Homework for Week of 10-13-11 to 10-19-11

It's time to begin work toward your business plans. Your homework for this week is to write up an introduction for your company (What business are you in? What product or service will you deliver. What are you really selling?) and to prepare a market analysis for the business. The market analysis should include documentation regarding the existence, size and growth prospects of the market you are targeting, along with an analysis of the competition for that market.

Also, I will post as a separate topic a link to portions of a sample business plan for a proposed beverage retailer called "The Daily Perc". You are to read the introductory paragraph to Section 3 (which equates to the introduction of the business) as Section 4.1 through 4.3.1 (the market analysis for this company). Please note that this does not include the Start Up Requirements and Start Up Funding tables. You are to post at least one meaningful analytical comment in response to this topic on the forum. What do you think about of this business, based on the information provided? Why do you think that? You may also find these portions of the business plan to be a helpful guide for the first part of this week's assignment.

Email your completed assignments to me at the email address I've provided for you.They are due before 11:00 PM on Wednesday, October 19.

TDP Company created a good strategy to earn good money on their product. They found two good ways which are very effective: Daily Commutes and Captive Consumers. Both of these ways have a different strategy. Daily Commutes have a drive thru coffee which is very effective for people who do not have enough time. Captive Consumers has a Mobile coffee which is very effective for college students and universities. College students are people who have enough money; however, they do not have enough time. Selling their product by Captive Consumers is very effective because there are always a lot of people who have enough money but not too much time. In conclusion, selling coffee in the USA is very profitable business. So, if TDP develop their two strategies, they will be very successful company.

Pros:

The broad range of revenue stream platforms (Drive-thru, mobile cafe, merchandising,etc), offer a large safety net with a benefit of high level of automation and reduced need for man power. In addition, adding seasonal items keeps TDP's product offerings fresh, draws more customer interest and most importantly makes up for any drop in sales from the unseasonal items.

Cons:

Overall, TDP seems to rely intuitively on a stable/ lucrative economy, disposable income and shortage of time--as noted specifically in Sect 4.2, "TDP's target market is the mobile individual who has more money than time..." Even a giant like Starbucks could not escape the brunt of a collapsing economy--Starbucks shares plummeted from approx $38/share in 2006 to approx $8/ share. Starbucks managed to re-emerge after some drastically strategic actions (cost-cutting solutions, international ventures, etc); would TDP survive an economic downturn?

TDP has an aspiring concept. The Mobile Cafes will be competitive, however; with contract possibilities for facilities and functions, there should be revenue. The main strategy will be the marketing for towards the Daily Commuters. Although, there are many who would be willing to drive-thru for a quick cup of coffee; they will still be required to order, pay, and vacate the line. This too requires time! So, there are some untruths to the statement "They have no time for idle chatter and are willing to overpay for whatever beverage the machine can spit out, as long as it's quick". The patron not only wants to experience great customer service, they want a good product, at a reasonable competitive cost, and in a timely fashion.

Most patrons who go through fast food drive-thrus are not just getting coffee, but are most likely buying food. However, those that frequent establisment like Starbuck's are primarily going for the drink. So, the question is what makes someone drive by a fast-food restaurant to get to a Starbuck's, just to get a cup of coffee? The taste! They are willing to pay for a great tasting cup of joe. TDP may want to test their marketing strategy. If they can first attract their client base by taste, they have a great chance of success!

The Daily Perc has captured two promising sources of revenue through careful planning and analysis: Daily Commuters and Captive Consumers. The Daily Commuters are not a novel class of coffee consumers since Starbucks and other coffeehouse staples have successfully catered to those customers for years. The Daily Perc provides a double-lane drive through with trained barista to custom mix coffee choices for this clientele. But the Captive Consumers, those restricted by immobility, that might encompass students with more money and less time is a great revenue and public relations opportunity for the Daily Percs’ Mobile Café service. This business should do well, but like everyone else, the fluctuating economic times could interfere with profitability. Colleges are raising tuitions, so students may not be so quick to purchase that cup of Joe at higher prices.

I believe that the market analysis for TDP is very impressive and that this business would have a good chance for success. It appears that they have thoroughly researched their market and have presented a persuasive case for prospective investors. Their industry analysis which includes specific information about the market dollars that are spent on their product, the rate of growth for their market and a complete breakdown of their expected customer base provides compelling evidence supporting their business plan. I would like to have a TDP located on my route to work!

Section three sums up the TDP story with detail, yet minimum wording. It is clear to the investor what is being requested and the purpose for the amount requested.

