ENP 7320 Module 2 Business Plan Part 4: Organization, Team and Harvest Strategy Example

Who Grows, Who Sells, Who Exits: Organizing Mill Hill Mushroom Company

Student Name

Master of Business Administration, Thomas Edison State University

ENP-7320: Entrepreneurship

Mentor Name

Month Day, Year

Who Grows, Who Sells, Who Exits: Organizing Mill Hill Mushroom Company

The Founding Team

Timmons et al. (2015) argue that investors back teams more than ideas, because the team determines whether an opportunity is captured. Mill Hill has two founders.

The team covers the two skills the business depends on, growing reliably and selling to chefs, but it has gaps. Neither founder has run a food-safety program at scale, managed payroll for more than a handful of people or raised outside capital. Wasserman (2012) found that founders who split equity equally by default often regret it; the 50 and 35 percent split reflects the larger capital and time the chief executive commits, and both founders' shares vest over four years so that a departure does not leave a large stake with someone no longer working in the business.

Advisors and Outside Help

An advisory board of three fills the gaps: a food-safety consultant who has written plans for produce growers, a restaurant owner who buys from local farms and a retired banker who advised small manufacturers on borrowing. Each receives a small equity grant vesting over two years. An accountant handles payroll and taxes from the start, and a part-time bookkeeper reconciles accounts weekly. Hellmann and Puri (2002) found that start-ups with outside investors adopted professional practices, such as formal hiring and stock option plans, faster than others; Mill Hill can gain some of that discipline without outside equity by giving its advisors a regular quarterly review of the books and plans.

Legal Form

Mill Hill will be a New Jersey limited liability company. The form protects the founders' personal assets, lets profits and early losses pass through to the owners' tax returns, which matters because the first year is expected to lose about $65,000, and allows the operating agreement to set vesting, decision rules and buy-sell terms. If the company later seeks equity from investors who require preferred stock, it can convert to a corporation.

Operations

The farm runs on a weekly cycle. Substrate of hardwood pellets and soybean hulls is mixed, bagged, pasteurized and inoculated with purchased spawn on Mondays and Tuesdays; bags incubate for two to three weeks, then move to two fruiting rooms held at controlled humidity, temperature and fresh air. Harvest happens every morning, and orders go out by van before noon. Two separate fruiting rooms mean a contamination problem in one does not stop all supply. A written food-safety plan covers cleaning, water testing, worker hygiene and traceability of each lot to its harvest date.

Staffing Plan

The founders will hire for reliability and care rather than experience, since growing skill can be taught in weeks but a missed sanitation step can ruin a room. Pay will start at $19 an hour, above local warehouse wages, to keep turnover low.

Harvest Strategy

Timmons et al. (2015) stress that a plan should show how founders and investors will eventually realize the value they create. Three harvest options are realistic for Mill Hill:

1. Sale to a regional produce distributor or larger grower. A distributor that wants a local gourmet supply, or a grower seeking a foothold near Philadelphia, could buy the farm and its restaurant accounts. This is the most likely harvest, within five to seven years.

2. Management buyout or sale to employees. If the co-founder or senior technicians want to continue, a buyout financed partly by seller notes allows a gradual exit.

3. Cash flow harvest. The founders keep the business and distribute profits, which suits a lifestyle outcome but gives the family investors liquidity only through distributions.

The operating agreement gives the family investors a right to sell alongside the founders in any sale, so they are not left behind if the founders exit first.

References

Hellmann, T., & Puri, M. (2002). Venture capital and the professionalization of start-up firms: Empirical evidence. Journal of Finance, 57(1), 169-197. https://doi.org/10.1111/1540-6261.00419

Timmons, J. A., Spinelli, S., Jr., & Adams, R. J. (2015). New venture creation: Entrepreneurship for the 21st century (10th ed.). McGraw-Hill.

Wasserman, N. (2012). The founder's dilemmas: Anticipating and avoiding the pitfalls that can sink a startup. Princeton University Press.