Start by reading both case studies and make notes of the business type, the situation the Entrepreneur/owner

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Question:

Start by reading both case studies and make notes of the business type, the situation the Entrepreneur/owner finds himself or herself in, and then thoroughly understand not only the depth, but the long term complications the challenges pose to the viability and growth of the business. Your assignment this week is an essay describing as many possible solutions as you can think of to the challenges these companies face. Also in this paper you will describe both the risks and the possible rewards for each challenge/opportunity that you propose.

As you are analyzing the Challenges each of these entrepreneurs faced, make sure you identify and thoroughly discuss all of the implications each solution (and your final solution) has for impacts on:

Human resources related (skills, retirement, turnover)

Impact on local competition (increased, unscrupulous, larger, e-commerce)

Pricing related related issues

Possible internal and external hindrances to success

Significant requirements for financing, internal organizational structure, and support services (computer, insurance, facilities management, etc.)

Product related issues that must be taken into account

Service related issues that must be taken into account

Infrastructure, inventory, and financing issues that must be taken into account

Marketing and advertising considerations

Asset requirements

Legal, regulatory, or license related issues that must be considered

You have a lot of leeway regarding both the content and organization of your essay this week. Here is one way to organize a basic outline that presents your narrative effectively:

Section 1 - The Business: Describe the two businesses in two different sub-sections. In each sub-section, provide your description of the business, business owner, market, and customer base.

Section 2 - The challenge: Describe in some detail the dilemma this business is facing and the challenge it poses to the long term viability, growth, and health of the entrepreneurship. There should be three sub-sections to this section of your essay. The first two sub-sections describe the dilemma and challenges each company faces. The third sub-section compares and contrasts the challenges faced in an attempt to describe how they may be different and how they are somewhat the same.

Section 3 - The solutions: in this section you will describe the challenge faced in each case studies. In this section, you will need three sub-sections. In the first two sub sections describe two or three possible solutions to the challenge or dilemma each company faces. The third sub-section again compares and contrasts these solutions between the two case studies

Section 4 - Your proposal: This section of your essay is dedicated to your proposed solution to the challenges for each case study and should reflect your analysis of the challenge and your reasoning for choosing a specific solution/path for growth. Finally, in this section, briefly compares and contrasts the two solutions you have proposed and their relative chance for enhancing each small businesses' chance for continued viability.

Case 1

Red Iguana is a family-owned Mexican restaurant in Salt Lake City. Founded in 1985 by Mexican immigrants Ramón and María Cardenas, the restaurant describes its menu of moles, chile verde and enchiladas as “pre-Hispanic food, imperial Aztec cuisine and Moctezuma’s table.” Besides its sit-down restaurant business, the 130-employee company also has catering and fast-food operations.

THE CHALLENGE To expand to a new location while surviving a disruptive public works project — a light rail line down the middle of Red Iguana’s street — just as the restaurant was experiencing a rush of business from being featured on the Food Network’s “Diners, Drive-ins and Dives.”

THE BACKGROUND In 1965, Ramón and María Cardenas moved from the San Francisco Bay Area, where they were working in a restaurant, to Salt Lake City, where they took over a restaurant called Casa Grande. Their decision to not modify María’s recipes from Chihuahua for the American palate may have slowed growth at first. “People were not used to their kind of Mexican food,” said their daughter, Lucy. In the first years, annual revenue was about $25,000, but María and Ramón gradually built a following.

In 1970, they moved Casa Grande downtown. Revenue continued to grow until urban decay and a recession hit in the early 1980s. By 1984, Ramón was forced to take a cooking job in Park City to make ends meet, while María ran Casa Grande. In 1985, Ramón returned to open a four-table restaurant called Red Iguana in Salt Lake City’s working-class west side. The restaurant did so well — it pulled in some $300,000 in its first year — that María was able to close the ailing Casa Grande. After a fire burned down the new restaurant in June 1986, Ramón reopened 10 blocks away at the current location.

The reasonably priced Red Iguana developed a cultlike following. Its revenue grew every year, hitting $1.9 million in 2003. But in 1998, María grew ill and required Ramón’s full-time care, which forced Lucy to make regular visits from Portland, Ore., to oversee the business. After María died in 2002 and Lucy’s brother died of a brain aneurysm in 2004, Ramón decided to sell. “He was exhausted and ready to throw in the towel,” said Lucy’s husband, Bill Coker.

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It was a delicate moment: Lucy and Mr. Coker wanted to take over the business, but they had to convince Ramón to look past his strict views of gender and family. “Because he was a son, a man, my father would have given my brother the business,” Lucy said. “But we bought it from my dad. We got lawyers and accountants involved.” Plus, she added, “he wanted to sell the business to me, not me and my husband, because it’s family. It was at times painful.”

