The MacKays

On May 23, 1989, Lewis MacKay was greeted at the door of their Toronto home by his wife, Jane. He was home early from work, and she asked why. He smiled and said, "I finally came to terms with the company They've given me exactly what I hoped for as a severance package. Now we can go back to the Maritimes and start a business!" They relocated to Dartmouth two months later, but they still didn't know what they were going to do. They had not secured employment nor established a business of their own.

Although the MacKays had been considering the possibility of starting their own business in Atlantic Canada for several years, they were unsure of themselves. They wondered if successful entrepreneurs shared common skills, experience, and personality traits. If they did, the MacKays wondered if they had them! Although they had investigated franchise possibilities in earlier years, they had always decided against them for various reasons. Now they wondered what criteria they should apply in assessing franchise opportunities.

The thought of starting their own business was both exciting and scary to the MacKays. They could lose everything they had,


This case was prepared by Professor Ray Klapstein of Dalhousie University for the Atlantic Entrepreneurial Institute as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management. Some elements of this case have been disguised.

Copyright 1993, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include publication.


or they could achieve the sense of satisfaction that comes with success and earn a great deal of money. Also, a number of personal considerations, reflecting their values and lifestyle aspirations, had to be taken into account in making a decision. Meanwhile, the MacKay family was living on their savings, and these would not last long. The time had come to make a decision.

Background

Jane MacKay1 had graduated from Acadia University with a business degree in 1969. After that, she had worked for three years with the Nova Scotia government as a program administrator. Then she had gone back to university to do a Masters degree in adult education. In 1974, she and Lewis had married. Jane had continued to work on a part-time basis, doing contract jobs and conducting training in the design and administration of educational programs. Over the years, she had also become very active in community organizations, including being president of Home and School Associations and various other community groups

Lewis MacKay2 had entered Mount Allison University in hopes of going on to medical school, but had soon switched to a psychology program. He had left university without completing his degree because he was offered a teaching position in the Nova Scotia adult vocational trade school system. Budget cuts had later resulted in the school not being built thereby eliminating his position. From there, he had gone to work in the consumer finance business, in order to secure an income while searching for something he would find more interesting. Less than a year later, he had gone to work for a multinational

1 Jane MacKay's resume appears as Exhibit 1.
2 Lewis MacKay's resume appears as Exhibit 2.

pharmaceutical company, as a sales representative for New Brunswick. He had been transferred to various sales positions across Canada, receiving a series of promotions. In 1980, he had been appointed to a management position at the company's head office in Toronto.

Although Lewis had a good position in the pharmaceuticals industry, the couple had always held notions about running their own business. They had dabbled in some business ventures before moving to Toronto, running an oyster bed lease and selling lobsters as a sideline, but the MacKays had never engaged in their own business on a full-time basis or without the security of Lewis's salary. While living in Toronto, they had explored various business opportunities. Believing that franchises have a better record than independents for new business success, they had looked almost exclusively at franchise opportunities.

When the MacKays looked at franchises in Toronto, they had explored a broad range of possibilities. They seriously considered a franchise in the restaurant business, but soon lost interest because of the long hours and because neither of them wanted to spend entire days working around a kitchen. Two other franchise opportunities had been of particular interest to them at the time: a mobile wallpaper, paints, and draperies service and a fast printing operation. In the final analysis, they had opted for neither one, for a series of reasons. They weren't convinced of either franchises profit-earning potential. They had two young children and felt that long hours running the business would take too much time and attention away from the family. Also, their only capital was in the form of equity in their home, and mortgage payments were very high, making it difficult to part with the security of Lewis's salary.

Lewis stayed in the pharmaceutical business, but the MacKays were true Maritimers, always looking forward to the day when they would eventually move back to Nova Scotia. After four years in Toronto, Lewis accepted an offer from another pharmaceutical company, becoming its regional manager for the Maritimes. The family moved back to Nova Scotia, expecting this to be its last move.

Once settled in Dartmouth, Jane and Lewis again had thoughts about starting their own business, but within two years his new employer offered Lewis the position of national sales manager, based at the company's head office in Toronto. As regional manager, Lewis had hired and trained his sales force, and had managed the operation. Many years earlier, he had graduated from the Armed Forces School of Instruction Technique as a member of the Reserve Navy, and he successfully combined the skills learned there with his experience and knowledge of the pharmaceutical industry to become a successful manager. In his words, "it was quite a surprise to find out that not only could I do it, but that I actually enjoyed it!"

