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Entrepreneurship and Negotiation

Entrepreneurship and Negotiation. 14. Exit Strategies for Entrepreneurs: When—and How—To Harvest the Rewards. “All things change…There is nothing in the whole world which is permanent. Everything flows onward…the ages themselves glide by in constant movement.” --Ovid, 10 B.C.

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Entrepreneurship and Negotiation

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  1. Entrepreneurshipand Negotiation 14 Exit Strategies for Entrepreneurs: When—and How—To Harvest the Rewards

  2. “All things change…There is nothing in the whole world which is permanent. Everything flows onward…the ages themselves glide by in constant movement.” --Ovid, 10 B.C.

  3. Exit Strategies • Sell or transfer ownership to insiders • Sell or transfer ownership to outsiders • Take the company public through an IPO

  4. Sale or Transfer to Insiders • Succession • Leveraged buyout • Employee stock ownership plan

  5. All In the Family • Share power • Form a limited partnership • Set up a trust

  6. Leveraged Buyouts • Managers borrow money to pay the owner an agreed-upon price. • The new owners pledge their stock as collateral, or… • Lenders accept an equity position in the company to cover part or all of the funds.

  7. Employee Stock Ownership • Ordinary ESOP • Leveraged plan • Transfer ownership plan

  8. Selling to Outsiders • Sell at the right stage • Sell when the business cycle is strong • Compensate for loss of talent • Identify and protect intellectual property • Adopt transparent and conservative accounting policies • Resolve open questions that make it difficult to estimate value

  9. Factors in Terms of the Sale • Valuation of the company • Negotiation process

  10. What’s It Worth? • Balance sheet methods • Earnings methods • Market method

  11. Balance Sheet Methods • Balance sheet method Net worth = Assets – Liabilities • Adjusted balance sheet method Estimates market value of assets

  12. Earnings Methods • Excess earnings method • Capitalized earnings method • Discounted future earnings method

  13. Advantages of IPOs • Cash • Aura of respectability • Market provides continuing valuation of worth • Ability to use stock options for employees • Ability to use stock to acquire other companies

  14. Disadvantages of IPOs • A tremendously expensive process • Lock-up agreements • Subject to careful scrutiny

  15. Bargaining Tactics • Beginning with an extreme initial offer • Using the “big lie” technique • Convincing the other side you have an “out”

  16. Unethical Negotiation Tactics • False promises • Misrepresentation • Inappropriate information gathering

  17. Reaching Integrative Agreements • Logrolling – each party makes concessions on low-priority issues • Nonspecific compensation – one side gets what it wants, and the other is compensated • Broadening the pie – available resources are increased so that both sides can obtain their major goals

  18. Reaching Integrative Agreements • Cost-cutting – one party gets what it wants, and the other party are reduced or eliminated • Bridging – neither party gets its initial demands

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