answer the questions please

Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 1

The Pre-Venture Feasibility

Analysis: The Andrea Kaneb Case

Mark P. Rice, Worcester Polytechnic Institute

Andrea Kaneb had worn hearing aids for thirty years and had extensive first-hand

consumer experience with available assistive hearing devices. In her view, the products

she had tried were too expensive and underperformed with respect to user needs and

desires. Kaneb stated:

I have a box full of FM and Bluetooth microphones and gadgets for noisy

environments that I've tried over several years. I remain very frustrated with

the products I’ve tried and find myself frequently isolated and inwardly sad --

as the friendly banter and laughter of others swirl around me at social events.

I alternate between using a remote microphone and turning it off, trying to find

the best solution -- because neither scenario was working for me. In general,

the available alternative products give me very little control and I'm often

checking the user manual when pairing the devices, because they are not

intuitive enough. I have an engineering background, so it is very likely the lack

of user-friendliness is difficult for others as well.

Kaneb was intensely committed to helping others find better solutions to alleviate

hearing loss -- particularly in noisy environments. From March through August 2015,

Kaneb worked with three classmates in their MBA capstone project course to assess the

feasibility of founding a new venture to develop and commercialize an innovative

hearing system that would be superior to competing products. After the completion of

the capstone course, Kaneb continued the new venture feasibility analysis on her own.

In December 2015, Kaneb met with her professor to review her progress in

exploring the feasibility of her proposed new venture, which she had named Parlay, and

to discuss possible next steps. Her professor opened the discussion by stating:

At the end of your MBA capstone course experience, Andrea, you still had

some critical gaps in your feasibility analysis. These gaps would have to be

addressed before you could be confident that your new venture idea would

actually be an attractive opportunity. According to your preliminary financial

model, you would need a $400K investment from family and friends to support

the post-launch activities designed to make your venture attractive to

professional investors. By the end of month nine after the formal launch of

your venture, you would solicit $600K of investment from outside investors.

Deciding whether you will ask your family and friends to invest $400K is

presumably your first critical Go – No Go decision.

----------------------------- Copyright © 2016 by the Case Research Journal and by Mark P. Rice. This case study was pre-

pared as the basis for classroom discussion rather than to illustrate either effective or ineffective

handling of an administrative situation. The author thanks Hemant Ajbani, Ronan Daly, Andrea

Kaneb and Kevin Szeredy for their contributions to this case study. The author also thanks Cyn-

thia Ingols, Gina Grandy and the anonymous CRJ reviewers for their helpful suggestions.

NA0445

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2 Case Research Journal  Volume 36  Issue 4  Fall 2016

Please catch me up on what you have done and what you have learned in the

past several months since the end of your capstone course. What additional

tasks, if any, do you plan to undertake before you have to make the first critical

Go – No Go decision? What tasks do you project you will undertake after

securing the $400K investment from family and friends and before you seek

the $600K investment from professional investors?”

THE PROJECT AND THE PROCESS

The culmination of Kaneb’s MBA Program was a two-semester capstone project course

(running from January – August 2015) that challenged students to identify an

entrepreneurial opportunity; to form teams around the most promising opportunities;

and to conduct primary and secondary research that would support a new venture

feasibility study. During the first seven weeks of the capstone course (January through

March 2015), the students searched for potentially attractive new venture opportunities,

developed project proposals and submitted them for review by the professor. To be

qualified and approved by the professor, the proposed project had to exhibit the

following characteristics:

 Involved a market/industry domain with significant technology intensity;

 Proposed a new product/service, new process and/or new business model;

 Required a higher degree of innovation than incremental;

 Enabled significant progress and learning within the capstone timeframe and resources; and

 Ignited and fueled the passion of a project team of four to six students.

The professor provided feedback for each submission and the proposals were improved

through an iterative revise and resubmit process until they were either abandoned or

were accepted by the professor as “qualified”. One of Kaneb’s qualified new venture

proposals centered on developing and commercializing a multi-user technology for

improving hearing in noisy environments. The students in her cohort ranked Kaneb’s

proposal among the four best of the nineteen qualified project proposals. By the end of

Week 6 (February 28, 2015), Hemant Ajbani, Ronan Daly and Kevin Szeredy joined

Kaneb to form a four-person project team and to formally submit their project proposal.

They adopted the name “Parlay” for their project, reflecting the goal of helping hearing-

challenged people converse in noisy environments. On March 2, 2015, the professor

approved the project proposal and the team.

THE CAPSTONE PROJECT TEAM

Kaneb received a B.S. in Electrical Engineering in 1984 and an M.B.A. in 2015. (See

Exhibit A for Kaneb’s resume.) Reflecting on her past experience, Kaneb stated:

After completing my undergraduate studies, I worked as a software engineer

in industry for five years. I'm happy to say that my husband, Steve, whom I

met during our undergraduate years, has had a successful business career. His

success has allowed me — since leaving industry -- to focus on family issues

and engagement in various non-profits that advance causes about which I'm

enthusiastic. It was Steve who encouraged me to return to school and pursue

my MBA. He has been involved in a family business for decades. He felt that

an MBA would provide valuable insight into any future endeavors I undertook

and would make me a highly effective contributor, whether serving on non-

profit boards or in a future career. He was right.

