AMERICAN JOURNAL OF
ENTREPRENEURSHIP 9(1)
Special Issue: Instructional Cases
June 2016
Editorial
Staff
Kirk C. Heriot
Editor
David T. Mitchell
Associate Editor
Sean Russell
Copy Editor
Robert J. Lahm
Creative & Web Developer
A Publication of the Turner College of Business
Columbus State University
In Cooperation with
Addleton Academic Publishers, New York
2016
Guest Editor
Herbert Sherman
Long Island University, Brooklyn Campus
Special Issue
Instructional Cases
June 2016
List of Reviewers
Clifford Benton, Long Island University – Brooklyn Campus
Dr. Robin Berenson, Excelsior College
Iris Billy, The City University of New York
Wallace Ford, Medgar Evars College
Herbert Sherman, Long Island University – Brooklyn Campus
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American Journal of Entrepreneurship 9(1)
June 2016
Special Issue: Instructional Cases
TABLE OF CONTENTS
Instructional Cases: Introduction to the Special Issue
Herbert Sherman
SECTION I: Cases
Case Study of Institutional Growth in Entrepreneurship Education
at Medgar Evers College
Iris Billy
Emmanuel Egbe
JoAnn Rolle
Edwin Knox
Wallace Ford
Becky Karsh
1
Carolina Health Staffing
Susan Peters
21
Charlie Thigpen’s Garden Gallery
Charles M. (Chad) Carson
30
Bailey’s Fudge: Product Entry into Regional Wal-Mart Stores
Melissa Griswold, John Palmer
46
SECTION II: Industry Note
The Home Away From Home: An Analysis of the U.S. Lodging Industry in 2015
Naveed Ahmad
Hannah Walter
Herbert Sherman
60
Instructional Cases:
Introduction to the Special Issue
Herbert Sherman, Long Island University
[email protected]
It is with great pleasure that I have been asked by the Editor of the American Journal of
Entrepreneurship, Dr. Kirk C. Heriot, to edit a special issue of AJE devoted to teaching cases. Why have a
special issue of an entrepreneurship journal devoted to instructional cases?
First, case research, including instructional cases, has become an accepted mode of research as
denoted by AACSB’s approval of instructional cases with teaching notes as a substitute for more traditional,
quantitative research. (Dinur and Sherman, 2015) Many of the academic journals in the field (e.g.
Entrepreneurship Theory and Practice, Journal of Entrepreneurship, Journal of Global Entrepreneurship
Research, International Journal of Entrepreneurship and Small Business, Journal of Innovation and
Entrepreneurship, etc.) publish cases, many of which can be used for instructional purposes and/or have
been written specifically as instructional cases.
Instructional cases, as differentiated from research cases, are a specific qualitative research method
involving the use of secondary and primary data in order to describe social phenomena which involve
meaning, practices, episodes, encounters, roles, relationships, groups, and organizations (Babbie, 1992).
Teaching cases, unlike research cases, are not meant to develop new knowledge (or reaffirm existing
knowledge) but rather are driven by a pedagogical imperative as denoted by their underlying learning
objectives directed toward a specific student population (Benson-Rea, M., Little, V., and Dufour, Y., 2010).
More specifically, case research for instructional purposes “represents a particular story telling … [which]
allows students to actively participate in the learning process …” (Naumes and Naumes, 2013, p.4) by
linking theory to practice. Cause and effect linkages are explored in detail through the accompanying
instructional manual which describes not only the content of the case but further provides pedagogical
methodologies for elucidating student learning (Armandi, Sherman and Vega, 2004).
Second, as indicated by Neck, Greene and Brush (2014), the case method has for the most part
dominated entrepreneurship education since the 1980’s as a method of promoting analytical skills of
students and budding entrepreneurs and has served as an instructional method of bridging academic
theory to business practice (Sherman and Vega, 2007). It provides, for a better term, a “safe haven” for
students to try to discern entrepreneurial challenges, apply prior learning and academic knowledge to real
life situations, and to suggest both “in and out of the box” recommendations for best leveraging market
opportunities. Although Neck, Greene and Brush (2014) suggested moving entrepreneurial education
toward a more practice-based approach, taking students through the actual entrepreneurial process from
ideation to new business launch, instructional cases still play a role in introducing students to the trials and
tribulations of starting and running a new enterprise.
Typical textbooks in the field still usually include short cases (1-2 beginning and/or end of chapter
cases) to help stimulate student thinking on a particular topic area (i.e. defining one’s target market) and
may include comprehensive cases that require the reader to take a more holistic perspective on the
prospects at hand. (See publisher websites” McGraw-Hill http://www.mheducation.com/highered/
category.10331.html
[3/30/16];
Pearson
Publishing
https://www.pearsonhighered.com/disciplines/
professional---career/business/management/small-business---entrepreneurship/entrepreneurship.html
[3/30/16]; and Wiley Publishing http://www.wiley.com/WileyCDA/Section/id- WILEY2_ SEARCH_
RESULT.html?query=entrepreneurship [3/30/16] for related textbooks.)
Although entrepreneurial education now focuses more upon the development of business plans
and actual business startups, the case method of instruction clearly has remained a mainstay in
entrepreneurial education.
Journal Content
This special issue of AJE features several instructional cases, and industry note, and an invited case which
describes the development of an entrepreneurial program at Medgar Evers College. The first case takes
place at Medgar Evers College (MEC), a Brooklyn based HBCU part of the City University of New York
(CUNY) system. Brooklyn has been experiencing a re-birth, a fiscal renaissance that has been accompanied
by gentrification. The predominately African American population of Crown Heights (where the College is
located) though still has pockets of poverty as the result of prior economic decline and has not benefited
from this growth. MEC has had several institutionally led initiatives related to local economic development,
however they were not sustained due to lack of funding and infrastructure support. This case addresses the
issue of how to develop an interdisciplinary entrepreneurial development program with minimal startup
funds and administrative support.
In January 2015 and with minimal startup funding, the newly appointed Dean of the School of
Business, Dr. Jo-Anne Rolle, partnered with Fullbridge to establish an entrepreneurship “boot camp” on the
campus open to all students regardless of major as an extracurricular activity. During the spring of 2015 the
Dean organized Mock Shark Tank and Mock Project Runway competitions in order to gear the “Fullbridge
Scholars” up for the New York State Pitch and SmartPitch Competitions. Based upon the students’
performance, and the continued efforts of the Dean, MEC was awarded funds by the Carnegie Foundation
to support an entrepreneurship center which is now home to the first cohort of Fullbridge trained students.
It is expected that the new initiatives in entrepreneurship will be sustained and will help to improve Central
Brooklyn’s socioeconomic outlook and support its greater participation in the growth and development
taking place throughout Brooklyn.
The second case “Carolina Health Staffing” (CHS), is based on an actual client of the Center for
Entrepreneurship at Francis Marion University. CHS exhibited much of the classic symptoms of small
business growing pains and of some of the stereotypical entrepreneur types. The organization can be
analyzed for some of the “typical” mistakes a small business makes, especially a business that fills such a
unique niche that it can almost do no wrong at first.
The case describes the services of CHS which provides temporary (locum) jobs for Certified
Registered Nurse Anesthesiologists (CRNAs). The firm was founded in 2004 by Steve and Max, both CRNAs
themselves and had exhibited nice growth and profitability. By 2009, they had been joined by a third, equal
partner, Jerome, who was to assist them in their plan for the immediate future: (1) increase their
geographic scope; (2) do permanent placements of CRNAs in addition to the locum business; and (3)
gradually expand into locum and permanent placement of other medical professions. At the time the case
was written the business was beginning to face some challenges including the looming potential loss of two
major clients who accounted for nearly half their revenues and a potential lucrative joint venture.
“Charlie Thigpen's Garden Gallery”, the third case, was designed for the study and benefit of an
undergraduate small business or entrepreneurship course and was developed using both primary and
secondary data sources. For the first two and half years of its operation, Charlie Thigpen's Garden Gallery
encountered several of the same issues that face many entrepreneurs in regards to time management and
utilization of the right business model and operations. Charlie Thigpen’s expertise in gardening, along with
his creative mind, was not always used to its full capability with the constantly growing demands of his daily
business operations. This inability to properly use his time hindered this small company from reaching its
full potential. Due to these unforeseen time constraints and a failed business plan, Charlie and his wife
Cindy had to drastically pivot their business's direction in order to achieve their desired success and
sustainability for the store. They, like many entrepreneurs, had their livelihood riding firmly upon the
success of their business. This husband and wife team had to work together to make decisions that would
help better themselves immediately in the retail store and for the future as they considered a transition to
garden design focused business. This tandem would need to work diligently to implement new strategies in
a low cost and efficient manner as a means to achieve their desired goals for the business.
The fourth case, “Bailey’s Fudge and Fine Gifts”, is a small entrepreneurial firm located in Quincy,
Illinois and has been in operation since 2003. Ruth and her daughters Melissa and Rebecca, who are the
owners of Bailey’s, have recently entered into a contract to offer four flavors of fudge in eleven Wal-Mart
stores located within a 150 mile region within Central Illinois. Some of the major challenges facing the
owners are limited production capacity, the lack of an efficient means to distribute the product on a
broader geographic scale, and other personal obligations and challenges of family owned businesses, which
are having a limiting effect on their ability to devote more time to the business. As a result, they are
considering a number of different strategic options for the business.
The last manuscript is a graduate student-driven industry analysis focusing on the US lodging
industry and provides a concise but detailed snapshot of the industry in 2015. This industry has weathered
the economic downturns associated with the great recession of 2008 along with shifting consumer
preferences and demand. The investigation of this 160 billion dollar industry examines the lodging industry
through the lens of Porter’s (1980) five forces model while identifying the specific key internal and external
factors driving the industry. Dependent on business and leisure travel, driven by a strong economy, the
outlook for the lodging industry in 2015 is positive despite a growing number substitute options for
travelers.
Final Comments
I must thank the talents of the case writers and the editor Dr. Kirk Heriot whose invaluable work and esprit
de corps have made my task as special editor both an easy and pleasurable one. I cannot help but
acknowledge the arduous and ardent work of the reviewers. For those of you who have not reviewed a
case, please keep in mind that a case review is usually twice as onerous as a traditional academic article
since you must analyze both the case and the associated teaching note. The teaching note is usually longer
than the case and requires particular attention since the analysis presented in the teaching note must be
derivable from case data. Secondly, since cases are rarely if ever accepted after the first submission, it is
not abnormal for a reviewer to conduct second and third reviews of the same case.
I hope that you will enjoy our special edition of the journal. Please feel free to e-mail your
comments to me at [email protected].
Sincerely,
Herbert Sherman, Ph.D.
Special Issue Editor, Teaching Cases
References
Armandi, B., Sherman, H., & Vega, G. (Fall, 2004). “Case Research and Writing: Three Days in the Life of
Professor Moore” The CASE Journal 1(1), 8-30.
Babbie, E. (1992). The Practice of Social Research. 6th Edition. Belmont, CA.: Wadsworth Publishing
Company.
Benson-Rea, M., Little, V., & Dufour, Y. (2010). Enterprise diversity in the business of wine: What is a
business case study? International Journal of Wine Business Research, 22(2), 90-101.
Dinur, Adva. & Sherman, H. (2015). “Ethical Issues Underlying Instructional Case Writing and Research:
Exploring the Dark Side of the Craft” in Anyansi-Archibong C.B. [ed.] Contemporary Issues
Surrounding Ethical Research Methods and Practice. A volume in the Advances in Knowledge
Acquisition, Transfer and Management (AKATM) Book Series. IGI Global, 51-78.
Naumes, W., & Naumes, M. J. (2013). The Art & Craft of Case Writing. 3rd Edition. Armonk, NY.: M. E.
Sharpe.
Neck, H. M., Greene, P. G. & Brush, C. G. (2014). Teaching Entrepreneurship: A Practice-based Approach.
Northampton, MA.: Edward Elgar Publishing Limited.
Sherman, H., & Vega, G. (2007). Case Writing and Research: Professor Moore Teaches a Class with Cases.
The CASE Journal, 4(1), 90-12.
CASE STUDY OF INSTITUTIONAL GROWTH
IN ENTREPRENEURSHIP AT
MEDGAR EVERS COLLEGE
Iris Billy, City University of New York
[email protected]
Emmanuel Egbe, City University of New York
[email protected]
JoAnn Rolle, City University of New York
[email protected]
Edwin Knox, City University of New York
[email protected]
Wallace Ford, City University of New York
[email protected]
Becky Karsh, City University of New York
[email protected]
Abstract
Medgar Evers College, a Brooklyn based, City University of New York (CUNY) College, is located in the midst
of one of the largest concentrations of African Americans in the country. Brooklyn itself is experiencing a
re-birth, a fiscal renaissance that has been accompanied by-gentrification. While greater Brooklyn is
experiencing economic growth, Central Brooklyn, specifically Crown Heights still have pockets of poverty as
the result of prior economic decline. Medgar Evers College itself is no stranger to entrepreneurship and
economic development initiatives. There have been several institutionally led initiatives related to
economic development, however they were not sustained. And, whenever project funding ended the
initiatives also ended. There has been progress in entrepreneurship development however; indeed, the
College’s entrepreneurship club won awards and accolades in competition just a few short years ago.
Nevertheless last year the club was void of leadership and any co-curricular activities. College in a
few short years Colleges in the CUNY system have become nationally ranked in both graduate and
undergraduate entrepreneurship programs. One program developed by CUNY to increase undergraduate
student participation in entrepreneurship is the SmartPitch competition. President Rudolph Crew, a
BILLY, EGBE, ROLLE, KNOX, FORD, KARSH
graduate of Babson College, launched an initiative for Medgar Evers College to participate in the SmartPitch
competition.
In January 2015, Medgar Evers College partnered with Fullbridge to establish an entrepreneurship
“boot camp” on the campus. Since the inception of the partnership with the Fullbridge program the
College has organized its own Mock Shark Tank and Mock Project Runway competitions as well as
participating in the New York State Pitch and SmartPitch Competitions. Recently the College was awarded
funds by the Carnegie Foundation to support an entrepreneurship center which represents a significant
step in the development of a permanent entrepreneurship development curriculum at the College. The
College also applied to CUNY and several corporate sponsors for funds for infrastructure and equipment
related to the center College As a result of President Crew’s and Provost Augustine Okereke’s support, the
Entrepreneurship & Experiential Learning Training Lab opened August 31st and is now home to the first
cohort of Fullbridge trained students. It is expected that the new initiatives in entrepreneurship will be
sustained and will help to improve Central Brooklyn’s socioeconomic outlook and support its greater
participation in the growth and development taking place throughout Brooklyn.
Key Words: Entrepreneurship Education, Economic Development, College-Business Partnerships
Introduction
Crown Heights, located in Central Brooklyn, has undergone significant changes in economic and sociodemographic identity during the past four decades. At one time it was the residential focus of the black
middle class in Brooklyn. Indeed, it was one of the great strongholds of aspiring black Americans in the
entire City of New York, and entrepreneurship was a key characteristic of the residents, many of whom
owned their own businesses while living alongside neighbors who were gainfully and permanently
employed.
At a point approximately thirty years ago significant shifts occurred. The Orthodox Jewish
community established its own residential focus and many members of the aforementioned black middle
2 American Journal of Entrepreneurship
CASE STUDY OF INSTITUTIONAL GROWTH IN ENTREPRENEURSHIP AT
MEDGAR EVERS COLLEGE
class “aged out”, retired, passed away or moved. In many instances they were not succeeded by their sons
and daughters and property values experienced a serious decline, as homes were either unattended or
suffered from low or no maintenance. While there was no point at which the Crown Heights community
was abandoned or fell into “disrepair”, there is no question but that there was a significant decline in the
housing stock along with a decline in successful entrepreneurship. By the turn of the century Crown Heights
was positioned to experience significant change due to the fact unlike many other cities, there is no room
to expand New York City and therefore all property is subject to increase in value just because it was
located in New York City.
In that context, the Crown Heights community experienced a transition with the influx of immigrants
from Africa and the Caribbean as well as citizens who were not of African descent. The entrepreneurial
momentum that is a part of the New York story reasserted itself in Crown Heights, but the character and
complexion of the entrepreneurs changed.
