Stage 7 Expanded Reading
In this stage you are expected to broaden your horizon into the topic of the lecture.Please read the following article carefully.
Growth and Exit Strategies for Entrepreneurs
Every day millions of entrepreneurs around the world create and capture value through their entrepreneurial activities.The entrepreneur who wants to grow the business into new geographies,new products or serve new customers will need to select an appropriate growth model.There are three broad options:organic growth,franchising and acquisition.
The organic growth model is the most“fluent”transition from the start-up phase to a multiplelocation/multiple-product firm.The entrepreneur will typically invest in new assets(e.g.open a new office in another town)“from scratch”,will establish their own management teams,and will instil own business practices,reporting and monitoring of activities.Provided external funding is available,the entrepreneur’s independence will be intact—the owner will ensure that new markets/clients are served in a manner that reflects the core competencies of the firm.This model will be suitable for businesses that require intensive customer service and provide value by knowing and thoroughly meeting specialized customer needs; or for businesses that serve highlyspecialized niche markets(e.g.some service sectors,such as consulting,real estate,private equity).On the downside,the organic growth model will rarely allow super-fast growth—expansion will be limited by the capacity of the firm to raise funds,open up new locations,instil processes and management practice,and monitor performance.
The franchising model provides another growth option.The entrepreneur may funnel existing firms(independent of the entrepreneur’s business)that will operate as franchisees.Thus,the entrepreneur will share the risk of business expansion with another entity and will minimize both potential losses and capital needs.On the other hand,however,the entrepreneur(the franchisor)gives up a portion of the profit pie to an external company; and will be unable to keep track of the business in the same fashion as with organic growth.Furthermore,the franchising model may be unattractive to the franchisee—especially if the entrepreneur is a small firm with a brand that has no recognition among customers.In that case,the entrepreneur will need to give up even more of the company value to attract franchisees.This model may be suitable for firms in industries that offer a standardized product,where customer service processes are straightforward and monitoring is easy to perform.
The acquisition model allows rapid expansion.The entrepreneur may be able to capture significant market share by acquiring another company already on the market.The acquired company may possess valuable assets,such as customers,know-how,or presence in strategic locations.Yet,such an acquisition will likely require capital that the entrepreneur will find difficult to raise.Furthermore,the acquired company may not match fully the core competencies of the acquirer’s business.The entrepreneur will be dependent on the business culture and skills of the staff in the acquired company,and will need to ensure that management understands the company objectives and follows the strategic plan set ahead.
A start-up company may launch operations with limited funds,typically out of the owners’ pockets or from family members and/or personal contacts.In many cases,following an initial success using own funds,the entrepreneur faced a question of how to fund the growth beyond what personal or family funds can provide for.
Equity or debt financing(or hybrids of the two)could be the principal sources of capital once personal funds become insufficient.The company needs funds for both operations(working capital)and investment(fixed assets)needs.Some industries are characterized by strong seasonal fluctuations in their operating capital needs.The rate of company growth further depends on the availability of investment funds—the entrepreneur will need to adjust asset acquisition plans given the amount of funds generated internally or attracted from external investors.Finally,the funding decision is tightly linked to the independence of the company.While the entrepreneur might prefer debt financing in the early growth stage,bank loans will be difficult to procure.Instead equity holders will get a share in the company,and will thus be entitled to a portion of future profits—the entrepreneur gives up some of the upside growth potential.Thus,the entrepreneur needs to weigh the pros and cons of different sources of funds—accounting not only for the cost of capital but also for the involvement of external investors in the activities of the firm.
Once a high growth business is able to create value,an entrepreneur needs to capture the created value.Therefore,every fast-growing entrepreneur needs to define early on what his or her exit strategy will look like.An exit strategy is defined as a plan for the entrepreneur to capture the value created through their entrepreneurial activity.
There are a number of options for executing an exit strategy.They can be classified into four buckets.The first option for a company to become public is through an initial public offering.This is typically the rarest exit as there are only a total of about 20,000 public companies in the US,for there are approximately 25 million businesses in the US.The advantages of striving for an IPO include the opportunity to capture the premium(15%–25%),the possibility to retain both management and ownership control of the company after the IPO,and the benefit of multiple buyers purchasing company shares.However,the disadvantages of an IPO are obvious.These range from observing regulatory requirements to costs of building credibility to costs of revealing information to competitors.
