Entrepreneurship-EIP Individual Report

Table of Contents

Sr. No. Particulars Page No.1. Introduction 22. Management Team 23. Financial Results 44. Strategic Entrepreneurship 7

Strategic Management at Justice League Inc. 7Entrepreneurship at Justice League Inc. 7Combination of Entrepreneurship and Strategy at Justice League Inc. 8An expanded view of Strategic Entrpreneurship 9

8. Growth Stages 109. Analysis of Business Performance for Year 1- Survival 12

Key Actions & Implications during the Year 12Crunching the Market Report Figures 14Marketing Efforts at Justice League Inc. 18Bootstrapping 19

10. Analysis of Business Performance for Year 2- Stability 19Key Actions & Implications during the Year 20Customer Research Results 21Bank Overdraft 21Relocation to a Bigger Premise 22Activity (Hours): Year 2 23Focus on Manpower Training 23Profit & Loss Report: Year 2 26

11. Analysis of Business Performance for Year 3- Growth 26Key Actions & Implications during the Year 27Marketing Blitzkrieg 28Health of Justice League Inc. 29

12. Way Ahead 3113. Investment Proposal for Private Equity Investor 3514. Conclusion 3615. References 37

Prepared by: Sirsanath Banerjee; Student ID Number: 014803; MBA: NUBS-UNMC 1

Introduction

Justice League Inc, a firm jointly owned by five individuals is a virtual tech-assembling firm in

the business of manufacturing & distributing computers and an analysis of its business

performance and decision making for a period of 3 simulation years through SIMVENTURE™

business simulation software is hereby presented in this report.

A detailed review of the company’s journey through the three years along with key decision

making processes and resultant financial & operating performance is presented herewith. An

intelligent tool to test the strategic entrepreneurship abilities of entrepreneurs, SIMVENTURE™

tested our entrepreneurial conviction along with our abilities to manage resources tactically,

apply ingenuity, manage network relationships efficiently, manage information and make the

right strategic choices. These reflect on our themes of Survival in the first year, Stability in the

second and Growth in the final year.

Management Team

Based on the Belbin Team Role model (Belbin, 1981) we formed a team of 6 diverse individuals to drive

Justice League Inc. with specific Thinking Roles, Action Roles and Social Roles defined for each

member of the team.

Name Role Name Strengths & Styles

Ms. Lim Shing

Loo

Coordinator (CO)* able to get others working to a shared aim;

confident, mature - (originally called 'Chairman' by

Belbin)

Mr. Jorg Fuhrer Shaper (SH)* motivated, energetic, achievement-driven, assertive,

competitive

Mr. Alwyn Koay

Chee Hua

Plant (PL)* innovative, inventive, creative, original, imaginative,

unorthodox, problem-solving

Ms. Lim Shing

Loo

Monitor-Evaluator

(ME)

serious, prudent, critical thinker, analytical

Mr. Alwyn Koay Implementer (IMP) systematic, common sense, loyal, structured,


Chee Hua reliable, dependable, practicable, efficient (originally

called 'Company Workers')

Mr. Sirsanath

Banerjee

Resource

Investigator (RI)*

quick, good communicator, networker, outgoing,

affable, seeks and finds options, negotiator

Mr. Sirsanath

Banerjee

Team Worker (TW) supportive, sociable, flexible, adaptable, perceptive,

listener, calming influence, mediator

Mr. Kuah Shen

Yang

Completer-Finisher

(CF)

attention to detail, accurate, high standards, quality

orientated, delivers to schedule and specification

Ms. Lee Ling

Kim

Specialist (SP) technical expert, highly focused capability and

knowledge, driven by professional standards and

dedication to personal subject area

*Kindly Note: Some of the team members were performing more than one team-roles as Dr. Meredith Belbin has identified 9 unique clusters of behavior.

The team-roles assumed by the members of the team came naturally based on the academic &

professional backgrounds of the individuals and the following table captures the same:

Name Qualification Experience

Mr. Sirsanath

Banerjee

BMS, M.Com 5 years - Tata Capital (Senior

Manager-Infrastructure

Financing/Private Equity)

Vast experience in project financing

in power sector.

Mr. Alwyn Koay

Chee Hua

Civil Engineer 5 years - Engineer (Pre-Cast

Construction Business)

Entrepreneurial experience of

managing family run business in the

construction industry.

Mr. Kuah Shen Yang Mechanical

Engineer

5 years - Engineer (Automobile

Ancillary Industry)

Extensive experience in handling

high value projects in his firm which


is a key supplier to Toyota.

Ms. Lim Shing Loo BSc. Home

Sciences

10 years - Nestle (Marketing

Manager)

Vast experience in FMCG and Oil &

Gas industries. Also worked in a

start-up in the past.

