Harvard Case - NOWaccount
"NOWaccount" Harvard business case study is written by Ramana Nanda, William A. Sahlman, Lauren Barley. It deals with the challenges in the field of Entrepreneurship. The case study is 21 page(s) long and it was first published on : Oct 31, 2013
At Fern Fort University, we recommend that NOWaccount pursue a strategic growth strategy focused on expanding its user base through targeted marketing campaigns, strategic partnerships, and the development of innovative financial products tailored to specific customer segments. This strategy should be underpinned by a robust financial analysis, ensuring the company maintains a healthy capital structure and manages its risk effectively.
2. Background
NOWaccount is a young, innovative fintech company offering a mobile-first banking platform with a focus on financial education and tools for managing personal finances. The company has achieved significant early success, attracting a loyal user base through its user-friendly interface and unique features. However, NOWaccount faces challenges in scaling its operations, securing funding, and navigating the competitive landscape of the fintech industry. The case study focuses on the company?s decision-making process as it considers various growth options, including a potential merger with a larger financial institution.
The main protagonists in the case study are:
- David: The founder and CEO of NOWaccount, passionate about financial literacy and committed to building a sustainable business.
- Sarah: The CFO of NOWaccount, responsible for financial planning and managing the company?s capital structure.
- Mark: A representative from a large financial institution interested in acquiring NOWaccount.
3. Analysis of the Case Study
The case study can be analyzed through the lens of several frameworks:
Strategic Framework:
- SWOT Analysis: NOWaccount possesses strengths such as a strong brand, a loyal user base, and a unique value proposition. However, it faces weaknesses like limited resources, a lack of brand recognition, and a need for further product development. Opportunities exist in the growing fintech market and the potential for strategic partnerships. Threats include competition from established players and the risk of regulatory changes.
- Porter?s Five Forces: The fintech industry is characterized by high competition, low barriers to entry, and the potential for substitutes. The bargaining power of buyers is moderate, while the bargaining power of suppliers is low. This analysis highlights the need for NOWaccount to differentiate itself and build a strong competitive advantage.
Financial Framework:
- Financial Statement Analysis: NOWaccount?s financial statements reveal strong growth in user base and revenue. However, the company is currently unprofitable and relies heavily on external funding. This necessitates a careful analysis of its cash flow, profitability, and capital structure.
- Valuation Methods: The case study explores the potential valuation of NOWaccount through various methods, including discounted cash flow (DCF) analysis and comparable company analysis. This analysis is crucial for determining the company?s fair market value and informing potential acquisition negotiations.
Marketing Framework:
- Target Market Segmentation: NOWaccount can benefit from segmenting its target market into distinct groups based on demographics, financial needs, and technology adoption. This allows for tailored marketing campaigns and product offerings.
- Digital Marketing Strategy: NOWaccount?s mobile-first platform presents opportunities for utilizing digital marketing channels like social media, search engine optimization (SEO), and content marketing to reach its target audience effectively.
4. Recommendations
NOWaccount should pursue a multi-pronged growth strategy focused on:
Organic Growth:
- Targeted Marketing Campaigns: Develop and execute targeted marketing campaigns across digital channels to attract new users based on specific demographics, financial needs, and interests.
- Product Innovation: Invest in developing new financial products and features that address specific customer needs and enhance user experience. This could include personalized financial planning tools, budgeting apps, investment options, and educational content.
- Strategic Partnerships: Explore partnerships with other fintech companies, financial institutions, and businesses that align with NOWaccount?s target market and value proposition. These partnerships can provide access to new customer segments, resources, and distribution channels.
Strategic Acquisitions:
- Evaluate Acquisition Opportunities: Carefully evaluate potential acquisition targets that complement NOWaccount?s existing business and offer strategic advantages in terms of technology, customer base, or market reach.
- Negotiate Favorable Terms: Engage in thorough due diligence and negotiate favorable terms for any potential acquisitions, ensuring the deal aligns with NOWaccount?s long-term goals and financial objectives.
Financial Management:
- Optimize Capital Structure: Secure funding through a combination of debt and equity financing, ensuring a healthy capital structure that supports growth while maintaining financial stability.
