Purple Cloud Case Study

Purple Cloud Case Study

Write a paper (1,500-1,750 words) that addresses the case issues, expresses your decisions regarding the case questions, and integrates instructor feedback from your Topic 2 assignment. Your response to each item below should appear as a separate section pf the paper. In your paper, include the following:

  1. A summary of the current economic environment as presented in the case. (Note: Information from the case study does not require a reference note or in-text citation.)
  2. A summary of the business issue, emphasizing the economic concerns, from the case. Integrate specific feedback from your instructor regarding your summary of the organizational structure issue you presented in Module 2.
  3. A review of at least two viable potential resolutions and the supporting research and theory you presented in your Topic 2 assignment. Integrate specific feedback from your instructor regarding the proposed resolutions.
  4. A research-supported discussion of the ethical implications of each option and the extent to which these ethical implications are influenced by the mission, vision, and core values of Purple Cloud. (Reinforces C.2.2: Recognize that values and ethics are fundamental to business success and sustainability.)
  5. Your research-supported recommendation for action chosen from the potential resolutions you described and a rationale for the chosen recommendation. How does the recommended solution influence the long-term organizational health of Purple Cloud? (Reinforces C.2.3: Recommend the application of newly developed or revised theories to specific business opportunities and challenges and C. 2.5: Validate and advance business practice through the appropriate application of business theory.)
  6. A discussion of future research that you could conduct relative to these issues.

College of Doctoral Studies

DBA-815 Integrated Case Study

In this course, you will interact with Part III of a multi-year, integrated case study experience. This part of the case study focuses on economic issues and related ethical decisions.

The Case

Purple Cloud was founded 15 years ago and has grown from a start-up security company to a small, but well-respected competitor in the rapidly growing security sector. The founder, A. Nathan Tecnoti, is a visionary leader who forecasted the need to develop robust software products that protected both individuals and companies. As the Internet grew, so did Tecnoti’s business. He innovated rapidly, but Tecnoti could not keep up with the ever-changing technologies and was often outmaneuvered by larger companies who had larger and more proficient technical staffs and marketing budgets. Tecnoti began seeking a way to accelerate product development so he could increase market share and take advantage of new market opportunities. It is for this reason that Tecnoti developed an acquisition strategy to rapidly acquire companies that offered promising security technologies.

Invoking that strategy, Purple Cloud acquired ABCTech during a positive economic outlook. Video press coverage of this event can be viewed at https://lc.gcumedia.com/mgt805/business-acquisition-press-release-video/v1.1/. The ABCTech product acquired by Purple Cloud was completely different than any other software security application offered in the market. The product offered an elegant solution implemented with a single update to the user’s computer operating system thereby bypassing the need to distribute daily updates to address new security threats. The simplicity of the solution circumvented both the necessity to acquire capital to build or acquire extensive infrastructure and the requisite addition of high-priced support staff; while the company now has approximately 150 employees, only about 40% of these are full-time.

However, some time has passed since the finalization of the acquisition, and the economic outlook is significantly different. There are currently five other competitors in Purple Cloud’s market. Although Purple Cloud’s product is perceived to be the best in its class of products, competitors offer a relatively good product that is half the price of the Purple Cloud product. While rumors of continued expansion are fueling stock prices, Tecnoti and the leadership team of Purple Cloud are keenly aware that what was booming is no longer looking as strong, and the overall economic outlook has some analysts concerned.

Specifically, the current economic trend is not favorable for U.S. markets. Over the past several years, with financial deregulation and the easing of economic legislation, there has been an exponential increase in mortgage lending, reminiscent of the mid-2000s. Unemployment has increased significantly from its 5.0% low of a few years ago, rising 1.5% in the last quarter alone. If this trend continues, unemployment is projected to break the 8% mark this year. With this quick rise in unemployment there is an onset of fear that economic and financial stability may be in jeopardy. Rumors suggest the United States may be headed toward another mortgage industry decline. Should this occur, it is expected that a halt in overall consumption would follow. Looking back, the recession of 2007-2009 began with an almost 10 trillion-dollar housing bubble and a loss of 8.4 million jobs, which created strain and uncertainty around the globe. It is unsure if the current markets will be able to weather such a situation again.

