The Fleet Sheet
Type of document Essay
3 Pages Double Spaced
Subject area Business
Academic Level Undergraduate
Style APA
References 4
Order description:
Read the following case study in your textbook pages 292-301, and submit answers to all the questions that follow the case study.
Case Study: The Fleet Sheet.
N T E G R A T I N G C A S E 2 The Fleet Sheet Marlene M. Reed Professor, School of Business, Samford University, Birmingham, Alabama Rochelle R. Brunson Department Chair, Management Development Alvin Community College, Alvin, Texas At precisely 8:00 A.M. on Monday, April 3, 2000, faxes began printing out simultaneously in the offices of English-speaking companies all over the Czech Republic.
Among the news of the Czech Republic translated into English that day was an interesting political insight gleaned from two newspapers: “The Washington Post wrote that Madeleine Albright is the weakest U.S. Secretary of State since the early 1970s and is now only popular in Prague. Euro quips that that’s not so bad: the only place Vaclav Havel is now taken seriously is in Washington.”1 It was this kind of honest, straightforward evaluation of the Czech economy and government that had made the Fleet Sheet so popular to foreign companies and their managers. For Erik Best, founder of the Fleet Sheet, there were many decisions to be made concerning the future of the company as well as his own future. He had begun the business on February 22, 1992, because of a perceived shortterm need by Western companies rushing into Czechoslovakia after the Velvet Revolution for economic and political information that they could understand. He had envisioned that in a few years these companies would train Czech nationals to take over their operations in the country, and the English-speaking Westerners would withdraw. That had not happened, and he now wondered if he had a “going concern” that lacked a sound organizational and legal structure to survive into the future. He also wondered how long an operation such as his would continue to be a viable venture because of rapidly-changing technology and greater access to news through the Internet. Erik was now 37 years old, and he knew he needed to make some decisions for the future. Erik’s Education and Early Work Experience Erik was born in North Carolina, and when he was 11 years old, his family moved to Montana. He went to high school there and wrote for the high school newspaper. He also became a part-time staff sports writer for the Missoulian—the local newspaper. Near the end of his senior year in high school, Erik was offered a journalism scholarship to Vanderbilt University; however, he turned it down because at that time he was not sure he wanted to be a journalist. In the back of his mind, he had thought for some time that he wanted to be involved in business or politics or perhaps both. He decided to attend Georgetown University, and he received a degree in Foreign Service from Georgetown in 1985. In the summers while working on his undergraduate degree at Georgetown, he also studied the Russian language at Middlebury College in Vermont, a school well known for its concentration on international affairs. He subsequently received a Master’s Degree in Russian from Middlebury in the Summer of 1985. Perhaps the educational experience that had the greatest impact upon Erik’s life was a required four months’ stint in Moscow. When he had completed his degree at Middlebury, he entered the M.B.A. program at the University of North Carolina at Chapel Hill and received his M.B.A. degree in 1987. The Move to Prague Erik Best, a fluent speaker of the Russian language and one conversant in other Slavic languages, became enamored with the historic changes taking place in Eastern Europe. Never in the twentieth century had the opportunity existed to be a part of such a great transformation. Never before in history had countries formerly living under a Socialist government with centrally planned economies tried to make the transition to a free market economy where Adam Smith’s “Invisible Hand” would be responsible for moving resources into their most advantageous usage. Therefore, when the offer was made to Erik by the M.B.A. Enterprise Corps to join them in their work in Czechoslovakia, he quickly accepted. In February of 1991, Erik packed his bags and moved to Prague. He immediately fell in love with the country and found the Czech language very similar to Russian. In explaining his love of Prague to others, Erik would state, “I have always loved music, and there is no city in the world so rich with music as Prague. There are classical concerts daily in concert halls, churches, town squares, on the breathtaking Charles Bridge, private chambers, large public halls and under street arches. There are violinists and accordianists playing on street corners and in Metro stations. I have heard that there are more musicians per capita in the Czech Republic than anywhere else in the world. After all, it was in Prague that Mozart wrote the opera Don Giovanni and found greater acclaim than in his own Austria. It was also the home of composers Dvorak and Smetana. This is one of the reasons I feel at home in this city.” The Situation in Eastern Europe In the early 1990s, the breakup of centralized Socialist economies was occurring all over Eastern Europe. Simultaneously, there was a rapid growth of the private sector in Russia and the surrounding countries of Poland, Czechoslovakia, and