What is your assessment of the general financial condition of Shearwater?

A.J. Strickland

The University of Alabama

In early 2018, Allen Roberts was sitting in his office in Victoria Falls, Zimbabwe, contemplating his company's future in conducting its adventure activ-

ities. Robert Mugabe had finally been overthrown, tourism in Zimbabwe was up 5 percent over the pre- vious year, and hyperinflation had come to an end. However, competition was quickly increasing and the Zimbabwean government and economy was entering an unknown era.

As Allen Roberts began developing his strategy and business plan for Shearwater Adventures and its 350 employees, he wondered what the future held for the adventure industry in Victoria Falls.

ALLEN ROBERTS

Allen Roberts was educated in the United Kingdom at Nottingham University, where he majored in quan- tity surveying. This special course required classes in architecture and detailed cost estimation. However, like many students in their 20s, he was not really interested in going to work, so he followed his pas- sion of kayaking. He became a competitive kayaker, entering numerous tournaments all over the world. In 1991, Roberts realized he could not make a career of kayaking and acted on a friend's suggestion to go to Victoria Falls and try his luck at rafting the Zambezi River.

As soon as Roberts made his first trip, he was hooked on the Zambezi, and thus a new passion was born. The Zambezi was generally regarded as offering the best whitewater rafting in the world. As Roberts said, "The rapids are huge, the water is warm, the weather is great, and the scenery is stunning."

After working in Africa for a while, Roberts traveled to the United States and tried his luck at

Ross N. Faires

MBA Student, The University of Alabama

canoeing and whitewater rafting in West Virginia and then Pennsylvania. During his time in the States, Roberts also gained valuable experience making vid- eos of rafting trips and selling the copies to partici- pants. Soon, however, he decided to return to Africa and Victoria Falls for good.

A friend of Robert's named Mike Davis had, in the previous rafting season, started making videos of the Zambezi River rafting trips and had secured the rights to do so for the next season. Knowing that Roberts had been making videos in the United States, Davis approached Roberts about working together, and their business soon expanded to produce both videos and photos. The profit was so tremendous on the videos and pictures that Davis and Roberts were making more money than the owners of the rafts. This did not go unnoticed by the raft operators.

Roberts and Davis were having the time of their lives. As single young men, they were making good money with few expenses. Roberts says that his only necessities were food, beer, and the occasional date. The long term was not in his thoughts because he was having too much fun.

In 1995, the manager of Shearwater Adventures approached Mike Davis and asked if he would like to form a partnership. Davis agreed immediately. The Shearwater owners soon realized that Roberts and Davis were first-rate entrepreneurs, and the two were put in charge of all Shearwater operations. Davis was in charge of running the rafting adventures, and Roberts became a partner in the video and photo sec- tion, which at the time was the most profitable area. Roberts was 25 years old.

Copyright2018 by A.J. Strickland. All rights reserved.

Business was good for Shearwater at that time. Tourist arrivals to Victoria Falls were growing rapidly. However, in 2003, Davis decided to leave the group to pursue new ventures. Roberts not only stayed on at Shearwater, but also assumed the role of CEO, taking a personal 25 percent stake in the company. At this time Shearwater was already the dominant adventure activity operator at Victoria Falls and the best-known adventure tour operator in all of Africa.

THE ADVENTURE SPORTS

INDUSTRY

The extreme and adventure sports industry gener- ated $263 billion annually, and had been growing at a rate of 65 percent a year since 2009. The average traveler per trip spending (excluding travel and gear expenses) was just shy of $1,000. Beginning in the mid-2010s, adventure travel had become mainstream as vacationers looked for exciting ways to enjoy time away from their jobs.

Most companies defined extreme and adventure sports as those activities requiring special equipment and one or more trained guides. The difference between an extreme sport and an adventure sport was simply a matter of word choice: a company's advertising could use either term according to how the company wanted to portray the activities it offered to customers. The wide range of activities included bungee jumping, ski- ing, hiking, biking, climbing, horseback riding, rafting, snowmobiling, skydiving, and going on safaris. Skiing had been on the decline due to climate change and ris- ing lift passes. The most popular attraction, was white- water rafting. Dozens of companies around the world offered individual trips or package deals categorized by the number of days they took.

Like other industries in the 21st century, the extreme and adventure sporting industry had a global presence. Adventure seekers were offered not only a wide range of activities but also a wide range of loca- tions. While one person could go cage diving with great whites in South Africa, another could choose to ride a helicopter in the Rocky Mountains and ski down the slopes. However, as competitors looked to grow their market share and increase their customer base, they needed to attract customers at the global level. With the average customer at 36 years old, successful players in this market also had to find a way to cater to older customers while continuing to

attract college-age travelers; 57 percent of travelers were male, and 48 percent were single.

