Problem Areas of Amazonia S.L. Company - Essay Example

INTRODUCTION Amazonia, S.L. is a company located in the Mataró (Barcelona, Spain) founded on 1970 by Mr. Antonio Moreno, a man with an entrepreneurial spirit. The nature of the business is importing and marketing exotic and non-exotic fruits in the wholesale market of Mataró and the neighboring towns. The target market of the business are the small and medium enterprises like small supermarkets, grocery stores, restaurants, bars and hotels; and it had successfully dominated the market. In 1980s, the business had suffered from economic stagnation brought about by the growing population of competitors in Mataró; however it had successfully recovered by opening new business practices with the help of his nephew, Carlos Costa. Based on the income statement figures of Amazonia, S.L. from the year 2002 up to 2004 its net income is improving as well as the revenue of the business. This had proven the success of Amazonia, S.L., and this big market share was brought about by customer’s loyalty. On the other hand, the market situation is rapidly changing and so with the customer’s taste and preferences. This situation should be properly handled by Amazonia, S.L. to avoid recession in the near future. The idea of innovation had long been considered by Mr. Antonio Moreno and the task was given into the hands of his son, Miquel. Soon after Miquel deals with the operations and customers of the company, he discovered a new idea of innovation – to establish cocktails Copacabana, a production and merchandising division of exotic fruit juices, emphasizing their healthy properties. The main thrust of this paper is to identify whether the proposal of Miquel Moreno would be viable for the business. He really believes that cocktail Copacabana is a good business but how will he present the evidences in a manner that is convincing to the partners of the company. Although Miquel had gathered reliable data for his proposal, he at the same time lacks familiarity with the daily practices of the new business. Thus, this paper would also tackle about the minor and major stated problems of the new proposed business with a corresponding alternative solution. DIAGNOSE PROBLEM OR SITUATION Every business venture whether unknown or known to the market has to face different problems brought about by environmental changes (Thomson 9). This is part of every business which no one can hide or run away from it. This situation will likely occur either in the present or in the future situation, and so before this could happen, the business should have its own coping mechanism in an effective and efficient manner. Through the discovered problems in the internal distribution of Amazonia, SL., a new idea has come to Miquel Moreno. He had decided to venture an exotic fruit juices out of the shrinkage fruits during the distribution. The exotic fruit juices will be called as cocktails Copacabana, a product which is characterized by spirit wellness and have meet customer’s demand on the concerned about health care and aesthetics. Problem Areas and Related Facts Although the initial presentation of cocktails Copacabana by Miquel is pleasing, the figures may not support the viability of the product. Some of the problem areas that need to be considered are the economic cost, length of time, revenue and expenses evaluation, and product promotion. These are some of the areas that Miquel should look into while doing his market investigation for the stated areas will definitely have an impact on his proposed business. In order to make his proposal convincing and more realistic he should estimate the necessary cost to be part of the situation analysis. STATE PROBLEM OR SITUATION Major Problem Miquel wanted to convince the partners of Amazonia, S.L. that cocktail Copacabana is a good and viable business. The problem lies in the presentation of the business, on what he shall do with the evidences to make it more enticing and attracting in favor to his initiated exotic fruit juice. Minor Problem In three days time, Miquel needs to present the evidences he had gathered but the problem is about the daily practices in producing and merchandising exotic fruit juices which are still unknown to him. His experience in Amazonia, S.L. is not an enough guide and what he really needs is an actual experience or a practical viewpoint about his proposal. GENERATE ALTERNATIVES Solutions to Major Problem Create a business plan: Before others are convinced that the proposed business is good, the confidence should start with the initiator. According to Steingold the initiator should “need time to learn whether the business is visible” (144). As a suggested solution, Miquel needs to create a good business plan which will serve as a good convincing instrument that would speak how viable is the proposed business (Norman, 188). The