A few years ago, a construction manager earning $70,000 per year working for a regional home builder decided to open his own homebuilding company. He took $100,000 out of one of his investment accounts that had been earning around 6% a year and used that money to start up the business. He worked hard the first year, hiring one employee (his only salary cost for the business was the $40,000paid to this employee) and generated total sales of $1,000,000.Total material and subcontracted labor costs for the year were$900,000.

5.1. What was the annual accounting profit for this company?

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28 Sep 2019

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A few years ago, a construction manager earning $70,000 per year working for a regional home builder decided to open his own homebuilding company. He took $100,000 out of one of his investment accounts that had been earning around 6% a year and used that money to start up the business. He worked hard the first year, hiring one employee (his only salary cost for the business was the $40,000paid to this employee) and generated total sales of $1,000,000.Total material and subcontracted labor costs for the year were$900,000.

5.3. What is the economic profit or loss of the business?

lavendersea-lion827

A few years ago, a construction manager earning $70,000 per year working for a regional home builder decided to open his own homebuilding company. He took $100,000 out of one of his investment accounts that had been earning around 6% a year and used that money to start up the business. He worked hard the first year, hiring one employee (his only salary cost for the business was the $40,000paid to this employee) and generated total sales of $1,000,000.Total material and subcontracted labor costs for the year were$900,000.

5.2. What are the opportunity costs for the manager of being in this business relative to returning to his old job?

pearcockroach968

Your Home Is a Good Place, Inc.

INTRODUCTION: In 2006, Bill Norwalk, a 50-something entrepreneur with a decidedly independent streak, was at the cusp of a major change in his business. Norwalk's background in marketing started with a bachelor's degree in business and a marketing major. He had taken his marketing training to heart and developed a novel way of satisfying homeowner customer needs, one which had the potential to launch a new industry. Like many entrepreneurs with a good idea, Norwalk was confronting the issues of implementation and the attainment of critical mass. Should the business expand and attract new customers as well as contractors, suppliers, and other facilitators and how? How could the business increase the number of affiliates and draw from an appropriate customer base? Norwalk concluded that the best thing to do when you do not know that to do is get outside help. He decided to hire a consultant to prepare a situational analysis (SWOT) and a marketing plan for the business. BACKGROUND: Bill Norwalk grew up in Ohio, one of three children in a middle class family. He spent his formative years playing ball, going to Scouts, and being a member of his local church. Norwalk went to college at Miami University, where he got a bachelor's degree in business. After graduation he worked construction and eventually started his own business as a DJ at bars and at wedding receptions. All through his life he displayed an independent streak, doing things his way. When he was 40, his customers and friends convinced him to start installing music systems as a sideline. His experience and taste in matching sound equipment made him the perfect entrepreneur, some-one who knew what he wanted and was sufficiently risk-prone to be willing to work for it. In 2006, Norwalk was tired of working for someone else and searched for a way to use his entrepreneurial talents. He realized that his success would necessitate doing business his way. Your Home Is a Good Place, Inc., was a novel channel intermediary that employed convenience as a strategic marketing variable. It differed from traditional home improvement by providing the well-to-do homeowner with a one-stop shopping experience. Gone was the need to search out an architect or design firm and get plans. Gone was the need to then locate one or more independent contractors and put up with their continual mess while the constructive destruction processes took place. Instead, people with incomes of $100,000 or more came to the suite of showrooms at YHGP. There, on the model site, end-users could glimpse a vision of how their homes could be transformed into a luxurious playground. Home improvement is all about making one's personal environment more comfortable and at the upper levels of consumption, making it uniquely different from what the neighbors own. As such, it includes much more than basic bathroom, bedroom and/or kitchen de-sign. Unfortunately, consumers do not have the time or, in the majority of cases, the talent to visualize the elements that would make their place both tasteful and unique. Customers could walk the site visiting showroom kitchens, living rooms, bedrooms, game rooms, libraries, entertainment home theaters, pool areas, and even home putting greens for the avid golfer. If you could dream it, Norwalk could get it built. If you could not, Norwalk could locate people to dream it up for you. For example, there was an indoor driving range simulator and an outdoor putting green for the golf enthusiast. In the bath area, there were complete luxury bath spaces. No more visits to the lumber yard or home store to examine a bathtub in one place, sink in another and shower in another space with the faucets in yet another. The consumer could see the complete package with wall treatments and lighting, and Norwalk could put clients together with all the people needed to accomplish their dreams. Luxury bedrooms, kitchens and home theaters were also provided for viewing. At YHGP the consumer could literally see how different wall or floor finishes and construction techniques came together to produce an extremely unique and satisfying life-improving living space, hence the name Your Home Is a Good Place, Inc. The ease of selection was just the beginning. Once a design concept was born in the consumer's 'mind YHGP personnel would take charge of the details of preparing the construction plans obtaining and contracting with construction contractors, dealing with financing agencies' obtaining building permits, and finalizing the contracts. YHGP would arrange for coordination between the various participants and see that the contractors minimized the me'' they created and that they cleaned up their work spaces before they left at the end of the day, so that there would be no more mess for the homeowner. YHGP differed in concept from typical home store/hardware store or design center. These businesses exist as a ready-made industry in place to cater to the do-it-yourself (DIY) consumers in terms of providing the tools and components. However, most DIY projects tend to be relatively small and are undertaken by people whose primary objects is to save money. Norwalk realized that his niche was elsewhere. Consumers who have large amounts of disposable income and who want to undertake a major redesign of their space have to overcome these problems: (1) design and architectural changes including permits and safety inspections; (2) sourcing of appliances and components for the Projects, e.g., faucets for baths and speakers for home theaters; (3) provision of professional contracting labor; (4) financing for the project; and (5) dealing with the uncertainty during construction. Customers could see the central theme of the YHGP concept at a pavilion located in central Michiana on a leased site. Berrien and Cass counties in Michigan as well as Elkhart, La Porte, Marshall, St. Joseph and Starke in Indiana made up the market area. Local organizations and their statistical reporting recognized a larger 15-county area Michiana area, though Norwalk felt it was too large to serve effectively and efficiently. YHGP differed from traditional businesses because it required little of the entrepreneurâs cash up front. Norwalk convinced local contractors, landscapers, designers, architects, appliance suppliers and others to donate their work or products to develop a series of show-case rooms on the leased site. Each model environment was chock-full of design ideas to spur the creative juices 01 potential clients.

