harvest strategy in business plan

Harvest Strategy

A decision to minimize spending on a specific product to maximize profitability, despite a potential decline in market share

What is a Harvest Strategy?

A harvest strategy is a calculated decision to minimize all types of spending on a specific product to maximize profitability, despite a potential decline in market share . A harvesting strategy can be developed for product or business lines and serves as an “exit” plan should a product become outdated.

Harvesting strategies are usually used and put into action at the end of a product or business life cycle . At this point, it is decided that additional investment into the product or business line will not increase revenue.

• A harvest strategy is a calculated decision to minimize all types of spending on a specific product to maximize profitability, despite a potential decline in market share.
• The strategy can be developed for product or business lines and serves as an “exit” plan. It is usually used and put into action at the end of a product or business life cycle.
• There are four common stages that every business or product line is expected to follow – the start-up or introduction stage, the growth stage, the maturity stage, and the renewal or declination stage.

The Product or Business Life Cycle

To fully comprehend the use and applicability of a harvest strategy, it is beneficial to understand the business/product life cycle. There are four common stages that every business or product line is expected to follow. They include the start-up or introduction stage, the growth stage, the maturity stage, and the renewal or decline stage.

• The start-up stage is the very beginning of the cycle. The business model is still being developed, and significant amounts of investment is needed to market the release of the new product or business line. The start-up stage focuses on increasing customer awareness and generating initial sales.
• The growth stage of a product or business line is the stage at which demand starts to increase, thereby offsetting an increase in overall production and product access and availability. At the growth stage, the existing consumer base begins to mature, while traction for new customers continues to increase.
• The maturity stage of a business is the stage at which a business’ marketing and production costs begin to decrease, and the business is generating its highest profits. At the maturity stage, revenue is constant, and operations are efficient.
• The renewal or decline stage is the stage where a product or business line starts to lose market share as a result of increased competition and/or stagnant revenues. It is also known as the cash-cow stage of the business or product, where more investment is not necessary, as further investments may not result in increased sales.

A business faces three considerations for employing a harvest strategy – a reduction or complete cut in capital expenditure and spending, a reduction or complete cut in marketing expenditure, or a reduction or complete cut in operating expenditure. The strategy can also include a plan on new avenues of investment where resources can be channeled to.

Reasons to Employ a Harvesting Strategy

A business may decide to employ a harvesting strategy for reasons including (but not limited to):

• Arrival of a product or business line at the cash-cow or declination stage . Here, marketing the product is no longer necessary, and resources can be allocated to other avenues that may be generating increased revenues.
• Development of new products and other interests . The new product development may require additional resources and investment to encourage increased income generation .
• Discontinuation of a product or business line . As a result of a business’ decision to discontinue a product, further marketing and reinvestment are no longer necessary.

Examples of Harvest Strategies

Below are a few real-world examples of harvesting strategies:

1. Equity investments

Also referred to as an exit strategy, a harvest strategy is a plan for investors to maximize their profits. A common exit strategy in equity investments is listing a company on the stock market – i.e., launching an initial public offering (IPO).

2. Telecommunications sector

A common harvesting strategy for business in the telecommunications sector is the redirection of resources and funds into the development of new technology and brands with notable growth opportunities, instead of allocating resources to technology or products that are becoming obsolete as technology advances.

Additional Resources

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• Marketing Essentials

Harvest Strategy Definition in Marketing and Investing

What Is a Harvest Strategy?

A harvest strategy is a marketing and business strategy that involves a reduction or a termination of investments in a product, product line, or line of business so that the entities involved can reap—or, harvest—the maximum profits. A harvest strategy is typically employed toward the end of a product's life cycle when it is determined that further investment will no longer boost product revenue.

Key Takeaways

• A harvest strategy involves reducing spending on an established product in order to maximize profits.
• Typically, harvest strategies are used on outdated products as profits are reinvested in newer models or newer technologies.
• Strategies for venture capitalists to exit successful investments also are referred to as harvest strategies.

Understanding Harvest Strategies

Products have  life cycles , and when the item nears the end of its life cycle, it usually will not benefit from additional investments and marketing efforts. This product stage is called the cash cow stage, and it is when the asset is paid off and requires no further investment. Therefore, employing a harvest strategy will allow companies to harvest the maximum benefits or profits before the item reaches its decline stage. Companies often use the proceeds from the ending item to fund the development and distribution of new products. Funds also may go toward promoting existing products with high growth potential.

For example, a soft-drink company may terminate investments in its established carbonated product to reallocate funds to its new line of energy drinks. Companies have several harvest strategy options. Often they will rely on brand loyalty to drive sales, thereby reducing or eliminating marketing expenses for new products. During harvest, the company can limit or eliminate capital expenses , such as the purchase of new equipment needed to support the ending item. Also, they can restrict spending on operations.

A harvest strategy may involve the gradual elimination of a product or product line when technological advances render the product or line obsolete. For example, companies selling stereo systems gradually eliminated sales of record turntables in favor of CD players as compact disc sales soared and record sales declined. Also, when product sales consistently fall below the target level of sales, companies may gradually eliminate the related products from their portfolios.

Computers, cellphones, and other electronics products are common objects of harvest strategies as they quickly become outdated and profits are put into newer gadgets.

Special Considerations

Harvest strategy also refers to a business plan for investors such as  venture capitalists or private equity investors. This method is commonly referred to as an exit strategy, as investors seek to exit the investment after its success. Investors will use a harvest strategy to collect the profit from their investment so that funds can be reinvested into new ventures. Most investors estimate that it will take between three and five years to recoup their investment. Two common harvest strategies for equity investors are to sell the company to another company or to make an initial public offering (IPO) of company stock.

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Harvest Strategy

The business, investing, and marketing decision that involves maximizing short-term cash inflows by a significant reduction in research & development, marketing costs, and other miscellaneous expenses

Previously a Portfolio Manager for MDH Investment Management, David has been with the firm for nearly a decade, serving as President since 2015. He has extensive experience in wealth management,  investments and portfolio management .

David holds a  BS  from Miami University in Finance.

What Is A Harvest Strategy?

The bcg growth-share matrix, understanding the harvest strategy, types of harvesting strategies.

The word "Harvest" or "Harvesting" generally has two to three definitions. And, all of them would amount to the meaning of collecting resources for future use. 

Harvesting strategy refers to the business, investing, and marketing decision that involves maximizing short-term cash inflows by a significant reduction in research & development, marketing costs, and other miscellaneous expenses that are depleting the organization's financial resources.

This decision is usually taken to divert the valuable resources elsewhere to a more productive and profitable sector/department. The harvesting strategy is typically used in the case of weak cash cows, question marks, and pets, as defined by the BCG growth-share matrix.

In finance and business, harvesting is an organized practice by which the organization recovers value gained by the entity through the selling of assets or the entire firm as a whole.

The Strategy could be defined as the plan of action. A plan that is designed to achieve the long-term/overall aims of the organization. These collective goals represent the collective soul of the firm.

There are some strategies that an organization can take upon the products and their life cycles.

In marketing, product, and business strategies, the organization can choose to go with the Hold, Build, Harvest, and Divest Strategy, depending upon the performance of the product in the market.

To take these decisions, the management should analyze the product in the light of the  BCG Growth-Share Matrix  to have a better understanding of the product's growth rate and market share .

The growth-share matrix is a portfolio analysis tool developed to aid management in making decisions related to resource allocation.

This helps a great deal in the analysis of new business startups, acquisitions, downsizing, and divestitures. The matrix is divided into a vertical and horizontal axis into four quadrants.

Each quadrant significantly explains the market and growth position of the organization.

The vertical axis is the  Market Growth Rate (MGR)  which is stated in the currency units. It reflects the maturity and attractiveness of the industry and market. This axis explains if the product needs cash.

The cash here is for future expansion needs and to answer the competitive forces with a sound strategy.

The horizontal axis is for the  Relative Market Share (RMS) , which shows the competitive position in the market. Market share can be calculated by dividing the business unit's market share by the market share of the leading competitor.

The four quadrants include the Pet, Question Mark, Star, and Cash Cow segments.

The pet has low RMS and low MGR. The products or business units in this category are weak competitors in low-growth markets.

The question mark has low RMS and high MGR. Products or business units under this section are weak competitors and poor generators of cash in a high-growth industry.

The cash cows have high RMS but low MGR. Products here are strong competitors and cash generators. They have attractive cash flows. Products under cash cows make the firms enjoy high-profit margins and economies of scale .

Lastly, the Star products have high RMS and high MGR. The star products are strong competitors and high-growth markets. The products are highly profitable. Great and attractive financial statements and cash flows.

The portfolio should have a balance between these four types of products. There shouldn't be too many cash cows and stars, and also not too many question marks and pets.

The decision to Harvest is taken to maximize the short-term net cash inflows. Generally, the decision is taken for weak cash cows, question marks, and pets.

Harvesting means zero budgeting for research & development, reducing marketing costs, and not replacing the products and facilities.

The reduction in marketing and R&D costs is made to maximize profits. Implementing the harvesting strategy to a product or product line will help in maximizing profits.

Planning and execution of the harvesting strategy should be done before the end of the product's life cycle. Assuming that every product has its life cycle. A cycle that starts from the idea to warranty and sales services.

When the product is in the "Cash Cow" quadrant, it is safe to say that the product is at the end its life cycle. Making additional investments and pumping funds into marketing at this stage won't be fruitful for the firm.

Thus, decreasing the investments and decreasing the funds in marketing will help the firm save money and maximize profits. In other words, the firm can milk the product to the maximum.

These funds can be used by the firm in the development of new products and different profitable product lines.

There are three important reasons why an organization may employ a harvesting strategy for its product or product lines. But definitely isn't limited to:

• Primarily, the product or product line is considered to be discontinuation. This means that discontinuing a product line will help a great deal in saving costs. Money saved is money earned.
• Secondly, the organization may have identified more important and profitable products or product lines. This will help the firm divert saved resources to this new product line.
• Due to the advent of the latest technology, the product or service is to be considered as obsolete. And the firm needs resources to recalibrate the business process.

There are several options for the way organizations can utilize the harvesting strategy. Or, can use the following techniques to take advantage of the situation to convert such sinking ships into profitable ones.

The organization may choose the strategy that would fit the need and corporate goals and objectives. Each of the strategies has its benefits and limitations.

1. Selling Harvest Strategy

Often referred to as the "exit strategy" is the selling of the firm or the product or service line to another entity. The business owners may ask for a price, and perhaps parties interested in the acquisition may offer a price.

2. Gradual Harvest Strategy

This strategy involves getting rid of all the expenses and costs associated with the product or service line. This is done to focus more on profitable and growth-oriented product lines. The gradual harvest strategy involves the creation of profits or increasing profits through heavy cutting on costs involved.

3. Buyout Strategy

A buyout is a financial condition involving the acquisition of controlling interests in the targeted company. This involves buying/acquiring more than 50% of the firm itself.

The buyout includes the following types:

• Leveraged Buyout
• Management Buyout
• Management Buy-ing
• Institutional Buyout
• Leveraged Buildup

A merger is the coming of two different companies together to form a new company to share a synergistic bond to expand its horizon of expertise.

The expansion of reach, market share, and acquisition of resources might be helpful in future long-term growth. Most of the time, a merger is proven to be beneficial and executed to enhance shareholders' value.

Business mergers are of different types. Some of them are conglomerate, congeneric, and vertical.

ESOP, also known as an employee stock ownership plan, is a type of employee benefit scheme with an option to have an ownership interest in the firm.

IPOs, also known as Initial Public Offering the process of offering shares of a private firm to a public firm in a new stock issuance that facilitates the company to raise capital from public investors.