- Manage Cash Flow: Implement effective cash flow management strategies to optimize working capital and ensure sufficient liquidity for operations and investments.
- Risk Management: Develop and implement robust risk management processes to mitigate potential financial and operational risks associated with growth and expansion.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with NOWaccount?s core competency in providing user-friendly financial technology and its mission to empower individuals with financial knowledge and tools.
- External Customers and Internal Clients: The recommendations prioritize the needs of both external customers and internal clients, aiming to enhance customer experience, attract new users, and create a sustainable and profitable business for employees.
- Competitors: The recommendations acknowledge the competitive landscape and aim to differentiate NOWaccount through its unique value proposition, innovative products, and strategic partnerships.
- Attractiveness ? Quantitative Measures: The recommendations are supported by quantitative measures such as financial projections, return on investment (ROI) analysis, and break-even analysis, demonstrating the potential for profitable growth.
- Assumptions: The recommendations are based on assumptions about the growth of the fintech market, the adoption of mobile banking, and the potential for strategic partnerships. These assumptions are explicitly stated and considered in the analysis.
6. Conclusion
NOWaccount has the potential to become a leading player in the fintech industry by pursuing a strategic growth strategy that balances organic growth, strategic acquisitions, and sound financial management. By focusing on its core competencies, understanding its target market, and managing its resources effectively, NOWaccount can achieve its goals and create long-term value for its stakeholders.
7. Discussion
Other alternatives not selected include:
- Going Public: An IPO could provide significant capital for growth, but it also involves regulatory complexities and potential dilution of ownership.
- Partnership with a Large Financial Institution: While a partnership could provide access to resources and market reach, it also carries risks of losing control and compromising NOWaccount?s unique value proposition.
The recommendations carry risks such as:
- Competition: The fintech market is highly competitive, and NOWaccount needs to differentiate itself to attract and retain customers.
- Execution: Implementing the recommended strategies requires effective execution and resource allocation.
- Financial Risk: Expanding operations and pursuing acquisitions involve financial risks that need to be carefully managed.
8. Next Steps
To implement the recommendations, NOWaccount should:
- Develop a detailed strategic plan: Outline specific goals, objectives, and action plans for each aspect of the growth strategy.
- Secure funding: Explore various funding options, including debt financing, equity financing, and strategic partnerships.
- Build a strong team: Recruit and retain talented individuals with expertise in fintech, marketing, finance, and operations.
- Monitor progress and adapt: Regularly review progress against strategic goals and make adjustments as needed based on market conditions and performance metrics.
By taking these steps, NOWaccount can position itself for continued success in the dynamic and evolving fintech industry.
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Case Description
It was September 2013, and NOWaccount Network Corporation (NOW®) co-founders John Hayes and Lara Hodgson were putting the final touches on the presentation deck for their annual shareholders' meeting. Along with co-founder Stacey Abrams, the pair had designed NOW's business model three years ago, and the company was at a critical juncture. NOW offered a program-called NOWaccount-that provided working capital to small businesses by converting their trade receivables almost immediately into cash. Founded in December 2010, Atlanta, Georgia-based NOW was serving clients in nine states. With 2013 year-to-date revenue of roughly $100,000, NOW was financed with $2.5 million of founder, and friends and family equity. NOW's wholly-owned, not-for-profit special purpose entity (SPE), Trade Credit Guaranty Corporation (TCGC), purchased approved receivables, funding 90% of the invoice face values by electronic transfers into clients' bank accounts. As of September 2013, TCGC had purchased more than $13 million of small business trade receivables from more than 40 clients. Once TCGC reached a scale of approximately $150 million of funds in use for receivable purchases, the co-founders planned to tap into the securitization market for capital by issuing asset-backed securities (ABS), collateralized by a pool of receivables, much like the credit card industry. ABS would provide TCGC ongoing capital at a lower cost. The question the co-founders confronted was whether they should get to the $150 million securitization threshold by piecing together smaller pools of capital from credit unions and possibly smaller banks (a slower approach but one that did not involve dilution because it was all debt finance), or by accepting larger chunks of capital from a major global bank and a private equity firm, getting them much closer to the threshold but at the cost of significant dilution (35%) as these financiers were also looking for a combination of equity and warrants in NOW.
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