Proceedings
of the Twelfth Annual Conference
of the
Applied Business and Entrepreneurship
Association International
Program Chair
Bahram Adrangi
Program Co-Chairs
Arjun Chatrath
Richard Gritta
Pamplin School of Business Administration
The University of Portland
November 2015
Honolulu, Hawaii
Articles published in this Conference Proceedings are accepted based on
the double-blind peer-review process.
Colorado’s Intrastate Crowdfunding Rules Help Small Entrepreneurs: The Burden of a
High Cost
Eric Blomfelt and Nina Radojevich-Kelley, Metropolitan State University of Denver
Department of Management, Campus Box 78, PO Box 173362, Denver, CO 80217-3362
Email: nradojev@msudenver.edu
Abstract
For more than a decade, thousands of entrepreneurs relied on crowdfunding websites, such as
Kickstart or Indiegogo, to fund their start-ups. Until recently, it was illegal under the existing
securities rules to sell equity through these type of sites. The 2012 Jumpstart Our Business
Startups Act, or JOBS Act, provided federal authorization for equity crowdfunding nationally.
However, specific rules for equity crowdfunding slowed at the Federal Security Exchange
Commission level, thus prompting states to write and approve their own legislation regarding
intrastate equity sales. As a result, Colorado recently approved legislation allowing for intrastate
crowdfunding sales. The purpose of this paper is to analyze the birth of Colorado equity
crowdfunding. The authors closely examine what disclosure requirements business owners must
meet, what regulations are in place for investments, risks involved regarding non-accredited
investors, and the state boundary requirements per investment. A thorough review of House Bill
1246 is provided, as well as an analysis of what intrastate equity sales mean for Colorado
entrepreneurs. Recommendation are provided for Colorado entrepreneurs regarding the
risks/benefits of intrastate equity crowdfunding.
Intrinsic Intelligence, Inc.
Michael R. Summers, Business Administration Division,
Pepperdine University, Malibu, CA 90263, Phone: (310) 506-4536,
email: msummers@pepperdine.edu
Abstract
This is a teaching case study designed for upper-level undergraduate students in a basic
operations management course. Prerequisites would include statistics and computer science.
The purpose of the case study is to give students an opportunity to make an aggregate plan for
production over the coming year. They are given projected demands and estimates of a variety
of costs. The case study presents an interesting problem in a realistic setting, and students will
be forced to consider the practical problems involved as well as the quantitative analysis.
Introduction
Intrinsic Intelligence is a research group in San Jose, California, one of literally thousands of
such groups in the famed Silicon Valley south of San Francisco. The group includes researchers
from a variety of backgrounds, such as computer engineering, software development,
ergonomics, neurology, and design. While some of them have come from around the world,
many have stayed on after graduating from nearby Stanford University and UC Berkeley. As in
many Silicon Valley startups, the organization is loose, unthreatening, and encouraging of
creativity. Befitting this organizational climate, the company’s motto is “Quispiam frigum
faciamus” (“Let’s do something cool”). Accordingly, researchers strive to make a quantum
technological leap in developing each new product to make people’s lives more efficient and
enjoyable.
The Product
The researchers at Intrinsic Intelligence were inspired by the invention of Google Glass, which
puts a small optical screen at the edge of eyeglass frames and has the capability of operating like
a small computer. It can be activated by touch or by voice and uses bone conduction to convey
sound to the ear without being audible to others. It can take pictures and videos and can link to
an iPhone. Still it falls short of the science fiction dream of connecting a computer directly to a
person’s brain.
After a couple of years of development the researchers at Intrinsic Intelligence have come up
with what they think is the next generation of personal computing and communication. Their
product is called the iiPhone, or the “I-Two” which stands for the “Intrinsic Intelligence Phone.”
Rather than connecting directly to a person’s brain, which could be problematic, the iiPhone
communicates through brain waves. A very small transmitter/receiver is placed near a person’s
brain; current models consist of a small module that attaches to the post of an earring behind a
person’s ear. After about half an hour of synchronizing to an individual’s brain waves, this
module can then interpret brain waves and send communication back to the brain. It also
communicates to the main processor, which is also quite small (because it needs no screen),
about half the size of the smallest cell phones. It can be carried easily in a pocket or purse. After
the initial setup, the user can operate the iiPhone simply by thinking. An added benefit of the
iiPhone is that it is not a target for theft since it can be operated only by its owner. While there
are always bugs to work out on such a radical new product, Intrinsic Intelligence is very excited
about the I-Two and plans to start producing the first models in the coming year.
