Organizational Harvesting Strategies

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.

Works Cited:

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/

 

 

Organizational Growth Strategies: Franchise Agreements, Support systems, and Obligations

ENT 630 Organizational Growth

Growth strategy is “Strategy aimed at winning larger market share, even at the expense of short-term earnings.” (https://businessdictionary.com) When it comes to taking a business to next level, there are many strategies which can be used to promote growth. However, one particular strategy is usually at the forefront of this topic of discussion: Franchising. This tried and true method has proven to be successful for many decades. Think NAPA Auto Parts and McDonald’s. Such franchises require a lot of planning, and those who are interested in such an undertaking would be wise to explore the ins and outs of franchise agreements, support systems, and the obligations which will be involved throughout the process.

Franchise Agreements

A franchise agreement is a legal and binding contract between a franchiser and a franchisee. According to Kerry Pipes, contributing writer at franchising.com, there are “10 fundamental provisions outlined in some form or fashion in every franchise agreement,” which includes the following provisions:

  1. “Location/territory.
  2. Operations.
  3. Training and ongoing support.
  4. Duration.
  5. Franchise fee/investment.
  6. Royalties/ongoing fees.
  7. Trademark/patent/signage.
  8. Advertising/marketing.
  9. Renewal rights/termination/cancellation policies.
  10. Exit strategies.” (Pipes | 68,923 Reads)

To read the full article, click here.

Support Systems

Having a solid support system as a franchisee is essential for success. The franchisee should evaluate franchise opportunities thoroughly, making sure they have access to crucial resources such as training and ongoing support from the franchiser. The article, Franchise Support: What you can expect, is a good resource for those who are considering franchise opportunities as it conveys very valuable information on what to look for in franchising opportunities and how to evaluate those opportunities in an effective manner. The article challenges “prospective franchisees” to do “research,” beyond talking with a representative of the franchise; it also suggests having “in-depth conversations with other franchisees in your investigation because if they have been satisfied with the franchise support system, you most likely will be as well.” (Franchise Support: What you can expect) One of the most important questions any potential franchisee can ask is, “How much is this really going to cost me?” However, this can be a loaded question. Franchisees must learn “whether or not the fees and costs that must be paid to a franchise are fair, reasonable and appropriate.” (Elgin, 2006) To find answers to these questions and more, click here.

 Obligations

The franchiser and the franchisee are legally bound to one another to create a successful and profitable business venture. Each has their own unique set of obligations, and these obligations may be different from company to company and from state to state. Some of the “ongoing responsibility a franchiser may have” are “marketing strategies,” “financing,” and “brand building.” (Franchiser Responsibilities) According to Franchisedirect.ie, the franchisee’s responsibilities may include, but are not limited to, “financial responsibility, business responsibility, and personal responsibility.” (Dawson, 2017) As previously stated, the responsibilities of both parties will be defined in the franchise agreement.

Works Cited:

Dawson, A. (2017, December 19). Home. Retrieved November 20, 2018, from https://www.franchisedirect.ie/information/the-franchisees-rights-and-responsibilities

Elgin, J. (2006, August 14). Is the Price Right? Retrieved December 02, 2018, from https://www.entrepreneur.com/article/164820

Franchisor Responsibilities. (n.d.). Retrieved November 20, 2018, from https://www.franchiselawsolutions.com/franchising/franchisor-responsibilities.html

Franchise Support: What You Can Expect. (n.d.). Retrieved November 20, 2018, from https://whichfranchise.co.za/franchise-support-can-expect/

Pipes, Kerry | 68,923 Reads. (n.d.). The Franchise Agreement. Retrieved November 20, 2018, from https://www.franchising.com/guides/the_franchise_agreement.html

What is growth strategy? definition and meaning. (n.d.). Retrieved November 20, 2018, from http://www.businessdictionary.com/definition/growth-strategy.html

 

Taking Risks: The Investor’s Side

There may come a time in a founder’s journey when he or she must admit the financial resources have been tapped out. Of course, there is no shame in this as many startups would not be able to get very far without the help of outside investors. After weighing the risks involved, that founder may decide securing funding from an outside source is, indeed, the best recourse. While this is a potentially risky move for an entrepreneur, investors also face the risk of uncertainty when it comes to investing in a startup. Investors can come in the form of friends and family, angel investors, or venture capitalists. Each of these types of investors stands to lose money if they do not chose wisely. One wrong investment could prove to be catastrophic.

