{"id":73522,"date":"2023-07-13T16:00:03","date_gmt":"2023-07-13T16:00:03","guid":{"rendered":"https:\/\/essays.homeworkacetutors.com\/innovation-essay-essay\/"},"modified":"2023-07-13T16:00:03","modified_gmt":"2023-07-13T16:00:03","slug":"innovation-essay-essay","status":"publish","type":"post","link":"https:\/\/www.colapapers.com\/us\/innovation-essay-essay\/","title":{"rendered":"Innovation Essay Essay"},"content":{"rendered":"
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Tom Scott and Tom First founded Nantucket Nectars in\u00a01990\u00a0as a\u00a0small side-business on\u00a0Nantucket\u2019s Straight Wharf. A\u00a0peach fruit juice drink that Tom First discovered while visiting Spain inspired him and his partner to\u00a0embark upon the journey of\u00a0building their juice company. After only six years, the two entrepreneurs built a\u00a0business that was generating $29,493,000 per year in\u00a0revenue and $969,000 in\u00a0EBITDA. With remarkable success came exciting opportunities, as\u00a0well as\u00a0challenging decisions.<\/p>\n

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Specifically, Tom and Tom were faced with the dilemma of\u00a0taking the company down one of\u00a0three roads including: taking the company public via IPO, selling the business, or\u00a0continuing to\u00a0grow and run the business independently. Tantamount to\u00a0these decisions, the founders had additional questions on\u00a0their minds\u00a0\u2014 How should the company be\u00a0valued? How could they ensure price maximization? How would the negotiations be\u00a0handled? Could they engage potential buyers without existing employees find out? At\u00a0the end of\u00a0the day, the decision was more personal than anything.<\/p>\n

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It\u2019s never easy for an\u00a0Entrepreneur to\u00a0rationalize \u201cselling out\u201d after they\u2019ve spent so\u00a0much time building and developing their baby. Nevertheless, it\u2019s often the best decision. In\u00a0this paper\u00a0I will explore the Pros and Cons of\u00a0selling Nantucket Nectar, along with how to\u00a0determine an\u00a0appropriate value for the company. The first option to\u00a0be\u00a0explored was remaining independent. One of\u00a0their concerns was management involvement of\u00a0any potential strategic partner, or\u00a0buyer. Tom and Tom wanted to\u00a0run the company, if\u00a0possible.<\/p>\n

If\u00a0they remained independent then they would still be\u00a0the autonomous owners of\u00a0Nantucket Nectars and they wouldn\u2019t have to\u00a0worry about listening to\u00a0anybody else telling them how to\u00a0operate, or\u00a0grow the company. Also, a\u00a0benefit of\u00a0remaining independent was the preservation of\u00a0the company\u2019s brand which was built upon two entrepreneurs, Tom and Tom. They used their story as\u00a0part of\u00a0the branding and the market enjoyed\u00a0it. Selling out could create some negative public relations. Remaining independent was an\u00a0opportunity to\u00a0remain in\u00a0control of\u00a0their public image.<\/p>\n

Independence isn\u2019t entirely positive, though. A\u00a0negative aspect of\u00a0remaining independent would be\u00a0the lack of\u00a0distribution support\u00a0\u2014 their growth capabilities would be\u00a0limited. In\u00a0contract, if\u00a0they were to\u00a0sell to\u00a0a\u00a0larger organization with robust infrastructure they could enlarge their footprint more rapidly. Another con of\u00a0remaining independent would limit the founders from entering into new ventures that might be\u00a0more appealing to\u00a0their sense of\u00a0entrepreneurialism. Remaining with Nantucket Nectars, to\u00a0some, could be\u00a0stifling. Regardless, it\u00a0would certainly limit their ability to\u00a0grow from within.<\/p>\n

