Small Business Management (17th Ed) Quiz Chapter 1


New York Businessman Trades Banking for Laundry StartUp

In 2010, corporate businessman Robert Hennessy traded his job as a research analyst at a New York hedge fund to start his own company, a high-tech laundry service on Manhattan's Upper East Side. Hennessy, who grew up in Atlanta and moved to New York in 2008, pursued banking for just two short years before starting his own company. What inspired the career change? Hennessy simply saw a need in the market and felt called to respond:

It always baffled me that dry cleaners had the same hours as most hard-working New Yorkers and were closed on Sunday. Not many of us without laundry [service] in our apartments have three hours to spend washing our clothes.

The strength of the business idea that Hennessy identified lies in the inelasticity of demand for dry-cleaning services. As he explains, "You're going to breathe, you're going to get dirty, you're going to need to clean those clothes."

What initially began as a simple coin-operated laundromat grew into a business currently known as DashLocker, a round-the-clock dry-cleaning and wash-and-fold service. DashLocker operates as a kiosk system that enables customers to lock and unlock laundry bins with a credit card at any time of day. This allows them to drop off and retrieve laundry after traditional work hours have ended.
By simply registering a credit card online, customers are granted immediate access to the lockers. This type of access allows the storefront to be unstaffed throughout the day, minimizing operating expenses. The locker technology takes photographic inventory of the laundry so that no clothes are lost. Within 24 hours of drop-off, customers receive an e-mail or a text informing them that their 
laundry is ready for pick up.

The technology is powered by San Francisco–based laundry startup, Laundry Locker. Hennessy spent a year petitioning the company to allow him to license the software. His perseverance paid off. In the first month of operation, the store generated almost $6,000 in sales and served over 100 customers. Within three months, monthly sales grew to $13,500. Since then, Hennessy has opened other locations.

The company targets "tech-savvy 20- to 40-year-olds with discretionary income." Prices for DashLocker services are at the upper end of dry-cleaning rates. Wash-and-fold services are priced at $1.25/pound, and dry-cleaning services are priced at $6 for pants and $2.25 for pressed shirts.
The business maintains strong growth potential, as lockers have the potential to be installed just about anywhere. Currently being considered are apartment buildings, gyms, and parking garages. Hennessy has also expanded services to include shoe shining and delivery.

DashLocker is committed to a social mission. It seeks to employ green, earth-friendly technology in its operations. The company's GreenEarth dry-cleaning machines use liquid silicone rather than perchloroethylene (perc). Hennessy describes liquid silicone as "liquefied sand that when broken down, deteriorates into sand, water, and carbon dioxide—natural elements whose exposure doesn't put anyone at risk." DashLocker not only seeks to transform the Manhattan laundry landscape but to shrink its carbon footprint globally.

1) Which entrepreneurial term best describes Robert Hennessy 

A. Founder
B. Corporate refugee
C. Reluctant entrepreneur
D. Franchisee

2) What could Robert Hennessy do to additionally contribute to his business’s social mission?

A. Charge customers a premium for using green services  
B. Donate a portion of profits to charity
C. Provide customers with a loyalty card
D. Give employees an extra day off every quarter

3) Why might DashLocker be considered a social entrepreneurial venture?

A. They use earth friendly technology.
B. They do not focus on making a profit.
C. They bring together diverse customers.
D. They donate a portion of their profits to charity.


Passion and Creativity Led to a High-Growth Startup That Had to Start Again

In 2005, several individuals with experience in the outdoor clothing industry met at Portland's Urban Grinds coffee shop to sketch out their new retailing concept. Their idea was to combine the ecofriendly and mountain-climbing chic of Patagonia with the fashion-forward urban cool of, say, Prada. Not only would their clothes be practical on the trail, but they would look sleek and hip in the city as well. The firm, to be named Nau (pronounced now), would design its own fabrics with new sorts of ecofriendly materials. Even Nau's retail outlets—the business plan called for 150 of them—would be constructed from recycled wood and plastic. The team also decided to donate 5 percent of sales to worthy nonprofit organizations that buyers would choose. The clothes would be pricey, but shoppers would feel good knowing that by buying a $40 T-shirt or a $350 jacket, they would also be supporting a charitable cause.

Chris Van Dyke would be the firm's CEO and Ian Yolles would become its marketing chief. Formerly, Van Dyke and Yolles had worked as marketing executives at Patagonia and Nike, respectively. Mark Galbraith, recently a top Patagonia designer, would be the lead designer for Nau.
The founders' timing was impeccable, or so it appeared. The green movement was in full swing, and a booming economy was giving rise to a sort of mass philanthropic movement. But Nau also had its eye on running a successful business. Stores would be about half the size of typical specialty apparel stores, with tiny inventories, representing a huge cost savings. To make these small stores work, Nau would offer shoppers a 10 percent discount at the register in exchange for Nau's shipping clothes from its warehouse directly to their homes. Customers went wild when the first stores opened in March 2007 in Portland, Oregon; Chicago, Illinois; and Boulder, Colorado.

