X-IT and Kidde (A) Case Study Solution
If you were Aldo DiBelardino, what would you do?
Based on the hostility given by the management of Kidde in previous settlements and acquisition arrangements, the settlement is not an appropriate option to consider.As stated by Kidde that ladder is a superior product with the characteristics to satisfy the annual consumer demand of around 300,000 ladders. Similarly, for the production and marketing of the ladder, X-IT had spent $535,000. Due to this reason, litigation turns out to be an absolute necessity. Thus, the primary focus of DiBelardino should be to increase immediate cash flows to be able to open a lawsuit against Kidde. For X-IT, there is a requirement of nearly $2 million to practically pursue litigation. If I would be Aldo DiBelardino, I would do this by considering three strategic approaches which are:
Regaining investor confidence:
Because of the emergence of tension among the founders regarding the declining sales; the approach adopted by the board investors was mainly based on reducing the introduction of products by half and cost-cutting. Due to this reason, DiBelardino is required to appeal to investors to conduct a proper cost-benefit analysis which would allow in securing the additional funding. With no support from investors, winning the litigation might turn out to be a challenge. An improvement in the relationship with investors, DiBelardino would be able to further leverage the alumni network and Harvard faculty for procuring other funding sources.
Partnership with a firm with strong manufacturing skills:
The other approach to increase cash is based on the production and selling of ladders at discounted rates. Due to the cash shortage, X-IT can'tconsider further vertical integration in the manufacturing process. Thus, partnership with an existing firm i.e. First Alert –an internationally localized organization would provide an access to cheap labor as well as materials for the production of ladders at lower cost. This would result in the elimination of additional manufacturing cost sand saving of some cash.
Reduction in upfront cost:
Despite the strong case against Kidde, one of the restrictive factors is the financial state of X-IT. There is a need to convince small to medium-sized law organizations so that X-IT could pay a low hourly rate and work more based on reward. This would reduce the litigation risk for the venture investors of X-IT,and would bring significant improvement in the payoff for the legal counsel of the organization.
If you were an outside investor of X-IT, would you fund a lawsuit? Why or why not?
In comparison to the approach of Kidde, the outside investors for X-IT were angel investors linked with the Havard community. They had the access to a limited amount of capital. Based on the analysis, If I would be an outside investor of X-IT, I would consider three categories before deciding to fund a lawsuit, w includes:
ROI – Return on Investment:
The first factor to consider include the expected total return on litigation. According to the venture investor, litigation is considered as the strategic approach which requires investment. Due to the requirement of the high cost to impede a lawsuit, the winning probability for X-IT is low. Considering the interest of an investor on the total overall return, I will be more concerned about a reward proportional or a dividend to my contribution. Similarly, the determination of the amount of money is another important factor. With the progression of trial, the progress of the process can be tracked to determine whether there is a requirement of one upfront payment or continuous installment.
Resource constraints:
While making funding for a lawsuit, I would determine the availability of capital outside the original investors. Similarly, the analysis of whether the legal case is strong enough for the banks to underwrite a legal funding.
Risk apportionment:
The decision to fund would be based on how much risk is shared by other investors. However, it is important to ensure that the entire lawsuit funding should not be from an individual investor. The smaller the portion of the average individual investor, the then it would be easier to convince the external parties.
Thus, my decision to fund the lawsuit would be based on the above-mentioned factors and the probability of X-IT to win the case against Kidde. Although X-IT had strong documentation and claims but lacked financial stability.
Conclusion:
Based on the analysis of the X-IT and lawsuit situation, there had been copyright and intellectual property infringement and breach of a confidentiality agreement. Despite the presence of strong pieces of evidence-against Kidde, the probability of X-IT to win the case is relatively low. Because the financial situation of X-IT was unhealthy due to declining sales. With no support from investors, winning the litigation might turn out to be a challenge. Thus, X-IT needs to gain an immediate cash flow, in order to be able to pay for a legal fee to open a case against Kidde, to win back its innovation and to experience a rapid growth.............
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