Elegant Furniture Case
Chimanbhai Mehta is a successful cloth trader from Ahemdabad and wants his son Aditya - who has graduated from a leading business school in India - to start a new business. His only condition is that the business should be profitable and sustainable. Chimanbhai said;
“Of late they Parvez and I have been discussing that it has now become fashionable even among the middle class to spend on interior decoration. In the olden days people used to buy flats late in life and then continued to accumulate furniture to decorate it over time. But now things have changed. Organized builders have come into the field and loans are available for asking. These days people begin interiors even before they move into the house.
After thinking over this for some time, Aditya went to his father one day and said;
“Father, I think getting into modular kitchens will be a good idea. I have observed from the history of Indian market that the Indian customer is open to accepting gadgets and conveniences for her kitchen first. The turn of other rooms like hall, bathroom and bedroom comes only later. This happened for cooking gas, mixies, fridges, microwaves, chimneys ... There was no reason why it should not happen again for modular kitchens.”
Chimanbhai agreed and soon a company called Elegant Furniture was formed.
Soon after this, the question of applying for a bank loan came up. When Chimanbhai and Aditya met Naveen Shah, the manager of Indian Bank, who stayed in the same building as theirs, this is what he said;
“Do not treat making of the application for financing as a “financial exercise”. These days we do not judge applications from new ventures based only by financial criteria (like “days of inventory”, “Creditor days”, “Operating Margin”) but more by the soundness of the business plan supporting the application. We want to see the quality of management thinking that will go into the business plan because, without sound management, the financial projections will turn out to be a mere calculator exercise and is not likely to result into a worthwhile business output. For example, there may be several ways of organizing your sales function or promoting your product, - we want to know why you have chosen to do this in particular way? Why you have not chosen other ways? ”
Faced with the task of having to make a plan – including organizing sales function and sales promotion - Aditya proposed some market research be carried out so that the plan could be made on a surer footing. The father did not like the idea:
“I don’t think that is the right way to start a business when you have no income. You will learn everything that is there to learn by being in business and not by making questionnaires.”
Nevertheless Chimanbhai let it pass and Aditya appointed a market research agency to conduct a survey at the cost of Rs 2.3 lakhs. After 2 months, Aditya got the following heads-up from the agency:
1. 65% of the spending on kitchens is for “new kitchens” and the rest is for remodelling existing kitchens. .
2. Of the spending on new kitchens, 50% is on cabinetry , 35% on gadgets and 15% civil work.
3. For re-modelling of existing kitchens, 60% is spent on cabinetry, 20% on gadgets, and 20% civil work
4. 70% of the cabinetry business goes to local carpenters and 30% are ready made kitchens
5. The gadgets business goes to retail stores
6. Civil work business goes to small time contractors
7. Most customers are not too sure if they are paying a good price for the work done by carpenters . They are also not happy with the finish of the work carried out by small time carpenters and civil contractors.
8. Fitted kitchen decision is expensive and therefore people want to see photos and demos of the kitchens supplied and also get many questions answered before they give order.
After seeing it, Chimanbhai exploded;
“Is that it? This scrap of paper ? With these few stupid lines for 2.3 Lakhs? Aditya, each line costed you Rs 30,000 – was it worth it? I do not really know what you are going to do with all this. How is this going to help you make a business plan? At 10% of this cost we could have taken the whole Shah family out for a dinner to the best 5 star hotel.”
How far can Aditya use this information to organize his marketing ?
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Elegant Furniture Case
Chimanbhai Mehta, a successful cloth
trader from Ahemdabad, put his son Aditya
through a leading business school in India so that he could start a new
business. They were looking for a suitable market to invest in. After looking at
so many different options, they chose to start a furniture business. Chimanbhai
said;
“Ahmedabad
is no more the peaceful and laid back city it used to be. Buildings and malls
and flats are coming up everywhere. It was during a morning walk that I hit upon
the idea of getting into furniture business. It is now fashionable even among
the middle class to spend on furniture and decoration. In the olden days people
used to buy flats late in life and then continued to accumulate furniture to
decorate it over time. But now things have changed. Organized builders have
come into the field and loans are available for asking from the banks.”
After thinking over this for some time, Aditya
went to his father one day and said;
“Father, I think getting into modular
kitchens will be a good idea. I have observed from the history of Indian market
that the Indian customer is open to accepting gadgets and conveniences for her kitchen
first. The turn of other rooms like hall,
bathroom and bedroom comes only later. This happened for cooking gas,
mixies, fridges, microwaves, chimneys
... There was no reason why it should not happen again for modular kitchens.”
Chimanbhai
agreed and soon a company called Elegant Furniture was formed. Soon after this,
the question of applying for a bank loan came up. When Chimanbhai and Aditya met Naveen Shah, the
manager of Indian Bank, who stayed in the same building as theirs, this is what
he said;
“Do
not treat making of the application for financing as a “financial exercise”.
These days we do not judge applications from new ventures based only by
financial criteria (like “days of inventory”, “Creditor days”, “Operating
Margin”) but more by the soundness of
the business plan supporting the application. We want to see the quality of
management thinking that will go into the business plan because, without sound
management, the financial projections will turn out to be a mere calculator
exercise and is not likely to result into a worthwhile business output. For
example, there may be several ways of organizing your sales function or
promoting your product, - we want to know why you have chosen to do this in
particular way? Why you have not chosen
other ways? ”
Faced with the task of having to make a
plan – including organizing sales function and sales promotion - Aditya
proposed some market research be carried out so that the plan could be made on
a surer footing. The father did not like the idea:
“I don’t think that is the right way to
start a business when you have no income. You will learn everything that is
there to learn by being in business and not by making questionnaires.”
Nevertheless Chimanbhai let it pass and
Aditya appointed a market research agency to conduct a survey at the cost of Rs
2.3 lakhs. After 2 months, Aditya got the following heads-up from the agency:
1. 65% of
the spending on
kitchens is for
“new kitchens” and the rest is
for remodelling existing kitchens. .
2. Of
the spending on new kitchens, 50% is on
cabinetry , 35% on
gadgets and 15% civil work.
3. For re-modelling of
existing kitchens, 60% is spent on
cabinetry, 20% on
gadgets, and 20% civil
work
4. 70%
of the cabinetry business goes to local carpenters
and 30%
are ready made kitchens
5. The gadgets business goes to retail stores
6. Civil work business goes to small time
contractors
7. Most customers
are not too
sure if they
are paying a
good price for
the work done
by carpenters . They
are also not
happy with the
finish of the
work carried out by small
time carpenters and
civil contractors.
8. Fitted
kitchen decision is expensive and therefore people want to see photos and demos
of the kitchens supplied and also get many questions answered before they give
order.
After seeing it, Chimanbhai exploded;
“Is that it? This scrap of paper ? With
these few stupid lines for 2.3 Lakhs? Aditya, each line costed you Rs 30,000 –
was it worth it? I do not really know what you are going to do with all this.
How is this going to help you make a business plan? At 10% of this cost we
could have taken the whole Shah family out for a dinner to the best 5 star
hotel.”
How far can Aditya use this information to organize his marketing ? His
Value Proposition and his Go-To-Market strategy ?
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