Back in the 1980’s, when the technology we now take for granted was in its infant stage, two entrepreneurial friends recognised they could capitalise on this technological “big bang” and seized their opportunity to become a part of this burgeoning industry in Australia. James Ford and Leon Thompson were studying science together at university in 1987, when the new mobile phone technology hit Australia. Both students were captivated by the potential of such technological advancements, so in their spare time began researching and tinkering with any phones that they could lay their hands on. At that time, Australia had just introduced their new mobile phone network, but the manufacturing industry had not yet evolved to be able to produce a local version of the “cell phone” that could utilise the network. This meant that Australian users relied upon imported phones to access the newly introduced network to communicate with other devices. James and Leon recognised that they could import the phones from overseas manufacturers at wholesale prices, modify them to the Australian network standards and then sell them to local customers after adding a healthy profit margin for themselves. Whilst these early versions of the cell phone were awkward and impractical, they were also very expensive. James and Leon believed that, because they could buy the phones at wholesale prices, they could trim down the costs and therefore sell their phones for less than other distributers in Australia at the time, but still achieve a good mark-up on each phone. Leon was the “tech-head” of the partnership. He understood how the technology worked, so was able to pull the imported products apart, modify them for the local network, reassemble the phones and test them. James was more of a businessman – whilst he met Leon when they were studying science together, he already had a degree in commerce, so he was able to look at their proposed venture from a profitability point of view. The boys borrowed $10,000 each from their parents and invested this as capital to allow them to continue researching and buying phones from the overseas markets. By 1988, the two friends had secured a business premises, established a formal partnership and began importing the cutting edge, but somewhat cumbersome mobile phones from various overseas sources, and selling them to the local market. They combined their names (James FOrd / LEOn Thompson) and so, FOLEO FONES was born. Their business boomed! In those early days, Leon attended to the modification of all the phones imported along with the after-sales service, while James looked after the marketing, sales and distribution side of the business. It soon became apparent, with the continued increase in sales, that the boys were overwhelmed and seriously understaffed. In 1989 they set about recruiting additional staff – they needed an extra 2 technicians to help Leon, an office administrator to attend to phone sales and invoicing, a logistics employee in the warehouse to manage their inventory and despatching of phones, a management accountant, and another salesperson to help James. At that time, they also formed a company to limit the liability of their escalating business (FOLEO ENTERPRISES PTY LTD), appointing themselves as directors and equal shareholders. They ensured they kept the business name of Foleo Fones as it was a recognisable and valuable brand for them in their local market. Because Foleo Fones developed so quickly, James and Leon did not have the time nor the resources to establish a business model that was particularly proactive. Even though they kept sufficient records to enable them to comply with taxation and other statutory regulations, the boys were unable to use this information to effectively run their business. Whilst James could prepare a Balance Sheet and a Profit and Loss Statement, these aggregated reports told them nothing about which phones sold better than others, nor could they tell them which customers were more valuable than others. They could not assess from these reports whether their costs were increasing due to the expansion of sales or whether there was wastage in their processes that needed to be addressed. Furthermore, the Author: Julie Fell 2 boys felt as though they were constantly fixing “disasters” after they had occurred, rather than being able to predict situations and take steps to mitigate them before they became problematic. One such “disaster” was the rapidly growing dominance of the Australian network service provider in the marketplace. As the Australian network technology evolved and became more accessible to the general public, so the way Foleo Fones did business would need to change. The service provider (Telecom Australia) soon became the gateway between the users and the distributors of mobile phones. Telecom provided a more attractive alternative to consumers in the form of “plans” so they could purchase phones over a contracted period of time rather than having to buy the phones outright. Foleo Fones could continue to see this emergence of Telecom as a threat to their business or they could find a way to adapt their business to take advantage of it. They chose the latter and by the end of 1989, a stock of Foleo Fones were on the shelves in the Telecom Australia kiosks for sale under the “plans” being promoted by the network service provider. This meant that Foleo Fones now had a new and important customer in Telecom Australia, who needed to be managed carefully. The next chapter of the story will look at how James and Leon manage the next phase of the development of Foleo Fones.

What is the summary of this Foleo Fones case? What is the purpose? How did they start?