Ms. Lee Ling Kim B.Com, CPA 5 years - KPMG (Consultancy & Tax

Specialist)

Detailed knowledge of corporate

and personal taxation in Malaysia.

Mr. Jorg Fuhrer Mechanical

Engineer

15 years – (Quality Manager)

Extensive experience in handling

high value projects at Bertrams

Chemical Plants with international

exposures in China & Switzerland.

As a team member, I found this team to possess the much needed heterogeneity and the cross-

industry experience (Franke et al., 2008) along with the team’s core competencies matching the

requirements of important functional areas of the business (Allen, 2009) which laid a strong

bedrock for good performance of Justice League Inc.

Financial Results

The financial results achieved by Justice League Inc. at the end of the third (final) year are

testimony to the strong teamwork and operational acumen demonstrated by the team which

firmly believes in the 3 pillars of entrepreneurship Human Capital, Social Capital & Financial

Capital.

The company valuation of Justice League Inc. was recorded at £1,113,759 with a healthy Bank

Balance of £82,093, Total Profit of £212,844 and a Balance Sheet Value of £223,394. Following

is the final performance report of Justice League Inc. captured at the end of the simulation:


As can be observed from the above screenshot taken of the performance report available at the

end of the simulation, a spike in the shape of a hockey stick ca be observed in the overall

company value which indicates a steady growth from the ‘valley of death’ which we crossed by

the end of the first year.

The following screenshot of the key financial ratios of Justice League Inc. is captured at the end

of the final year:


The above financial measurements of Justice League Inc. at the end of the third year indicates

that the firm was generating revenues close to 6 times its assets with extremely attractive ROCE

levels of 61% thus making it attractive for any Private Equity firms to consider for Growth

Funding. Further, one of the indigenous ideas proposed by me to the rest of the Management

Team of not availing any Loans & instead continuing to work on Bank Overdraft for as long as

possible proved to be extremely helpful for Justice League Inc. From my previous experience in

a Private Equity Fund, I understand that a long term debt can be drag on the overall valuation

of the firm & must hence be avoided if a Private Equity investment is planned in the near

future.

Kindly Note: Detailed Profit & Loss Statement & Balance Sheet along with future financial

projections as presented in class have been duly provided in the Appendix.

Strategic Entrepreneurship


The business environment of the twenty-first century can be described in terms of a fresh

competitive setting that incorporates growing vulnerability, diminished capacity to forecast,

almost disappearing boundaries between industry & firm, new basic structures, and an

ingenious organizational outlook. This fresh outlook can be depicted by four proficient powers:

complexity, change, contradiction & chaos (Hitt & Bettis, 1995; Reed & Hitt, 2000). We faced

these powers while running the tech-manufacturing business of Justice League Inc. It may be

safely assumed that no firm is safe from the tremendous weights of these strengths. Mintzberg

(1994) argued that it is “strategic thinking” that amalgamates the ingenuity & imagination of an

entrepreneur and the vision for firm’s future.

Strategic Management at Justice League Inc.

We adopted the string of thoughts placed by Kuratko (Audretsch, Kuratko 2009) and

formulated plans for efficiently managing outer opportunities & dangers pertaining to our

firm’s internal assets and flaws for effective long term planning & execution. As argued by

Schendel, the approach towards the fundamental activities of a firm shapes the progress and

advancement of the firm which provides a background for Strategic Management in the firm for

building & executing strategies to drive the firm’s operations. (Hofer & Schendel, 1978)

As rightly pointed out by Hitt, Ireland & Hoskisson (Hitt et al., 2009) strategic plan for Justice

League Inc. was influenced by many factors such as type of industry, complexity of operations

and abilities of the management team.

Entrepreneurship at Justice League Inc.

In order for Justice League Inc. to succeed & reach the targeted company valuation, we needed

to take initiatives, accept the risks & possible failures and seize socio-economic opportunities to

convert resources into profits. (Shapero, 1975)

Thus, we commenced a passionate journey towards formulating & executing indigenous ideas

and innovative solutions with the fluidic process of foresight, construction & transformation

(Kuratko, 2009)


We found a competitive space in the ICT business for Justice League Inc. to create wealth in

SIMVENTURE™ and tried to disrupt the dominant business practices of competition by

modifying our product & pricing to the needs of the markets leading to the creation of firm’s

value.

Integration of Entrepreneurship and Strategy at Justice League Inc.

