"CASE 1TURNER TEST PREP CO.INTRODUCTIONIn the spring of 2003, Jessica Turner felt that she had come to a crossroads with her business. As the founderand CEO of Turner Test Prep, a California company specializing in preparing people for the Certified PublicAccountant (CPA) exam, she felt that she was not achieving market share and growing in the right direction.After three years of providing prep classes to both students and professionals, Turner had about 10 percent ofthe market and was facing fierce competition from her primary rival, National Testing Services. Uncertainabout which growth direction to take, Jessica contemplated several options.BACKGROUNDJessica Turner started Turner Test Prep in the summer of 1997 after graduating from Case Western ReserveUniversity’s Weatherhead School of Management with a master’s degree in accounting. She passed the CPAexam and began applying to Big Six accounting firms. Frustrated after receiving several rejections, Jessicabegan to consider other employment options. Her undergraduate degree was in business, and after graduation,Jessica worked for several years in the business office of a small test prep company based in San Francisco. Thecompany prepared students who wanted to take primarily the SAT, GRE, GMAT, MCAT, and LSAT. Althoughher job was to manage the company’s business affairs, she also began teaching math to students several nights aweek. Jessica received training from the company in teaching basic testing skills, and she applied those skillstoward teaching the math portion of the exams. She received positive feedback from her students as aconscientious and innovative teacher.Jessica felt that her experience as a teacher for the test prep company helped her when she began studying forthe CPA exam. She knew how to study efficiently, how to organize her notes, and how to practice for thevarious sections. Jessica was one of the 25 percent of students who passed all sections of the CPA exam on the1 first try.When contemplating what to do next, Jessica was struck by the fact that so many of her colleagues were unableto pass the exam. Convinced that she was not only skilled in the accounting and finance principles but also inknowing how to study effectively, she decided to start her own test prep business teaching specifically to theCPA exam. She was confident that students and professionals wishing to become CPAs would benefit from afull-service program that gave students full classes and individualized attention so that they could pass theexam.Jessica returned to California, put together a business plan, and secured financing from a local venture capitalfirm specializing in small start-ups. She decided to focus her business and marketing efforts in the SanFrancisco Bay area. On the basis of her research and the Bay area’s concentration of different types ofbusinesses, Jessica estimated that there was a market of about 1,000 students a year.THE CPA EXAMAlthough people with undergraduate or graduate degrees in accounting or business may do accounting work fora company, becoming a CPA provides an additional certification that employers prefer. Becoming a CPA can2 increase an accountant’s salary by 10 to 15 percent and is typically necessary to secure upper-level positions.In order to be certified to become a CPA, people must fulfill the following requirements: ? Have a college or master’s degree with 24 semester units dedicated to business-related subjects, and atleast 24 credits in accounting (a minimum of three credits), auditing (a minimum of three credits),business law, finance, and tax subjects;? Pass the CPA exam;? Have two years of work experience with a bachelor’s degree or one year of work experience with 1503 course credits.The exam is offered two times a year, in May and November. It is a grueling two-day, 15-hour eventcomprising multiple choice, essay questions, and problem sets. The subjects tested are Business Law andProfessional Responsibility, Auditing, Accounting and Reporting, and Financial Accounting and Reporting.CPA EXAM PREP SERVICESThe CPA exam varies only slightly from state to state. In order to study for the exam, people typically purchasebooks, software, or an online course to help them prepare. 439The materials usually provide an overview of thetested material, study guides, and practice questions. The online tutorials often provide more practice questionsand give students timed exams so that they can simulate actual testing conditions. Due to the amount of materialcovered on the exam as well as its level of difficulty, students are advised to give themselves four months tostudy.In the San Francisco Bay area, several community colleges offer one-week review classes to help studentsprepare. These classes give students a starting point, after which they could use supplemental materials to studyon their own.NATIONAL TESTING SERVICESNational Testing Centers (NTC) is Turner’s primary competition. NTC is a national test preparation companythat has been in existence since 1962. The company focuses on virtually every