And with this surge of change it became necessary for the residents of Crown Heights to assert new
skills and strategies in order to be competitive and successful. In order to be successful, however, the new
entrepreneurs of Crown Heights have had to develop new expertise and abilities. Given the changes that
have taken place globally, it should come as no surprise those entrepreneurs in Central Brooklyn and Crown
Heights in particular, have had to adapt and evolve.
At Medgar Ever College there has been an absolute recognition in the School of Business that the
adaptation and evolution of skills, abilities and strategies was essential in order for the entrepreneur of
modern Crown Heights to be successful. The strategy employed begins with the recognition that
entrepreneurial skills are important and useful not only in the startup and management of small businesses,
but also within the general corporate community, government, science and nonprofit organizations.
It is within that construct that the School of Business seeks to inculcate an appreciation of
flexibility, mental agility, vision, resilience and imagination in students, not only in the School of Business
June 3
BILLY, EGBE, ROLLE, KNOX, FORD, KARSH
but also throughout the College. This intentional broad focus is the result of recognizing that the
entrepreneurial spirit and skill set has value throughout a range of career paths and option.
Medgar Evers College Entrepreneurial Mission
The mission of Medgar Evers College is to meet the educational and social needs of the Central Brooklyn
community, which includes Crown Heights, Bedford Stuyvesant, Prospect Heights, and Brownville. While
New York City is the most diverse city in the nation, nearly 80% of Central Brooklyn residents are black and
20% are Hispanic (U.S Census 2014/NYC Department of City Planning). Approximately 38% of the Central
Brooklyn Residents over 25 years of age have some College education. Additionally, Central Brooklyn has a
very high percentage of residents living below the poverty level – nearly 30%.
According to the Fiscal Policy Institute, the unemployment rate for Central Brooklyn stood at 8.1%
for the third quarter of 2014. Approximately 78% of Medgar Evers College Students are from Brooklyn,
many from Central Brooklyn communities. Thus, the College students are a representation of the
community to which the College serves, a community clearly in need of greater access to opportunities and
supportive resources. Over the years the College has been continuously engaged with community
representatives regarding deliverables related to its mission. In that regard it has engaged in numerous
economic development activities over the years to address some the socio-economic issues that are
challenging the community – including unemployment and underemployment. It is for these reasons that
the College, through its School of Business, has focused on developing the local small business community.
For many years, the College had an established Small Business Center (SBC) that provided start-up,
management training and assistance, and networking opportunities for local small businesses, as well as
established and nascent entrepreneurs. The SBC was replaced by a Center of Entrepreneurship Economic
Development (CEED) that implemented activities with the School of Business and business community, such
as:
4 American Journal of Entrepreneurship
CASE STUDY OF INSTITUTIONAL GROWTH IN ENTREPRENEURSHIP AT
MEDGAR EVERS COLLEGE
• a series of entrepreneurship training workshops for small business owners through a
collaboration with the Heart of Brooklyn (HOB): Crown Heights Economic Revitalization Project
•
a banking services survey in collaboration with Community Planning Board #8
•
small business surveys with the LDC of Crown Heights. All of these activities were done with the
expertise of faculty members and students in the School of Business.
In addition to the efforts to directly address the needs of the small business community and entrepreneurs,
the College also focused internally on creating an entrepreneurial mindset of it students through credit and
non-credit courses in small business management, family own businesses, entrepreneurship, and field
experiences/internships. These courses were specifically focused on the conceptual and theoretical
grounding of the management discipline. Other courses, such as those in the marketing, finance and
accounting disciplines, employed field experiences that afforded students the opportunity to work with a
small business owner or entrepreneurs to deepen their appreciation of their business disciplines in a small
business context or from the vantage point of an entrepreneur.
In further advancing the entrepreneurial mindset, co-curricular activities were provided through
several student clubs. Activities included providing tax preparation, book keeping, marketing plans, finance
and investing workshops, as well as symposia on topics related to small businesses and emerging
entrepreneurs. These efforts bridged the relationships between the community, businesses, students,
faculty and College.
Past Small Business Development and Economic Development by the School of Business
Consistent with the mission of the College, the School of Business, through its faculty, has reached out in
various ways to be involved in the educational, as well as the cultural, economic, and social and political life
of the community. During the years that the Small Business Development Center was active, its goals and
objectives were to:
June 5
BILLY, EGBE, ROLLE, KNOX, FORD, KARSH
1. Prepare members of the central Brooklyn business community with essential knowledge, attitudes
and skills necessary to operate successful businesses.
2. Respond to requests for proposals from the public and private sectors, and providing training and
technical assistance to small business owners to upgrade the skills of their managers and
employers.
3. Provide programs that will upgrade the professional and technical skills of community residents and
better prepare them for the job market.
4. Provide appropriate support, guidance, and counseling services to program participant.
5. Devise an intake process for the purpose of establishing a permanent record of business assistance
activities.
6. Assess training needs and find appropriate resources to address the problems that confront area
businesses.
7. Develop networks which encourage minority businesses to provide high levels of service and
quality.
8. Create activities that motivate special groups of youths and foster awareness about business
careers.
9. Disseminate training materials of the Small Business Center in innovative, practical and cost
effectiveness ways.
THE BROOKLYN INTERNATIONAL TRADE DEVELOPMENT CENTER (BITDC)
The Brooklyn International Trade Development Center (BITDC) was created in September 2006 with a grant
from the United States Department of Commerce. BITDC’s overall mission has been to help SMEs grow
through exporting. BITDC is the only small business development center in New York City whose sole
mission is to help small and mid-sized enterprises (SMEs) with their international endeavors—exporting to
foreign markets and investing in developing markets. BITDC, strategically aligned with Medgar Evers
6 American Journal of Entrepreneurship
CASE STUDY OF INSTITUTIONAL GROWTH IN ENTREPRENEURSHIP AT
MEDGAR EVERS COLLEGE
College’s School of Business, sought to achieve this goal in order to sustain and create new jobs and to help
improve the overall economic climate in the New York City region.
BITDC embraced President Obama’s National Export Initiative and helps SMEs with their export and
investment strategies by doing the following:
•
Researching potential export markets
•
Facilitating clients’ efforts to find prospective foreign buyers, agents, distributors and joint venture
partners
•
Hosting trade-related seminars and workshops
•
Promoting and conducting trade missions to meet foreign buyers, distributors and joint venture
and strategic partners
•
Providing companies with trade-related information via email bulletins
BITDC’s ACCOMPLISHMENTS
BITDC has had many accomplishments during the grant period of August 1, 2009 – January 31, 2011. The
following is a list of accomplishments in key metric areas for:
•
The number of export-related seminars hosted and/or co-hosted:
28
•
The number of companies counseled
876
•
The number of companies completing an Export Assessment Survey
68
•
The number of companies receiving export facilitation services
31
•
The total number of export impressions companies received
120,000
from BITDC
•
The number of companies recruited for trade mission/business
12
development meetings
•
The number of exporting BITDC client companies
1
June 7
BILLY, EGBE, ROLLE, KNOX, FORD, KARSH
Past Student / Faculty Involvement and Curriculum Development
The students and faculty of the School of Business, including the DuBois Bunche Center, were actively
involved in the activities of entrepreneurship in Medgar Evers College. The faculty of the School provided
their expertise in the analysis of research data and guiding students in the conduct of surveys. Members of
the faculty of the School were also actively involved in working with the Medgar Evers College Census
Information Center (CIC) in developing a new service to the Central Brooklyn community that provides
analysis of census data to non-profit community based organizations.
Students provided active input and gained experience as administrative staff, survey assistants and
interns at community based organizations. Under the leadership of a faculty member students developed
an Internet database resource for small businesses in the community. Following this assignment, an
internship handbook for Service Learning was created as a means of incorporating the activities of the
faculty and students into the curriculum of the School of Business.
A New Dawn of Entrepreneurship at Medgar Evers College
As Medgar Evers approaches a new dawn of entrepreneurship the faculty has attempted to mold the
students through both local and regional business plan competitions. Our aim is to empower the next
generation of social entrepreneurs by providing them with mentoring and exposure and we have found
that business plan competitions are a key part of entrepreneurship education. These competitions provide
students with opportunities to develop and practice pitches and network with investors.
Entering entrepreneurship competitions can be a great way to get feedback, visibility, and, for the
winners, money for their ideas. It is hoped that these competitions will help to identify and promote
promising startup ideas through the education and exposure afforded by the competitions’ events, mentors
and judges. With this in mind the Medgar Evers faculty partnered with Fullbridge Inc. Fullbridge is a highgrowth, education technology company based in Boston with offices in New York, San Francisco and the
Middle East. Fullbridge’s goal is to transform young adults into high-impact workforce contributors. The
8 American Journal of Entrepreneurship
CASE STUDY OF INSTITUTIONAL GROWTH IN ENTREPRENEURSHIP AT
MEDGAR EVERS COLLEGE
company delivers highly collaborative, rigorous educational programs that help young people develop realworld business and professional skills through a dynamic online platform and live coaching.
Training Students in Entrepreneurship - Fullbridge
Fullbridge addresses the educational and skills gap in young adults and transitioning professionals
worldwide. Fullbridge provides solutions to trainers and learners whose educational outcomes are oriented
toward academic and professional success, whether they are completing school, starting work, or moving
to the next level professionally.
Fullbridge’s social mission is to enable its participants to realize their full potential by completing
relevant education and moving successfully into the workplace. Through partners like Medgar Evers
College, Fullbridge provides and structures programs on various types of workplaces skills, including
entrepreneurship and business fundamentals.
Blended Learning Overview
The Fullbridge pedagogy draws from the latest developments in education learning research. Completion
rates have been 99.5%, a rate that does not vary significantly by program, demographic, or educational
background. These completion rates are attributed to Fullbridge’s highly engaging, interactive pedagogy,
which builds and makes use of bonds with team and coach. At the heart of all Fullbridge courses lie the
Fullbridge competencies and professional traits. These capabilities have been validated by top employers,
practitioners, and professors as the critical hard and soft skills needed in the marketplace, regardless of job
function or industry. Fullbridge’s courses provide both specific skills needed to succeed in a particular
position on day one and broadly applicable training.
Fullbridge’s academic and professional programs are designed by thought-leaders and experienced
practitioners, integrating instructors from top schools (including Harvard Business School, Stanford,
Wharton, INSEAD, and MIT) and global companies, start-ups, and venture capital firms.
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Whether working to get students to graduation or graduates to a career, Fullbridge has a proven
capability in partnering with external experts from universities, businesses, and production specialists in
both the US and abroad and can on-board new Subject Matter Experts quickly. Fullbridge’s blended
learning programs allow students to engage in a motivating, intensive, high-quality learning experience that
integrates both interaction with coaches and teammates, as well as the latest educational technology. The
three main tenets of Fullbridge’s blended learning pedagogy are active learning, teamwork, and
personalized coaching for each student. By using these elements in tandem, students can be held to a high
standard, what will be required of them in the workplace – thus setting each learner up for success.
Bootcamp and Train-the-Trainer Philosophy
Fullbridge’s “Bootcamp” Programs
Fullbridge focuses on delivering workplace skills program content in the form of immersive bootcamp
programs. Each program provides both hard and soft skills development exercises designed for
implementation in the 21st century workplace. Working with both academic thought leaders and industry
practitioners, Fullbridge has identified the skills and mindsets required for students to develop the
professionalism and tools they need to become successful leaders in their chosen career fields.
Fullbridge’s boot camps combine self-paced digital content on an engaging web-based platform
with rigorous team exercises and coach-facilitated reflection. Exercises include real-world applications and
simulations developed with the input of employers and educators. Each Fullbridge bootcamp is led by a
Fullbridge master trainer. These trainers are all industry practitioners with significant professional
experience. They lead participants through the program with targeted individual and team feedback on a
daily basis, as well as anecdotes from their careers.
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Train-the-Trainer (TTT)
The Fullbridge Train-the-Trainer program delivers high-quality, blended learning instruction to facilitate
scaling of qualified, effective, and passionate blended learning coaches. In the TTT program, Fullbridge
Master Coaches train university faculty in the blended learning pedagogy. After trainers become proficient
in blended learning pedagogy and Fullbridge’s program content, they deliver the program content to
university students. The TTT model can quickly scale a strong teaching workforce to deliver high-quality
courses to thousands of learners.
Medgar Evers College’s implementation of Fullbridge
Fullbridge has significant experience delivering successful academic, professional, and vocational, programs
for students with a wide range of educational and professional backgrounds. Below is an outline reflecting
Fullbridge’s work with Medgar Evers College.
The Problem
Each year, the CUNY Institute for Virtual Enterprise issues a competition to CUNY
Colleges called the SmartPitch Challenge – a competition that seeks out innovative
student concepts falling into the tracks of Education, Healthcare, Sustainability and
Smarter Cities.
This year, Medgar Evers College (MEC) plans. To leverage existing faculty and staff
resources, the College needed someone to come in and give their students that
competitive edge on campus during Winter break.
Critical Issues
Internal Bandwidth
Time
Creating connections between students and the institution
The Solution
With financial help from UPS, Voya Financial, and Sprint Corporation, Medgar Evers
and Fullbridge created a six-day, full-immersion entrepreneurial program that
focused on providing daily feedback from coaches and experts that advise the dos
and don’ts of finance, marketing, strategy, innovation, and other career aspects.
Because of this program, Medgar Evers was able to fully prepare five teams to
compete – which wouldn’t have happened without Fullbridge according to school
officials.
After witnessing the results of the program, CUNY Center for Student
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Entrepreneurship asked the participants to also compete in the NY State Business
Plan Competition; one of the students won first place in the Social Entrepreneurship
track at the regionals and advanced to the finals.
Outcomes
91% of the participants said the Program met or exceeded their expectations and
helped clarify their career direction.
With the positive feedback from students – many of them saying this experience
drew them deeper into fellowship with Medgar Evers – the College noted that
Fullbridge’s services could expand into the smaller CUNY schools to help leverage
limited faculty and administrative staff resources.
The funding for the Fullbridge project was provided through the Medgar Evers College Development
Officer, Ms. Sonia Wilson. The specific donors for the project were UPS, Voya Financial and Sprint
Corporation.
In-house and External Business Competitions
The School of Business is accredited by the Association of Collegiate Business Schools and Programs
(ACBSP) and has produced over 4,500 graduates. Our school has competed in several competitions and in
addition to the competition, mentoring sessions provided by Fullbridge and a series of workshops provided
students real-life marketing experience and cutting-edge marketing research have guided our students. The
various mentoring and programs led to our students entering various in-house and external
entrepreneurship co-curricular activities.
The in-house competitions at our College were as follows:
Mock Shark Tank Competition
Medgar Evers College students who participated in the Fullbridge training qualified to participate in a
Mock-Shark Tank competition to see who had the best business pitches at Medgar Evers College (MEC),
allowing them to share their solutions for social problems through entrepreneurship. The inaugural First
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Pitch competition, hosted by Dean Dr. JoAnn Rolle School of Business, gave cash awards to the winners of
the social/ business entrepreneur categories.
The event was part of a larger effort by MEC to encourage more students to participate in
entrepreneurship, regardless of their majors. The contestants had to give a 90-second pitch of their ideas to
the audience, and a judging panel composed of a CUNY trustee, CUNY professors and community business
owners chose the winners.
Contestants in the competition sought to remedy a need in the market by providing a profitable
product or service or social entrepreneur contestants sought to solve a social problem of some sort. The
winners won cash prizes and a place on the “wall of fame.”
Mock Project Runway Competition
With lights beaming down and music blaring, models strut with confidence down the runway, transforming
the Edison O Jackson Auditorium Hall into a fashionable stage showcasing Medgar Evers First Project
Runway event. The event was hosted by the School of Business (SOB) by Dean Dr. JoAnn Rolle Dean (SOB),
Dr. Iris Billy (SOB) and community member Camille Fanfair event planner. The competition was open to
students of any major and community contestants. The contestants were composed of four designers
from our student body and community members.
Enrolled teams had constructed their own ensemble based on a theme, and had two opportunities
to showcase their numerous designs. Based off the hit television show, Medgar Evers Project Runway
embodied the creative spirit of students and community designers. Students and community members
created, designed and had their design showcased by their individual models (models were a mixture of
students and community).
