Morgan Corporation is at a crossroad in its 50 year existence. All 9 of the peop

Question

Morgan Corporation is at a crossroad in its 50 year existence. All 9 of the people who started the company, and are on the Board of Directors, are in their 70's.The next five (5) years are crucial - either it will advance into a new phase or die out. They have interviewed some new management candidates. Some of them are highly experienced because they have been with Morgan's competitor for the last thirty (30) years. Some of them are recent honors graduates from a nearby graduate school. Morgan Corporation also needs new capital, if it is to grow. The new investors appear to have new ideas on how the company should be run. Accordingly, some of them want to be on the Board of Directors. The founders of the company are concerned that radical change will ruin the company's long established reputation and run off long time customers. But they also recognize that some change could be beneficial, and that the Board could use some "new blood". You have been hired to provide Morgan Corporation with advice on its future.

1) (a) What issues should Morgan Corporation consider when deciding on the next management team? (b) What advice would you give them on selecting the next team?

2) (a) What issues should Morgan Corporation consider when thinking about bringing on new investors? (b) What suggestions might you make about bringing in the new investors?

Explanation / Answer

1) A) Of course, building a management team is not easy. First, there's the personal sense of loss that an entrepreneur inevitably will feel at the moment when he or she allows pivotal company decisions to be made by others, without (much) meddling.

Recruiting top managers is not always easy. Persuading talented leaders to join a start-up is not as hard as it once was, but it still involves having a good eye for talent and the ability to sell an idea and its potential upside to a savvy operator who might well have other options.

Moreover, making the wrong hire at the highest levels of an organization can have serious consequences. The severance costs of terminating a top manager can be high—and they can be higher still when you factor in any turnover in a key department that precedes or accompanies the departure of a bad hire.

1)B) For all of these difficulties, however, entrepreneurs who have built strong management teams enjoy obvious rewards. They can rely on the skills of others to compensate for their weaknesses. They can focus on strategic issues while confidently delegating day-to-day tasks, such as managing people. And they can use their management team to secure outside funding and establish creditability with potential customers.

Best of all, entrepreneurs who bring in senior executives to advise them can enjoy the delicious experience of seeing their companies grow stronger and larger and expand in new and surprising ways. For many founders, the ultimate goal is to build an organization that changes markets, changes people's lives, and proves durable over time. Only with a strong management team in place will that dream become a reality.

2)A) Overvaluing your company,Not understanding dilution, Underestimating the loss of control,Assuming investors are your friends,Neglecting an exit strategy etc.

B) Whenever possible, entrepreneurs should try to get multiple investors rather than just one, says Tang, who has started a new company called Vastrm Fashion, which will sell men’s apparel. “In my first startup, we only took capital from a single firm,” he says. “That meant that in subsequent rounds of financing, we needed to go out and secure additional firms to co-invest, which was a major distraction in running the business.”While many entrepreneurs are frugal, it’s a mistake to not invest in getting experienced legal counsel and advice when you bring on investors.The seeds of many companies are planted by money invested by friends and family members. The mistake entrepreneurs make in taking this money, though, is not understanding some of the strings—from unasked for advice to requests to hire relatives—that come with it. “These people, based on their lack of business sophistication, can take up a lot of your time at best and at worst, will make crazy demands on you and the business,

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