The Conversion of Existing Gyms - Case Study Example

ASSESSMENT 3: Critical Evaluation and Development of a Business Proposal Introduction The current business idea suggests the conversion of existing gyms to enable them generate electricity when the gym equipment is in use. The idea further suggests selling of the surplus energy/electricity generated to an energy utility. Alternatively, the idea suggests, gym clients could choose to use the energy generated during their gym sessions to reduce their home energy bills. This paper critically analyses the business idea and recommends improvement to the same. Critical Analysis of Business Idea Harnessing people’s power in the gym and converting it into electricity is the latest fad in exercising (Newcomb 2010; Nichols 2012; Walker 2012). With an average person generating an average of 100 watts in an hour in the gym, it is estimated that a single machine that is used for at least five hours daily would create 183 kilowatt-hours of electricity annually. If one kilowatt hour sells at $10 cents as it does in the US, a single machine would generate electricity worth $18 annually (Gibson 2011). Cho (2012) puts the exact price of gym equipment that turns energy into electricity at $1950. In this case (based on electricity generation alone), a business will take years before recouping the costs. The idea that the business should avail some of the power generated by gym clients for infusion into the electricity grid, or for substitution for their home energy needs, appears ill-thought. Improvements to the Original Idea The major strength in the business idea is that it will bring about the use of clean energy in the gym. However, much as the whole concept is environmentally friendly and commendable, the investment that a business would need to put into purchasing the appropriate equipment would make the business idea costly. This would especially be so if the returns on investment are expected soon. Ideally, in a world where people are increasingly opting for activities that conserve the environment, it is possible that a ‘green’ gym would attract more clients. To avoid delivering unrealistic promises to clients, the proposed gym should be content with installing the appropriate gym equipment suitable for converting energy into electricity, but should avoid delivering the promise of clients channelling their excess energy conversions into the power grid or trading it for home power use. Instead, the business should use the electricity generated by clients to cater for its own electricity needs, and by so doing, recover the costs (albeit slowly) spent on purchasing the gym equipment. Clients should be made to understand that the logistics of channelling electricity to the grid is cumbersome and could end up negating any benefits accrued from generating electricity in the gym (at least when equated to the monetary value). The foregoing would make them more accepting to the idea of trading the electricity they generate with workout time in the gym. Additionally, and as noted by Newcomb (2010), most gym patrons are just content in the knowledge that they are making a positive contribution to conservation efforts advocating for the adoption of environment-friendly practices. Justification for Recommendations The above recommendations are based on the argument that if gym clients were promised to earn energy points through their enrolment in the ‘green’ gym, the business would take longer before breaking even. Additionally, and has been argued above, the energy generation per client annually is not really significant; however, the cumulative electricity generated by clients would arguably contribute to great energy savings for the business, and this is something that would help it recoup some of the costs spent on purchasing the appropriate equipment. There is a possibility that the business would attract more patrons due to its ‘green’ approach, consequently bringing in more revenues. However, as Porter (2001) indicates, the ease of entry to a market is one of five considerations a business should consider before entering into an industry. Arguably, the fitness sector has low entry costs, and although the electricity generating gym equipment is expensive, the cost does not hinder determined investors convinced of the profit-making potential therein. In other words, the risk of increasing competition in the future cannot be overlooked by this business even as it considers how best to break even considering the high costs of the electricity-generating gym equipment. In Australia especially, the prospect of environment-friendly gyms has been fronted by the likes of Morgan (2008) and Universal Magazines (2013), who argue that such gyms will be commonplace as consumers continue being more conscious of activities that affect the environment. As Ehmke and Akridge (2005) point out, a business needs to consider every aspect of the activities it will engage in. With the foregoing in mind, it is crucial to note that the business idea would need to account for the electricity generated by the clients. In that case, the proprietors lower the gym fee depending on the electricity each client generates. This will assure clients that their efforts (or their production of electricity) do not benefit the gym alone. It would create the impression that out of the environment benefits (looking after environment), a fraction of the benefits is passed to them (looking after the people). The lowering of the gym fee should however be done in consideration of the business need to recoup the costs spent on purchasing the relevant equipment (looking after profits). Should the business break-even soon, it can consider passing the benefits of the electricity generated by clients to them. According to Gutierrez and Dalsted (2012, p. 1) a break-even point in business occurs when an investment generates positive returns. Conclusion As indicated in this paper, the business idea to convert a gym into an electricity-generating avenue by purchasing the appropriate equipment is noble. First, such a gym would attract more clients, and would hence make good business sense. However, the idea that clients could benefit directly from the electricity they generate seems ill-thought. This is because the electricity output of an individual is not sufficient to be fed into the electricity grid, nor does it have major cost implications if it is meant used to offset a person’s home energy costs. However, the collective generation of electricity by gym clients can help a business recover the costs invested in purchasing the gym equipment. References Cho, V 2012, ‘Human-powered gyms: for your heath- and the earth’s’, Eco Hearth, viewed 22 April 2014, . Ehmke, C & Akridge, J 2005, ‘The elements of a business plan: first steps for entrepreneurs’, Purdue Extension, EC-735, pp. 1-12. Gibson, T 2011, ‘These exercise machines turn your sweat into electricity’, IEEE Spectrum, viewed 22 April 2014, Gutierrez, P H & Dalsted, N L 2012, ‘Break-even method of investment analysis’, Colorado University Extension, Fact Sheet no. 3.759, pp. 1-2. Morgan, D 2008, ‘Eco gym-power your facility with burning calories’, Network Calendar Journal, Summer, pp. 13-15. Newcomb, T 2010, ‘In the gym: clean energy from muscle power’, Time, viewed 22 April 2014, . Nichols, W 2012, ‘Green gyms to tap power from people’, Business Green, viewed 22 April 2014, . Porter, M 2001, ‘Strategy and the internet’, Harvard Business Review, pp. 1-20. Universal Magazines 2013, ‘Electricity from outdoor gyms’, viewed 22 April 2014, Walker, A 2012, ‘New gym generates electricity from patrons’ workouts’, PSFK, viewed 22 February 2014, Read More