HIST 1301 April 13, 2013 Summary of Interview with Sarah Garner Mrs. Sarah was a slave in Westmoreland County, and conducted an interview with Archibald Hill. She describes that she….
Case: Mike Bellobuono
Case: Mike Bellobuono
This case opens with Mike Bellobuono considering certain financial options for his company Bagelz. To franchise or no to franchise? Mike was evaluating the franchising option after meeting Fred Delucca the founder of Subway. Delucca has been sweetening the franchise option with the offer to finance it along with support from his legal and advertising efforts for Subway. The advantages of the franchise option was to be able to face the competitors of Balegz namely Breugger Bagels and Manchester Bagles.
The former was franchising and posed the threat of locking out certain geographical locations for Bagelz and Manhattan Bagels has been enjoying significantly increased capital by going public. The cons of franchising starts with the company owners initial decision for remaining company owned and they did not want to be an extension to Delucca’s Subway sandwiches. Secondly franchises are known to cause legal issues frequently and the sales are heavily dependent on its reputation and any perceived health concerns would cause the sales to plummet by as much as 35% as was the case with Jack in the Box.
Mike’s due diligence prior to switching his career from lawn service to the food industry indicated a 2.5% (Exhibit B) growth in the food industry and it was tempting for him to try out a business in this billions of dollar industry. Neither Breugger Bagels nor Manhattan Bagels wanted to venture to Connecticut to sell their products writing Connecticut off as a place that would not show sustainable growth. Mike was however inclined otherwise and his bagel chef produced better tasting bagels than wither Breuggers or Manhattan’s bagels.
Mike and Jamie went into partnership with Joe and Wes only after careful evaluation of the scenario that a partnership gave Mike a lot of leeway and control on the direction of the stores as well as the fact that Mike believed their bagels tasted better and they had better product variety. The partnership between Mike, Jamie , Wes and Joe was mutually admired and productive. Joe was a great salesman as evident by the anecdote about him filling up a restaurant by his antics. They all wanted control on the quality of the products and the operational efficiency of all their stores and they ensured it by paying a visit to each of their stores everyday.
The Bagel Industry started out from being an ethnic food item to a national food item the consumption of which promises to grow at the rate of 60%(Exhibit E). In order to remain a fully owned company and function as a chain operation they may be able to serve Connecticut only and that turf was already getting bombarded with competitors like Manhattan Bagels and Breugger Bagels. So franchising does give them an option to spread their wings geographically and expand into areas that would not have been possible. However going with Delucca may not be the only option as they are aware of the fact that subway franchises are like “buying a very demanding and low paying job” and other subway stores can open next door! So it may be feasible for this team to franchise with other partners whose growth and nature of the business can allow Bagelz keep its identity and complement another franchise such as Boston Chicken.
Companies that franchised also needed to adhere to US and federal Trade Commission guidelines of disclosure. Selling a franchise does need a lot of paperwork which are both expensive as well as tedious such as the ones shown in Exhibit D. Some other factors for consideration were that Bagels were sold most as breakfast items at present and breakfast accounted for 65% of the bagel sales. They were known as a lower calorie alternative to doughnuts but selling bagels as other meal options was clearly not exploited yet. Selling to Supermarkets was also looked into as option where bagels sales were at 211.0 Million dollars and were expected to grow at 4%. Fresh bagels promised to be at a growth of 17% however their sales were half of those at the supermarkets. Selling to Supermarkets would address their geographic limitation problems as well as the problem of loosing their identity as long as their product can compete with Lenders and Sara Lee’s bagels which were the leading frozen bagel sellers at the supermarkets.
Case:Kurt and John Bauer
Kurt Bauer was inclined towards entrepreneurship and had some criteria of what kind of businesses he wanted to get into. The criteria was that the business would need low start up capital, would have the opportunity to break even soon, have low variable costs going forward, low asset intensity, proven idea, as opposed to a brand new idea and the business, would have high market potential. The current opportunity with his partner Ludwig Schmitt being evaluated is starting a publication called What, When, Where magazine to address the lack of informative periodicals in Europe that will help Westerners that want to set up business in Europe. Ludwig’s partner was Nicholas Andrchevski and they went into a 50/50 partnership for this magazine which would be put together based on the western model with the revenues being 80% advertising driven and 20% on subscriptions. The primary advertisers targeted were restaurants, car rentals, hotels etc that would cater to the western business persons.
Exhibit C discusses the publishing opportunity in Eastern Europe. Historically the Eastern Bloc publishing was tightly controlled by the state who would tightly control the material that the public was allowed to read as a result there were only a few publishers and even fewer publications to read. This was not the case at the present time and the news stands were ready for publications especially in the areas of magazines and newspapers. The distribution was however still controlled centrally and the government would tell the publisher how many subscribers there were and how many magazines to print. The size of the publishing industry is 1 billion dollars and that of the printing industry is at $2.7 billion. The table of data with country analysis shows the publishing market is the highest in Poland with a potential growth of 5% followed by Czech with a growth of 2%. The segment analysis shows magazines and newspapers to have the largest size with low to medium distribution risk.
