Entrepreneurship and New Ventures: Our Glass Fitness - Research Paper Example

? A BUSINESS PLAN I. General of Industry There is a growing trend in relation to women’s fitness that continues to provide considerable profitability in the health club industry. Women are becoming more and more devoted to sustaining and improving physical health and well-being, something that is supplemented by growing market share with organic products, health and beauty aids, and also magazines and other publications devoted to providing healthier lifestyles. Coupled with this are more product advertisers using multi-media formats to promote and sell products designed to foster sensations of beauty and youth. Common products in this category are Olay beauty products and other age-defying cosmetic products. This trend in society that is geared toward women’s health continues to bring more growth in the health industry as it pertains solely to women’s needs. Because of these trends, there has been explosive growth in profitability in health clubs devoted to women’s needs that are both exclusive and have programs that are designed with female camaraderie in mind. In fact, in 2005, the entire global health club industry reported over 105 million members, with well over 50 percent concentrated in the United States (ihrsa.org, 2006). This indicates a sizeable potential market even when futher deconstructing the existing market to include only women and their active participation and desire in health club membership. Since the market for health clubs is divided nearly 50/50 for men and women who currently hold membership, it should be assumed that the potential market opportunities for health club development and ownership consists of 52 million women. What can explain this growing interest in the female market (consisting of 18-60 year old market characteristics) for health club use and membership? There are many factors that are both motivational at the intrinsic level and also relating to personal desire for a better body to satisfy vanity and tangible health care needs. Offers one expert organization pertaining to the health club industry, “women want to work out without having to worry about looking fat, sweaty or makeup free in front of a bunch of men they don’t know” (Dean, 2011, p.1). Women who are interested in women-only health clubs are finding personal camaraderie with others in an environment where they can comfortably exercise among women with similar body characteristics or other fitness goals. These environments provide for a sense of privacy and exclusivity and also maintain the potential to develop many long-term friendships developed through the sharing of individual health goal needs. There are also motivational elements that continue to provide intense profit for existing women’s only health clubs. According to Marandi, Little & Sekhon (2006), the values that drive women to these health clubs is a personal sense of accomplishment, self-respect, a more active lifestyle, and establishment of a sense of personal belonging with others. These motivational elements are psychologically-driven and are essentially uniform between all age groups, marital status, occupation, and lifestyle security (Marandi, et al.). Much to the advantage of this proposed health club development, there are no specific markets requiring segmentation that would supersede another, thus, again, providing virtually unlimited market potential with an active 52 million female market group. The industry outlook is significant, as existing companies that specialize in women’s health needs continue to diversify their product offerings and programs to sustain the benefits of women looking to establish better self-image and personal health. It is common in this industry to gain extended marketing presence and profitability through supplementary vitamin products, health and wellness books, and also the existence of new personal training activities such as massage therapists and other club professionals. Since 2009, 37.4 percent of all adults (both male and female) have used some variety of health and fitness-related facility, thus providing high market share for private commercial health clubs (bharatbook.com, 2010). Between 1995 and 2005, the market has served both mature markets, affluent customers, and youth markets in almost equal proportion and with predictable growth patterns of approximately four percent annually. 