Reference no: EM132299676

Joey’s Chiliburger Faces a Strategic Crossroads

Joey Pitino opened his first chiliburger store eight years ago when he decided to leave a job as a financial analyst for an insurance company and become an entrepreneur. His plan was to open a store that served great chiliburgers, fries, and sodas. He set his prices below and quality above the major burger chains. Customers could eat in the simple but attractive store or order take-out at the counter or from a drive- through window. His first store was an immediate success and over the next five years Joey opened two more in similar, nearby suburban neighborhoods. To his amazement, Joey’s three stores soon had annual revenues of nearly $1.5 million and profits of $375,000. Because he had started his business with his savings and it grew with profits, Joey had no debt and no partners.

Joey felt he was now at a crossroads. He could leave his company unchanged and probably continue to earn a great income, but he was concerned that competitors might emerge and lure away customers. Joey also felt that he could expand beyond the three stores as much as his financial and management abilities allowed, which would probably be at the rate of about two new stores per year. An owner of a fast-food franchise had asked Joey if he had plans to franchise. Franchising would allow Joey to collect a one-time fee when he sold a franchise and then earn ongoing royalties based on each franchise’s revenues, but it would require large upfront legal fees and move him from selling chiliburgers to selling franchises. Joey’s lawyer recommended that he diversify out of chiliburgers with new stores focused on healthy fast-food alternatives.

When he thought about which strategy made the most sense, Joey had trouble describing the industry he was in and its characteristics. Was he in the fast food, burger, or chiliburger industry? While the burger business might be mature, Joey felt that the chiliburger industry was growing rapidly.

Was his competitive advantage price, quality, name brand, strong reputation, or the local character of his stores? He didn’t know how well any of these competitive advantages would hold up in the face of new competitors.

Joey felt he had to take a deep breath, get some perspective on the situation, and figure out what, if anything, he should do to insure his business the greatest chance for success for many years to come.

Case Questions:

1. What are Joey’s strengths and weaknesses as an entrepreneur?

2. What are Joey’s Chiliburger’s strengths and weaknesses as a business? 3. What are Joey’s options at this point?

4. What is your recommendation for what Joey should do? Why?

Mountain Man Decides to Open a Boxing Gym

After a successful amateur boxing career that including being a Golden Gloves and state champion, “Mountain Man” Martin Snow, a native of Brooklyn—a city with nary a hill—faced the decision about whether to become a professional. Martin decided he would probably have a longer, healthier, and happier life if he retired from the ring and put his enthusiasm for boxing into teaching the sport in his own gym. Martin realized that virtually all boxing gyms scared away most prospective customers who simply wanted to have fun, learn about boxing, and get a healthy workout. Martin’s idea was to open a gym that would reflect the colorful history of boxing, but make everyone from serious boxers to male and female business executives feel welcome and comfortable.

After Martin looked at a suitable space, the enormity and risk of this undertaking hit him like a right uppercut. The landlord was asking $8,000 per month and wanted a three-month deposit because it was a new business. The space had been used as a warehouse for a stationery supply company so it needed extensive work to be converted into a gym. Bathrooms, showers, locker rooms, ventilation systems, and lighting had to be installed. Necessary purchases were major, including boxing rings, punching bags, aerobic equipment, and weights. Martin would need a computer system for tracking and billing customers, and his staff would require training to use it effectively. But he didn’t have a staff or know how many people he would actually need.

Martin had no idea how many customers he could entice into the gym or how he should market his concept to attract people. He hadn’t a clue as to how much he could charge or how to structure his fees. Should he offer a yearly membership with additional costs for training in small groups or individually? All the boxing gyms Martin knew only trained people who wanted to be serious boxers, but his market would be quite different — he just didn’t know how to reach them.

As Martin pondered his situation, he really didn’t know what questions to ask first, or second, or third. He felt strongly that his concept would work, but he didn’t know how to refine the idea and prove to himself and others that it could be a successful business.

Case Questions:

How should Martin research the potential market geographically and demographically?

If you were to run a focus group with potential clients for Martin’s boxing gym what questions would you ask them and what issues would you want discussed?