Lorna Valdez on cooking up a business: Lorwill's BBQ Stand.(Instructor's Note)
Santos, Annette Taijeron ; Dacanay, Jennifer
CASE DESCRIPTION
The search for opportunity is the entrepreneur's roller coaster. According to the SBA Office of Advocacy's annual report (Source: http://www.sba.gov/advo/), there are approximately 25.85 million small businesses in America. The economy and financial markets generally support the growth of small business. Many scholars estimate that 75% of the businesses formed will last less than five years. Approximately 19.86 million of these small businesses were sole proprietorships, which continue to rise according to an analysis of the Census Bureau data found in the SCORE website (Source: http://www.score.org/small_biz_stats.html). Between 1997 and 2002, women-owned businesses increased 19.8 percent or 6.5 million businesses. More than 14 percent of women-owned firms employed 7.1 million workers accounting for $173.7 billion in annual payroll in 2002.
CASE SYNOPSIS
This is the first record of the business history and entrepreneurship of Lorna Valdez placed in context. Also included is the history on the family and how it all started, a business she built from scratch and that continues to grow today--Lorwill's BBQ Stand. Also included is the economic analysis of each of her business ventures throughout her entrepreneurial venture until today. The current business is one that is in the growth stage, having opened for only three years and is continuing to expand.
As a small firm in a price-taking market, her managerial decisions are what created the competitive edge. In Guam, where there is high competition as well as demand for food and especially barbeque (a local favorite and past time) she is able to offer the market something unique. This and other factors that lead to relatively higher market power for her business than other vendors in the Dededo area explain how its success has grown.
INSTRUCTORS' NOTES
The fundamental question for any entrepreneur is whether the business idea that he or she is exploring is an outstanding opportunity.
For the entrepreneurship course, have students develop a matrix to measure opportunities available to Lorna Valdez that she ought to be thinking about or that offer the best return on investment.
The dimensions of the matrix may include ones that are specific to a particular situation or circumstance. Along one dimension students might include: attractiveness of opportunity/idea (level of priority given to the idea) and along the other dimension: viability (profit potential) or strategic alignment. Other criteria relevant to the circumstances or situation may be used.
The opportunity matrix views idea initiatives as a portfolio of investment opportunities somewhat like the Boston Consulting Group (BCG) Matrix. It provides a framework that enables small business owners like Lorna Valdez to:
* Determine the relative merits of each idea or investment alternative
* Identify and support the investment priorities of the business
* Ensure that the total portfolio provides unique benefits at an acceptable level of risk.
Each investment is plotted on the matrix in a position that shows its potential for economic value creation and its support for the strategic direction of the business relative to other investment opportunities. Borrowing from the work of Bills' (1998) opportunity matrix concept, an investment opportunity may end up in any of the four quadrants, as follows:
This case is a great opportunity for discussing some of the excitement and fears which entrepreneurs face. Instructors should spend adequate time assessing the personal and career opportunities and risks, which Lorna Valdez faced and continues to face. Discussion should include personality traits such as: internal locus of control vs. external locus of control, high energy level, need to achieve, self-confidence, awareness of passing time, and tolerance for ambiguity (Daft, 2008). Students should also be encouraged to anticipate other potential issues that might surface in the future, both in the short- and long-term.
The instructor can ask students to assume the point of view of Lorna Valdez so that they may present their arguments and discuss the varying points of views that may surface.
In higher-level courses, such as the business capstone course, the following teaching options are suggested: Case Analysis Assignment and/or Assignment Questions.
CASE ANALYSIS ASSIGNMENT
1. Lorwill's BBQ Stand has sought your consulting expertise and asked you to assess the company's strategy, competitive market position, and overall situation, and recommend a set of actions to improve the company's future prospects. Please prepare a report to Ms. Lorna Valdez, owner of Lorwill's BBQ Stand. Be sure your report includes:
a. An identification of the key elements of the company's strategy,
b. A discussion of which of Porter's five generic competitive strategies most closely match the competitive strategy that Lorwill's BBQ Stand is employing,
c. The pros and cons of the company's strategy,
d. An assessment of Lorwill's BBQ Stand's strengths, weaknesses, opportunities, and threats,
e. An evaluation of Lorwill's BBQ Stand's financial performance,
f. An evaluation of the key success factors that Lorwill's BBQ Stand and its rivals compete against,
g. The strategic issues and problems that Lorwill's BBQ Stand's owner needs to address, and
h. A set of action recommendations to deal with these issues and problems.
