Michael Xu
Fisher Case Study
Diagnosis:
Fisher-Price has been known for the past 40 years as a producer of distinguished high
quality toys for preschool children at reasonable prices. They originally were founded in East
Aurora, New York in 1930 with the concept that wood blocks with lithographed lettering would
sell as toys for preschool children. This concept was improved when Herman G. Fisher,
president and one of the founders of the firm stated that “kids not only want toys to play with,
but toys to play with them”. He thus then expanded the company to cover toys that could be
turned into action figures.
However, at this time, the depression was going on and Mr. Fisher had to find a way to
make his company survive through the difficult years. This is when he established the company
creed of five qualities: “intrinsic play value, ingenuity, strong construction, good value for the
money, and action”. These five qualities came out of the fact that he wanted his toys to both be
strong, durable and interesting while also providing them at a price point that would be
reasonable for the parents. Under the leadership of Fisher, they remained a pretty competitive
yet conservative company (moderate pricing and quality goods) up until 1959. It was then, due
to the changing landscape of the 3 billion dollar toy market, that Fisher had to depart from their
stringent pricing policies to compete with the growing market of high-volume discount chains.
This change, however, brought great success. By 1969, Fisher-Price became a major factor
in the toy industry. It was then that the Quaker Oats Company of Chicago saw a potential
buying opportunity for Fisher Price and bought the company for $50 million in cash. This firm
immediately instantiated an aggressive policy and thus changed their original conservative
posture.
In the current day, while still trying to adhere to their original company creed, they also
want to penetrate into more risky and possibly profitable products. Fisher Price noticed that
companies such as Creative Coaster were having relatively good success with riding toys. They
thus wanted to jump on the bandwagon and after research and experimentation, they believed
to have developed a successful product named the “ATV Explorer”. The ATV explorer was a
multicolored plastic vehicle designed to be both durable and fun for preschoolers and showed
to gather a respectable 20 minute attention span. While this was an initial success, there was
fierce competition from other companies. One of these companies, Playskool was offering six
such items in 1970 for much more competitive prices. Rumors had it that they used blowmolded techniques to create their riding toys. While these riding toys were inferior in quality to
the ones Fisher-Price used, they were much more cheaper. However, while the toys themselves
were cheaper to make, the original blow mold investment is substantial. This thus raised a
dichotomy in Fisher-Price. Should Fisher-Price invest in these blow molds or continue to use
their prior technique?
At this point, it can be seen that Fisher-Price has many issues at stake. The first is their
reputation amongst the stores that will carry their toys. If they cannot get enough sales not only
will they be out of a profit, the stores who dedicated their inventory space to Fisher-Price’s new
toy will have a less optimistic opinion towards Fisher-Price and may not want to sell their stuff
in the future. Thus the solution to this issue would seem to be lowering the prices so that
parents would want to buy their products. However this issue is two fold. If Fisher-Price lowers
the prices, they may not make enough profit to offset the mold cost and thus lose money
overall. If they reduce the quality to cut cost, they could lose credibility amongst the parents
who used to see the company as a quality toy producer. Another final option would not to go
into the riding toys market. However, this brings obvious consequences: losing out to
competitors.
Recommendations:
I believe that the image of the Fisher-Price company surpasses all other issues. FisherPrice is a long established company that has built its reputation on providing good quality goods
at a reasonable price to its customers. In my opinion, jeopardizing this is not worth making a
profit off of one toy. Therefore, we can eliminate the option of skimping on the quality. However,
this image also exists for the stores as well. If priced high and thereby not selling, these ATV’s
could show the retailers that Fisher-Price is not a reliable manufacturer of goods and may cut
relations.This leaves two more options left: not competing in the sector or losing profit. The
first option, not doing competing in this sector, would be foolish as they could lose out on a
huge opportunity to a competitor such as Playskool. Thus the only option remaining is to sell it
and possibly lose profit. This would allow Fisher-Price to test the waters of the riding-toy
market and while also gaining attention for selling riding toys. Because of the buffer of other
forms of profit, this would be the smartest idea for Fisher-Price to go through.
Michael Xu
Manning Case Study
1) How can she raise $250,000 cash by the end of 2016?
In order for Manning to raise $250,000 cash from $66,280 there are a lot of tweaks she
must make to her business. The first of these would be change the retail price. This is the easiest
to change as its just a change of the price tag and does not require any separate allocation of
resources or changes in production. However, the change in retail price cannot be to extreme.