The second option is sale to an industry player,which is by far the most common exit strategy for entrepreneurs.Every year hundreds of companies are bought by competitors.While the strategy may provide full ownership exit from the firm,it may require the entrepreneur to stay on in the company in a managerial position and take company debt as part of the payment.In addition,the purchase price in a sale to an industry player will typically be lower than in an IPO.
The third option is sale to a financial investor.This option is becoming more and more popular as the private equity industry is growing bigger.One big reason is that the entrepreneur can sometimes retain a good deal of ownership control after the sale.However,possible disadvantages of the sale to a financial investor are very similar to the ones in the sale to an industry player.An entrepreneur has to almost always stay on in the company in a managerial position.The entrepreneur’s managerial skills are a very valuable asset for the acquirer.Also,the entrepreneur will typically be asked to take company debt as part of the payment.Finally,the purchase price will also be lower than the purchase price in an IPO and may even lower than the price when selling to an industry player.
Finally,the fourth option is the leverage strategy.Under this strategy,lenders inject a company with cash,which is then used by the entrepreneur to conduct a share buyback.The advantages of this approach include the possibility of retaining full ownership control and the relative ease of implementation,especially when compared to an outright sale.The key drawbacks of this strategy are centered on the fact that it is a partial exit only.Therefore,management stays on indefinitely.Another drawback is that funds raised by the entrepreneur may be relatively low.
(Source:adapted from articles on invesppedia.com)
Task 1:Reading Comprehension Questions
The following questions are asked based on the above article.Please go back to the article and find the answers.
1.Why is the organic growth model considered the most“fluent”transition from the start-up phase to a multiple-location/product firm?
2.What are the advantages and disadvantages of the organic growth model?
3.What are the advantages and disadvantages of the franchising model?
4.What are the advantages and disadvantages of the acquisition model?
5.What are the key sources of funding for entrepreneurs?How do they differ?
6.Why is it important for an entrepreneur to define early on what his/her exit strategy will be?
7.What are the benefits and downsides of an IPO?
8.In what ways is the sale to a financial investor similar to the sale to an industry player?
9.What are the benefits and downsides of the leverage strategy?
10.Which exit strategy is the most rarely used?Why?
Task 2:Paraphrasing
Explain in English the underlined words and expressions in the context of the above article.
1.Every day millions of entrepreneurs around the world create and capture value through their entrepreneurial activities.
2.The entrepreneur will typically invest in new assets“from scratch”,will establish their own management teams,and will instil own business practices,reporting and monitoring of activities.
3.This model will be suitable for businesses that require intensive customer service and provide value by knowing and thoroughly meeting specialized customer needs; or for businesses that serve highly-specialized niche markets.
4.The franchising model may be unattractive to the franchisee—especially if the entrepreneur is a small firm with a brand that has no recognition among customers.
5.The acquired company may not match fully the core competencies of the acquirer’s business.
6.Equity or debt financing(or hybrids of the two)could be the principal sources of capital once personal funds become insufficient.The company needs funds for both operations(working capital)and investment(fixed assets)needs.
7.The entrepreneur needs to weigh the pros and cons of different sources of funds—accounting not only for the cost of capital but also for the involvement of external investors in the activities of the firm.
8.The advantages of striving for an IPO include the opportunity to capture the premium,the possibility to retain both management and ownership control of the company after the IPO,and the benefit of multiple buyers purchasing company shares.
9.This option is becoming more and more popular as the private equity industry is growing bigger.
10.Under the leverage strategy,lenders inject a company with cash,which is then used by the entrepreneur to conduct a share buyback.
Task 3:Translation
Read the article again and translate it into Chinese.
