NTA Executive Retreats, Inc.: a case study.
Carton, Robert B. ; Meeks, Michael D.
CASE DESCRIPTION
In this case the authors tell the story of a small business startup
and the difficulties faced when environment is not considered. This case
would be most suitable for undergraduate courses in Entrepreneurship and
Strategic Management. The case is designed to be taught in one fifty to
seventy-five minute class period, with about thirty minutes of reading
and preparation time on the students part, prior to class.
CASE SYNOPSIS
This case is based upon an actual experience. The names of the
participants and the company have been changed to maintain
confidentiality. This case demonstrates problems that can arise from
poor investigation of a location prior to going into business. NTA has
discovered that they face significant external environmental risks of
which they had previously been unaware.
NTA EXECUTIVE RETREATS, INC.
On the morning of June 3rd, Daniel Lee rose at 4am to lead his
campers on a pre-dawn jog and sunrise meditation at the NTA Executive
Retreats, Inc. facility 21/2 hours north of San Francisco. After
completing the morning exercise, and while leading an invigorated group
of 42 corporate executives all dressed in traditional white karate
uniforms down a footpath from the mountaintop, Lee heard the sound of
vehicles. Looking to his left, he saw what looked to be a battalion of
law-enforcement vehicles racing toward NTA's base camp, a half-mile
below.
With the arrival of the DEA, FBI, and state and local law
enforcement agencies, the tranquil 1000-acre wooded setting was turned
into an armed military-style camp. Lee's ideal setting for
contemplation and personal reflection had suddenly become the command
center for a drug raid on an adjoining property. The special agent in
charge explained to Lee that marijuana cultivation was prevalent in
remote parts of Northern California, and that should marijuana plants be
found on NTA's property, it too would be subject to seizure. Lee
was also told that marijuana growers were remarkably well armed, highly
sophisticated, and extremely dangerous. As Lee looked around at the
armored vehicles and Kevlar-vested troops, he wondered if the business
he had started six months earlier would ever be the same.
Daniel Lee
Since graduating with a double degree in computer science and
atomic physics from a prestigious West-Coast university six years
earlier, Lee had founded and managed three software companies, a small
import-export business, and a property management firm that managed his
real estate holdings. Typically working over 80 hours a week, he was a
self-made multi-millionaire with an outstanding credit rating.
Lee began his martial art training 16 years earlier at the age of
13, earning the rank of 5th degree black belt in Tae Kwon Do. Focusing
on the tradition and beauty of martial arts, Lee stressed to his
students the intimate interrelationship of mind, body, and spirit. Four
years before opening NTA Executive Retreats, he opened the NTA Martial
Art Academy in his hometown of Menlo Park, California and in two years
had over 800 students.
INDUSTRY AND COMPETITION
The fitness and wellness industry had grown steadily over the past
several decades and with growing attention being focused on the problems
of stress and obesity, the prospects for continued growth seemed strong.
Consumers had a variety of fitness options such as health clubs,
wellness centers, aerobics classes, and martial art studios. Hollywood
stars such as Steven Segal, Jackie Chan, and Jean-Claude Van Dam
drastically increased the popularity of martial arts during that same
period. Consequently, and due to low entry barriers, an unprecedented
number of schools opened, many operated by unqualified teachers. The
martial arts industry became highly fragmented and fiercely competitive.
Breakeven for fitness clubs, charging $35-$55 per month was
typically reached at about 2,000 members. However, most martial art
schools charged $50--$100 per month and were fortunate to have a
membership of 200. To supplement revenue from instruction, many schools
offered related apparel, weapons, and instructional materials such as
videos and books.
Within a 12-mile radius of NTA, there were twelve martial art
schools, two universities that offered martial art classes, eight
fitness clubs, and four wellness centers. One year after the opening of
NTA, a competitor opened a school less than 400 yards away.
NTA Executive Retreats, Inc.
To further differentiate NTA and better service his niche market,
Lee offered weekend outings to his students. These beach and mountain
excursions were particularly popular among local Silicon Valley
corporate executives. Lee's emphasis on stress reduction,
individual development, and goal setting seemed to match the needs of
these students so well that he decided to start a separate business to
provide executive retreats.
NTA Executive Retreats, Inc. was founded four years after opening
the NTA Martial Art Academy. Its sole mission was to provide weekend
retreats to upscale corporate executives. The basic concept involved
removing any social stratum among the campers by outfitting everyone in
traditional white Karate uniforms, banning jewelry, and only providing
primitive facilities. To create an environment free from the
stress-induced hustle-bustle of corporate life, Lee disallowed
newspapers, books, portable phones, computers, watches, radios, and all
other electronic devices. Activities included (1) plenty of exercise and
deep abdominal yelling (ki-up), (2) meditation, biofeedback, Tai Chi,
and other stress-reduction exercise, (3) campfires and singing, and (4)
a sweat lodge experience. Meals, cooked over open fires and typically
taking 2-3 hours, were carefully orchestrated to provide students a
lesson in healthy cooking. To service groups of up to 200, Lee felt he
needed an isolated outdoor setting with a river and plenty of trees to
provide the atmosphere necessary for the above mentioned activities.
After an extensive three-month search, Lee purchased a 1000-acre
property (for $1,000,000) that bordered a river, was adequately wooded,
and was 18 miles from the nearest town. Improvements such as cutting
roads, digging a thirteen-acre lake, developing the property's
artesian well, grading the main camp, and building a variety of rustic
structures cost $250,000.
Lee was a perfectionist, dedicated to providing his customers with
one of the best experiences of their lives. Each retreat was limited to
50 campers, and Lee spent countless hours supervising every aspect of
the weekend and personally leading each activity. He hoped that, within
two years, his first- and second-degree black belts at the NTA Martial
Art Academy would be sufficiently proficient at leadership functions so
Lee could begin delegating some of the tasks.
The first three retreats went off without a hitch. Lee's
campers were so overwhelmingly satisfied with their experience, that the
scheduled two-hour closing session on Sunday evening typically lasted
over six hours, with each camper sharing his/her personal experience and
thanking Lee. Based upon referrals from satisfied campers and the
success of the initial retreats, Lee felt NTA could easily fill 50 spots
at 35-40 retreats per year (weather permitting).
Gilbert W. Joseph, The University of Tampa Lisa N. Bostick, The
University of Tampa Lanford T. Slaughter, Jr., Accounting &
Technology Assurance LLC
Profit/Loss Analysis Per Outing (average of first three retreats)
Revenue (50 participants @ $1,000 each) $ 50,000
Expenses
Uniforms (50 @ $6 each) 300
Transportation (gas & van rental) and insurance 1,500
Food, wood and campfire supplies 1,700
Supervision (provided by Lee's black-belt instructors) 0
Photography (all students received a series of pictures) 500
Marketing (divide total annual costs by 25 outings) 2,500
Total expenses $ 6,500
Gross Margin $ 43,500
