Starting a New Business - Essay Example

Managing Decision Contents 3.Application and Evaluation of Methodologies 7 3.3. Sensitivity Analysis 10 Introduction Starting a business can be an exciting experience as it represents a dream come true to an entrepreneur. However, it can also be frightening as there are any things to take into consideration. It thus requires the entrepreneur to make major decision which will impact the life of the business. The entrepreneur is required to separate between his business ideas and his business opportunity by making a decision on which is the most attractive and feasible business to invest in. after making the decision. Other factors to consider are quality control, employees, size of the business and most importantly, location. As such, it requires a certain kind of a person to make such major decisions which will make the business successful. It is imperative to note that the whole process of starting a business requires an ardent decision maker who can sacrifice the safety of his comfort zone for the good of the business (Teale, 2003). Good decision making is necessary because a new venture is very risky and makes heavy demands on professionalism, resources, personal time and funds. With a strong inner drive to reap good fruits from the business that is just started, the entrepreneur needs to take control and make plausible decisions. This report will consider techniques to a business opportunity- a coffee shop. 2. Business opportunity description 2.1 Business overview The business opportunity chosen is Luna coffee shop. The business seeks to provide beverage products near the hospital located at the city center of Atlanta. When analyzing the market, it was clear there was a gap as most of the patients, nurses, doctors and workers in the hospital preferred to have their tea, coffee and other beverages delivered to them from outside the hospital. This coffee shop will offer the proximity and comfort of delivering coffee near the hospital while at the same time giving the customers their convenience. Furthermore, the coffee shop seeks to tap into a new medical college that has nearly been opened near the hospital. The mission statement is “Fresh, revitalizing and nourishing”. This shows that the beverages are unique, fresh and packed with natural ingredients to give the customer that nourishing and revitalizing feeling. The business wishes to work with direct suppliers of natural herbs such as cinnamon, ginger, garlic and other therapeutic herbs which are key to making our coffee unique and attractive. The coffee shop will start at a twenty person sitting capacity but will soon be expanded as the number of customers increase. Luna coffee shop wishes to make their approach customer-based so that they can become the leaders in the hospitality industry. The coffee shop has taken much consideration for planning the launching of its products. The stages in the planning process include devising corporate objectives, marketing audit, marketing objectives, marketing strategies, marketing programs, budgets and control and evaluation. This will help the business establish a market position and maintain it to be the best in the industry. The decision marketing techniques used include Influence diagram, financial model, sensitivity analysis and project plan. The Luna coffee shop is built on the same concept on which major cusses stories of many of Atlanta’s dining and coffee house venues are based on. Due to its strategic location, Luna coffee shop will offer entertainment, coffee based products and high quality food to thousands to residents in the area, in college and in the hospital. The potential profitable radius is about five miles. The coffee house’s vision it to become a major destination of choice for all coffee and food requirements. This will be achieved by capitalizing of a strategic approach of offering a complete, high quality evening experience. This in because Atlanta residents have made this kind of an arrangement popular in their diners. The secret is to make them dine at the comfort of lounges and be honored with exquisite recipes. The aim of the coffee shop is to offer the customers something completely different. They will enjoy casual dining with a coffee house experience, yet sensual and entirely sophisticated. 2.2 Business Opportunities & Target Market To make the business opportunity fully realized, there are identified fundamental aspects of this business. They keys areas are; Product quality: the coffee shop will provide natural, fresh and high quality coffee, coffee-based product, food and stat-of-the-art entertainment. Service: the service offered in the coffee house will be worth the money paid for the service. Each member of staff is highly qualified, attentive, efficient and courteous. Marketing: targeting the audience is of utmost importance in this business especially when the business is new and often when it is already established. Since the business is located in a central place, it will need to reintroduce most of the people from the neighborhood. Management: for effective management, the management will need to be adequately equipped with budget of beverages, food and labor. Key to management is quality control employee management and proper inventory. The management is influential in determining how potential customers view our business and therefore, it will increase our referrals and word of mouth recommendation. 2.3 Objectives Fundamental areas within which the Luna coffee house objectives may be theoretically defined include; achieving marketing share growth and maintenance, achieving profitability; establishing an opening market position and maximizing cash flow. Achieving marketing share growth or maintenance The most important marketing objective of starting a business is to achieve marketing share growth and be able to maintain it. Where the business is entering into a market where there are already established businesses, it is difficult to penetrate the market and worse to be the market leader. As such, the business should establish market strategies which will allow it to enter into the market and tactfully compete with other established companies without being ousted out of the market. There is stiff competition in Atlanta city center and therefore, this coffee shop seeks to offer potential customers a completely new and unique dining experience. Establishing an opening