.
UHF Antennas, Inc., produces and sells a unique television antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation:
Management is anxious to see how profitable the new antenna will be and has asked that an income statement be prepared for the month. Assume that direct labor is a variable cost.
Required:
a. Assuming that the company uses absorption costing, compute the unit product cost and prepare an income statement.
b. Assuming that the company uses variable costing, compute the unit product cost and prepare an income statement.
c. Explain the reason for any difference in the ending inventories under the two costing methods and the impact of this difference on reported net operating income.
...
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. What are the advantagesdisadvantagesof founding a company wi.docx
1. . What are the advantages/disadvantages
of founding a company with your friends?
2. How did the founders identify and
entice stakeholders to join their board of advisors?
3. Why did the founders seek a new CEO?
Would you do that or would you want to run the business
yourself? What was the process
they used to select the CEO?
4. How did the role of each founder
change as the business grew?
5. How do you maintain the culture when
the company is professionalizing with a large top management
team?
Supplement:
This paper should have a title page, abstract, body, and
reference page. Points will be deducted if any of these four
sections are missing. Make sure papers are written in correct
APA style.
CASE
Zeo, Inc.
The more you know, the better you sleep.™
Newton, Massachusetts
As students at Brown University in 2003, Eric Shashoua, Jason
Donahue, and Ben Rubin shared a problem common to students
of every generation: sleep deprivation. Each tried to pack as
much as possible into every day with the least possible amount
of sleep. The result was predictable: They had trouble getting
2. up in the morning and staying alert in class.
One of the three had, through his coursework, become aware of
a study commissioned by NASA during the 1960s. That study
focused on the human sleep cycle. It identified points in the
cycle at which a person would be most alert if awakened. For
the three friends, NASA's findings seemed to have practical
utility. If they could wake up at the right point in their sleep
cycles, they would be less groggy and more effective in the
classroom. They could continue cheating the gods of sleep, but
with fewer negative consequences. Reasoning that an effective
solution would benefit the millions of people who, like them,
were burning their candles at both ends, the three set out to
build a company around that solution. “We saw ourselves as the
target market,” recalls Jason. “That market had to be large since
companies were pushing caffeine products and special drinks,
like Red Bull, to help people stay alert.”
Six years on, the college friends were still together, but now as
founding executives of Zeo, a business dedicated to a somewhat
larger mission: to help people get a better night's sleep. During
those years they had raised $14 million, invented a way to track
sleep comfortably, and developed and launched a consumer
product that was gaining nationwide awareness. And although
they were sleeping better than they had in college, they were
now dealing with other issues. Zeo was no longer a three guys'
college project. It was now a fast-growing enterprise with an
increasing number of employees with specialized skills,
experiences, and reporting relationships. An older, seasoned
CEO was at the helm, and the focus of the enterprise's energy
had shifted from developing and launching a product to
expanding sales and satisfying customers.
Unsurprisingly, this evolution in the company's life was
affecting the founders and their roles in the company. To evolve
with the company's needs and contribute as leaders, they had to
continue to grow professionally, learn new skills, and step up to
new challenges. How would the founders evolve and grow to
meet the different needs of the company?
3. The Sleep Problem/Opportunity
Most people take sleep for granted. Yet 30–50% of the adult
U.S. population reports difficulty in sleeping.47 In a 2005 poll
of adult Americans, 24% of respondents reported getting “a
good night's sleep” only a few nights per week, and 13%
reported getting that good night's sleep only a few nights per
month. Another 13% told pollsters that they rarely or never had
a good night's sleep.48
Sleep problems can have detrimental effects on a person's
attentiveness, work and academic performance, and even
relationships. Even so, only 8% of people speak with their
primary care physicians about their sleep problems. And few
doctors bother to ask. By one estimate, less than 20% of doctors
ask patients how well they are sleeping as part of their annual
physical exams. This “don't ask, don't tell” situation results in
millions of people living with their sleep problems for years and
years without relief.
