MGT 402 SEU Business Entrepreneurship & Small Business Management Questions

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College of Administrative and Financial Sciences Assignment 1 Course Name: Entrepreneurship and Small Student’s Name: Business Course Code: - MGT 402 Student’s ID Number: Semester: II CRN: 22029 Academic Year: 1440/1441 H For Instructor’s Use only Instructor’s Name: Dr.Noorjahan Sherfudeen Students’ Grade: Marks Obtained/Out of Level of Marks: High/Middle/Low Instructions – PLEASE READ THEM CAREFULLY • The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. • Assignments submitted through email will not be accepted. • Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page. • Students must mention question number clearly in their answer. • Late submission will NOT be accepted. • Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions. • All answered must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism). • Submissions without this cover page will NOT be accepted. Department of Business Administration Entrepreneurship and Small Business - MGT 402 Assignment 1 Marks: 5 Course Learning Outcomes: 1. Demonstrate a solid understanding of the potential of entrepreneur in today's competitive business world. (Lo 1.2). 2. Demonstrate ability to think independently and systematically on developing a viable business model (Lo 1.3 & 3.7). 3. Understand the place of small business in history and explore the strengths and weaknesses of small business. (Lo 1.1). Assignment – 1 Assignment Instructions and Approach: 1. Login to Saudi Digital Library (SDL). 2. Click on “Open Access” The search engine page will open 3. In search engine of SDL write the following title as keyword and click search button. “PKC Laundries: a start-up business at the crossroads” 4. 5. 6. 7. Open the research article, read it thoroughly and answer the assignment questions. Besides this research paper use other relevant material also to support your answers. Support your submission with further scientific references. Use Saudi Electronic University academic writing standards and APA style guidelines Assignment Questions: 1. Critically analyze the Problems faced by the young entrepreneurs and strategies to overcome those problems. (Marks 2) 2. Discuss the challenges of PKC as an aggregator business and the scope of what PKC can do in the future to strengthen its position. (Marks 2) 3. Discuss the various marketing management issues such as segmenting, targeting and positioning? (Marks 1) Answer: 1. 2. 3. Introduction Premanth Kundurthi and Chaitanya Ammeneni at a young age of 25 years were already wellentrenched into their laundry business since the past two years. In their business circle, everyone fondly referred to them as PK (Premnanth Kundurthi) and Chaitanya (Chaitanya Ammeneni), and their business venture named PKC Laundries was a take-off on their initials but to their customers it stood for Perfect Klinic for Clothes. It was in the year 2014 that PKC took shape as a brainchild of PK and Chaitanya, friends in college pursuing their MBA. For this idea, they had won the Young Entrepreneurs award in a Business Idea Competition hosted by a famous national level Business School in India. Although the business of providing laundry services was not new, yet the entrepreneurs had created a unique business model based on the emerging concept of an aggregator start-up with reliance on the IT technology platform. In the year 2015, they converted their idea into a reality: Washing clothes is one of the hectic tasks for everyone. We wanted to start a technology driven laundry service which would be just be a click away for everyone. We want to provide quality, cost effective quick and thrilling laundry services to all our customers, say the founders of PKC Laundries. Now in the year 2017, the promoters were concerned about their business. There were challenges involving the day-to-day operational problems of the business. They needed to come up with solutions regarding strengthening of their supply chain and creating and implementing robust business processes to ensure reliability of service and quality. The promoters had also to strategize and have a clear vision regarding the future of their business. They needed to examine ways to increase their market share and operating margin. They also needed to evaluate the options of increasing capital investment for backward integration of operations to reduce costs versus market expansion through the franchise route. Types and size of the laundry market in India Types of laundry services The business of washing clothes or laundering is as old as modern civilization where people with less time or interest in this mundane chore outsource it to a service provider. In India, the laundry market exists on four different levels and is different from the Laundromat concept of the West but similar in nature to the Dry Cleaning services. Traditionally, most of the households in India still wash and iron their clothes at home. Many a time, a housemaid is engaged to do the washing and sometimes even ironing. For a little more expenditure, a “dhobi” (Hindi word for a washer-man) can pick up clothes from home for washing and ironing. The Dhobi provides this service in the unorganized sector as an individual, and his business is limited to the particular locality he serves. His quality of ironing is better than that at home