It was no surprise that young adults were the most common adventure travelers. Those were the years when everyday life became more and more hectic and disposable income increased. With a societal push to stay young at heart and the realization that money can't always buy happiness, adults were looking for ways to break free from the sometimes mundane life of office work and the acquisition of possession. In addi- tion to a new mindset, adults were also influenced by many other factors. An increased focus on healthy life- styles was prompting consumers to choose vacations that also provided a means of exercise.

Entertainment media were also helping the cause of extreme and adventure sports. ESPN's X Games were gaining popularity, and new adventure sports including skateboarding, surfing, and sport climb- ing were being added to the 2020 Olympic Games in Tokyo. It was also much easier than ever before for people to travel long distances for adventures, mak- ing seemingly remote locations such as the Zambezi River not so remote after all. Outdoor adventure companies' knowledge base and the quality of their equipment were also continuing to improve, allowing even the most conservative adventurer to feel safe.

In addition to better equipment, technology was promoting the industry like never before. Adventure seekers could skydive out of a plane and film the entire experience. Within minutes of hitting the ground, they could upload the video to social media for all of their followers to see. GoPro and other action camera man- ufacturers made documenting adventure experiences easier than ever before. Previously only experienced photographers and videographers could capture the once in a lifetime experience, but now even amateurs could record and edit their own content.

While it was difficult to start an operation in the United States due to the cost of permits, opening an adventure operation in some countries such as South Africa could be as easy as having a whitewater raft and the experience to guide customers. However, to achieve long-term sustainability, the leader of the com- pany had to be shrewd and had to know the financial status of the company down to the last penny. Industry leaders were also partnering through acquisitions, organized associations, and reseller networks in order to increase repeat bookings from satisfied customers. In order to provide customers with the best experience, many companies were becoming vertically integrated.

They provided everything including airport pickup, accommodations, dining, and adventure experiences.

Key success factors included repeat bookings and cross-sellingcompanies that could offer a vari- ety of activities had a much higher profitability of gaining repeat business. Additionally, companies needed to attract customers from around the world, as local citizens were often too poor to afford the adventures.

Advertising was key to attract tourists who had not yet chosen an adventure activity upon arrival in the local market. Developing a social media presence was a very important aspect of attracting customers69 percent of travelers decided on a desti- nation by researching online, and 28 percent of trav- elers decided after watching a travel program on the destination.

Adventure sports companies in Victoria Falls, for example, had to target tourists as soon as they entered the area. They formed partnerships with shuttle drivers from airports and set up offices in key hotels. Credibility was added when locals supported the operation. Placing ads in travel guides, maga- zines, and high-traffic Internet sources was another way to reach a wider range of customers from dif- ferent geographical locations and different age brack- ets. In the case of Shearwater Adventures, word of mouth played an important role in new sales.

THE COMPETITION

There were several other companies running adven- ture travel operations in Zimbabwe, along with doz- ens of others across Africa. Some of the well-known competitors included Wild Horizons, African Budget Safaris, and Lonely Planet. For most travelers, going to Victoria Falls was a once in a lifetime event. The majority of customers are not repeat visitors, so it was important for activity companies to offer the highest quality adventures to attract customers.

While most customers book through traditional companies, there was a new variable introduced once the customers arrive in Victoria Falls. As soon as a tour- ist exits their vehicle or hotel, they are swarmed by locals trying to convince the new arrivals to book adventures with their friends. These locals offer the same adven- tures as the big companies, but at a much cheaper price.

The companies competed in several segments: accommodation, transport, activities, food and res- taurants, retail, and airport handling services.

Wild Horizons

Wild Horizons was owned by international tourism company, Tourvest, and has been operating in Victoria Falls since 1981 in one form or another. Since their founding, they have hosted over 1,800,000 guests.

Wild Horizons offers everything their clients need once they arrive in Africa. Wild Horizons pro- vides airport transportation, accommodations, activ- ities, attractions, and restaurants in Victoria Falls. They are the clear market leader in the transporta- tion segment.

They divide their activities into four categories to appeal to all demographics of travelersadrenaline, wildlife, family, and cultural. Within these categories, guests can choose from ziplining, helicopter tours, white- water rafting, safaris, and sunset cruises on the Zambezi River. Wild Horizons also offers the option for guests to combine these activities into multi-day packages in order to receive a discount. Interestingly, while Wild Horizons and Shearwater Adventures compete directly for guests on their whitewater rafting and elephant back safaris, the two companies partnered together in their helicopter tours.

African Budget Safaris

Based in Cape Town, South Africa, African Budget Safaris (ABS) is a group of travel consultants that finds the best adventure travel operations across the entire continent of Africa and helps clients build their dream trip.

The majority of the adventures from ABS are multi-day excursions led by experienced, third-party guides. ABS offers multiple different types of trips including walking safaris, riding safaris, camping, div- ing with great white sharks, whale watching, mountain biking, and even climbing Mt. Kilimanjaro. For clients that want to experience Africa at their own pace, ABS consultants will help clients plan a self-guided trip.

