Case 1

Dogswell
Will a small companys new product line put it in peril?
workedwithseveral between $16 and
food scientists to $20.
developarecipefor
a healthy grainfree
W ithin months of thedry dog food called
failure of his firstNutriscaandsetupa
series of canine
company, Clear Day, afocus groups. The
naturalbeveragecompany,results were even
Marco Giannini was busybetter than Giannini
launching anotherhad expected: Dogs
business, Dogswell, apreferred Nutrisca
company that makes all15 to 1 over the
natural, healthy dog treats
leading natural dog
thatcontainsupplementsto
foodbrand.Giannini
help with conditions such
as hip dysplasia andsent his sales force
arthritisproblemsthathisinto the field to
childhood dog, Emily,conduct focus
suffered from. Gianninigroups with pet
experimented with recipesownerstodetermine
before hitting onthe rightthe most effective
one and found a manupackaging.
facturertomakethetreats. Giannini faced
In a tribute to guerrillathesamequestionhe
marketing,Gianniniloaded
had years before
his car with Dogswell
when he first
treatsandvisitedmorethan
200independentpetstores,launched Dogswell:
asking them to give hisWhatisthebestway
newproduct,HappyHips,to launch a product
a chance. Many of themon a limited
did, and in its first yearmarketing budget?
Dogswells revenue wasMaking personal
$500,000.Fouryearslater,callsonretailerswas
Dogswellappearedon Inc.impracticalnowthat
magazines list of themajorchainssuchas
fastest growing smallTarget and Whole
companies in the United
Foods carried the
States, with 21 employees
companysproducts.
andsalesof$17million.
Giannini hired 15
Giannini had bigger
newpeople,mostof
plans, however. He
theminsales,toroll
wantedtolaunchalineof
out the new line of
petfoodstoroundoutthe
dog food. To entice
companyssuccessfulpet
customers to try
treats, taking the
Nutrisca, Dogswell
company into the much
offered coupons for
larger market for natural
a free bag of
pet food. I wanted to
Nutrisca (normally
become a household
priced at $10.99)
name,andIfiguredfood
with every purchase
was the way to get us
ofabagofDogswell
there, he says. He
treats, which retail
 often than they did entrepreneurs
treats and that the facewhenthey
profitmarginsondog courtequity
As with many newfood were less than investorsto
products, sales were slow,those on dog treats. providecapital
and the coupons thatFor the first time in tofinancetheir
retailers were submittingits history, Dogswell companies
for rebates were straininghad incurred a growth?What
thecompanyscashflow.quarterlylossandwas stepscanthey
However, Giannini andclearly heading for taketo
minimizethese
CFOBereniceOfficerwereanother one. I felt
risks?
distracted by ongoinglike I was losing
meetings with TSGcontrol of the 2. Develop a
ConsumerPartners,aSancompany, says a strategy to
Franciscobased privatefrustratedGiannini. return Dogswell
investment company that Giannini and toprofitability.
Dogswell had been Officer had less than 3. Outlineatleast
negotiating with for 3 months to create a five
monthsinanefforttoraise plan to stop the components
capital to fund thedamage that the pet foraguerrilla
companys brandbuildingfoodlinewascausing marketing
strategy. Giannini andand put together a strategyfor
Officer closed an equitypresentation for TSG Nutrisca.How
investment deal with TSGexplaining their could
onDecember31,butwhenstrategy and why it Dogswelltap
they returned to their Loswouldwork.Giannini intothepower
Angelesheadquarterstheyknewalltoowellthe ofsocial
discoveredthatthecouponstories of other marketingas
giveaway was costing thecompanies whose partofits
company $100,000 aequity investors had
guerrilla
marketing
month and devastating itsousted their founders
strategy?
profits and cash flow. Inat the first sign of
addition, the promotiontrouble. Would he
Source:Basedon
was not generating repeatsufferthesamefate? NitashaTiku,Case
buyers fast enough. Study:Dogswell,
Giannini and Officer alsoQuestions Inc.,December
2009January2010,
realized that customers 1. Whatdangers
pp.5663.
purchased dog food less do

