Lucky Prawn Farm

Topics: Management, Venture capital, Rate of return Pages: 2 (576 words) Published: September 21, 2005
Lucky Prawn Farm is a case that highlights the importance of management and operational strategies and control. At the heart of the startup's state of affairs is a dire need for additional operational funding due to unforeseen expenditures for its infrastructure requirements (as opposed to requirements for the harvest itself—fry, feeds, etc.).

LPF was launched with the vague strategy of raising "above-average returns" with minimal investment. The investors did not have experience in the industry, and the industrial partner himself, Ben Torres, had no actual experience in raising prawns. Acceptable returns were not defined, and the startup period for stabilizing the venture was not determined. Consequently, no rate of return was discussed for the initial investment, and a minimum profit/maximum loss threshold was not set to signal when to shut down.

Day-to-day business control resided entirely on the Operations Manager (Torres) whose services were initially valued at P25,000, the same amount each of the three capitalists invested. While it was not discussed whether this contribution arrangement would have held perpetually through all financing needs, it should have been reasonable to expect Torres to contribute actual cash in succeeding funding requirements. Moreover, management accountability on the part of Torres to the three capitalists was not discussed. If setting up an arbitrary P75,000 for the first prawn crop was already unqualified, the inexperienced group also did not plan for quantitative targets after the first prawn crop. Management control was not emphasized; hence, a system for performance feedback and evaluation was not established.

Torres claimed that the loss on the second harvest was due to decreased prices, however, analysis clearly shows that even if the previous year's price was applied to the 1989 harvest, the revenue still would not offset the cash outlays. After the first harvest, it would have been possible for the...
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