The founders intended for Nau to be more than merely another clothing company—they wanted to make meaning (mentioned in Chapter 1 as one possible reason for starting a business):
We're a small group of people committed to [using] the power of business as a force for change ... seeking to balance the triple bottom line: people, planet, and profit. We believe that doing good and doing good business are one and the same. We only deserve to exist if our products and our practices are capable of contributing to positive, lasting, and substantive change. Our goal: To demonstrate the highest levels of citizenship in everything we do: product creation, production, labor practices, the way we treat each other, environmental practices, and philanthropy. We believe that companies have a broader responsibility than simply generating profit. That's one reason we're blending profitability and philanthropy, what we believe is the new measure of success.

As an example of Nau's uniqueness, company bylaws prohibited any Nau executive from earning more than 12 times what the lowest-paid U.S. worker earned.
In planning for a successful venture, Nau's management believed that a key factor would be its design philosophy:

We believe great design has enormous power and we're trying to use it to change the world, one sustainable fabric at a time. Our design philosophy is built on the balance of three criteria: beauty, performance, and sustainability. Far from mutually exclusive, the integration of these concepts defines a new standard for apparel. Many people make exceptional clothing that embraces one of those criteria. A select few manage to combine two of the three, at the most exacting levels. As far as we know, no one has made a dedicated effort to integrate all three with unflagging commitment to each.

The Nau team wasted no time ramping up. Among its moves: investing in an IT infrastructure powerful enough to handle $250 million in annual revenue and striking deals with fabric makers in the United States, Hong Kong, and elsewhere in Asia. By 2007, Nau had opened five stores in Portland, Bellevue, Chicago, Boulder, and Los Angeles and had started construction on another four stores. To finance the company's growth, the management raised an amazing $35 million from private investors.

While the company was experiencing phenomenal growth, troubles soon began surfacing. On May 2, 2008, with little, if any, warning, a statement on the company's website announced that the company would be shut down. The announcement read, "Goodbye for Nau," blaming a "highly risk-averse" capital market for the shutdown. "We simply could not raise the necessary funds to continue to move forward," the statement read. "We believe this is not so much a reflection of the viability of our business, but the result of an unfortunate confluence of events." All the stores were closed, and the firm's 95 employees were dismissed.

Nau's leadership had assumed that additional financing would be available for future growth. Then the credit crunch hit. With no recourse to bank financing, the team implored its biggest investors for additional funding. But the investors who had been so generous just a few months earlier were no longer interested in investing more money in the business. "Everyone on the board understood we had gotten in too far to turn around and pare this thing down," says Gomez, then board chairman of Nau. The money was gone. The board voted to close down Nau's stores and suspend all business.
Nau's management was stunned. The day after the closure, Yolles and Galbraith contemplated life after Nau and felt a deep emptiness. "We had poured everything into this," says Yolles. "I just could not believe it would end—and end so quickly." Galbraith looked over his designs and wondered how well they would have sold. "We had only one season to get traction," he says. "If we had just gotten one more season, then we would have been OK."

After the board put Nau into liquidation, Van Dyke organized a buyout effort to acquire the Nau brand and its website. His plan was to relaunch Nau. Yolles and Galbraith, like Van Dyke, also remained committed to seeing the Nau brand and what it represented continue. "We recognized there was incredible value in the product and in the brand," says Yolles.

In addition to Van Dyke's efforts, Yolles and Galbraith set out to find a buyer who would keep the business going. They first went about preserving business relationships. "We called up factories," says Galbraith. "They agreed to hang on for a period of time to see if something could get resurrected." To attract a buyer, they decided they would need to overhaul Nau's business plan, which they realized had been too idealistic and too ambitious. Rather than attempt to ramp up a huge number of stores, they decided that Nau should grow slowly and organically. They also blamed themselves for how they had run the company. They could have gotten into wholesaling. The website could have been stronger. Perhaps they had overextended themselves by offering too many styles. No aspect of the business was left unexamined.

After dozens of inquiries, Yolles and Galbraith got the attention of Gordon Seabury, the CEO of Horny Toad, a large casual-clothing line in Santa Barbara, California. They felt Horny Toad's outdoorsy image could be a good fit for Nau. And they liked linking the Nau brand to the back-office support and infrastructure of a successful apparel maker.

Seabury's initial reaction was lukewarm: "I still wasn't clear about how we could help." But on a visit to Nau's headquarters, Seabury liked what he saw. He offered to purchase Nau, trumping Van Dyke's bid and several other bids. Seabury also agreed to hire Yolles and Galbraith, who would continue in their same positions.

Currently, Nau's line shares Horny Toad's distribution network and is being sold in such stores as Uncle Dan's in Chicago and Paragon in New York.

1) In what way were the Nau founders concerned with entrepreneurial legacy?

a. They believed that they had a broader responsibility than simply generating profit
b. They planned to seek a second round of funding from investors.
c. They sought to grow rapidly so they could franchise.
d. They recognized that they could be leaders of the green movement.