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Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 3

Even while Kaneb had enjoyed the flexibility that came with being a stay-at-home

mom, she continued to develop her leadership capabilities -- serving as a Director or

Officer for non-profit organizations within her church and community. In her view,

these years of experience provided valuable insight into advocacy and effective versus

ineffective leadership.

Ajbani received B.S. and M.S. degrees in Chemical Engineering from Bombay

University and UMass Lowell respectively. He was the COO of DiPrete Engineering,

an engineering design and construction planning firm. He had twenty years of

experience as a Product / Process / Manufacturing / Quality Engineer and Project /

Systems Manager. Reflecting on his experience in the MBA Program leading up to the

capstone course, Ajbani commented:

A year into the program, I found that the journey was making a difference in

me -- as a person, a manager and a leader. I was more introspective, more

aware of my own limitations and what to do about them, and more empathetic

towards people. Gradually, I also found my effectiveness improving --

effectiveness as a family person, a manager of people and a leader of my

organization.

Daly had fifteen years of experience as an IT professional, serving in technical and

managerial roles in the Biotech, Enterprise Packaged Software, Pharmaceutical and

Retail industries. Daly commented on the beginning of the Parlay project:

When we first formed a team, we were debating whether to choose Parlay or

an alternative qualified project proposal. I was very impressed with Andrea’s

intense commitment to her concept and recognized her deep, personal

experience with the problem Parlay would address. As a result, I advocated

strongly for Parlay and helped win over the others.

Szeredy came into the MBA Program with twenty-eight years experience in sales,

engineering and management roles in global corporations and in startups. Reflecting on

his experience with the Parlay capstone project team, Szeredy commented:

I enjoyed working with Andrea, Hemant and Ronan to develop the

presentations we delivered to the Tech Advisors Network and to the panel of

entrepreneurs who judged our final presentation at the end of our MBA

capstone course. Facing experienced entrepreneurs in both contexts, we had to

be prepared to answer their questions and to make sure our feasibility analysis

was well developed. We welcomed their constructive comments -- the good,

the bad, and the ugly. Their feedback helped reshape the Parlay new venture

concept and market approach.

THE CAPSTONE PROJECT: FULL SPEED AHEAD

During the second seven weeks of the capstone course (March through early May 2015),

Kaneb and her teammates explored the Micro-Market (customers), the Macro-Market,

the Macro-Industry (using Porter’s Five Forces Model), and the Micro-Industry

(sources of competitive advantage). In April 2015, Kaneb’s team made a presentation

to the Tech Advisors Network, the university’s virtual incubator. (For more information

about the Tech Advisors Network, see Exhibit B.) Kaneb commented:

When the idea of presenting to the Tech Advisors Network came up, I voiced

opposition, feeling that we did not have enough information to effectively

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4 Case Research Journal  Volume 36  Issue 4  Fall 2016

present our project. Kevin knew the inner workings of the Tech Advisors

Network and propelled us into that realm, which turned out to be an invaluable

experience.

Kaneb’s team succeeded in attracting seven volunteer advisors from the Tech

Advisors Network who provided informal feedback and guidance throughout the

remainder of the capstone course. Initially Kaneb’s team was interested in getting

access to technical expertise that would help confirm the product concept, technical

components and interconnections; and to determine whether they could be programmed

to work together through an app. Among their advisors were three serial entrepreneurs:

Larry Genovesi (computer systems); Jay Cahill (mobile / wireless systems); and Sean

Mahoney (mobile applications and software architecture). They helped the team

develop a deeper understanding of what would be required to implement their technical

concept. Several of the other advisors offered to connect the Parlay team to industry

contacts in companies that were potential strategic partners.

During the third seven weeks of the capstone course (early May through the end of

June 2015), the team focused on addressing operations issues. And during the final

seven weeks of the course (July – August 2015), Kaneb and her teammates developed

a preliminary financial model; discussed the entrepreneurial team that would launch the

venture; and prepared to deliver their final presentation. Throughout the course, all the

student teams submitted progress reports and received copious feedback from the

instructor, who pushed them to continue to refine their understanding of the feasibility

issues. At the end of the two-semester capstone course, Kaneb and her teammates

presented their final report on their progress in their opportunity assessment and

feasibility analysis to a panel of seasoned entrepreneurs and investors, who were an

additional source of valuable feedback.

THE PROBLEM

Kaneb and her teammates interviewed twenty-five members of the local chapter of the

Hearing Loss Association of America. Over half reported that they “always struggled”

to hear in noisy environments, such as those that were the norm in restaurants. Another

quarter of the respondents reported that they “usually struggled” to do so. Exacerbating

the problem was the restaurant trend of enhancing “energy” in a space by increasing

noise levels. This was accomplished by using glass and hard surfaces for décor and by

piping noise back into a space. In 2015, a national survey by Zagat of people who dined

out revealed that noise was the second most common complaint (24%), following

service (26%).1 Researchers found normal conversations were conducted at 45-50

decibels, whereas restaurant noise averaged 50-90 decibels.2 This equated to trying to

communicate over the noise of a power lawn mower.

