Entrepreneurialist Culture Course Outline
Entrepreneurialist Culture Front Page
42.491
Case Study
Digital Guard:
Beginning of a new industry?
Martina-Ann Gargano
Digital Guard Corporation - 1999
The authors have disguised all names to protect confidentiality. Al Pilcher and Martina-Ann Gargano have prepared this case under the supervision of Professor Callahan and Dr. Firestone with the sole purpose to provide material for class discussion. In no way do the authors intend to illustrate either successful or unsuccessful handling of an organization.
Jason, President of Digital Guard Corporation, believes that he has come up with a great idea, but he has gone as far as he can with the personal infusion of cash he has put in the company. He also sees a huge potential for fast growth across North America. The response from his customers thus far has been overwhelming, but the phone has not been running off the hook.
Jason’s main questions were: in which direction should he be taking the company? Should he continue to operate as he had or look at a fast growth strategy? How should he raise the capital? How much control should he sacrifice for this capital?
Company Background:
Throughout all of his life, Jason had a sound understanding of the value of content insurance. His father ingrained in him that the purpose of content insurance is to help you in the event that you may need to make a claim. Cheap insurance is cheap for a reason. If an individual has less expensive insurance, it then might be very difficult to get the monetary value from the lost items in a short period of time.
Shortly after being married to Carol in Northern Ontario, Jason found himself wondering how he would record all the new items that they now owned. Although he understood that it would be valuable to write it all down, the amount of time and effort that would be needed to create this list, overwhelmed him.
Having just moved to Ottawa to continue his education, Jason found himself sitting on his living room couch, looking up on top of the wall unit, and noticing all the small decorative items. He then asked himself how in the world would he remember them, in the event that he had to make a claim. Those few items, could easily add up to $500. Then Jason turned to his left and looked at the items on some other shelves, such as picture frames, vases, ornaments, and he realized that those could total up to hundreds of dollars as well. If the house burned down, he would easily remember the large ticketed items, such as the couch, chairs and paintings. It is the small items that he would never be able to remember, and these could very well amount to a large portion of the claim. Now Jason realized that he had a problem, as he was not going to write every little item on a piece of paper.
During the next month, while Jason was attending school and working part time as a computer consultant for the School of Business as well as talking about the problem to other people, it occurred to him that technology might be the solution. Taking digital pictures and then storing them onto CD-ROMs could be an efficient and affordable method of resolving the problem.
A light went on in Jason’s head with the possibility of a lucrative opportunity for a service-based business. Using the digital camera; having no incremental cost to take extra pictures except for time; storing these pictures onto a CD-ROM, which is a proven durable media and a ‘cool’ way of doing it; then taking an unlimited number of pictures within the household and burning them on-site, thus the need of an external CD-R burner; and finally leaving the customer with the only copy. The company would not store a copy of the CD-ROM off-site due to security issues.
Jason first wanted to turn his business into a sole proprietorship under the name of Insurance Guard. In early January 1999 while trying to register the company name, he found out that ‘insurance’ is a restricted name. He now had to find a new name and finally settled for Digital Guard.
In March 1999, after buying all of the equipment and experimenting with the external CD-R burner, Jason realized that the initial idea of loading 500 pictures onto a CD-ROM was not an efficient manner of storing pictures. Hence the development began for a file structure to navigate easily and quickly to view any picture within any building within any room in a matter of seconds. After the development was finally completed, the task of ironing out software conflict problems on the laptop’s operating system arose. Once this was solved, Jason’s vision grew towards a potential North American expansion, thus the need of incorporation. Digital Guard Corporation was founded September 7th, 1999. Up to this point, Jason had approximately 20 customers.
At the end of 1999, Jason was Digital Guard Corporation’s first customer who had to use the service to aid in filing an insurance claim. He had been a victim of a focused break-in, which included electronics, computer, and CD’s. This unfortunate event helped Jason truly understand the value of his service as well as some major improvement possibilities. This made him realize that the CD is the blueprints of the customers’ content, hence the need for CD security, such that no one else could have access to the pictures. After a month-long investigation, Jason bought encryption software from a California company that allows the encryption to be on the CD-ROM and operates on any computer. Moreover this software allows the customer to enter his or her own unique PIN number.
Jason then decided to participate in a couple of home shows in order to increase his exposure as well as to get public feedback about his service. After receiving some positive and constructive criticism from these home shows, Jason started to truly believe that there was an opportunity to expand this business across Canada and North America. Between the three shows, Jason was able to sign up between 40 and 50 customers, ten of those being business clients. Approximately 2000 people thought the service was a good idea, 500 people said that they would call him to get this service and about 25 people did not see a need, would not allow a stranger into their home or were simply not informed about content insurance and did not understand why they would have to pay for this service.
