Business Decision on Purchase of Existing Business or Building a New One
There is a large number of cafes and eating out options, available for the customers. The market is highly segmented the options are widely available, making competition more aggressive in the market. The reality shows that the competition on the market is high also because demand continues to grow in various customer segments and large chains of restaurants and cafes are competing side by side with the small niche and local market players. At the same time there is an unxplored niche of “green thinking” business in the industry in the given area. With that in mind, it is possible to argue that restaurant and café market in the area is open for new entrants as the market barriers are low from the perspective of initial investment as well as the legal requirements for opening the business. The truth is that many small companies do not survive as they do not offer anything unique to their clients and, thus, cannot build their identity and sustain long-term competitive advantage.
This document recommends looking at the opportunity to open a small café with a choice of table games and books, which will be available for sale as well as for the use in place. The café will promote healthy organic foods and overall “green thinking” business philosophy. This proposition is new for the area and will provide the company with a visible competitive advantage: differentiated customer experience and diversification of the income channels, coming from café sales and profits from books and games sales.
Elevators' Pitch:
“You spend a lot of time out and looking for an opportunity to relax, read and spend time with your friends. Numerous cafés and restaurants are there for you, but you feel like “all the same”? Just Cousy Things is different. We understand our clients and bring to our store only the best of food, drinks, reading and enjoying table games. Why not trying something that really makes a difference? Just Cousy Things – we will make your day special!"
Market Comparison with Existing Business
Existing Business
One of the ways to make a high-level analysis of the purchase as opposed to building a new business is to analyse an existing market player which can become either direct competitor for the new business crafted in this document or can be purchased and transformed into the business idea, described above.
Our experience allows us looking at a small café Alt, located in the downtown, which offers their clients all the convenience for pit-stop with coffee, snacks or even more elaborate food options. Many people choose this place for its quite an atmosphere and convenient layout, which allows individuals working alone or conduct small business meetings. An observation of the dynamics of the business allows outlining several findings:
The café Alt is often a choice for working professionals or students as it never becomes full;
Many people express their dissatisfaction with the quality of service, especially in terms of speed of serving;
Many customers highlight pleasant layout and ambience music;
There is a reasonable amount of clients for the happy hour and dinner, however, café does not attend those who look for a full meal or a group dining-out experience;
The café is located in a restaurant hub with strong competition based on the diverse supply of options.
The café Alt is a dismal 120 m2 facility with built in kitchen and nice table setting. The establishment was opened 2 years ago and demonstrates signs of stagnation while still operating in black numbers.
Decision-Making and Justification
An analysis of the existing business is based on the following criteria: location, a size of the physical facility, reputation of the business, strategic fit and the size of the investment. It is important to mention that in order to take the final decision a number of other data will be required, but the above approach allows making a preliminary judgement call.
The location of the existing business is a good fit for the business model, suggested in the first part of the document for Just Cousy Things. This strategic positioning in the restaurant hub is essential for a new business that is able to bring to the market unique and differentiated proposition. Such choice of location will allow the company reduce its marketing budget for direct advertisement as the target customer is located around and the word-of-mouth and simple local promotional campaigns can give the very good return.
Based on the location and the size of the facility along with the strategic location of the existing business, it is possible to argue that there is a strategic fit between the businesses and Just Cousy Things could even retain a number of existing clients od Café Alt with an appropriate marketing strategy. It is evident, however that Just Cousy Things cannot benefit from Brand Identity and cannot continue developing existing brand due to significant differences in the business model. The size of the investment into the existing business is estimated at USD$ 250,000, as compared to the SD$ 190,000 in a case of a new business. Given the fact that there is a neighbouring facility available for rent in the same location, it is recommended to consider opening a new business rather than purchasing an existing one. The savings in initial investment can be utilized for marketing and strategic personnel training to further strengthen the position of the company and differentiate from the competition (Brown, 2005).
Suggested Form of Ownership
Based on the financial requirements for the business as well as the identified need for management expertise, it is recommended to build a partnership involving three individuals and based on a limited partnership option. The expertise required from partners will include experience in operational management of the restaurant or similar business, strong financial manager and Human Resource Management (HRM) professional.
Just Cousy Things Business Plan Outline
About the Company
Just Cousy Things is the café and store, which offers their customer different and unique experience for the region. The company aims to offer a one-stop-shopping solution for business people, the group of friends or student, by providing a wide selection of books and study material as well as a variety of table games. Books and games will be available for rent at the café or for sales at the store. Additionally, the café will offer a delivery service to its customers that prefer to experience our food and use books or games at home.
Mission and Vision Statement
Just Cousy Things is a cosy and healthy option for people who like comfort and care about the environment and their own health. Our mission is: "to bring awareness and health to our daily lives and make communication and socialisation more interesting, challenging and accessible".
Our Vision is: "One person, one community and one achievement at a time – Just Cousy Things wants to make people´s lives better by building the sustainable green business model and making learning and socialization more interesting and diverse".
Just Cousy Things is a small business, which will work with a very lean structure in a facility between 120 and 180 m2 and with a total staff, excluding management team, of 7 employees. The café will be open throughout the day from 8am to 10pm and will offer early breakfast, lunch and dinner menu with healthy organic foods.
The Market
Just Cousy Things will compete in restaurant and HORECA sector. It was identified that the market is very competitive and a number of large chains and small individual competitors build on the complexity of the competitive market profile. At the same time, the demand for eating out, working out and alternative ways of spending time continues to grow at a rapid pace. This allows building on the opportunity to grow the business through differentiated and unique business model aimed at creating loyal customers and sustainable profits (Fahrad and Ahdar, 2003).
Financial Considerations
Just Cousy Things expects to raise USD$ 200,000 initial investment capital to start the operations and additional USD$ 45,000 working capital to sustain the business through the challenging first 6 months of operations. The working structure of the company is based on a total of 10 employees: 1 cleaning personnel. 3 clerks, 1 chef, 3 kitchen assistants, 2 shift managers. It is assumed that the average ticket per person will be USD$ 60 and the throughput will grow from initial 40 people per day to 115 people by the end of the first operational year. The payback is estimated at 22 months. The forecast for the first financial year of operations is presented in Appendix I.
The Management Team
The management team will be comprised of three professionals and partners in business with the combined expertise in HR, restaurant operations, and marketing. All the members of the management committee are graduated in their respective specialities and possess additional certifications in business management with the focus on finance.
Risk Analysis and Key Success Factors
There are several factors that can affect the success of the business and that should be taken into consideration at the time of preparation of the risk strategy and analysis of the external environment. One of the major risks for the company is a growing competition and potential overestimation of the total throughput. Additionally, the company estimates material costs of 30%, but the market demonstrates certain instability which may negatively affect the material as well as operational costs of the business. Finally, there should be an alternative marketing strategy in place to emphasize the unique market proposition and “green thinking” to strengthen brand differential and face potential new market entrants with similar business models.
References
Sadler Ph (2003). Strategic Management. 2nd Edition. London: Kogan Page Limited
Brown B. (2005). The Business Plan. The Successful Guide to Creating a Business Plan. New York: Lulu.com.
Fahrad A. and Ahdar K. (2003). Strategic Management in Small and Medium Enterprises. London: Thomson Learning.
Appendix
Appendix I: Financial Forecast