Designs were later critiqued by judges and finally sent down the runway at the event’s fashion
show. The winning individual was a Medgar Evers student who is a young upcoming Brooklyn designer.
Cash prizes were allocated to winners of the 1st, 2nd, 3rd and 4th place winners.
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External Business Competitions (CUNY)
The objectives of CUNY entrepreneurial competitions are to encourage students to develop their
entrepreneurial ideas, enhance understanding of requirements for a successful business venture, and
showcase the creativity of students at The City University of New York (CUNY). Many of the competitions
model entrepreneurship education built around the collaboration of an institution of higher education,
government, and the private sector. Faculty and students, alumni and volunteers are brought together to
support the entrepreneurial endeavors of start-ups and established businesses from students throughout
CUNY. CUNY competitions participation by Medgar Evers College students were as follows:1. CUNY IBM Watson Case Competition
2. CUNY Student Entrepreneurship (CSE) Incubator
3. Smart Pitch Competition
Competitions 2015
Medgar Evers College student Christian Waterman captured first place in his category at the New York City
Regional case competition in May 2015. Christian was coached by Valerie Griffin Fullbridge, case project
mentor Business Dean Dr. JoAnn Rolle and Queensborough Community College Professor Christine
Mooney. Dean Rolle has increased co-curricular experiences for students, and has sought and acquired the
funds that sponsored all of the student participation in the various competitions.
This first-place finish was a much-deserved victory for Medgar Evers College and was a critical part
of the teaching and learning emphasis in the School of Business. It is our aim for our students ‘to do the
ordinary things, extraordinarily well’. With Dean Rolle’s rare mix of exceptional mentoring techniques
undergirded with leading-edge industry experience, our students are molded to compete and win.
Medgar Evers College also competed at SUNY Polytechnic Institute as one of several participants in
the 6th annual New York State Business Plan Competition (NYBPC) finals for New York College students.
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This was MEC's first NYBPC with New York City. The School of Business and the entire College community
are extremely proud of the achievement of these students.
It was a wonderful experience coming from a school in Brooklyn to compete against some of the
most well known institutions in the state of New York. The win, at the regional level, is a testimony to the
level of students we have at Medgar and we are definitely looking forward to the 2015-2016 upcoming
state competitions. With our continuing focus on entrepreneurship we have realized that a strong product
and polished presentation will help the Medgar teams understand and create stronger businesses.
We believe that innovative, well-executed plans will assist us in reaching finals in future
competitions. Students can learn from incorporating executive summary, SWOT analysis, and an integrated
marketing plan comprised of a promotional campaign for social and traditional media, competitive analysis
as well as marketing and financial objectives and a budget drawing on knowledge and skills from their
courses. Along with prize money, students will gain a sense of accomplishment knowing that the
information they learned in competing will help them as future entrepreneurs. This is experiential learning
at its best.
Institutional Collaborations and Grant Writing Support
During the fall semester of 2014 a proposal was presented to the President and Provost of Medgar Evers
College for a Center for Entrepreneurial Studies and Economic Development; however at the time, there
were no internal or external funds available to implement the proposal. President Rudolph Crew, in
addition to a distinguished career as an educator and administrator, is also a graduate of Babson College.
Babson College has been consistently nationally ranked as one of the best Colleges for entrepreneurship
education in the country.
President Crew recruited former USA Today editor and Babson College graduate Gary Rawlins to
support grant writing efforts of the School of Business. In addition to the grant writer, several faculty
members and staff supported the grant writing initiative and letter of inquiries and proposals were written
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to several organizations. In addition to the School of Business efforts, President Crew bundled multiple
institutional proposals for funding support.
In addition to the School of Business individual grant proposal-writing efforts, partnerships were
developed with other Colleges to include Queensborough Community College, Kingsborough Community
College, Brooklyn College, and Long Island University Brooklyn. The partnerships were developed to
leverage an opportunity to compete for the CUNY 2020 grant proposal for $7.7 Million in capital
renovations and equipment for the Entrepreneurship and Experiential (EEL) Learning Training Lab. Other
institutional partnerships related to the development of the grant and Medgar’s StartUp New York initiative
were the New York Economic Development Council, CACCI, NY Poly Institute, Pratt School of Design, Chile
School of Social Entrepreneurship, Menstat, and Steiner Studios. There were also meetings between
Medgar and Princeton Keller Center for Entrepreneurship staff.
The net impact of the institutional and School of Business effort was increased funding and visibility
for the College and the School. Medgar is the recipient of a $1.2 Million grant from the Carnegie Mellon
Foundation of which the Entrepreneurship Center is funded for $400,000. The School of Business is a
finalist with Queensborough Community College for a program grant from Santander Bank of which the
grant was co-authored with Professor Christine Mooney. During the fall of 2015 the President Crew and
Provost Okereke allocated a 1,500 sq. foot space on the 4th floor of the Carroll Street building for operations
of the Entrepreneurship and Experiential Learning Training Lab. If the CUNY 2020 grant proposal is funded,
the space will expand to 5,000 sq. feet.
Lessons Learned
Entrepreneurship Program Viability and Sustainability
Medgar Evers College, from its inception has been wedded to its community and small business
development as an engine for economic growth. While Brooklyn continues to experience an economic
renaissance, small businesses surrounding the campus fight for survival. Many small businesses seek
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consulting and coaching services from the College. In the past development services were provided
through federal and other grant sources; once the grant funding ceased, program operations also ceased
leaving a void in the community. Hence the scope of services provided were always contingent on the
grant funding with little institutional resources.
Faculty engagement
In several iterations of entrepreneurial curricular and co-curricular activities, engagement of the faculty was
paramount. During the implementation of the Small Business development Center, coordinators, analysts,
and program managers were affiliated with the College. Faculty was also engaged informally by community
businesses when there were no specific funds allocated for services. Faculty routinely engaged in small
business plan consulting, marketing strategies, and grant writing support. The availabilities of these
services are limited by the quantity of faculty available to support the small businesses.
Collaborations
A key lesson learned is the importance of collegiate and vendor collaborations. Resources were leveraged
between campuses to increase participation in entrepreneurial competitions, student start-ups and
experiential learning outcomes. Students reported that their level of self-confidence increased after the
Fullbridge training allowing them to compete for three successive competitions. Students also reported an
appreciation for working with peers from other campuses and disciplines.
Future plans
If the CUNY 20/20 grant proposal is funded, then the current 1,500 sq. ft. space will expand to 5,000 square
feet including co-working space for students, international and community entrepreneurs. The space will
also include multi- purpose rooms and multi-media equipment for conferences, meetings, and workshops.
The current plan is to increase entrepreneurship programming. The EEL Training Lab will include an
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increase in preparation for business pitch competitions; business plan development; market research; and
minority & women owned business start-ups. Medgar Evers College will continue to leverage its resources
by collaborating with other Colleges and vendors such as Fullbridge.
Medgar Evers College will also participant in the New York City Economic Development Council’s
new Innovation through Institutional Integration (I3) program.
The program supports international
entrepreneurs on College campuses in co-working spaces with students and community entrepreneurs.
Medgar Evers College is the only Brooklyn College designated to operate the Start-Up New York Program.
The MEC Start-Up New York program’s first location is 9,000 square feet at the Brooklyn Navy Yard. Firms
in New York, who are part of the program, sustain a ten-year state tax advantage. Four businesses were
selected to participate as the first cohort in 2015.
To address the long-term issue of sustainability as it relates to entrepreneurship and economic
development initiatives, resources will be dedicated continuously to the development effort and stronger
collaborations with external and internal partners. The College will seek foundation, corporate, and
government sources to continue the work of developing scalable ventures to spur economic growth in the
Crown Heights community and beyond.
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References
Anderson, M. (2010). Encouraging entrepreneurship. Diverse Issues in Higher Education, 27(15), 8.
Black demographics. Retrieved from Black Demographics.com
http://blackdemographics.com/cities-2/new-york-nj-ny/
Butler, J. S. (2012). Entrepreneurship and self-help among black Americans: A reconsideration of
race and economics. SUNY Press.
Egbe, C. (2015). Past small business development and economic development by the School of
Business
Egbe, C. & Morrison, R. (April, 2011). Final Report on the Brooklyn International Trade and
Development Center – BITDC to US Department of Commerce, April 2011)
Egbe, C. (June 2004). Final Report on the Community Outreach Partnership Center – COPC to US
Department of Housing and Urban Development – HUD
Fiscal Policy Institute (2014).
Gallup-Purdue Index (2014).
Gibson, S. G., Harris, M. L., Walker, P. D., & McDowell, W. C. (2014). Investigating the
Entrepreneurial Attitudes of African Americans: A Study of Young Adults. Journal of Applied
Management and Entrepreneurship, 19(2), 107.
Haltiwanger, J. C., Ron S. J., & Javier M. (2010). Who Creates Jobs? Small vs. Large vs. Young.
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Katz, J. A. (2003). The chronology and intellectual trajectory of American entrepreneurship
education: 1876–1999. Journal of Business Venturing, 18(2), 283-300.
Kuratko, D. F. (2005). The emergence of entrepreneurship education: Development, trends, and
challenges. Entrepreneurship theory and practice, 29(5), 577-598.
Kuratko, D. F. (2003). Entrepreneurship education: Emerging trends and challenges for the 21st
century. White Paper, US Association of Small Business Education.
Mancuso, L. C., Alijani, G. S., Kwun, O., & Smith, L. D. (2009, January). Successful outcomes of
teaching minority undergraduate students entrepreneurial business planning concepts using
andragogy and service learning. In Academy of Entrepreneurship 15(1), 33.
Mars, M. M. (2007). The diverse agendas of faculty within an institutionalized model of
entrepreneurship education. Journal of Entrepreneurship Education, 10(1), 43-62.
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http://www.nber.org/papers/w16300.pdf?new_window=1.
Phillip, M. C. (1995). Entrepreneurship Education: More Business Schools are focusing on presentday opportunities. Diverse Issues in Higher Education, 12(14), 8.
Rolle, JoAnn (2013) OFC Innovation & Entrepreneurship Program Evaluation
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U.S. Census - http://quickfacts.census.gov/qfd/states/36/36047.html
20 American Journal of Entrepreneurship
CAROLINA HEALTH STAFFING
Susan D. Peters
[email protected]
FRANCIS MARION UNIVERSITY
Abstract
Carolina Health Staffing provides temporary (locum) jobs for Certified Registered Nurse Anesthesiologists
(CRNAs). The firm was founded in 2004 by Steve and Max, both CRNAs themselves and had exhibited nice
growth and profitability. By 2009, they had been joined by a third, equal partner, Jerome, who was to
assist them in their plan for the immediate future: (1) increase their geographic scope; (2) do permanent
placements of CRNAs in addition to the locum business; and (3) gradually expand into locum and
permanent placement of other medical professions. At this juncture, the business was beginning to face
some challenges as well, including the looming potential loss of two major clients accounting for nearly half
their revenues and a potential lucrative joint venture.
Carolina Health Staffing exhibits much of the classic symptoms of small business growing pains and
of some of the stereotypical entrepreneur types. The organization can be analyzed for some of the
“typical” mistakes a small business makes, especially a business that fills such a unique niche that it can
almost do no wrong at first.
While designed to fit a small business class, the issues could also be pertinent for the strategy
professor looking for a small business example. With a little creativity, the marketing aspects of Carolina
Health Staffing can be analyzed and a marketing plan put together for it.
The learning objectives are as follows:
1.
Analyze growth issues in a small business
2.
Plot different growth strategies for a growing small business.
3.
Examine different entrepreneurial types and the effect on a small business.
PETERS
4.
Realize the importance of a well written mission and vision statement.
Key Words: small business, managing growth, temporary employee services, health care.
“This business is my passion. It provides income to all my nurse anesthesiologists and provides staff for
hospitals and clinics. But . . .,” Max, one of the owners of Carolina Health Staffing paused and scratched his
head, “I’m not sure whether this new business makes much sense or not. Of course, our newest partner is
really pushing it, and he has brought a lot of business to us, so I don’t want to just dismiss it either. I just
wish we had more time to puzzle this out.
“And the timing of this,” he continued. “If we lose the Claiborne Clinic and the Northeast Regional
Hospital accounts, we need this income. On the other hand, if we get this business and don’t lose those
accounts, I don’t know if I can staff it.”
The Certified Registered Nurse Anesthesiologist Situation
After becoming a registered nurse and usually after several years’ experience, a nurse could go back to
school and, after extensive coursework and licensing exams, become a CRNA. CRNAs were similar to nurse
practitioners in that they were able to do more procedures than a regular registered nurse could do,
procedures that usually required a doctor. This highly specialized field was considered a stressful field and
extensive vacation time was awarded CRNAs, totaling to three months/year in the Southeast United States.
Many CRNAs, on the other hand, often found that they really did not need or want all of their
vacation time, especially if their families did not have as much time off. Others preferred not to have a full
time job but to pick and choose when they worked in order to accommodate child care or other lifestyle
decisions. As the salary levels of CRNAs were quite high ($300,000/year was not unheard of in this region),
many CRNAs found that they did not need to work full time and yet enjoy a comfortable life style.
Since hospitals and clinics awarded such a generous vacation, they essentially needed four CRNAs
to cover three jobs. While a hospital could do this, they could only make it work if they enforced a strict
22 American Journal of Entrepreneurship
CAROLINA HEALTH STAFFING
vacation policy – no over lapping time off. Even with this, they would have the usual sick days, medical
leaves and the normal turnover of jobs. These vacancies were filled with “locum” (temporary) workers –
usually CRNAs from other facilities on their days off.
Prior to formation of locum placement agencies, CRNAs wanting locum work needed to be on the
call list of each hospital or clinic at which they wished to work. A hospital needing to fill a spot would work
down their list until they found someone to fill the position. The next time they needed the position filled
they would continue down that list and fill positions in strict rotation. Unfortunately, if a CRNA was called
and happened to be working that day, he or she then went to the bottom of the list; on their days off, he or
she might not be high enough on any list to get a call. A hospital, too, might have to call dozens of people
before finding a single replacement.
With a huge staff at major hospitals, the human resource departments had been overburdened
with having to solve temporary shortages. In many cases, mandatory overtime was not an option as this
staff was making critical decisions and should not be overtired. Hospitals were turning more and more to
locum agencies to provide doctors, registered nurses, pharmacists, technicians and specialist such as
CRNAs.
Locum agencies not only recruited qualified personnel, but handled the managing of their diverse
schedules. For example, they managed the availability of time by their locum CRNAs against the varying
shift times and days of the hospitals and clinics that needed them. More and more hospitals and clinics
were turning over the staffing of their entire departments to locum agencies, hiring few or no permanent
staff. This was a system that had worked out well to the benefit of both the locum placement agencies and
the hospitals and clinics.
Carolina Health Staffing
Max and Steve were co-workers at a regional hospital and complained to each other about the randomness
of whether or not they would get a locum placement when they had their times off. They decided they
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PETERS
could develop a system that better meet their needs, the needs of other CRNAs seeking locum work, and
hospitals and clinics using them. Carolina Health Staffing was founded 2004 as an S-Corp, with Steve and
Max holding equal shares. (See mission and vision in Exhibit 1.)
Exhibit 1
Our Mission
To establish a reputation for quality work and commitment by creating innovative, unique and costeffective solutions to problems and needs face by our clients.
Our Vision
We are committed to be a corporately responsible company that benefits the patients, the
facilities, the communities, and healthcare providers by promoting a thorough credentialing
process employing competent healthcare professionals that practice patient safety with a healthy
attitude.
As usual, at first the financial situation was little lean and they made mistakes, but these were quickly
ironed out. In 2008, they had just over $940,000 in billed revenues. In addition, they had totally paid off
their line-of-credit and were able to operate without using credit.
Initially, Carolina Health Staffing’s market was the northeast region of South Carolina. Gradually
this expanded to their current status nearly all of the state and throughout most of southern North
Carolina. At first they stayed with major hospitals, but more recently they had branched out into clinics and
larger medical offices. As the industry evolved, they were able to land several major contracts to totally
staff anesthesiology departments. Eventually, they were asked to manage these departments as well.