2. Description of Firm Business Name: Our Glass Fitness Centers Our Glass Fitness Center will be established in September 2011, consisting of private ownership by a single owner (with potential opportunities for partnerships after the first year of operations). It will be a sole proprietorship with the owner managing all responsibilities including general management, accounting, purchasing and other office management duties. Opportunities for management development to assist in these functions will be considered as the business evolves and finds its niche in serving the local female community. The company will operate six days weekly, Monday through Saturday, from 10am until 8pm. These operating hours will be established to ensure that all markets, regardless of their professional affiliation, maintain the ability to secure time that fits their busy schedules and also allows for family functionality. These hours will be supported by ownership and the development of assistant managers who will be provided ample training to support and sustain a quality and high-reputation business. Our Glass will be a self-service business with clientelle using a sign-up sheet for full access to all fitness equipment unless requiring specialized support staff assistance or other in-house amentities described later in this business plan. Our Glass Fitness Center does not require significant capital to sustain operations once the initial investments in asset accumulation has been secured. In many ways, the one-time costs of exercise equipment ensures longevity and a higher profit margin after considering all costs of overhead necessary to sustain the business. 3. Description of Products and Services Our Glass will provide excellence in aerobic and fitness equipment including, but not limited to, stationary bicycles, treadmills, free weights, and other full-functional weight equipment such as the common BowFlex machines. The extended services, such as the presence of fitness instructors, will be developed with small groups of 4-6 women that provide personalized service in a comfortable and rewarding female environment. These instructors will be hired based on their experience levels and knowledge of common fitness systems such as yoga or other low-impact exercises. Recruitment of these individuals will occur through common newspaper forums or other recruitment agencies. Along with these general products will be an in-house masseuse available on specialized hours, generally on-site three days weekly, and scheduled by appointment for an additional per-use fee. This service is designed to offer a new style of relaxation amidst an array of top quality health machines and activities that will be developed and adjusted according to market preferences and other feedback mechanisms such as surveys or questionnaires. In the future, extended products will include different branded vitamins and herbal supplements designed to give Our Glass more marketing exposure. 4. Customers and Market Trends As identified, women will be exclusive to Our Glass and all systems and products will be catered in a way that is meaningful for the health benefits of female clientelle. It is estimated that the local market potential, considering the widespread use of these systems, should be considered at 2,500 to 3,000 potential customers in the first year of operations. This is based on local geographics and population density for the chosen site of operations. The ownership of Our Glass Fitness Centers believes this an accurate target based on the market demands for this type of personalized and exclusive service offerings. There is a trend in this market for personal weight loss efforts which, when properly marketed, can provide a high quality reputation for Our Glass. A recent survey identifies that weight loss efforts by strategy include diet pills (12%), home exercise (19%), and frequent health club attendance (55%) as of 2004 (download.ihrsa.org, 2004). This means that the largest volume of the potential market prefers using non-home exercise systems as a means to sustain their weight loss needs, thus again providing significant market demand for this business and its offered programs. Motivational goals that also trend in this market include power, which involves social status and prestige. Along with these motivations are stimulation, benevolence, conformity, and personal achievement in goal attainment (Mirandi, et al.). Because there is such a high presence of psychological values associated with weight loss goal setting and fitness in the female market, the majority of advertising will consist of messages pertaining to these motivational goals, which are described in detail in the marketing section of this business plan. 5. Competition Much to the advantage of Our Glass, there are very few competitors that cater only to women in the local region. Curves, a major franchise competitors, maintains the only measurable competition to Our Glass Fitness Center. Curves, however, is a major and well-respected brand reputation with over a decade of servicing women with the same methodology as Our Glass. However, Curves has experienced a slow decline in demand that can be outperformed with appropriate advertising and word-of-mouth reputation for the unique massage therapy services and