due to the heavier ironing machine used. At the third level are the laundry shops. The customers have to drop off their clothes for washing and ironing and pick them up later. This service is available mainly in the metropolitan areas in very few localities and is costlier than a dhobi but still preferred by many due to the trust in a business establishment. At the top end of the spectrum are the dry cleaning shops which use petrol wash and chemical wash to dry clean the clothes and then steam iron them. This is a premium priced service and preferred only for certain types of clothes like special occasion or party wear or special fabrics like silks and woolens. These traditional laundry business formats are referred to as “off-line business” to distinguish them from the web based businesses which are called on-line laundry services (Exhibit 1). Market potential As laundry is a necessary chore for every household, it is one of the markets which is least affected by economic ups and downs. Even during a recessionary trend people could hesitate to buy clothes but would not want to avoid spending money to keep their existing clothing neat and tidy. Hence, the market for laundry in India has always been growing, and according to euro Monitor International Report, 2015, it has been estimated at Rs 220,000 crore (Rs 2,200bn). The laundry industry which is fragmented has around 767,000 establishments, 98 per cent of which are micro-level Laundries with fewer than ten workers (Choudhury, 2015). Praveen Sinha, founder, Jabong, an e-commerce portal and an investor in an on-line laundry service named Wassup India, is of the opinion that 2 to 3 per cent of the entire laundry market is organized, and out of this, 25 per cent of the business will be online as a large number of middle class families are now preferring at-your-doorstep laundry services, which are of good quality and hygienic (Chodhury, 2015). As such the demand for organized laundry is on the rise and organized players are giving the neighbourhood dhobis a run for their money. The increasing demand for laundry services has also paved the way for global players to enter the Indian market, thus creating a scope for the Indian laundry market to grow bigger and become more quality conscious (Chakravorthy, 2009). The laundry business model is changing due to wide usage of smart phones and easy availability of IT-enabled platforms resulting in an increase in number of online startups. “Household and personal services, including laundry, lack professionalism and accountability in India”, says Nishanti Tripathi founder Dhobilite, another online laundry service. He opines that “doing laundry is a necessity and a time consuming chore, hence providing laundry services to people who value convenience and quality will work”. Many youngsters are all set to disrupt the laundry market with their startups of online services and are bringing in the necessary professionalism to the laundry market. As such, the requirement for on demand services is gaining impetus across various cities of India, and Hyderabad city is no exception to it. Online services are considered to be the future to deliver goods and services to the customers (Tiwari, 2016). Several parameters that are driving entrepreneurs to go for online laundry services are as follows: • Owing to fast and wide spread information technology in India, consumer-oriented services have been accelerated. • Be it grocery, food, doctor services or household services, there is a rise in on-demand services owing to fast changing demographics of customers. • Difficulty in getting specialized wash care, unavailability of maids has made the customer’s look for alternative services. • Unavailability of one stop solution for all laundry needs is driving customers to go for online services. Online laundry services sometimes referred to as on-demand startups are slowly picking up in India. They work on the principle of aggregation, i.e. they hire delivery professionals and partner with local dhobis to do the laundry. The benefits of on-demand laundry include washed and dry-cleaned clothes being delivered right at the door step of the customer. Vendors too gain since their additional costs and time for pickup and delivery is significantly reduced. The entrepreneurs PK and Chaitanya although good friends since five years are poles apart in their personalities and in their approach to business but compliment each other’s strength. Chaitanya, is the workaholic strategist and visionary, who appears reserved but is always available for all back-end support. In contrast, PK is a gregarious chatter box. His out-going friendly manner endears him to a lot of people thus he handles the people part of the business by taking care of the entire business development. However, what had initially drawn the two together was their similar background. Both were Mechanical Engineers from middle class families with their fathers in Government Service, which meant limited financial support and knowledge in the running of a business. Both loved technology and would spend hours discussing applying information technology to business situations. About the company The founders claim that PKC Laundries is a first of its kind in Hyderabad, India. PKC is a technology-driven laundry service that provides a platform for the vendors and customers. The founders say that they have a solution for all clothing