For a minority of sleep-deprivation sufferers, the underlying
cause can be traced to one or another medical condition.49 The
medical establishment has responded to these with various
forms of clinical diagnoses and therapy. Its primary diagnostic
tool is the sleep laboratory, a specially equipped room in which
individual patients are observed and monitored by means of
polysomnography (PSG)—the gold standard of sleep diagnosis.
In the United States, a small number of board-certified sleep
specialists (approximately 5,000) attend to the millions who
suffer from medical conditions that interfere with normal sleep.
The majority of people with sleep problems, however, have no
underlying medical issues. Their difficulties often stem from
work or lifestyle choices. These individuals include students,
hospital physicians and nurses, shift-workers, people struggling
to meet deadlines, long-haul truck drivers, hard-driving
professionals, and heavy consumers of caffeinated products and
alcohol. Sleep deprivation for them often results in drowsiness
and reduced cognitive performance, and a greater susceptibility
to accidents at work and on the highway.
4. It was this market, estimated at 70 million people in the United
States alone, that Zeo aimed to serve. From the beginning, the
company has made it clear that its product is not intended for
the diagnosis or treatment of sleep disorders and warned
customers that “If you suspect that you may have a sleep
disorder, consult your physician.” Zeo did not intend to compete
with medical devices, sleep laboratories, or medical
practitioners.
Building the Company
When they formed Zeo in December 2003, Eric, Jason, and Ben
knew little about sleep science or sleep medicine. Eric, a senior,
was studying computer science and French; Jason, then a junior,
was majoring in business and Chinese. Ben, a junior majoring in
computer engineering, was recruited later through a campus job
posting. Brown University, however, was a leading center for
the study of sleep and sleep medicine, so the team worked hard
to build relationships with the University's sleep experts and to
learn from them and from other campus resources. In time they
would expand their relationships and learning to a broader
network.
Initially, the business opportunity was narrowly defined around
the concept of Smart-Wake™, a technology used to track sleep
and identify the optimal times for awakening someone refreshed
and alert. To accomplish this, they would have to build a device
capable of accurately monitoring and recording a person's sleep
stages (wake, light sleep, REM, and deep sleep). They would do
this by developing a comfortable, wireless sensing device that
the customer would wear on his or her forehead during the
night. The technical breakthrough that made this possible was a
dry fabric sensor material developed by the team. The device
itself would detect and transmit vital data to a bedside
receiver/monitor, which would store and later array the
information in a manner that a lay person could easily interpret.
Ben initially estimated that he could develop a testable
prototype over the school's Christmas break. In fact, the job
took over two-and-a-half years.
5. Sleep Stages
People typically pass through various stages of sleep during the
night. These include wake, light sleep, rapid eye movement
(REM) sleep, and deep sleep. A person normally experiences
repeated cycles of these phases during the night.
Light Sleep: Takes place between the transitions to the other
phases of sleep and wakefulness. Usually accounts for the
longest phase of the sleep cycle.
REM: Necessary for consolidating memories, learning,
creativity, problem solving, and emotional well-being. A time
when dreams occur.
Deep Sleep: Restorative phase in which the body secretes a
growth hormone needed for development and physical repair.
People generally feel most groggy when awakened from deep
sleep. According to cognitive tests, they may experience
impaired mental performance for up to 4 hours when abruptly
awakened from deep sleep.
Early Financing
Many people responded affirmatively to the SmartWake™
concept. Eric recalls how he would talk about the project in the
campus cafeteria. “Bystanders started to say, ‘That's a great
idea. Can I invest in your company?’” And many of them did in
small amounts. This in turn led Eric to seek out private
investors in the community, who invested larger amounts.