8
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Case 2
Able Planet
How can a small company find capital to finance an innovative new product?
positive, the company had
always made its payments
tothebankontimeforthe
last 3 years. Without a including Costco and
V enture capitalist Kevin Semcken discoveredflexiblelineofcredit,Able Walmart, demanded. The
Planetwouldnotbeableto creditlinerestrictioncame
Able Planet, a small startup in Wheat Ridge, purchasethematerialsand attheworstpossibletime.
Colorado, that produces headphones with anmanufacture the AblePlanetwasgearingup
imbeddedmagneticcoiltoenhancesoundquality,headphones that its retail for the latespring
atatechnologyconferenceinDenver,Colorado. customers, graduation season, its
Semcken,whosuffersfromahearinglossinone secondbiggestsalesperiod
ear,wasintriguedandtestedthesmallcompanys oftheyearafterChristmas.
product by listening to Dean Martins Youre The company normally
Nobody Til Somebody Loves You. I was cranked up production for
instantly a fan, he says. Semcken invested in the crucial backtoschool
Able Planet and soon became the companys
and Christmas seasons
CEO and chairman. Two years later, the
(which account for 60
companys unique noisecancelling Linx
percentofitssales)during
headphoneswonanawardforinnovationatthe
thesummer,butthebanks
Consumer Electronics Show, and orders began
newrestrictionsonitsline
pouring in. In no time, the companys annual
of credit put its most
revenuereached$2million.
lucrative sales seasons in
Semcken was pleased with Able Planets
jeopardy.
progress, but he had a bigger vision for the
Semcken met with
company.Inspiredbystents,balloonlikedevices
Able Planets two board
used in medical procedures to clear blocked
members, Rob Cascella
arteries, Semcken came up with the idea of
and Steve Parker, both of
earphonesthatincorporatedaninflatablediskthat
whom are investors in the
couldconformperfectlytothesizeandshapeofa
company. They advised
personsearcanal.Theresultwouldbeasetof
him to put the Sound Fit
earphonesthatfitsnuglyintotheearcanal,stayin
earphones on hold for the
place even during strenuous activity, and block
timebeingandtofocuson
outambientnoise.Heevenhadagreatnamefor
increasing sales of Linx
the product: Sound Fit. Semcken saw the
headphones.Withoutaway
potential for Sound Fit not only to improve
tofinanceproductionofthe
substantiallytheperformanceofearphones,but
headphones, however,
alsotorevolutionizethedesignofotherproducts,
Semcken knew that
suchasBluetoothheadsetsandhearingaids.He
opening new retail
had lined up 30 potential customers who were
accounts and increasing
interestedinlearningmoreabouttheinnovative
production would be
earphonesandhadconvincedthemtosignnon
impossible.Heneeded$1.5
disclosure agreements. What Semcken needed
million to finance current
now was financing so that Able Planet could
operations for Linx, build
manufactureproductionqualityprototypesofthe
the Sound Fit prototypes,
SoundFitearphonesandgenerateorders.
and market both products
ThenAblePlanetsbankercalledwithbad
to new and existing
news. The bank was changing the terms of
customers. Semcken
AblePlanets$2.5millionlineofcredit.Under
traveledaroundthecountry
the new terms, the bank would no longer
to call on 15 different
financetheupfrontcostofrawmaterialsand
banks, but none of them
manufacturing.Semckenwasstunnedbecause
wasinterestedinmakinga
eventhoughAblePlanetwasnotyetcashflow
loan.Acrisisinthefinancialmarketshadall AblePlanet tomaximizehis
butslammedshutthelendingwindowatmost needs?Besure chancesofgettingthe
commercial banks. Semcken pondered his toconsider capitalthatAble
options. sourcesofboth Planetneeds.
debtandequity
Questions financing. Sources:BasedonJamie
Kripke,CaseStudy:Able
1. Expertssaythatentrepreneurswhoneed
3. Writeashortmemo Planet,Inc.,JulyAugust
toKevinSemcken 2009,pp.5861;AboutUs,
between$100,000and$3millionoften
explainingwhathe AblePlanet,
facethegreatestobstacleswhenraising
shoulddobeforehe
capitalfortheirbusinesses.Why? www.ableplanet.com/
approachespotential aboutus.html.
2. HowshouldKevinSemckenraise lendersandinvestors
the$1.5millionincapitalthat
8
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Case 3
Zatswho LLC
Can a motherdaughter team be successful entrepreneurs?
business. Cooper
turned to the one
person who had been
advisingherallalong: saysCooper.Asinany
T rish Cooper, 52, spent the her 26yearold business,
last 13 years of her career daughter Carrie disagreements arise,
Schwinoff.Shewasa but the mother
working asthechieffinancialstayathome mom,
daughter entrepreneurs
officer for a smallsays Cooper. I said,
telecommunications company have managed them
Look, you are not effectively. For
nearher homeinHope,New
Jersey. When the companygoing to have another instance, Schwinoff
merged with another businessopportunitylikethisto thought that her
and moved out of state,beabusinessowner. mothers use of the
Cooperlost herjob. Shesent Schwinoff agreed
word tactile on the
out lots of resumes to otherbecauseshewantedto