related issues. As to how they zeroed in to this business they commented, “People are always running for three generic necessities which are Roti (Bread), Kapda (Clothes) and Makaan (House). There are enough services that cater to food and housing but the ‘kapda’ sector is a highly untapped sector and with PKC we wish to change the outlook of people about the laundry industry” (Das, 2016). PK and Chaitanya feel that their USP is their uncompromising attitude towards quality. They vouch for quality being their top priority and promise that there will not be any more misplaced clothes or colour bleeding of clothes. The promoters also feel that they are being philanthropic and socially responsible in running their business. According to PK, 21.9 per cent of India’s population is living below the poverty line (BPL), and the average income of a BPL person is Rs 33 per day. By providing self-employment to their vendors who are mainly from the BPL segment, they feel they are able to increase their income to at least Rs 333 per day, thus uplifting few of the BPL segment. The PKC Laundries business model Mission and vision PK and Chaitanya, while deciding about their business of PKC Laundries, were driven by a single thought which was to enter a business in which demand would not wane. The Indian psyche considers the bare necessities of life as essential and sacrosanct and Indians strive to take care of their needs of Roti (bread), Kapada (clothing) and Makaan (shelter) in that order. To enter any food-related (Roti) business venture was ruled out early-on due to its perishable nature. Clothing appealed to them but again their strength was not in fashion or clothes designing, so being Mechanical Engineers they chose to enter the business of maintenance of clothes. Their mission was to offer technology-driven laundry service which would just be a click away for everyone. Thus, they had created a business without owning or managing back end assets or operations. After on-boarding customers they would pass on the clothes for processing as per the customers’ orders to their different vendors. Their investment was in a website, three small covered delivery vans and rented rooms. These rooms were located in three zones within Hyderabad city. The rooms were part of the back-end operations and provided a place for the delivery boys to segregate the clothes. Their vision for PKC Laundries was reflected in the line “You Care Your Family; We Care Your Fabric” which was prominently displayed on the home page of PKC Laundries website. Beside this was a welcome message from the founders PK and Chaitanya “we want to provide quality and cost effective laundry services to all our customers.” The services offered by the company include: washing; washing and ironing; only ironing; dry-cleaning; dyeing, darning, rolling and polishing. They concentrate on apartments, gated communities and group houses to scout for their customers, as finding a laundry service provider is a tedious task in these areas. The main features that PKC are banking on are affordable prices; quick and easy access; free pickup and delivery; and 100 per cent quality assurance. The aggregator business A start-up is considered as an entrepreneurial venture in the small and medium enterprise (SME) business segment. The Government of India is encouraging start-ups and under its “Make in India” mission mentions that “Start-up India initiative is designed to foster innovation, create jobs and facilitate investment. Government is committed to make this initiative a scalable reality and to provide an environment for our start-ups to thrive in”. So this is the age of start-ups. Most of the start-ups are driven by the opportunities presented in the e-commerce segment based on the IT platform of the convenience of apps on smart phones and websites on computers and modelled around aggregating demand by increasing the on-boarding of customers and being asset light. It meant doing business without owning the necessary assets for creating the good or service but relying on third party vendors to meet the customer demand. Essentially, a start-up aggregator business is seen as one of merely coordinating various business functions without actually creating the asset pool to sustain it but relying on other peoples’ assets. PKC Laundries is built along this aggregator model. Their aim is to bring vendors and clients on to the same platform. PKC business process The startups business model is lean and simple. For the domestic retail customer, pick-upand-drop service for clothes is done in multiple ways to suit the customers’ convenience. Delivery boys visit the customer at home or the customer drops the clothes for servicing at designated places inside gated communities during fixed time slots or at alliance shops and boutiques. The services offered by PKC can be accessed through their website, APP, WhatsApp, Facebook page or over phone. The clothes to be serviced are bagged immediately on receiving from the customer and given a number as per the acknowledgement receipt generated or as per the monthly package membership number. Thereafter, all the bags are dispatched to the nearest processing hub. At the processing hub, the bags are opened and individual items of clothing are tagged with radio frequency identification design codes to ensure no mix-up during the process of cleaning and processing. In fact, PKC Laundries has