The MacKays found the decision a difficult one, but Lewis accepted the offer. Again, they moved to Toronto with the thought that eventually they would move back to the Maritimes, but with the expectation that they would be in Toronto for quite a number of years. Lewis found the first two years in his new position professionally challenging and rewarding. He was instrumental in implementing major organizational and strategic changes in the company He hired and trained sales managers. He was also involved in the development of clear-pathing programs and coaching and counselling programs for his staff. However, economic conditions in the late 1980s were not good, and resources became limited. Conflict developed within the company, with open hostility between Lewis and his staff on one side and his immediate superior on the other. On May 23, 1989, the conflict was resolved: Lewis's employment contract was terminated.

Priorities

The loss of Lewis's job presented an opportunity for the MacKays to review their priorities. A number of factors had been of great significance to them, almost all of which focused on their committment to the family. They definitely wanted to return to Nova Scotia. Their two children had just completed Grade 5 and Grade 7, and the MacKays felt that if they were going to make a move, it would have to be either immediate or after the children had finished school. They believed that the pressures on adolescents in Canadian society would make it extremely difficult for the children if they were to enter high school without a peer group of friends. Moving back to Nova Scotia immediately would give their younger child one year in elementary school in which he could reestablish old friendships before entering junior high as well as providing time for their older child to do the same before entering high school.

The MacKays placed a high priority on lifestyle:

'We opted to - make a lifestyle decision first and decided to come back to the Maritimes. We recognize that it takes a lot of time and effort to get a business up and running but whatever we decide upon must also give us the opportunity to be able to ensure family time. That is very important to us. "3

Other events of the preceding three years also influenced the MacKays' decision to return to Nova Scotia. One was the fact that they lived in a neighbourhood with a large number of people who were at high management levels in companies; two immediate neighbours had lost their positions in the three years the MacKays had lived there. The MacKays had come to ream that job security was no longer to be assumed in business.

3Lewis MacKay, in an interview with the casewriter.

Jane's sister had become ill with cancer and died after a short illness at the age of forty-three, leaving her husband and two teenaged sons. Also, the MacKay's own son had been hospitalized for six weeks and had been ill for another three months. These experiences were significant in making the decision to return to the Maritimes:

'We've thought about what we want to do with the time we have in our lives: you better get on and do it, because you might not have the opportunity if you wait. Those kinds of things that happen in people's lives affect the decisions they make. We were in Toronto, both our parents live here in the Maritimes, and they're getting more elderly.. The traffic has increased in Toronto. The crime rate has increased... "4

During the MacKay's last three years in Toronto, the market value of their home had increased by $120,000. Meanwhile, the market in the area where they had lived in Dartmouth had gone up by only $5,000. Lewis's severance package and sale of the Toronto house allowed them to buy a home in Dartmouth with no mortgage and still have $50,000 in savings. They hoped this would provide enough to support the family for a year, as well as provide sufficient finances to acquire a business if a suitable one could be found. Jane summarized these considerations in the following way: "So we have some personal feelings about what we want to do with our lives, we are in a different financial situation than in previous years, and our children are older than when we thought about starting our own business in the early 1980's."

4Jane MacKay, in an interview with the casewriter.

The Options

The MacKays had begun to consider their options when it appeared that Lewis might lose his job. It appeared that there were two possibilities: seek employment elsewhere in the pharmaceutical industry or start a business.

(a) Get a Job

Shortly after losing his job, Lewis began Contacting people that he knew in the pharmaceutical industry and others he had worked with, as well as watching the newspapers for job opportunities. He had not been particularly enthusiastic about this, because

"I don't really want to go back into the pharmaceutical business, especially at the management level. One of the things I've learned is that the higher up you are, the less secure you are. If we are really going to make a change, here is an opportunity to do it."5

While considering their options, the MacKays talked to a number of people who had moved from being employed in industry or academia for a substantial part of their career to enter a business enterprise of their own. AN of the people they talked to said they had no regrets, but in a number of cases they wished that they had made the move sooner Others who were still employed in industry and heard Lewis's story said they wished they would have a similar opportunity. Yet, Lewis had an established reputation in the pharmaceutical industry, Other companies might be happy to have his experience and expertise. The prospect of a salary and new challenges in the industry continued to have some appeal when compared to the risks

5 Lewis MacKay, in an interview with the casewriter.

associated with striking out on a new venture with no experience in running an independent business.

(b) Home Decorating Franchise

When thinking about establishing their own business, the MacKays decided to consider only franchise operations. They were aware that new business start-ups using franchises had a higher success rate than independent businesses. This, in their view, was sufficient reason to surrender a share of profits and control.

