Melodies on the Web: An Entrepreneurship Case Study

Since her childhood, Sarah Jackson had passion for music and wanted to be an entrepreneur helping young, talented youth get exposure to potential audience. During 2013, she felt that her professional career was stable enough and decided to launch her own venture, ‘Melodies on the Web’(MOW), without quitting per permanent job.

The concept was to have her own radio station on the ‘Patreon1

’, web portal. ‘Patreon2

’, was

launched in the same year and was becoming very popular, hence was her preferred media. On the ‘Patreon’ portal, Sarah, would lease her own bandwidth and have her own radio station. She would identify talented youth and invite them to perform musical activities like singing, playing instruments etc. She would also focus on digital marketing so that a growing number of listeners would continue to tune in to her radio station. Once they listened to the new talent, their interest in them would

grow. They would then be given an option to move on to a second, subscription-based channel providing enhanced content, where they can join for a subscription and continue to enjoy the music of their favourite artist.

Since the business idea was new, Sarah was unable to find business partners or investors. She decided to invest her own savings of $60 000. Most of this amount was allocated towards digital marketing channels. The business model was a service based one, hence there was no necessity to invest in fixed assets. Sarah began bootstrapping her business towards end of 2013. She did not draw any salaries and focussed on growing her business instead.

Fast forward to 2018. Sarah’s vision yielded strong results. At the of December 2018, her operating

statistics were as follows:

• Combined subscriber base (both paid and unpaid): 40 000

• Subscriber base – paid: 8 000

• 2018 revenue: $ 800 000

• Year over year subscriber growth: 24%

• Subscriber conversion from unpaid to paid: 20%

• Number of artists on the platform: 120

• Growth rate of artist acquisition: 15%e

During Christmas break, Sarah was preparing her Operating Plan for the period 2019-2022. She realized that to implement her plan several strategic issues needed to be addressed and decided to seek help from Conestoga Consulting Group. You are the consultant from Conestoga Consulting Group and allocated to work with Sarah. You

have just held your first meeting with her. You are reviewing your meeting notes and see the following:

• To maintain the growth momentum, MOW can no longer be a bootstrapped venture and it needs to change its structure from Sole Proprietorship. The question is to decide between converting MOW to either a Partnership or a Private Corporation. Sarah would like to know the features of both these forms and like you to make a recommendation that is a good fit with her business.

• She has not prepared any financial statements since starting her venture and inquired as to why they were necessary? You explained to her the concepts of external and internal users of financial statements and what each user would need the financial statements for? Following the entity change, as proposed above, she would like you to prepare a list of both internal and external users and what their potential interest would be in Financial Statements of MOW.

• Sarah feels that she may need to raise capital soon. Her options are to borrow funds as a loan from BDC (Business Development Corporation)3 , or issue shares and raise equity capital. You explained to her about ratio analysis and trend analysis, which caught her attention. Specifically, she would like to know the ratios which the lender (BDC) would be interested in and the ratios a potential shareholder would look at before considering investing in MOW? Your next meeting with Sarah is in two weeks. Prepare a memo, addressed to Sarah, with your analysis of the above discussion points.

Required:

1. Prepare your memo with the following guidelines:

• Word count: maximum 750

• Font: Arial, 11 point

• Line spacing: 1.5

• Cover page and Table of Contents