Hungary. One of the challenges in the burgeoning market economies was creating small businesses out of large enterprises and also launching entirely new ventures where none had been before. In fact, the development of the small business sector had been the most successful manifestation of the movement to a market economy. Small businesses had also been the greatest success story in the privatization process. Auctions of small businesses and the restitution of property in these countries had led to the restoration of some family businesses. However, numerous problems beset these newly-created companies. In some cases, the venture was merely additional work added to one or two other jobs to keep the entrepreneur afloat with increasingly higher inflation rates and increasingly stagnant wage rates. Many small businesses were forced into operating illegitimately to deal with unfair and cumbersome legal procedures in the regulatory environment, or to avoid the attention of the Mafia or corrupt officials. It became very difficult to work out a secure contract for lease of property, and the banking system was not equipped to deal with the needs of small business.2 that existed in Eastern Europe. Most hopeful entrepreneurs had lived all of their lives in a Socialist economy and had no training or knowledge related to the way in which one becomes an entrepreneur. It was into this environment that many organizations from the West sent consultants to assist with the revitalization of the economy as a free market. The M.B.A. Enterprise Corps was one such operation. Origination of Idea for the Fleet Sheet After working in Prague for a year, it became clear to Erik that international companies that had established offices and operations in the Czech Republic had difficulty in obtaining accurate and timely information on political and economic trends in the country upon which to make business decisions. From his work as a management consultant, he knew that decision makers in companies are very busy, and those operating in the Czech Republic would need information that was very concise and written in English. At the time, no such product was available in the country. It occurred to him that a 1-page faxed bulletin would be the best format for such a paper. The fax was also an inexpensive medium to use. He knew that in the beginning there would not be much news to report, and a 1-page sheet of paper would probably hold all he needed to print. By early 1992, he had worked out all of the details to begin the business, and on February 22nd he published the first issue. Erik believed that if he had 4 or 5 subscribers in the first month, the product would be successful. In fact, approximately 15 to 20 subscribers signed up in the first month of operations. By early Spring of 2000, there were somewhere in the neighborhood of 1,000 subscribers receiving the Fleet Sheet on a regular basis. Believing that the life cycle of his product would be relatively short, Erik took little thought to establishing a permanent structure for his business. He set it up as a sole proprietorship, and did not bother with a business plan since the operations of the company were uncomplicated and easy to establish. By 2000, he had 8 staff members in the company. Some of the staff came in the very early morning to review newspapers and begin translating the news from Czech to English. Other members of the staff came in around 7:30 A.M. and were involved in distribution and client support. Erik assumed the major responsibility for picking out the most important news to be translated and distributed in the Fleet Sheet. He believed a key competitive advantage of the Fleet Sheet was its emphasis on a quality product that reported useful Czech economic and political news. Occasionally, the Sheet had made a person unhappy by interpreting something incorrectly. However, if Erik agreed with the person’s argument, he would admit it and print a retraction. He had found it important to listen to customer complaints and recognize the needs of the customer. He attempted to treat his readers as equal partners. The name for his paper came from the fact that it was issued in a timely manner, and also in reference to Fleet Street in London where all of the major newspapers once resided before moving to the Docklands. The Pricing Strategy Erik realized immediately that the major publication constraint would be the number of people he could physically fax copies of the Fleet Sheet to in a short period of time. This was primarily due to the fact that he knew there would be a limitation on the number of telephone lines that he could get. He also knew that another constraint was the budget of the companies and when they needed to have the news. The larger multinational companies, he speculated, would be willing to pay a higher price to get the information very early in the morning. On the other hand, smaller companies beset with fewer complicated decisions would probably be willing to pay a lower price to have the information later in the day. Some businesses might need the information only once a week. On the basis of this assessment, Erik constructed a pricing structure that averaged $3 to $4 per day for the customer who wanted the Fleet Sheet faxed to him or her early in the morning, and for the smaller companies who needed the Fleet Sheet faxed to them only once a week, the price would drop $.50 to $.75 an issue. There would be intermediate pricing between