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 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 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 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. 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 AdvantagesDisadvantages Stronger capital baseShort-term growth pressure Increases other financing prospectsDisclosure and confidentiality Better situated for making acquisitionsCosts - initial and ongoing Owner diversification/liquidityRestrictions on management Executive compensationLoss of personal benefits Increase company and personal prestigeTrading restrictions

%8.1%$0.34 billion $4.27 billion %9.7%$1.50 billion $15.36 billion %8.1%$1.82 billion $22.61 billion %11.3%$3.52 billion $31.28 billion %8.5%$1.47 billion $17.36 billion %14.5%$4.38 billion $30.16 billion %16.1%$6.80 billion $42.25 billion %14.4%$4.54 billion $31.58 billion %15.5%$5.25 billion $33.80 billion %57.0%$36.94 billion $64.79 billion %45.6%$29.69 billion $65.07 billion %8.7%$2.97 billion $34.24 billion %5.1%$1.13 billion $22.03 billion %10.5%$1.00 billion $9.53 billion %12.2%$3.86 billion $31.53 billion %9.3%$2.64 billion $28.27 billion %13.0%$3.95 billion $30.48 billion %13.9%$4.95 billion $35.69 billion %24.8%$5.65 billion $22.76 billion %11.1%$1.46 billion $13.17 billion Source: IPO Performance YearNo.1 st Day ReturnLeft on TableAmount Raised equalweighted

RELATIONSHIPS & RESISTANCE CONSULTING SKILLS

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 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 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 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? “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 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 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