To execute an IPO , the firm has to be listed on the public stock exchange to trade its share publicly.

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Harvesting Strategy – Definition, Types, and Examples

Businesses and companies allocated marketing budgets and launch promotional campaigns to increase their sales and revenue. When the marketing campaign doesn’t deliver the expected result, then there’s no point in spending resources.

Today, we’ll discuss harvesting strategy, definition, types, and examples. 

Table of Contents

What is Harvesting Strategy?

A harvesting strategy is a plan and management decision to reduce all the marketing expenses to increase the profit. You can develop a harvesting strategy for your business and the product, it serves as the function of an exit plan when the product becomes obsolete. 

The term harvest strategy usually goes for the business line or the brand. However, the harvesting strategy is a part of the company’s business where you decide whether to decrease the marketing budget or cancel it. Management decides to oversee the cost of boosting the sales , if it costs more, then they would leave it. 

The marketers choose to apply the harvesting strategy when they think that the product/service has finished its life cycle. Now, it’s time to extract as much profit as you can. 

When the profit doesn’t meet the marketing expense level, then you should reduce or eliminate all the marketing expenses in order to increase the profitability. 

Understanding the Business/Product Life cycle

Now, the question is how you’re going to know that the product has reached its life cycle and time to apply the harvesting strategy. Therefore, it’s very important to know the various stages in the product life cycle. The life cycle of any product has usually four stages, and they’re as follows; 

Start-up Stage 

The start-up stage is the initial stage, where the business is still going through the developing and growing phase. It requires a huge investment at this stage to develop, market, and launch the product or business line into the market. The goal of the business at this stage is to the general sales by increasing customer market awareness. 

Growth Stage

It’s the stage when the demand for the company’s products continues to increase. Here you increase the production rate in order to make the product accessible to everyone. The attraction of the new customers would keep on increasing and the current customer base would become mature. 

Maturity Stage 

The maturity stage is when the production and marketing cost of your business would start decreasing. The business makes the highest possible profit. The operational system of your company becomes efficient and revenue becomes constant at this stage. 

Decline Stage 

The decline stage is when the business or the product line of your business would start losing market share and the market becomes stagnant due to the increasing competition. This stage also goes by the name of cash cows of your business. Here your company doesn’t need further investment, if you do increase the investment, it won’t make any profit. 

A company follows three harvesting strategies; reducing and completely cutting the capital expenses, reducing or completely cutting the marketing expenses, and reducing or completely cutting the operational expenses. It usually comprises of shifting or channeling the resources. 

Why Companies use Harvesting Strategy

Businesses and companies use harvesting strategy for various reasons and they’re as follows; 

Launching a business line or product at the cash cow stage , it’s the stage where the promotion of your product is no longer useful. You could reallocate the same resources in the other areas, where they could increase more revenue. 

Developing a new product , when you’re working on the development of the new product, then it requires a lot of resources and investment so that it would generate sales and profit. 

Disconnecting the business line or the product , here the management decides to finish the product line and marketing reinvestment is no longer an option. 

Types of Harvesting Strategies with Examples

Some of the main types of harvesting strategy are as follows; 

Cash cow is the mature market stage of the product life cycle where it makes a profit without making any investment. Companies and businesses usually apply a harvesting strategy at the cash cow stage. The management is aware of the fact that the sale won’t increase even after the marketing investment. 

If the company uses the profit on some other project, then it would provide a better return. They usually have three options while applying the harvesting strategy;

• Reducing or eliminating all the capital expense on the product, but keep on using the equipment until it’s out of order 
• Reducing or eliminating all the marketing and advertising budget expense, the loyal customers would keep buying the company’s products without ads 
• Reducing or eliminating all the operation expense, you bear the expense only when the potential return is very high 

Telecommunications

Many telecom companies across the world are shifting their interest from landline telephone to wireless signal technology. It’s because it works even in storms when the landline cable is destroyed. That’s why they’re spending their resources on the development of wireless technology. 

In other words, they’re utilizing the profit of the mature (cash cow) product on the development of the new technology. However, some telecom companies are investing resources in the development of the current product in some areas that still have growth potential. 

Equity Investment

Equity investment has several meanings, it’s the proposed potential plan of any venture capitalist or equity investor, and its goal is to make the maximum outcome from the investment. 

Launching an IPO (initial public offering) of the floating company is a very good example of an equity investment harvesting strategy. IPO usually happens when a company offers its shares to the public and they buy it for the first time. Other investors start buying it in the stock exchange market. 

Conclusion 

Harvesting strategy is usually the plan of private equity investors, venture capitalists, and investors. They call it an exit strategy because they cancel the investment after the success of the project. The goal is to earn maximum profit and utilize the same funds on the other ventures. The time duration of the strategy is between 3 to 5 years to fully recover the investment. 

About The Author

Ahsan Ali Shaw

What Is a Harvest Strategy in a Business Plan?

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In the excitement of starting a business – preparing the business plan, marketing strategies and budgets – few discuss how the business will end, which is called the harvest or harvesting strategy. They should. Every product eventually becomes obsolete as better, faster, easier or more advanced products replace it. Harvesting strategies can be planned for a product, an entire product line or the business itself, and this planning can make the difference between making or losing money on the way out.

Understanding the Typical Business Cycle

Every product, product line and business goes through four stages, explains an article in Forbes :

• The startup stage at the beginning, when you're tweaking your business model and everyone is wearing many hats
• The growth stage when marketing creates demand, you continue to gain new customers, and existing customer relationships are maturing
• The maturity stage, when operations are smooth and revenue is steady
• The renewal or decline stage, when you should look for new opportunities, innovations and areas to profit, or if revenues aren't growing, think about the best exit plan

Explore Types of Harvest Strategy

There are several methods of harvesting a business. Companies use a harvesting strategy when a business or product reaches the "cash cow" stage, according to Market Business News . This means it is still bringing in money without the need for further investment, and any additional money spent on it would not be enough to justify the cost.

Operating as a "lifestyle company" is one of the types of harvest strategies. This involves taking money out of the company through the years to give yourself a good lifestyle, according to an Entrepreneur article on exit strategies written by Stever Robbins, who co-designed part of Harvard's MBA program and has been involved in numerous startups. If your business is private rather than public, you can pay yourself and partners a high salary or take big bonuses. The downside to this harvesting strategy example is that you won't have this money if you need to invest in the company later, and you'll be taxed on the high income when you take it.

Two other options are liquidating or selling your business, although liquidating should be a last resort when you can't find any buyers. Assuming you have equity remaining in the business – you didn't use it for a high-end lifestyle – the U.S. Small Business Association (SBA) explains that you can sell your business outright, sell gradually by financing the sale, or lease it. Either way, you still get income.

SBA recommends trying different methods to put a value on your business and see which works best in your situation. Common valuation methods are to consider the revenue you have coming in, research the sell price of similar businesses, or subtract liabilities from assets. Instead of selling or leasing, you might transfer ownership – to kids or grandkids, perhaps – so that you're relieved of day-to-day operations but still receive money from the business.

Plan Early for Your Exit

By having an idea of your exit plan while your business is still flourishing, you can avoid making decisions that will cost you more down the road. Putting the strategy in your original business plan makes it official and allows you to work toward it. For example, if your plan is to transfer or sell the business to your kids, you'll naturally want to involve them in the business now, train them in various aspects of the company, and turn it over to them when you know they're ready. Should you need financing at some point, a business plan with a harvesting strategy shows your preparedness.

Entrepreneur's Robbins cautions that if your strategy is to take the company public at some point, have a second strategy in your business plan. It can cost millions of dollars in preparation and fees, and few companies actually become public. It's much more likely you'll build the company enough to earn a decent salary and maybe even find the ideal buyer.

• Entrepreneur: Exit Strategies for Your Business
• Small Business Administration: Close or Sell Your Business
• Market Business News: Harvest Strategy - Definition and Meaning
• Forbes: Business Life Cycle Spectrum: Where Are You?

Barbara Bean-Mellinger is a freelance writer who lives in the Washington, D.C. area. She has written on business topics for bizfluent.com, afkinsider.com, Harbor Style Magazine, the Charlotte Sun and more. Barbara holds a B.S. from the University of Pittsburgh and has won numerous awards in B2B and B2C marketing.

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Harvest strategy – definition and meaning

A Harvest Strategy or Harvesting Strategy is a business plan for either canceling or reducing marketing spending on a product. The management has decided that it would cost too much to boost sales. In other words, they could not justify the expense after considering likely future revenues from the product.

The term ‘harvest strategy’ may also refer to a brand or line of business.

Marketing executives choose a harvesting strategy when a product has reached the end of its life cycle. They aim to extract maximum profit from any remaining sales.

Put simply; the product sells thanks to its goodwill and nothing else. Goodwill refers to the established reputation of a product .

MbaSkool.com says the following regarding a harvest strategy:

“When the revenue made by additional investment would not overcome the expense, all marketing investment in a particular business line is reduced or eliminated, as sales revenue falls below a cutoff point.”

Harvest strategy – cash cow

Companies use a harvesting strategy when a product has reached the cash cow stage. Cash cow refers to a product that makes a profit in a mature market and does not need heavy reinvestment.

It is unlikely that sales will increase even if the company invests further in the product.

There would be a much better return-on-investment if profits were spent elsewhere in the company.

When implementing a harvest strategy, the company has three options:

• Eliminate or reduce all capital spending on the product. In other words, keep using existing equipment until it no longer works.
• Reduce or eliminate marketing and advertising expenditure . New sales will rely on brand loyalty.
• Eliminate or reduce operating expenses . In other words, only approve expenditure when the return on investment is very high.

A harvest strategy may also reflect a company’s environmentally sustainable approach by reducing the resource intensity of products that are phasing out of the market.

Harvest strategy – telecommunications

A Money-Zine article cites the telecommunications sector . As more areas across America have wireless signals, the need for a landline telephone declines.

Telecom companies continue supporting landline technology. However, they do not rebuild wired networks when storms, for example, destroy them. They focus their expenditure on expanding wireless coverage.

In most cases, businesses use the profits from their ‘mature’ brands to fund the development of new ones. They may also invest profits in existing products that they believe have good growth potential.

By reallocating resources from mature products, companies can capitalize on the opportunity to innovate and gain a competitive edge in emerging markets.

Harvest strategy – equity investments

In the world of equity investment, the term has a different meaning. It refers to a proposed plan for private equity investors or venture capitalists. The aim is to get the most profit from their investment.

For equity investors, floating a company, i.e., launching an IPO, is an example of a harvest strategy. IPO stands for I nitial P ublic O ffering . An IPO occurs when the shares of a company become available for the public to buy for the first time. Investors can buy and sell that company’s shares on a stock exchange.

Another example is to sell the company in which the investor has a stake.

“Harvest strategy” – vocabulary and examples

There are many terms in English closely related to “harvest strategy,” especially compound nouns. A compound noun, such as “harvest strategy planning,” is a term consisting of at least two words. Let’s take a look at some of them, their meanings, and how we can use them in a sentence:

Harvest Strategy Implementation

The process of putting a harvest strategy into action within a company. Example: “The firm’s harvest strategy implementation involved scaling back on production while maximizing the remaining inventory turnover.”

Harvest Strategy Planning

The phase where a company develops a harvest strategy, considering the product’s lifecycle and market conditions. Example: “During the harvest strategy planning meeting, the team decided to discontinue further R&D investment in the aging product line.”

Harvest Strategy Assessment

An evaluation to determine the effectiveness of a harvest strategy in meeting financial goals. Example: “An annual harvest strategy assessment is conducted to ensure that the diminishing returns from the product still align with the company’s profit objectives.”

