analyze the case study and identify what could/should be talked about and then make specific recommendations to the entrepreneur. To support your recommendations, you may have to draw conclusions from the case data.
Major issues & Minor issues addressed. Expand on recommendations and solutions to the problems.
Jennifer Wong feels like she is being pulled in three directions and does not know what to do. She will be graduating early next year with her MBA from York University and has a difficult decision to make about her future. She is looking to you to help her think through the issues.
Jennifer is the oldest daughter of immigrant parents who came to Canada under the Visa Start-Up Program (fast-tracked immigration for entrepreneurs). Her parents invested their capital to create an injection molding business in the mid 1990s before starting a family. Over the years, the business has grown into a multi-million-dollar enterprise with locations now in Markham, Ontario and McAllen, Texas. The businessâ€™ success has provided a very good life for Jennifer and her family.
To Jennifer, one obvious way forward is to enter the family business. As the oldest of three daughters, she knows it is what her parents want and is one of the reasons they pushed her to do her MBA. They have been talking about retiring in a few years, but Jennifer doubts her father ever will. Jennifer has spent a considerable amount of time working in the business (both before and during university) and she understands the company and the industry quite well. In fact, she attributes her success in the MBA program (Deanâ€™s list standing) to the depth and breadth of experience she has had in the family firm. It certainly helps her understand the course material.
The problem facing Jennifer is that she does not have much interest in the injection moulding business. It is dirty, noisy, and repetitive in nature and she has grown to find the daily routine less than inspiring. She is also concerned with the commitment the business requires. Her parents have allocated most of their time to the business for as long as she can remember, largely because they refuse to delegate much authority to the management team. There is also a lot of travel involved, with her father flying between Ontario and Texas at least twice a month. It is reasons like this that, combined with her creative tendencies and entrepreneurial desires, has Jennifer thinking of striking out on her own. Well, not actually on her own per se because she is looking at a couple of partnership opportunities.
The first opportunity involves her youngest sister Melodi, who just completed her diploma in fashion design from Ryerson University earlier this year. The idea is relatively simple and builds on both sistersâ€™ passion for fashion. Melodi, who has had some success presenting her designs at recent fashion shows, would design a line of athletic apparel and technical clothing similar to what is found at Lululemon. Jennifer would take care of everything on the business side of things. The clothing would be manufactured in China and sold online. They have cousins in Hong Kong with experience in the garment industry and have talked to them about help with sourcing reliable suppliers. Outsourcing production is standard practice in the industry and good quality product at prices comparable to what competitors in the industry are paying should be readily available. Likewise, with platforms such as Shopify and Amazon, developing an online presence will be relatively straightforward. As such, Jennifer sees no major barriers to starting this venture. Moreover, Melodi has already secured a commitment from her parents for an investment of $50,000 to get things moving, although they donâ€™t yet know of Jenniferâ€™s potential involvement. The nice thing about this family money is there are few conditions attached. Melodi is under no obligation to repay her parents, but they do want to see a business plan before they advance the funds.
Although Jennifer and Melodi have been talking about starting this type of business for a while, there are a few issues on which they donâ€™t agree. For example, Melodi wants to offer her designs at a price point that is roughly 20% below that of comparable products. Her reasoning is quite simple; penetration pricing (which is what her fashion marketing professor called it) has allowed several other early-stage fashion designers to generate much needed revenues. Jenniferâ€™s counter argument is that pricing creates lasting perceptions, and she would rather position â€œMelodiâ€™s Fashionsâ€ as a higher-end online boutique. Jennifer also hasnâ€™t worked up the courage to tell her sister that she isnâ€™t fond of the proposed company name and that it will have to change. Another point of contention is that Melodi wants to sell advertising and click-through space on the website because her boyfriend says that if someone doesnâ€™t find what they wanted from Melodiâ€™s, referrals to other sites could still generate revenue. Jennifer does not see how this will help develop their brand, whatever it ends up being. Relatedly, Jennifer wants all the product shipped to a company location so they can oversee packaging and shipping to ensure order accuracy and quality. Melodiâ€™s boyfriend says it will be much cheaper to have the product shipped to customers directly from the manufacturers. Although this would give Melodiâ€™s less control, he says the savings from not having a company location will help offset the low-price strategy.
