1. To create a new E-commerce business, which is located in the Kingdom of Saudi
ID: 364200 • Letter: 1
Question
1. To create a new E-commerce business, which is located in the Kingdom of Saudi Arabia, which include the followings: a. Introduction about your business. b. Product and type of services. c. Business statement. d. Business vision. 2. To explain your business E-commerce processes. 3. To apply a SWOT analysis to your business. 4. Determining the E-commerce website design (Picture attachment). a. How it will look likes in terms of design and format (draft). 5. Student is required to explain its E-commerce system functionality, such as: a. The product menu will show all the product we have in stoke. b. The contact button will have all the company contact details, social media links Facebook, Instagram, etc. 6. Determine the suitable software and hardware needed with an explanation on why it’s needed. a. What type of functionality needed in your website, such as CRM? b. What type of hardware needed? Do you need a server or it will be in the cloud? 7. Identifying security issues as well as how to avoid it. a. What type of security? To whom or to what? b. Potential threats to your website? c. Recommendation. 8. Conclude your report.
Explanation / Answer
Creating E-Commerce Business in the Kingdom of Saudi Arabia:
Introduction:
Businesses have expanded throughout the world and provided a plethora of opportunities for livelihood to a large number of people. People have developed their skills and expertise in order to fulfill their dreams so that they can be financially viable and also support their family. There are several types of livelihood available for a person such as being an employee in a multinational organization, joining academics to do research and development, join some artistic work and so on. However, the most satisfaction and pleasure comes from only one profession and that is entrepreneurship. Entrepreneurship opens a whole lot of opportunities for a person professionally, financially and also from the personal growth point of view. Entrepreneurs need to develop knowledge and expertise about different function such as marketing, finance, operations and human resource in order to be successful in their domain. In fact, people pursue management studies and then work for some multinational company but instead of doing that if they start their own venture then it will lead to great benefit for them. Moreover, entrepreneurship has other social benefits such as creating employment opportunities and improving the economic gains of the society. It can be done with the help of startups which requires a lot of due diligence and analysis. A startup needs funds to initiate its business and thereby returns the money to the financers as and when it starts generating profits. This paper looks at the different elements involved in creating a startup and running it successfully. There are different aspects involved with a startup such as funding as well as startup costs and the most important aspect being the sales forecast. All of it has been done in a clear and concise manner in the following sections of the paper.
Startup Project:
The process of development of a startup should be looked at as a project in the short term. It also needs to maintain a triple constraint approach in its development. The main constraints in a startup are cost, scope, and time. Therefore, there is a need to develop a project charter for the beginning of startup such as a coffee shop. The project charter is a document which lists down the requirements of the project and also the scope in which the project is going to be implemented. With a vision of these two aspects, the project charter is created. The project charter should declare upfront the vision of the project and the stakeholders of the project. Apart from that, the project charter should also throw light on some of the other aspects of key outcomes or results that one aims to by implementing this project. A list of key performance indicators should also be enlisted in order to have a clear vision about how to go about monitoring the progress of the project. At last but not the least it should contain a detailed description of the timelines around which the different phases of the work should be scheduled. A sample charter has been described below particularly pertaining to the organization of parties.
Vision – Successful creation of a coffee shop
Key outcome
Key performance indicators
Approach and Costs
Location:
The coffee shop is a retail business and therefore it will be driven by the quality of service it provides. Therefore, provisions should be made to choose the prime location for its outlet. In fact, the best way to locate a perfect place to start a coffee shop is to target places where office goers would halt and take a cup of coffee with them to an office and then they would also like to hold business meetings for their clients in the coffee shop. They should also be interested in creating enough entertaining and conducive atmosphere so that people in the evening can come and relax in the coffee shop. People generally tend come together with friends and chit chat with each other over a cup of coffee. Therefore, efforts should be made to locate the coffee shop in a prime location where people can easily locate the shop and understand its value propositions. Therefore, location plays an important role in deciding the fortune of the coffee shop. In fact, the marketing mix of any startup needs to be carefully decided for the success of the company. The marketing mix consists of four crucial elements namely, the product, place, price, and promotion. The product, in this case, would be the beverages sold and would be coffee based. Coffee-based beverages are quite popular among different sections of the population nowadays. In fact, there is a lot of option for innovation and creativity. Coffee in new flavors and add-ons are being developed in order to lure new customers. Moreover, any coffee shop would have a range of quick bite snacks such as burgers, sandwiches, and dessert items. The startup should maintain a good quality of these products together with the essential requirement of lots of variety. Food and beverage industry is a domain where variety draws the customer to one’s premises. Therefore, product quality and variety