Harvest Strategy Metrics

The set of quantitative measures used to evaluate the performance of a harvest strategy. Example: “The board reviewed the harvest strategy metrics to decide whether to continue the product line or divest.”

Harvest Strategy Decision

The conclusion reached by a company to either initiate or conclude a harvest strategy for a product. Example: “The management’s harvest strategy decision was influenced by the sharp decline in the product’s market share.”

Harvest Strategy Timeline

The schedule that outlines the duration and key milestones of a harvest strategy from inception to completion. Example: “The project manager created a detailed harvest strategy timeline to ensure a smooth transition during the product phase-out period.”

Harvest Strategy Analysis

The in-depth study and examination of a harvest strategy to determine its potential outcomes and impacts. Example: “A thorough harvest strategy analysis revealed that continuing with minimal support could still yield a modest profit margin for the next two years.”

Video – What is a Harvest Strategy?

This video, from our YouTube partner channel – Marketing Business Network – explains what a ‘Harvest Strategy’ is using simple and easy-to-understand language and examples.

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What Is a Harvest Strategy in a Business Plan?

by Devra Gartenstein

Published on 4 Jun 2019

Sometimes, you invest heavily in marketing your products so you can launch them and build brand awareness among current and potential customers. Other times, you can sit back and reap the benefits of the time and resources you've already invested. A harvest strategy in a business plan makes sense at the proper moment in your product's life cycle when you have inventory to deplete, and your creative energy is going toward other products.

A harvest strategy in a business plan is a decision to coast on past marketing investments by relying on a brand awareness you've already built to sell your products.

Reasons for Using a Harvest Strategy

• Discontinued product. If you're planning to discontinue a product, there is no reason to direct marketing resources toward it. However, you may have made the decision to discontinue while you still have plenty of stock on hand. By harvesting the venture, you are able to sell down inventory, bringing in returns on marketing work you've already done.
• Other interests. If your business is putting time and money into developing new products, there is more need to generate income from these investments than from products that have been around for a while and have already paid off your initial marketing efforts. The harvest potential for selling tried and true products is a valuable opportunity and should be a low-key component of your overall marketing mix.
• Cash cow. If your product has caught on to the point where it has become a classic or a staple, you may not need to market it much. You can use your resources more effectively elsewhere, or you can simply withdraw your earnings as profit rather than reinvesting in the business.

Harvest Strategy Process

Your harvest strategy will work differently if you're discontinuing a product rather than relying on its past success. If you're taking your product off the market completely, you'll also stop investing resources in materials and production. You're interested in clearing your shelves for new opportunities as much as earning some extra money from inventory you already have. You may even reduce the price for clearance to move as much of it as possible.

If your product is a cash cow, and sales are steady without continued marketing investment, you'll keep producing even though you're not marketing. The marketing investment just isn't necessary anymore, but if you don't keep manufacturing, you won't have any product left to sell.

You may also choose to reduce or eliminate spending on capital improvements such as new equipment or equipment repair. Your decision whether or not to do so will depend on the return you expect to receive on this investment and whether the product is still selling well enough to justify it.

Advantages and Disadvantages of Harvest Strategies

A harvest strategy earns you income with minimal investment. This maximizes profit and also frees up resources for other endeavors. Whether you're exploring new entrepreneurial activities or spending more time with your family, a harvest strategy is an opportunity to move ahead without giving up the revenue that your product can still provide.

However, if you switch to a harvest strategy for a product that still has some life left in its cycle, you may lose the opportunity to earn as much as you could if you continued with your marketing efforts. Your lack of enthusiasm for the product could also create a self-perpetuating cycle, making your offerings less interesting to your customers as well. The success or failure of a harvest strategy often comes down to whether it is implemented at the right time and in the right way for the right product.

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Complete Guide to Harvest Strategy

A harvest strategy or harvesting strategy is a business plan for either canceling or reducing marketing spending on a product. Marketing executives choose a harvesting strategy when a product has reached the end of its life cycle. They aim to extract maximum profit from any remaining sales.

What is a Harvest Strategy?

Harvest strategy is a business strategy that is used to phase out a product from a market. This is done in an effort to try and continue to sell the product before it becomes obsolete. Harvesting is not a strategy that can be planned ahead of time, it is a reaction to the market that answers the question of when a product should be abandoned. Harvesting is also a steady strategy, not seasonal, so it begins after sales start to fall off and continues until the goods are gone. Harvesting is sometimes made necessary or advisable by a patent or copyright in the product, and this will be the case describe here.

Harvest strategy (also referred to as harvest timing) refers to the decision taken by a firm at the appropriate time to reduce the level of marketing expenditures being made for a product at or near the end of the product’s life while still attempting to collect maximum revenues from the remaining sales.

Objectives of Harvest Strategy

Harvesting has one primary objective: to maximize sales revenue that can be earned from a product before abandoning the product. It’s important to note that harvesting does not guarantee maximum sales revenue from a product, but it provides a good chance of achieving it.

A product is nearing the end of its life if sufficient sales volume to recover costs is unlikely. To determine the appropriate time to harvest a product, one must project when sufficient sales would be obtained to recover costs. This is easily done by considering the strategy and tactics used to market the product as well as the market that the product is sold to. After this information has been collected, the sales that would be required to recover costs can be calculated by multiplying sales volume by average sales prices. This information dictates when to initiate the harvest strategy. For example, if cost recovered goal is 50,000 sales and the product is estimated to only generate 40,000 sales, then harvesting would not be suitable.

Conditions to Consider When Designing a Harvest Strategy

A manufacturer must collect market information regarding the product in order to make appropriate business decisions. This involves monitoring such aspects as sales volume, price levels, promotional activities of competitors, and so forth. All of this information should be considered when designing a harvesting strategy.

There are no specific conditions that apply to harvesting; however, some factors may make harvesting appealing to a manufacturer. These include:

Limitations of Harvesting Strategy

Harvesting can be effective when applied only to a single product or small group of products. Not only does it require detailed market information that may be costly to gather, but gathering that information is not feasible if multiple products are involved in the strategy. When several products are involved, a fallback position for the company to turn to when one product is abandoned is usually necessary.

Growth Strategies

Growth strategies are strategies that are used to increase market share for a particular business. These strategies are not limited only to small businesses, but are used by much larger corporations as well. As long as there is a demand in the market for a certain product, or as long as a product can be made at a cheaper price than the competition, there will always be an opportunity to grow a business.

Some of the more common growth strategies that are used by businesses are:

Product Diversification

Product Diversification, or product line expansion, is a strategy that a company can employ in order to increase their overall sales revenue. Product diversification is when a company produces a variety of products that are related to one another. This may include variety of a certain product as well. For example, an athletic shoe company that produces running shoes, cross-training shoes, walking shoes, and such would be considered to be a company that is diversifying their product line.

Product Diversification allows a company to enter into different market segments as well as increase their gross-margin proportion of the overall sales because they are not selling a single product. There are several strategies that a company can employ to gain market share via product diversification, such as line extensions, brand extensions, and category extensions.

Line Extensions

Line extensions involve the addition of new products to an existing product line. Line extension may involve making a few changes to a product that already exists, or it may involve taking a product that was previously marketed in a completely different market segment and entering into the one the new product is being introduced into. For example, a line extension may be used to create a children’s version of the product. Another example would be the introduction of a higher version of the product, claiming that it is more advanced.

Brand Extensions

A brand extension is used by a company to extend their brand attributes to other products outside of the current product portfolio. New products that are introduced via brand extension are directly related to the brand.

Brand extension would not include products that simply share the same consumer segment as the main product portfolio. The new products introduced under brand extensions are always extensions of the brand identity.

Category Extensions

Category extension occurs when an existing product is repositioned. Instead of positioning the product for an existing market (extra small cars), a new market segment is targeted, with a different set of consumers (midsize cars). Therefore, a new product is introduced into the new market segment.

Advertising

Advertising is a type of marketing communication that is used to inform or persuade an audience to take an action regarding a product or service. With product advertising, a company is trying to inform their potential audiences of the products that they make. If a company wants to advertise a product that is not currently being sold to the public, they would engage in a type of advertising called product line advertising to inform the public of their product.

There are several types of product advertising, such as product sampling, product demonstration, and product exhibitions.

Product Sampling

Product sampling is a strategy that is used to allow a potential consumer to evaluate the product prior to making a purchasing decision.

Product Demonstrations

Product demonstrations are often a necessary part of product sampling. Product demonstrations take place in front of or around the product itself in order to show and explain how the product works.

Product Exhibitions

A company can choose to not only use advertising as a source of information about their products, but they can also choose to break them and set them up as well.

Businesses spend billions every year spreading the word and fostering the growth of their brand through advertisements, commercials, product samples, and demonstrations which provide information and create awareness for consumers to make a purchasing decision. Often times businesses will use promotions to generate traffic to their own website or onto social media.

Word-of-Mouth

Word-of-mouth is a strategy that is used by business to create a brand image. Word of mouth advertising is for a company to get consumers to advertise their product. The company would get the consumers to talk positively about the product to other people. Therefore, people will become interested in the product and go out and buy it. Word-of-mouth is not limited to online forms of communication such as social media, but also focuses on face-to-face communications such as phone calls or even casual meetings.

Public Relations

Public relations is not a directly profitable method of generating sales. However, there are several reasons why one should consider using the public relations strategy for their business.

Public Relations is not a directly profitable method of generating sales. However, there are several reasons why one should consider using the public relations strategy for their business.

If you are involved in a tight advertising budget, or you’re a business too small to pay for ads or if your niche isn’t profitable to advertise to, then public relations can be a very beneficial strategy for you to use.

The main idea behind public relations for a business is to focus on interesting aspects of the product. Interesting aspects of the products can range from interesting insides to even just showcasing non-product related items in order to promote products.

For example if your business is selling large, mainframe computers; you could create stories about employees who use the computer to do amazing things such as winning a chess tournament, creating a festival of art, and etc.

Responses To Public Relations

There are several different responses that a target audience can have to a product.

Response Directly Related To A Product

A consumer might say that a product is a good product for a certain demographic, such as teens or older generations. A consumer might also say that the product is a bad product for his/her own demographic.

Response Contradicted By Other Consumer/Response

Sometimes, people say that they like a product, but they show signs that they do not like the product. The information gathered could be blatant contradictions, such as saying, “The product is great!” but “I will never buy it.” Or it could be subtle contradictions, such as, “The product is good, but I would never buy it with the price that it is.”

Response That Causes The Consumer To Think

A consumer might say that they would buy the product if the price was lowered, but they will still not be completely satisfied with the product. Or, a consumer might say that they will not buy the product with the price that it is based off of the information that they have. A consumer might also mention how they will never consider buying the item, but might change his/her mind later. For example, a consumer might say that he won’t buy pasta from a certain brand. He might even say he considers it inedible. However, he might buy it the next week.

Measuring Business Growth

How do you know if business is booming? This question can be effectively answered by the positive response to the marketing strategy resulting in long term growth of a company. In order to understand the value of business growth, it is necessary to obtain an understanding of specific business models. There are a number of business models used for overall profits. The vast variations of each type of business model is the basis for dividing your business’s marketing approach by the model the competition uses.

Capital Expenditure

This type of business model is primarily used by service industries who have low ability to transport products. With this model, you provide the product to the consumer. The customer pays only for usage and often pays a deposit at the start for usage measurements. Most service industries have customers who pay in advance. The term “capital expenditure” refers to the arrangement of depreciating the initial cost of the service over the length of the contract by spreading the cost. Different businesses will assign different cost over the course of the contract. This type of service business model will include the following service oriented factors:

• Fixed costs
• Variable costs
• Recurring costs

Ask yourself the following questions in regard to your business model questions:

How does the capital expenditure business model differ from the cost-plus pricing model?

