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The Essence of Entrepreneurship

What is Entrepreneurship?
How is a small company different from a large company?

What is Entrepreneurship?
Where do opportunities come from?

What factors created the opportunity?


Environment Big hit in Canada Current customer popularity Family game Non sexual Skill & Luck Social Big seasonal demand coming Recognition by trade as hot product _ moving at retail Inability of Trivial Pursuit to deliver Long lead time ( Collating cards) High margins Trivial pursuit price umbrella game 200-300% more expensive than comparable board games Long lead time of competitors Only 2 other small competitors known to have games February toy show coming

Risks and obstacles needed by Reiss to overcome?


Short life cycle Could be fad and die Few large accounts lots of market power big retailer demand: Big promotion dollars Large TV ad campaigns Long payment terms Manufacturers serve as warehouses Want wide product line dont deal with ,little guys Canada is different - game wont be necessarily big in the US No in house capability Design Manufacturing Fulfillment Collections Very short time window to accomplish tasks

Short life cycle, fad market Two tier distribution mass merchants directly on the heels of departmental stores Large retailers demand heavy TV promotion and ad allowance Use of TV guide name and free TV guide ads Few large accounts demand long financing terms Use of Heller as a factor Need for warehousing Swiss colony No design capability Allan Charles No manufacturing capability Sam Kaplan

How did Reiss overcome these obstacles?

How Successful was Reiss?


Income Statement Sales Variable COGs 1,798,000 Sales Commission (20%) 1,450,000 Factor (1%) 72,500 Ad Allowance (5%) 362,500 TV Guide Royalty (10%) 725,000 Invention Royalty (5%) 362,500 Total 4,770,500 Contribution 2,479,500 Fixed design and launch 50,000 Bad debts (est.) 15,000 Inventory write-down 100,000 Pretax profit 2,314,500 $ 7,250,000 Unit $12.50 3.10 2.50 .13 .63 1.25 .63 8.24 4.26

$1.15million + 20%-7% comission ($942,500) = $2.1million

Why was R and R so successful?


Spotted a pattern early waited for 2/3 months to be sure Managed risk well An analysis of fixed and variable costs, and contribution on the previous page reveal a break even point of less than 12,00 units : $ 50,000 Fixed cost, $ 4.26 contribution per unit = 11, 737 units First production run $300,000 Financed by Kaplan and using his line of credit , not cash This order was covered by advance orders from K mart and the other retailers He had no up front fixed costs with the designer or Swiss colony Hence converted lots of up- front fixed costs into variable costs Piece of pie for everyone

What allowed Reiss to pursue this strategy?


Industry experience Credibility based on past success Contacts from previous experience

How is R&R Different from a Large Company?


Task R&R Big Company Market research talk to friends; reps, buyers surveys, focus groups, committees, approvals Development outside5% fee design committees, input from marketing, research Manufacturing subcontract in-house Promotion free TV Guide ads expensive advertising campaigns Channels two-tiered one at a time

How is R&R Different from a Large Company?


Fixed costs of design, development advertising and promotion = $1,250,000 Contribution per unit 4.76 (Reisss) .13 (factor not required) .63 (advertising expense in fixed cost portion) .63 (no inventor royalty) 5.65 1,250,000 5.65 = 221,239 (breakeven for large company) vs. 12,000 (breakeven for R&R)

What should Reiss do about Whoozit?

What is Entrepreneurship?
Lessons from R&R case?

Lessons from the case


Opportunities are created, not found. You dont have to own resources to control them. You can gain extraordinary commitment and rapid ability to execute by giving people an incentivea stake in your success. There is a great deal to be gained by focusing on making the pie bigger for everyone rather than fighting over the size of your own piece.

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