If you’ve been following along with me over the course of these 8 weeks, you’ll know that understanding structuring was a little challenging for me. Well, now I can add another topic to the “misunderstood” bin! You see, initially I was under the impression (thinking like an entrepreneur) that business longevity was the name of the game. Looking at other small business owners around, I assumed that those who gain the fanbase also gain durability and the permanence that comes along with it (think your favorite hometown restaurant that has been around for years with the same owners). However, I failed to recognize that having an exit strategy that is indeed lucrative, is in many cases one of the best ways to distinguish whether a venture has truly been successful.

 

     As Amis and Stevenson noted in their book Winning Angels, “in some cases a company will develop a strong following which is attractive to an industry competitor or a strategic partner. The brand name and customer base will have value in and of themselves.” This was easier to understand after reading my fellow colleague’s blog on this exact same topic. Shout out to Elaina Hamilton for further elucidating this concept for me. In her blog, she examined the natural hair beauty company, Carol’s Daughter, whose owner said it was always her intention from the beginning to sell the organization. As Andrew Blair stated in the book, “the exit has to be engineered as carefully as the deal itself.” When Lisa Price initially started the company in Brooklyn, New York in 1993, she knew then that her end goal would be to sell the business. Although she probably didn’t know to whom, through creating a valuable company, with notable investors (she was featured on Oprah where she gained notable financiers such as Will and Jada Pinkett Smit, Jay-Z, Tommy and Thalia Mottola, and former Interscope Records Chief Steve Stoute just to name a few) and outstanding products; Price was able to sell the organization to L’Oreal USA where it remains profitable and is surely still adding shmoney to Price’s bank accounts.

 

     Obviously, Price like many other entrepreneurs had an idea of what she wanted from her business from its inception. But now everyone is this ingenious. Amis and Stevenson suggest that investors, “help the entrepreneur to begin identifying opportunities for life after their company.” With this in mind, these individuals can plan for their exit and not be disheartened about the thought of someone else potentially becoming the CEO and subsequently managing the business altogether. Another story which helped me to understand how consequential selling can be was a Forbes article which highlights a company Ander Michelena and his associate Jon Uriarte started after noting a need in the market for a ticket selling business in Spain and Latin America. These individuals came up with a company that would later be acquired by StubHub for some $190 million dollars (a 70x plus multiple for the investors involved). As Forbes revealed, “With that kind of cash, you can now choose to do other things – start a company with a much bigger exit or become an investor yourself.” 

 

     In any event, as this section closes it provided an outstanding quote from one of my favorites Mr. JFK. Regardless of your aspirations as an entrepreneur or investor “only those who dare to fail greatly will ever succeed greatly.” I think I can now remove this topic from the “misunderstood” bin.

 

References

Amis, D., & Stevenson, H. H. (2001). Winning angels: The Seven Fundamentals of Early-Stage Investing. London: Financial Times Prentice Hall.

Cremades, A. (2018, November 07). This Entrepreneur Sold His Company For $190 Million After Leaving His Corporate Career. Retrieved June 28, 2020, from https://www.forbes.com/sites/alejandrocremades/2018/11/06/this-entrepreneur-sold-his-company-for-190-million-after-leaving-his-corporate-career/

Hamilton, E. (2020, June 26). Winning Angels: Harvesting. Retrieved June 28, 2020, from http://elainahamilton.com/category/ent-640-50/

P. (2020, June 20). Carol’s Daughter. Retrieved June 28, 2020, from https://en.m.wikipedia.org/wiki/Carol’s_Daughter

12 thoughts on “Harvesting

  1. Travis Wolfe-Schiestel says:

    While reading this chapter, it also struck me as possessing the same complexity as the one related to structuring. Much like that chapter, I found it was worth investing the required mental bandwidth, as the insight contained proves not only useful to investors, but also entrepreneurs who are interested in winning over those investors. Going forward, I intend on being crystal clear with potential investors about exit strategy from the onset, as I think this honesty serves to save both sides a whole lot of headaches. After reading this section, I will certainly avoid mentioning a desire to leave the business to my children or otherwise convey in any way that I am against making a sensible exit in the future.

    • Yes, I see with investors these are not “magic words.” In any event, I think the best thing is transparency. If indeed the company is something that you want to hold on to, I think it’s best as you mentioned to let the investors know from the beginning so they can decide if they want to invest or wait for your next project. As we’ve been told countlessly throughout the book, the trust built initially is key to these budding relationships and will ensure easier communication between both parties for as long as they partner together.

  2. For me I think it is important to find an investor that wants to give monetary value and advice to make the business a successes. I have been scared to include an investor into my business and when I read the harvesting section it brought even more fears. I think it was the negative harvesting parts that rubbed me the wrong way. Have you had an investor? If you have was it successful?
    -Marie

    • Yes, reading this material has certainly given me reservations. While I have not had an investor, I have seen my father invest in several businesses and have some sort of understanding of his tactics. It’s always nerve-wracking to see investments fail, but it is rewarding when they are multiplied. It is in a sense a gamble; and, I’m hoping that if I am lucky enough to find someone who chooses to gamble on me, that we will be able to negotiate amicable terms and that they will provide not only financing but advice that will help to ensure business productivity.

  3. I was looking through some of your content on this internet site and I think this web site is really informative! Retain putting up. Dorita Cazzie Thierry

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