Read the case study with its supporting information, make business decisions related to the case, and suggest research needs that result from your interaction with the case. Directions:Review the information in “DBA-820 Integrated Case Study” located in the Course Add-Ons for this course. This includes narrative information as well as financial and supporting documentation.Consider the questions presented in the case study, and formulate decisions based on the information and documentation in the case study. Support your decisions with appropriate current (within the last 3 years) or foundational, peer reviewed, and professional research as well as financial analysis including the instructor feedback from your Topic 2 assignment.Write a paper (1,500 words) that addresses the case issues, expresses your decisions regarding the case questions, and integrates instructor feedback from your Topic 2 assignment. In your paper, include the following:A summary of the current environment as presented in the case. (Note: Information from the case study does not require a reference note or in-text citation.)A summary of the business issue, emphasizing the financial concerns, from the case. Integrate specific feedback from your instructor regarding your summary of the financial issue.A review of at least two viable potential resolutions and the supporting research and financial analyses you presented in your Topic 2 assignment. Integrate specific feedback from your instructor regarding the proposed resolutions.A research-supported discussion of the ethical implications of each option and the extent to which these ethical implications are influenced by the mission, vision, and core values of ABCTech. (Reinforces C.2.6: Incorporate ethical considerations when recommending complex business decisions.)An overtly stated, research-supported recommendation for resolution chosen from the potential resolutions you described and a rationale for the recommended resolution. How does this influence the provided profit/loss statement and/or other financial criteria and statements? (Reinforces C.1.3: Develop, extend, modify, or apply theories for use in business.)A discussion of future research that you could conduct relative to these issues.College of Doctoral Studies
DBA-820 Integrated Case Study
In this course, you will interact with Part I of a multi-year, integrated case study experience. This
part of the case study focuses on financial issues and related ethical decisions.
The Case
Software producer ABCTech maintains a simple organizational structure with its two
partners/employees carrying out all of the daily operational tasks of the business including
research and development (R&D), marketing, accounting, and production. Thunder Thompson
is the founder/CEO, and Chris Christianson is the co-founder/COO. Both men continue to work
for a large computer programming organization during the day while starting ABCTech during
the evening hours. So, neither is drawing a salary form ABCTech at this time. Based in the
founder’s garage, the company is on track to post revenues of approximately $250,000 after the
first year of operation, and the partners believe the company valuation can soar into the
hundreds of millions of dollars over the next several years. With the local economy assessed as
being favorable to the support and growth of the company, the partners believe that revenue
will double next year to $500,000. Therefore, they are considering borrowing $250,000 to
improve cash flow and hire additional staff including a sales and marketing manager to increase
product sales and boost revenue. The partners are fully committed to the concept of the
company and the quality of its product, and they believe that the company is strong for a
firstyear startup and moving in a positive direction despite the higher than normal expenses
associated with the first year of business. They believe the loan will allow them to survive until
the increased emphasis on sales yields a larger client base and makes the company strong
enough to stand on its own.
While previewing the required documentation list to secure the loan, the partners begin to fear
that the ratio of expenses to revenue may be too high for the lender’s preference. While the
revenue of the company looks good, expenses are high as one might expect in a startup
company. Nonetheless, the partners are preparing carefully the financial records to present to
the lender in order to procure the capital to improve cash flow in the short term.
As the partners consider the loan application and its preparations, they are approached by a
large, well-established software company with a lucrative offer to buy ABCTech in its entirety
for $500,000. The buyout would make the founders moderately wealthy in the short term and
provide them with employment in the acquiring company. Nonetheless, the long term potential
revenue from continuing to grow the startup company is significantly greater than the value of
the proposed purchase and employment package. Continuing the startup means a more
difficult and risky road for the partners including continuing to find and invoke creative
reporting methods to secure necessary short-term funding. However, the buyout would mean
accepting less money than the company could potentially generate over time and eliminating
plans to hire the sales manager.
Questions to Consider
•
Should the partners continue their business expansion plans including procuring the
operating loan? Why or why not?
•
Should they take the buyout offer? Why or why not?
•
Which is the more ethically reasonable choice? Defend your position by establishing a
theoretical foundation using current (within the last three years) or foundational
references.
Background Information for ABCTech
General Information
In 2016, ABCTech was founded by two best friends, Thunder Thompson (CEO) and Chris
Christianson (COO) out of Thunder’s garage (see biographical information below). Both men
continue to work for a large computer programming organization while starting ABCTech.
