ENT 360 Organizational Growth – Co-written with Merida Bohanemus
All good things come to an end, right?! It is important for businesses to write into their agreements and plan/ an exit strategy. Market Business News defines a harvest strategy as “a business plan for either canceling or reducing marketing spending on a product,” (Nordqvist, 2018) A harvest strategy is used when a product or a business is underperforming and “the objective is to produce higher profits to fund expansion in other areas.” (Henricks, 1997) As Charles Crawford describes in his What is a Harvest Strategy in a Business Plan? “When a business plan contains a harvest strategy, equity investors and lenders are assured that the owners intend to…eventually sell it…” (Crawford) This is especially true when dealing with a partnership of any sort. Thinking of the end, at the beginning, can signal confident and competent approach. Better yet, it can also help garner support from investors and loan officers.
Just because it is an important step, however, doesn’t mean it will be a simple procedure to manage from within the business. “A harvest strategy is difficult to manage but includes an attempt to optimize cash flow.” (Raza, 2017) There are two harvest strategies most commonly utilized by businesses—“the outright sale of a company or division,” or “sharply cutting investments in assets, labor and other costs of a slow-moving product line or business.” (Henricks, 1997) When it seems a company or product has reached it’s maximum potential peak, selling the business could make the most sense. On the other hand, if there is potential for the resurgence of growth, it may be best to take things more slowly. Historically, for “a business on the wane has been a “harvest” strategy—eliminate investment, generate maximum cash flow, and eventually divest.” (Harrigan, Porter, 1983) Although this is not to discount the ability to weather a storm, or reinvent with funds from a mature product, it is a healthy place to start, and to discuss upfront in business partnerships. This provides maximum clarity to all parties involved and helps build the trust needed for any successful endeavor.
Charles Crawford, What Is a Harvest Strategy in a Business Plan?, Retrieved 18 November 2018, from: https://smallbusiness.chron.com/harvest-strategy-business-plan-52874.html
Henricks, M. (1997, September 01). Harvest Time. Retrieved November 20, 2018, from https://www.entrepreneur.com/article/14594
Kathryn Rudie Harrigan; Michael E. Porter, End-Game Strategies for Declining Industries, retrieved on 18 November 2018, from https://hbr.org/1983/07/end-game-strategies-for-declining-industries
Nordqvist, C. (2018, July 29). Harvest strategy – definition and meaning. Retrieved November 20, 2018, from https://marketbusinessnews.com/financial-glossary/harvest-strategy/
Sheeraz Raza, Four Strategies For Firms In A Declining Industry, Retrieved on November 18, 2018, from https://www.valuewalk.com/2017/12/declining-industry-moats/