The O-Fold Innovation Case Analysis By: Jesse Born 3/22/13 Select which business model Alex should pursue and defend your answer. Alex should pursue a crawl-walk-run strategy as it serves a purpose of testing the market for the potential of succeeding. In addition, Alex can incorporate the other three strategies as well to help specifically with maintaining the going concern of his business. Having little experience of being in the business world due to in-progress education, this will help him plan the strategy needed to attract angel investors when approaching the walk phase of the strategy.
Having the analytical mindset to formulate a cost-benefit analysis of his company, he will use this as a foundation for beginning the operations of the company. During the beginning, Alex should figure out how he plans on distributing his product whether it would be online or start with the local community. At the walk stage, Alex would be looking at the company today and analyze what’s going on with the business and begin approaching angel investors about investing in a very unique product that looks promising with the past trends of growth in sales.
More than likely, Alex will be staying at the walk phase until his business is thriving and able to sustain a competitive advantage and be financially solvent due to past year’s profits. When this is accomplished, Alex can make an executive decision to implement one of the other strategies and give him more time to think of an exit strategy that would be in the best interest of him and his investors. However, the first goal for Alex is building enough capital to purchase a patent to avoid competitors from duplicating his sole product.
Angel investors would be more inclined to invest in Alex’s company when there is a patent for the O-Fold and five-year business plan that demonstrates the profitability and goals he has for his company. Perform a SWOT analysis for the business model you selected. The strengths of the O-Fold is business is that this product unique in the fact that it’s compactable, light, and easy to carry. In addition, airlines are getting stricter as far as what people can carry with them in the plane as well as the cost for additional luggage.
In 2012, American Airlines charged up to $60 for checking a second luggage and $150 for any additional ones and that’s not including oversized or overweight luggage (Airfarewatchdog, 2012). The weakness of the O-Fold business is that is potential for oscillating capital gains. Alex doesn’t have the finances to start-up the business and one bad year could be detrimental due to his lack of experience as an entrepreneur. Another weakness is the miscellaneous costs that would incur within the business.
It’s respectable that Alex has a plan to set aside funds for insurance, but it is hard to quantify and identify the potential costs that would arise during operations. An opportunity for Alex’s business is to enter in the market as soon as possible since his product is unique. The industry for this product has shown substantial growth in the past decades and with more students attending college and applying for entry-level jobs, the target market is catering to not only the baby boomers, but also the new generation of employees fresh out of college.
A potential threat for Alex’s business is the general economic conditions that could make overhead costs increase. President Obama has been trying to implement a plan to increase minimum wage to $9. 00 an hour to help combat against inflation and poverty (Luhby, 2013). This would require increasing wages for all of his assembly workers and causing him to increase the price of his O-Fold to meet his return on investment. What is the exit strategy for your selected business model, how long will it take you, and what key points will signal the time to exit?
Alex should sell the company to one of its competitors. To speed up this process, Alex can outsource production and cut down costs in order to retain healthy profits for him and the angel investors. The challenge will be for Alex to research a place for the manufacturing department to be and carefully monitor the economic conditions as well as management to make sure that the daily operations are running smoothly. In addition, foreign exchange rates can also affect sales and costs so Alex would need to use his ccounting skills to accommodate such derivatives like hedging to minimize potential losses. This exit strategy could be the quickest way to payback debt covenants made with investors. The process would take 3-5 years and then it can start applying capital gains for other opportunities for the company. The signal Alex needs to implement the strategy is when the economic conditions get worse, competitors try to imitate the O-Fold, and the debt covenants made by the investors are paid off. At what points should Alex consider bringing on additional management?
What positions should he fill and in what order? Alex should consider hiring managers when the ratio between managers to employee is 1:10. The determination of this is through the concept of span of control. Since this company is small starting out and Alex would have many assembly workers, the ratio can decrease since the skills required to perform the duties are low. This would benefit Alex because he wouldn’t need to hire many managers since the job skills are low and he can tolerate more minimum wage employees before he should hire a manager.
The hiring of assembly workers would be the first people Alex should have in his business and the assembly managers, followed by accountants who can monitor payroll and other financial information, administrative assistants to perform tasks for management and other high-level employees, and then front desk workers to answer phone calls, sort mail, and other miscellaneous tasks. With this transformation strategy from crawl-walk-run to outsourcing, Alex will have a grasp on how modern businesses operate, and learn to cut costs where it matters.
The potential for this company varies, but having a solid strategy and tying the core objectives to it, it could be profitable. References Airfarewatchdog. (2012, April 4). Airline baggage fees chart. Retrieved from airfarewatchdog. com: http://www. airfarewatchdog. com/blog/3801089/airline-baggage-fees-chart-updated/ Luhby, T. (2013, February 13). The impact of a $9 minimum wage. Retrieved from cnnmoney. com: http://money. cnn. com/2013/02/12/news/economy/obama-minimum-wage/index. html