Managing and Harvesting Growth

Course Module in Entrepreneurship

Course Modules help faculty select and sequence HBS Publishing titles for use in segments of a course.
Each module represents subject matter experts’ thinking about the best materials to assign and how to
organize them to facilitate learning. In making selections, we’ve received guidance from faculty at Harvard
Business School and other major academic institutions.

Each module recommends four to six items. Whenever possible at least one alternative item for each
main recommendation is included. Cases form the core of many modules, but we also include readings
from Harvard Business Review, HBS background notes, and other course materials.

I. Overview of suggested content (HBS cases unless otherwise noted)

Title Author Product Publication Pages Teaching

Number. Year Note
1. Introduction
A Note on Managing the Hamermesh, 805092 2005 9p --
Growing Venture (HBS Heskett &
background note) Roberts
2. Establishing a Brand
Nantucket Nectars Lassiter & 898171 1998 28p 202074
Sahlman Rev.2000
Alternative: Kate Spade Cyr 800002 2000; 20p --
Rev.2001
3. Expanding a Young
Business
USA Golf Holidays Bygrave BAB088 2004 12p BAB588
(Babson case)
Alternative 1: Innocent Drinks Sahlman 805031 2004 24p --

Alternative 2: Honest Tea Gompers 201076 2001 29p 202069

4. Franchising
DayOne (Babson case) Bygrave BAB091 2004 24p BAB591

Alternative: Noodles & Co. Cyr 803174 2003; 31p --

Rev.2004
Supplement: A Note on Gompers 297108 1997, 21p --
Franchising (HBS background Rev.2001
note)

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 Managing and Harvesting Growth: An HBSP Course Module

5. Going Public, Selling Out,

or Going Global
Knoll Furniture:Going Public Gompers 202114 2002 26p --
Alternative 1: RightNow Sahlman 805032 2004 24p --
Technologies
Alternative 2: Shurgard Self- Hamermesh 804112 2004 28p 805080
Storage: Expansion to Europe Rev.2005
6. Does Big Mean Different?
Why Entrepreneurs Don’t Scale Hamm R0212J 2002 6p --
(HBR article)

II. Rationale for selection and sequencing the items in this module
This module concentrates on the concerns of more established entrepreneurs. Some evaluate the
opportunity to build further, through franchising, global expansion, or other means. Others consider how
to harvest what they’ve grown.

The first segment features an HBS background note that surveys a range of challenges facing
entrepreneurs as a result of growth.

The cases in segment 2 focus on the evolution of a young brand to near-maturity. The main
recommendation (on fruit-drink purveyor Nantucket Nectars) and the first alternative (on handbag
designer Kate Spade) both explain at length the entrepreneurs’ efforts to establish brands in the shadow
of giant competitors. Both cases also examine the possible effect on the brand if the founders sell out (as
Nantucket Nectars is considering) or when they partner with a large corporation (as Kate Spade did).

The challenges of expanding a business concept while it’s still young are explored in Segment 3. USA
Golf Holidays, Innocent Drinks, and Honest Tea all evaluate various growth options.

One growth option worthy of detailed examination is franchising. The cases in segment 4 view the pros
and cons of franchising from somewhat different perspectives: DayOne, serving prenatal and neonatal
needs, is still a very small business, while Noodles & Co. is becoming a well established chain of
restaurants. Student analysis of either case could be enhanced by prior reading of the Note on
Franchising, which offers a strongly research-oriented view.

What some entrepreneurs would consider the ultimate growth opportunities are examined in segment 5.
The Knoll Furniture case examines the decision to go public. The RightNow Technologies case presents
competing opportunities: going public or selling out. Finally, the Shurgard Self-Storage case looks at the
expansion in the European markets.

If you have time for a sixth segment, we suggest stepping back from the financial data and deal-making
issues and giving students a more psychological perspective, via the HBR article “Why Entrepreneurs
Don’t Scale.”

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 Managing and Harvesting Growth: An HBSP Course Module

III. Detailed description of recommended items

1. Introduction
A Note on Managing the Growing Venture Richard Hamermesh, James Heskett and Michael Roberts
(HBS background note)
Focuses on the strategic and organizational challenges that confront growing enterprises and the
entrepreneurs who lead them. Provides an overview of how a new venture needs to change as it passes
from the initial start-up to the growth phase. Explores how a venture's leadership, strategy, and execution
need to evolve to deal with rapid growth. A rewritten version of an earlier note.
Learning Objective: To provide an overview for the course module Managing the Growing Venture.
Subjects: Change management; Complexity; Control; Entrepreneurial management; Entrepreneurship;
Growth management; Growth strategy; Leadership; Organizational behavior.