The U.S. stock market is also showing signs of a technology bubble, as stocks are being bought and sold at prices that are not supported by actual financials. The continuing rise in cyber security stock indicates people are fearful of future cyber attacks. However, it is uncertain if investments made today will realize the promised returns. In addition, there is mixed trading as the volatility of the stock market continues. One day the market is up near record trading, and the next it loses 10%, but never coming to a balance. The overall feeling is that the bull is about to be overtaken by the bear as traders look to key economic indicators. The fear is a massive sell-off on the horizon that could take the both the housing market and technology portfolios with it.

With the uncertainty in the stock market, the U.S. Federal Reserve is analyzing its process for establishing interest rates which have seen a steady increase over the past couple of years in an effort to fight off inflation. The current market volatility and easy lending regulations would point toward another interest rate increase. However, the broader economic outlook is not favorable as unemployment continues to rise, and the insecurity is creating discord within reserve members. It has taken many years to regain the country’s confidence following the 2007-2009 recession, and the Federal Reserve does not want to have to revisit the low interest rates it invoked to spark and maintain an economic comeback. Thus, there is speculation surrounding what they will do in the current economic climate.

Internationally, geopolitical conflicts are the status quo. Europe is still striving to determine its place in the global economy as France joins Great Britain in their exit from the European Union, and Greece, Ireland, and Spain remain unsure of their economic outlook. China and India are ramping up their economies with better human resources, while South America and Africa are experiencing continued political unrest. Nonetheless, the economic outlook in Europe, Africa, and Asia remains more optimistic than in the U.S. At present, approximately 20% of the revenue of Purple Cloud is from international markets.

Purple Cloud needs to formulate a strategy to determine an appropriate course of action when considering the potential of a rapidly changing economic climate.

Questions to Consider

What specific actions should the company take, if any, to assure its sustainability in the volatile market described? Why?

To what extent, if at all, should the ongoing acquisition strategy of Purple Cloud, as described above, change? Explain.

What ethical considerations arise from the response options described? How should Purple Cloud leaders manage those considerations?

Background Information

Mission, Vision, Core Values

MissionPurple Cloud exists to provide quality protection products to ensure client online security.
VisionSafe movement in the cloud for all applications.
Core ValuesSecurityHonestyReliabilityTeamworkEfficiency

Member Biographies

Purple Cloud

A. Nathan Tecnoti, Founder and CEO

Tecnoti is a visionary. He started his company to help protect the privacy of individuals and small companies. With this focus, he has built a successful small business. However, with just $50M in revenue, he is often out-maneuvered by larger companies who have the marketing resources and technology to block his expansion into this market. Tecnoti’s experience with previous organizations allowed him to establish quick responses to market situations, improve customer relevance, and create better partnerships in the digital industry, especially in cloud-based models.

With a B.S. in business and an M.S in information technology, Tecnoti brings to the company significant experience working globally as well as a strong IT background. In addition, Tecnoti has extensive experience in the industry prior to Purple Cloud where he worked in the roles of senior vice president of technology for two other large corporations. He was responsible for growth, marketing, and the companies’ office operations. Tecnoti also has experience in licensing of software and managing sales in the United States and Europe for previous corporations.

Maria Preston, Chief Operational Officer

Preston is responsible for driving profitable growth and creating operational excellence. She has an excellent track record of innovation and creating excellence in the operational division. Preston oversees the national and global supply chain of the company. Her innovative approach to problem solving has put her at the top of her industry in her previous organizations and now with Purple Cloud where she is charge with innovating operational processes for maximum efficiency.

Preston’s previous experience shows she has held leadership roles in IT and manufacturing. She has worked with a variety of companies in Silicon Valley and is known for creating partnerships that reshape and create cross-functionality for the organization. Preston holds a B.A. in economics and an M.B.A. in business administration.

Willie Taylor, Chief Financial Officer (CFO)

Taylor comes to Purple Cloud with an abundance of experience in the financial strategy and operations of IT companies. He is tasked with creating value for shareholders, upholding a balanced portfolio, and leading the growth initiatives of the company. He believes integrity is critical in creating a successful financial strategy.

Taylor’s previous experience comes from working in business, technology, operations, and finance for companies in Silicon Valley. He has had experience partnering with organizations to focus on long-range strategic planning, forecasting, and working with budgets as high as $50M. Taylor has a B.S. in finance and an M.S. in business with a specialization in finance. He also has extensive experience in mergers and acquisitions, financial planning, and profit and loss.