Quickly, Carolina Health Staffing developed a good reputation in the areas they served. Their
competition remained limited and included some “hold out” hospitals and clinics who still preferred to fill
their vacancies themselves and the occasional placement of locum CRNAs by traditional temporary
agencies. Carolina Health Staffing grew mostly by word of mouth, and acquired additional locums CRNAs at
roughly the same rate as their customer base grew. Since Steve and Max were both CRNAs themselves,
they also worked as locums and were able to help ensure that their clients had enough staff.
24 American Journal of Entrepreneurship
CAROLINA HEALTH STAFFING
The Current Situation
2007 had been a good year for them; the business was growing at a steady state and profitability was to the
point they could add personnel. Max and Steve started with hiring more permanent staff to help them
manage the business. Prior to that Steve and Max paid bills, created schedules, paid locums and all the
other office work with only one office assistant.
At this same juncture they considered where they might be able to take their business. Three ideas
sounded good to them:
First, they intended to expand their geographic range gradually, hoping eventually to be
nationwide. Locums often traveled to locations throughout the Carolinas at the expense of the client (both
transportation and boarding). Many locums liked the idea of servicing a hospital or clinic further afield in
the United States. Since the client would provide transportation a locum could stay longer at their own
cost, but without transportation expense – a mini vacation in Seattle, or New Orleans, perhaps.
Secondly, they decided to go into the permanent placement business, securing permanent CRNAs
for their current clients. They had been doing this somewhat informally, generally, helping current locums
find permanent places in location where they had enjoyed their locum work.
The third possible expansion was to start moving into related medical areas to provide locum and
eventually permanent placement services. Why should a hospital call one place for CRNAs, another for RNs
and still others for other specialties? It would be more convenient to call Carolina Health Staffing and allow
them to fill multiple needs. In order to develop these second two options, they hired Marie, a headhunter
with a current nurse staffing firm. Unfortunately, Max and Steve found out after she arrived that she had a
non-compete contract from her former employer. She could place other medical professionals but not
nurses until her non-compete contract expired in two years. While Steve and Max were not particularly
happy about this, they figured she could start with CRNAs and add other professions, leaving nurses until
the non-compete expired.
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PETERS
While word of mouth and their reputation had served them well in the local market, especially at
the relatively slow pace they were growing, they were beginning to find it more and more difficult to recruit
new clients. They had done limited cold calling as they had generally relied on referrals. As they had nearly
saturated the immediate area, they were finding that they had to reach out. If they could get established in
one location in a new areas, then word-of-mouth would eventually get others to them. But, that required
making numerous calls trying to find the right person to talk to at each institution. They were finding it
particularly tough to get past the “gatekeeper” and to decision makers at these places. Jerome, a physician
anesthetist with whom Steve and Max had worked for several years, suggested that he make a call to get
past a particularly difficult gatekeeper. Using the “doctor” title got them to the right person and they
landed a new customer.
Jerome was impressed with Max and Steve and the work they were doing. Max and Steve liked the
entrée into upper levels of hospital and clinic management Jerome could provide. Jerome also had
connections and ideas that Max and Steve thought they might use, so in early 2009, Jerome came aboard
with an ownership portion equal to Steve and Max. Jerome did pave the way to landing several local
accounts, some of which Max and Steve had tried in vain to get. Jerome also used his contacts in local
states to help expand Carolina Health Staffing’s geographic scope and to find additional CRNAs willing to
work as locums.
On the other hand, though, the tough economy had hospitals looking for ways to save costs, and
hiring their own CRNAs – even with the headache of staffing for absences – was one way of doing so. One
of Carolina Health Staffing’s largest accounts, Claiborne Clinic had served notice that they would not be
renewing their contract at the end of the year and a second large account, Regional Hospital, was talking
like they might be considering doing so as well. Regional was clearly waffling, though, and might be won
back.
Max commented, “Churning of accounts in this business happens, but since these two accounted
for 50% of the revenues generated the previous year, we’re concerned. Claiborne wants some prices cuts
26 American Journal of Entrepreneurship
CAROLINA HEALTH STAFFING
and guarantees and other stuff, and I just don’t know if that makes any sense. I mean, we could probably
pay the locums and maybe have a little left over, but maybe handling all the paperwork means it’s just not
worth it. Regional might stay. They claim that they love the work we do for them, so I don’t know what I
could say that would improve on that!”
Jerome’s contact list came into use once more. He became aware of a large, out-of-state oral
surgery operation, Dental Health, Inc. (DHI). DHI intended to open larger, full service oral surgery clinics in
medium to large cities throughout the United States and was willing to joint venture with Carolina Health
Staffing to manage anesthesiology operations in each. DHI intended to open the first clinic in early fall 2009
and open three to four additional sites per month over the next year.
Max and Steve were uncertain and approached the Center for Entrepreneurship at Francis Marion
University, a local regional public university. Max e-mailed the center stating “Our business has made
profits consistently in the past but we expanded the office staff and hired some recruiters over the last 18
months. Currently, we are presently meeting our expenses but have failed to make any profit to speak of.”
At the initial meeting, Max provided a complete history of the company and discussed the potential
loss of two major clients, plus the DHI offer. He stated, “The DHI joint venture looks good, but I’m not
really sure that’s what we need to do. Right now we stand to lose nearly half our revenues, and while DHI
might replace that, the contract is different. With them, we have to staff and pay CRNAs and don’t get paid
back by the joint venture for three months.
“I don’t want to lay off the staff we’ve hired – I don’t even want to cut back on hours,” he
continued. “We’ve got a lot of locum CRNAs counting on us and I’m not sure how to take care of them. I’m
not sure where to go for extra business, but I’m uneasy about DHI; it’s just so big and so much all at once
and we’re not all that large and sophisticated.
“Our goals are simple. We provide a service for medical centers. We provide locum work for
CRNAs – most of whom we know personally. We provide some work for office staff, our CPA, etc. We
June 27
PETERS
make some profit doing so – a nice little next egg. We are proud of what we have accomplished. We were
having fun, but now it’s more like work.
“Don’t get me wrong: I want the business to grow, but something this big, this quickly... People we
don’t know. A big company. It feels different. I thought I’d do this all my life, but now, I’m not certain.
Maybe, I’m just too conservative to really run a business.”
The three owners rarely see each other face-to-face, coming to the business office on different days
of the week based on the schedules of their CRNA and physician jobs. The director of the Center for
Entrepreneurship was able to get Steve by phone that same day and the phone interview with him went
nearly the same as Max’s. Both Steve and Max had known Jerome a long time before bringing him into the
business and were delighted with what he had been able to do for them. They were nervous, though about
the potential of losing two major accounts with nothing comparable “in the pipeline” and uncertain of how
to replace this revenue. They both had some concerns about the DHI business, which had now given them
a one-week deadline to make a decision.
After some telephone tag, the Center for Entrepreneurship was to conduct a telephone interview
with Jerome as well. “I watched Max and Steve build this business almost from the beginning. At first, I
was a little skeptical, but these guys really know their stuff and found just the right niche. We provide a
needed connection between the CRNAs who want work and the places that need them and pretty soon it
won’t be just CRNAs. I suspect that in a year or so, we’ll be just as effective in nearly every medical
profession.
“Max and Steve really figured it out and knew just how to grow this business into one that’s really
something. That’s one of the reasons I was so ready to buy into the firm. And now, WOW, we are on the
cusp of really, really taking off. We do this DHI business – and maybe one or two more similar things, and
we’ll really grow Carolina Health Staffing.
“Now, I know that they are a little concerned about DHI, but then this is a pretty big leap for them.
As a part owner in this DHI venture we’ll never have to worry about losing a major account like we’re facing
28 American Journal of Entrepreneurship
CAROLINA HEALTH STAFFING
now. We’ll be national in no time and we’ll be hiring people right and left. I’m already looking for some
additional office space – maybe even building where we can headquarter the operation. If this goes the
way I think, we can sell Carolina Health Staffing in a few years and all of us retire as millionaires.”
References
This case is based upon a consulting project by the author. It is slightly disguised for reasons of
confidentiality.
June 29
CHARLIE THIGPEN’S GARDEN GALLERY
Laura Hudson
[email protected]
Ellie Qin
[email protected]
Joshua Sheppard
[email protected]
Andrew Summerlin
[email protected]
Charles M. Carson
[email protected]
SAMFORD MARION UNIVERSITY
Abstract
For the first two and half years of its operation, Charlie Thigpen's Garden Gallery encountered several of
the same issues that face many entrepreneurs in regards to time management and utilization of the right
business model and operations. Charlie Thigpen’s expertise in gardening, along with his creative mind, was
not always used to its full capability with the constantly growing demands of his daily business operations.
This inability to properly use his time hindered this small company from reaching its full potential. Due to
these unforeseen time constraints and a failed business plan, Charlie and his wife Cindy had to drastically
pivot their business's direction in order to achieve their desired success and sustainability for the store.
They, like many entrepreneurs, had their livelihood riding firmly upon the success of their business. This
husband and wife team had to work together to make decisions that would help better themselves
immediately in the retail store and for the future as they considered a transition to garden design focused
business. This tandem would need to work diligently to implement new strategies in a low cost and efficient
manner as a means to achieve their desired goals for the business.
Key Words: retail family firm, time management, operations, strategic flexibility.
CHARLIE THIGPEN’S GARDEN GALLERY
CHARLIE THIGPEN’S GARDEN GALLERY
Sweat was dripping off of Charlie Thigpen as he was watering plants in the hot Alabama sun. These plants,
centerpiece items at Charlie Thigpen's Garden Gallery (CTGG; www.charliethigpensgardengallery.com)
which Charlie owned with his wife Cindy, were wilting, and drying up and no amount of water and care was
bringing them back to life. His business, a locally owned garden shop, was created in hopes of bringing
beauty and joy into other peoples' lives. However, two and a half years later, business was struggling. As an
experienced gardener Charlie was frustrated that his plants were dying – but that was only part of the
problem. Charlie’s company was at a crossroads and he and Cindy needed to closely reevaluate their
business strategies. As Charlie stated, “when a plant dies we put in into the compost heap – I just hope our
business does not end up there, too.”
Humble Beginnings
Charlie Thigpen’s name was one that many of the 15 million subscribers of Southern Living Magazine had
grown to recognize. His shared experiences and knowledge had transformed garden after garden
throughout his career with the company. The stories and ideas he told inspired many to grow their own
gardens and develop a passion for the beauty he helped create. Though he never saw most of the gardens
he helped to inspire, knowing that other people had grown to enjoy gardening furthered his own love and
passion for gardening. Charlie stated, “Gardening is not about weeding, planting, and watering — It is
about the experiences you have while gardening — the rainbow, the hummingbird, the fall branch that
turns red, and all the little miracles.”
Though Charlie came from a creative family of artists, he worked tirelessly for years to develop into
a gardening expert. His love for gardening began at an early age by working alongside his grandmother in
her yard and later tending the grounds at Southern Progress Company (SPC) while still in high school. Those
experiences taught him the simple beauty that could grow within a garden. His enjoyment of planting,
along with his creativity, helped Charlie develop a strong reputation within the company. This earned
June 31
HUDSON, QUIN, SHEPPARD, SUMMERLIN, CARSON
respect, along with the vision and appreciation of leaders at SPC, helped Charlie progress within the
company. SPC management eventually asked Charlie, their gardener, to write for them about the hands-on
experience of gardening. Before he knew it SPC had promoted Charlie to director of landscape and
Southern Living Magazine's associate garden editor, and Charlie soon started to develop a strong following
among Southern Living readers.
Also working for SPC at the time was Charlie's wife, Cindy. Cindy had come to work for SPC after a
decade in the retail industry. Her experience in this field, paired with her educational background, helped
Cindy to become an important component to Southern Living's success. Serving as a manager in both
marketing and magazine production, as well as eventually becoming the director of creative services, Cindy
too had developed a strong reputation and proficiency in her field. Together the two were an integral part
of this successful regional company.
In the fall of 2008 things began to change at SPC. Having been purchased as a part of the AOL-Time
Warner deal in 2000 (Chambers, 2011), SPC had seen some of its normal operations changed throughout
the years by the new owners. However, due to their continued success and high subscription rate, they
were able to delay any drastic changes. This all came to a halt in October of 2008. With the economy
suffering and many households cutting back on extra spending, magazine subscriptions dropped rapidly.
Subsequently advertisements started pulling pages, some 9.3 percent in the first 9 months of 2008 alone
(Chambers, 2011). These events greatly affected the bottom line of the business, forcing AOL-Time Warner
to reevaluate the SPC campus in Homewood, Alabama. Management made the tough decision to
streamline and centralize the organization, blending the company more into its parent company. Numerous
magazine titles were cut, including Cottage Living and Southern Accents. Before all was said and done,
some 290 people, or 41.4 percent of the staff from the core Homewood campus, were laid off. Charlie and
Cindy's positions were a part of the cuts. Their twenty plus years of service for SPC had come to an end, but
their passion for gardening and helping people still burned deep inside.
32 American Journal of Entrepreneurship
CHARLIE THIGPEN’S GARDEN GALLERY
Despite the economic downturn nationwide and the struggles of Southern Progress Company on
one side of Birmingham, an exciting yet daunting task was underway to revitalize the Lakeview district of
downtown Birmingham. Cathy Jones, great great-granddaughter of Birmingham developer Colonel James
Withers Sloss, had seen the fall of SPC as an opportunity to bring talented artists of all types to an area
looking to be reborn. This revitalization of the Pepper Place (see map in Exhibit 1) area, as it was called,
gave many local small business owners the chance to cultivate their dream businesses in an ideal area.
Cathy approached the Thigpens with the idea of bringing their expertise to Pepper Place. Though first
reluctant, the Thigpens found the area and its Saturday farmer's market to be a great opportunity to open
their dream gardening store.
Creating their own business would not come easy, but they felt that their individual experiences
and expertise would combine to create a successful team. After the initial wavering of where to set up the
business and how to go about executing it, the Thigpens felt that Pepper Place, and their Saturday farmer's
market, was too good to pass up. This artsy area helped embody what Charlie and Cindy stood for. It gave
them an opportunity to reach out to local growers, farmers, and artists using the Saturday market as a draw
to their own business. They would attempt to create the perfect garden store, one complete with advice on
the nuances of gardening from Charlie. As Charlie stated, “It is the brick and mortar incarnation of a
longtime dream.”
With the Lakeview district working on the revitalization of many lofts and apartments, Charlie and
Cindy decided they would specialize in container and kitchen gardens. They felt like these smaller gardens
would be perfect for people who didn't have the room for a normal garden but still wanted to enjoy the
beauty that could come from watching a plant grow and bloom. Due to the close proximity to numerous
hospitals, Charlie and Cindy also saw an opportunity to use their creative plant designs to sell and deliver to
local patients and their families. These ideas, mixed with revenues from contractual landscape design
projects Charlie occasionally performed, would help the Garden Gallery become the type of small business
that would be ideal for this husband and wife duo.
June 33
HUDSON, QUIN, SHEPPARD, SUMMERLIN, CARSON
Two and half years later, not everything had gone as planned. Charlie and Cindy realized that
plants, though their passion, did not have the profit margin and inventory turnover needed to sustain a
successful business. The container idea also didn't develop as planned either. Containers were often
bought from the Garden Gallery with free and great advice on what to put in and how to properly maintain
them; however, customers often went elsewhere for the plants and gardening soil needed. Charlie
lamented, “It is difficult to sell many of our plants because a potential customer can go to their local Lowe’s
and purchase a plant for less than I can buy them wholesale.” Their idea on serving the local hospitals and
their patients never took off as the targeted customers simply weren't interested. Fortunately for the
couple, Charlie had been able to complete many landscape design projects in order to help the company
stay afloat.
As time progressed, Charlie and Cindy realized there needed to be a change in their business
model. Though they had set out to be a predominantly plant oriented store, the Thigpens began to consider
devoting much more of Charlie’s time to garden and landscape design. They realized the need for a more
stable source of income, as well as a higher profit margin, and believed further entering the garden design
industry could be beneficial. Though they had resisted change initially, future success depended on the
strategies they would chose to implement and the course of action they set for their business.
Gardening Industry
Charlie Thigpen’s Garden Gallery resided within the overarching garden industry as a hybrid. This hybrid
constituted both the landscaping and garden design industry as well as the nursery and garden décor retail
industry.
