Situation analysis, strategic alternatives, and recommended implementation strategy

Strategic Analysis

The situation facing Matt is one that often faces entrepreneurs as they contemplate new ventures. It seems as if Matt has decided that creating a regional (and then national) running magazine is a good idea, and now he has to sell his wife on the concept.

The concept is a simple one; provide a relatively inexpensive alternative marketing plan to race event promotors. The magazine's customers are the event promotors, as well as race sponsors and suppliers. The magazine's market are runners interested in running races; initially in specific regions and later across the country.

The company's core competency is that it is filling a need that is currently unfilled. The drawback is that the need can also be filled quite easily by other firms; but it can only be effectively filled by only one company. This competency gives the company a leg up in the first market, however, the company would likely have to move quickly into other markets to secure its own future. Once the company has expanded into enough regions to effectively sell national ads, the core competency will change; reaching that point is an important milestone for the company.

The magazine would fill a couple of different needs; 1) the market's need for easy-to-find race, retail and wholesale information, and 2) the event promotor needs to advertise the race, retail and wholesale information in order to garner additional sales and race participants.

There are three different strategic alternatives that Matt could use to determine effects on this business; they are 1) status quo, 2) recapitalization, and 3) divestiture. The status quo for this venture would be determined by projecting five years of organic growth only. In this case,

Matt is looking at a status quo that would have the company generating revenue of approximately $976k during the fifth year and net profits of approximately $292k; almost a

30% profit margin. Additionally, the status quo would provide Matt (and investors) with a nice rate of return on equity as well as an appropriate and consistent yearly income.

The second strategic alternative is the recapitalization scenario. Recapitalization is a method for supplying additional funds for growth via leverage of debt and investment financing. In this particular case Matt has already compiled a capitalization program that would allow him to grow the company to cover regions around the country, and eventually nationally. The scenario that would require a recapitalization would be growing the company to international status. Recapitalization allows the company to maintain its growth pattern, but in return the initial founders and investors give back some of the control and ownership established at the company's start.

A strategic alternative that could also be used in this case would be the divestiture scenario. In a divestiture situation the company would be sold to a buyer at a pre-determined time and price. Growing the company to a point where a divestiture would make sense can be determined beforehand as well, and in this case it would likely be a sensible thing to do.