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207LON ENTREPRENEURSHIP IN GLOBAL CONTEXT CW2 – feasibility study ( SUBMISSION DATE – 14 JULY ) Brief ; Assignment Guidelines: You are required to come up with an idea for a start-up business. – The start-up cannot be a franchise – The product cannot be an existing brand – The start-up can be based anywhere in the world, provided you possess an existing network and speak the language to be able to run a primary research. If in doubt, please make it a UK-based start-up (e.g. you can base it in London, Middlesex Street). You will learn to use the 5-parts adapted Mullins model to analyse the feasibility of your business idea. You may use a team as a brainstorming unit that complements and supports each team member’s individual effort. The idea and the submission is individual. You will share the data you collect together, debate ideas within the team, choose different data-gathering avenues but the interpretation of the gathered data is yours and yours only. You can choose to run extra research and gather extra data on top of what the team already collected. Assignment – Feasibility Study – You are to submit a written individual feasibility study of your chosen start-up, covering the 5-parts of the adapted Mullins model (please refer to the Rubric) – The feasibility study’s 2000 word-count includes Highlights but excludes Table of Contents, Bibliography and Appendix Feasibility study template 2000 words Executive summaryThe Business ideaValue propositionCustomer painProducts and/or servicesMacro Industry (Ibis world )Industry identification/snapshotCompetitionBarriers to entryMacro market (Mintel, Euromonitor)Market sizeGrowth forecastConsumer behaviour trendsMicro MarketMarket segmentationPrimary data analysis/survey resultsBusiness idea validation (is your idea/solution solving the problem)Micro IndustryBusiness modelRevenue streamsKey resources (financing the business, parents, bank)FinanceCash flow forecastIncome statementConclusionIs this business idea really going to work? S A M P L E ( PLEASE LEAVE (FIRST) ONE SLIDE FOR COVERSHEET ) Feasibility Study for Start-UpPatrisha’s Nail Salon Word Count: 2,020 207LON Entrepreneurship in a Global Context Dr. Orhan Demirovski LONU037 BA International Hospitality and Tourism Management Student ID 03/12/2020 Executive Summary This feasibility study focuses on a nail salon start-up in Limehouse, London, applying the five parts adapted Mullin’s Model to analyse the realistic practicability for this new business. The business idea, committed to relieving the customer pains established in the value proposition, consists of offering quality nail services, along with refining the beauty and care experience by creating a friendly atmosphere where there is no room for the standard cold, impersonal customer service, consequently building customer satisfaction and loyalty. Its feasibility is supported by market research, which corroborated the overall predilection for beauty salons, as well as industry research presenting £4.1bn yearly revenues and 1.3% growth forecast for the next few years. The start-up’s finance will face the same scenario, not only covering costs but also making increasing profit throughout time, reaching over £32K net income in its third year in business. Also, this salon gains competitive advantage by offering lower prices, student discounts and group bookings, minimising possible threats to revenue and profit. Due to low barriers to entry the market, the only concern regarding the start-up is the initial investment, which is fortunately supported by a loan plus personal savings. With service sale as revenue stream and a pay-as-you-go business model, this nail salon targets 18 to 30 years old women who, like primary research indicated they long for, enjoy the whole therapeutic beauty experience – quality nail and customer services, involving the sociable atmosphere and follow-on friendships. Table of Contents Introduction – Business Idea 5 Value Proposition 6 Customer Pain and Products/Services 6 Macro Industry 7 Market Size 7 Growth Forecast 7 Consumer Behaviour Trends 7 Micro Industry 8 Business Model 8 Revenue Streams 8 Key Resources 8 Macro Market 9 Industry Identification/Snapshot 9 Competition 9 Barriers to Entry 9 Micro Market 10 Market Segmentation 10 Primary Data Analysis – Survey