on a committee to explore the options
and answer the following questions:
• Is the next generation being sufficiently prepared to take over the
business when the time comes?
• What is the second generation’s expectation for the future of the
business, and is it congruent with the company’s vision?
• What skills and experience does the second generation need to
acquire?
• What would the ideal succession plan look like?
• Then, with the help of an attorney, buy–sell agreements should be
developed to ensure that heirs receive a fair price for their interest
in the business upon an owner’s death and to protect against
irreparable damage in the event of a shareholder’s permanent
disability by outlining provisions for buying out the disabled
shareholder’s interest.
17.7 PLANNING FOR HARVEST AND EXIT
• Exiting the business does not necessarily mean exiting

the role of entrepreneur.
• It may mean taking the financial rewards of having grown a
successful business and investing them in a new venture.
• Serial entrepreneurs start businesses and then sell them or let
others run them.
• Whether or not you intend to exit your business at any
point, you should have a plan for harvesting the rewards
of having started the business in the first place.
• Having a harvest plan is essential because many
entrepreneurs take investor capital at some point in the growth
of their companies, and investors require a liquidity event so
that they can exit the business with their principal and any
return on investment they have accrued.
17.7a Selling the Business
• Selling a business is a life-changing event because for several

years you have probably devoted the majority of your time and
attention to growing the business, and it played an important role
in structuring your life.
• The best way to sell a business is to know almost from the
beginning that selling is what you eventually want to do, so that
you will make decisions for the business that will place it in the
best position to become an acquisition target several years later.
• The purchasing firm or individual should be thoroughly checked
out against a list of criteria you developed; specifically, it should:
• Have the resources necessary to continue the growth of the business.
• Be familiar with the industry and the type of business being purchased.
• Have a good reputation in the industry.
• Offer skills and contacts that will ensure that the business continues
in a positive direction.
17.7b Cashing Out but Staying In (slide 1 of 2)
• Sometimes entrepreneurs reach the point where they

would like to take the bulk of their investment and gain
out of the business but continue to run the business or
at least retain a minority interest.
• There are several ways this can be accomplished.
• If your company is still privately owned, the remaining
shareholders may want to purchase your stock at current market
rates so that control doesn’t end up in outsiders’ hands.
• If your company is publicly traded, and you own a substantial
portion of the issued stock, strict guidelines set out by the S E C
must be followed when liquidating your interests.
• If an entrepreneur wants to turn over the reins to a son, daughter,
or other individual, the business can be split into two firms, with
the entrepreneur owning the firm that holds all the assets and the
other individual owning the operating aspect of the business while
leasing the assets from the entrepreneur’s company.
FIGURE 17.4 Restructuring the
Family Business
17.7b Cashing Out but Staying In (slide 2 of 2)
A Phased Sale
• Some entrepreneurs want to soften the emotional blow of selling
the business by agreeing with the buyer—an individual or another
firm—to sell in two phases.
• During the first phase, you sell a percentage of the company but
remain in control of operations and can continue to grow the company
to the point at which the buyer has agreed to complete the purchase.
• In the second phase, the business is sold at a prearranged price,
usually a multiple of earnings.
• This approach is fairly complex and should always be guided by
an attorney experienced in acquisitions and buy–sell agreements.
• The buy–sell agreement, which specifies the terms of the purchase,
specifies the amount of control the new owner can exert over the
business before the sale has been completed and the amount of
proprietary information that will be shared with the buyer between
Phases 1 and 2.
17.7c Being Acquired (slide 1 of 2)
• Over the past decade, the number of mergers

and acquisitions has been soaring due to
strong equity markets and valuations.
• Acquirers can be categorized in two ways:
1. Financial acquirers.
• Private equity or buyout firms that provide growth capital
with the intention of selling for a profit.
2. Strategic acquirers.
• Large, often public, firms that are established in the market
and are seeking to diversify or expand their offerings.
17.7c Being Acquired (slide 2 of 2)
• Mergers and acquisitions are not without their

