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GOOD MONEY AFTER BAD?

Question: Should Harbinson recommend further investment in Seven Peaks?


This case depicts a typical scenario of any venture capital firm which makes investment in an early stage company. The entrepreneur, Jack Brandon, did demonstrate proof of concept with his titanium-alloy technology for cauterizing; but didnt even define the commercial viability. Further he introduced more complexity by adding a forceps project to the initial cauterizer project. The investing partners will obviously set high targets for the new money thats being demanded which will in turn sour the 18 month relationship between Christian Harbinson and Jack Brandon. To begin with, it is necessary to answer the following questions the opportunity cost of not reinvesting for new project in Seven Peaks, the market size (in units per year), price elasticity, are these premium products that could outsell the existing ones because of superior performance? In my opinion, Brandon should be looking to launch a new and improved version of his cauterizer before exploring the forceps idea. Once its a successful product he can consider the cross-selling synergies that would arise from marketing forceps. It has been quite clear that Brandon is not a marketing expert and that why the first product didnt reach the desired level of success. Seven Peaks essentially need marketing specialists. Harbinson himself needs to take initiative to develop Brandons entrepreneurial capabilities. He ask a time period of say 3 months to fully develop a new proposal for the existing cauterizer project with modifications and then ask the investors for reinvestment. Like many entrepreneurs, Brandon made the mistake of relying excessively on his own feelings about the technology when he launched his first product. Seven Peaks while preparing its modified business proposal, it should answer to questions like what its customers thought about the cauterizer, what surgeons liked or disliked about the product, it should also try to explore why other surgeons have not tried the product as of now? Without this knowledge, Brandon most likely mispriced the product. The product has durability and reusability advantages for the users, hence should be priced to reflect the number of times it can be used. The message Early adopters lead the way, followed by the middle majorities and finally the conservatives should be conveyed while marketing the product. Harbinson should try to convince Brandon that the cauterizers success story in the healthcare industry will undoubtedly increase his chances of getting his idea of forceps a grand success at a later date.

Submitted by, Bibhu Prasad Biswal Roll No 40, Batch 18