Summary of the case and primary problems
The main case involved a company called IMVU that was experiencing poor returns due to low sales. As a result, its cofounders, Ries and Harvey, were on a fix regarding the future of IMVU. In addition, board members pressured them regarding an increase in sales growth. Three options were available for the cofounders to consider.
The first was by collaborating with a company called IOM. However, a majority of the board members did not favor the IOM approach. They felt that the growth for the 3D-avatar-based instant messaging manufacturer was declining. Also, teenagers were the company’s primary target. The fact that only 0.4 percent of the target market paid for IOM’s service implied that the source of growth was too narrow. Furthermore, this proportion was way lower than the projected optimum of four percent for IOM. The fear of shifting to an adult-based market or a mixture of the two was also a major challenge for IMVU’s co-founders. Second, Winters’ idea of laying out a complete product strategy rather than beta products was still on the table. Lastly, the investment offers from ROC, PC, and Janga were tough choices to make given the need for increased growth. These events were the major sources of distress for IMVU co-founders whose focus was strictly on growth.
Insights from the case and potential decisions
To make a concrete strategic decision, Ries and Harvey had to analyze the three options. They considered Winters’ suggestion that the company completely abandon giving dummy products to customers. Instead, providing improved products was a better option. Winters believed that competitors would benefit from the lessons of IMVU.
Moreover, ROC offered a lucrative deal by asking for a 33 percent stake coupled with $5.5 million extra investment. ROC did not see the need for having a change of strategy since the IOM approach had recorded a standard growth in the recent years of operation. However, unlike their main competitor PC, ROC lacked a good track record of desirable success levels.
PC is renowned for its high-performance levels and a clean record of accomplishment that influences partner companies to achieve high sales revenues. As expected, the company pledged to help IMVU realize a massive sales growth through proactive marketing strategies. Although PC offered more for less with a $5.25 million investment for 35 percent of the company, the deal was an important game changer for IMVU. The problem was that PC required a professional management team and wanted IMVU to target adults rather than the teenagers. Furthermore, PC wanted IMVU to hire more engineers, buy servers, and employ proactive marketing initiatives. Most importantly, PC gave a stringent warning to the management that poor records would see them fired.
Janga offered the last possible deal for IMVU. The online search engine company wanted an acquisition of the company. With $20 million for grabs, it was an enticing deal. Moreover, Harvey and Ries together with other founders would receive a fifty percent cash payment and the balance paid in two years. To spice it all up, Janga offered performance-based earnings of $15 million in four years.
Potential courses of action
In the end, Harvey and his fellow founders had to make a strategic decision based on the best offer that suited IMVU’s current situation. Winter’s proposal was meaningful especially with the rise of many copyright cases. First, the company needed to re-evaluate its production strategies and invest more in producing quality products. Second, ROC maintained to embrace the IOM strategy, which faced previous complaints from the board members. Thus, the uncertain track record was not a good thing to take home. Also, Janga’s acquisition plan would only lead to limited satisfaction in the long-run. The most profitable deal for a long-term relationship was the $5.25 million investment by PC. With a clean track record and focus on profitability, PC would push IMVU’s sales high. Furthermore, improved product marketing, a professional management team, and additional engineers were important factors to leverage IMVU’s growth.