Assignment:
Integrated Case Study
In this course, you will interact with Part I of a multi-year, integrated case study experience. This part of the case study focuses on financial issues and related ethical decisions.
The Case
Software producer ABCTech maintains a simple organizational structure with its two partners/employees carrying out all of the daily operational tasks of the business including research and development (R&D), marketing, accounting, and production. Thunder Thompson is the founder/CEO, and Chris Christians on is the co-founder/COO. Both men continue to work for a large computer programming organization during the day while starting ABCTech during the evening hours. So, neither is drawing a salary form ABCTech at this time. Based in the founder's garage, the company is on track to post revenues of approximately $250,000 after the first year of operation, and the partners believe the company valuation can soar into the hundreds of millions of dollars over the next several years. With the local economy assessed as being favorable to the support and growth of the company, the partners believe that revenue will double next year to $500,000.
Therefore, they are considering borrowing $250,000 to improve cash flow and hire additional staff including a sales and marketing manager to increase product sales and boost revenue. The partners are fully committed to the concept of the company and the quality of its product, and they believe that the company is strong for a first-year startup and moving in a positive direction despite the higher than normal expenses associated with the first year of business. They believe the loan will allow them to survive until the increased emphasis on sales yields a larger client base and makes the company strong enough to stand on its own.
While previewing the required documentation list to secure the loan, the partners begin to fear that the ratio of expenses to revenue may be too high for the lender's preference. While the revenue of the company looks good, expenses are high as one might expect in a startup company. Nonetheless, the partners are preparing carefully the financial records to present to the lender in order to procure the capital to improve cash flow in the short term.
As the partners consider the loan application and its preparations, they are approached by a large, well-established software company with a lucrative offer to buy ABCTech in its entirety for $500,000. The buyout would make the founders moderately wealthy in the short term and provide them with employment in the acquiring company. Nonetheless, the long term potential revenue from continuing to grow the startup company is significantly greater than the value of the proposed purchase and employment package. Continuing the startup means a more difficult and risky road for the partners including continuing to find and invoke creative reporting methods to secure necessary short-term funding. However, the buyout would mean accepting less money than the company could potentially generate over time and eliminating plans to hire the sales manager.
Questions to Consider
1. Should the partners continue their business expansion plans including procuring the operating loan? Why or why not?
2. Should they take the buyout offer? Why or why not?
3. Which is the more ethically reasonable choice? Defend your position by establishing a theoretical foundation using current (within the last three years) or foundational references.
Background Information for ABCTech
General Information
In 2016, ABCTech was founded by two best friends, Thunder Thompson (CEO) and Chris Christianson (COO) out of Thunder's garage (see biographical information below). Both men continue to work for a large computer programming organization while starting ABCTech. Although their specialty is application design, they understand the importance of safe data. As cybercrimes increased over the past few years, Thunder and Chris, came up with an idea which would change data and personal security. With just a few dollars in their pockets raised from family and friend investments as well as using the maximum amount available on some credit cards, they set out to build the necessary architecture that would provide them the opportunity to become the next technology magnates. As they got closer to an end-product, they started marketing their product and were surprised how sales were growing each month as they headed for a quarter million dollars in revenue their first year. Being programmers by day and new entrepreneurs by night, Thunder and Chris quickly learned there was much they did not know about business, especially sales, so they considered hiring their first official employee, a sales manager, at the beginning of year 2.
Mission
ABCTech exists to create an affordable computer security product for every person.
Vision
A world protected from cybercrime and personal security breaches.
Core Values
Honesty
Integrity
Diversity
Agility
Safety
Competitive Analysis
ABCTech's product is completely different than any other software security application offered in the market. ABCTech offers an elegant product solution that is implemented with a single update to the user's computer operating system thereby bypassing the need to distribute daily updates to address new security threats. The simplicity of their solution circumvents the necessity to acquire capital to build or acquire extensive infrastructure along with the addition of high-priced support staff.
The market for data security is a well-established market led by several well-known dominant companies that focus both on the consumer and business markets. Vendor reputation and brand perception influence customer purchase decisions to a greater extent than product cost. To continually promote brand safety, dominant companies expend a significant portion of their budget on advertising and marketing expenditures.
Dominant companies offer single user licenses, enterprise contracts, and even customized safety applications. They have built large, expensive technical infrastructures enabling them to distribute daily security updates as needed. These companies have national and international presence and are well respected. They are financially profitable and are perceived by their customers as offering products that provide great value.
Member Biographies for ABCTech
Thunder Thompson, CEO and Co-Founder
Thunder Thompson is co-founder of ABCTech. As the CEO of ABCTech, Thunder is focusing on the company's growth and technology strategy. Thunder has a B.A. degree in computer programming and a passion for creating safe data products and applications. He brings over 10 years of experience in enterprise IT software, data analytics, security, and knowledge of cybercrime. Thunder also has experience in technical operations and cloud and data platforms. Thunder is new to being an entrepreneur but is excited at the prospects of making a difference in the technology world with the company's safe data products. Thunder believes in ABCTech's vision: A world protected from cybercrime and personal security breaches.
Chris Christianson, COO and Co-Founder
Chris Christianson is the co-founder and COO of ABCTech. He is also the Chief Marketing Officer for the company. He is responsible for growing the company's revenue. Chris has 12 years of experience in HTML, Java, Python coding, and product development. Chris is trained in software development, product development, and product marketing and hods a B.A. degree in computer programming and has certification in marketing and product development. Chris is also new to entrepreneurship but has a passion to see ABCTech and its products succeed. Chris believes the company can achieve its mission: To create an affordable security product for every person.
Organizational Charts for ABCTech
Initial Two-Person Structure
Expanded Structure (includes Sales Manager)
Year One Financial Statements
Statement of Operations
Balance Sheet