Business Ideas - Assignment Example

Business work Business work Question Summary of the Business Idea This essay is based on a business idea about starting a clothing company. The company is called In-sync Store Creations Ltd and will offer products and services ranging from new designer clothes, tailor made clothes, and graphic design. The company aims to occupy a good market share in the vast American fashion Industry in the near future. This paper will endeavor to analyze the business idea, the industry and the various strategies that will be used to make the idea successful. The essay will look at the business model of the idea, risks involved, a forecast of the financial statements and the customer value proposition model. The essay will also analyze the company’s business environment using Porter’s five competitive forces of analysis. Porter’s Five Forces Analysis model looks at factors such as threats of new entrants, threat of substitute products, bargaining power of suppliers, bargaining power of consumers, and competition to help businesses asses their strategies and their markets to find better ways of infiltrating in new markets or industries (Porter, 2008). New entrants in the market are likely to lead to reduced productivity, decrease in market share. The fashion industry is very lucrative and dynamic. It is therefore bound to attract many new investors. In-Sync Store Ltd will seek to maintain its position in the market and shake off any threat from new entrants by ensuring it has a large base of loyal customers. Substitute products in the fashion industry are mainly counterfeit products that resemble the original products of established companies. These products often go for low prices and can easily affect an established company’s profitability (Porter, 2008). In-Sync Store Ltd will beat threats from substitutes by offering highly quality products at affordable prices and also having different products targeting a different market segment depending on the segments financial status. Bargaining power of customers refers to the ability of buyers to put a company under pressure to change its pricing strategy (Porter, 2008). Buyers can threaten to shift competitors if the prices are not changed in their favor. In-Sync Store Ltd will resolve this by providing customers with a lot of information regarding its products, offering reasonable prices, enforcing a customer loyalty plan and considering views of various consumer groups on pricing. Bargaining power of suppliers refers to the various sources of raw materials, labor, and components necessary for the firm to produce its products (Porter, 2008). This bargaining power is expressed in the suppliers’ willingness to cooperate with the company by charging high prices for their resources. In order to overcome this challenge, In-Sync Store will locate itself close to suppliers of key raw materials and establish a great working relationship with them. Intensity of competition resulting from rivals can put a firm under pressure to change its strategy or risk losing its position in the market. Main competitors of In-Sync Store Ltd include American Apparel, Beyond Clothing, and Grown and Sewn. In-Sync Store Ltd will seek to rely on technology, and the internet for competitive advantage over its competitors. Question 2: The Business Model A business model refers to an organizations rationale for creating delivering and capturing value for its stakeholders in various contexts such as social, economic or social contexts (Lim, 2010). A business model identifies core aspects of a business in terms of its purpose, target market, strategies, trading practices, policies and infrastructure. A business model basically embodies a firm’s strategy for conducting its business and fulfilling its objectives. It deals with how the organization will be structured and how it will reach out to its target market. According to Lim, (2010), designing a business model should take in to account the organization’s Environment-Strategy-Structure-Operations (ESSO). This enables business owners to align their business strategy with the organization’s operations, structure and its environment. A business strategy defines a businesses’ value proposition, distribution channel, partner network, customer relationships and a revenue model. Examples of common business models include franchise, Direct Sales Model, Collective Business Model, Free in, Free out Model, and Online Business Model among others (Lim, 2010). In-Sync Store Ltd will be based on a Brick and Click Business Model. This is a business model where a firm’s strategy involves relying on both online and offline markets (Timacheff and Rand, 2001). This lets the company to integrate both online and offline presences in order to maximize on both local and global market as a competitive advantage (Timacheff and Rand, 2001). The name brick and click derives from the offline (bricks) presence of the business through its buildings, offline distribution channels and customers while clicks reflect the businesses’ online presence where customers can make orders using different online platforms as well as via telephone (Timacheff and Rand, 2001). This business model is suitable for In-Sync Store ltd for various reasons. The fashion industry in which the business operates is highly saturated. Only companies which maintain high innovation as well as a little competitive advantage can witness sustained growth. With both an online and offline presence, the business is able to reach out to a huge client base which will ensure the company continues to grow and outshine its competitors who may not have taken advantage of the internet. A brick and click business model will also enable the company keep up to tabs with the latest technology thereby staying ahead of the pack in relation to its competitors. The Brick and Click business model has various features that make it suitable for In-Sync Store Ltd. One key feature is the fact that the model allows the business to have a wide distribution network both offline and online. The firm can establish a great distribution chain for its products offline by opening up subordinate offices in various parts of the country as well as partnering with established distributors to get the products to consumers. Online distribution channels are much easier to manage and include various ways through which the company can communicate with its clients and prospects. These include emails, social media, affiliate marketing, blogs among others. Another feature of the brick and click business model is electronic commerce (e-commerce). E-commerce allows the firm’s customers to make orders and purchases of products via the internet. An e-commerce platform functions like a supermarket where customer will use shopping carts to collect goods and enter their details to make payments over the internet. This enables the company to make purchases at any time of the day and from anywhere on earth. The main target customers of the company are youths