THE SUPPLY SIDE: In return for donations of labor and material, the contractors and other facilitators (including local advertising outlets, which provided the publicity/advertising) got to show-case their wares in the "whole enchilada" pavilion. The supply-side participants got a ready source of potential clients, access through YHGP-coordinated job scheduling and help with obtaining building permits and inspections. Some of the suppliers of labor and contracting as well as components included painters and wallpaper hangers, rough-in carpenters, finish carpenters and cabinet makers, masons, electrical contractors, plumbers, landscapers, faux finishers, sound design engineers, roofing contractors, welders and other certified tradespeople. Additional players were land surveyors, movers, HVAC contractors, insulation contractors, and solar/wind/alternative energy designers and installers. Not everyone who provided home remodeling services in the Michiana area was allied with Norwalk. A significant number were direct competitors, though they did not have the advantages provided by YHGP. THE DEMAND SIDE: YHGP was located in the town of Mishawaka, Indiana, in the middle of the Michiana area. While not officially recognized by the U.S. government (thus no official metropolitan statistics), the Michiana area had two associations of area government agencies. MACOG, the Michiana Area Council of Governments, representing four of the seven counties, was located in Indiana. The Southwest Michigan Planning Commission, SWMPC, represented the remaining three counties in Michigan (http://swmpc.org and www.macog.com). U.S. census data is available for the seven counties in Michiana (2000 and 2006 data were combined) (see Exhibit 1). Cass, Marshall and Starke (Michigan) and Elkhart, La Porte, St. Joseph and Berrien counties (Indiana) had approximately 856,000 residents. The median household income in Michiana's counties varied over a range of $37,000 to $57,000. The entrepreneur's vision for YHGP was to serve only di private dual customers whose household income exceeded $100,000 and whose project cost averaged $10,000. Norwalk felt that anyone who had an income below this level would be most likely to use the DIY process to serve their needs. Norwalk had not considered other options for customers. Although Norwalk considered any private individual with an income above $100,000 as a potential consumer of his services, there were limits on even this. For example, renters and people living in new homes were less likely to purchase upgrades than were others. Additionally, Norwalk wondered if age or other demographic factors might have an impact on those who might purchase. THE INTERSECTION OF SUPPLY AND DEMAND:Norwalk's concept went beyond the idea of a general contractor who subcontracted out portions of a job. YHGP coordinated projects from start to finish. In the beginning, when a customer was considering an environmental improvement, Norwalk showed them what could be done. YHGP arranged for complete plans to be drawn up, for the permits for construction, and for the financing. During construction, Norwalk worked with the contractors to see that proper building site "etiquette" was maintained. That meant that each day's mess was contained to the ex-tent possible, with the work stopped and the debris cleaned up before the crews quit for the day. Homeowners had a less stressful experience because of this. As such, customers were more likely to pay the bills which were submitted by Norwalk on time. YHGP's billing schedule billed for work on a percentage of work completed. This improved Norwalk's and the contractors' cash flows. Norwalk had six employees on staff. Norwalk was worried that he did not have the right mix of employees. Some skills were needed that his employees did not have and some dysfunctional behavior was present. For example, the chief of operations, David, was the business manager who made things happen, but stifled initiative in the process. Rory served as project manager in charge of scheduling and service calls. He was a compliant type who wanted everyone to be happy, but could not discipline workers. David had to step in when work was not progressing. Priscilla did sales and estimating. She was aggressive and probably was that way from a background in radio station sales management. Sam also did d sales and was very good at taring clients. Even though he was a self-starter, he could not initiate a sale with a new client. Rowdy was an installer and gopher (as in "Go for coffee!â) who did what was needed, but exhibited no initiative. The bookkeeper, Johanna, was a classic pencil pusher. She would start at the top of a stack of paper and work down in order, item until the work was done.