market position The business objects to establish an opening market position by providing services and products which are highly perceived by the customers. The products and services in the coffee shop should not only be different but also be attractive and distinct from those of the coffee shops, restaurants and dinners. The business has already determined the target market which it should be able to serve the best. A good opening position will be enhanced by offering customers unique services and products at subsidized products. Sales forecast Sales forecasts enables a business to project the sales which they expect to make at the end of a specified period of time. Luna coffee shop has forecast the sales and demand for the food and coffee products so as to be able to measure the business performance against the projected performance with an aim of making relevant changes should the forecasts performance not be in alignment with the outcomes. This will be helpful in future allocation of resources and actions which will help the business make the relevant changes to achieve their objectives. Marketing strategy: Competitor strategies Analyzing competitor strategies enables a business to formulate effective policies and the best way to execute them in order to remain economically relevant in the market. Competitor strategies has been employed in Luna coffee shop to stimulate the sales and increase the market share. Before making any decisions concerning the launch of the coffee shop, competitor’s activities in the market were analyzed in order to establish the business’s competitive position. Analysis of the relationship between the competitors was helpful in identifying the market leader, the followers, and their strengths and weaknesses in the delivery of great service and products to the customers. In alignment with the competitor analysis, Luna coffee shop carried out market analysis to identify the gap that is left by the competitors in the market. The competitor analysis indicate that there are several competitors offering nearly the same products and services as the coffee shop. The greatest competitors relative to location proximity are Eureka, Cabbagetown grill, Thumps up diner and Inman Park. The Eureka is known for offering the best traditional American influence which makes most of the Atlanta residents flock there. The Cabbagetown grill and Thumps up diner are preferred for the variety in their recipes and good jazz music. On the other hand, the Inman Park restaurant is known for blending an upscale casual and downscale causal experience. 3. Application and Evaluation of Methodologies 3.1. Influence diagram A simple visual graph is used to demonstrate an influence diagram, which acts as decision making technique (Teale 2003). It can also be described as a graphical depiction of a model to assist in model plan, understanding and development. This is very advantageous as it offer a visual communication to the builder of the model and the development team. The cause-and-effect of each relationship is represented to aid understanding of a fundamental issue. a good example is described below how advertisement is used to profit; The amount of money used to advertise has a direct influence on the profit that the organization is going to earn. Direction in which the arrows are pointing indicate the direction of influence, as indicated by the above example of an influence mode the unit sold are greatly influenced by how much the advertisement was intense. It is from the units sold that income and expenses are influenced leading to the profit. Influence diagram are very important tool to bridge the gap between the analysis and formulation, which makes a very strong tool to communicate intuitively with experts and decision maker for normative actions. There are several benefits that are incurred as a result of using influence diagram to evaluate a problem. The fact the algorithm will perform all the interpretation and analysis automatically is one of the benefits of using influence diagrams (Lande and Shenoy 1999). A good example is that an algorithm can be used to analyze the time of day or a week’s day that is mostly to have more customers, which will influence the amount of coffee that will be brewed in that particular day or the amount of desserts that will be ordered. It is also an evaluation tool that can be used with other decisions models such as sensitivity analysis and simulation. The technique is has some drawbacks though, it is very challenging to construct the diagram correctly not forgetting the complexity that is associated with algorithm (Deng, 2011). It is also a probability that the numerical value assigned to each factor is going to be biased in to favor the outcome of the decision maker (Skinner 1999). 3.2. Financial Modeling Financial modeling is representation of models such as cost, profit, revenue, and cash flow in a real life situation (Teale 2003). It is a very important decision to determine whether a business venture will be profitable. Decision maker’s uses financial statements such as statement of comprehensive income, statement of financial position and statement of cash flow to make to plan for the future prospective of a business. Calculation are carried out in the model with a purpose of making commendations based on the data that has been analyzed by the model. One of the advantage of financial model is that value is place on the factors which help evaluate the possible effect of a system (Teale 2003). The aspect of Cost-Benefit-Analysis is put into consideration in a financial model. The assumption that are put in financial modeling are numerous, which questions the credibility of this financial models. Financial model use historical data to analyze the current situation, this is very inconsiderate since the current situation is faced with new forces such as inflation, political instability and change in market trends (Richard and Linzer 2008). The main sources of revenue for the coffee shop is coffee, desserts and food and entertainment. Coffee is the major source of revenue and there are different forms such as cappuccino. Expresso, and latte. Cappuccino is apparently the most preferred form of coffee to many. Due to the fact that the business is a novice in the industry, it is predicted that sales won’t be more pronounced at the beginning. The location of the business will suit more sales as compared if it was located in a different place. Loyalty of customers will increase as time progresses and this will make such customers to make referrals to their friends and relatives increasing the sales of the business. The packaging of take away coffee will attract more customers who are always in a hurry and don’t wish to take their coffee in the coffee shop, again increasing the sale of the coffee shop. The main expense incurred is the purchase of coffee and coffee beans as well as packaging material which should be environmental friendly and disposable. Stability of the business is projected to presume during the 6th month, which implies a positive ROI. It is during this time that the coffee shop will start making its own desserts rather than outsource from another business. 