business plan should contain necessary information about the flow of the business such as cash-flow projections, strategies to be used in marketing the product, a concept that is soundly anchored in reality, and expect that the first plan will be subject to revision. The business will be more realistic if Miquel will include in his business plan some of the steps he will undergo during the actual business operations and in reaching the goals of the business (Allport). As part of the steps, he should look at the market place to determine some changes in trends and statistics and execute a comprehensive competitive analysis. If there are relevant information that will likely affect the original idea, examine the product carefully and modify if it is necessary. All the evidences Miquel had gathered will be organized in a business plan and a good business plan will likely convince the partners of the company. Business plan will not work to make the business successful for it is just an outline of ideas; however, the obtain information will provide direction and overall strategy that will be used during the situation and clarification analysis. Be transparent about the financial figures. A high level of sales should be predicted in the business plan to make it more attractive. However, the initiator should be careful in forecasting the income statement and balance sheet of the proposed business to avoid risks (Estabrooks). The use of commercially packed products could be one of the strategies to make the initial price of the exotic fruit juice lesser and consequently attracts the target market. In doing so, the risk should be evaluated first. To get the expense ratio of cocktail Copacabana on the individual items identified by Miquel, the formula that will be used is: [Particular Expense = (Particular expense / Net sales) x100] (“Expense Ratio”). The particular expenses are business plan, marketing campaign, liability insurance policy, staff costs, and office/equipment divided by the projected volume of sales which is 60,000. Business plan expense ratio = 2%; marketing campaign expense ratio = 10%; liability insurance policy expense ratio = 1%. 546%; staff expense ratio = 50%; and office/equipment expense ratio = 14.333%. This group of individual expenses will be used to analyze the basis of variation of the operating ratio of the proposed business which the result is much lower compared to the operating ratio of the business in 2004 (52%). This is a good figure because if the operating ratio is lower, the operating profit is expected to be much higher and vice versa (“Expense Ratio”). The operating margin presented by Miquel is 60%, and this ratio is much higher compared to the ratio of Amazonia, S.L. in 2002 (41%), 2003 (47.28%) and 2004 (47.29%). The higher ratio presented by Miquel for the new business operation is much desirable compared to the computed company ratio (“Operating Margin”). The ratio would also serve as a measurement in the assessment if the financial performance of the business is doing well (Newcorn). Solutions to Minor Problem Relate the practices of the company to prospective competitors. For three days time the meeting will reconvene and instead of wasting time trying to think of wide ideas, Miquel can pick the ideas that would be needed in planning to make the business realistic (“Common Business”). He can cite the practices he personally experienced in Amazonia, S.L. to be applied in his new business venture and relate this to the practices of the prospective competitors. Very often, failure to anticipate or react with competition is detrimental to the success of the business just like what had happened to small businesses wherein 50% of them fails in the first year of existence (Mason). He should have investigated the type of buyers and practices of his competitors. As the initiator, Miquel should have the general knowledge about the business so that when objection arises he will know how to handle the situation. He should also be kept informed on the performance of the proposed business in the market because lack of experience is one of the reasons why business fails (Mason). Gather all the ideas on the interviews and surveys he conducted. As an entrepreneur, the needs to be aware with the daily practices of the business are important for it will help to keep an edge in a competitive world (Bohl). He can focus and get ideas on the interviews and surveys he had conducted to deliver reliable information, such as the performance of possible consumers in the early phase of the business. He can further elaborate that beach bars, restaurants, bars, grocery stores, small supermarkets, gyms, sport areas, community centers, hospitals, schools and nursing homes are among the potential customers that are willing to patronize cocktail Copacabana. Have a quick research about the daily practices