A Product Design Problem

When Billie Aherne learned that the government was soliciting contracts for the manufacture of microcomputer components, she read the solicitation carefully. Billie's knowledge of microcomputers is extensive, and for the past five years she has been a university professor actively engaged in research in this area. If she could land this government contract, Billie feels certain she would be well on her way to going into business designing microcomputer components.

Billie asked for a leave of absence so she could bid on the microcomputer contract. She then worked up a detailed proposal and submitted it to the government. Eight months ago, she learned that she had been awarded the contract. For the next four months, Billie and two university colleagues who had joined her worked on completing their state-of-the-art components. When private firms learned of their contract, Billie was inundated with requests for components. She realized that as soon as she completed her government contract, she would be free to enter into contracts with private firms. Two months ago, Billie shipped the components to the government. The next week, she began signing contracts with firms in the private sector. In all, Billie signed agreements with six firms to provide each of them an average of $400,000 worth of components during the next four months. Last week, the first shipment of components was delivered to one of the private firms.

In the mail delivered earlier today, Billie received a letter from the government. The communication informed her of quality problems with the components she had manufactured and shipped. Part of the letter read, "It took approximately four weeks of use before it became evident that your components have a quality flaw. We believe the problem is in the basic design. We would like to meet with you at the earliest possible time to discuss your design and to agree on which steps must be taken in order for you to comply with the terms of your contract." Billie hoped to keep this news quiet until she could talk to the government representatives and find out what was going wrong. However, an hour ago she received a call from one of the private firms. "We hear that the microcomputer components you shipped to the government had a quality flaw," the speaker told Billie. "Could you tell us exactly what the problem is?"

Questions

1. What happened? What mistake did Billie make in terms of the new venture?

2. How could this problem have been prevented? Defend your answer.

3. What lesson about new-venture assessment does this case provide? Be complete in your answer.