heather evans

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IMPACT MEDIA productions

Heather EvansHeather Evans

Robert PricerProfessor of Management

UW School of Business

Robert PricerProfessor of Management

UW School of Business


Whom the gods would destroy, they first make mad.

Whom the gods would destroy, they first make mad. Greek Proverb


Heather’s OpportunityHeather’s Opportunity

Appears attractive, good fit between skills, desires and market needs.

What does Heather have to do to capitalize on opportunity? Produce designs consumers want Line up retailers and advertising

support Get items produced and delivered on

time

Appears attractive, good fit between skills, desires and market needs.

What does Heather have to do to capitalize on opportunity? Produce designs consumers want Line up retailers and advertising

support Get items produced and delivered on

time



What are advantages of opportunity? Little capital needed Good market niche: Unserved,

fragmented, and growing

What are advantages of opportunity? Little capital needed Good market niche: Unserved,

fragmented, and growing



What are key factors for success? Design sense Ability to sell retailer design General management Ability to manage cash, production,

delivery, and quality

What are key factors for success? Design sense Ability to sell retailer design General management Ability to manage cash, production,

delivery, and quality



What is the upside? Very high! Liz Claiborne public value of $661

Million Licensing of name a big dollar plus

with no additional cost Lots of expansion potential in

“niche” Costs of operations mostly fixed

What is the upside? Very high! Liz Claiborne public value of $661

Million Licensing of name a big dollar plus

with no additional cost Lots of expansion potential in

“niche” Costs of operations mostly fixed



What is the upside? Don’t need to control --Production--

Cutting, Sewing, Shipping, infrastructure built up in industry to allow people to do just what she is doing.

Low working capital need

What is the upside? Don’t need to control --Production--

Cutting, Sewing, Shipping, infrastructure built up in industry to allow people to do just what she is doing.

Low working capital need



What is the downside? Possible risks include:

• Will her designs sell?• Successful designs will be “knocked-

off.”• Heather’s ability to design for 5

seasons, 20-30 designs per season

What is the downside? Possible risks include:

• Will her designs sell?• Successful designs will be “knocked-

off.”• Heather’s ability to design for 5

seasons, 20-30 designs per season



What could Heather do to reduce the design risk? Hire a proven designer. Do some market research.

What could Heather do to reduce the design risk? Hire a proven designer. Do some market research.


Heather’s EffortsHeather’s Efforts

Built up expertise in industry: Model; Summer job with Jackie

Hayman. Chose Market segment that

matched her background: Morgan Stanley and HBS. Both feed into “professional women’s” segment.

Built up expertise in industry: Model; Summer job with Jackie

Hayman. Chose Market segment that

matched her background: Morgan Stanley and HBS. Both feed into “professional women’s” segment.



Spent a great deal of time starting business: At expense of school Lots of research, talking to

retailers, office space, etc. Used field study effectively Spent lots of time on business plan

Spent a great deal of time starting business: At expense of school Lots of research, talking to

retailers, office space, etc. Used field study effectively Spent lots of time on business plan



Built momentum. When business plan out, she had already: Incorporated Hired and paid Belinda Hughes Designed a line Arranged for a factor Paid rent / found building Reserved production capacity

Built momentum. When business plan out, she had already: Incorporated Hired and paid Belinda Hughes Designed a line Arranged for a factor Paid rent / found building Reserved production capacity



All of Heather’s actions builds: Credibility Commitment

In investors’ eyes (contrast with First Place & Ice Delights)

All of Heather’s actions builds: Credibility Commitment

In investors’ eyes (contrast with First Place & Ice Delights)



Was flexible - kept eyes and ears open: Worked with Robert T. Vin, then

abandoned him -- Saw would not work out

Used phone to check up on Barbara Tarpe.

Seized opportunity when 550 7th St. space opened up.

Was flexible - kept eyes and ears open: Worked with Robert T. Vin, then

abandoned him -- Saw would not work out

Used phone to check up on Barbara Tarpe.

Seized opportunity when 550 7th St. space opened up.



Used support for key areas (see field study plan): Accountants Lawyers Advisers

Used support for key areas (see field study plan): Accountants Lawyers Advisers



Used existing contacts: Industry Morgan Stanley HBS

Used existing contacts: Industry Morgan Stanley HBS



Depended too heavily on Arden -- was introuble when they fell through.

Money raising effort with private investors -- Never gave them a deal to respond to.

Depended too heavily on Arden -- was introuble when they fell through.

Money raising effort with private investors -- Never gave them a deal to respond to.


Heather’s Business PlanHeather’s Business Plan

Capitalizes on momentum -- Gets key points out in executive summary: Incorporated Have a line Hired and paid people Have factor Have building Have production capability

Capitalizes on momentum -- Gets key points out in executive summary: Incorporated Have a line Hired and paid people Have factor Have building Have production capability

PROSPROS



Leaves no doubt in investor’s mind that this is going to happen. Only issue is will it be with my money?