However, in spite of their commitment to the franchise approach, the MacKays did have mixed feelings. As Lewis put it,

"Part of the thing that's concerned us with franchised businesses is, not only do you have to pay the up-front fees (Which in some franchises are quite substantial), but there is also an ongoing royalty And, while you do have your own business, you really don't have your own business. Someone else is still calling the shots. I guess one of the reasons that franchises work so well is the fact that the franchisee has to agree to stick to the franchisor's operating mode and if he deviates from it, he runs the risk of losing the franchise. For some organizations that could be a strength, but I could see where with some other organizations (depending on personalities involved) that could be a definite problem."

The MacKays attended several franchise shows in Toronto, and found several possibilities. The most attractive to them was a home decorating franchisor with two franchises available in Nova Scotia, one in Sackville and the other in New Minas. They were both existing operations that were in difficulty. According to the franchisor, one franchisee had been operating these and one other franchise and was spread too thin. The franchisor said that because these franchises were already in operation, they would not have start-up expenses and the overall cost would be cheaper than for a new franchise.

Average annual sales for each of the two franchises were estimated at a half million dollars. The franchisee could reasonably expect to net $20,000 to $22,000, after all costs and expenses, including royalties were paid to the franchisor.

Lewis MacKay was not impressed by these numbers: "As I explained to them, I could go out as a rookie sales person and make more money with a heck of a lot less effort and and heck of a lot less investment!"

(c) Management Training

Because of their backgrounds, the MacKays also explored possibilities for a franchise in the personnel training and development field. Lewis contacted a number of a in the industry, including several whose materials courses he had personal experience with. As a result, a number of franchise operations in the training and development field were identified. They contacted several and found a general interest in establishing franchises in the Maritimes.

Most of the franchisors required a franchise fee of $20,000 to $30,000, in addition to all of the normal costs associated with setting up an office. It appeared to the MacKays that little, if any, benefit was secured in return for the franchise fee in most cases: "One of the franchisors wanted $30,000 up front for a franchise fee, for which we're not sure what you get,... a week's worth of training, I think.6 Many were merely "tape and book" operations. In these operations, the franchisee "buys" the right to sell the franchisor's materials, but gets little else. The MacKays were not interested in these: "That doesn't sound like

6Jane MacKay, in an interview with the casewriter.

a very stimulating proposition from our perspective."7 "They tend to be narrow in focus, like courses in one or two areas, or one or two courses. We think, in terms of marketing something, that would limit your horizons somewhat."8

The MacKays' interest in personnel training and development extended beyond the simple presentation of prepackaged material:

"Part of the thing we would want to do is not just provide information to people, but help with real skills development. Having been on the receiving end of a number of training programs over the years, I have been in both lands: the ones that provide skill development, and the ones that provide information and basically warm fuzzies and probably not much else."9

Lewis had been exposed to and used two training and development programs about which he felt positive and confident. He felt strongly that both represented good value for the user, with genuine skill development. One was an interview program for people doing hiring. The second was a program called "self-management system" He contacted the founder of the self-management system, asking if there would be any possibility of making an arrangement that would allow the MacKays to use the program The response was positive, indicating that he would be favourably disposed to having the MacKays use his program in the Maritimes. Through him, the MacKays also made contact with another organization with good quality, programs. The programs offered by the two organizations were

7 Lewis MacKay, in an interview with the casewriter.
8 Jane MacKay, in an interview with the casewriter.
9 Lewis MacKay, in an interview with the casewriter.

complementary: the ability to offer both would provide an opportunity to offer a good selection of courses.

In addition, both programs were available on a license basis, with no initial franchise fee. This would mean minimal capital investment, allowing the financial cushion required to spend time developing the necessary delivery skills and marketing the programs:

"The only capital required would be for a small amount of equipment, operating costs, becoming incorporated, taking some of these courses in Toronto and getting trained to use them all. We would not have to pay for our own training; we would only have to pay the expenses associated with taking the courses in Toronto. An added benefit is that we could operate this business out of our house, at least initially."

Jane felt another advantage of locating in the Maritimes is that both her and Lewis are native Nova Scotians. Being born and raised in Nova Scotia, they, therefore, have a number of contacts and connections as well as family in the area. She felt this would give an organization run by the two of them an advantage over mainland companies with no established maritime base.

The Decision

Lewis summarized the issue in the following terms:

"What are we most likely to be successful in? We want something that we can do in Nova Scotia, that uses our skills, that doesn't require us to be there every Saturday and every day until 9 o'clock at night, or 6 o'clock, or whatever time the malls dose.

