Starting a New Business Venture

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Table of Contents

Introduction
Types of Markets for the Businesses
Economic Profits to be Earned from Each Business
Opportunity Cost of Choosing Either Idea
When to Hire Staff
Conclusion
Reference List

Introduction

This paper investigates the economic feasibility of two business plans developed by three friends: Alex, Felix, and Sarah. The first one is a burger and hot dog business, which targets students in a small town. In contrast, the second plan involves establishing a Middle Eastern-style confectionery that will sell sweet bakery items to students from local universities. This report will explain the merits and demerits of the two plans with the goal of finding out areas to tweak for improved performance. Part of the analysis involves an examination of the business proposals for market fit. Overall, there will be a discussion of four key issues: the main types of target markets for both establishments, the economic profit business owners should expect to earn, the opportunity cost of choosing each proposal, and when the businesses should acquire new employees. The section below explains the types of markets for both businesses.

Types of Markets for the Businesses

According to Castilhos, Dolbec, and Veresiu (2017), there are four main typologies of markets in business: consumer, business, government, and institutional. A business market is characterized by an environment where the main clients are “other businesses.” In other words, the common type of relationship that exists in this space is business-to-business (B2B) (Castilhos, Dolbec & Veresiu 2017). Comparatively, a government market exists when public sector agencies buy goods and services (Castilhos, Dolbec & Veresiu 2017). Therefore, products are often sold to government departments and agencies, such as its ministries, hospitals, and similar entities. In an institutional market, organizations that are founded on religious, social, or professional grounds are the main clients. They may include foundations, non-profit organizations, religious centers, and the likes (Castilhos, Dolbec & Veresiu 2017).

The confectionary and hot dog business plans are ideal for the consumer market segment because their products appeal to household consumers. Furthermore, clients usually buy goods for their personal or family consumption and do not share a close relationship with one another (Kjellberg & Olson 2017; Papaoikonomou & Alarcón 2017). There are many types of consumers in this market segment because the quantities of goods sold are relatively small and spread over a wide variety of product categories (Kjellberg & Olson 2017; Papaoikonomou & Alarcón 2017).

According to Kjeldgaard et al. (2017), Giesler and Fischer (2017), small-scale consumption and the lack of close relationships among buyers are common features of consumer markets. The two business plans highlighted in this document fit this type of market framework because the sale of hot dogs, burgers, and Middle Eastern-styled bakery items, appeal to unrelated consumers who buy goods frequently (Kjellberg & Olson 2017; Papaoikonomou & Alarcón 2017). It is important for business owners to maintain a strong price differentiation strategy in the consumer market segment to remain competitive because buyers are often sensitive to price changes (Kjellberg & Olson 2017; Papaoikonomou & Alarcón 2017). Consequently, the success of the two business proposals highlighted in this paper depends on the effective implementation of an effective price plan.

Economic Profits to be Earned from Each Business

According to Le Breton-Miller and Miller (2018), economic profits refer to the difference between the total revenue of a business and its implicit or explicit costs. Unlike accounting profits, economic margins usually cover several years in a business’s lifecycle. Consequently, Mert (2018) says managers use economic profits to inform their decisions regarding whether a firm should enter or exit a market. Relative to this assertion, the economic profit of the confectionary business plan depends on the expertise and experience of the business owner because the proprietor’s ability to make traditional homemade baklava, Kanafeh, and other types of Middle Eastern foods is the main competitive advantage. In other words, the business owner’s unique skills outline the main differentiation strategy for the business. Therefore, the effective deployment of the proprietor’s resources dictates the economic profits of the firm (Yasser & Mamun 2017).

The pursuit of economies of scale will influence the economic profits for the hot dog and burger business plan. The business’s goal, which is to make profits based on the large-scale deployment of resources, informs this strategy. For example, the business partners have suggested that the firm’s differentiation strategy should emerge from an innovative plan where students receive free deliveries during lunchtime. In addition, they proposed that customers should have cash discounts if they buy large quantities of food. Stemming from the fact that most existing businesses do not offer these services, there is a potential for expanding the economic profits of the businesses in the end (Perren & Kozinets 2018). This proposal should generate profits based on the large-scale implementation of the business plan. The goal is for students to buy products cheaply and the business owners to get profits from a marginal increase in prices. Therefore, the economic profit of the business depends on the projected high quantity of goods sold.