standardized test that is offeredand has programs for high school students taking the SAT, undergraduate students taking graduate schoolentrance tests (such as the GMAT, LSAT, GRE, and MCAT), and gradu ate students taking certification testslike the bar and CPA exams. In addition, the company has a program designed for international students takingthe Test of English as a Foreign Language (TOEFL) exam.NTC is a full-service program that offers a variety of options for students taking any of these exams. Mostcourses offer the opportunity to have classroom lectures, home-study videotapes, books, software, online tests,or a combination of any of these options.The CPA course does not offer live classroom sessions but gives students the option of books, software, andonline testing for one or all of the areas covered on the exam. Students also have a toll-free number that theycan call if they have questions as well as online chats with NTC instructors to answer questions. NTC offersstudents a free repeat course if they do not pass the CPA exam and boasts a 75 percent pass rate. The course ispriced from $1,000 to $1,500, depending on which of the services the student chooses. Many of NTC’s studentsare repeaters who initially chose to study on their own and use a book or software package. Such students arededicated to passing the second time they take the exam and want the structure that the courses provide. NTCprovides a study schedule, study techniques, and information about how to take the exam that, it boasts, cannotbe found in any other course on the market.Many of NTC’s students have also taken an NTC course for a previous entrance exam. NTC boasts a higheroverall pass rate for all its courses than any other test prep center in the country. People who had taken a coursefor the GMAT and had passed, for example, felt confident that they would be equally prepared for passing the CPA exam. In a survey of undergraduate students who had taken NTC for the SAT, 85 percent said they wouldtake another NTC course to prepare them for a graduate school entrance exam.THE TURNER TESTING ADVANTAGEDespite NTC’s success, Jessica knew that with a pass rate of only 25 percent for first-time takers, there was aneed to provide a comprehensive program to students so that they could pass on their first try. She devised afull-service program that lasted for six weeks and was three to six hours per day. She worked with accounting,finance, and law professors to design a curriculum to give students a comprehensive approach to studying forthe exam. She hired the professors to give three live, one-hour lectures per day, and she taught the test-takingtechniques and organizing skills necessary to easily assimilate the mountains of information that studentsneeded to know. Jessica also provided audiotapes for students so that they could review the lectures at homeand suggested that they listen to them in their cars to maximize the use of their time. The course also includedseveral timed minitests for each topic and four practice essay questions, which Jessica and her professorsgraded. The responses to essays included many comments and much feedback to give students guidance onareas to improve.Jessica also made herself completely available to her students. She felt that one-on-one attention was critical totheir success, and she held biweekly meetings with each student to gauge progress and answer questions. Inaddition to the meetings, students could call Jessica or e-mail her with questions, and she promised to get backto them within 24 hours.Jessica held two sessions a year in March and September, three months prior to the exams, allowing students tocontinue to study on their own before the exams. She also made herself available to students after the course toanswer their questions and help them in any way she could. Pricing her course at $1,100 per student, she feltthat she was providing her students with more of an advantage and better preparation than any of the NTCoptions. She also offered a guarantee, allowing students to repeat the course if they did not pass the exam.Jessica had taken a year to develop the materials and create a marketing plan for her company. She decided to440place ads in Bay area business schools to attract students contemplating taking the exam after graduation.She also created flyers to be placed in the schools and asked the school administrations if she could place themin students’ mailboxes. She introduced herself to local businesses and tried to alert them to her program so thatup-and-coming accountants would be encouraged to take her class if they wanted to take the CPA exam.EXHIBIT 1 Operating Costs for Turner Testing ServicesProfessor salaries (about 1,200 hours per year) $75 per hourOffice space $2,000 per monthUtilities and insurance $1,000 per monthMaterials $ 600 per studentPrinting $ 500 per monthMarketing $ 400 per monthTravel $ 200 per monthThe first year that she ran the program she had 10 students. Despite the small class size, students felt that theyhad been well prepared for the exam