• Read the case (in attachment) and demonstrate familiarity with key themes and topics from this case
• Explain how this case has impacted your understanding of strategic management.
• Six hundred words

IVEY Publishing W25813 CHEEKBONE BEAUTY - BUILDING AN INDIGENOUS GROWTH VENTURE R. Chandrasekhar wrote this case under the supervision of Simon Parker solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G ON1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to publishcases@ivey.ca. Copyright @ 2021, Ivey Business School Foundation Version: 2022-07-06 On an early morning in June 2020, Jennifer Harper was at her seven-employee office in the sprawling basement of her home in St. Catharines, Ontario. The Canadian province of Ontario, including the Niagara Region, had been under a state of emergency since March 15 due to COVID-19. Although many brick-and- rameters is a copyright violation. mortar businesses in the province had shut down here, as they had in the rest of Canada and indeed in the rest of the world, Cheekbone Beauty (Cheekbone), the cosmetic products company Harper had founded four years earlier, was not only open for business but doing well. The reason was that the company had For use only in the course BUS 480: Advanced Business Strategy at Camosun College from 9/5/2023 to 12/8/2023. been built on an online sales model. After only a slight drop in the first four weeks of the pandemic, sales of Cheekbone products had gathered momentum. A member of the Anishinaabe tribe of what was known in Canada as the First Nations community, Harper had been driven by the goal of becoming "the first Indigenous woman to create a unicorn beauty brand from Canada." She repeated this personal ambition to herself that morning while waiting for the daily staff meeting-which had moved online-to begin. At the same time, Harper was seeking resolution to an ongoing entrepreneurial dilemma she had been facing: How should she identify the fledgling company's unique strengths and build them into sustainable competitive advantages? COSMETICS INDUSTRY The European Commission defined a cosmetic product as any substance or mixture intended to be placed in contact with the external parts of the human body (epidermis, hair system, nails, lips and external genital organs) or with the teeth and the mucous membranes of the oral cavity with a view exclusively or mainly to cleaning them, perfuming them, changing their appearance, protecting them, keeping them in good condition, or correcting body odours. The term unicorn was used in the venture capital industry to refer to a privately held start-up valued at over $1 billion. The term was coined in 2013 by venture capitalist Aileen Lee, who chose the mythical animal to represent the statistical rarity of such successful ventures. "Glossary and Acronyms Related to Cosmetics Legislation," European Commission, January 29, 2015, https://ec.europa.eu/docsroom/documents/13021?locale=en.Page 2 W25813 Globally, the cosmetics industry had revenues of US$356.7 billion in 2018.' At 9.2 per cent, it had a high profit margin. The industry was generally outpacing the rate of growth of the gross domestic product (GDP). With the top four companies holding 22.5 per cent share of the global market, the industry was fragmented. Its three main categories were skin care, hair care, and makeup, and skin care was the largest category by sales.* In Canada, the cosmetics industry had revenues of CA$1.6 billion in 2018, with a profit margin of 7.4 per cent. There were a total of 4,247 cosmetics establishments in Canada. Their revenues had grown by 1.2 per cent in 2019, to reach CA$1.8 billion. L'oreal Canada Inc. (L'Oreal) led the Canadian market with a 32 per cent market share in 2019. The slow growth in demand was due to two factors, which were uniquely Canadian: the country's aging population and the growing preference of younger consumers for a natural appearance. The distribution of cosmetics in Canada was store-based, to the extent of 83.9 per cent, and it involved traditional channels like grocery stores and health and beauty stores. The cosmetics industry was characterized by a wide prevalence of contract manufacturers, which relieved cosmetics companies of the need to own production facilities. It also left these companies free to focus on capturing value at the retail end, through brand building and marketing. Most cosmetics companies, particularly in the small and medium enterprise (SME) sector, were thus buying "pre-made" products. Their day-to-day involvement in the business was limited to marketing. Branding was the only way to differentiate a product that was largely homogenous across categories. In its elementary form, for example, a lipstick was no more than a combination of wax, oil, and pigment. 