The report should be 5-6 pages; plus it should include an assortment of charts, tables, and exhibits to support the analysis and recommendations.
2. What are the pros and cons of Lorwill's BBQ Stand's strategy? What evidence indicates that the strategy is working well or not so well?
3. What does a SWOT analysis reveal about Lorwill's BBQ Stand's overall situation?
ASSIGNMENT QUESTIONS AND RECOMMENDED ANSWERS
1. What is Lorwill's BBQ Stand's strategy? Which of Porter's five generic competitive strategies most closely fit the competitive approach that Lorwill's BBQ Stand is taking? What type of competitive advantage is Lorwill's BBQ Stand trying to achieve?
The driving concept behind Lorwill's BBQ Stand was to provide a distinctive and unique marinated barbeque right off the grill. Lorwill's BBQ Stand also specializes in Filipino, American, and Chamorro dishes as well as Filipino desserts that are not often sold at other restaurants or small barbeque stands. Lorwill's BBQ Stand seeks to accommodate the variety of ethnic groups that reside on Guam.
Owner, Lorna Valdez's long-term objective and strategic intent was to make Lorwill's BBQ Stand a locally recognized stand and to be the dominant player in the small barbeque stand and restaurant segment. Key objectives were to cover costs accumulated during expansion in the start-up years, improve operation efficiency and inventory management, improve sales through marketing strategies, and be able to collect relevant data to analyze patterns for future planning purposes.
Chief elements of Lorwill's BBQ Stand's Strategy
* Create a menu featuring food that will keep customers coming back for more: good service and great tasting food
* Offer a distinctive and unique barbeque flavor that people will crave and seek out
* Management believed that the company's key to success was its unique marinade with a vinegar-garlic sauce
* Add more menu items to attract the diversity of ethnic groups on island as well as eliminate menu items that are not "sellable" or come with expensive storage cost.
* Locate Lorwill's BBQ Stand in a highly visible, heavy trafficked area
* Packed with long lines of customers; large menu ranging from pancit to sisig to lumpia and much more
* Accommodates preorders for parties and celebrations
Students should have little trouble recognizing that Lorwill's BBQ Stand's competitive strategy most closely resembles that of a focused differentiation strategy. Management is striving to build a competitive advantage based on the combination of a unique barbeque flavor and good customer service.
2. What does a SWOT analysis of Lorwill's BBQ Stand reveal about the overall attractiveness of its situation? Does the company have any core competencies or distinctive competencies?
Lorwill's BBQ Stand's Resource Strengths and Competitive Assets
* A diverse array of menu items--offering homemade food at a good price (equilibrium price)
* Distinctive marinating process and unique vinegar-garlic sauce
* Specializes in homemade Filipino, American, and Chamorro food
* Specializes in Filipino desserts that are not usually sold at other restaurants
* Loyal customer following
Lorwill's BBQ Stand's Resource Weaknesses and Competitive Liabilities
* Strong competition among rivals in the local vicinity
* Location
* Weak financial status
Lorwill's BBQ Stand's Market Opportunities
* Untapped growth potential in a number of markets
* Adopt marketing strategies
External Threats to Lorwill's BBQ Stand's Future Well-Being and Profitability
* Rivals begin to imitate some of Lorwill's BBQ Stand's menu offerings affecting the company's ability to clearly differentiate itself from rival companies.
* New rival companies grab the attention of consumers and draw some patrons away from Lorwill's BBQ Stand--competition from other restaurants (either those in the small barbeque stand segment or other restaurant categories) becomes more intense
* Difficulty maintaining attractive location
* Company's growth slows
Conclusions concerning the attractiveness of Lorwill's BBQ Stand's overall situation: It is a good idea to impress upon students that SWOT analysis involves more than making four lists. One of the most important part of SWOT analysis is drawing conclusions from the SWOT listings about the company's overall situation.
The above SWOT listings for Lorwill's BBQ Stand reveal that Lorwill's has some formidable resource weaknesses/competitive liabilities as well as resource strengths/competitive assets. It seems to have adequate market opportunities. Lorwill's external threats are an important factor for consideration.
Lorwill's overall situation is fairly attractive and its future prospects seem somewhat promising. The company has a good strategy. It has finally met with some success, particularly in differentiating itself from rivals. It has plenty of growth opportunities it can pursue for several years to come, and it has the resource strength and capabilities to pursue them.