In order to overcome this problem, the speech-to-noise (SNR) ratio needed to be

enhanced. People with hearing impairment needed between 4 and 10 additional decibels

of SNR to enjoy the same speech intelligibility as those with normal hearing.3

Controlled laboratory simulations with people that have hearing loss showed that the

best way to increase the SNR was to place a remote microphone very close to the sound

source.

Kaneb was committed to helping people avoid the feelings of frustration and

isolation that came from struggling to hear conversations in noisy environments. She

believed that deploying an unobtrusive network of remote microphones to deliver high

quality audio wirelessly right to a person’s hearing aids would improve the ability to

follow conversation. Kaneb stated that the raison d’etre for her new venture was:

“Improve the ability of people to hear in noisy environments.”

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Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 5

COMPETING SOLUTIONS

The hearing aid industry was undergoing a major disruption, as customers were seeking

less expensive solutions with easier access and greater control. A shift was underway

from a tightly controlled oligarchy system, with price points of $1,500 - $3,000 per

hearing aid to an unbundled product selling for $250 - $800 via the Internet and in Big

Box stores, such as Costco. Hearing aid manufacturers were responding by establishing

more retail stores, by acquiring the suppliers to the online and Big Box stores, and by

acquiring other Personal Sound Amplification Product (PSAP) manufacturers. Mobile

apps with smartphones allowed users to customize frequency and volume settings,

giving control to the end user.

Most competing products were limited by the capability of the microphone and

were typically obtrusive -- with neck loops, wires, or clunky boxes. For a large group

of people trying to communicate in a noisy environment (e.g. at a dinner table in a

restaurant), the use of remote microphones was awkward and drew undesired attention.

The best solutions with respect to functionality were relatively expensive.

Also, because they required special programming, some products had to be sold

through audiologists. Involving an audiologist made the process more arduous than

buying a device direct, and significantly increased the price of the solution to the

consumer. Several competing products, especially PSAPs, were unattractive or

obtrusive, causing users to shy away from carrying them or showing them in public.

See Exhibit C for a summary description of available products.

KANEB’S SOLUTION

Based on its analysis of competing solutions, Kaneb’s team concluded that none of the

products on the market at that time were fully optimized with respect to functionality,

user-friendliness and price. The goal of Kaneb’s team was to address each of these

issues. First, the Parlay system would be designed to enable multiple hearing-impaired

users to hear each other in noisy environments. Second, the Parlay system would be

designed in a way that would minimize the stigma associated with using an assistive

hearing device. And third, Parlay’s system would be priced attractively compared with

alternatives. Kaneb’s team believed that it would be able to differentiate its system by

outperforming competing alternatives with respect to functionality, user-friendliness

and price.

Kaneb’s team proposed to offer a combination hardware / software system that

integrated with users’ hearing aids and smartphones. An app developed for smartphones

would allow the user to manage the flow of sound through the system’s microphones to

the user’s hearing aids. This product design concept had been explored with members

of the Tech Advisors Network who had deep experience in app design and with

electronic components. These technical experts were encouraging with respect to the

concept but also indicated that prototypes would need to be developed and tested to

confirm that the design would deliver the projected benefits. The system design, though

based on significant research by the Kaneb’s team, was still only a concept. No

prototypes had yet been designed, built and tested. A number of system specifications

remained to be resolved, including type of microphone; wireless protocol; ease of use

options (e.g. location of microphones); power supply; and interface with smartphones.

It was not clear whether government regulations would also come into play. Design

decisions would also need to take into account the commitment of Kaneb’s team to

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6 Case Research Journal  Volume 36  Issue 4  Fall 2016

deliver the system at an attractive price. Kaneb still needed to determine whether she

should apply for a patent.

THE MARKET

The Hearing Health Foundation, the largest private funder of hearing research in the

U.S., provided the following information.4

 Approximately 50 million people in the USA and approximately 360 million people worldwide suffered hearing loss. From 2000 to 2015, the

number of U.S. citizens with hearing loss doubled. Globally the number

was up by 44%.

 5.2 million U.S. youth experienced noise-induced hearing damage and 60% of veterans returning from Iraq and Afghanistan came home with

hearing loss; it was the #1 war wound.

 Hearing loss was the 2nd most prevalent health issue globally.

