entrepreneurship and small business manacement - Baylor University

1.-Small b usiness-Management-Case studies'. 2.-Entrepreneur-Casestudies' I'- Van Auken,. Philip M. II.-Title. HD6i.7.S4...

2 downloads 401 Views 17MB Size
EXPERIENCESIN

ENTREPRENEURSHIP ANDSMALL BUSINESS MANACEMENT DONALDL.SEXTONPHILIPM.\AN AUKEN

EXPERIENCES IN ENTREPRENEURSHIP AND SMALLBUSINESS MANACEMENT DONALD L. SEXTON Caruth ProJessorof Entrepreneurship Center for Pivate Enterprise and lintrepreneurship Baylor University

PHILIP M. VAN AUKEN Centerfor Private Enterpise and Entrepreneurship Bavlor Universitv

Prentice-Hall, Inc., Englewood Cliffs, ltlew Jersey 07632

Library of Congress Cataloging in t\tblication

Datd

Sexton, Donald L. i x p e r i e n c e s i n e n t r e p r e n e u r s h i pa n d s m a l l b u s i n e s sm a n a g e m e n t . 1 . - S m a l lb u s i n e s s - M a n a g e m e n t - C a s es t u d i e s ' 2.-Entrepreneur-Casestudies' I'-Van Auken, II.-Title. Philip M. 81-13803 6s8'.o22 HD6i.7.S4s AACR2 ISBN 0-13-294884-2

Editorial/production supervision and interior design bY Alice Lrdman Cover design by Carol Zawislak Manufacturing buyer: Ed O'Dougherty o 1 9 8 2 b y P r e n t i c e - H a l l ,I n c . , D n g l c w o o d C l i f f s , N ' J 0 7 5 3 2 All rights reselved. No part of this book may be rcproduced in anY form or by any means without permission in writing from the publisher. Printed in the United States of America

t0

rsBN0-1,3-a1'{88q-a

Prentice-HallInternational, lnc., London Prentice-Hallof Australia Pty. Limited, Sydney Prentice-Hallof Canada, Ltd., Toronto Prentice-Hallof India Private Limited, New Delhi Prentice-Hallof J aPan, lnc-, TokYo Prentice-Hallof Southeast Asia Pte. Ltd.' Singapore Whitehall Books Limite d,Ilellington, New Zealand

to CAROL and CAROLYN

contents

Prefacc

xv

lntroduction

xvii

P H A S El : V e n t u r el n i t i a t i o n EXPERIENCE

1 3 W i c k e rD c s i g n s sit uati onoI manogement cholIengesassociated wllh eachstageof the compznygrowth cycle

2 7 T h e K l o t h e sK o r n e r of alternativepro forma Jinancialplans 7ssessment

vut

contenrs

3 P h a r rC o m p o sni g S e r v i c e 13 eorly venturegrowth and finoncing,.relationship with a banker,.business buyou t o ffe r,' femole en trepreneur

4 A s p h c r i cE n t e r p r i s e s 2 3 difficulties of new venture initiation; forminq the venture team

5 Peppy's Pizza

26

businassplan evulua! ion

6 CraigNichols andGaryHarwcll

44

new venture strllegy and cornpetitive edge

1

E x p l o r a t i oG nraphics 46 new venlurefinancing,'timingof growlh,,charat:leristics of entrepreneurs

8 W a t c r h a uAsq u aS l i d e 55 ossessment of new venturepotential

9 & S Farms 58 financial zssessmenlof an agricultural venture,.formers0s entrepreneurs

contents

E X P E R I E N C EP H A S EI l : V e n t u r eM a n a g e m e n t

lx

65

10 67 C u m b e r l a nC drafts manogementof growth; operationsmanogenlenl

11 80 T h eM l l l i o n a i r e ent of personoI entrepren eur i0| sty Ie SSm ventu re i nvestment strategy,' osse

12 P o l y m a rM a n u f a c t u r i n g smalI businessPlanning

81

13 83 S u nC i t y D c l i v c r Y on key customers, monogementof growth and expansion,'dependence ur businessbuyout,' female en treprene

14 93 Store B i SS k y W e s t e r n system;competitivestrotegyfocused inventory designof computeri/ecl on pricing

15 TelguardSer.'rices 100 busi n essgrowth ; strotegy evoIut i on; en trepreneuri oI Ieadership ; ro le of in largercompanies entrepreneurs

16 E m c r g e n cM y o b i l eG a r a g e promotionol strotegy

108

't7 V c s s eAl p p a r e S l hop 110 entrep reneuri aI p lann i ng; operat i ons p lann i ng

18 S o n i c sS y s t e m s - A u dA i or t s 115 growth strategy; ossessing 0 sm0ll compzny's performance copobility

19 A t k i n sM a c h i n i n g 122 smoll businessmonogerialresponsibilitiesand roles

20 MagicCarpetTravelAgency 124 responseto threateninggovernmentollegislotion

2't OMNISkiProductions businessforecasting

126

22 128 ColonialAmericanKitchens production monlgement; getting new venture through the keyhole; product innovation

contents

23 f nfomaticsCorporation businessethics

140

24 C h a m aS t e e l w o r k s 142 smoll businesssociol responsibility; public relotions

25 M i d w e s tM u n i c i p aAl i r p o r t 145 growth planning,.organizationsuruivol

26 E b e r h a r dPt r o d u c t sI,n c . morketing research

148

27 K a t h S u r g i c aEl q u i p m e n t cashflow plctnning

150

28 F a n t a s iM a u s i cC o m p a n y 152 profit management;monogeriolphilosophy

29 P e o p l eP r o v i d e r s 160 strotegicplanning,.competitive edge

xi

=

contents

30 167 C a m e r o nM o b i l eH o m e s izotion pted u nion lttem to response

P H A S El l l : V e n t u r eT r a n s i t i o n EXPERIENCE

171

31 173 f a n e c kF u r n i t u r e plonning for exPonsion

32 179 PrudhoeBay Oilfield Servicing key portner death; strotegicreolignment

33 183 P h i l m a r kP r o d u c t i o n s to professional manogement moking the tronsition from entrepreneuriol

34 185 lron Kettle Restaurant i c reoI ign m ent teg buyo u t d ec ision; stra

3s 189 C a s n eFr i l t r a t i o nS Y s t e m s compony fomily tronsition in o small business;preporltion for smoll monogement

contents

36 A n i m a t o rT o y s 191 businessrelocotion decision;retail competition in molls; competitive strotegy

37 Sicorskiand Associates 202 determining the finonciol worth of a company; techniquesfor buying ond selling businesses

38 NardisCreations 206 businessturnaround; strotegic realignment

39 G o o d b u yG r o c e r y 212 strategic realignment;relocation decision

E X P E R I E N C EP H A S E l V : T h e E n t r e p r e n e u r iLailf e s t v l e

40 A n E n t r e p r e n c u rD' si a r y 219 The doily experiencesand lifestyle of on entrepreneur

2'17

xiii

xiv

contents

41 New GenerationSoftware,lnc' Mi n or i tY entrePreneurshiP

226

42 231 McGowanRealtY entrepreneur enterpreneuriotlifestyle; femole

43 e i s c u s s i o n 236 A R o u n d t a b lD T h e K e y st o E n t r e p r e n e u r iSaul c c e s s : foctors success of entrepreneuriol a proctitioner's discussion

44 241 DamonElectric --'rh-r side of entrepreneurship fomily ond rroonol

45 Potential? What'sYour Entrepreneurial re i no on i q est ent u seI f assessm

247

preface

f)xperiences in Entrepreneurship and Small BusinessManagernent is aimed at enrichingthe student'sleamingexperience in coursesconcernedwith initiatingand managingsmall businessventures.Coursesin entrepreneurship and smallbusiness managementare flourishing in businessschools as never before, yet there is a noticeablegap in learningresourcesdesignedto enrich small businesscurricula. In the quest to prepare themselvesfor future entrepreneurialactivities, today's studentsneed, and want, more than standardtextbook coverageof small businessmanagerialissues.Cognitivelearningmust be creativelyapplied and emotionallyexperienced to providea well-roundededucational experience. Although there is ultimately no substitute for actually operatinga business venture, a pragmatic,applications-oriented, educationalbackgroundcan equip the student to make the successfultransition from classroomto ,.realworld." Experiences in Entrepreneurship ancl small Businessfulanagementis designedto assistboth undergraduateand graduatestudentsin making this pivotal transition. The book contains a well-balancedvariety of learningexperiencesincluding comprehensivecases, focused incidents, interviews, experiential exercisesand structuredproblems.All have been classroomtested.A glanceat the annotated Table of Contentswill revealthe book's thoroughcoverageof entrepreneurial and smallbusinessmanagementissues,both quantitativea.d qualitative. The authors have sought to make the book unique in severalrespects.First of all, the material is organizedaround a smallbusinesslife-cycleformat consisting of four experientialphases:venture initiation (phaseI), venture strategyand

-

xvi

preJace

management(PhaseII), venture transition (PhaseIII), and the entrepreneuriallifestyle (Pha^se IV). Thus the book coverssmall businessstrategyas well as operating issues. A seconddistinguishingfeature of the book is its here-and-nowwriting style "lingo". The variouslearningexperiences are featuringthe entrepreneur'sown get into the situation to enable students to in realistic, convcrsational style written involved.All of the materialis up-to-dateand much of it ar.rdrelateto personalities is written in the present, rather than in the past tense, to increasethe senseof immediacyand current relevance. A third unique feature involvesthe book's mix of industriesand varietiesof Additionally, femaleand minority entrepreneursare featured.The srnallbusinesses. geographicalcoverageis alsowell-balanced. A final feature concerns the range of analytical sophisticationwithin the book. The variouslearningexercisesvary in their capacityto challengestudentsand areall similarin two irnportantrespects: stretchtheir skills.I{owever,the exercises relevanceand realism.Questionsfor analysisand learningare includedthroughout the book in a stop-actionformat as a stimulusto studentpreparationandlearning. A11of the material in thc book is basedon actual, real-worldsituations, locationshavebeendisguised. althougbnamesand geographic One final mention: lixperiencesin Entrepreneurshipand SmallBusinessManogententis a flexible book which can be easilyadaptedto the instructor'sown to smallbusiness teachingstyle. The book can be usedasa stirnulatingsupplement texts or it canbe usedin conjunctionwith instructorlectures. and entrepreneurship The authorsare greatlyindebtedto a nuntberof individualswho generously devotedtheir time to us as we preparedthis book. We thank the followingpeople for ccrnlributingcasesor exercises:Helen Ligon of Baylor University,Big Sky 'trlestern Coktnial Store. JamesWeir ol Southernlllinois University-Edwardsville; Kath SurPacific University, Kierulff of Seattle Hcrbert and Kitchens. Anrcrican gical Flquipment. in We want to thank a nuntberof our colleaguesat Baylorfor their assistailce preparingcontent material:Dale Allen, Lowell Broom,Terry Frame,JustinLongenecker,Terry Maness, Kris Moore,RichardScott,andMike Umble. We also extend our gratitude to the following friends and associateswho in preparingmaterialfor the book: RobertBradford,Jr., LenelleCampbell, assisted William Cardin,Nancy Carpenter,Vicki Downing,Harold Fletcher,Marie Tarvin Garland,MarciaGrad, Robert Horton, A. J. Hutson,Timothy Jeffery,Jerry Manseur, Darrell Massey,,VilliamMcCartney,Fred Newman,David Newcomb,Brent Rickels,John Schoen,CharlesSynder,JamieThompson,Platt Turner,CharlesVan Auken, Betty Willis, and Tom Wooten.Thank you, Pat Carroll and SandyTighe,for to W. W Caruth,Jr. typing the manuscript.Finally, a word of sincereappreciation who provided,through the HillcrestFoundation,the Caruth Chair in Entrepre' neurshio. Donald L. Sexton P h i l i pM . V a n A u k e n

introduction

d ith the T h i s b o o k h a so n e b a s i cp u r p o s et:o h e l p y o u b e c o m eb e t t e ra c q u a i n t ew ventures.The book'smany-faceted realitiesof startingand managingsnrallbusiness learningexperiences focus on what entrepreneurs do, the problemsand cl'rallenges and or.thow entrepreneurs think, feel, they face,their frustrationsand satislactions, a n da c t . your The book is organizedinto four interrelatedlearningscctionsto increase understanding clrallenges associated with eachstageof the of the evolvingbusiness venture initiation activities, with small company lifecycle. PhaseI is concernecl plan growth formir.rg the includingsuchtopicsas financing,business development, planning. ventureteam,and strategic PhaseIl dealswith l.rowto manageeffectivelythe going-growing concern. I-earningexperiences in this sectionof the book focuson both strategicand operatpricingstrategy,foreing issues:small businessplanning,inventory management, research, analysis. In addition,Phase casting,advertising, marketing and cash-flow II focuseson the more philosophicalissuesof small businessethicsand social responsibility. PhaseIII dealswith the srnallcompallyin transition;thebyword is change. Specificissuesinclude businessbuyouts, turnaroundstrategy,family transition, businessrelocation,key partner death, and realignmentof cornpetitivestrategy. The entrepreneurial lifestyleis exploredin PhaseIV. The focus here is on lvl"ratenterpreneurs do and how they feel about their work. Both the personaland family sideof entrepreneurship areexplored.

