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After only nine months in business, Brent Banda, founder and owner of The Entrepreneur’s Marketing Source Inc. (EMS), felt like he was facing the biggest challenge of his career. His business cards promised to provide "ideas, advice, and solutions" to other companies in Saskatoon, yet Brent wasn’t sure what advice to give himself regarding the future of his company.

The City: Saskatoon

Saskatoon is the largest city in Saskatchewan with a population of 219,000. Situated along the banks of the South Saskatchewan River, the city prides itself on developing riverside parks and recreational facilities. Saskatchewan traditionally has relied on the agriculture industry and one-third of Canada’s agricultural biotechnology companies are located in Saskatoon. Recently, Saskatoon has steered its growth toward becoming a transportation and supply centre for the mining industry. It is home to mining head offices for potash, uranium, gold, and diamonds.  See Saskatoon Regional Economic Development Authority (SREDA) for information about Saskatoon's busines climate.

The Company: EMS

bigbrent.gif (112861 bytes) Brent started EMS in Saskatoon just months after he graduated from the University of Saskatchewan with his Commerce degree in Marketing. Although EMS is incorporated, Brent owns 100% of the shares and is its only employee. He has operated EMS out of his home for the past nine months and aims to break even by the end of the year.

The mission statement of EMS is to "establish the company name as a reliable source of practical marketing information to North American small and medium-sized businesses." The idea for EMS was generated while Brent was working on projects for his university classes. He noticed many small businesses had little knowledge about, or expertise in, marketing. However, marketing was a crucial element in their continued success.

Brent created EMS to develop and sell a practical marketing workbook that could be used by small businesses in Canada and the United States. The workbook was envisioned as a general guide to help small business owners with no marketing experience create strategies tailored to their unique business situations. Brent was confident that, in the future, he could branch out and create a series of workbooks that focused on specific marketing problems, such as advertising or new product development.

The first set-back occurred when Brent approached his banker for a $7,000 business loan to start EMS. The banker demurred that a workbook would take some time to develop and suggested that EMS offer personalized, marketing consulting services to small business clients in Saskatoon. The consulting would furnish real-life examples that Brent could incorporate into the book and would provide EMS with steady income during the workbook’s creation. Brent knew that EMS could not survive without the bank loan, so he agreed to become a consultant in the short-term while developing his long-term plans. He was worried, however, that his consulting projects would slow the progress of the workbook.

That worry turned out to be correct. Nine months after EMS was created, its consulting business is flourishing. However, Brent finds himself working 50 to 60 hours per week on personalized consulting and the workbook still is not completed. He also attends many meetings and community events in order to develop a referral network of small business consumers for his consulting activities.

The Entrepreneur: Brent Banda

Brent was raised in a working-class family, and worked as a waiter and in other service jobs to put himself through university. As a waiter, Brent had to talk to up to 25 strangers a day and he credits this training with giving him the confidence to approach new people when the opportunity arises. Brent does not consider himself to be a "thrill-seeking" risk taker, but feels that starting his own business is a risk that he can afford because he has nothing to lose. He is single with few assets and is just starting out in life, so even if EMS does not become successful, he can always start over working for another company.

Brent credits his education at the University of Saskatchewan for gaining business knowledge, project experience, and writing skills. The most difficult part of starting EMS for Brent was feeling confident in his ability to apply his education to practical problems. However after a short time at EMS, Brent realized that other small business owners did not possess extraordinary business skills either and Brent learned to be confident in his strengths.

Brent is constantly involved in business planning for EMS, both for the short-term and the long-term. Early on, Brent realized that he could achieve business success by either creating an image for EMS or creating an image for himself. Because he did not have the money to launch an image campaign for EMS, Brent chose to create an image for himself as a successful entrepreneur and small business owner. He was head of the committee for North Saskatoon Business Associates where he produced their awards banquet for two years. Recently, he has been named to the board of directors for the Provincial Exporters Association. Brent is described by others as outgoing, motivated, and hard-working.

