Exit Strategy
11 important questions on Exit Strategy
What is meant by 'different types of problems related to their newly established status'? (2)
- New firms act in new areas and people who start those firms need to learn new roles which takes time
- New firms have to build up a stable portfolio with outside buyers and suppliers
What are 6 reasons for an entrepreneurial (individual) exit?
- Business unprofitable
- Problems with finance
- Business may be sold
- Entrepreneur may retire
- Entrepreneur may have encountered a new opportunity
- Personal reasons may play a role
- Divorce
- Health
How can business closures be explained? (3)
- 4 perspectives on business closures
- Emphasize different aspects as most important for why businesses close
- Can be used to explain business closures (complementary)
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What are the 4 perspectives on business closures?
- Population ecology (environment)
- Resource-based closures (business resources and strategy)
- Gambler's ruin (risk-taking and luck)
- Utility
What is 'population ecology' (environment)?
- Resources, environment (industry), competition results in business closure
- Types of business more likely to close
- Younger ones ('liability of newness')
- Older ones ('structural inertia')
What is 'resource-based closures' (firm)?
- Financial
- Managerial
- Organizational
- Uniqueness
What is 'gambler's ruin' (chance and risky decisions)? (4)
- Gambling: business owners as gamblers who use their resources to take risky decisions
- Risky decisions: based on past and current conditions and future expectations
- Chance: owners with greater wealth/ finances more likely to survive bad luck
- Learning: one may become better at taking risky decisions
What is 'utility' (individual)?
- Implication: Well performing firms may close down!
How does entry and exit relate to each other?
- Entry may lead to exit
- New firms often do not survive
- New firms may destroy older firms (creative destruction)
- Exit may also lead to entry
- Entrepreneurs who exit often become entrepreneur again (serial entrepreneurs)
- Resources released by exit may be used by new firms
What entails Pe'er and Vertinsky's (2008) 'Firm exits as a determinant of entry: is there evidence of local creative destruction?'
- Older firms may find it difficult to adapt to changing environments
- Investigate whether exit of older firms is a source of new entry/ may stimulate entry of new firms
- Triggered by release of resources of exiting old firms
What are the first hypotheses for the local process?
- 1a: Increases in local exits of mature firms contribute to a higher level of new entry in the location
- 1b: Hypothesis 1a will apply less to exits of mature firms in neighbouring and more distant locations
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