introductktn

The book was written with you, the student, specifically in mind. The authorshave not sought to write just another academicvolume. Rather they have tried to stressrealism and relevancethroughout. The book is narrated from the entrepreneur'spoint of view, using an informal, lively, conversationalstyle. We hope you find it a freshchangeofpace. A Word about CaseAnalysis As you tackle the questionsfor analysisfound in the stop-actionformat throughout the book, rememberthat clearcut,simple answersto managerialproblems rarely exist in the real world. Rather than searchingin vain for right-versuswrong answersto questions,focus insteadon formulatingrecommendations that can be persuasivelydefendedin light of the factsat hand. Strive to make your recommendationsspecific,clear, and action-oriented. Would a practicingmanagerbe able to take action on the basisof what you have said? Could you successfullydefend your action recommendationsto an experi enced,"bottom line" decision-maker? Interject your own personal,individualpoint of view in the way you respond to questions. Entrepreneurship is the domainfor individualism and personalcreativity. Commit yourselfin an articulateway on the book'sissuesand decisionsknow where you stand and whyl Above all else, strive to make your recommendationsfor specificquestions tailor-madefor the businesssituation at hand and your interpretation of it. Consider the size of the company, the capabilitiesof the managementteam, the pastperformance track record, the competitive environment, and so on. Situational thinking is the key to profitable smallbusinessmanagement. The book ultimately provides you with an opportunity to learn from the pragmaticbusinessexperiencesof others. The authors hope these experiencesin entrepreneurshipand small businessmanagementare the next best thing to being there!

EXPERIENCES IN ENTREPRENEURSHIP AND SMALLBUSINESS MANACEMENT

ENCEPHASEI EXPERI ventureinitiation

wicker designs

1 manufactures a varietyof Wicker Designs,Inc., locatedin Eau Claire,Wisconsin, fashionablewicker and rattan furniture.Startedeighteenmonthsago by Ramond garageon reconverted Palacio,productionfacilitiesare housedin a medium-size, Ramondand his brotherVincent,the company the outskirtsof Eau Claire.Besides employsa crew of twelve.Grosssalesfor the first twelvemonthsof operationexc e e d e d$ 1 2 4 , 0 0 0 .

Although the company is solvent and on the vergeof generatinga profit for the first time, the Palaciobrothers have expressedconcernabout the company's a mutual friend future. They recently sharedtheir thoughts with Jay Caststevens, and certified public accountantin Milwaukee. Designshas certainlycome a long way sinceI visitedyou last Caststevens-Wicker time. Looks to me like you havegotten off to a fine start both financiallyand competitively. How many statesdo you now distributeyour furniture in? most of Wisconsin,we've penetratedsouthern MinRamoncl Palacio-Besides nesota,all of Iowa, and the northern portion of Illinois-Chicago especially.We're working on a new retail chain prospectin St. Louis at the moment. Caststevens-I'mgenuinelyimpressedwith your businessknow how. I guessyou both must feel pretty optimistic about the future. VincentPalacio-Actlally, Ramond and I are beginning to get cold feet.

Expericncc PhaseI: Vcnture Irtitiotktrt

Coststct'etts-Why do you say that? ['vc just goneover your lateststatentents and the companyis really in pretty solid shapefinancially.You're due to breakout of the red next quarteraren'tyou? RatttontlPalacio-oh, we're basicallypleasedwith the company'sfinancialsituation. I think what vince meantby gettingcold feet perrainedto our readiness to take WickerDesignsthroughall of the managerial changes that loom ahead. vinc'cnt Paloc'ioLike forecastingour sales,adding on to the plant, borrowing money,startingto advertiseour fumiture line. We'reworried about our ability to managethe company'sgrowth. Caststo,cnsBoy, I know a lot of strugglingbusinessmen who would love to have t h o s ek i n d so f w o r r i e s ! vincant Palacio-Maybechallengesis a better word than worries.Every month confronts Ramond and me with new businesschallenges that we've never faced before. RamorttlPalacilt Yes,and the biggerwicker Designs becomes,the rnoreimportant daily decisionsbecome.when we first openedlastyear,we could recoverfrom our ntistakeswith ease.But as the businessexpands,the mistakesbecomemagnified and harder to reboundfrom. It's frighteningto contemplatewhat decisionsmade today may do to us tomorrow. Caststcverts All businessrnen have to take risks.Tomorrow is alwaysa risk, especiallyin running a smallcompany.You just haveto do the best you can every day and trust that things will eventuallycome out all right. your capacityfor making sound businessdecisionsdepcndson your ability to anticipatefuture problems. RamondPalacb You've hit the nail on the headwith that laststatement.The key to decisionmakingis definitelytied to anticipationof future problems.That'swhat Vince and I want to talk with you about. vincent Palacio Exactly, Jay, you have specializedyour accountingpractice in the small venturearea.You've seenhundredsof companiesgrow and die. In our opinion, you are superblyqualified to offer us someguidancefor the future. Caststcvcns-lappreciateyour confidencein me and will be glad to help you out any way that I can. Specificallyhow can I be of assistance? vincent Palocio-Explainto us how srnall companiestypically grow the stages they evolvethrough and the managementand operationschallenges that come with eachstage. RamontlPalacio In other words,map out for us how you think wicker Designsis likely to expandand alert us to obstacles we're likely to encounteralongthe way. With this knowledge we can anticipate future problems and gearup before they sneakup on us. CaststcvcnsYou've got a pretty tall order there,but I think I can at leastdraw you a sketchof venturegrowth patterns.It's reallynot all that complicated.

Wicker Designs

Companiestypically progressthrough four n.rajorgrowth phases:start-up, fast growth, maturation, and then stability. After this the company will either decline and eventually go under or start on a new growth curve, perhapsvia the mergerroute. I would saythat Wicker Designsis in the latter stagesof start-upand about to move through the key hole. That's an expressionthat meansa companyhasmadeit through its initial survivaltest and is poisedto take off alongthe bell-shapedgrowth curve. How fast you progressalong the four-stagecurve dependson the nature of the product,how competitiveand regulatedthe industryis,the rate of technological obsolescence, and so on. Some companieszoom along the growth curve while is success others poke along.As you haveperceptivelynoted, the key to business not trying to rush through the curve but rather taking situationally appropriate actionalongthe way. "taking situationallyapVint'etrtPalat'io-Exactlywhat do you nteanwhen you say propriateaction"? to fit whereyou are CaststcyensJust that you calibrateyour operationaldeclsions to capital,cash on the curve.For instance,the financialneedsof a company,access ability, all changeaiongwith growth. flow, useof leverage, and forecasting In the areaof personnelgrowth,key growth challenges would includeadding and line managers, hiring staff people(clerical,technical,sales,a:d rnaintenance). lbrmalizing the training process.Among marketing relatedvariableswhich evolve and content alongthe growth curveare suchthingsas salesvolume,extensiveness of advertising, and the role of R & D. Manufacturingconcernsrevolvearoundplant expansion,processlayout and keyedto organizaengineering. and achievingeconomiesof scale.Growth variables tional and managerialissuesinclude use of externalconsultants,proliferationof forrnal policiesand procedures,going public with the saleof stock,involvement with acquisitionsand merger,dealingwith unions,and makingthe transitionfrom (owner-based) to professional. entrepreneurial management Finally, and most importantly,the smallfirm's competitivestrategyevolves along the growth cycle.The companymay selectdifferentmarket niches,modify its competitiveedge,and vacillatebetweenbeinga proactiveleaderin the industry or a reactivefollower. RontondPalat'b-Seewhy we havecold feet,Jay?Managinggrowthis obviouslyno sirnpleaffair. wouldn't be fun if it were easy! Situational Coststcvens-Butentrepreneurship growth managementis not really as complicatedas I've made it sound. To a large along the extent, it's just a matter of common sense.The operatingchallenges growth curve are actually quite predictable. Vinc'entPalacio-Glad to hear you say that Jayl Would you do us one more favor? Take each of the operatingvariablesthat you mentioned a minute ago relating to finance, personnel, marketing, manufacturing, organizationalmanagement,and

Exoerience Phase I: Venture Initiation

competitive strategyand outline for us the situationalchallengesthat exist in each operating area for every growth phase: start-up, fast growth, maturation, and stability. In other words, describefor us how operatingproblemsand challenges change as the companycontinuesto grow. With this understanding,Ramond and I can gain a much better feel for whereWicker Desisnsis headed.Problemswon't sneakuo on us that way!

A n a l y s i s :R e s p o n d t o V i n c e n tP a l a c i o 'rse q u e sat st h o r o u g h l ya sy o u c a n .U s i n gt h e s i t u a t i o n a lo p e r a t i n gv a r i a b l e sm e n t i o n e db y J a y C a s t s t e v e n ds i, s c u s sh o w m a n a g e r i apl r o b l e m sa n d c h a l l e n g eesv o l v ea l o n gw i t h c o m p a n yg r o w t h . U s e i l l u s t r a t i veex a m p l ew s h e r ep o s s i b l e .

the klotheskorner

The Klothes Korner, located in Providence,Rhode Island, is a specialtyclothing store for children. Owned and operated by Marlene Conlee, the Klothes Korner sells new and previously owned children's clothing from newborn through early teens.Approximately 30 percentof salesare of previouslyowned merchandise, and clothing for girls outsellsboy's clothing two to one. Ten percent of salesaccrue from custom-madedressessold on commission.Repeatbusinessaccountsfor 75 to 80 percentof sales. Marlene Conlee is thirty-four years old and holds a collegedegreein secondary education.She taught high school for two yearsbefore openingthe Klothes Korner in March 1977. Her husbandDuane is a junior-high-schoolassistantprinci pal and helps with the businesson weekends.The 1000 squarefoot storeis located in a mini shopping mall that caters to small crafts stores, candle shops, and boutiques. The primary new clothing lines carried include Polly Flinders clothes for girls, Play Palstogs for boys, Baby Bliss baby wear, and Shirley pajamas.Customm a d e d r e s s es e l l f o r $ 6 . 5 0t o $ 1 2 . 5 0 ; g i r l sd' r e s s efsr o m 9 1 6 . 5 0t o 9 1 8 . 5 0 ;g i r l s ' p l a y s e t sf r o m $ 6 . 5 0 t o $ 1 0 . 5 0 ;b o y s ' p a n t sa n dj e a n sf r o m $ 7 . 5 0t o $ 9 . 5 0 ; a n d baby clothes range from $7.50 to $15.00. All salesare by cash,although major credit cardsare usedfor about 15 percentof sales. During Decemberof 1980, Marlene developedher pro forma businessprojection for the coming year. She generatedthree sets of data based upon a pessimistic projection, a realisticprojection, and an optimistic projection.Plan A, the

Experience Phose I: Venture Initiation

projection,assumes a no-growthpositionfor salesafter the storemoved pessimistic in into the new building March, 1979,and before the impact of the recessionwas that Marlenewould continueto operate felt in April 1980.This plan also assumes price, which is below the industry average gross on selling margin with a 37 percent with roughlyl5 percent increase in sales, percent. a 25 Plan B assumes of 48 to 52 percent of this coming from inflation, and the balancecoming liom a highergross margin and increasedsales.In Plan B, the grossmargin on sellingprice is increased . l a nC a s s u m easn i n c r e a sien s a l e so f 4 0 p e r c e n ta, n d a g r o s sm a r g i n t o 4 2 p e r c e n tP percent. of 45 Theseare shownin the following seriesof exhibitsalongwith the for 1979 and the first elevenmonthsof 1980. financialdata

A n a l y s i s :A n a l y z ee a c ho f t h e b u s i n e spsl a n sf r o m t h e s t a n d p o i not f a s s u m p t i o n s a p p a r e n t lm y a d e .D o y o u q u e s t i o na n y o f t h e s ea s s u m p t i o n s ? g h e K l o t h e sK o r n e r ,w h i c h b u s i n e spsl a nw o u l d y o u a c c e p t l f y o u w e r em a n a g i n T for 1981? Compareprolectedfinancialratiosfor The KlothesKorner with industryaverages f o r r e t a i l e ros f c h i l d r e n ' cs l o t h i n g . l f y o u w e r e M a r l e n ec o n l e e ' sb a n k e r ,w o u l d y o u l e n d h e r $ 2 0 , 0 0 0f o r w o r k i n g capital? lf the storewerc put up for sale,what would be a fair negotiatingpricerange?

