Business Impact

Image it is now 2020…

All of you gather again and start a new business together…

Ripples Consultancy

• Ripples Consultancy (RC) is a Hong Kong-based start-up company that aims to empower global learners through integrating personal development workshops with English education

• It organises activity-based, experiential learning sessions for small groups of students (aged c. 6+) in an international environment with its globally sourced trainers

Ripples Consultancy

• Participants develop self-awareness of their strengths and weaknesses as well as understanding in life issues that are often neglected by traditional Romanian education, such as interpersonal communication, intercultural understanding, and discrimination to disabled persons

• Its workshops are sold tailor-made to schools and universities (public segment) as well as “off-the-shelf” to children and young adults (retail segment)

Strengths:

Product differentiation Globally sourced trainers organise innovative workshops not commonly available in Romania

High marginDue to its niche offerings

Weaknesses:

DistributionNo established channel to distribute. Public segment customers are hindered by bureaucratic constraints to procure. Retail market is high competitive and saturated. Not a essential product in both segments

Capital constraintThe start-up company has limited capital available for large scale investment in marketing and product development

Opportunities:

Political reformPublic segment clients are undergoing government-led educational reform which focuses on all rounded development

Unexplored marketFew companies specialise in this niche offering and low market penetration provides growth opportunity

Threats:

External competitionOffering can be easily copied. Essential to develop reputational leadership to create an entry barrier

Political riskA change in government policy or a slowdown in educational reform implementation may shrink market size

Goals

• Your are a director (and part-owner) of this company and your goal is to maximise both its short term and long term value

• The company aims to grow itself in the next 5 to 10 years before selling itself to– a financial investor (e.g. a private equity firm);– a larger competitor (e.g. a tutorial firm or a privately run

school); or– completing an IPO on the stock exchange as a small cap

stock (e.g. on GEM in Hong Kong, AIM in London, American Stock Exchange in the US, etc.)

Your Role

• Each of you are responsible for various part of the business (CEO, Finance, Training, Marketing, HR). Now you are going to attend the company’s board meeting where critical decisions will be made. Other directors may not share your points of view therefore you will have to convince them.

Board Meeting 1

AgendaMay 2020RC was incorporated on 1 May 2020 with total capital of HK$100k. The company is in the process of deciding how they want to procure office furniture/ equipment and design their marketing campaign. After extensive studies, the following options are available:

• A: Growth ModeRC will conserve capital by procuring the cheapest possible office furniture/equipment and conduct extensive mailing, newspaper, and other local campaigns to the retail segment. Capital expenditure required is HK$95kand expected annual cash flow (after operating expenditure (opex) and tax) is expected to be HK$600k (2020), HK 1,000k (2021), HK $1,200k(2022). Expected environmental impact 100t CO2 equivalent

• B: Ethical ModeRC will carefully select fair trade office furniture/equipment and conduct environmentally friendly marketing campaign. Capital expenditure required is HK$ 70k and expected annual cash flow (after opex and tax) is expected to be HK$400k(2020), HK$800k (2021), HK$1,000k EUR (2022). Expected environmental impact 30t CO2 equivalent

• C: Cost-saving ModeTo ensure the company remains solvent, RC will aim to conserve capital whenever they can. By using the cheapest option in both office furniture/equipment and marketing, capital expenditure required is HK$50k and expected annual cash flow (after opex and tax) is expected to be HK$400k (2020), HK$800k(2021), HK$1,600k (2022). Expected environmental impact 80t CO2 equivalent

Board Meeting 2

AgendaMay 2021In the last twelve months, business demand has grown substantially as the company was able to win businesses with its key customers. Currently the company has 3 trainers operating at 90% capacity (course hours + prep hours / total hours). Each trainer currently generates HK$900k of revenue on average per year. The company wants to expand its supply capacity by appointing additional trainers.

• A: Full-time trainersEmploy 2 additional trainers (annual cost HK$800k )and price courses at HK$1,000 per hour. Advantage: potentially more loyal staff, higher quality. Disadvantage: Higher cost and some poor children will be priced out, high fixed costs, etc.

• B: ContractsEmploy a number of contractors depending on business needs (est. annual cost HK$300k) and price courses at HK$500 per hour. Advantage: Flexibility. Disadvantage: quality concerns, high turnover of staff, less motivated, etc.

• C: VolunteersAttract 10 gap year high school/ university student volunteers (annual cost HK$200k) and price courses at $200 per hour. Advantage: Cheap, may be motivated. Disadvantage: quality concerns, high turnover of staff, inflexible, etc.

Board Meeting 3

AgendaMay 2022Business has continued to grow. However depending on the type of staff chosen, the reputation of RC has been affected accordingly. Last week, the government formally introduced activity-based communication and intercultural education into school curriculum. The company is not certain how this will affect their market segments.

• A: Optimist ViewRC believes additional demand will grow market size for RC’s product. The company projects revenue as follow: HK$1,500k (2022), HK$3,000k (2023), HK$3,200k (2024). To scale up operation, RC will hire 2 additional employees.

• B: Pessimist ViewWith a formal curriculum, RC believes schools will hire full time staff which will significantly depress business demand. The company projects revenue as follow: HK$ 400k(2022), HK$ 500k (2023), HK$ 700K(2024). The company will focus on survival by 1) laying off all contractors (if no contractors, 50% of the full time staff); 2) refocus on retail segment which is difficult to scale up.

• C: Business-as-usualRC believes business impact will be limited. The company projects revenue as follow: HK$ 1,000k(2022), HK$ 1,200k(2023), HK$ 1,500k (2024). No additional hiring required.

Let’s see the final result for your company!

Summary

• Businesses do not exist in isolation. With limited capital, they have to balance their cash flow with the environmental and social impact they create.

• Customers, suppliers, employees, relevant communities and the environment are all affected by business activities/ decision.

The End