Discussions & Implications for “Sunset before Darkness”

In this scenario, Company X’s estimated enterprise value is the lowest; financial leverage ratios and the increase in CFF are high. The increase in CFO and total increase in cash are low. Additional financed capital items in balance sheet are high.

All these facts evidence that Company X would be lacking and would not be able to generating enough cash in the future years after 2014; as cash & equivalents represent 72% of the total assets, we can say that cash & equivalents somehow represent total assets. The fact that stockholders’ equity to total assets grew significantly is at least partly because cash & equivalents are little (Mentioned in last paragraph), or total assets are little, not because stockholders’ equity improved a lot. This can be evidenced again that 2017’s total asset growth rate is lowest among the four scenarios;

even though the total assets are low, retained earnings to total assets increased little.

This implies that stockholders’ equity contributed by Company X’s actual efforts (Net incomes) are little, since there are no dividends released. Subsequently, we can say that, even though net income to total revenue is very high, this is mainly because Company X invested no additional SG&As and have very little liabilities. This can be evidenced again from the fact that total revenues never exceeded total assets.

The facts stated above indicate that Company X managers’ initial strategy (Assumptions) in this scenario would lead Company X to fail. Therefore, this research provides with some insights based on SWOT analysis and the financial status.

The strategy of not investing more in SG&A would make Company X keep on asking for additional capital consistently, because net incomes and CFOs are not generated enough, eventually leading to bankruptcy. In short, Company X has no choice but to reduce additional financed capital, and lifting required SG&A expenses

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in order to expand customer segments, and eventually improving their net incomes and CFOs.

For companies implementing differentiation strategies, the sales team is the biggest factor of success because they are responsible to communicate the perception of their products’ higher quality to the market (Stathis, M., 2004). Company X’s strategic positioning is definitely a differentiation strategy and they have decided not to invest in their distribution channels. Company X should first and only invest more in their sales team in order to promote their services to their initial target market:

Publication industry.

Company X should only promote their services to the publication industry and have the sales people reach out to target clients directly and secretly. The reason is because Company X and 91APP provide different values to clients and hence have different domain markets. If Company X focuses only on the publication industry in the near future, rather than stealing 91APP’s existing customers from other industries, 91APP may have fewer incentives to retaliate, and vice versa. Even so, high-profile promotion to the publication industry should be avoided because high buzz from potential competitors may make 91APP be alerted, feeling threatened or reminding them of another niche market 91APP hasn’t exploited. As 91APP has exploited early adaptors, gained incumbent first mover advantages, developed solid distribution channels, enabling it to have indirect spillover powers by providing services to any retail brands that demand mobile app platforms to sell their products or services, Company should not compete companies like 91APP which is well established within its network (Stathis, M., 2004). In other words, 91APP can either cooperate with Company X’s current outsourcing partners and easily match Company X’s movements or outdo them, or maybe 91APPs has significant resources so they would

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not even have to outsource. This is very true as Company X’s key resources and activities can be easily replicated, according to SWOT analysis. If this happens, Company X would lose everything at a sudden.

The focus on sales team investment is also cost effective and is suitable for Company X’s current situation, as they don’t generate sufficient cash flows.

Next, as Company X implements differentiation strategy instead of cost leadership strategy, they may lift their profit margin reasonably (Stathis, M., 2004).

During Company X exploits the publication industry, it should set up a legal department to have their employees sign invention assignment agreements and noncompetition agreements. The reason is because Company X’s resources are scarce and depends significantly on their developed intellectual properties. Having these agreements may at least preserve their designed intellectual properties and prevent employees’ betrayals, bring core values to competitors.

The legal department should also try to search for potential investors such as angel investors or venture capitalists to invest Company X, especially in this scenario in which they lack cash.

The main purpose to have a legal department is to start build Company X’s intellectual property protection (Patents, trade secret rights, etc) and start prepare all the necessary due diligences and required documents in order to alliance with 91APP when they have exploited enough publication clients someday.

There would be two scenarios: First, 91APP would not cooperate with Company X. This would be fine as Company X would have already taken advantage of incumbent first mover advantages and the early adopters in the publication industry.

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Company X would hence have sufficient clients in its target market, leading to consistent and sufficient subscription and advertisement revenues, boosting net income and cash inflows. Company X may not be able to expand its customers segments, gain economies of scale, have solid and sufficient distribution channels and resources in near future, but Company X may survive or even thrive in the publication app industry. Second, 911APP would ally with Company X. This would be the optimal situation, as Company X’s current strengths and opportunities in SWOT would be fortified and grasped; current weaknesses and threats would be eliminated, and of course, the initial plan to boost net income, CFOs, and reduce additional financed capital would become reality, too.

Strategic alliance between Company X and 91APP would be beneficial to both parties. For 91APP, as they have reached their rapid sales growth stage in their product life cycle, they would reasonably spend less on R&D and more and marketing and sales (Stathis, M., 2004). Company X’s big data integrated managing techniques and superior interface designing capabilities strategically fits 91APPs current product and hence extends 91APP’s product life cycle, leading to higher ROI. Second, Company X can bring their current clients to 91APP, immediately lifting 91APP’s valuation. For Company X, the strategic alliance’s most valuable assets to Company X are to have access to 91APP’s distribution channels and the access to 91APP’s previous clients in various industries. Company X’s weaknesses and threats in their channels and customer segments would be eliminated and opportunities are turned into strengths. Other benefits include strengthen their original separate products’/services’ values, gain reputation through brand synergy, gain more resources which leads to economies of scale, and gain more partners. All of these would lead to more and consistent revenues streams and CFOs.

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For both 91APP and Company X, strategic alliance is ideal as it is mainly used in industries with high uncertainties. This provides two parties to proceed in a step-wise manner to reduce risk and be cost effective. In other words, they have the flexibility to stop the cooperation or go to merger & acquisition in future.

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