Unit 10 ENT600 Growth and Exit Strategies

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UNIT 10 :

GROWTH AND EXIT STRATEGIES

Entrepreneurship Dept, FBM(2009)

1ENT600/UNIT 10 : GR!T" #ND E$IT%TR#TEGIE%

TECHNOLOGY ENTREPRENEURSHIP

(ENT600)



Introdut!on To Gro"t# $ E%!t Str&t'!'

• Gro"t# tr&t'!' Businesses that survive the critical embryonic period

will have to address issues of growth in order toremain competitive

This is done by selecting and implementing suitablegrowth strategies

• E%!t tr&t'!'

Entrepreneurs may choose to exit or end a businessfor various reasons

Careful selection and implementation of strategies isimportant in order to ensure a gainful exit


ENT600/UNIT 10 : GR!T" #ND E$IT%TR#TEGIE%

2



Introdut!on To *u!n' Gro"t#

• Businesses that survive the critical embryonic

period may experience growth in several ways

• The growth period of a business is often

manifested by: An increase in demand of its existing

products

An expansion and development of new

markets

A complete diversification into new products

and new markets


&ENT600/UNIT 10 : GR!T" #ND E$IT%TR#TEGIE%



I+,-!&t!on o. Gro"t#

• rowth will challenge a business!s capabilities andresources" #tock and supply of physical resources such

as raw materials and accessories need to be planned in

order to cushion future shortcomings

• rowth may create pressure on human resources"

Employee morale and motivation may be affected due to

over stretch in work or under pay" rowth therefore may

lead to resistance to change

• rowth may re$uire the business to be restructured to

facilitate management efficiency



'



Gro"t# Str&t'!'

• Ansoff %&'()* developed a growth strategy matrix based

on: Existing or +ew ,roducts

Existing or +ew -arkets

• Based on the two dimensions of product and market. Ansoff identified four main growth strategies:

-arket ,enetration

-arket /evelopment

,roduct /evelopment

/iversification





6

-arket/evelopment

/iversification

-arket ,enetration ,roduct/evelopment

Ano.. Gro"t# Str&t'!'



Produt

E%!t!n

/

& r 0 ' t

E%!t!n

N'"

N'"



/&r't P'n'tr&t!on Str&t'

• -arket ,enetration seeks to increase market

share for existing products or services in

existing markets

• This could be achieved through intensive

marketing efforts





/&r't P'n'tr&t!on Str&t'

• -arket ,enetration is especially effective when: Current markets are not yet saturated

Current customers! usage can be increased

-arket shares of ma0or competitors are on the decline.

but industry sales are increasing

1ncreased economies of scale provide competitive

advantage

2istorically. sales and marketing expenditures are

highly and positively correlated


*ENT600/UNIT 10 : GR!T" #ND E$IT%TR#TEGIE%



/&r't D'2'-o,+'nt Str&t'

• -arket /evelopment #trategy involves introducing

present products or services to new groups of

customers

• These new groups of customers may come from new

geographical areas. or they may come from a different

demographic market

• -arket /evelopment may also go beyond national

boundaries

• -arket /evelopment reduces the overall risks

associated with fluctuations of demand in existing

market





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/&r't D'2'-o,+'nt Str&t'

-arket /evelopment can be most effective as a growthstrategy when:

+ew untapped or unsaturated markets exist

+ew channels of distribution are available that arereliable. inexpensive. and of good $uality Business has the needed capital and human

resources to manage expanded operations Business has excess production capacity

The business! basic industry is rapidly becomingglobal in scope





Produt D'2'-o,+'nt Str&t'

• ,roduct /evelopment #trategy involves

increasing sales by improving or

modifying present products or services





Produt D'2'-o,+'nt Str&t'

,roduct /evelopment may be best employed when:

A business has successful products that are in the

maturity stage of the product life cycle

A business operates in an industry that is characteri3edby rapid technological development

A business operates in a high4growth industry

-a0or competitors offer better $uality products at

comparable prices

A business has strong 56/ capabilities





D!2'r!.!&t!on Str&t'

• /iversification strategy involves branching outinto new products and new territories

• Businesses diversify for the following reasons: Being in a single industry can be very risky

+ew technologies. new products or fast4

changing consumer preferences can destroy

a particular business


1&ENT600/UNIT 10 : GR!T" #ND E$IT%TR#TEGIE%



T,' o. D!2'r!.!&t!on Str&t'

R'-&t'd D!2'r!.!&t!on Str&t'

5efers to a situation whereby a business diversifies

into another area that is strategically fit with the

existing business" 5elated diversification is meant to

allow the business to capitali3e on synergies as

follows:

The transfer and share of valuable expertise.

technological know4how and other competitive

capabilities

To consolidate the related activities into a singleoperation to achieve lower costs