What are the advantages and disadvantages of the capital expenditure business model compared to the other business models?

If you were in charge of implementing a new business model for your company, which type of model would you implement, and why?

Cost Plus Pricing

Cost-plus pricing is a business model that calculates costs along with potential future profit, and adds a markup to come up with a price. Pricing products holding this model is pretty simple; prices are set based on the cost of the product, plus a percentage representing the company’s desired profit. Ask yourself the following questions in regard to your cost-plus pricing model questions:

What are the advantages and disadvantages of the cost-plus pricing model compared to the other business models?

How does the Cost-plus pricing model differ from the capital expenditure business model?

Relationship Selling

Relationship selling, or consultative selling is a sales strategy that focuses on building trust and a relationship between the salesperson and customer. This strategy is mainly used by sales people who make their commissions in the form of a percentage of the gross revenue and not simply on the volume of sales they make. There are several different aspects to a relationship selling approach:

• Building trust
• Based on trust and relationship
• Long term commitment
• Comprehensive selling
• High perceived benefits

There is a specific amount of time and effort required by both parties to establish a solid relationship.

Ethos or Image

Usually a company’s ethos or image is defined by the public. The public will judge your company based on different aspects of your business such as your ethical values, quality of products and services, and how you relate with your customers. Ask your students the following questions regarding your ethos or image questions:

How do you define your company’s ethos/image?

What are the advantages and disadvantages of an ethos or image that is based on trust and relationship?

If you were in charge of the image of your company, what would you do to change it?

Endorsement

Many endorsement companies like Quaker Oats, Microsoft, Apple, IBM, and Kellogs are large enough to have marketing strategies directed at the overall public via TV commercials, but with no intended customer segment. Their marketing strategy is very large scale and targets a market of consumers who are not loyal to any one product. The endorsement companies market their product to the public and ask the consumers what their opinions are on their product. Ask yourself the following questions in regard to your endorsement questions:

What are the advantages and disadvantages of relying on your public’s endorsement as a marketing strategy?

If you were in charge of hiring someone to endorse your company’s products, what sort of characteristics would you want to see from them?

Personal Selling

Personal sales is the art of making face to face calls to potential customers and attracting them to the positive aspects of your product or company. This often requires listening to their concerns and questions and addressing them effectively. In the process of doing this, the salesperson needs to be confident and competent in his/her product.

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Profit Harvesting Strategy: What It Is, How to Implement, and Key Considerations

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What is harvest strategy, key components of harvest strategy.

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Harvest strategy in technological industries

Challenges in harvest strategies, special considerations: harvest strategy for investors.

• Maximizes profits from mature products
• Facilitates funds for new product development
• Optimizes resource allocation
• Enables a strategic transition to innovative offerings
• Serves as a planned exit strategy for investors
• Potential loss of market share
• Risk of overlooking emerging market trends
• Requires precise timing and execution
• Possible negative impact on overall company performance
• Challenges in managing the transition from mature to new products

Frequently asked questions

Why is the cash cow stage significant in a product’s life cycle, how do companies determine the optimal timing for a harvest strategy, what are the potential drawbacks of overlooking market trends in a harvest strategy, how can investors ensure a successful harvest strategy, key takeaways.

• A harvest strategy maximizes profits from mature products.
• Funds generated during the harvest phase are crucial for new product development.
• Optimizing resource allocation is a key advantage of implementing a harvest strategy.
• Companies need to carefully time and execute the gradual elimination of products.
• Investors use a harvest strategy as a planned exit, with options like selling the company or an IPO.

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Harvest Strategy

What is a ‘harvest strategy’.

A harvest strategy is a business plan for reducing or completely eliminating investment in a particular product, brand, or business line because a company’s management has determined that the expense of attempting to boost sales any further would not be justified by the likely future revenues from the product or brand line. A harvest strategy is a business plan for reducing or completely eliminating investment in a particular product, brand, business line.

In most cases, a harvest plan is used after a product or brand line has attained cash cow status, which is the stage of product maturity beyond which a product is unlikely to see substantial sales increase through continuous expenditures in sales and marketing efforts.

The phrase “harvest strategy” refers to the process by which a firm aims to harvest revenues from a cash cow in order to support investment in product development or sales and marketing activities for other goods with greater potential for sales growth.

Explaining ‘Harvesting Strategy’

Companies often use the earnings from established brands or product lines to support the market development of new brands or the expansion of current items that are believed to have strong growth potential in the marketplace.

Using the Coca-Cola corporation as an example of a harvesting strategy, the firm may decide to lower investment in promoting its established soda brand in order for cash to be directed into sales and marketing activities geared to promote its range of energy drinks instead.

When a pharmaceutical company determines that an established medication it sells has reached the point of market saturation, it can no longer be used as a cash cow, and that it would be more productive to use the profits from that product to fund research and development or marketing efforts for other medications, it employs a harvest strategy plan known as a cash cow strategy.

Harvesting strategy example

When it comes to investments, there are various harvesting strategy that can be employed. For example, investors may use loss harvesting to minimize their taxable income by selling securities that have declined in value.

On the other hand, gain harvesting involves the strategic sale of appreciated assets to minimize tax obligations and maximize returns. It is important to carefully consider which harvesting strategy is best for a given investment portfolio, as well as the timing of such actions. Consulting with a financial advisor can help investors make informed decisions about how and when to harvest assets in order to optimize their financial goals.

An Alternative Meaning of Harvesting Strategies

With respect to equity investments, harvesting strategy refers to a planned plan for investors, such as venture capitalists or private equity investors, to reap the benefits of their equity investments.

One of the most typical harvesting strategy for equity investors is either a plan to sell the firm in which they have invested to another company or a plan to make an initial public offering (IPO) of the company shares.

Harvest Strategy FAQ

What are harvesting options.

Harvest strategies are business and marketing tactics that entail decreasing or canceling marketing expenditures on a product in order for the firm involved to make the most money possible. Companies may choose from a variety of harvesting strategies.

What is the significance of harvest strategy?

A harvest strategy is a determined choice to limit all sorts of expenditure on a given product in order to maximize profitability, notwithstanding the possibility of a reduction in market share in the short term. A product or business line strategy may be devised, and it can also be used as a 'exit' plan for the company.

Further Reading

• Optimal harvest strategy for slash pine plantations: the impact of autocorrelated prices for multiple products – academic.oup.com [ PDF ]
• Reconciling approaches to the assessment and management of data-poor species and fisheries with Australia’s harvest strategy policy – www.tandfonline.com [ PDF ]
• Health economic impacts and cost-effectiveness of aflatoxin-reduction strategies in Africa: case studies in biocontrol and post-harvest interventions – www.tandfonline.com [ PDF ]
• To grow or to harvest? Governance, strategy and performance in family and lone founder firms – www.emerald.com [ PDF ]
• Financial viability of Penaeus setiferus versus Penaeus vannamei with continuous live harvesting and one final harvest strategies in South Carolina – dc.statelibrary.sc.gov [ PDF ]
• Incorporating social objectives in evaluating sustainable fisheries harvest strategy – link.springer.com [ PDF ]
• Economic and financial analysis of harvesting and utilization of river reed in the Okavango Delta, Botswana – www.sciencedirect.com [ PDF ]
• Dual-track versus single-track sell-outs: An empirical analysis of competing harvest strategies – www.sciencedirect.com [ PDF ]
• Mixed forests and a flexible harvest policy: a problem for conventional risk analysis? – link.springer.com [ PDF ]
• A concept for the calculation of financial losses when changing the forest management strategy – www.sciencedirect.com [ PDF ]

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What Is Harvesting Strategy in Business?

January 24, 2021 | By Hitesh Bhasin | Filed Under: Strategy

A harvesting strategy is basically a plan that is used in the field of business industry which involves either canceling or cutting down the expenditure on a particular product . Usually, this type of decision is taken when the companies or the business entities that are manufacturing that particular product stops yielding any more profit or it costs too much in order to boost the sales.

This type of decision is taken in order to help the companies overcome their losses or prevent them from happening. Normally in such a decision, those products are canceled which seems to be in its older stages where the demand for that product decreases or become outdated according to the latest trend.

 So when the products are towards the end of their lifecycle, where they have very fewer demands among the customers that are the time when the companies decide to stop the production of that product by preventing investing more money into it.

It is usually a wise decision to take because in this the production of such a product is reduced or even terminate which promise for either less or no product revenue. If they keep investing in such a product, it would only rise up the expenses and may not result in any profitable output.

In general, the term harvesting strategy is nothing but well-planned discontinuation of the entire product line when it becomes difficult to extract profit from. Also not just the product line but sometimes the entire sector of any companies can be terminated for once and for all if it feels like it is not generating profit for the company anymore. Thus this stagey allows the marketers to eliminate the marketing expenditures on that product.

Now generally, this harvesting strategy is used at times when the revenue that is made by an annual investment is unable to overcome the expenses that are associated with it. In cases like these, then all the product line or the businesslike is eliminated.

The sales revenue decreases even below the cut-off point, which carries gives the sign that a certain product line or the business line needs to be terminated.

Thus the idea of the harvesting strategy is used when the products or the entire business reaches the stage of ‘ cash cow ’.  The ‘cash cow’ is a term which is used to refer to a situation when the product or the business seems unlikely to grow any further or contribute in the growth of the entire company, even when enough of the investment is made into that.

Thus those businesses which are likely to be more successful or show strong promises of becoming a success, then those extra revenues that are generated can be used for the purpose of increasing the performance of the other weaker sectors of the business.

Also many at times people tend to confuse the harvesting strategy with the exit strategy . But it should be noted that both the two terms are completely different. An exit strategy refers to the selling of an entire company and exiting the market .

This is considered to be the extreme version of the harvest strategy. While in harvest started one a particular product line or a particular sector of the business is terminated or reduced but the company still continues to manufacture other products or other sectors of that particular company.

Table of Contents

Examples of Harvesting strategy

Now so far we have learned that the term harvesting strategy usually means terminating a product or reducing its manufacturing. Now that we have understood what the harvesting strategy is let us take an example to understand it in a more simplified way.

So for example, two people Marie and Jessie together opened a commonly named XYZ. Then they both together invest their time and money all of their harbored into growing that product. In no time their company lifts up and after say 15 years, the company grows to a value which is beyond $200,000. It is a clear sign that the company is going really good.

Then all of a sudden and another company with the name ABC comes and offers to give $16 million in order to buy the company. Now here to both the two people Marie and Jessie agree with the deal and sell the company at $16 million. Now they divide it in 50 – 50 between them. Thus this is a perfect example of how the cash transaction allowed them to harvest the sweet fruit of abundance of money after their years of hard work and dedication. This way both the two ladies are able to harvest tier investment that they have been making for so many years in their company.

Thus harvesting does not always mean terminating a business. Although the main object of harvesting is always profitability.

Now let us consider a situation where harvesting strategy is used but not in the form of merger. In this case, the investors who have been making an investment in their company can choose an alternate option to harvest their success. This can be done via the IPOs. The IPO stands for Initial Public Offerings of Stocks or the sales of their positions to the third parties.

What are the different options that a person has when he chooses harvesting strategy?

The situation in which the commonages have to choose the harvesting strategy also depends a lot on the interest of the customer on that particular product. Now suppose that if a product has been ruling the market for quite some time now. But after some time a new product comes in the market which does the same function but is a more advanced version of the previous product.