During this time, Jason joined the Broker’s Association thinking that this would be an excellent distribution channel to get his service out to the masses. He then sponsored one monthly luncheon for this association to increase awareness to the brokers and to explain that this would be an added value service for their clients at no cost to them. Unbeknownst to Jason tough, brokers have very little mailing contact with their clients as the insurance companies perform most of them. Furthermore, to Jason’s surprise, there was very little response from the brokers to take advantage of this free opportunity.
Jason knew that his next step was to build a business plan. After a few months of trying to create it, he luckily found out that there was a university course being offered in the fall term on building a business plan. This would give him a structure to follow and deadlines to meet in order to have the business plan completed by the end of the semester. This process helped Jason gain an in-depth understanding of the product and service that he offers as well as making him realize that developing this business model could potentially turn into a profitable venture.
After some time, Jason noticed that approximately 75% of customers had requested brochures after the service had been provided to give to their friends while the rest of his customers, though they had not asked for brochures, did accept them after having them offered by Jason. All these customers believed that their friends would want this service. Unfortunately, there had been very few inquiries from this word of mouth.
In October 1999, Jason received a phone call from a previous customer to let him know that he was so pleased with the service he received, that he had called his agent to tell him about it and now his agent wanted to meet with Jason. One month later, Jason had two objectives in mind when he had lunch with this agent. One was to show him the product and the other was to help Jason gain more knowledge of the insurance industry. This agent was very impressed with the product and assured him that he would forward this information to his regional manager and also recommended that Jason get in touch with her in the near future. At the end of November, Jason composed a strategic letter for the regional manager highlighting the benefits to the customer, the agents, and especially to the insurance company. Within one week, he received a phone call so a meeting could be setup. The objective for this meeting was to hopefully get the brochures into the agent’s offices as a means of distribution channel. Jason showed the product, explained the benefits and the regional manager seemed very impressed. She requested brochures for the 20 Ottawa offices, North Bay offices and Kingston offices, but Jason believed that his focus should remain in the Ottawa region. Furthermore, she gave him twenty thirty-second spots on a local radio station to help publicize this new service. Unfortunately, in early January, Jason received a letter from this regional manager apologizing that she could not put the brochures in the Ottawa offices as head office had overruled her decision.
Internal:
For nine years Jason had been a member of the Canadian Cross Country Ski Team. During this time, he competed in the 1988 and 1992 Winter Olympics and three World Championships where to date he still has the two best-ever Canadian results at these championships being seventh in the 50km in 1989 and sixteenth in the 10km in 1991 - this coming from a person who finished second-last at his first Junior Nationals in 1982. During this successful career, Jason had required a large amount of focus and discipline. The triumphs and struggles experienced through this challenging life as an amateur athlete and his ability to set goals have served as a foundation for his business accomplishments. He also believed in his vision and became determined to stay on track for the long-term success even though he had experienced many ups and downs.
Jason is an analytical thinker and open minded. Though he may sometimes be overpowering, he is always seeking knowledge, but does not lack vision or confidence. He is also aware that his inexperience in business may hinder the performance of Digital Guard.
At this point, Jason’s personal objectives were threefold. On one hand he did not want to create a J.O.B. for himself with this opportunity, but wanted to create a business that would have value beyond a single individual steering the company. On the other hand, he wanted to complete his undergraduate degree in commerce as well as maintaining a happy marriage.
Service Operations:
Whether it is a household or business, the service provides an unlimited number of pictures. Jason will go room-by-room and/or building-by-building taking pictures of every item inside cupboards, drawers, and closets.
During this stage, there are several steps.
Transferring the pictures from the digital camera onto the computer hard drive and using the software that has been developed to transfer the pictures from the camera.
Another software program is then started, which formats the pictures into an easy viewing template and numbers each picture.
All pictures and related files for the customer are then encrypted using third-party software, which uses 192-bit encryption. The customer enters a PIN number to ensure that only they will have access. This allows for utmost security, once the PIN number is entered, even Jason cannot view the pictures.
Transferring all the encrypted digital pictures and files onto the CD-ROM. It is then closed off so no future altering can be performed. This gives the CD-ROM creditability, as each picture is time-stamped.
Deleting all relative pictures and files from the computer hard drive directory.
Signing a legal warranty stating
all files and pictures have been deleted from Jason’s equipment.