THOUGHTS: Because YHGP had few employees and relied instead on partnerships with independent contractors, expansion, in Norwalk's opinion, was as easy as bringing on a firm that wasn't currently employed by YHGP. Additionally, in harder times, Norwalk would not have to fur-lough employees. Norwalk felt that his primary contacts in the customer market were women. Women wanted a complete packaged solution rather than a piecemeal approach. Some could come to the firm after viewing one of the TV home remodeling shows and want to duplicate those concepts. Since YHGP was new, it had yet to develop a well-known image in consumers, Often a new concept is slow to catch fire with consumers. Norwalk was worried about building a brand identity in Michiana. YHGP got paid a flat percentage of the bill, typically 10 percent. Since Norwalk, arranged all of the details with both buyer and supplier, and tied everything up in staff package, consumers were not aware of the facilitating charge. The various sub contra neat negotiated with Norwalk or his staff beforehand, and because they were guaranteed their cut when the contract was signed, they did not object to the fee either. At this point, Norwalk could personally oversee all contracts. However, he worried that at some point in the future, he would need one or more project supervisors to maintain quality. Norwalk felt that if he could gain five customers a month at a minimum total bill of $10,000 each YHGP Would be successful.

CURRENT MARKETING ENDEAVORS: One element of Norwalk's plan was demonstrated in his promotional endeavors. Large home improvement purchases are often facilitated by the availability of credit and almost never occur without some form of promotion. He worked with banks and credit unions, realtors, radio stations and regional automobile dealers to develop promotions that used these facilitators' money and resources to attract business for the supply-side participants. For example, he would put together a deal with a local car dealer, a bank and a radio station. The bank would offer financing, the car dealer a one-year lease on a new car and the radio station would promote a package where a Your Home Is a Good Place, Inc., client could receive the whole package as an incentive. Each business participant got the enhanced promotional effects and Norwalk's business got a cut of the overall price of the development package up front for no cash outlay. These monies were used to pay YHGP staffers and for daily operations. Other promotional events revolved around social meetings of regional groups of professionals like doctors. A catered dinner would be provided (at the caterer's expense in ex-change for the publicity and an introduction to the group) at the YHGP showrooms. Before and after the dinner, the invited guests would have access to architects, bankers and other professionals who might be involved in the transactions, and to the model showrooms demonstrating possible changes to their living spaces. The networking opportunities pro-vided convenience for all parties and usually resulted in new contracts. YHGP got no direct income from these events.

After reading the case study, answer the following question: Who are they? Where did they come from? What industry? What is their position in the market? 4 P's (Discuss the product, place, promotion and price) Environmental Forces (Discuss how each affects the company) Customers and Target Market (Who do they serve?) Current Situation â SWOT, Competition, Market Share, Stock prices. Etc. What is the problem? Alternatives âpossible strategic solutions Recommendation

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