I. Major Facts
Jack is an authoritarian leader, who feels that being overly strict with his employees would produce the best outcomes for his company. While this approach has worked over the past several years, it is now proving to be costly to the firm.
Jack is also an autocratic leader. First, he was always looking for a way to buy off the other partners in the company in order to make the Tea and more privately owned. Second, he does not let any of his investors have a decision-making role in the company.
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Individually, Jack is very skillful. He transforms the appearance of his products, which leads to a significant rise in profitability for the firm. He knew just how to change the look of his products in order to attract more customers and, as a result, boost the revenue of the firm.
There is a serious problem with the company’s pricing strategy. While the TAM’s products have a superior quality as compared to competitors, the pricing of these products tends to repel customers. The company is somewhat in a dilemma of whether to stick to the current pricing strategy or abandon their current marketing strategy and lower their prices.
Overall, the company is dwindling in many aspects of business. If the owner and the rest of the management team do not change the business model of TAM, the company will fail.
II. Major Problem
Considering the fact that Jack was in control during the early years of the company, does it mean that it has become too big for Jack to handle?
Given the extent of growth the company has experienced, is the old business model still relevant?
III. Possible Solutions
A. The company should consider going public. Going public presents a financial benefit to the company and increase its market share. The disadvantages of going public include a higher level of regulation, which is often expensive, and the shift in focus from long-term growth to short-term gains.
B. The company should quit its current marketing strategy and focus on retaining its current customers. Such a step would ensure that the company would retain many of its most loyal customers and reduce the rate at which the company is losing market share. The problem with taking this route is that the company will lose on the publicity associated with advertising.
IV. Choice and Rationale
The best choice of a solution is option A, which suggests that the company should go public. Going public presents TAM with several opportunities to help address the multiple challenges the company is currently facing.
An initial public offering commonly abbreviates as IPO, is the first sale of stock by a firm. The most distinct advantage of going public is that the company would gain a financial benefit by raising capital. By going public, TAM is very likely to improve its financial condition by acquiring money that does not need to be refunded ( Acharya and Xu, 2017 ). Such capital can be used to fund capital expenditure, fund research and development, or pay off the company’s debts. Going public would also set the company apart from most of its competition because it would increase the public awareness of TAM since initial public offerings tend to create publicity by making the company’s products known to a new section of potential customers. The most notable outcomes of increased public awareness is a growth in market share for the firm.
Jack may also use an IPO as an exit strategy, given that his leadership skills and approaches are becoming ineffective ( Acharya and Xu, 2017 ). Like many other venture capitalists, Jack would be using IPOs to cash in on a company that he had grown and developed from a period when it was earning only $1 million per year in revenue to a point where it is earning $25 million. However, given Jack’s persistence on finding a solution to the current problems the company is experiencing, it is very unlikely that he would consider leaving the company soon.
There are other issues that Jack should consider before choosing whether to go public. First, he should decide whether he is comfortable with added disclosure for investors. Second, the Securities Exchange Act of 1934 regulates public companies regarding periodic financial reporting, which may be challenging during the initial period of going public ( Acharya and Xu, 2017 ).
Changing the company’s marketing strategy is also a viable solution. While the company will have a lesser opportunity of boosting public awareness, it will at least retain its current customers. The prevailing marketing strategy at the firm does not seem to help TAM improve in sales. In fact, the strategy can be deemed as detrimental to the firm. However, choosing to change the company’s marketing strategy would only serve to address one problem – the loss of customers because of pricing ( Gauri, 2013 ). Going public, on the other hand, would enable the company address several more of the challenges it is facing today. Using the old business model that Jack used when the company was still relatively small is no longer an option. Rather, the company should adjust its business model for the sake of the future.
V. Implementation
The following is a plan to enable TAM to go public.
The preparation phase
For the success of such an operation, the company would need to be thoroughly prepared. Clear controlling and accounting processes, trustworthy and experienced management with proper corporate governance, strategy, as well as market positioning are vital to formulating a resounding investment case. Jack and TAM would need to find professional advisors and syndicate banks, who would contribute significantly to the success of going public. A “syndicate” is referred to as a temporary professional financial services organization that is created to handle a large and complex transaction that would be difficult or entirely impossible for the parties involved to carry out by themselves ( Acharya and Xu, 2017 ). A meeting between TAM and the selected advisors would be necessary for the purpose of defining the actual responsibilities, structure, and timetable for the public offering.
Due diligence would need to be carried out in order to shed light on the entire company regarding key aspects such as legal issues, taxes, finances, and operating processes ( Acharya and Xu, 2017 ). Thus, the company would need to conduct a company valuation and compile an analysis report that would be the foundation of the company’s investment case and listing prospectus.
The final step in this phase would be the presentation of the investment case to the analysts in syndicate banks. These analysts integrate the data communicated into their analysis and then design the research publications.
Marketing and Execution Phase
The analysts provide their research outcomes to their corresponding syndicate banks and potential investor at an investor education roadshow. The feedback obtained from the roadshow is used as the basis of the price range that is set ( Acharya and Xu, 2017 ). Another roadshow will be needed for the purpose of providing the management with a chance to introduce investors personally and try to convince them to invest in the company’s shares.
While the roadshows are still in progress, syndicate banks would be required to carry out the book-building process. During this stage, investors are allowed to give their price offers, which the syndicate banks are required to gather and distribute to the entities involved in the public offering.
At the time indicated on the listing prospectus, the order book would be closed. The syndicate banks would have to collaborate with Jack and his advisors in determining the placement price for the start of stock trading. This placement price mostly depends on the price offers provided by the potential investors. After the shares are allocated to the investors recorded in the order book according to the relevant regulations, the public offering can take place.
Appendix
1. A solution would be to hire permanent sales personnel even for the small accounts and ensured that they are conveniently placed so that they can cover as much ground as possible, and cheaply.
2. A suitable solution would be to make the displays more attractive than they were earlier. Given that the quality of company’s products are superior as compared to its competitors’making the displays eye-catching would help retain many customers.
3. For this problem, the company should consider checking order records of its customers. This can help in determining the customers who order unpredictably. Since most customers tend to order the same types of products every time, the company can stock these products in advance to anticipate such orders.
4. To reduce the collection period to less than 40 days, it would be necessary to introduce a discount for customers who collect their products early enough.
5. Given its position in the market, TAM cannot afford to stick to its basic teas. An appropriate solution would be to develop new products based on the recommendations of customers. It is the customers who know what they want and, therefore, should have a say on the choice of products the company presents to the market.
6. The company has not yet considered going public. A public offering would provide the company with an opportunity to exploit the financial advantages associated with additional investment ( Shen and Wei, 2007 ).
References
Acharya, V., & Xu, Z. (2017). Financial dependence and innovation: The case of public versus private firms. Journal of Financial Economics , 124 (2), 223-243.
Gauri, D. K. (2013). Benchmarking retail productivity considering retail pricing and format strategy. Journal of retailing , 89 (1), 1-14.
Shen, Y. P., & Wei, P. (2007). Why do companies choose to go IPOs? New results using data from Taiwan. Journal of economics and finance , 31 (3), 359-367.