2) What was the entrepreneurial team’s motivation for starting Nau?

a. Personal fulfillment (Not sure)
b. Independence
c. Personal satisfaction
d. Financial rewards

3) What type of entity is Nau?

a. A franchise opportunity
b. A social entrepreneurship
c. A lifestyle business
d. A microbusiness
4) Which of the following is a reason someone might want to start a business for personal fulfillment?

a. Intellectually challenging
b. Recognition and respect
c. Passion for firm's product or service
d. Sense of belonging and working together

You Make the Call Situation 1

You are a senior manager of strategy and business development at American Express, and have no plans to start your own company. But you have just been given the opportunity to become the director of business development and marketing at a startup company. You believe the opportunity would build nicely on your experience at American Express. You have become excited about the opportunity. After all, you would be a position to make things happen. But you recently read an article that advised middle managers not to be too quick to leave a bigger company where they are gaining experience and moving up in the ranks.

1) Why might it be inadvisable to take a job with a startup company?

A. Startups have difficulty focusing on customers.
B. Startups cannot be as flexible as large corporations.
C. Startups are often unable to innovate like large corporations.
D. Startups offer less certainty than large corporations

2) What would be an added incentive for leaving a position at American Express to work for a startup company?

A. Receiving equity in the startup
B. Getting a matching salary with the startup
C. Receiving comparable vacation days from the startup  
D. Being offered similar benefits from the startup

3) What is the general focus of the discretionary type of responsibility?

a. Be profitable
b. Avoid questionable practices
c. Obey all laws and adhere to all regulations
d. Be a good corporate citizen and give back

PortionPac Chemicals

Integrity and Stakeholder Relationships

PortionPac® Chemicals was founded on social and environmental principles. Since 1964, sustainability led the business, their products, their relationships, and their success. Decades before it became a buzzword, PortionPac's founders, Syd Weisberg and Marvin Klein, believed in the value of sustainability and what it meant for the environment, the industry, and the people who lived and worked in both. Built on a foundation of environmental stewardship and social responsibility, PortionPac continues to strive toward creating the world's most sustainable solutions for clean buildings.

For PortionPac, being a leader in sustainability means considering the impact of everything they do, across all operations. Sustainable thinking permeates the entire company. This orientation shows up in the company's solutions, its facility, and its founding principles. PortionPac has always seen sustainability as an opportunity: a way to differentiate itself from the competition and a chance to do their part. This has never been viewed as a hindrance or an expense—it's just the way business is done. With premeasured packaging, safer product systems, and ongoing education, PortionPac's sustainable solutions help improve people's health, the environment, and the customers' bottom line.
PortionPac believes strongly in the critical work and tremendous effort of housekeepers, janitors, and food service professionals. The firm's goal is to make effective cleaning products that offer maximum safety for their employees to produce and for their clients to use. The company also holds itself accountable to the end-user and recognizes its role in health and safety.

In the early years, PortionPac had opportunities to enter lucrative markets where toxic cleaning products were commonplace. But rather than make standard dangerous germicides, the firm's founders opted for safer alternatives. In doing so, they demonstrated that less toxic options could actually be more effective at cleaning and disinfecting. It took years, but convincing the industry to make the switch became one of the company's founding principles and underscored the owners' commitment to worker safety.

PortionPac's commitment to the health and well-being of customers goes beyond manufacturing safer products—at the heart of the company's mission is education. PortionPac was the first chemical company in the cleaning industry to emphasize educational materials for the proper use of cleaning products as the most effective method to guarantee worker safety, boost productivity, and reduce error. By using international symbols and color-coding, simple to understand audiovisual materials, and interactive programming to teach customers and staff how to clean better, more safely, and with fewer chemicals, they've achieved this goal.

You won't find a separate "green" division within PortionPac because the entire company is committed to creating the world's most sustainable solutions for clean buildings. Its goal has always been to reduce the company's environmental footprint by decreasing the energy used in the production and distribution of its products, minimizing the adverse effect of its cleaning detergents on the environment, and avoiding the use of improper cleaning procedures that can turn out to be ineffective or even unsafe.

Caring about the environment and putting people first sounds like a pretty good way to do business, and PortionPac demonstrates every day that it's also great for a company's financial success. While growing the firm's operations, its owners have always considered the "triple bottom line" of social, environmental, and economic balance while growing operations. They made the conscientious decision before starting the company to continually improve environmental standards and the human condition—all while remaining profitable. That's why the company is recognized today as a leader in sustainability.

As more and more companies look for green products and consider the "3 P's" of people, the planet, and profit, it's clear—whether by regulation or recognition—that sustainability considerations are no longer just a smart way of looking at the world: it's becoming a practical way to run a profitable business. PortionPac helps organizations find sustainable solutions for their janitorial and sanitation needs. With over 40 years of experience connecting sustainability, accountability, and cleaning, they know the best solutions continually evolve, adapt, and improve. Because every company is different, they collaborate with clients one-on-one to create custom programs that work for them.

1) How has PortionPac’s commitment to environmentalism helped them throughout the years?

A. They have easily been able to open operations in new markets 
B. They have been able to market themselves as a “green” company (Not Sure)
C. They have been prepared for new environmental regulations.
D. They have been able to open a “green” department to focus on environmental initiatives.

2) What type of company is PortionPac?

