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We’ve learned that there are several ways to create marketsegments for our business. Which type do you think is easiest touse? Or does it depend on the product under consideration? Explainand give an example. Minimum 150 words (Marketing Class)

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Nestor Rutherford
Nestor RutherfordLv2
28 Sep 2019

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Case Study: Building a New Urgent Care Center

“It’s a slam dunk,” said Kim, the marketing ana-lyst. “The volumes we’ve forecasted ensure that the new urgent care center will be profitable within six months.”“Great,” replied Angel, vice president of strategic management, “but I think it would be useful to walk through those numbers to put everyone at ease.”“OK, here’s how we forecasted visits,” said Kim. “There are 40,000 people living in our primary market area. National rates suggest that a population of this size will make 6,000 urgent care visits each year. Right now, our emergency department sees 2,500 urgent—but not emergent—visits each year. We believe that 1,500 of them will come to the urgent care center. Our seat-of-the-pants estimate is that Provi-dence, the other hospital serving our primary market area, sees 2,000 urgent care patients per year in its emergency department. We expect to get half of those visits. We also expect that the added convenience of the urgent care center will bring in an additional 500 visits each year. So, 3,000 visits per year, each yielding revenue of $125, give us $375,000 in total revenue. We have fixed costs of $200,000. Our best estimate is that each visit has variable costs of $20, so we’re talking profits of $115,000, for a margin on sales of 30 percent.”“That’s nice and clear,” said Angel, “but I’d like to take a closer look. About half of the patients Providence sees would have to drive past Providence to get to our urgent care center. Do we have any indication that those folks will do that? My second concern is that our emergency department is open 24/7. The urgent care center will be open 82 hours per week. Can we really hope to capture 60 percent of the emergency department’s urgent care patients?”

Discussion questions:

• What happens to profits if the urgent care center has only 2,000 visits?

• To what extent does Kim’s forecast rely on judgment rather than data? Would additional information help resolve Angel’s concerns? What sort of data would you suggest gathering?

• Does building the urgent care center seem risky? Could you do anything to reduce the amount of risk?

• Would there be any advantages to planning for a small patient volume and letting your customers surprise you? Suppose you plan for 2,000 visits but volume turns out to be 3,000. What happens? Would underestimating the volume be better or worse than planning for 3,000 and getting only 2,000?

Develop a high-level funding schedule for a new venture business concept that can be used to discuss cash requirements for the first year of operations with prospective investors. The schedule should be prepared on a monthly basis and should include the following specific details:

(1.) Headcount plan - including all personnel needed to carry out the critical operations of the business for the upcoming year.

(2.) Forecast general & administrative expenses, including office rent and related costs, utilities, communication expenses, insurance, filing fees, etc.

(3.) Estimate the cost of how you plan to market the company/product.

(4.) Develop your revenue model, including key assumptions and variables such as unit sales, sales growth, number of customers by the end of the year, product pricing, etc., Make the model flexible enough to enable you to change key variables and run “what if” analyses.

(5.) If the cost of delivering your product of service is significant, forecast the cost of goods sold based upon estimate costs and the product assumptions used in item 4 above.

(6.) After preparing the initial financial plan, critically review the plan and assumptions (including having advisors and other management team members review the plan for reasonableness). Adjust the month-to-month results to “normalize” the cash balance (and ensure it never runs below $0), adjusting discretionary expenses if necessary.

(It can be any business venture as in a resturant or a store)

Upon completion of the financial model, answer the following questions:

Question 1

How much cash do you need to raise to operate during the first 12 months of operations? Please include your numeric answer and an explanation of several sentences. (about 150 words)

Question 2

Does the amount of cash needed in item 1 above fall within the “reasonableness range” for an early stage company (i.e., up to $5 million)? Please include your numeric answer and an explanation of several sentences. (about 150 words)

Question 3

What is your monthly cash burn rate - both gross and net burn (gross burn is the average of total expenses each month; net burn is gross burn offset by the average monthly cash generated from revenues). Please include your numeric answer and an explanation of several sentences. (about 150 words)

Question 4

How long will you be able to operate at the end of the 12 months forecast before you need to raise additional funding? Please include your numeric answer and an explanation of several sentences. (about 150 words)

Question 5

Please attach a copy of the Financial Model that you created for this assignment.

EXAMPLE

How much cash do you need to raise to operate during the first 12 months of operations? Please include your numeric answer and an explanation of several sentences.

As I plan to operate a restaurant with a nice ambiance I would require premises, renovation and internal decor, furniture, electric setup, a couple of computers, staff, their uniforms, chefs, food supply, tables, chairs and couches, brochures and menu cards, marketing and advertising. Premises and land= $196.3K Renovation and internal decor= $49K Furniture, tables and chair= $20K Staff(2 waiters 1 on the counter 2 cooks)= $16K Uniforms, brochures, menu cards= $500 Food supply= Everyday return, so not included. Marketing and advertising= $20K


Does the amount of cash needed in item 1 above fall within the “reasonableness range” for an early stage company (i.e., up to $5 million)? Please include your numeric answer and an explanation of several sentences.

Total required amount is $301.8K which falls under the reasonable range.