This case, the crony may decide to terminate the launch of that particular product as it has become outdated and hence not invest in it anymore. But now the question arises that if they take the decisions of the harvest strategy, there are several options they can opt to implement this strategy-

• The first option is that they can lower or simply eliminates the expenses that go into advertising . And then they can rely on brand loyalty so that new seals can be generated by them.
• The second option is to either lower or just eliminate the new expenditures that arise due to the capital. This way they can allow the already existing equipment to run to failure.
• The third option for them is to simply eliminate or at least lower the risk of the operating expenses. They can choose to spend the money whenever the payback on a certain new investment goes really high.

What is the importance of harvesting strategy?

The harvesting strategy holds quite important as it helps a company to prevent the losses in terms of businessman marketing. This is because the harvesting strategy allows terminating a product line that no longer generates profitable output.

This way the companies can stop investing more in them and instead invest this money into their other products to make them better. Most of the times the harvestings target is applied to usually those products when demand starts decreasing either due to the decreasing interest of the customer in that product or due to the launch of a more better and an updated version of that product.

In scenarios like this when the product demands decrees, it is said to have arrived at the end of its lifecycle. Now, this is where the harvesting strategy comes into play. It allows the business owners to simply stop the products of goods that are not profiting them anymore. Also in some cases, the harvesting strategy may mean something else.

Now in some cases, people merge their companies with anther more beige one instead of some money. This also comes under the harvesting strategy in which the smaller companies are sold to some bigger companies who find an interest in them. This way the harvesting strategy brings a lot of profit to the owner of the business.

It also helps them in reducing the chances of losses because once they understand which products are not helping them grow, they can exclude them out. Thus in this way, the harvesting strategies are of great help.

Harvesting strategy allows the entrepreneurs and inventors to make out the maximum out of the business they are investing in. It is basically a reward for the hard work and the innovation that the investors have been putting in to help their business grow.

Thus, the harvesting stagey is considered being quite a smart approach in the field of business. It prevents the losses that the business may incur in the future and thus helps the business grow into a profitable one.

Liked this post? Check out the complete series on Strategy

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• What is Strategy and what are the four components of Strategy?
• Formulation of Strategy – Process of Formulation of Strategy
• Difference between Strategy and Planning – Strategy versus Planning
• Strategy Definition – What Is Strategy?
• What is the Importance of strategy to a Business or an Organization?
• What is Growth Strategy in Business? Types and Steps
• Green Business strategies – SWOT of green business
• 7 key elements of Marketing strategy
• Mintzberg’s 10 school of thoughts for Strategy formulation – School of thoughts in management

About Hitesh Bhasin

Hitesh Bhasin is the CEO of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.

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Business Harvesting: Understanding This Step in the Entrepreneurial Process

Business and the entrepreneurship process include many different phases and stages. Each stage presents opportunities and challenges. One stage that nearly every entrepreneur looks forward to is the stage when they can enjoy the financial benefits of their efforts. This stage is known as harvesting. Let’s take a look at what harvesting is and the different types of harvesting strategies.

What is Harvesting and Why is it Important?

It typically involves the entrepreneur realizing the value of their business. The primary aim of harvesting is to convert the business’s growth and success into tangible financial gains, providing a return on investment for the business owner and any investors.

This phase of entrepreneurship is crucial for motivating entrepreneurs. Many set this phase as a goal and a rewarding endpoint for their venture.

Types of Harvesting

1. selling the business.

For many entrepreneurs, selling their business is an often emotional life event. Many founders think of their businesses as the product of their passions and skills. Some entrepreneurs can experience joy and relief after a sale. Others may experience a feeling of fear, regret, or loss. Although parting with a business is often part of the entrepreneurial process, many entrepreneurs struggle with the decision to enter this stage.

2. Initial Public Offering (IPO)

For one, it can provide substantial capital to the company. Businesses also get an increase in their public profile as now people who use the product or service can buy shares to add to their investment portfolio. Even though an IPO allows the public to own shares in a previously privately held company, this harvesting method still allows original investors and founders to retain partial ownership and control.

3. Mergers and Acquisitions (M&A)

Mergers and acquisitions involve combining with or being bought by another company. This method can be advantageous for entrepreneurs looking to expand their business’s reach, diversify their portfolio, or access new markets and technologies. In a merger, two companies typically agree to go forward as a single new entity.

4. Management Buyouts (MBO)

MBOs are typically financed through a combination of personal savings, loans, and sometimes external funding. This approach is beneficial for entrepreneurs who wish to see their business legacy preserved. It also motivates the management team to perform well, given their vested interest in the company’s success.

5. Dividends and Profit Sharing

Dividends provide a regular income stream to the shareholders, which can be particularly appealing for businesses with steady profits.

Recognizing Opportunity as an Entrepreneur

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Management Objectives

What are management objectives?

Management objectives are formally adopted goals for a stock and fishery. Within a harvest strategy, operational objectives must be specific and measurable, with associated timelines and minimum required likelihoods that they can be achieved. Setting management objectives is the critical first step in developing a harvest strategy. They set the vision for the fishery and provide mechanisms for measuring the strategy’s long-term success. Management objectives can be modified, but if the harvest strategy is going to be effective, it’s critical that modifications occur only if the vision for the fishery truly changes, rather than as a means to justify a desired short-term outcome.

Typical Categories of Management Objectives:

• Status: To maximize the probability of maintaining the stock in the green zone of a fishery’s Kobe plot (i.e., not overfished, no overfishing).
• Safety: To minimize the probability that the stock will fall below the biomass limit reference point or B LIM (i.e., the danger zone, the point beyond which fishing is no longer considered sustainable).
• Yield: To maximize catch (or effort) across regions and/or fishing gears.
• Abundance: To maximize catch rates to enhance fishery profitability.
• Stability: To maximize stability in catches to reduce commercial uncertainty by minimizing variability in catch from year to year.

A Guide to Setting Objectives:

• Set specific and measurable objectives, with associated timelines and acceptable levels of risk. Examples: 5% risk of breaching the limit reference point; 75% chance of rebuilding a stock to the target reference point within 10 years
• Avoid terms that are undefined, such as “high probability” or “in as short a time as possible,” as they can be subject to interpretation and lead to a lack of clarity that complicates management negotiations.
• Set multiple objectives. A stock could be managed to simultaneously maximize a) catch, b) stability in year-to-year catches, c) profit, d) the speed of rebuilding the stock, and e) the likelihood that the population is around a target abundance level and well above any limit.
• Balance tradeoffs when selecting objectives, weighing conflicting objectives like maximizing catch and minimizing the chance of breaching the biomass limit.
• Prioritize objectives geared towards achieving the status and safety objectives for a fishery with a very high probability.

Acceptable Levels of Risk

One of the most critical steps in the harvest strategy development process is choosing the levels of risk that will guide future fishery decisions. Often, these levels are codified in the fishery’s management objectives. Risk is defined in terms of the likelihood of a negative outcome, such as stock collapse or breaching the limit reference point. Conversely, it can establish the probability of success, such as the chance of achieving a target reference point or not breaching the limit reference point. Consistent with the precautionary approach, managers should set low levels of risk tolerance in cases of greater uncertainty. Risk-averse management is preferable because it helps ensure a high probability of achieving the status and safety objectives for a fishery. Alternatively, establishing over-conservative risk levels can result in forgone yield, and so a balance must be struck to ensure suitably precautionary risk tolerances without unnecessary sacrifices in catch.

Guidelines for Risk

• United Nations Fish Stocks Agreement: breaching limit reference points should be “very low” and for target reference points to be met “on average.” Often interpreted as 5-10% and 50-75%
• Australia and the Commission for the Conservation of Antarctic Marine Living Resources: requires a less than 10% chance of violating the limit reference point
• Canada’s Fishery Decision-Making Framework Incorporating the Precautionary Approach: defines “very low” as less than 5%

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Harvest strategies glossary

harveststrategies.org serves as a resource for fisheries scientists, managers, and other stakeholders, compiling information about how harvest strategies work and how implementing this pioneering management approach can lead to sustainable, profitable fisheries and successful recovery programs for many species around the world. The site is managed by The Ocean Foundation’s International Fisheries Conservation Project with support from The Pew Charitable Trusts and the Common Oceans Tuna Fisheries Project , which is funded by GEF and implemented by FAO .

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• Business Terms

What is Harvesting in Business?

In a business context, harvesting refers to the strategy of either exiting a business or discontinuing investment in a project due to its unprofitability or the better performance of other investments. It's a form of cashing out an investment.

Understanding the Concept of Harvesting in Business

Harvesting is a business strategy that involves taking advantage of opportunities through planned objectives and actions. It applies to a range of areas, such as product development, market expansion, brand positioning, and more. While harvesting requires investment, it often yields higher returns.

The idea of harvesting is to reap the rewards of a decision already taken, or an action already implemented. It can range from seeking new market segments or customers to finding new ways to expand and diversify a business. Generally, it requires an organization to understand its current capabilities, as well as the competitive environment it operates in.

Harvesting is not limited to any particular type of business. Instead, it can be used in a wide variety of industries and sectors. It is especially useful when a company can take advantage of certain benefits, such as economies of scale and other advantages, without incurring too much additional risk.

Harvesting Strategies for Business Owners

When it comes to harvesting, the key is for business owners to identify opportunities for financially lucrative activities. This will enable them to take advantage of an existing resource or asset in an efficient, cost-effective manner.

Business owners should first make an assessment of whether or not they have the resources or capabilities to execute a particular harvesting strategy. Doing so may require financial resources, human resources , and/or the time to implement it. Once a business owner has identified a possible opportunity, they must formulate a plan for extracting value out of it.

Harvesting strategies for business owners might include:

• Asset Reallocation – Moving assets from one activity or market to another, in order to maximize the returns from them.
• Cost-Reduction Initiatives – Identifying and eliminating wasteful practices and processes in order to reduce overhead costs, while simultaneously boosting efficiency.
• Marketing and Brand Promotion – Proactively promoting a brand or product based on customer feedback and data.
• Price Optimization – Adjusting a product or service’s pricing to capitalize on competitive advantages .
• Streamlining Operations – Re-designing existing business processes to maximize efficiency and productivity.

How to Plan for a Successful Business Harvest

Successful harvesting depends on careful planning. Business owners should begin by assessing their current situation and assessing the opportunities available to them. This will involve researching the competitive environment, understanding target customer needs, and developing an understanding of how to best exploit existing resources.

The next step is to create a plan that outlines the proposed harvesting strategy. This should include an assessment of the costs and benefits, as well as the projected timeline for implementation. Business owners should also factor in any potential risks and include strategies for managing them in the plan.

Finally, it is important to ensure that all stakeholders are consulted and are in agreement with the proposed strategy. This will ensure that everyone is clear on what is expected of them and how they should approach the harvesting process.

Frequently Asked Questions

What does harvesting mean in a business context.

In a business context, harvesting is a strategy that involves taking advantage of opportunities by exploiting existing resources or assets. This can involve marketing and brand promotion, asset reallocation, price optimization, cost reduction initiatives, and streamlining operations.

When should a business owner consider harvesting?

Business owners should consider harvesting when they have identified a financially viable opportunity and are confident that the proposed strategies can be implemented effectively and efficiently. It is also important to ensure that all stakeholders are in agreement with the harvesting strategy and that any potential risks are managed appropriately.

What are some common examples of harvesting strategies?

Common examples of harvesting strategies include asset reallocation, cost-reduction initiatives, marketing and brand promotion, price optimization, and streamlining operations.

How does harvesting affect employees and other stakeholders?

The effects of harvesting on employees and other stakeholders will vary depending on the strategy implemented. However, in general, they should benefit from lower operational costs, streamlined processes, improved customer satisfaction, and the freeing up of resources to pursue new opportunities.