Results 10 Business Idea Validation 10 Finance 11 Cash Flow Forecast 11 Income Statement 13 Break-even Point 14 Conclusion 16 Reference List 17 Appendix 18 Introduction – Business Idea This feasibility study focuses on Patrisha’s nail salon start-up based in Limehouse, London, next to the Limehouse railway and DLR station on Commercial Road. This location has been chosen because of easy access (public transport) and having only one direct competitor in the area (Little Nail House on 579 Commercial Road). Besides nail technicians offering the ordinary nail services – shaping the clients’ nails and applying nail polish, or artificial nails (Chan and Ip, 2011, p.55) – this establishment would refine the personal beauty and care experience by enforcing a young friendly atmosphere, where clients could enjoy the therapeutic side of beauty services by engaging in genuine one-on-one conversations and creating a personal relationship with staff, instead of the standard cold, impersonal customer-staff relationships, also building customer satisfaction and loyalty as a result. Value Proposition Customer Pain and Products/Services When one walks in a nail salon they mainly expect to get a quality nail job; however, customer satisfaction hardly subsists if customer service does not meet their expectations (Buttle and Maklan, 2019, p.293), and a factor of huge importance in reaching customer satisfaction in this business is precisely a good customer service, that leaves the customer feeling they had a nice genuine conversation and bonded with the nail technician, even building a personal relationship. Buttle and Maklan (2019, p.293) explain how customers are responsive to extraordinary customer service, regardless of the product/service offered by the business, and outline common attributes of illustrious companies on that matter, such as customer service lying at the heart of their value proposition and being the main selling point, as well as being everyone’s responsibility to build personal relationships with customers rather than delegated to a single function or department. This start-up focuses on fighting the two most common pains found amongst nail services’ customers – unsatisfactory nail quality and poor customer service. In order to achieve that goal and differentiate itself from competitors, staff must be specialised in the art form and care of nails – manicures, pedicures, acrylics and gel nails, fake nails (Chan and Ip, 2011, p.55) – but must also display social awareness, emotional intelligence and soft skills, laying the foundations of growing personal relationships between staff and customers. Macro Industry Industry Identification/Snapshot The hairdressing and beauty treatment industry’s revenue amounts to over £4.1bn over the last few years (Figure 1) – 2016 to 2019 – reaching £4.258bn this past year (Petropoulos, 2020), with a price range of £10 for basic services to £100 for permanent nail extensions with bio gels (Business Gateway, 2018). Figure 1: Revenue Growth (Source: IBISWorld) Year2016-20172017-20182018-20192019-20202020-20212021-2022Revenue (£m)4,1114,1734,2584,2533,9243.977Growth (%)3.97%1.52%2.02%-0.11%-7.73%1.35% Growth Forecast This industry has grown over the past five years owing to an overall rise in disposable income, attracting fashion-conscious consumers to beauty treatments (Petropoulos, 2020). Nonetheless, the government measures concerning the COVID pandemic temporary closing establishments is expected to cause a 7.7% decline (Figure 1) in revenue in the current year, even after the reopening of some establishments this past summer, due to restrictions on the number of customers that could be served at a given time. Petropoulos (2020) also points out the industry growth currently depends on the rate of recovery from the coronavirus pandemic. Yet, the industry revenue is forecast to reach £4.2bn over the next five years, increasing at a compound annual rate of 1.3% (Figure 1), growing alongside rising disposable incomes and growing demand for male grooming services. Consumer Behaviour Trends Regarding key trends, Petropoulos (2020) discussed how consumers now tend to compare prices seeking to find the best deal, putting pressure on revenue and profit. A threat to the industry also arises as non-specialists and DIY tutorials gather popularity (Dover, 2019; Petropoulos, 