Running head: ASSIGNMENT 1: BUILD OR BUY Assignment 1: Build or Buy Claudia Toro BUS 402 Small Business Management Angela Harris July 25th, 2015 Assignment Week 1: Build or Buy 1 BUILD OR BUY 2 I usually visit a bookstore in my neighborhood. The store is not very large, yet its service and the reputation are appreciable. It makes a large range of books available to its customers as well as stationery products of daily use. The books vary from being related to arts and humanities to business and social sciences. You can find nearly every book you may be looking for available here. The most exclusive thing about the store is its customer service and that if a customer is looking for a book that is not currently available it can make it available at the client's request. There are very few staff members, yet the business is running profitably. Its credit goes to the excellent customer service and the variety of books available at the store. A large part of the revenue also comes from the magazines and novels that form a separate section of the shop. The way the store is arranged, makes it very easy for a customer to find what they are looking for. Overall, the store is doing quite impressive business, and one cannot help appreciating its customer base and customer service either. There is a similar business in my mind which will compete with the store. However, its concept is slightly different. Moreover, to compete with a store having a reputation of years, it would be necessary to differentiate. To start a business when there is already a strong competitor in the field is difficult. But it can be possible to build a customer base if one can take a smart and distinguished approach. The store I am planning would have some additional features than the store I know. Apart from being a bookstore, it would also be a gift shop. The books section will be based on the latest selections of books and audiobooks. An additional feature that I will have available is a catalog, so customers can place orders at their request in case we don't have it available at the store. Anyone can request a catalogue for various categories like fashion, history, music, business, anthropology, etc. and receive information related to the books available in that category along with the authors' names and prices. Apart from that every item included in the BUILD OR BUY 3 store whether it is a book or gift item can also be ordered online at the store's website. The store will initially deliver the products only in selected areas. So, those customers who live in nearby areas and do not find enough time to pick a particular book or item can check for availability and new arrivals online and order from there. My concept of a bookstore will merge three things into one; a bookstore, a gift store and ease of browsing for the articles you need. The key factor behind doing all these things is differentiation. However, the strategy behind merging a bookstore with a gift store is slightly different. A customer of books can also be a customer of gifts and vice versa. While the customers are looking for books in the store, they can also browse through the gift items and buy things that they like. Books can also be gifted, and customers may like to add a book as a gift for someone. In a way, these two businesses may be run as a complementary business and be merged into a single concept. The staff are going to be very few since customers can themselves browse through books and other items and pay for them on the counter. However, for clients who wish to order new releases and best sellers in advance, we are going to include an additional feature that is a free membership. Customers can avail of the free membership, and they will receive promotional emails for the new arrivals and they can also order them in advance. That will help to create a database and advertise the business thru social media and online campaigns. Acquiring the existing business can also be an excellent option. However, a significant benefit of opening a new business is that you can start it from scratch and run it according to your own philosophy or vision. An existing business has a definite image, and when you acquire it first, you need to work on that image to alter it as you have envisioned. Secondly, if the existing business is too large, you would need to adapt yourself to its format and style of functioning. In the current case, the existing business is not very large, and there would not be any difficulty in BUILD OR BUY 4 adding the features that I have decided to add to my own business. It will only add to the excellent customer service. The benefit of acquiring an existing business is mainly that you also gain its customers. An existing business already has an image and a reputation, and you would not need to work very hard on these factors. An existing customer base can also save you from a million other worries including running behind promotions and planning customer service. However, all the time you may feel like following an existing line that may ruin your excitement. But despite that buying an existing business can reduce a hundred costs and can be beneficial. The same goes for the current case also where new and additional features may be included as a surprise for the existing customers, and the store can devote time to attracting new customers through its website. Once you have bought an existing, well-run business you can take advantage of the current competencies as well as add new. The same benefit would not be able in case of opening a new company since it will take time to build a competitive advantage. Once you buy an existing business, you can not only forget the competition that would have come from it but you can also work on further improving the existing competitive advantage. Thus, in the current situation also where the existing business is in an excellent position it seems more sensible to buy it than start one fresh. However, in a situation where an existing business may be running profitably, the owner would not like to sell it at low cost. In such a situation, it would be more sensible to start one and focus on differentiation. In the current situation