is something which should be the prime focus for the coffee shop startup. Moreover, the place is another important factor which has been discussed in detail above. Pricing is something which creates consumer elasticity. The coffee industry highly prices sensitive and therefore, the startup should focus on creating products which have the capability to command premium pricing. If the entrepreneurs are able to come up with innovative coffee dishes then they can charge a premium. They would have a competitive advantage with respect to the other players or peers based on differentiation of the value proposition. Promotion is another crucial aspect particularly in the initial days of the startup. People should know about the opening of the shop and then only they would visit the shop. In the initial days, there may be a requirement to give discounts or offers which is quite common for customer acquisition. Hence, this should also be counted within the financial requirements for the startup. The promotion should be innovative in nature and should follow the principles of AIDA. AIDA is a marketing concept wherein it talks about grabbing attention, generating interest, creating desire, and lastly, driving the consumer to act. Therefore, the commercials or advertisements should follow this principle in order to increase the sales of the coffee shop. Once it is established then word of mouth sales would be enough for the incremental revenues of the coffee shop. Channels are important for having a successful marketing initiative in a foreign country. The route to market for different products are different and there should be the diligent analysis of the choice of channels. The product concerned here is fashion retail and the purpose of choosing appropriate channel is to reach their target customers. Channel and distribution system network is the backbone of any sales and marketing initiative.It also has to be kept in mind that brand building and brand communication are two important things which should not be left out. The coffee shop owners should put efforts to put up billboards and distribute pamphlets which will enhance the companies below the line marketing. If further expansion and aspirational value need to be created then it can think of going online and develop the required buzz for its coffee shop. The startup costs and the essential funds required for the coffee shop are stated in the following sections.
Income Statement:
While valuing Coffee Shop through DCF method we have considered a timeframe of 12 months with a terminal growth rate and projected the cash flows accordingly. We made all our assumptions based on the beverage industry context and do not expect the company to expand globally. The rationale behind DCF calculations are as follows:
Cash Flow Projections:
Number of Customers – Coffee shop is aiming to be the market leader in the beverage industry. There are two sets of products that have been assumed for the calculation. One being the beverage and the other being the snacks consumed with coffee. The growth of beverage has been taken at 12% whereas growth for other products has been taken at 15%. The coffee shop is going to have a dynamic product portfolio which can grow in a disruptive manner to meet the sales targets of the startup.
Gross Bookings – We arrive at the gross consumption for the coffee shop with the following assumptions. Gross consumption is an important metric for the coffee shop since in the initial period the company should focus on increasing its gross consumption without worrying too much about the margins. The margins will automatically increase as and when the startup begins to operate in a stable manner.
Number of customers for product 1 (Beverages): 100 for the first month
Number of customers for product 2 (Snacks): 100 for the first month
Gross sales = 500 x 100+ 100 x 100 = 60,000 for first month
We have projected gross sales for the following months at the rate of 12% and 15% which is equal to the growth rate of the industry. We have assumed this as gross sales is a function of the number of customers available for Coffee Shop which they expect to increase significantly in the coming months. Gross sales will directly dependent on the footfalls in the shop and therefore, an attempt should be made to reach out to maximum customers and make them at least try once the products of the coffee shop.
Selling, General Administrative expenses (SG&A) – Coffee shop is a retail business which runs on an asset-light business model. Drawing inspiration from this fact we have assumed that a major chunk of its expenses will be driven by SG&A in the initial growth phase of the company when it is trying to expand its business in new cities. They have significant expenditures in setting up offices and running them in the initial months when the operations are not fully streamlined. We have calculated SG&A considering it to be 85% of the revenues for the first five months. But as they evolve in their business and slowly reach saturation as far as expanding is concerned we expect their operations to stabilize resulting in a large dip in the SG&A expenses. From month 6we have considered their SG&A to be at 55% of revenues. Point to be noted here is we have considered the growth phase of Coffee Shop from an industry context and we do not expect Coffee Shop to go overseas in the time frame considered for our valuation. The SG&A costs in the initial period will be high but as the venture gets streamlined it will lower down.
Marketing & Product Development – Coffee Shop being in a disruptive business where it is trying to change the habits of the masses it has to pursue aggressive and innovative marketing campaigns. In the initial period, the sales and marketing costs would be high since they need to acquire new customers through innovative and quirky marketing techniques. Moreover, since they are supplying the retail customers where there is the scope of continuous improvement, they have to spend a fair amount of product development. So for initial 5 months, we have considered marketing expenses to be 30% of revenues. But slowly as the industry becomes established and being the market leader they mature in their business marketing costs will come down significantly. As a result, we have considered marketing expenses to be around 15% of revenues from month-6.
