BUSI 603 Week 7 Group Discussion Board Forum 7 Example

Group Discussion Board Forum 7: Growth Plan, Contingency Plan and Harvest Strategy

BUSI 603 Entrepreneurship, Group Discussion Board Forum 7 (thread and 2 replies)

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The venture, its targets and the classmates' plans are composites written for this sample, and the assigned topic stands in for the course's own; the research cited is real, and the requirements follow Liberty's public course guide for BUSI 603.

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Steward Ledger Services' growth plan is built on a simple rule: the firm will not take the next step until the current one is profitable. Davidsson et al. (2009), following small firms over several years, found that firms that were profitable but growing slowly were more likely to move later to both high growth and high profitability than firms that were growing fast while unprofitable. For a service firm whose main constraint is skilled time, growth bought before profits are reliable tends to dilute quality.

The plan has three stages. In Stage 1, years one and two, the founder serves up to 15 clients alone, with a target of 12 by the end of year one and an operating margin of at least 25% by the end of year two. Stage 2 begins only when that margin is reached: the firm hires a part-time associate and grows toward 30 clients. Stage 3, in years four and five, adds a second associate and either a second service area, such as churches in the Roanoke region, or a second service line, such as budget preparation and audit readiness, depending on which the existing clients request more often.

The contingency plan addresses the four risks most likely to end the business. If fewer than six clients have signed by month 12, the founder will interview prospects who declined and either reprice or narrow the target market before spending more on promotion. If a client's payroll error causes a penalty, the firm will pay the penalty, notify the insurer, revise the checklist and report the change to every client. If the founder cannot work for a period, the continuity agreement with the CPA adviser's firm takes effect. If a major cloud supplier fails or raises prices sharply, the procedures manual allows migration to a competing system within 60 days. A contingency plan is only useful if the warning signs are named before they appear. To pay for these responses, the founder will set aside three months of operating expenses in a separate account before taking any raise in salary. Bradley et al. (2011) found that financial slack helped new firms survive and grow in hostile environments, and a small firm's reserve is what turns a contingency plan from a list into a capability.

The harvest strategy is a sale of the practice. DeTienne (2010) argues that exit is a critical part of the entrepreneurial process and that founders should plan it rather than leave it to circumstance. Bookkeeping practices are commonly sold to larger firms on the basis of their recurring revenue, so the plan's goal is a book of 40 to 50 church clients with documented procedures and long relationships, which a regional accounting firm could acquire after year eight. The founder's preference would be a buyer committed to serving churches, consistent with the firm's mission.

Reply to Jasmine

Jasmine, your growth plan is ambitious: a second trailer in year two and franchising by year four. The second trailer makes sense if the first proves the route model. Franchising is a bigger step. Shane (1996) studied new franchisors and found that franchising could help young firms grow and survive by letting franchisees supply capital and local management, but that the benefit depended on the franchisor's ability to monitor franchisees and protect the brand. A franchisor needs a proven system, a documented operations manual, a recognizable brand and the legal and administrative capacity to support franchisees, and your earlier sections describe a business still learning its routes.

I would suggest an intermediate step: operate two or three company-owned trailers until the operations manual is tested by people other than you and your brother, then decide whether franchising, licensing or simply adding company trailers is the better path. By then you will also know your real margins per trailer, which any franchisee would ask to see. That choice also shapes your harvest, because a buyer pays for what a business can do without its founder. Wennberg et al. (2010) distinguished several exit routes, including sale of the firm and liquidation, and found that founders' experience and the firm's performance were associated with which route they followed. A chain of company-owned trailers with steady contracts might attract a buyer, while a franchise system with few units would be harder to sell. Which harvest do you see as most likely, and does your growth plan point toward it? If the answer is a sale, every step that makes the business run without you also raises its value.

Reply to Caleb

Caleb, your growth plan is clear and well paced, but your contingency section names only one risk, a food safety incident, and says you would close the business if it happened. I think the plan would be stronger if it treated failure more fully, including what happens to you and your partner. Ucbasaran et al. (2013), reviewing research on business failure, found that failure affects entrepreneurs financially, socially and psychologically, and that how they make sense of it shapes whether they start again. Shepherd (2003) argued that the grief entrepreneurs feel after a failure can be managed, and that recovering from it allows them to learn from the experience rather than repeat it.

Practically, I would add three things to your contingency plan. First, name the warning signs that would lead you to change course before failure, for example reorders below 50% for two months. Second, decide in advance how you would close if needed: who would be notified, how prepaid subscriptions would be refunded and how equipment would be sold, so that customers and your partnership are treated fairly. Third, agree with your roommate on how losses and any remaining assets would be divided. Planning these steps does not mean expecting failure; it means you would be able to act calmly if it came, and it protects your friendship as much as your finances. Lenders and landlords also tend to trust founders who have thought about the downside. Have you two discussed what you would each do if the company closed after the first year, and whether either of you would want to try again?

References

Bradley, S. W., Shepherd, D. A., & Wiklund, J. (2011). The importance of slack for new organizations facing 'tough' environments. Journal of Management Studies, 48(5), 1071-1097. https://doi.org/10.1111/j.1467-6486.2009.00906.x

Davidsson, P., Steffens, P., & Fitzsimmons, J. (2009). Growing profitable or growing from profits: Putting the horse in front of the cart? Journal of Business Venturing, 24(4), 388-406. https://doi.org/10.1016/j.jbusvent.2008.04.003

DeTienne, D. R. (2010). Entrepreneurial exit as a critical component of the entrepreneurial process: Theoretical development. Journal of Business Venturing, 25(2), 203-215. https://doi.org/10.1016/j.jbusvent.2008.05.004

Shane, S. A. (1996). Hybrid organizational arrangements and their implications for firm growth and survival: A study of new franchisors. Academy of Management Journal, 39(1), 216-234. https://doi.org/10.5465/256637

Shepherd, D. A. (2003). Learning from business failure: Propositions of grief recovery for the self-employed. Academy of Management Review, 28(2), 318-328. https://doi.org/10.5465/amr.2003.9416377

Ucbasaran, D., Shepherd, D. A., Lockett, A., & Lyon, S. J. (2013). Life after business failure: The process and consequences of business failure for entrepreneurs. Journal of Management, 39(1), 163-202. https://doi.org/10.1177/0149206312457823

Wennberg, K., Wiklund, J., DeTienne, D. R., & Cardon, M. S. (2010). Reconceptualizing entrepreneurial exit: Divergent exit routes and their drivers. Journal of Business Venturing, 25(4), 361-375. https://doi.org/10.1016/j.jbusvent.2009.01.001