The Market
Demand for the I-Two is obviously very speculative at this point since there is no previous
history to refer to. As with any product, there will be a certain amount of sensitivity to the price
chosen. However, with exciting new technologies there also will always be a certain base of
customers who just have to have the product regardless of price. During the first year of
production the company plans to produce two versions of the I-Two. The base version will be
called the I-Two Neuro. The more expensive model, the I-Two Nano, will incorporate more
storage and more apps into even smaller modules. The company has been promoting the new
product during the current year and has done what marketing research they could. Demands for
both models have been projected for each month of the coming year (Exhibit 1), but the
company is aware that they could easily be off by 20% or more.
Production Planning For The Coming Year
The main rollout of the I-Two will take place in November of the current year in order to take
advantage of the holiday buying season. Demand is expected to continue to be high during the
first part of next year as people begin to try it out and spread the word about it. Assuming that
the product works well and meets expectations, demand is expected to grow strongly throughout
the year. However, some seasonality is expected. Besides the strong demand at the beginning of
the year, peaks are expected in late summer prior to the school year and again during the holiday
season.
The holding cost for the I-Two consists mainly of the opportunity cost of the money spent
producing it since its small size doesn’t require a lot of storage space and handling. It is
estimated that it will cost 15% of the item’s value to hold it for a year. When it is necessary to
hold inventory over to the next month, the company can plan to produce and hold the model with
the lower holding cost per labor hour. Customers may be willing to wait a bit for their order in
the case of such an innovative product. However, if the company is unable to meet delivery on
time, they will still incur a backorder cost due to extra paperwork and potentially damaging
publicity. Their rule of thumb is that each hour of work that is backordered costs about $10.
Production workers are paid an average of $30 per hour, plus an extra 50% of their base wages in
benefits. While different months vary in their number of days and holidays, for simplicity the
company assumes an average of 20 working days per month, each with 8 hours of regular
working time. Hiring a new production worker costs an estimated $800, and new workers
average only about 80 % efficiency for the first month after they are hired. After their first
month they are assumed to work at 100% efficiency. When it is necessary to lay off a
production worker, the cost is estimated to be $500. Workers are paid a bonus of 50% of their
regular wages (not including benefits) for working overtime. The company has a policy of
working no more than an additional 20% of regular time in overtime.
Overhead costs are about 150% of direct labor costs, and general selling and administrative costs
are about 25% of sales. Costs for materials and selling prices appear in Exhibit 2.
Considering these cost figures and projected demands, Intrinsic Intelligence must determine a
production plan for the coming year. They must also consider the effect of possible variations in
demand from the forecast, as well as what would be the best production staffing position to be in
to prepare for future years.
Points For Analysis
1. Convert all projected demands into labor hours required in order to determine total demand per
month in terms of labor hours.
2. Calculate the total cost of one labor hour of production for each model, including material, labor,
and overhead. What is the cheaper holding cost of the two models?
3. Using the iterative approach on a spreadsheet, try various alternatives to find the optimal
aggregate plan for the next year.
4. How does the uncertainty in monthly demand affect your recommendation?
5. How does the expected growth in demand in future years affect your recommendation?
6. Do you have any nonquantitative suggestions for Intrinsic Intelligence?
Exhibit 1
Sales Forecast (thousands)
Model
Month
January
February
March
April
May
June
July
August
September
October
November
December
Standard Hours per Unit:
Neuron
500
480
450
400
430
550
600
800
750
670
760
850
Nano
600
530
440
360
380
460
520
650
590
500
740
940
.6
.8
Exhibit 2
Material Costs and Selling Prices
Model
Neuron
Nano
Material Cost
$42
$60
Selling Price
$350
$500
Teaching Notes – Intrinsic Intelligence, Inc.
The purpose of the case is to give the students an opportunity to apply different aggregate
planning strategies to a manufacturing system in order to minimize the various costs. The
analysis lends itself nicely to working on spreadsheets, and the data may be changed easily to
provide for reuse of the case.
When my students analyze a case study, I ask them to cover the following areas:
Background and Problem Definition
The student is asked to boil down the basic facts of the case to a page or so in order to
communicate the essence of the case to someone else. This forces the student to decide just what
the most important facts are. Also, the student summarizes the symptoms pointing to the need
for analysis.