Only about 20% of people in America who could benefit from hearing aids had them5,

i.e. approximately 10 million Americans had hearing aids. Assuming all hearing aid

users would be considered potential customers for Kaneb’s hearing system, the size of

the total addressable market in the United States was $5B. Market-Watch reported that

the growing elderly population would drive the growth rate of the hearing aid market,

which it forecasted would be 4.6% for the next 4-5 years.6

SALES, MARKETING AND DISTRIBUTION

During the capstone project, Kaneb and her teammates initiated relationships with local

Hearing Loss Association of America (HLAA) support groups. Looking ahead to when

she would be able to translate her conceptual system design into a prototype, Kaneb

intended to test the prototype through partnerships with the Central Massachusetts

Chapter of the HLAA; the Boston Chapter of the HLAA, which had a Quiet Restaurants

group; and the Rhode Island Chapter of the HLAA. The latter had access to the

Governor’s office for promoting innovations. Following HLAA meetings and

discussions with its members, the team learned that HLAA chapter members were eager

to try out the initial product designs and provide feedback that would guide system

design improvements. Kaneb’s team believed that this approach would enable an

iterative process of testing and re-design, and would ultimately provide validation of its

system design. It would allow the team to identify the attributes that potential customers

found most and least valuable in a noisy environment and to incorporate them into

Parlay’s product design.

Kaneb anticipated that her first paying customers would likely be the local members

of HLAA chapters that had tried the Parlay system, or, other people with hearing

impairments who had received word of mouth recommendations from the initial

customers. In addition to members of HLAA chapters, Kaneb’s new venture would

market its system to people who had been interviewed as part of the capstone project

team’s initial market research. In addition to direct sales to early supporters, the new

venture would increase visibility and sales of the product through its own website, social

media posts, and advertising on web pages of HLAA chapters. Kaneb’s team also

proposed to demonstrate and sell the system to potential buyers through trials and kiosks

at regional and national conventions and meetings focused on hearing loss.

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Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 7

In the four to five year timeframe, Kaneb’s team anticipated that the system would

be sold through pharmacies and through big box stores, in addition to being sold online.

A 2014 study of 1,551 hearing-impaired Americans by the Consumer Electronics

Association indicated that consumers with hearing impairment preferred to purchase

assistive hearing devices through pharmacies. 73% of the study participants indicated

that they preferred this option. Reacting to this consumer preference, one of the six

leading providers of assistive hearing devices had recently expanded a partnership with

a pharmacy chain in the UK to sell its products. Also, one of the big box stores featured

onsite hearing centers in which audiology exams were provided and hearing aids were

sold.

THE BUSINESS MODEL

Determining the best business model for her proposed new venture remained an open

issue for Kaneb. She was confident that she had defined an appropriate strategy that

would enable her venture to compete. Based upon the interview responses they

received, she also felt positive about the process she and her capstone team members

had developed for engaging potential customers. During the first couple of years

following the launch of her venture, Kaneb intended to outsource production of

components, keeping system assembly and testing in-house.

Making decisions about which parts of the value chain she would own and manage

internally versus those that she would outsource would come with time. She also

foresaw the possibility that her venture would end up partnering with or being acquired

by one of the “Big Six” companies that dominated the hearing aid industry: Sonova,

William Demant, Siemens (Sivantos), GN ReSound, Starkey Technologies and Widex.

The Big Six supplied over 80% of the hearing aid products purchased by consumers

globally.7

Similarly, major smartphone, microphone, and mobile application manufacturers,

who were constantly under pressure to bring innovative new technology and creative

features to the marketplace, could turn out to be important partners. The Parlay system

was designed to directly interface with smart phones and microphones. Hence, the

manufacturers of these products could be suppliers or even strategic partners for

Kaneb’s company. Kaneb anticipated that it would be more challenging to engage with

them as strategic partners, as opposed to managing them as suppliers. She hoped that

she would be able to develop relationships with these firms in order to influence the

evolution of their technologies and to ensure effective integration with her system’s

components. Kaneb projected that she would want to be an active member of the

Bluetooth Special Interest Group, lobbying for future enhancements that would help

optimize her system. She planned to closely follow the work of the Institute of

Electrical and Electronics Engineers (IEEE) related to wireless networks. She

anticipated partnering with a few select audio companies whose technology would be

incorporated into her system. Bringing these alliances and partnerships together would

be a key determinant in the evolution of her business model and in product development

efforts.

Kaneb also recognized that regulatory agencies could be an important part of the

value network. She projected that her company would establish a compliance team that

would directly interface with the Food and Drug Administration (FDA), with the

objective of securing a medical device designation for her system. This would enable

her company to advertise its system as hearing aid compatible, providing a significant

advantage over competitors in the PSAP and assistive hearing device industries. She

recognized that she would need to quantify the investment necessary for achieving this

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8 Case Research Journal  Volume 36  Issue 4  Fall 2016

designation, i.e. the financial and time commitment required. Given the expectation that

her system would incorporate wireless communications, Kaneb also recognized that

Federal Communications Commission (FCC) regulations might come into play.

THE FINANCIAL MODEL

At the end of the capstone course (August 2015), Kaneb and her teammates were

required to develop a summary financial model. Responding to the recommendation of

their professor, they primarily focused on settling on the assumptions that would drive

their cash flow analysis. The primary purpose of doing a cash flow analysis was

figuring out how much investment would be required to launch the venture and to get

to breakeven. Kaneb understood that she would need to develop a comprehensive and

defensible set of financials before approaching sophisticated investors. Kaneb’s team

decided to focus initially on the 10.8 million people who wore hearing aids as the basis

for sales projections and financial calculations. Taking into account the smartphone

adoption rate along with hearing aid usage, they estimated that initial 5-year sales would

be 104,000 units.