As Manning mentioned, a price change of over 5% would cause the number of units sold to go
down. If the number of units sold went down, the overall profit would be decreased and thus
raising the price would be ineffective. Thus, we should raise the price from $20 to $21. This is a
change of 5% and therefore should not affect the number of units sold. This makes the total cash
at the end increase from $66,280 to $94,080. The next tweak she can make to her business is
reduce the number of units made. If the number of units sold is already anticipated to 60,000,
there is no purpose in producing an excessive number of units just in case they sell more. Thus,
this can be reduced from 65,000 units to 61,000 units. Having 4,000 less units made increases
the total cash at the end from $94,080 to $148,693. Another tweak she can make to her
business is to remove the salesperson. As quoted in the case“She [Manning] cannot judge
exactly how much this new sales person will increase 2016 sales but does not expect
significantly as the sales person is not yet identified and would have to be trained once hired.“
Thus it would be foolish to hire the sales person. This removal brings the total cash at the end
from $148,693 to $176,496. The next tweak Manning can make to her business is regarding the
pay of the employees. Currently the employees are getting paid at a reasonable rate. While
increasing their salary 15% will encourage them to work harder, increasing their salary 5% also
has this same effect. However, this 10% saved saves a lot of cash in the end. Thus by reducing
their salary from 15% to 5%, she increases the total cash to $202,067 from $176,496. Regarding
the actual device, there are many alternative parts, especially in the electronics world, that can
reduce the material costs when making a device. Thus it would be feasible to reduce the
material costs per unit from $5 to $4.75. This increase the total cash at the end to $211,396
from $202,067. The last tweak involves the collection time frame. Shrinking the collection time
frame allows for more cash to come in quicker. Reducing this from 60 days to 35 days is a
reasonable change as one month is already long enough to pay off a debt. The extra 5 days give
the user a buffer to pay off that debt. This tweak increases the total cash at the end to $298,896.
Thus, through all these tweaks, we have successfully let Manning increase her total cash.
2) If a reasonable “worst case “scenario takes place, how can she raise $250,000?
A reasonable worst case scenario that can take place is if her sales drop from the
anticipated 60,000 units to 57,500 units and if the number of bad debts raised from 0.06 to 0.07.
If this was to happen, the total cash at the end would be only $244,989. Thus to raise $250,000
she could remove the salary raise. This is reasonable as this was supposed to be a bonus in the
first place. This would leave her with a total cash of $258,008 and thus be okay in the worst
case scenario.
3) What is her cash position at the end of 2016 if sales increase 10% and she pays her venture
capitalist investors?
Her cash position at the end of 2016 if sales increase 10% is $322,709 (when accounting
for the increase in units made to 67,000). She pays her venture capitalist investors 16.7% of after
tax earnings. Since there are three venture capitalist investors, they would want a total of 50.1%
of the after tax net earnings. According to the spreadsheet, the net earnings is $169,576. Thus,
she will have to give out to the venture capitalists a total of $84,958. Thus at the end her cash
position would be $322,709 - $84,958 = $237,751.
Expected total cash
Worst case scenario
Michael Xu
Marvel Case Study
Diagnosis:
Marvel is one of the most recognized companies in the entertainment industry. From
movies to comic books, they own and manage one of the oldest and most recognizable
collections of characters in the entertainment industry. This library contains over 4,700
characters including Spider-Man, The Hulk, The Fantastic Four, Captain America etc. These
characters have been developed since the inception of the first Marvel comics from 1939. Each
of these characters have their unique spin and an appeal that shows that while “they have
superpowers, they are presented as normal people, with problems that anybody else would
have.” However, out of all 4,700 characters, none of them come close to the popularity of
Spider-Man. Developed over 40 years, the Spider-Man family has consistently appealed to the
widest demographic from two year old children all the way up to consumers in their mid 60s.
While Spider-Man was one of the most popular and widely known figures, Spider-Man
could not solely exist as a comic. With new-age technologies floating around every corner,
comic books were slowly but surely fading away with time. Marvel didn’t adapt in time and in
1989 began a downwards spiral. In the late 90’s, Marvel filed for bankruptcy. Luckily Marvel was
resurrected by Toy Biz and was back on their feet again. The new Marvel needed a way to
generate revenue off there line of superheroes, especially Spider-Man. Their solution was to
monetize the content library via licensing off the characters to other vendors to make. Licensing
off the characters meant that if they were featured in toys or in movies by other companies,
these companies would have to pay a fee to Marvel for letting them use them. The more popular
the character (such as Spider-Man), the more they cost.