other uniquely-tailored services that will be provided. Other than this large-scale and well-established competitor, there is no other threat to this business model in terms of competitive forces. Other large-scale gyms, such as Gold’s Gym, continue to cater to specific markets and are not exclusive for female-only offerings. There is little risk to building a profitable business model based on the level of competition in the region. II. Strategy Formulation 1. Marketing Strategy Marketing to this female-only market requires knowledge of the psychology of what drives the motivation and demand for this type of product and service. Since it is a local servicing business, it is necessary to use psychographic marketing strategy in order to position the business properly over Curves and other local gyms that do not have exclusive female-only offerings. Psychographics, according to Boone & Kurtz (2007) is the process of identifying lifestyle goals and activities that are unique to the target market and then capitalizing on these strengths in all forms of advertising copy and literature. The VALS 2 Network is a quality model on which Our Glass will rely, identifying key market segment characteristics (Boone & Kurtz). For the sake of marketing, the key lifestyle elements will consist of adventure seekers, those with higher affluent resources, and those most likely to succumb to general belonging characteristics most closely associated with group exercise formats. Price is a significant marketing aspect that will be used to lure more customers away from local co-ed gyms and gain more attention from the less affluent market segments. Organizations such as Curves generally have a one-time membership fee of $199 annually. However, Our Glass will use pricing as a key competitive tool. Rather than demanding an annual fee that is non-refundable, the business will provide a monthly rate of only $49 that allows for membership cancellation at any time. What this will provide the business is a constant source of revenue stream and also gain interest in those who cannot necessarily afford the annual fee commonly associated with female-only workout centers. Pricing will be adjusted according to rising overhead or any other costs or reduced based on accurate records of demand and patronage. This pricing structure will be adopted and printed in direct literature to sign-up customers, through local listings, and other bulletin board materials associated with women in environments such as physician offices or other appropriate venues. In addition, coupon incentives will be offered with this direct mail literature as a means to gain even more motivation to attend and patronize Our Glass Fitness Center. According to Alexander (2009, p.17), “in the wake of todays’ economic recession, investors are showing a clear preference for companies and products that offer guarantees. Companies that offer no guarantees in their value propositions will have difficulty finding market share”. Because of this, Our Glass will develop a three-line value proposition that clearly states the company’s purpose and benefits it can provide to all of its market segments most likely to frequent the organization. The guarantee offered will be the ability to have a no-contract exercise promise that allows for cancellation at the whim of the client. Further, guarantees about the quality of the gym equipment compared to other organizations will be reinforced so that clients will understand that they will be receiving top quality, sophisticated work-out equipment and well-trained instructors in specialized aerobic and training systems. Attached is the proposed value proposition for Our Glass Fitness: Our Glass Fitness provides only top quality exercise equipment and specialized instructors designed to cater to women and their health needs. Unlike competition, there is absolutely no annual contract and monthly membership fees are among the lowest of other well-known gyms. We promise to provide excellence in every product and service we offer and back this with a satisfaction guarantee. 2. Location In marketing, location is everything. At the same time, Our Glass must consider the costs of building ownership versus rental agreements when considering monthly costs of operations. It is most convenient and cost-effective to select a location in the local area in the midst of a strip mall where rental costs are lower and there is the option to relocate in the event of proposed future expansion. Rental costs for a 1,400 sq foot building in the local region is $1,000 monthly due to current low presence and demand for small businesses where the price of local rentals is negotiable and demanded by strip mall ownership. The location will be in the middle of the city where commercial and other shopping activities are already well-established next to well-known markets and other convenience centers and restaurants. 