Lonely Planet

Lonely Planet was created by a husband and wife with a passion for traveling. They created a company that operates on every continent and helps clients plan the trip of a lifetime. They offer a mobile application, printed guidebooks, and an award-winning website to help clients create their trip. Lonely Planet gives cli- ents information about their destination, what to do while there, and allows clients to connect with other clients who have gone on the same vacations. Lonely Planet offers several adventure and lei- sure trips in the Victoria Falls area. Clients can book sunset cruises on the Zambezi River, helicopter flights over Victoria Falls, whitewater rafting trips, safari tours, hikes, trips to local villages, camping, bungee jumping, ziplining, and cycling.

ZIMBABWE

Government

Zimbabwe did not gain its independence until 1980. Since then, the country has experienced significant political turmoil. The country, divided into eight provinces, is run by a president elected by the pub- lic. Each province is run by a governor appointed by the president. The Zimbabwean government is set up much like the United States, with an executive, legis- lative, and judicial branch.

Robert Mugabe was the country's first prime minister after their independence. He had been the only ruler of the independent country, becoming president in 1987. Zimbabwe historically had close ties with the United Kingdom, but attacks of white- owned farms, encouraged by Mugabe, in the early 2000s strained the relationship. It was estimated that the reclaimed land was worth $3 to 3.5 billion. The attacks forced the farmers to leave the country, which created a mass shortage of basic necessities due to the lack of agriculture. In 2002, Mugabe rigged the elec- tion ensure he remained president. In 2007, Mugabe instituted price controls on all basic goods, which led to a panic and again left basic goods in short supply for months. In the 2008 election, Mugabe's opposi- tion, Morgan Tsvangirai, won the popular vote but was forced to withdraw from the election due to vio- lence against his supporters. After several months of tough negotiations, Mugabe remained president, but Tsvangirai became prime minister.

Running a business in Zimbabwe was extremely risky. In 2008, Mugabe signed the Indigenization and Economic Empowerment Bill. This bill forced any company worth over $500,000 to be at least 51 percent owned by a native Zimbabwean. Passing the bill gave Mugabe even more control of the coun- try's economy. Additionally, Mugabe could close the Zimbabwean borders, or shut down the airports, effectively shutting down the entire tourist industry. Business owners had to weigh the costs of choosing to operate a business in a country with little stability.

In November 2017, Zimbabweans celebrated as Mugabe's reign finally came to an end. After being Mugabe was ousted by his own citizens, one of Mugabe's oldest friends took office. Emmerson Mnangagwa became the new president of Zimbabwe, after being exiled in South Africa for several years. Better known as "The Crocodile," Mnangagwa is a very quiet, tactful, and fierce leader. Despite the joy Zimbabweans felt after Mugabe's overthrowing, many in the country were still hesitant about their new leader. Mnangagwa viewed Mugabe as his men- tor and served as his vice president for many years. In a speech shortly after he took office, Mnangagwa said, "Today we are witnessing the beginning of a new, unfolding democracy. . I wish also for all genu- ine patriotic Zimbabweans to come together. We work together. No one is more important than the other. We are all Zimbabweans. We want to grow our economy. We want peace in our country. We want jobs, jobs, jobs."1While it is still unknown how the Crocodile's governance will turn out, the country is optimistic about a vibrant new future.

Economy

Zimbabwe's economy is primarily made up of min- ing and agriculture. The economy grew more than 10 percent annually from 2010 to 2013 before turning negative again in 2016. The decline was due to poor harvest, infrastructure and regulatory deficiencies, debt burdens, and high government wage expenses.

Inflation was a huge issue in Zimbabwe as the Reserve Bank of Zimbabwe (RBZ) constantly printed money to fund the budget deficit. To reduce the hyper- inflation, Zimbabwe became a multi-currency econ- omy in 2009, accepting the Botswana pula, South African rand, and United States dollar. In an attempt to further reduce inflation in 2015, Zimbabwe also began accepting Chinese renminbi, Indian rupee, Australian dollar, and Japanese yen. The majority of transactions were United States dollars.

Zimbabwe had over 220,000 tourists in 2016. The majority of tourists were from other African countries, followed by Europe, and then the United States. Most visitors to Zimbabwe were there to see the natural beauty. One of the main attrac- tions is the world's largest waterfall, Victoria Falls. Another major attraction is Great Zimbabwe. Great Zimbabwe was once the capital of the country, but is now one of the most important sites in Africa

and it is recognized as a UNESCO World Heritage Site. Hwange National Park is the largest and oldest game preserve in the country. It is home to the Big Five: lions, leopards, elephants, Cape buffalo, and rhinos.