Opportunity Cost of Choosing Either Idea

The opportunity costs of pursuing one of the two proposed business plans depend on the variable expenditures of implementing both proposals. For example, the opportunity cost of pursuing the Middle Eastern-style confectionery business plan is the exclusion of other demographics as part of the target market. Stated differently, the business should appeal to a target market comprised of students only. Alternatively, the opportunity cost of implementing the hot dog and burger business plan is the exclusion of the non-student population. Similarly, there are existing efforts to popularise the business during specific times of the year when students are in session. This fixed time of operation limits the potential for making profits because it means there will be decreased sales when students are out of town (Perren & Kozinets 2018). Overall, the above-mentioned limitations define the opportunity cost for the proposed business plan. Figure 1 below shows how the opportunity cost for the business is derived.

Figure 1: The opportunity cost of hot dog and burger business plan (Adapted from Pettinger 2017).

An illustration of the burger and hot dog business plan in figure 1 above suggests that increasing the market size from 21 to 27 points would lead to a decrease in revenue from 22 to 18 points. Comparatively, reducing the market size (to only focus on students) leads to an increase in revenue from points B to A on the graph. This phenomenon could be explained by the rise in the cost of production due to market expansion or an increase in the price of supplying fresh hot dogs and burgers to a broader demographic located in multiple locations. These challenges explain why some businesses may resist growth or expansion because they may not have the resources needed to serve a wider market (Kjellberg & Olson 2017; Papaoikonomou & Alarcón 2017). The same logic also applies to the confectionary business plan because an increase in the market size of people who buy Middle Eastern products could lead to a rise in the cost of production.

When to Hire Staff

According to the findings of this business analysis, both types of proposed plans cannot accommodate new employees during the initial phases of the business cycle because of limited resources. Nonetheless, expanding the workforce poses several opportunities for growth and development, such as an increase in efficiency, better workflow management, and improved levels of client satisfaction (Williams & Needham 2016). Alternatively, hiring new workers could add to the business’s operating costs in terms of wages, additional costs of health insurance, employee training expenses, and unseen cost drivers (Williams & Needham 2016; Lingo & Elmes 2019; van der Borgh, de Jong & Nijssen 2019). Therefore, it is essential for managers to understand when to employ such a strategy because it should not increase the cost of doing business and suppress the profits (Suša Vugec, Tomičić-Pupek & Vukšić 2018).

Overall, the two proposed business plans should employ workers when the owners are opening new stores in different locations. This stage of business development should ideally be during the growth period (Castañeda 2017). Therefore, it is prudent to hire workers during this juncture of the business’s life cycle because the business owners would ideally have to delegate some managerial responsibilities to other people, as they would not be able to oversee the operations of all stores when the business is proliferating (Irwin 2015).

Conclusion

I would choose the burger and hot dog business plan over the Middle Eastern style confectionary proposal because the latter business framework is limited to Middle Eastern products. This product design inhibits access to a vast pool of customers. Therefore, the burger or hot dog business plan has a broader appeal to the student population, as opposed to the confectionary plan, which is dependent on the existence of customers who appreciate Middle Eastern foods. Consequently, having a burger or hot dog business has immense potential for growth relative to the confectionary plant. One adjustment that the proprietors can make to the hot dog business idea is the expansion of the target market to include students and other types of customers.

Reference List

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Pettinger, T 2017, Opportunity cost definition, Web.

Suša Vugec, D, Tomičić-Pupek, K & Vukšić, VB 2018, ‘Social business process management in practice: overcoming the limitations of the traditional business process management’, International Journal of Engineering Business Management, vol. 10, no. 1, pp. 12-36.

van der Borgh, M, de Jong, A & Nijssen, EJ 2019, ‘Balancing frontliners’ customer- and coworker-directed behaviors when serving business customers’, Journal of Service Research, vol. 4, no. 1, pp. 11-24.

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Yasser, QR & Mamun, AA 2017, ‘The impact of ownership concentration on firm performance: evidence from an emerging market’, Emerging Economy Studies, vol. 3, no. 1, pp. 34-53.

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