Question

Question 1

Case A

Marty Ofori worked for a card company specializing in invitations and announcements. Every day for 25 years, he went to an office, sat at a desk, and took orders over the phone. He hated it. He was bored out of his mind. He didn’t know what to do. So he began skimming the business opportunities section of The Mirror. He wasn’t sure what he was looking for. At almost 50 years of age, he had few business skills. Accounting was a foreign language to him. He figured that if he ever bought a business, it would have to be one that didn’t require much specialized knowledge—something that would be relatively easy to manage. He considered a franchise, but he found that the good ones were very expensive. Then he came across an pastries and bread route for sale. He thought “How difficult could it be to run a delivery route?” He called the phone number in the ad and spoke with the business broker who was handling the sale.

It turned out that the route was on the Kumasi-Obuasi route, where Ofori and his wife, Annabelle, lived. It was a one-person operation. The individual who owned it had had the route for 20 years and took home about $65,000 a year. He wanted $200,000 for the business, but he was willing to help finance the deal.

If Ofori would put $60,000 down, he could pay the balance over five years at 10 percent interest, or about $35,000 a year. That would leave Ofori with an annual income of $30,000 until the debt was paid. Combined with Annabelle’s salary, it would be enough to make ends meet. If he worked hard, moreover, he could expect his sales, and his income, to grow by 10 to 15 percent a year.

It seemed perfect. Ofori went to meet with the owner and returned sounding even more enthusiastic. “This is a can’t-miss deal,” he told his wife. “The guy has signed contracts with all the places he delivers to, and none of them is more than 25 miles from here. I could do the entire route in seven hours.”

However, Annabelle wasn’t buying. “You’re not quitting your job until you talk to an expert,” she said. Ofori agreed to meet with a broker.On the date of the meeting, Ofori brought all his paperwork along. He laid out the terms of the deal in great detail. “What do you think?” he asked. The broker said, “Tell me something, Marty. Do you like this business?”

He shrugged. “I can’t really say. I haven’t tried it yet.” “What’s involved in it besides picking up the bread and pastries delivering it to the stores and hawkers?”

“I’m not sure,” he said. “Whatever it is, it can’t be that complicated.” “What happens if the truck breaks down?” “I don’t know,” he said. “I guess I’ll just work it out.”

After asking Ofori a series of questions along those lines, the broker finally said, “Listen, Marty. You want to know if this deal makes sense from a financial standpoint. That’s easy to check. The guy has an income tax return, and his sales are verifiable.

This isn’t a cash business, after all. He sells to hawkers and supermarkets. They pay by cheque or mobile money. We can go over his expense figures and make sure they’re realistic, but my guess is that the deal is OK. If you’re asking me whether I could negotiate him down a little, the answer is probably yes.”

Ofori turned to his wife: “See, I told you he’d approve.” The broker said, “I didn’t approve anything. Only you can do that, and you’re not ready to.”

“What do you mean?” he asked.“You haven’t done your homework,” the broker said.

“You don’t know what you’re actually going to do in this business, and you don’t know if you’ll be happy doing it.” “How am I going to find that out?” Ofori asked.

(Adapted from Longenecker et al., 2013)

Answer the following questions based on the above case

i)How would you suggest that Ofori find out if he would be happy in this business?

ii)Would you recommend that Ofori buy the business, given the asking price and terms of the deal?

iii)Is Ofori relying too much on nonquantitative factors? If yes, what are the shortfall involved? If no, what factors is Ofori basing this decision on?

Case B

Amy Lartey is the owner of Fit Wright Shoes, a manufacturer of footwear located in Accra. Her

company has pledged that all customers will have a lifetime replacement guarantee on all footwear bought from the company. This guarantee applies to the entire shoe, even though another company makes parts of the product.However, customers must prove that they followed care instructions strictly.

Answer the following questions based on the above case.

i)Do you think a lifetime guarantee is too generous for this kind of product? Why or why not?

ii)What impact will this policy have on quality standards in the company? Be specific.

iii)What alternative customer service policies would you suggest?

Case C

Jay Sorenson of Portland, Oregon, created a product called the Java Jacket, which is a patented honey-combed insulating sleeve that slides over a paper cup containing a hot beverage to make it comfortable to hold. Having introduced the new product to the market, Sorenson already has cut deals with coffeehouses, specialty stores, and convenience stores nationwide. He started the business with $15,000 in 1993, but Java Jacket has grown tremendously since then. In fact, the company has already sold more than one billion cup sleeves! Sorenson is now in a position where he would like to continue expanding his business, but he is concerned that large and established competitors could introduce their own variations of the same product.

Sources: Don Debelak, “Send in the Clones,” Entrepreneur, September 2003,

pp. 128–132; and “About Java Jacket,” http://www.javajacket.com/company.php, accessed December 6, 2006.( Source: Longenecker et al. 2013)

i)Will the market for Sorenson’s product continue to grow in the years ahead?

ii)If he is successful, what sources of competition should he expect?

iii)What steps would you recommend that he take to protect his company from the onslaught of competition that is likely to come?

Answer 1

1)Ofori could do a mock drill on the routes to find out whether he likes the business or not. One can get a fair idea after a trial run of seven days.

2)Ofori should only take the deal if his finances are in order. His calculations are roughly correct however he needs to ensure that he gets at least $50000 on his routes. Otherwise it will be difficult for him. Correctly predicting demand and cost will be the key for ofori. Considering the earning potential, the deal is a good one.

3)Ofori is relying on his ability to make the deliveries on the route. it will be a physically demanding job and ofori being in a desk job for years will find it difficult to do a field job suddenly.It is when the excitement runs out that a job feels heavy and boring. Ofori is basing his decision on emotional factors and the excitement of finally doing something on his own and getting away from his routine work.

4)A lifetime guarantee is definitely generous for a product which will wear and tear by use. Shoes will have to be used and they will get roughed up after use. Some of them might be used in tough terrain or conditions. People will also find it difficult to prove to them that they followed the instructions carefully as that defeats the purpose of shoes which is to protect feet in every condition.

5)Quality must be top-notch. It should define the length of years a shoe can be in good condition without wear and tear. Colour fading should not be there even after years of use. The threading should be intact on the seam and should not come out. The soles should withstand the pressure from feet.

6)Alternates customer policies should be either buying back shoes for recycling or providing limited warranty service instead of lifetime warranty as people buy new shoes anyway after a few years. Providing a good chargeable service ensuring customer satisfaction.

7)Yes since such problems arise every time and at every coffee house, there is a demand for such products. Therefore the product demand will grow in the future.

8)Sorenson can expect competition form cheap substitutes who will try to make the product at much lower costs such as Chinese companies or competitors. This is not a fashion product and is a utility product. therefore, people will use the product whose cost is low.

9)Sorenson should make a brand out of the product so that people remember the difference between his and other products, Also, since he is the first mover in the market, he must ensure that there are long term deals in place rather than short term. Also customization for each coffee house can create a differentiation product.