Marketplace Community Newsletter

Vol. 1, No. 1, Spring 2005

Best Teaching Practices

In each Marketplace Community Newsletter, we will include best teaching practice tips and ideas submitted by Marketplace Business Simulation users. These best practices may range from specific applications within the Marketplace Simulation to more general topics concerning the teaching of business and marketing principles. Our main interest is that the ideas presented be informative and progressive, in keeping with our motto of making teaching easier and learning more fun. If you have a “best practices” idea or article, please let us know and we’ll review it for inclusion in the newsletter.

The Diversity Game, submitted by Professor Al Hawkins

Team formation is always a challenging task, especially when students work together in simulations. One team-forming exercise that has worked for me is the Diversity Game, created by Ted Coulson & Alison Strickland. This procedure has been found to be 45% more effective than choosing individuals based on proximity or choosing “friends.”

The procedure is as follows: The instructor has two decks of cards. Each deck of cards contains four color groups, blue, green, red, and yellow. Each color represents a different thinking style preference. Generally speaking, blue individuals are logical, analytical, fact-based, and quantitative. Yellow individuals are holistic, intuitive, integrating, and synthesizing. Green individuals are sequential, organized, detailed, and planned. Red individuals are interpersonal, feeling-based, kinesthetic, and emotional.

There are 16 cards in each color group, for a total of 64 cards in each deck. Each card represents a characteristic of one of the four thinking style preferences. Up to 10 people can play using one deck. Groups of 11 to 25 can play using two decks. For each additional group of 25, you will need two more decks.

The game begins with the instructor randomly distributing 5 cards to each player. The players arrange their 5 cards in order, starting with the card that best describes them and ending with the card that is least like them. The instructor can then ask questions such as: What was your immediate response to the cards you were dealt? Were there any you wanted to get rid of immediately? Any that you weren’t willing to part with? Would you be comfortable finishing the game with the hand you were dealt? These questions set the stage for the next round of play.

The next phase is for participants to move among the other players and trade cards to “improve” their hand by getting cards that better represent them. Each player maintains five cards in his/her hand at all times. Players may trade as many cards as they wish with other players as long as they give as many cards as they take. Players cannot take a card(s) unless the other player is willing to make an exchange. This segment can last for 10-15 minutes.

Suggested questions after this round are: Were there any noticeable patterns in the kinds of cards players wanted to keep and those they were willing to trade? If patterns were detected, what might they suggest about the preferences of the group?

During the third round, each player is asked to discard his or her two least-preferred cards. Participants can then examine all the discarded cards and make any exchanges they wish. The same rules apply as in the second phase. The instructor then asks the participants to form teams making sure that each team is represented by each of the four colors.

Materials and instructions for the game can be found at http://hbdi.com

The Venture Capital Fair, reported by Scott McNutt

In real life, most startup businesses need outside capital to fully finance their business plans. In the classroom instructors can explain how to seek out this financing, but experience is the best teacher, as the saying goes. In real life, though, such experience comes only with significant risk.

Providing the experience of acquiring venture capital while eliminating the actual risk is what makes the Venture Capital Fair such a useful teaching tool in a business simulation. The VC Fair’s incorporation of live action into the simulation enhances students’ learning retention. ILS partner Ryno Senior, from SIG in the Dominican Republic, participated in the Venture Capital Fair at ILS’s Fall 2004 Train-the-Trainers seminar (read the article on the TTT seminar ) and recognized its potential. Of the fair’s benefits to students, he observes, “What I liked most about the VC Fair is not just the experience itself, which is a great and realistic negotiation exercise on its own, but the fact that it is ‘derivative learning content’ from the simulation exercise, in which students are the leading actors.”

Created for use with all full-enterprise simulations by Dr. Ernest Cadotte, developer of Marketplace, the Venture Capital Fair tasks student teams to fully flesh out their companies’ business plans, carefully populate their pro forma financial statements, and then polish their presentation skills, so they can meet with a group of investors and persuade at least one of them that their company is worthy of investment. I assumed the role of venture capitalist in the International Corporate Management simulation that Dr. Cadotte ran for his MBA course in fall of 2004. Following is a description of how the Venture Capital Fair is conducted, along with some personal reflections on being a “venture capitalist.”

First, some background information may be helpful. In the International Corporate Management simulation, student teams form companies and enter the microcomputer business, then use 4,000,000 of their “own” money to conduct operations for one year (equivalent to four decision periods in the simulation).

With their 4,000,000, the teams survey the market, conduct a market opportunity analysis, open a factory, design brands, open sales offices, hire sales people, develop advertising campaigns, and engage in test marketing. The simulation is structured so that after these four quarters of play, the teams likely will have exhausted their own resources and must find additional funding to invest in research and development, new sales offices, and increased plant capacity.

To attract potential investors, the teams must have detailed business plans for the next year (four quarters) and tentative plans for their third year of business. The format of the Venture Capital Fair is that each team is given the opportunity to make a short presentation (12-15 minutes) to a group of investors. Then the venture capitalists will briefly discuss or individually consider the presentations.

After that, VCs will make appointments with the teams to review their business plans in more detail and possibly negotiate an equity investment with them. Each VC will have 4,000,0000 to invest. Since each team is allowed to accept a total investment of 5,000,000, negotiating with more than one investor is a must.

The logistics of the Venture Capital Fair require having an area for teams to make presentations and additional rooms or space for teams and individual investors to conduct negotiations. To add a realistic feel, having play money equal to 5,000,000 per team is suggested. Preparing several simple, fill-in-the-blank equity investment “contracts” is also advisable.