businessesbutknewthather products packaging
supplement her missed the mark.
job prospects were slim
because of her age and an familys income but Why dont we say
ongoing recession. She beganretainflexibilityinher pliableorsensory?
spending more time with her schedule to care for asked Schwinoff.
granddaughter, Gianna, usingGianna.Shealsoliked
People get that more
family photographs to teachthe idea of building a
the child about familybusiness with her easily. They changed
members.Therewasonlyone the wording on the
problem:Shewasdestroyingmother.Shesmybest packaging to soft
myphotos,saysCooper,whofriend, my partner in and easy to hold.
began laminating thecrime, laughs Because I am the
photographs. Schwinoff. mother and she is my
ThatswhenCooperhada Cooper invested daughter, my natural
flash of inspiration. Our$30,000inthestartup, feeling might be, I
photorecognitiongamewaswhich they named know better because I
suchfun,andshewaslearning Zatswho, and the two ammoreexperienced.
somuch,saysCooper.Whatwomenassembled500 ButIhavetolistento
ifImakearealgameoutof sets of Zatswho cards herpointofview.We
it, using individual photoand began selling arebothlearningthatit
flashcardsthataresoftandshethem.Oneoftheirfirst takes discipline and
can hold in her own little decisionswasdividing respect to make this
hands? Cooper envisioned abusiness work.
learning tool for toddlers thatresponsibilities.
Cooper and
consisted of soft, flexibleCooper has a strong Schwinoff are
protective frames into whichfinancial background negotiating with a
parents could slip familyandservesasCEOand U.S.based company
photographs and create theirCFO. Schwinoff, who that has a
own flashcards. She beganhas a degree in manufacturing
researching the market. Imarketing, is operationinChinato
learnedtherewerenoproductsresponsible for sales massproduce
on the market like that, sheand marketing. Zatswho flashcards,
says. Tweeting wasnt which currently sell
Cooper made a fewsomething I could for $15.95 per set in
prototypes herself fromwrapmyheadaround, storesinsevenstates.
nontoxicfoamandputthemin
asmalltotebagcarryingcase
but realized that she would Questions
need help to launch her 1. Whattipscan
 youofferCooperand who make up www.zatswho.
Schwinoffabout Zatswhos target com. What
familymemberswho market. recommendatio
startandruna 4. HelpCooperand ns can you
businesstogether? Schwinoff make for
Whatpitfallswould developa improving the
youwarnthemto guerrilla site?
avoid? marketing
Sources:BasedonColleen
2. Suppose that Cooper strategyfor
Debaise,EmilyMaltby,and
and Schwinoff had Zatswho.Writea
SarahE.Needleman,
approached you when twopagememo Parent&ChildInc.,Wall
they were launching toCooperand StreetJournal,November
Zatswho concerning Schwinoffthat
15,2010, http://online
theformofownership highlightsthe
.
theyshoulduse.Which keypointsof wsj.com/article/SB100014
form of ownership do yourstrategy 2405274870379410457554
you recommend they andthe 6553171806306.html?
use.Why? reasoningbehind KEYWORDS=family+busi
3. Workwithateamofyour eachone. ness+mother+daughter;
classmates to brainstorm 5. Visit the About,Zatswho,
potentialgroupsofpeople Zatswho Web www.zatswho.com/pages/A
site at bout.html.
8
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Case 4
Circle R Ranch
How can a venue that hosts corporate events counter declining sales?
weddingmarket.Theyare
hesitant to make the
move, however, because
the revenue per event is the busy springtofall
S teven and Wendy Foster purchasedmuch smaller than they eventseason,alsoputin
areaccustomedtobutthe longhours.TheFosters
the Circle R Ranch, located 10 mileswork involved in cre want to make sure that
northofDallas,Texas,asnewlywedsinatingtheperfectwedding their employees are not
1997. The ranch specializes in hostingisnot.StevenandWendy overworked and
corporate meetings, conventions, andare worried about stressedsothattheycan
events in an authentic Westernstyleburnout; they both continue to provide the
setting, complete with barbecues,regularly putin as many
superior customer
steers, hayrides, country music, andas 100 hours a week at
service that
almost anything else a corporate eventtheranch.Theirfulltime
distinguishes the Circle
plannerrequests.Theranchisknownfor staff of 12 employees,
R Ranch from other
its stellar customer service. Friendly
which they supplement eventvenues.
cowboys and cowgirls greet arriving
withasmanyas200part If an event planner
guestsandguidethemtotheappropriate
venues, which include the Westerntimeworkersduring visits the ranch, the
Pavilion,anenclosed28,000squarefoot Fosterssaythatthereisa
structure that features a performance veryhighprobabilitythat
stage,adancefloor,agamearcade,and they will win the
adjacentrecreationarea,orthesmaller planners business.
Chisolm Ranch House and Conference However, they believe
Center,whichoverlooksapondandcan thatascompaniestravel
accommodate between 20 and 200 budgets continue to
guests. In addition to barbecues and shrink,moreplannersare
picnics,theCircleRRanchoffersguests conductingtheirsearches