2020). Micro Industry Business Model A business model, according to Spencer (2013, p.3), is a tool assisting businesses in understanding how to create value for customers while making money – fundamental purpose of creating value for both customers and the firm. It must explain the core logic behind the system of activities that comes together to create a good/service offering and deliver it to the customer, creating and capturing value. This establishment will rely on a model very similar to, as an example, common hairdressers’ salons, with a pay-as-you-go system and offering a range of prices depending on the service. Customers can choose between walk-ins or phone reservations, also having the option to book group reservations for groups of 2 to 4 friends, so they can all enjoy the experience together. Revenue Streams Revenue streams describe how a firm makes money (Barringer and Ireland, 2019, p.162-163). Whereas some businesses have a single revenue stream, others have multiple, and their nature also varies – the most common revenue streams are advertising, commissions, download fees, licensing, renting, subscription service, and product and/or service sale. Patrisha’s salon’s revenue stream will be the last one mentioned, selling nail services at slightly lower prices than the competitor’s next door (Figure 2) pursuing competitive advantage in the area. Figure 2: Geographic Closest Competitor’s (Little Nail House) Price ListNail Extensions (£36 average price)Natural Nail Services (£17 average)Full Set£25 – Gels £28Manicure & Pedicure£33Re-Fill£15 – Gels £18Pedicure£25Take Off & Full Set£30 – Gels £33Manicure£10Full Set Glitters£30 – Gels £33File & Nail Polish£5-8Re-Fill Glitters£22 – Gels £25File & Toe Polish£8-10Full Set + Gel Polish£40Gel Polish (£30 average)Re-Fill + Gel Polish£30Gel Polish Manicure£25Pink & White Full Set£35Take Off + Gel Polish Manicure£30Pink & White Re-Fill£25Gel Polish Pedicure£45Full Set Glow In The Dark Powder£30Gel Polish Manicure & Pedicure£65Refill Glow In The Dark Powder£20Gel Polish Take Off (Fingers)£5Full Set Ombre£40Gel Polish Take Off (Toes)£8Refill Ombre£30Other (£3 average)Take Off + Full Set Ombre£45Hand Design Nail Art£3+Full Set Toes£35Permanent French Tips£3Refill Toes£25UV Top Coat£3Take Off & Manicure£15Swarovski Crystals X10£3Take Off & Polish£12Single Nail Repair£3 Key Resources It is imperative to have support to get through the risky set-up period (Direct Line, 2017), as this start-up requires some beforehand investment, involving renting a shop in London and getting the necessary equipment, which will rely on a bank loan and individual savings over the years from inheritance and work. In order to minimise expenses, some equipment will be lent for the initial period of the business, and the chosen location is not the most expensive area of London, despite being a main street that gives the business instant high-file promotion (Direct Line, 2017). Macro Market As a survey confirmed, female respondents in the UK spend on average £112.65 per month on their appearance (Young, 2017), and, in London, £30 monthly on nail services, which is the average selling price. Dover (2019) clarifies people looking for beauty/grooming treatments mainly lean towards salons (42%) and spas (30%) rather than non-specialists – Figure 3 – as on top of assured expertise, they allow clients to relax and treat themselves to a more premium treatment and experience. The same analyst also pointed out that beauty and grooming salons are particularly prominent for nail treatments, probably owing to the substantial number of specialist nail salons scattered across the UK. Also, Figure 4 demonstrates the preference for beauty/grooming salons transcends age, as over 40% of users chose this option over other treatment areas regardless of age group – 16 to 34 (41%), 35 to 54 (43%) or over 55 years old (47%). Figure 3: Locations visited for beauty/grooming treatments in the last 12 months, July 2019 – “Where did you have your beauty/grooming treatment(s) in the last 12 months?” (Source: Lightspeed/Mintel) Base: 818 internet users aged 16+ who have had a beauty treatment in a spa, beauty/grooming salon or other treatment area in the last 12 months Competition Petropoulos’ report (2020) indicates the competition level in this beauty sector is high and still growing, with over 30,000 nail bars