Chapter
19
The Harvest and
Beyond
19 - 1
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”
19 - 2
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
19 - 3
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?
19 - 4
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
19 - 5
IPOs – pros and cons
Advantages
Disadvantages
Stronger capital base
Short-term growth pressure
Increases other financing prospects
Disclosure and confidentiality
Better situated for making acquisitions
Costs - initial and ongoing
Owner diversification/liquidity
Restrictions on management
Executive compensation
Loss of personal benefits
Increase company and personal prestige
Trading restrictions
19 - 6
IPO Performance 1990-2009
1st Day Return
Left on Table
Amount Raised
equal
weighted
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
Year
No.
19 - 7
CONSULTING SKILLS
RELATIONSHIPS &
RESISTANCE
19 - 8
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
19 - 9
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
19 - 10
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
19 - 11
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.
19 - 12
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
19 - 13
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
19 - 14
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
19 - 15
CONSULTING TECHNIQUES
MARKETING
19 - 16