3. Advertising and Promotion As previously identified, advertising will include direct mailing literature will ever-changing coupon incentives. These discounts may include one free masseuse service or 10 percent off the montly discount, adjustable based on the volume of returned coupons received. The Internet will also be used as a low-cost tool to gain more market interest and represent very little in terms of cost and maintenance to the business. Customers interested in signing up will be targeted with similar coupon incentives or other health education literature to make Our Glass a recognized and ongoing presence in the lives of existing clientelle. Further, generic advertising will be conducted using local newspapers such as the Village Voice and other publications delivered to homes across the region without cost. Local shopper publications will also be targeted for ongoing promotional materials. It is not cost-effective nor beneficial to use television advertising considering the business will only be servicing the local community, thus extending market presence in high-cost forums will only serve as a budgetary detriment to the organization. Guerilla marketing, a type of marketing involving low-paid street teams (Boone & Kurtz), will also be utilized bi-monthly, using promotional tools such as keychains and other small-scale items printed with the company’s logo to gain more marketing exposure. Well-toned and enthusiastic women will be placed strategically throughout the city where they will herald the benefits and low cost of Our Glass in order to gain local community excitement and support. These street teams are typically paid approximately $7 per hour in order to promote the business and distribute the low-cost promotional materials that will be produced by local graphic arts companies as needed. Overall costs of advertising should not exceed $350 monthly, including all copy and production of promotional keychains, buttons and other interesting materials. 4. Sales and Credit Terms The business will be equipped to manage credit purchases to gain even more market attention, accepting common credit cards such as Visa, Mastercard, American Express and Discover. Customers will even be given the option to use a favorite payment system, PayPal, when ordering monthly membership over the Internet. Consultation with appropriate information systems support teams will be conducted during start-up to assist in constructing an appropriate and cost-effective online payment system. 5. Description of Premises and Facilities Other than the previously identified assets including top-end exercise equipment will be a segregated room (upon consultation with local construction teams) in which specialized services will be conducted with privacy in mind. Massage therapy, aromatherapy, and other yet-to-be-developed programs will occur in this fashion. For group exercises, since vanity purposes are part of the health club motivation in these market segments, mirrored walls consisting of floor-to-ceiling reflections will be installed at a price of approximately $1,000 at the time of start-up. There will also be a specialized health food bar containing different juices and fruit bars to gain higher profitability and satisfy client needs without necessarily losing their revenue dollars to local restaurants. The goal is to satisfy the customer in all dimensions from exercise, to health and relaxation, and also hunger and thirst using health conscious snack items. This bar will be maintained and serviced on a demand-by-demand basis by existing management and ownership. These materials will be delivered via appropriate health care food centers under a purchasing contract to be negotiated at the time of start-up. 6. Key Personnel In order to sustain all hours of operations, the business will require on-site presence of the owner who will work 10 hours daily Monday-Saturday. In addition, one assistant manager, one support staff member, and an on-site exercise expert will sustain the business. Duties will be sporadically distributed depending on level of training, expertise, and growth/development demands by each staff members. For budget purposes, in the first year of operations, there is no need for additional labor assistance. 