3. What is your appraisal of Lorwill's BBQ Stand's financial performance based on the data in the case? How well is the company doing financially?
It is beneficial to push students to engage in the number-crunching needed to arrive at an analysis-based answer to their assessment of Lorwill's performance. Here is a list of some basic microeconomics formulas pertaining to revenues and costs of a firm.
If students do a creditable job of poring through the data in the case and crunching some numbers, they should be able to come up with some of the following:
* Total Cost (TC) = (AVC + AFC) X Output (Which is Q)
* Total Variable Cost (TVC) = AVC X Output
* Total Fixed Cost (TFC) = TC - TVC
* Marginal Cost (MC) = Change in Total Costs / Change in Output
* Marginal Product (MP) = Change in Total Product / Change in Variable Factor
* Marginal Revenue (MR) = Change in Total Revenue / Change in Q
* Average Product (AP) = TP / Variable Factor
* Total Revenue (TR) = Price X Quantity
* Average Revenue (AR) = TR / Output
* Total Product (TP) = AP X Variable Factor
* Economic Profit = TR - TC > 0
* A Loss = TR - TC < 0
* Break Even Point = AR = ATC
* Profit Maximizing Condition = MR = MC
* Explicit Costs = Payments to non-owners of the firm for the resources they supply.
Remember, in using these formulas there are a variety of assumptions, namely, that the company is profit-maximizing (making as much money possible).
Students could also be asked to develop a forecast for the next five years.
4. Identify the key success factors that Lorwill's BBQ Stand and its rivals compete on.
* Location (site selection is critical)
* Good controls (inventory of food and supplies; evaluating labor for productivity; etc)
* Sales (this is typically the number one success factor in the food industry)
* Differentiation in menu items and taste
* Service quality
5. What strategic issues and problems does Lorwill's BBQ Stand's owner need to address?
* What to do to improve Lorwill's BBQ Stand's narrowing profit margins.
* What more to do, if anything, to try to boost Lorwill's traffic counts at its stand during operating hours.
* What actions to take to boost sales.
* Whether or not to expand the business and how much.
6. What does Lorwill's BBQ Stand need to do to strengthen its competitive position and business prospects vis-a-vis other small barbeque stand rivals?
There are no big or threatening problems/issues that needs fixing or correcting at Lorwill's BBQ Stand. There is certainly no need to overhaul or do major surgery on the company's broad differentiation strategy. But there are some actions that students should definitely recommend:
* Perhaps the most important thing Lorwill's BBQ Stand can do to further solidify the company's standing and competitive position is to consider opening a new store. There is a first mover advantage in securing prime retail locations in well-trafficked areas around the island that they were not able to take advantage of in the early years due to high rental costs that the company could not readily afford. The first restaurants to open in a hot new location or area have a head start in attracting customers, cultivating a loyal clientele, and establishing their brand--it is sometimes harder on the second and third newcomers to justify a big investment in a new facility because of having to compete directly against already existing establishments. Have students discuss possible locations where Lorwill's could establish business that has little or no market penetration.
* Another area that Lorwill's may need to address is their operating and net profit margins. As the company grows, they will have to do a better job of controlling expenses and consider increasing menu prices very slightly (approximately 1-2%) if cost savings sufficient to build profit margins to higher levels cannot be identified.
* Lorwill's will need to continue working hard on developing new menu items that will drive up traffic counts at its current location as well as future locations, particularly during the hours between afternoon and evening meals when traffic is somewhat light.
REFERENCES
Bills, M (1998). Portfolio techniques eliminate lingering IT management problems. Information Strategy: The Executive's Journal, Winter, 14(2), 8-16. Retrieved by Business Source Premier Database.
Daft, R. (2008). Management (8th ed.). Ohio: Thomson South-Western.
SCORE (2008). Small Biz Stats & Trends. Retrieved September 20, 2008, from http://www.score.org/small_biz_stats.html.
Small Business Administration (2008). Office of Advocacy. Retrieved September 20, 2008 from http://www.sba.gov/advo/
Annette Taijeron Santos, University of Guam
Jennifer Dacanay, University of Guam Figure 1: Example of an Opportunity Matrix Attractiveness of Idea Viability (Revenue Potential) High High Low Ideas in this Ideas in this quadrant should quadrant do not receive high provide high ROL but priority may enhance the business' strategic direction Low These provide Ideas in this significant ROI but quadrant are not do not support or worth pursuing enhance the business' strategic direction