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Harvest Strategies Toolkit

Science-based fishery management can help ensure long-term sustainability.

Harvest strategies are an approach to fisheries management under which managers and stakeholders agree in advance to adjust catch limits and other measures based on size of the fish population. Also known as management procedures, harvest strategies can play an important role in creating and maintaining sustainable stocks and a more secure supply chain. Because harvest strategies are a relatively new concept to some and are technical in nature, it is important to foster a better understanding of the approach among key audiences, including scientists, managers and other stakeholders such as the fishing industry, seafood retailers and conservation organizations. This toolkit examines the various components of the harvest strategies process from development to implementation, how these pieces work together and how they affect decision-making to increase the efficiency and effectiveness of fisheries management.

Harvest Strategies: 21st Century Fisheries Management

Traditional fisheries management is a two-step process: First, scientists conduct stock assessments, and then fishery managers negotiate measures, such as quotas or time-area closures, to make sure that the resource—the targeted fish—is being used optimally and sustainably. While this seems simple enough, the current approach is anything but.

Making Ecosystem-Based Fisheries Management a Reality

Around the globe, fisheries managers tasked with overseeing high-value fisheries have, for decades, considered individual species in isolation, implementing management measures that fail to account for the needs of the broader ocean ecosystem or the emerging threats of climate change.

RFMOs Should Use Science-Management Dialogue Groups

Traditionally, fisheries management has relied on advice from scientists making educated assessments to predict the present and future size of a fish population.

Harvest Strategies Glossary

Harvest strategies are emerging as a critical innovation in fisheries management. Understanding the terms used to describe the many steps in the process will help fisheries managers and other stakeholders effectively apply the practices described in this toolkit. Consistent definitions provide a universal frame of reference for discussing harvest strategies and the concepts involved.

Harvest Strategies

Traditional fisheries management is a two-step process: First, scientists conduct stock assessments, and then fishery managers negotiate measures, such as quotas or time-area closures, to make sure that the resource—the targeted fish—is being used optimally and sustainably. While this seems simple enough, the current approach is anything but.

Harvest Strategies: Management Objectives

In recent years, managers of tuna fisheries around the world have begun to shift to using harvest strategies, or management procedures, because they offer a more predictable and stable approach than the traditional use of stock assessments followed by often contentious quota negotiations. The effectiveness of harvest strategies depends, in large part, on managers first agreeing to a set of management objectives for the fishery and the stock, and then using a process called management strategy evaluation (MSE) to select a harvest control rule that is most likely to achieve these goals.

Harvest Strategies: Reference Points

Fisheries managers are responsible for ensuring the health of both fisheries and fish populations. How is health defined, and how can success be measured? Through biological reference points, such as the biomass needed to provide maximum sustainable yield (BMSY). Scientists have used reference points for over 50 years to evaluate stock status and now are applying them more broadly; in fact, reference points are emerging as one of the most widespread and effective bases for modern fisheries management.

Harvest Control Rules

Harvest control rules (HCRs) are the operational component of a harvest strategy, essentially pre-agreed guidelines that determine how much fishing can take place, based on indicators of the targeted stock’s status. These indicators can be based on either monitoring data or models.

Management Strategy Evaluation for Fisheries

Management strategy evaluation (MSE) is a tool that scientists and managers can use to simulate the workings of a fisheries system and allow them to test whether potential harvest strategies—or management procedures— can achieve pre-agreed management objectives. In so doing, MSE helps to determine the harvest strategy likely to perform best. That means the strategy would perform well, regardless of uncertainty, and balance trade-offs amid competing management objectives. Around the world, fisheries are moving toward management based on harvest strategies to increase long-term sustainability, stability and profitability. MSE must be an integral component of the process to ensure that the chosen strategy can achieve its objectives.

Case Studies of Harvest Strategies in Global Fisheries

An examination of existing harvest strategies showcases the range of approaches and what success can look like. As management bodies, including the regional fisheries management organizations (RFMOs) focused on tunas, develop these strategies, policymakers, scientists and stakeholders can gain insight from reviewing the designs and implementation processes for the harvest strategies already in use.

Fishing for the Future: The Case for Harvest Strategies

Effectively managing fish stocks for the long term requires experience, science, and advance planning. Harvest strategies, an innovative approach, combines those elements and more, providing fisheries managers a clear framework for determining science-based, precautionary measures for fish stocks. Also known as management procedures, harvest strategies move managers away from yearly, and at times contentious, quota negotiations to a set of pre-agreed rules geared towards fostering long-term sustainability and profitability of fisheries.

New Fisheries Management Method Benefits Industry and Ocean Health

Regional fisheries management organizations (RFMOs) are increasingly developing and adopting a modernized system of management known as harvest strategies. This approach shifts managers’ focus from short-term quota-setting to a set of pre-agreed rules designed to achieve longer-term objectives, such as maximizing both catch and the likelihood of achieving and maintaining a healthy stock.

Global Fishing Stakeholders Call for Harvest Strategies

Effective long-term management of the world’s fish stocks requires science, stakeholder engagement and advanced planning. An innovative approach known as harvest strategies combines those elements, providing fisheries managers a science-based framework for determining precautionary measures for fish stocks.

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Business Harvesting Strategies for Entrepreneurs

• October 2020
• In book: Entrepreneurship (pp.1-15)
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Home > Books > Entrepreneurship - Contemporary Issues

Business Harvesting Strategies for Entrepreneurs

Submitted: 01 June 2020 Reviewed: 21 July 2020 Published: 28 October 2020

DOI: 10.5772/intechopen.93442

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Entrepreneurship plays a pivotal role in our societies, such as employment creation. This is a key to addressing income inequalities leading to poverty reduction and economic growth. As a result of this critical role, the campaign is on establishing more entrepreneurial entities, and there is very little concern regarding harvesting an entrepreneurial entity. Entity harvesting is equally important as setting up a new entrepreneurial venture and this chapter explores this issue. During the harvesting process, the entrepreneur recovers value through the sale of an entrepreneurial entity or its assets. Having spent several years building and adding value to the business, the entrepreneur must design an entity harvesting strategy that would provide maximum returns on the investment of time, effort and money. Several reasons may compel the entrepreneur to harvest the business and this chapter provides some of these reasons based on extant literature and primary data collected from small- and medium-sized entity (SME) owners in Sub-Saharan Africa. Further, the chapter outlines various entity harvesting strategies preferred by SME owners in Sub-Saharan Africa and circumstances at which they deem appropriate to apply such.

• entrepreneur
• outright sale

Author Information

Herring shava *.

• Department of Business Management, Faculty of Management and Commerce, University of Fort Hare, Alice, South Africa

*Address all correspondence to: [email protected]

1. Introduction

The start-up process of a new entrepreneurial venture and until such time the entrepreneur decides to exit the business is a contentious issue. On the one hand, the entrepreneur is found working on a business plan intending to start an entrepreneurial venture. On the other hand, the entrepreneur is also found crafting a long-term business harvesting strategy. As contradicting as this may sound, this gives the entrepreneur a clear entrepreneurship roadmap which in many circumstances will be adjusted as the business owner responds to macro- and micro-environmental changes. Having a harvesting strategy upfront is critical for guiding the entity owner towards achieving the business mission. A business harvesting strategy could be characterised as the path to the finishing point at which the entrepreneur is expected to celebrate the sacrifices made, that is, effort, time and money. It is at that finishing point where the entrepreneur recovers the value-added into the business by selling either the firm in its entirety or partly in the form of assets. When this is done, the entrepreneur can start a new entrepreneurial venture or retire completely from the entrepreneurship career.

The significant contribution of entrepreneurship in our societies cannot be underestimated, especially on employment creation [ 1 ]. This is a key to addressing income inequalities leading to poverty reduction and economic growth [ 2 ]. As a result of this critical role, the campaign is mainly on establishing more entrepreneurial entities, and there is very little concern about harvesting an entrepreneurial entity [ 3 ]. There is very little empirical evidence on this subject from an African perspective [ 4 ]. However, it is important to note that entity harvesting is equally important as setting up a new entrepreneurial venture [ 5 ]. Resultantly, this chapter contributes to this gap in the literature by exploring this subject matter relying on primary data from SMEs in Sub-Saharan countries (Botswana, Eswatini, South Africa and Zimbabwe). The goal of this chapter is to explore the preferred entity harvesting options of SME owners in Sub-Saharan Africa and to determine why they prefer such options.

The next section will define business harvesting, followed by reasons for harvesting and a discussion on harvesting strategies available to entrepreneurs. The methodology used to gather primary data is explained, and a discussion of the findings is made. The chapter further outlines the implications of investigating small- and medium-sized entities (SME) harvesting practices, areas for further research.

2. Business harvesting

After entity start-up, the entrepreneur invests time, effort and money with the intent of growing the business. The entrepreneur invests time, effort and money to make money from the firm in the future. Through such entrepreneurial efforts, the entity accumulates value and ends up attracting competition. In such instances, the business could be vulnerable to hostile takeovers, and harvesting the business provides the entrepreneur with maximum returns on the investment made. By definition, business harvesting is a systematic practice by which the entrepreneur recovers value gained by the entity through the selling of individual assets or the entire firm as a whole. Various reasons compel the entrepreneur to harvest the entity and the section to follow outlines some of them.

2.1 Reasons for harvesting

Factors beyond the control of the owner or entity management could influence the mentioned entity players to consider harvesting [ 6 ]. Macro-environmental factors such as the global pandemic similar to Covid-19 have seen most entrepreneurs harvesting their entities as most entities could not operate under the global lockdown, which has extended for at least 3 months in some countries. Owing to the global lockdown, supply chain networks have been severely affected. Firms that rely on imported raw materials have suffered the most as movement of non-essential goods are currently suspended globally. Some factors leading to business harvest include the untimely death of the entrepreneur, serious ill health, or poor mental health. Unrest in the labour market or loss of key expertise may force the entrepreneur to harvest the business. Generally, harvesting reasons are unique to each entrepreneurial entity [ 5 ].

Micro-environmental factors speak to reasons for harvesting the entity which the entrepreneur has significant control over. The first example relates to the goal of the entrepreneur [ 7 ]. Some entrepreneurs start an entity and work hard to grow the firm so that it becomes very attractive to competition and later sell the entity for a substantial profit. The second example for wanting to harvest the entity could be that the entrepreneur falls in the category of serial entrepreneurs [ 8 ]. These are individuals who start entrepreneurial entities but after running the entity for a given period, they develop other lucrative business ideas and sell the existing firm to raise the needed capital for the new entrepreneurial venture.

Succession is another micro-environmental reason for harvesting the existing entity and it is common in family business [ 7 ]. Under succession, the family business owner steps down and pass entity ownership to the next family member. When the family business is carefully run, through succession, the firm will pass from generation to generation and this may continue over many decades. Further, the entrepreneur may start a new entity hoping that this would afford him free space and more time to himself but only to find out later that business demands are far much greater than envisaged. Traditionally, the entrepreneur still has to balance both home and business demands. Unfortunately, the inability to find a middle point between these competing issues may drive the entrepreneur to the point of harvesting the business. However, not all entrepreneurs fail to balance home and business demands. Some entrepreneurs are good at what they do such that the entrepreneurial entity they have built can outlive their physical and mental strength. When this happens, entrepreneurs often choose retirement as they no longer have the physical and mental strength to keep up with both business and home demands. Resultantly, they recover the value added in the business in the form of cash which in this case could be equated to a retirement package.

Choosing between available business harvesting options may not be that easy for the entrepreneur. Each harvesting option has its advantages and disadvantages. Therefore, the entrepreneur must diligently make the difficult decision to pick the one that would yield maximum returns in line with sacrifices made in building the entity. The next section looks at harvesting strategies that an entrepreneur can exercise.