F

o

^ ,^ ;

O h n * o O O h < ! - n o - O t - - - h t = m 6 O m \o$ac \o

o \ o $ o o c \ $ t r - n a { c o h m n

O O O o r *

z

o l c n o o m h \o\t r N

O n h O * o o co c., \ o

o a

O n t - - o\ t-- a.l h c i N

o h h o o c { t - . o h c o - o o \o \o

a \ @ a { ci or

o

z l

o $ c o r * : L

, U) '

I t t )

€ l<

Q

sJ r! X -.= +@ . 3- ( . .=, ) c o t -

rl F

r ! t E ! F y a =j . " ; G v r _ v - v ! * ,

6u) -'J *-

?Ek

o

,\az u

L

O

z

O

z

:

O

H

= )

t1

E X H I B I T2 . 4 F O R 1 9 7 9A N D 1 9 8 0 M O N T H L Y G R O S SS A L E S

JanuarY FebruarY March April May June July August September October November December

12

r919

1980

I360 I 800 4700 4990 3690 39 0 0 4250 7300 65s0 6350 7200 9 30 0

3210 4460 5460 37 0 0 4130 2690 38 9 0 6690 52 1 0 b /JU

6910

pharr composing SCTVICC

cynthia Pharr is president and founder of Pharr composing Servicein Memphis, Sinceits inceptionin May 1967, the companyhasgrownsteadilyshowTennessee. ing a net income of $39,000on salesof $357,000during 1979.Cynthiahas won severalcivic awardsin Memphis,including the city's BusinessWoman of the Year award.Sheholdsa B.B.A.degreefrom MemphisStateUniversity. Cindy, tell us how you got into this business. I startedit about thirteenyearsago when I went looking forapart-timejob that wouldn't take me away for long periodsfrom my threejunior-highagekids' I and didn't want to work was very involvedwith footballpracticesand balletlessons full-time. I started working part-tintefor an appraisalservice,putting together an in-housepublication.I'd write the copy and then haveto get it produced.I had to have one hundredcopiesof the publicationprinted eachtime, and I was very sulprised to learn how expensivethe processwas. It also struck me as strangethat set, the printersand typesetterswere often when I would go to get the negatives rudeand indifferent. Then I heardabout a woman in town who did typesettingin her own home, and much nicerto custoso I looked her up and found that she was lessexpensive and usuallywould not very slow that was she mers. The only problern,though,was again. makemy deadline,so I wasback in trouble 13

14

Llxperience PhaseI: Venture Iniliotion

It occuredto me that I had alwaysliked to type and that the smalltypesetting machinesshouldn't be all that difficult to operate.I decidedto try it out, so I got a leaseon a machinefor about $300. Although I found that there weremany thingsthat I didn't know how to do on the machine,I sooncaughton to the typesettingprocess.BeforeI knew it, peoplewereaskingme if I would do odd jobs for them. I quit my job and stayedat home for about six monthsworking on small jobs for other people.They came to me strictly by word-of-mouth.I soon got busier and knew that I was going to have to make a decisionabout whether to expandmy operation. I decidedto go aheadand rent an office with one smallroom locatednearmy house.It rentedfor about $ 100 a month. I had somefriendsin the office down the hall who had openeda businessand were needinga part-timesecretary.They said to me, "Look, if you're worried about your spaceand makingthe rent on it, we'll let you do a little typing for us and that will help pay your bills.That way you can minimizeyour risk." I took them up on the deal.I rentedthis little room and did somework for them and then met ConnieBrenners. Conniehad smallchildrenof her own but wantedpart-timework just like I had wanted in the beginning,so I talkedher into comingon boardwith me. Connie had the typing aptitude and was willing to learn about the typesettingbusiness. Fortunately,I had the good senseto let Conniepretty much sether own schedule aroundher kids and their needs.Over the years,I havedonethiswithrnostof my employeesand havefound it to be a competitiveedge.It has allowedme to keep somegreatpeopleon boardwho couldn'twork strictlyon an 8:00 to 5:00 basis. With Connie around, things continuedto get busier and busier so that we quickly neededanotherpersonto help us out. Connieknew SusanKelly, who was a student majoring in accountingat MemphisState.Susanworked with us one summeron a part-timebasisand really beganto enjoy what we weredoing.When Susan graduated,she was so enthusiasticabout our businessthat she decided to stay in typesettingratherthan starta careerin accounting. We were quite a team. Not only were we women who did not havea long in the printingindustry,but we alsohad new equipmentwhich most apprenticeship of the old-line typesettersmade fun of and said was of doubtful quality. I think they really resentedthe fact that we were women, so they endedup criticizingour machines.They just couldn't believethat women could be successfulin typesetting. They couldn't understandthat typesettingwas very much like typewritingwork. But we showedthe male professionthat we could be very successfulat what we were doing. I think what really made the differencewas that we treatedour customers very well. This was a lessonthat I had learnedat the start of my business, and it's one that I haveneverforgotten. I think our customerssawthat we enjoyed our work and wanted to servethem in the very best possibleway. Over time, we kept getting the better customersand the biggerjobs, so we decidedto go to some automatedequipment.This decisionbrought us to another cross-roads in the business,becausethe automatedequipmentcalled for an invest-

Pharr ComPosing Senice

15

that we had been ment of at least $15,000. compared with the little machine to get a lot more have would we that leasing,this was a giant step for us. We knew businessin order to pay for the automatedequipment' Weprogressivelygotmoreandmoreautomated'anditseemedthatfortwo volume wasn't going or three iays after we;d get a new piece of equipment,our alwaysmanageto would customers new to be large enough to pay for it. But the It got to be a equipment' more even add .o.., un? *. ,oon found the need to had to work we that was success this o-f all with predictablecycle. The big problem was very night at work to people qualified higlrly getting irarder and harder because be would which equipment more buying avoid to difficult. We had to work ai night usedonly during the daY. Successmeantgrowthproblemsforus.Wesoonoutglewthefirstroomthat doubled we had beenrenting,so weleasedanotheroffice next door.This new office outtent,butitgaveusconsiderablymoreroom.Weendedupstayingthereabout five years. ThoseyearsSawanawfullotofgrowthinthebusiness'Weexpandedwith the overgrowth more and more equipment and addedabout fifteen employees.But goingto need either were we that knew we us again. haunt to problemscame back redesignwork on our more room, or that we were going to have to do somemajor and it was at that leasedfacilities. The landlord offered to sell me the building, just didn't have the point that I realized we needed to borrow some money' We building through volume of operationsto warrant making a major purchaselike the up to this because problem a up brought credit for need retained .urningr. The our equipment point, we had neverneededto borrow money. we had alwaysleased banker' go a to to had from IBM. I had never

How should Analysis: ln what ways can growth pose problemsfor a business? counteracted? theseProblemsbe is growingtoo fast?Too slow? Whatarethe signsthat a business

Tell us about your first experienceat borrowing money' it had been I can tell you, for sure, that it wasn't an easydecision.However, with supplemented be to needed flow cash our that time apparentfor quite some month each that tight so was our cash but this, to admit hate I some outside iunds. wecouldnotpayoffbothofourmajoraccounts,whichwerelBMformachine would pay IBM leasingand the IRS for tax installments'So on somemonths we Thank goodness and ilnore the taxes and do just the opposite the next month'

16

Exoerience Phase I: Venture Initiation

IBM was very, very decent to us and flexible regardingtheir monthly payments,or I don't know how we would havemadeit during this liquidity crisis.But the handwriting was on the wall that we were goingto needsomeextra money. I decidedon askingfor a loan of $500. That'sall you askedfor? That's all I askedfor;just $500. I was scaredto borrow much money' With our tight working capital I figured I probably shouldn't be borrowing at all. Anyway, I worked up my courageand went to visit the bank. Well, it didn't take long. The loan officer looked me in the eye and saidflat out, "I can't loan you the money." I said,"Why? How do you know?" He said, "Becauseyou're a woman. We can't loan you any money; it's just that simple." "You're not even going to look at my situation and seewhat my And I said, businesscan do?" "I'm sorry;wejust can't loan you the money." He answered, So I just picked up my portfolio and left. I cameback to the businessand did the only thing I could-I just worked hard. The expandingvolume of business finally caught up with me, and I had to work around the clock almostliterally. I'd go home, fool with the kids, do what I had to do, and then it was back to work. I didn't have the revenuecoming in to expand the payroll, so I had to do more and more work myself. In retrospect, though, I don't feel bad about that period and our lack of financing. Perhapsif I had had the supply of money coming in from the bank, I might have gotten carelessand not worked as hard as I did. That might have hurt the company'soverallsuccess. Before long, connie and susan were also working daysand nightsalongwith me. For the next severalyealswe worked practicallyconstantly,the longesthoursno one would believeit. we had to do it to make up for not havingenoughmoney. Then in 1973, the friend that I had originally sharedan office with sawour potential. He had gone on to biggerand better thingsand realizedthat our business "You're just crazy not to go should have been growing more than it was. He said, down to the bank and get the money that you needfor equipmentand employees."

A n a l y s i s :D o y o u f e e l t h e p r o b l e m se x p e r i e n c ebdy C y n t h i ai n b o r r o w i n gm o n e y aretypicalfor femaleentrepreneurs? f o r r e i e c t i n gt h e $ 5 0 0 l o a n I n y o u r o p i n i o n ,d i d t h e b a n k e rh a v ea n y j u s t i f i c a t i o n to Cynthia?

Tell us what you did at this point. As you can imagine, I wasn't too excited about going back to visit with bankers who had turned me down cold just a couple of years before. I hadn't really thought that much would have changedin the meantime.My friend, however, assuredme that he knew a good banker down at First National and that I would haveno hasslegettingthe money. I went down there and the banker couldn't have been nicer. I couldn't believe it. I borrowed $500 and paid it back in a couple of months. Then I think I bought a car next. Of course,one thing that had helpedin gettingthe credit line was the fact that, by this point, I had incorporatedmy business.That seemsto have made a largedifferencein the banker'smind. Now that I had solvedmy funds-flow problem, at least for the time being,I still had to do somethingabout the lack of room in our building.We decidedthat we neededto expand to another location once again.The landlord,however,liked us and gave us a very strong inducementto stay. He said he would let us stay in the building if we bought it from him. No down payment was required and he offered us an 8 percentloan. That would make our paymentsabout $500 a month. It was a very inviting offer. However,the buildingjust wouldn't suit our needsover the long-run. Then one of my artists noticed two buildingsin Memphiswhich seemedto fit our needsquite well. So I went down to First National againand askedif I could havethe money to buy both of the buildings. How much did you askfor this time, Cindy? Sixty thousand dollars.That was in 1915. The banker was very nice, buthe said that he could give me only a five-yearloan. After I multiplied that out, I decided that I couldn't repay it. I couldn't afford the payment over so short a period. So I talked to my accountant,who seemedvery much againstbuying the buildings. He said that I should leasefor tax purposes.I told him that there was somethingin me that went againstperpetualrenting. I guessit's just the old necessity instinct, but I like to think that I'm getting equity in something.I had gone through the whole renting-versus-owning questionwith our equipment purchasers. I had decidedwith them that buying was the way to go once we got to the point we could afford it. I have not ever regrettedthat decision,becausenow I have a lot of paid-for equipmentthat is still very productive. As it turned out, the reasonmy accountantwas so much in favor of leasing was that he had some spare office spacethat he wanted to unload on us. Well, I saw through that in a hurry and decidedthat we had better get a new accountant. I was acquaintedwith a young man who had just left a CPA firm to go into businessfor himself. He very much wanted my account. I told him we would be glad to sign on with him becausewe would be happy to have someonewho would pay

17

18

Experience Phasc I: Venture Initiation

close attention to our financial needs. He's been one of our biggestassets.He genuinelycaresabout us and is interestedin how the businessis doing. The new accountantadvisedus that getting an SBA loan would be no problem and that he would love to help guide us through the process.He said that there was a suburbanbank that grantedthe loans and that we ought to look into the possibility as soon as possible.It turned out to be the bank that had deniedme the $500 severalyearsbefore. I said,"No way will I go back to that bank." He said, "They've got new personnel,a whole new managementteam. You'Il be treated differently." I said,"O.K., Chris,but I'm telling you, if they aren'tdecentto me, I'm not dealingwith them for five minutes." Chris and I put together a very simple proposal along with my financial statements.I went right into the bank and in so many words said, "This is who I am; I have an office around the corner. I do this. I've beenin businesssevenyears, and I doubt that you'll loan me this money;but I want to buy a building,I need $60,000,and I haveto go through the SBA. Do you want to handleit or not?" To my surprisethe bankersaid,"Oh, I think we might be very interested." I said, "Look, I don't want to wastemy time here.If you're goingto turn me down I want you to do it quickly becauseI don't have much time. The buildings are going to be sold quickly and I need to say, 'yes' or 'no'. Do you understand?" So he askedme all about what I did and then said, "Do you mind if I come over and look around your businessthis afternoon?" Well, I went back to the office that afternoon and forgot about it. I became very, very busy. Before I knew it, he was there to look around.I didn't really pay any attention to him. But what do you know, the next morning he called and said,"Well, we haveapprovedyour loan." I said "What?" "We've approvedyour 1oan." I said, "You can't be serious-you haven't taken enough time yet. Don't you haveto go before a board or something?" He said,"No. Do you want me to signthe loan?" So we borrowed the money. We didn't even have to put anything down. Since that day, the bank has been wonderful to us. Now I can go and say that I need $10,000 for jobs I'm working on, and I get the money with no questions asked. It's easy to get money, but I certainly don't abusemy credit line. I never borrow anything that I don't really need.