180: Advanced Business Strategy at Camosun College from 9/5/2023 to 12/8/2023 The industry had two types of contract manufacturers: original equipment manufacturers (OEMs) and original design manufacturers (ODMs). OEMs were responsible for producing products according to the specifications provided by clients and then selling the products to other companies, which were responsible for their distribution. ODMs were responsible for designing the products before producing them. The operations of OEMs and ODMs often had several combinations. For example, some OEMs made what were called private labels, on which a marketeer was free to place the logo of its own brand. The formulation of the product was often owned by an OEM or ODM; however, the manufacturer did not have the rights to market it. Some OEMs served as one-stop-shops by providing product life-cycle support for customers, and this helped in establishing successful product lines. A major trend in the industry was the growing demand for natural, herbal, and organic beauty products. The demand was fuelled by young consumers, who were seeking locally made, artisanal brands. They were pushing the industry to become "greener" by tracking the raw-material compositions of the products they were buying and insisting that cosmetics companies followed sustainable practices such as not using animals for testing. These consumers were enlisting the help of governments, which acted as regulators. Some countries of the European Union, for example, had banned the use of plastic microbeads in cosmetics. Another major trend was the recognition by the industry of the concept of life cycle thinking (LCT), which was widely considered to be the starting point for any sustainability assessment. LCT ensured that sustainability was built in right from the design stage of a product and lasted throughout its life cycle. 3 IBISWorld, Global Cosmetics Manufacturing Industry - Market Research Report, 6, September 2019, https://www.ibisworld.com/global/market-research-reports/global-cosmetics-manufacturing-industry/. 4 IBISWorld, Global Cosmetics Manufacturing Industry. IBISWorld, Beauty, Cosmetics, and Fragrance Stores in Canada - Market Research Report, 31, April 2020, https://www.ibisworld.com/canada/market-research-reports/beauty-cosmetics-fragrance-stores-industry/. 6 IBISWorld, Beauty, Cosmetics, and Fragrance Stores in Canada, 13 'S. Bom, J. Jorge, Helena M. Ribeiro, and Joana Marto, "A Step Forward on Sustainability in the Cosmetics Industry: A Review," Journal of Cleaner Production 225 (2019): 270-290.Page 3 W25813 As a global market leader, L'Oreal had taken some pioneering initiatives in promoting sustainability. The company's designers had worked for two years to develop an innovative tool that assessed the social and environmental performance of L'Oreal products. Known as the Sustainable Product Optimisation Tool (SPOT), it had been implemented in 2017 by the company across all its brands. SPOT used fourteen sustainability criteria-from sourcing, production, and packaging to consumer use. It monitored the impacts of waste reduction across every aspect of the company's products in four areas: (1) the proportion of renewable ingredients, sourced sustainably or derived from green chemistry; (2) packaging; (3) the carbon footprint of the product's formula; and (4) the social benefit of the product. Packaging was the largest component of waste in cosmetics production. Instead of being sent to incinerators, packaging waste was increasingly being composted." JENNIFER HARPER Harper was the daughter of a Metis father and a non-Indigenous mother from Ontario. Her paternal grandmother was a residential school survivor. As a little girl growing up under her mother's care in the Niagara Region, Harper had recognized what she called the "power of makeup" and the "magic of feeling pretty." These were among the factors that influenced her entry, in later years, into the cosmetics business. Having been estranged from the Indigenous side of her family for much of her life, Harper was unaware of the exclusion faced by Indigenous people in Canada until she was in her early twenties and working as a waitress at a restaurant in Toronto, when the owner pointed to a man who appeared drunk outside the restaurant and asked, "Jenn, will you go tell your dad to leave?" A ten-year career in sales and marketing