An entrepreneur with no strategic plan is a dreamer (Martin Zwilling).
I will shortly start my undergraduate degree in international business with a major in entrepreneurship at EBS.
My long-term goal after completing my studies, is to join the family business. In this essay, therefore, I will discuss two entrepreneurial strategies between which successful family businesses must often choose sooner or later: going public versus remaining private.
Before going into the details of either strategy, however, it is essential to clarify the importance of strategy in entrepreneurship.
When embarking on a new venture, managing and existing business or trying to increase the success of a company, it is important to be aware that entrepreneurships not just about being innovative and taking chances.
In order to succeed, an entrepreneur needs to develop appropriate strategies, identify and select the best methods and vehicles to put strategies into action and obtain knowledge and support to make the right decisions. But what is entrepreneurial strategy?
Going public is the “process by which a privately held company first offers shares of stock to the public. This is often done from an Initial Public Offering (IPO)”. (Kappes, 2012)
This process involves hiring an investment bank to assist in the transition complete a registration process with the responsible security authorities, undertake a financial road show, which is “a series of meetings across different cities in which top executives from a company have the opportunity to talk with current or potential investors”, and, as a final step, launch the IPO on the stock market. (David)
On the other hand, “a privately held company is a business company owned by a relatively small number ...
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...and for the company’s shares thus enhancing the company’s value. Moreover, in a public company, employees can become shareholders and participate in the ownership of the company they work for, which positively affect performance, production and, ultimately, the company’s success.
To conclude, in my opinion, both strategic approaches offer advantages and disadvantages. A lot depends on the size, financial conditions and future goals of a specific company. As a result, before making any decision, an entrepreneur will have to accurately assess the impact of either strategy, determining, for example, - with the help of consultants and advisors, if necessary -whether going public is the right choice in view of the challenges the process poses or if the prospect of larger investment opportunities, further transparency and prestige may be worth taking the risk. (912 words)
This transformation process begins with an Initial Public Offering (IPO), which in most cases is a very difficult and intensive process (Phung, 2006b). An IPO is a formal, regulatory procedure that involves extensive documentation and is followed by a process of changes a company must go through in order to attain public status. The three phases include a pre-IPO transformation phase, an IPO transaction phase and a post-IPO transaction phase (Phung, 2006b). Running a publically-traded company is a completely different playing field which requires a company to restructure their management practices, organizational procedures and corporate governance (Clarkson, 770). Above all, shareholders must aim to maximize the company’s value by enhancing its growth strategy and projected profits in order to persuade investors to trade purchase shares. Completion of the pre-transformational phase will normally take about two years (Phung,
IPOs are created by underwriters. The first step in creating the IPO is to hire an investment bank and negotiate a contract. The contract will state the type of securities (either stocks or bonds), the amount of capital to be raised, and the details of the actual underwriting agreement. The company and the investment bank determine the structure of the contract. There are two different types of structured agreements. The first type of structured agreement is the firm commitment agreement, in which the underwriter guarantees that a certain amount of capital will be raised. This is done through buying the entire offer and reselling it to the public. The second type of structured agreement is the best effort agreement, in which the underwriter will sell the securities for the company but does not guarantee how much capital will be raised. To protect themselves with IPOs, an investment bank will often form a syndicate of underwriters. When a syndicate is formed, a lead underwriter will be in charge of the syndicate, while the others will each sell a portion of the securities issued. Once a contract agreement is reached, the investment bank files a registration statement with the Securities and Exchange Commission (SEC) (IPO, 2005).
It tells a layman business person or a person interested in setting up a business soon that a strategy is about planning for the future. It is to plan the future in a way that makes it easy for the managers to set up objectives and for the employees to follow those objectives (McKeown, 2012). The book gives examples of successful business persons and how they made their business strategy when they came into the business field. There are examples of people, who found success instantly, and there are also examples of business persons who struggled at first, but then after reshaping the strategy they were able to effectively conduct their business. It is very helpful for new entrepreneurs to know about these strategies so that they could also learn and implement it in their
When retained earnings and the debt for funding is lacking, then an IPO becomes one of the most probable ways to have continued growth for the business. This strategy is used to help maximize the value of the company. Historically an IPO has been an offer to a large number of retail and institutional investors that become shareholders of a company. With a huge magnitude of a large number of investors with their confidence with the liquidity of the investment in a public entity will assure current owners of maximum share valuation.
Five executives of highly successful companies discuss why they have made the decision to stay privately owned. Dick Forsythe of Eggers Industries Inc. says, “We stay private to maintain control.” Once a company goes public, they have to report all inside information including quarterly earnings and business strategies. It is clear that a privately held company has less pressure to increase earnings each quarter, which leads to a less stressful working environment which proves to be more effective. A major reason to stay private is that those who have contributed to the company’s success have a great pride in ownership. This is popular in family owned businesses, people want the business to remain in the family for future generations. Once a firm goes public, they often have to follow strict guidelines regarding business operations that restrict creativity. Companies looking to breach out into new economic sectors are better off remaining privately owned because of the flexibility it offers. Ridge Braunschweig, executive VP and CFO of Orion Corporation states, “A good, solid, consistent rate of growth over time is more important than short-term quarterly earnings results.” For private companies it is proven that long term-grown is better than short term growth. A major downfall when a corporation goes public is that the company’s culture changes. Employees of
IPO, the traditionally preferred route, is the method whereby the investors will have a right to offer their shares for sale to the public and then exit. The most evident benefits include longer-term shareholding benefits to the investor in the company and higher valuation, which is dependent on the prevailing market conditions. However, the listing of the shares of a company is subject to strict regulatory requirements and restrictions, which make the IPO a lengthy and expensive process. Despite the cumbersome process, IPO exits are seen as the primary mode of exit. Instances of IPO exits in 2013 are SAIF’s exit from JustDial and TPG’s exit from Shriram Transport Finance. Apparently, for PE investors, what made a good year for exits the great year was the strength of IPO channel in 2013. The number of IPO’s for buyouts soared 67% worldwide from 112 in 2012 to 187 in 2013.
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