Objective Function
Here the student is asked to specify the main quantifiable objective function and to identify other
less-quantifiable objectives. The main objective in this case is to minimize the total cost of the
coming year’s production, including hiring and firing costs, inventory holding costs, stockout
costs, labor costs, overtime costs, and overhead costs. Students should write out a specific cost
function. They should also consider any nonquantitative objectives, such as workers’ morale and
labor relations.
Missing Information
This section asks the student to brainstorm about what other information would be useful in the
real situation. For example, in this case it would be nice to have some feel for the possible
variability in demand and cost estimates. An estimate of future growth is also very important.
Assumptions
In this section students are asked to identify potential weaknesses in their analysis by listing the
underlying assumptions. Some of these may relate directly to the missing information, such as
assuming that the various demand and cost estimates are correct and ignoring their variability.
Other assumptions arise from the use of any quantitative model to approximate reality; here, for
example, we must assume that the workers all work at the same rate, learn the job at the same
rate, cost the same to hire and fire, and work a standard month.
Analysis
This is the heart of
provided in the case.
will minimize costs.
the structure of the
the case study, where the student is guided by the Points for
The main result of the case is a production plan for the coming
By setting up a model on a spreadsheet, students will be able to
problem and to experiment with different strategies, such as
Analysis
year that
visualize
constant
production, working overtime, or hiring and firing each month to meet demand. Each trial
should give them further insight to enable them to zero in on a very good, if not optimal,
combination of these strategies. Because of the complexity of the problem, it is not
recommended that students spend a lot of time trying to set it up for Solver since they can very
quickly try different strategies themselves on their spreadsheet.
The holding cost comes out to approximately $2.28 per labor hour per month, based on holding
the Neuron, the cheaper of the two in material, labor, and overhead cost per labor hour. Exhibit
3 shows the calculation of monthly demands in terms of labor hours. Exhibits 4 – 9 show some
of the reasonable alternatives that a student might analyze. With the numbers given, it turns out
that the simplest alternative, constant production, is the most profitable.
Conclusion
In this section the student can summarize the results of the analysis, along with any cautions
regarding the solution and any suggestions regarding implementation. This is another section
where the student can show an understanding of the realities of the situation as well as the
quantitative analysis. For example, in this case students should express caution regarding their
results because of the assumptions made about costs and demands. They should also discuss
some of the nonquantitative ramifications of their alternatives before coming up with their
recommended alternative, and they should show awareness of the need for further study and
monitoring in the future.
Exhibit 3
Demand
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Neuron
500
480
450
400
430
550
600
800
750
670
760
850
Nano
600
530
440
360
380
460
520
650
590
500
740
940
Total Hrs.
780
712
622
528
562
698
776
1000
922
802
1048
1262
Hrs./unit:
0.6
0.8
809.3333
Exhibit 4
Constant Production
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
BI
Act. Prod.
0
809.3333
29.33333 809.3333
126.6667 809.3333
314
809.3333
595.3333 809.3333
842.6667 809.3333
954
809.3333
987.3333 809.3333
796.6667 809.3333
684
809.3333
691.3333 809.3333
452.6667 809.3333
Totals:
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Eff. Prod. OT Prod.
809.3333
809.3333
809.3333
809.3333
809.3333
809.3333
809.3333
809.3333
809.3333
809.3333
809.3333
809.3333
9712
Ch. Prod.
0
0
0
0
0
0
0
0
0
0
0
0
Totals:
Available
809.3333
838.6667
936
1123.333
1404.667
1652
1763.333
1796.667
1606
1493.333
1500.667
1262
0
Demand
780
712
622
528
562
698
776
1000
922
802
1048
1262
EI
29.33333
126.6667
314
595.3333
842.6667
954
987.3333
796.6667
684
691.3333
452.6667
0
9712
Holding Stockout Reg. Labor OT Labor Overhead Hire/Fire
66.91667
0
36420
0
54630
0
288.9583
0
36420
0
54630
0
716.3125
0
36420
0
54630
0
1358.104
0
36420
0
54630
0
1922.333
0
36420
0
54630
0
2176.313
0
36420
0
54630
0
2252.354
0
36420
0
54630
0
1817.396
0
36420
0
54630
0
1560.375
0
36420
0
54630
0
1577.104
0
36420
0
54630
0
1032.646
0
36420
0
54630
0
0
0
36420
0
54630
0
14768.81
Grand Total =
0
437040
0
655560
1107369
Revenue = 5889000
GS&A = 1472250
Material =
706680
Var. cost= 1107369
Profit
Exhibit 5
Hire and Fire
= 2602701
0
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
BI
0
0
0
0
0
0
0
0
0
0
0
0
Act. Prod. Eff. Prod. OT Prod. Available
780
780
780
712
712
712
622
622
622
528
528
528
570.5
562
562
729.875
698
698
787.5313
776
776
1053.117
1000
1000
922
922
922
802
802
802
1109.5
1048
1048
1300.125
1262
1262
Totals:
9712
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Ch. Prod.