Remote microphone systems sold through audiologists typically cost $2000 or

more, and wireless PSAP systems with a single microphone cost $300. Based on the

prices of competing products, Kaneb’s team decided to assume an initial system price

of $500 and projected revenues from selling additional microphones amounting to 10%

of the revenues from system sales. Based on these assumptions, Kaneb’s team projected

$2.2M of revenues in aggregate over Quarters 4-8; $12.1M in Year 3; $19.8M in Year

4; and $23.1M in Year 5.

In order to estimate cash inflows and outflows, Kaneb’s team studied the financial

statements of two of the Big Six hearing aid companies: Sonova8 and William Demant9.

They examined various ratios --- specifically, the following factors as a percentage of

Sales: Cost of Goods Sold (COGS), R&D expenditures, Gross Margins, Net Profit,

Compensation, and Advertising costs. Kaneb’s team also estimated revenues per

employee for these companies. Based on this analysis, Kaneb’s team made choices

about the ratios that it would assume for its financial model. See Exhibit D for Parlay’s

summary cash flow statement.

To help guide the development of an investment plan for Parlay, Kaneb’s team

reflected on the professor’s presentation early in the capstone course describing various

sources of funding for pre-venture and early stage venture activities. These sources

included family and friends, accelerator funds, grants from government agencies (e.g.,

the Small Business Innovation Research program), and angel investors. Based on their

preliminary cash flow analysis, Kaneb’s team estimated that the venture would need

$1M in staged investments to fund start up business activities: product design, software

app development, backend platform development, website development, legal fees, trial

manufacturing, placing initial orders and bridging the gap between accounts receivable

and payables until cash flow turned positive. Kaneb projected that her family and

friends would contribute 40% of the initial $1M investment capital. That would give

Kaneb nine months from her official venture launch to address the remaining feasibility

analysis issues, which would in turn enable her to prepare a credible and compelling

investment proposal. She projected that she would be able to attract the additional

necessary capital of $600,000 from sophisticated investors.

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Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 9

THE TEAM: LOOKING AHEAD

Kaneb valued her experience with her capstone project teammates and was particularly

grateful for the support and encouragement she had received from them, stating:

I am envious of the networks my three teammates have built throughout their

careers. Mentoring and networking are areas in which I find myself lacking

and where I feel the most lost. I never felt held back as a woman in the MBA

program, even though there were only three other women students in my

cohort of seventeen students; only three of sixteen courses in my MBA

Program were taught by women; and when presenting Parlay to the Tech

Advisors Network, only one of approximately sixty business professionals in

the room was a woman. When I was preparing to present to the Tech Advisors

Network, there was no one around to advise me on how I should dress. I found

it hard to figure out how to look professional and feminine in a way that people

would take me seriously and that would convey confidence without being too

drab. I googled images of women CEOs to gain insight into how to dress, wear

my hair and even decide on eyeglasses. To address this challenge, I joined the

National Association of Women MBAs and have sought advice from

professional women.

Kaneb was ready for the transition to pursuing her venture idea on her own. She

reflected on the transition from capstone course project team to Parlay’s new venture

team.

One important lesson I learned was the importance of the team, the team, the

team. I knew I needed team members with complementary expertise,

especially in areas such as new venture finance and software development.

Unfortunately, none of the four of us who were part of the capstone project

team had this expertise. We were four newly minted MBAs whose work

experience and education prepared us for general management. It seemed to

me that if I decided to launch Parlay, I couldn't see the benefit for any of us or

for Parlay of starting off with four CEOs.

After graduating from the MBA Program in August 2015, each of Kaneb’s three

teammates pursued alternative employment opportunities, but all three remained

enthusiastic about their capstone project experience, the potential for the feasibility of

the new venture opportunity they had explored together, and Kaneb’s capacity for

carrying the Parlay concept forward on her own. Ajbani stated:

One of the peak learning experiences for me was the capstone project course.

It catalyzed my interest in becoming a participating mentor in the Tech

Advisors Network. I treasured my time with my Parlay teammates and wish

Andrea great success as she pursues next steps in the development of the

Parlay venture.

In the midst of the capstone project course, Daly had been promoted to the position

Associate Director, Transparency Business Partner for Shire, and he indicated that he

was excited about continuing his transition.

Szeredy, who was recruited post-graduation into a sales position with a top medical

electronic records company, reflected on his experience with his Parlay teammates.

Through this capstone project experience, I learned that what carries someone

through the ups and downs of the innovation process is the intensity of

commitment to taking action; learning from experimentation; adapting; and

persistence in pushing ahead.

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10 Case Research Journal  Volume 36  Issue 4  Fall 2016

Although she had made a good start on developing a network of helpful supporters

and advisors, Kaneb -- by herself -- was the Parlay team. She would need to figure out

how she would establish a credible team, whether by recruiting additional founders or

by making key initial hires.

