ENTR Entrepreneurship

1. ENTR Entrepreneurship Fall 2004 Session3

2. Agenda • Case: R&R • The entrepreneur • Ability • Motivation • Directed work on your business ideas

3. The R&R case • What factors created the opportunity? • What obstacles did Reiss have to overcome? • How did he overcome them? • Was he successful? Why? • Would this approach have worked for large firms such as Parker and Bros? • What should he do with the Whoozit opportunity?

4. The R&R case • What factors created the opportunity? • What obstacles did Reiss have to overcome? • How did he overcome them? • Was he successful? Why? • Would this approach have worked for large firms such as Parker and Bros? • What should he do with the Whoozit opportunity?

5. What are the IMPACTS ? • Idea Big hit in Canada (tested Idea) • Market The US market is much bigger • Pv High margins; uniqueness • Acceptance family game, TV is a good topic. Demand of retailers. • Competition low current competition but easily imitated in the future • Timing Toy show coming soon. Lead time on competitors • Speed  although important is an uncertainty

6. The R&R case • What factors created the opportunity? • What obstacles did Reiss have to overcome? • How did he overcome them? • Was he successful? Why? • Would this approach have worked for large firms such as Parker and Bros? • What should he do with the Whoozit opportunity?

7. Main obstacles? • Short life cycle, easily imitated. • Marketing: big retailers who demand: • Expensive promotion • Long payment terms • Manufactures who can serve as warehouses • Importance of a big brand name • Lack of basic capabilities: (design; manufacturing; shipment; collecting) • Short time to accomplish tasks

8. The R&R case • What factors created the opportunity? • What obstacles did Reiss have to overcome? • How did he overcome them? • Was he successful? Why? • Would this approach have worked for large firms such as Parker and Bros? • What should he do with the Whoozit opportunity?

9. The solutions • Short life cycle: • two tiered distribution strategy (mass merchants directly on the heels of department stores • Bootstrap strategy • Need for brand & expansive advertising : • Joint venture with TV guide • Long financing terms & No collecting capblities: • Use of Heller as factor (only 1% on sales) • Delayed royalty payment to TV guide • Manufacturing & printing know how: • Partner (Sam Kaplan)

10. The solutions (cont.) • Distributing & warehousing: • Swiss Colony ( A cheese manufactore…) • Design • Alan Charles (No upfront money only royalties)

11. The R&R case • What factors created the opportunity? • What obstacles did Reiss have to overcome? • How did he overcome them? • Was he successful? Why? • Would this approach have worked for large firms such as Parker and Bros? • What should he do with the Whoozit opportunity?

12. What happened? Total Unit Sales $7,250,000 $12.50 Variable Expenses Cost of Sales $1,798,000 $ 3.10 Sales Commission (20%) $1,450,000 $ 2.50 Factor (1%) $ 72,500 $ 0.13 Ad Allowances (5%) $ 362,500 $ 0.63 TV Guide Royalty (10%) $ 725,000 $ 1.25 Invention Royalty (5%) $ 362,500 $ 0.63 Total $4,770,500 $ 8.24 Contribution $2,479,500 $ 4.26 Fixed Expenses Design & Launch $ 50,000 Bad Debts (estimate) $ 15,000 Inventory Write-down $ 100,000 Pre-tax Profit $2,314,500 Sam Kaplan $1,150,000 50% Bob Reiss $1,150,000 50% + 20% Sales Commission $1,450,000 - Cost of Sales Force $ (507,500) Net $ 942,500 Bob Reiss Total $2,100,000

13. The R&R case • What factors created the opportunity? • What obstacles did Reiss have to overcome? • How did he overcome them? • Was he successful? Why? • Would this approach have worked for large firms such as Parker and Bros? • What should he do with the Whoozit opportunity?