After World War II the first notable lawn and garden service industry developed. The post-World
War II economic expansion started a housing development boom. In 1944, there were 139,00 housing
developments. Yet in the year 1950, the number of housing developments ballooned to 1.9 million.
Coinciding with this, “an entire suburban culture emerged, replete with private lawns and gardens, the
34 American Journal of Entrepreneurship
CHARLIE THIGPEN’S GARDEN GALLERY
demand for landscape services flourished" (Lawn and Garden Services, 2) opening the door for many
businesses to earn significant profits. The next major shift in the economy for the gardening industry
occurred in the 1990’s and 2000’s. This shift largely resulted from an increase in two-income families
throughout the country. This housing expansion also found many new homeowners with an increased
income to fund new gardening projects. “Homeowners in the 1990’s came to view sprucing up their lawns
and shrubbery as a relatively low-cost way to boost property value as well as spirits. Many experts claimed
that gardening became one of the most rapidly developing hobbies among Americans in the 1990’s (Retail
Nurseries, Lawn and Garden Supply Sources, 3). This trend continued through the early 2010’s. A study by
the National Gardening Association (NGA) found that homeowners spent a record $44.7 billion to hire
professional lawn-care and landscape services in 2006. An estimated 34.5 million U.S. households, or 30%,
used at least one type of lawn and landscape service. However, despite such an encouraging past for the
industry, the economic recession of the late 2000’s altered this growth and placed a strain on businesses
operating within the industry.
Industry trends revealed considerable fluctuation over the previous five years. As with most
industries in the United States, the gardening market was negatively impacted by the economic recession in
the final years of the 2000’s. Many Americans sought to save money through cutting back spending in nonessential industries; for many consumers these cutbacks included gardening and lawn care. According to
data from the NGA, the number of Americans who indicated that they planned to grow their own food
increased from 2008 to 2009 by 7 million or 19 percent. Another study by the NGA estimated that a wellmaintained vegetable garden would yield a $500 average return per year. A study by Burpee Seeds even
claimed that $50 spent on gardening supplies could multiply into $1,250 worth of produce annually.
Many studies noted a significant decline in consumer participation in the market from 2007-2010,
yet more recent research revealed hope for the industry. Although spending on gardening showed a decline
during these years, the overall interest in the activity of gardening surprisingly increased. “Overall
participation in lawn and garden activities increased by 2 percent last year, reaching 83 million households.
June 35
HUDSON, QUIN, SHEPPARD, SUMMERLIN, CARSON
A particular bright spot was food gardening, which gained for the second year in a row, growing by 21
percent. The survey also reports that although spending declined, it declined less steeply than spending in
other discretionary categories” (Lesonsky,1).
Although there were many positives associated with the industry, large potential profit meant large
competition. This competition emerged primarily through the rise and eventual prominence of competitive
chain stores. In response to the threat of competing chain stores (companies that bought in bulk and were
able to offer their customers discount prices), many smaller companies “found that narrowing their focus
kept them afloat in the industry… Another means of coping with profit losses has been the development of
a segment to provide landscaping services" (Retail Nurseries, Lawn and Garden Supply Stores, 1).
Charlie’s statement shed light into the dynamics of the market as this was a reality for most small
businesses within the industry. His business needed to survive, and hopefully prosper, in an industry largely
dominated by large chain retailers. As noted previously, Cindy and Charlie began to consider a venture into
garden design as an extension of their current enterprise.
“Landscape design accounts for 55% of the industry’s annual revenue, more for small firms. The
principal service supplied by the industry is landscape design associated with outdoor spaces for housing,
non-residential buildings and public spaces (IBISWorld,1). Additionally, it was noted that a significant
increase in the construction industry would likely occur as economic conditions continued to improve.
Along with this growth in the construction industry more and more households would begin to demand
landscaping services. In fact, nearly 25 percent of U.S. household utilized professional lawn care services
and the U.S. Department of Labor expected growth in the industry to result in an 18 percent increase in
labor between 2008 and 2018. Overall, despite an understandable decline in the industry during the
economic recession of the late 2000’s, the future of the gardening industry showed ample promise.
The most recent NGA survey conducted in 2012 stated:
“Nationwide, household participation in do-it-yourself lawn and garden activities showed a
welcome increase of 3 million more households (3%) in 2011 compared with the year before, translating
36 American Journal of Entrepreneurship
CHARLIE THIGPEN’S GARDEN GALLERY
into an extra $688 million (2%) in retail sales of Lawn and Garden across the nation. In total U.S. households
spent $29.1 billion on their lawns and gardens last year. Average annual spending on lawn and garden
activities per household was flat at around $351 per year.”
The best way for Cindy and Charlie to adapt was to identify which unique skills and services
differentiated their company from their competitors. Finding this “niche” within the industry would prove
vital to the survival and prosperity of Charlie Thigpen’s Garden Gallery.
Current Situation / Problem Areas and Opportunities
Online Presence
While Charlie and Cindy had a website for their retail store, they did not sell merchandise online. This was
something that they had considered to increase sales. “The U.S. online retail sector has experienced strong,
double digit growth since 2010. Strong growth is predicted to continue until the end of the forecast period
in 2016 (MarketLine). “The online and mobile shopping trend that is expanding at a rapid rate is decreasing
the foot traffic in physical stores and encouraging retailers to focus their resources towards technology
rather than real estate (Farfan).”
Expanding a brick and mortar retail store's responsibilities to include an online market would
involve a large amount of time and dedication. An employee or online partner would need to be designated
to manage the website regularly. This would include managing inventory levels, shipping orders out to
customers, and interacting with customers.
There were numerous inherent advantages offered with expansion into an online market. First,
operating an online store could result in their store being able to reach a larger customer base along with
other opportunities to expand the product line. Additionally, their online store would be open 24 hours a
day, 365 days per year, and would enable the store to offer products and services at the customers’
convenience. Another advantage would be the ability to build customer loyalty. An online store could also
June 37
HUDSON, QUIN, SHEPPARD, SUMMERLIN, CARSON
be advantageous in attempts to collect customer information. This could enable the store to reach more
customers with targeted promotions or product offerings.
While there were several advantages to selling online, there were also some disadvantages.
Expansion to an online store required a long-term investment. The website would need to be updated
frequently with pictures and product descriptions, site links must be checked to ensure that they were
activated, and new prices and promotions must be added as warranted. Another disadvantage to an online
store was issues with customer security and privacy. Online stores were often held liable if they failed to
protect their customers’ private information. Also, there could be logistical challenges with development of
an online entity. If their store could not keep up with an increased demand through timely product delivery,
they would risk losing their customers.
Marketing
Because the Thigpens had not generated the desired profit in their retail store, they were not able to justify
spending money on advertising. Further complicating the issue was the location of their store. Though the
Farmer's Market drove business on Saturdays, their store location was not conducive to everyday business
as it was out of the way and not easy to find. Due to the limited traffic, Charlie and Cindy admitted that
some form of advertising was likely necessary for growth.
Charlie and Cindy had established a website, a blog, and a Facebook page. Their website contained
a short video along with vibrant pictures and information. The website consisted of details on what type of
plants and merchandise they sold, background information on Charlie and Cindy, a link to Charlie’s blog,
information on their monthly gardening classes, testimonials, and press. Charlie and Cindy wanted to use
the website as a platform for keeping in contact with customers. There were approximately sixty customers
who left their email addresses on the homepage of their website. However, the lack of marketing still
proved an obstacle and limited their brand awareness. Charlie and Cindy did not know how to further
38 American Journal of Entrepreneurship
CHARLIE THIGPEN’S GARDEN GALLERY
market their business while keeping costs down, and they started to doubt the returns the website was
producing in comparison with the time they spent working on it.
Blogs provided small businesses with a chance to share their knowledge and expertise to a larger
audience. They required little to no capital, and would greatly increase communication. Though one of
Charlie's strengths was writing, his attempt at a blog had fallen short. This unsuccessful attempt was not
due to the ideas and help he was providing but instead a lack of commitment. The overwhelming daily
operations of the business made it difficult to maintain the blog and it had not been updated in nine
months.
Facebook and Twitter allowed small businesses to present their products to a large and diverse
audience that ranged in age, income, geographical location, and interests. “As of August 2011, businesses
with Facebook pages have access to the social networks audience of more than 750 million active users.
This type of access provides the potential for greater visibility and a chance to capture a larger share of the
market (Brookins). “About 80 percent of small business owners and top executives say they now use a
social network" (Schubarth). Though this information shows the growing trend, a struggle continues for
owners as “59 percent of small business owners said that social media has either ‘not met’ or only ‘slightly
met’ their expectations, yet 77.5 percent of the respondents plan to spend more on social media in 2011.
This suggests that entrepreneurs see the value of social media but are still trying to master it. Forty-three
percent of small business owners surveyed indicated they have allocated only 0-10 percent of their
marketing budgets to social media. Plus, 36.5 percent of the small business owners said they update their
social media content only once a week or less" (Protalinski). It was very important to not only have
Facebook and Twitter accounts, but also to keep them continuously updated as a way to maintain customer
engagement. The Thigpens had hired an employee to come in on Fridays to manage social media. Their
Facebook page could be found at https://www.facebook.com/CharlieThigpensGardenGallery. They had yet
to employ the use of an Instagram or Twitter account.
June 39
HUDSON, QUIN, SHEPPARD, SUMMERLIN, CARSON
Charlie had been featured on WBRC Fox 6 News to promote his expertise in the garden business.
This was free advertisement for Charlie and his store. He could have taken steps to potentially become a
regular guest on the show if he made it a priority.
Charlie had successfully bartered with local magazine B-Metro in which CTGG would receive a
fourth of a page of free advertisement in exchange for his writing of a monthly column for the magazine.
This magazine had a subscription rate of approximately 60,000 and offered CTGG a great opportunity to
reach new customers in the greater Birmingham area. Worth noting is that Charlie did feel that his
relationship to and loyalty with B-Metro magazine limited him from producing the same arrangement with
other magazines in Birmingham.
Inventory
Charlie and Cindy provided an array of unique products in their retail store. The merchandise that they
offered ranged from plants to garden accessories and home decorations. The Garden Gallery strived to
offer a wide variety of products so it could become the complete garden store for its customers. However,
for a small business like the Garden Gallery, this wide variance in inventory caused numerous problems.
CTGG, tried to answer nearly all of the perceived wants and needs of their customers. They limited their
potential profits by placing many of their more profitable items on the floor and using shelf space for
objects that had slow turnover and low profit margins. For instance, the Thigpens noticed the disadvantage
that plants gave the store over time. They had to be purchased from their supplier at a higher price than
their potential customers could buy them from the big box stores. The plants, though they helped to offer
desired variety and image for the shop, took a lot of care, and offered little in the way of profits. It was
quite common that many of the gallery’s plants had to be thrown away if no one bought the plant before
its life cycle was up. This short plant life, in addition to slow turnover and low profit margin, hindered the
growth of their retail store.
40 American Journal of Entrepreneurship
CHARLIE THIGPEN’S GARDEN GALLERY
Since the Thigpens did not have a reliable set of financial documents nor a proper and updated
inventory management system in place, it was of little surprise that the needed change developed at a slow
pace. A proper inventory management system would help them keep an accurate measure on total sales of
each item, how long it took to sell those items, and could track how much merchandise they currently had
on hand. This proper understanding of the products could have affected their pricing strategy.
Time Management
As often the case of small business owners, Charlie was having a hard time managing his valuable time. In
his own words, Charlie felt like he was always putting out "little fires." These "little fires," such as a broken
water pipe or dying plant, took away the most important asset of the business. These small tasks prevented
Charlie from doing what he did best and what benefited the company most: Charlie’s creativity. On a
normal day Charlie, a man who could make approximately $130 dollars an hour performing landscape
design, relegated himself to a task (watering plants) that could be carried out by a less skilled worker for
slightly more than minimum wage. Charlie did not always feel comfortable delegating work to others. Like
many entrepreneurs who have their family’s well being to worry about, Charlie feared that the lesser tasks
may not be done properly; subsequently causing the business to suffer. Further complicating his time and
the level of stress for both Charlie and Cindy, was the couple’s lack of planning. After two years, their
original business plan held little relevancy to their current business situation. Though they had general
ideas, Charlie and Cindy struggled to prioritize daily tasks or to plan strategies long-term. Often it was hard
to see the bigger picture in stressful situations; the burden of daily operations overshadowed the future
goals for the Thigpens who were just trying to make it each day. Charlie and Cindy recognized the need to
increase the effectiveness of their time management and were prepared to take the necessary steps to
institute this change.
June 41
HUDSON, QUIN, SHEPPARD, SUMMERLIN, CARSON
Finances
Before Charlie and Cindy established their business in October 2009, they created a business plan. The
financial information listed in the business plan estimated how much Charlie and Cindy would spend to get
the store in business as well as their expected initial profits. According to their outline, Charlie and Cindy's
plan was to begin earning significant profit within three years. In the short-run, their goal was that the
revenue from sales could cover most of the overhead expenses associated with a new business start-up. As
the business continued to progress, Cindy began to take responsibility for the business’ finances (see
Exhibit 2). However, due to the daily stress the business produced, Cindy struggled to execute a yearly
budget. Rather than follow a yearly budget, the company was often forced to try to account for things daily.
This made it difficult to control the overall costs of the company and manage the spending of the gallery.
Design
A critical decision point for the Thigpens centered upon the implementation of garden and landscape
design as an additional facet of the company. Charlie generally performed these services in his free time
and these services accounted for just over $14,000 of revenue in 2011. However, this aspect of their
business was often hindered due to Charlie’s prior time commitments to the retail shop.
These
commitments consisted largely of watering plants, handling product shipments, arranging garden decor, in
addition to many other miscellaneous activities around the shop. Charlie and Cindy took much pride in the
appearance and unique style of their shop and Charlie stressed that “not just anyone can water plants
correctly.” Charlie devoted approximately three to four hours every day of the week to watering the plants.
Additionally, Charlie spent a large amount of his time interacting with and giving free gardening advice to
visitors. Unfortunately, the Thigpens noticed that many of these visitors did not spend money at their shop.
A transition into garden design would require Charlie to have less influence on the shop in order to
focus on design projects. Thus, the need for promotion within the company or the hiring of a new
employee was considered. The Thigpens believed that finding a reliable, skillful, and honest person would
42 American Journal of Entrepreneurship
CHARLIE THIGPEN’S GARDEN GALLERY
be vital to carrying out Charlie’s daily activities around the shop. The Thigpens worried that finding such a
person could become a real obstacle in achieving the goal of allowing Charlie to focus his time elsewhere.
The Thigpens estimated that Charlie earned approximately $130 an hour providing garden design
services, yet their financial statements provided little additional information in this regard. Charlie said he
had more demand for his designing services than he could handle and was forced to delay or turn several
jobs down on a regular basis, thus indicating a stable demand for his designing services.
An additional consideration for the Thigpens was the creation of a separate space specifically for
the purpose of designing gardens and holding meetings. The Thigpens believed creating this space would
hold several advantages for their business such as legitimizing the design aspects of their operation and
allowing for the display of previous design work performed by Charlie. Fortunately, a room up above the
retail shop served as a crude office for the Thigpens and could be converted into the desired space with
relative ease.
Conclusion
Despite their knowledge and passion for gardening, the Thigpens lacked several key elements vital to the
success of a small business. A new approach needed to be integrated into their new business model to
ultimately generate their desired profits. The Thigpens found themselves at a crossroad with a number of
important considerations. If Charlie relied more upon Cindy and the other employees to manage the retail
side of their business so that he could focus on design work, how would that change the operations and
dynamics of the company? Should the company utilize online options as a way to increase sales and gain
access to free marketing through social media; and if so, how? A challenging yet exciting series of decisions
laid ahead for the Thigpens and the fulfillment of their dream hung in the balance. If Charlie and Cindy did
not make significant changes their dream would die, just like the plants that Charlie kept trying to save.
June 43
HUDSON, QUIN, SHEPPARD, SUMMERLIN, CARSON
References
10 Serial Entrepreneurs Share Tips on How to Manage Multiple Businesses. (2011, November 7). YFS
Magazine, Retrieved from http://yfsentrepreneur.com/2011/11/07/10-serial-entrepreneurs-sharetips/.