in the UK and also nail salons being the 7th most popular start-up business (Business Gateway, 2018). As previously mentioned, this specific salon seeks competitive advantage by offering lower prices than the closest competitor, as well as 10% student discount and the option of group bookings. Furthermore, there is only one close competitor in the area, Little Nails House, boosting this start-up’s success prospect. Barriers to Entry It is easy for operators to enter the beauty industry, as suggested by the number of establishments and enterprises that have risen over the past five years (Petropoulos, 2020). This is associated with the industry’s lack of regulation, low barriers to entry, and decreasing start-up costs, as it is now possible to lend/rent equipment for only a small fee. Micro Market Market Segmentation This nail salon targets fashion-conscious young women (18 to 30 years old), looking for the whole experience on top of the nail service – connecting with staff and even other customers on a personal level, carrying meaningful conversations and building friendships. Primary Data Analysis – Survey Results A survey was given to young women concerning nail services in London and what matters to them as customers. As expected, the majority of the respondents enjoy getting their nails done in salons and choose that option due to professionalism and expertise, despite considering them overpriced in this city. Moreover, the results reflected the coldness of the ordinary customer service, and the subsequent desire for a welcoming social atmosphere which makes room for the whole beauty experience, just like this start-up is offering, with customers treating themselves to nail services at the same time as the therapeutic side of engaging in genuine conversations with staff and customers. Business Idea Validation Following the survey results and the market and industry’s research, this start-up pleases the market segment, since it works towards rectifying the current customer pains in the field by granting quality in both nails and customer services. Survey Results(1-Strongly Disagree; 2-Disagree; 3-Neutral; 4-Agree; 5-Strongly Agree) Most Relevant ResultsEnjoy getting nails done in nail salons4.5Choose nail salons because of expertise5Think nail salons in London are overpriced4.6Feel they are surrounded by older people in nail salons3.5Highly value customer service and bonding with staff on a personal level4.7Have built a friendship with staff or other customers in nail salons2.667Like the experience better if a friend joins in3.9Would like the idea of a salon where they can get quality service alongside a lovely atmosphere and growing friendship with staff and even customers4.833 Finance Patrisha’s salon finance is based on the assumption that, in the first year, there will be an average of 50 customers every week (6 working days), and an average sales price of £25 per customer. It is also assumed that, in next couple years, as a result of customer loyalty, word of mouth and growing brand reputation, there will be an 18% increase in average number of customers, therefore an average of 59 customers per week in the second year in business, and 70 the following year. Cash Flow Forecast Cash flow statements provide information on a company’s cash receipts and cash payments, as well as its operating, investing and financing activities (CFA Institute, 2020, p.30). This statement is also linked to the business’ income statement and comparative balance sheets, and is key for attaining long-term success. Table 1: Cash Flow Forecast – Year 1 Table 2: Cash Flow Forecast – Year 2 Table 3: Cash Flow Forecast – Year 3 Income Statement An income statement presents information on the financial results of a company’s business activities – revenue, expenses, and net income – communicating how much revenue was generated over a specific period of time and what costs rose from generating that revenue (CFA Institute, 2020, p.14). Table 4: Income Statement – Year 1 Table 5: Income Statement – Year 2 Year 1Year 2Weekly Revenue:50 customers x £25 avg.price = £1,250/weekYearly Revenue:£1,250 x 50 working weeks = £62,500/yearWeekly Revenue:59 customers x £25 avg.price = £1,475/weekYearly Revenue:£1,250 x 50 working weeks = £73,750/yearYear 3Weekly Revenue:70 customers x £25 avg.price = £1,750/weekYearly Revenue:£1,750 x 