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Chapter. 19. The Harvest and Beyond. Planning to Harvest?. 80% of tech business in 1980s had an “informal” harvest strategy, 15% had a harvest strategy in their business plan, and 5% had written a formal harvest plan after their business plan

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Chapter

Chapter

19

The Harvest and Beyond


Planning to harvest

Planning to Harvest?

  • 80% of tech business in 1980s had an “informal” harvest strategy, 15% had a harvest strategy in their business plan, and 5% had written a formal harvest plan after their business plan

    • Often founders don’t consider selling until experiencing some sort of panic about losing the business

    • This often leads to selling out at low valuations

    • Wiser to sell as a strategic window is opening rather than closing

      • Bernard Baruch “I made all my money by selling too early”


Harvest strategy guidelines

Harvest Strategy Guidelines

  • Patience

    • Ventures take at least 3 to 5 and as long as 7 to 10 years to build

    • Don’t panic and sell under duress

  • Realistic valuation

    • Don’t imagine your company is worth more than it is

    • Easy to delude yourself and hold out for the ‘better’ deal

  • Outside advice

    • Beware! Investment bankers and business brokers are like realtors – they want their commission

    • Often, a long term advisor is better placed to identify and time exits


Harvest options

Harvest Options

  • Six principle avenues

    • “Capital cow”

      • One highly successful venture throws out enough cash to start some new ventures for a serial entrepreneur

    • Employee stock ownership plan

      • The ESOP buys out the owner

    • Management buyout

      • Management buys out the founders (LBO or MBO)

      • In an LBO, debt has averaged about 60-70% of the purchase price

      • Why would someone lend you money to buy a business?


Harvest options ctd

Harvest Options ctd.

  • Merger, acquisition, and strategic alliance

    • Strategic rationales for acquisitions

    • Issue of stock swaps versus cash

  • Outright sale

    • Seller financed transactions and earn outs may make it more attractive for buyers

  • Public offering

    • What’s so great about going public?

    • What actually happens?

    • How much does it cost?

      • About 7% of proceeds + fees and expenses


Ipos pros and cons

IPOs – pros and cons


Chapter

IPO Performance 1990-2009

1990 110 10.8%8.1%$0.34 billion $4.27 billion

1991 287 11.9%9.7%$1.50 billion $15.36 billion

1992 412 10.3%8.1%$1.82 billion $22.61 billion

1993 509 12.7%11.3%$3.52 billion $31.28 billion

1994 404 9.8%8.5%$1.47 billion $17.36 billion

1995 458 21.2%14.5%$4.38 billion $30.16 billion

1996 675 17.2%16.1%$6.80 billion $42.25 billion

1997 473 14.1%14.4%$4.54 billion $31.58 billion

1998 284 21.7%15.5%$5.25 billion $33.80 billion

1999 477 70.9%57.0%$36.94 billion $64.79 billion

2000 381 56.3%45.6%$29.69 billion $65.07 billion

2001 79 14.2%8.7%$2.97 billion $34.24 billion

2002 66 9.1%5.1%$1.13 billion $22.03 billion

2003 62 12.1%10.5%$1.00 billion $9.53 billion

2004 174 12.3%12.2%$3.86 billion $31.53 billion

2005 160 10.2%9.3%$2.64 billion $28.27 billion

2006 157 12.1%13.0%$3.95 billion $30.48 billion

2007 160 13.9%13.9%$4.95 billion $35.69 billion

2008 21 6.4%24.8%$5.65 billion $22.76 billion

2009 41 9.8%11.1%$1.46 billion $13.17 billion

Source: http://bear.warrington.ufl.edu/ritter/IPOs2009Factoids.pdf

YearNo.1st Day ReturnLeft on TableAmount Raised

equalweighted


Relationships resistance

CONSULTING SKILLS

RELATIONSHIPS & RESISTANCE


Resistance block

Resistance (Block)

  • Resistance is inherent in the consulting process (Why?)

  • To deal with it, you need to:

    • Identify when it is taking place

    • View resistance as a natural process

    • Support the client in expressing the resistance directly

    • Not take it personally


Handling resistance

Handling resistance

  • The steps:

    • Identify the form the resistance is taking

    • Name the resistance in a neutral non-punishing way

    • Be quiet, let the client respond

  • Give two good faith responses to every question

    • The third time a question is asked, interpret it as a form of resistance


Forms of resistance

Forms of resistance

  • Details – give me more, or flood you with details

  • Time – no time to meet, interruptions, delaying implementation

  • Impracticality:

    • Your solution is impractical, they live in the Realworld™

    • OR I already knew this stuff, I’m not surprised


Other forms of resistance

Other forms of resistance

  • Verbal (or physical) attacks, incl. shoot the messenger

  • Ongoing confusion as to results or next step

  • Silence

  • Intellectualizing …these results suggest a theory…

  • Moralizing…this wouldn’t be a problem if “those people” were doing their job

  • Vicious compliance

  • Flight into health – things are better, we don’t need this solution anymore

  • NOTE – everything serves as a reason not to ACT.


Why resist

Why resist?

  • “Resistance is discomfort that is expressed indirectly”

    • Difficult realities involve painful problems that seem to require painful solutions

  • Address the two underlying causes:

    • Control

      • Control is valued very highly in organizations, people dislike losing control/authority

    • Vulnerability

      • The client might be scared of being hurt – personal interests – financially, politically

  • Sometimes it is not resistance

    • “Sometimes a cigar is just a cigar” – Freud


Weiss on change resistance

Weiss on Change/Resistance

  • Define the current state

  • Define the future state

  • Determine key sponsors and implementers

  • Adjust feedback and rewards to support desired change

  • Review progress against metrics with management

    • Establishing accountabilities in the most critical step

    • Change comes from enlightened self interest

    • Key people must be actively engaged on behalf of your plans

    • The more time you take with critical sponsors the better


Overcoming resistance

Overcoming Resistance

  • Once accountabilities are in place (in writing), you can call someone out if they don’t deliver

    • use specific facts – “he missed his system implementation deadline by 30 days”, not “he’s sabotaging the implementation”

    • If they are not critical to implementation, bypass them

  • Conflicting priorities – get the buyer to clarify priorities in a meeting, bide your time if something is more serious

  • Something goes wrong – see if it is real or perceived, don’t find blame find cause so people will help you find a solution


Marketing

CONSULTING TECHNIQUES

MARKETING


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