Ultimately this allowed the group to get more serious efforts
underway with a small seed round. In the very beginning, other
non-dilutive funds were also sought:
· A $9,000 grant from the Slater Center of Rhode Island
· An $18,000 grant from the National Intercollegiate Inventors
and Innovators Alliance
· $10,000 in cash and $10,000 in services from the Brown
Entrepreneurship Program Business Plan Competition
· $25,000 in cash and $35,000 in services from winning the
State of Rhode Island Business Plan Competition
By mid-2005, all three founders had graduated from Brown and
were working full-time in the company, which needed more
6. money. Their fundraising efforts shifted exclusively to angel
investors. Responsible for fundraising efforts, Eric pitched to
angel groups and individual investors all over southern New
England, as well as within the Rhode Island business
community and Brown University alumni. “This was hard to
do,” he says, “given our ages.” Each rejection, however,
encouraged him to dig for reasons and to refine his presentation.
By the end of this 10-month period, with a second
oversubscribed round, the company had raised a total to date of
over $1 million from several groups and individuals.
Among Zeo's early investors was Sean Glass. Like the Zeo
founding team, Glass had joined with other classmates (in his
case, years earlier at Yale) to start a successful business while
still an undergraduate. He learned of Zeo through a fellow angel
investor, a Brown graduate who had already taken a small stake
in new enterprise. Glass thought the company had a strong
concept since there were few credible products in the consumer
sleep market; as he put it, “People will go to great lengths to
solve their sleep problems.” Glass also saw a bit of himself and
his company's co-founders in the Zeo team. And he liked what
he saw. “Eric, Jason, and Ben had different personalities, but
they clearly trusted each other in their roles. All were very well
organized and open to learning.”
Glass invested in 2005 as a member of an angel group. Still, he
perceived some difficult hurdles ahead. “They would have to
convince people that their product was scientifically valid, and
that it really worked. It would also need to be priced right.”
And from the user's perspective, the headband monitor they
were working on had to be comfortable and look good.
Otherwise, “how many people will get into bed with their
spouses wearing a weird-looking contraption on their heads?”
Advice and Credibility
Sleep science is a relatively new field. Research on the subject
only began in the 1950s. As a result, the community of sleep
specialists is small, and communication and collaboration is
commonplace.
7. From the outset, the venture team understood the importance of
tapping into this scientific community, drawing on its expertise,
and gaining credibility by allying with key members. Most of
the responsibility for this task fell to Ben Rubin, who,
beginning at Brown University, cold-called key people,
introduced himself and Zeo, and solicited their advice and
support.
To his surprise and relief, these specialists did not
automatically show him the door. Most, in fact, expressed
genuine interest in the goal Zeo was pursuing. They were
intrigued by the potential benefits that an inexpensive, self-
administered measuring and monitoring system would bring to
the millions of people who suffered from nonmedical-related
sleep difficulties.
Each contact produced leads to other notables in the U.S. sleep
science community. Before long, Ben and the team had
assembled an informal group of sleep health advisers from
several of the nation's leading medical institutions. In addition
to this group, a key consultant, John Shambroom, joined Ben's
development efforts. John brought a unique scientific and
engineering background to the team, which included extensive
experience in tracking brainwave patterns, critical to ongoing
development. This initial group contributed invaluable technical
guidance and gave the start-up venture much needed credibility
in the eyes of potential investors. John would later join the
company and expand this group into a formal board with
semiannual meetings. Board members would represent the broad
scope of sleep science: a psychologist, a specialist in circadian
rhythms, a leading researcher, a clinical practitioner, and so
forth (Exhibit 6.1).
EXHIBIT 6.1 Zeo Advisory Board
The team also sought business advice. It made a list of pioneers
in fields related to Zeo, then approached each in turn. “It
usually took a few calls to get through,” says Eric, “but once we
got past the gatekeepers, most of these people were very
8. approachable.”
I'd tell them that we were students who had started a company,
that we admired what they had accomplished, and that we would
appreciate their advice. I'd then ask, ‘Could we meet with you
for just a half hour or so?’ This is how we met Colin Angle,
founder of iRobot, and Sherwin Greenblatt, former president of
Bose. Colin had started his company while a graduate student at
MIT. We maintained an advisory relationship with these
business leaders for over two years, then asked them to join our
board, which they did.