A lot of entrepreneurs turn to their friends an family as a means to raise money for their venture. On the surface, this seems to be the less risky option. These investors are more accessible, because founders “have frequent contact, long-term trusting relationships, and an emotional connection” with them (Wasserman, 2012.) There is much less pressure involved and a lot less leg-work to get funded in this manner. However, this type of arrangement can have a bleak outcome. Alicia Syrett, Founder and CEO of Pantegrion Capital, cautions against this practice citing “ they may be unsophisticated investors,” meaning “they may not know how to negotiate fair,” “the lines between your work and family relationships may become blurred,” and “you may not want the stress of letting your loved ones down” (Syrett, 2017.)

The next option for an investment is an angel investor. While angel investors are tougher to sell than friends a family, getting funding from an angel investor is easier than getting it from a venture capitalist. However, according to author, Murray Newlands of startupgrind.com, using an angel investor can have a few cons. For instance, angel investors usually have “higher expectations,” “you hand equity over in your business as a portion of the deal,” and they rarely take a “hands off approach” when making an investment (“Pros and Cons of Using an Angel Investor to Fund a Startup.”) While this may sound risky for the founder, these things are good for the angel investor, although those benefits do not come without risks. “Early stage investing is inherently risky;” furthermore, “high-level risks,” such as  “financing risk, technical risk, and market risk” are prominent and should be in the forethoughts of every angel investor (“Key Risks of Angel Investing.”)

When all else fails, a founder may be able to secure an investment from a venture capitalist. Venture capitalists “focus on investing in high-potential startups” (Wasserman, 2012. ) There are not as many risks for venture capitalists as compared to other investor; still, there are potential risks. Some venture capitalist firms are funded by outside resources. When one of these firms make a failed investment into a startup, it causes a ripple effect to those who invested at the time. So, while the risks are not as great, there are still some hazards involved in this type of investing.

When a startup is successful, all parties involved reap the benefits. When it fails, the loss can be felt by founder and investors alike. Not only should entrepreneurs choose wisely when it comes to investors, those investors should also weigh their options as well.

Resources

“Key Risks of Angel Investing.” Angel Investing Returns – A Guide to Exits for Angel Investors | Seraf-Investor.com, seraf-investor.com/compass/article/key-risks-angel-investing.

“Pros and Cons of Using an Angel Investor to Fund a Startup.” Startup Grind, http://www.startupgrind.com/blog/pros-and-cons-of-using-an-angel-investor-to-fund-a-startup/.

Syrett, Alicia. “What You Need to Know Before Letting Friends and Family Invest in Your Company.” Inc.com, Inc., 8 June 2017, www.inc.com/alicia-syrett/what-you-need-to-know-before-letting-friends-and-family-invest-in-your-company.html.

Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, N.J: Princeton University Press, 2012. Print

Rolling with the Go-Getters

Emotional detachment can be viewed as a harsh character flaw under certain circumstances. Let’s face it; it is tough to deal with someone who seems uncaring and unapproachable at best. It is also fair to say we have been conditioned to only accept things that have been properly sugar-coated to our liking. Under these conflicting conditions, it can be tough for the leader of an organization to fill the necessary rolls in that organization with employees who not only can go the distance with them, but actually aspire to do so. This is where different hiring approaches come in to play. Hiring dilemmas are the norm, and the type of hiring blueprint a founder chooses can mean a world of difference.

Will the model for hiring employees be based on the desire to build “a family-like culture,” or will it be based on the objective of building a “formal hierarchy,” which calls for employees who are well-equipped with “functional skills” (Wasserman, 2012)? Both of these approaches have good points and drawbacks. Being treated like family at work can be beneficial. In this type of environment, employees may be willing to settle for less pay, do more work, and have an overall better attitude toward their jobs. The drawback is that allowing employees this type of freedom can create workers who are less likely to respect the authority of their superiors, causing a breakdown in the employee/supervisor dynamic. Some would say the formal hierarchy would be the better approach of the two. Afterall, this method promotes a higher sense of executive and management control and a structured work environment more prone to enticing those who “can make big contributions and achieve significant goals” (Herrenkohl, 2013.) Unfortunately, the problem here is it can be tough to establish clear lines of communication between founders and their employees.

The approach used to establish the model for hiring employees relies heavily on the vision of the founder and how objective and emotionally involved, or aloof, he or she tends to be. Notably, there is no flawless plan for recruiting and keeping key employees. Avoiding the pitfalls of hiring dilemmas is tricky and requires a lot of planning. Acquiring top-notch talent is a necessity for a business to grow in leaps and bounds. How a founder and his or her team goes about this process can mean the difference between finding bodies to fill positions and finding talented candidates who are all in.