In 2004, however, they realized that while this strategy was effective, there was
speculation that it is not sustainable. While some believed that “There is no reason to believe
Spider-Man is ever going to end … There will always be an appetite for our primary characters,”
others were worried about putting all their eggs in one basket. While Spider-Man was extremely
popular and that currently there was a lot of appetite for the primary characters of Marvel, they
knew that consumer tastes for media properties were notoriously fickle. There was a real risk
of Marvel’s business going bad because of consumers losing interest in Spider-Man. To
counteract this risk, there was the suggestion to focus on Marvel’s lesser known characters such
as Ironman and The Fantastic Four. While the capital and dedication of resources to this isn’t
small, this has the possibility of converting Spider-Man fan’s into Marvel fans. If this were
successful, this would give Marvel a huge leg up in the stability of their business as they would
have a plethora of characters to choose from. In addition to this dilemma, they also mentioned
that due to their increased amount of cash available, they could also go into content creation. In
all, it can be seen that Marvel is in a situation between choosing to be conservative and stick
with what currently works or take a risk and expand as much as possible.
Recommendations:
In my opinion, Marvel has a huge collection of valuable and amazing characters to pick
from. Focusing on one of them would be a huge waste as every one of these characters have
already been shown to be successful in their own rights in comic books in the past. In addition,
it would be dangerous to focus and bank on Spider-Man for their revenue. Rather diversifying
their characters could both drive new interest into Marvel and also provide a safer alternative
as if any one of these characters failed, at least others will back them up. Going into content
creation could also prove well for them. I believe that content creation could be something
viable they could get into because they have over 50 years of successful comics, from characters
to storylines, to back them up. There is no reason to believe that they cannot be successful in
present day mediums.
Michael Xu
Nantucket Nectars Case Study
Diagnosis:
Nantucket Nectars, which has always been associated with juices and refreshing
beverages, had a rather unique beginning. Tom Scott and Tom First first met while students at
Brown University. Over the summers, they decided to create Allserve, what they coined to be a
“floating 7-11” in the Nantucket Harbor. Business was the usual until First recreated a peach
fruit juice drink that he discovered on a trip to Spain. It was then when they were inspired to
make a business of making fresh juice. This juice was a success. This sole variety of peach fruit
juice drink sold over 8,000 cases in the first year and over 20,000 the following year.
While, they were selling thousands of cases of the juice, funds were dwindling. Tom &
Tom were finding it impossible to pay their own employees and even themselves. Their solution
was to convince Mike Egan, one of their former customers of Allserve and founder and former
CEO of Alamo Car Rentals to invest $600,000 into the company. While they were originally
concerned about giving controlling share to an outsider, they had no other options. However,
this paid off. By the end of 1994, with the money invested and a private distributor channel
made, revenues surpassed $8 million.
Unlike big bottle manufacturers such as Snapple and Coca Cola, Nantucket Nectar’s
advertising was based primarily on the unique reputation of being a small company dedicated to
producing high quality juices and using high quality ingredients such as cane sugar versus high
fructose cane syrup.
Such a small company with such a niche and blossoming market would of course be
under the radar to be purchased out by bigger companies looking to increase their revenue.
This was the situation with Nantucket when many companies began to express interest in
acquiring them. Thus Tom & Tom were faced with a multitude of decisions. The first was whether
or not to sell their companies. This would cause them to lose possession of their company to a
bigger owner while however gaining a handsome amount of cash. The second decision was
based off of previous planning. This was to go public. The company was doing great right now
and recent valuations of initial public offerings seemed promising. However, friends
recommended Tom & Tom against this as they had did not have a completely positive experience
going public with their companies. The last decision was to stay a stand alone company.
Recommendations:
Of these three options, all of them have their pro’s and con’s. Let us look at each of
them individually. The first option is selling out to a big corporation such as Ocean Spray and
Tropicana. The immediate pro’s are quite apparent. A sell out would lead to instant revenue for
both Toms and would also allows for Nantucket Nectars to be in the hands of another company
that is already managing huge amounts of revenue. There are also other pro’s, such as being able
to consolidate the infrastructure and distribution channels to streamline production and
delivery costs. The con’s of this are a little more nuanced. First, Tom and Tom love their job
managing Nantucket Nectars. While they would enjoy the cash in return for Nantucket Nectars,
they would hate to see it be taken from their controls and into the more ruthless controls of
the bigger companies. Another con of this is the reputation of the company. Nantucket Nectar
was built off the idea that it is a small company dedicated to producing high quality juices. If they
were owned by a big brand company, this image could definitely shift towards the negative. The
second option is to go public. The pro’s of these are also quite apparent. They would be able to
get more investors and thus more cash to work with. The con’s for these are the direct result of
the pro’s. Because these investors invested money into the company, these investors would then
thus have more control over Nantucket Nectars. This would then more than likely hamper with
Tom & Tom’s wishes of maintaining control over the company. The last option would be to
continue running the company in their current fashion. While this may seem like the best idea, it
is unsustainable as Tom & Tom would have to work with a more limited set of resources. Thus
my recommendation would be to take the middle ground approach. Rather than selling out or
continuing on their own, the best option would be to make their company public. This would
thus allow investors to invest in their companies, boosting assets, while also allowing Tom & Tom
to still preside over the majority of the decisions the company makes. In addition, the company
image is preserved as they have not sold out to a big major company.