-520.125
-68
-90
-94
42.5
159.375
57.65625
265.5859
-131.117
-120
307.5
190.625
Holding
0
0
0
0
0
0
0
0
0
0
0
0
Stockout
0
0
0
0
0
0
0
0
0
0
0
0
Totals:
0
0
0
Grand Total =
0
EI
0
0
0
0
0
0
0
0
0
0
0
0
9712
Reg. Labor OT Labor
35100
0
32040
0
27990
0
23760
0
25672.5
0
32844.38
0
35438.91
0
47390.27
0
41490
0
36090
0
49927.5
0
58505.63
0
446249.2
Demand
780
712
622
528
562
698
776
1000
922
802
1048
1262
0
Overhead
52650
48060
41985
35640
38508.75
49266.56
53158.36
71085.41
62235
54135
74891.25
87758.44
669373.8 8313.843
1123937
Revenue = 5889000
GS&A = 1472250
Material =
706680
Var. cost= 1123937
Profit
Hire/Fire
1625.391
212.5
281.25
293.75
212.5
796.875
288.2813
1327.93
409.7412
375
1537.5
953.125
= 2586133
Exhibit 6
Overtime With Constant Production
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
BI
0
20
108
286
558
796
898
922
722
600
598
350
Act. Prod. Eff. Prod. OT Prod. Available
800
800
800
800
800
820
800
800
908
800
800
1086
800
800
1358
800
800
1596
800
800
1698
800
800
1722
800
800
1522
800
800
1400
800
800
1398
800
800
112
1262
Totals:
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
9600
Ch. Prod.
0
0
0
0
0
0
0
0
0
0
0
0
Totals:
112
Demand
780
712
622
528
562
698
776
1000
922
802
1048
1262
EI
20
108
286
558
796
898
922
722
600
598
350
0
9712
Holding Stockout Reg. Labor OT Labor Overhead Hire/Fire
45.625
0
36000
0
54000
0
246.375
0
36000
0
54000
0
652.4375
0
36000
0
54000
0
1272.938
0
36000
0
54000
0
1815.875
0
36000
0
54000
0
2048.563
0
36000
0
54000
0
2103.313
0
36000
0
54000
0
1647.063
0
36000
0
54000
0
1368.75
0
36000
0
54000
0
1364.188
0
36000
0
54000
0
798.4375
0
36000
0
54000
0
0
0
36000
6720
64080
0
13363.56
Grand Total =
0
432000
6720
658080
1110164
Revenue = 5889000
GS&A = 1472250
Material =
706680
Var. cost= 1110164
Profit
Exhibit 7
Overtime With Hire and Fire
= 2599906
0
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
BI
0
0
0
0
0
0
0
0
0
0
0
0
Act. Prod. Eff. Prod. OT Prod. Available
780
780
780
712
712
712
622
622
622
528
528
528
570.5
562
562
729.875
698
698
787.5313
776
776
1053.117
1000
1000
922
922
922
802
802
802
1109.5
1048
1048
1109.5 1109.5
152.5
1262
Totals:
9559.5
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Ch. Prod.