An unique blend of Strategy & Entrepreneurship was witnessed we conceptualized the venture

and were making important resource allocation choices wherein we experienced the concept of

“dominant logic” as proposed by Bettis (Bettis & Prahalad, 1995) which gave us a sense of the

predominant mindset which helped us to drive the systems & processes of the firm. From the

vast information bank made available to us by market & competitor research, it was this

“dominant logic” that enabled us to filter & interpret the data to our advantage. As repeatedly

explained in class, it was critical for us to be dynamic even about the dominant logic in order to

promote entrepreneurship and continuous improvement in the firm. (Morris, Kuratko, and

Covin, 2008)

One example of visible strategic entrepreneurship in the firm is that although we managed

reasonable profit margins on our product by outsourcing distribution activities to the

professionals, we continuously negotiated with multiple partners for distribution in the final

attempt but ended up not awarding the contract to anyone to capitalize on the higher margins

that we could earn by handling the distribution activities ourselves by using the right marketing

techniques.

Researchers believe that although activities that may be termed entrepreneurial are prevalent

in old businesses, entrepreneurship is often not the core of all functions in such business (Covin

and Miles, 2007). On the other hand, we wanted entrepreneurship to provide a theme and

direction for Justice League Inc. and strongly believed that while strategy could decide the

destination and means for the firm to achieve that destination, it is entrepreneurship that will

decide the speed at which we get there.


An expanded view of Strategic Entrepreneurship

Figure: Strategic Entrepreneurship: A value-creating intersection between strategy and entrepreneurship


Strategy

Designing the scope of Justice League Inc.

Managing the resources of Justice League Inc.

Developing Competitive Advantages over other firms.

Advantage seeking behaviors

Entrepreneurship

Creating newness in products Creating units at Justice

League Inc. Organizational renewal Opportunity – seeking

behaviors

Strategic Entrepreneurship

Balancing exploration and exploitation at Justice League Inc.

Balancing resources between exploration & exploitation

Continuous streams of innovation & ingenuity

Source: Adapted from (Ireland, Webb, 2007)

The above figure illustrates the concept of strategic entrepreneurship as one which is

advantage seeking as well as opportunity seeking (Ireland, Hitt, & Sirmon, 2003). We were wary

of the findings of Steffens, Davidsson, and Fitzsimmons who studied the 3500 small firms to

correlate growth & profitability and cautioned the aggressive pursuit of growth in younger

firms. This was one of the primary reasons why we opted to cater to the ICT market instead of

the Corporations despite letting go the opportunity of instant growth.

Figure: Model of Strategic Entrepreneurship Source: (Ireland, Hitt, & Sirmon,

2003)

We consciously adopted this process based approach proposed by Ireland, Hitt, & Sirmon,

(2003) for Justice League Inc. as we understood that managing the venture strategically was

equally important as being creative in our decision making. As strategic entrepreneurs, we were

less worried with issues that can be called as emergencies, but were more focused on market

relevance and success in the long run. (Dr. Frank Lasch, Research Director, GSCM-Montpellier

Business School, France).

Growth Stages

While numerous researchers in the past have created business cycle models for firms across the

world in the past, most of them use the classical “business size” vs. “firm maturity” dimensions

for the same. However Churchill (Churchill, 1983) argues that such models fail to capture the


critical incubation stage in a firm’s early stage, ignore various factors such as diversification of

the firm, value added to the products, variability in the products, number of locations, etc.

Further, these models assume that a firm must travel through all these stages or die trying.

However, the evolution of the Business cycle as witnessed in the case of Justice League Inc. too,

is visible, wherein the firm first struggles for Existence, inches towards Survival and only then

succeeds to break-even. Once off the ground and into the profits, then the options are only

two: either registering further growth towards a self-sufficient business or opting for an exit-

strategy.

Figure: Growth Stages Source: Churchill, 1982

During the three years of SIMVENTURE™, we realized that the development stage of any firm

determines the challenges that the managers have to face. Therefore, knowing the precise

stage of the firm in the Growth cycle and being able to rightly predict the future plans places all

stakeholders of the firm in a better position to braces themselves for the future.


Analysis of Business Performance for Year 1- Survival

The first year of operations is one of entrepreneurial chaos and SIMVENTURE™ truly tests the

strategic & entrepreneurial ability of the management team by challenging the participants in

all areas including research, marketing, finance and production capabilities.

As discussed by Murphy and Edwards (2003), the initial phase of any venture must pass through

the “valley of death” wherein the entrepreneur will face an excessive demand for cash but

limited ability to raise funds due to lack of vintage and proven performance of the business.

Figure: Valley of DeathSource: Murphy, L. M., & Edwards, P. L. (2003). Bridging the valley of death: Transitioning from public to private sector financing. Golden, CO: National Renewable Energy Laboratory.

In order to sustain the business of Justice League Inc. during this “valley of death” we took a

series of calculated steps that had a positive result at the end of Year 1.

Key Actions & Implications during the Year


Actions Implications

Market and Competition Research Commissioned

This gave us a benchmark to redesign and price our product as per the market requirements & competition.

In-House Bookkeeping selectedAs we had a finance professional in the management team, we decided to handle bookkeeping ourselves.