amultitudeofoptionsfortheirevents,
for event venues online.
including fireworks shows, a huge
The Fosters know that
swimming pool, a biker bar (complete
with airbrushed tattoos), and team their Web site (
building activities with its reality www.circlerranch.org) is
televisionbasedSurvivorRodeoTeam due for an update, but
Challenge. Companies can even order doing so would cost an
steaksbrandedwiththeirlogos. estimated $20,000. Can
An economic recession not only weaffordnottomakethe
resultedina38percentdeclineinannual investment? they
sales(from$4millionto$2.5million) wonder. Currently, the
but also was a harbinger of an era of site features uninspired
corporate austerity. Companies are photosofeachvenue,lots
cutting back on highend (and highly of cowboys with guns,
profitable) options such as staged and barmaids dressed in
gunfights, ice sculptures, rodeos, and period saloon garb.
fireworksandarestickingtotriedand Remember, says one
true(andlessexpensive)optionssuchas advisor, youre not
barbecues, picnics, and hayrides. The selling meeting space;
business remains profitable and debt youre selling an
free, but the Fosters are seeing their experience.
profit margins squeezed ever smaller.
To restore their lost sales, the Fosters, Questions
bothveteransofthehospitalityindustry,
are considering branching out into the
1. Whatstepscanthe
Fosterstaketo
 increasesalesattheCircleR 3. Howshouldthe recommendations
Ranch?Shouldtheyenterthe Fostersmotivate forimprovingthe
weddingmarket?Whatarethe theirstaffto site.
advantagesandthedisadvantages continuetoprovide
ofenteringthismarket? thestellarservice Sources:Basedon
PatriciaB.Gray,
2. WhereshouldtheFosterslook thatsetstheranch PartyDown,
fornewemployeeswhoare apartfromits FSB,June2009,pp.
passionateaboutproviding competitors? 4144;CircleR
superiorcustomerservice?What 4. VisittheCircleR Ranch,
stepsshouldtheytakebeforethey RanchsWebsite. www.circlerranch.o
begintheemployeeselection rg.
Howeffectiveis
process?Whathiringcriteria thesite?Develop
shouldtheyestablish? asetofatleastsix
8
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Case 5
Penn Brewery
Should an entrepreneur buy back the brewery that he
launched nearly a quarter-century before?
tobuythebreweryback
and restore it to its
former grandeur, but luxury of time.
T omPastoriusandhiswifeMaryconvincing Mary Beth Besides,MaryBethhad
wouldtakesomedoing. launched a retirement
Beth started Penn Brewery, anShe had been business of her own, a
authenticGermanmicrobreweryininstrumental in its company that restores
Pittsburgh,Pennsylvania,in1986.success but told Tom historicbuildings.
They built the brewery into a
thatshehadnointention Tom, however,
successful business, producing
ofgoingbacktoit.Its couldnotgetridofthe
more than 15,000 barrels a year
andgeneratingannualsalesof$3.5too risky at our age idea of owning Penn
million. Along the way, their(now 65), she says. Brewery again. He
microbrewery won 14 medals atWedonthavethe began working
theGreatAmericanBeerFestival clandestinely on a
and built a base of devoted business plan
customers for its brands, which preparingariskbenefit
included Penn Pilsner, Penn analysis.Theprincipal
Oktoberfest,andothers.Theyalso risks he identified
addedaGermanthemedrestaurant includedthebrewerys
thatMaryBethmanaged.In2003,
$1 million debt, the
Tom and Mary Beth, both
tarnished brand name,
approaching 60, decided to cash
out and sold the brewery to and the fact that he
BirchmereCapital,alocalprivate wouldbebuyingback
equity firm. Tom retained 20 his former business at
percent ownership and agreed to age 65. However, he
stay on as president of the wasstillveryenergetic
companyfor5years.Hehadlived andhadtheexperience
up to his contract but was necessary to turn
miserable working for the new around the foundering
owners, who made many brewery. He was
significant changes to the confidentthathecould
companys strategy. I am not a
restorethelustertothe
goodemployee,saysTom.Ima
PennBrewerynameby
soloact.
returning beer
Not only did Birchmere
production to the
Capitalclosethebrewerysrestau
Victorianstyle red
rant, but it also decided to
brickbuildinginwhich
outsourceproductionofbeertothe
he had launched the
Lion Brewery in nearby Wilkes
companyyearsbefore.
Barre and close Penns brewing
Afterweeksofcandid
operation.Themovesprovedtobe
discussions,MaryBeth
disastrous; oncedevoted
toldTom,Ifyouwant
customers departed, and sales
todoit,youarecrazy,
tumbled. It was so hard to sit
butkeepmeoutofit.
back and watch this place sink,
says Tom, who was becoming
bored with retirement. Then Questions
Birchmereofferedtosellthebrew 1. Should Tom
erybacktoPastoriusforafraction Pastorius buy
ofwhattheyhadpaidhimforita Penn Brewery?
fewyearsbefore.Tomwasready Explain.
2. TomPastoriussays, they create
Imnotagood pose for Sources:Basedon
entrepreneurs? CristinaRouvalis,
employee.Whatdoes
CaseStudy:Penn
hemean?Doyouthink 4. If Pastorius Brewery,Inc.,July
thesameistrueofmost decidestobuythe August2010,pp.71
entrepreneurs? brewery, what 74;ThePennsylvania