invested a substantial amount in acquiring and integrating the RFID technology in their operations. Once tagged the clothes are sent to the relevant vendor as per the service demanded. After the clothes are back from the vendors, they are again segregated according to the address of customer and the concerned delivery boys then deliver them at the designated locations (Exhibit 2). The back-end: To provide the necessary back-end support PKC Laundries had tied up with dhobis (washer men), laundry shops and dry cleaners within their three zones of operations. To ensure consistent and superior cleaning, PKC Laundries insisted that dhobis and the laundry shops use only the detergents and chemicals that they supplied. Within six months of dealing with the unorganized sector of Dhobis PKC had to deal with their lack of commitment to timely deliveries or quality output. Hence, they had, on an experimental basis, created their own inhouse team of two families to have better control on the operations. Each team consisted of a husband and wife who would both work to finish the tasks of the day. They were brought in from the neighbouring State of Orissa known for its workmen’s positive attitude to work in the service and hospitality industry. These two families were provided housing accommodation in apartments which also served as their workplace. So PKC was operating both the systems in parallel – the existing vendor base along with the experimental in-house labour. USP of the business model A laundry business to be set up on a scale of business similar to PKC Laundries in the organized sector would require heavy investments in a clothes cleaning factory installed with all the requisite equipment, machinery, manpower and vehicles for pick-up and delivery as well as marketing costs associated with promotional launch and marketing campaign. During an interview with Chaitanya, he had confided that had they not taken the aggregator route they would have had to consider a project investment of more than Rs 5 crores (Rs 50m). As against this they had managed an equivalent output with an investment of Rs 10 lakhs (Rs 1m) which was a fraction of the total investment needed. They had easily managed this small capital investment out of their own funds without going in for any loans or borrowings. The team The operations are handled by a team of 30 employees including the promoters. PK is the CEO and Chaitanya is the COO and under them they have a team of two managers designated as operations manager and marketing manager. The Operations manager’s team has two operations executives and 21 delivery boys, whereas the marketing manager has an executive assistant and two telecallers reporting to him. Chaitanya has the conviction that “A team is an absolute necessity for a task to be accomplished. Nothing can be done single handedly and I do not believe in terms like ‘one man army’”. He firmly believes that “If we keep motivating them (employees); they will work wonders for your company”. Market competition Presently in Hyderabad city, PKC Laundries has no direct competitors in the online laundry service. They faced little competition from Wassup Laundry Service which had its presence in six other cities as well and Laundry Shine, both of them were not based on aggregator model. Another firm S-Bricks was primarily providing handyman services for houses and laundry service was just another service in their bouquet of services offered. As such the image of S-Bricks did not affect the business of PKC Laundries. Another firm which was a start-up similar to PKC had folded up about nine months back after trying their hand at the business for nearly 20 months. The main competition faced by PKC Laundries was from the conventional off-line service providers in this field where services provided by dhobis for daily usage clothes were cheaper by almost 50 per cent (Exhibit 6). Target market Hyderabad city has grown into a sprawling 650 square kilometers area with a population of more than 10 million people (Kumar, 2016). The Western part of the city is where the growth had occurred due to the boom in the IT sector. Not only had it led to the creation of commercial built space for the offices and commercial establishments but it also triggered a humongous requirement for residential built space to cater to the housing needs of these young IT sector professionals. This resulted in ripple effect growth in the real estate sector where all kind of up market housing was created and the most popular were the gated community living, multi-tower high rise apartments and luxury villas. Such real estate developments had anywhere from 200 to 700 families living in them; hence, they became the first target market for PKC Laundries. After selling the concept of value addition for the residents through the facilities managers of these housing units, PKC Laundries forged strategic alliances to gain exclusive rights to service the residents. They would then set up a temporary pickup kiosk (Exhibit 2) in these housing areas. When the Eastern and Northern part of the city witnessed development, PKC quickly made its services available in these zones of the city as well. The three zones were 12 to 20 kilometers apart. In each zone, they set up two kiosks. The profile of PKC customers is that they are highly educated and have higher incomes, and in the upper middle class segment, many are double income