CHAPTER 18
HARVESTING THE ENTREPRENEURIAL VENTURE
CHAPTER OUTLINE
I. Harvesting the Venture
A. Harvest Plan
B. Entrepreneurial decisions:
1. Managerial control
2. Liquidity event
3. IPO
4. Sale of the business
II. Management Succession Challenge
A. Management succession plan
B. Myriad of problems
1. The owner
2. Death-negative connotation
3. Sibling rivalry
III. Key Factors in Succession
A. Pressures and interests inside the firm
1. Family members
a. Pressure for family management
b. Pressure to designate an heir
c. Rivalry among branches of family
2. Nonfamily employees
a. Effort to protect interest
b. Accommodation critical for survival
B. Pressures and interest from outside the firm
1. Family members
a. Pressure to inherit part of operation
b. Pressure to get involved in business
c. Pressure to hire family member
2. Nonfamily elements
a. Competition changing its strategy
b. Other factors
C. Forcing Events
1. Death
2. Illness or nonterminal physical incapacitation
3. Mental or psychological breakdown
4. Abrupt departure to retire immediately
5. Legal problems
6. Severe business decline
7. Financial difficulties
© 2007 South-Western. All rights reserved. 238
, D. Sources of Succession
1. Entrepreneurial successor
2. Managerial successor
3. Early entry vs. delayed entry strategies
E. Legal Restrictions
1. Oakland Scavenger Company case
2. Be aware when preparing succession plan
IV. Developing the Succession Strategy
A. Understanding the contextual aspects
1. Time
2. Type of venture
3. Capabilities of manager
4. Entrepreneur’s vision
5. Environmental factors
B. Identifying successor qualities
1. Qualities and characteristics depend on situation
C. Written Succession Strategy
1. Owner controls management continuity strategy.
2. Owner consults selected family members.
3. Owner works with professional advisors.
4. Owner works with family involvement.
5. Owner formulates buy/sell agreements at outset.
6. Owner considers employee stock ownership plans.
7. Owner sells or liquidates the business.
8. Consider outside help.
V. The Harvest Strategy: Liquidity Events
A. Positioning the venture for a cash return for owners and investors.
B. Achieved through an initial public offering or sale of the venture
C. Initial Public Offering (IPO)
D. Steps involved with an IPO
E. IPO prospectus
F. Reporting requirements, disclosure statements, shared control and ownership
VI. Complete Sale of the Venture
A. Reasons for selling
B. Steps for selling a business
1. Prepare a Financial Analysis.
2. Segregate Assets.
3. Value the Business.
4. Identify the Appropriate Timing.
5. Publicize the Offer to Sell.
6. Finalize the Prospective Buyers.
7. Remain Involved through the Closing.
8. Communicate after the Sale.
© 2007 South-Western. All rights reserved. 239
,VII. Summary
CHAPTER OBJECTIVES
1. To present the concept of “harvest” as a plan for the future
2. To examine the key factors in the management succession of a venture
3. To identify and describe some of the most important sources of succession
4. To discuss the potential impact of recent legislation on family business succession
5. To relate the ways to develop a succession strategy
6. To examine the specifics of an IPO as a potential harvest strategy
7. To present “selling out” as a final alternative in the harvest strategy
CHAPTER SUMMARY
This chapter focused on the harvesting of the venture. Beginning with the issue of management
succession as one of the greatest challenges for entrepreneurs, a number of considerations that
affect succession were discussed. Using privately held firms as the focal point in this chapter,
key issues such as family and nonfamily members, both within and outside the firm, were
identified to show the unique pressures on the entrepreneur. Some family members will want to
be put in charge of the operation; others simply want a stake in the enterprise.
Two types of successors exist: An entrepreneurial successor provides innovative ideas for
new-product development whereas a managerial successor provides stability for day-to-day
operations. An entrepreneur may search inside or outside the family as well as inside or outside
the business. The actual transfer of power is a critical issue, and the timing of entry for a
successor can be strategic.
The Oakland Scavenger Company case revealed how legal concerns now exist about the
hiring of only family members. Nepotism has been challenged in the courts on the basis of
discrimination.