3. What challenges does steps should he BrewingCompany,

selling the businesses take before www.pennbrew.com/d
closingthedeal? ata/english/about.htm.

8
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Case 6
James Confectioners
How can a confectioner cope with rising costs?
Annual sales companys profit
for the company margins as well.
have grown to Much to James
$3.9 million, and and Iveys
T elford James andits purchases of dismay, James
hiswifeIveyarethethebasechocolate Confectioners
used as the raw longterm
secondgeneration materialsfortheir contracts with its
owners of Jamesproducts have chocolate
Confectioners, aincreased from suppliershaverun
familyowned 25,000 pounds 20 out, and the
manufacturer ofyears ago to company is
premium chocolates150,000 pounds purchasingitsraw
that was started by
today. The materials under
Telfords father,
Jameses are con shortterm,
Frank, in 1964 in
Eau Claire,cerned about the variableprice
Wisconsin. In itsimpact of the contracts. They
nearly 50 years,rapidlyrisingcost are concerned
James Confectionersof the base about the impact
has grown from itschocolate, that these
roots in a convertedhowever. Bad increases in cost
hardwarestoreintoaweather in South will have on the
large, modernAmerica and companys finan
factory withAfrica, where cial statements
sophisticated most of the and on its long
production and
worlds cocoa is termhealth.
quality control
grown, and a Ivey,whohas
equipment. In the
early days, all ofworkers strike the primary
Franks customershavedisruptedthe responsibility for
werelocalshopsandglobal supply of managing James
stores, but thechocolate,sending Confectioners
company nowprices upward. finances, has
supplies customersThere appears to compiled the
across the Unitedbe no relief from balance sheet and
States and a few inhigh chocolate the income
Canada.Telfordandprices in the near statement for the
Ivey have built onfuture. The fiscal year that
the companys
International just ended. The
reputation as an
Cocoa two financial
honest, reliable
supplier ofOrganization, an
statements are as
chocolates. Theindustry trade follows:
prices they chargeassociation,
for their chocolatesforecasts that
are above theworld production
industry average butof cocoa, from
are not anywherewhichchocolateis
near the highestmade,willdecline
pricesintheindustryby7.2percentthis
even though theyear. Escalating
company is known
milk and sugar
forproducingquality
prices are
products.
squeezing the
BalanceSheet,James
Confectioners
December31,2xxx
 Assets
CurrentAssets
Cash $161,254
Accountsreceivable $507,951
Inventory $568,421
Supplies $84,658
Prepaidexpenses $32,251
Totalcurrentassets $1,354,536
FixedAssets
Land $104,815
Buildings,net $203,583
Autos,net $64,502
Equipment,net $247,928
Furnitureandfixtures,net $40,314
Totalfixedassets $661,142
.TotalAssets $2,015,678

Liabilities
CurrentLiabilities
Accountspayable $241,881
Notespayable $221,725
Lineofcreditpayable $141,097
Accruedwages/salariespayable $40,314
Accruedinterestpayable $20,157
Accruedtaxespayable $10,078
Totalcurrentliabilities $675,252
LongtermLiabilities
Mortgage $346,697
Loan $217,693
Totallongtermliabilities $564,390

OwnersEquity

James,Capital $776,036
Totalliabilitiesandownersequity $2,015,678

816
 CASE 6

IncomeStatement,
JamesConfectioners
Netsalesrevenue $3,897,564
Costofgoodssold
Beginninginventory,1/1/xx $627,853
+Purchases $2,565,908
Goodsavailableforsale $3,193,761
Endinginventory,12/31/xx $568,421
Costofgoodssold $2,625,340
Grossprofit $1,272,224
Operatingexpenses
Utilities $163,698
Advertising $155,903
Insurance $74,054
Depreciation $74,054
Salariesandbenefits $381,961
Ecommerce $38,976
Repairsandmaintenance $58,463
Travel $23,385
Supplies $15,590
Totaloperatingexpenses $986,084
Otherexpenses
Interestexpense $119,658
Miscellaneousexpenses $1,248
Totalotherexpenses $120,906
Totalexpenses $1,106,990
Netincome $165,234

ratiostothose
Toseehowthe ofthetypical
companysfinancialposition firminthe
industry.The
changesovertime,Ivey
followingtable
calculates12ratios.Shealso
showsthe
comparesJames
valueofeach
Confectioners
ofthe12ratios
fromlastyear.
 JamesConfectioners Confectionery
Ratio CurrentYear LastYear IndustryMedian*

