ENT 567: Entrepreneur Innovation
CHOOSE ANY TWO (2) CASE STUDIES FROM THE TEXTBOOK AND ANSWER ALL QUESTIONS IN EACH CASE STUDY
(Include Case Titles in your answers)
- ENTREPRENEURSHIP IN ACTION: Can a Pair of Helium Heads Build a Successful Business? (Page 8)
- ENTREPRENEURSHIP IN ACTION: A Company That Loves to Turn the World Upside Down (Page 54)
- IN THE ENTREPRENEURIAL SPOTLIGHT: A Cash Flow Dilemma (Page 264)
- ENTREPRENEURSHIP IN ACTION: Love and Therapy . . . for Your Favorite Jeans (Page 280)
- ENTREPRENEURSHIP IN ACTION: Spying or Protecting His Investment? (Page 669)
1. Can a Pair of Helium Heads Build a Successful Business?
Entrepreneur-turned-venture-capitalist Guy Kawasaki saysthat entrepreneurs are willing to ask the fundamental question, “Wouldn’t it be neat if . . . ?” Steve Jobs wondered, “Wouldn’t it be neat if people could take their favorite music with them wherever they go?” and the result was the best-selling iPod. Copreneurs Brian and Alexandra (Alex) Hall asked, “Wouldn’t it be neat if people could ride in a zeppelin?” and launched Airship Adventures Zeppelin NT (New Technology) in Mountain View, California. Alex, an astrophysicist, and Brian, a successful software entrepreneur, came up with their zeppelin business idea after Brian took a ride on a zeppelin while he was in Germany in 2006 shortly before the couple married. The Halls approached Deutsche Zeppelin-Reederei, a German company that made zeppelins during their heyday in the 1930s and restarted production in 2001, about buying one of the company’s $15 million airships. (Zeppelins and blimps are not the same. Blimps are short-range balloons with navigational fins; a zeppelin is designed for long distance flights and has a metal infrastructure that contains multiple bags filled with inert helium rather than with explosive hydrogen, which doomed the Hindenburg in 1937.) With the help of a business plan, the Halls raised $8.5 million from private investors, including technology entrepreneur and investor Esther Dyson, to start the only passenger zeppelin business in the United States. (Before they started flying, Alex says that they actually called the Federal Aviation Administration and said, “You probably need to regulate us, but you don’t have any zeppelin regulations on the books.”) The Hall’s airship, the Eureka, is 246 feet long, and its spacious cabin accommodates one pilot, one flight attendant, and 12 passengers. The cabin has oversized panoramic windows (the views are phenomenal) and a 180-degree rear observation window and love seat that wraps around the entire aft cabin. Its vectored thrust engines can propel the Eureka at speeds of up to 78 miles per hour. The Eureka is one of only three functioning zeppelins in the world. Based at Moffett Field in Mountain View, California, the Eureka takes passengers on leisurely, peaceful flights around San Francisco, Silicon Valley, and Napa Valley. The Halls recently took the airship to Los Angeles and Hollywood and sold out every flight within 48 hours of arriving. Flights cost $500 per hour per person, and a typical flight lasts between 1 and 2 hours. When traveling for a special event in another city—for example, from their home base in Mountain View to Los Angeles—the Halls sell tickets for $1,500 each for these “flightseeing” excursions. Because it is a rigid airship filled with helium, the Eureka cannot fly in heavy rain or fog or in winds that exceed 20 knots. Cancelled flights due to poor weather, particularly in California’s rainy season from November to March, present a significant problem for the young company. In their first year of operation, the Halls had to cancel one-third of their flights during the rainy season, which significantly lowered the company’s sales and strained its cash flow. Discussions with experienced pilots about the Bay Area fog revealed to the Halls that afternoons are the best time to fly. The Halls also have lifted off from airfields in Oakland and Monterey to avoid cancelling flights. ENT 567: Entrepreneur Innovation. To maximize flight time and the company’s revenue, they also are considering moving their operation to Los Angeles during the Bay Area’s rainy season. California law requires Airship Adventures to hold customers’ payments in escrow until the customers actually fly, which further restricts the company’s working capital. In addition, the Federal Aviation Administration requires the Eureka to be grounded for 1 month each year for an annual inspection. Taking the airship out of service that long costs an estimated $1.3 million in lost revenue. Operating costs include payments on the zeppelin, rent for the hangar space, insurance, helium, salaries for their full-time staff (which includes Kate Board, the only female zeppelin pilot in the world) and part-time ground crews, and other expenses. The Halls anticipate sales of $9 million, which will allow them to break even, assuming that they can sell advertising space on the 57-foot-tall craft to a company that is looking for a highly-visible, unique way to advertise. Despite the challenges they face, the Halls, who admit that they are “helium heads,” are zealous about their business. They are exploring how best to capitalize on the strengths that their location offers and are testing the market for a winery tour weekend and a ski weekend that would take passengers to Lake Tahoe. The Halls would like to expand their business into two other markets, including one on the East coast. “We’d like more ships,” says Brian. “Three is the sweet spot.” The Halls see their business as more than one that simply takes passengers on flights in a unique airship with a storied past. “Every day we create memories and smiles,” says Brian. “You can’t look at our ship and be grumpy.”