A n a l y s i s :P r o v i d eg u i d e l i n efso r a s m a l lb u s i n e stso f o l l o w i n d e v e l o p i nags u p p o r t i v e ,l o n g - t e r mr e l a t i o n s h iw pi t h a b a n k .

is doingat present' Cynthia,tell us how your business I'm glad to say that at the end of 1919, we were very happy and making a profit. I think we are making a very nice percentagefor the printing industry. we are continuing to get bigger customersall the time, and we are tackling quite sophisticatedassignments.However, we have now reachedanother crossroadsin the business. Whatdo You mean? Wehavereached I guessto a certainextent we'revictimsof our own success. getting a whole new on going to depend growth is rapid future the stagewhere processing word about I'm talking in here. equipment generationof sophisticated in sonlewhere at looking We're equipment. automated electronic equipment and another business our advance to investments new in of the neighborhood $120,000 malo, step forward. we're on the threshold of becoming a whole new kind of company, offering servicesto entirely new types of customersthan we havein the past. The other real big challengethat we're currently facing has to do with a recent offer to buy us out. Tell us about that offer. by Fred This all happenedin early 1979.ln April of 1979,1wasapproached us because in acquiring very interested were Lindsey of StagecraftIndustries.They which in the earnings, times me ten offered They of our big-customerclientele. of offer buyout me a making they were So previousyear had run about $37,000. around$370,000. I am very flattered, of course, to receivethe attention of Stagecraftbut I'm having a tough time decidingwhether or not to continuegrowingon our own' To make matterseven more complicated,one of our largestgraphicscustomers, headedup by CliffordJason,absolutelydoesn'twant us to sellout. Jasonis worried about breakinghis long-time relationshipwith us becausewe havedone somevery sophisticatedthings for them and I guessthey are pretty dependenton us. I don't mean to make it sound like there is no other personin town who could handlethe Jason account, but we have jobs in progressfor him and have built up certain relationshipswith his companythat would be hard to replaceovernight.

A n a l y s i s :l s $ 3 7 0 , 0 0 0a g o o do f f e r f o r t h e b u s i n e s s ? e i g h ta l s ob e o f f e r e d ? W h a to t h e rr e a s o n a b tl e r m so f p u r c h a sm

t9

E X H I B I3T- 1 P h a r rC o m p o s i nS g e r v i c eI,n c . I N C O I \ 4S ET A T E M E N T f o r t h e f i s c a yl e a re n d e dS e p t e m b e3r 0 , 1 9 1 9 Sales Less Operating Expenses Materials Wagesand salaries Utilities Interest Depreciation Other

$ 3 5 7 , 1I 3 $ 1r,123 2 1 5, 5 70 3,847 6,137 4,170 5,261

Total Operating Expense Income Before Taxes Corporate Income Tax E,xpense NET INCOME

3 0 6 ,I 0 8 s 1,023 I I,727 3 $ 9.296

Do you v/ant to continue working as hard in the future as you havein the past,Cindy? Now that is a very good question.You see,I'm nearly 50 yearsold and I do wonder how many more years I can put in going full-blast. There are so many daily problems and hasslesto put up with. sometimesthe idea of sellingout at a good profit and then, maybe, either retiring early or going to work for the new companyat a nice salaryis mighty tempting. Can you tell us about your immediateplansand priorities? I surecan. Right now, I'm sweatingblood overan audit by the IRS. Canyou believeit; I went on vacationa few months ago for the first time in many yearsand that's when the IRS decidedto audit us. while I was in Europe they sent a notice in the mail which Susanand connie didn't pay any attention to, thinking it was just somethingroutine about taxes.Before they knew what washappening,the IRS representativegot hold ofthem and saidthat shewould be down in the next couple ofdays for an audit. susanand connie told her that the ownerwasout oftown and askedif the audit could wait? The IRS lady said,"we contactedyou someweeksago about this, so you should be ready." connie and Susanexplainedthat they hadn't openedthe mail since I was out of town. The woman wouldn't believeit. It seems that she was new in the IRS office and on her first case,so she wantedto make a good impressionwith her boss.well, connie and Susanfinally managedto contact

20

E X H I B I3T- 2 P h a r rC o m p o s i nS g e r v i c eI,n c B A L A N C ES H E E I S e p t e m b e3r0 , 1 9 7 9

Current Assets Cash Accounts receivable Supplies and materials Prepaid insurance Total Current Assets Plant and Equipment Building Less: accumulated depreciation Equipment and fixtures Less: accumulated depreciation

$ 59,647 28,696 26,378 1,500

sr16,22r 60,000 8,000 10 1, 2 0 0 34,500

54,000 66,'0 70

r20,100 s236,921

Total PIant and Equipment TOTAL ASSETS

Equitv Liabilitiesand Stockholder's Current Liabilities Trade accounts payroil Other Total Current Liabilities Lon g-terrnliabilities SBA notes payable Total Liabilities Stockholder's Equity Paid-Capital Retained earnings Total Stockholder's Equity

$ 16,394 s,126 $ 21,520 54 , 0 0 0 75 . 5 2 0 40,073 121,328

SQ U I T Y T O T A L L I A B I L I T I E SA N D S T O C K H O L D E R 'E

1 61 , 4 0 1

$235s4

me in Europe,apologizedfor ruiningmy vacation,and explainedthe situationto me. I cameback franticallyto preparefor the audit.It scaredme to death-made me physically i11.We dealt with the IRS lady for severalweeks,but the investigation is not through.I've still got that hasslehangingovermy head.That'sjust an 21

exanrpleof some of the daily headaches that I encounter,althoughI feel quite confidentthat we'll eventuallywork thingsout satisfactorily. As for now, I have the IRS on my mind alongwith the big decisionabout whetherto expandthe business into electronicservices or sell out to Stagecraft. I can tell you, it's not goingto be easyto makeup my mind. How do you feel about the buyout offer? As you can see,I havemixed feelingsabout it. I believeour business hasan awful lot of potential,but the Stagecraftoffer is attractive.But then, I don't wish to alienateany of my big customersor causea break in any trustedrelationships built up over the years.I'm also not convincedthat I can't continueto guideour businessto new heightson our own, usingretainedearningsas our primarysource of financing.At this point, I'm not really sure what I want to do. A lot more thinkingis goingto haveto go into it.

A n a l y s i sW : h a td o y o u t h i n kC y n t h i aP h a r sr h o u l dd o ? W h a td o y o u p r e d i cst h ew i l l d o ?

l

c

aspneflc

enterprises

Aspheric Enterpriseswas formed in 1978 by y. L. chung, an immigrantfrom Taiwan,who inventeda revolutionaryprocedurefor makingasphericopticallenses. Basedoutside of chicago in Evanston,Illinois, the corporation was funded under private stock placement by five investorsled by sidney Blackmon, a chicago investment counselor.Two of the investorswere universityprofessors,one was a dentist,the other a memberof Chung'sfamily. In 1968, Dr. Chung received dual doctoratesin physics and mathematics from a prestigiousAmerican university. He was a researchscientist for a large multinational corporation at the time he patentedthe aspherictechnologyunder his own name. He subsequentlyleft his corporateposition to form AsphericEnterprises. Dr. Chung's aspheric processproduces lenseswith a uniform focal point. unlike regular sphericallenses,such as those typically used for prescriptioneyewear, all points on an aspferic lens have the sameoptical acuity. No optical distortion occurs at any point on the lens. Potential applicationsexist for cameras, microscopes,and generalpurposeoptical equipment. Backedby $125,000of seedequity, Dr. Chungpatentedthe asphericmanufacturing processin 1979 and set about marketing his invention. He initially approachedseveralhigh technology companiesnear Palo Alto, california, usinghis patent-applicationblueprints and working papers as marketing documents.Al-

24

Experience Phase I: Ventwe Initiation

though severalfirms congratulatedhim for technical brilliance, Chung found no backersfor his invention. He then approacheda venture capitalpartnershipin Boston,Venture Search, which initially expressedan interest in the project but eventuallydeclinedto became involved.The explanatory letter from the seniorpartner, L. HaynesSinclair, is containedin Exhibit 4-1. With capital beginningto run low in the summerof 1980, Dr. Chung contacted Re-SearchPatents,a private marketing firm headquarteredin Philadelphia. Re-SearchPatents worked closely with universitiesand government-sponsored laboratoriesin marketing technicalproducts to the privatesectorfor 30 percentof the royalty rights. Chung and his five stockholdersagreedthat their venture sufferedfrom inadequatemarketing and saw the need for expert guidancein this area.However, they were reluctant to turn over such a large royalty shareto Re-SearchPatents, especiallyso early in their venture history. For its part, Re-search agreedto design a marketing strategy for Aspheric Enterprisesupon signing of royalty agreement contracts. Before taking further action of any kind, Dr. Chung decidedto call a stockholder'smeetingin Septemberof 1980.After six and one-halfhoursof sometimes heated discussion,the meeting adjourned with no definitive decision reached regardingthe Re-Searchoffer. Two stockholderswith 29 percentownershipfavoredturning over the entire project to Re-SearchPatents due to the limited marketing expertiseof Aspheric. Majority holder Sidney Blackmon (40 percent ownership)opposedthe tie-in and suggestedthat Aspheric continue to go it alone. Blackmon expressedhis willingnessto investan additional $50,000 in the company. Aspheric'stwo other investorsexpressedambivalenceabout future strategy and declined to contribute more equity. Dr. Chung offered to return to work for his former corporate employer until all five stockholderscould reach accord on Aspheric'sfuture strategy.

A n a l y s i s :A s y o u s e ei t , w h y h a sA s p h e r i cE n t e r p r i s ef as i l e dt o g e l ? l f y o u h a da l r e a d yi n v e s t e $ d 2 5 , 0 0 0i n t h e c o m p a n yw , o u l dy o u c o n t r i b u t em o r e ? l f D r . C h u n gr e c e i v easn o t h e r$ 5 0 , 0 0 0f r o m M r . B l a c k m o nh, o w s h o u l dt h e m o n e y bespent? W h e r es h o u l dA s p h e r i cE n t e r p r i s egso f r o m h e r e ?

EXHIBIT4-1

L E T T E RF R O MV E N T U R ES E A R C H Dr. Y. L. Chung 10094Mayhill EstatesDrive Suite B Evanston,Illinois 60611 DearDr. Chung: and I have had the opporSince talking with you last month, my associates tunity to discussyour asphericlens project thoroughly. While we are genuinely intrigued with your invention, we must turn down your lequest for financial support. This was a difficult decisionfor us to reach,becausethe asphericprocess appearsto havesomemerit. Unfortunately, we were unable to do adequateforecastingwork on youl product due to the sketchy nature of the businessproposalsent to us. We would have much preferreda completebusinessplan with pro forma statementsand concrete marketing guidelines.While your patent report data were informative, they still did not enableus to gaugeoverallprofit and market potential adequately. One of our consultants, Dr. A' Barry Witten, professor of physics, was familiar with your work and vouched for its technical merits. However, he was not conversantwith potential marketsfor asphericoptics. In closing,let me strongly encourageyou to spend more time formulating your businessplan. Your probability of eventualsuccesswill be greatly enhanced "numbers" to sellyour project. when you can generatesome Thank you for considering My associatesand I wish you every future success. our firm in your project'splans. Sincerely,

L. HaynesSinclair SeniorPartner Venture Search Boston,Massachusetts

25

peppY'spizza

The following businessplan was developedby Ted Latham and Leon Haliburton, recent businessgraduatesof Indiana state University in Terre Haute. They are seriously committed to opening Peppy'sPizza outlets in Terre Haute and plan to submit the businessplan to local bankersin the near future.