and appreciated the individual attention they received. All students passedthe exam. The second course had 45 students, 70 percent of whom passed. The last session that she held had105 students, and 80 percent of those students passed. Jessica did not feel comfortable advertising her pass rate,however, because many of her students had taken the CPA exam one or two times before and failed. She wasn’t sure whether they passed after taking her course because of the quality of the program or because they werebound to pass it at some point. Jessica did some cost and revenue estimates indicated in Exhibit 1.SPRING 2003By the spring of 2003, Jessica had finished teaching the course for the May exam and was looking forward tothe September class. Although she was pleased that the number of students in each session was rising, she feltconcerned that she was not making enough of an impact in the market. With only 10 percent of the markettapped, Jessica wanted to know how to improve her marketing and gain market share. She also wondered if sheneeded to format the course differently to attract students who did not want to attend live lectures. She hadinitially believed that students would benefit from a structured program that kept them on track, but now shewas not so sure. Many times students did not come to class but opted to listen to the tapes at home. Finally,Jessica realized that in her zeal to get her business up and running she had neglected to calculate her break-evenpoint. How many students did Jessica need to break even, and at what point could she recognize a profit? Sherealized that these were all critical questions that needed answers to ensure the future success of her business.END NOTES1. www.micromash.net.2. www.cpazone.org.3. www.picpa.org.Source: This case study was prepared by Michael P. Peters with the intention of providing a basis for classdiscussion.CASE 2JIM BOOTHE, INVENTORJim Boothe has invented dozens of different products in his 25 years as an engineer to a large research anddevelopment lab. For some time, he has been thinking of leaving his current company and starting his own buthas never seemed to have the nerve to do so. Jim feels that with his children grown up and on their own, nowwould be a good time to start his own business.Having been an avid bicyclist for many years, Jim had invented an automatic derailleur for a 15-speed bike.This derailleur can be easily attached to any bicycle. The user does no shifting as the bicycle shifts the gears ofthe bicycle automatically (depending on terrain) much like the automatic transmission on an automobile. Jimfeels that this invention has significant market potential, particularly since he has observed a rapid growth in thebicycling industry. This growth has been related to Lance Armstrong’s success in the Tour de France, increasedinterest in physical fitness, and technological improvements in derailleur allowing for off-road travel as well asmore comfort for longer-distance riding. In his cycling club alone, the membership has doubled in the past twoyears and to his knowledge is consistent with a national trend.Jim feels that all he needs to do is to write a business plan and submit it to his bank to obtain the estimated441$100,000 needed to get started. He is willing to support this by taking out a second mortgage as collateral.Jim feels that he can subcontract the manufacturing of the derailleur and the bicycle separately; then uponreceiving the items, he can complete the final installation and fabrication functions before shipping tocustomers. Jim’s wife Nora is a little skeptical about him leaving a good job for the purpose of fulfilling one of his manyfantasies or lifelong dreams. She is the more practical of the two and is concerned about their financial futureand the commitment that will be required of Jim in the first few months of the start-up. Taking a secondmortgage on the house makes her uncomfortable. She is also not sure Jim is the entrepreneurial type.In spite of all the concerns, Jim has prepared a business plan that he expects to submit to his banker in the nextfew days. The business plan consists of six parts: a one-page summary of the plan, a detailed description of hisinvention, forecasts of growth for the bicycle market, a one-year profit and loss statement, a plan for themanufacturing and final fabrication of the derailleur and bicycle, and an appendix that contains surveys withsome of his friends who own 10-speed bikes.Source: This case study was prepared by Michael P. Peters with the intention of providing a basis for classdiscussion.CASE 3A. MONROE LOCK AND SECURITY SYSTEMSRay Monroe was sitting back in his chair in his home office trying to understand why the new venture had notmade him the rich man he thought he would be. A. Monroe Lock and Security Systems (AMLSS) had beenestablished about two years ago and offered locksmithing services to residential and commercial customers aswell as automobile owners in the greater Boston area. These services included lock rekeying, lock and deadboltinstallation