Quick Review

Business Type: Internet Caf"

Background

Having worked over 20 years in the auto industry, Jeff Clinton is planning on taking an early retirement in 6 months time, which would coincide with the opening of his new business, Cybexx Internet caf". After an exhaustive search, Mr. Clinton decided to pick a busy street in Downtown Detroit, Michigan as the location for Cybexx.

Objective:

Mr. Clinton estimates that he will need a total of  $175,000 to open Cybexx. He is planning on using $75,000 from his 401k plan to fund the business. The other $100,000 will be obtained from a business loan. Upon visiting his local bank, Mr. Clinton is told by the loan officer that he will need to submit a business plan along with his application. With the help of his daughter, an MBA at University X, Mr. Clinton set out to develop his business plan.  3 months later he submitted the plan to the loan officer. The loan officer is pleasant and upbeat after reviewing the plan. However, Mr. Clinton could sense that there is a lack of enthusiasm on his part.  [One very common problem among investors, like loan officers is that they will never tell you exactly what they are thinking].  The loan officer tells Mr. Clinton that he will review the plan and then a decision will be made on whether to submit it to the loan committee.  Sensing that the loan officer is unwilling to offer a blunt objective critique of his business proposal, Mr. Clinton decides to submit his business plan to BizJump for a review before it is submitted to the loan committee. {It is easy for a lender to find out that a bank rejected you. After that it gets increasingly difficult to get a loan from the next bank. Therefore, it is very important to put your best foot forward with the first bank}

The review

The following outline BizJump's analysis of Mr. Clinton's business plan, along with the effectiveness score for the critical sections of the plan:

Competitive Analysis:
Effectiveness Score 65%

There is a relatively low barrier to entry to this industry. This means that Cybexx does not have any sustainable competitive advantage. Therefore, the business could be vulnerable to competition if it becomes successful. The good news is that there is no Cyber caf" located in a 10-mile radius of Cybexx, which could mean that the market is untapped. On the other hand, no direct competition could be a sign that there is no market for a cyber caf" in this area.

Market Analysis
Effectiveness Score 55%

Your definition of the target market as "anyone who drinks coffee and uses the Internet" is too broad. You have ignored geographic constraints that will prevent people who use the Internet and drink coffee but do not visit Detroit to be a customer. Additionally, you have not clearly identified a target market. Our research shows that Internet caf" customers usually fall within following groups

"       Local residents

"       Commuters/people who work in the area

"       Local high school and college students

"       Leisure visitors

You need to analyze your area to find out which of the above group(s) is the best business prospects in the area where you want to locate the business. Using Census data you will be reasonably able to quantify this group. Figures from trade associations like National coffee association will give you an average of the amount spent by each group on services like coffee. Combing these figures, you will be able to estimate the market size - and ultimately your potential revenue and profit.

Industry Trend
Effectiveness Score 45%

Our research as show there has been a significant high failure rate among Internet caf". Cyber cafes like Crystal lake Ill, Chicago, Virtua in Miami Beach and Cyber Stache in Atlanta have all gone out off business. The main reason for these failures is because of the readily availability of the Internet to a major portion of your target population. Why would they pay for something that they already have access to? The good news is that consumption of gourmet coffee has been increasing by an average of 12% annually for the past 3 years.

Management/Operational
Effectiveness Score 54%

The principal has limited experience in the business that he wants to start. Inexperience in the business could lead to poor execution of your business strategy. The loan committee will be concern about that. One option is to identify a partner with experience or hire a manager with the experience.

Financial Statements
Effectiveness Score 25%

     This area needs a significant amount of rework

1.       Your revenue projection has no basis. You must include an explanation of your revenue projection in the "notes to the financial statements" section. Your revenue projections can be based on quantifying the target market as discussed above or assessing a similar business having similar characteristics like customer and competition.

2.       Your financial ratios are out of line with the industry's. You are showing a revenue growth of 30%, as oppose to your competitors who are only showing an average growth of 8%. There is nothing distinct about your business to justify this aggressive projection. Additionally, the cost of sales is 20%; meanwhile your industry average is 44%. The above two factors result in your overstating the business's profit potential

3.       Salary is 64% of total expenses. Check to see if you need that amount of staff coverage.  

Overall Business Strategy
Effectiveness Score 48%

You are proposing to establish an upscale Internet caf" -- a differentiating strategy. However, by establishing your business in a low-income area, you are targeting a price sensitive market. Targeting this market points to a clear contradiction in your business strategy. You are targeting a group that might not have interest in your product. 

Out of a possible score of 100, your business scored 49 in BizJump's effectiveness analysis. This points to significant weaknesses in not only your business strategy, but also your organization's capability of successfully executing your business strategy. In our opinion businesses that score less than 75 in our effectiveness analysis are at significant risks of successfully executing their business strategy.