Posted by dora on .
You just received an email from your high school friend, Bill Hudson. You went to college, and then business school, while Bill stayed in your home town. Despite the differences in your paths, you are still very good friends. Bill is considering a life-changing opportunity and needs your help.
Bill was a real craftsman when it came to working with machinery. Bill had learned almost all that he knew from Hugo Huffman, his first and only employer. Bill was married and had three young children. He was 33 years old and had worked for Hugo ever since he finished his tour in the army. In 12 years, Bill had polished his skills under the watchful and critical eye of Hugo. Hugo was quick to recognize Bill's talent for the trade. Bill had a positive attitude about learning and displayed a drive for perfection that Hugo admired.
Hugo's Machine Shop was a successful small business. Its success was based mostly on the reputation for quality that had been established over its 42 years in operation. Hugo had come to this country with his new wife, Hilda, when he was in his late twenties. Now, the business was a success, but Hugo remembered the early years when he and Hilda had to struggle. Hugo wanted the business to continue to produce the highest quality craftsman products possible. On a Friday evening, he called Bill into his office at closing time, poured him a cup of half-day-old coffee, and began to talk with him about the future.
"Bill, Hilda and I are getting old and I want to retire. It's been 42 years of fun, but these old hands need a rest. In short, Hilda and I would like you to buy the business. We both feel that your heart is in this craft and that you would always retain the quality that we have stood for." Bill was taken aback by the offer. He, of course, knew Hugo was getting older, but had no idea Hugo would retire. Bill and his wife, Anna, had only $4,200 in the bank. Most of Bill's salary went for the normal costs of rearing three children. Hugo knew Bill did not have the money to purchase the business in cash, but he was willing to take a portion of the profits for the next 15 years and a modest initial investment from Bill.
Bill had, for the past four years, made most of the technical decisions in the shop. Bill knew the customers and was well respected by the employees. He had never been involved in the business side of the operation. He was a high school graduate but had never taken business-oriented courses. Hugo told Bill that even after deducting the percentage of the profits he would owe under the sales agreement, he would be able to almost double his annual earnings. Bill would have to take on all the business functions himself because Anna had no business training either.
Send Bill an email addressing the following:
1. Which entrepreneurial/small business owner characteristics does Bill have that may be important to his success? Which characteristics could lead to his failure?
2. What steps should Bill take to avoid the pitfalls common to a small business?
3. If you were Hugo, would you sell Bill the business under the terms discussed in the case? Explain your reasoning backed by concepts learned from the text and other sources.