A Coach/CEO
The three founders wanted to launch a consumer product
company, first nationally and then internationally, and knew
that they wouldn't have the best chance of success doing this on
their own. Recognizing that they had never done this before,
they wanted to find an expert who could help them achieve
greater success, and from whom they could learn. So, with the
proceeds of the final angel round closed in the summer of 2006,
they set out to find an experienced person who could guide them
through the important stages of final product development,
launch, and growth. An executive search firm with an affinity
for start-ups was engaged and asked to find qualified candidates
for the CEO position. That firm's consultant met with the three
founders and interviewed each extensively. What qualities and
experiences were they looking for in a candidate? How would
they describe their ideal candidate? How did they expect the
person to work with them?
Eric, Jason, and Ben were of one mind. They wanted a CEO
with an entrepreneurial outlook and a successful record in
marketing consumer-health products. More than that, their ideal
candidate would be a coach and mentor, helping each of them to
develop his business and management skills. As they saw it, Zeo
was growing from a small start-up into a real business; each
founding member wanted to grow quickly into the new roles
that operating such a business demanded.
Finding a person with the desired combination of experience
9. and personal qualities was a tall order, but after several months
of searching, the recruiter presented the team with several
qualified candidates. The candidate they selected was Dave
Dickinson, a man roughly twice their ages.
Dickinson's life path had been much different than those of
Zeo's founders. As a teenager he had learned something of how
entrepreneurial businesses work, and how they differ from
bureaucratic organizations. His father had joined with former
IBM veterans to develop a small company, and his work
experiences were a frequent topic of conversation in the
Dickinson household. Dave knew and admired the president of
his father's new company.
I remember playing basketball with him when I was a junior in
high school. And I still recall how much I wanted to be like
him—to know everyone who worked for the company, to know
their families, and to enjoy the freedom to get things done
without dealing with committees and layers of bureaucracy.
How many big company presidents play basketball with their
employees' kids?
Despite his youthful attraction to small business life,
Dickinson's career path went in the opposite direction. Armed
with an MBA in marketing from Northwestern University, he
worked for several giant consumer-health product companies:
Procter & Gamble, Johnson & Johnson, Arm & Hammer, and
Mead Johnson. In 1995, however, his entrepreneurial instincts
were given a chance to express themselves. Dickinson's boss at
Mead Johnson asked him to create a new product incubation
unit, staffed by some 100 employees from marketing and R&D.
“These were disciplines that never spoke to each other,” he
recalls. “At our Evansville [Indiana] headquarters the marketing
people were in a building on one side of a four-lane road, and
the R&D people were on the other side. No one ever crossed
that road, except to eat lunch.”
In accepting the assignment, Dickinson got permission to take
over and renovate one floor of unused space in an old industrial
building. He hired an architect to implement his vision of an
10. open design in which communication and collaboration between
marketing and R&D specialists would naturally occur. There
would be no private offices, no cubicles. To further set the
incubator apart from the rest of the company, he had the place
painted in bright colors. Quotations by famous inventors
adorned the walls. White boards and games were set out here
and there to encourage interaction. A basketball hoop was
mounted on a far wall. A phone booth was installed at the back
of the space. “I told people that if they really needed to have a
private conversation, they could use the phone booth.”
The success of this interdisciplinary product incubator changed
Dickinson's life in two important ways. First, it made him
realize how much he enjoyed breaking free of corporate rules
and routines, and building new things from scratch. Second, it
led to an important new assignment. In 1998, he was asked to
move to Boston and help initiate a novel kind of venture capital
firm, jointly invested in by Bristol Myers Squibb (parent of
Mead Johnson) and General Mills. Consumer health and
wellness would be its investment focus. Dickinson recalls how
that experience broadened his understanding of innovation,
different business models, and the management challenges faced
by young and inexperienced entrepreneurs. “I spent a lot of time
helping the CEOs of these companies, particularly in the
marketing area.” He enjoyed sharing his knowledge with these
CEOs and helping them with market development. “In many
cases, I wished that I was them!” And, in 2001, he became the
CEO of his first start-up, a biotechnology company initially
incubated within Harvard Medical School.