The Consumer: Small-business Owners

EMS targets small and medium sized businesses in North America that do not have full-time marketing staff. These companies are usually managed by one owner. Industry Canada estimates that 60% of all Canadian businesses are run by one self-employed owner. An additional 30% of businesses have fewer than 5 employees and this number has grown by 30% in the last 10 years. The number of small businesses by province is provided in Table 1. See Strategis for useful information on small business in Canada. In addition, over 13 million home-based businesses exist in the United States.  In addition, over 13 million home-based businesses exist in the United States.

Compared to larger companies, small businesses often lack depth and expertise in many business functions, including marketing. While larger companies have marketing departments and operate with a marketing plan in place, many small businesses have no formal marketing plan, strategy, or objectives. In fact, many small business owners are unclear what exactly marketing is and how to apply it to their situations. Consequently, they are unlikely to seek marketing help.

To understand the small business owner better, Brent conducted a focus group interview in Saskatoon. The informants agreed that they had a poor understanding of marketing concepts and felt that a marketing plan was too theoretical and difficult to use. They were interested in learning more about how to advertise their products, however. They indicated that they were too busy to read long books about marketing, but were enthusiastic when Brent introduced a prototype of his workbook and led the group in a strategic planning seminar. Brent felt that the positive response to this workshop indicated that his marketing workbook could be a success.

EMS Consulting Service

EMS is likely to meet its first-year objectives of breaking even and developing a consulting practice that provides a steady income to sustain the business. Table 2 provides EMS’s financial results for the first nine months of operations. Examples of EMS’s first-year clients include a husband and wife team who wanted to make their photography hobby into a full-time career, an architect who was losing clients to his competition, a real estate firm trying to attract developers, and a glass company that didn’t know how to advertise. Customers like these contract with EMS to provide marketing research, create a marketing plan, and/or develop promotional strategies. Beyond marketing advice, an important part of EMS’s service is the education Brent provides to small business owners. Instead of handing over a report, Brent explains the basis for his decisions and provides EMS’s clients with long-range perspectives on their marketing situations.

Before any consulting work is started, EMS provides a written quote. Currently, EMS charges $75 per hour for consulting services, but Brent plans to increase this fee to $85 next year and to $100 after that. Billable hours are recorded as the work is completed and used as a guide when quoting future projects. However, if billable hours exceed the original estimate, EMS only charges the amount of the original quote. In the first year, Brent often has underestimated the amount of time a project would require, but he expects to improve this variance with experience. All clients provide a 25% deposit and are invoiced after the work is completed with 15 days to make payment. EMS has had no trouble collecting receivables from clients.

The Competition

Many other companies offer marketing services in Saskatoon. Large consulting and research firms and advertising agencies provide specific services to larger clients with marketing departments. These consultants do not actively solicit small business clients given that small businesses lack marketing and promotional plans, require extra time and effort, and may not be able to afford their consulting fees. In addition to large consultants, sixteen small marketing consulting firms are listed in the Saskatoon Yellow Pages. Finally, many small businesses rely on media agents to help them with their marketing plans; for example, a local paper or radio station may design ads or help with strategic planning if a small business owner buys advertising space or time. Media agents provide this service free of charge.

To attract clients to EMS in this competitive environment, Brent has established a network of business contacts in the local community. A free newsletter offering practical marketing tips is mailed to these contacts each month. The newsletter is intended to build the awareness and credibility of EMS’s service as well as prompting referrals and repeat business. The newsletter has a professional appearance and has been well-received by its recipients. A sample newsletter is provided in Figure 1.

The Offer

Although EMS creates promotional strategies and develops advertising plans, Brent is not a graphic designer; he relies on other local companies to create finished ads, artwork, and web pages. One design firm he has worked with is called Imagine and is owned and operated by two young designers who quit their jobs with a large local advertising agency less than a year ago when they became "fed up" with their boss. Many of the agency’s clients transferred to Imagine shortly after the split.

