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Kaplan MT499 unit 1 discussion




Question;Susan: Hi, I am Susan and my friends Frank, Jimmy, and I have been friends sincechildhood. We lived in the same neighborhood and attended the same elementary andhigh schools in Detroit, Michigan. We worked at a local automotive parts plant, althoughwe were unemployed due to a "headcount reduction" at our plant.In the past, we have had many conversations about starting a carpet cleaning business,considering we all have experience working in carpet cleaning organizations in Detroit.One day, I called Frank and Jimmy to meet for lunch and discuss the possibilities ofopening a carpet cleaning company. During lunch, we decided to open a small carpetcleaning business, and spent several hours discussing plans to start the business.Frank, Jimmy, and I scheduled a meeting with my father to discuss our plans to start acarpet cleaning company and ask for a loan. The carpet cleaning company wouldprovide carpet cleaning services to home owners, numerous apartment complexes, andbusinesses located throughout the city of Detroit, Michigan, and the surroundingcommunities. To differentiate our carpet cleaning company from others in the Detroitarea, we decided to use environmental friendly, non-toxic cleaning agents and offer freeestimates for carpet cleaning. We estimated needing $25,000 in startup capital to fundthe business.The following is a breakdown of our estimated startup capital:Used carpet cleaning van with installed carpet cleaning equipment: $11,000Used portable carpet cleaning machine, hoses, wands, sprayers, and additionalequipment: $4,000Internet, computer, fax, printer, phone, website, business license, registration,and business insurance: $5,000Cash budget for miscellaneous costs: $5,000Total Startup Capital: $25,000With a little prodding, my father agreed to give us a three-year $25,000 loan with aninterest rate of 8.5%. Our business model was very simple. We entered into a three-waypartnership, with me managing the office and Frank and Jimmy performing the carpetcleaning services. Our marketing plan included word of mouth referrals, a website, andusing flyers and brochures I created in our office (a small office in my father?s garage). Indetermining our prices and services, we researched carpet cleaning companies in theDetroit area. Due to a saturated market of carpet cleaning companies, we decided tooffer prices 20% lower than our competitors? prices to create customer demand for ourcarpet cleaning services.During the first couple of weeks, we only received a few phone calls from homeowners,although in the third and fourth week, the calls from homeowners picked up andapartment complex managers began to call to request carpet-cleaning services for 1, 2,and 3 bedroom units. Soon we were booked up for weeks in advance.What was originally designed to be a Monday through Friday 8 to 5 operation, turnedinto a 7-day business averaging between 12-14hours per day. Frank and Jimmy couldnot keep up with the number of requests for carpet cleaning, we had serious mechanicalproblems with the engine in the carpet cleaning van, and our cleaning equipment wasconstantly in repair. In addition, we were spending too much time conducting freeestimates when the clients did not purchase our carpet cleaning service. Customersbegan to make complaints concerning the quality of our service, missed appointments,and poor customer service.Frank, Jimmy, and I were exhausted in attempting to provide quality services on a dailybasis. Our company, Clean-Air Carpet Cleaning produced a profit in the third and fourthquarter, however, we decided to close the Clean-Air Carpet Cleaning Company after oneyear in business.What critical errors do you see in the initial planning phase of the Clean-Air Carpet Cleaning Company?What economic factors do you think Susan, Frank, and Jimmy should have included in their plans for the Clean-Air Carpet Cleaning Company?What operational improvements would you have suggested for the Clean-Air Carpet Cleaning Company?What do you think were the main factors contributing to the failure of the Clean-Air Carpet Cleaning Company?


Paper#45994 | Written in 18-Jul-2015

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