Michael Xu
Rip van Wafels Case Study
Diagnosis:
Rip van Wafels began as a small business started out of Brown University. Rip was a
native of Holland who entered Brown University undecided. While in Brown he took classes
ranging from engineering to genetics. However, none of these were a fit. Through the process of
elimination he realized that research and pre-professional tracks such as law and medicine was
not right for him. Rather, he decided that he wanted to go into business. His route into business
was indirect, however. While some of his other friends had already applied for I-banking and
consulting internships, he as still at a loss for what to do. Although he did get an internship in
August at McKinsey he spent all of his waking hours thinking about a starting a company.
However starting a company was not something to be undertaken without thought. The
first question was what product or service would the company sell. While at Brown, Rip realized
that when he went to his dining hall for koffietijd (a mid morning coffee break enjoyed with a
wafel), while they did have coffee, America was without his favorite snack: the wafel. Upon
further research, he learned that the Dutch consume 320 million wafels alone. With such an
attractive and well loved product and such an untapped American market, Rip saw a business
opportunity.
During the fall of his junior year, Rip experimented and started making his own wafels
from his dorm room. Business was as good as it could be from a dorm room. By late April, he
had hundreds of hungry students waiting in line on the main green to buy one of his signature
wafels. As demand increased, he needed to find out a way to increase production. He thus then
contracted out a team from a Brown engineering class to create a system that could produce
150 wafels an hour.
Realizing that there was such an uproar for his Dutch snack, he decided to bootstrap his
business with Kickstarter. In 50 days, he raised $23,750 and already had a distribution strategy of
selling to delis and coffee shops in the surrounding areas of New England. However, the most
significant development for the company was the decision for Marco De Leon to join the
company. Together, Marco and Rip wrote a business plan to scale their business and ultimately
won Brown University Business Plan competition that year. This lead to a series of
improvements for the company from $200k in funding to improvement of package designs to
finding a contract manufacturer. In that fall of 2012, Rip moved out to San Francisco to expand
sales in both coffee shops and boutique stores while Marco maintained business on the east
coast. As business grew, they kept on seeing robust sales but were beginning to be low on funds.
They realized they needed to raise more capital to scale their business or else they would be
out of business.
At the current moment, they had three different options to choose from. The first is to
follow their conventional expansion strategy and go into Portland Oregon and the other
portions of the Pacific Northwest. The benefit of this expansion strategy is that they are
expanding into a market that they know is similar to the other markets where they have been
successful. In addition, by doing this method, they are able to keep their reputation as a boutique
wafel company. However, Rip van Wafel have had two other unique opportunities for expansions
as well. One of them was to export to Korea and allow the wafels to be distributed in Korea.
The other opportunity would be to allow Costco to sell the wafels. Rip Van Wafel’s long term
prospects, however was to have their profitable wafel company to be acquired by either a chain,
coffee shop or other major company.
Recommendations:
As can be seen in the diagnostics of Rip van Wafel, it is a company that prides itself on its
reputation as selling boutique goods in the respectable stores. Currently, they sell in the “higher
class” markets of coffee shops, bicycle shops, and boutique stores in San Francisco and around
the Northeast. In my opinion, this brand association and reputation is very important for a
company like this. Their original goal was to dissociate and be set apart from all the other snack
foods. This is why I would recommend staying away from having it be sold in Costco. While
having the snack available in Costco may allow for more volume to be sold, they would need to
be sold at a much lower price or else they could be easily out competed by a cheaper brand of
snacks. In addition, selling at Costco would hurt their brand recognition as they would then be
seen as less of a boutique brand and more of a bargain brand. All of these detriments would also
go against their long term prospects of being bought out by another bigger company as they
would look less attractive to them. Thus, we have limited down the options between
conventional expansion strategy and Korea. It should be quite apparent that the conventional
expansion strategy is extremely safe. There are almost no risks associated with this. However, it
is also not the most forward thinking. While they are expanding to new areas, they aren’t
expanding their company exponentially as they could be doing with Korea. With Korea, they
would both be able to keep their boutique status while also penetrating a fresh new market that
has the possibility of wide brand recognition and immense profits. Therefore in conclusion, while
conventional expansion would be the safest idea, expanding to Korea would be the smartest to
increase profits while also keeping their brand recognition.