Running head: ALTERYX EXPANSION EXTERNAL CAPITAL FUNDING PROPOSAL 1

MBA 640 Final Project 6-1 Milestone Two

Alteryx Expansion External Capital Funding Proposal Risks: South Africa

MBA-640-Q1950

Finance Economics & Decision 19TW1

Korey L. Merrick

Southern New Hampshire University

8 December 2019
ALTERYX EXPANSION EXTERNAL CAPITAL FUNDING PROPOSAL 2

Alteryx Expansion External Capital Funding Proposal Risks:

South Africa

Risks

To be successful in the marketplace, Alteryx must recognize and respond to the various

forces that exert influence on its operations, activities, and business decisions. Alteryx

understands that examining these internal and external forces that drive change in the business is

an important task before considering or launching an expansion or strategic plan.

Internal

Alteryx’s internal environment are the factors that exist inside the organization, which are

under the control of Alteryx regardless of whether they are indefinable or concrete (Mindtools,

n.d.). These internal factors can be either strengths or weaknesses. Consequently, as Alteryx

analyze its strengths and weaknesses, it must seek to use its strengths to take advantage of

opportunities, while using them to minimize risks. Similarly, Alteryx must also seek to improve

weaknesses to take advantage of opportunities and seek to eliminate weaknesses to avoid risks.

Despite our strengths and weaknesses, the company is exposed to the following main internal

risks associated with the project: increased operating expenses; talent management and sales

force productivity; and dependence on a single subscription-based software platform. If any of

the above risks or uncertainties occurs, the company’s financial health, operating results, and

performance may differ materially from our projections.

Increased operating expenses. Prior to fiscal year ending December 31, 2018, the

company posted net losses for each accounting period since the establishment of Alteryx

(Alteryx, 2018). As Alteryx invests in this expansion, the company expects operating expenses

to increase substantially as well (Alteryx, 2018). Based on our projections, the company
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estimates that operating expenses, as a percentage of sales, to increase by 6.8% from 79.2% in

2018 to 86% for future years. Much of the increase is linked to sales and marketing expenses,

which represents 45% of sales, followed by administrative expenses at 21.5%. If operating

expenses grows past our current financial estimates, Alteryx may report net losses once again.

Nonetheless, to grow the business, the company must increase overall investments in creating

new customer bases in South Africa, while expanding sales within its current customer base. In

addition, additional costs from testing and developing the new subscription-based eLearning

computer education platform, growing distribution channels, establishing our South African

infrastructure, and hiring and training additional employees, just to name a few, are necessary to

expand the business (Alteryx, 2018). However, if the company cannot manage or counter these

risks, its operating results will suffer greatly.

Talent management and productivity. Expanding operations into this new market,

places additional and significant demand on the company’s financial, operational, and

administrative resources. A key part of any company’s administrative resources and internal

environment is its people (employees). As such, we must be able to effectively manage, recruit,

integrate, train, and motivate many new hires, while at the same time, retain existing talent

within the company. In addition to lower-level employees, Alteryx’s direct sales force is key to

the company’s success because most of the company’s revenue is attributed to our sales force.

Thus, our financial growth and sustainability depends largely on management’s ability to recruit,

train, and retain sales personnel. However, there is significant competition both domestically

and internationally for talented, competent sales personnel who have the skills and technical

knowledge to ensure the success of our eLearning platform and current products. Although there

is an opportunity for Alteryx to recruit new people in the South African market, there are
ALTERYX EXPANSION EXTERNAL CAPITAL FUNDING PROPOSAL 4

additional upfront costs to train and recruit them because they are new to the company, our

legacy platforms, and the new eLearning platform. If the new hires fail to reach their full

productivity potential, the company may not recover training costs and will adversely affect sales

and profitability.

Dependence on a single software platform. As mentioned in Alteryx’s 2018 Annual

Report, nearly all the company’s revenue relies on its subscription-based software platform.

During the expansion, Alteryx’s financial results will still rely on the performance, continued

growth, and demand for this platform. However, although there are inherent risks and

uncertainties, the new eLearning platform creates a good opportunity to further diversify

Alteryx’s current offerings and create an additional revenue stream for the company. Unlike,

Alteryx Connect and Alteryx Promote, which use Alteryx Server and is not sold independently,

Alteryx eLearning will be a standalone product (Alteryx, 2018). Nonetheless, we cannot be

certain that this new product will generate the forecasted revenue of $13.5M and $5.6M in net

profit per year.

External

External factors occur outside the organization that are beyond the company’s control and

can cause internal changes that can impact the company negatively or positively, creating great

opportunities or significant threats (Mindtools, n.d.). There are several external forces that

Alteryx may need to address, such as political, infrastructure, and socio-cultural conditions.

Political. Despite being the second-largest economy on the continent with several

opportunities present, South Africa is impaired by challenges associated with government

corruption, poor education standards, crime, and unemployment that continue to impede growth

in the country (Matsangou, 2019). Although Alteryx’s eLearning platform benefits from SA’s
ALTERYX EXPANSION EXTERNAL CAPITAL FUNDING PROPOSAL 5

poor education standards by helping SA improve and modernize its education system related to

technology, government corruption and crime presents significant risks (GAN, n.d.). For

example, SA’s current government has been accused of a list of scandals involving racketeering,

fraud, money laundering, corruption, and taking bribes from arms dealers (Matsangou, 2019).