A. A company with a foundation of stewardship and social responsibility
B. A company that focuses on growth and assumes profits will follow
C. A company focusing on profit and, whenever possible, environmentalism
D. A company that stays small by focusing on the triple bottom line (Not Sure)

How has PortionPac been able to maintain its integrity for decades?

A. By creating custom solutions for each customer
B. By using international symbols and simple visuals
C. By transitioning from using toxic materials to using environmentally friendly ones
D. By opting for safer options, even though using toxins would have been legal

You Make the Call Situation 1

Sally started her consulting business a year ago and has been doing very well. About a month ago, she decided she needed to hire someone to help her since she was getting busier and busier. After interviewing several candidates, she decided to hire the best one of the group, Mary. She called Mary on Monday to tell her she had gotten the job. They both agreed that Mary would start the following Monday and that she could come in and fill out all the hiring paperwork at that time.
     On Tuesday of the same week, a friend of Sally's called her to say that she had found the perfect person for Sally. Sally explained that she had already hired someone, but the friend insisted, "Just meet this girl. Who knows, maybe you might want to hire her in the future!"

      Rather reluctantly, Sally consented. "Alright, if she can come in tomorrow, I'll meet with her, but that's all."

      "Oh, I'm so glad. I just know you're going to like her!" Sally's friend exclaimed. And Sally did like her. She liked her a lot. Sally had met with Julie on Wednesday morning. She was everything that Sally had been looking for and more. In terms of experience, Julie far surpassed any of the candidates Sally had previously interviewed, including Mary. On top of that, she was willing to bring in clients of her own, which would only increase business. All in all, Sally knew this was a win-win situation. But what about Mary? She had already given her word to Mary that she could start work on Monday.

1) What should Sally do to support her interests as the primary stakeholder?

A. Hire both Julie and Mary, and hope that Mary declines the offer.
B. Hire Julie and tell Mary a better candidate was found
C. Hire Mary but consider Julie for future positions
D. Hire both Julie and Mary and keep only the one who performs better (Not Sure)

2) Which hiring decision should Sally make to maintain the company’s integrity?

A. Hire Julie and tell Mary a better candidate was found
B. Hire Mary but consider Julie for future positions
C. Hire both Julie and Mary and keep only the one who performs better (Not Sure)
D. Start the search over again to be fair to both candidates

Firewire Surfboards

Positioning a Startup to Compete

In 2005, Mark Price partnered with friends to create a new generation of surfboards designed for both weekend waterdogs and the best surfers. The San Diego–based company that they launched is called Firewire Surfboards, but it remains to be seen whether the sport's greatest devotees will catch the wave that Price and his young enterprise have created.

Lighter and stronger than traditional polyurethane surfboards, Firewire surfboards "embody the balance between cutting-edge technology, passion and performance." The core is shaped from lightweight expanded polystyrene, which not only reduces the weight, but also allows for rapid changes in direction and greater responsiveness during railto- rail turns. The skin is made from an aerospace composite, a durable material that is also used to manufacture wind turbines. Other innovative and hi-tech materials go into the production of these boards, making them lighter, stronger, and substantially more environmentally friendly than traditional boards. The combined effect of these materials creates a surfboard that flexes, storing energy during turns and thereby increasing performance over traditional rigid surfboard designs.

So what's stopping the company's boards from becoming the new standard for surf enthusiasts? In a word, tradition. At first, all of Firewire's boards were pre-made and came in "off-the-rack" sizes, a practice that a certain percentage of hard-core surfers can't accept. They want custom-shaped boards. In response to this demand, Firewire decided to introduce a custom board line in late 2010.

The company's custom boards cost the same as the stock boards, with only a small upcharge of $75 to cover the extra attention required. There are over 150 models of stock boards, ranging from a multitude of shortboard scalpels to the 9-foot Flex Flight longboards, with a standard price of $650. This is very much in line with the boards offered by Channel Island boards (a competitor and considered the current market leader in high-performance shortboards), which sells its models for $650 to $675. Price contends that the only real difference between the two is performance, with Firewire offering flexibility and maneuverability never seen before. One reseller in New York applauds Firewire for "using technology to benefit surfers rather than its own [bottom line]."

Steve Pezman, publisher of Surfer's Journal, comments that "materials have always led the advances in surfboards. If [Firewire] gets into lighter, stronger, more flexible dynamics that make the performance more desirable over hand-shaped boards, then those older boards will be toast."

Initially, all Firewire surfboards were made in Australia and San Diego; however, to keep the boards reasonably priced, construction had to move to Asia. The company built its own factory in Thailand from scratch, which allowed it to control quality and protect its technology. The firm also adopted a Western style of management, creating a positive working environment for all of its employees. Product design, research and development, and testing are still performed in Australia and San Diego. Price says that Firewire's most challenging feat was the development of the step-by-step board-making process over months of trial and error. "It was unbelievably tortuous, stressful, and expensive," he recalls.

Matt Biolos, co-founder and head designer of San Clemente, California–based Lost Surfboards, liked Firewire's products enough to order 250 of them when they first arrived on the market. Rather than supplying other brands with boards, however, Firewire wants to build its own reputation and brand. Biolos kept pressing Firewire, though, until the company finally relented and agreed to make a batch of Lost-branded and -designed Firewires.

