DREAMS FOR SALE

Presented By-Kangkan Kalita

Presidency CollegeBanglore-24

MBA 2nd Sem(2015)

The Case Facts• Cloudveil is an US based out- door sportswear company

devoted to hard-core skiers and mountain climbers.• Stephen and Brian founded the company which

turnover was 5 billion per year. . The business was struggling for cash and struggling to

raise enough money for production.• Cloudveil was receiving calls from larger companies,

wanting to purchase them.• Cloudveil was considering selling out to a larger

company that could offer capital and infrastructure.• Cloudveil needed more than just money.

Selling out was feared to damage the brand’s

credibility.

The company was unable to mail out their catalogs because they could not afford the cash for postage.

Stephen was concerned about losing control of strategic direction.

The four partners agreed not to take a salary to solve the catalog cash problem.

Cloudveil’s cash flow cycle was 5 to 6 months, which meant the company had to finance the next year’s production before getting paid for this year’s.

SBI called and was impressed with Cloudveil’s outdoor line.

Stephen and Brian, the original partners, brought on two more partners to help them manage finances and operations (Jon and Michael).

SBI was wanting to grow SBI to a $50 million brand, without degrading the brand, and agreed to keep the company in Jackson .

• The partners knew that they would have to rely on external financing

• Stephen was worried, but Brian assured him that SBI was a big company with a great infrastructure.

• All four partners were to remain on as managers• The new volume being produced at Cloudveil’s

suppliers allowed for reduced costs and less inventory storage.

• Cloudveil is now sold in 300 U.S. specialty stores and other countries.

• Stephen is now able to have more leisure time, and Brian is having fun setting Cloudveil’s strategy.

SILENCE PLEASE

1. Discuss the reasons that a manufacturing company like Cloudveil might experience this type of cash flow prob- lem. Is this a sign or poor management or is the nature of the business? What steps can a small company such as Cloudveil take to deal with a long cash flow cycle?

• Its a fact that start -ups normally faces cash flow problem. But its not due to the nature of business. In the case of Cloudveil its the poor management due to which the company has faced cash-flow problem.

• Cloudveil’s cash flow cycle—the time between manufacturing its products and collecting the cash from the sale—was a lengthy five to six months, which meant Cloudveil needed to find a way to finance the next season’s production before col- lecting on the current one.

Techniques to manage Cash-FlowManage your Money. Create and Use a Business Budget.

Get a line of Credit. Negotiate with Vendors.

Find Additional Revenue Streams.Employee Issues in Cash Flow Fluctuations

Q2. If Cloudveil continues to grow at a suitable pace, SBI is likely to continue its hands-off approach. If growth should slow and new product development costs exceed what SBI finds acceptable, what impact might this have on the initial arrangements with Cloudveil?

• SBI expressed interest in acquiring Cloudveil. Brian called Reilly and liked what he heard.

• SBI was eager to capture a piece of the growing outdoor apparel market, and Cloudveil had the expertise and product line that SBI needed.

• After a few meetings, all the partners except Stephen were convinced that SBI was a good fit for Cloudveil.

• Reilly’s plan was to guide Cloudveil to $50 million in annual sales without cheapening the brand. Reilly assured them that SBI would not lower prices or degrade quality.

3. Did Brian and Stephen “sell out” by selling Cloudveil to SBI, or was this the best business decision under the cir- cumstances? What other options did the founders have?

• Partners were happy doing what they loved.• Economies of scale were developing.• Cloudveil went international.• Partners were able to retain management

positions.• They were getting richer.