hint (read the questions first)

Case Study 1

Having finished your education and received your BS in Computer Sciences, you have started an entry level job in the IT department of one of the largest banks in Pakistan.

During a visit from your relatives, your cousin tells you that one of his best friends has a fantastic idea for a new business and the two of them are intending to set up business together. The idea he describes sounds promising as it appears to offer a solution to a problem that you - and many other people you know - encounter on a near daily basis. The business side of implementing the idea sounds very complicated its a purchasable good, but it requires a requires a storefront as well as a digital platform.

Your cousin is very enthusiastic in his description, but as you listen to him rave on about how it will most likely change the world and become a multinational business, you realize that he is describing it as an established business and has said nothing about how he plans to go about setting up the actual business and the work involved in setting it up, even on a local scale. From your cousins perspective it appears like customers will just be lining up begging to pay money for the good and service they offer, but he is really unable to answer many of the logical questions you ask.

At the end he asks if you can arrange a loan for PKR 10 million from your bank. You are taken aback and tell him you do not have that kind of money, but he tells you that he has heard that your bank offers up to PKR 10 million as a low-interest personal loan to all their employees once they have worked there for a year. In about a month you will be elegible to apply for the loan.

In exchange for putting up the start-up money for the business, he and his friend are willing to offer you a 90% ownership of the business till the loan (+interest) is paid off, and then a reduction in partnership over 5 years till they have full ownership and you will be out of the business entirely. He says that since its their idea and they will do all the work, this is a fair distribution. You ask for a business plan, but he says they have not written any.

When you were a student, you took a course of Entrepreneurship, and from what you can recall, successful entrepreneurs have certain personal characteristics (e.g creativity) that help enhance their prospects of setting up a business. Looking at your cousin, you are sure that he does not have most of those traits. But you wonder if his partner might show those abilities. You agree to set up a meeting with your cousin and his friend.

Questions:

1. What are the entrepreneurial traits you will be looking for when you meet with your cousin and his friend/partner? Explain in some detail. (10 marks)

2. You know that the type of ownership has a great impact in terms of risks, liabilities etc. Does his ownership offer sound fair to you? Why is he offering you a partnership that will eventually come to an end? (5 marks)

3. What are the different ownership categories that you might consider and what are the benefits and drawbacks of each option? Which one fits best in this scenario? (10 marks)

4. From the limited amount of information you have, what do you think about the situation and how likely are you to go into it? What are the things you would want to know from the cousins partner, and what would you want to research on your own? Would you involve yourself in this business? (10 marks)