LiquidityRatios
Currentratio 1.86 1.7
Quickratio 1.07 0.8
LeverageRatios
Debtratio 0.64 0.7
Debttonetworthratio 1.71 1.0
Timesinterestearnedratio 2.49 2.3
OperatingRatios
Averageinventoryturnoverratio 4.75 4.9
Averagecollectionperiod(days) 34.6 23.0
Averagepayableperiod(days) 31.1 33.5
Netsalestototalassets 2.17 2.1
ProfitabilityRatios
Netprofitonsalesratio 7.40% 7.1%
Netprofittoassetsratio 9.20% 5.6%
Netprofittoequityratio 29.21% 16.5%
Studies: Ratio ks,Risk Management
*AnnualStatement
Financial Benchmar Association.
818 CASE 6
3. Howdotheratiosyou
How does the financial calculatedforthisyear
analysis look for this year, comparetothoseof
Hon?Telfordasks. thetypicalcompanyin
Imabouttocrunchthe theindustry?Doyou
numbers now, says Ivey. spotanyareasthat
Im sure that rising couldcausethe
chocolate prices have cut companyproblemsin
intoourprofitmargins.The thefuture?Explain.
questionishowmuch? 4. Develop a set of
I think were going to recommendations
have to consider raising for improving the
prices,butImnotsurehow financial
ourcustomerswillrespondif performance of
wedo,saysTelford.What James
otheroptionsdowehave? Confectionersusing
the analyses you
Questions conducted in
1. Calculatethe12ratiosfor questions13.
James Confectioners for 5. What pricing
thisyear. recommendations can
2. Howdotheratiosyou you make to Telford
calculatedforthisyear andIveyJames?
comparetothoseIvey
calculatedforthe Source: Cocoa forecast
information obtained from
companylastyear? Cocoa Forecasts,
Whatfactorsmost International Cocoa
likelyaccountfor Organization,May27,2009,
thosechanges? www.icco.org/about/
press2.aspx?Id=0ji12056.
Case 7
James ConfectionersPart 2
How can a small confectioner forecast cash flow?
Jameses have
gatheredthefollow
ing estimates from
their budget for the
Telford James andreviewing
James
the
upcomingyear:
his wife Ivey, theConfectioners
secondgeneration most recent
owners of James
balance sheet and
Confectioners, a
income statement,
familyowned she would need a
manufacturer of precash flow forecast
mium chocolates thatfor the upcoming
was started byyear.
Telfords father, Although
Frank,in1964inEauTelford and Ivey
Claire, Wisconsin,
have prepared
have become
increasingly conbudgets for James
cerned that turmoil inConfectioners and
the banking andhave analyzed their
financial industriesfinancial statements
could have a negativeusingratioanalysis,
impact on theirthey have not
business. They havecreateda cash flow
read the headlines
forecast before.
about bank closures,
heightened Theyexpectsalesto
government scrutinyincrease6.2percent
of the bankingnext year to
industry, and tight$4,139,213. Credit
credit conditions,salesaccountfor96
especially for smallpercent of total
businesses. The
sales, and the com
company has a
$150,000lineofcreditpanys collection
withMapleLeafBank,pattern for credit
but the Jameses wantsalesis8percentin
to increase it tothe same month in
$250,000 as awhich the sale is
precautionary move.generated, 54
Last week, they
percent in the first
contacted Claudia
Fernandes, theirmonthafterthesale
personal banker atisgenerated,and34
Maple Leaf, aboutpercent in the
increasingtheirlineofsecond month after
credit. Fernandes saidthe sale is
thatinadditionto generated. The
 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Othercashreceipts $105 $55 $60 $75 $85 $55 $65 $60 $65 $85 $95 $110
Purchases 365,280 174,400 294,300 190,750 193,745 125,350 209,825 185,300 152,600 220,725 269,774 321,549
Utilities 13,600 14,100 13,700 13,200 13,200 13,600 14,800 15,900 14,900 14,100 13,800 14,000
Advertising 18,000 11,000 10,000 7,000 9,000 10,000 12,000 12,000 15,000 20,000 22,000 24,000
Insurance 0 0 19,650 0 0 19,650 0 0 19,650 0 0 19,650
Salariesandbenefits 33,583 33,583 33,583 33,583 33,583 33,583 33,583 33,583 33,583 33,583 33,583 33,583
Ecommerce 2,700 4,500 2,900 3,000 1,900 2,400 3,200 3,300 3,400 3,900 5,000 6,000
Repairsand 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
maintenance
Travel 4,100 2,700 2,700 2,000 3,000 2,600 2,200 3,100 3,800 4,500 5,500 6,500
Supplies 1,088 1,836 1,190 1,207 782 1,309 1,156 952 1,377 1,683 2,006 2,414
Loanpayment 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Othercash 125 125 125 125 125 125 125 125 125 125 125 125
disbursements
t c
h t
i 2. What
The l
recommend
company y o
ations can
s cash n
you offer
balance c e
Telfordand
a r
as of Ivey James
s s
January to improve
h
1 is their
f
$22,565. companys
b o
The cashflow?
u r
interest d 3. Ifyouwere
rate on g t Claudia
James e h Fernandes,the
Confecti t e Jamess
oners banker,would
current f u youbewilling
line of o p toincreasethe
credit is r c companysline
8.25 o ofcredit?
percent. J m Explain.
a i
Questio m n
ns e g
s
1. De y
ve C e
lo o a
pa n r
m f .
on e
819
Case 8
eMusic
Should an online music company with a base of loyal fans sign
on with a major music house and raise its prices?
with the biggest of the
majormusichouseswould
have been unthinkable in music content. A deal
D anny Stein is considering makingtheearlydaysofeMusics with Sony BMG would
history, but Stein believes provide that breadth, but
some significant changes to his onlinethat he has to offer Stein knows that adding
music retail business, eMusic, thecustomers something new content from a major
company that he had founded in 1998 if he raises prices. In music house might
andbuiltintothenationssecondlargest addition, the landscape in alienate eMusics core
music download site. eMusic hasthe digital music business customers,whowouldsee
establisheditselfas the placeformusicischangingfast,andonline themoveasabetrayalof
aficionados to discover the latestmusic aficionados are thecool,alternativemusic
independent artists, but recently several lookingforabroaderrange niche that eMusic has
independentlabels,includingDragCity of carved out. eMusics
and Tzadik, dropped eMusic as a image always has been
distributorbecausetheycomplainedthat linked closely to its
the prices it charged were too low and identity as the place to
lefttheirartistswithroyaltypaymentsas discover cool, upand
lowas15centspertrack.Infact,pricing coming, independent
has been an issue foreMusic forsome musicalartists,andadeal
time. Originally, customers could pay with Sony BMG could
just$9.99permonthforunlimiteddown marthatimage.However,
loads, but Stein switched to higher Stein believes that most
monthlyrateswithlimitsonthenumber ardent music fans care
ofdownloads.SongsateMusicstillare more about finding the
bargains about 25 cents each music they like rather
comparedtoiTunesandAmazon,where thantherecordlabelitis
tracks sell for 69 cents to $1.29. Stein on. The question is
wants to avoid other labels dropping whether they would be
eMusic because of low prices and is willing to pay more for
consideringatieredpricingarrangement access to a greater
that ranges from $11.99 for up to 24 selectionofmusic.
tracksto$35.99forupto73tracks.Even Stein has two very
if eMusic adopts the new pricing important and very
strategy, music downloads will average difficult decisions to
between49centsand89cents,still20to make. He has called in
50 percent lower than iTunes pricing. his executive team to
Another issue is how to deal with the seek their ideas and
longtime customers whose legacy input.
contracts allow them to pay far lower
pricesthannewcustomers.Theselegacy Questions
customers now number in the tens of
thousands, and their outdated pricing 1. What are the
schedules are creating a drag on risks that
eMusic faces if
eMusicsrevenue.
it raisesprices?
An even bigger change that Stein is
If it does not
consideringisaddingsongsfromoneofthe
raiseprices?
majormusiclabels,SonyBMG.Underthe
deal, Sony BMG would make its back
2. ShouldeMusicraise
itspricesusingthe
catalog of 1 million songs available to
newtieredpricing
eMusiccustomers. The idea of partnering
 schedule?Ifso,howshouldthe
companycommunicatetheprice
increasetoitscustomers?Compose
anemail
to existing customers that
explainstherationalebehinda
priceincrease.
3. WhataretherisksthateMusic
facesifitsignsthedealwith
SonyBMGtoexpanditsonline
musiccatalog?Ifitdoesnotsign
thedealwithSonyBMG?
4. ShouldeMusicsign 10/11/emusic relaunches
the deal with Sony withvariablepricing.html;
BMG?Explain. ChrisForesman,eMusic
ChangesPricingStructureto
NabMajorMusicTracks,
Sources:BasedonAdam
ARSTechnica,November
Bluestein,CaseStudy:
eMusic,Inc.,March2010,pp. 2010,
5558;BruceHoughton, http://arstechnica.com/media/
eMusicRelauncheswith news/2010/11/emusic
VariablePricing, changespricingstructure to
Hypebot,November2011, nabmajorlabeltracks.ars.
www.hypebot.com/hypebot/20
8
2
0
Case 9
Fikes Products
How can the CEO of a fast-growing company improve his poor track
record at hiring stars?
therightemployees
forFikesProducts?