Although their specialty is application design, they understand the importance of safe data. As
cybercrimes increased over the past few years, Thunder and Chris, came up with an idea which
would change data and personal security. With just a few dollars in their pockets raised from
family and friend investments as well as using the maximum amount available on some credit
cards, they set out to build the necessary architecture that would provide them the opportunity
to become the next technology magnates. As they got closer to an end-product, they started
marketing their product and were surprised how sales were growing each month as they
headed for a quarter million dollars in revenue their first year. Being programmers by day and
new entrepreneurs by night, Thunder and Chris quickly learned there was much they did not
know about business, especially sales, so they considered hiring their first official employee, a
sales manager, at the beginning of year 2.
Mission
ABCTech exists to create an affordable computer security product for every person.
Vision
A world protected from cybercrime and personal security breaches.
Core Values
•
Honesty
•
Integrity
•
Diversity
© 2016. Grand Canyon University. All Rights Reserved.
•
Agility
•
Safety
Competitive Analysis
ABCTech’s product is completely different than any other software security application offered
in the market. ABCTech offers an elegant product solution that is implemented with a single
update to the user’s computer operating system thereby bypassing the need to distribute daily
updates to address new security threats. The simplicity of their solution circumvents the
necessity to acquire capital to build or acquire extensive infrastructure along with the addition
of high-priced support staff.
The market for data security is a well-established market led by several well-known dominant
companies that focus both on the consumer and business markets. Vendor reputation and
brand perception influence customer purchase decisions to a greater extent than product cost.
To continually promote brand safety, dominant companies expend a significant portion of their
budget on advertising and marketing expenditures.
Dominant companies offer single user licenses, enterprise contracts, and even customized
safety applications. They have built large, expensive technical infrastructures enabling them to
distribute daily security updates as needed. These companies have national and international
presence and are well respected. They are financially profitable and are perceived by their
customers as offering products that provide great value.
Member Biographies for ABCTech
Thunder Thompson, CEO and Co-Founder
Thunder Thompson is co-founder of ABCTech. As the CEO of ABCTech, Thunder is focusing on
the company’s growth and technology strategy. Thunder has a B.A. degree in computer
programming and a passion for creating safe data products and applications. He brings over 10
years of experience in enterprise IT software, data analytics, security, and knowledge of
cybercrime. Thunder also has experience in technical operations and cloud and data platforms.
Thunder is new to being an entrepreneur but is excited at the prospects of making a difference
in the technology world with the company’s safe data products. Thunder believes in ABCTech’s
vision: A world protected from cybercrime and personal security breaches.
Chris Christianson, COO and Co-Founder
Chris Christianson is the co-founder and COO of ABCTech. He is also the Chief Marketing Officer
for the company. He is responsible for growing the company’s revenue. Chris has 12 years of
experience in HTML, Java, Python coding, and product development. Chris is trained in software
development, product development, and product marketing and hods a B.A. degree in
computer programming and has certification in marketing and product development. Chris is
also new to entrepreneurship but has a passion to see ABCTech and its products succeed. Chris
© 2016. Grand Canyon University. All Rights Reserved.
believes the company can achieve its mission: To create an affordable security product for
every person.
© 2016. Grand Canyon University. All Rights Reserved.
Organizational Charts for ABCTech
Initial Two-Person Structure
Expanded Structure (includes Sales Manager)
Year One Financial Statements
Statement of Operations
ABCTech LLC
Statement of Operations
For the year ended December 31, 20XX
© 2016. Grand Canyon University. All Rights Reserved.
Year 1
Revenue
$
250,000
Operating Expenses
Cost of revenue
50,000
Cost of revenue, related party
30,000
Research and development
60,000
Sales and marketing
20,000
General and administrative
22,500
Total operating expenses
182,500
Income from operations
$
67,500
Interest expense
Related party ($148,000 @ 2.3%)
3,404
Credit card ($123,500 @ 28%)
34,580
Total Interest Expense (Note 1)
$
37,984
Net
Income
$
29,516
© 2016. Grand Canyon University. All Rights Reserved.
Note 1: Average Cost of Capital is approximately 14%
Balance Sheet
ABCTech LLC
BalanceSheet
December 31, 20XX
Year 1
Assets
Current Assets
Cash and Cash Equivalents
$
20,500
Accounts Receivables
150,000
Work in Process Inventory
Prepaid Expenses
250,000
42,016
Total Current Assets
462,516
Property Plant & Equipment (at
cost)
Fixtures and equipment
Less Accumulated Depreciation
250,000
110,500
© 2016. Grand Canyon University. All Rights Reserved.
Property, Plant & Equipment,
net
139,500
Total Assets
$
602,016
Liabilities and Member’s Equity
Current Liabilities:
Accounts Payable
Advance Payment on Orders
$
162,000
93,000
Other Current Obligations
46,000
Total Liabilities
301,000
Member’s
equity
(deficit)
Members’ contributions
271,500
Net Income
Total Liabilities and members’ equity (deficit)
29,516
$
602,016
© 2016. Grand Canyon University. All Rights Reserved.
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