Developing a succession plan involves understanding these important contextual aspects:
time, type of venture, capabilities of managers, the entrepreneur’s vision, and environmental
factors. Also, forcing events may require the implementation of a succession plan regardless of
whether or not the firm is ready to implement one. This is why it is so important to identify
successor qualities and carry out the succession plan.
The chapter closed with a discussion of the entrepreneur’s decision to sell out. The
process was viewed as a method to “harvest” the investment, and eight specific steps were
presented for entrepreneurs to follow.
© 2007 South-Western. All rights reserved. 240
, LECTURE NOTES
HARVESTING THE ENTREPRENEURIAL VENTURE
I. Harvesting the Venture
A. Harvest Plan: how and when the owners/investors realize a
return on their investment.
B. Entrepreneurial decisions:
1. Managerial control and succession for continued operations
2. Liquidity event--- the venture generates cash for investors.
3. Initial Public Offering (IPO)
4. Sale of the business
II. The Management Succession Challenge
A. Management succession---the transition of managerial decision making in a firm.
B. Challenges:
1. The owner is the business.
2. The individual’s personality and talents make up the operation.
3. Without the owner, the company might be unable to continue.
4. Individual may not want to be removed despite poor health.
C. Other barriers to succession:
1. Sibling rivalry
2. Fear of losing status
3. Death anxiety
III. Key Factors in Succession: emotional issue that requires structural and cultural
changes---transfer of ethics, values, and traditions
A. Pressures and interests inside the firm
1. Rivalry among the family members
2. Nonfamily employees
B. Pressures and interests from outside the firm.
1. Family members: interested in ensuring that they inherit part of the operation or
get involved in the business.
2. Nonfamily elements: competition continually changes strategies.
a. Other factors: customers, technology, and new-product development.
