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