and private sponsors.
VALUABLE BUSINESS LESSONS
The Zenith exercise was a class highlight. The class was broken up into four teams, drawing from lessons learned throughout the week on cost analysis, profit margins, forming alliances, marketing, and negotiation. Two teams worked for competing electrical appliance vendors: Zenith and our competitor, Ace Fixtures, a low-cost manufacturer that could undercut our prices but couldn’t match our quality. The other two teams headed up restaurant chains that were opening 2,000 new locations. The object was for the vendors to secure a contract ensuring the growth of their business, while the purchasers sought the best quality items at the lowest price.
There were heated debates — even arguments — as students scrambled to achieve their objectives through back-room dealings (some deemed illegal), non-compete agreements, and strategic alliances. Our team analyzed potential customers to determine their needs and calculate the price at which we could deliver. We worked at a feverish pace to do the math, set the prices, hammer out the contract, and meet the deadline. At the last minute, our team landed one of the two contracts and formed a joint venture with our competitor to manufacture a line of revolutionary high-tech dishwashers, for which they had the manufacturing and distribution rights but not the production capabilities. Ou
r firm would keep 90% of future profits. We also maintained all sales and distribution rights for the dishwashers and used that as a selling point when we approached the customers. By the way, this winning strategy was my idea.
One enlightening experience came during the final exercise of the week. The class was broken into groups of two. One person had to negotiate the maximum price possible for a factory; the other, the purchaser, was attempting to buy low. Details on the operations were provided, including reasons for buying and selling. As the seller, I partnered with Pamela McCauley-Bell, president and CEO of Tech Solutions Inc., an Orlando, Florida-based provider of industrial engineering services. We sat down and immediately began haggling. I was looking to sell the operations for $18 million and settled on $15 million (I merely added up the value of the equipment and the real estate to come up with that figure and tacked on a few million for good measure). In fact, the entire class sold the factory for $14 million to $18 million.
Once the exercise had been completed, Greenhalgh pointed out that virtually every seller neglected to ask the purchaser a simple question: Why were the purchasers looking to buy the factory? A few questions and simple financial analysis based on information in the two-page handouts given to each team (purchasers and sellers were given different information) showed that the purchaser would have actually spent much more for the operations.
It was a most valuable lesson for the entrepreneurs and a business writer like me who covers transactions on a regular basis. There’s often a fine line between entrepreneurial success and failure. The proper education can make all the difference.
Executive education programs are important tools