CompetitiveStrategy Peppy's Pizza can succeed in the carry-out plzza businessby differentiatingitself from the competition in severalways: l. 2. 3. 4. 5.

Lower cost Betterproduct Faster service Reliable delivery Very accessiblelocation

Lower cost. The marketing survey we conducted here in Terre Haute (see Exhibit 5-1 ahead)showedthat priceis veryimportantto customers. peppy'ssignificantly lower overheadwill enableus to undercut our competition and still offer a better-tastingpizza.

26

Peppy's Pizza

27

Better Product. We firm1ybelieve,after tastingvariouspizzasinTerre Haute, that our recipe is one of the best available.It is significantlybetter than any of the chains,and customerswill definitely be able to taste the difference.Being able to "good pizza," "better quality," provide a better product is a key advantageas "the best," and "better ingredients" accounted for 19 percent of the surveyrespondents'patronizinglocal pizzarestaurants. FasterService. The desirefor fast food and fast serviceis increasing,so being the fastest and most reliable pizza restaurantin town definitely will be an advantage. We are confident that Peppy'scan easily have pizzasready faster than pizza restaurantswhich place their primary emphasison dining customers.Typically, the local competition is slow in filling take-out orders,and they do not advertisetheir carry-outservice. Reliable Delivery. Pizza restaurantsare notorious for not having take-out orders ready when they say they will and for having slow delivery to homes(for those that do make home deliveries).Every minute beyond the promisedtime that a customerwaits is a minute that he or she wishesthe order had beenplaced elsewhere.By having the pizza ready when we promise it, we will become that somewhere else. Since Peppy's Pizza is strictly carry-out and free from other distractions,we will haveno problem with prompt serviceand delivery. Our delivery service will be a very important part of Peppy's operation, so it deservesspecialattention. We will have at least two vehiclesand two employeeswith driverslicenseson every shift. This combinationis more than enough to guaranteeexcellent home delivery of Peppy'sPizza.We will chargeone dollar for delivery servicein order to encouragepick-up at Peppy's.To avoid problems with gas and vehicle wear and tear, the employeemaking a delivery will keep the dollar in addition to any tips. The delivery income will be in addition to regular wages.Most Peppy'sPizza customerswill pick up their food at the restaurant'but for those who don't, we plan to have a delivery servicewhich will be friendly, reliable, and as fast as possible.No businesscan operate without customers,so we plan to make ours happy. very AccessibleLocation. Most pizza restaurantsare not convenientlylocated for residentialcustomers.This is in keepingwith their emphasison sit-down business,becausepeople are willing to drive a bit further for a sit-down meal. Peppy'swill locate closeto residentialareasto make it quicker and easierfor customersto pick up pizzaswhile they're still hot. In conclusion,our competitive edge will help to make Peppy'sPizzaa successful and welcome addition to Terre Haute. When a family would like to eat preparedfood at home, pizza will be more appealingthan a harnburgerand fries and much lessexpensivethan chicken or fish. Buying frozen pizza from a store is also less appealingthan stopping by Peppy'sfor a freshly-madepizza that will be nice and hot when it is put on the dining-roomtable.In addition,the menu will be

Experience Phase I: Venture Initiation

rounded out with submarinesandwiches,spaghetti,and ravioli to pleaseeverybody in the family. As Peppy's Pizza becomessuccessful,it is possiblethat the national chains will begin to stresscarry-out servicein an attempt to force us out of the market. If they do indeed try this, we believe that peppy's will prevail, becauseour five competitive advantageswill still exist. Also by the time we are recognizedas a threat in the market place, Peppy'swill be well-established as a quality company that is hereto stay. other pizza restaurantswill not be concernedwith peppy's pizza at Lhe start, becausethey seem to believe either that the carry-out market is not large enough to support a business,or that they don't needcarry-outgiventheir present successwith the sit-down market. We believe that the national chains will not attempt to developcarry-out as a major part of their businessunlessthey are s i g n i f i c a n t lh y urt by Peppy'sE . v e ni f t h i s w e r e t o o c c u r ,t h e y w o u l d s t i l l b e u n likely to vary strategiesbecauseof their sizableinvestmentin the dine-in market. Consumerconfusionresultingfrom sucha switch in pizzarestaurantstrategywould only benefit Peppy'sPizza.

Peppy'sLocation From our discussionswith survey respondentsit was apparent that, for peppy's Pizzato be as competitive as possible,a prime site location will be necessary. This is not to say that we will needan expensivesite with lots of elaboratesurroundings. what Peppy'sneedsis a high-trafficareacloseto residentialhousing.A 600 squarefoot area is more than enough room for peppy's to operate efficiently without feeling cramped.In addition, there will be no needto havemore than a few parking spacesin front of Peppy'sbecausecustomerswill simply walk in, get thefupizza, and leave. After careful consideration,we have concluded that the two best locations for a Peppy's Pizza would be northern Mills Drive (or within one block of it) or near the Indiana State campus.A location near ISU would have the disadvantage of having very slow businessduring the summer months becauseof the small numberof studentswho attendsummerschool. Therefore, we would want to open up the initial peppy's pizza operation on northern Mills. once this locationprospers,we think it would be a good idea to open a secondnear the campus,which would close during the summermonths. The ISU location of Peppy's would most certainly generateenough businessto justify its existenceduring the school year, so closingit for the summeris simply anotherpositivepoint in the alreadyexcellentpeppy'spizza scheme. while we were in the processof consideringvarious locations for peppy's initial operation, a real estate salesmanwas consulted for cost figures.After we explained the type of operation that we expectedto start, we were told that the

Peppy's Pizza

29

probable monttrly rent per square-footwould be 50 cents. At our optimal 600 square-footlocation, this translatesinto $300 per month for rent. We alsoinquired as to the problemswe were likely to encounterin finding a location that suitsour needs.The real estate agent told us that there would definitely be no problem, sincethere is an abundanceof shopsof that sizeavailable. Another factor to be considered,when looking for specific sites, would obviously be the competition. One would intuitively think that the national and regional chainswould provide formidable competition, sincethey have the advantagesof sophisticatedadvertising,attractive and comfortable dining areas,choice of thin and thick pizza, and saladbars. However,we feel that there is a basic difference in philosophy between Peppy'sPizza and,the dine-in restaurants.Peppy's doesn't need elaborateadvertising,nice dining areas,or a saladbar. We simply want to provide the best pizza in town, in such a way that Terre Haute consumerscan enjoy it in their homes.In light of the above facts, we want a location that is not right next door to a pizzarestaurant,but it could be within a block of one.

Analysisof Survey One of the questionswe asked surveyrespondentswas whether they more often ate pizza in a restaurantor took it home. The answerswere skewedtoward the "eat at the restaurant" end of the scale.This could be. on the surface.an indicator that people simply don't want to eat pizza at home. However,in discussions with the respondentsafter they had completed the questionnaire,we discoveredthat they basedtheir responseon the fact that no piz.zarestaurantproperly cateredto the carry-out market. As discussedearlier,Iocal pizza restaurantsare lessthan enthusiastic toward carry-out orders. In our post-surveydiscussions, we were delighted to find an overwhelming positive responseto the Peppy's Pizza concept.Most people said that they would be overjoyedif an operationlike Peppy'swould open in Terre Haute. A related question in our survey askedwhether a carry-out pizza restaurant was a good idea. We were quite surprisedto find that only 36.7 percent of the respondentssaid that they thought it was a good idea. Again, in our post-survey discussions we found out why the respondentsansweredthe way they did. In this particular instance,there were two reasonswhy peopletended to dislikethe carryout-only concept. The first stemmedfrom the fact that poor servicehas been associated with carry-out pizzas.People tended to think that poor servicewas an inherent part ofthis type of operation,and thus, they thought it would not succeed. After we explained Peppy's competitive advantages,the respondentsalmost universallyendorsedthe idea. They thought that it would be great to have good serviceon the occasionswhen they wanted to eat pizza at home as opposedto dining in a restaurant.In fact, about half of the respondentssuggested that they would alwayseat their pizzaat home if they could get proper service.

Experience Phase I: Venture Initiation

The respondentsalso doubted that a carry-out pizza place would be able to generateenough business.There seemedto be some mystique that surroundsa restaurantthat has an elaboratedining room. When we beganto explain the concepts of lower overheadand how this would allow lower pricesto be charged,most peoplechangedtheir minds. In actuality, we simply had people filI out the surveyas a basisfor a short discussion.The percentageswe have presentedwere taken from answersgiven before the discussionstook place.From a time perspective,we felt it would be too much to ask respondentsto fill out another survey,so we decidedto presentthe resultswe had and clarify them. The final question that requires clarification concerns competitors. In responseto why they favored a particular restaurant,44.2 percentof the respon"good pizza," 17.6 percentsaid it was the "best," ll.6 percentsaid dents said "better quality," and I 1.6 percent said "better ingredients."That's a total of 19 percent saying they preferred their favorite restaurantbecauseof the good pizza. This particular question excited us more than any other, becausewe are quite confident that Peppy'sPizzamakesa pizza superiorto any found in Terre Haute.

Costand FinancialDatafor Peppy'sPizza Much of the information compiled thus far in our report resultedfrom interviews with pizza restaurantowners and managersin Terre Haute. An additional source was the owner of Hungry Howie's pizza operalion in Livonia, Michigan.We feel this is the appropriateplace to discusstheseinterviews,becausethe current section of our report is basedalmost entirely upon data compiled during theseinterviews. The financial exhibits found aheadreflect a conservativeaverageof all the personal interviewsconducted.We would like to emphasizethat, even though the informaof our interviews. tion may appearto be very optimistic, it falls below the averages In other words, we feel we have drawn pessimisticfinancial estimates.With an effective and efficient operation,we are confident that Peppy'sPizza colld do even better.

Peppy'sProducts Peppy's Pizza wlll definitely offer severaldifferent sizesof pizza in addition to a wide variety of toppings. Our main question in developingthe product mix was whether we should offer other items to complement the pizza business.In the survey, respondentswere asked if they thought it was a good idea to serveonly pizza. Of the total, 71.8 percent said they thought it was a good idea to also serve "vaitems other than pizza. However, only 3.6 percent of the respondentslisted

Peppy's Pizza

31

riety" in answeringwhy they liked their favorite pizza restaurant.This apparent contradiction could be the result of peoplenot necessarily wanting other items but believingthat other foods would be required for apizza restaurantto be successful. Interviewswith severalpizza restaurantownersand managersgaveus another reason why we might want to serveseveralchoicesof food. Servingsubmarine sandwichesoffers a good way to make use of food stocks that might otherwise spoil. Due to the fact that large quantitiesof most of the items must be purchased in order to get a reasonableprice, there sometimesis too much stock on hand. Selling subs(we feel thirty-five a day is a conservativeprojection) would allow us to keep food stocks fresherand at the sametime have variety in the menu. After careful considerationof all relevantitems, we think the menu and price list shown in Exhibit 5-14is an excellentone.

Peppy'sPizzaPromotion Price is definitely a factor that can be used in establishingPeppy's Pizza in the marketplace.Sixty-three percent of our survey respondentssaid that they do pay attention to price when they go out for pizza or take it home. Initial promotion of Peppy's should put emphasison lower-pricedpizzato attract what appearsto be a very price-conscious public. Then the questionthat arisesis how to go about attracting businesswith the lower prices. we decided to explore two different alternatives,both of which consistof not lowering pricesdirectly but using other meansto effectivelylower coststo consumers. The first of these consistsof offering a free quart of soda pop with every ptzza purchased.Secondly,we like the idea of giving with everypurchase,Peppy's tokens good toward a free pizza when four are collected. Responsesto both of these ideas were extremely positive, as "yes" answersmade up 82.1 percent and 89.7 percent respectively.The slightly lower percentagefor free sodapop is probably due to some people not wanting soda pop with their pizza, for example, beerdrinkers. In trying to determine further the effectivenessof discount coupons, respondentswere asked how often they used pizza coupons found in local newspapers.Of the total,23.1 percentsaid they alwaysuse them, 66.7 percentsaid they sometimesuse them (forgetting the coupons at home was a common problem), and 10.2 percent said they never use them. This adds additionalcredenceto the price consciousness of consumers. After examiningthe aboveresponsesand their implications,we havedecided to adopt the followinginitialstrategy:The cost of the tokens(31 centscachinlots of 2000) makes their use feasibleonly if Peppy'sneedsan additional boost to increasesales.we feel strongly that this boost will not be neededdue to our other competitive advantages.Therefore, we will stick with the coupon system, discounting at the outset. On Peppy's Pizza handbils, which will be distributed

32

Experience Phase I: Venture Initiation

throughout the local area, will be a completemenu and price list along with the following coupons: o Free small pizza with purchase of an extra large o Monday only: buy a medium pizza and get the same size pizza free o .