families and thus have increased disposable incomes. They are more conscious about getting value for their time rather than value for their money. A Harvard study about Indian professionals stated that they are young and with higher disposable incomes hanker after materialistic goals. This is typical of most Indian professionals like lawyers, doctors, engineers, bankers, consultants and many others. For most of them, life’s pleasures have gained more importance. With a five-day work week, these professionals have higher time for leisure, entertainment and socializing. A lifestyle which demands the need to keep up appearances, in turn fuels the demand for good clothes and personal grooming. This leaves them with little or no time to attend to the usual weekend chores; including doing the laundry. Another driving factor for the demand is the increasing paucity of house maids in urban metros and attendant problems of their frequent absenteeism and high wages demanded by them. It is this gap that PK and Chaitanya have chosen to exploit. PKC has another set of customers. These are business establishments, i.e. PKC even served the B2B clientele. Their commercial clients include: hotels and resorts; spas and educational institutions. Sales revenue At the end of the second year of operations, for its retail consumer segment, PKC Laundries was servicing on an average about 25 plus orders per day which translated to about 300 clothes per day with a per order average ticket size of Rs 500. PKC Laundries’ commercial business segment was contributing 50 per cent of its revenue in their monthly revenue of Rs 650000-700000 (Exhibit 5). In its retail segment although PKC was servicing 25 orders per day on an average, it got 40 per cent of its retail revenue on weekends alone. Under their offer of “we have a plan for everyone” PKC Laundries offered three services categorized as Basic, Classic and Elite. The basic service covered only ironing of clothes, the classic service covered both washing and ironing of clothes and the elite service covered the dry cleaning of clothes. An additional service offered at an additional price point was starching the clothes. They charge their customers on per piece basis or per order basis (Exhibit 4). They also have a subscription model where customers can pay 50 per cent of the charges upfront and the remaining 50 per cent at the end of their monthly plan. For their commercial segment, the pricing was customized based on the ticket size and the add-ons required. For example, the spas wanted their towels and bed sheets to be especially scented, the resorts wanted a special sanitized packaging for their bath and hand towels. The commercial business was generated from seven spas, four hotels and resorts and seven student hostels having 2,700 students. According to the founders, “Financial year 2016-2017 was a very special year as we have completed one full year of our operations of PKC Laundries. Learnt a lot of things and a big thanks to all our vendors, suppliers, customers and especially our team who made us successful”. Costs and operating margin At PKC, 60 per cent per cent of the revenue collected was the expense incurred for payments to the vendors for processing the clothes. Another 15 per cent was spent on salaries, rents, electricity, website maintenance, internet charges, fuel, vehicle repairs and other similar overheads. A major direct cost in this was that for pickup and delivery calculated at Rs 100 per order amounting to another 10 per cent of expenses. As such all these expenses left PKC Laundries with a gross margin of 15 per cent only (Exhibit 5). Opportunities and challenges Laundry business is considered to be one of the best ideas for a start-up owing to its nominal investment, low entry barriers, huge markets and good returns. But it comes up with its own set of challenges. At present, the laundry market is dominated by many offline players; majority of whom are unorganized. The pricing by the unorganized sector is perceived as affordable by the middle class and upper middle class consumers. On the other hand, organized players mainly cater to the need of premium segments and offer only premium services. These price points are not acceptable to the larger masses. Hence, start-ups in the online laundry business are trying to fill this gap by offering comprehensive solutions at affordable prices (Choudhury, 2015). Challenges faced by PKC Laundries As the on-line laundry business can be built up with nominal capital and has a huge neighbourhood market, it offers reasonably good returns which makes the business lucrative. Even then, PKC has to sail through a large number of challenges, some of them are as follows: • The main challenge in the retail segment is to find a customer base that is ready to pay a higher price for convenience and in the commercial segment is to find customers which have high volume business. This is because, though the customer prefers higher quality laundry services and likes to have the laundry delivered to their homes, their willingness to pay extra for it is unlikely. The enormity of this challenge to PKC promoters is reflected in their oft repeated quote “It’s easy to impress anyone with words but it’s hard to show them the reality of a high quality good service”. • The business is dependent on aggregating the local vendors, who appear demanding and exploitative at times. Consolidating