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.

INSTRUCTORS' NOTES

Discussion Questions

1. Why did David Lee open NTA Executive Retreats?

The NTA Martial Art Academy had grown into a successful business, but its profit potential was limited. When Lee first opened the martial art studio, he faced limited competition in the immediate area. Currently, competitors are expanding directly into his territory and competition is becoming fierce. The increase in competition is making his product more commoditized and threatens his margins.

Students in part select a martial art studio based upon the quality of the instruction. David Lee is the source of advantage for this business, but he has limited time to devote to the business given his other interests. Further, having classes in a fixed facility limits class size and therefore limits profit potential. David Lee needed to find a business that was seen as offering a unique product where he could increase the amount he could charge for his services.

The executive retreat business was a natural extension of his current business. His existing students were an initial customer source for the new venture as well as a source of employees. The established reputation of the NTA Martial Art Academy could be used to provide immediate legitimacy and trust for the new product. David Lee's contacts in the business community, as a result of the other businesses he owned and operated, were a source of referrals for his new venture. Further, the high capital requirements for owning and operating a retreat facility were a significant barrier to entry for other martial art academies. Consequently, the limited competition would allow Lee to charge higher prices and thereby achieve higher margins.

2. Why did David Lee select a location two hours from Silicon Valley for his new venture?

The remote location was necessary for several reasons. First, it would not have been economically feasible to purchase such a large tract of land so close to Silicon Valley. Second, the concept of a retreat is to remove the client from their normal surroundings. Third, a location two hours from Silicon Valley reinforced the concept of separation from the normal routine of the customer yet was close enough that the trip would not seem difficult. Finally, a primitive setting would not have felt genuine inside the boundaries of a major metropolitan area.

3. Describe the nature of NTA's industry using a Porter's Five Forces framework.

NTA's buyers had considerable power due to low switching costs. It was an industry practice to raise switching costs by requiring Academy members to enroll for twelve months at a time. However, this policy used by both martial art academies and health clubs frequently resulted in conflicts with customers.

Suppliers to the business had limited power. While national chains could negotiate better prices due to larger purchase commitments, the cost of supplies was not material to NTA's operations and multiple suppliers were available to the company.

Rivalry within the fragmented health club industry was fierce. Substitutes for NTA services, such as traditional health clubs, jogging trails, and home exercise equipment were readily available, although substitutes for NTA Executive Retreats were not.

The risk of potential new competitors in the martial art academy business was high due to low entry barriers and the continued influx of Asian immigrants into the area.

However, for the executive retreat business, high capital costs and limited suitable locations created significant entry barriers.

Overall, the martial art academy business was not particularly attractive, but the executive retreat business held promise.

4. Prepare a SWOT analysis for NTA Executive Retreats.

Strengths

** Daniel Lee's resources, as well as his personal skills, knowledge, and abilities.

** Credentials and reputation in the industry

** Proven entrepreneurial and business experience

** Established contacts and local market knowledge

** Financial resources and credit rating

** Science background (allows him to easily relate with Silicon Valley hi-tech executives)

** Synergies and shared resources with Lee's other businesses (legal/tax counsel, banking, printing, promotion, etc.)

** NTA's ability to operate at high profit margins.

Weaknesses

** NTA's dependence upon Lee who is sharing time between many different ventures.

If Lee's other businesses demand his time, NTA will suffer since there is no one to conduct the retreats. There are no slack human resources in NTA

** Lee's need for control and resistance to delegation

** Local market was saturated with respect to the martial art academy

Opportunities

** Produce inspirational videos and tape programs for sale to students (and outside sales)

** Franchising martial art schools with Lee's students

** Growing demand for executive stress reduction products as a result of the rapid expansion of the high technology businesses in Silicon Valley

** Expanded training programs for law enforcement agencies on the property could be both a source of income and a source of protection from the narcotic growers

Threats

** Increasing Asian immigration was producing a larger pool of qualified martial arts instructors. Coupled with low school startup costs, there was significant risk from new entrants.

** Increasing popularity of full service fitness clubs that were beginning to offer martial arts classes.

** Federal and State laws allowed for the seizure of any lands where illegal narcotics were found growing. Due to the size and remote nature of NTA's property, neighbors that were growing illegal narcotics could encroach onto NTA land, making the property subject to seizure.

Students should be asked to prepare a list of strategic alternatives for NTA and evaluate them in light of the SWOT analysis with the ultimate goal of selecting an appropriate course of action. In fragmented industries, the use of niche strategies is appropriate, emphasizing customer service. Lee does this well.

EPILOGUE

Lee immediately discontinued NTA Executive Retreat operations and put the property up for sale, which sold three years later for $1,200,000. The executive retreats were suspended for about a year until Lee found a 200-acre parcel, 30 minutes from NTA, that he could rent on a daily basis. The local facility was safe, but lacked the seclusion necessary to provide the experience Lee and his customers demanded. Enrollment fell and Lee lost interest.

Robert B. Carton, Western Carolina University Michael D. Meeks, San Francisco State University