2. Establishing a Brand
Nantucket Nectars Joseph B. Lassiter and William A. Sahlman
The founders of Nantucket Nectars are trying to decide whether to sell their company. The case
describes how the founders started the company and grew the Nantucket Nectars brand name.
Learning Objective: To examine guerilla marketing, and the development of a brand, to analyze when to
think about selling a brand. Subjects: Beverages; Brands; Entrepreneurial finance; Entrepreneurial
management; Marketing strategy; Strategic planning.

Alternative: Kate Spade Linda A. Cyr

Kate Spade's founders try to finance and grow their luxury handbag and accessories business. As the
case ends, the founding team must decide among four potential strategic partners offering to purchase
different shares of Kate Spade at various valuations. Includes color exhibits.
Learning Objective: To help students understand the issues associated with managing growth,
maintaining a strong brand image, and partnering with a large corporate entity. Subjects: Brands;
Entrepreneurial management; Partnerships. Setting: New York, fashion, $11 million, 1992-98.

3. Expanding a Young Business

USA Golf Holidays William Bygrave (Babson case)
USA Golf Holidays is a five-year-old business specializing in customized vacations for golfers. Its 2003
revenue was $5.8 million, with a loss of $225,000. The CEO (and founder) is planning the next stage for
the company. He hopes to build on USA Golf Holidays' competencies and grow the company, aiming for
$50 million in revenues by 2007. He is considering: whether to expand beyond golf vacations; how to use
information technology to improve the company's operations; how to raise money to fund the growth
strategy; and whether he is the right person to lead the company in its next phase. Subjects: Financing;
Information technology; Sports; Strategy formulation; Travel.

Alternative 1: Innocent Drinks William A. Sahlman

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 Managing and Harvesting Growth: An HBSP Course Module

The three founders of a London-based, start-up smoothie company must decide between three growth
options: expansion of the existing product line into Europe, extension of the brand into other product
categories, or continued organic growth within the United Kingdom.
Learning Objective: To evaluate entrepreneurial growth opportunities from a financial perspective and
with an ambiguous data set. Subjects: Beverages; Entrepreneurial finance; Entrepreneurial management;
Entrepreneurship; Expansion.

Alternative 2: Honest Tea Paul A. Gompers

This case examines the decisions of Seth Goldman and Barry Nalebuff, founders of Honest Tea. Honest
Tea is a start-up in the ready-to-drink tea market. Goldman and Nalebuff must craft an expansion and
financing strategy. Learning Objective: To understand the interaction of strategy and finance. To examine
financing terms and conditions. Subjects: Angel financing; Beverages; Entrepreneurial finance; Venture
capital.
4. Franchising
DayOne William Bygrave (Babson case)
DayOne opened for business in January 2001. The first store, located in San Francisco, provides
products and services to prenatal and postnatal parents and their babies; it was an immediate success
with customers. Now Andrew Zenoff, founder and CEO, wants to grow his venture into a national chain of
DayOne centers, providing essential services, products, and community to first-time parents, but has not
yet raised the needed money. This is Zenoff's second startup. Subjects: Entrepreneurship; Expansion;
Franchising; Real estate; Venture capital. Setting: Real estate; retail industry; startup.

Alternative: Noodles & Co. Linda A. Cyr

Aaron Kennedy has successfully grown Noodles & Co. from a single global noodle shop to a chain of 58
restaurants spanning six states in seven years. In the face of increasing competition, Kennedy has plans
to roll out 240 new stores in the next four years. He must develop a growth strategy that will allow
Noodles & Co. to achieve these aggressive objectives as well as maintain the company's unique culture.
Kennedy must decide among several alternative growth strategies, with a particular emphasis on the
decision of whether to franchise. Includes color exhibits. Subjects: Brands; Competition; Corporate
culture; Decision making; Entrepreneurial finance; Entrepreneurship; Expansion; Franchising. Settings:
Boulder, CO; restaurant; $50 million; 1995-2003

Supplement: A Note on Franchising Paul A. Gompers (HBS background note)

Examines the motivations for franchising. Examines the academic literature in the area and draws
implications for franchising patterns. Also provides data on franchising patterns. Subjects: Entrepreneurial
finance; financing; franchising.