7. Supporting Professional Services The only requirement for Our Glass is the use of cloud computing services offered by reputable information systems technology leaders. For risk and mitigation services and other liability purposes, an attorney will be selected and used as the primary business resource on an as-needed basis. There is no need in the first year of operation for other support staff as the accounting and general management functions will be maintained and supported by low-cost computer systems such as QuickenBooks and Microsoft Word for client organization and direct mailing purposes. These systems will be acquired at the time of start-up. III. Forecasted Results 1. Start-up Costs The following table includes all of the start-up costs needed to launch Our Glass Fitness Center, including all signage, equipment, construction materials, and basic computer and credit systems needed to accept payment systems on credit and also manage the client directory as part of the customer relationship management system. These costs include initial legal fees and generic office supplies required to operate the business in the first two months of operation: Start-up     Requirements       Start-up Expenses   Legal $1,500 Stationery etc. $500 Insurance $1,500 Rent $2,000 Computer $1,200 Mirrors/Construction $2,000 Total Start-up Expenses $8,700     Start-up Assets   Cash Required $1,000 Start-up Inventory $1,500 Other Current Assets $2,000 Long-term Assets $25,000 Total Assets $29,500     Total Requirements $38,200 2. Sources of Financing The owner will invest $10,000 of personal resources into the business, with a short-term payment loan from local the local credit union or bank of which the owner is currently a member or utilizes for personal finance needs. The goal is to attain a 15 year loan at $28,200 to secure the needs of start-up and maintain a starting cash balance of $1,000 required at the time of launch. 3. Sales Forecast The following table illustrates the expected sales associated with generic membership fees based on the assumption of 200-250 clients per month (sustained or growth-based), sales revenues from the fruit bar and snack bar, and other associated massage and miscellaneous services offered. These services are higher than those associated with the $49 monthly membership fees, thus providing significant revenue based on rising demand, including yoga and other small group exercise services and training experts. Sales Forecast   FY 2012 FY 2013 FY 2014 Sales       Monthly Membership $100,000 $120,000 $140,000 Massage Services $60,000 $70,000 $80,000 Fruit Snack Bar $24,000 $28,000 $30,000 Total Sales $184,000 $218,000 $250,000         Direct Cost of Sales FY 2012 FY 2013 FY 2014 Fruit Snack $5,000 $6,000 $6,500 Group Service $5,000 $5,500 $6,000 Subtotal Direct Cost of Sales $10,000 $11,500 $12,500 Sales Monthly 4. Profit and Loss Pro Forma Profit and Loss   FY 2012 FY 2013 FY 2014 Sales $184,000 $218,000 $250,000 Direct Cost of Sales $10,000 $11,500 $12,500 Other Costs of Sales $0 $0 $0   ------------ ------------ ------------ Total Cost of Sales $10,000 $11,500 $12,500         Gross Margin $174,000 $206,500 $237,500                 Expenses       Payroll $55,000 $58,000 $61,000 Marketing/Promotion $3,500 $3,500 $3,800 Depreciation $0 $0 $0 Rent $12,000 $13,000 $14,000 Utilities $3,600 $4,000 $4,200 Insurance $3,500 $3,800 $4,000   ------------ ------------ ------------ Total Operating Expenses $77,600 $82,300 $87,000         Profit Before Interest and Taxes $96,400 $124,200 $150,500 Interest Expense ($325) ($900) ($1,500) Taxes Incurred $29,018 $37,530 $45,600         Net Profit $67,708 $87,570 $106,400 Net Profit/Sales 36.80% 40.17% 42.56% Based on the volume of personnel and monthly expenses, annual profit as indicated by the profit and loss statement is on the low end of expectations and achieveable through clever and directed marketing efforts. 5. Cash Flow Projections Pro Forma Cash Flow   FY 2012 FY 2013 FY 2014 Cash Received               Cash from Operations       Cash Sales $92,000 $109,000 $125,000 Cash from Receivables $84,589 $107,631 $123,711 Subtotal Cash from Operations $176,589 $216,631 $248,711         Additional Cash Received       Sales Tax, VAT, HST/GST Received $0 $0 $0 New Current Borrowing $0 $0 $0 New Other Liabilities (interest-free) $0 $0 $0 New Long-term Liabilities $0 $0 $0 Sales of Other Current Assets $0 $0 $0 Sales of Long-term Assets $0 $0 $0 New Investment Received $0 $0 $0 Subtotal Cash Received $176,589 $216,631 $248,711         Expenditures FY 2012 FY 2013 FY 2014         Expenditures from Operations       Cash spending $55,000 $58,000 $61,000 Bill Payments $56,209 $71,713 $81,913 Subtotal Spent on Operations $111,209 $129,713 $142,913         Additional Cash Spent       Long-term Liabilities Principal Repayment $6,000 $6,000 $6,000 Subtotal Cash Spent $117,209 $135,713 $148,913         Net Cash Flow $59,379 $80,918 $99,798 Cash Balance $60,379 $141,297 $241,096 These figures include the regular monthly repayment of the principal and interest on the 15 year loan as described by previous sections. Graphic Representation of Cash Flow Monthly 6. Balance Sheet Projections Pro Forma Balance Sheet   FY 2012 FY 2013 FY 2014 Assets               Current Assets       Cash $60,379 $141,297 $241,096 Accounts Receivable $7,411 $8,781 $10,069 Inventory $1,500 $1,725 $1,875 Other Current Assets $2,000 $2,000 $2,000 Total