Similar to the West the Newspaper and magazine market was broken down into books, magazines, news papers, news letters and other specialized publications. In Poland there are between 10 and 20 news papers with wide variety. This has also seen many entrys and exits from the market which indicates that Ludwig may make a quick exit if things do not work out. The books section has seen many western publications mostly German publications translated for the Polish readers.
The distribution system however still has long ways before it can be called similar to a distribution system in the West. Distribution systems become worse as one travels east in Europe. The prices have risen significantly but the printing costs are attractive as publications in Poland, Hungary and Czech republic are printed in Eastern Europe. The production process of a magazine includes design and layout, printing and distribution. Much of the design and layout remains unchanged and advertising was then fitted into the pages that remained after the center page city map and other stories.
Kurt also started evaluating the Online Financial Information Service and the recent growth of the stock market in Eastern Europe made this idea very attractive with the total capitalization in Poland at 3 billion and the daily volume at 200 million.Reuters and Telerate were in these markets however with limited services only on the stock prices. There was no database of the publicly traded companies and no one provided online financial information services. The fund managers got their information from newspapers and word of mouth. Kurt has evaluated the capital needed and the resources needed.
The online service meets most of the criteria set by Kurt in terms of low asset intensity, a tried idea and relatively short time p to break even.
According to Exhibit E stock market explosion was predicted thus increasing the need for online information. Total number of companies listed so far are only 40% of the total companies of the world.
The limited services of Reuters and Telerate opened up opportunities for Kurt which was supported by Kurt’s own information from local investors and fund managers. While Kurt lacked experience in managing information services he was confident that he can start up shop in Eastern Europe. Kurt started approaching other people such as Reid who agreed to serve as an adviser. Kurt was reassured by Rubin that the start up costs for online services was low and this was supported by other sources that Kurt met with. Kurt needed a partner in Poland and for this he considered Sokol who was formerly with the Warsaw stock exchange. Kurt got things moving when he returned with Reid and a programmer Jae Chang. Reid was in agreement with Kut’s opinion on Sokol and his partner as well. Kurt was also able to raise capital from his Uncle and was hopeful that it will be supplemented by his parents as well. With 50K from his Uncle, 50K from his parents and 30K from his brother and himself Kurt was confident to get off the ground with this idea. Read also under what circumstances should a company’s management team give serious consideration
Startups are evaluated based on the ongoing revenues it generates, the growth of the revenues and the capital invested in the beginning. Given the qualified individuals that are on the prospective management team Kurt should definitely consider the online financial services option instead of going into business with Ludwig.
Case: Lightwave Technology Inc.
In summer of 2003 entrepreneurs Kinson and Weiss are found revisiting whether or not to pursue IPO for their company Lightwave Technology. They had considered this earlier in 2001 when the economic downturn happened and the company restructured its operations to be competitive. Due to the company’s unique and proprietary capabilities they were successful in their turn around.
The illumination industry was valued at 79 billion dollars with 17 billion in lamps and 62 billion in fixtures and the entire industry was dominated by some large players such as GE, Philips and OSRAM Sylvania who controlled 90% of the market together.
Lightwave started with Kinson’s savings and invention after he took his invention to Vegas and won over customers with his youthful personality and innovation. Lightwave carefully positioned itself with its products to standout among the major players. It rapidly expanded and soon opened an European sales office in London. It also chose to remain lean by outsourcing its manufacturing . Exhibit 3 talks about the target markets. They include the Commercial and Civic architecture where Lightwave’s lighting systems are used to show off architectural features. Lightwave products are also used in the hospitality industry(such as in hotels, casinos, cruises and nightclubs), retain and merchandising, Entertainment events and theatrical productions, TV Production, Electronic Signage and Corporate identity(signage and point of sale designers love the aesthetic flexibility offered by Lightwave products), Residential architecture and Exhibits, displays and museums. Lightwave operated in the low price and high volume market. Kinson was always able to raise finances to support Lightwave and he had raised about 31 million.
The industry considers Lightwave as a success which is a significant win for the upcoming IPO and they were wary of ventures with the big players of the industry like Philips Lighting joining up with Agilent technologies and this was their plan for the summer of 2001 which was thwarted by the 911 terrorist attacks. The restructuring helped the company get back into the growth track and the income statements show a growth of revenues by around 200% since 2000 although the net income has been showing projected profits only in 2003 and 2004.
The two options that Kinsen and Weiss should evaluate is to go public at this time or to go with private financing that they have been able to survive with. The IPO would give them ample capital to use their creativity and their unique products and influence the illumination industry as a hold. This would be a great time to go with the IPO because of their current patents and they should do the offer ring before the expiry of the patent so that with the new capital they are able to make most of the opportunity at hand.