阅读文章参考译文：
企业成长与退出策略
每天，全球有数以百万计的企业家通过自己的创业活动创造并收获价值。如果想要把业务拓展至新的地区、新的产品或新的客户群，那么，企业家需要选择一个合适的成长模式。成长模式概括而言，可划分为内生增长、特许经营以及收购等三种。
公司要想从创业顺利发展到涵盖多个地区与多种产品，内生增长模式最为合适。企业家通常是白手起家，从投资新资产入手，比如去另一个小镇开个办事处，然后组建自己的管理团队，继而建立起一套商业运作、汇报、监控等制度。如果能获得外来资金，企业家就可以保持自己的独立性，也就是说业主在服务新市场或新客户的同时，确保体现自身的核心竞争力。内生增长模式适用于两类企业：一类是需要全面了解并满足客户特殊需求，从而提供高水平客服的企业；另一类是主打高度专业化特色市场的企业，比如咨询、房地产、私募股权等服务性行业。然而，内生增长模式的不足之处是企业难以飞速成长，因为公司的扩张会受到筹资、开办新网点、流程管理以及绩效监督等诸多方面能力的限制。
特许经营提供另一种成长模式。企业家可以将独立于本公司业务之外的其他公司集中起来，让他们以特许经营人的身份进行经营。这样，企业家就可以与其他实体公司共担业务扩张的风险，同时还可以降低潜在损失和资本需求。但是另一方面，作为特许授权人，企业家也要出让部分利润给外部公司，而且还不能像内生增长模式那样，随时跟踪特许企业的业务。此外，特许经营模式不一定能吸引到特许经营人，尤其是企业家的公司很小，产品在客户中没有口碑。在这种情况下，企业家需要出让更多的利润去吸引特许经营人。特许经营模式比较适合于产品标准化、客服流程简明、监管易于执行等特点的企业。
收购模式可以让企业快速扩张。通过收购市场上已有的公司，企业家可以获取巨大的市场份额。同时，被收购的公司也可以得到有价值的资产，比如顾客、技术或战略经营区域。但是，企业家往往很难筹措到收购所需的资本。而且，被收购公司也许不能完全匹配收购公司的核心业务。因此，企业家只好依赖被收购公司的企业文化和员工技能，确保管理层正确理解公司目标，并严格执行事先制定的战略计划。
公司在创业阶段需要靠有限的资金运营，通常这些资金来自企业家自己的腰包或者亲朋好友。许多时候，在运用自有资本获得第一桶金之后，企业家会面临一个问题，那就是如何跨越个人与亲友资金所限，筹集到更多的资金去做大企业。
一旦个人资金不足，股权融资或债权融资（或两者皆有的融资）就成为资本的主要来源。公司需要资金去满足运营需要（即周转资金）和投资需要（即固定资产）。部分行业在营运资本需求方面，会存在着很强的季节性波动。此外，企业增长的速度也取决于能否获得投资资本，企业家要根据自有资金或外来投资的规模，需要对资产收购计划进行调整。最后，筹资决策与公司的独立性紧密相连。虽然企业家在企业成长初期可能更倾向于债权融资，但是银行贷款不易获得。而股东会拿走公司的股份，因此有权分享企业未来的利润，这就意味着企业家要放弃一些盈利增长的利益。所以，企业家需要权衡各种资金来源的利弊，不仅要考虑资本成本，而且还要考虑外部投资者对企业活动的参与程度。
一旦企业高速增长，能够创造价值时，企业家就应该去收获所创造出来的价值。因此，每一个快速成长的企业家都要提前明确自己的退出策略。所谓退出策略，就是指企业家制定出一个通过创业活动去收获所创价值的计划。
实施退出策略有多种选择，基本分为四大类。第一种选择是通过首发股，让公司上市。这种退出方式最为少见，因为美国大约有2 500万家企业，而上市公司也不过2万家。争取上市的优点是，有机会获得15%～25%的溢价，上市后有可能保留对公司的管理权和所有权，享受众多买家购买公司股份的好处。然而，上市的弊端也显而易见，包括要遵守监管条例，要支付建立诚信的成本，还要向竞争对手公开信息。
第二种选择是卖给同行企业，迄今为止这是企业家最常用的退出策略。每年都有许多公司被竞争对手收购。虽然这一策略可以让企业家从所有权中全身而退，但是，也有可能需要企业家留下来担任公司的管理职位，而且公司债务会用来充当部分支付款。此外，出售给同行企业的价格往往要低于公开上市的价格。
第三种选择是卖给金融投资者。随着私募行业不断发展壮大，这种方式也越来越受到青睐。主要原因是，企业家在出让企业后有时还能保留很大一部分的控股权。但是，出售给金融投资者可能引发的弊端，与出售给同行企业的弊端十分相似。企业家基本上都需要留在公司管理层任职，而企业家的管理能力对收购者而言，是一笔十分宝贵的财富。此外，企业家往往还要接受公司债务充当部分支付款。最后，这种方式的收购价也低于公开上市的发行价，甚至低于卖给同行企业的价格。
第四种选择是杠杆战略。实施这种战略，需要有贷款人向公司注入现金，然后企业家使用这笔资金回购股票。这种方式的优点是，有可能保留全部控股权，执行起来相对容易，尤其是与卖断相比。其主要缺点是企业只是部分退出，因此，管理层永久不变。此外，企业家募到的资金可能相对较少。