Target segment changed to Small ICT Companies

After reviewing the market research, we decided to target the small ICT segment. This segment promised moderate volumes & reasonable margins.

Created new product design, quality, performance, features and style & price

Aligned our product to the requirements of the market

Offered a discount of 5% to customersAs a product launch strategy, we decided to market our product by offering discounts to our customers to entice them to buy from us.

Training courses were arranged for the User (i.e. the management team)

This was very important as the management team must have good knowledge of the product before going forward.

Moved to handling this business full time & self-salary of £1,500

Generates confidence in private equity investors whom we would approach in future.

Direct marketing campaigns, purchase of database & participation in ICT exhibition

These were instrumental in ramping up enquiries for the newly formed business & were cost effective too.

Availed Grant & Bank Overdraft of £50,000

The overdraft facility allowed the business enough liquidity to finance its current assets.

Relocated to 800 sq. ft. Business Centre costing £1,000 per month

Anticipating a growth in sales, it was a wise decision to move to a bigger space to prevent any downtime.

Employed 4 full time staff with reasonable production skills

Strategy to employ manpower with reasonable skills and investing in training activities proved to be cheaper than hiring personnel with advanced skill sets.

Changed credit control strategy for phone reminder in 2 & 3 months overdue & legal action legal action in the 4th week.

Constant reminders helped in reduction of collection period thus helping the working capital position of the business.

Purchased standard tools & furniture & upgraded to platinum gradually

With growing production, it became important for the firm to invest in tools & furniture for its employees.

Balanced mix of in-house & outsourced production method maintained

The mix helped us to avoid investments in expensive fixed assets too early.

Press Release In house press release added to the visibility of the


venture without any expenses.As can be witnessed from the above table, financial efforts coupled with dynamic dominant logic in running the business helped the management team to successfully drive the venture out of the valley of death.

Crunching the Market Report Figures

While market research is of utmost importance to understand the market requirements, it is we

believe it is equally important to decipher the correct meaning of any market report to be able

to predict the business impact of each element provided in any market research. Following is a

snapshot of the market report presented to us by SIMVENTURE™:

We tabulated this data in the following table in order to arrive at the expected sales volume

that we can expect from each of the market segments:

Segments SizeOrder

FrequencyPrice

(L)Price (H) PriceM

Price (MED)

Order size

Est order size

Est Order Value

Corporations 204 11 650 710 800 725 13 8,679 6,292,473Engineering 1558 32 460 510 550 505 3 5,258 2,655,416


CompaniesSolo Business 4902 30 510 560 650 580 1 5,882 3,411,792Service Companies

1257 32 420 470 420 420 3 4,242 1,781,798

Small ICT 297 10 650 710 850 680 6 6,415 4,362,336Professional Services 3206 23 610 660 650 630 1 5,018 3,161,395

The expectations of each of the segments were also captured in the below table:

Segments Quality Performance Feature Style PriceCorporations 7 4 5 8 5Engineering Companies

7 4 5 7 5

Solo Business 4 7 5 5 5Service Companies 7 4 5 7 5Small ICT 7 4 5 7 5Professional Services 7 4 5 7 5

Tabulating the above information made us realize the pros & cons of each market segment such

as the segment with the highest size had the lowest order size, the with the highest estimated

order value is the smallest in size, etc. and we were able to make an informed decision to make

our choice.


We obtained the following Competition Report for our venture:

Based on the specifications provided by competition, we modified our product design as follows:


After ascertaining the cost that we will incur to manufacture the product, we priced our

product as follows:


With healthy margins and competitive pricing, our product was ready to take on the

competition and we managed the following operational performance for the rest of the year:

Year 10

100

200

300

400

500

Justice League Inc: Operational Performance

Enquiries Order Count Order Quantity Sales CountSales Quantity Component Stock Product Stock Production


As can be seen from the above figure, we managed to convert 80.5% of our orders into sales

this year and maintained no inventory which reduced our requirement of funding. Further,

most of the production was done in house thereby safeguarding our profit margins.

Our performance was congruent to the findings of Zott & Amit (2008) which highlights the

importance of a balanced mix of Cost Leadership and Product Novelty.

Marketing Efforts at Justice League Inc.

The marketing efforts of Justice League Inc. were inspired by the findings of Stokes (2000)

where he suggested that entrepreneurial marketing targets the customers directly through

informal gatherings such as trade fairs, etc. which is why we participated in the first possible

exhibition for ICTs.

Figure: Entrepreneurial Marketing vs. Traditional MarketingSource: Stokes, D. (2000)

In support of the findings of Stokes, but on a more holistic level, Abdul-Mohsin, Abdul-Halim,

and Ahmad (2012) in their studies argued that firms must be market-oriented where data from

customers & competitors must be systematically collected & analyzed and the marketing mix of

our product must be accordingly tweaked.