Lays out unique qualifications of Heather and concept:

Leaves no doubt in investor’s mind that this is going to happen. Only issue is will it be with my money?

Lays out unique qualifications of Heather and concept:

PROSPROS



Concept based on: Personal experience; New look, unmet market need; Professional management ability

Concept based on: Personal experience; New look, unmet market need; Professional management ability

PROSPROS



Excellent understanding of: Customer needs Competition Market / Channels of distribution Positioning relative to these

Excellent understanding of: Customer needs Competition Market / Channels of distribution Positioning relative to these

PROSPROS



Lays out upside: High sales growth High profit margins Large market -- 4.3 million women,

$5 billion Growing market Diversification -- Accessories,

leisure clothing, licensing, etc.

Lays out upside: High sales growth High profit margins Large market -- 4.3 million women,

$5 billion Growing market Diversification -- Accessories,

leisure clothing, licensing, etc.

PROSPROS



Lays out time sequenced plan with numbers attached: Hire bookkeeper Hire office manager Hire showroom personnel Shipping employee

Lays out time sequenced plan with numbers attached: Hire bookkeeper Hire office manager Hire showroom personnel Shipping employee

PROSPROS



Plan is: Short Well organized Easy to read

Plan is: Short Well organized Easy to read

PROSPROS



Financial statements poorly presented: Only 2 years Not well organized This reads like a preliminary

document -- much more work is needed.

Financial statements poorly presented: Only 2 years Not well organized This reads like a preliminary

document -- much more work is needed.

CONSCONS


Financing OptionsFinancing Options

Arden & Company Don’t put any more time into this

dead-end. Giving her the runaround Typical indirect “no.”

Arden & Company Don’t put any more time into this

dead-end. Giving her the runaround Typical indirect “no.”


Questions to be askedQuestions to be asked


What should Heather do?What should Heather do?

Are her terms reasonable? Control--She wants 50%+

• Puts a value of more than $500K at start-up

• Values Heather’s “sweat equity” at more than $250K

• She is the company, to control company, you must control Heather

Are her terms reasonable? Control--She wants 50%+

• Puts a value of more than $500K at start-up

• Values Heather’s “sweat equity” at more than $250K

• She is the company, to control company, you must control Heather


What should Heather do?What should Heather do?

Are her terms reasonable? License: Wants to license name to

company, rather than let company own it.

If she walks away from company, have investors’ built her name and then she walks off with upside?

Are her terms reasonable? License: Wants to license name to

company, rather than let company own it.

If she walks away from company, have investors’ built her name and then she walks off with upside?


What is the value of the businessWhat is the value of the business

Liz Claiborne gives some idea: Went public at $19/2.22 = 8.6 P/E Evans Proj. 1985 earnings = $167,

173 $167 * 8.6 = 1,437,700/(1+.5)2

Must value to price!

Liz Claiborne gives some idea: Went public at $19/2.22 = 8.6 P/E Evans Proj. 1985 earnings = $167,

173 $167 * 8.6 = 1,437,700/(1+.5)2

Must value to price!



In addition to value, must resolve other issues: Exit route: Forced registration

right (at time interval -- at earnings/sales level); Payback; Put; Call.

In addition to value, must resolve other issues: Exit route: Forced registration

right (at time interval -- at earnings/sales level); Payback; Put; Call.



In addition to value, must resolve other issues: Control:

• With equity; Voting vs. non-voting shares

• With board members; rights to appoint• Staggered by performance goals

(Heather can buy if met, investors can take if not met)

In addition to value, must resolve other issues: Control:

• With equity; Voting vs. non-voting shares

• With board members; rights to appoint• Staggered by performance goals

(Heather can buy if met, investors can take if not met)



In addition to value, must resolve other issues: License:

• Term• Royalty• Option to renew at fixed terms

In addition to value, must resolve other issues: License:

• Term• Royalty• Option to renew at fixed terms


Raised $250,000 for 40% of equity from friends and HBS classmates.

Gave company 3-year royalty free license on her name.

Gave investors a “put” on their stock at a multiple of earnings in years 3 and 4.

Raised $250,000 for 40% of equity from friends and HBS classmates.

Gave company 3-year royalty free license on her name.

Gave investors a “put” on their stock at a multiple of earnings in years 3 and 4.


First line sold well -- She used contacts for “free” publicity, etc.

First line did not sell through, she could not sell second line.

She would have been successful if designs had sold!

First line sold well -- She used contacts for “free” publicity, etc.

First line did not sell through, she could not sell second line.

She would have been successful if designs had sold!

heather evans

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