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.
How would you like us to HELP you with this assignment?
ANSWER
Subject: Congratulations and Considerations for Your Next Chapter
Dear Bill,
I hope this email finds you well. Firstly, I want to congratulate you on the life-changing opportunity that has presented itself. Taking over Hugo's Machine Shop could be a significant turning point in your career, and I'm here to support you every step of the way. In order to ensure your success, let's dive into the important considerations.
1. Entrepreneurial/Small Business Owner Characteristics:
a. Strong Technical Skills: Your mastery and experience in working with machinery, honed under Hugo's guidance, is a valuable asset. This not only inspires confidence among customers but also enables you to make informed technical decisions.
b. Passion and Drive: Your attitude towards learning and drive for perfection have been praised by Hugo. These qualities are crucial for thriving as a small business owner, as they fuel dedication and continuous improvement.
c. Knowledge of Customers and Employees: Your familiarity and respect among both customers and employees provide a solid foundation for maintaining existing relationships and fostering loyalty.
Potential Failure Characteristics:
a. Lack of Business Training: While your technical skills are commendable, it's essential to recognize that entrepreneurship involves various business aspects. Lack of formal business education might pose some challenges initially, necessitating additional efforts to learn and adapt.
b. Limited Financial Resources: The relatively low savings and limited access to upfront capital pose potential financial constraints. Proper financial planning and effective resource management will be pivotal in overcoming this hurdle.
2. Steps to Avoid Common Pitfalls:
a. Develop a Business Plan: Outline your vision, goals, target market, and strategies for growth. This will serve as a roadmap and help you stay focused on your objectives.
b. Seek Professional Advice: Consider consulting a business mentor or advisor who can guide you through the intricacies of small business ownership. They can offer insights, assist with financial planning, and help you navigate potential obstacles.
c. Continuous Learning: Prioritize acquiring business knowledge by taking online courses, attending workshops, and networking with experienced entrepreneurs. This will strengthen your business acumen and enable confident decision-making.
d. Effective Financial Management: Develop a thorough understanding of your business's financial implications. Consider creating budgets, monitoring cash flow, and establishing good accounting practices.
3. Hugo's Decision to Sell:
As Hugo, I would lean towards selling you the business under the terms discussed in the case for the following reasons:
a. Understanding of Craftsmanship: You have demonstrated a deep passion for the craft and a commitment to maintaining the quality standards set by Hugo. This aligns with Hugo's vision for the business's future.
b. Succession Planning: Ensuring a smooth transition is crucial when passing the torch to a new owner. Your four years of technical decision-making experience and knowledge of customers will facilitate a seamless continuation of operations.
c. Profit-Sharing Agreement: The proposed profit-sharing agreement provides an opportunity for you to gradually take over the financial responsibilities of the business while also increasing your annual earnings. This mitigates the risk associated with limited upfront capital.
d. Modest Initial Investment: The fact that you and Anna have $4,200 in savings, though limited, demonstrates your commitment and resourcefulness, which are positive indicators.
Remember, with careful planning, continuous learning, and perseverance, you have the potential to transform this opportunity into a thriving and successful venture.
Best of luck with your decision-making process, and please do not hesitate to reach out if you need any further assistance.
Warm regards,
[Your Name]