Finally, several volunteers will be needed to act as the venture capitalists. These can be fellow instructors, graduate students, other students familiar with the simulation, or other interested individuals. Extremely helpful pointers on how to play a venture capitalist are included with the instructions for conducting the Venture Capital Fair, which can be found at:
http://www.marketplace-simulation.com/college/materials/venture-capital-fair.html.
(There, you can also find a downloadable copy of the play money and investment contract.) Prospective venture capitalists should receive this guidance early enough that they can adequately review it. It’s also a good idea to schedule a group review with them immediately before the VC Fair.

From my experience in the VC Fair, I can say that one does not have to be a financier to play the role of a venture capitalist. Mostly, what VCs need to do is to act as though the play money they have is their very own, very real, very hard-earned cash, and therefore to act very protective of it. Even if a pretend venture capitalist doesn’t come from a financial background, all that’s required to seem protective of the money is a readiness to ask tough questions of those who want it.

When I met with teams as a VC, most of my communication was in the form of questions, and most of the questions began with “Why- ?” Why should I invest my life’s savings in your company? Why did your company need an emergency loan last quarter? Why do your advertising expenditure projections go down by 20% in Quarter 5 when your sales projections double? Why do you think your competitors haven’t already anticipated your next move and planned a counterattack? As Ornella Handwerker, who participated in the Venture Capital Fair at the University of Tennessee in Fall Semester, 2004, says, “The concept of asking for funds is very realistic, since it helps you realize any company should be careful with its resources because they are limited and expensive. The negotiation with the VCs is very useful; they might ask questions and raise issues the team might not have thoroughly thought through. It also forces the team to account for the competitors' future moves.”

A VC should expect teams to demonstrate an understanding of their market, their competition, and their own company sufficient to indicate they can be successful in the marketplace. Each VC must push the students to convince him or her of the student team’s potential for success. The best way for a VC to do this is by questioning as many elements of each team’s plan as possible.

But I will also admit that, although I tried to ask tough questions about each team’s business plan, in the end I chose to be softhearted and invest in teams that had little hope of getting money from other, more-business-minded capitalists. It’s probably acceptable to have some softies like me in the mix as long as there are also no-nonsense types among the venture capitalists. It gives the students experience in dealing with a variety of personalities and decision styles.

Some general observations about team presentations: In several that I sat through, one or more of the students clearly had little experience with public speaking; none of the students had the “stage presence” to time their presentations. Although a VC’s role may be to act hard-nosed about financial matters, these students’ performance suggests that it’s better to smile and nod encouragingly at inexperienced presenters. Stony looks and scowls only seem to cause additional stammering and stumbling. If teams use several presenters, reminding each of his or her dwindling time slot seems to help them move matters along.

Even teams that don’t fare well in the VC Fair can still get the funding they want, if not at the rate they desire. If a team is unable to attract sufficient funding, the investor of last resort is Fast Eddy’s Venture Capital Fund. FEVCF will make an open offer at a stock price of 10 less than the lowest stock price on the market. So if they are resourceful (and desperate) enough, all teams should be able to get the funding needed to expand their business.

The simulation bank will also extend a line of credit to executive teams, depending on the company’s performance in the previous quarter. Other financial institutions will also buy long-term notes – for a premium interest rate over conventional bank loans.

Instructors will find that, besides helping students pursue their market goals in the simulation, the VC Fair challenges students in a number of critical learning areas. It pushes them to increase their general business comprehension and their applied business skills.

For instance, developing the business plan and the pro forma financial statements are complex and time-consuming tasks, and many students are daunted by them. But the future of their company is a strong motivation for them to do the work. To compile and systematize the necessary data, work must be divvied up, so the VC Fair reinforces teamwork. To do the job well enough to sway investors that theirs is a company on the rise, the team must be sufficiently knowledgeable of the data to defend their results when they are done. This is all good practice for future business endeavors.

Furthermore, as my own experience revealed, most students probably have not been involved in a formal presentation on which their livelihoods could depend (if only in a figurative sense). Also, few are likely to have had to develop negotiating skills, so these skills get a workout through haggling with the venture capitalists over the value of their company stock.

This does not mean that students will have no bargaining skills. In one negotiation, even as I was attempting to lowball a team on their stock price, the team’s lead negotiator was on his cell phone confirming a higher price that another investor had just accepted from them. I, too, ended up taking the higher price. As one unnamed participant in the UT Fall Semester VC Fair said, “Having to do a live presentation to a group of strangers to try to convince them to give you money, then be face-to-face in one-on-one negotiations, it makes you put your game face on. It gets your adrenaline pumping and brings home the ‘realness’ of what it takes to make your business succeed.”

After the simulation is done, the instructor may choose to have the venture capitalists reprise their roles, so that the teams present to them a final report on the results of their investments. When I returned in my guise as venture capitalist to hear the teams’ final reports, I learned that as an investor, I’d be a good philanthropist.

As I sat through these final presentations and listened to students explain their teams’ performance, one commonality stuck out. The teams who did prosper were those who demonstrated an understanding of one of the signal learning points stressed in Marketplace Simulations: the interconnectivity of business functions within companies. The teams that were the most successful recognized that sales cannot function without marketing, that expanding manufacturing depends on increasing sales, and so forth. The best teams realized that each “functional silo” of a business is important and must be balanced with every other one.

In conclusion, perhaps it’s best to let a student sum up the Venture Capital Fair experience. Quoting Ms. Handwerker again: “I thought it was very useful to be forced to make a presentation to the VCs, as it helps the team rationalize its strategies and plans for the future. Having to prove and sell your company helps in gaining a clearer vision of the best direction the company should take for the future, as well as what the company's strengths, weaknesses, and opportunities are.”

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Marketplace Community Newsletter, issued quarterly.