-329.5
-68
-90
-94
42.5
159.375
57.65625
265.5859
-131.117
-120
307.5
0
Holding
0
0
0
0
0
0
0
0
0
0
0
0
Stockout
0
0
0
0
0
0
0
0
0
0
0
0
Totals:
0
0
0
Grand Total =
152.5
Demand
780
712
622
528
562
698
776
1000
922
802
1048
1262
EI
0
0
0
0
0
0
0
0
0
0
0
0
9712
Reg. Labor OT Labor
35100
0
32040
0
27990
0
23760
0
25672.5
0
32844.38
0
35438.91
0
47390.27
0
41490
0
36090
0
49927.5
0
49927.5
9150
437671.1
9150
Overhead
52650
48060
41985
35640
38508.75
49266.56
53158.36
71085.41
62235
54135
74891.25
88616.25
670231.6 6765.015
1123818
Revenue = 5889000
GS&A = 1472250
Material =
706680
Var. cost= 1123818
Profit
Exhibit 8
Two-Level Production
Hire/Fire
1029.688
212.5
281.25
293.75
212.5
796.875
288.2813
1327.93
409.7412
375
1537.5
0
= 2586252
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
BI
0
-111.714
-155.429
-109.143
31.14286
137.4286
107.7143
0
-49.619
49.28571
268.1905
241.0952
Act. Prod.
668.2857
668.2857
668.2857
668.2857
668.2857
668.2857
668.2857
1020.905
1020.905
1020.905
1020.905
1020.905
Totals:
Eff. Prod. OT Prod.
668.2857
668.2857
668.2857
668.2857
668.2857
668.2857
668.2857
950.381
1020.905
1020.905
1020.905
1020.905
9712
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Ch. Prod.
-352.619
0
0
0
0
0
0
352.619
0
0
0
0
Totals:
0
Holding
0
0
0
71.04464
313.5089
245.7232
0
0
112.433
611.8095
549.9985
0
Stockout
1117.143
1554.286
1091.429
0
0
0
0
496.1905
0
0
0
0
Available
668.2857
556.5714
512.8571
559.1429
699.4286
805.7143
776
950.381
971.2857
1070.19
1289.095
1262
0
EI
-111.714
-155.429
-109.143
31.14286
137.4286
107.7143
0
-49.619
49.28571
268.1905
241.0952
0
9712
Reg. Labor OT Labor
30072.86
0
30072.86
0
30072.86
0
30072.86
0
30072.86
0
30072.86
0
30072.86
0
45940.71
0
45940.71
0
45940.71
0
45940.71
0
45940.71
0
1904.518 4259.048 440213.6
Grand Total =
Demand
780
712
622
528
562
698
776
1000
922
802
1048
1262
0
Overhead Hire/Fire
45109.29 1101.935
45109.29
0
45109.29
0
45109.29
0
45109.29
0
45109.29
0
45109.29
0
68911.07 1763.095
68911.07
0
68911.07
0
68911.07
0
68911.07
0
660320.4
1109563
Revenue = 5889000
GS&A = 1472250
Material =
706680
Var. cost= 1109563
Profit
Exhibit 9
Average Last 5 Months
= 2600507
2865.03
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
BI
Act. Prod. Eff. Prod. OT Prod.
0
780
780
0
712
712
0
622
622
0
528
528
0
570.5
562
0
729.875
698
0
787.5313
776
0
1015.936 970.2552
-29.7448 1015.936 1015.936
64.19141 1015.936 1015.936
278.1276 1015.936 1015.936
246.0638 1015.936 1015.936
Available
780
712
622
528
562
698
776
970.2552
986.1914
1080.128
1294.064
1262
Totals:
9712
Month
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Ch. Prod. Holding Stockout Reg. Labor OT Labor
-235.936
0
0
35100
0
-68
0
0
32040
0
-90
0
0
27990
0
-94
0
0
23760
0
42.5
0
0
25672.5
0
159.375
0
0
32844.38
0
57.65625
0
0
35438.91
0
228.4049
0
297.4479 45717.13
0
0
146.4366
0
45717.13
0
0
634.4786
0
45717.13
0
0
561.333
0
45717.13
0
0
0
0
45717.13
0
Totals:
0
0
1342.248 297.4479 441431.4
Grand Total =
Demand
EI
780
0
712
0
622
0
528
0
562
0
698
0
776
0
1000
-29.7448
922
64.19141
802
278.1276
1048
246.0638
1262
0
9712
0
Overhead
52650
48060
41985
35640
38508.75
49266.56
53158.36
68575.69
68575.69
68575.69
68575.69
68575.69
662147.1 3964.482
1109183
Revenue = 5889000
GS&A = 1472250
Material =
706680
Var. cost= 1109183
Profit
Hire/Fire
737.3006
212.5
281.25
293.75
212.5
796.875
288.2813
1142.025
0
0
0
0
= 2600887