Knowledgenet Case Analysis

Background

Founded in 1998, KnowledgeNet (KN) is an e-learning company whose products are regarded as some of the highest quality within the e-learning industry. Students of KN IT certification programs pass their certification exams at a rate of 94%, compared to industry averages of 65-75%. Though approximately half of all training takes place in a traditional classroom setting, corporate training managers are turning to e-learning at ever-increasing levels due to its relative savings in time and travel costs over traditional classroom training, and its “anytime, anywhere” access. Though much of the e-learning market is composed of IT training programs, non-IT training programs are expected to surpass IT programs by the end of 2004, bringing the total e-learning market to an estimated size of 14 to 23 billion dollars.

KN is in a relatively strong financial position for a young company. Venture financing has flushed KN with over 32 million dollars in cash on hand to cover operations, and KN has been gradually progressing towards achieving positive net income. Losses of close to 7 million in quarter two of 1999 have been reduced to losses of 600,000 dollars through quarter one of 2001 (the company posted positive net income of 535,000 dollars for the month of March of 2001). KN has seen revenue and sales productivity increase, but sales expenses have also continued to increase.

For quarter one of 2001, Sales Expense contributed to 51% of total expenses. The company employs an inside and outside sales force (outside sales accounted for approximately 79% of quarter one 2001 revenue of 8.1 million), and it also partners with approximately 25 resellers who sell KN products, leaving the actual servicing of the customers to KN. Of the outside sales force, approximately 35-40% of leads were generated by the inside sales force. The inside sales force focuses on IT professionals, but hands off a substantial amount of these leads to the outside sales force (which focuses on one- to three-year contracts with Fortune 500 companies) when the potential contract exceeds 50 thousand.

Challenge

The challenge of KN is to find how to sustain its current level of growth and possibly create new avenues for more rapid growth. More specifically, KN needs to find ways to strengthen its revenues most likely by obtaining more market space and discover ways to reduce costs in order to create larger profit margins.

Alternatives

As a team, we have brainstormed three different courses of action. The first idea is to continue with the status quo and allow for a longer period of time to pass before making any rash decisions that could significantly affect the company. It may be beneficial for the company to continue in a manner consistent with their past, as their net loss has significantly decreased, and the company posted positive net income for the month of March in 2001. The downside is that they may miss out on opportunities to change and grow in the market.

The second idea is to establish a pay-as-you-go credit line. In creating this credit line, it takes half the market that still uses traditional classroom training and it makes it easier for companies to try out the product without incurring large contract costs. This way, KN puts their foot in the door