in producing and merchandising exotic fruit juice. The quick research refers to the extent of ideas being known to the initiator. Time is running out and so instead of wasting time thinking about what to say on the daily practices which in fact is largely unknown to you, simply provides the information which is familiar to you and has sense. The results may be subjective but it is much better than seeing as an ignorant initiator. EVALUATE ALTERNATIVES Advantages and Disadvantages of Alternative Solutions in Major Problem Create a good business plan. Advantages: 1) It will serve as a guide to deliver a good presentation of organized evidences; and 2) it is a convincing instrument that would speak how viable is the proposed business. Disadvantages: 1) A business plan cannot be used in long-range planning because it focuses only on the initial concept, for example, one year planning; and 2) it needs a correct prediction and estimation of figures about the sales, profit, expenses, and etc. (“Session Two”). Be transparent about the financial figures. Advantages: 1) It would greatly help in convincing the partners of the company to view the business as a viable one provided that the figures are good; and 2) the operating ratio and operating margin are attractive that make it more interesting compared to the ratio of Amazonia, S.L. Disadvantages: 1) The projected figures (higher sales and ratio) may not correlate with the actual operations of the business; and 2) there are different objections and questions that will be raised up because the figures are transparent. Advantages and Disadvantages of Alternative Solutions in Minor Problem Relate the practices of the company to prospective competitors. Advantages: 1) The business would look interesting and more appealing especially if the product would be in different variety (Procknow); and 2) a soundly anchored realistic plan will be created. Disadvantages: 1) It will cause disappointment if the degree of the competition is high; and 2) the use of commercially packed product that does not provide high quality and purity of the fruit juices might affect customer loyalty. Gather all the ideas on the interviews and surveys conducted. Advantages: 1) This can definitely save time for the three remaining days of preparation because it had already been conducted; 2) and it is a reliable source because all the interviews and surveys conducted are actually taken. Disadvantages: 1) Although it is reliable in the sense that it is personally conducted, the information may not be the same with the daily practices in producing and merchandising exotic fruit juice; and 2) the information is not an enough justification. Have a quick research about the daily practices to those with the same business. Advantages: 1) This research will produce much more reliable and updated information in the actual happenings of the market; and 2) doing some personal research is a good way of starting the basic step as an entrepreneur. Disadvantages: 1) The three remaining days would not be enough to secure all this information; and 2) it may not cover the entire information needed. Evaluating Advantages, Disadvantages and Selecting the Best Alternative Both of the alternative solutions presented in the major problem are relevant to convince the partners of the company that cocktail Copacabana is a good business. The information about competition, market place, strategies and many more are well presented in the plan and it would be helpful in doing the analysis. The figures should also be included in the business plan so that there would be transparency in the presentation of financial statements that would speak on how viable is the proposed business. The ratio of 60:47.29 is a good edge for the proposed business to be considered as profitable. With the use of this operating ratio and operating margin, the performance of the business can be easily determined. It is much desirable not to overestimate the financial projections of the business because achieving the target level in a financial forecast is uncommon for a new business. Also, if the financial sales forecast of the new business is situated at a high level, it creates a negative impression that will not boost the interest of users. On the other hand, the best alternative solution in the minor problem is by gathering all the ideas on the interviews and surveys conducted and then relate this to the practices of prospective competitors. The three remaining days before the meeting reconvene are not enough to gather all the needed information about the daily practices in producing and merchandising exotic fruit juice that is why common sense would tell Miquel that this information is his last resort. The solutions are evaluated based on his personal investigation that makes the information more realistic. It may not be enough and subjective in the