To capitali3e on a well4established brand name


1'ENT600/UNIT 10 : GR!T" #ND E$IT%TR#TEGIE%



T,' o. D!2'r!.!&t!on Str&t'

Unr'-&t'd D!2'r!.!&t!on Str&t' 5efers to a situation whereby a business diversifies

into another area that is totally different from the

existing business activities" 7nrelated diversification

may be carried out: 1n order to distribute and spread the risks of doing

business across different industries

8hen the business is currently operating in an

unattractive industry and there is a need to look forother possibilities





I+,-'+'nt!n Gro"t# Str&t'!':

A3u!!t!on

• 9ne method to implement growth strategies is

through the process of ac$uisition

• Ac$uisition is growth through gaining control over

other businesses• Ac$uisition can be either through ertical. ;ateral

or 2ori3ontal 1ntegration

• Ac$uisition is considered an alternative to

organic growth that refers to growth from within

the company





T,' o. A3u!!t!on

There are three types of Ac$uisition

• 4'rt!&- Int'r&t!on 5or"&rd Int'r&t!on4 gaining ownership or increase

control over distributorship or retailers"

*&"&rd Int'r&t!on 4 seeking ownership or

increase control of firm!s suppliers

• L&t'r&- Int'r&t!on 4 integrate into unrelated business atthe same level of value adding process as itself

• Hor!ont&- !nt'r&t!on < ac$uiring competitors" That is toseek ownership or increase control over competitors! ownbusiness





Introdut!on to *u!n' E%!t

• There may come a time in a business life4cycle when theentrepreneur decides to exit the business or to end thebusiness

• Business exit can be due to several reasons:

The decision to terminate the business operations may not bebecause of plummeting demand but due to reasons associatedwith the business owners"

-ost business ventures ended because they have reached thedeclining stage of their product or the venture is operating in adeclining industry and experiencing a decline in profits

• This stage sometimes is similar to the end4game strategy inchess where the player has to seriously consider reduction offorces"



1*



E%!t Str&t'!'

• Ending a business operation cannot be done abruptly" Thereare numerous exit barriers that may hinder the efficienttermination of a business operation"

• These exit barriers could be in the form of obligation tocustomers. long term contract with suppliers. financialobligation with financial institutions or high investment in fixedassets"

• There are various strategies of terminating a businessoperation:

R'tr'n#+'nt D!2't+'nt L!3u!d&t!on H&r2't!n



19



E%!t Str&t':

R'tr'n#+'nt

• 5etrenchment occurs when a business regroupsby reducing cost and asset to reverse decliningsales and profits" 5etrenchment includesactivities such as:

#elling off assets to raise needed cash

,runing product line

Closing down businesses that are performing

poorly 5educing the number of employees

/eclaring bankruptcy



20



W#'n to U' R'tr'n#+'nt

• 5etrenchment is best used when:

A business has distinctive competencies

but has failed to meet its ob0ectives

A business is plagued by inefficiency. lowprofitability. and poor employee morale

8hen a business has grown so large so

$uickly that ma0or reorgani3ation isneeded



21



E%!t Str&t':

D!2't+'nt

• /ivestment. sometimes also termed as

divestiture. is a strategy to end a business

• This is done cautiously by selling part of the

venture for cash to be reinvested in a more

promising business



22



W#'n to U' D!2't+'nt

• /ivestiture can be used when:

A business has pursued a retrenchment strategy

but failed to accomplish needed improvements A business needs more resources to be

competitive than what the company can provide

8hen one particular division is responsible for a

business!s overall poor performance 8hen a division does not fit well with the rest of

the business



2&



E%!t Str&t':

L!3u!d&t!on

• ;i$uidation involves the selling all of a company!s

assets for their tangible worth" ;i$uidation is a

recognition of defeat

• ;i$uidation is undertaken when both

retrenchment and divestiture have been

unsuccessful

• ;i$uidation enables stockholders to minimi3e

their losses



2'



W#'n to U' L!3u!d&t!on

• ;i$uidation may be a good strategy when:

There is a need to orderly raise cash to

pay off creditors

The organi3ation seeks to minimi3e

losses

8hen an organi3ation!s only otheralternative is bankruptcy



2



E%!t Str&t':

H&r2't!n

• 2arvesting is a strategy pursued by a business in an effort tocash out and harvest the profit

• 1n contrast to retrenchment. divestiture and li$uidation.harvesting is associated more with the owners! personal reasonsfor terminating the venture" These reasons may include: Boredom and burnout ;ack of operating and growth capital +o heirs to leave the business to /esire for li$uidity Aging and health problems

/esire to pursue other interests

• By pursuing the harvesting strategy. business owners could sellout the venture for cash at market value



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Unit 10 ENT600 Growth and Exit Strategies

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