Red Iguana is a small family Mexican restaurant in Salt Lake City, Utah. This restaurant was founded in 1985 by Ramón and María Cardenas, a family who emigrated from Mexico to the USA in 1965 and decided to open a business based on knowledge of their culture. Before that, they worked in the restaurant for 20 years and knew this business from the inside.
They decided to buy a restaurant called Casa Grande and even left the American menu because they understood that people would not be ready for Mexican food, so they gave their customers the opportunity to choose. After that, when they realized that their restaurant was not profitable enough, they opened a new small restaurant that offered exclusively Mexican food. The business was so successful in the early years that the profit was about $300,000 a year.
The family was confident that they offer their customers unique food, which they also described as “pre-Hispanic food, imperial Aztec cuisine and Moctezuma’s table.” Moreover, in addition to a restaurant with 130 employees, the restaurant also has catering and fast-food operations. The business continued to grow rapidly and in 2003 the annual revenue was $1.9 million, which was significantly more than they had ever expected.
But a few years before that, Maria Cardenas was sick, and her condition was gradually deteriorating, so Ramon had to manage the business with his daughter Lucy. After the death of his wife and son, he decided to sell the business, because he did not have the strength to continue managing the restaurant. Lucy and her husband decided to buy the restaurant and modernize it to expand and attract a new target audience. And their plan worked – the business developed, and the income grew to $3.8 million in 2008.
But then something happened that no one expected, the government began the construction of a light rail project near the restaurant, which discouraged customers from visiting the restaurant. Before that, the restaurant attracted about 700 customers a day.
Four Horsemen Studios
Four Horsemen Toy Design Studios is a toy company based in New Jersey that specializes in making various detailed toys for Mattel (a multinational, internationally renowned toy company that cooperates with many manufacturers from all over the world). In addition to working with Mattel, the company also developed toys to sell them under its own brand. They produce toy models, which are then sold to adult collectors.
The company was founded by four friends who worked together at the toy factory McFarlane Toys but later decided to leave it to start their own business. In 1999, they realized that to create a new toy line, they needed huge investments and, more importantly, a lot of time. That is why they decided to go the other way and create a reputation as designers – they started creating toys that had a story supported by movies, TV shows or comics. They were fortunate because it was at that time that Mattel was looking for an outside team with a distinctive design sense. At first, they created only about 20 figures a year, but as they increasingly collaborated with Mattel, the number of orders continued to grow.
Even though the cooperation with Mattel provided them a stable income, their primary goal was to create their own unique line of toys, so in 2004 they created a figure called Magma Corps. Unfortunately, this toy, like several subsequent ones, was not very successful, but they were sure that they had to continue to work and maintain low prices to attract the target audience. During the production of one of the toys, they faced a severe problem, because the manufacturer from China closed before the whole lot was completed, and this led to the loss of a large amount of money.
But despite this, they continued to produce toys, and as a result, the company’s annual income exceeded $300,000 and in 2009 they were able to move to a larger studio and to hire three new employees. A year before, in 2008, 4Kids Entertainment offered Four Horsemen to create a cartoon series based on their toys, but unfortunately, at the last stage, they had to abandon this idea because of the financial crisis. They were forced to continue creating toys for Mattel without the ability to produce their own figures.
The main problem faced by the company is that because of the construction of the light rail line near the restaurant, customers refuse to visit it. Despite the high-quality food, it is evident that customers prefer a quiet place instead of constantly noisy construction. Moreover, the problem is aggravated also by the fact that this is their only restaurant and the only way of income. Given the fact that they cannot cancel construction, they must come up with new ways to manage the business. If they do not come up with a solution to this problem, they will annually lose a vast amount of money and as a result, their business will be ruined in a few years.
Four Horsemen Studios
The main problem of the company is that because of the financial crisis in 2009, they were unable to continue developing their toy lines and were forced to cooperate with Mattel to maintain the financial state of the company. On the one hand, the company continues to receive orders, execute them and as a result receive money, but on the other hand, they always planned to work on their own toy lines, rather than relying on other companies. Since they are forced to work on creating a design for Mattel toys continually, they have absolutely no time and no opportunity to work on their own toys.
Although companies operate in entirely different industries, in their situations there is much in common. First of all, both Red Iguana and Four Horsemen Studios are small companies that for the whole period of their existence continued to be small “family” companies. Moreover, both companies were entirely unprepared for the fact that some factor could have such a substantial impact on their business, so they did not develop any alternatives at all – they did not open new restaurants, places, and did not increase the number of employees. But it should be noted that unlike Red Iguana, Four Horsemen Studios have a stable source of income, which they can use to invest in the development of their own business.
The most obvious and at the same time an effective way to support business and keep the audience is adding a new place. But they must consider several factors to make the new place popular and attract customers. First of all, the new restaurant should be bigger than the previous one, because, as stated in the case study, some regular customers stopped visiting the restaurant because they had to wait too long. Moreover, given the popularity, the new restaurant should be located in a place with a lot of people, that is, potential customers. In order to serve such a large number of customers, they must hire professional chefs who know exactly what they are doing and who are ready for the experiments.Besides, as was said in the case, the restaurant also has catering and fast-food operations. The restaurant can also start offering its customers’ food delivery services that will have advantages for both the restaurant and the customers.
First, they will not need to rent or buy new premises, which will save them about $300,000. Secondly, they will be able to do portions bigger, since their costs will be much lower. Thirdly, they will be able to serve all customers if they increase the number of chefs and, accordingly, will receive more money.
Four Horsemen Studios
The company wants to continue working on its own toy lines, but also to animate its product, but it must be understood that creating a cartoon is a costly process that requires the participation of several animators and often the process of creating a cartoon takes several months and requires a huge investment of money. That is why one of the best ways for them will be to create a comic book that does not require so much investment and time, but at the same time it conveys the story and attracts a considerable number of customers.
Moreover, they can hire a group of designers to be able to continue to create designs for Mattel, but at the same time continue to work on their own line of toys. Obviously, if they continue to spend all their time and energy on creating designs for Mattel, they absolutely will not have any opportunities for independent development.
On the other hand, in order not to hire a new group of designers and not transfer their work to them, they can reduce the number of orders for Mattel and create, for example, no more than 60 designs per year. Even though their income will be lower, they will be able to use their free time to create and promote their own line of toys and comics.
In order to stay in business, both these companies must continue to develop and invest money to significantly increase their incomes in the future. Both of these companies made a mistake when they decided that they should not expand and increase the number of employees – because of this they are forced to do the same now, but in a more limited time. If these companies do not take any action, they will not be able to develop and eventually will have to close.
If I were the owner of Red Iguana restaurants, I would undoubtedly have sought to open up new places for the restaurant to be able to continue to offer services to customers. But I would not open a new restaurant very far from the old, because it will not have enough customer base to remain profitable. If they open a new restaurant two blocks from the old one, they will have to go all the way from the very beginning, which requires not only substantial financial investments but also time. Moreover, parallel to the opening of a new place, I would also start offering a delivery service to customers, which would increase the awareness of potential customers, increase the number of processed orders per day, and minimize costs.
If I were one of the partners of Four Horsemen Studios, I would hire five new employees who would continue working on the toys for Mattel. My partners and I would be art directors who would take an active part in the development of toy designs, but at the same time, most of the time we would devote ourselves to developing our own line of toys. After our financial condition improved, I would start producing a comic book based on our toys. Such an approach would allow us to continue to cooperate with Mattel, which would bring us a stable profit, but at the same time, we would have much more opportunities to develop our own toys, which is very important for us.