About us. (n.d.). Retrieved from http://www.southernliving.com/about-us/.
Business Transition Planning FAQS: Prepare for the Future by Implementing a Business Transition Plan.
(2006, October 18). Entrepreneur Magazine, Retrieved from
http://www.entrepreneur.com/article/169192.
Chambers, J. (2011, March 2). Southern Gothic. B Metro Magazine, Retrieved from http://bmetro.zeekeeinteractive.com/southern-gothic/1295/.
Hall, J. (2012, May 29). Defining Moments: 4 Things Every CEO Should Know About Pivots. YFS Magazine,
Retrieved from http://yfsentrepreneur.com/2012/05/29/defining-moments-4-things-every-ceoshould-know-about-pivots/.
Woelful C. J. 1992. Budgeting the small company. U.S. Small Business Administration. From:
http://archive.sba.gov/idc/groups/public/documents/sba_homepage/pub_fm8.pdf
How to budget for a small business. 2011. Essortment.com, from: http://www.essortment.com/budgetsmall-business-23629.html
Farfan, Barbara. July 18, 2012. 2012 U.S. Retail Store Openings Roundup. WWW.About.com. Aug 2,
2012. From: http://retailindustry.about.com/od/storeclosingsandopenings/a/2012Store_Openings_roundup-complete-list_us_retail_chains_alphabetical.htm.
MarketLine Industry Profile. 2012. Online Retail Industry Profile: United States, Pg 7. Aug 2, 2012. From:
Business Source Complete.
Brookins, Miranda. 2012. The Advantages of Having a Facebook Presence for Companies.
From:http://smallbusiness.chron.com/advantages-having-facebook-presence-companies
-18594.html.
Schubarth, Cromwell. 2012. Most Small Businesses Use Social Media but Many Lack Marketing Strategy.
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From: http://www.bizjournals.com/sanjose/blog/2012/04/most-small-businesses-usesocial.html?page=all
Protalinski, Emil. 2011. Two Thirds of Small Business Owners Use Facebook for Marketing.
From:http://www.zdnet.com/blog/facebook/two-thirds-of-small-business-owners-use-facebookfor-marketing/1529.
“Economy Turns Gardening Industry Growth Industry.” 2012. Retrieved from:
http://www.msnbc.msn.com/id/29708619/ns/business-personal_finance/t/economy-turnsgardening-growth-industry/#.UCSATKliaFM
“Lawn and Garden Services.” Encyclopedia of American Industries, Online Edition. Gale, 2011. Reproduced
in Business and Company Resource Center. Farmington Hills, Mich.:Gale Group. 2012.
http://galenet.galegroup.com.ezproxy.samford.edu/servlet/BCRC
“Retail Nurseries, Lawn and Garden Supply Stores.” Encyclopedia of American Industries, Online Edition.
Gale, 2011. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.:Gale
Group. 2012. http://galenet.galegroup.com.ezproxy.samford.edu/servlet/BCRC
“Landscape Design in the US: Market Research Report.” IBISWorld. 2012. Retrieved at:
http://www.ibisworld.com/industry/default.aspx?indid=1402
“Industry Fact Sheet – Landscaping Services (NAICS 561730).” The University of Georgia BOS/SBDC, Applied
Research. 2002. Retrieved at: http://research.sbdc.uga.edu
June 45
BAILEY’S FUDGE: PRODUCT ENTRY INTO
REGIONAL WAL-MART
Melissa Griswold
[email protected]
MARYVILLE UNIVERSITY
John Palmer
[email protected]
ARGOSY UNIVERSITY
Abstract
Bailey’s Fudge and Fine Gifts is a small entrepreneurial firm located in Quincy, Illinois and has been in
operation since 2003. Ruth and her daughters Melissa and Rebecca, who are the owners of Bailey’s, have
recently entered into a contract to offer four flavors of fudge in eleven Wal-Mart stores located within a
150 mile region within Central Illinois. Some of the major challenges facing the owners are limited
production capacity, the lack of an efficient means to distribute the product on a broader geographic scale,
and other personal obligations and challenges of family owned businesses, which are having a limiting
effect on their ability to devote more time to the business. As a result, they are considering a number of
different strategic options for the business.
Key Words: family firm, Wal-Mart, supplier, distribution channels.
Introduction
Bailey’s Fudge and Fine Gifts, Inc. opened on October 25, 2003. Fifty-seven year old Ruth and her two
middle aged daughters, Melissa and Rebecca had experienced success with previous entrepreneurial
ventures and wanted to diversify and to try something new. The original idea of this small family owned
business was to serve as a hobby and creative outlet for owner, Ruth. She wanted to open a specialty store
with homemade foods for working families. The family members debated on various homemade options
AHMAD, WALTER, SHERMAN
including carry out dinner dishes and casseroles or soups. But in the end, due to county health department
licenses, facility requirements and overall vision of the entrepreneurs, they decided to open a fudge shop.
Ruth had always been known among friends and family as an outstanding cook overall, but her specialty
was desserts and fudge was one of her areas of expertise. As a compliment to the homemade fudge outlet,
the entrepreneurs built a floor space for specialty gift items creating a venue for high quality and exclusive
specialty gifts for special occasions. In an effort to divide responsibilities within the family owned business,
Ruth would be in charge of producing the fudge, Rebecca would be in charge of ordering specialty items
and store design, and Melissa would be in charge of the financial aspects of the new venture. The store
was named Bailey’s after Ruth’s Grandmother, Bertha Bailey who had been an inspiration to Ruth in the
kitchen.
While the core business of Bailey’s Fudge has remained the same over the years, the owners have
attempted to meet the need of various customers by adding various products. The store began with only a
fudge counter and a few specialty gift items. Over time, the store has added candles, coffee beans,
specialty food items, homemade desserts, freshly roasted nuts and a full service coffee and smoothie bar.
During the Christmas season, Bailey’s Fudge makes gift baskets for various commercial clients such as banks
and real estate companies. The store specializes in home-made goodness.
Over the years, Bailey’s Fudge Has been able to build a solid following in Quincy, Illinois, where the
store is located. Ruth has consistently provided the community with a large variety of homemade fudge
flavors. Most days she has twenty-three different flavors of fudge available in the store with four different
sucrose-free flavors for diabetic customers. Customers often visit the store to talk to Ruth and watch her
make the fudge. Ruth lives approximately one hour from the store and has a regular routine of traveling to
Quincy to make fudge on Monday, Wednesday and Friday mornings. The retail store is located in a high
traffic area in a strip mall with busy stores nearby. While the client base has grown significantly each year,
it became evident to the owner early on that fudge was a highly seasonal product with a busy season
during the fall and into the Christmas and New Year holidays. Valentine’s Day has also proven popular for
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THE HOME AWAY FROM HOME: ANALYSIS OF THE LODGING INDUSTRY IN 2015
fudge sales. Due to the seasonal sales, difficulty comes in the summer months when the warm humid
Midwest weather seems to deplete the local appetite for sweet tasting fudge. In an effort to supplement
fudge sales over summer months, the owner increased specialty gift items but has often struggled with
cash flow and large inventory costs.
As a result of unusual circumstances, what started out as a specialty store has morphed into a
distributor of fudge to local Wal-Mart stores. The owner of the store is faced with questions and challenges
concerning production, cash flow, image, pricing and distribution.
Background
During the spring of 2007, a local Wal-Mart store manager, James Litz, visited Bailey’s and sampled some of
the fudge. He immediately fell in love with the product and told Ruth that he was interested in carring the
fudge in his store. He encouraged her to contact Wal-Mart headquarters in Arkansas to begin the approval
process for carrying fudge in his Wal-Mart store.
As a store manager, Mr. Lits had helped various micro-entrepreneurs gain approval to distribute
their products in Wal-Mart over the years. In the past, store managers had been able to approve local
distributor’s placement of product in individual stores. But now, it took corporate approval from Arkansas.
Mr. Lits had envisioned this process taking a “couple months” and was completely surprised when he
ultimately learned that the new process for approval took in excess of two years.
Approval Process with the Wal-Mart Corporation
At the time that the process started, potential Wal-Mart suppliers could contact the Arkansas corporate
office to receive a packet of materials necessary for the approval process to become a local distributor. The
packet was brief and contained only minimal information about becoming a distributor within Wal-Mart.
Completion of the “Vendor Agreement” included both broad information about the business and its officers
48 American Journal of Entrepreneurship
AHMAD, WALTER, SHERMAN
and detailed requirements such as the insurance guarantee requirements of $2,000,000 per occurrence for
commercial general liability and $1,000,000 of employers’ liability for workers’ compensation coverage.
The packet had no information concerning labeling. It was up to the small business owner to
contact the FDA to get a labeling requirements brochure and to interpret the information which applied to
their individual product.
Labeling requirements differed based on the size of the business. For example,
caloric and nutritional information was exempt for businesses with sales less than 100,000 units per 12month period and fewer than 100 employees. Another type of exemptions applied to retailers with annual
gross sales of not more than $500,000. Surprisingly, Wal-Mart did not require verification of the labeling
exemptions.
The application for approval to Wal-Mart made it clear to the potential distributor that once the
packet was submitted, the distributor could not make any changes to the product, labeling or packaging for
six months. After six months, distributors were allowed to send a request for changes.
Bailey’s Fudge submitted a request for approval three times before being approved to distribute
fudge within the local district of Wal-Mart. Each time the owner sent four pounds of sample fudge to WalMart along with the required paperwork and documentation. The first time the application was denied
because of an inadequate Dun and Bradstreet Distributor supplier number. This number is assigned by Dun
and Bradstreet based on a formula that is unavailable to the business applying for the number. The owner
contacted Dun and Bradstreet to inquire as to why their supplier number was too high for Wal-Mart and
were told repeatedly it was because the business had not been open for more than five years. The Dun and
Bradstreet representative explained repeatedly that it was very common for a small business to have to
wait at least five to ten years before their supplier number would reach the required level for Wal-Mart
distribution. However, the Dun and Bradstreet Company offers a service which will help businesses
“manage” their supplier number. Upon agreement to pay $600 for management services, the supplier rank
number increased to the required Wal-Mart level. According to one of the supervisors on staff, there had
been a “mistake” in the original number given to Bailey’s Fudge. Although frustrated by this occurrence, the
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THE HOME AWAY FROM HOME: ANALYSIS OF THE LODGING INDUSTRY IN 2015
entrepreneurs were thankful that their Dun and Bradstreet supplier number had been corrected to the
level acceptable by Wal-Mart because without this supplier number, Wal-Mart would not consider the
entrepreneur as a possible local distributor.
The next obstacle involved getting Wal-Mart approved bar codes and packaging. Wal-Mart had an
agreement with a company named GS1 who provided all bar codes for Wal-Mart products. If a potential
supplier wanted to continue in the approval process, they were required to purchase bar codes from the
GS1 company and have labels made with barcodes on them. This had to be done prior to Wal-Mart
consideration for approval and did not guarantee approval. GS1 required an initial set up fee of $600 to
purchase a maximum of 12 bar codes. Each subsequent year after, businesses renewed their subscription
to the GS1 barcodes for $180. Once the approved barcodes were purchased, the owners had to have the
barcodes printed onto labels made for Wal-Mart. Each label cost $0.26. To get started with this initiative,
the owners ordered 500 of each of four different labels (2000 labels total) so that each flavor of fudge being
submitted for approval to Wal-Mart would have its own original label containing ingredients and its own
unique barcode.
In addition to unique label requirements, 2000 specialty boxes were ordered at $.20
each. The owners also had to purchase equipment to shrink wrap boxes individually to secure the
sanitation of the product. The shrink wrap equipment and supplies cost $311.
The business owner was also surprised by the Biohazard and Hazard Analysis Critical Control Point
Analysis Report requirements made by Wal-Mart.
Prior to the Wal-Mart approval, chemical, physical and
microbiological hazards had been prevented but a policy had not been written by the entrepreneur. WalMart required a detailed plan on file.
A final set back was that the state required a food wholesaler approval. This was not listed as a
requirement by Wal-Mart and when the owner of the business contacted Wal-Mart to inquire about the
state wholesale approval process, Wal-Mart was unaware that this was required in the state of Illinois. A
Wal-Mart representative suggested to the owner of Bailey’s that she contact her local health department
and that they could help guide her. The local health department put the owner in contact with the State of
50 American Journal of Entrepreneurship
AHMAD, WALTER, SHERMAN
Illinois Health Department. They visited the store site and approved the facility for wholesale distribution
after a few minor changes were implemented. For example, since the facility manufactured fudge for both
retail and wholesale purchases the state required that these processes be separate and that any fudge
manufactured for wholesale distribution be stored separately from fudge manufactured for retail
distribution. Bailey’s purchased a new cabinet for wholesale storage for $300.
It was also required that all supplies used in the manufacturing process be easily traced back to the
individual one pound boxes of fudge that would be distributed to Wal-Mart using detailed production
records. For example, the lot number on a jar of JIF Peanut Butter used to make thirty six pounds of fudge
in a batch must be traceable back to each individual one pound box of fudge. The same holds true for all
input items including butter, syrups, candies, etc. This tracking system has increased the paper work for
Ruth, but she clearly understands the importance due to possible recalls on input items.
The approval process is the first step in becoming a distributor of product to Wal-Mart stores but it
does not guarantee sales in any individual Wal-Mart store. Once approved by the Wal-Mart corporate
office in Arkansas, the entrepreneur had to go store-to-store within the approved district and sell their
product to the store manager. Each store has its own approval process. Some stores allowed department
managers to make the decision while others required the store manager’s approval. There was also
variation in which department each store manager wanted to display the product. For example, some
stores considered fudge a food item, some considered it a seasonal item and others considered it a bakery
item. Store requirements for the product varied depending on which department individual stores placed
the product in. Shelf space and location were determined by each individual Wal-Mart store and had to be
continuously monitored and negotiated by the entrepreneur.
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THE HOME AWAY FROM HOME: ANALYSIS OF THE LODGING INDUSTRY IN 2015
Present Strategy
Final approval to distribute fudge as a local distributor to Wal-Mart took over two years. Approval was
granted in one district of Wal-Mart which included eleven Wal-Mart stores. This approval was granted
three weeks before Christmas of 2009. While the entrepreneur was happy to finally have the approval for
fudge distribution, she was concerned about the timing due to the rapidly approaching Christmas holiday.
During the three weeks prior to Christmas, Melissa was able to convince four Wal-Mart managers to allow
her to place fudge in their stores. Sales at three of the Wal-Mart stores exceeded expectations. These
three stores allowed Bailey’s to hire samplers to provide free fudge samples to potential customers. When
the product was being sampled, the store often sold out of the fudge on hand. Sampling was at the
discretion of each store manager and came at the expense of the distributor, not the Wal-Mart. The
various expenses associated with sampling included the product itself, employee wages and employee
travel time and expenses.
While fudge sales exceeded expectations during sampling, there were
considerable down turns in sales when customers could not taste the product. Ultimately, Ruth did not feel
that she had been given good shelf space. It appeared to her that one needs to spend significant time
negotiating to obtain and keep prime shelf space, but the process seemed both ambiguous and unclear.
After the holiday season, Ruth continued to place fudge in the three more popular stores. Sales
declined considerably but she felt this was to be expected due to the season. In addition to seasonal
fluctuations, the recession of 2009-2010 put pressure on all luxury items including specialty foods. In her
own retail shop, sales quadrupled during the holiday season but had dropped significantly following the
holiday season of 2009. Sales in the Wal-Mart stores seem to follow this same cycle.
Fudge has an eight week shelf life. Wal-Mart required that the individual distributor stock the
shelves and take back any outdated product at their own expense. While Bailey’s had been approved for
eleven stores only one of the eleven stores was in Quincy. The remaining ten stores were within a two and
a half hour drive. Three of the four stores initially selling the fudge were two hours away. Ruth and Melissa
found it trying to drive two hours to get information pertaining to how much product had sold and how
52 American Journal of Entrepreneurship
AHMAD, WALTER, SHERMAN
much each store needed to keep their shelves looking fresh and well stocked. At times the owners would
arrive at a store and have a difficult time finding the fudge because it had been moved to a different shelf
location within the store. Each department manager seemed to have their own individual process for
assigning shelf space and would often move products to different shelves or areas of the store without any
notification to the supplier.