and repair, master key systems, emergency residential lockouts, foreign and domestic automobilelockouts, and window security locks. In addition, AMLSS was certified by the Commonwealth ofMassachusetts to perform alarm installation and offered a full range of alarm products.Financial results have been relatively poor, with losses of $6,500 in the first year and a profit of only about$3,500 in year 2. Currently, AMLSS’s target market is three local communities in the Boston area with similardemographics (see Exhibit 1).BACKGROUNDRay Monroe is the only child of parents who were both successful entrepreneurs. His parents are now deceased,and Monroe received a substantial inheritance that would satisfy any of his financial needs for the rest of hislife. Ray had been educated at a local private high school and then at a small liberal arts college in Vermont. Hewas not a great student but always seemed to get by. His summers were usually spent at the college, takingsummer courses.Upon graduation, his father had helped him get a job with a friend who owned a security and alarmmanufacturing business in the western part of the state. Ray worked in various areas of the business learning agreat deal about alarms and locks. After two years there, Ray decided that he’d prefer to be his own boss and,using some of his inheritance, entered a special program to learn more about the locksmith business. His intentupon completion of the program was to start his own lock and security business. He felt from his experience andeducation that this market offered tremendous opportunities. Increased crime and residential house sales thatoften required new locks offered many opportunities to succeed in this business.Ray did not want to offer alarm installations as part of his new venture since he felt that they were bothersometo install. He also knew that there were many large competitors already in the alarm market that would be ableto offer products and service at much lower prices. INDUSTRY STRUCTURE/COMPETITIONThe locksmith industry was dominated by small operators, 60 percent of which consisted of an owner and oneemployee. Only about 20 percent of these firms had five or more employees.Because of the low entry barriers, the number of small operators had grown dramatically in the past few years.These businesses were often operated out of the home with no storefront and concentrated mainly on theresidential market. There were also a large number of family-owned businesses that usually had a retail storeserving their communities for several generations of family members. The larger operators were the mostsophisticated in terms of service and products and relied primarily on commercial accounts.442EXHIBIT 1 Demographic Profile of Present MarketDemographics Newton Needham WellesleyTotal population 83,829 28,911 26,613Total number of households 31,201 19,612 8,594Percent family66.7 73.376.0Percent nonfamily34.3 26.824.0Total number of families 20,4867,782 6,537Number of married-couple families 17,2096,887 5,772Number of female householder families 2,500728607Average household income $86,025 $88,079 $113,686EducationPercent high school educated94.596.497.6%Percent college or higher educated68.064.975.9%Labor forcePercent total population employed66.164.963.0%Percent female population employed62.456.453.9%DisabilityPercent with mobility or self-care disability (21–64)10.49.06.4%Percent with mobility or self-care disability (65+)31.528.821.8%Total number of housing units32,11210,846 8,861Median number of rooms 6.4 6.97.6Total number of owner-occupied housing units21,6928,587 7,139Total number of renter-occupied housing units9,5092,0251,455Retail industry—number of establishments (2000) 595 168 187Service industry—number of establishments (2000)1,077 3361,580The Boston area was densely populated, with 160 locksmiths all advertising in the area yellow pages. In thethree communities on which AMLSS concentrated, there were 37 other locksmiths.PRESENT STRATEGY Excluding alarms, Ray offered just about every locksmith service. His company van was used to store theseproducts and any necessary tools for servicing his clients. This company van was 10 years old with a few minordents, but it ran quite well.Ray had a beeper system and a cellular phone in order to respond to customer requests. After 5 p.m., however,Ray turned off the system and refused to take calls. During his operating hours, he was able to respond to allrequests fairly quickly even if he was not in the office, primarily because of the beeper and cellular phone. Hehad tried using an answering machine, but it did not allow him to respond to a customer fast enough, especiallyif he was at a job that kept him out of the office for a number of hours. He also knew that many job requestswere emergencies and required a quick response.During the past year, Ray had decided to advertise in the yellow pages. He felt that with all the locksmiths listedin the yellow pages he needed to be at the top of the list, so he decided to use his middle name initial (forArthur) to