challenges.
• Some of the reasons why acquisitions do not go well are the
following:
• The products of the two companies are not complementary.
• Difficulty in getting the salesforce up to speed on the new
products being acquired.
• R & D approaches and expertise are very different.
• The cultures of the two companies don’t mesh.
• By all accounts, being acquired will continue to be the
most common way that entrepreneurs and investors
harvest the wealth they have created.
17.7d Dealing with Failure: Bankruptcy
(slide 1 of 2)
• What forces a company into bankruptcy is difficult to

pinpoint.
• The immediately precipitating cause is usually the failure to
pay debt; however, myriad other events contribute to that
cause, including:
• A lack of understanding of economic and business cycles.
• Carrying excessive debt and surplus overhead.
• Shifts in market demand.
• Excessive expenses.
• Poor dividend policies.
• Union and supplier problems.
• Poor financial management.
• The common denominator for all these factors is poor
management.
17.7d Dealing with Failure: Bankruptcy
(slide 2 of 2)
• Two chapters of bankruptcy available to entrepreneurs:

• Chapter 7 bankruptcy.
• This is essentially liquidation of the business assets and the
discharge of most types of debt.
• The debtor files a petition and several required schedules of
assets and liabilities with a bankruptcy court.
• A trustee is appointed to manage the disposition of the business.
• The goal of the bankruptcy is to reduce the business to cash and
distribute the cash to the creditors where authorized.
• Chapter 11 bankruptcy.
• This is a reorganization of the finances of the business so that it
can continue to operate and begin to pay its debts.
• The entrepreneur remains in control of the business; only in the
case where the creditors believe that management is unable to
carry out the terms of the reorganization plan is a trustee
appointed to run the company until the debt has been repaid.
17.8 SOME FINAL THOUGHTS
• The definition of the term entrepreneurship has changed over the

past 50 years and is now used to describe all kinds of ventures,
from the small “mom-and-pop” to the Fortune 500 conglomerate
to even successful artists, scientists, and journalists whether or
not they start a business.
• This book has focused on the birth and early growth of innovative,
growth-oriented new ventures and has used a classic definition of the
term entrepreneurship: the creation, evaluation, and exploitation of
opportunities that are innovative, growth oriented, and that create
new value for customers.
• Entrepreneurship is more than just new venture creation; it is a
way of viewing the world and a skill set that can be learned.
• Entrepreneurship is for everyone who wants to experience the
freedom and independence that come from knowing that
opportunities and the resources to make those opportunities a
reality are within their grasp.

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Allen 8e PPT Ch17 Final

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CHAPTER

• Explain the stages of growth in a new venture.

• Any level of growth requires a successful

• During startup, your main concerns are to:

• If your new venture survives startup, you now have a

• If the decision is to grow, sufficient resources must be gathered together

• Once your business has successfully passed through

• The factors that affect the success of a growth strategy can be

Market and Industry Factors

Market and Industry Factors (continued)

• As your company grows, you will need to capture

• With market exploitation, you attempt to increase sales by using

• Market exploration strategies involve seeking out new markets,

• There are many opportunities for entrepreneurs to pursue

• An entrepreneurial venture can grow by moving

• Another way to grow your business within the

• Another way for your company to grow within

• Today, the question for a growth-oriented

• Research has found the following seven characteristics of a

• Finding the best market for a product or

• To make a sale in the global market, your company

• Every country has a number of sales

• Entrepreneurs who are just starting to export or are

• Before deciding on an intermediary to handle the exporting of

• There is no way to avoid change in today’s

• An effective contingency plan will answer the following questions:

• Risk is a fact of business life, and your company’s

Supply Chain Risks

Taxes and Regulations

Cyber Risk (continued)

• It is extremely difficult to calculate the probability that a

• No company can count on keeping the same

• Employing a simple process for succession

2. Announcement of the process.

• To prepare for the possible unexpected loss of a key

• Exiting the business does not necessarily mean exiting

• Selling a business is a life-changing event because for several

• Sometimes entrepreneurs reach the point where they

• Over the past decade, the number of mergers

• Mergers and acquisitions are not without their

• What forces a company into bankruptcy is difficult to

• Two chapters of bankruptcy available to entrepreneurs:

• The definition of the term entrepreneurship has changed over the

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