Posted: May 25th, 2022
Circle R. And Fikes Products Case Studies
Circle R. Ranch is located about 10 miles north of Dallas, Texas. It specializes in hosting conventions, corporate meetings, and other events with an authentic Western-style theme including BBQ food, hayrides, country music, and other specialized services as needed. It is known for its exemplary customer service. The recent recession, however, showed a decline in annual sales of almost 40%, from $4 million to $2.5 million. In addition, the add on items that are higher in margin (ice sculptures, rodeos, fireworks, staged gunfights, etc.) are being ordered less and less due to the declining budgets of companies themselves. Circle R. is debt free, but the owners are seeing their margins reduce drastically.
Financial Analysis — A typical year for Circle R. grosses about $4 million. The organization has no debt, so its expenses are related solely to staffing, utilities and particular food and supplies ordered for particular events. The recession resulted in a 38% decline in annual sales and a reduction in ordering of high-profit add ons. We can assume that this 38% decline was over at least 4 years, or about 9.5% per year. If we project this out, we find that there will be a point of diminishing return for the owners, who already work at least 50 hours a week each. Let us assume that the FT staff of 12 employees makes a living wage, which including payroll taxes equals a bit over 1/2 million ($532.896,000); utilities and insurance are likely about 20% of gross, or $400,000,000. Thus, we have current costs of approximately $933,000. These costs are likely to increase annually by at least 5%, not to decline. This results in at least an additional 1.2% margin reduction after utilities for projections.
Identification of the Issues — There are several issues Circle R. faces: 1) Declining sales due to recessionary times; 2) Internal cannibalization of sales from higher-priced, more profitable add-ons to basic, lower end offerings; 3) Increased costs for employees, food and equipment; 4) Loss of sales due to inadequate web presence; 4) Lack of aggressive strategic or tactical marketing program.
Recommendations — We know that the ranch can handle at least $4M in sales with the current staff and part time employees. At present, Circle R. has not branched out into the Wedding and Wedding reception venue, largely because the margin is lower than corporate parties. However, due to corporate spending trends, Circle R. needs to increase revenue.
The following are recommendations for Circle R: 1) Instead of investing $20,000 into the upgraded website, invest $40,000 — reserving $15-20K for aggressive online marketing and pay-per-click advertising. 2) Ensure that the web presence is viable, active, and fun — use as many videos of past events, animation, etc. 3) Expand into wedding business, but slowly — begin with certain Dallas suburbs to get the feel for the events/staffing, etc., perhaps book at booth at the Dallas/Ft. Worth wedding show (can be very selective or have minimums to make up for the different in margins; for instance, if receptions under $5,000 are not profitable, then set a limit of x$/person, y/person minimum); 4) Spend some marketing dollars to create an introductory video that can be mailed to HR departments on CD with a brochure and some sort of a small themed gift (boot pencil, etc.) to get their name in front of the decision maker; 5) Work with a local school district to provide interns in business or theater; provides free labor and/or good publicity — including some PR with local newspapers and television stations; 6) Consider hiring or dedicating one of the 12 FT employees to the wedding segment, depending on expertise; if hiring, salary could be based on percentage ROI.
Case 9 Fikes Products
Fikes Products is located in Kent, Washington. It sells custodial supplies to businesses. Mark Sims became owner in 2003 when his parents retired. Since he took over as CEO, he has grown the business to another location and $4 million in annual sales. Sims realizes that he needs more staff, particularly an Operations Manager, but Sims is reluctant due to his poor track record. Despite the Puget Sound’s high unemployment rate, the type of candidates Sims usually gets are not the quality he needs to grow his business. Sims wants to use Craig’s List or the State Unemployment List to advertise because they are free. He is quite reluctant to use a head hunting firm, due to his perception of a 20-30% commission ratio.
Financial Analysis — We do not know the level to which Sims grew Fikes Products, but can assume that increasing to $4m with 30 employees means two things: 1) The company has a solid business plan and customer base, and; 2) Sims has worked very hard to take the company this far. At $4m in annual sales, it is almost unbelievable that there is only one executive level person in the organization.
Identification of the Issues — The organization really cannot grow much more without strategic hiring. It needs some executive level managers (Operations, HR, and likely CFO), drivers, etc. There are several issues presented that form the basis of issues with the business: 1) Owner is unable to handle all the tactical and strategic tasks to which the business has grown; 2) Owner is reluctant to spend dollars on quality hiring procedures; 3) Business has grown rapidly into two locations; impossible for one person to manage all the executive issues at that level; 5) It is likely that a number of things are slipping through the cracks administratively; 6) Sims needs to learn to delegate and trust more, despite the difficulty in hiring; 7) Sims should look at the hiring process as a marketing investment rather than a cost.
Recommendations — We realize it is difficult for a new entrepreneur to relinquish control over certain aspects of the business, particularly when they have worked so diligently to build up revenue. However, for Fikes Products to continue to grow and prosper, several things must happen: 1) Mark should consider joining a mentoring group in which business executives mentor young entrepreneurs and act as sounding boards to help them grow their business; 2) Mark’s first hire should be a COO, second in command — He can call the University of Washington or Seattle Pacific University for new MBAs or younger Business Majors who are hungry for work, updated with current methods, and local. Likely, the new MBAs will also be experienced, and with the economic situation, hungry to get their feet wet in a position like this; 3) Second hire should be a Human Resources Manager; the company is large enough that it needs an employee manual, and a person to manage the hiring, counseling, firing, and initial training of employees — this person could also be gleaned from one of the local universities, and while not at the level of a COO, could still be management; 4) Once these individuals are hired, they need to work to develop a strategic and tactical plan that includes staffing (potential Portland Manager, etc.); 5) There are a number of strategic decisions that likely need to be made — economies of scale, etc. 6) Work with the HR manager to develop a more robust training and compensation program to keep good people, keep them motivated, and reduce turnover.
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