who are fond of keeping up with latest fashion trends. A majority of the clients of the company will initially be based in the US while more of them will be reached via the internet across the globe. The company will employ both online and offline marketing techniques. The management team will comprise of individuals with passion, knowledge and experience of the fashion industry in the US as well as on the global scene. Venturing in the fashion industry with a brick and click business model involves a lot or business risks that can be disastrous for the business if not handled properly. Business risk refers to a possibility of a business incurring losses of reduced profitability due to uncertainties (Jolly, 2003). There are different types of business risks including strategic risks, financial risks, operation risks and compliance risks (Jolly, 2003). Some of the risks that In-Sync Store ltd is likely to face include changes in government policy (political risk), increased competition (operation risk), changes in customer tastes (strategic risk), and liquidity and cash flow risk (financial risk) (Jolly, 2003). In-Sync store is likely to encounter problems when there are changes in the political environment resulting to changes in government policy with regard to the fashion industry. Increased competition from rivals can also threaten the firm’s survival in the long run while changes in customer tastes affect sales volumes of the company. A forecast of financial statements is important for planning for the future of any firm. This shows the projected incomes and expenses as well as anticipated losses or profits in the course of specified financial years. A sample projection of financial statement of In-Sync Stores Ltd showing both a balance sheet and an income statement for the first year ending on February 28, 2015 is as follows; all the projections are stated in US dollars. Projected financial statements for the first year i. Balance Sheet In-Sync Store Ltd Balance sheet as at 28th February, 2015 Current Assets Cash 70,000 Inventory 20,000 Long term Assets Buildings 800,000 Vehicles 300,000 Printing Machines 50,000 Total Assets 1,240,000 Liabilities Accounts Payable 15,000 Bank Loan 500,000 Total Liabilities 515,000 Capital Paid in capital 725,000 Total Capital 725, 000 Total Liabilities and Capital 1,240,000 Net worth 725, 000 ii. Income Statement In-Sync Stores Ltd Income Statement as at 28th February, 2015 Sales 1,500,000 Direct Cost of Sales 520,000 Other Production cost 80, 0000 Total Cost of Sales 600,000 Gross Profit 900,000 Expenses Wage bill 110,000 Sales and marketing expenses 30,000 Depreciation 15,000 Other Expenses 10,000 Total Expenses (165,000) Profit before tax and interest 735,000 Interest expense (35,000) Tax (210,000) Net Profit 490,000 Based on the projected financial statements shown above, In-Sync Stores Ltd is expected to be a successful business venture that is expected to yield after tax profits of almost half a million dollars. This is after investing about $ 1,240, 000 in the first year. This amount of capital is expected to be financed from both personal savings and bank loans. A bank loan of up to $ 500, 000 will be obtained from one of the leading financial institutions while personal savings of $ 725, 000 will be added to make the final capital required. Question 3: Resonating Focus Model of Customer Value Proposition Customer value proposition refers to a business statement outlining the business’ marketing strategy. The statement shows the reasons as to why customers should purchase the business’ products or services. A great customer value proposition statement lays out all the benefits that customers will enjoy when they buy the products or service sold by a business (George and Bock, 2012). The statement mainly targets potential customers of the business and aims at convincing them to buy specific products or services offered by the company. There are three main types of customer value proposition statements namely all benefits model, favourable points of difference model and resonating focus model. Resonating focus model is the best model of value proposition as compared to the other. This model is based on the fact that the managers involved in making decisions in a firm have different roles ranks, and responsibilities, and often lack time to waste on some issues in the firm (George and Bock, 2012). These managers often prefer doing business with partners who fully6 understand critical issues and structures in their business in order to produce products of great value to customers. Partners such as suppliers can contribute to the business’ value proposition by making their resources superior especially with regard to key issues related to the customers’ needs and requirements. The Resonating focus model brings together various stakeholders in a business to work together to produce goods and services of superior quality and communicate to the targeted consumers in a sophisticated manner that will attract them to buy the products. The main objective of resonating focus model is to find out the basis idea that differentiates a business’ products from those of its competitors (George and Bock, 2012). This model gives the customer simple and compelling messages to buy specified products and services. In order to come up with a good value proposition model, In-Sync stores ltd will put in place customer management systems that will help the company collect, store, retrieve and analyze customer data in order to determine customer purchasing trends and determine what the customers need. With this in mind, the company will communicate to other partners including suppliers to provide goods and services of superior quality that meet the needs of customers (George and Bock, 2012). An example of a resonating focus model for In-sync Stores Ltd is as follows. In-Sync Stores Ltd holds its customers with high regard hence the desires for the company to offer superior quality goods and services that go a long way in meeting the needs of the company’s large pool of clients and customers. In-Sync Stores products such as clothes and accessories give customers a sense of pride, fashion and ownership to the company’s reputable global brand. The company recognizes customers as key stakeholders in the company’s success and gives them a listening ear in terms of their opinions regarding the future developments of newer products. References George,G and Bock A. J. (2012). Models of opportunity: How entrepreneurs design firms to achieve the unexpected. Cambridge University Press. Jolly, A. (2003). Managing Business Risk: A Practical Guide to Protecting Your Business. Page Limited. Lim, M. (2010). Environment-Strategy-Structure-Operations (ESSO) Business Model. Knowledge Management Module at Bangor University, Wales. Porter, M.E. (2008). The Five Competitive Forces That Shape Strategy. Harvard: Harvard business Review. Timacheff, S. and Rand, D. (2001). From Bricks to Clicks. United States: McGraw-Hill. Read More