Robert Reiss Case https://docs.google.com/file/d/0B9rgPFlyKRqbeTJac1pxOWU2M28/ed

ID: 384670 • Letter: R

Question

Robert Reiss Case

https://docs.google.com/file/d/0B9rgPFlyKRqbeTJac1pxOWU2M28/edit

1. Was Reiss successful? Prepare an income statement for R&R in the space below to support your answer

2. How much capital does Reiss risk to pursue the opportunity? (Calculate how much money it takes to make the opportunity happen and how much Reiss invests)

3. Who pays for most of the costs for R&R's operations? How does this cost structure work (or not) for a startup for a new PRODUCT instead of a new BUSINESS?

4. Would this approach have worked for other entrepreneurs? (Compare what Reiss did to what other entrepreneurs or ESTABLISHED COMPANIES might have done to pursue the same opportunity)

Explanation / Answer

Yes, the profit was USD 3,734,500

Income Statement(USD)

Revenue

1,450,000.00

Operating expenses

Commissions to sales reps

507,500.00

EBITDA

942,500.00

Sum cost of expenses incurred; Royalty to TV guide, Royalty to Professional Inventor, Design and Product Launch, Heller factoring and Manufacturing, assembling and shipping costs; 725,000(10%*580,000*12.50) + 362,500(5%*580,000*12.50) + 50,000 + 72,500(1%*580,000*12.50) + 1,798,000(3.1*580,000)=3,008,000

Calculate 50% of 3,008,000. which is Reiss’ equity contribution. Therefore, Reiss risks USD 1,540,000

Reiss risks little capital because that puts a cap on how much he stands to lose if the product does not perform as expected. Therefore, he stands to lose less if the product fails.

Reiss opted to establish a company Trivia inc. with a partner whereby both split their equity evenly. Through this partnership, they could reach more contacts. Reiss also partnered with TV Guide because of its large audience. This ensured that the product would be able to reach a wide range of customers. He also outsourced other services such as production, shipping and billing which allowed him to focus on sales. Through these partnerships, the product was a success.

Other entrepreneurs may be unable to take Reiss’ approach because of lack of experience and the initial amount of capital required to pursue it. Therefore, because of the current growth in number of venture capitalist, that may be a more viable option as the entrepreneur gains both equity and capital from the VC.

For an established company, they might opt to keep most operations in-house although they might require partnerships such as TV Guide for publicity purposes. On the other hand, they could opt to incur advertising expenses instead of partnering with say TV Guide.