The highlight of section four is the information contained in the industry analysis. Both industry growth and sales are increasing.

Overall, TDP is a creative, plausible concept. The company idea and proposal are stated clearly in the first two sentences. It is in two sentences in the seventh paragraph, however, that would probably reveal to potential investors that the proposers have a keen sense of business ownership. Here, TDP displays wisdom in the 'people process' of business ownership.

In my opinion I think that this company TDP is going to make some sales the fact that they are selling a necessity. They are selling coffee everyone need coffee in the morning especially if its drive thru on the way to work even better and their target customers are mostly working people and college students. They have a good plane to market their products but I am concerned about the competition it might be really strong. When it comes to coffee if you drink it at a certain place that you believe they make it right then you would keep on going their why change. Why they think the people will come to them for coffee. These people already buy coffee. But overall they are thinking in the right direction.

I don’t believe the projected estimates for end of year 3 can be achieved without additional financing and adding a marketing budget.
For example.
TDP projects sales of $500,000 in the first year with no profit. Operating expenses are $275,000 and 45% or $225,000 is gross margin.

“Drive-thru business with a great visible location is 250 with 500 cups being extraordinary”. Assuming both the drive thru and mobile café hit the ground running and total averages combined are 500 cups per day, at the more expensive rate of $2.45(this will account for other goods sold), for 360 days. We get 500x2.45x360=441,000. Minus the 7.5% or $33075 of revenue given to charity. We get $407925 in revenue. Gross margin (407925-275000/407925)*100=33%. As a new company i don't think they can sell quickly enough in the first year to make $500,000.

In their 2nd year their revenue quadruples while operating expenses becomes proportionally lower at 36%, 19% less than the previous year of 55% of revenue. Considering business picks up for their brand, they will need at least 3 drive thrus and 3 mobile cafes to accomplish sales of 2.2 million with all locations being a “great visible location”. To finance this they require $365,670 for each pair of drive thru and mobile cafés, which totals to 1.1 million. They would need to create more than 100 membership shares, and take a loan.

In conclusion, this company can be successful if they have to sell an “extraordinary” amount every day but the projected estimates of 13 Drive-thrus and four mobile cafes are too high for 3 years without additional financing and adding a big marketing budget. In my opinion I wouldn't invest in this company.

I think that TDP is guilty of projecting its initial success too far into the future. Although the market analysis makes some level of sense, they fail to identify the possibility of Starbucks expanding into captive markets (as they have done mainly on college campuses). An additional problem is that they don't specify the types of locations they are considering, how quickly the ideal customer satisfaction is achieved, and what other ambiguous factors may come into play.

Overall, I'd argue they have a solid plan, but it's somewhat too optimistic. I believe that they will turn a profit on their new locations, but only barely, and their growth will be much lower than they expect, especially due to the direct action of other competitors in a market that isn't so far removed from either side. Fast food already has the infrastructure in place, if they just improve their product, or start a line of coffees that seem more customisable; Starbucks has the ability to enter the captive market and also start drive-thrus, if it seems like it'd be profitable for them to do so, without any major hiccups.

TDP's business plan appears to be well thought out and mostly realistic, They have reasonable and achievable objectives, and have given themselves a realistic time frame of 3 years to meet those objectives. Their mission, vision, and company culture are clear and mesh well with each other.

I did find some aspects of their planning and projections to be too ambitious for a start up with no prior history of viability.
For starters, a minimum investment of $21,250 is not only unrealistically high an amount to expect from individual friends and family members but it seems it would be prohibitive.

They have a great and unique idea with the mobile cafe but they overestimate how many possible locations they can have for their business-- 2852? It appears they may not have considered city zoning issues, and restrictions as to what kinds of businesses can be placed where. Also a captive consumer potential of almost 3 million people is unrealistic, it would be almost impossible for them to attend to that many people (if they existed and indeed turn out to be 3 million coffee lovers all interested in TDP and TDP only) considering they stated that their company is somewhat labor intensive. They also assume that the 2.5 million potential commuter customers would be interested in buying coffee, and would have little other options of obtaining their beverages. Hospitals and schools have cafeterias and vending machines, did they consider these as competition too? The captives do not necessarily exist in isolation from other conveniences. It also appears that the TDP assumes that the average of 3.1 cups consumed by the coffee drinker is all purchased from a specialty store. While the rate of coffee drinking may be high, it would be unwise not to seriously consider how much of this coffee the drinkers are brewing themselves in office staff rooms, dorms, and at home.

Overall the section I read are put together well. It could be a tighter plan if the over-optimism is tempered with a little dose of reality.