Kaneb also understood that the skillsets needed would be determined at least to

some extent by the business model she opted to adopt. Specifically, she had to decide

which parts of the value chain she would manage within her firm, and which parts she

would outsource. She was feeling a strong sense of urgency, as she recognized that the

value of her support network would diminish relatively quickly if she delayed taking

action on building her team and dealing with the other critical issues she faced.

NEXT STEPS?

During her meeting with her professor in December 2015, Kaneb responded to her

professor’s questions as follows.

The best advice I received from one of my Tech Advisors Network mentors

was to make a list of people I should talk to about Parlay. Since I have been a

stay-at-home mom, I find that I lack a network, so partnerships are very

attractive to me. I have been pursuing that idea and I've had mixed results.

Some people I sought out for advice or potential networking have not

supported me or seen the value of my perspective, and that is disappointing. I

learned in my MBA Program that there is a lot of failure along the path to

entrepreneurship, so I am not discouraged by these missteps and consider it

par for the course.

After the capstone course ended, I began attending meetings of the New

Hampshire High Tech Council. Within that umbrella organization is the “Tech

Women/Tech Girls” forum, and I attended one of their breakfast meetings that

focused on women involved in angel investing. At this point, it seems likely

that when I’m ready I will seek capital from one of the five angel investor

groups I’ve identified through the New Hampshire High Tech Council.

I’ve also met with managers and researchers at Mass Eye and Ear Infirmary

several times. I had been encouraged to work with them to forge a closer link

with the Hearing Loss Association of America, which would be beneficial to

both. I have been attending regional meetings of the Hearing Loss Association

of America in both New Hampshire and Massachusetts and have become even

more convinced of the needs and opportunities in the hearing loss world. I have

written to the CEO and Chairman of the Board of the Hearing Loss Association

of America with marketing advice and advocacy ideas for their convention in

Washington DC. Looking ahead to potential partnerships, I have been

considering partnering with a Bluetooth company in NH and have also been

encouraged to talk to Bose, which may be seeking a new innovative avenue to

leverage their audio expertise.

In spite of this promising response from potential strategic partners, I realize I

need to pick up the pace and crank up my efforts to pursue this opportunity.

I’m sure my competitors are not sitting still. Undoubtedly, they are using their

experience with their products and customers to improve their positions in the

marketplace.

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Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 11

Throughout 2015, in the context of her capstone course experience and in the

several months since graduating, Kaneb had invested a substantial effort in exploring

the feasibility of her new venture idea. Was the evidence she had accumulated thus far

sufficiently positive to warrant continuing her pre-venture feasibility study, or was it

time to pull the plug? If she decided to continue, Kaneb needed to make one overarching

decision, specifically: What were the critical uncertainties she needed to resolve in order

to be able to make a credible case for investment, and what steps would she take to

address them? An important dimension of this decision had to do with the timing of her

actions. She needed to determine what progress she could make in bootstrapping mode

before she officially launched Parlay with the $400K investment from family and

friends. After determining that, she could then decide what actions she would delay

undertaking until after receiving the initial $400K investment, knowing that those

actions would also need to be completed before seeking the $600K investment from

sophisticated investors.

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12 Case Research Journal  Volume 36  Issue 4  Fall 2016

Exhibit A: Andrea Kaneb’s Resume

Experience

2007 – 2015 Member, Board of Directors.

One Sky Community Services

Oversaw a $20M non-profit agency that provides community

based services to individuals with developmental disabilities and

acquired brain disorders.

2002 – 2005 Leader (of 15 middle school girls).

Girl Scouts of America

2000 – 2012 Member, Community Affairs Committee.

St. Michael’s Parish

1999 – Treasurer.

Family Support Advisory Council, Region 8

1996 – 2012 President and Treasurer.

South Hampton Parent Teachers Association

1987 – 1989 Software Engineer.

Wang Laboratories

Developed programs using DOS, Binary and C computer

languages to run the Pegasus VS minicomputer system.

1984-1987 Software Engineer.

Hughes Aircraft

Developed integrated circuit-based firmware and database

programs for a Korean Air Traffic Control System, including lab

testing, team presentations and technical writing.

Education

Worcester Polytechnic Institute

Master of Business Administration

Worcester Polytechnic Institute

B.S. Electrical Engineering

Source. Andrea Kaneb. 2015.

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Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 13

Exhibit B: Summary Description of the Tech Advisors Network (TAN)

The Tech Advisors Network (TAN) at Worcester Polytechnic Institute (WPI) was a

virtual incubator for aspiring entrepreneurs. The advisors (friends and alumni of WPI

who were experienced entrepreneurs, investors, and business leaders) offered advice on

business plans, marketing strategies, leads to potential partners and funding. The

advisees were students, faculty, staff, alumni and friends of WPI who were exploring

the development of new ventures for commercializing technological innovations. The

Tech Advisors Network engaged with entrepreneurs on a wide range of new products,

such as a smartphone application that would prevent texting and driving, an online

educational tool for middle school science students, and a process for extracting

materials from recycled cell phones.