with foods companies like Sysco Corporation followed, during which Harper handled large customer accounts. But as she learned more about the sense of despair that was part of the Indigenous identity in Canada, Harper decided to do something about it; like some of her peers, she decided to "take the power back by building our own individual businesses." She saw entrepreneurship as the route to seizing power and uplifting the Indigenous community. Drawn by the vision of becoming the first Indigenous woman to create a unicorn, Harper set out her company's mission statement as follows: "To help every Indigenous youth see and feel their value in the world while crafting sustainable colour cosmetics." She wanted to make Cheekbone so big that "no Indigenous kid will ever question their beauty or their worth ever again in the world." Seeing one of their own become successful would serve as an inspiring role model for Indigenous kids, she believed. Harper chose the cosmetics industry not only because of its similarity with the food industry, in which she had gained experience during her professional career, but also because of its high margins, which were a prerequisite to contributing to the larger good of the Indigenous community. The business was also generally recession proof. Harper wanted to follow the example of Patagonia Inc., a company whose proclaimed mission was: "We are in business to save our home planet." However, she saw her leadership challenge as ensuring that Cheekbone stayed true to its purpose, even as it became a billion-dollar global brand from Canada. The fundamentals were self-evident. The business would be built on the traditional Indigenous values of love for fellow beings and honesty in each transaction. It would be a social enterprise managed for profit. It would give back 10 per cent of annual profits to the Indigenous community in some form. It would combine "passion with purpose"-acting as an instrument of social change within the Indigenous S. Bom, Helena M. Ribeiro and Joana Marto, "Embracing Sustainability: Important Practices and Impact in Cosmetics," Cosmetics & Toiletries 135, no. 3 (2020). Patrizia Cinelli, Maria Beatrice Coltelli, Francesca Signori, Pierfrancesco Morganti, and Andrea Lazzeri, "Cosmetic Packaging to Save the Environment: Future Perspectives," Cosmetics 6, no. 2 (2019): 26, https://doi.org/10.3390/cosmetics6020026.Page 4 W25813 community. It would be a great company on the lines of what Seth Godin had once written, as she often recalled: "Great companies make change for a living."10 Harper's initial challenges included a lack of experience in the beauty industry and a lack of understanding of the chemistry of cosmetics. The skills she brought to the business were around sales, marketing, brand building, customer focus, and people management. Those were the levers she would be pulling to move the business forward day to day. She had also taken two strategic decisions early on: she would drive sales only online; and sales would be direct to each individual consumer. She would not be using the traditional channel of stores-beauty stores and grocery stores-to sell her products. Her business would be business to consumer (B2C) and not business to business (B2B). "Harper is a driven entrepreneur," said Jeff Cyr, managing partner at Raven Indigenous Capital Partners (Raven), "a Vancouver-based venture capital firm with a mission to empower Indigenous entrepreneurs with the capital and expertise they needed to succeed. "She not only understands her business but has a keen world view, which is important for someone in the driving seat. She is good with people and knows nosun College from 9/5/2023 to 12/8/2023. how to build a good team. She is capable of making hard business choices." CHEEKBONE BEAUTY: COMPANY BACKGROUND The first thing Harper did in her entrepreneurial journey was to set up a business advisory board in mid- 2015. The three-member board comprised a lawyer, an accountant, and an entrepreneur enlisted from a private organization of retired professionals, who charged CA$150 per hour. She had three meetings with this group, who reviewed her business plan and validated her business idea. She was encouraged by their positive, independent view. In September 2016, Harper registered the business and opened a website. She called her business Cheekbone Beauty because cheekbones were her favourite feature in humans, and Indigenous women had, in her view, "the most amazing cheekbones." She had also found from her research that people with high cheekbones were perceived to be