Introduction
If an entrepreneur was asked why he set up his business in the first place, the inevitable reply would be to build up the company to great heights and manage it so that he may ultimately leave it to his children. The purpose of course would be to gain personal and financial freedom. If the question of a harvest goal was asked, many of them will not have an idea as to what the concept is all about. In fact a harvest goal has helped many businessmen to retire and go on to lead rich, and fulfilling lives. This paper discusses the concept or option of harvest goals, its benefits and the options available in pursuing the goal. It will also provide examples of how successful entrepreneurs who took up the option of harvesting their business and go on to lead other lives, as fresh entrepreneurs, philanthropists, teachers or otherwise.
The Harvest Goal
The term has an agricultural connotation because of the word harvest. In fact the concept is similar to the activity done by a farmer. Like the latter, the entrepreneur also nourishes his business by putting in money, effort, and risk in order to create a profitable operation. This is like the farmer who puts in seeds, fertilizers, water, pesticides, and effort in order to harvest his crops. In business harvest goal hence refers to exiting the well-built business (an exit strategy) at a huge profit in order to find capital for new ventures, to retire, to do philanthropy or for any other worthwhile goal. A harvest goal can be summed up by the following sentence. “The professional entrepreneurs and investors know that harvesting an entrepreneurial venture is the approach taken by owners and investors to realize after-tax cash flows on their investment. It defines how they will extract some or all of the economic values from their investment.” (Price 2002, p.212). This denotes that it is possible and even accepted that an entrepreneur can start a business with an exit strategy in mind as the first option itself and not when the business is seemingly unsuccessful or difficult to manage. It should be noted that some venture capitalists welcome a harvest goal when financing a new venture. “An agreed plan to depart, take profits, sell or exercise myriad other harvest mechanisms at maximized points in the business cycle will be demanded before investment will be considered.” (Ficke 2009). Hence the concept of harvest goal and strategy is important for all entrepreneurs, new or old. The concept of a capital cow in contrast to the cash cow is the essence of the harvest goal. A profitable business is often referred to a cash cow when it continues to generate cash flows without too much effort. A capital cow means the income is generated by selling the cow (business).
Harvest goal options: A harvest goal can be achieved through many ways and the important ones are given below. One option is the employee stock ownership plan (ESOP). The existing or at least majority stock is transferred to the employees who find the finance from borrowings to buy the stock. The owner can then use the money to pursue the options mentioned above (retirement, philanthropy, new ventures etc). Another option would be the management buyout, whereby the existing top management or partners will buy out the entrepreneur’s share. Mergers and acquisition is also another method to realize the harvest goal. Strategic alliances and an outright sale to interested parties can also be considered harvest goal options. By offering shares to the public through a IPO can also be pursued which will result in the shares of the entrepreneur sold of completely or becoming a minority shareholder in the company. The company can then be handed over to a professionally formed board of directors with the former owner playing a small part like the chairman of the board. The day-to-day affairs will be handled by the CEO and the board of directors. (Harvest Options. 2004).
Examples of successful harvest goals: The founder of Parenting Magazine was a person called Robin Wolaner. He sold the venture at a profit to Time Magazine and opted for a career in Time instead of facing the hassles of managing a business. Gary and George Muller started and made successful a company called Securities Online. The company was sold in the year 2000 for a huge profit. Gary kept the profits for himself and joined Securities Online as president while George started another successful company called ColorKinetics Inc. Ewing Marion Kauffman started the successful pharmaceutical company called Marion Labs. He too pursued the harvest goal strategy and invested the proceeds in various causes. “His Kauffman Foundation and its Centre for Entrepreneurial Leadership have become the first and premier foundation in the nation dedicated to accelerating entrepreneurship in America.” (Timmons, Spinelli and Zacharakis 2005, p.216).
Conclusion
An entrepreneur can start a new venture and build it in the hope for managing and owning it for a long period of time. A harvest goal strategy on the other hand will enable the person to sell off the successful venture and live the rest of his or her life as a teacher, philanthropist, new venture start-up businessman, an employee or in any other way he or she chooses.
Bibliography
FICKE, Geoff. (2009). How do Investors Read Business Plans. [online]. Ezine Articles.
Harvest Options. (2004).
PRICE, Robert W. (2004). Creating Your Exit Strategy and Exit Goals: Harvesting from Your Venture’s Value. [online]. Roadmap to Entrepreneurial Structure. 212. Web.
TIMMONS, Jeffry A., SPINELLI, Stephen., and ZACHARAKIS, Andrew. (2005). Create Harvest Options. [online]. How to Raise Capital. 216.