Resources

Herrenkohl, E. (2013). How to Hire A-players: Finding the Top People for Your Team- Even if You Don’t Have a Recruiting Department. Hoboken, N.J.: Wiley.

Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, N.J: Princeton University Press, 2012. Print

Who’s in Charge, Anyway?

I am sure just about everyone has heard the term “too many chiefs” and may have even experienced this phenomenon at school or on the job. While this is almost always an unpleasant situation, it can be very detrimental to a new startup. Choosing who gets the title of CEO in a company can be a daunting task. One idea person would not dream of letting anyone else hold the coveted title, while another could avoid it all together. Deciding who will take over the top positions is not something that should be taken lightly. There are may factors that goes into making the final decision. Sometimes the end result yields success and, sometimes, it produces disastrous results.

Evan Williams and Meg Hourihan of Blogger, the blogging website that was created for the novice blogger, found themselves in a very sticky situation once the company began to take off. According to Noam Wasserman, author of “The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup,” there was “ambiguity about who was really in charge,” which “caused disagreements” and led to Meg’s untimely exit from the business (Wasserman, 2012.) Shortly after, all of the employees in the company were laid off. Cleary, the blurred lines of imprecision did not pay off for Blogger in the early days. Both Williams and Hourihan wanted to be chief, or CEO. As we can see, that model simply did not work. Although the blogging platform went on to be successful, it’s hard not to sit back a reflect on what could have been achieved if they had only thought more about how their roles impacted the company, their employees, and themselves. Desire alone does not make for a great leader.

One can only imagine the issues that arose when Williams and Hourihan got to the point where they needed to hire employees. Under the circumstances, it seems it would have also been very trying for them to choose their staff. For the sake of argument, let’s assume their creative differences carried over into the hiring process. Maybe one wanted team members who were familiar with the industry, while the other wanted people with more life experience as opposed to skills that were acquired in corporate America.  Inevitably, “it only makes since to find a pool of people who already possess the hard-to-teach skills that are vital to your company” (Herrenkohl, 2013.) That’s probably a feat best conquered by founders who do not “adopt overlapping day-to-day tasks” as did the founders of Blogger.

Deciding who is in charge and defining roles may not cause a rush of excitement for even the most seasoned entrepreneur, but it is a necessity, nonetheless. I think it is fair to say no one wants to find themselves in the middle of such a heated conflict as did Evan Williams and Meg Hourihan. The impending implosion of what was once a thriving venture is a scary thought. It makes me want to ask: “Can’t we all just get along?”

Resources

Herrenkohl, E. (2013). How to Hire A-players: Finding the Top People for Your Team- Even if You Don’t Have a Recruiting Department. Hoboken, N.J.: Wiley.

Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, N.J: Princeton University Press, 2012. Print

Why Birds of a Feather Shouldn’t Always Flock Together… In Business

Birds of a feather, as the old adage goes, they all flock together. And with that, it can also be reasoned that any flock, or team, for the purpose of this discussion, no matter if we are discussing a football team or a global media conglomerate, is only as strong as its most valuable members. In the world arena of startups, putting together a strong team can mean the difference between, failure, mediocrity, and overall success. Founders face many quandaries in the beginning, from deciding between building homogeneous teams and heterogenous teams, to choosing the best candidates for every position in the company, starting at the top with cofounders, moving on down to managers and employees. And when it comes to putting together an entrepreneurial force to be reckoned with, should you stay with the flock? Or should you spread your wings and fly in a different direction?

Let’s pretend for a moment that you are going to pursue your dream of starting a construction company which builds student housing apartment communities. For the last 10 years, you have been a project manager at your current company, which does that very thing. Great! Your best friend, Rob, has had success in the past with a startup company and he has an MBA from Harvard Business School. Even better! His cousin, Joseph, has been a contractor who is responsible for building two student housing developments within the last 5 years. Perfect! Together, you will rule the world! Not so fast, my friend. Let’s think this through for a moment, shall we? Building a homogenous team, such as this one, can have it’s perks, but it can also become a become a very uncomfortable and dangerous thorn in your side if you are not careful.