trustworthy-and trust was important to her in her relationships with vendors and customers. She also enrolled her newly formed company in the small business donation program of the First Nations Child & Family Caring Society 2 and pledged to donate 10 per cent of her gross profits to the society each year. Cosmetic products companies spent years perfecting their formulations. Harper wanted product innovation to be at the forefront of her marketing. So, instead of buying pre-made products from contract manufacturers, as was the norm in the SME sector of the industry, she set a short-term goal to develop her own formulations and outsource their production. Her long-term, five-year goal was to establish her own manufacturing facility with an in-house innovation lab. Harper contracted with a chemist to experiment with combinations of ingredients to arrive at a formulation that would be unique to Cheekbone. Although several early formulations were unsuccessful, it was not long before Cheekbone struck gold and found a winning formulation. Harper next identified two contract manufacturers, based in Toronto, who specialized in producing lipstick. She hired a total of ten subcontractors for different jobs, including bookkeeping, marketing, graphic design, packaging, quality control, and product innovation. These contractors were all put on monthly retainers. Over time, she also hired three full-time employees for core operations and four part-time employees for back-end operations. 10 CBC Radio, "Lipstick with a Cause: Cheekbone Beauty Giving Back to Indigenous Youth," CBC, November 23, 2017, https://www.cbc.ca/radio/unreserved/desire-to-give-back-promote-reconciliation-raise-awareness-drives-indigenous- entrepreneurs-1.4412571/lipstick-with-a-cause-cheekbone-beauty-giving-back-to-indigenous-youth-1.4416052 1 Raven Indigenous Capital Partners (website), accessed July 8, 2021, https://ravencapitalpartners.cal. 12 First Nations Child & Family Caring Society (website), accessed July 22, 2021, https://fncaringsociety.com/.Page 5 W25813 Harper had decided early on that instead of seeking external financing like bank loans, she would rely on her personal savings to kick-start the business and, over time, would rely on profits generated from the business. Bootstrapping was common among Indigenous entrepreneurs, more than half of whom relied on personal savings for their business start-ups. Only 19 per cent of Indigenous entrepreneurs accessed commercial loans or credit from banks or government programs, according to the Indigenous Economic Progress Report 2019. 15 Harper had a husband and two kids, and she continued to manage her family and work at her regular job until mid-2019. She spent CA$5,000 on the business launch and was able to finance a large part of subsequent expenditures from the revenues that were being generated through product sales. Cheekbone was an online pure play since its inception. Harper had chosen web-based marketing and distribution, in contrast to the store-based marketing and distribution that was common in the cosmetic products industry. The company also advertised through digital and social media platforms rather than offline platforms like print and television. "I chose online as my core medium," said Harper, "because it was not only affordable, which was important from the budget point of view, but also easy to figure out." The online model seemed to resonate with Cheekbone customers. For example, Desiree Lawson, a resident of Bella Bella, on the central coast of British Columbia, Canada, had been using Cheekbone lipstick since 2018. A holder of a bachelor's degree in natural science protection from Vancouver Island University, Lawson provided technical support to Marine Planning Partnership (MaPP), an organization that anced Business Strategy at Camosun College from 9/5/2023 to 12/8/2023. implemented marine plans for the province. "I just ordered the brand online, and it takes a few weeks for me to get the package through Canada Post," she said. "I am in a remote location where we do not have courier facilities, and even the postal delivery is weekly by ferry. I saw Cheekbone advertisements on social media featuring Indigenous consumers and I was drawn to the product." The world of online cosmetics was like the "Wild West" of yore: teeming with operators in search of easy money. The entry barriers for businesses were low. Anyone could make a lipstick, for example, on a stove in their own kitchen, using no more than wax and oil and pigment-or make a soap, using oil, lye, water, colorant, and fragrance. "They