What is your monthly cash burn rate - both gross and net burn (gross burn is the average of total expenses each month; net burn is gross burn offset by the average monthly cash generated from revenues). Please include your numeric answer and an explanation of several sentences.

Three workers at $200 per month and two workers of $300 per month (That's what the salaries are where I live). $1,200 salary, $300 for the electric, maintenance, gas and marketing etc every month. If in the starting months 20 people visits the restaurant and spends at least 7$ per person on food on average, they would bring $140 revenue everyday and in 30 days, $4,200, which is the revenue generated including 60% profit that the food items would generate. $2625 on the food that is being sold. A total of $4,125 is expected to be spent in the first few months, which is the gross burn. The $2,625 food that is sold will at least give 60% profit, that's calculated to be $1575. So the revenue earned each month for a first few months would be $4,200. This estimates that the net burn would be something around (4,125-4200) viz "-$75" every month for a first few months. The negative sign shows it's a profit, and that even at the estimated value their would be some room (of $75) for the accounts to balance and the venture to not fall off into loss. This is the minimum sale calculation which shows no loss. 20 people to visit in one day is a very small figure. Such a business offers an everyday recovery.

How long will you be able to operate at the end of the 12 months forecast before you need to raise additional funding? Please include your numeric answer and an explanation of several sentences.


As we will start gaining more costumers due to marketing and best quality provided, we will start making wholesome profits. At the rate of 50 costumers per day shopping at the average of $8 per costumer, we would make a revenue of $400 per day and $12,000 per month, which after deduction of food cost and other bills would give a profit of $3,000 every month, and hopefully at the end of the 12th month we will be making $6000 per month. Such a profit will help recovering the amount invested and in a few more months the business will be able to recover all the investment except the cost of the land and premises, which will of course be there as an asset.

Over the past few years, the number of start-up companies attracted to either doing business themselves in the cloud, or specifically creating applications for others to use in the cloud, has grown significantly. A few but very promising enterprises have launched applications in “container” technology, which enables companies, programmers, or other enterprises to both launch and run applications solely in the cloud. There is still a lot of room in this emerging marketplace, and you are diving in. The product you’ve developed has a unique angle to tap into the local-grown/local-made/local-paid movement that’s also growing larger every day. Your initial market is your own small city, which operates independently but which is linked economically and via public safety provision to another small city sitting directly across a river separating the two. Once you’ve been able to launch your company in your city, you plan to approach the “sister city” leaders, then the county, state, and eventually go national. It’s too soon now, but your future plans entail an IPO offering to accomplish all this. Eventually, you hope to be able to re-imagine your product to go global. You have big plans, are close to being tapped out financially and you now need to plan for additional investors. Address the following considerations as they apply to your product launch. 1.Describe an agency relationship and how it may/will take shape for your small company. As the sole employee and investor in your startup, what agency conflicts might arise? 2.Six months have transpired, and you’ve been able to add two employees. In this new arrangement, what agency disputes might now develop that need to be addressed, and how might you address them? What resources do you need to use or consider? 3.Another three months have passed. You are now ready to expand to your sister city and you need more capital. You decide the wisest path is to sell some stock to outside investors, but you will maintain control over your company by holding onto the majority of the stock. In this new scenario, what type of agency conflict might occur? How can you address this in advance? 4.The IPO was a success, and you have a robust number of shareholders. With board support, you determine it is time to hire a financial manager to help your firm achieve current goals and set new ones appropriate to the firm’s growth strategy. What professional strengths and skills will an individual seeking this position need to possess? 5.Another consideration you feel you need to address at this point, now that your firm’s stock is publicly traded, is how to sustain the high ethical standards you’ve fostered thus far as you move into the firm’s future. What strategies can your management team implement to conduct your business with both personal and professional integrity? What steps can you take to ensure that ethical considerations for financial and other management decisions are embedded into the firm’s culture? 6.Congratulations - you are now at Year One, and everything is moving along faster than you anticipated. While this is great, you are at the point where you need to raise additional capital from outside lenders. With this decision, what type of agency costs might the company incur? How might a lender mitigate any agency costs? 7.Year Two rolls around. Your company has been able to expand beyond your local communities and into to localities and governments in half the counties of the state. The stakes are getting bigger and you welcome the idea of high-level input to ensure the company keeps growing and expanding. You cash out the majority of your stock and turn the company over to an elected board of directors. Neither you nor any other stockholders own a controlling interest (which is also the situation at most public companies). List six potential managerial behaviors the new board might take that could harm your company’s value, and what steps overall can put into place to avoid or mitigate these. 8.You are also aware from your prior career and from your research, that corporate governance can affect shareholder value. This greatly concerns you, as you still have lofty plans for your company’s growth and eventual global trajectory. Questions you’ve identified that need to be addressed at this stage include: a) What is corporate governance?; b) What five corporate governance provisions are internal to a firm and are under its control?; c) What characteristics of the board of directors usually lead to effective corporate governance?; d) What characteristics of the board of directors signal ineffective or problematic governance practices?; e) How can regulatory agencies and legal systems affect corporate governance? If there are differences in local versus national levels, expand upon these. 9.Lastly, one of your new board members is very concerned with “blockholders.” What is block ownership? How does it affect corporate governance? Explain the pros and cons.

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