Dickinson's background brought him into the sights of Zeo's
headhunter in late 2006. He offered two unique qualities that
Zeo needed: experience in developing, launching, and marketing
consumer health products, and an open, mentoring personality.
For Dickinson's part, Zeo represented an outlet for his
entrepreneurial instincts.
Meetings between Dickinson, the founders, and Zeo's key
investors were encouraging. The candidate met all of Zeo's
11. expectations, and Dickinson liked what he saw in the venture
and its principals. “You could see that these guys were
insatiable learners, hungry for experience and knowledge. They
were eager to learn from everyone—from people like me, from
investors, and from their advisory board. There was no youthful
arrogance.”
It was a match. After doing due diligence on the venture and its
technology, and in return for a reasonable salary and an equity
stake vested over time, Dickinson joined the company as CEO
in February 2007.
Beyond SmartWake
By the time Dave Dickinson joined the company, the team had
raised over $1 million dollars around its SmartWake™ concept.
With Dave now wearing the CEO cap, Eric could turn his full
attention to the job of prospecting for additional investment
capital and expanding Zeo's strategic connections for business
development. Jason's focus would remain on potential
customers: Who were they? What were their needs in a sleep
product? How would they connect with Zeo and its evolving
technology?
Ben's engineering training made him the logical person to
handle product development. This would be no small job. The
technology had to be capable of accurately sensing and
monitoring sleep without all the paraphernalia and personal
assistance needed in conventional sleep laboratories. It had to
be affordable to the average consumer, and so simple that an
untrained customer could operate it correctly. And it had to
provide a scientifically valid measure of an individual's sleep.
More than one sleep-specialist expert declared that meeting all
of these requirements was impossible.
Undeterred, Eric, Jason, and Ben thought they had a solid
venture concept in SmartWake™. If people understood their
sleep cycles and awakened themselves at an optimal point
(outside of deep sleep), they would be more rested and alert.
And they would be happy with Zeo. Ben's work, bolstered by
John Shambroom's background and expertise, would soon give
12. them the technology they needed to make that happen. By early
2007, he had a working prototype that Jason could test on focus
group participants. Those participants, mostly college students
and young professionals, responded favorably to the prototype
and to the proposition of wakening refreshed and on the ball.
They had little interest or curiosity about their sleep stages, as
recorded by the prototype. However, test subjects who
represented the broader population sent the team a disturbingly
different message: They had sleep issues that SmartWake™
failed to address.
The product said it took me 43 minutes to fall asleep. What can
I do to get to sleep faster? I wake up at around 2 A.M. and
cannot get back to sleep. How can I change that? Your device
says that I get about one hour of deep sleep at night. Is that
good or bad? What does it mean for my performance at work?
People wanted answers to these and other questions, and they
wanted solutions to their sleep problems. The crucial question
was: What can I do to get a better night's sleep?
Feedback from potential customers revealed the limited nature
of Zeo's initial value proposition. Sleep was a big issue for
many people—it affected their relationships, health, and
performance on the job, at school, and on the athletic field.
Hundreds of companies, from pill makers to pillow and mattress
manufacturers, were touting the importance of a good night's
rest. Knowing the optimal time to wake up—the SmartWake™
proposition—was merely a small part of a much bigger issue.
“SmartWake™ was attractive to the 30-and-under crowd,” says
Jason, “but that part of the total market was small compared to
the people who were experiencing real pain because of their
sleep patterns. Not waking up at the optimal time was nothing
compared to the problems people experienced by not getting a
good night's sleep—problems with drowsiness, their
relationships, job performance, health, and so on.”
The opportunity was clearly broader than initially conceived.
But addressing it would require one big thing: practical and
personalized solutions to common sleep difficulties. Recalls
13. Jason, “We weren't sure that we had the expertise to help people
sleep better. We wondered if this was too high a mountain to
climb.” Indeed, climbing that mountain would require at least
another year of work—maybe two. As things stood, the
company did not have enough cash to fund another year or more
of development. Could more be raised? The initial product
launch was scheduled for mid-2007. Would current investors
agree to deferring that planned launch if it meant building a
better product? Should they launch the product in its current
state, and then develop an improved Zeo Version 2.0?