Of course, it must provide enough income to support the family, but our financial needs are not great. The most important things to us are that we make a living and enjoy doing it, while at the same time giving highest priority to the lifestyle and values we cherish.

Although we are inclined to start a business of our own, we're still a little uncomfortable about it. What does it take to be a successful entrepreneur? Do we have what it takes?"

Case Preparation Questions

1. Toward the definition of an entrepreneur

  1. Is there a set of characteristics shared by all (or most) entrepreneurs? If there is, which of these common characteristics are necessary for success as an entrepreneur?
  2. Would you describe either, or both, of the MacKays as entrepreneurs? Do either, or both, have the characteristics that are necessary for success as an entrepreneur?

2. The MacKays seem to be wedded to the idea of acquiring a franchise, convinced that franchisees stand a much better chance of success than independents. Are they right? Explain. They also seem to be unclear about the difference between "franchise" and 'license" arrangements. How would you explain the difference to them?

3. Develop a list of the factors considered by the MacKays in making a decision on whether to start a business and in selecting the business to enter. Assess the list. Is there anything you would add or delete?

What do you recommend that they do? Why? (Consider factors like their skills and aptitudes, the fact that they wish to do it in the Halifax area, etc.)

4. The MacKays are a married couple with two children. They are considering establishing a business together and operating it out of their home. The result would probably be that they would spend an extremely high proportion of their time together and face a lot of stresses and strains together while parenting, doing household chores, and running the business, as well as striving to earn enough and budget effectively to pay the household and business bills. What do you suggest they could do to minimize the amount of stress that would result between them?


Exhibit 1

Jane MacKay's Resume

Education

MA Adult Education

St Francis Xavier University, 1975

Major field of study was program design

Bachelor of Commerce Acadia University, 1969

Upon graduating awarded a Gold "A" Honour Award. "The highest tribute paid to a student for valuable service to the University in non-athletic extracurricular activities."

A variety of courses related to Human Resource Development, see attached Schedule A

Employment Workshop Leader. Conducted a variety of workshops on a contractual basis. A partial list of these events is attached, Schedule B.

Coordinator of Summer programs for youth, Humber College. Duties included promotion, budget, hiring staff, registration.

Coordinator of training programs for single parents on social assistance, City of Halifax. Duties included budget, hiring staff of seven, curriculum development with staff, arranging work placements.

Resources Exchange Project. Operated an information and advocacy service in Halifax for community groups in the Maritime region.

Nova Scotia Youth Agency, Special Project Officer, Training and Development.

Boards and Committees

Group Leader, Halton Children Aid Society Mother's Morning Out Program. A development and support group for "at risk" Moms of pre-school children.

President, Parent Teacher Organization Sunningdale School, Oakville, Ontario

Member, Dartmouth District School Board, Dartmouth, Nova Scotia

President, Home and School Association, Crichton Park School, Dartmouth, Nova Scotia

Member, The Advisory Group on Multi-Cultural Education, Nova Scotia Department of Education

Executive Member, Board of Directors, Children and Youth Action Council, Halifax, Nova Scotia

Member of the Board, Halifax Branch, Canadian Mental Health Association

Member of the Board, Halifax Branch, junior Achievement

Chairperson, Property and Finance Committee, Tatamagouche Centre, Tatamagouche, Nova Scotia

Exhibit 2

Lewis MacKay's Resume

Education:

Mount Allison University

Morrison High, Glace Bay

A variety of Management, Sales and Business courses

Employment History:

1982-1989 Astra Pharma Inc., Mississauga, Ontario Positions: Manager, Scientific Liaison and Education

National Sales Manager

Astra Pharmatek Regional Sales Manager, Atlantic Provinces

By fostering team work and development, I was able to implement a sales force split, initiate a sales cam pathway, and meet established budgets.

1966-1982 The Upjohn Co., Don Mills, Ontario

Positions: Manager, Medical Science Liaison Representative, Hospital Sales Representative Halifax General Sales Representative, Alberta and New Brunswick

In all positions, I reached or surpassed all sales goals and objectives. As a result of my performance, I was advanced through a series of increasingly responsible positions.

Other Activities:

Toastmasters

President of three Drug Travellers Associations Public Speaking Adjudicator

Inspector's Promotion Board, Halifax Police Department

Member, Board of Directors, Tatamagouche Center

Officer, Naval Reserve (9 years)

President, High School Graduating Class

Queen Scout, Cub and Scout Master