Biolos believes in Firewire surfboards, but understands the difficulty of getting other surfers to convert. "As long as we remain steadfastly spoiled with our ability to order custom surfboards, Firewire will always come in second," he predicts.

Firewire is winning over its share of admirers. After giving one of the company's designs a try, marketing manager Chuy Reyna was so impressed that he actually quit his job of 14 years to join the company in 2007. "It's rare to have that much difference in product," he observes. "This marketplace has been saturated with a level playing field of boards. This is so overdue."

Teen surfing sensation Dusty Payne won the 2009 Kustom Air Strike best-aerial contest on a Firewire board, leaving an audience dumbfounded by the mesh of talent and board capabilities. Payne launched off a wave, spun 360 degrees, and landed with ease, demonstrating that video game–like stunts can be performed in real life.

Taj Burrow rode his Firewire to a No. 2 world ranking the year he was signed as Firewire's professional rider. And Biolos notes that Shea Lopez raves about a riding experience he had on a Lost-branded model of Firewire's product.

There is no doubt about the quality of Firewire surfboards; it will be up to research and development to ensure that performance capabilities outweigh the benefits of a custom shape. This is when the manufactured surfboards will stand to make real progress.

1) How did Firewire attempt to gain market share when it was a new surfboard company?

A. By creating buzz by sponsoring celebrity surfers  
B. By improving the design and the materials used for existing surfboards
C. By offering surfboards at lower prices than competitors offered
D. By becoming an authority by using public-relations tactics to get in magazines
2) Which strategy is represented by the shift from traditional to customizable surfboards?

A. Differentiation-based strategy
B. Focus strategy
C. Niche-based strategy
D. Cost-based strategy

3) In which of the following environments is outsourcing a trend?

a. Sociocultural
b. Global
c. Demographic
d. Economic

4) What is a positive, internal factor of Firewire?

A. The company has its own factory in Thailand to control quality and to protect its technology.
B. Competitors see Firewire an innovative company with quality products (Not Sure)
C. Industry experts have identified Firewire as being on the cutting edge of surfing technology.
D. Professional surfers have responded favorably to the boards and have used them competitively.

The Kollection: From Music Hobby to Startup and Beyond

Brian Lovin is founder of The Kollection, a blog/ website dedicated to emerging musicians and fans who want to know about the newest music available. He explains below, in his own words, how the site got started as a labor of love, with hopes of filling a gap in the marketplace. It wasn't long before The Kollection evolved into a popular online venue for music lovers around the world and a revenue-generating enterprise. Lovin's reflections about the business and his experiences with it provide instructive insights into a number of topics that are relevant to most startups. These topics include recognizing an opportunity, launching the business, dealing with growing pains from enterprise expansion, choosing a strategic direction, and adjusting business models in response to changing conditions.

It was June of 2010, during the year between my senior year of high school and freshman year of college. I was on vacation in Martha's Vineyard, without much in the way of entertainment. Back then, my music tastes largely originated from albums I had previously bought or heard online through services like Pandora. I had heard of music blogs, like Pitchfork, but had never really considered them to be anything worth following.

Around that time, mashups, a type of music combining two or more melodically similar songs into one new hybrid track, were becoming amazingly popular. I remembered how my high school friends always seemed to find the coolest mashups on the web. While relaxing in Martha's Vineyard that summer, I too found myself browsing online for mashups and other music and inadvertently stumbled upon blogs targeted to the college demographic. What immediately struck me about these blogs was their 90's-era visual design, their lack of organization, and their snail-paced downloads. It seemed painfully obvious that these blogs were set up and run by high school and college kids who had stumbled into the world of blogging and were struggling to find their way.

After checking out the blogs that were out there, I knew that I could do better. I was very confident of this because I had three years of web design and development experience under my belt from building blogs and websites for clients. I had learned how to drive traffic, improve search results, write content, etc.

Leaning on this expertise, I pulled up a domain name I had bought the previous year,, installed a quick blog, and began my search for new music online. I ended up finding some songs from lesser-known artists who had put their work online for free. I uploaded those songs to The Kollection, and began sharing them with my friends.

Those first few weeks were pretty slow. I was working hard to find sources of new music that would allow me to post at least one new song each day. Every time I posted a track, a trickle of visitors—just one or two at first—would stop by the site to listen and download. But word spread rather quickly and soon the trickle of hits was growing into a torrent of activity. By August of that year, The Kollection saw 2,800 visits. In September, 85,000 visitors stopped by to find new music. In October, the site had more than 200,000 hits. This rapid growth didn't continue forever, but by 2011 the site was tracking over 30,000 visits per day and nearly 1 million per month.

What had started out as a hobby and a personal project quickly became much more than that. Soon I was worried about being able to pay for our servers (only $200 per month at the time, but enough to be of concern for a college freshman). So in October of 2010, as traffic on the site was growing so fast, I printed my first line of Kollection tee shirts. The design was simple, and quite unremarkable—in fact, it was my first time ever designing for print, so I had to learn quite a lot—but that first batch of shirts sold faster than I had expected.