2 quarts soda pop free with large or extralarge pizza 1 quart soda pop free with medium pizza

o

$ 1 . 2 5 o f f e x t r a l a r g ep i z z a

r

$1.00 offlargepizza

.

$.75 off medium pizza

r

One order of ravioli or spaghetti free with purchase of the same

The variety of coupons offered will undoubtedly appealto all pizza lovers. We are confident that the use of couponsin conjunction with regularnewspaper advertisingwill be sufficient to attract significantinitial business.This initial busi nesswill lead to referral businessthanks to the friendly and speedyservice,and greatpizzaat Peppy's.

ExpansionPlans

As discussedearlier,once Peppy'sPizzahas becomesuccessful with its first outlet, we will expand to a secondlocation near the Indiana State campus.After both locations are operating smoothly, we will give considerationto opening other company-ownedstores throughout Indiana. This would obviously be dependent on finding capable and trustworthy managersto run the individual locations. Peppy's initial period of slow, controlled, growth will allow us to build up the necessarycapital for a possiblefranchisesystem.It will also allow us to perfect the logisticsof openingand operatingnew units. It should be emphasizedat this point that our main concernis gettingstarted in Terre Haute, not franchising.We could conceivablybe very content with our local operationsand not expand,or onJyopen a limited number of company-owned Peppy's around Indiana. The costs of starting a franchisesystem are very large. Entrepreneurswho have started franchise systemsestimate that a minimum of $250,000 is needed.The franchisor must pay a $4,000 registrationfee and file a disclosurestatement to satisfy governmentrequirements,with legal fees for this alone amounting to approximately $26,000. The franchisor must also develop training programs,promotional campaigns,a system operationsguide, and other related items to insure that a franchiseecan profitably run the unit evenif he has had no experiencein business.In conclusion,Peppy'sPizza wf.l first concentrate on its Terre Haute units, which may lead to company expansionthrough owned

Peppy'sPizza

33

units or franchisesafter their successfulstart-up. We are very confident that Peppy'swill soon becomea welcomeaddition to the Terre Haute community.

A n a l y s i s :l s t h e p r e c e d i n gd o c u m e n tw i t h s u b s e q u e netx h i b i t sa n a d e q u a t e businessplan? Do you feel Lathamand Haliburtonhavecapablyplannedfor their p r o s p e c t i vnee w v e n t u r e ? H o w c a nt h e d o c u m e nbt e i m p r o v e d ? Evaluatethe marketingresearchconductedby the entrepreneurs from the standp o i n t o f v a l i d i t y ,c o m p l e t e n e sasn, do b j e c t i v i t yI.n w h a tw a y sc o u l di t h a v eb e e n improved? A s a b a n k e rw , o u l dy o u l o a ns e e dc a p i t atl o P e p p y ' sP i z z a ?l f s o ,h o w m u c h ?

E X H I B I5T- 1 RESEARCH S UR V E YQ U E S T I O N N ARIE l. What percentage of the peoplein your family like pizza? 2. How many times a month does your family get pizza from a pizza place? | 2 3 4 5 6 ormore 3. When you have pizza, which do you do most often? carry out for home carry out for work eat at restaurant 4. In your opinion, rs a pizza restaurant that is strictly carry-out a good idea? Y N 5. In your opinion, is it better for apizza restaurantto serve only pizza,ot to serveother items as well, such as submarine sandwiches,spaghetti,and ravioli? Y N 6. When you go out for ptzza, do you pay any attention to the price? Y N 7. Do you use the pizza coupons found in local newspapers when you buy ptzza from a restaurant? never sometimes always 8. Do you like the idea of apizzaplace giving a free quart of soda pop with every pizza bought? Y N 9. Do you like the idea of a pizza restaurant offering a free pizza with the redemption of four tokens (one given each time you purchased a pizza)? Y N 10. Overall, what are your two favorite pizza restaurantsin Terre Haute?

whv? I l. Do you always go to one of your two favorite pizza restaurants? Y N

E X H I B I T 5 - 1C o n t i n u e d

12. What is your agerange? 10-19 40-49 20-29 50-59 30-39 60 13. What is your family incomerange? $ 1 0 , 0 0 0o r u n d e t I 1,000-19,000 20,000-29,000 3 0 , 0 0 0 -93, 0 0 0 40,000-49,000 5 0 , 0 0 0a n du p E X HI B I T5 - 2 SURVEY RESULTS

All Q u e s t i o n1 10 20 25 30 40 )U

'70 '75 80 83 90 100 Question2 I 2 3 A

5 o

ISU Only

t.7% J . J

1.7 1.7 1,'7 10.0 t'7

10.0 6.7

3.8 11.5

r.7 55 . 0

84.6

rs.o%

26.9 38.s 15.4 1 5. 4

21.7 zJ.)

20.0 8.3 1 t. 7

3.8

Question 3

I 2 J

Question4 Yes No

34

)\

5q^

44.0 305

8.0 t2.0 8.0

36.7% 63.3

34.6 65.4

EXHIBIT 5-2Continued

ISU Only

All Q u e s t i o n5 Yes No Q u e s t i o n6 Yes No Q u e s t i o n7 Never Sometimes Always Q u e s t i o n8 Yes No Question 9 yes No

Q u e s t i o n1 0 P a p p aR o l l o ' s Mr. Gatti's Giovanni's Pizza PlaneL Ptzza lllt Ptzza lnn

Why? Q u e s t i o nl 0 BetterQuality Good Pizza Atmosphere The Best Variety Big TV Better Ingredients W h e r eF r i e n d sG o Guys Questionl I Yes No

'7 t.8 28.2

56.0 44.0

63.37o 36.7

69.2 30 . 8

to.0% 68.3 2l.7

7.7 76 . 9 ts.4

86.7% 13.3

92.3 7.1

88.3% 1t . ' 1

84.6 t5.4

First Favorite ISU AII

SecondFavorite ISU AIl

1s.o% 30.8 38 . 5 26.7 6.'7 2 1. 1 23.1 3.8 I3.3 3.8 16.'7

t1.9% 24.0 48.0 3s6 5.1 16.0 11 . 9 23.7 8.0 4.0 11.9

AI

ISU Only

11.6% 44.2 '7.0

5.0 40.0 10.0

1 1. 6 z.J

'7.0

2.3

15.0 25.0 5.0 5.0

61.0% 39 . 0

68 . 0 32.0

11 . 6 l-J

?5

EXHIBIT 5-2Continued

All

Q u e s t i o nl 2 10-19 20-29 30-39 40-49 50-59 60+ Q u e s t i o n1 3 10+ under 11 - 1 9 20-29 30-39 40-49 50+

ISUOnly

tt.9% 74 . 6 13.6

24.O 76.0

333% 9.3 29.6 11.1 3.1 13.0

63.6 9.1 A .,\

< 1

E X H I B I T5 - 3 C O S T A N D F I N A N C I A L D A T A O N P E P P Y ' SP I Z Z A

ItemsSubjectTo DePreciation Ovens:

Mixer:

Retarder:

Cooler:

10 yearlife $4,000 original cost Straightline dePreciation S 4 0 0 / y e a rd e P r e c i a t i o n= ( $ 3 3 . 3 3 / m o n t h ) 5 year life $ 2 , 0 0 0 o r i g i n a lc o s t Straight-line dePreciation n ($33.33/month) S400/yead r epreciatio= i 0 year life $3,000cost Straight-line dePreciation $ 3 0 0 / y e a rd e P r e c i a t i o=n ( $ 2 5 l m o n t h ) 10 year life S 2 , 5 0 0c o s t Straight-line dePreciation n ($20.83/month) $ 2 50 / y e a rd e p r e c i a t i o =

TOTAL

s4,000.00

$2 , 0 0 0 . 0 0

$3,000.00

$ 2 , 50 0 . 0 0

$ r1 , s 0 0 . 0 0

E X H I B I T5 - 4 I N I T I A L S U P P L I E SN E E D E D 100 lbs flour 2 casespizza sauce 40 lbs. mozzarella I 40 lbs. mozzarella II 25 lbs. pepperoni 56 tbs. imported ham L0 lbs. Italian sausage 20 lbs. hamburger 15 lbs. steak 2 boxes mushrooms 2 cans anchovies 4 cans yeast I caselettuce 2 casesmild PePPers 2 caseshot pePPers 2 boxes tomatoes 40 lbs. American cheese 2 jars black olives 2 dozen green peppers 2 dozen onions 10 lbs.bacon I 0 boxes spaghetti 2 casescanned ravioli 2000 pizzaboxes I 000 quart containers for PoP 1000straws Stapler and staPles 50 large sub buns 500 bags 40 gal. pop (Dr. PePPer,Coke, etc.) 10 screensto cook Pizza on 2 checkbooks Kitchen utensils Stainlesssteel storagePans 2 oil (cases) 25 lbs. salt 25 lbs. sugar I 2 oregano(can) I 2 basil (cans) I 2 parsley (cans) 24 pepper (cans) 12 crushed red PePPer I 2 cans garlic 24 grated Parmesan cheese(large shakers) 50 garbageliners

34.00 43.08 38 . 4 0 38 . 4 0 57 . 0 0 I 17.60 15.50 34.'t8 37.50 25 . 0 0 16.58 t'7.96 9.99 2s.98 2s.98 12.90 32 . 0 0 1 3 . 05 3.92 4.68 19.60 8.90 4s.65 2 50 . 0 0 95 . 0 0 2.98 9.98 20.84 tt.75 64.96 40.00 30 . 0 0 s0 . 0 0 100.00 48.00 7.00 7.00 20.40 12.72 I 1.45 19.s0 12.12 30 . 0 0 36.00 5 . 50

E X H I B I T5 - 4C o n t i n u e d 2 mops 2 bleach (cases) 1 2 a m m o n i a( q u a r t s ) Miscellaneousand/or forgotten items

5.98 6.72 s .1 6 50 . 0 0 $1 , 6 4 9 . 0 0

E X H I B I T5 . 5 START UP COSTS Food handling permit @ 5.00 per person Tile for floor (already provided) Restroom facilities for employees(already provided) Counter to work on and servecustomers Cash register Store-front sign Stainlesssteel tables (4 (@$300 each) Stainlesssteel sink Chairs for customers who are waiting (4) P l a n t st o m a k e i t l o o k n i c e Ovens, mixer, retarder, cooler (describedearlier) lnitial suppliesneeded (describedearlier)

$

150.00 499.00 s62.00 l,200.00 50 0 . 0 0 40.00 s0.00 $ 3,006.00 I 1 , 50 0 . 0 0 r.649.92 $ 1 6 , s1s . 9 2

E X H I B I5T6 REQUIRED FINANCING 3 6 m o n t hl o a n Assumina g l o a na t 2 O %f o r $ 1 7 , 5 0 0 : Monthly payments Total payments Less: principal Total interest Monthly interest payment

-t8

s.00

$ 650.36 23,413.06 17.000.00 $ 6,413.06 6,4t3.06 36 $ I78.14

E X H I B I5T- 7 SO S TP E RP I Z Z A A V E R A G EI N G R E D I E N TC C o s to f d o u g h : Water Yeast Salt Sugar Flour

$ 0.132 0.140 0 . 16 0 17.00 $17.43+70

$0.25 0.22 0.23 0.53 0.04 0.13 0.10 $1 . s 0

Pizza sauce: Cheeses: Toppings: Spices: Box: Spoilage,overcooking, mistake orders: TOTAL AVERAGE COST OF PIZZA

E X H I B I T5 . 8 E X P E C T E DP I Z Z A S A L E S P E R D A Y

t'75 190 200 200 200 300 300

Sunday Monday Tuesday Wednesday Thursday Friday Saturday Weekly

EXHIBIT 5-9

N U M B E R O F E M P L O Y E E SN E E D E D P E R D A Y Sunday Monday Tuesday Wednesday Thursday Friday Saturday

J J J J

3 5

39

E X H I B I T5 - 1 0 P R O JE C T E D M O N T H L Y C O S T S

$1 0 , 1 2 0 . 0 0 4 , 0 0 5. 7| 500.00 3 0 0 . 00 25.00 120.00 175.00 112.49 1 78 . 1 4

Cost of goods sold Wages(including manager'ssalary) Advertising Rent Telephone Utilities MiscellaneoussuPPlies Depreciation lnterest

q 1( s ? 6 ? 4

TOTAL Fixed portion: Fixed wages Advertising Rent Telephone Utilities Depreciation Interest

$ 3,s60.00 500.00 30 0 . 0 0 25.00 120.00 112.49 118.14 $ 4,795.63

Variable portion: Cost of goods sold Variable wages

$l 0 , l 2 0 . 0 0 445.'7| $1 0 , 5 6 5 . 7 1

E X H I B I T5 . 11 MONTHLY BREAK.EVEN POINT BEunitt

fixed cost

sellingprice - variablecost Fixedcost Sellingprice V a r i a b l ec o s t

= $ 4,795.63 = $ 5.50average = $ 1 0 , 5 6 5 . 7+1 6 7 0 ' 7= $ l ' 5 7 a v e r a g e = 1 , 2 2 0P i z z a s

BEunir"

4,195.63 5 . 50 | . 5 7

BEr

5.50X1,220=6,7IO.OO

pizzas' In actuality, the Note: We have assumed, fbr conservatism, that all revenue will be from generated from other food' The above figures are probably understated, because sales will be so breakdown would variable costs include the estimated cost of goods sold for the other items, be lower. We feel that the variance is not significant'

E X H t B t r5 - 12 M O N T H L Y I N C O ME S T A T E M E N T

Revenues: Pizza Subs and other items

$3 6 , 8 89 . 2 9 2 , 5 1 7. 75 $39 , 40 7 . 0 4

TOTAL

Expenses: Cost of goods sold $1 0 , 1 2 0 . 0 0 Wages(including manager's 4 , 0 0 5. 7| salary) Advertising 500.00 Rent 300.00 Telephone 25.00 Utilities 120.00 Miscellaneoussupplies 175.00 Depreciation 1t2.49 Interest t 78 . 1 4

$1 5 , 5 3 6 . 3 4 $23,870.70

TOTAL Income Before Taxes

E X H I B I T5 - 1 3 P E P P Y ' SM O N T H L Y C A S H F L O W

Sourcesof Cash: Salesrevenue ftom pizza Salesrevenue from subs (etc.)

