Read the case and answer questions at the end.
Calvin Horowitz is thinking about buying a dance studio. Calvin learned about the business opportunity from the owner himself. Calvin takes dancing lessons every Wednesday evening. One night, after finishing his lesson, he was in the hallway having a cup of coffee when the owner, Mark Cecil, came by. Cecil told Calvin that he had been talking to his accountant about selling the business. “I’ve owned the studio for 23 years,” Cecil told Calvin, “and now I want to sell out and retire. I’m looking around right now for someone who would like to buy the business.” Calvin was excited about the prospect and asked Cecil a lot of questions about the operation.
From what Calvin could determine from the conversation, Cecil has six full-time instructors and nine part-time instructors. Approximately 130 people take lessons each week. Some of these individuals are signed to 10- and 20- lesson contracts, while others walk in off the street and ask for a particular dance lesson.
Calvin does not know a great about owning a dance studio. He is in the insurance business. However, he did spend an evening looking over Cecil’s operations earlier this wee and found that it was very difficult to tell from the records exactly how much revenue Cecil has taken in this year. Some people pay by check and others with cash. Not all of these amounts have been entered in the books. Nor is it possible to pinpoint how many people actually come in for lessons because the instructors sometimes collect the money and, if it is in cash, give
Cecil his share and pocket the rest. Additionally, Cecil has had three good years and two poor ones in the last five. Last year was one of the good ones.
Finally, Cecil does not know (or at least is not telling Calvin) a great deal about the customers who come in for lessons. However, he does run an ad every week in the Sunday edition of the local paper and believes that this is how people learn about his dance studio, in addition, of course, to the word-of-mouth advertising from his clientele. Cecil also believes he, himself, helps account for some of this business because he arrives at the studio everyday at midmorning and does not go home until after the last lesson. As a result, Cecil knows all of these people personally and encourages them to keep up their lessons and have their friends come along with them.
After thinking the matter over, Calvin is not sure whether this venture is a good one. He seems to lack so much information about the business that it will be very difficult to make a decision. However, he has told Cecil he will let him know within two weeks.
From which of the specific causes of business failure does Cecil’s operation suffer?
Into which of the management traps has Cecil fallen? Explain
What would you advise Calvin to do? Explain your reasoning.