Bootstrapping

Being a finance professional with experience in a Private Equity fund, I was given charge of the

financial performance of Justice League Inc. Being a startup, the natural tendency was to be as

frugal as possible and use our own equity prior to borrowing any debt. While we did avail the

bank overdraft facility despite it being slightly costlier than the loan, our logic was that we pay

interest on the overdraft only when we use it unlike the loan whose interest servicing will start

immediately & the loan itself will be deducted from the overall company valuation. Needless to

say, we availed the grants that were easily available promptly.

Year 1

-50000

0

50000

100000

150000

200000

250000

300000

Profit & Loss Report: Justice League Inc.

Sales Income Other Income Total IncomeCost of Sale Gross Profit WagesDesign Training RentResearch Sales and Marketing FinanceMiscellaneous Total Expenses Net ProfitCumulative Profit

Although Year 1 ended with a negative cumulative profit of £4651, we were confident that we

are nearing the end of the ‘valley of death’ and will soon be in profits in Year 2, based on our

steady enquiries, strong order books and strategic direction of our management team.


Analysis of Business Performance for Year 2- Stability

As explained earlier using the Growth Stages model developed by Churchill (1983), the second

year of operations was all about survival and stability which could be achieved by a mix for

rapid marketing efforts and robust production systems and at the same time keeping an eye on

the market for any changes or upcoming requirements.



Extensive training for the User and Employees

All personnel were trained to be proficient in production as we wanted to keep as much production in-house as possible. Cost effective methods such as CDs were used for trainings.

Consultant commissioned to carry out customer research

The purpose of customer research is to obtain a feedback from customers to ascertain if any changes in the marketing mix are required.

Bank Overdraft of £300,000

The working capital gap foreseen was bridged by availing a further bank overdraft of £300,000. Part of this money would also be used for relocation to larger capacity.

Relocation to 2500 sq. ft. at Business Centre

The business center would cater to the growing demands that current production capabilities will not be able to cater to.

Negotiations with DistributorsContinuous engagement with big distributors like Harton Brothers & Rad kept us abreast of any possible deals that we could strike with them.

Continued Direct Marketing Efforts Yields steady flow of enquiries as more customers become aware of our product.

Purchased Premium ToolsAs in-house production was of great importance to us, we found it logical to invest in premium tools for our personnel.

Bookkeeping contracted outAs the finance expert on the management team was handling a larger role performing multiple duties, bookkeeping was decided to be outsourced.

Modification of Working Hours

Depending on the stress levels of the User, production requirement, etc. the working hours were modified frequently to keep stress levels under control & optimize productivity.

Hired 3 more candidates to increase the total number of employees to 6

With ever growing order books and continuous growth in production requirements, more helping


hands proved to be very effective.

Press Releases by ConsultantsWe hired professional consultants to write & releases press releases for Justice League Inc. which made it further popular amongst the customers.

Customer Research Results

The customer research carried out by a consultant provided extremely encouraging results

which proved that our product was well accepted in the market. With over 85% customers

approving the price of our product, we anticipated the growth trend of our orders to continue.

As argued by Lumpkin & Dess (1996), pro-activeness is a critical entrepreneurial trait and must

be looked upon as a continuum. Based on this thought process, we projected the growth in the

sales of our product to continue & realized that we will need larger space to continue

production for the same.

Bank Overdraft


While we were making upfront payments to our Creditors, the average time that our debtors

took to pay us continued to be in the range of 45-60 days. This caused a situation where the

firm was running dangerously low on cash. To bridge this gap and we decided to draw a second

round of Bank Overdraft upgrading our limit to £300,000. In line with the Pecking Order Theory,

Frank & Goyal (2005) argue that firms prefer external financing over internal sources of funds

and that’s why we decided to go for a Bank loan. Further, in line with the Agency Theory, we

did not want to give ownership of Justice League Inc. to investors at this stage of the life cycle

as we believed our Company valuation is poised to rise rapidly. Further, agency issues such as

false corporate budgeting, unfair bonuses, etc. (Jensen, 2001) might creep into the business

with the introduction of additional equity investors at this stage.

Although there are contrarian theories to the Pecking Order Paul, Whittam and Wyper (2007),

who focus on wealthier investors helping the entrepreneur to lower commitments that come

attached with more liabilities, Justice League Inc. was generating enough cash which when

paired with the Bank Overdraft limit was enough to not only run its business operations but

also take care of its capital expenditure requirements. Therefore, we decided to go ahead with

the Bank Overdraft to move to a bigger space for additional production as well as cater to our

working capital requirements.

