Heather Evans

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<p>Cases</p> <p>Heather EvansRobert Pricer Professor of Management UW School of Business</p> <p>IMPACT MEDIA productions</p> <p>Whom the gods would destroy, they first make Greek Proverb mad.</p> <p>IMPACT MEDIA productions</p> <p>Heathers Opportunity Appears attractive, good fit between skills, desires and market needs. What does Heather have to do to capitalize on opportunity? Produce designs consumers want Line up retailers and advertising support Get items produced and delivered on time</p> <p>IMPACT MEDIA productions</p> <p>Heathers Opportunity What are advantages of opportunity? Little capital needed Good market niche: Unserved, fragmented, and growing</p> <p>IMPACT MEDIA productions</p> <p>Heathers Opportunity What are key factors for success? Design sense Ability to sell retailer design General management Ability to manage cash, production, delivery, and quality</p> <p>IMPACT MEDIA productions</p> <p>Heathers Opportunity What is the upside? Very high! Liz Claiborne public value of $661 Million Licensing of name a big dollar plus with no additional cost Lots of expansion potential in niche Costs of operations mostly fixedIMPACT MEDIA productions</p> <p>Heathers Opportunity What is the upside? Dont need to control --Production-Cutting, Sewing, Shipping, infrastructure built up in industry to allow people to do just what she is doing. Low working capital need</p> <p>IMPACT MEDIA productions</p> <p>Heathers Opportunity What is the downside? Possible risks include: Will her designs sell? Successful designs will be knocked-off. Heathers ability to design for 5 seasons, 20-30 designs per season</p> <p>IMPACT MEDIA productions</p> <p>Heathers Opportunity What could Heather do to reduce the design risk? Hire a proven designer. Do some market research.</p> <p>IMPACT MEDIA productions</p> <p>Heathers Efforts Built up expertise in industry: Model; Summer job with Jackie Hayman. Chose Market segment that matched her background: Morgan Stanley and HBS. Both feed into professional womens segment.</p> <p>IMPACT MEDIA productions</p> <p>Heathers Efforts Spent a great deal of time starting business: At expense of school Lots of research, talking to retailers, office space, etc. Used field study effectively Spent lots of time on business plan</p> <p>IMPACT MEDIA productions</p> <p>Heathers Efforts Built momentum. When business plan out, she had already: Incorporated Hired and paid Belinda Hughes Designed a line Arranged for a factor Paid rent / found building Reserved production capacityIMPACT MEDIA productions</p> <p>Heathers Efforts All of Heathers actions builds: Credibility Commitment</p> <p> In investors eyes (contrast with First Place &amp; Ice Delights)</p> <p>IMPACT MEDIA productions</p> <p>Heathers Efforts Was flexible - kept eyes and ears open: Worked with Robert T. Vin, then abandoned him -- Saw would not work out Used phone to check up on Barbara Tarpe. Seized opportunity when 550 7th St. space opened up.IMPACT MEDIA productions</p> <p>Heathers Efforts Used support for key areas (see field study plan): Accountants Lawyers Advisers</p> <p>IMPACT MEDIA productions</p> <p>Heathers Efforts Used existing contacts: Industry Morgan Stanley HBS</p> <p>IMPACT MEDIA productions</p> <p>Heathers Efforts Depended too heavily on Arden -- was introuble when they fell through. Money raising effort with private investors -- Never gave them a deal to respond to.</p> <p>IMPACT MEDIA productions</p> <p>PROS PROS</p> <p>Heathers Business Plan Capitalizes on momentum -Gets key points out in executive summary: Incorporated Have a line Hired and paid people Have factor Have building Have production capabilityIMPACT MEDIA productions</p> <p>PROS PROS</p> <p>Heathers Business Plan Leaves no doubt in investors mind that this is going to happen. Only issue is will it be with my money? Lays out unique qualifications of Heather and concept:</p> <p>IMPACT MEDIA productions</p> <p>PROS PROS</p> <p>Heathers Business Plan Concept based on: Personal experience; New look, unmet market need; Professional management ability</p> <p>IMPACT MEDIA productions</p> <p>PROS PROS</p> <p>Heathers Business Plan Excellent understanding of: Customer needs Competition Market / Channels of distribution Positioning relative to these</p> <p>IMPACT MEDIA productions</p> <p>PROS PROS</p> <p>Heathers Business Plan Lays out upside: High sales growth High profit margins Large market -- 4.3 million women, $5 billion Growing market Diversification -- Accessories, leisure clothing, licensing, etc.</p> <p>IMPACT MEDIA productions</p> <p>PROS PROS</p> <p>Heathers Business Plan Lays out time sequenced plan with numbers attached: Hire bookkeeper Hire office manager Hire showroom personnel Shipping employee</p> <p>IMPACT MEDIA productions</p> <p>PROS PROS</p> <p>Heathers Business Plan Plan is: Short Well organized Easy to read</p> <p>IMPACT MEDIA productions</p> <p>CONS CONS</p> <p>Heathers Business Plan Financial statements poorly presented: Only 2 years Not well organized This reads like a preliminary document -- much more work is needed.</p> <p>IMPACT MEDIA productions</p> <p>Financing Options Arden &amp; Company Dont put any more time into this dead-end. Giving her the runaround Typical indirect no.</p> <p>IMPACT MEDIA productions</p> <p>Questions to be asked</p> <p>IMPACT MEDIA productions</p> <p>What should Heather do? Are her terms reasonable? Control--She wants 50%+ Puts a value of more than $500K at start-up Values Heathers sweat equity at more than $250K She is the company, to control company, you must control Heather</p> <p>IMPACT MEDIA productions</p> <p>What should Heather do? Are her terms reasonable? License: Wants to license name to company, rather than let company own it. If she walks away from company, have investors built her name and then she walks off with upside?</p> <p>IMPACT MEDIA productions</p> <p>What is the value of the business Liz Claiborne gives some idea: Went public at $19/2.22 = 8.6 P/E Evans Proj. 1985 earnings = $167, 173 $167 * 8.6 = 1,437,700/(1+.5)2 Must value to price!</p> <p>IMPACT MEDIA productions</p> <p>What is the value of the business In addition to value, must resolve other issues: Exit route: Forced registration right (at time interval -- at earnings/sales level); Payback; Put; Call.</p> <p>IMPACT MEDIA productions</p> <p>What is the value of the business In addition to value, must resolve other issues: Control: With equity; Voting vs. non-voting shares With board members; rights to appoint Staggered by performance goals (Heather can buy if met, investors can take if not met)</p> <p>IMPACT MEDIA productions</p> <p>What is the value of the business In addition to value, must resolve other issues: License: Term Royalty Option to renew at fixed terms</p> <p>IMPACT MEDIA productions</p> <p> Raised $250,000 for 40% of equity from friends and HBS classmates. Gave company 3-year royalty free license on her name. Gave investors a put on their stock at a multiple of earnings in years 3 and 4.IMPACT MEDIA productions</p> <p> First line sold well -- She used contacts for free publicity, etc. First line did not sell through, she could not sell second line. She would have been successful if designs had sold!IMPACT MEDIA productions</p>