After much discussion, it was clear that the intelligent wake-up
proposition would satisfy a market segment that was too small,
given the expectations of the founders, their advisors, and
investors. Quantitative testing with focus group participants
(using product concept testing methodology introduced by
Dave) confirmed the appeal of the product concept with sleep
improvement capabilities. They also feared disappointment by
customers. “We had no choice,” says Jason, “but to step up to
the larger concept. We might not have a real business
otherwise.” After seeing the market-testing numbers, Zeo's
investors agreed.
Enter Venture Capital
Recognizing that their expanded value proposition would
require substantial new capital, the team went back to its angel
investors, including those who, because of oversubscription on
the previous round, had not been able to participate. “But we
quickly learned,” says Eric, “that this approach would take too
much time and was unlikely to produce the level of funding we
needed.” They decided to go after larger pools of capital,
namely, venture money. “This is where our board members
really helped with advice and introductions.” iRobot founder
Colin Angle introduced them to people at iD Ventures America,
a quality venture firm that had financed his venture. iD
Ventures led the company's Series B round, closing in 2008,
even as the world financial system poised on the verge of
collapse. Many deals were canceled during this period, but
14. Zeo's went through. A later Series C round of financing, led by
Trident Capital, closed in 2009, bringing total capital raised by
Zeo to $14 million.
Zeo now had sufficient capital to exploit the large opportunity it
had found and to hire the people it needed to scale up for
commercial operations and launch.
The Go-to-Market Product
To fulfill its larger aims, the company had to develop both a
more sophisticated sleep phase tracking product and an online,
personal “sleep coach.” Part educational tool, part motivational
program, the go-to-market product Zeo would offer what
potential customers had clearly asked for: a product package
that revealed the user's sleep patterns, and an online coach that
would help each customer discover the habits and behaviors that
interfered with his or her night's rest. An interactive “7-Step
Sleep Fitness Program”—which took a full year to develop—
would teach users how to overcome sleep-robbing habits and
behaviors. At launch, the final package (Exhibit 6.2) included
the following:
· A soft, lightweight headband containing Zeo's
SoftWave™sensor technology. Worn during the night with the
sensor against the forehead, this device accurately tracks the
user's sleep patterns and transmits the data wirelessly to a
bedside receiver/display. Unlike traditional methods of tracking
sleep patterns, the sensor connects to the skin without gels or
adhesives thanks to a unique patent-pending material developed
by the company. (Tests-rated tracking results are comparable to
the gold standard for assessing sleep.)
· Bedside display unit. The size of a clock radio, the bedside
unit receives data transmitted from the headband sensor.
Algorithms and artificial intelligence software determine the
user's sleep phases throughout the night. A sleep graph
summarizes each night's sleep stages. A “ZQ” score gauges the
quantity, quality, and depth of each night's sleep. In addition,
the user can see at a glance his or her total sleep time, how long
it took to fall asleep, how often and how long he or she was
15. awakened, and the total amounts of REM, light, and deep sleep.
· Access to the personalized 7 Step Sleep Fitness™Program.
This online coaching program analyzes the user's unique sleep
patterns and lifestyle, and then recommends techniques for
addressing factors that may be negatively affecting sleep. The
program also provides regular assessments of user's sleep
statistics to help track progress.
· The SmartWake™Alarm feature. The headband sensors search
for a natural awakening point—the optimal time to get out of
bed in the morning, when the user transitions into and out of
REM sleep and the brain is more active. The bedside unit's
alarm will sound as early as a half hour before the user's set
wake-up time, but never later than that time.
EXHIBIT 6.2 Product Hardware
Using an SD (Secure Digital) memory card within the bedside
display, the customer can use his or her personal computer to
transfer accumulated sleep data to a personal online account,
myZeo.com. The Web site (Exhibit 6.3) has interactive tools for
understanding the data. It also provides cause-and-effect
information on how and individual lifestyle choices—including
exercise, diet, drinking, and stress—affected sleep.