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After paying Ramón $560,000 for the company in 2005, Ms. Cardenas and Mr. Coker sped up an incipient modernization drive, improving the electrical system and buying the parking lot next door. Ms. Cardenas, who had worked as a wait staff trainer at various Hard Rock Cafes, had already brought in a computer system, which had helped professionalize the staff. “I wanted to turn it into full service, not, ‘Wham, bam, here you go, here’s your check,’ like in a diner,” she said. To improve food consistency, she had her father cook each dish in front of her chefs so they could write down the recipes, which they had never done before for fear of recipe theft. Revenue increased to $2.7 million in 2006 and $3.8 million in 2008.

In 2008, the “Diners, Drive-ins and Dives” appearance and news of the coming light rail project changed the business’s direction irrevocably. Scheduled to start in 2010, the multiyear project had the potential to dissuade customers from visiting and, during its most intense periods, close the restaurant — a huge loss for a one-location business that had been serving 700 people a day.

THE OPTIONS When Mr. Coker saw the lines outside his restaurant, he thought of Sammy Davis Jr. Mr. Coker, 63, had spent 37 years in the entertainment business, and in the early 1980s he had worked as an assistant director and production manager on a series of Burt Reynolds buddy comedies. On “The Cannonball Run,” Mr. Coker had worked with Mr. Davis, Dean Martin and Roger Moore, stars who had become so popular, he believed, that they had lost their identity. While driving Red Iguana’s branded van around town, he began to hear from locals who had stopped coming to the restaurant because of the long wait and out-of-state crowds. “My experience in the entertainment industry taught me that that kind of popularity can flip and become a negative,” Mr. Coker said, “and once it becomes a negative you become Planet Hollywood.”

To relieve that tension, he decided, Red Iguana would add a second location. Upscale developers had been trying to lure Red Iguana to their new malls and suburbs, but Ms. Cardenas and Mr. Coker owned a house a few blocks from their business and looked upon it as a child. “I love being able to get to my business so fast,” Ms. Cardenas said. “I felt as the owner of the Red Iguana, I couldn’t live anywhere else.”

While deciding on a location for their second restaurant, they heard about a warehouse for sale for $259,000 just two blocks from their first restaurant. The barrel-roof building was the definition of industrial chic, with a concrete pad that could be used for patio dining and with views of a power station and its three 320-foot smokestacks to the west and the cityscape and snowcapped Wasatch Mountains to the east. But to get the money to buy and develop the location, they would have to convince Zions Bank and the Salt Lake City Office of Economic Development that it was a good idea to build a sister restaurant two blocks from the first. The lenders were skeptical.

The restaurant owners had to make several choices quickly, before the rail construction began.

WHAT OTHERS SAY Danny Meyer, founder of Union Square Hospitality Group, which includes Union Square Cafe and Gramercy Tavern: “Though it has worked for some — Nobu, Nobu Next Door — I would absolutely not advise repeating the same concept so close to the first. It’s confusing to patrons, and you may inadvertently hurt morale as staff members will invariably feel they might not be working in the better of the two.”

Anton Schulte, co-owner of Bistro Daisy in New Orleans: “I would probably just hunker down financially and try to weather the business interruption storm. I don’t know their financials but, at the level of business that they say they are at, I would assume they have a little bit of money in reserves.”

Charles Phan, owner, The Slanted Door and other restaurants in the San Francisco Bay Area: “I would strictly look to expansion only if you have a niche in the market that needs to be filled or you’re bringing something new to the table and it is interesting to you and the customer. I wouldn’t do it just because there are extra people around the corner. For me, it never works to redirect somebody to a second location with the same name.”

THE RESULTS Offer your thoughts on Red Iguana’s choice on the You’re the Boss blog at nytimes.com/boss. Next week, on the blog and in this space, we will explain how things have worked out for Ms. Cardenas and Mr. Coker.

Case 2

THE Four Horsemen Toy Design Studios is a toy company based in New Jersey that creates highly detailed action figures for Mattel while making its own toys that are sold online to adult collectors.

THE CHALLENGE Making the transition from a small team of freelancers with one big client to a real business with multiple revenue streams — without losing that one big client.

THE BACKGROUND The Four Horsemen — Chris Dahlberg, H. Eric Mayse, Jim Preziosi and Eric Treadaway — met while working at McFarlane Toys, a maker of action figures. Wanting to create their own line, the four men left McFarlane in 1999 to start their own company.

But creating a toy line, getting it to market and making it profitable can take years. To be successful, action figures generally need a story supported by movies, TV shows or comic books. Rather than focus on creating content, Mr. Preziosi said, the men decided to build their reputations as designers.

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At the time, Mattel was looking for an outside team with a distinctive design sense. The Four Horsemen pitched the idea of bringing back the Mattel characters He-Man and the Masters of the Universe, which had been highly successful in the 1980s. Mattel liked the idea and offered the team a contract. “There was a financial guarantee,” for a year, Mr. Treadaway said. “It allowed each of us a salary.”