Capital was less readily available to\u00a0Tom and Tom and the support of\u00a0a\u00a0larger scale investor could bring some immediate excitement. Another con of\u00a0remaining independent is\u00a0the insulation against catastrophic events, or\u00a0litigation. As\u00a0a\u00a0small, independently owned business there is\u00a0typically more risk involved from a\u00a0litigation standpoint. Although companies are insured, the sheer expense of\u00a0seeking legal counsel has a\u00a0greater negative impact upon smaller businesses than larger conglomerates like Tropicana, or\u00a0Pepsi, who have large departments of\u00a0in\u00a0house counsels.<\/p>\n

The second option available to\u00a0Nantucket Nectar is\u00a0to\u00a0sell the business. In\u00a0reviewing their financial performance (see Exhibit\u00a01), we\u00a0notice that the business has had several years where they were profitable. Their EBTIDA was strong over the past two years (1995\u00a0& 1996), thus making them more marketable. From a\u00a0seller\u2019s perspective, this might be\u00a0n\u00a0favorable time to\u00a0sell. Also, a\u00a0benefit of\u00a0selling is\u00a0the immediate influx of\u00a0cash that would be\u00a0available as\u00a0a\u00a0result of\u00a0the buyout. Tom and Tom would have financial independence which, for an\u00a0entrepreneur, can be\u00a0the greatest state of\u00a0being.<\/p>\n

This would afford them both an\u00a0opportunity to\u00a0regroup, reenergize, and focus on\u00a0new business ventures. Many entrepreneurs enjoy the early \u201cstart-up\u201d phases of\u00a0the business cycle. Of\u00a0course, selling a\u00a0business has its drawbacks, as\u00a0well. First, the buyer often requires that the management team from the acquisition target stay on\u00a0board for a\u00a0specific period of\u00a0time and achieve certain key performance indicators before receiving the entire payout. Often, there is\u00a0a\u00a0lump sum delivered up\u00a0front, and then incremental payouts upon achieving KPI\u2019s. This could be<\/p>\n

frustrating to\u00a0Tom and Tom, as\u00a0they would relinquish all of\u00a0their independent decision-making powers and have to\u00a0take the back seat as\u00a0employees. Typically, this is\u00a0not a\u00a0comfortable position for entrepreneurs to\u00a0take. Also, Tom and Tom built up\u00a0a\u00a0loyal and talented staff of\u00a0employees at\u00a0Nantucket Nectar. Acquisitions are typically driven by\u00a0synergies and, as\u00a0a\u00a0result, certain employees could be\u00a0terminated in\u00a0pursuit of\u00a0cost savings. Finally, Tom and Tom would have to\u00a0deal with the fact that their company culture would be\u00a0at\u00a0risk. Often, the buyers culture engulfs that of\u00a0the company being acquired.<\/p>\n

The third option available to\u00a0Tom and Tom is\u00a0taking the company public, or\u00a0an\u00a0IPO (Initial Public Offering). The most obvious advantage of\u00a0going public is\u00a0that Nantucket Nectar would have an\u00a0immediate influx of\u00a0capital available due to\u00a0the sale of\u00a0its stock. With excess capital available, they could purchase assets for distribution and manufacturing, invest in\u00a0advertising and marketing, and continue to\u00a0fuel the expansion of\u00a0the business. Going public also creates a\u00a0type of\u00a0currency in\u00a0the form of\u00a0its stock that Nantucket Nectar can use to\u00a0make acquisitions.<\/p>\n

In\u00a0addition, they will likely have access to\u00a0capital markets for future financing needs. As\u00a0is\u00a0typically the case, Nantucket Nectar\u2019s debt-to-equity ratio will improve after the IPO, allowing them to\u00a0obtain more favorable loan terms from lenders. Another benefit of\u00a0going public is\u00a0that Tom and Tom may be\u00a0able to\u00a0retain a\u00a0certain degree of\u00a0control. If\u00a0they opted to\u00a0sell common stock to\u00a0venture capitalists to\u00a0raise money rather than doing an\u00a0IPO, the purchasers would probably require some decision-making authority. As\u00a0entrepreneurs, Tom and Tom would have a\u00a0hard time relinquishing decision making authority.<\/p>\n