3.3. Sensitivity Analysis This is the process of undertaking a systematic review in regards to a sequence of decisions. This is an important tool to consider since the data analyzed in a financial model is represented in a complex manner, which is based on the past decisions. The fact that sensitivity involves review it would be very prudent to use this tool just in case the number changes, which will keep the final decision intact. It is characterized by the phrase “what if,” in our influence model where advertisement of coffee shop influences the outcome of profit a “what if” analysis would be carried out to investigate what would happen if advertisement was not effective, the method of product promotion to use and many more “what if” factors. When “what if” is changed and the influence model produces a very large outcome in the output the project is said to be sensitive. There are various benefits that accrue in the use of sensitivity analysis, one of the benefit is the fact that the sensitivity analysis will identify any critical variable that has a huge influence of the final outcome, thus enabling the decision makers to amend with an action that will strengthen the project. The other benefit of using sensitivity analysis is that only the important the important variables will be considered in the decision making process and provide for any under forecast case. It is also very possible with sensitivity analysis to be specific in the project protocol, which will simplify the process of review. 3.4 Project plan Project management is the tools utilized by many business as they grow more complex and need to evolve, implement new services, products or ideas. A business creates a project management in order to focus the business resources towards a business opportunity by effectively ordering and reordering resources, capabilities and efforts (Lester, 2014). A competent and skilled project manager is key in creating a successful project management. A project manager uses project management to solve business problems by providing a sequential plan on how a specific plan will be implemented, the duration of time, project life cycle the budget, the execution methods and project procedure (Nagarajan, 2004). Project management offers many benefits to business. A project is a vehicle through which a business achieves growth while project management ensures the realization of them project. Project management enables the business plan for expenditure of scarce resources, prevents exposure of the business to unacceptable competitive, technological and financial risks, leverage of loses, prevents unresponsive introduction of products and services to the market and enhanced timely delivery of capital facilities (Baker, 2010). The downside of project management is attributed to uniqueness of different projects which requires project managers to invest heavily both resources and efforts to adjust the needs of the project relative to different circumstance. As such, more resources are needs to complete a quality project. The project management process used included planning, organizing, scheduling, tools, knowledge and methods effective in positioning the coffee house in the market. The gantt chart is attached at the Appendix section to present the task, subtasks and duration undertaken to complete the project. 4. Conclusion It is imperative to note from the research and the project management that opening a coffee shop in the city center of Atlanta near major social places is a feasible and attractive business opportunity. Although the area is fairly competitive, having a competitive advantage can give a new business an edge especially in the g hospitality industry where variety and quality are key aspects of selling. Luna coffee shop has capitalized on quality of products, services and the entertainment sectors which are principle, methods of building great customer loyalty and assist in achieving the vision which is to become the dining destination of choice in the whole of Atlanta region. The influence diagram was influential in building the financial model of the business as it influences both costs and revenue. The coffee offers different payment methods due to the variety of services and products offered. As such, the influence diagram prevents the financial model from having any deficits. The sensitivity analysis performed assist the business analyze if there are other factors that affect the net profit value. The projection of sale and the cash flow recommends viability of expansion. As such, this will not only give the business more clients, but also more profit to the businesses. References Field, M., Keller, L.S., Project Management. Chapter 1: Porject Initiation, What is a project? 1st ed. Croatia: Thomson Learning. 1998. Print. Lander, D. and P. P. Shenoy “Modeling and Valuing Real Options using Influence Diagrams”, Working Paper No. 283, School of Business, University of Kansas, Lawrence, KS. 1999. Print. Nagarajan, K., Project Management. Chapter 1: Project: Characteristics and Types, Project Characteristics, 2nd ed. New Delhi: New Age International (P) Ltd., Publishers. 2004. Print. Oliver, R.M. and Smith, J. Q. Influence Diagrams, Belief Nets and Decision Analysis, USA: John Wiley. 1990. Print. Shachter, R. D. “Evaluating influence diagrams,” Operations Research, 34(6), 871—882. 1986. Shachter, R. D. and Kenley, C. Gaussian Influence diagrams. Management Science 35, (5), pp. 527-550. 1989. Print. Teale, M. et al. Management Decision Making: Towards an Integrative Approach. Harlow: Pearson Education Ltd. 2003. Print. Read More

 

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