In1997,MarkSimsbeganworkinginsaleshave a drivers license,

he laments. We arent
2. Write a twopage
memotoSimsthat
attracting the quality outlinesaselection
andserviceforFikes Products,acompanyincandidates wed hoped process that will
Kent, Washington, with 30 employees thatfor, he says, citing a producetheresults
sells janitorial supplies and services todeteriorating work hewants.
restaurants,retailers,andotherbusinesses.Inethic among many
2003, Sims became the owner of the
3. Where should Sims
applicants.Iwanttoget look for quality
companywhenhisparents,thefoundersof
people excited about employees? How
the company, retired. Sims used his sales
working hereeven if should he structure
talent to increase annual sales at Fikes to
morethan$4millionandopenedabranchin we do sell toilet paper the interviews for
Portland, Oregon. He is proud of theand Dumpster prospective
companys growth but realizes that it has deodorizers. employees?
createdaproblem: The daytodaytasks of To find candidates 4. What methods
managing a fastgrowing company are for the operations should Sims use to
draininghimprofessionallyandpersonally.managers position and motivate his
He wants to hire several employees,lowerleveljobs,Simsis employees to
includinganofficeadministrator,tworouteconsidering placing achievehigherlevels
drivers,andawarehouseworker.DanPrice,employmentadsonstate ofperformance?
a fellow entrepreneur and mentor, suggests employmentagencyWeb
thatSimsalsohireanoperationsmanagertosites because they are Sources:BasedonAdriana
handlethedailyoperationsofthecompany Gardella,HiringEmployees,
free. He also has
and allow Sims to focus on leading the WithHelporWithout,New
considered hiring a
company.Thereisnoonetotakeworkoff YorkTimes,October27,2010,
of Marks plate, says Price. Yet he professional recruiting www.nytimes.com/2010/
understandsSimshesitation.Afirstsenior company but is hesitant 10/28/business/smallbusiness/
hireisdauntingforanentrepreneur,hesays. because recruiters 28sbiz.html?ref=casestudies;
Simsalsoisabitgunshywhenitcomesto typicallychargeafeethat MeettheOwner,Fikes
making hiring decisions because his trackistheequivalentof20to Products,
record is not that good. Recently, he hired 30 percent of the new www.fikesproducts.com/comp
severalemployeeswhoseemedfine,butnonehires first year salary. any/meettheowner.
ofthemlasted.AroutedriverthathefoundonSims knows that his
Craigslistwreckedanewvehiclebeforehequit.company has to attract
A new office staffer spent 30 percent of herqualityworkersifitisto
workdayonpersonalsocialmedia, distractingcontinue to grow and
coworkersandraisingtheirire.Simsalsoseesprosper,butheisunsure
thetimehespendssortingthroughresumesasof the best way to find
unproductive because he could be out in the them.
field landing new customers. The high
unemploymentratemeansthatthenumberof Questions
applicants, qualified or not, for each job has
1. What steps should
surged.Igetresumesfordriverpositionsfrom Mark Sims take to
applicantswhodonteven ensurethathehires

