Grand Junction Networks

Entrepreneurial Finance

Case Report

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PROF: Haruyoshi Ito

GROUP MEMBERS

2B5015 Alok Kumar Dubey        

2B6059 Ikhlosiddin Urmanov

2B5054 Maganja Johanes Sospeter

INTRODUCTION

Grand Junction is a three year old technology firm founded by three key ex-3Com executives. GJ manufactures desktop switches, a new and profitable product that connects an individual computer to the LAN Ethernet of a network. Desktop switches are the cheapest ($150) of the three type of LAN switches; backbone switches ($500) carry the bulk of network communication traffic, and workgroup switches ($300) carry traffic between specific user groups.

GJ's only direct competitor in desktop switches is 3Com. Each has 50% of market share. 3Com, Cisco, and Bay Networks compete in backbone and workgroup switches.

Grand Junction’s product are sold direct to the large corporate customers in the U.S. The company uses a selected group of VARs and two-tier distributors to complete it is direct sale effort. The company reach international market through country- specific distributor.

The company success depends on the key technician and the management employees. The loss of the service among of the key performance employees, could has material adverse on the company performance. The company key success lie on the ability to attract and retain of the highly skilled technician, sales, and management employees.

Revenues for the desktop switching industry is expected to grow to $650 million in two years’ time. GJ's revenues have increased over 150% over 3 quarters (and projected to increase 550% over 8 quarters), and net income has increased from a loss of $900,000 in 1994Q4 to a projected gain of $1.6 million in 1995Q4.

Now in the cause of the operation, management is on dilemma to decide which cause of action to be taken on either to go for IPO or to be acquired by their well performing competitor CISCO.

QUESTIONS

QUESTION 01.

Given the representations that Charney and other senior managers had made to several newly hired key employees, should they meet with these people to explain their consideration of the Cisco offer before making a decision? If Grand Junction decides to be acquired, how should Charney and his management team inform their employees?

ANSWER

We think that employees are key, but such sort of decision should reside in the hand of management, since it is not yet clear that whether Grand Junction will go IPO or will it be acquired by Cisco. So, the best way will be to wait for the final decision and then call a meeting where all employees will be present and then told them about the merits of the decision which has been taken.