...creating competitive advantages a strategy in starting a new venture. The case continues as the owners recognize the effects of their competitive advantages on the successful launch of the company. Finally, the case deals with strategies to expand market share by utilizing these competitive advantages. Financial data from the actual company are included.

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In January 1992, Ken and Barbara Wilson, owners of the Fraud Investigation Detective Agency (FIDA), sipped hot chocolate at an outdoor table on the deck of a restaurant atop Aspen Mountain. Their ski vacation was the first long break from work since their graduations from college 15 years earlier. Ken and Barbara had worked hard, putting in long hours, and felt reasonably satisfied with FIDA's success since its 1987 founding. In spite of making a strenuous effort to increase the number of cases worked, though, FIDA's revenues and net profits had leveled off over the past 4 years.

The Wilsons agreed that they had developed a very efficient process for managing FIDA's business. If they were back in their Florida offices, Barbara would be opening the mail, assigning cases to private investigators, and processing case records. She was responsible for FIDA's administration. Ken would be working in the field, either on surveillance to gather evidence of a suspect's fraud, training an agent, or meeting with clients to report on current cases and obtain new ones.

FIDA is organized as a C corporation, and the stock was owned equally between Ken and Barbara. As with most small businesses, the owners tried to maximize the benefits to themselves as owners. Barbara decided that it would be prudent to understand the actual costs of operating the business and paid Ken a salary for his role as manager of field operations and paid herself as administrative manager. In addition, Ken and Barbara also received separate compensation for their roles as officers of the company.

The aim of their conversation in the cool, pine-scented air was to discuss how Ken and Barbara could improve their company's performance (Exhibit 1 provides FIDA's financial statements to date). They agreed that their current approach had taken FIDA as far as possible. Both partners thought that the company could enjoy a greater success if only they could find a way to get more cases assigned to FIDA.

Basking in the bright sunlight, Barbara asked her husband, "What do you consider the major problem standing in the way of growing the company?" Ken cleaned his sunglasses, sipped from his hot chocolate, and replied, "Getting more cases assigned to FIDA from new clients. I feel we're working as many cases as possible from existing clients." Passing him an oatmeal cookie, Barbara agreed, then added, "I believe our customers are very satisfied with our work." They talked a while longer, deciding that they needed a strategy to obtain case assignments from new clients.

The Private Investigative Industry

The term "private investigator" (PI) conjures up images of plainclothes detectives, private eyes, covert surveillance, and intrigue. These images have some truth, but surveillance is only a small part of a PIs' services. A PI might also locate suspects and witnesses, conduct interviews, examine records, and prepare detailed reports. (The range of services offered by PIs is listed in Table 1.) According to James Hamilton, president of the Florida Association of Licensed Investigators (FALI), PIs could offer 400 subcategories of activities. (1) The private investigative industry is composed of numerous independent companies called agencies that offer such services.

PIs must be licensed by the state(s) in which they practice and must be licensed in order to carry firearms. Most states require formal training and a standardized examination to qualify for a PI license. Community colleges and vocational schools often offer training in criminal investigations, and many universities offer bachelor and graduate degrees in criminology or criminal justice. In addition, many states require PIs to earn continuing education credits to retain their licenses (Encyclopedia of Careers and Vocational Guide, 1997). In spite of the wide availability of academic degrees and training programs, most PIs learn primarily on the job. In Florida, would-be PIs are licensed first as Novice Investigators and serve a 2-year apprenticeship before becoming eligible for a PI license. (2)

Most PIs enter the industry after working in law enforcement. To some officials and clients, their presumed training and experience "automatically" qualify ex-police officers to be licensed as PIs, said Hamilton. In Florida, for example, ex-police officers had formerly been granted automatic waivers of the apprenticeship requirement. According to Hamilton, the state discontinued these waivers because many ex-police officers had not been investigators and lacked the necessary training and experience to qualify as PIs.

Turnover is high, both among PIs and the agencies that employ them. According to Hamilton, roughly half of the licensed private investigation agencies go out of business each year. Hamilton explained that the agencies fail not because of an inability to conduct investigations or surveillance, but mainly because of poor business management by their owners and the inability to obtain revenue-paying engagements. Data collected from the Florida Department of Licensing (Table 2) shows that 2,365 agencies started operations from 1985 through 1995. Of the total number of agencies that have been active since receiving their licenses, only 26% or 607 remain in business. Eight hundred and sixteen agencies have voluntarily gone out of business (88 became inactive and the licenses of the 728 expired), and 942 have had their licenses revoked or cancelled. The average number of years in business for those firms no longer in business was approximately 6 years.

Contrary to its popular depiction, the work of a PI is often mundane and boring. According to Hamilton, in Florida, the average net annual gain in the number of PIs is only about 120. According to Hamilton, the average longevity of a PI working in the field was 2 years, which he blamed on the boring nature of the work, mainly due to the interminable waiting for the surveillance target to appear. Ken and Barbara said that the average longevity of the PIs that worked for FIDA was 5 years. Ken credited the above-average longevity of an agent working for FIDA to his selection process (as described in later discussions), to the hands-on training he gave them, and to the rapport that was developed between him and the agent. Ken said, "my PIs have more to do since they don't have to wait and wait for the target to appear." This comment was made in reference to his unique approach to surveillance (also described in succeeding discussions). Barbara said, "Surveillance is mind-numbing work and most of the agents that were terminated got feed up with the work." Barbara recalled that during a typical year of operations, they would hire three to six new PIs and terminate two to four. According to Barbara, many of the agents who left FIDA to go to other agencies for a higher pay were rehired after working for those agencies because the work at FIDA was "more interesting." By 1992, FIDA had grown to 15 employees of which 10 were agents working in the field.

The private investigative industry operates in a manner similar to other service industries. Agencies that gain and maintain a competitive advantage are those with the best chance of being successful. According to Hamilton, the most important competitive advantage of successful agencies is the ability to secure business from workers' compensation insurance carriers. In other words, those agencies that have the capability of "getting in the door" have a distinct competitive advantage over their competitors.

Many insurance companies maintain a list of authorized...

NOTE: All illustrations and photos have been removed from this article.



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