Product Description:
With the Digital Guard software, any picture can be viewed in any room in a matter of seconds. Should the customer ever need to file an insurance claim after a burglary, theft, fire, flood, or storm, their CD-ROM provides the means of identifying exactly what was lost. Regardless of whether the customer is a household or business, this service/product will be valuable if the need to file an insurance claim arises.
Marketing and Sales:
To date, Jason has purposively not focused on marketing and
selling his service. He has deemed it
more important to fully understand the service and its potential. He has created brochures, done newspaper
advertising and niche mailings, three trade shows, and sponsored a Broker’s
Association Luncheon. He has come to
realize though that he has to increase market awareness as very few people know
of this type of service, but more importantly he needs to achieve customer
commitment. He recognizes that this
service is an unsought good as no one ever expects to make an insurance claim.
Financing:
Up to this point, Jason has invested approximately $35,000
through his savings and personal line of credit to grow the business while
Jason’s wife, Carol, has been the main source of income.
Information Technology:
Months were spent developing the software that this company
uses. There are two sets of software:
the first being transferring the pictures from the digital camera onto the
computer hard drive, the second is transforming the pictures to be able to view
them easily on the CD-ROM. After many
months of operations, a major problem was discovered with regards to the
software that resulted in three months of downtime. After a long investigation, Jason discovered that it was another
company’s software that was conflicting with the operating system while his own
software was running, which created a kernel problem. The solution was to remove this company’s software from Jason’s
laptop and replacing it with a competitors’ software. At this stage, the software is very functional and achieves the
purpose of the service, but enhancements will be added on in the future.
Customers:
Most people or businesses do not have an up-to-date inventory of their possessions. Digital Guard provides an affordable service from which both residences and businesses can benefit. The potential residential market in Canada consists of over 11 million households. In the United States there are over 98 million households. Anyone who has a content policy from an insurance company has the potential to benefit from this affordable service in case there is a need to file for an insurance claim. This service is an invaluable piece of information to any customer if the need should ever arise.
There are many markets that could be targeted. The segments that Jason decided to target first are:
· Residential customers
· Small and medium sized businesses
· Start-up companies
In the last few months,
Jason has been handing out a questionnaire for customers to mail-in some
feedback regarding the service. In this
questionnaire[1], all
customers wanted an update and 53% would like this update within a 2-year
period. Also, 53% of the respondents
stated that they would pay more for this service and all of them stated that
they were completely satisfied with it and 93% were surprisingly overwhelmed at
the number of pictures taken.
Though to date there is no company that provides a service like Digital Guard, competition arises in the form of substitutes, such as using a video camera, taking print pictures, taking digital pictures, or taking digital pictures and using third party software to organize them. These substitutes each have their own strengths and weaknesses, which are outlined below.
·
Using a video camera
Strengths: An individual might own a video camera or have access to one, which allows them to record their own content. They do not have to let a stranger into the household or business.
Weaknesses: Will the individual get around to recording their own content? Video is hard to view when creating a detailed itemized list since it is tasking to locate any picture within any room in a short period of time.
·
Taking print pictures
Strengths: Same as using a video camera.
Weaknesses: The individual might not take the time to record its household content and might not take the proper number of pictures in order to be able to create a detailed itemized list. And if they did take enough pictures, the cost of the film and its development would be expensive.
·
Taking digital pictures
Strengths: The customer does not have to let a stranger into the household or business. The customer saves money if he or she has access to a digital camera.
Weaknesses: It is not good to store pictures on a computer hard drive; if there is a fire or theft, these pictures will be lost. The customer may not possess software to view the pictures efficiently.
·
Taking digital pictures and using third party
software
Strengths: The customer does not have to let a stranger into the household or business. Pictures can be viewed in an organized manner.
Weaknesses: It is expensive to use third party software. Certain software programs on the market are not user friendly. If the individual cannot store the pictures on a CD-ROM, in the event of fire or theft, these pictures in the third party software will be lost.
Future:
Digital Guard’s expansion strategy is still under review as it is in a young industry just entering its growth cycle. At this point in time, Jason plans to develop a franchise/agent system. This system would help him enter new markets across Canada and the United States.
To achieve this, franchisees/agents would have to be established and would go through thorough testing before becoming involved with Digital Guard. This would include: police check, bonding, financial review, reference letters, and at least two letters from notaries. These agents would be on the company’s front line. Time must be invested in arranging an agreement between Digital Guard and the franchisee/agent. Some of the traits that Jason would be looking for would be: professionalism, good manners, neatness and tidiness.