Thunder Thompson, CEO and Co-Founder

Thompson is co-founder of ABCTech. As the CEO of ABCTech, Thompson focuses on the company’s growth and technology strategy. Thompson has a B.S. degree in computer programming and a passion for creating safe data products and applications. He brings more than 10 years of experience in enterprise IT software, data analytics, security, and knowledge of cybercrime. Thompson also has experience in technical operations and cloud and data platforms. He is new to being an entrepreneur, but is excited at the prospects of making a difference in the technology world with his company’s safe data products. Thompson believes in ABCTech’s vision: A world protected from cybercrime and personal security breaches.

Chris Christianson, COO and Co-Founder

Christianson is the co-founder and COO of ABCTech. He is also the company’s chief marketing officer. Christianson is responsible for growing the company’s revenue. He has 12 years of experience in HTML, Java, Python coding, and product development, and is trained in software development, product development, and product marketing. Christianson holds a B.S. degree in computer programming and has certification in marketing and product development. He too is new to entrepreneurship, but has a passion to see ABCTech and its products succeed. Christianson believes the company can achieve its mission: To create an affordable security product for every person.

Herbert VanderLugt, Marketing Director

VanderLugt has extensive experience in marketing. Before joining ABCTech, he worked in Silicon Valley as head of marketing operations for a large tech firm. VanderLugt has a B.A. in business as well as an M.B.A from a prestigious business school. He is also fluent both in writing code and in website design. These skills complement his understanding of ABCTech and its marketing needs within the tech industry.

Tom Englewood, Director of Customer and Techical Support

Englewood provides oversite of all the customer support and technology issues for ABCTech. He has both a B.S. and an M.S. in computer science. Englewood brings 30 years of experience in the field of technology and customer service both at the university level and in the corporate setting. He has experience in enterprise applications, teaching, research and learning, user support information security, infrastructure, and communications.

Organizational Charts

Purple Cloud Structure

Charts

Stock PriceOutstanding SharesCompany ValuationRevenueRevenue Per SharePrice / Sales Ratio (P/S)
$54.257,000,000$379,750,000$54,250,000$7.757.00

For additional information regarding price to sales ratios, see http://www.multpl.com/s-p-500-price-to-sales.

Continues on next page.

Financial Statements

Purple Cloud Projected Income Statement*

* Notes:

Depending on the market elasticity, an economic downturn could see revenue for Purple Cloud’s products and services increase or decline in the coming year.

A decline in revenue could necessitate a reduction in the number of employees, particularly in sales, marketing and general administration.

Purple Cloud Stock Prices v. Composite Stock Price

Purple Cloud Stock Price

45 38 51 Composite Tech Stock Value (Times 100)

52.1 54.17 55.2

Year

Purple Cloud Revenue and Stock Price

Revenue (millions of dollars)

46.1 50 54.25 Purple Cloud Stock Price

45 38 51

Year

Revenue and Interest Rate

Revenue (times ten million dollars)

4.6100000000000003 5 5.4249999999999998 Prime Interest Rate (%)

3.5 3.75 4

Year

Revenue and Unemployment Rate

Revenue (times ten million dollars)

4.6100000000000003 5 5.4249999999999998 Unemployment Rate (%)

5.6 6.7 8.4

Year

Revenue Source

Business %

61 64 70 Consumer %

39 36 30

Year

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Purple Cloud

Projected Interim Income Statement

For Year Ending December 31, 20XX

Prior Year End

Revenue

Subscription Software Revenue42,500,000$

ABC Product Line750,000

Professional Services11,000,000

Total Revenue$54,250,000

Cost of Goods

Customer Support$4,500,000

Hosting Expense$625,000

Professional Services$8,800,000

Total Cost of Goods Sold$13,925,000

Gross Profit$40,325,000

Gross Margin74%

Operating Expenses

Sales$14,400,000

Marketing$6,000,000

Product Development$9,250,000

General Administrative$2,100,000

Operating Expenses$31,750,000

One time acquisition expense$5,000,000

Total Operating Expenses$36,750,000

Net Income$3,575,000

Tax @ 30%$1,072,500

Profit$2,502,500

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