Special Issues For The Entrepreneur
Key Points to Consider
What is a social entrepreneur?
How does a social entrepreneur differ from a “regular” entrepreneur?
How does microfinance work? Where in the world would it be most successful?
What is the difference between a non-profit and a for-profit organization?
How can entrepreneurs minimize the impact of their businesses on the environment?
What are the benefits of “going global” for entrepreneurs?
What products/services have the best potential for global sales?
What are some of the problems and barriers to entrepreneurs “going global”?
What exit strategies are available to entrepreneurs?
How do the exit strategies differ among the various investors?
This topic looks at three special issues for today’s entrepreneur. The first issue examines social entrepreneurship in non-profits and for-profit organizations. The second issue is learning how to be “born global” and understand the challenges facing global entrepreneurs. The third issue discusses the last stage in the entrepreneurial life cycle, the exit strategy whether it is increasing positive cash flows for the owners or selling out to a larger company and paying back the investors.
A social or nonprofit entrepreneur uses established, proven entrepreneurial management practices primarily in the public and nonprofit sectors to solve a range of social problems in the areas of health, safety, environmental protection, and community involvement. Social entrepreneurs create and manage not-for-profit projects, events, organizations, and programs that are measured by means other than bottom-line profits. The nonprofit sector they lead comprises 7 percent of U.S. gross domestic product—a number that grows even larger when health care and public education are included.
Increasingly, consumers, investors, business partners, employees and other stakeholders are choosing to deal with progressive companies that not only product and deliver the goods and services but have acceptable, even exceptional, corporate values. Local communities now expect from companies a place of productive and healthful employment in the community. The communities also expect participation of company officials in community affairs, provision of regular employment, fair play, reasonable purchases made in the local community, interest in and support of local government, support of cultural and charitable projects.
Globalization represents one of the most influential forces in determining the future course of business. The term was first coined in the 1980’s. We define globalization as the democratizing of access to local market knowledge, customer information, services, products, and capital across national, cultural, and linguistic boundaries. According to McKinsey and Company, 80 percent of the world’s GDP will be sold across international borders by 2027, compared to about 20 percent in 2001. Multinational business activity will grow from approximately $5 trillion to $70 trillion by 2027. To understand how this is happening consider your desktop computer. It might have been assembled in Mexico with Chinese components; it uses chips designed in the United States, manufactured in Malaysia, and preinstalled with software applications that were jointly developed in India and Ireland.
Global expansion favors smaller, entrepreneurial companies. It gives them access to capital, technology, talent, and markets that previously only big firms could reach. Small firms with fewer than 500 employees make up 97.3 percent of U.S. exporting activities. A global entrepreneur seeks out and conducts new and innovative business activities across national borders. These activities may consist of exporting, licensing, opening a new sales office, or acquiring another venture.
The topic supports our belief that having a harvest goal in mind and creating an exit strategy to achieve it are what separate successful entrepreneurs from the rest. Clearly, the main objective of professional entrepreneurs is to create economic value. It is unfortunate that little attention in the entrepreneurial world has been given to exiting a business venture, or what has come to be called harvesting the business.
But just because a venture team can build a successful business doesn’t mean they can become rich from it. Investors who provide equity financing to high-risk ventures need to know how and when they are likely to realize a return on their investments before they commit any funds. They invest not for eternity but on average for three to seven years, after which they expect to make a profit that reflects the scale of the risk they have taken on in making their investment. An exit should be seen as a critical milestone that focuses on the transferring of ownership. It is at this stage in the entrepreneurial life cycle that the capital gains (or losses) occur, or, in other words, that there is a harvest (or exit) from the investment.
The harvest of a business is the venture team’s and investors’ combined strategy for achieving the final cash rewards on their capital investment. This topic also explores the last activity in the entrepreneurial life cycle. In his book The Seven Habits of Highly Effective People, Steven Covey says that one of the keys to being effective in life is “beginning with the end in mind.” To paraphrase Covey, entrepreneurs need to visualize the end of their venture and then develop a plan to make it happen even though it may take 5, 10, 15 years, or more to build a venture of significant net worth.
The harvest of a business venture represents the ending of a long struggle to build financial values and represent an emotional end to a rewarding experience. But a harvest decision does not always mean that the entrepreneur will leave the company. If the entrepreneur is successful, significant value will have been created. The issue then becomes harvesting and distributing that value. The structuring of a harvest strategy depends on options available to the entrepreneur. Many of these options depend on an assessment of the value of the business, which is a most difficult task. When it comes to developing a harvest strategy for the entrepreneur and the investors, the entrepreneur will need to attempt to value the company’s assets for which a great amount of incomplete and conflicting information may exist. Based upon the valuation, there can be a number of alternatives available to the entrepreneur to end the venture–some are straightforward, others involve more complex financial strategy. This unit presents the reader with a brief look at these options.
For almost all entrepreneurs, ending a venture is a huge undertaking. A venture worth harvesting is a venture that becomes a dominant part of their lives. Thus, the decision to harvest a venture cannot effectively be made apart from the entrepreneur’s personal goals. Creating such a strategy can never begin too early in the venture because, as with planning in other situations, the process itself is more important than the plan. Entrepreneurs should look at the harvesting of a venture as a point in the future where preparation and opportunity meet, not necessarily when an opportunity is at an end.