Turner Test Prep Company Case StudyIntroduction

In the spring of 2003, Jessica Turner felt that she had come to a crossroads with her business. As the founder and CEO of Turner Test Prep, a company specializing in preparing people of the Certified Public Accountant (CPA) exam, she felt that she was not achieving market share and growing in the right direction. After 3 years of providing prep classes to both students and professionals, Turner had about 10% of the market and was facing fierce competition from her primary rival, National Testing Services. Uncertain with which growth direction to take, Jessica contemplated several options.

BackgroundJessica Turner started Turner Test Prep in the summer of 1997 after graduating

from Case Western Reserve University with a master’s degree in Accounting. She passed the CPA exam and began applying to Big Six accounting firms. Frustrated after receiving several rejections, Jessica began to consider other employment options. Her undergraduate degree was in business, and after graduation, Jessica worked for several years in the business office of a small test prep company based in San Francisco. The company prepared students who wanted to take primarily the SAT, GRE, GMAT, MCAT and LSAT. Although her job was to manage the company’s business affairs, she also began teaching math to students several nights a week. Jessica received training from the company in teaching basic testing skills, and she applied those skills toward teaching the math portion of the exams. She received positive feedback from her students as a conscious and innovative teacher.

Jessica felt her teaching experience helped her as she began to prepare for the CPA exam herself. She knew how to study efficiently, how to organize her notes, and how to practice for the various sections of the exam. Jessica was one of the 25% of the students who passed the exam on their first try.

When contemplating what to do next, Jessica was struck by the fact that so many of her colleagues were unable to pass the exam. Convinced that she was not only skilled in the accounting and finance principles but also in knowing how to study effectively, she decided to start her own test prep company teaching students specifically preparing for the CPA exam only.

Jessica returned to California, put together a business plan, and secured financing from a local venture capitalist to start her business. She decided to focus her efforts in the San Francisco area. On the basis of her research, she estimated that there would be a market size of 1000 students per year.

The CPA ExamAlthough people with undergraduate or graduate degrees in accounting or

business may do accounting work for a company, becoming a CPA provides additional certification that employers prefer. Becoming a CPA can increase an accountants salary by 10 to 15 % and is typically necessary to secure upper-level positions.

The exam is offered two times a year, in May and November. It is a grueling 2 day, 15-hour event comprised of multiple choice, essay and problem questions. The subjects tested are Business Law, Auditing, Accounting and Reporting, and Financial Accounting and Reporting.

CPA Exam Prep ServicesThe CPA exam varies only slightly from state to state. In order to study for the

exam, people typically purchase books, software or an online course to help them prepare. Due to the amount of material covered on the exam as well as its level of difficulty, students are advised to give themselves months to prepare.

In the San Francisco Bay area, several community colleges offer 1 week review classes to help students prepare. These classes give students a starting point, after which they could use supplemental materials to study on their own.

National Testing ServicesNational Testing Centers (NTC) is Turner’s primary competition. NTC is a

national test preparation company that has been in existence since 1962. The company focuses on virtually every standardized test that is offered. In addition, the company has a program designed for international students taking the Test of English as a Foreign Language (TOEFL) exam.

NTC is a full service program that offers a variety of options for students taking any of these exams. Most courses offer the opportunity to have classroom lectures, home study videos, books, software, online tests or a combination of any of those options.

The CPA course does not offer live classroom sessions but gives students the options of books, software and online testing for one of all of the areas covered on the exam. NTC offers students a free repeat course if they do not pass the CPA exam, and boasts a 75% pass rate.

The Turner Testing AdvantageDespite NTC’s success, Jessica knew that with a pass rate of only 25% of first

time takers, there was a need to provide a comprehensive program to students so that they could pass on their first try. She devised a full service program that lasted for 6 weeks and was 3 to 6 hours a day. She worked with accounting, finance, and law professors to design a curriculum to give students a comprehensive approach to studying for the exam. She hired the professors to give 3 live, 1-hour lectures per day, and she taught the test-taking techniques and organizing skills necessary to easily assimilate the mountains of information that students needed to know. Jessica also provided audio tapes for students to review lectures at home and suggested they listen to them in their cars to maximize the use of their time. The course also included several timed minitests for each topic and four practice essay questions, which Jessica and her professors graded. The responses to essays included many comments and much feedback to give students guidance on areas to improve.

