Chapter 1: Exercises/Problem #1 pp.33-34
A. Phil Young's venture of his Pedal Pushers is in the development stage. This idea is a concept that is looking for prototype capital for development and marketing. At this development stage of the process Phil will need to seek funding form family and/or friends which are the typical starting point for a venture at this stage. Another possible avenue that could be taken with this is taking on personal loans or liquating personal assets to fund his new venture.
B. Petal Providers is entering the rapid growth stage. Since the venture is already established sizable revenue of $1 million last year is set to expect $3 million this year followed by $15 million the following year with additional stores. At this stage Patel Providers firm could look for external funding sources. These second round finances could be suppliers, business operations, commercial banks and investment bankers.
Chapter 2: Exercises/Problem #2 A-C & E p.70
A. ROA (return on assets) is net after-tax profit divided by total assets (Leach, Pg. 58). That being said the ROA for each venture would be as follows:
Venture XX - 0.1 or 10% (5% x 2.0)
Venture YY - 0.75 or 75% (25% x 3.0)
Venture ZZ - 0.15 or 15% (15% x 1.0)
B. Strong entrepreneurial ventures have high margins and sell unique goods or services. Using that I would suggest that Venture YY has the strongest entrepreneurial venture opportunity. Due to the fact that it's ROA is the highest at 75%.
C. Since commodity type business has low profit margins and the only reasonable ROA that can be achieved by selling goods or services in large volumes. Using the data retrieved form section A it looks to be as though Venture ZZ has the lowest ROA and is more of a commodity type business.
E. Using the chart on page 54 which is the potential attractiveness chart each venture would rate as follows:
Venture XX - Falls right on the line between an average and low, it is 10% which is still in the average category but is also on the higher side of the low category, I would score it average (2)
Venture YY - High (3)
Venture ZZ - Average (2)
Chapter 2: LearnRite.com Mini Case questions p.74
A. Based on the information that revenues for 2011 are at $1 billion and are expected to grow at the rate of 30% annually the projected industry sales for children's software through 2015 is $2.8561 billion.
B. Using excel calculating the year-to-year sales growth rate for LearnRite, we take the current year annual sales subtracted by last year's annual sales all divided by last year's sales. The numbers work out as follows: 2012-860%, 2013-213.54%, 2014-125.25%, and 2015-79.06%. Using this same data the compound growth rate over for the following years is 2012-860%, 2013-1405%, 2014-2160%, and 2015-2935%.
C. LearnRite's expected market share is as follows, 2011-0.10%, 2012-0.74%, 2013-1.78%, 2014-3.09%, 2015-4.25%. This information is calculated by taking LearnRite's annual sales and dividing them by the Industry yearly sales.
D. LearnRite's net income (loss) from the profit after operating and marketing expense only has a negative effect for the first two years, it is ($2.70) million in 2011, and ($2.12) million in 2012. Then in the following years there shows profit for 2013-$3.01 million, 2014-$6.78 million, and 2015-$12.14 million.
E. TheROA is expected to be positive starting in 2013 at $6.02 million, then in 2014 at $13.56 million, and continuing in 2015 at $24.28 million.
F. The industry/market factor category in the VOS indicator has four sub categories. They include Market size potential, venture growth rate, market share and entry barriers. LearnRite's venture using these categories scores as follows: Market size potential is a high (3), since the market is currently over $1 billion year, venture growth rate is also a high (3) due to the extremely high year to year and compound growth rates, market share is low (1) since market share is below 5%, but shows promising growth, and entry barriers is low (1) because the market is pretty open to newcomers.
G. Using the VOS indicator, category of pricing/profitability, LearnRite scored in the average (2) section of each subcategory gross margin, after-tax margins, asset intensity, and return on assets. It shows potential attractiveness. This means it is not an initial home run but has the potential to turn into one later on down the road.
H. LearnRite's attractiveness in financial/harvest factors are as follows: cashflow breakeven, average (2) due to the fact that they are set to breakeven after year 3, rate of return, average (2) since it is expected to be 40% annually compounded rate of return, IPO potential, low (1) since three IPO potential is after 6 years, finally founders control comes in average (2), LearnRite's founder controls 35% of the company, this is a large majority.
I. Looking at the management factors attractiveness are as follows for LearnRite: experience/expertise is high (3), functional areas is average (2), flexibility/adaptability is high (3), and entrepreneurial focus is also high(3).
J.Under the VOS indicator LearnRite's overall points equal 34, leaving the average score at a 2.13.
K. Using the VOS indicator LearnRite's overall attractiveness score is average at 2.13. The industry the company would be entering has a continued growth that shows as a strong positive for this startup venture. In this growing industry LearnRite is set to have large growth however only maintaining below 5% of the market share after the first five years. That showing as a negative there is also another with the industry barriers being low for companies looking to enter leaving possible opportunities for experienced competitors to obtain more market share. LearnRite scores average in both pricing/profitability, and financial/harvest, with an IPO below average. One positive strong VOS indicator is the management teams experience and expertise in finance. Using this gather data and indicators even though LearnRite's venture is not a sure fire home run it has promise to be a successful company. With entry barriers that could eat at market share, margins and growth, there is short-term and long-term potential in this company. LearnRite shows as a strong business opportunity that needs to go after the software market where they have a good deal of experience in edutainment. In this niche of the market they can build their brand and increase their market share.
1. Issues and Assumptions:
-The first issue is that the market in which LearnRite is looking to enter has very low entry barriers; this will show as a threat to new innovative experienced ventures to enter the market with very little difficulty.
-The market share is below 5% through 2013. Even though the market is growing and LearnRite's share will also be growing this reads as a threat.
-Their IPO potential is not shown till after 6 years in the market. This is very slow with the rapid increasing profitability of the market.
2. Analysis:
-The combination of easy entry into the market with low berries and only having a 5 % market share will prove difficult for LearnRite's profit margin. They need to discover a way to increate not only their market share but their brand name to make them stand out amongst new comers in the market.
3. Problem:
-LearnRite's main problem is market share in a very accessible market. They need to make clean aggressive advancements towards their development of their edutainment products and services
4. Recommended Action:
-The recommendation would be to go forward with the business venture with a focus on marketing. LearnRite need to focus on gaining market share in an ever growing industry. Their innovative edutainment products and services needs to exceed the current industry standards acknowledging them to be top of the market.
Resources
Leach, J. (2011). Entrepreneurial Finance [VitalSouce bookshelf version]. Retrieved from https://devry.vitalsource.com/books/9781133614470/id/B2-35