could order crappy ingredients from a wholesale platform like Alibaba, whip them up, slap on a logo, take pictures of the product on a phone, put them up on a website, and start selling to unsuspecting customers either directly or through websites like Etsy or Shopify, make money and disappear," said Harper. She explained, "The remedy lies in the hands of the consumer. They should ask questions. It is as simple as sending an email to the company. If they do not get an answer within twenty- four hours, they can be certain that they are dealing with a flash-in-the-pan business. The consumer should become part of the solution rather than part of the problem." Notwithstanding the competitive nature of the ecosystem in which she operated-the number of cosmetics and fragrance stores in Canada, for example, was forecast to reach about 5,200 by 2025 4-Harper had an unconventional view of competition. She did not believe in the idea of market share, which was a large part of business conversations in capitalist societies. The concept of a zero-sum game, in which a gain in market share for one meant a loss of share for the other, did not appeal to her because she believed that there was "enough business for all businesses to succeed." As a trailblazer, she believed that she was competing only with herself. Cheekbone products incorporated the three concepts of clean beauty, sustainable beauty, and vegan beauty, while those of many of her competitors-large and small-incorporated only one or two of these. Clean beauty products consisted of ingredients that were non-toxic; sustainable beauty products consisted of ingredients (and packing materials) that were biodegradable; and vegan beauty products consisted of 13 The National Indigenous Economic Development Board, Indigenous Economic Progress Report 2019, 66, accessed October 20, 2020, www.naedb-cndea.com/wp-content/uploads/2019/06/ NIEDB-2019-Indigenous-Economic-Progress-Report.pdf. 14 IBISWorld, Beauty, Cosmetics and Fragrance Stores in Canada, 31.Page 6 W25813 ingredients that were plant-based. Harper believed that, with this approach, Cheekbone was creating new demand rather than competing with existing players. Cheekbone was also conceived from the beginning as a direct-to-consumer (D2C) platform. Harper was keen to ensure that a Cheekbone representative would be the last one to touch an order before it reached the customer's doorstep. The company would spend time on the smaller details of customer experience, right to the last sticker that was laid on the wrapped-up packaging. The package would not be "dumped into a standard-sized courier bag" and tossed at the doorstep, as was the case with packages sent by typical delivery services. The objective was that a customer receiving a Cheekbone product should feel like they were opening a "gift" to themselves. There were 1.67 million Indigenous people in Canada; they accounted for 4.9 per cent of the Canadian population, according to the 2016 Canadian census." They formed the immediate target segment in the domestic market for Cheekbone products. Globally, there were 370 million Indigenous people, comprising 5 per cent of the world's population, scattered across seventy countries from the Arctic to the South Pacific. In the United States, there were an estimated 6 million Indigenous people, who were also known there as Native Americans. California was the US state with the largest Native population, while New York was the city with the largest Native population. New Zealand was home to about 0.7 million Indigenous people, who comprised 15 per cent of its population. In Australia, 0.8 million Indigenous people represented 3.3 per cent of the country's population. Greenland, a self-governing nation within the Danish Realm, had the S 480: Advanced Business Strategy at Camosun College from 9/5/2023 to 12/8/2023. largest Indigenous population by percentage: 88 per cent of its 56,000 people were Indigenous. 