Attractions

Zimbabwe is a very beautiful country with many nat- ural and man-made attractions. There were almost a dozen national parks, the most prominent being Hwange National Park. The capital city of Harare has a bounty of delicious restaurants and a bustling nightlife. The Zambezi River offers tourists the chance to see wildlife and fish for the elusive tiger fish. Great Zimbabwe was a prosperous kingdom from the 11th to 15th century, and is now a beautiful site for history lovers to visit.

Unfortunately, when Mugabe took control of the country, all of these sites lost popularity. The only attraction that was still visited during his tenure was Victoria Falls.

SHEARWATER ADVENTURES

As Allen Roberts looked to strengthen his company's position in the adventure sports industry, one strat- egy he considered was to expand beyond offering only activities. Roberts had originally differentiated Shearwater adventures by offering far more adven- tures than any of his competitors, but they were catching up to his strategy. Two concerns were that (1) it was not expensive for a company to add an adventure to its lineup, and (2) there was talent in the area that could either devise a new adventure or that could simply copy Shearwater's offerings.

In order to separate Shearwater from the com- petition, Roberts decided that Shearwater would become vertically integrated.

Shearwater Adventures'

Scope of Integration

Roberts grew his company to offer services in mul- tiple segments including accommodation, transpor- tation, activities, retail, and restaurants.

Shearwater Adventures' accommodations target customers seeking the best value. They offer 80 beds in the chalets and a campsite with serviced dome tents that sleep 120 guests. These accommodations were only 400 meters from Victoria Falls and 100 meters to

the center of the city. Guests can easily walk to local markets and cafes.

They have five outlets where they sell their retail products in very key locations. Three were in surrounding hotels, one in the international air- port, and one at the Zambezi Helicopter Company helipad.

Shearwater is the market leader in the dining industry, operating three very successful restaurants in high trafficked locations: one of their hotels, one in the city center, and one overlooking the Zambezi River. Additionally, they provide catering for all of their activities, which helps the overarching vertical integration.

Shearwater's Customers

Shearwater Adventures attract all demographics of customers. The guests range from 18-year-olds going bungee jumping to 85-year-olds staying in the hotels and eating at the restaurants. On aver- age, a customer booked two activities and stayed 2.5 nights in Victoria Falls. The reason for short visits was because most guests were coming to Victoria Falls as part of a much longer vacation to Southern Africa.

Only 20 percent of customers book in advance. The other 80 percent book their activities and din- ing reservations once arriving in Victoria Falls. Tour guides were very protective of the guests they bring because they receive large commissions for steering bookings toward certain companies, like Shearwater Adventures. Shearwater Adventures has booking desks in many local hotels, but only 10 percent of bookings were from this method. The majority come from tour guides bringing the guests to Shearwater Adventures' main booking office. It is absolutely imperative for Roberts and his staff to maintain strong relationships with the tour guides. Exhibit 1 shows the number of Shearwater customers by service line and geographic area. The number of guests, average revenue per guest, and average operating cost by guest for the locations that Shearwater operated in are provided in Exhibit 2. The company's balance sheets and business sector analysis are provided in Exhibits 3 and 4, respectively.

Technology

Facebook has nearly two billion users, and Instagram almost one million users. On par with the rest of soci- ety, Shearwater's customers want to share their once in a lifetime experience as quickly as they can. Social media usually allows users to post content virtually anytime from anywhere. However, due to the remote- ness of Shearwater's operations, Internet access is spotty at best.

Shearwater's Activities

Examples of Shearwater excursions and activities are presented in Exhibit 5. Shearwater offers a full range of activities for all types of customers. The majority of these activities were located in Zimbabwe, Zambia, and Botswana. For the adventure seekers, Shearwater offers bungee jumping, whitewater rafting, elephant rides, and ziplining. For the leisurely traveler, Shearwater offers helicopter tours, sunset cruises, gentle hikes, and incredible safaris. If travelers are looking for additional thrills, Shearwater could con- nect their customers with third-party operators to go fishing, horseback riding, and much more.

WHAT'S NEXT FOR

SHEARWATER?

While Shearwater Adventures faced serious threats, there was a defense or a solution for each one. As Zimbabwe enters a new age of hopeful political

stability, Shearwater has an incredible opportunity to thrive. It was crucial for Allen Roberts to increase pre- bookings of Shearwater adventure tours as a defense against competition and to use its existing capacity to accommodate more customer bookings for its adventure tours to their advantage. If Shearwater Adventures is to remain one of the top operations in the Victoria Falls area, what are the next steps in the plan? How is Roberts to deal with opportunities pre- sented by the new Zimbabwean government and take advantage of the opportunities to use technology to promote his business? Should he expand his opera- tions to the other attractions in the country and offer door-to-door service like in Victoria Falls? The new Zimbabwe offers lots of opportunities, but the future state of the country is very much unknown.