A major frustration was accoiated with the delivery process to Wal-Mart stores. Delivery often
required suppliers to wait in a line outside the back entrance for check in.
Again, each individual store
handled this process differently. To date, the longest wait for delivery was four hours to deliver $50 worth
of fudge. This frustration often leaves the owner wondering if distribution to Wal-Mart is worthwhile. As a
micro-entrepreneurial business, Melissa has often considered the option of using a food distributor for
delivery of the product, but has waited to incorporate this option in hopes that sales would warrant the
associated costs, both in time and money.
During the two year approval process with Wal-Mart, Ruth approached a local grocery store (HyVee Foods) and was successful in placing her fudge in the floral department of that store. Sales have been
mediocre at the store. The Christmas holiday season and Valentine’s Day are busy times, but summer
months are very slow. The grocery store is a part of a large grocery retailer in the Midwest and one
consideration would be to attempt to increase the number of stores carrying the fudge in this grocery chain
across the Midwest. Their order, delivery and approval processes are much easier to work with than WalMart’s but distribution would most likely continue to be an issue.
Ruth continues to struggle with capacity issues. The Bailey’s manufacturing site has only one fudge
kettle which can be used to produce 36 pounds of fudge at a time. Ruth is the only person currently trained
to make the fudge and she is reluctant to give up the quality control she maintains. If Bailey’s were to
supply fudge to the additional eight Wal-Mart stores or to add more Hy-Vee food stores, there is concern
whether or not Ruth (or the fudge kettle) could handle the capacity. Without wholesale distribution into
Wal-Mart or Hy-Vee, the Bailey’s retail location averages sales of 500 pounds of fudge each week during
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THE HOME AWAY FROM HOME: ANALYSIS OF THE LODGING INDUSTRY IN 2015
the three weeks prior to Christmas. Adding additional outlets would require purchase of additional
equipment and hiring of at least one more cook. But with the seasonal nature of demand for the product,
Ruth questions if it would be worthwhile to purchase the equipment and hire additional help.
In addition to the concerns surrounding production and capacity with wholesale distribution, the
family has felt a strain on relationships as a result of this new venture. With the origination of Bailey’s
Fudge, the responsibilities associated with the specialty shop had been divided equally among the three
family members. With the addition of wholesale distribution, Ruth has been handed a much larger amount
of responsibility with the manufacturing and packaging of all the fudge. Melissa was involved in the
approval process for Wal-Mart and continues to be involved with taking orders and delivery of the fudge
but some of this responsibility has also fallen on Ruth due to Melissa’s full time employment elsewhere.
Rebecca has not been involved in the Wal-Mart aspect of the business largely due to her fulltime
employment elsewhere and the fact that she lives one hour from the store. Overall, the wholesale
distribution venture has left Ruth with a vast increase in work load.
Industry Structure/Competition
Bailey’s Fudge is located in Quincy, Illinois. Quincy is a small Midwestern city with approximately 40,000
people. The city of Quincy serves as a shopping hub for several smaller communities in the area thereby
increasing the shopping population to approximately 80,000 individuals. Bailey’s Fudge has established a
strong reputation for high quality homemade fudge. There are no other fudge manufacturers in the area.
There exists one retail competitor, but this store does not carry homemade fudge; rather they ship the
fudge in to their store from an outside manufacturer. One option that has been put under consideration by
Bailey’s owners is to approach this store and inquire about it becoming a supplier of fudge to the
competitor so they could have the Bailey’s homemade brand in their store.
54 American Journal of Entrepreneurship
AHMAD, WALTER, SHERMAN
Marketing
As a micro-enterprise dealing with a seasonal product, Bailey’s Fudge has struggled to develop and
maintain a marketing budget. Over the years the owner has tried various medium including radio,
billboard, newspaper, yellow pages, a social media site, and direct mail. Repeatedly, social media and
direct mail have prevailed as the most effective means of reaching past and potential future customers.
While the business owners believe word-of-mouth is also a strong marketing tool they have often been
surprised by the number of customers who seem to stumble upon the store front and say they had no idea
the store was in Quincy. While this is a concern, the owners have been unable to figure out how to
broaden the customer base without spending a great deal of money on marketing efforts. As a family
owned business, none of the three owners have really taken an active role in the marketing aspect of the
business.
Putting coupons in the Quincy’s only local newspaper has resulted in little or no response. Placing
coupons on the backside of local grocery store receipts has resulted in mediocre response but typically only
by long-time customers, not new customers. Due to the high expense associated with each of these
marketing options, Ruth has ceased to use them.
Point of purchase opportunities are limited or void at the Wal-Mart locations. Three out of four
stores allowed sampling of the fudge during the holiday season and this was very effective in increasing
sales. The problem however, was finding quality staff to do the sampling and absorbing the cost associated
with handing out free fudge. It seems as though a business owner needed to be present for the samplings,
but this put further strain on family relationships as the owners tried to determine who should take time
out of their personal lives to do sampling for the business.
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THE HOME AWAY FROM HOME: ANALYSIS OF THE LODGING INDUSTRY IN 2015
Pricing
There seems to be consensus in the general public that Wal-Mart sets the prices for its suppliers. However,
during the process of approval and placement in the individual stores, pricing was never negotiated with
Wal-Mart. The owner set her own price at the beginning of the process and there was no pressure
whatsoever to drop the price.
As a matter of fact, she priced the product higher than needed in
anticipation of negotiation, but the negotiation did not happen.
The profit for Bailey’s on each one pound box of fudge sold to Wal-Mart is currently $5.00 per box.
Manufacturing and packaging costs $2.80 and Wal-Mart purchases the fudge for $7.80 per pound. WalMart sells the fudge for approximately $10.00 per one pound box. Wal-Mart has the discretion to set its
own retail prices but to date has kept prices at the recommended retail price of $10.00 per pound. This is
$1.50 cheaper than the Bailey’s Fudge store price. The owners of Bailey’s Fudge had to sign an agreement
with Wal-Mart that their store would not sell the product cheaper than Wal-Mart at any time.
Bailey’s Fudge gained approval on four flavors of fudge in the Wal-Mart system: chocolate,
chocolate walnut, maple walnut and peanut butter fudge in one pound approved boxes only. To make any
additional flavors of fudge available at the Wal-Mart locations, the owner would need to go through an
approval process at the corporate headquarters of Wal-Mart in Arkansas.
Considerations for the Future of Bailey’s
Currently, Ruth and her daughters are concerned that there is an inconsistency between the high quality,
high image brand that has been created and thus far sustained for Bailey’s Fudge and the discounted retail
sales of the brand at Wal-Mart. Sales at Bailey’s retail store in Quincy have decreased since the product has
been placed in Wal-Mart stores and the longer-term prospects of maintaining Bailey’s image as a high
image specialty brand seems questionable at best given the fact that the product is now available through a
mass merchandiser. But the owners feel they may have invested too much time and money into the WalMart initiative to give up on the dream of mass distribution.
56 American Journal of Entrepreneurship
AHMAD, WALTER, SHERMAN
Depending on levels of sales revenue generated at Wal-Mart stores, one strategy for the business
may be to close the retail shop altogether and attempt to grow sales further by attempting to place Bailey’s
fudge not only in the eleven approved Wal-Mart stores but also in Wal-Mart stores in other regions if she
could obtain the corporate approval to do so from the Wal-Mart corporation. This strategy could be
supported by an increased focus on mass media advertising of the product throughout regions where it is
sold, including social media advertising. However, the entrepreneurs are hesitant to go this route as it runs
counter to their original vision for the business and the high quality image that they have attempted to
maintain for the brand. They also feel that their shop has an upscale, unique atmosphere that many local
customers associate directly with the brand and they do not wish to alienate this segment of the market.
Yet another concern with this option is capacity limitations related to the kitchen facility in their current
location and the staffing associated with mass production. Currently, Ruth is the only cook in the kitchen.
She makes all the fudge and takes great pride in the quality of her product. She has considered training her
co-owners and daughters to make the fudge but with their limited availability, feels it may not be worth the
time to train them in fudge making.
She also feels their time should be spent other places within the
Bailey’s business. Another consideration is to share her recipes and fudge making techniques with an
employee but she has concern over maintaining high quality control.
A second option under consideration is to only sell the product at Wal-Mart on a seasonal basis.
Product sales peak during fall and winter months at which time the fudge could be sold in Wal-Mart stores.
With this strategy, the entrepreneurs could continue to operate the specialty store, with the product being
sold at the retail location throughout the entire year and through the mass merchandiser only during the
holiday season. With this strategy, an element of exclusivity could be maintained for both the brand and
the business itself but, at the same time, Ruth could capitalize on higher volume sales at Wal-Mart during
peak demand periods. A lingering concern with this option is developing and maintaining relationships with
Wal-Mart store managers who are responsible for assigning shelf space and product location. Melissa has
generally negotiated shelf space and she is concerned that each holiday season she would have to start
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THE HOME AWAY FROM HOME: ANALYSIS OF THE LODGING INDUSTRY IN 2015
over in terms of convincing each store manager to give her shelf space again. She is also concerned with
staffing and equipment challenges of maintaining enough fudge in the retail store and at the Wal-Mart
stores during the holiday season and the overall health of her Mother, Ruth, as she faces high stress during
peak production demands over the holiday season.
A third option that the owners of Bailey’s Fudge are considering is to adopt a dual-branding
strategy in which product sold at the retail store would retain the Bailey’s Fudge name. However, product
sold at Wal-Mart would be sold under a different brand name. In this manner, the image of Bailey’s as a
high quality, exclusive product may be preserved, but Bailey’s could still sell fudge at Wal-Mart. But the
owners feel that there is may be somewhat of an ethical dilemma with dual-branding unless there are
actually tangible differences between the two products. They feel concern that long-time Bailey’s Fudge
customers will be “short changed” in that they will think that they are purchasing an exclusive product
when, in fact, it is identical to product being sold at Wal-Mart. Melissa is also concerned that making any
changes to the name or labeling of the product could result in starting over the approval process with both
Wal-Mart and the Illinois Health Department. With this option capacity and distribution continue to be of
concern.
Another option for Bailey’s Fudge would be to maintain the Bailey’s brand name for all products
produced, but only sell fudge at Wal-Mart stores outside of the local market region. This strategy would
allow Ruth to more legitimately maintain the high image, exclusive distribution strategy in local markets but
yet attempt to mass market the product in other regions. The biggest limitation to this strategy is that
Bailey’s currently does not have a contract with a distributor and is therefore limited in terms of attempting
to serve more than one geographic market with their product. At the present time, Ruth and Melissa
deliver product themselves to Wal-Mart stores and all Wal-Mart stores that they delivers product to are
within approximately a 120 mile radius of the store in Quincy.
Finally, the entrepreneurs have considered selling the entire operation to another entrepreneur or
a larger competitor. Ruth is now in her late sixties and her husband Jake is in poor health. However, this
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AHMAD, WALTER, SHERMAN
option may be the most difficult of all for Ruth as she, like most other entrepreneurs who have built their
businesses from the ground floor up, has very strong emotional ties to the business and views it as a strong
and positive expression of her personal being. This entrepreneurial venture was named after her
grandmother and she uses many of her grandmother’s recipes in the Bailey’s store. Melissa and Rebecca
have both expressed support of Ruth and want her to make the decision concerning selling because they
both concur that Ruth has the greatest work burden in the daily operation of the store and the most time
invested.
References
Phillips, Rebecca (2012, August 7). Personal Interview.
Phillips, Ruth (2012, August 10). Personal Interview.
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THE HOME AWAY FROM HOME: ANALYSIS OF THE LODGING INDUSTRY IN 2015
THE HOME AWAY FROM HOME:
AN ANALYSIS OF THE LODGING INDUSTRY
IN 2015
Naveed Ahmad, LIU Brooklyn
[email protected]
Hannah Walter, LIU Brooklyn
[email protected]
Herbert Sherman
LONG ISLAND UNIVERSITY, Brooklyn Campus
Abstract
The US lodging industry, $160 billion dollar industry, has weathered economic downturns and shifts in
consumer preferences. This analysis examines the lodging industry through the lens of Porter’s five forces
and by identifying the key internal and external driving factors specific to the industry. Dependent on
business and leisure travel driven by a strong economy, the outlook for the lodging industry is positive
despite a growing number substitute options for travelers.
Key Words: Industry analysis, five forces model, U.S. Lodging Industry.
Introduction
Much has changed in the United States lodging industry since Conrad Hilton purchased his first hotel in
1919. Large corporate chains, budget motels, and boutique hotels offer a wealth of options to suit a wide
range of traveler preferences. For cities and towns dependent on tourism, the lodging industry plays a
critical role in generating sustainable revenue. This symbiotic relationship with the economy at large, in
which lodging can help drive tourism while the industry itself is affected by the strength of the national
economy, provides incentive to understand the status of the industry today. This analysis provides an
overview of the lodging industry (external and internal key factors), current trends, and forecasts.
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Description
The primary purpose of firms operating within the lodging industry are to provide a shelter for consumers,
typically travelers, on a short-term basis. Lodging may also include other amenities besides a standard room
such as food, beverage, fitness centers, conference room, or pool. The amenities that are offered depend
on the firm and its level of luxury. Over time, the purpose of the lodging industry has evolved for other uses
beyond vacation destinations for tourists, such as conferences, competitions, and exhibits. The United
States lodging industry is composed of approximately 40,000 hotels, motels and resorts operating roughly
53,000 total properties. Annual revenue for the lodging industry is approximately $160 billion. Please note
that this analysis of the lodging industry excludes casino hotels and focuses primarily on the four pricing
categories of hotel and motel lodging:
•
Luxury – On average more than $200 per night (e.g. W Hotels, Ritz-Carlton)
•
Upscale – On average more than $100 per night (e.g. Marriott, Sheraton)
•
Midscale – On average $60 to $100 per night (e.g. Holiday Inn, Comfort Inn)
•
Economy/Budget – On average below $60 per night (e.g. Motel 6, EconoLodge)
Prices can vary according to region (California and Northeast hotels are commonly priced higher),
season, and level of occupancy.
Key Success Factors
Every industry has their own combination of factors that play a critical role in its success. Key factors play a
role both externally and internally. Below we will establish both sets of factors and the effect they have on
the lodging industry.
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External Key Factors
External key factors are aspects outside of the business that can have an impact on the firm’s operations.
These external factors are specific to the lodging industry and should be taken into account during the
business life cycle. More specifically, these are the factors that have a direct effect on the industry and how
it operates. The lodging industry has four external key factors: the economy, tourism/travel, location, and
technology.
Economy
A variety of factors affect the lodging industry’s ability to succeed. From a macro perspective, the health of
the US economy directly impacts tourism and business spending. The lodging industry relies on travel to fill
its facilities. Without travel, empty hotels equate to loss of profit. After the 2008 recession, many
businesses turned to technology to increase virtual meetings to reduce travel costs. Although in response
to the global economic downturn, studies show that companies may have cut spending on travel more than
necessary between 2007 and 2009, further impeding future economic recovery.
Between 2011 and 2015 as the US economy recovered with an 18.5% increase in Gross Domestic
Product (GDP) and a 3.5% decrease in unemployment, total domestic business and leisure travel increased
7.1%, showcasing the symbiotic relationship between the economy-at-large and travel and lodging industry.
Tourism/Travel
As previously stated, the economy has a direct effect on tourism but the inverse relationship is also true –
tourism has a direct effect on the local economy. Many areas depend on the revenue generated from
tourism and travel. The industry can be affected by the environment (e.g. natural disasters, health
epidemics) and seasonality. Cities that draw large convention, exhibitions, or festivals allow hotels to
increases rates based on demand.
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Astute hotel firms have been able to adapt and capitalize on the changing preferences of the
modern day tourist. Mid to lower-upscale hotel brands such as the Courtyard Marriott, the Hilton Garden
Inn, and Holiday Inn refreshed and refurbished its properties to appeal to more budget-conscious business
and leisure travelers seeking a four-star experience at a three-star hotel.
Location
As is the case in real estate, location is paramount in the lodging industry. When new facilities are being
built, future success depends on the location and the intended purpose of facility the hotel is looking to
open. New hotels in mature or saturated markets must find a means to differentiate to be competitive.