sense that he relies on his own understanding, but this could be used as a basic knowledge. Miquel wants to use the brand name of Amazonia, S.L. to market cocktail Copacabana, but he should be careful not to affect the overall performance of the company. The plan that he will produce a commercially packed product (not 100% natural fruit drink) in a lesser price could affect the brand. Luring the customers by offering a product with a lower price but without quality is not a good marketing strategy for a new business. The brand of the business which he takes advantage will be affected and it may not meet the preferences of customer’s demand. CONCLUSION It is a fact that starting a new business is not an easy task even how feasible is the initiated business concept. It is really a complicated process that full of surprises and it needs focus, hard work, and a little luck. The complication starts when Miquel did not know how to convince the partners of the company that his proposal is a good business to be supported by his gathered evidences. Miquel had thought that he was prepared enough to present cocktail Copacabana but three days before the meeting reconvened he discovered that the daily practices in producing and merchandising exotic fruit juices are unknown to him. As a solution, he should create a good business plan and a transparent presentation of figures. He can also make use on the interviews and surveys he had personally conducted. Miquel should be optimistic and more flexible about the changes that he might be encountered during the business proposal; likewise he must possess the entrepreneurial spirit that his father had. Being part of an entrepreneurial family is an edge for Miquel to become a successful entrepreneur (Wadhwa). RECOMMENDATIONS In line with the implementation of the proposed solutions, Miquel can use all the information he had gathered and have it refined based on what he understand about his initiated concept, the competitors and the evidences (“Session Two”). He can also refer to a SWOT analysis in distinguishing the strengths, weaknesses, opportunities and threats in his proposed business. The strengths would be the higher operating margin (60%), the lower operating ratio and customer’s loyalty to the brand. The weaknesses are lack of innovation and variety of products, and limited target market; the threat is the small area of distribution; and product expansion as an opportunity. If all the stated information is positive and clear to the partners of the company, it is the time to present the alternative solutions. Miquel should not be contented with the available information if he really wants to convince the partners of the company; instead he should do more on market investigation in order for him to understand better the market condition. He should execute a comprehensive competitive analysis to know the real status in producing and merchandising an exotic fruit juice. He can actually hear some feedbacks from outside sources to make certain that cocktail Copacabana is in line with the trends. Also, instead of luring the customers by offering a cheaper commercially packed product, he can use other types of promotion strategy that will not affect the quality of the business. Works Cited Allport, Louis. “How to Start a New Business and Quickly Overtake Your Competition.” Ezine Articles. Ezine Articles, 6 Aug. 2006. Web. 3 Aug. 2010. . Bohl, David B. “5 Daily Practices to Help You Keep Your Edge.” The Change Blog. Peter Clemens, n.d. Web. 3 Aug. 2010. . “Common Business Start-up Mistakes.” BuyAssociation. BuyAssociation, 6 July 2010. Web. 4 Aug. 2010. . Estabrooks, Ann. “Business Plans: Are They Really Necessary?” Zero Million.com. Zero Million.com, n.d. Web. 10 Aug. 2010. . “Expense Ratio.” AccountingForManagement.com. AccountingForManagement.com, n.d. Web. 4 Aug. 2010. . Mason, Moya K. “What Causes Small Businesses to Fail?” Moya K. Mason. MKM Research, n.d. Web. 4 Aug. 2010. . Newcorn, Claudia. “How to Define Operating Margin.” eHow.com. eHow, n.d. Web. 3 Aug. 2010. . Norman, Jan. What No One Ever Tells You About Starting Your Own Business: Real-Life Start-Up Advice from 101 Successful Entrepreneurs. 2nd ed. Chicago, IL: Dearborn Trade Publishing, 2004. Print. “Operating Margin.” Investopedia. Investopedia, n.d. Web. 4 Aug. 2010. . Procknow, Greg. “The different degrees of business competition.” Helium. Helium, Inc., n.d. Web. 4 Aug. 2010. . “Session Two.” My Own Business. My Own Business, Inc., n.d. Web. 4 Aug. 2010. . Steingold, Fred S. Legal Guide for Starting & Running a Small Business. 11th ed. California: NOLO, 2009. Print. Thomson, Herbert H. “Reliability: Analyzing Solutions Uptime as Business Needs Change.” Security Innovation Nov. 2005: 1-47. Print. Wadhwa, Vivek. “Can Entreprenuers Be Made?” TechCrunch. WordPress.com, 27 Feb. 2010. Web. 5 Aug. 2010. . Read More