Manufacturing of the physical product was outsourced to an
Asian contract manufacturer. The price was eventually set at
$249 for the product alone, and $349 for the deluxe package,
which included the product, a year's supply of headband
sensors, and unlimited access to the online 7Step coaching
program. Sales would be made directly to customers via the
Internet.
The Launch
As mid-2009 approached, the Zeo crew prepared for the
product's official launch. Not having the public company
financial resources common to consumer product launches, they
needed a high ROI method to gain public exposure. So, working
with a Boston-based PR firm, Schneider Associates, they
devised an innovative plan to create media buzz. Dozens of
16. reporters were invited to spend the night, courtesy of the
company, at a brand-new five-star New York City hotel. Each
was given a Zeo device that they would use during the night to
record their sleep patterns.
The next morning, the overnight guests were treated to a
breakfast in the hotel ballroom, where company personnel were
on hand to help them understand their recorded sleep patterns
from the previous night. After a brief presentation by Zeo,
several scientific experts spoke on the relationship between
sleep and human health. Reporters then moved to “break out”
tables where specific sleep-related topics such as sleep and
human performance, methods for sleeping better, and so forth,
were discussed. At one table, the trainer of the Boston Celtics
entertained reporters' questions about sleep and athletic
performance. “The idea,” says Dave, “was to give reporters
opportunities to pick up on many different story lines.”
EXHIBIT 6.3 Sleep Tools and Coaching Program Information
This hotel PR gambit and other launch PR efforts paid huge
dividends almost immediately. The first big story about Zeo
appeared within days in the Wall Street Journal. The Journal's
health columnist, Melinda Beck, described how Zeo had helped
her discover and understand her own sleep problems. “Finding
out what's going on in your sleep generally requires spending
the night in a professional sleep lab hooked up to lots of wires
and monitors,” she told millions of readers. “But I've been
testing a new home-sleep monitor called the Zeo Personal Sleep
Coach that lets people track their sleep patterns nightly in their
own bedrooms.”50 She went on to describe her dismal ZQ
score, how it responded negatively to tensions surrounding her
column deadlines, and how it improved once she switched to
decaffeinated coffee and kicked her dog out of the bedroom. In
the article, she interviewed members of the company's advisory
board and other Zeo users, who shared their positive
experiences with the product, its coaching program, and how
changes in daily habits affected their ZQ scores.
17. For the company, Beck's article could not have been more
timely or beneficial. Orders began pouring in. Other positive
articles quickly followed in the New York Times, Forbes, USA
Today, Popular Science, Woman's Day, and other national
periodicals. Ben and Jason soon found themselves interviewed
on Fox TV, and America's primo TV pitchman, Regis Philbin,
had himself filmed in bed wearing his Zeo headband and talking
about his own sleep problems. More orders came in—at a time
when consumer product sales in the United States were in the
basement!
Over the next six months, the young company continued to
score PR coups. One of the most significant of these occurred
on December 14, 2009, at the height of the holiday gift-buying
season. The nation's most popular morning TV program, The
Today Show, watched by over six million Americans, ran four
short story segments on Zeo's founders and their new product,
with testimonials from a user, a leading sleep medical authority,
and the TV network's own doctor/journalist. All praised the
product. KaBoom! The sky began raining orders and Google
identified Zeo as the most searched topic that day, even ahead
of a Tiger Woods scandal story that was making headlines all
over the media.
A Changing Company … Changing Roles
The product launch and subsequent media buzz marked a
watershed for Zeo. The once-obscure little company was now on
the map and receiving enormously positive feedback from
reviewers. And the cash register was ringing.
Rather than relax, however, employees kept up a punishing pace
of work. Says Eric, “With working many nights and weekends,
there hasn't been a lot of time for friends and family, or—
ironically—for sleep.” The only married member of the
founding team, Eric consciously tried to optimize the limited
time he had available to spend with his spouse by focusing on
communication. Jason Donahue echoed his partner's assessment
of the work load. “We don't have a problem with absenteeism
around here. Our problem is presentee-ism—people not going
18. home.”
