Strategy Role in Entrepreneurship

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Businesses are entities that are likely to undergo changes in the course of operation. It is important to note that businesses go through phases and each phase has got its special requirements.

For instance when business is starting there is need to ensure that the legal documents are put in place, there is sufficient capital and there are available parties to run the business. Evaluations should be carried out against the stage of business development as well as the prevailing circumstances at that point.

As an entrepreneur, one of the main goals of establishing and running a business are to make profit and make the business a success. This implies that in cases where this reason and any other reason are not met then there is need to bring the business to an end.

Among many other reasons entrepreneurs bring the business to a close in light of the following reasons, boredom and burnout, lack of operating and growth capital, no heirs to leave the business to, desire for liquidity, aging and health problems and the desire to pursue other interests.

In such cases, a strategy is developed by the entrepreneur to enable him or her to gain maximum benefits while ending the particular enterprise.

The strategy which is utilized when one is changing or shifting from one enterprise to another is known as an exit strategy. The exit strategy can be defined as a component of a business plan where an entrepreneur describes a method which investors realize tangible return on their investment.

Investors will always want to convert their share of the investment into a more “liquid” form, known as liquidity event which refers to the position of the venture for the realization of a cash return for the owners and the investors. This “event” is most often achieved through an initial public offering or a complete sale of the venture.

In essence, many entrepreneurs seek to gain or acquire capital through the public markets. This is done through the initial public offering which is used to represent the registered public offering of a company’s securities for the first time.

It is important to note that through a capital increase associated with an IPO against cash contributions or through the issuance of shares to private and institutional investors, the company’s capital adequacy is improved all over sudden.

With a well planned and professionally structured IPO the company will receive significant cash inflow. In contrast to a credit financing that is subject to regular interest and principal payments, whereby these are of course determined independent of the success results of the company.

A case in point is the acquisition of Paypal by eBay. Paypal is a company which is based in America which specializes in e-commerce. It allows payments and money transfers to be made through the internet. This offers the customers alternative ways of transacting money from the traditional methods such as the checks and other paper methods.

Paypal had been a service provider of choice until October 3, 2002 when eBay acquired stakes in it. This acquisition cost eBay $1.5 billion. eBay is a San Jose based company which offers its services across the world.

This took place when Paypal went public through the initial public offer. Through this acquisition, eBay was able to control the electronic payment service. Analysts state that due to the stiff competition which Paypal had with eBay, it was easier for eBay to buyout Paypal than to beat it.

Among the means by which entrepreneurs and investors can exit their venture, the one that receives most attention by the press and has been studies most extensively is the IPO. Essentially, an IPO is the sale of the portion of the company to the public through a stock offering, and is considered by many to be the preferred choice of exiting a firm.

Successful initial public offerings enable businesses to gain higher valuation for the stockholders who are in existence thus leading to generation of cash from interested investors. This is often due to the increased legitimacy and visibility of the venture and increased liquidity of the company’s equity, making it a less risky and more accessible investment.

The drawback of the initial public offering is normally contributed by the nature of the process. An IPO is an expensive and lengthy process. This implies that it is a process which requires a significant amount of time, effort, and financial resources to complete the legal steps which are required by the legislation.

Furthermore, the IPO requires the company to exhibit much greater transparency to the public and to regulators. An IPO is a point of transition from the private to the public domain.

Although firms preparing for an IPO often attract investors’ attention, the attention sometimes does not result in investment because IPO firms lack a publicly available record for their stock price and because IPO firms are riskier than larger more established firms.

During the Paypal initial public offering there were certain aspects which had an impact on Paypal’s later performances. Essentially, Paypal did not set a price tag this implied that there were no specific limits about the amount which was expected to be raised.

Furthermore, it offered an IPO when the markets were struggling. Initially, the Paypal stocks soared unexpectedly in the market during its debut, but that did not last long. This drop was attributed to market conditions which were prevailing at that particular time.

In addition, the announcement from eBay about the stake acquisition of 35%also had a major blow of the way the stock shares behaved in the following days. This was a major blow because the majority of eBay users had been using the Paypal service.

Thus this led the investors to interpret the acquisition as an indication that eBay would be more aggressive in the promotion of services which were similar to Paypal. During this time, Paypal suffered another blow when a customer filed a law suit against it because of claims regarding freezing of their accounts without sufficient reason.

The company could not make any statements due to the restrictions regarding the company weeks before and after the stock offering. This tainted a big blow to the image of the company.

There are several ways that this situation could be averted. First, it was important to establish the timing and ensure that the market trends do not harm the prospects of the organization. As a company which is listing is going public, the management should be careful not to bring out contradictory information or inflammatory remarks which can taint the image of the company.

Thus, it is fundamental to note the establishing the rules of going public is not just a public relations affair, it entails bringing on board a diverse team of experts who should advice on the best move possible as well as inform the management team on any looming pitfalls during and after this period.

Lastly, entrepreneurs are generally risk takers. This is because they attempt things that have never been attempted before and they go ahead and execute with precision. However, it is not always the case that the outcome will be positive. This notwithstanding, information and insight into any venture is crucial for business.

References

Kuratko, D. F., & Hodgetts, R. M. (2008). Entrepreneurship: Theory, Process, and Practice. California: Cengage Learning.

Micco, L. C. (2010). Ipo. Monte Carlo: BoD – Books on Demand.

Zacharakis, A., Minniti, M., Spinelli, S., Rice, M. P., & Habbershon, T. G. ( 2007). Entrepreneurship: The Engine of Growth. New York: Greenwood Publishing Group.

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Strategy Role in Entrepreneurship

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