Creating a Harvest Strategy in a Business Plan

Instructor: Sharon Linde
What is a harvest strategy for a business? When does it come up? What are the two main types? This lesson explains these concepts in easy to understand language and shows how to use them in the classroom.

Harvest Strategy Definition

Trent is a substitute teacher and has gotten a last minute phone call asking him to teach a business lesson to high-school economics students. The lesson is 'Harvest Strategy' and it is supposed to build off of what the students already know about business plans. He has just a few hours to prepare his teaching content for the class.

After a quick internet search, Trent finds that a harvest strategy, when used in business circles, is any plan for getting the value out of a company, product line, or business entity. It usually comes towards the end of the business cycle or product cycle and is an important component of the business plan, a detailed plan of how the business will operate.

A business plan has several parts,like a mission statement and marketing plan, but the purpose of them is all the same - to help business owners plan for success in their business. Trent recognizes that the harvest strategy for a business is only going to come up towards the end of a business plan. He delves deeper into specific harvest strategies. To see how they will affect revenues, expenses and profits.

Two Main Harvest Strategies

There are two main types of harvest strategies. Both harvest strategies seek to increase profits from existing companies or product lines. Let's take a closer look at the two strategies.

Selling Harvest Strategy

The first harvest strategy is selling the business, product line, or company. In entrepreneurial circles, this is also often referred to as an exit strategy because the entrepreneur is going to exit the company and be free to run another venture. Once the entrepreneur has created a business and gotten it to a certain size and profitability, they sell it to another person or company that can take their idea and grow it further. Viewed from the entrepreneur's perspective, they have gotten a very large increase in revenue and also cut off expenses completely.

Gradual Harvest Strategy

The less common harvest strategy, called a gradual harvest strategy, is to keep the company, product line, or service, but to focus more on creating profits than expansion. The idea is to lower the expenses as much as possible while keeping the revenue coming in - which creates profit. This focus will also tend to reduce or even stop growth and expansion.

Trent wonders how this is done, and imagines that he'll get some questions from the students about this as well. He digs further and finds that the gradual harvest strategy focuses first on cutting costs associated with business expansion. As the product matures, there will often be a natural decline in the growth rate. This slow down signals a shift from trying to grow the business to trying to grow the profit produced by the business. Costs, like advertising in new markets, research and development, and hiring, can all be cut. Inefficient processes put in place while the company was growing can now be optimized and streamlined for a known production level.

Benefits of Harvest Strategies

Trent discovers that although the two different harvest strategies both focus on profit, they have different benefits.

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