BSC Enterprises I thought the Internet would be an ideal way to distribute our products. We've had a lot of success with our direct sales, but now we can reach a much larger audience. The baskets we make and sell appeal to people everywhere. Ithought about opening stores in other towns or maybe even franchising, but the Web offers me a way to expand without losing control That's why the results for the first quarter of our Web-based unit are so disappointing. We expected a small loss, because of marketing and other start-up expenses, but I was not prepared for the beating we took Lisa Canivel President and CEO BSC Enterprises BSC Enterprises is a small, family-owned and -managed company that produces and sells wooden baskets. The company was founded in 1977 in California by Barb Canivel as a way of supplementing the family income. The business remained small until 2004, when Lisa Canivel took it over from her mother. U ntil that time, all orders were taken by the senior Ms. Canivel and all baskets were handmade by her. Ten years ago, Lisa moved to a model of having "dealers" take orders and opened a small workshop where part-time labor produced the baskets. The dealers were also looking to supplement their incomes and, supplied with a small display inventory, displayed the baskets at home or at parties, and took orders. Order fulfillment was handled directly by BSC Enterprises personnel who shipped finished baskets directly to customers. Little production inventory was kept Last year, Lisa Canivel evaluated the costs and benefits oftwo alternative distribution channels in an attempt to expand the business beyond the West Coast. One alternative was to franchise the business. Lisa was concerned that she and the managers of BSC would lose control, especially control over quality, which she felt distinguished BSC baskets. The other alternative was to begin taking orders ver the Internet. Lisa chose the Internet option. The company added a new managerial position, chief technology officer (CTO), and established a subsidiary, bsc.com, to handle the new business. In an unusual move for the company, Lisa went outside the small circle of family and friends and hired as the CTO Ellen Myers, who had experience on both the technical and management side of a local Internet start-up. Ellen was looking for something new where she could be in charge of an entire operation and was excited that she could combine this with her interest in basket weaving. It was agreed that if she could meet or exceed her budget for the first year of operation, she would be given a substantial piece of bsc.com The executives of BSC Enterprises considered the initial foray into the Internet to be an experiment to see if the "anonymous" approach would be effective in selling baskets. Until this time, BSC considered its network of dealers to be crucial in the growth it had experienced in the last several years. To this end, a separate workshop (factory) was established in Pennsylvania. One of the reasons for selecting Pennsylvania was the availability of part-time labor at lower costs than in California. Another was to attempt to penetrate the East Coast market by locating a workshop there, taking advantage of more immediate access to local market tastes and trends. It was decided that the Pennsylvania operation would produce exclusively for bsc.com business and the California workshop would continue to handle the orders from dealers Adapted from a case written by William Lanen