Chapter 15 Managing Growing Firms and Exit Strategies
Describe managing for growth
Reasons are that SMEs (small- and medium-sized enterprises) typically
- Lack organizational and leadership skills
- Fail to plan for and manage growth
- Fail to implement plans
The report suggests Managers of Canadian SMEs that have the capacity for profitable growth but fail to achieve
commercial success often lack the necessary organizational and leadership skills to respond to business challenges.
Areas where SME companies need to do well to succeed:
- Strategy for growth
- Creating external networks and market connectivity
- Upgrading management skills and capabilities
- Challenging the leader’s assumptions
- Managing succession and exits
- Growth and organizational change
- Professionalizing the business infrastructure
Companies ready for growth when
- They achieve a measure of financial and operational stability.
- Their leadership wants more.
- Their customers demand more.
- The rewards for selling or doing more are just too good to refuse.
Common pitfalls to successful growth:
- Refusing to let go of the reins not trusting others in organization; most expansions require at least a few
more hands—often at the managerial level. Reluctance to delegate as the growth cycle begins can be costly in
efficiencies and ultimate success of the expansion.
- Where’s the money? being under capitalized
- The paper trail having records in a mess; Record-keeping is not a chore but a necessary tool for tracking
progress, knowing where one stands on receivables and payables, and the inevitable—your year-ends
- Growing pains chasing growth before foundation in place
- Competition? What competition? Getting big enough to be prey for others; But with growth, the company
will likely come onto the radar of unforeseen competition—the big fish. The growing business must be
prepared to confront this challenge with a flexible and elusive marketing and sales strategy.
Various types of outside management assistance
National Research Council (part of ITC Canada)
- NRC Industrial Research Assistance Program (IRAP)
- Canadian Technology Network
Business Development Bank of Canada – BDC
Universities and Colleges
Networks of Entrepreneurs
Others: bankers, chartered accountants, lawyers, insurance agents, suppliers, trade associations, chambers of
commerce and incubators provide management assistance.
Importance of having an exit strategy
‘Harvesting’ describes the exit process used by entrepreneurs and investors to reap the ‘maximized’ value of a
business when they get out of it.
The process involves overcoming challenges:
- Capturing value (cash value) as a result of a sale
- Reducing risk
1-lecture 9 - Creating future options
- Requires advanced planning to maximize gains
Succession planning as the key to a successful harvest Developing an exit strategy
A. Pass to next generation tailored for you & your
B. To an outsider situation
C. Hire managers to reduce personal involvement
A written succession plan should address
- Identify future managers and leaders
- How to assess potential candidates
- Monitoring process
- Training and declaration of a successor
- Operational and tax issues
- Projected financials / targets / milestones
- Estimate of company valuation (i.e. possible selling price)
Innovative and creative people who excel at start-ups
Are more interested in seeing opportunities and starting new businesses than growing them to significant size
Harvesting options and effective harvesting strategies
Five Exit Options (Methods)
Sell firm outright
- Strategic acquisition: Purchase in which value of business is based on both the firm’s stand-alone
characteristics and synergies that the buyer thinks can be created by the strategic fit of the firm and a
- Financial acquisition: purchase in which value of business is based on the stand-alone cash generating
potential of the firm being acquired.
Leveraged Buyout(LBO): purchase heavily financed with debt, when potential cash flow of target
company is expected to be sufficient meet debt repayments
Bust-up LBO: purchasing with intention of selling off assets
Build-up LBO: purchasing similar firms to make one larger company
Management Buyout (MBO): leveraged buyout that includes the firm’s top management to
significant shareholders in the acquired firm.
Method by which a firm is sold either in par