Zandinger! *.

Most cases in entrepreneurship address strategic or operating difficulties of recently formed organizations. The case study presented here addresses an organization in its earliest stage of the life cycle: pre start-up. The case is about an entrepreneur who is planning to create a new venture based on a board game invented by his uncle. Accordingly, the case requires students to prioritize the tasks to create a venture from ground zero. The entrepreneur in this case already owns another successful business, has good marketing skills, and has received accolades from an expert in the toy industry. He seems to have a potentially successful product but is uncertain about what to do next. The case presents information for assessing industry structure and competitiveness, manufacturing options, and target marketing.

Introduction

Geoff Knox contemplated the presentation he had just made as he drove back to his office in Hamilton, New Zealand. He was the owner of a successful small business headquartered in Hamilton. Called "The Sweet House," the business owned a New Zealand distribution network of confectionary products that were sold nationwide. Geoff started the business in his garage and in its fourth year of operations, the company's total sales approximated NZ$4 million.

Geoff's presentation addressed a fourth-year class of entrepreneurship students at the University of Waikato in Hamilton. The topic of the presentation was not the Sweet House hut rather his newer venture, which at the time of the presentation in August 1996, had no sales or customers. Despite the uncertain beginnings, the first slide in Geoff's presentation made the venture's mission clear to the students: "To take 'Zandinger!' to the world!" For nearly one year, Geoff had been trying to launch a venture based on a new board game created by his uncle, Trevor Green. Trevor was raised in a working class, low-income family. His parents never had a car and consequently, the family spent nights and weekends together, often playing Scrabble, cards, or working crossword puzzles. As an adult, Trevor spent two years developing the game. It was originally called "Link Words" (which described the main objective of the players) but later was changed to "Zandinger!" on the advice of an intellectual property attorney. Trademarks are not allowed on phrases or names that are overly descriptive, so "Link Words" could not be trademarked. "Zandinger!" was the name concocted by Trevor, and while it has no special meaning, it was trademarkable because of its uniqueness.

Background

Geoff Knox was thirty-three years old at the time he began working on Zandinger! He had been raised outside Hamilton by parents who both worked for large companies (in telecommunications and insurance). At the same time, however, his parents leased a block of farmland and employed Geoff and his siblings to provide the labor to work the farm. In later years, both his parents resigned from their corporate jobs and focused their attention on farming and ranching. Geoff graduated from high school, and rather than enrolling in college, he got a bookkeeping and administrative job in the banking industry. Four years later he took a sales position for an investment company in which he sold insurance and personal financial planning to individuals. Sales experience opened more opportunities for Geoff, and he accepted a job as the confectionary sales manager with Pro-Life Foods, a large New Zealand food manufacturer. He spent five years in that position, during which time he developed skills in selling to companies (rather than individuals) and he learned the details of the confectionary industry.

In March 1993, he resigned from his position with Pro-Life Foods and launched his own business (the Sweet House) as a confectionary broker and distributor. From his experience in the confectionary industry, Geoff recognized that candy had unusually high gross profit margins and often was purchased on impulse by consumers in many different retail outlets. He realized that if he could devise a way to sell candy through nontraditional outlets, he could probably sell sufficient volumes to create a successful business. He began thinking of how he might sell candy through retailers other than the traditional channels of supermarkets, convenience stores, and gas stations. Because gross profit margins were typically high, he looked for trade-offs in the value chain: he looked for ways to incur an extra expense that would allow a broader distribution. He wondered, for instance, how he could persuade dry cleaners, pubs, restaurants, barber shops, hardware stores, etc., to sell his candy. He realized that most of these retailers would not agree to sell candy unless doing so could be linked to a charitable or socially responsible cause. From that reasoning, he arranged partnerships with several non-profit charities that would receive a portion of the proceeds from the candy sales. The retailer and customer would be supporting a good cause while Geoff would sell enough candy to absorb the cost of the charitable contributions.

Geoff became the first person in New Zealand to employ the "honesty box" as a business model for distribution. These cardboard boxes were filled with a variety of candy and placed conspicuously in the store (e.g., near the cash register or customer service desk). Shoppers could drop coins in a slot and take a few pieces of candy. The shopper and the retailer were supporting a good cause, and Geoff's business model became successful at opening a new channel for distributing candy.

Financing for the Sweet House came from a $10,000 loan (at a 20% interest rate!) from Geoff's father. With the money, Geoff provided working capital and bought candy and 1,000 honesty boxes. He began cold-calling on businesses in Hamilton and within six weeks had placed all of the boxes. The garage in his home was the original warehouse, and he traded his small car for a pick-up truck from which he made deliveries of candy to refill the boxes.

Throughout 1993 and 1994, the Sweet House continued to grow. Geoff repaid the loan from his father, rented a warehouse, and then a second and third warehouse as he required larger inventories. He concentrated on building relationships with charities and on establishing new retail locations. He hired employees to manage the deliveries. By 1995, the Sweet House had expanded to many of the small towns around Hamilton. Geoff was ready to expand nationally and decided to sell franchises in the Sweet House. The franchise fee was $25,000 to $40,000 depending on the size of the region surrounding the prospective franchise. The franchisee received rights to run the business model franchise, training, a uniform, and inventory to serve the region for one sales cycle. By August of 1996, the Sweet House was composed of 16 franchises throughout New Zealand, its honesty boxes were placed in approximately 5,000 retail locations, and total sales were almost NZ$4 million.

The Game of Zandinger!

During an interview with the case writer, Geoff Knox explained

Personally, I was never much of a game player. When my uncle first

showed me this game, I didn't like it much. It was too long,

complex, and a bit ho-hum. Some of my uncle's friends said the same

thing. He made major modifications to the game and now it's really

fun. I like the game and I really believe in Zandinger! as a

product.

Geoff Knox described Zandinger! as "a cross between crossword, Scrabble, and chess." It is a word game designed for 2 to 8 players, individually or in teams. The length of the game can be regulated to last less than an hour, or allowed to continue for several hours. The playing board is divided into an Inner Zone and an Outer Zone (see Figure 1). Accompanying the game board is a set of plastic letter pieces similar to those used in Scrabble. Play begins by each player writing four letters (the letters must be organizable into a word) on his or her Game Sheet. This is an important aspect of the game that differentiates it from most existing word games. Rather than letters being chosen randomly (as in Scrabble) or being dependent on a dice roll, players choose four letters from the alphabet to begin their turn. According to Geoff, allowing players to choose their starting letters adds an element of strategy not found in other word games. The first player spells a word in the Inner Zone using plastic letter pieces. In turn, the other players add new words, starting with the Inner Zone and building toward the Outer Zone. See Appendix A for a more detailed explanation of the game.

[FIGURE 1 OMITTED]

Current Status of Zandinger!