Brent was surprised when the partners at Imagine approached him with a business offer. They wanted to create a strategic alliance with EMS; EMS would refer all of its clients’ design work to Imagine, and Imagine would send its clients in need of marketing help to EMS. In addition, EMS would share office space with Imagine; the design firm is housed on the top floor of a building in the trendy Broadway district of Saskatoon. Although rent in this district can be pricy, Imagine was willing to let EMS share the space for only $185 per month. EMS would receive one office and share the reception area and meeting room.

Brent could see the benefits of aligning EMS with Imagine. He would have access to Imagine’s clients, many of whom were much larger than those he currently had. Although the partners of Imagine would not allow him to see their financial statements or discuss their operating income because Imagine would remain a separate company from EMS, Brent had a good working relationship with Imagine’s partners. In addition, the partners valued Brent because he wrote clear marketing strategies that allowed them to "concentrate on the fun part of the business -- making ads." However, if EMS enters into the proposed strategic alliance and receives new clients from Imagine, Brent can see that all of his time will continue to be eaten up by consulting. Publication of the workbook would be delayed for at least another year.

The Workbook

If EMS does not enter into the strategic alliance with Imagine, Brent feels that he can reduce his consulting time by taking fewer clients and finish writing the workbook in the fall. He would like to begin marketing the workbook in Canada in January of Year 2 and enter the U.S. market in Year 3. Brent is encouraged by the fact that consumers purchased over $3 billion of products through direct sales in Canada in 1994,with books, newspapers, and magazines accounting for $1 billion of these sales.

Many marketing reference books, video and audio tapes, and seminars already exist and can be found in bookstores, public libraries, and economic-development facilities like Industry Canada. However, many of these materials require a significant amount of time to read, understand, and apply. The strength of the planned EMS workbook is that it will be a practical, hands-on workbook that is concisely written for the small business entrepreneur. Brent plans to conduct focus group interviews to further refine the workbook. In addition, focus group interviews can help in the creation of a direct response campaign where small business owners can buy the workbooks by phone after reading a print ad.

The workbooks will be sold through a two-part direct response campaign. First, direct response ads will be placed in magazines that the small business owner is likely to read such as Home Business Report or Income Opportunities. The average Canadian magazine is published quarterly, reaches 50,000 individuals, and charges $2,500 per ad. The average U.S. magazine is published monthly, reaches 300,000 individuals, and charges $5,000 per ad. The planned EMS ads will be one-half page size and in colour. On average, 0.2% of magazine readers order products from direct-response ads in the first month that the ad appears and 0.15% of readers order after that.

Direct mail will also be used to generate orders. The mail piece will contain a magazine-style article on a small-business topic and a description of the workbook. Several companies sell lists of businesses that employ five or fewer employees for $.15 to $.45 per business name depending on the number of names purchased. In the future, when more than one type of workbook is available from EMS, past workbook customers will receive updated product lists through direct mail as well. On average, 3% of individuals who receive a direct mail solicitation respond; the response rate increases to 15% for individuals who have ordered from the company in the past.

Customers responding to the ads will order through a toll-free number. All orders will require payment in advance, which is standard with low-cost, direct-response products. A message service will take the order, including shipping information and credit card number. This information will be faxed daily to EMS and the order will be mailed through Canada Post the next day. EMS is able to take both Visa and Mastercard orders. EMS will include a postage-paid survey with all orders to gather information on its customers.

Brent estimates that the workbooks will cost between $6.12 and $6.39 to produce and mail, depending on whether they are sent to Canada or the U.S. Table 3 provides workbook cost information. EMS will sell each workbook for $29.95 (Canadian) which includes shipping, but does not include taxes. The type of marketing activity planned and the estimated number of workbooks sold in Year 2 and Year 3 are presented in Table 4. Brent also has estimated the amount of income he expects in Years 2 and 3 from workbook sales, given the above assumptions, which is shown in Table 5.

The Dilemma

Brent likes consulting and working with Imagine. The offer to form a strategic alliance with Imagine is tempting, given their larger client base. However, Brent’s true dream is to complete and market the workbook. He is worried that another company may publish a similar product aimed at the same market. A tremendous amount of potential profit would be lost. Given the time that consulting currently takes, Brent is sure that he will only have time to pursue one option: the strategic alliance with Imagine or completion of the workbook.