Although South Africa’s Prevention and Combating of Corruption Act (PCCA) criminalizes

corruption in public and private sectors, making it a crime to offer any form of gratification to a

government official if it is not lawfully due, the laws are inadequately enforced (GAN, n.d.). To

reduce risk Alteryx must communicate a strong message to international business managers and

governments by setting strict standards of behavior and principles globally, adapt industry anti-

corruption standards, exclude outsourced providers that have corruption offences, and report

corruption to the proper authorities (Travieso, 2017). If the company does not find measures to

curb the impact of these political risks, it can result in costly fines (assuming internal corruption)

for Alteryx resulting non-deductible expenses and a reduction in net income and potential

irreversible damage to its reputation (Travieso, 2017).

Technology Infrastructure. Over the past decade, SA recognized there was a clear and

urgent need to develop a comprehensive and integrated e-strategy that advanced the countries

information and communication technology (ICT) to a level that supports its growing economy

and population (The National Planning Commission [NPC], n.d.). Similarly, SA realized that a

robust ICT infrastructure is a critical enabler that attracts economic activity in this new digital

world (NPC, n.d.). SA’s investments in ICT provide important opportunities for Alteryx that

may provide seamless delivery of its eLearning platform not only to SA’s education system, but

to homes across the country as well. However, SA has fallen short in developing an information

infrastructure that is universally accessible to meet the needs of citizens, businesses, and the
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public sector -as compared to the country’s main peers and competitors (NPC, n.d.). Poor ICT

infrastructure presents moderate risks for Alteryx resulting in more infrastructure investment

costs to support its eLearning platform internet demands that allow smooth delivery of the

platform without degradation of quality (i.e. lagging, and extended video buffering times).

Despite the risks, enormous opportunity still exists for businesses willing to invest capital

resources and who have the ingenuity to help solve SA’s ICT infrastructure challenges.

Socio-Cultural. One major external factor that may have a large influence on the

company is South Africa’s socio-cultural conditions. For instance, the biggest political and

social change that has occurred in South Africa was the abolishment of its apartheid system, a

system that legally call for the disenfranchisement, discrimination, and segregation of its

majority black population (NPC, n.d.). However, severe racial tensions still exist, and it has a

significant impact on business relations within the country (NPC, n.d.). In response to South

Africa’s post-apartheid transition, Alteryx must strictly enforce or adapt an equal opportunity

policy that quickly respond to incidents that contravenes it, while implementing measures to

circumvent and prevent discrimination in employment against all employees, including

designated groups. By ensuring equitable representation in all occupational categories and levels

in the workforce, Alteryx can avoid damaging its image and brand. Ignoring political and social

external forces like the one above, can be a damaging mistake for the company.

Microeconomic

According to Kokemuller (2019), microeconomic factors are those that involves the

availability and usage of resources that impact individuals and businesses. Microeconomic

factors that affect Alteryx expansion opportunity decisions the most include customers, and

competition ( (Kokemuller, 2019).

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Customers. There is no doubt that customers have a direct impact on the success of any

business. If Alteryx cannot attract new customers and expand revenue from existing customers,

the expansion will not be successful, or the company may experience slower revenue growth

than expected. The success of Alteryx’s eLearning platform relies on the assumption that SA’s

educational system will be a major and supporting customer, predicated on the fact that the

country needs to innovation and modernize its education system (NPC, n.d.). If this assumption

proves to be false, Alteryx could be left alone to bear the costs without the support of SA’s

government. Additionally, it loses its competitive advantage and must compete with other

subscription-based eLearning companies, SA’s education system, and other education

institutions. The undeniable fact is that Alteryx will not be successful or profitable if it can’t

attract new customers. In addition to increased public sector demand for eLearning services,

demand and usage for eLearning courseware in the private sector, practically corporate

enterprises and schools, is expected to rise 55% by 2023 with industry revenue estimated to

increase at a CAGR of 14.9% during the same time (Ken Research, 2019). As such, the

company must fully understand its target market, develop and implement an effective marketing

strategy to build a strong customer base that generates revenue streams to support the expansion

and operations.

Competition. Competition is another microeconomic factor that can have a substantial

impact on a business (Kokemuller, 2019). The level of competition in the eLearning industry in

SA is moderate (Scrivastava, n.d.). With over a dozen major eLearning providers operating in

the country and along with Alteryx resources, the company should be able to capture a good

percentage of the market share. In the public sector, Alteryx’s biggest competitors are

Webanywhere eLearning Services, LRMG, and Learning Advantage, all of which provides
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eLearning services to SA’s government and education establishments (Scrivastava, n.d.).