Jessica also made herself completely available to her student. She felt 1 on one attention was critical to their success, and she held bi-weekly meetings with each student to gauge progress and answer questions. In addition to the meetings, students could call Jessica or e-mail her with questions, and promised a 24 hour response time.

Jessica held 2 sessions a year in March and September, 3 months prior to the exams. This gave students ample time to prepare. Pricing her course at $1,100 per student, she felt that she was providing more of an advantage and better preparation then NTC. She also offered guarantee, allowing students to repeat the course if they did not pass.

Jessica had taken a year to develop the materials and created a marketing plan for her company. She decided to place ads in the bay area business schools to attract students contemplating taking the exam after graduation. She also created flyers to be placed in the schools and asked the schools administrators if she could place them in student’s mailboxes. She introduced herself to local businesses and tried to alert them to her program so that up and coming accountants would be encouraged to take her class if they wanted to take the CPA exam.

The 1st year that she ran the program she had 10 students. Despite the small class size, students felt that they had been well prepared for the exam and appreciated the individual attention they received. All students passed the exam. The 2nd course had 45 students, 70% passed. The last session had 105 students and 80% passed the exam. Jessica did not feel comfortable advertising her pass rate.

Spring 2003By the spring of 2003, Jessica had finished teaching the course for the May exam

and was looking forward to the September class. Although she was pleased that the numbers of students in each session was rising, she felt concerned that she was not making enough of an impact in the market. With only 10% of the market tapped, Jessica wanted to know how to improve her marketing and gain market share. She also wondered if she needed to format the course any differently to attract students who did not want to attend live lectures. She had initially believed that students would benefit from a structured program that kept them on track, but now she was not so sure. Many times students did not come to class but opted to listen to the tapes at home. Finally, Jessica realized that in her zeal to get her business up and running she neglected to calculate her breakeven point. How many students did Jessica need to break even, and at what point would she realize a profit? She realized that these were all critical questions that needed answers to ensure the future success of her business.

Questions to consider1. What is the breakeven point?2. How does Turner Test Prep overcome the competition from NTC?3. How can Jessica achieve greater market share?4. Does Jessica need additional capital to make this venture work?

Exhibit 1 Operating Costs for Turner Testing ServiceProfessor Salaries (about 1200 hrs / yr) $75 per hourOffice Space $2000 per monthUtilities and Insurance $1000 per monthMaterials $600 per studentPrinting $500 per monthMarketing $400 per monthTravel $200 per month

1. Assuming the fixed costs are borne by the Turner Test Prep Company on an annual basis regardless of the fact that CPA exam preparatory sessions are held only two times a year, the detailed costs expenses can be categorized into fixed and variable costs as follows:

For the break even analysis, the business operation should generate just enough revenue to cover the operating expenses (without any loss or profits). The case states $1,100 per student as the fee schedule.In this case, breakeven point can be expressed as: Fixed Costs + Variable Costs = Revenue.Thus, 139200 + 600X = 1100XSolving for X, X = 139200/500 -> 278.4 students annually or 140 students/session for biannual session schedule. So, Jessica Turner’s breakeven point considering $1,100 in fees per student is at least 140 students/session or 280 students annually to cover for the business expenses without making any profit or incurring a loss.2. Turner test prep’s competitive advantage lies in offering the followingervices:• Live classroom sessions along with audiotapes of the lectures for later review• One-on-one feedback sessions with Jessica Turner on a bi-weekly basis to track progressThe result of these services provided a 100%, 70% and 80% pass rate for the last three sessions. NTC program boasted a 75% pass rate. Turner test prep company should continue with the services mentioned above. The focus going forward should be to improve marketing and promote the higher passing rate. NTC has been around for a longer time and unless Turner Test PrepCompany advertises its strong unique points, it would be difficult to sway customers away from NTC.

3. To achieve greater market share, Jessica Turner needs to improve the quality of the services considering customer’s profile and possibly expanding the geographical market to include additional areas in addition to the bay area. • MARKETING EFFORTS & EXPANSION: Higher passing rate should be a stronger ‘sell’ point. A survey...

KEY ISSUES DEALT IN CASE

No prior Market research- she was not focussed on being an entrepreneur, thus she had noknowledge about the market and she did not go for market research also which lacked the basic advantages to be more competitive than her competitors.