Relocation to a Bigger Premise

One of the many sign of entrepreneurial success is when the current premises fall short of

space for operations and we were definitely not complaining being in this situation. Thanks to

our dynamic dominant logic, we had already seen this coming and were well in time to move to

a bigger premise at the Business Centre. Once relocated, we started managing our entire

production by ourselves which meant no out outsourcing whatsoever and very meaty margins.

Coupled with our healthy order book which kept the enquiry phone ringing, this in my view was

one of the key reasons for the success of Justice League Inc. This movement was completely

funded by internal accruals and Bank Overdraft & no loans were taken for the same.

Activity (Hours): Year 2


Idle Sales Marketing Research SupportProduction Quality Design Purchasing MiscTraining Recruitment Premises Finance

As can be observed from the above pie chart, most of the time spent in Year 2 has been in

production activities followed by purchasing, recruitment and training.

As described by Churchill (1983), in this phase, the organization is yet small. There is very little

development of systems and earning modest income on invested capital and time. The true test

at this stage is generate enough capital to fund growth of the firm to a sufficiently large size

based on the product offerings and industry dynamics to earn an build a viable and sustainable

business in the long run.

Focus on Manpower Training

Having achieved at least a ‘Proficient’ level training in almost all key areas of the business, we

started training our manpower relentlessly. Our strategy was to hire people with basic skills and

train them as per our requirements instead of hiring expensive resources.


Production

As the business gained traction, we hired six resources and trained them to ‘expert’ level in

production and provided reasonable training in the other areas as well. This gave us a solid

platform of human resource which was ready to deal with the sudden growth in the demand of

our product that we were expecting.


Profit & Loss Report: Year 2

Sales I

ncome

Other Inco

me

Total Inco

me

Cost of S

ale

Gross

Profit

Wages

Design

Training

Rent

Research

Sales a

nd Marke

ting

Finance

Misc

ellaneous

Total Exp

enses

Net Pro

fit

Cumulative Pro

fit-200000

0

200000

400000

600000

800000

1000000

1200000

Year 1 Year 2

Although the cumulative cash flow position of Justice League Inc. was in the negative in Year 2

(primarily due to accrual income yet to be received from debtors), the business had achieved

cumulative profits of £76,903 in Year 2 which puts the firm in a very healthy cash position in

Year 3.

As can be seen from the above graph, the sales of the venture had grown exponentially from

Year 1 in Year 2 and profit margins had been maintained at viable levels. The fact that there

were yet no borrowings made by the firm made the balance sheet stronger and the Justice

League Inc. poised for strong valuations at the end of Year 3.


Analysis of Business Performance for Year 3- Growth

The third year of business operations of Justice League Inc. witnessed rapid growth in the

business supported by the platform that we had built for the firm in the preceding years which

subsequently led to the targeted company valuation of crossing £1.1 million.

Although contracting the sales activities to distributors could have been an easier option to

rapidly increase the sales of our venture, we decided to protect our profit margins and opting

for direct marketing instead of contracting out the same.



Training for all EmployeesUpdated the skill sets of employees to effectively cater to the increased demand for our product.

Direct Marketing CampaignThe direct marketing efforts continued to provide steady enquiries for Justice League Inc.

Large advertisements in local paper created by consultant

We realized that advertisements were leading to better and faster results as the same provided a mass reach within the shortest time period.

Purchased large stands at ICT exhibitions

We believe that ICT exhibitions gave us the right opportunity to portray our brand directly to the target audience.

New Press Releases by consultantWe hired a professional for quality press releases so in order to increase the overall brand equity.

ICT Fast trade event bookedTrade events were for the purpose of increasing visibility of our brand which resulted in additional enquiries.

Re-negotiation of contract with distributors

Continuous engagement with big distributors like Harton Brothers, Norman & Rad kept us abreast of any possible deals that we could strike with them.

Another customer research carried out by consultant

To be sure that are product offerings are still aligned with the market, we commissioned another customer research which went on to yield positive results.

Marketing Blitzkrieg


It was not for no reason that the number of enquiries that Justice League Inc. received in Year 1

was 125 and the same in Year 3 rose to 489. Exponential to the growth in enquiries, the order

quantity rose from 462 items in Year 1 to a staggering 1949 items in Year 3. This kind of growth

would not have been possible without the relentless marketing efforts of the management

team which included direct marketing campaign, large advertisements in local papers, large

stands at ICT exhibitions, ICT Fast trade event and press releases.

Enquiries

Order Count

Order Quantity

Sales Count

Sales Quantity

Component Stock

Product Stock

Production

0

500

1000

1500

2000

2500

Order Book Fundamentals

Year 1 Year 2 Year 3

As can be seen from the above figure, Justice League Inc. was able to match its production

capabilities with the increase in demand for the product and therefore retained a healthy profit

margin till the end of SIMVENTURE™.