When deciding on who your cofounders will be, it’s best to keep a few things in mind. While choosing cofounders may seem like the “quickest and easiest solution,” and offers the benefits of  a  “shared common language that facilitates communication,” “higher confidence” you will be able to trust your counterparts, and you may be able to “consider alternative view points without splintering,” there are other viable reasons you might want to forgo this route, such as “overlapping human capital,” which presents as “redundant strengths” and “missing critical skills,” not to mention, since your dynamic already seems like family, that can “create an impasse in the growth of the company” (Wasserman, 2012.) Choosing your founding team wisely may mean forgoing teaming up with friends and family; however, it makes better sense to go with others who are better suited to the roles you need filled to generate the most success, i.e., dollars, in the long run.

Now, let’s say, after comparing the pros and cons, you have decided to carry out your plan of bringing Rob and Joseph on board. Although you have decided their technical skills are essential for starting your company, have you considered whether or not each of these individuals are strong leaders with impeccable management skills? Further, do they have what it takes to help you attract others who will help keep your dream afloat when you need to have a life outside of work? Colin Drummond, Vice President of Sales and Operations at Progressive Business Publications, “requires his team leaders to be coaches, not just managers,” directly impacting how employees perform in a way that “force[s] [them] to think for themselves, diagnose their own problems, and take ownership of solutions” (Herrenkohl, 2013) Remember, your team is only as strong as its talent. Are Rob and Joseph the right fit for such a task? It’s imperative to make the right call.

It is easy to see it is not always easy to choose the right partners or the right employees. A lot of thought  and planning goes into making these huge decisions. Your need for a strong team may transcend the boundaries of personal relationships. Sometimes, it is good to fly with the flock. Other times, it is even better to fly the coupe. My point is, whether you decided to build a homogeneous team or a heterogenous team, choose wisely.

Resources

Herrenkohl, E. (2013). How to Hire A-players: Finding the Top People for Your Team- Even if You Don’t Have a Recruiting Department. Hoboken, N.J.: Wiley.

Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, N.J: Princeton University Press, 2012. Print.

Social Capital, Financial Capital, or Both?

Building social and financial capital are both necessary components of establishing a business that is destined to become successful in the long run. Without them, aspiring entrepreneurs could be setting themselves up for failure right from the beginning. Many new organizations are lacking either a strong social network or essential funding or both. Seeking these assets in the early stages of planning a business venture is the best course of action.  But, what is social and financial capital, and why are they so important?

Social Capital

On the most basic level, social capital “refers to the benefits derived from one’s place in information and communication networks” (Wasserman, 2012.) It’s all about who you know when you do not have the skills or resources to achieve certain tasks or goals within a startup. Having a strong team is a priceless asset for a business. The more social capital a business possesses, the better, as this will create an avenue to abundant resources, bringing value to an organization. The market place is always changing and it is very important to develop strong interpersonal relationships which will withstand the test of time. According to Investopedia, the two most common forms of social capital are “bonding and bridging”—Bonding occurs  when a certain group of individuals with common interests form “connections to one another,” and bridging “arises when members of diverse groups forge connections to share ideas and information…” (Investopedia, 2018.)  These tools allow new startups to “gain access to many outside resources,” which is essential when it comes to making the best decisions about reaching out for extra funding or finding qualified partners or employees, for instance (Wasserman, 2012.)

Financial Capital

In the book, “The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup,” Noam Wasserman describes financial capital as “the money or other tangible resources that can be used in the founding process” (Wasserman, 2012.) A limited amount of financial resources can be a serious issue for a new business and can lead to big problems such as legal issues and possible bankruptcy down the road. In the short term, having proper funding allows a startup to do such things as “buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based, i.e. retail, corporate, investment banking, etc.” (“Financial Capital,” 2018.) There are many ways to obtain financial capital, for example, asking family and friends, applying for traditional loans, or requesting assistance from an investment company.

The Tie-In

So, how do the puzzle pieces of social capital and financial capital fit together? It could be problematic to try to get a startup off the ground without each of these tools. As we have established, social capital brings about more opportunities for growth by providing a strong foundation of human resources. The more people you have on board with launching your company can be helpful when it comes to obtaining financial backing as those people may be willing to provide financial backing or prove to be helpful in obtaining those prospective resources through other outlets. Therefore, we can conclude, although it may be possible to have one without the other, it is not very probable.

Resources

“Financial Capital.” Wikipedia, Wikimedia Foundation, 9 Sept. 2018, en.wikipedia.org/wiki/Financial_capital.

Staff, Investopedia. “Social Capital.” Investopedia, Investopedia, 5 Aug. 2018, http://www.investopedia.com/terms/s/socialcapital.asp.

Wasserman, Noam. The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup. Princeton, N.J: Princeton University Press, 2012. Print.