1\u00a0Initial public offerings have negative aspects, as\u00a0well. First, going public is\u00a0not inexpensive. Multiple areas of\u00a0expertise are required to\u00a0execute the process, including lawyers, accountants, and consultants. This could get expensive for Nantucket Nectar. Another disadvantage of\u00a0going public is\u00a0that public companies operate under close scrutiny. The prospectus reveals substantial information about the company including transactions with management, executive compensation and prior violations of\u00a0securities laws.<\/p>\n

This may be\u00a0information the company would prefer to\u00a0keep private. In\u00a0my\u00a0opinion, the most difficult thing for Tom and Tom to\u00a0deal with would be\u00a0the decision-making process. From the case study, we\u00a0see that they are informal, salt-of-the-earth individuals. Taking the company public would mean that they would have to\u00a0become more formal and less flexible due to\u00a0the shareholders. They would no\u00a0longer have complete control of\u00a0the company. They would have to\u00a0share in\u00a0the decision making process2\u00a0VALUATION<\/p>\n

As\u00a0an\u00a0adviser to\u00a0Nantucket Nectar, there are several approaches that can be\u00a0taken toward determining the worth of\u00a0the business. Ultimately, the value of\u00a0the business is\u00a0whatever a\u00a0buyer is\u00a0willing to\u00a0pay for\u00a0it. From a\u00a0negotiating standpoint, Tom and Tom need to\u00a0determine what they believe is\u00a0the value in\u00a0order to\u00a0set an\u00a0expectation upon engaging in\u00a0negotiations. Multiple companies are expressing interest due to\u00a0the boom in\u00a0the New Age beverage market and Nantucket Nectar\u2019s competitive advantages. The first thing to\u00a0understand when determining the value of\u00a0a\u00a0business is\u00a0their brand equity.<\/p>\n

Nantucket Nectar has a\u00a0lot of\u00a0value in\u00a0the brand they\u2019ve created and the value drivers, as\u00a0determined by\u00a0Tom and Tom, are listed in\u00a0Exhibit\u00a02. Nantucket Nectar created a\u00a0fun and memorable story\u00a0\u2014 the \u201cjuice guys\u201d are unforgettable. The value drivers go\u00a0beyond financial figures found on\u00a0the P&L, balance sheet and cash flow statement. They are the intangible assets that management has built on\u00a0their own\u00a0\u2014 also referred to\u00a0as\u00a0Goodwill. Goodwill is\u00a0seen as\u00a0an\u00a0intangible asset on\u00a0the balance sheet because it\u00a0is\u00a0not a\u00a0physical asset like buildings or\u00a0equipment.<\/p>\n

Goodwill typically reflects the value of\u00a0intangible assets such as\u00a0a\u00a0strong brand name (ie\u00a0Nantucket Nectars), good customer relations, good employee relations and any patents or\u00a0proprietary technology.\u00a03\u00a0These intangible assets can be\u00a0the most important valuation drivers to\u00a0consider when placing a\u00a0value upon a\u00a0business. I\u00a0used several methods to\u00a0determine the value of\u00a0Nantucket Nectar. First, I\u00a0utilized the Market Approach. The Market Approach is\u00a0a\u00a0multi-step process. In\u00a0the initial step, we\u00a0compute the average Price-Earnings (P-E) Ratio for as\u00a0many similar businesses as\u00a0possible.<\/p>\n

Then, you multiply the average P-E Ratio by\u00a0next year\u2019s forecasted earnings. I\u00a0used 26. 9x\u00a0(see Exhibit\u00a03) as\u00a0the P-E Ratio and multiplied it\u00a0times $2,234 (see Exhibit\u00a04), which is\u00a0Nantucket\u2019s forecasted earnings for 1997. The value equals $60,094,600. This would be\u00a0a\u00a0good starting point for Tom and Tom to\u00a0being their negotiations. The second method\u00a0I used is\u00a0the Capitalized Earnings Method which is\u00a0the Net Earnings divided by\u00a0the Rate of\u00a0Return. However, I\u00a0used the forecasted earnings for the upcoming year, $2,234,000.<\/p>\n