b. Tax laws, regulatory agencies, and trends in management practices
C. Forcing events cause the replacement of the owner-manager:
1. Death
2. Illness
3. Mental or psychological breakdown
4. Abrupt departure
5. Legal problems
6. Severe business decline
7. Financial difficulties
© 2007 South-Western. All rights reserved. 241
HARVESTING THE ENTREPRENEURIAL VENTURE
CHAPTER OUTLINE
I. Harvesting the Venture
A. Harvest Plan
B. Entrepreneurial decisions:
1. Managerial control
2. Liquidity event
3. IPO
4. Sale of the business
II. Management Succession Challenge
A. Management succession plan
B. Myriad of problems
1. The owner
2. Death-negative connotation
3. Sibling rivalry
III. Key Factors in Succession
A. Pressures and interests inside the firm
1. Family members
a. Pressure for family management
b. Pressure to designate an heir
c. Rivalry among branches of family
2. Nonfamily employees
a. Effort to protect interest
b. Accommodation critical for survival
B. Pressures and interest from outside the firm
1. Family members
a. Pressure to inherit part of operation
b. Pressure to get involved in business
c. Pressure to hire family member
2. Nonfamily elements
a. Competition changing its strategy
b. Other factors
C. Forcing Events
1. Death
2. Illness or nonterminal physical incapacitation
3. Mental or psychological breakdown
4. Abrupt departure to retire immediately
5. Legal problems
6. Severe business decline
7. Financial difficulties
© 2007 South-Western. All rights reserved. 238
, D. Sources of Succession
1. Entrepreneurial successor
2. Managerial successor
3. Early entry vs. delayed entry strategies
E. Legal Restrictions
1. Oakland Scavenger Company case
2. Be aware when preparing succession plan
IV. Developing the Succession Strategy
A. Understanding the contextual aspects
1. Time
2. Type of venture
3. Capabilities of manager
4. Entrepreneur’s vision
5. Environmental factors
B. Identifying successor qualities
1. Qualities and characteristics depend on situation
C. Written Succession Strategy
1. Owner controls management continuity strategy.
2. Owner consults selected family members.
3. Owner works with professional advisors.
4. Owner works with family involvement.
5. Owner formulates buy/sell agreements at outset.
6. Owner considers employee stock ownership plans.
7. Owner sells or liquidates the business.
8. Consider outside help.
V. The Harvest Strategy: Liquidity Events
A. Positioning the venture for a cash return for owners and investors.
B. Achieved through an initial public offering or sale of the venture
C. Initial Public Offering (IPO)
D. Steps involved with an IPO
E. IPO prospectus
F. Reporting requirements, disclosure statements, shared control and ownership
VI. Complete Sale of the Venture
A. Reasons for selling
B. Steps for selling a business
1. Prepare a Financial Analysis.
2. Segregate Assets.
3. Value the Business.
4. Identify the Appropriate Timing.
5. Publicize the Offer to Sell.
6. Finalize the Prospective Buyers.
7. Remain Involved through the Closing.
8. Communicate after the Sale.
© 2007 South-Western. All rights reserved. 239
,VII. Summary
CHAPTER OBJECTIVES
1. To present the concept of “harvest” as a plan for the future
2. To examine the key factors in the management succession of a venture
3. To identify and describe some of the most important sources of succession
4. To discuss the potential impact of recent legislation on family business succession
5. To relate the ways to develop a succession strategy
6. To examine the specifics of an IPO as a potential harvest strategy
7. To present “selling out” as a final alternative in the harvest strategy
CHAPTER SUMMARY
This chapter focused on the harvesting of the venture. Beginning with the issue of management
succession as one of the greatest challenges for entrepreneurs, a number of considerations that
affect succession were discussed. Using privately held firms as the focal point in this chapter,
key issues such as family and nonfamily members, both within and outside the firm, were
identified to show the unique pressures on the entrepreneur. Some family members will want to
be put in charge of the operation; others simply want a stake in the enterprise.
Two types of successors exist: An entrepreneurial successor provides innovative ideas for
new-product development whereas a managerial successor provides stability for day-to-day
operations. An entrepreneur may search inside or outside the family as well as inside or outside
the business. The actual transfer of power is a critical issue, and the timing of entry for a
successor can be strategic.
The Oakland Scavenger Company case revealed how legal concerns now exist about the
hiring of only family members. Nepotism has been challenged in the courts on the basis of
discrimination.
Developing a succession plan involves understanding these important contextual aspects:
time, type of venture, capabilities of managers, the entrepreneur’s vision, and environmental
factors. Also, forcing events may require the implementation of a succession plan regardless of
whether or not the firm is ready to implement one. This is why it is so important to identify
successor qualities and carry out the succession plan.
The chapter closed with a discussion of the entrepreneur’s decision to sell out. The
process was viewed as a method to “harvest” the investment, and eight specific steps were
presented for entrepreneurs to follow.
© 2007 South-Western. All rights reserved. 240
, LECTURE NOTES
HARVESTING THE ENTREPRENEURIAL VENTURE
I. Harvesting the Venture
A. Harvest Plan: how and when the owners/investors realize a
return on their investment.
B. Entrepreneurial decisions:
1. Managerial control and succession for continued operations
2. Liquidity event--- the venture generates cash for investors.
3. Initial Public Offering (IPO)
4. Sale of the business
II. The Management Succession Challenge
A. Management succession---the transition of managerial decision making in a firm.
B. Challenges:
1. The owner is the business.
2. The individual’s personality and talents make up the operation.
3. Without the owner, the company might be unable to continue.
4. Individual may not want to be removed despite poor health.
C. Other barriers to succession:
1. Sibling rivalry
2. Fear of losing status
3. Death anxiety
III. Key Factors in Succession: emotional issue that requires structural and cultural
changes---transfer of ethics, values, and traditions
A. Pressures and interests inside the firm
1. Rivalry among the family members
2. Nonfamily employees
B. Pressures and interests from outside the firm.
1. Family members: interested in ensuring that they inherit part of the operation or
get involved in the business.
2. Nonfamily elements: competition continually changes strategies.
a. Other factors: customers, technology, and new-product development.
b. Tax laws, regulatory agencies, and trends in management practices
C. Forcing events cause the replacement of the owner-manager:
1. Death
2. Illness
3. Mental or psychological breakdown
4. Abrupt departure
5. Legal problems
6. Severe business decline
7. Financial difficulties
© 2007 South-Western. All rights reserved. 241