form A. Monroe Locksmith and Security Systems. The yellow pages ad seemed to help business andcontributed to the $4,000 profit (see Exhibits 2 and 3 for billing and expenses).Ray spent a lot of his time in the office thinking of ways to increase his business, yet to this point nothing hadbeen very successful. His understanding was that many of 443his competitors had found that the yellow pageswere the most likely place for customers to find a locksmith. His ad identified the three communities, theservices he offered, and a telephone number. In addition, he included that he was bonded and insured and amember of the Massachusetts Locksmith Association. Competitors typically stressed products and services, 24- hour emergency service, follow-up guarantee service, being bonded and insured, and membership in thelocksmith association.EXHIBIT 2 A. Monroe Monthly Billings for Year TwoJanuary $ 1,200.01February 2,260.85March 2,777.26April 1,748.62May 922.20June 1,414.12July 1,595.18August 1,652.37September 2,264.64October 2,602.19November 4,087.37December 1,905.80 Total $24,430.61EXHIBIT 3 Year Two ExpensesBusiness expenses Selling expenses $ 9,454 Memberships (chambers of commerce and Associated Locksmiths of America) 2,490 Telephone (includes beeper and cellular) 1,920 Office expenses (materials/supplies) 1,775Yellow pages 4,200 Other promotional expenses 600 Total expenses $20,439Time was running out for Ray, and he was trying to think of other businesses that he could start up. He wouldoften question his decision to enter the locksmith business, but then he would quickly decide that since he didn’treally need the money, it wasn’t a big deal. However, at some point, he felt he should try to establish himself sohe could settle down to a more routine life.Source: This case study was prepared by Michael P. Peters with the intention of providing a basis for classdiscussion.CASE 4BEIJING SAMMIESWhen Sam Goodman opened a new Sammies café in Beijing’s Motorola Building, he cut prices by 50 percentfor the first three months in order to attract customers. The initial period was very successful, but when hereturned prices to normal, sales dropped dramatically and fell short of targets. The local store manager, whenpresenting the figures, suggested that Goodman simply lower the sales targets. Goodman was frustrated; themanager had failed to address any of the issues that were keeping customers from returning. There werecountless orders that went out with missing utensils, in the wrong bag, or (with items) simply left out. Deliveryorders were being sent hours late or to the wrong location. This typified Goodman’s early experience; themarket was showing interest in Beijing Sammies’s products but he knew that without exceptional service, goodfood would not be enough. Goodman questioned whether he could find employees who were thinkers andproblem solvers and he wondered how to improve upon the business in order to turn Beijing Sammies into asustainable and profitable enterprise.According to Goodman, face and money were the two most important subjects. With experience as a studentand businessman in China, he knew one must observe the cultural beliefs:Face is a huge issue here, and as the economy develops, so is money. If one is not relevant, the other is. Onceyou recognize this is crucial, it was not hard to learn. The difficult part is incorporating it into the business. Weneed to offer a superior experience in order for customers to justify paying more. This means providing aquality product with excellent service. It sounds easy, but in China the concept of service is not the same as inthe West. I just can’t seem to get my employees to understand that there is a way to serve the customer whilealso keeping the company’s interest at heart. It is an, ?all for us? or ?all for them? mentality here.444Throughout the company’s initial years, Goodman sought to teach a service-oriented approach to hisemployees. In doing so, he ironically learned that face was as much of an important issue for Beijing Sammies’scustomers as it was for its employees.BEIJING SAMMIES1 Canadian native, Sam Goodman, started Beijing Sammies in 1997. Aside from producing food for theeveryday, walk-in customer, Sammies provided fare for company meetings, presentations, picnics, and gifts.Sammies was open for breakfast, lunch, and dinner and delivered all products to its customers. The menuincluded a selection of sandwiches, salads, bagels, brownies, cookies, coffee, soda, and tea (Exhibit 1). Goodman started the company with personal savings and money borrowed from family. He opened his first caféat the Beijing Language and Culture University with the goal of providing people with a place to ?hang out?and enjoy homemade western food.By 2003, Beijing Sammies had five outlets (composed) of four ?deli-style? cafés and one kiosk. The stores weretraditional in terms of layout and size for fast food restaurants. Two Sammies cafés were 1,200 square feet, andthe other two were roughly 800 square feet each, while the kiosk was a stand-alone structure