16 The end markets for Cheekbone comprised not only Canada and the United States but also Australia, New Zealand, the United Kingdom, and Germany. The United States contributed 40 per cent of the company's sales, while other overseas markets generated about 5 per cent. With 45 per cent of its revenues being generated from outside the home market, Cheekbone had already gone international. Harper planned to price Cheekbone products at a level that ensured everyone working for the company would be paid what Harper considered a living wage, rather than minimum wage. The prices would be medium rather than premium (see Exhibit 1). For many consumers, a product like a lipstick was an "affordable luxury" they could indulge in even during recessionary times. " Those customers were important to Cheekbone for the sales they generated; but far more important were those customers who were passionate about emerging concepts like green beauty. They would be keen not only about the ingredients that went into a cosmetic product but also about their origins in the value chain, and they would display a sense of integrity in making purchases. These were the customers Cheekbone was after. Cheekbone's products were being consumed not only by Indigenous populations but also by non- Indigenous consumers who supported Indigenous issues and believed in the causes that social enterprises like Cheekbone were promoting. Generation Z (the zoomers), known as "conscious consumers," exemplified this comfortable fit. The company was consciously adopting the core beliefs of generation Z. Cheekbone saw its target customers generally as women in the age group of twenty-four to thirty-four. In 2020, the number of regular customers on its website stood at 40,000. These customers were loyal and committed, and Harper saw that they were an important resource. 15 Dwayne Mamo, ed., The Indigenous World 2020, 34th ed. (International Work Group for Indigenous Affairs [IWGIA], 2020). 16 Dwayne Mamo, ed., The Indigenous World 2020. 17 Ekaterina Netchaeva and Mckenzie Rees, "Strategically Stunning: The Professional Motivations Behind the Lipstick Effect," Psychological Science 27, no. 8 (2016): 1157-1168. 8 Drew Carlin, "Think Tank: Gen Z Consumers Reshaping Our Future," Women's Wear Daily, April 29, 2019, https://wwd.com/business-news/business-features/think-tank-vivaldi-generation-z-1203116945/.Page 7 W25813 The company's return customer rate, a key customer metric for e-commerce businesses, stood at 36.0 per cent. It contrasted with the industry average of 20.4 per cent for the makeup products category." Harper had developed a brand advocates program early on as a cornerstone of the company's marketing strategy. The program aligned well with the company's e-commerce platform because the brand advocates, numbering 400 in 2020, were meant to create social buzz around the brand and foster a community of fans and followers of Cheekbone. Many of the brand advocates identified themselves as Black, Indigenous, and People of Colour (BIPOC) and were aligned with BIPOC social movements. The program was also aligned with the company's social objective of empowering Indigenous youth, several of whom were featured donning Cheekbone makeup on social media platforms in bids to promote the company and its products. Harper explained, "I looked at some loyalty programs but did not find them effective." She continued, I then realized that, in the final analysis, people who believe in Cheekbone's mission and are loyal to nosun College from 9/5/2023 to 12/8/2023. Cheekbone brands are the best ambassadors for the company. That is why all Brand Advocates are regular users of company products. They all rose from an existing customer pool. What is significant is that there is no financial incentive for them. They just wear our brand, post it on social platforms, and promote it. Sometimes we give them pro bono samples. They test it and, if they like it, feed into social media platforms like Facebook, Twitter, Instagram, LinkedIn, Snapchat, and Pinterest. Having launched its inaugural product of lipstick, the company came up with what it called its Warrior Women Collection within months. Each product was named after a notable Indigenous woman who was known to be a role model for Indigenous youth. The collection started with four such products and had grown to twenty-one by 2020. They were all named for women who had done "amazing" things across industries-things that, in Harper's view, Indigenous youth would like to replicate. An example was Ashley Callingbull, who was not only the first Indigenous woman in Canada but also the first Canadian to win the Mrs. Universe title in August 2015. "I was inspired by her story," said Lawson. "The Collection is a bit more expensive than a comparable product at Sephora, for instance, but I order it because of its association with someone I look up to." Cheekbone procured its raw materials globally from Indigenous communities in Australia, New Zealand, and South America and put each formulation through a mandatory sixteen weeks of stability testing. Every ingredient was sustainable. There were no petroleum derivatives. The raw materials and the packaging would bio-degrade at the