At that point I was confident that apparel would be a feasible option to make money on the site. We were still growing and gaining a lot of attention, and quickly. Artists begged to be on the site, fans praised the music selection, and people were sharing music across the web. It wasn't unusual for us to give a previously unknown artist tens of thousands of plays and downloads within a day.

In January of 2011, fans began to approach me and ask to write for the site. They saw The Kollection as a fun and worthwhile way to get a taste of the music industry. As a result of the interest, my team of authors grew quickly, peaking at around 15, but finally settling comfortably at around 6 writers in 2012 and into 2013. The team truly made The Kollection possible in 2011 and 2012—they helped me publish thousands of posts to the site in just a few years and upload several new songs per day. We were able to see from our tracking that fans visiting The Kollection were listening to and downloading millions of songs a month. We were revved up and running on a full tank of gas, and it didn't seem like things could possibly slow down.

But slow down they did. As 2011 turned into 2012, more and more college students and high schoolers were learning how easy it was to set up a blog and start sharing music for free online. Blogs began to pop up by the dozens, if not more, within a few months' time. Each of these tried hard to bring a unique essence to the game, but for a music blog with such a simple process, there really isn't much room to expand horizontally. In late 2011 I started to notice that more and more music blogs were consistently posting the same songs as every other site. This meant that the music blogging niche that I was in had become an easily replicable commodity that anybody could copy with very little effort.

So it was time to think more carefully about how to differentiate the site. Through 2011 we were able to make The Kollection stand out from the crowd with our emphasis on minimal design, structured organization, searchability, and speed. We always focused on making it as easy as possible for fans to quickly listen to and download new music. But as 2012 was approaching, other contenders had made headway with their website designs, and it became harder to separate them from The Kollection.
After giving it a lot of thought, I decided to take The Kollection in a few directions, which in hindsight probably caused me to spread the business too thin. First, I hired a company to develop an iOS and Android app so that fans could stream our music from their phones. Second, we spent over $4,000 on a run of tee shirts to expand our line of merchandise. Third, I redesigned and rebuilt the site with a functionality that allowed users to build their own playlists directly on the site, using songs we had posted.

Considered separately, these three avenues all performed very well. Our apps saw more than 30,000 downloads within two months, with fans listening to more than 1 million songs on their phones. Our apparel sold well, too, often with as much as several hundred dollars of merchandise being purchased a day. In fact, we broke even and started to make a profit on apparel within one month. The site redesign was also successful—pageviews continued to stay strong, and fans loved having the ability to build their own customized playlists with their favorite music.

But in early 2012, a few things came crashing down on The Kollection. You see, up until that point we had been using Soundcloud to upload and host all of our audio files. This allowed us to power mobile apps and make the most of the site redesign, while tracking the number of plays and downloads across the network. But, almost without warning, the plug was pulled on all of this due to a handful of copyright complaints. The Kollection has always focused on sharing music available for free from the artists themselves, but occasionally a song would slip through the cracks, one that really should not have been uploaded. As a result, in the first quarter of 2012 we lost our Soundcloud account, and because of that, our mobile apps no longer functioned and the playlist builder on the website could not operate.

We had spent thousands of dollars building The Kollection around Soundcloud, so this was a major disruption to the venture as a whole. We saw traffic stall, and fans became frustrated as a result of the loss of our differentiating features.

But we pushed on. My authors and I revived our core focus of sharing new music with fans around the world. We found failsafe ways to share music (legally) without worrying about copyright issues. We stripped the site down to its core features, removing the ability to build playlists, and we pulled our app from the app stores.

2012 also brought with it a host of new problems for The Kollection. Though services like Pandora had been around for a long time, that year the public's attention seemed to shift quickly toward online radio. Pandora, Spotify, Rdio, and other such services gained enormous traction in the music-discovery market, making it easier for friends to share with one another the music that they came across on the web. The Kollection and other blogs like it had the distinct advantage of being the first to share new music (for example, we could post a new song within minutes of its release), but as soon as these songs found their way into the libraries of big players like Spotify and Rdio, we lost the 
competitive advantage of having this new music.

Throughout 2012 our month-to-month costs remained relatively stable, but our income fluctuated wildly. We were running banner ads on a payper- click basis, earning us anywhere from $300 to $1,000 per month. But at the same time, merchandise sales slowed as inventory dwindled, and I had a hard time making a decision about the best way to move forward with the venture. On the one hand, I was in college and my time was limited, so I knew it was important to focus on one business model and revenue stream. While clothing ultimately made more money, it required a lot more work to design new lines, pack and ship every order, and support customers around the world who had problems with their orders. On the other hand, ads were a passive way to make money and didn't require any extra day-to-day effort. The downside of this option, however, is that the ads didn't generate as much profit as the merchandise, and earning $300 to $1,000 per month was just barely enough to maintain our server costs.

Ultimately, the biggest decision I had to make as the owner was to determine how much time and effort I was willing to invest in the website. It had grown to such a size that I couldn't run it on my own and had to have the help of my team of authors to make it work. At the same time, though, we weren't generating enough revenue to pay them as employees. So, I still needed to decide how to divide my time and effort between school and the venture, and I knew that it was unrealistic to expect The Kollection to continue growing without a new vision and drastic changes that would sufficiently differentiate the site from the competition.