As observed by Wu (2007), and experienced by us while running the computer business on

SIMVENTURE™, there is little or no direct correlation between the performance of a start-up

and the resources available to the start up. As in our case where we continued to evaluate

various alternatives to distribution of our products, start-ups are known to enter strategic

alliances to obtain essential resources. Start-ups can that have learning and dynamism as their

core values are seen to have been performing better in areas of resource configuration and

resource integration. Inspired by this chain of thought, we chose to outsource critical marketing

efforts such as press releases and large media adverts to experts as we simply did not have the

requisite skills and time to be able to generate the same results.


Health of Justice League

While the only challenge we were facing in running the business was in terms of credit control

as the debtors were taking significant time to make payments, we were reluctant to up the ante

against them as we had earlier experiences a dip in sales during the practice simulation when

we tried to pressurize our debtors to pay up faster. We realized that this is a business reality

and we bridged the gap caused by this by means of availing a higher Bank overdraft facility.

In terms of product design, our continuous customer researched proved that the product is in

line with the expectation s of the market and no major change is required in the product design

or pricing.

Another area that we focused on was the stress levels of the entrepreneur as we believed that

the entrepreneur is the key to all activities and only a refreshed & happy entrepreneur will be

able to run the business efficiently. For this purpose, we allocated generous monetary

compensation for the entrepreneur, trained him from time to time, adjusted the time &


efficiency levels of the entrepreneur to realistic levels and provided 6 skilled helping hands to

him to primarily handle production so that he can focus on the balance management functions.

Sales

Inco

me

Other

Income

Total

Inco

me

Cost of S

ale

Gross

Profit

Wag

es

Design

Training

Rent

Resea

rch

Sales

and M

arketi

ng

Finan

ce

Misc

ellan

eous

Total

Expen

ses

Net Pro

fit

Cumulative

Profit-200000

200000

600000

1000000

1400000Comparative: Profit & Loss Statement

Year 1 Year 2 Year 3

With a firm focus on sales, we agree with the view presented by Cespedes, Dougherty &

Skinner (2013) in MIT Sloan Management Review that to improve capacity of the sales force,

the management needs to get the sales team to work harder (make more calls, maintain a

healthy sales pipeline, etc.), however to increase close rates (quantity sold by the sales force)

and to catalyze the sales cycles, managers must filter the right deals in the opportunity

spectrum and manage such opportunities effectively. Armed with the market & competition

research reports, we were able to devote more resources to the truly vital activities.

With a firm control on the cost overheads of Justice League Inc., we were able to manage

reasonable profit margins and strong company valuations at the end of Year 3.

Way Ahead

As rightly captured by Mullins & Komisar (2010), many businesses that are successful are not

what their founders envisioned them to be. It’s a well-known fact that if large firms like PayPal,


Starbucks or Google would have held to their original business plans, we would have perhaps

never known of their existence.

We therefore wanted to test the tenacity of the business model of Justice League Inc. before

approaching a private equity investor and obtained a sales projections made by Samsung for its

shipments in the near future. The figures revealed the following:

Figure: Samsung Shipment Forecast (2012) Source: Market Research

As can be observed from the from the above shipment forecast of Samsung, the computer

business (PC) is at the far end of the maturity phase in the product life cycle and can be termed

as a sunset industry where the chances of decline are high.

Figure: Industry Life Cycle of PC Industry Source: Market Research

It was therefore be critical for the management team to evaluate diversification into a different

business where in order to sustain the business and generate interest in the Private Equity

investor.


After intense brainstorming and several iterations, we came up with the idea of related

diversification into production of virtual reality (VR) devices called “Eduvisor” that could be

used in various industries such as academics, hospitals, training & development, military, etc.

and conducted secondary market research to better understand the growth opportunities for

the product. The following statistics summarize the growth opportunity of our product

“Eduvisor” in the market:

Figure: Forecast revenue of VR products Source: Statista

Encouraged by the statistics, we decided to focus on a phased diversification to Eduvisors for a

specific target market within one region. Our research revealed that there are 10,466 education

institutes in Malaysia and Eduvisors would be highly useful in such education institutes where

students can view distant/remote objects/places which they may find practically difficult to visit

physically. We decided to target only 1% of the education institutes (i.e. only 115 institutes), sell


only 30 pieces of Eduvisors to each institute in the first year of operations and strive to

gradually increase our market share over a period of time. On a conservative basis, we decided

to invest 1 year in research & development and launch the product commercially by 2019.

In terms of production capabilities, we plan to import these products from China at a price of

£128 per piece (including shipment charges and assembling costs) and sell them at a price of

£224 per piece in the Malaysian market (which is lower than the price of competing products

such as Oculus Rift) as generate healthy operating profit margins in of more than 55%.