end of the product life cycle. Sustainability was an integral part of an Indigenous model of a for-profit social enterprise for two reasons. First, Indigenous Territories encompassed 22 per cent of the world's land surface and embodied as much as 80 per cent of the planet's biodiversity. As The Indigenous World 2020 pointed out, "Indigenous Peoples are guardians not only of forests, but also of rivers, seas, oceans, ice, peatlands, deserts, prairies, savannas, hills, and mountains." The vastness of these territories made Indigenous people the most natural stewards of the environment."Second, central to decisions pertaining to life and living among Indigenous communities was the question: How would this impact the next seven generations21 of people on the planet? This approach stood in stark contrast to the pursuit of quarterly earnings by companies reporting to Wall Street. 19 Dimira Teneva, "Ecommerce Benchmarks for Beauty Brands," Metrilo, accessed May 20, 2021, https://www.metrilo.com/blog/beauty-brands-ecommerce-benchmarks. 20 Mamo, The Indigenous World 2020. 21 "What is the Seventh Generation Principle?," Indigenous Corporate Training Inc., May 30, 2020, https://www.ictinc.ca/blog/seventh-generation-principle.Page 8 W25813 By April 2019, Harper had created a brand, developed a market, and built a community that seemed to resonate with her core principles as an entrepreneur. Offers of funding to finance the passage of Cheekbone to the next level of growth started coming her way. It was then that Harper realized that Cheekbone had reached what she considered to be the "investor phase" of its journey. But Harper was wary of many of the offers since, being focused on no more than immediate returns, they were "ringing hollow." Instant gratification did not sit well with her, either as a person or as a member of the First Nations community. In August 2019, Harper signed a deal with Raven for a CA$350,000 convertible note. Specializing in financing Canadian Indigenous companies in their early/growth stage, Raven provided equity investments in the range of CA$250,000-$2,000,000 per company. The convertible note to Cheekbone was a unique hybrid instrument meant to be converted into equity in future. The prevailing capital structure, wherein Harper owned 97 per cent of Cheekbone's equity, would remain unaffected until the conversion. 'We did not think about an equity position up front because that would clearly take too much of the value out of an early stage company," said Cyr. "We thought it was more appropriate to use a convertible note and help Harper build the value of the company. That has been our typical approach to preserve and build value. We think we can get decent returns and still leave the companies in a better position overall." GOING FORWARD Exhibits 2 and 3 display Cheekbone's income statement and balance sheet as of October 31, 2019. Harper had set a goal of making Cheekbone a fully functioning marketing engine and innovation machine within e parameters is a copyright violation. five years. The expansion plans included five streams: (1) diversification of the product range into new in the course BUS 480: Advanced Business Strategy at Camosun College from 9/5/2023 to 12/8/2023. categories of cosmetic products; (2) development of the company's own formulations; (3) establishment of its own manufacturing facility in the Niagara Region; (4) pursuit of new international markets; and (5) hiring of staff to fill new roles in operations and marketing, making Cheekbone a forty-member team. It would take between eighteen and twenty-four months to execute the expansion plan, which would require an estimated CA$2.7 million. Raven was willing to mobilize additional capital of CA$1,000,000 toward Cheekbone's expansion projects. The details still had to be worked out, but Raven would lead the financing, in partnership with other agencies. That still left a shortfall of CA$1.7 million. Harper wanted all investment to come from sources that believed in Cheekbone as a social enterprise and in her as a social entrepreneur. This straightaway ruled out traditional sources like the big banks, development banks, and credit societies, whose singular focus on the bottom line led them to evaluate risks from a purely financial perspective. In any case, Harper did not like the big banks, just as she did not like the big retailers. As part of the drive toward sustainability, she wanted to ensure transparency in her own manufacturing operations. The factory would be encased in a glass structure that would allow visitors to view how