The Tech Advisors Network focused on filling gaps in new venture development.

The two basic elements of the TAN value proposition were advising and networking.

TAN was structured as a three phase program: (1) Preparation and Presentation; (2)

Periodic Meetings with the TAN Advising Teams; and (3) Ongoing Engagement of

TAN advisees after completion of the program.

Source. https://www.wpi.edu/academics/business/innovation/tech-advisors.

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14 Case Research Journal  Volume 36  Issue 4  Fall 2016

Exhibit C: Assistive Hearing Devices

Phonak Roger Pen, the most widely used multi-talker network system, was

manufactured by Sonova, which was the largest hearing aid manufacturer in the world.

The Roger Pen was based on a 2.4 GHz system and was sold through audiologists and

through Amazon. It required programming by an audiologist and also required the

purchase of a Roger Pen receiver and hearing aid streamer. It had excellent sound

quality and its form factor was very discreet, but the system was not designed to enable

user control of audio.

Digi-Wave by Williams Sound, the other multi-talker network product on the market,

was also a 2.4 GHz system. It supported up to six microphones; retailed for $2,300;

and had excellent sound quality. Kaneb perceived that the user guide and operations

could be too complex for some users. Even so, Williams Sound’s Pocket Talker PSAP

was the product most widely used in noisy environments by Parlay’s survey

respondents.

The Companion Mics (CM4) system by Etymotic, which was still in beta test, was

designed to allow up to four users to converse using a network of remote microphones.

This Bluetooth-type system required users to hang microphones around their necks and

to take turns speaking. The system cost was projected to be over $1,000. The

Companion Mics system garnered special recognition at the 2014 Hearing Loss

Association of America conference. Etymotic was the developer of many successful

PSAP products and had a strong online presence, especially with ear buds.

Smartphone. Apple and other cell phone manufacturers were partnering with hearing

aid manufacturers to provide wireless Bluetooth communication. Costco was selling

“made for iPhone” hearing aids for $1700 per pair. Mobile phones were emerging as

hearing aids with excellent noise-cancelling microphones and apps for customization

based on hearing loss. In addition, it was projected that all major carriers would soon

offer high definition audio. Users would have the ability to place the smartphone on

the table and use the phone’s microphone as a remote microphone. It was judged that

this might be an attractive option in a small setting, but would probably be less than

ideal for a larger group, because the phone would need to be passed among the people

talking.

Surflink was produced by Starkey, the largest hearing aid manufacturer in the USA.

This system connected a mobile phone to a hearing aid and also worked as a remote

microphone. It cost $539 and was available online.

SoundHawk was a Bluetooth system with one remote microphone and one ear bud;

and it worked with a mobile app. It was reasonably priced at $300 and easily purchased

online. However, it did not work with hearing aids.

Quattro by Clear Solutions was a single wireless Bluetooth microphone that interfaced

with hearing aids and retailed for $300. The Quattro system was black and sleek and

provided great sound quality. The Parlay team projected that Quattro could become a

serious competitor, if Clear Solutions enhanced its product.

PSAPs. There were several inexpensive PSAPs sold online and in catalogs, such as

those offered by Harris Communications. The “Pocketalker” by Williams Sound, the

“Bellman mini”, and the “Comfort Audio Duett” were all used in noisy environments

by some of Parlay’s survey respondents. These systems consisted of a wallet-size

microphone hardwired to headphones or a “streamer” to a hearing aid. They were

available online and in catalogs for approximately $150. PSAPs were limited by the

length of the wire and the form factor.

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Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 15

Exhibit C: Assistive Hearing Devices (continued)

The following chart provided a comparison of the features of these products and

Parlay’s system.

Price Multiple

Mics?

Switching

Capability?

Bluetooth

& Phone

Interface?

Discreet? Accessible

Purchase?

Roger Pen

$2800

Yes

No

Yes

Yes

No

DigiWave

$2300

Yes

Yes

No

No

Yes

Companion

Mics

NA

Yes

No

No

No

No

Smartphone

$1700

No

No

Yes

Yes

No

Surflink

$539

No

No

Yes

No

No

Parlay

$500

Yes

Yes

Yes

Yes

Yes

Soundhawk

$300

No

No

Yes

No

Yes

Quattro

$300

No

No

Yes

Yes

Yes

PSAP

$150

No

No

No

No

Yes

Source: Parlay Capstone Project Team Final Project Report. 2015.