Kinsen and Weiss should increase the range of products to make the most of the market and expand operations further into the European markets.
Case: Roxanne Quimby
Roxanne Quimby is the founder of the company called Burt’s Bees(BB) and it recently relocated its manufacturing facility to Raleigh, NC from Maine. BB manufactures products and handmade crafts from bees wax. Quimby was second guessing herself on the move to Raleigh and was weighing in the options on whether she should move back to Maine or not where BB would never grow beyond 3 million in sales and Quimby thought that BB could do much more. Quimby’s past included steps like alienating herself from her well established family and not having any job prospects upon graduation thus living under the poverty line. Quimby received her entrepreneurial abilities from her father who would not support her unless she raised some money herself. In 1984 Quimby decided that she needed to make some changes in her life.
Like Quimby, Burt Shavot was also un-ambitious and freelanced as a photographer. Shavot and Quimby became fast friends out of kindred spirits and Shavot taught Quimby book keeping . Quimby decided to create crafts out of the bees wax that she discovered at Shavot’s place. Selling these at school fairs were encouraging and with $400 of the savings BB was formed. BB enjoyed early success and had sales growing from 81000 in 1987 to 3 million in 1993. Quimby hired more employees and the operation was based out of Maine. The company was not only profitable but it was completely debt free. Quimby was debt averse and liked unpredictability. Her personality required all the buyers to pay within 30 days or she would turn them away.
The main reason for moving from Maine was the increased costs of running the business out of Maine. The costs included high transport costs,high payroll taxes and lack of expertise. BB’s employees were moms on welfare who had great attitude but no skills. Quimby struggled for time as hers was divided between poring waxes into moulds and managing the operations. She did not have any time to focus on stretagic decisions. She chose Raleigh as it was centrally located and But also agreed on the move. In North Carolina she had to deal with skilled labor which was also more expensive than the ones in Maine. Roxy had to revisit her product line and wanted to focus on skincare products. Quimby also considered taking on additional partners to help the company grow.
The options that Quimby faces the options on remaining in North Carolina and dealing with new product line and growing the company as she had always dreamt about. BB’s growth would be stunted in Maine due to the constraints it imposed. Though selling was also an option, Quimby would probably not succumb to that as she is dedicated to her business and would like to see it grow.
Case: Midwest Lighting
This is a case where the two partners cannot amicably resolve their differences about their company and have to part ways by agreeing on the means of dissolving their partnership. The partners had differences since 1996 however they started being disruptive since 2004 and were negatively impacting the employees productivity. By early 2005 the situation was worsening further as evident by the fiasco at the executive committees annual meeting where there were loud disagreements. These were contributed by differences of opinion as well as some amount of politics.
Midwest Lighting Inc (MLI) was formed as a partnership between Daniel Peterson and Julian Walters in 1956 and it manufactured custom engineered fluorescent lighting fixtures used for commercial and institutional purposes. Richard Scott was Paterson’s new partner after Daniel Peterson bought out Walters’ share. Sales in 2005 were approximately 5.5 million dollars and profits just over $144,000. The product marketing position was to solve the lighting problems for engineers and architects. The market for MLI’s products are competitive and the bids are often from multiple companies as well. MLI owned its manufacturing unit in Pontiac. The net sales were increasing since MLI expanded its sales geographically even during a weak construction market. Jack Peterson and David Scott enter the companies with their respective fathers in 1987. Initially they were all managers and worked amicably even though there were spirited discussions on certain issues. In 1988 Jack Petersen started another computer company which rented space and administrative and support services from MLI. In 1989 the sons were awarded 50% of the voting shares and were made partners in the company. Due to the demands of Jack’s new computer company the relationship between Jack and David weakened and there were issues with the cost analysis as well as some polices. The finance manager left MLI and went with the computer company in 1995 when it was sold and this aggravated the conflicts between Jack and David. Jack was the president of the company where as David ran the manufacturing outfit. The pressures of growth needed faster and more efficient manufacturing which was not David’s opinion. Finally in 2005 the problem needed a resolution and both Jack and David were considering on how to value the company.
After the financial statements were created in a hurry to help the valuation Jack had also looked at common valuation techniques which values companys at between 5 and 10 times their after tax earnings. Jack felt that it this was adjusted to reflect the market value of the assets then the new plant that was added would increase the book value aby at least $250000 more. On the personal side each party had to decide on the financing needed to buy out the other half. They were both conservative and never had any significant debts. The risks were that if they tie up all their assets into the company should something go bad then they will have nothing to fall back on. Jack was keen on paying a high price for the company because he felt that his MBA and management skills will allow him to manage the company. He also felt the need to be aggressive based on his fathers advise of not being emotional over the business deals. David can also raise the money with some help as he does not personally have the assets to raise the money. David will not be able to run the management of the company because of his lack of education in the area. So, it looks like Jack may be able to buy out David’s share even if he stays aggressive in his approach and value the company conservatively.