Even before the June 2009 launch, however, Zeo had been
changing. New people with deep and specialized experience had
come onboard. Subsequent to Dickinson's joining the company,
John Shambroom was hired as the initial VP of research,
engineering, and operations, but was later asked to focus on the
company's scientific and clinical platform as the VP of
scientific affairs. Later, others were hired to head up e-
commerce, finance and manufacturing, and engineering and
product development. And as 2009 drew to a close, the team
was searching for a specialist in direct-response TV advertising.
“These people had technical skills we needed right away,” says
Dave Dickinson. “We couldn't wait months and years for our
own people to develop them. And we'll do more of this as we
grow.” By late 2009, 19 people were on the payroll. Eight were
on the management team, making the company strategically top-
heavy in preparation for growth.
The launch and the addition of new people had an impact on the
roles of the three founders. “We're now wearing fewer hats,”
said one. “Each of us is developing new skills and learning a lot
from Dave.” As an obliging mentor, Dave Dickinson made an
effort to learn what each founder did innately well and then
directed each into areas where he could make the greatest
contribution and develop more skills. “To do this I actually used
the same profile test for Eric, Jason, and Ben that their recruiter
had used on me.” Each person's tests results were shared with
his colleagues, and this helped each person to better understand
his strengths and weaknesses and those of his peers. “That
exercise really developed trust, which made the rest of the
effort easier.”
For Jason Donahue, the post-launch period coincided with a
major redirection of attention, from product development, sales,
and customers to brand management and assuring high customer
satisfaction. With Dave at the helm, Eric Shashoua shifted his
primary attention to business development and to relationships
that would help the company grow. He was now spending more
19. time with Zeo's directors (Exhibit 6.4), the advisory board, the
sleep-health community, and potential channel and product
partners. Ben Rubin had once been in charge of technology
development, product development, engineering and
manufacturing. He was now focused on technology and its
application to the company's next generation of sleep-related
products.
While all acknowledged the necessity of these changes, it came
not without some nostalgia. Ben commented that, “As the
company has gotten bigger and our roles have become more
specialized, we [the founders] have lost something. Each of us
probably misses having a larger role.” He notes that decision
making has also changed. “The three of us can no longer sit
down together for five minutes and make a decision. The
process is now more complicated. That's good for the business
but sometimes frustrating for us.” As the same time, Ben is
accepting of changing roles, seeing them as direct outcomes of
choices the three of them had made.
If we had decided to be a smaller niche company, our roles
would not have had to change nearly as much. Our decision to
address a large consumer market had important consequences: It
dictated our need for an experienced CEO, for more outside
capital, for more employees with specialized know-how, and so
forth. We have to recognize and accept the impact of our own
decisions.
EXHIBIT 6.4 Zeo Board of Directors
Any misgivings the founders had about their changing roles
appeared to have taken a back seat to conscious efforts to grow
into those new roles. Speaking for the group, Eric noted that
they had surrounded themselves with experienced employees
and routinely interacted with business advisors, investors,
sleep-science specialists, and with other entrepreneurs. Jason
pointed to books and blogs, and to events and seminars as
important sources of learning and growth.51 For his part, Ben
acknowledged the benefit of having experienced and
20. knowledgeable mentors on the board and outside the company.
After six years of building a company from scratch, the three
founders were not intimidated by the challenge of taking on new
roles and learning new skills. “We have a just do it attitude
around here,” said Jason. “Sometimes you have to learn under
fire.” He cited how Eric had successfully negotiated a deal with
a direct-mail catalog company even though he had no
experience in that area. “Eric talked to experts who understood
the catalog business, then did it.”
Case Questions
1. What are the advantages/disadvantages of founding a
company with your friends?
2. How did the founders identify and entice stakeholders to join
their board of advisors?
3. Why did the founders seek a new CEO? Would you do that or
would you want to run the business yourself? What was the
process they used to select the CEO?
4. How did the role of each founder change as the business
grew?
5. How do you maintain the culture when the company is
professionalizing with a large top management team?