Scaling for Exit Or Scaling for Growth?
Most of the small and medium sized businesses that are opening at the moment generally have two motives, either to grow and emerge as a big company or to be acquired by some big ones. Whether you are planning to grow or to exit, both require considerable amount of planning. It is better to start planning as early as possible.
Some of the major steps involved in creating a growth oriented organization includes creation of an independent board of members, improvement in financial reporting system, analyzing security and internal operations, and your company policies and strategies.Entrepreneurs who are planning to exit over time should start to think about the exit strategies earlier itself as preparing to exit takes time. Some of the common exit strategies include initial public offering (IPO), selling company to any potential acquirer, recapitalization, and management takeover.
Exit oriented companies will have to define their purpose, the ways to attain it, and the ways they could make the shareholders and employees happy. Now we will discuss the factors that a company should consider while deciding which exit strategy will work best for them.
Initial Public Offering (IPO)
Here you sell a portion of your company in public markets, without any operational changes. Your company will have to follow additional regulations.
Some company may purchase your business with cash, stock, or combination of both. It depends on the acquirer to retain the management team, make any significant changes in company operations, and staffs. The benefit is liquidity and the drawback is the loss of operating control.
This involves sale of you company to next generation of managers. This offers instant liquidity to the owners, smoother transition, and continuation of private enterprise.
Choosing any of the above strategies depends on your future role in the business, i.e. whether you want to continue managing business or not. If yes it is better to choose an IPO or a management buyout, you and your team will enjoy same roles even after exit. Acquisition will be useful in case you are facing succession preparation issues. If you want to increase personal liquidity, strategic acquisition will offer immediate cash payment, thus increasing liquidity or a managerial takeover, where you will receive liquidity over a period of time.If you are considering your company's future growth potential, in that case, IPO or managerial takeover allows you to have a sizable interest in the company. If your exit strategy is based on the demand for your products and services, IPOs and acquisitions will be a good choice.
Once you have decided on the exit strategy consult with investors so as to make right decision that will be best for you, your company, employees and customers.
Now coming on to the growth oriented companies, growth can be achieved either through internal growth or through external growth. Growth enables a business to flourish based on the different economics of production, which are as below:
Technical economies are when a business achieves benefits through improved techniques for large scale production focusing on reducing production cost, and upgrading quality.
Managerial economies focus on employing skilled production managers.
Commercial economies are related to the purchase of stocks, sales of end products with a large scale approach.
Risks spreading economies are those where production plants are producing wide variety of products.
For growing a business on a larger scale you will have to manage all the above production economies in the best possible manner. Using these economies you can make possible large scale production at low costs per unit.
Success lies on the ability to capture new markets for a long-term. Breaking in to new markets can enlarge the potential of your business. Today’s starts up companies are focusing on new industries along with new technology.
Growth by scaling works best when you have a potentially large market for rapid growth focused on a specific product line, which creates unique value in the customers. In this case companies can distribute products at low cost. This requires a company to have mass manufacturing and along with new manufacturing techniques. You will need to have knowledge of mass marketing like search engine marketing, along with gathering individualized customer information which will be a considerable weapon for your business growth. Offering technical support for your wide customer group is critical for such companies.
The key to a long, healthy corporate life is steady growth. And to grow steadily by avoiding stagnation, a company must focus on scaling up its business by expanding, accumulating and applying new knowledge, offering newer products and services than the competitors and add value to the ecosystem.
It all depends on you and how you want your story to unfold… Think before you decide!!!
[We are Connecting Dots, a full service eCommerce solutions company. At Connecting Dots, we help companies build great online businesses, we are Magento implementation partners and build great eCommerce portals]