Question

After having initially started out in 1988 as a reseller of third party software to small distribution businesses and corporate systems for retail home offices, by 1993 Datavantage grew to 16 employees and $1.5 million in sales with only $50,000 of external financing. Very few products were developed internally and, by 1993, Datavantage was slowly transforming itself into a consulting company. Despite relative success, it wasn’t exactly what Marvin envisioned to be an exciting entrepreneurial opportunity and he was ready to get out of the business. A radical change was needed in order for Marvin to consider staying and growing the company.

The opportunity for change arrived in 1994 when Datavantage acquired the services division of LDI, with Chaz joining Datavantage as part of this acquisition. LDI was a reseller of products for store systems and provided a complementary foundation for Datavantage’s further development. This dramatically changed Marvin’s perception of Datavantage’s future potential.

Also in 1994, the organization made a conscious decision to better control its own destiny and transition away from reselling third party software and into internally developing its own Point of Sale software products. After developing Store 21, a complete store management system based on full transaction Point of Sale (POS) applications software, Chaz and Marvin were considering the acquisition of XBR Track, a small loss prevention software company, based in Boston, Massachusetts.

The opportunity for XBR Track emerged out of the need of Specialty Retailers to minimize their internal losses from theft and shrinkage. Chaz and Marvin determined that retailers in the U.S. were losing an average of 2 percent of sales due to retail theft or shrinkage each year. The losses due to shrinkage directly affect the bottom line of the retailer in the form of a pure profit loss. It was estimated that retail employees account for 55 percent to 75 percent of lost revenue because of various fraudulent transactions. Transaction fraud ranges from improper cash refunds and price overrides to employee discount abuse and fraudulent credit card activity. XBR Track was offering the retail industry a solution to the $13.2 billion loses annually due to employee theft.

Chaz and Marvin find themselves in the final stages of negotiation to acquire XBR discussing many related issues regarding the acquisition and its impact on the entrepreneurial culture currently at the company. While there is no doubt about the attractiveness of the acquisition, the case brings up multiple concerns about the post-acquisition integration directly relating them to the challenge of continuing the organizational entrepreneurial culture. Specifically, the two founders are concerned with whether Datavantage will be able to successfully serve the existing customers and maintain its current level of customer support; whether XBR’s geographical location will become an issue during the integration; whether the existing sales force has enough knowledge and competency to sell XBR; and whether Datavantage will be able to effectively execute the “get into the castle” strategy intended for XBR. Above all, however, Chaz and Marvin were wondering if the potential rapid growth that XBR can provide for Datavantage can have a negative impact on the small start-up entrepreneurial culture that made the company successful.

1. There are many reasons for the growth success of the company for its current (at the time of the case) growth. What does the case describe as the main reason? Hint: it has to with entrepreneurship.
2. What are the aspects of the company’s performance that are directly affected by these factors? Identify what aspects of the company’s performance are directly affected by its ability to sustain and nurture its entrepreneurial culture. What are the 3 areas that ensured the company’s success?

Answer 1

The main reason for the growth success of the company is innovation. While the company was doing well and steady as a distributor of third party software, it is only when it designed and developed its own product that the growth of the company took off. By acquiring LDI, they could focus on a new business opportunity in the retail store sectors. Providing innovative solutions for retail stores proved very beneficial for the company. Product innovation is a key factor for any small company or start-up to make a name and grow and datavantage was able to capitalize on this entrepreneurial spirit and approach to produce a solution for the needs of customers.

The aspects of the company that are affected by these factors are 1)Service 2)Marketing and 3) Research and development. Service is important since the company has its own product and it has to develop its service team to help customers. New Marketing and sales team needs to be built from scratch to sell the product to customers and Research and development need to be there to develop the product further and remove any problems in software or bugs.

The three areas that ensure the company's success are

1)Leadership - Having good leadership ensured that the company was well run and decisions were , made on a sound basis. The leadership provided direction to the company.

2)Product Innovation - Innovating and developing new products provided the company with new source of earning and profits. Having own product ensure bigger profit margins than being a distributor and also can control the supply chain.

3)Acquisitions- Acquiring new company opened up new line of business for the company and diversified the companies offerings.