5. Going Public, Selling Out, or Going Global

Knoll Furniture: Going Public Paul A. Gompers
This case examines the decisions of John Lynch, president and CEO of Knoll Furniture, to go public in
early 1997. Knoll went private in an LBO in 1996 and Warburg Pincus, the LBO sponsor, wants Lynch to
take Knoll public. Lynch needs to weigh the positive and negative issues of a public offering.

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 Managing and Harvesting Growth: An HBSP Course Module

Learning Objective: To understand the decision to go public. Subjects: Entrepreneurial finance; Furniture;
IPO; Venture capital. Subjects: Entrepreneurial finance; Furniture; IPO; Venture capital.

Alternative 1: RightNow Technologies William A. Sahlman

The founder and CEO of a CRM software start-up must decide between an attractive acquisition offer and
the opportunity to go public. Discusses the growth of the company--including a lengthy discussion of
entrepreneurial bootstrapping--as well as an aborted IPO attempt in 2000. The central question is
whether the company will create more value by staying independent or by joining a larger organization.
Learning Objective: To analyze the financial and strategic value of two exit opportunities: an acquisition
offer and an IPO. Subjects: Acquisitions; Decision making; Entrepreneurial finance; Entrepreneurial
management; Entrepreneurship; IPO; Software

Alternative 2: Shurgard Self-Storage: Expansion to Europe Richard G. Hamermesh

Shurgard, a U.S.-based firm that rents storage facilities to consumers and small businesses, is
considering financing options for rapid expansion of its European operations. Five years after entering
Europe, Shurgard Europe has opened 17 facilities in Belgium, France, and Sweden. Along the way,
Shurgard has encountered skepticism from both European consumers and investors about the unfamiliar
self-storage concept and internal debates on how much to adapt the U.S. business model to European
lifestyles. Wall Street analysts also do not value the impact that the European expansion could have on
Shurgard's U.S. performance as a publicly traded Real Estate Investment Trust (REIT). As an alternative,
to finance this expansion, Shurgard received a proposed deal from a consortium of banks and other
investors where they would provide private equity financing spaced over the next few years plus a line of
credit. In return, the investors would receive a large share of Shurgard's equity and control of its board,
which could force a public offering in less than two years. The decision focuses on whether Shurgard
Europe should accept the conditions and valuation of the proposed deal or seek another deal at a later
point in time. Students must assess whether the self-storage business model can deliver the growth rate
in Europe that the company has promised his potential investors. Involves calculating some basic
estimates of the company's value from financial exhibits (enterprise value using a pEBITDA multiple).
Main focus is to assess this as an entrepreneurial venture. Students do not need to be familiar with
REITs. Learning Objective: To examine the global expansion of a U.S. entrepreneurial venture. Subjects:
Business models; Entrepreneurial finance; Entrepreneurship; Expansion; Growth management;
International business; International entrepreneurial finance; International operations; Real estate.

6. Does Big Mean Different?

Why Entrepreneurs Don't Scale John Hamm (HBR article)
It's well known that many executives who excel at starting businesses or projects fizzle out--in other
words, they fail to "scale"--as their ventures grow. But the reasons have remained fuzzy. In this article,
leadership coach John Hamm identifies four management tendencies that work for small-company or
business-unit leaders but become Achilles' heels as those individuals try to run larger organizations. The
first tendency is loyalty to comrades. In entrepreneurial mode, you need to lead as though you're in
charge of a combat unit on the wrong side of enemy lines. But blind loyalty can become a liability in
managing a complex organization. The second tendency, task orientation, is critical in driving toward a
big product launch, but excessive attention to detail can cause a large organization to lose sight of its

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 Managing and Harvesting Growth: An HBSP Course Module

long-term goals. The third tendency, single-mindedness, is important in a visionary unleashing a

revolutionary product or service on the world but can limit the company's potential as it grows. And the
fourth tendency, working in isolation, is fine for the brilliant scientist focused on an ingenious idea. But it's
disastrous for a leader whose expanding organization increasingly relies on many other people. Leaders
who scale deal honestly with problems and quickly weed out nonperformers. They see past distractions
and establish strategic priorities. They learn how to deal effectively with diverse employees, customers,
and external constituencies. And, most important, they make the company's continuing health and welfare
their top concern. Subjects: Entrepreneurs; Growth management; Human resources management;
Leadership; Management styles; Managerial behavior; Managerial skills

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