$36,889.29 2,517.75

TOTAL CASH GENERATED

$39,407.04

Usesof Cash: Cost of goods sold $ 10 , 12 0 . 0 0 4 , 0 0 5 . 7| Monthly wages(including manager) s0 0 . 0 0 Advertising 30 0 . 0 0 Rent 25.00 Telephone 120.00 Utilities Miscellaneous supplies 175.00 Payment on note (including interest) 65 0 . 0 0 TOTAL CASH APPLIED Increase in cash during month before taxes

$1 s , 8 9 6 . 0 7 s25,510.97

E X H I B I T5 - 1 4

P I Z Z AM E N U Pizzas

Extra Large 1 2 P c . 1 6P c '

Junior

Small

Medium Large

6 pc.

8 pc.

l0 Pc.

s.05

5.90

3.9s 1.95 2.75 Cheese '7 -15 5.95 4 .85 3 . 4 0 2 . 4 5 one item and Cheese '7 '85 6 . 8 5 5 . 5 0 4 . r 5 2.'70 Cheese and two items '1.40 8.45 6 . 0 5 4 . 5 5 3 . 0 5 Cheeseand three items 9.50 8.35 5.65 6.95 3.95 Special on anchovies (pepperoni, mushrooms, ham, green pepper,onion,and bacon request) 8'4s 7 '40 6.05 4.55 3.05 Pizzaburger pepPer) green and onion, (cheese,hamburger, 7'8s 6.85 5.50 4.15 2.70 Italian Delight (cheese,Italian sausage,and mushrooms) 8.45 7.40 6.05 4'55 3'05 The Peppy (steak, cheese,and mushrooms) '85 '75 '65 '55 '45 Extra items or double dough 9 '50 8 ' 3 5 6 ' 9 5 5 ' 6 5 3'95 T a c o S u p r e me P i z z a hot sauce cheese' cheddar tomatoes' lettuce, with (taco meat, cheese,topped on the side) P i z z aT o p p i n g sT o C h o o s eF r o m l ! ! Italian sausage'green Mushrooms, cheese,pepperoni, hamburger, black olives, onion, anchovies,ham, bacon'

Chef Salad olives,ham and cheese Lettuce, tomato, onron, green pepper' mushrooms, black 2.7 5 Dressing:French, Italian, or Thousand Island

Pasta 2.25 2.25

Spaghetti with meat sauce Ravioli with meat sauce Mushrooms .35 extra .60 extra Meatballs Above orders servedwith bread and cheese

Submarines Deluxe combination Ham, pepperoni, and cheese Steak sub Steak and cheese Steak and mushrooms

42

Half 1.30

Whole 2.55

1.55 1.85 1.80

2.90 3.20 3.30

E X H I B I T5 - 1 4C o n t i n u e d 3'60 2'lO S t e a k ,m u s h r o o m s ,a n d c h e e s e 2'20 1'15 Pizzasub pizza sauce and pepper' cheese' green Pepperoni,ham, mushrooms, onion' 2'60 l '45 Ham sub 2''70 1'55 Ham and cheese 2'60 1'45 Hamburger sub 2''7O l'55 Cheeseburgersub 2'10 l '55 sub Italian sausage 2'80 1'65 Italian sausageand cheese 2'40 l '50 Meatball sub Spaghetti sauce and cheese 2'40 l '25 Vegetarian sub except peppers' hot onions' and All submarinesinclude lettuce, tomatoes' subs Pizza 40 on any whole sub .25 on anY half sub Additional Items

craig nicholsand gary harwell

"We'vegot the merchandise and facilities;all we neednow is a competitiveedge'" Craig Nichols summed up the statusof a new venturehe just initiated with friend Gary Harwell. Craigand Gary residein Eugene,Oregon,wherethey attended book collecting. collegeand pursuetheir mutualhobby of science-fiction "Craig and I are really into sciencefiction," Harwell explains."We have pooled our book collection and have over 4,000 volumes-Heinlein,Van Vogt, Asimov, Bester, Moorcock, Pohl. You name the book; it's somewherein our collection." "Not only that," Nichols adds, "we've got sci-fimagazines goingback over indexed." years. and neatly catalogued A11 twenty-five During the summerof 1980, both Nicholsand Harwelldecidedto stay out of school to investigatethe possibility of openinga used-bookstorein Eugeneas a their incomeyeal lound. Nicholsand Harwellelaborate: meansof supplementing Nichols Gary and I figured that we might as well try to capitalizeon oul love of books and reading.Both of us arefalniliarwith used-bookstoreoperationsbecause we havehauntedthem so regularlyin building our collection. Harwell-Tltat's right. Going to bookstoresall over the Northwesthasbeena hobby operationin this part of the of ours. We'veseenjust about everyused-paperback country.A lot ofthem seemto be profiting. IVichctlsGary's uncle owned a servicestation here in Eugenenearthe Universityof 44

Craig Nichols and Gary Harwell

45

Oregoncampus.OPECput the station under in 1918, andit's beenvacantsince.We made a deal with his uncle to convertthe facility into a used-bookstore.He agreed to do it for 25 percentof our take for two years. Harwell-Not a bad deal, actually, since the station was located near the campus and in a good state of repair. To say the least, there ale hoardsof avid readersat the University. Nichols-Just three weeksafter lining up the station, Gary and I lucked into a deal outlet put his over in Portland. The owner of a pretty good-sizedused-paperback suffered in losses farming quick to cover cash merchandiseup for sale to raise 50 miles within 200 acres He had you luck? believehis southernWashington.Can of Mount St. Helens! and Harwell-We swung a good deal with him-over 10,000paperbacks,magazines, from the money we borrowed 35 apiece. cents about That's for comics $3,500. some fraternity brothers, rented a U-Haul truck, and carted home our start-up inventory. Nichols-lt filled the servicestation about half way. We're currently in the process of catalogingthe stuff. We definitely got a greatdeal.Most of the books are in good shapeand have recent copyrights.We got a good mixture of fiction and nonfiction, includingwesterns,mysteries,gothics,biographies,and a few technicalbooks. Harwell-We're virtually ready to open the doors, but we still haven't decidedon what competitivestrategyto use. Nichots-That's our problem. We don't want to be just another used-bookstore. Eugenealreadyhas a half-dozenof those.We want to be somethingdifferent in our imageand in the way we operate. Harwell-We've kicked around a few ideasthat might provideus with a competitive edge, but we haven't really settled on anything.We're ready to open but want to wait until we havecrystalizedour strategy. Nichols-We want to be ableto attract customersbasedon our differentiatedimage and unique style of operating.We'relooking to be somethinga little different. Harwell And profitable!

Analysis: Designa competitivestrategyand competitiveedgefor the new booknamefor the store.Striveto satisfythe criteriaestabstore. Includea suggested t n dp r o f i t a b l e . l i s h e db y N i c h o l sa n d H a r w e l lt,o b e d i f f e r e n a

|

. .

exptorauon grapnrcs l

o

Jamie Thompsonis presidentand managerof ExplorationGraphics,lnc., a computer servicescompany that preparesgraphicsand interpretsgeographicaldatafor the oil and gasindustry. The company is located in Midland, Texas,where Jamie wasborn and currentlyresides. Jamie graduatedfrom Midland High School in 1965 and has taken a variety of collegecoursessince then. She was recently chosenby TexasBusinessmagazine asone of the top ten womenexecutives in Texas. Jamie's interestsrange from readingvariousbusinessperiodicalsto outdoor recreationincluding hunting, fishing, camping,and swimming.She is a memberof the PermianToastmasters,Midland Businessand ProfessionalWomen'sClub, West TexasGeologicalSociety, the High Sky BassClub, and the Midland Rifle and Pistol Club. Jamie and her husband,Doyle, are the parentsof two girls, agessevenand five. Jamie,pleasetell us what ExplorationGraphicsdoes-whatyour companyis you offer. all about,and the kinds of services Basically,we apply computerizationto oil-field-explorationanalysis.This is a fancy way of sayingthat we provide our clientswith computerassistedanalytical services.We have a data file containingmore than a decade'sworth of information about oil and gas wells drilled in the PermianBasin region,which encompasses a large part of West Texas. We use this information to developcomputer printouts 46

Exploration Graphics

47

or contour mapsfor many independentoil companiesaswell as the majors. These computerized geographicalmaps show data such as which oil and gas wells are producing,what thesewells have done historically,patternsof well production in the area, and related concelns.We use a variety of information inputs such as a basemap, correlatedelectric logs, scout data, samples,cores,and so on. We take this information, processit by a computer, and melge it into convenient printouts for the busy geologistto use. In effect, we type, file, retrieve,draft, and processdata which would be much too complexand cumbersomefor practitioners to use. These servicesboost the user's productivity by a minimum of 20 pelcent. Just imagine,the technicianwould haveto spenddaysand perhapsweekscompiling and processingthis geologicalinformation. Our computerization does this in a matter of a few seconds.Not only do we processthe information, but we package it in a useful, convenientway for the geologist.I'm not braggingwhen I say that is reallyunique. our business Tell us how you got into sucha unique business. In 1965, I beganworking for the Mobil oil corporationassoonasI finished school.I startedout as a mail clerkbut in a few monthsI waspromotedto stenographer. I went to work during the day and took classesat the local junior college coulsesand had a strong interest in in the evening.I was taking data-plocessing computer scienceat the time. The company noticed my interest in computersand encouragedme to take a series of in-company aptitude tests dealing with programmingskills. I did very well on the testsand was selectedto receiveextensivetrainingwithin the company. The training period was a tough time for me, becausethe friends I had made at work in my clerical positions evidentally were jealous of my advancement.They gave me the cold shoulder and I was left to myself. They didn't even want to associatewith me much during the coffee breaks,so I used this time for further study. After awhile, the social isolation at work got to me, and I knew I was going to have to changejobs. I was being completely ignoredby everyone.I was offered a job with the Midland IndependentSchool District and quickly took it. This gave me my initial experiencein doing data processingwork. In 1969, I was ready to do contract programming,so I establisheda firm called DecoDataProcessing.I took on a partner early in the business.The business did pretty well, but in 1975 my partner died. We had no survivor'sagreement,so the partnershipwas automaticallydissolved,and I was faced with striking out in a new commercialdirection. Tell us what options you were consideringat this point. Basically,I had three options. First of all, I could go to work for someone else. A second option would have been to stay home and spend all of my time

cr

r Ff-

s N $ O O O O O O Q 9 9 9 € 9 € O O r o h r o o h o o o o o o o o h o € - d 6 o + o - O o O h r O h d h o v1--:-1c.l N ao*

- o 9 o o o o c| . € r o c c o o - ; d ! ? f 9 ' d ? .9 : C$ ?- o9 : i rr O ^ -j aNN o h

F.rJ)

6 r r r 01

O .F

-

a

i

s

r

; d

U U)

z

o

o r r N r ih -J

O O o € N @ € O o o - r ' s - Ji o- iAr a . ij .j r O O o @

LIJ LLI

= tn 6

' . r

. 9 i i -

c r F

)

o ! , =

x

_ d

O O

O O O ' \ oO i

O

Ci

r)$

oo

r)

co

a (.'l

O C-

c.r O (.O h

O O

O c )

OFr O o \ (-l

\t h oO

h

c.t $

\O c O

* *

>

O H O n

O

n'cq"1

F o-

O O

m

S :

O .f,

1 < l

: L

I

F-

v

c.)