With the introduction of the new product line, we forecast the business mix of Justice League

Inc. to evolve in the future as follows:

2016 2017 2018 2019 2020 20210

1000

2000

3000

4000

5000

6000

7000

7301745 1943 1943 2137 2351

37994179

Computers Eduvisors

Time

Num

ber

of U

nits

Figure: Business Mix Forecast of Justice League Inc.

It is evident from the forecasted business mix of Justice League Inc. that the growth of our firm

will be driven by increasing sales of Eduvisor which will compensate for the computer business

which we forecast will stagnate in the next couple of years.

We could either raise debt from Banks to fund the introduction of Eduvisor to our product line

or raise Private Equity funds for the same and we decided to go with the latter as we concurred

with the arguments placed by Whittam & Wyper (2007) that value addition in terms of


significant enhancement of core competencies that an external investor can bring to the firm is

instrumental to achieve competitive advantages for the firm.

Individually, I believed that related diversification made great sense at this juncture in order to

ensure business sustainability of Justice League Inc. and specifically keeping in mind that we

were looking to pitch for Private Equity investments in Justice League Inc. by the end of Year 3.

Amalgamating our earlier business performance with the future business possibilities based on

the opportunities provided by the introduction Eduvisor to our product lines, following are

projections of key financial ratios to be presented to the Private Equity investor in order to

attract PE investments for the round of business cycle at Justice League Inc.

Figure: Projections of Key Financial Ratios of Justice League Inc.

As can be observed from the above figure, 2018 -2019 is going to be another “valley of death”

or year of “cash burn” for Justice League Inc. as the company spends heavily on investments for

Research & Development activities and setting up the fundamentals for the introduction of the

new product line Eduvisor. However, the commercial launch of same is expected to re-stabilize

the financial position of Justice League Inc. and offer attractive ‘Return on Equity’ to all


2016 2017 2018 2019 2020 2021

-150

-100

-50

0

50

100

150

200

250

300

Gross Profit (%)Net Profit (%)Debt/EquityCurrent Ratio (%)Return on Equity (%)

Time

Figu

res

in P

ound

s

shareholders of the firm. At the same time, we believed that our philosophy of not raising debt

will help us add value the shareholders and enhance company valuation significantly.

Investment Proposal for Private Equity Investor

Armed with a track record of the successful computer business carried out by Justice League

Inc. and a promising business plan of related diversification into a new product line, we

presented the following commercial terms to the Private Equity investor:

Parameters Particulars

Amount Required ₤ 100,000

Form of Capital Equity

End Use New Product Development

Proposed Equity Dilution 10%

Proposed Valuation of Equity Investor in 2021 ₤ 352,796

Net Present Value of New Venture ₤ 290,001

Proposed Return to Equity Investor 218% ( in 3 years)

Other Benefits to Equity Investor Non-Executive Director

Exit Options Strategic Buy Out

By the end of our pitch, the PE investor was impressed with the business performance of our

computer business and willingness to diversify into a promising yet meaningful new product

line which had the essence of human, financial and social capital. Although the PE investor

indicated further negotiations on the proposed equity dilution, overall the proposal was found

to be winning business idea and our efforts were much appreciated.

Conclusion


The importance of “dynamic dominant logic” (Morris, Kuratko, and Covin, 2008) and “strategic

entrepreneurship” (Ireland, Hitt, & Sirmon, 2003) in running a startup venture are certainly my

most valuable takeaways from this enterprise. Dynamic entrepreneurship encourage

entrepreneurs to modify their product offerings in response to changing market requirements.

For instance, when Pizza Hut started its business in India it was known for its relaxed

atmosphere and friendly table service. However, as the casual dining sector of India became

congested by formidable competitors such as Domino’s by 2005, Pizza Hut rejuvenated and

leveraged its resources to build a better upscale dining experience for its customers. This was

instrumental to protect Pizza Hut’s market share and got Pizza Hut in the league of India’s most

trusted food brands. With this philosophy in mind, the management team of Justice League Inc.

too entrepreneurial risks in many instances yet having a firm long term strategy in place and

company valuations in mind.

Also, we learnt to appreciate the spirit of team-work and collective learning and sharing of

information (Sung & Choi, 2012) which promotes creativity and adds an element of incredulity

to decisions made for the firm. Personally, I am a firm believer of the Kirk’s Space model

(Kirkham et al, 2009) which segments the available opportunities based on our capabilities and

our knowledge of the problem and the right alignment of the two in my view is the key

ingredient for achieving entrepreneurial success.

I wish to conclude my report by thanking Prof. Chris Mahon for including SIMVENTURE™ in the

Entrepreneurship in Practice module which gave us a sense of dealing with unexpected

scenarios in the platform which simulates real world business environment to a great extent

and at the same time getting us to prepare a detailed investment pitch for potential investors to

a new idea which provided the perfect setting for us to blend ingenuity and strategy.

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