2.2 Business harvesting options

Several harvesting options exist and these range from buyouts, mergers, outright sale, employee share ownership scheme and an initial public offering. The paragraphs to follow elaborate on the mentioned harvesting strategies.

2.2.1 Buyouts

Leveraged buyout (LBO). LBO happens when a large portion of a publicly quoted entity is sold to a private equity firm. During the sale process, the private equity firm gains a larger number of shares.

Management buyout (MBO). In an MBO scenario, the current management of the entity raises funds to buy out the entity owner. In instances where the firm decides to divest in a subsidiary, the current management takes control of a significant amount of equity. As much as the management remains in control of the larger share of the voting equity, to ensure continued smooth flow of operations, that is, firm relations with customers, creditors and suppliers, the previous owner may retain ownership of an equity stake in the firm. This practice is common in family-owned businesses where a small number of managers take control of a portion of equity.

MBO can be extended to other managers or employees and at that point, it then becomes a management employee buyout (MEBO). In many instances, employees are factored in the equation because of the key expertise they possess. This is common where branches of the entity are geographically dispersed, and it becomes an issue of common sense to involve the branch manager in the MEBO to facilitate easy management control. From a business perspective, the success of the branch becomes of interest to the manager owing to stake ownership. MBO or MEBO is advantageous to the owner as it offers a quick exit. The big disadvantage is that the management may not possess similar entrepreneurial traits to those of the departing owner, leading to the downfall of the newly established business.

A management buy-in (MBI). External managers are granted the opportunity to buy equity in the firm. Often the challenge here is that the newcomers have no extensive knowledge of the existing business particularly regarding how it operates. In rare cases, newcomers may be from the same sector as the existing business and therefore come with valuable insights concerning technology, knowledge on the competition, and how to grow the business leading to its success.

A more advantageous scenario is a hybrid buy-in/management buyout (BIMBO), and this is where a portion if inside managers and a portion of outsiders both acquire a stake in the firm. This is advantageous in the sense that existing managers have profound knowledge on the operations of the firm, meaning there will be little disruptions. More importantly, the incoming managers bring valuable operational insights towards growing the existing business which may have been missing all along.

Investor-led buyout (ILBO). The entire entity or part thereof is purchased by a privately owned equity firm. Depending on the circumstances or the state of the acquired firm, new management can be brought to run the affairs of the newly acquired entity. This is normally done to safeguard the investments made, especially when the acquired firm is in a precarious position. Conversely, when the newly acquired firm’s affairs are in order, existing management is likely to be retained, or a mix of new management and existing management may be the one responsible for the acquired firm. Unfortunately, in an ILBO, existing managers occupying specific office positions in the firm are normally not given the option to purchase stocks.

Leveraged build-up (LBU). When the goal of a private equity firm is to generate profits from a buyout or buy-in investment, they practice leveraged build-up. This is where the newly acquired entity, as a result of buyout or buy-in, is used as an investment platform, where a series of acquisitions are continuously added to it, forming a large corporate group. This move brings with it the ability to lure skilled and experienced managers, who can exponentially grow the entity through further acquisitions.

2.2.2 Business mergers

Merging a business is a process where the smaller entity is absorbed, often by a larger entity mostly to provide an extra muscle on the weaknesses of the small entity and to maximise on its strengths. The outcome of a merger is a large and very competitive entity. The entrepreneur who intends to harvest the entity through merging with another firm focuses more on the price, structure and terms of the proposed deal. Where mergers occur, special attention is also given to issues about organisational culture, the coming together of different personnel into a single entity, and the coming together of different products under one firm. Other issues that need to be addressed are the fears of employees regarding downsizing or retrenchment that may be necessary to ensure the viability and success of the new entity. More important, operational and marketing issues need further attention considering that products and services may have become so diverse as a result of the merger. Management has to decide as to which products and services they will discontinue or continue offering based on each product/service’s cash inflow strength. Research and development initiatives and manufacturing methods are some of the issues that will require special attention. More importantly, the entity has to decide with regards to supply chain partners they would want to continue to be in business with. When supply chain partners have been decided, that also influences the distribution channels they will adopt to ensure a hustle-free logistics management process.

2.2.3 Outright sale

The entrepreneur who opts for an outright sale of his firm as the harvesting option sells the entire business to any person who is willing to pay for the asking price. The buyer could be a supplier interested in forward integration, or the customer who is interested in backward integration. Sometimes the buyer is completely a neutral player from another sector whose intentions are to spread and diversify the risk. Often, entrepreneurs shy away from selling the business to the competitor as this entails disclosing or providing access to trade secrets, which could backfire if the deal fails to materialise.

2.2.4 Employee share ownership scheme (ESOS)

Various governments, particularly in developing countries, have been advocating for employee share ownership schemes as a means of maximising productivity and also as a means of fighting the inequality gaps as far as wealth distribution is concerned. In Africa, it is no secret that the majority of the wealth is controlled by a minority who are predominantly white. From the Africans’ point of view, this is gross injustice as they feel they are not benefiting from what is rightfully theirs (riches of Africa). To address this challenge, most African countries have crafted and legalised the employee share ownership scheme [ 9 ]. By definition, the employee share ownership scheme is a legalised route by which the employer can transfer some or all of the shares to employees who in turn assume ownership of the shares received [ 10 ]. By the end of the deal, employees develop a vested interest in the entity’s well-being and become motivated to participate strongly in the growth of the entity to realise as much wealth as they can. Through the ESOS, the entrepreneur harvesting the entity receives cash at different intervals on his way out. The advantage is that the management continues to run the entity at the same time benefiting from the scheme. The disadvantage is that this could also result in the loss of the entrepreneurial drive in the entity. Often, the ESOS is best suited for large corporations given the complications surrounding the structuring and mapping of the finances involved.

2.2.5 Initial public offering (IPO)

The entrepreneur who chooses initial public offering as a harvesting option enlist the entity on a public stock exchange and have its shares publicly traded [ 11 ]. As attractive as this is, the downside is that the entrepreneur now must account to several shareholders on issues related to entity growth and many other key issues shareholders may be interested in [ 12 ]. In other words, this could add more administrative issues to the entrepreneur that he/she may have not anticipated before choosing this harvesting option.

3. Methodology

This research is exploratory and predominantly quantitative. However, open-ended questions were incorporated to solicit further insights concerning the subject in question. A self-administered questionnaire was designed from extant literature on the subject of entity harvesting. Qualitative data gathered from open-ended questions provided rich insights as to the SME owner’s preferred method of harvesting and motivations to harvest the business. A sample of 612 SMEs was approached in Botswana, Eswatini, South Africa and Zimbabwe (Sub-Saharan Africa). Opportunistic convenience sampling was carried out. In the absence of a trusted sampling frame, field workers approached SME owners who were willing to participate in this research. Field workers explained the goal of the research and participants’ rights with regards to research that is the right to terminate participation without questions asked, right not to answer questions that infringe on their privacy, anonymity and truthful presentation of their views. Having explained at length issues related to the rights of the participants, their consent was sought and obtained. Descriptive statistics were performed to make the meaning of quantitative data. Similarly, qualitative data obtained were grouped into themes and each theme was observed and monitored in terms of recurrence. Thus, the frequency distribution of each theme was established to determine how popular that theme was among SME owners.

4. Findings

The results presented in this section provide a detailed background of the business owner and the SME. These cover issues related to the age of the business, location of the business, industry or sector in which the business is operating, the ownership structure of the business, the business development stage and sales revenue growth. Further, this section presents findings concerning harvesting practices preferred by small businesses in Sub-Saharan Africa.

4.1 Demographic distribution of SMEs

Data on the year of business establishment for the SMEs were gathered. The findings revealed that 40% of SMEs were between 5 and 10 years old whilst the other 40% were between 10 and 20 years old and 20% of the SMEs were established more than 20 years ago. Therefore, all the SMEs were in business for a considerable amount of time. This implies that the SME owners in question are fairly experienced business players. The findings with regards to the location of the SMEs reveal that that 20% of the SMEs were based in Gaberone, Botswana, 25% of the SMEs were based in Harare, Zimbabwe, 40% were based in Johannesburg, South Africa, and 15% of the SMEs were located in Mbabane, Eswatini. Data with regards to sector distribution of the SMEs revealed that 40% were in manufacturing, while mining, tourism, transport and logistics and retail sector were each represented by 15%, respectively. Data further revealed that 60% of the SMEs were registered as private companies, while partnerships and sole traders were both represented by 20%, respectively. The chapter further reveals that all SME owners who participated in this research are multiple business owners with 60% having total control and ownership of three operational SMEs, while 20% owned four operational SMEs and a further 20% being owners of two operational SMEs.

SME owners were further asked to identify the stage at which they thought their businesses occupied in the business life cycle (the SME at which they were found during fieldwork, that is, ignoring other SMEs they owned). The findings reveal that SMEs were at varying stages of the business life cycle with 20% being at the growth stage, while 40% were at the maturity stage and a further 40% already at their decline stage. A country analysis showing sales revenue growth in the past 12 months shows that SMEs in Botswana realised a more satisfactory movement (44%) followed by SMEs in Eswatini (42%) and SMEs in South Africa represented by 40%. Only 12% of SMEs in Zimbabwe registered satisfactory movement in sales revenue. This could be a reflector of the ongoing economic crisis that has affected the Zimbabwean economy for over a decade. As shown in Table 1 , Zimbabwean SMEs further leads on the declining sales revenue option as 34% of SMEs registered a decline in sales revenue and 54% registering non-satisfactory movement in sales revenue in the past 12 months.

SMEs sales revenue growth by country.

4.2 SMEs preferred harvesting options

SMEs were given a list of entity harvesting options and were asked to rank in order of preference to identify the harvesting option they would consider when the time of harvest has come. Findings are summarised in Table 2 . They reveal that the majority of SMEs in Sub-Saharan Africa preferred the outright sale harvesting option, M = 4.6, SD = 0.89, followed by the management buy-in harvesting option, M = 4.4, SD = 0.89, mergers, M = 3.8, SD = 1.3, investor-led buyout, M = 3.6, SD = 1.67 and leveraged build-ups with M = 3.4, SD = 1.51 concluded the top five preferred SMEs entity harvesting options.

4.2.1 Justification for choosing the outright sale entity harvesting option

SME owners who identified outright sale as their preferred entity harvesting method cited unavailability of an heir to take over the business, desire to pursue other interest, business reaching its peak performance level, retirement reasons, uncertain business environment and unavailability of a working turnaround business strategy as factors that would drive them to consider an outright sale of the entity. Table 3 provides descriptive statistics summarising the observed frequencies of the mentioned reasons.

SMEs preferred entity harvesting options in Sub-Saharan Africa.

Reasons behind choosing the outright sale harvesting option.

Absence of an heir. In the absence of an immediate family member to take over the business, SME owners pointed out that it is rather wise for them to cash in on their businesses and enjoy the fruits thereof than to leave the business to a distant relative who never contributed towards the well-being of the entity.

Business performance is at peak. Other SME owners pointed out that they would consider an outright sale harvesting option when the entrepreneurial entity has reached its all high-performance mark. This move is advantageous considering that this is the point where the business will be very attractive to competition and other individuals or organisation interested in a takeover. Given this situation, the entrepreneur has more bargaining power and is more likely to receive a significant amount better than the firm’s asking price.

Desire to pursue other interests. The desire to pursue other interests in this research was found to be triggered by the failure of the current enterprise to bring forth the anticipated results. Although some SME owners are genuinely interested in pursuing other business avenues, SME owners pointed out that they would rather cash in on the business especially once signs and symptoms of decline are noticed. They argued that rarely does it pay to continue investing time, effort and money once the business has started showing negative signs of performance.