However, Alteryx’s targets computer and technology education specifically. Alteryx eLearning

platform targets one of SA’s major challenges, a workforce absence of ICT skills. It directly

addresses SA government’s top priorities, which is to build a skilled and technology competent

workforce that can help build a sustainable technological advance future for the country (NPC,

n.d.). Despite the moderate level of competition, rising SA’s education system fees allow

reasonable the price flexibility for Alteryx eLearning services, if, the company provides quality

education and set reasonable prices it should be able to compete in this increasingly crowd

market.

Alternate Financial Scenarios.

Alteryx’s financial projections are quite sensitive as they rely on attracting new

customers. As the number of customers goes up or down, sales equally follow in the same

direction. Current estimates are based on training 30,000 students (customers) at $2,715 per

student each year for six years resulting in annual sales of $13.6M per year.

Reduction in sales of 20%. If the expected number of customers goes down 20%

(24,000), for example, future cash flows from sales decrease to $10.9M per year or $65.2 in six

years. Alteryx return on investment (ROI) is 4.81%, based on initial investment of $10.4M. In

addition, if Alteryx invested the $10.4M, let’s say in a government bond because of its minimal

risks, at today’s effective annual rate of 1.683%, the NPV of the project would yield a positive

result. The PV of $10.9M for one year is $10.7M resulting in an NPV of $0.3M (NPV equals -

cost plus PV of future cash inflows). In other words, investing in the project with an expected

20% reduction in sales yields a positive NPV indicating that Alteryx should invest in the project

at an initial investment of $10.4M. See Appendix A. However, if Alteryx invest in a medium to

ALTERYX EXPANSION EXTERNAL CAPITAL FUNDING PROPOSAL 9

higher risk investments that yields returns higher 4.4%, such as those funds that invests in master

limited partnerships, junk bonds, and real estate index funds, the project would not be worth the

investment (assuming does not realize a loss on the 4.4% investment). Moreover, after applying

the time value of money concepts, we can see that in six years the FV of the initial investment

costs plus the FV of the estimated annual costs equals $52.54M. This amount represents the

opportunity costs that Alteryx would have received if it invested the above funds, which happens

to be less than sales of $65.2M. This further supports the investment decision.

A 20% increase in estimated sales. Similarly, a 20% increase in sales would be great

news for Alteryx resulting in annual sales of $16.3M an increase of $5.4M each year. The

company’s ROI would increase by 0.86% from 4.81% to 5.67%. In addition, the NPV would

also be positive suggesting that Alteryx invest in the SA expansion. Assuming no changes in

operating expenses, Alteryx six-year sales of $97.74M would surpass the FV of the initial

investment costs and the annual expenses by $45.2M. See Appendix A.

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References

Alteryx. (2018). Alteryx, Inc. Annual Report on Form 10-K For the Fiscal Year Ended December

31, 2018. Retrieved from Alteryx: Financials :

https://d18rn0p25nwr6d.cloudfront.net/CIK-0001689923/f371c8d8-811f-4c13-a4c1-

d31554c8ac0f.pdf

GAN. (n.d.). South Africa Corruption Report. Retrieved from GAN Intergrity:

https://www.ganintegrity.com/portal/country-profiles/south-africa/

Ken Research. (2019, April 30). South Africa E-Learning Industry Revenue is Expected to Reach

Over USD 490 Million by the Year Ending 2023: Ken Research. Retrieved from Cision

PR Newswire: https://www.prnewswire.com/in/news-releases/south-africa-e-learning-

industry-revenue-is-expected-to-reach-over-usd-490-million-by-the-year-ending-2023-

ken-research-874348742.html

Kokemuller, N. (2019, March 5). Six Microenvironmental Factors That Affect Businesses.

Retrieved from Chron: https://smallbusiness.chron.com/six-microenvironmental-factors-

affect-businesses-78023.html

Lambert, R. A. (2012). Financial Literacy for Managers: Finance and Accounting for Better

Decision-Making. Philadelphia: Wharton Digital Press.

Matsangou, E. (2019, January 11). The problems are mounting for South Africa’s ailing

economy. Retrieved from World Finance: The Voice of the Market:

https://www.worldfinance.com/markets/the-problems-are-mounting-for-south-africas-

ailing-economy

Mindtools. (n.d.). PEST Analysis Identifying "Big Picture" Opportunities and Threats. Retrieved

from Mindtools: https://www.mindtools.com/pages/article/newTMC_09.htm

ALTERYX EXPANSION EXTERNAL CAPITAL FUNDING PROPOSAL 11

Scrivastava, A. (n.d.). eLearning Companies in South Africa. Retrieved from Learning Light:

https://www.learninglight.com/elearning-companies-south-africa/

The National Planning Commission [NPC]. (n.d.). Economic Infrastructure. Retrieved from The

National Planning Commission:

https://nationalplanningcommission.wordpress.com/economic-infrastructure/

Travieso, F. (2017, September 13). How can companies doing business overseas reduce the risk

of corrupt practices? Retrieved from The Conversion: http://theconversation.com/how-

can-companies-doing-business-overseas-reduce-the-risk-of-corrupt-practices-83673

Twproject. (2018). The internal and external corporate environmental factors and the project

environment. Retrieved from Twproject: https://twproject.com/blog/internal-external-

corporate-environmental-factors-project-environment/
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Appendix A

Financial Model Analysis