with open seatinginside the lobby of a corporate building. All of the café locations had enclosed seating that was maximized, asthere was no need for self-contained kitchens.The Central KitchenGoodman found that revenues of the first café were driven as much by corporate delivery orders as they wereby the local walk-in customers. This motivated Goodman to open more cafés and a centralized kitchen in 1998.Located in Beijing’s Chao Yang District, the kitchen ran from 10 p.m. to 5:30 a.m. each day making thesandwiches and baked goods for all of Sammies’s locations. Between 5:30 and 6 a.m., trucks delivered thegoods from the kitchen to each Sammies outlet. No cooking was done at any of the Sammies locations. Everysandwich, cookie, and muffin was prepared, baked, and packaged centrally. Only coffee and smoothies wereprepared onsite at individual retail cafés.While the central kitchen created a number of efficiencies for Beijing Sammies, what Goodman liked evenmore was the quality control that it provided:It is much easier for me to teach the kitchen staff how to make the food correctly than it is to teach all of theemployees at each location. At the kitchen I can make sure that the product going out to all of the stores isconsistent. In the end that’s what I am striving for, to offer a consistently great product with superior service.Only having one kitchen to manage makes this task much easier.The central kitchen not only provided Beijing Sammies with efficiencies with ingredients, machines, andmanpower but also allowed for larger customer capacity at each café location and enabled the employees touniquely focus on customer service.THE SAMMIEThe idea behind Beijing Sammies originated from Goodman. Moving to Hong Kong after college andsubsequently moving to Beijing to attend Beijing Language and Culture University, Goodman yearned for aplace to hang out and eat a traditional sandwich or ?sammie? that reminded him of home. Three years later,Beijing Sammies was named Beijing’s #1 western food delivery service by City Weekend magazine.Modeled after Goodman’s version of a New York deli, Beijing Sammies’s staple is the ?sammie.? Each sammiestarted with homemade bread made every night at Sammies’s kitchen. Customers could order from a menu ofstandard sammies or could create their own. Goodman found the pre-set menu best for the local customers,while many foreigners frequently customized their sandwich:Having a menu of pre-crafted sandwiches is a necessity. Many of the Chinese customers simply do not knowhow to order. They do not understand the notion of selecting different types of deli meats and condiments for asandwich. I didn’t even think about this at first. Personally, I know exactly what goes with roast beef and whatgoes with turkey.When we opened our first location many people came in and left without ordering. They didn’t know how, anddid not want to look foolish ordering something inappropriate. Many times, and this still happens, people come in and just order whatever the person in front of them ordered. Putting complete sandwiches together allows theinexperienced customer to come in and feel more comfortable about ordering.Creating pre-made selections of sandwiches worked so well for Sammies that Goodman put together 445an?Ordering Tips? section on the menu. The section not only suggested what types of products to order forbreakfast and what products to buy for lunch but also provided a guide for corporate clients to ensure correctportions and variety for meetings. In addition, Sammies trained sales clerks to act as customer servicerepresentatives who could assist both the walk-in client and a growing base of corporate delivery clients withtheir orders.EXHIBIT 1446447EXHIBIT 2 Beijing Sammies Introductory E-mailOUR NEW SILK ALLEY SAMMIES CAFÉ IS ALSO OPEN!Drop on by to enjoy some of your Sammies favorites … and more!? Enjoy our wider breakfast selection? Choose from café beverages and goodies? Select from smoothies, espresso, cappuccinos, and our selection of baked goods? Warm, inviting café atmosphere—whether you’re networking, on a date, getting a meal-to-go or gettingsocial, SammiesXiuShuiJie café is the place to be!Located at the Silk Alley/XiuShuiJie south entrance on Chang An Jie, in the Chaoyang District; open every dayfrom 07:30 to 24:00.**WHERE EAST EATS WEST***THANKS FOR REGISTERING! NOW YOU CAN ORDER ALL YOUR SAMMIES FAVORITESTHROUGH THE WEB!Browse online and order our delicious Sammies sandwiches, salads, baked goods including muffins, cookies,brownies, biscotti, and bagels. Great for business meetings, social events, breakfast, lunch, or dinner!Registration allows you to enjoy the following:***SAVE TIME***One-time registration of delivery information—no need to re-explain your contact info at every order. Just login, order, and then submit for successful delivery every time you come to the Web site.***SAVE MONEY***Bonus points for future discounts—sign up and receive bonus points based on every RMB you order, which youcan redeem for future discounts and Sammies products. "