Large chain hotels will commonly seek out developing areas to establish a first or early mover’s advantage.
The majority of newly opened hotels in new locations are commonly affiliated with a regional or national
lodging chain.
As of April 2015, the top 10 United States travel destinations ranked by social media are :
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Oregon
Michigan
Colorado
Virginia
Massachusetts
Hawaii
Florida
Louisiana
Georgia
California
Technology
Indicative of the digital age, the search for lodging is primarily conducted through internet searches. 83% of
leisure travelers and 76% of business travelers use a search engine to research lodging options. Proactively
providing consumers with the necessary tools and aggregated resources to make an informed decision can
provide a competitive advantage in a saturated market. Having a strong online presence, quality customer
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reviews, and an up-to-date website is key for hotels as consumers commonly use these resources to make
reservations. By 2016, it is anticipated that consumers will rely on mobile devices for lodging searches.
Since 2012, hotel bookings through desktop computers have dropped while smartphone and tablet
searches jumped 68% and 180% respectively. These statistics indicate the importance for hotel firms to
ensure their websites have mobile-viewing capacity or apps to search and book hotels effectively and
efficiently.
Internal Key Factors
Within an industry there are key internal factors in play as well. Sensitivity of these factors depend on the
industry. Any industry that has a high focus on consumers has significantly increased sensitivity. Considering
the lodging industry is extremely focused on consumers, the following internal key factors play a significant
role with regards to development and daily operations for each hotel.
Management
In an industry dedicated to serving consumers, management is extremely important. Improper
management can lead to dissatisfied consumers and decreased financial sustainability in a competitive
environment. Extraordinary management should be the benchmark regardless of the hotel’s generic
strategy and price point.
Marriott’s sustained success is in large part contributed to a strategic management commitment to
employee empowerment to enhance customer service and drive revenue. Through development programs
and employee enrichment, Marriott’s management recognizes that its most important resources, its
employees, are the key to success in the service-driven lodging industry.
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Occupancy
This key factor is rather self-explanatory. In order for firms in the lodging industry to be successful, they
need to have consumers or an occupied establishment. Having an unoccupied establishment does not
produce the necessary capital to operate. More importantly, low occupancy does not lead to the
substantial profits that are possible if the establishment was operating at full occupancy. Due to a resulting
lack of capital, making the necessary updates, renovations, or additions may not be possible and can lead a
firm competing poorly in the industry.
Customer Service
Customer service is vital in the lodging industry since this is the point of contact between the consumer and
the establishment’s representatives - its employees. It is the employee’s responsibility to ensure that all of
its guests are satisfied during their stay and that the firm’s pre-established expectations are met. Keeping
guests satisfied and engaged during their stay is crucial in developing brand loyalty. Brands that are
successful in guest satisfaction and in rewarding loyalty reap the benefits of returning customers.
Marketing
It is important for establishments to make an impact on their potential consumer and target market. Hotels
that are a part of a chain benefit from national brand exposure and advertising and offer consumers the
comfort of a standardized experience. Hilton Doubletree customers expect to be greeted at check-in with
warm cookies whether the location is in New Orleans or Los Angeles. Alternatively, local hotels and smaller
chains must finds ways to differentiate and market themselves without the benefit of a large national
presence.
Trends within the lodging industry are constantly evolving. It is crucial for chains or individual
locations to be on top of them to be competitive. Location and expected target market should be the basis
for determining marketing efforts.
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Technology
As technology becomes more advanced, so do consumer’s expectations of what will be available during
their stay. The level of expectation is also dependent on the type of lodging establishment. Luxury hotels
are expected to offer greater technology-related amenities (e.g. high-speed internet access, electronic
checkout, and premium cable channels) while budget motels commonly attract consumers with lower
expectations (e.g. standard Wi-Fi, and basic cable channels). Ultimately, technology is dependent on the
firm’s competitive strategy, however, consumers are increasingly expecting a greater level of technology
from budget and upscale hotels alike.
Driving Forces of the Lodging Industry
Driving forces are the internal factors that are critical for the future health of the organization. Within the
lodging industry there are a few key forces that gauge performance. The results of these performance
metrics serve as an excellent tool to assist with strategy formulation. These calculations identify a firm’s
performance within the overall industry or in a specific timeframe.
Occupancy Rate
Occupancy rate is the basic benchmark of hotel performance. This is determined by dividing the paid
occupied rooms by the total number of rooms available within the hotel. Having unoccupied rooms in a
hotel indicates potential profit is lost due to lack of full capacity. In 2005, occupancy rates for the lodging
industry were 63%. Occupancy rates have since fluctuated. In 2009, rates decreased to 54.6% due to the
recession. Since the lodging industry is dependent on consumer discretionary funds (after the necessities of
rent, water, etc.) the lodging industry suffered as US consumers were not as willing to spend money on
travel even if they had the funds to do so. This left the lodging industry with below average occupancy
rates. However, rates are currently on the rise with an anticipated 2015 occupancy rate of 64.2%.
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Average Daily Rate
This hotel performance metric measures the average price paid for each room within the hotel. Such a
metric is important as it allows hotels to compare the daily rates of rooms within the same timeframe. The
calculated ADR can also serve as a benchmark and could also be used to determine the going rates for
rooms throughout the year to ensure they are appropriately priced for demand. ADR can be calculated by
dividing the room’s revenue by the paid rooms occupied. Just as the occupancy rate decreased during the
recession, so did the average daily rate. Supply was greater than demand resulting in lowered prices to
entice travelers. Average room rates are on the rise showing a direct correlation to an increase in national
travel. The US ADR is up 5% to $120.73 in 2015 from $115.00 the year prior. Since 2010, ADR has risen
18.8%.
Revenue Per Available Room
Revenue Per Available Room or RevPar, is calculated by dividing total room revenue by total rooms
available, measures the revenue generated per available room. Other possible revenue streams such as
food, beverage, or conferencing are excluded from this calculation. RevPar is another tool that hotels can
use for an apples-to-apples comparison to its competitors. However, comparisons should be made between
similar market segments for accurate comparisons. For example, luxury hotels should not compare results
with economy hotels. In such an instance, RevPar would not serve as a good measure based on the firm’s
different structures. This metric provides hotels with a snapshot of its performance during a specific period.
RevPar for US hotels has increased 7% to $79.31 in 2015 from $74.10 the year prior. Since 2010, industry
RevPar has grown 28.8%.
Industry Attractiveness
Michael Porter developed the five force analysis, a framework of five key elements for industries to
categorize and determine the attractiveness of the sector as a whole. Organizations must analyze these five
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aspects in order to understand the environment in which they operate or wish to compete in. Porter’s five
forces can help firms improve market positioning and develop a strategy based on a unique core
competency and create a competitive advantage based on what the industry has or is lacking. The tool also
provides an opportunity for businesses to use its findings to its advantage. Firms can identify and fulfill the
unmet demand within their industry. Proper utilization supports a stable growth pattern which leads to
higher profitability. If these competitive forces are strong, the industry has an above average competitive
nature indicating a lower potential for profitability and subsequently a lower attractiveness.
The five forces that are used to analyze the industry attractiveness are the threat of new entrants,
threat of substitutions, the bargaining power of suppliers, the bargaining power of buyers, and rivalry
amongst competition.
Threat of New Entrants
In any industry, companies need not only focus on current competition, but also on the possibility of new
competition emerging. Threat of new entrants in the lodging industry vary based on the particular area of
the industry they are looking to enter. When analyzing the lodging industry, firms with the necessary capital
can theoretically enter the market. For example, entering the industry as a motel requires less capital and
presents a lower barrier to entry than hotels within the luxury lodging industry requiring greater capital
investment (due to market expectation of increased service and amenities) and thus a higher barrier to
entry. Similar to other industries, capital is a driving force. Location of the facility determines how much
capital is required. How this is determined comes down to supply and demand.
Once a hotel is opened, daily operations and maintenance requires additional capital. However, if a
new establishment is opened in an appropriate area to high demand, the revenue generated from the near
full to full occupancy can satisfy operation costs.
Other factors that need to be taken into account are the internal key factors discussed previously.
This is important to consider since not all entrants will be chain hotels competing for market share.
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Independent hotels and motels must find ways to compete against hotel chains that benefit from an
established corporate brand or image giving them an advantage when customers choose a hotel based on
previous experiences or perceived impression. Currently, the lodging industry is comprised of
approximately seven larger hospitality groups which occupy 53% of the market. The remaining 47% is
occupied by smaller hotels or motels.
Trends indicate that although the cost of new hotel construction has risen, the ability to securing
funding for new projects has eased significantly since the 2008 recession.
Developers of luxury
constructions in large markets such as New York and San Francisco have reported cost increases of 25% to
30% over a two year span. A study conducted by industry research firm STR indicates that 35% of lenders
expect to increase lending for hotel development. As a result, the 2,925 new hotel construction projects in
2014 accounted for a 16.4 percent increase from the year prior. Despite the high cost of capital, the threat
of new entrants is noteworthy.
Threat of Substitutes
Substitutes refer to competing industries that can provide goods or services that can adequately replace
those of another industry. Technology has driven the substitute market in lodging creating a wealth of new
options beyond the traditional hotel model. Home rental websites and smartphone applications such as
Airbnb, HomeAway, and VRBO have given consumers unique and diverse choices beyond the conventional
hotel or motel. Homeowners can list their property for rental for short or long-term stays, and buyers have
an opportunity to stay in a more unique, home-like residence in typically less touristy neighborhoods. In
fact, Airbnb’s growth in bookings is expected to triple within two to three years, to an already scaled
operation – Airbnb users generate 17.2% of the total room supply in New York, 11.9% in Paris, and 10.4% in
London.
For consumers on a budget, the least expensive alternative to a hotel is simply staying at home and
experiencing local attractions. These “staycations” rose to popularity after the 2008 recession, and have
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since been a substitute to domestic and international travel since. Google data indicates that searches for
the term “staycation” has increased 10% year-over-year, with peaks occurring during peak travel periods in
the summer months.
These alternatives, driven by both technology and the economy-at-large, present legitimate threats
to the traditional lodging industry.
Bargaining Power of Suppliers
Suppliers are parties that provide goods or services that aid in the firm’s operations and ultimately control
the ability for firms to obtain resources in their supply chain. These suppliers exert a particular amount of
power over the businesses they are providing services to. This type of power can also determine the
competitive landscape based on the influence they have over the market. Suppliers can price goods or
services based on the particular market it competes in. In the lodging industry, hotels are dependent on
firms in other industries to complete their supply chain to deliver an exceptional experience to its
consumers. Suppliers also have the ability to increase their prices and even alter the quality of their product
since the industry they supply to is dependent on them. If either of these situations happen, it leaves the
hotel in a predicament. They can either choose to pay the increased price, accept the lower quality that the
supplier is now producing, or choose a new supplier. Typically, the suppliers that are raising prices are the
ones that have a higher demand within the market.
The economy/budget establishments typically seek the lowest possible price to keep operating
costs down, while luxury establishments are more likely to stay with better quality brands since that is what
their target market expects. Motel 6 may be less susceptible to supplier power by providing a basic, generic
soap bar for its guests. If supplier prices rise, the firm can pass their business on to the next low-cost
supplier. On the other hand, luxury brand W Hotels provides its guests with upscale Bliss bath and body
products, a brand name in its own right. This makes the W Hotel’s ability to substitute Bliss for another
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company slightly more difficult as W guests have come to expect Bliss products, giving the supplier greater
power in this scenario.
In the lodging industry, there are numerous suppliers from various industries that play a critical role
in the successful daily operations of hotels. Such businesses are dependent on these suppliers which in turn
can give the suppliers a great deal of power if the establishments allow them to.
Bargaining Power of Buyers
In the lodging industry, consumers have a large variety of options to choose from when deciding where
they would like to stay. The more comparable options buyers have in the market, the more power they
wield as consumers.
40% of the US lodging industry’s consumers are business travelers. In order to attract business
travelers, hotels must provide amenities such as conference rooms, business centers, convenient locations,
and access to high speed internet.
The remaining 60% of leisure consumers have varying needs for travel. Lodging firms can appeal to
these consumers on price, location, differentiation through amenities provided, such as included breakfast,
fitness center and pool, and complimentary internet access.
Room fees account for only 75% of the revenue earned. Food is the second largest revenue
generator at 14%, with alcohol accounting for another 3%, and additional goods and services sold
representing 8%. This demonstrates how important it is for the industry to appeal to consumers in multiple
ways. Based on what the establishment has to offer, it is highly possible for the consumer to spend more in
areas that come at a lower cost to the establishment which translates to a higher profit margin for the
hotel. This potential profit margin can also offset the other cost of the hotels, increasing revenue in
multiple areas.
Consumers also have their own strategies for booking rooms at a lower rate. For example, they can
book the room closer to when they would like to travel since hotels will usually lower prices if there is a low
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occupancy rate. Consumers are also aware that prices are substantially lower during the week and higher
on the weekends which can help structure their plans for traveling as well. In the lodging industry, buyers
have a great amount of power.
Rivalry amongst Existing Competitors
Many of the large hotel chains offer lodging options within multiple categories to secure greater market
share. The Courtyard Marriott and Hilton Garden Inn compete directly at a mid to upscale price point while
the JW Marriott and Hilton’s Waldorf Astoria compete at a luxury price point. The established rivalry
between these chains and others, have made the lodging industry a tremendously competitive
environment.
Rivalry is also affected by the other four forces. Although strong entrance barriers exist for new
construction projects, established hotels chains typically have the capital or ability to secure funding to
build new hotels, further increasing competition. New substitutes such as AirBnb and the option for
localized vacations apply pressure on the industry to remain competitive. Finally, the bargaining power of
buyers and suppliers affects the industry’s ability to “buy low and sell high.” Supplier power in the lodging
industry varies, but buyer power typically remains strong, limiting the ability for hotels to consistently sell
at the highest price point without risking loss of business to competition.
Results of Industry Attractiveness
When applied to the lodging industry, Porter’s five forces assists prospective entrants and current
operators within the market to assess and identify where unmet opportunities exist and possible threats
lie.
For new firms seeking to enter the industry, the rising cost of capital for new projects and the
preexisting competitive nature between chains makes the lodging industry less attractive due to the
excessive risk required to compete. For firms currently operating in the industry, understanding the firm’s
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core competencies and generic strategy (differentiation, low-cost, or focus) , the changing preferences of
the firm’s target segment, and the growing popularity of substitutes can help hotels determine if the
service and price point is effective or if their ability to compete within the industry is diminishing.
Forecast & Conclusion
The lodging industry will continue to evolve to reflect changing consumer preferences. With millennial
travel expected to rise 47% over the next 5 years, hotels will need to adjust to accommodate the techdriven generation. As mentioned previously, with a majority of searches occurring through mobile devices,
firms that have not optimized their mobile experience are eschewing potential customers.
To enhance perceived value and competitiveness, many firms are expected to increase social
networking, refresh brand images, boost technological innovation and integration at properties, and
showcase sustainability efforts – all issues identified by millennials as distinctive priorities when selecting
lodging.
With an economy positioned for growth, the United States hotel industry is expected to benefit
from an estimated 3% GDP growth rate for the final half of 2015 and an estimated 2.5% growth rate in
2016. RevPar is expected to increase 6% in 2016 with an ADR increase of 6.1% from $120.73 to $128.04. A
positive macroeconomic outlook suggests that business and leisure travel is on the rise, and the lodging
industry is positioned well to benefit.
The lodging industry must recognize that a boom in the economy and subsequent travel can be
offset if revenue is siphoned off by substitute industries providing alternative services. The success of the
traditional lodging industry lies in its ability to swiftly differentiate from alternative lodging options. Similar
to the lobbying efforts of the New York City Taxi and Limousine Commission (TLC) to halt ride-sharing
through Uber, the lodging industry can call on local politicians to demand greater regulation and
restrictions on Airbnb and similar tech-driven lodging-rental firms.
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The forecast for the lodging industry is one of continued growth, piggybacking on the success it has
had in 2014 and 2015 driven primarily by a positive US economic outlook.
Appendix
Chart 1
Top 10 Destination States of 2015
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Table 1
US GDP and Lodging Outlook
Table 2
US Lodging Outlook by Lodging Type
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Table 3
US Travel Forecast
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