and attracting the local dhobis to tie-up with the on demand laundry services is a herculean task. Apart from that getting skilled labour is also a major challenge. • • The laundry business requires managing of many processes that cannot be isolated from human intervention and high customer expectations. Hence customizing the services and making them error free is a great challenge. Handling the daily pick up and drop is a nightmare in logistics. The most common problems faced daily are heavy traffic, customer not at home during delivery or pick up, insufficient delivery team and time management. Strategies adopted by PKC In our two years of operations so far we have adopted many strategies and made many tie ups with various entities like Villas, Gated communities, Spas, Boutiques, Commercial services. Every experience has empowered us and taught us many lessons; some even costly but our motivation has not faltered and now we are coming up with a strategy that is already in place in a new way just like “Old wine in a new bottle”. Traditional laundry business is a labour- and capital-intensive business with high expenses of operations and logistics. Hence, investors shy away from investing in this industry and those who had invested also burnt their hands and came out of the business at the earliest. In contrast, PKC Laundries, as an on-line start-up is slowly picking up and making a profit of around Rs 100,000 per month. As of now, the company is exponentially growing without seeking the help of any venture capitalist (VC) and eagerly waiting to launch its business in other states. PKC which gives utmost importance to quality strives to see a happy customer. PKC believes that to run a successful laundry business, it is important to listen to your customers’ requests patiently, and act on them quickly as this will ensure the growth of the company (Kumar, 2016). PK says that “delivery executives are the face of the company as they are the ones who interact with the clients.” The company ensures that these executives are well groomed and attend to their clients’ needs with utmost care. They make their customer’s feel like a king. This strategy has helped PKC Laundries to grow organically, owing to the word of mouth marketing. Growth strategy and concerns for the road ahead During a review meeting, PK and Chaitanya were discussing the future of their business. Chaitanya suggested scaling up the operations, getting funding through Series-A fund (Series-A fund is given when the new venture starts generating revenue from its business model) which would enhance their technology and also strengthen their back-end operations by asset creation of a fully automated factory with imported machinery and equipment. With detailed calculations, he tried to convince PK of the benefits this decision would bring including growing the business at least ten times the current turnover and a higher gross margin of 25 per cent as against the existing 15 per cent gross margin. PK however had ideas of his own. He was in a hurry to see the business grow and expressed that funding and setting up a processing plant would require two to three years, and they would lose advantage to other existing start-ups and new competition that was bound to come up. He felt that the way forward was with aggressive marketing and strengthening the existing back-end model of conducting the business. He was not averse to getting some funding but opined that this money should be spent on a marketing campaign and growth into other cities. He argued that rapid growth could be achieved just as Pick My Laundry had done. He stated market acquisition was the only way forward even if profits had to be sacrificed and cited the example of Uber cabs, Flipkart and Amazon as giants who were getting funding solely on the strength of their market size and had yet to turn in profits. To emphasize his point of view PK also suggested that within no time they could be selling their franchises to other budding start-ups and earns additional revenues from that as well. With no concrete decision taken, the meeting was inconclusive.
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Question 1:
a. Limited capital.
Premanth Kundurthi and Chaitanya, as a young entrepreneur, had a good business idea that
required them to have enough capital. The two were from middle-class families resulted in
limited capital/ financial support to run the entire business, which is a vital requirement in any
business.
Strategy:
The entrepreneur to evaluate the options of increasing capital investment for backward
integration of operations to reduce costs versus market expansion.
b. Limited knowledge to run a business.
The two young entrepreneurs were engineers by profession and not business people. For this
reason, their knowledge ideologies in the sector of business were inadequate.
Strategy:
They spent their time to discuss how to apply information technology to business situations.
c. Varied personalities.
Two or more people joining hands in business may differ in character. A similar background
drew PK and Chaitanya together to start a business. Although good friends for about five years,
PK and Chaitanya were had different personalities and approaches to business ideologies. For
instance, Chaitanya is a workaholic strategist and visionary, who appears reserved but is...


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