Conversely, not all SMEs were of the view that they would harvest the entity through outright sale when it is poorly performing. The findings also revealed that most entrepreneurs preferred harvesting their ventures on discovering new and exciting opportunities, which they viewed as more profitable than the existing one. In support, some respondents also argued that where an entrepreneur comes up with a more lucrative business plan that has been well evaluated, the less lucrative venture must be harvested to mobilise funds to finance the lucrative business opportunity. Some SME owners were also quick to emphasise that the culture among SME owners was such that as long as the venture is still viable, there is no reason for harvesting the entity.

Retirement plan. A few SME owners pointed out they would consider the outright sale as their harvesting strategy and completely retire from the entrepreneurial life. The outright sale harvesting option would provide them with enough funds to sustain them when they are no longer actively involved in business markets.

Uncertain business environment. A significant number of SMEs particularly those found in the mining sector pointed out that for them, their businesses are largely affected by ever-changing government policies around mineral ownership and the processes involved in the selling of the minerals. The SMEs in the mining sector felt that they are the least protected by regulations. Mining operations are severely threatened by artisanal miners who continuously invade mining shafts and plants. In all this chaos, SME owners blame governments for doing very little to protect SMEs in the mining sector and their employees. When the rule of law is compromised as is the case in the mining sector, an outright sale was the preferred harvesting strategy. This enables the entrepreneur to invest capital in countries where the rule of law is known to be uncompromised.

Failure of the business turnaround strategy. Unlike some other SMEs who would harvest once symptoms and signs of failure start being noticed, some prefer to try and resuscitate the firm. However, when these efforts fail, they then choose to practice the outright sale harvesting option. The disadvantage of this strategy is that the business may have hit rock bottom a long time ago without the owner noticing. As such, when the new buyer comes, he or she has more bargaining power and the entrepreneur may receive proceeds that are far below the market value of the entity.

4.3 Business merger

The findings reveal that entity merger was the third preferred harvesting option, M = 3.8, SD = 1.30. A study conducted in India by Mantravadi and Reddy [ 13 ] found out that firm profitability levels behaved differently depending on the sector after the merger, with some having their profitability levels increasing yet others experienced a decline. Generally, mergers are known to result in improved profitability for firms that were experiencing a sharp decline in profits. It was therefore very much anticipated for SME owners in Sub-Saharan Africa to at least consider business merger as a harvesting method given its tremendous benefits which include, improved revenues and profitability, faster growth in scale and quicker access to markets, acquisition of new technology, elimination of competition and increased market share [ 4 ]. Also, through mergers, firms enjoy tax shields and investment savings.

Lack of operating and growth capital. SME owners pointed out that if the firm is experiencing liquidity challenges, merging with a financially stable firm is the only route to preserving the legacy of the founder and keep initial business ideas, products, or services for a reasonable time in the market. Some of the SME owners pointed out that they had undertaken this harvesting practice before. For the previous mergers to occur, SME owners pointed out that the underlying reason that led to those mergers was liquidity problems. However, family and friends played an influential role in choosing the harvesting option. Other SME owners pointed out that they consider a business merger as it is a welcome opportunity to come out of financial distress without having to approach banks for funding.

The research sought the respondents’ views on different types of buyouts they would consider as their harvesting options. The findings imply that buyout options are widely used by SMEs. Buyouts involve a transition from one set of owners to another where the previous owners lose control over the firm and the new ones pay a premium for shares that gives them a controlling interest in the firm. The results on the different types of buyouts as entity harvesting options preferred by SMEs owners show that management buy-in is the second most preferred entity harvesting option, M = 4.4, SD = 0.89.

The findings reveal that SME owners are willing to surrender their businesses to external management for considerable value than their internal ones. Investor-led buyout (ILBO) was identified as the fourth preferred entity harvesting option, M = 3.6, SD = 1.67. SME owners argued that if the business is taken over by some investor institutions and is rejuvenated, their peers judge them better than if the same happens with former employees. Leveraged build-ups (LBUs) were identified by SME owners as the fifth preferred entity harvesting option, M = 3.4, SD = 1.51, whereas management buyout (MBO) was the sixth preferred entity harvesting option, M = 3, SD = 1.41.

4.4.1 SME justification for preferring various buyout options

No suitable family member to take over the firm. Similar to the outright sale harvesting option, the MBI, ILBO, LBU and MBO entity harvesting options were identified as harvesting options by SME owners citing unavailability of a suitable family member to drive the firm forward when they quit. SME owners experienced displeasure in the idea that a distant relative would inherit the estate in case their close relatives are not business focused. Hence, SME owners preferred to settle for either the MBI, ILBO, LBU or MBO entity harvesting options.

De-risking. Some SME owners singled out the LBO entity harvesting option. They cited de-risking as their motivation for preferring this strategy. SMEs owners pointed out that the ILBO by design brings in the much-needed capital to fund business growth initiatives, in the process guaranteeing business continuity. In other words, a portion of SME owners is not interested in total entity harvesting but partial harvest.

Poor health. Some SME owners opted for the ILBO harvesting option citing deteriorating health conditions. In this case, the owner sells a division of a firm instead of the entire firm. Health failure means that the SME owner is no longer able to participate in business affairs daily. In certain instances, the entrepreneur remains hopeful that he or she would recover and be actively involved in the affairs of the entity and possibly buy out the investor. For the hopeful entrepreneur, it is better to have somebody taking care of the firm until the entrepreneur’s recovery point, and by design, the ILBO from the SME owner’s perspective, it provides this opportunity.

4.5 Employee share ownership scheme (ESOS)

The research findings reveal that the ESOS is the least preferred entity harvesting options among SME owners, M = 2.8, SD = 1.30. SME owners who preferred this option pointed out that because they would have succeeded in building a strong performance-oriented culture, it was more strategically important for them to involve entity employees in the entity’s succession plans. From the SME owner’s perspective, having employees who are best performers to own a stake in the firm and participate in running the affairs of the entity would make it easier to pass on the performance-oriented culture to all incoming employees. This is critical in ensuring that the firm’s competitive advantage is sustained and the firm’s profitability abilities maintained for a foreseeable future.

5. Discussion of the findings

The findings presented in this chapter indicate that both macro- and micro-environmental factors play a significant role concerning the SME owner’s preferred entity harvesting strategy. The majority of SME owners in Sub-Saharan Africa pointed out that they prefer an outright sale as an entity harvesting strategy. The results show that this decision is largely influenced by the absence of an heir (macro-environmental factor). SME owners have little control over this aspect and as much as business skills can be learned, people’s interest differs upon realising and accepting this reality, SME owners are left with the option of disposing of the entity and salvage the value they may have added to the firm.

The results further reveal that among buyout options, the ILBO is more popular with SME owners as it was more preferred compared to all other buyout options. The findings further reveal that SME owners are worried about the volatility, uncertainty, chaos and unpredictability of the business environment. From the findings, the majority of SMEs are either declining or static and very few are making significant profits as most economies are in a recession. The present circumstances do not help SME owners in Zimbabwe who have consistently braved the economic downturn for over a decade and with the global economy in recession owing to the Covid-19 pandemic, this situation will drastically affect preferred entity harvesting options, possibly from an outright sale to mergers including some of the buyout options.

Despite the global recession that is very likely to have a bearing on preferred entity harvesting options, SME owners are somewhat hopeful that their businesses can have a second life. This is why apart from an outright sale, they believe that through MBI and mergers, their entities or entity offerings are still relevant to the market. What also can be learned from the findings is that such decisions are not being made only in light of the bad economic situation but it appears they were made right from the start as part of the business plan and continue to be adjusted as the economic situation changes.

However, from findings, it has been observed that SMEs owners appear not ready to give current employees and management a chance to own shares and to run the business as a harvesting option. In contrast to extant literature which pointed out that the ESOS is meant to spread the wealth between entity employees and entity owners, the findings reveal that entity owners are utilising this strategy to secure entity profitability for a longer period by extending share ownership to best-performing employees who in turn will have the obligation to pass on the performance-oriented culture to newly recruited employees.

6. Implications for studying entity harvesting strategies

6.1 theoretical implications.

The chapter explained SME owner preferred entity harvesting strategies making use of primary data collected from four Southern African countries and to the author’s best knowledge, by the time of writing, this research is the first to adopt such a strategy. More importantly, this chapter calls for more research to be done in this area and advance the debate on SME owner business exit strategies as they are critical in guiding the owner in achieving the entity’s mission. Also, the findings presented in this chapter contribute significantly to the gap in extant literature in the Sub-Saharan Africa region and beyond.

6.2 Practical implications

The findings presented in this chapter point to the notion that the preferred SME owner entity harvesting strategies are largely reactionary. This means that SME owners respond to macro- and micro-environmental factors and by so doing they are more of spectators rather than influencers of the business environment. The only way SMEs can succeed in practicing their original entity harvesting plan without being reactionary is to work diligently and make sure that micro-environmental factors are aligned to their needs. As a result, business consultants, policymakers and business support institutions can help SMEs in training their employees to be the best performers and ensure that all employees with funds can participate in ESOS. Currently, the practice is that only best performing employees benefit from this initiative defeating the original purpose which it was designed for. Other training activities can be held to help SMEs with risk management skills which would help when the de-risking time comes. SME owner-preferred entity harvesting options are influenced by the unavailability of an heir to take over the reins of the entity. This affects mostly family-owned SMEs. It should be acknowledged that succession is not a short-term endeavour but a long-term issue. Therefore, the search and training for a potential successor should start early to ensure the continuity of the firm. The critical aspect of the succession plan is raising awareness among the current SME owner/managers to kick start the search and preparation for succession early. This will enable them to identify the needed support tools, measures and the relevant infrastructure to enhance the success chances of the incoming an heir. When this is done on time, the thinking is that succession plans would have less effect on the SME owner’s preferred entity harvesting strategy.

7. Limitations of the study

The research is exploratory and descriptive. Although this is a stepping stone in trying to answer complex questions around SME owner-preferred entity harvesting strategies, considering that this was a cross-country analysis, issues related to culture and economic outlook were not controlled to determine if they had a major bearing on entity harvesting strategies reported. The reader should, therefore, exercise caution in the interpretation and application of the findings.

8. Future research

Future research should focus on similar harvesting strategies to establish causal relationships and also identifying boundaries in which the SME owner’s choice of entity harvesting strategy is directly or indirectly influenced by country characteristics, age of the business and economic outlook. Given that this was an exploratory research, the author further advocates for more studies making use of both simple and complex multivariate statistical analysis to establish definite relationships on this phenomenon.

9. Conclusion

The chapter outlined SME owner-preferred entity harvesting strategies and determined why the given option is preferred. Relying on cross-country data, the chapter concludes that the majority of SME owners prefer the outright sale option when harvesting their entities. This option is mainly influenced by the absence of an heir to take over the reins of the business implying that most SMEs are family-owned businesses. The chapter also concludes that SMEs do prefer other entity harvesting strategies such as mergers and buyout which includes among them ILBO, MBI, LBU and MBO as well as employee share ownership schemes. Mergers and buyout options are largely influenced by deteriorating economic conditions among other factors. The chapter further concludes that SMEs also prefer ESOS as a harvesting strategy but solely to secure the entity’s competitive advantage and profitability for as long as they can. This is evident in their willingness to sell entity stake to best performing employees who in turn have the duty to pass on the performance-oriented culture to recruits. However, among all other harvesting strategies that SMEs do prefer, the IPO was not one of them. The reason could be that SMEs are still battling with issues related to entity control and autonomy.

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