the two end points. Therefore, the large companies and lawyers for whom “time is money,” could have access to all of the Czech political and economic news early in the morning so that they could make astute and timely decisions based upon realistic information. The companies that did not need information in a timely manner could enjoy the benefit of a discounted price for the information. The graduated pricing strategy would also make the distribution of the paper manageable. It seemed to be an effective pricing strategy: pricing based upon when the subscriber receives the news. The attractiveness of the pricing strategy was that anyone could afford the Fleet Sheet. In order to insure the timeliness of the paper, Erik initially guaranteed the larger companies that if they did not receive their fax of the Fleet Sheet before 9:00 A.M. each day, it would be free. However, the fax was never late, and Erik simply dropped this guarantee since no one worried about getting a fax late. Marketing of the Fleet Sheet The marketing of the Fleet Sheet was multi-pronged. The first thing that Erik did was to advertise in English-language publications such as the Prague Post, Business Central Europe (published by The Economist), The American Chamber of Commerce Newsletter and in the Czech press in very select publications read by the elite. He was surprised that his subscribers had been not only people from English-speaking countries, but also the Dutch, French, German, and even some Czech companies that realized having the news abbreviated for them saved valuable time. The company also engaged in direct marketing. They found out about new companies moving to town from the American Chamber of Commerce, people Erik met, personal contacts, and by word of mouth. With all new contacts, the company immediately apprised them of the product they were offering. Erik found that his satisfied subscribers let other people know about the service, and many new customers came from referrals. One reason his subscribers had been well satisfied was because Erik made an effort to dig into the important issues facing businesses in the Czech Republic. He also attempted to give people analysis rather than a simple reporting of the news. He found that clients read the Fleet Sheet because of the selection of articles that were covered. A more recent addition to his marketing activities had been using e-mail to whet the appetite of potential subscribers. (See Exhibit 1, “e-mail Synopsis of Fleet Sheet.”) Whenever anyone e-mailed him, Erik immediately added their name to a list of people who receive a summary of the day’s Fleet Sheet articles twice a week. The purpose of this was to acquaint them with the value of subscribing to the Fleet Sheet for daily faxes. Understanding the animosity some people have to receiving “junk e-mails,” Erik added a notice at the bottom of the e-mail that explained: If you do not wish to receive such messages in the future, please simply let us know and we will remove your name from our list. Few people ever asked to have their names removed, and many signed up as regular subscribers. This was probably because the e-mail was only sent to individuals whom Erik believed would have an interest in Czech news. In the late 1990s, Erik developed a website for his company. The web address was http://www.fleet.cz. (See Exhibit 2, “Fleet Sheet” Home Page and Final Word.) EXHIBIT 1 E-Mail Synopsis of Fleet Sheet Sub: In today’s Fleet Sheet Date: 11/20/00 12:43:19 AM Central Standard Time From: info@fleet.cz (Fleet Sheet/E. S. Best) To: info@fleet.cz From today’s Fleet Sheet: (MFD/1) The four-party coalition won a big victory in the Senate elections yesterday, gaining seats in 16 of the 19 races in which it had candidates. ODS and CSSD lost their Senate majority and will not be able to elect the chairman of the Senate or push through constitutional changes on their own. The top position in the Senate is now held by Libuse Benesova of ODS, but she lost to Helena Rognerova of the 4C. ODS won just eight of the 27 Senate seats at stake, and CSSD managed only one victory. An independent candidate won the final seat. The communists (KSCM) failed to win any seats. One seat had been decided in the first round in favor of the 4C. Of the 81 total Senate seats, the 4C now has 39, 22 for ODS, 15 for CSSD, three for KSCM and two for independents. Voter turnout was less than 20 percent. Vaclav Klaus responded to this by saying the Senate should be reformed so that its elections become part of the regional elections. (MFD/8) Jiri Leschtina of MFD says it will be interesting to see whether the Senate results lead anyone from within ODS and CSSD to break the loyalty pact and take a firm stance against Klaus and Zeman. * (HN/2) The results of the Senate elections reduce the chance that Vaclav Klaus will succeed Vaclav Havel as President. The results suggest that a candidate close to the 4C and Havel has a better chance. The results also make it unlikely that the constitutional amendment to reduce the powers of the President will win approval. If passed, the President’s power to pick Bank Board members would be limited. * (HN/3) CEO Jaroslav Mil of CEZ said that if price were the top priority, the sale of the state’s stakes and the regional electricity distributors could bring Kc 200–300bn in privatization. If synergies were sought with the natural-gas distributors, he said, the amount could be higher. However, if things such