EBITDA – As a result of the above observations and assumptions we arrive at negative EBITDA for the first 5 months when it is a growing phase for the industry as well as for Coffee Shop. But as Coffee Shop has identified a key institutional void and established an effective business model we expect it streamline its operations and turnaround from month 2. As a result of month2, we have positive EBITDA.
Capital Expenditure – We have considered a constant capex of $174000 for the entire time frame of its projection for setting up of operations in new cities and expanding its business.Net working Capital – We have assumed the net working capital to be $42,650 at start of our valuation month looking at the scale of operations of Coffee Shop. We have tried to make this assumption looking at the working capital requirements of its global peers. Networking capital has been projected at the same rate as the growth in gross bookings which is 35% as we expect the working capital required to be in line with growth in their scale of operations.
Terminal Growth Rate –We have assumed it to be 12%, significantly higher than the growth in the economy as we see coffee industry to be a high growth industry which is reasonably insulated from the macroeconomic variations.
The different aspects of the income statement have been developed in a clear and concise manner so that it can create an impression on the minds of the investors. The funding can be done in many ways and the most common being the angel investor funding. However, in order to make that happen one needs to have sound financial statements with sales forecast and start-up budget. The financial fundamentals are most crucial for any business to fly off the ground. One needs to bootstrap his or her startup in certain cases when the funding is scarce. However, if the foundation of the company is based on sound financial metrics, then there is no doubt that it can be a success.
The pro-forma income statement can be seen in Appendix – C and
The sales forecast in Appendix – B
Start-Up Budget:
Any startup requires a whole lot of accessories and office supplies before it sales a single unit. Similar is the case with a coffee shop as well. A coffee shop needs to establish a big and cozy place since it is the ambiance which matters most in case of restaurants. People come to a coffee shop only to relax and gossip with their friends and family or in some cases it can be the place for business meetings as well. However, care should be taken to create a well-decorated interior for the guests and startup costs should be sufficient enough to support those expenditures. The startup costs can be broken down into several smaller units such as kitchen appliances, guest furniture, decorations for the interior of the café, arrangement for entertainment and other auxiliary requirements.Capital expenditure will be in sync with the satrap costs of the venture. At first, the requirement for the kitchen is the most crucial and important. Kitchen requirements can again be classified into appliances, cutleries and raw materials for the production. Raw materials should not be considered in the startup costs since it belongs to the working capital of the startup. The kitchen appliances should include various types of coffee machines, cutleries, utensils for making food and so on. The most important investment is the kitchen appliances and utensils since these are auxiliary items through which the service of the café will be judged. Apart from these, there should be a focus on developing the furniture of the café to utmost detail since this the place where the guest would sit and relax. The furniture or sofas for sitting should be innovative so that it catches the imagination of the guests as soon as he or she enters. However, it has to be kept in mind that it should not be the designer or fancy enough so that the customers feel uncomfortable while seating. Lastly, there would be some expenditure on lighting and decorate the interior of the café. This feature is more important for a fine dining restaurant rather than a café. Hence, a little bit of cost cutting is admissible in case of smaller coffee shops in terms of interior decoration.
The table shown below depicts the startup costs:
Material
Cost
Number of Units
Coffee Maker
$200
7
Crockery Sets
$50
20
Crockery Cabinet
$200
2
Microwave Oven
$150
4
Sandwich Maker
$20
5
Induction Cooktop
$60
3
Frosty Machine
$86
2
Oven
$200
1
Utensils
$50
10
Furniture
$200
10
Chairs
$50
40
Tables
$200
2
Lights
$50
10
Decoration Items
$200
5
Miscellaneous Items
$2000
NA
Apart from the items listed above, there will be a requirement of office supplies and stationaries which have been shown below. The costs of the startup have been identified in Appendix A.
Conclusion:
The different aspects of a startup have been clearly and concisely defined in this paper with a special focus on the various costs involved in launching a startup in the coffee beverage domain. The sales forecast is required to start any business and get funding from banks or angel investors. It has been done keeping mind the high growth rate of the industry and special attention has been given to the income statement for the first twelve months. The various aspects of marketing campaigns and mix have been elaborated so that the coffee shop can embark on a journey of success and profit. If the company continues its path towards having a strong financial fundamental then it can easily achieve the corporate goals of the entrepreneurs.
Material
Cost
Number of Units
Coffee Maker
$200
7
Crockery Sets
$50
20
Crockery Cabinet
$200
2
Microwave Oven
$150
4
Sandwich Maker
$20
5
Induction Cooktop
$60
3
Frosty Machine
$86
2
Oven
$200
1
Utensils
$50
10
Furniture
$200
10
Chairs
$50
40
Tables
$200
2
Lights
$50
10
Decoration Items
$200
5
Miscellaneous Items
$2000
NA
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