Finally, the last point of contention relates to what salaries Jennifer and Melodi should draw from the company. Melodi wants to follow her boyfriendâ€™s advice and not draw any salary at all. That is what he is doing in his retail business, and he argues that not only does it reduce his costs but his break-even volumes as well. Jennifer has countered this by saying that drawing no salary creates an unrealistic planning scenario and that it is far better to allow for some salary to get a better sense of the viability of the business. She wants to show her sister how much additional volume is needed for each $10,000 in combined salary they might draw knowing that the average price for a garment is expected to be around $75 and margins should be closer to 60% than 50%. It is a pretty easy calculation but important because Jennifer wants a salary so she can get her own place. As much as she loves her family, she wants some personal space. Clearly, there was still some discussion needed.
The second opportunity Jennifer is considering came about quite recently after she participated in a hackathon offered through the university. There she met three software engineering students who were working on developing a food ordering platform tentatively called â€œChowNowâ€ (tentatively because there is an existing platform known as ChowNow, so the name might have to be changed). Initially, Jennifer thought ChowNow was nothing more than a food-delivery app and dismissed the idea given competitors like Uber Eats, DoorDash, and Skip-the-Dishes. However, she learned there is much more to it that that.
The idea is for ChowNow to take advantage of three trends: increasing reliance on prepared meals and meal kits (like HelloFresh), a fundamental shift towards home delivery of food and other goods, and the rise of â€œghost kitchensâ€. Ghost kitchens are delivery-only restaurants and are typically set up in (e.g.) warehouses, strip malls, or even trucks such that they operate with a low overhead model relative to traditional foodservice outlets (fast-food or otherwise). Currently, most ghost kitchen prepare food on behalf of existing foodservice brands and deliver the take-out meals via established food delivery channels. Under this model, the largest share of revenues goes to the branded food service operators and the delivery services, which leaves little for the ghost kitchen operators largely because they are seen as being a commodity-type service with little power.
What ChowNow plans to do is turn that model upside down by giving the power to the ghost kitchens by allowing them to create their own brands and offer more than just take-out foods. For example, with ChowNow, customers accessing the portal could choose a meal (i.e., letâ€™s say â€œYourâ€ lasagna â€“ if you were operating a ghost kitchen) and have it delivered as a kit (customers get ingredients and a recipe and then make it themselves), as a prepared meal (i.e., heat and serve), or as a take-out meal (i.e., ready to eat upon arrival). The ability for ghost kitchens to brand themselves, and the flexibility of meal formats, would be unparalleled in the industry. Importantly, this is in addition to what the ghost kitchens already do, so aligning with ChowNow would provide an added source of revenue. ChowNow would manage all promotion activity, a customer feedback/rating system and arrange payment and delivery. For doing all this, they would get 20% of gross revenues. The beauty of the model is that it is fully scalable and as far as Jennifer can tell, ChowNow would have a first mover advantage.
The three engineers are quite close friends and had been working on this idea for almost a year. By the time Jennifer met them last month, they had developed a working app. Yet because they have no business experience, they really do not know how to proceed and want Jennifer to join the team to help in a few areas. First, while they think the idea could work anywhere geographically, they do not know where to focus on first or even how to make that decision. If they can use the business incubation space at York, somewhere around the university would seem to make sense. Second, they have no idea about how best to promote ChowNow, even though they expect social media will be a big part of whatever they do. Despite this, they know they will need a lot of money to build up awareness and roll this thing out. That will be Jenniferâ€™s responsibility. She will have to figure out how much money is needed and then approach some venture capitalists to arrange financing. In exchange for doing all this, Jennifer will be given 10% of the companyâ€™s shares once it is incorporated.
All of this is simply making Jenniferâ€™s head spin! That is why she is turning to you for advice. What can you tell her that might help her figure out what she should think about and do?