as maintaining employment and coal output play a role, this amount cannot be expected, he said. In this respect, he said he could imagine a requirement that a certain amount of output be guaranteed by the buyer. He also said he sees no reason why one Czech company should not be able to offer gas, water, and electricity. He also indicated that he expects more use of nuclear power in the future. (HN/P9) CEZ’s stock hit a low for the year of Kc 85 and might fall more. * (MFD/2) Klaus got a bit touchy at ODS campaign headquarters yesterday after the first results of the Senate elections were announced. When an MFD photographer made a call during Klaus’ live interview on Czech TV, Klaus grabbed the man’s cellphone out of his hand and tossed it into the corner.”How can he dare (talk on the phone) while I’m being interviewed?” Klaus asked. (MFD/3) Milos Zeman, for his part, refused to face defeat and didn’t even show up at CSSD campaign headquarters. EXHIBIT 2 Fleet Sheet Home Page and Final Word He believed that the website had enormous market potential for his company. It would now be possible for the company to place a page on the website that was a sampling of the Fleet Sheet for interested individuals and companies. Erik believed this had the potential to generate an even greater number of subscribers than did the e-mail synopses. In the past, Erik had offered the entire archives on disk. A company would pay about $500 a year to subscribe to the service. However, he decided to put all of his archives from the past 8 years on the website. The service was free, but one had to register to have access to it. This registry began to generate a good source of names for the e-mail synopses which were intended to develop enough interest from the reader to cause him or her to subscribe to the fax service. Erik hoped that his Web site would be of sufficiently high quality for people to continue to read it. He was gambling on the belief that a company could make more money in the long run by using its archives as a marketing tool to generate more subscriptions than by selling the archives as some companies such as the Wall Street Journal had done. People occasionally asked Erik why he didn’t go to e-mail entirely as the medium for publishing and distributing the Fleet Sheet. His response was, “There is the problem of protecting intellectual property. Unless you can encrypt it, you may have a copyright infringement of your material. In fact, Stephen King’s most recent story which was published originally on the Internet was encrypted, but someone broke the code. Another problem with encryption is that the message can only be sent to a specific person—not a company. Therefore, there are some real problems with encrypting the information on the Internet.” Hurdles for the Business Unlike most start-up businesses, the Fleet Sheet was profitable from the very beginning. Erik made an early decision to rent office space and computers initially. Whenever it became clear that the Fleet Sheet was a viable business, he did invest in some assets for the company such as necessary equipment. Concerning the success of the company, Erik mused, “The revenues of the company have grown every year because the Czech Republic was seen early as the darling of the West, and they also received a great deal of media attention. Under more realistic conditions, many of the companies would not have come here.” However, in the last couple of years of the 1990s, there had been a decline in subscribers. Erik often contemplated how recent world economic events might be affecting the circulation of the Fleet Sheet. As to the last hurdle, Erik commented, “We have had to fend off 6 or 7 competitors who began to offer the same service that we were offering—a faxed bulletin with important political and economic news. It was a blatant rip-off of our product. The success of the Fleet Sheet drew other companies into the market.” Erik speculated: The drastic price reduction the competition offered in the beginning served to lower the overall revenue size of the market. I have often wondered if there is a big enough market to support ONE such publication over the long run, much less numerous competitors in a smaller revenue pool. However, he also observed: The reason we survived was due to the overall quality of the paper. Business people know quality when they see it, and they immediately know that the Fleet Sheet is professionally done. Government regulations which had been devastating to many businesses in the Czech Republic had been minimal for the Fleet Sheet. The company did not require a large number of licenses or drug approvals as did the large pharmaceutical companies operating in the country. However, it had been faced with government bureaucracy—especially in the distribution of their product. The government informed them that they had to send the Fleet Sheet to hundreds of libraries at the company’s own expense. This, of course, would have made the company nonprofitable and no one would have read the paper anyway. They decided to take a risk and send the paper to only selected libraries where they believed there was a greater chance of someone actually reading the Fleet Sheet. Fortunately, the regulation was changed in the early part of 2000 so that the company would no longer be required to distribute the paper in this manner. In the late 1990s, Erik decided to add an advertisement to the Fleet Sheet. The ad was priced at $400 a day