The best road forward for The Kollection is not obvious to me at this point. Some things are nonnegotiable. For example, we still want the site to drive a lot of traffic and remain a respected source in the music blog niche. Also, we definitely want to continue to promote new artists and their music and do this very well, pushing up pageviews and ad sales, but finding an ad platform that will allow us to make significant revenue from the traffic we generate has not been easy. Merchandise sales from The Kollection have been very helpful in the past, but they require a lot of time and attention, and I won't really have much extra bandwidth to give to this as long as I am a college student with a part-time job. This leaves me with some difficult decisions to make, but I am ready for the challenge and look forward to my future as an entrepreneur—no matter what direction it takes.

1) What accounts for the Kollection’s initial rapid growth?

A. Reacting to the sociocultural demand among college-age people for new, free music
B. Creating a music site that was not easily replicated by competitors
C. Taking advantage of the political and legal trends that created an environment of non-regulated streaming music
D. Providing tee shirts to a set of consumers interested in music and design

2) Which mistake did the Kollection make in early 2012 that resulted in a decrease in traffic?

A. Taking down copyrighted music from its site in which users showed a lot of interest
B. Centering business strategies around a single piece of technology that the company did not have ultimate control over
C. Removing the feature that allowed users to create playlists directly on the site
D. Not anticipating the emergence of Internet radio services such as Pandora and Spotify
3) What should Brian do to make the Kollection a more profitable venture?

A. Repair the site’s relationship with SoundCloud
B. Expand the site’s focus to include areas such as film and television
C. Work with a partner that can provide support for the merchandise
D. Buy traffic from a traffic-driving service to increase ad sales

You Make the Call Situation 3

Overcoming jet lag on international trips is crucial to making good decisions when working with overseas counterparts, especially when difficult negotiations are involved. If an executive wants to be refreshed and on top of his or her game, Phillip Sanderson has a solution. Perfect Illuminations, his five-year-old company, has been offering sleep-recovery services through business-class hotels in prime cities around the world. So far, he has worked out deals with eight partner hotels in four cities: New York, Tokyo, London, and Paris. His system provides booths in which guests can bask in 30 minutes of simulated sunshine generated from electronic light boxes. Science has shown that this form of light therapy can help to restore the body’s natural sleep rhythms well ahead of the recovery time that it normally takes to reset one’s internal clock. The price of the service varies, depending on the city and the specific deal worked out with each partner hotel, but the client response so far has been encouraging. Now Sanderson is trying to identify other cities where he can help weary travelers reset their internal clocks.

1) Which strategy did Phillip Sanderson use?

A. A niche-based strategy (Not Sure)
B. A cost-based strategy
C. A differentiation-based strategy  
D. A focus strategy

2) How might Phillip Sanderson expand his sleep-recovery business?

A. By setting up his business in airports, where there may be executives on layovers or taking day trips
B. By focusing on selling his technology to individuals rather than to hotels
C. By licensing his technology to competitors that have deals with competing hotels  
D. By hiring a sales team to try to sell his technology directly to hotels

3) Which of the following is an example of a franchise being able to supply immediate supply lines and purchasing power?

a. A graphic image of KFC’s Colonel Sanders
b. Financial incentives for veterans
c. Access to Hamburger University
d. A pool of money for prime-time commercial spots

You Make the Call Situation 2

Siler Chapman worked in a Pizza Works franchise while he was a student at the University of North Carolina. When he saw people losing jobs in an economic downturn, he decided he'd rather be his own boss than find himself fired by someone else. So he opened (what else?) a pizza place. While building his business, he also found that he had a talent for tossing pizzas and became part of a U.S. team that won the Pizza Olympics in Italy four years in a row.

      Tossing pizzas was fun, and Chapman found it to be a good marketing tool, but he also found the day-to-daymanagement demands of growing a business to be hard. When Chapman was approached by Donato's Pizzeria, he decided to convert his three stores to Donato's franchises. Within two years, his three stores had expanded to fifteen. And Chapman is planning 200 more!

1) Why might the owners of Donato’s ask Chapman to join their franchise?

A. Chapman’s pizzerias have proven viable in the area.
B. Chapman has marketing skills that the franchisors may be interested in receiving.
C. Donato’s would not be able to compete against Chapman’s pizzerias.
D. Franchisors can avoid the initial setup fees of new franchises?.

2) What is the primary reason Chapman might want to convert his stores into Donato’s franchises?

A. To take advantage of the multi-brand franchising Donato’s would offer
B. To avoid competition with Donato’s franchises in the area
C. To offer his marketability as being a champion at pizza-dough tossing
D. To get the management support that comes with franchising

Two Men and a Truck®/International, Inc.

Exceeding Customers' Expectations


In 2007, TWO MEN AND A TRUCK®/INTERNATIONAL, Inc., was recognized on Entrepreneur magazine's list of Top 500 (it was ranked at number 171), named as one of America's top global franchises, listed on Franchise Business Review's "Franchise 50," and selected as one of the top 25 franchises for Hispanics by the National Minority Franchising Initiative. According to the company's website (, it is the first and largest local moving franchise system in the United States and offers a full range of home and business moving services.