H\O

o\OO\o t \ h o \ o rlh o H dFO\ c..l d r

oo cc=

'oi o

o d

O i a.l a{

F

O O O i

@ c,t

F - o l O O a{a.loo d c d ' d

t-.

O O

c4

c.lO\

cF-

O O

.f

, r d

or@ O\F o: d} \o@ O

tr-. oo t-t

= -)

:

co O -: ci

O

o o n

oqv?

q

c

hcr$ \r o^ O\ ci

:f -: O c.l

N

6

Q

* *

a j O O F h i ' O @

oo

$ r)

o a.l

6ca co c

O

@

"1 o)

tr-

o\

9 r

. :

52

ooo (-t a.l

--i c"t \o:f a$

Y

.

:;

b A

E

. = ,

-

5

:

3 * E -

a V

. H d 5 qt s q *

F *l

d

v

: it o s E

L

E

b E 9 ''5 I

r 3*

2

i n

2 4, ;g:fr! Hg;Ffr "1, : 9 t < d * . . 3 E i < 3 _ r ! fl E g- .A q E : g -F; I ;- Ed ,- EEb q e:^ d 6 E.X h ; cdc5 # i 5aE U

@

c i c O - o O

a

E

*

O O

\O^

o-

E

g

O O

O \

$c.l (..l O\

F.E ::E.E

:'o.E

I

\ t O o O t - - O O \ t O - a r O O

c !

od'^i v

+

$ \o

-

:

mn \ocq cOcO

F-

a.l

$

l-rJ T' t)

€-

9

3

t o c F

u

J a \

z

-

N

3 Y N r

F

X F

; lE.:

xU

l

:

o

q

v O

J

o l

z

O\ ca

O\

O

-

c O \ (\

$ d 6 F cnH n t - ' dlq o o -

-

n \ o

O

:

\ocl

an,l controf-->

-1 da

Llne

supervislon

Ma-nageneut by e z : c ep t i o n

s ta temenE Can you suggest any improvenerrts in

Polyrnarts

lannin

framework?

Polynarrs President Dr-ight Elkins must of course recognize that a planning system is worth no more than the informacion whlch goes lnto iC. The real utility of company planning is not how tightly designed the system is but rather whether or not lt generates accurate and tl.orough lnforuratlon in a tinely fashion. rn other words, the infornal comnunication dynamics of planning are more inportant than the formal design-on-paper aspects. Above all e1se, planning is a communication process between a companyrs operating units. Polymar would do well to focus its standards here rather than on fine tuning the aesthetics of its forrnalized planning systen.

,q

SUN CITY DELIVERY

Issues l.

Personality

2.

Fenale

3.

Readiness of a buslness

4,

Reliance

5.

Business acquisiElon

Can only

characteristics

of

entrepreneurs

entrepreneurs for

expansion

of a sma11 company on a few key custoners decision

personalities

extroverted

entrepreneurs?

becorne successful

characIn dealing wlth somethlng as complex and subtle as behavioral and stereotypes must vague generallzations terLstics of entrepreneurs' entrepreto classify it Is not posslble Certainly obvlously be avoided. Indeed the whole extroverts or introverts. neurs as belng predorninantly scherne is discredited. classification generalizatlons less glaring Perhaps the followlng neurial success are a step closer to reality: To be successful, other people.

2.

Entrepreneurs r esul t s.

3.

personallty type is Possessing a certain success as is the abllity entrepreneurial an organized framework. sources within

must be asserEive

opportunlties

entrepre-

must know how to work with

1.

What entrepreneurlal technlcal ori.ntatlo

entrepreneurs

about

enough lnterpersonally

and through

to assure

not so much the key to Eo nanage people and re-

are available

to

having individuals ry' or computer

a

fields thaE the rnost glarnorous and in these technical It is precisely of the pasE two decades have success stories entrepreneurial dranatlc (the faured Callfornia in and around Palo Alto, Particularly blossorned. "Sillcon producing such flourished, entrepreneurship Va11ey") has technical success sEories as Arodahl, Cray Research, and Syntex. linked innovaEion have been inseparably and technical Entrepreneurship The up and coming century Promises this century. ln Arnerlca throughout with a profor the entrepreneur perhaps even nore spectacular oPportunity or whlch outrnodes exisElng duct thaE creates new markets and technologies ones. do not start-ups While many ne!, venture "spin-offs" from technical show that studies engineers, have the highest success rate.

success' meeE with spectacular flrms, usually rnanaged by

Do you think experaence

bein

a women hel

hindered

or

Marle

in

her earl

business

Undoubtedly l,larie faced more of an up-hi1l fight in some respects than would have a conparable male counterpart. New companies must depend upon the Erust and good faith of numerous partles, including bankers, con"general sultants, custoners, and the public." Fernale entrepreneurs are 1ike1y to encounter rnore frequent hurdres and roadblocks ln building ttre trust and support of externals than would be the case for comparable rnales. rn short, sorne people are apt to give less respect and serlousness of conslderation to feurale entrepreneurs. Nonetheless, Marie a male or fenale, this

Tarvin made Sun City Delivery a success; is what entrepreneurship is all about.

How can a sma11 business

owner know vrhen he or

It is perhaps easier expand. Expansion would

to identlfy when an entrepreneur seem prenature or unwise when:

l.

The business o pera t lons .

2.

The company has experienced

3.

Custoners

in

4.

Expanslon

rnust be financed

5.

The business owner is provisions for getting

6.

The courpany has been experiencing t inui ty .

7.

The entrepreneur is necessarily proflt.

cannot

the

of

market

largely

presently the help

present

orders

problems

flow

cash

target

its

rea11

for

are largely

through

debt

is

not

ready

and volurne of

several

months.

untapped.

or

trade

credit.

overworked or has not made adequate of someone else ln expansion. production

or

lnventory

expa.nding so1e1y Eo increase

and disadvantages

of

tylng

discon-

sales

but noc

a small

business

^ .

l.

Big

2.

Social

3.

Cash flow

4.

Additlonal

bucks

from a few sources

prestige would

probably

contacts

wlth

DlsadvanEages: I.

on top

present

{hat are the advantages large company clients? A r--^-! ^^^ AuvdrrLdtEs.

slay

she is

For elther

Dependency reduces

porrer.

becoure more predictable other

large

cornpanies

and guaranteed

to

2,

ihe J,arge c'.lstomer$ mav gr.,4 iiisler be acle to keep rlt' Yjth.

3.

Llrge custcmcrs oflcn and rtlher competitive

ihan th4 smalier

have tit: economlc muscl= tc derive a.lv.rntages.

The lc'cs of a singie cusLcrncl: could firmrs income and prof:itabilicY. ShoulC Srrn City llarie cotl*lt.sE

have a significanL

Services? buy r;u; Airfr:eight snoriv;nat terms ffih" u y o u t ,

firm

servicing

t r ^ J h aics A i r l r e i .f f..?

price

rnay

breaks

i m p a c i on ihe

lrt wor Lh?

If

The crux of fhe isstre is how rnuch is a company worCh that is gen:rating The information $1C0,00 iri saies, yeL not making a Profit ($355). of net present value of avai.lable docs not lerrd itsel.f tc ca1cuiaiicn 0l d cechnique. t-orward anai-ytical l'uture incone or any other straight "horse logic seems approprlate. iradiug" fashion B r , r 1 ] 1g u n C i r y a n d { i r f r e i g h t h a v e c o r n p a r a b l - e s a l e s ( $ 1 0 1 ' 6 0 0 v e r s L l s n e t i n c o m e i s s o m e w h a tn o l e s u b s t a n but Sun clty's $95,50C rcspectively), It seens fait:ly tial. (Sl,48O versus $350), thcugh nothing spectacular. ciear tirai lhe only i:eason why )larie would want Eo purchase Airfreight woulri be if some sori of si'nergisEic effect could be achieved. In analyzi.ng each firmrs income statement, Ehere ap[€ars co be little through cutEing operating expenses signifiior hyping profit opporcunity About the only unchangeable. carrrly, as these are minimal or basically is fcr cost cutting expense lhal represents an opporrunity operating It is conceivable that personnel). (perhaps through consoliCaring salarjes could be generated here. up to $20,000 in profit that the firm is not very profitrecognizing The owner of Airfreight, sej'1ing price cf $45'000' ask for an effective ab1e, might realistically to the bock value of total assests ($23,070) and assumpThis is equivalent v'tant to discount ($22,270) " Sun Caty would most likely i i o i r o f - l _ai b i l i t i e s by about 50 percent, or $7,000, and negotiate further on the receivables (negative retai-ned earnii-tgs). is unprofitable basis that Airfreight If Marie were to discount tocal asse!s by $7,000 ($14'000 she rnight cr,me in with an offer in the neighborhood of $18,000. would not view such an cffer very positively. Airfreight

$7'000)' Obviously

Perhap; there would be some room for compromise if the salary-cutting If Sun City would consider were to materialize. scenario m.:ntioned earlier by receivables consider discounting the $45,00J asking price and Airfreight just $10,000 night sweeten the o f e v e n r e d u c t i o n s s a l a r y s u b s e q u e n t $7,000, purchasing price of $38'000 The resuiting deal enough for Sun CiEy. ($45,000 - $7,C00) would produce a payback period on the buyout of apptoxifour years (assuning $10,000 annual profit. resultin-g from Ehe salary nately This rqould not be a bad deal for Sun City" cuts).

B I G S K Y W E S T E R NS T O R E

Issues 1.

Computerized

inventory

control

28

2.

Retail

3.

Price-intensive

4.

Use of computers in

cornpetitive

strategy

merchandising

strategy

smal1 business

Whur "

personal. service and customer atcentlon di-scount operaElon like Big Sky

i.

Greater a large

2.

Attraclive

3.

Better

selection

of

sizes

and scyles

than can be afforded

by

strategy

of merchandise

parlicul-ar1y

appropriare

t,

Western wear clothirrg carries a fairly does nost apparel. Price discounting

2.

The physicai facilities at Big Sky are fairly customers wi-l1 rreed a strong economic::eason

3"

The owner, purchasing at

?

ma1l location

!.lU_1 " g_!f!e_44ll"i"9 i^=rt-ern St.r"?

Identify

Big Sky

the

lgai"st

substantial is therefore

Mr. Ridiey, seems to have a real a.nd ec,;nomies of scale.

least

three

otirer different

retailln.q

to

rhe

Big

Sky

retail mark-up, feasible.

as

plain and basic, so to patronlze the store. knack

for

econornlcal

situacions

where an

i.

Pet stores: Customers would undcubtedly correlale price with the (lior+ever. pet supplies would probably health and quaiity of anirnals, L'e appropriate for price discounting).

2.

Prestige

3.

l'ledical

apparel

and furnishings

equipment and produccs

the authors did not find this questlon particularly easy Quite frankly, to answer. Price is such an important ingredient of most products, that 1t is difficult to think of nany retail situations where prlce is strictly secondary in importance. Deslgn cal,

a cornputer

and simple

punch card

that

serve

as a plotgtype

to utilize. Posslble

Columns l-10: l1: 72: 13-16: 17-18: I9-2O: 21-23: 24t

could

Punched Card Solution

Name in Fu11 (Tony Larna; Justln) C o d e d N a r n e( l ; 2 ) Class (M; W; Coded) Style (Mfg.; Asslgned) Leather Coded (Lizard; 0strlch; etc.) Color Code (Black; Brown; ecc.) S i z e ( I / 2 ; C o d , e dA s ; 5 ; i 0 5 ; f o r l 0 f 2 ) Width Coded (AA; A; B; ...; EEE; Coded)

for

Big

Skyrs

25'. 26t 27-28. 29:

Stitch Coded (Nurnber of rows of Toe Coded (R; J; T; X; etc) Heighr ( i1"; 16") Heel (l; 8)

stiches

or

pattern

coded)

represent the Codes should be created in order that numbers (digtts) None of these ltems has fewer card coLumns. items, thus utilizing various the arrangement above is not comcard colunn, i.e., to be ln a particular pulsory. The only requir€rment would be that EVERY card had lhe same cate(A11 classes should be in column 12 in colunns. gorles ln the identical the exarnple). of

the resistance for overconing Provide praguratic guidelines systern. control sonnel in irnplernenting the ner^rinventory

sales

per-

by the new

1.

sharing system hrhere cost savings enabled a profit Institute system can be share