 

Table 1
Number of Small Businesses by Province

Province

Total Businesses

Self-Employment

Total Employers

Small Businesses

Canada

2,324,518

1,393,000

931,518

707,886

Newfoundland

44,274

22,000

22,274

17,854

P.E.I.

15,732

8,000

7,732

5,684

Nova Scotia

73,678

41,000

32,678

23,689

New Brunswick

56,852

29,000

27,852

20.488

Quebec

493,680

266,000

227,680

169,812

Ontario

826,733

518,000

308,733

225,655

Manitoba

100,135

64,000

36,135

24,495

Saskatchewan

127,899

87,000

40,899

30,617

Alberta

278,771

167,000

111,771

82,162

B.C.

340,323

191,000

149,323

109,170

Yukon

4,247

2,700

1,547

1,011

N.W.T.

9,154

4,000

5,154

3,455

Note:
  • Provinces do not sum to the total for Canada because the same companies may be counted in more than one province.
  • This table excludes the public sector.
  • Self-employment is unincorporated self-employment only.
  • Small businesses are employers with less than 5 employees.

Source: Entrepreneurship and Small Business Office, Industry Canada, 1994.

 

Table 2
Income Statement for the Nine Month Period Ended September 30, Year 1

Consulting revenue $30,425.88
Cost of services 9,824.04
Gross margin $20,601.84
Operating expenses
Accounting $ 850.00
Marketing 850.73
Memberships 250.00
Interest and bank charges 804.44
Office supplies 1,665.95
Phone 2,266.26
Business meetings 588.48
Wages 16,350.00
Total operating expenses 23,625.86
Net operating income (loss) ($ 3,024.02)

 

Table 3
Workbook Cost Information (in Canadian Dollars)

Cost

Canada

United States

Printing of workbook

2.37

2.37

Printing of survey

0.10

0.10

Postage

0.90

1.17

Envelope

0.15

0.15

1-800 number and answering service

2.00

2.00

Credit card fee

0.60

0.60

Total

6.12

6.39

 

Table 4
Marketing Activities and Estimated Workbooks Sold - Years 2 and 3

Year 2

Year 3

Marketing activities in Canada
Direct mail to list

3,000 pieces

---

Direct mail to previous customers

615 pieces

1,050 pieces

Magazine ads

3 ads

6 ads

Marketing activities in the U.S.
Direct mail to list

---

---

Direct mail to previous customers

---

8,400 pieces

Magazine ads

---

8 ads

Number of workbooks sold in Canada
From direct mail to list

90

--

From direct mail to previous customers

92

157

From magazine ads

525

1,050

Number of workbooks sold in the U.S.
From direct mail to list

---

---

From direct mail to previous customers

---

1,260

From magazine ads

---

8,400

Note:
  • Direct mail to list is sent to the names purchased from list providers.
  • Direct mail to previous customers is sent to individuals who have purchased the workbook in previous months either from the direct mail to list or through the direct response ads.

 

Table 5
Estimated Income from Workbook – Years 2 and 3

Year 2 Year 3
Sales (Workbook) $21,174.65 $325,466.65
COGS (Workbook)  4,326.84 69,114.24
Gross margin $16,847.81 $256,352.41
Marketing expenses
Ad design 1,000.00 1,000.00
Ad placement (Canada) 7,500.00 15,000.00
Ad placement (U.S.)  0.00 40,000.00
Direct mail design 2,000.00 2,000.00
Mailing list 450.00 0.00
Printing of mailer  723.00 1,890.00
Postage of mailer  1,265.25 4,147.50
Total marketing expenses  12,938.25 64,037.50
Operating income $ 3,909.56 $192,314.91

Figure 1
EMS Newsletter
(Click on the image for a larger view)

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This case was prepared by Barbara Phillips of University of Saskatchewan for the Acadia Institute of Case Studies 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 1999, the Acadia Institute of Case Studies, Acadia University. Reproduction of this case is allowed without permission for educational purposes, but all such reproductions must acknowledge the copyright. This permission does not include publication.

 


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