I\u00a0used a\u00a0discount rate of\u00a012% based upon the rates utilized in\u00a0the Discounted Future Earnings model (see Exhibit\u00a05). If\u00a0we\u00a0divide $2,234,000 by\u00a012% it\u00a0gives\u00a0us a\u00a0value of\u00a0$18,616,667. More than likely, this is\u00a0the number that an\u00a0investment bank would place upon the business, as\u00a0a\u00a0starting point for negotiations. I\u00a0also calculated the book value of\u00a0Nantucket Nectar, and then integrated \u201cgoodwill\u201d for the value drivers in\u00a0Exhibit\u00a02. The book value is\u00a0$12,747,000, however\u00a0I don\u2019t believe the goodwill is\u00a0correctly accounted for. This need to\u00a0be\u00a0reevaluated.<\/p>\n

Nantucket Nectar would be\u00a0selling their business, on\u00a0a\u00a0large part, due to\u00a0their intangible brand value. This could justify a\u00a02x\u00a0or\u00a03x\u00a0multiple times book value, to\u00a0arrive at\u00a0an\u00a0adjusted book value rate. My\u00a0recommendation to\u00a0Tom and Tom would be\u00a0to\u00a0sell their business and use the Market Rate approach towards determining the value. I\u00a0think this is\u00a0a\u00a0fair way to\u00a0view the business because it\u00a0helps to\u00a0frame the perspective in\u00a0a\u00a0similar light to\u00a0other companies who have follow a\u00a0similar course within the same business segment. I\u00a0would not advocate an\u00a0IPO due to\u00a0the scrutiny the shareholders will place upon the business.<\/p>\n

I\u00a0believe selling the business presents an\u00a0ideal scenario because they could negotiation the level of\u00a0involvement they want in\u00a0the future while, at\u00a0the same time, they would have enough cash to\u00a0pursue other entrepreneurial ventures. Exhibit 2\u00a0\u2014 Value Drivers (determined by\u00a0founders) Great product: great tasting, all natural product Ability to\u00a0exploit small, rapidly changing market opportunities Current Management Team A\u00a0more appealing story than any other juice beverage company (great material for a\u00a0company with a\u00a0large marketing budget and more distribution power) Value of\u00a0the brand: quirky, eccentric and memorable<\/p>\n

A\u00a0stabilizing cost structure Geographic expansion capabilities: current sales base and future sales base Access to\u00a0the 18-34<\/nobr> market Management\u2019s knowledge of\u00a0and experience with the single-serve business: ability to\u00a0add value to\u00a0large player rolling out new single serve products Last good access to\u00a0single-serve distribution in\u00a0the New Age beverage market Guerrilla marketing skills Best vehicle for juice companies to\u00a0expand into juice cocktail category without risking their own brand equity<\/p>\n<\/article>\n","protected":false},"excerpt":{"rendered":"

Tom Scott and Tom First founded Nantucket Nectars in\u00a01990\u00a0as a\u00a0small side-business on\u00a0Nantucket\u2019s Straight Wharf. A\u00a0peach fruit juice drink that Tom First discovered while visiting Spain inspired him and his partner to\u00a0embark upon the journey of\u00a0building their juice company. After only six years, the two entrepreneurs built a\u00a0business that was generating $29,493,000 per year in\u00a0revenue and […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8448],"tags":[5662,9835,9832,9830,9822,9833,9831,9834,9836,9817],"class_list":["post-73522","post","type-post","status-publish","format-standard","hentry","category-entrepreneurship","tag-1500-words-assessment-brief","tag-academic-essay-experts","tag-ae","tag-powerpoint-slide-presentation-assignment-help","tag-professor-essays","tag-research-owl-essays","tag-usa-assignment-answers-examples","tag-usa-writings","tag-write-harbor-research-paper-help","tag-written-essay-hub"],"_links":{"self":[{"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/posts\/73522","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/comments?post=73522"}],"version-history":[{"count":0,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/posts\/73522\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/media?parent=73522"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/categories?post=73522"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.colapapers.com\/us\/wp-json\/wp\/v2\/tags?post=73522"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}