8
2
1
Case 10
Firehouse Subs
How can the owners of a franchise reverse declining sales?
franchisees with a Systemwide sales
complete business weredown6percent
system, strong brand from the previous
name recognition, and year.Thechainstop
R obin and Chris Sorensontheopportunitytoown managers believed
are the owners of Firehousetheir own restaurants that the problem
with investments that stemmedfromalack
Subs, a chain of submarinerange from just under of brand awareness
sandwich shops with more$200,000to$425,000. andavery
than400locationsin21states.
In return for the
The Sorensons, both former
firefighters, opened their firstfranchisors support,
Firehouse Subs restaurant inFirehouse Subs
1994inJacksonville,Florida,charges franchisees a
and used a firehouse theme$20,000 initial
andauthenticfirefightinggearfranchisefee,aroyalty
to decorate it. Their menu
of 6 percent of sales,
followed suit, featuring
sandwiches with names suchand a 3 percent
as the Hook and Ladder, theadvertising fee (2
FirehouseHero,andtheNew percent goes toward
York Steamer. In 2001, thelocal advertising).
Sorensons operated 30When the executive
Firehouse Subs restaurantsteammettodiscussthe
across Florida and began
selling franchises to expandcompanys declining
across the Southeast andsales, Robin Sorensen
beyond.Theirgoalistohavehadanunconventional
2,000locationsby2020. idea: eliminate the 2
SalesatFirehouseSubspercent local
restaurants were growingadvertising fee and
until 2008, when yearoverallow franchisees to
year sales declinedcreate and execute
throughout thechainby3.4their own marketing
percent. In our entirestrategies. The
history,wehadneverhadaSorensons and Fox
period like that when ourpresented the idea to
entire system was runningfranchisees, who
negative sales, says Donapproved it over
Fox,thecompanysCEO.Itwhelmingly. It was
was something completelypretty radical, admits
foreign to us. The salesFox. Some people
declinewasparticularlypuzthought it was insane
zling because lowerpricedto give the money
restaurantssuchasFirehouseback. We didnt have
Subs normally are wellanegoaboutwhohas
positioned in economicthemoney.Wewanted
downturns to attractresults.
customers who continue to Six months after
dine out but look for lessgiving franchisees
expensive options.control over their
Something besides thelocal advertising
recession was causing salesbudgets, the sales
todecline. decline at Firehouse
Firehouse Subs providesSubs had worsened.
 advertisingperstoreand areconsidering.
collect higher royalties 3. Which of the
and advertising fees. three options
successful $5 FootlongThe agency do you
campaign that Subway, the recommended that recommend
largest company in the FirehouseSubsnotonly managers at
submarine sandwichreclaim the local Firehouse Subs
business with more thanadvertising fee but that choose?
Explain.
33,000 restaurants aroundthey double it to 4
theglobe,hadlaunched. percent! That would 4. Ifthemanagers
Firehouse Subs executiveincrease the payments decidetocreatea
teamdiscussedtheiroptionsandthatfranchiseesmaketo newmarketing
narrowed them to three:Firehouse Subs from 9 campaign,what
continue the existing localpercent of sales to 11 shouldbeits
marketing efforts bypercent of sales. The uniqueselling
franchisees, begin discountingexecutives wondered proposition
sandwich prices, or launch awhether franchisees (USP)?Whatkey
newmarketingcampaign.Theywould resist the move pointsshouldthe
were hesitant to continue thewhen many of them campaign
local marketing campaigns,already were struggling emphasize?
becauseover6monthssaleshadwith lower sales and
Sources:BasedonKermit
continued to decline.profits.
Patterson,SpendingMore
Discounting sandwich prices onAdstoOvercomea
would cut into the companysQuestions Slump,NewYorkTimes,
alreadythinprofitmarginsand
September22,2010,
mightdamagethereputationfor 1. Whatadvantages
quality ingredients that the do franchisees www.nytimes.com/

company had built over the gain when they 2010/09/23/business/small

buy their business/23sbiz.html?
years. The management team ref=casestudies;
beganexploringanewmarket
franchises?What
FranchiseOverview,
disadvantages do
ing campaignand metwith an FirehouseSubs,
theyexperience?
experienced advertising www.firehousesubs.com/F
company based in Fort 2. Developalistof ranchiseOverview.aspx;
Lauderdale, Florida. The advantagesand FirehouseSubs,

advertisingagencyshowedthem disadvantages Entrepreneur,

that other submarine sandwich foreachofthe www.entrepreneur.com/fra
chains, including Subway and threeoptionsthe
nchises/
Quiznos, spend more on managersat firehousesubs/317772
FirehouseSubs 0.html.

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