14. Why was he successful? • Spotted the window of opportunity early • Moved fast • Identified obstacles and solved them. • Managed uncertainties very well: • Very low brake even point = 50,000/(4.26) • First production run financed by Kaplan • Advance order by Kmart • Designed the deals to give others incentives to collaborate

15. The R&R case • What factors created the opportunity? • What obstacles did Reiss have to overcome? • How did he overcome them? • Was he successful? Why? • Would this approach have worked for large firms such as Parker and Bros? • What should he do with the Whoozit opportunity?

16. Comparison to big Company Task R&R Big Firm Market research ask friends focus groups survey Development Outside (5%) commity; wait for research input Manufacturing Outside inhouse Promotion free TV guide adv. campain

17. The R&R case • What factors created the opportunity? • What obstacles did Reiss have to overcome? • How did he overcome them? • Was he successful? Why? • Would this approach have worked for large firms such as Parker and Bros? • What should he do with the Whoozit opportunity?

18. Summary • We have seen the scope of issues that were addressed: • Is it an opportunity? • What resources are required to exploit it? • How do we acquire them? • How do we manage the operation? • How and when do we harvest?

19. Bob Reiss Bob Reiss grew up in Brooklyn and attended the New York City public schools. He is a graduate of Columbia University (where he played on an undefeated basketball team), a U.S. Army veteran, and a Harvard Business School graduate. He has been the subject of two Harvard Business School cases--taught at some 80 institutions around the world--and has been a guest speaker in entrepreneurship classes at the undergraduate, graduate, and executive levels. He is the founder of a number of highly successful companies, including Reiss games, R & R, Inc. and Valdawn, Inc., a division of R & R. (R & R / Valdawn was named to the Inc. 500 list of America's fastest growing companies in 1992, 1993, and 1994.)  He has been involved in 14 start-ups, including a pencil company, a national sales rep company, 3 game companies, a consulting company, a personalization company, and a watch company. Currently, Bob is involved in marketing Low Risk, High Reward to channels of distribution, the publisher does not sell. He is married to an entrepreneur and has five daughters. He resides in Boca Raton, Florida.

20. ENTREPRENEURIAL ABILITY? a. Adapt to new situations, self-direct, and act in rapidly changing environments b. Communicate effectively c. Handle ambiguity d. Handle sustained periods of intense effort; commitment & persistence • Built & Lead a committed team (personal charisma); • Negotiate h. Organize, control, focus and execute (“make it happen”); • Familiarity with products, services and industry j. Luck (define as being at the ‘right place’ at the ‘right time)’ • Vision (foresight), creativity, innovativeness • Willingness to take risks Page 13

21. THE ENTREPRENEURIAL GRID VISION ACTION Page 38

22. Can one PREDICT who will be more successful? Amit and Muller (1993) observed that: • When comparing the attributes of entrepreneurs to others, no single attribute is a good predictor of who is more likely to become an entrepreneur • No unique bundle of attributes appears to be "required" for entrepreneurial activity • Entrepreneurs and non-entrepreneurs are, in general, similar in their attributes • Entrepreneurs and non-entrepreneurs have been shown to be risk averse, but entrepreneurs are slightly less risk averse than others Page 18

23. ENTREPRENEURIAL MOTIVATION A. CHALLENGE (Using your talents; assuming responsibility; dealing with broad range of issues) B. CONTRIBUTION (Making a difference to your organization and community; creating new opportunities) C. EGO (Standing out from the crowd; ;outdoing others; showing that you can do it) D. INDEPENDENCE (Being your own boss; having flexibility; being able to work when and with whom you want) E. INNOVATION (Doing something new or different; introducing your ideas about new products or processes) F. LEADERSHIP (Opportunity to motivate and influence others; set the direction; take charge) G. LIFESTYLE (Accommodating dual-career situations; spending time with family) K. WEALTH (Making a lot of money) Page 19

24. A Concept Statement • The market need to be filled? • The product(s)/service(s)? • Resources needed? • Sources of resources? • Financials? • Competitive advantage? • Main weaknesses/ problems?