the cosmetic products were made. The Niagara Region was already a well-known tourist area, drawing visitors from around the globe to see the wineries, sanctuaries, and Niagara Falls. The factory would be designed as a beautiful, "Instagrammable" space, with the work of local Indigenous artists and artisans displayed on the property. There would also be a small retail outlet on the premises selling Cheekbone products. As she started enumeratiog the resources at her disposal, Harper wondered which of her resources was best placed to generate a sustainable competitive advantage for Cheekbone-and how she could exploit that advantage to formulate a growth plan. The Ivey Business School gratefully acknowledges the generous support of Pierre Lapointe, MBA '83, in the development of this case.Page 9 W25813 EXHIBIT 1: CHEEKBONE BEAUTY-PRICE POSITIONING Brand Weight (grams) Price (US$) Cheekbone 4.0 32.00 ColourPop 3.5 10.00 3.5 CoverGirl 9.99 3.4 48.00 Dior 3.2 4.00 E.L.F 20.00 Glossier 3.0 3.5 L'Oreal 11.79 3.0 MAC 25.00 Maybelline 4.2 7.49 3.5 33.00 NARS NYX 4.0 10.00 Revlon 4.2 8.99 3.4 24.00 Tarte y at Camosun College from 9/5/2023 to 12/8/2023. Source: Compiled by case author based on data from Cheekbone Beauty (website), https://www.cheekbonebeauty.com/collections/sustain-lipstick; "Lux Lipstick," Colourpop, accessed August 13, 2021, https://colourpop.com/collections/lux-lipstick; "Exhibitionist Cream Lipstick," CoverGirl, accessed August 13, 2021, https://www.covergirl.ca/en_ca/lip-makeup/colorlicious-exhibitionist-cream-0.html; "Rouge Dior," Dior, accessed August 13, 2021, https://www.dior.com/en_ca/products/beauty-Y0172009-rouge-dior-refillable-lipstick-with-4-couture-finishes-satin- matte-metallic-new-velvet; "Moisturizing Lipstick," E.L.F., accessed August 13, 2021, https://www.elfcosmetics.com/moisturizing- lipstick/400048.html?dwvar_400048_color=Red%20Carpet&cgid=lips-lipstick#start=2&sz=24; "Generation G," Glossier., accessed August 13, 2021, https://www.glossier.com/products/generation-g; "Colour Riche Lips," L'Oreal Paris, accessed August 13, 2021, https://www.lorealparis.ca/en-ca/lips/colour-riche; "Canada's #1 Lipstick Brand," MAC, accessed August 13, 2021, https://www.maccosmetics.ca/products/13854/products/makeup/lips/lipstick; "The Mattes," Maybelline New York, accessed August 13, 2021, https://www.maybelline.ca/en-ca/lip-makeup/lip-color/color-sensational-the-mattes-matte-finish- lipstick-makeup; "Lipstick," NARS, accessed August 13, 2021, https://www.narscosmetics.com/USA/iconic- lipstick/999NAC0000096.html?dwvar_999NAC0000096_color=7845029441&cgid=lipstick; "Matte Lipstick," NYX, accessed August 13, 2021, https://www.nyxcosmetics.ca/en/matte-lipstick/NYX_005.html; "Super Lustrous Lipstick," Revlon, accessed August 13, 2021, https://www.revlon.com/lips/lipstick/super-lustrous-lipstick?shade=brazilian-tan; "Color Splash Lipstick," Tarte accesse August 13, 2021 https://tartecosmetics.com/en_CA/color-splash-lipstick- 935.html?dwvar_935_color=escape%20%28rose%29&cgid=makeup-lips-lipstick-lipliners. EXHIBIT 2: CHEEKBONE BEAUTY-INCOME STATEMENT Years Ending October (CA$) 2020 (Est.) 2019 2018 2017 Sales 700,000 155,499 73,596 10,917 Other Income (Expense) 46,458 Net Income 700,000 201,957 73,596 10,917 Less: Cost of Goods Sold 230,000 137,962 40,478 6,550 Gross Profit 470,000 63,995 33, 118 Less: Operating Expenses 4,367 Advertising and Promotion Payroll 61,318 20,320 1,507 25,973 Shipping 15,520 7,532 6, 106 Office and Administration 10,570 1,768 Professional Consulting Fees 77,357 12,310 2,354 Travel and Auto 9,800 4,725 1,200 Donations 4,622 1,528 227 Occupancy 503 1,500 500 Depreciation 624 Total Operating Expenses 633 600,000 Net Income (Loss) before Taxes 186,935 66,473 (130,000) 15,088 (122,940) (33,355) Source: Company documents. (10,721)Page 10 W25813 EXHIBIT 3: CHEEKBONE BEAUTY-BALANCE SHEET (AS ON OCTOBER 31) ASSETS Current Assets 2019 2018 2017 Cash Accounts Receivable 320,244 2,213 Harmonized Sales Tax Recoverable 2,565 689 Inventory 8.373 8.159 Total Current Assets 4,205 2,340 339,340 Fixed Assets (Net Book Value) 7, 107 2,340 1,667 TOTAL ASSETS 341,008 LIABILITIES 7, 107 2,340 Current Liabilities Accounts Payable 90,342 27,211 2,486 Deferred Income 6,590 Due to Shareholders 14,532 23,871 10,575 Total Current Liabilities 111,465 51,082 13,061 Long-Term Debt 350,000 Total Liabilities 461,465 51,082 13,061 SHAREHOLDERS' DEFICIENCY Share Capital 100 100 Deficit (120,557) 44,075) 10,721) Total Equity (120,457) (43,975) (10,721) TOTAL LIABILITIES AND EQUITY 341,008 7, 107 2,340 Source: Company documents