20 years ago, I opened a coffee shop in a small town in New Jersey. My small business grew, and after 12 years, I have opened more than 7 coffee shops in different parts of the state. I decided to retire in Costa Rica and enjoy life with my family. My biggest mistake was leaving my best friend, the most trusted employee, in charge of my stores. He had been in the company since its foundation and always was diligent. However, soon after I left for Costa Rica, my friend started his own coffee shop business while still managing my shops. Two years later, after wondering why sales in my coffee shops had declined, I decided to come in person to find out why. To my surprise – and frankly to my sadness-, my friend had opened four coffee shops near (one of them in front of) my businesses. He claimed that he opened his stores near my stores to take care of my business and his business at the same time. However, he never mentioned to me that he had opened his own stores. More appalling, while his stores remained open until 9 PM in the most congested areas, my shops were closing at 6 PM. Moreover, while I was in Costa Rica, he had told me by phone that sales were not good on Sundays, and we had losses; he recommended not to open on Sundays. I agreed. However, all his stores were open on Sundays! Well, at least my ex-friend did not rob a penny from my business, but I feel like I have been robbed. Discuss the agency problems presented in the mini case. What could the original stores' owner have done to align his manager's goal better to maximize his business's value?

Management, Loose-Leaf Version

13th Edition

ISBN:9781305969308

Author:Richard L. Daft

Publisher:Richard L. Daft

Chapter6: Managing Start-Ups And New Ventures

Section: Chapter Questions

Problem 2ED

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20 years ago, I opened a coffee shop in a small town in New Jersey. My small business grew, and after 12 years, I have opened more than 7 coffee shops in different parts of the state. I decided to retire in Costa Rica and enjoy life with my family. My biggest mistake was leaving my best friend, the most trusted employee, in charge of my stores. He had been in the company since its foundation and always was diligent. However, soon after I left for Costa Rica, my friend started his own coffee shop business while still managing my shops. Two years later, after wondering why sales in my coffee shops had declined, I decided to come in person to find out why. To my surprise – and frankly to my sadness-, my friend had opened four coffee shops near (one of them in front of) my businesses. He claimed that he opened his stores near my stores to take care of my business and his business at the same time. However, he never mentioned to me that he had opened his own stores. More appalling, while his stores remained open until 9 PM in the most congested areas, my shops were closing at 6 PM. Moreover, while I was in Costa Rica, he had told me by phone that sales were not good on Sundays, and we had losses; he recommended not to open on Sundays. I agreed. However, all his stores were open on Sundays! Well, at least my ex-friend did not rob a penny from my business, but I feel like I have been robbed.

Discuss the agency problems presented in the mini case. What could the original stores' owner have done to align his manager's goal better to maximize his business's value?

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