Hometown Tech

Wendy Woo is getting desperate about her new business. She's not sure she can make a go of itand she really wants to stay in her hometown of Petoskey, Michigan, a beautiful summer resort area along the eastern shore of Lake Michigan. The area's permanent population of 10,000 more than triples in the summer months and doubles at times during the winter skiing and snowmobiling season.

Wendy spent four years in the Navy after college graduation, returning home in June 2011. When she couldn't find a good job in the Petoskey area, she decided to go into business for herself and set up Hometown Tech. Wendy's plan was to work by herself and basically serve as a "for hire" computer consultant and troubleshooter for her customers. She knew that many of the upscale summer residents relied on a home computer to keep in touch with business dealings and friends at home, and it seemed that someone was always asking her for computer advice. She was optimistic that she could keep busy with a variety of on-site servicessetting up a customer's new computer, repairing hardware problems, installing software or upgrades, creating a wireless network, correcting problems created by viruses, and the like.

Wendy thought that her savings would allow her to start the business without borrowing any money. Her estimates of required expenditures were $7,000 for a used SUV; $1,125 for tools, diagnostic equipment, and reference books; $1,700 for a laptop computer, software, and accessories; $350 for an initial supply of fittings and cables; and $500 for insurance and other incidental expenses. This total of $10,675 still left Wendy with about $5,000 in savings to cover living expenses while getting started.

Wendy chose the technology services business because of her previous work experience. She worked at a computer "help desk" in college and spent her last year in the Navy troubleshooting computer network problems. In addition, from the time Wendy was 16 years old until she finished college, she had also worked during the summer for Eric Steele. Eric operates the only successful computer services company in Petoskey. (There was one other local computer store that also did some on-location service work when the customer bought equipment at the store, but that store recently went out of business.)

Eric prides himself on quality work and has been able to build up a good business with repeat customers. Specializing in services to residential, small business, and professional offices, Eric has built a strong customer franchise. For 20 years, Eric's major source of new business has been satisfied customers who tell friends or coworkers about his quality service. He is highly regarded as a capable person who always treats clients fairly and honestly. For example, seasonal residents often give Eric the keys to their vacation homes so that he can do upgrades or maintenance while they are away for months at a time. Eric's customers are so loyal, in fact, that Fix-A-Buga national computer service franchisefound it impossible to compete with him. Even price-cutting was not an effective weapon against Eric.

From having worked with Eric, Wendy thought that she knew the computer service business as well as he did; in fact, she had sometimes been able to solve technical problems that left him stumped. Wendy was anxious to reach her $70,000-per-year sales objective because she thought this would provide her with a comfortable living in Petoskey. While aware of opportunities to do computer consulting for larger businesses, Wendy felt that the sales opportunities for her services were limited because many firms had their own computer specialists or even IT departments. As Wendy saw it, her only attractive opportunity was direct competition with Eric.

To get started, Wendy spent $1,400 to advertise her business in the local newspaper and on an Internet website. With this money she bought two large announcement ads and 52 weeks of daily ads in the classified section, listed under "Miscellaneous Residential and Business Services." The website simply listed businesses in the Petoskey area and gave a telephone number, e-mail address, and brief description. She also listed her business under "Computer Services" at Craigslist for Northern Michiganupdating this notice and information once a month. She also built a small website with just a basic home page, a page with her picture and experience, and a third page that lists services she offers. She has thought about creating a Facebook page and blog, but hasn't done that yet. She put magnetic sign boards on her SUV and waited for business to take off.

Wendy had a few customers, but much of the time she wasn't busy and she was able to gross only about $200 a week. Of course, she had expected much more. Many of the people who did call were regular Eric customers who had some sort of crisis when he was already busy. While these people agreed that Wendy's work was of the same quality as Eric's, they preferred Eric's "quality-care" image and they liked the fact that they had an ongoing relationship with him.

Sometimes Wendy did get more work than she could handle. This happened during April and May, when seasonal businesses were preparing for summer openings and owners of summer homes and condos were ready to "open the cottage." The same rush occurred in September and October, as many of these places were being closed for the winter; those customers often wanted help backing up computer files or packing up computer equipment so they could take it with them. During these months, Wendy was able to gross about $150 to $200 a day.

Toward the end of her discouraging first year in business, Wendy Woo is thinking about quitting. While she hates to think about leaving Petoskey, she can't see any way of making a living there with her independent technology services business. Eric seems to dominate the market, except in the rush seasons and for people who need emergency help. And the resort market is not growing very rapidly, so there is little hope of a big influx of new businesses and homeowners to spur demand.

Evaluate Wendy Woo's strategy planning for her new business. Why isn't she able to reach her objective of $70,000? What should Wendy do now? Explain.