and was rotated among 4 or 5 different companies’ ads. (See Exhibit 3, “Fleet Sheet with Ad.”) If he should decide to add another advertisement, Erik would probably have to add another page to the fax. Faxing charges are minimal; the primary cost would be additional staff to prepare another page. However, he wondered if the primary focus of the paper—relevant information in a concise format—would be maintained. People don’t mind taking the time to read 1 page of the most concise political and economic news of the day, but would they read 2 pages? In the Spring of 2000, there were around 800 subscribers to the Fleet Sheet paying an average of $2.50 each per day to receive the publication. In addition, each additional subscriber brought in 90% in profits and only 10% in variable costs. Erik speculated about whether a new format with two pages would actually reduce—rather than increase—subscribers. Erik had always used Adobe Acrobat to format the paper, and the faxed paper was very easy to read. If he went to an e-mail publication of the paper altogether, there could be a text format that would not be limited to one or two pages. But he wondered if that would affect the integrity of the product. They had done so well in the past with the concise format of a 1-page fax. Would people actually sit at their computers and read through a lengthy e-mail the way they read through a newspaper or fax that they can hold in their hands? Erik speculated, “If you could produce the same experience of reading a newspaper on the Internet, it would be good. However, our present computer monitors prevent this from occurring.” Erik also wondered how a company could build a brand name and attract a loyal readership over the Internet. On the Internet, one must click through so many pages to get to the desired material that the opportunity cost of one’s time becomes very expensive. When Erik began his venture in 1992, he firmly believed it would be a shortterm operation bridging the gap until a new economy was established and other sources of information became available. With that in mind, he had spent little time pondering an appropriate legal structure for the business. He had initially set the business up as a sole proprietorship, but now he wondered if he should have established it as an LLC. He would also have developed a long-term strategy for the company. He wondered if it was too late to develop a business plan for the Fleet Sheet and alter its legal structure. He knew he would have to fill out some forms and notify the United States government of his actions, but perhaps he should do that. Erik wondered if a change in the legal structure of the organization would have capital gains tax implications if he decided to sell the business. He never assumed the business would last this long or he might have spent more time in planning rather than starting the business up in two weeks. Exhibit 3 Erik’s Dilemma Erik wondered if this business could survive indefinitely into the future. He also wondered what factors would have an impact on its remaining as a “going concern.” Some foreign companies had already begun to close their offices in the Czech Republic because of the difficulties of doing business there, and the German banks were beginning to focus on Germany and not other countries. Even if the multinationals decided to stay in the country and there continued to be a market for the Fleet Sheet, he wondered what format it might take in the future. And then there was the question of the Internet. Would people have such quick access to data on the Internet that a service such as his would become obsolete? Erik also thought about future competition. Would other companies try to offer the service he was offering at a lower price? Would subscribers be enticed by lower prices even though the quality of the product might be inferior? When Erik had first begun his business, he was not making what he considered an adequate salary; and he often speculated that it would be very easy to close the business and go to work somewhere else. However, by the Spring of 2000, the business was doing so well that he was making a very good salary that might be difficult to duplicate somewhere else. Erik thought it humorous to contemplate all of the problems that one encounters when a business becomes successful. C A S E D I S C U S S I O N Q U E S T I O N S 1. What are the potential difficulties of starting a business in a transition economy? 2. Prepare a SWOT analysis for the Fleet Sheet. 3. What are the key success factors of the Fleet Sheet? 4. What is the relationship among education, experience, personal skill, and entrepreneurship for Erik Best? 5. What did you learn about entrepreneurship from this case? 6. Erik Best did not prepare a business plan for starting the Fleet Sheet. What type of operation would benefit most from a business plan? C A S E C R E D I T Used with permission of the authors, Professor Marlene M. Reed, Samford University, and Rochelle R. Brunson, Alvin Community College. Exhibits used courtesy of Erik Best and the Fleet Sheet. C A S E N O T E S 1 Vaclav Havel was the gifted writer who was elected the first President of Czechoslovakia after the dissolution of Communism and was serving his last term in office. 2 Lyapura, Stanislav, and Allan A. Gibb. 1996. “Creating small businesses out of large enterprises.” Small Business in Transition Economies. London: Intermediate Technology Publications, Ltd., 34–50.