- If you were one of the potential investors whom the Halls approached for start-up capital, how would you have responded? What questions would you have asked them?
- What do you predict for the future of this business?
- Identify some of the most significant challenges facing the Halls and Airship Ventures. What strategies can you suggest they use to deal with them?
Sources: Based on Ian Mount, “It’s Not a Blimp. It’s a Zeppelin,” FSB, November 2008, p. 20; Chris Taylor, “Helium Heads,” FSB, April 2009, pp. 80–83; “The Ship,” Airship Adventures, www.airshipventures.com/
factsandfigures.php; “Airship Ventures’ Eureka Returns Home After Receiving Star Treatment in Los Angeles,” Reuters, May 27, 2009, www.reuters.com/article/pressRelease/idUS209827+27-May-2009+MW20090527
2. Spying or Protecting His Investment?
Ryan Elmore, owner of Pepper Jack’s Neighborhood Grill, a neighborhood restaurant in Erie, Colorado, was confident that his employees were hard at work when he was away from the business. However, when Elmore installed a video surveillance system that allowed him to monitor the action in his restaurant online, he was shocked at what he saw. The restaurant manager who was on duty went home a few minutes after Elmore left, and cooks took shortcuts when they made the restaurant’s signature fettuccine Alfredo. Employees took extended breaks, sat at tables and sent text messages, and doled out free dinners to their friends. “I couldn’t believe it,” says Elmore. “You may trust. ENT 567: Entrepreneur Innovation
your employees, but you don’t know what happens when you walk out the door.” Today, a networked video system is in place, and Elmore’s20 employees know that he is watching their performances even when he is away from the restaurant. Elmore can remotely view a customer’s cash register receipt and call up the video of that transaction. He can determine whether employees are cleaning the restaurant when they are supposed to and whether they are smiling at customers and greeting them appropriately. He knows when meals arrive late at diners’ tables and can detect employees who are eating unauthorized meals. Installation of the video system cost Elmore just $850 and a $160 monthly online subscription fee that gives him unlimited access to both live and archived video. The investment paid off quickly. While reviewing video, Elmore and his business partner, his wife Janel, noticed that the restaurant frequently was overstaffed. Adjusting employees’ schedules to cover the busiest times alone saved the company $50,000 per year. The restaurant’s food costs also declined 3 percent because servers stopped giving away free meals to their friends. Overall, Elmore was able to reduce the company’s annual operating costs by $100,000. “The technology has more than paid for itself,” he says. Elmore admits that, initially, he felt guilty about “spying” on his employees, but the results have diminished that concern. “I want to know where every dollar is going,” he says. “This is my life. Everything I have is riding on this.” Remote monitoring of their business gives the Elmores the ability to have more free time away from the restaurant without surrendering control over it. Elmore credits the video system with helping him identify and reward one of his best workers. While watching videos, he noticed that one kitchen staff was cleaning more often than usual. When he investigated, Elmore discovered that the kitchen manager had created a contest to motivate her employees. Elmore was impressed and promoted her. ENT 567: Entrepreneur Innovation
- How would you feel about working for a business that uses a video system to monitor employees at work? Explain. Why do business owners use monitoring systems?
- “Most employees do not like to be monitored, and it may cause some resentment,” says one employment attorney. Do you agree? Explain.
- Use the Web to research video monitoring of employees and prepare a list of at least five recommendations to help companies avoid legal problems.
- Can you suggest other ways besides video monitoring that employers like Elmore can use to encourage employees to do their jobs well when the boss is away?
Source: Based on Jennifer Alsever, “Being Big Brother,” FSB, October 2008, pp. 43–45.