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16 Case Research Journal  Volume 36  Issue 4  Fall 2016

Exhibit D. Projected Cash Flow ($000, except for Systems Sales in # of units)

Projected Cash Flow:

Q1 – Q8 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

Investment (start of quarter) 200 100 100 200 200 200

Beginning Cash Balance 200 192 181 257 352 471 482 621

System Sales (# of units) 100 300 600 1000 2000

Systems Sales ($000) 50 150 300 500 1000

Microphone Sales ($000) 5 15 30 50 100

Revenue (See Note 1) 55 165 330 550 1100

Less Expenses

COGS (See Note 2) 18 55 110 183 367

Compensation (See Note 3) 50 50 50 50

Consultants (See Note 4) 40 50 60 50 50 50 50 50

G & A (See Note 5)

59

49 49 74 67 73 66 118

Sales & Mktg (See Note 6) 9 12 15 18 24 36 62 105

Total Expenses 108 111 124 160 246 319 411 690

Revenue - Expenses (108) (111) (124) (105) (81) 11 139 410

Ending Cash Balance 92 81 57 152 271 482 621 1031

Projected Cash Flow:

Years 3-5 Year 3 Year 4 Year 5

Beginning Cash Balance 1031 6033 13813

System Sales (# of units) 22000 36000 42000

Systems Sales ($000) 11000 18000 21000

Microphone Sales ($000) 1100 1800 2100

Revenue 12100 19800 23100

Less Expenses

COGS 4033 6600 7700

Compensation 1200 2400 2800

Consultants 50 50 50

G & A 605 990 1155

Sales & Mktg 1210 1980 2310

Total Expenses 7098 12020 14015

Revenue - Expenses 5002 7780 9085

Ending Cash Balance 6033 13813 22898

Notes to Cash Flow Statement

(1) Revenue projections were based on selling systems (microphones, network and app) at $500 per unit. In addition revenues from incremental microphones sales

were assumed at a rate of 10% of revenues from system sales.

(2) The cost of manufacturing the bundled system was assumed to be 33% of the selling price.

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Pre-Venture Feasibility Analysis: The Andrea Kaneb Case 17

(3) Compensation was for office, marketing and administrative personnel. Compensation costs were projected to increase substantially in Year 3 with the

hiring of a CEO and CTO.

(4) It was assumed that during the first three quarters of Year 1 Parlay would contract with consultants for the development of the app and backend infrastructure at a cost

of $140K. Parlay projected that beginning in Q4 of Year 1 ongoing consultants fees

would be $50K per quarter through the end of Year 2, and thereafter $50K per year

for maintenance, troubleshooting and upgrades related to the app at a rate of $50 /

hour.

(5) G &A expenses included product development costs, travel, rent and utilities, legal and accounting fees, insurance, depreciation, lobbying costs, and system

warranties. It was assumed that manufacturing would be outsourced and that office

and computer equipment would be leased; hence, depreciation expenses would be

limited to system assembly and test equipment. Since reaching initial target

customers relied to some extent on word-of-mouth recommendations and referrals

from early adopters, continued interactions with target users at regional and national

HLAA conventions were perceived to be important. Hence, Parlay assumed an

expense budget for founders travelling within the U.S. Anticipating potential

alliances with manufacturing partners in the Far East, Parlay also earmarked funds

for international travel. G&A expenses beginning in Year 3 were assumed to be 5%

of sales revenue.

(6) Using data from online searches that revealed selling expenses typically incurred by Internet retailers, Parlay assumed that its online selling expenses beginning in

Year 3 would be 5% of sales; and selling expenses in total would be 10% of sales.

Source: Parlay Capstone Project Team Final Project Report. 2015.

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18 Case Research Journal  Volume 36  Issue 4  Fall 2016

NOTES

1 Zagat. (2015, January 20). The State of American Dining in 2015. Retrieved from

https://www.zagat.com/b/the-state-of-american-dining-in-2015

2 Hernandez, P. (2014, April 22). For restaurant owners, striking the right noise level

is key. Retrieved from https://www.bostonglobe.com/lifestyle/food-

dining/2014/04/22/what-can-hear-you/uJGdqtAwATBLlxAKDxV0wK/story.html

3 Bronkhorst, A.W. & Plomp, R. (1992). Effect of multiple speechlike maskers on

binaural speech recognition in normal and impaired hearing.” The Journal of the

Acoustical Society of America, 92.6, 3132-3139. DOI: 10.1121/1.404209

4 Hearing Loss & Tinnitus Statistics. (n.d.). Retrieved from

http://hearinghealthfoundation.org/index.php?pg=statistics&gclid=CjwKEAjw3PGt

BRCgapu_uY9hYSJAAICRalJeo7sywSFdRymFW7s5LGMYthrYcCutxA3vG_xJU

w0RoCj7bw_wcB

5 U.S. Department of Health and Human Services (NIH). (2013, March 29). Hearing

aids. Retrieved from

http://report.nih.gov/nihfactsheets/ViewFactSheet.aspx?csid=95

6 Market Watch. (2015, June 30). Hearing aids market growing at 4.6% CAGR to

2019. Retrieved from http://www.marketwatch.com/story/hearing-aids-market-

growing-at-46-cagr-to-2019-2015-06-30-62033114

7 Hearing Mojo. (2016). Hearing aid manufacturers. Retrieved from

http://hearingmojo.com/hearing-aid-manufacturers/

8 Sonova. (2016). Financial reports. Retrieved from

http://www.sonova.com/en/investors/reporting/financial

9 William Demant. (2016). News and publications. Retrieved from

http://www.demant.com/investor-relations/news-and-publications/

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