also, if the existing business proves too costly to buy, it would be more sensible to start a new one and focus on its marketing. However, it appears certain that the current owner would not like to sell the business for a small cost. The most appropriate form of ownership, if I have decided to start a new business would be a sole proprietorship, which is the simplest as well as the most common structure for starting small BUILD OR BUY 5 businesses. In a sole proprietorship, there is no distinction between the owner and the business. The owner is entitled to all the profits as well as liable for all the losses, debts and liabilities. Neither does forming a sole proprietorship require any formal action. The status is automatically granted as long as one is the single owner of a business, and it comes from his business activities. However, obtaining the required licenses and permits is essential. A sole proprietorship also offers various other advantages. Firstly, it is the simplest as well as the least expensive structure to establish. The legal costs are limited to obtaining the licenses and permits, and other expenses are also limited. Since one is the sole owner of his business, he has complete control over the company. While making decisions, one is fully authorized to do it, and there is no need to consult anyone. Thus, sole proprietorship would be the most suitable form of ownership as it can help avoid a large number of hassles. Another significant advantage of choosing a sole proprietorship would be concerning tax. In case of sole proprietorship, one's business is not taxed separately. The tax rates of a sole proprietorship will also be the lowest. There may be a few hurdles associated with a sole proprietorship. Often raising money to start a sole proprietorship gets to be challenging. While there is a complete control on one side, on the other total pressures also accumulate on the owner's shoulders. However, since I am going to invest a major part of the money required to start the business, the most appropriate form would be a sole proprietorship. Business Plan Executive Summary: 'V stores' is designed around the concept of books and gifts under the same roof. A unique feature of V stores is ease of accessibility. The store will sell not only to the people of the locality but the whole town. The additional feature of buying online will help the users to browse and buy without visiting the store. The product will be delivered within one BUILD OR BUY 6 working day inside the town. 'V stores' is going to be a sole proprietorship business with a total of eight to 10 employees. People have started moving towards eBooks, yet many still buy for their personal library. A major part of the customers will initially be from the local neighborhood. However, the number of clients is expected to rise fast after first three months with people's awareness of the store rising. The store will concentrate on online advertising as well as advertising through local channels like newspapers and magazines. The store is expected to do robust business starting from the second year onwards. V store is also expected to be a hit by the time it reaches its third year. Only from its second year it is expected to start serving a large number of customers from its website. The shipping costs for the customers who order online will also not be very high. Company Description: V store is a physical books and gifts store that will also have an online presence. The store will mainly be divided into two section, books and gifts. While a major part of the customers are expected to be from the neighborhood but will not be limited to it. The company will also sell the books and gifts online, so the customer base is expected to be not limited to the neighborhood only as customers from farther can receive the ordered books or gifts by paying extra shipping costs. Market Analysis: The online bookstores are now more popular than the physical bookstores. Customers generally like to browse and shop for books online. However, physical bookstores are also popular despite the rising popularity of e-books. Owning a physical library is still a passion for many. Our target market consists of people who regularly buy books, novels and magazines mostly as well as gifts. A significant part of the customer segment will be from the neighborhood. This customer segment remains interested in new releases and best sellers. We aim to gain a substantial market share within first few months by virtue of heavy promotion and BUILD OR BUY 7 advertising both offline and online. Organization and Management: The Company will consist of an owner, a store manager and 6 to 8 support staff to run the store and receive and parcel orders. The company will also have a small financial section. It will be a sole proprietorship business. So, the number of owners will be only one. Product Line: the products to be sold via the bookstore will include books, novels, magazines, comics and various gift items. There will be books under different categories like fashion, business, cinema and more types. Apart from that gift items will also be included. These products will be sold both through the physical store as well as the website. These products will also be home delivered at a low shipping cost that will be included in the price when the customer orders online. Marketing and Sales: Marketing of the bookstore will be done mainly through online channels as well as through pamphlets included with local newspapers and ads. Email marketing and local news ads will be the primary medium of marketing. Financial Projections: V Store expects to make a sale of $ 72,000 in the first year, $81,000 in the second year and $91,000 in the third year: Year 1 Year 2 Year 3 Year 4 Year 5 Q1- $12,000 Q2- $16,000 References http://www.sba.gov/content/sole-proprietorship-0 Q3- $20,000 Q4- $24,000 $81,000 $91,000 $105,000 $120,000 BUILD OR BUY http://www.business.qld.gov.au/business/starting/business-startup-options/buying-abusiness/buying-business-advantages-disadvantages http://ibba.org/resources/broker/buyingvsstarting https://www.rocketlawyer.com/article/sole-proprietorship-advantages-and-disadvantages-ps.rl 8