50 working weeks = £87,500/yearRent = £1,500 x 12 = £18,000 Equipment Rental = £3,000 Marketing = £60 x 12 = £720 Table 6: Income Statement – Year 3 Break-even Point Break-even analysis is a concept used to determine the minimum production level; in other words the point when a company sells enough units to cover the costs of sales, making neither profit nor loss (Vasigh and Rowe, 2020, p.330). Table 7:Break-even Point – Year 1 Conclusion To sum up, this feasibility study concerning Patrisha’s nail salon shall be followed by a business plan, as the future seems bright for this start-up. Market and industry research proved there is an overall preference for beauty salons over other treatment options, also validating this business’ profitability, with over £4.1bn yearly revenues, global pandemic and its impacts aside, and a 1.3% average growth forecast for the next five years. This salon’s finance reflects the same scenario, as it not only covers its costs (over 80% contribution margin), but also makes (18%) increasing profit throughout time, reaching over £10K, £20K and £32K net income in the first year, second and third years, respectively. Lastly, these results show this start-up dodges the high competition level and consumer behaviour trends pressuring global revenue and profit, because of their competitive advantage resulting from offering lower prices, student discounts and group bookings. With a pay-as-you-go business model and product/service sale as revenue streams, this business enters the market (low barriers) with a bank loan and personal savings backing up the required beforehand investment (renting a shop and equipment). Also, it works towards resolving customer pains, targeting young women (18 to 30 years old) who enjoy not only quality nail services, but, as primary research (survey) showed they yearn, the whole therapeutic beauty experience composed of a sociable atmosphere and high-level customer service, that instigates one-on-one bonding and follow-on personal relationships, precisely what this business is offering. Reference List Barringer, B.R. and Ireland, R.D. (2019). Entrepreneurship: Successfully Launching New Ventures (6th ed.). Pearson Education Ltd. https://bibliu.com/app/?query=revenue%20stream#/view/books/9781292255354/pdf2htmlex/index.html#page_2 Business Gateway (2018). Market Report: Nail Technician. https://www.bgateway.com/assets/market-reports/Nail-Technician.pdf Buttle, F. and Maklan, S. (2019). Customer Relationship Management: Concepts and Technologies (4th ed.). Routledge. https://bibliu.com/app/?query=customer%20relationship%20management#/view/books/9781351016537/epub/OEBPS/xhtml/Cover.html#page_0 CFA Institute (2020). International Financial Statement Analysis Workbook (4th ed.). John Wiley & Sons, Inc. https://bibliu.com/app/?query=key%20drivers%20of%20cash%20flow#/view/books/9781119628125/epub/OPS/fcover.html#page_0 Chan, Z. and Ip, Q. (2011). Beauty and Health. Nova Science Publishers, Inc. https://ebookcentral.proquest.com/lib/coventry/detail.action?docID=3020990&pq-origsite=primo Direct Line (2017). Beauty Salon vs. Mobile Beautician. https://www.directlineforbusiness.co.uk/small-business-insurance/hair-and-beauty-insurance/knowledge-centre/beauty-salon-vs-mobile Dover, S. (2019). Spa, Salon and In-Store Treatments – UK – October 2019. Mintel. https://reports.mintel.com/display/920256/?fromSearch=%3Ffreetext%3Dnail%2520salon Little Nail House (2014). Price List. https://littlenailhouse.com/price-list/ Petropoulos, P. (2020). Hairdressing & Beauty Treatment in the UK. IBISWorld. https://my.ibisworld.com/uk/en/industry/s96.020/about Spencer, B. (2013). Business Model Design and Learning: A Strategic Guide. Business Express Press. https://ebookcentral.proquest.com/lib/coventry/reader.action?docID=1048406 Vasigh, B. and Rowe, Z. C. (2020). Foundations of Airline Finance: Methodology and Finance (3rd ed.). Routledge. https://bibliu.com/app/?query=break-even%20point#/view/books/9780429769542/epub/OEBPS/xhtml/Cover.html#page_0 Young, S. (2017, March 10). Average British Woman Spends £70,000 On Her Appearance In A Lifetime, Research Finds. The Independent. https://www.independent.co.uk/life-style/fashion/average-british-woman-spend-ps70000-appearance-lifetime-cosmetics-beauty-products-groupon-uk-a7623201.html
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