TWO MEN AND A TRUCK started in the early 1980s as a way for two brothers to make extra money while they were in high school. Now, over 20 years later, the company has grown to more than 200 locations worldwide.

Brothers Brig Sorber and Jon Sorber started moving people in the Lansing, Michigan, area using an old pickup truck. They had their mom, Mary Ellen Sheets, develop a logo to put in a weekly community newspaper. That stick men logo still rests on every truck, sign, and advertisement for the company. After the brothers left for college, Sheets continued to field calls for moving services while she also worked a full-time data-processing job with the state of Michigan. In 1985, she decided to make things official by purchasing a 14-foot truck for $350 and hiring a pair of movers. That $350 is the only capital Sheets has ever invested in the company. Her experience with data analysis, combined with her commitment to customer service, earned her a spot on a 1988 graduate business panel at Michigan State University. When a fellow panelist suggested she franchise her little company, Sheets decided to consult with an attorney.

In 1989, Sheets awarded the first location outside of Michigan to her daughter, Melanie Bergeron. The office was in Atlanta, Georgia. When the company reached 39 franchises, Sheets asked Bergeron to assume the role of company president while she pursued a seat in the Michigan State Senate. Bergeron is now chair of the board. TWO MEN AND A TRUCK's long track record of aggressive growth continues under Bergeron's progressive leadership and keen business strategies. Her accomplishments have been showcased on the cover of Franchising World magazine and in numerous other publications, including Franchise Times. Brig and Jon Sorber returned to their Lansing roots in the mid-1990s to team up with their mom and older sister. Brig is now the president and chief executive officer, while Jon serves as executive vice president. The first truck that Sheets bought in 1985 has now multiplied into a fleet of more than 1,200 trucks.

Customers benefit from having trained, uniformed movers who are insured and bonded to handle any home move and business moving tasks. The company has come a long way—and logged a lot of miles—since Sheets sketched the first "stick men." TWO MEN AND A TRUCK continues to pave the way for future growth and innovation, while remaining focused on exceeding customers' expectations.

The firm now has more than 200 locations operating worldwide, including 32 U.S. states, Canada, and Ireland. In 2010 alone, with 1,300 trucks currently on the road, the system completed 317,841 moves. The company reached the milestone of 2,000,000 moves in 2005.

Franchise territories are based on population, generally between 250,000 and 420,000 people per marketing area. The initial franchise fee is $45,000, or $85,000 if the franchisee has previously operated in the area. Total startup costs (including facility, trucks, equipment, and other expenses) range from $158,000 to $460,910. Franchisees pay a royalty of 6 percent of gross revenue, plus 1 percent for advertising.

TWO MEN AND A TRUCK has always focused on training its employees with the latest techniques and the best equipment available—and on treating everyone as they would want their grandmother treated, otherwise known as THE GRANDMA RULE®. Before a new franchisee can open a location, he or she must attend a two- week training course in Lansing, Michigan, conducted by home office staff at STICK MEN UNIVERSITY®. There, franchisees are taught by subject-matter experts about the computer systems, how to market their new business, and how to hire, manage, and lead their teams. (Throughout the year, STICK MEN UNIVERSITY offers online classes that cover everything from marketing tactics to leadership to making accurate estimates. Several instructor- led courses are also available online.)

Franchisees also work in a two-story home built inside the TWO MEN AND A TRUCK headquarters. During this portion of the training, students are taught how to maneuver, wrap, pack, and load items such as a grand piano, a china cabinet filled with breakables, glass tables, a washer and dryer, and a flat-screen television. Students are expected to be able to recognize obstacles and empty the house as quickly and efficiently as possible. A truck box, built to scale, is also located in the training facility. Students must be able to fully pack the back of the truck with the items from the home.

Many other tools are available to franchisees, including detailed monthly reports, newsletters, extranet, a system-wide annual meeting, a toll-free support line, a tradeshow booth, a complete line of TWO MEN AND A TRUCK branded clothing and professional marketing materials, and a system-wide purchasing system.

1) From TWO MEN AND A TRUCK’s perspective, why might the company not want to work with a potential franchisee?

A. The potential franchisee does not have prior experience in the moving business.
B. The marketing area that the potential franchisee is interested in is not large enough.
C. The potential franchisee will only pay a 3 percent royalty (Not Sure)  
D. The potential franchisee already operates a TWO MEN AND A TRUCK.

2) If someone were interested in opening a moving business, why might they want to become a franchisee with TWO MEN AND A TRUCK instead of starting a new business?

A. Starting a franchising is less expensive than starting a new business.
B. Starting a franchise requires less research than starting a new business.
C. Starting a franchise consists of less overall work than starting a new business.  
D. Starting a franchise involves receiving ongoing support from the parent company, unlike when starting a new business (Not Sure)

3) How was TWO MEN AND A TRUCK able to franchise?

A. They had large investments (Not Sure)
B. They had a replicable business.
C. The Sorber brothers wanted to expand.
D. Sheets wanted a business for her daughter.