Current Assets $71,291 $153,803 $255,040         Long-term Assets       Long-term Assets $25,000 $25,000 $25,000 Accumulated Depreciation $0 $0 $0 Total Long-term Assets $25,000 $25,000 $25,000 Total Assets $96,291 $178,803 $280,040         Liabilities and Capital FY 2012 FY 2013 FY 2014         Current Liabilities       Accounts Payable $5,083 $6,025 $6,863 Current Borrowing $0 $0 $0 Other Current Liabilities $0 $0 $0 Subtotal Current Liabilities $5,083 $6,025 $6,863         Long-term Liabilities ($6,000) ($12,000) ($18,000) Total Liabilities ($917) ($5,975) ($11,137)         Paid-in Capital $38,200 $38,200 $38,200 Retained Earnings ($8,700) $59,008 $146,578 Earnings $67,708 $87,570 $106,400 Total Capital $97,208 $184,778 $291,178 Total Liabilities and Capital $96,291 $178,803 $280,040         Net Worth $97,208 $184,778 $291,178 As indicated by expenses, versus assets and revenues, the net worth of the business at the end of the first year of operations is estimated at $97,208. This is due to the one-time expenditures associated with the equipment required for operations and the VERY low overhead this business variety provides. As indicated by the balance sheet, liabilities to the business are significantly lower than other industries of this variety. 7. Explanation of Projections The revenues earned (projected) in the first three years of operations are reflected by ongoing growth in customer demand, higher patronization and utilization of different and adjusted specialty services, and the supplementary revenues provided by the breakfast, snack and fruit bar that will generate high dollar interest. Specialty fruit drinks and other health snacks are, by design, higher priced than other food items in a typical restaurant environment and therefore should generate ample revenue. The following is a break-even analysis that indicates just under $7,000 monthly in customer-driven revenues in order to break-even. As with other projections, this is on the low-end of estimates for sales that should be supportable through marketing, expansion, and reduction of overhead costs that will occur over time with the accumulation of assets and better management of the supply chain system and negotiations with various vendors. Break-even Analysis     Monthly Revenue Break-even $6,838     Assumptions:   Average Percent Variable Cost 5% Estimated Monthly Fixed Cost $6,467 The variable costs at only 5% are, again, supported by the low maintenance costs of the equipment, regular payroll already accounted for with specialty trained services, and the low requirement for high dollar stationary and other equipment. For the purpose of accounting, credit collections were listed at 30 days, however the majority of sales will be supported by instant credit services, online collection systems such as PayPal and cash purchases. Check or money order represent the only delay in revenue collection. This business plan consists of all expected expenses to be incurred, especially during the first year of operations with growth in both overhead costs AND increased patronage through the efforts of the owner and management teams. IV. References Alexander, Jeremy. (2009). “It’s Still All About Guarantees”, Life & Health. 113(19), p.17. Bharatbook.com. (2010). “Health Clubs & Leisure Centers 2010 – Market Report”. Retrieved June 2, 2011 from http://www.bharatbook.com/detail.asp?id=25065&rt=Health-Clubs-Leisure-Centres-2010-Market-Report.html Boone, L. & Kurtz, D. (2007). Contemporary Marketing, 13th ed. Thomson South-Western. Download.ihrsa.org. (2004). “IHRSA Trend Report. The Weight Loss Wars: Advantage – Health Clubs”. 11(4). Retrieved June 1, 2011 from http://download.ihrsa.org/trendreport/10_2004trend.pdf Dean, Elizabeth R. (2011). “Women’s Health Clubs: How Women’s Health Clubs Can Help you Look Your Best”. Retrieved June 1, 2011 from http://www.isnare.com/?aid=179794&ca=Womens+Interest Ihrsa.org. (2006). “IHRSA’s Industry Data Survey of the Health and Fitness Club Industry: Profiles of Success”. International Health, Racquet and Sportsclub Association. Retrieved June 1, 2011 from http://download.ihrsa.org/pubs/profiles2006_preview.pdf Marandi, E., Little, E. & Sekhon, Y. (2006). “The Impact of Personal Values on Perception of Service Provider Empathy and Customer Loyalty”, The Business Review, Cambridge. 5(2), pp.339-344. V. Bibliography Buycurves.com. (2011). “Curves – Strengthen Women in Your Community While Owning your Own Business”. Retrieved June 1, 2011 from http://www.buycurves.com/pricing/ Collishaw, M., Dyer, L. & Boies, K. (2008). “The Authenticity of Positive Emotional Displays: Client Responses to Leisure Service Employees”, Journal of Leisure Research. 40(1), pp.23-34. Oliver, John. (2007). “Exploring the role of music on young health and fitness club member loyalty: An empirical study”, Young Consumers, 8(1), p.65. Read More