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From their new workshop in Bloomingdale, N.J., the team began designing the toys, then sending the molds to Mattel, which handled manufacturing and sales. The workload was modest in the beginning, about 20 toys a year, Mr. Treadaway said. But as their relationship with Mattel grew and their contract was extended, the Four Horsemen picked up other assignments.

The Mattel work kept them busy, but their intent had been to design their own toys. And yet, without content or a story line, it would be hard for Four Horsemen to establish its own product line. Still focused on Mattel, they tried their first independent effort in 2004, a line they called Magma Corps. They produced 1,000 figures, selling them for $20 apiece to collectors at comic conventions and on the company’s e-commerce Web site. But interest was slow to build, and they were able to sell only a few hundred figures.

For their second effort, they posted sketches of a fantasy line called 7th Kingdom on their Web site and let fans decide which figures and accessories would be made. The first figure produced was given a limited run of 1,000 and sold for $20 apiece. Mr. Treadaway said the plan was to keep the price as low as possible. “As long as we were breaking even on it, we’re pretty happy about it,” he said. “It’s an investment.”

When the second 7th Kingdom figure was ready for production, it was offered for presale over the Internet, and all 1,000 sold out in a few days. But production hit a snag. To manufacture their lines, they had used their industry connections to find small factories in China that could produce the toys quickly and cheaply, a plan that backfired when one of the factories closed before production had finished.

“We paid for production, and it was half-done,” Mr. Mayse said.

The company lost money, but its contacts in China were able to retrieve some molds used in production, and the Horsemen sent the molds to another factory to finish the run. “The fans were great,” Mr. Mayse said. “They stood by for a year and a half, waiting patiently for their figures.”

The Horsemen were eager to produce more, and teamed up with online retailers to sell limited-edition variations of the 7th Kingdom figure to help reduce production costs. When the figures were offered to fans, they quickly sold out.

The team tried the same concept with two more characters from the 7th Kingdom line and had the same success. The company’s annual revenue surpassed $500,000, and the men believed they were ready to expand. They had already hired two workers to help with molding and painting, and in 2009, they moved into a larger studio and hired a third employee.

They have also sought to focus on creating content to support their toy lines. In 2008, the men met with a production company, 4Kids Entertainment, about creating an animated television series, a process the four found daunting. They came close to signing a deal, but the financial crisis hit, and the deal fell apart.

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For the Four Horsemen, having a client like Mattel has been both an opportunity and a burden. They design more than 100 action figures a year for the toy maker. “Mattel put us on the map,” Mr. Mayse said. “They are bread and butter.”

But the work they do for Mattel also makes it hard for them to devote time to building their own lines — and a diversified company that could withstand the loss of its biggest customer. Their annual revenue is well above $500,000 now, but it fluctuates depending on their workload for Mattel. They would like to sell their own toys through a mass-market retailer like Toys “R” Us or Target, but their work for Mattel keeps them too busy to develop story concepts.

THE OPTIONS Despite their struggles, the men would still like to pursue an animated series. But they are taking a more cautious approach to the entertainment industry. They are looking for smaller ways to build their concepts, like through comic books and graphic novels. For now, they are talking to a brand developer in New York about representation. They are also building a style guide for their characters, with the hope of handing it off to a writer who can develop a story concept. And they have broadened their partnerships to include two online retailers in Japan, a lucrative market for toymakers.

WHAT OTHERS SAY Bernard H. Tenenbaum, a managing partner at China Cat Capital, a strategy and investment firm in Princeton, N.J.: “This is an industry that’s hard to make money in. They have design and creativity and imagination. To get from where they are, which is making a high-end, very sculpted, very sophisticated collectors’ product, is the difference between couture and mass market. The challenge they have to face is in transforming from couture to prêt-à-porter.”

Paul Budnitz, the founder of Kidrobot, a maker of designer art toys and apparel based in Boulder, Colo.: “Here’s the real issue: I can’t remember the last time I’ve heard of someone becoming successful as an entrepreneur while holding down a full-time job. It happens occasionally, I’m sure. But frankly, building a business requires a lot of time and focus — and luck. You will only make miracles happen when you have to. An even less polite way to say it is, if you want to be successful, you need to get off your butts, stop playing it safe and make a leap of faith.”

Bruce Stein, an entrepreneur and consultant based in Los Angeles: “Make a deal with Mattel to launch X, Y and Z properties in a first-look deal. Tell Mattel, ‘We’re going to be doing the work you give us, and we are going to be developing our own property lines.’ If Mattel passes, they can hire some other people to develop it.”

THE RESULTS Offer your thoughts on the Four Horsemen on the You’re the Boss blog at nytimes.com/boss. Next week, on the blog and in this space, we will publish an update on how the company is doing.