Jason would like to form some type of alliance with companies in the insurance industry. Other long-term relationships could be established with real estate and trucking companies, and government departments or agencies (e.g. Foreign Affairs). To date, a strong contact has been made with the Co-operators Insurance Company.
APPENDICES
APPENDIX A – Digital
Guard Customer Survey
q Yes
q No
Comments:
q Yes
q No
Comments:
q Yes
q No
Comments:
q 6 months
q 1 year
q 18 months
q 2 years
Comments:
q Yes
q No
Comments:
1 2 3 4 5
q Yes
q No
q Yes
q No
If yes, how much .
APPENDIX B – Research
Insurance Letter – sent to ten insurance companies
Carleton University Case Study Questionnaire
·
Do you believe that
there is a need for such a service in the insurance industry?
·
Would this service add
value to your customer during an insurance claim?
·
Does your company
foresee offering a similar service to your clients?
·
Would you consider
partnering with a company that offers the service previously described?
·
What is the average
length of an insurance claim?
Selected Sampled
Population Questionnaire
These questions will be used only for case study. In no way will this
information be used to solicit business or have any further contact.
1. Do you presently have an
inventory of all your household possessions?
Yes
No
2. Have you ever heard of such a service before?
Yes
No
3. Do you see a need for the above-mentioned service?
Yes
No
4. Would a service of this type add value if you ever have to file an insurance
claim?
Yes
No
5. Have you ever had to file an insurance claim due to theft or fire?
Yes
No
If you answered Yes to question 5, please complete question 6, 7 and 8.
6. Were you able to remember every item lost?
Yes
No
7. How long did it take to settle the claim?
One Month
Two Months
Six Months
One Year
8. After the claim was settled, did you forget to claim any possessions?
Yes
No
NOTE: this questionnaire has been approved by the course
instructor and the School of Business Ethics Committee.
We asked to interview
customers, but President turned us down due to customer confidentiality.
42.491
Instructor’s Manual
To accompany
Digital Guard:
Beginning of a new industry?
Al Pilcher
Use of the Case
The Digital Guard
Corporation case could be used in several business courses at the undergraduate
level. Whether it is a strategy or case
study course, there are many possible discussions that can stem from reading this
case. The case is also short enough to
be handed out at the beginning of the class, read in 15-20 minutes and then
discussed.
Positioning and
Objectives:
The case raises many
different types of issues, which makes it very interesting. The objective of this case is to encourage
students to come up with as many alternatives for Jason and recommend the one
they think is best. Since this is a
very young company, students will be able to deal with issues that will most
likely arise for them if they ever decide to start their own company.
Preparation Questions:
In the event that you may
have the time to do some advance preparation, the following questions will get
the class ready for a good discussion:
1. What should Jason do and why?
2. How much money would be needed to expand the business?
And would you invest in Digital Guard Corporation yourself?
3. What problems do you anticipate in growing a business
of this nature?
Class Discussion:
To further enhance the
class discussion, you are encouraged to ask the following questions after the
case has been read by the students.
1. Should Jason continue to pursue his education part
time if he wants to grow the business?
2. What are some of the methods that could be used to
further market this service?
3. What could Jason do to increase commitment from
potential customers from home shows and word of mouth?
4. How much testing should be done when developing new
software? Is it better to be the first
one to market and deal with the problems as they arise, or should you wait until
it is fully tested and functional?
5. With regards to restricted names, i.e. the word
‘insurance’ is restricted, what other names could possibly be restricted?
6. Do you agree or disagree with Jason’s strategy of
focusing first on building his business plan instead of trying to build a
customer base?
7. Regarding security checking the franchisees or agents,
what other methods could be at Jason’s disposal? Do you deem it important?
8. Would a service from a third party add credibility to
an insurance claim?
9. Could this company grow when so many people can do it
themselves?
Martina’s
Recommendation
After a thorough analysis of Digital Guard Corporation’s operations, I would recommend a regional expansion. Although I do believe there is a good growth potential, I would not want to see Digital Guard grow too big too soon. I believe that going from an Ottawa based business to a North American expansion is too great of a step for Jason. Starting with a regional expansion will allow Jason to work out all the kinks in his model before going International. If mistakes are made on this smaller scale, the impact will not be as detrimental. As I have learned through my entrepreneurship class, if you grow slow, you will grow fast. Furthermore, the responses received from our research have shown that many would view this as a value added service, would consider trying it out and do an update within two years. As well, many insurance companies do feel that an itemized list would speed up the claims process. All of this evidence supports the business model and is why I believe that Digital Guard could be successful through an expansion.