Even though 3 years have been completed, the institute is not able to achieve its breakeven point.

She has achieved onle a small market share.

Students don’t want to attend live lecture.

Students pass rate is not good.

SWOT ANALYSIS

STRENGTHS

The teaching method is more innovative and effective.

She was providing the full serviced program with individual attention.

She was also providing live classrooms.

She was following a very comprehensive approach.

Facilities such as audiotapes to review the lecture while in class.

She also used to provide personal grading and feedback.

The institute is providing complete availability , bi-weekly meetings and prompt response to the problem.

There was also after exam service.

The institute was not charging extra from repeaters.

She possesses a good marketing and networking skills.

Satisfaction from students .

WEAKNESS

The institute was new and it has no brand value.

It was lacking a variety of options like videotapes, software, online test etc.

It was also lacking facilities such as students help toll free number and instructors online chat.

It was also expensive in comparision with others because of Higher fees StructureHigh operational cost.

One of the major drawback is that it was having a very low pass percentage.

OPPORTUNITIES

San Francisco Bay area market of about 1000 students a year which is a huge market.

It can also tap a bigger market in the future by going online tecahing way.

In the future, it can also have the opportunities to diversify in other educational streams.

THREATS

Stiff competition from NTC who is well established and reputed.

Substitute methodology like online testing is becoming popular.

She can even run in to losses as she is not getting the break even.

CHARACTER ANALYSIS

JESSICA

STRENGTHS

She has a very good work experience.

She also has better organisation and effective skills.

She is dedicated and hard working

She also has entrepreneurial skills.

WEAKNESS

She was not a professional teacher.

She has no experience of business and marketing.

She had a poor business business strategy.

She was also poor to prove her capability.

GENERATION OF OPTIONS

OPTION-1Create her budget and calculate the break even.

ProsShe can track her expenditures and profits and control it.

ConsBy making budget she can bring down the quality of service which can impact her business.

OPTION-2Raising more finance from financial institution.

ProsIt will help to improve the infrastructure.She can spend more on the marketing.It will also help to provide better facilities like NTC is providing.

ConsAs she will be having more debt and if the plan didn’t work, she will suffer huge losses.

OPTION-3She can involve in partnership with other prep institution.

ProsIt will reduce the expenditures.It will help to tap the bigger market share faster.She will also gain business experience from other partner.It will also help in easy recognition and brand in the market.

ConsThere will be no separate identity.Frequent conflict may arise with the partner.Her instituion uniqueness will be lost.

MAJOR OPINION

I think partnership with other instituion will be a good step because it will give her business experience which she is lacking and it will also reduce her expenditure on marketing as now it will be shared by her partner also.

It wil also help her to tap the market share faster and if the partner is well recognised then it will also help her to create the rand value.

THE BEST FEED SOLUTION

She should conduct the market research and should take the feedback from the students at every phase. She should take help from the financial instituion and should also make her budget and know her breakeven .In the long term she should expand her business by expanding which can be done by opening new branches.She should not compromise on the quality of education she is providing and should follow better marketing strategy. She should also keep herself update with the latest teaching methodology.She can also diverisify in other preparation fields that will help her to increase the revenue.

LEARNINGS FROM THE CASE

One should never ignore the risk and should be pro-active to follow risk management tools.Risk management tools should not only be implemented when the risk has already

converted in to hazard but the risk management tool should be implemented at every phase of the organisation.In doing business one should always do the market research first. One should always do his calculations of budget i.e finding breakeven, possible losses etc.

You should have uniqueness of your services that will help one to give the recognition.Because today reputation and goodwil is important and branding and familiarity can help a lot to tap market share.

One should also have entrepreneurial skills to be succesfull in life . An entreprenur should take risk but it should be calculated and he should also use risk management tools and techniques .

One should also keep updating himself with the changing environement and should not blindly follow conventional risk management tools but should follow the updated and latest one which is more innovative and can easily adapt itself with the changing environment.

CONCLUSION

The final conclusion is that risk managemet is very important in today’s environment . It should not be implemented blindly but should be implemented according to one’s need and the environment.

If required , an organisation should also develop its own risk management tool which can be easily updated and adapt itself with the changing environment.

One should not be only cocncerned about the financial risk but operational risk should also be concerned as we have seen in this case if the operational risk is not managed, it can impact an organisation a lot.