To Build or To Buy?

build-or-buy

To B or not to B? … is another question arising, during our ongoing research, to which we need to find an answer.

While we analyse and finalise the business concept and the preferred location, we also need to evaluate whether we buy a going concern, or build a business from the ground up.

Our aim, like any good entrepreneur is to minimise risk, preserve cash while growing the profit line.

While both building or buying have pros and cons, we believe that free Cash Flow is likely to be the final deciding factor. Let’s explore these options together.

 

To Build

To build top pros as we see them include:

  • Find the preferred location.
  • Establish the exact concept as we envisage it.
  • Have control and full visibility from the outset.

To build top cons as we see them include:

  • Bureaucracy with various business registrations and licensing.
  • Recruiting and training of staff.
  • Establish suppliers and supply logistics.

 

To Buy:

To buy top pros as we see them include:

  • Business registrations, leases and licenses in place.
  • Staff would be available and supply mechanism in place.
  • Income in generated form day one.

To buy top cons as we see them include:

  • While we intend to conduct a thorough due diligence, problems could be hidden.
  • The location and concept may not be quite what we had in mind requiring additional investment to make it so.
  • Depending how how the deal is struck, a large cash flow dent will be made at the outset to purchase a business.

 

When it comes to making this decision, every Build vs Buy opportunity will need be evaluate on its own merits. Potential purchases will need to undergo a thorough due diligence with the best possible deal structure … that is pay “as late as possible” … entrepreneurship 101 J.

These are then compared to what it will take to build the business we want from scratch. The comparison should include cash flow forecast, profit generation and break-even analysis. In addition, the likelihood of success and impact of various risks need to be considered.

So, let’s see what we do, Build or Buy? J

What else do you think we should consider?

Ciao for now

Pietro & Eltje

The Chill Concept

concept Filter

In the previous post we shared how we are going about finding the right spot for PeanieSutra. When we have a location, we need a business concept. After all, the right location without a business ain’t gonna give us the lifestyle we are looking for.

In this post we will describe the approach we are using to hone in on the right concept. Our business concepts include:

  • A Lounge Bar
  • A Fitness and Water Sport Centre
  • A Boutique Hotel / Resort
  • Write Travel Reports (Articles and Photography)
  • A combination of any of the above

To select the final business concept, we are undertaking two sequential analysis phases. The first to prioritise the concept, and the second to use market data to select the final concept.

To prioritise the business concepts, we attempt to score each concept based on our and its “capability” by using four criteria. These are:

  • Our Own Competencies to succeed
  • The Investment required: initial and ongoing
  • The Life Cycle of the concept
  • Can it provide the Life Style we require?

To prioritise the concept based on these criteria we adopt a similar approach as with identifying the right location. We:

  1. Weight each of the 9 criteria. That is, not all criteria are equal, so a 100 points is distributed across the 9 criteria.
  2. Score each concept against each criteria on a scale of 1-10, where 10 = highest.
  3. Give a confidence level for the quality of the estimation given to each criteria. 100 = 100% confident that the data is correct.
  4. The number for the three points are multiplied (1 x 2 x 3 = index score) and tallied up.

The concept with the higher scores are taken through the the final phase to select the best one

This we do by determining the “attractiveness” of the top business concepts. To do so, we gather data and information on the following two criteria by selected location.

  • Size of the Market Demand
  • Competitive Activity
  • Our Competitive Advantage (value proposition)

Once the facts are ascertained, we follow much the same approach as with selecting a location and prioritising concept. That is, we weight the selection criteria, rate our confidence on the data gathered, and score each concept by location against the criteria.

Once we complete the analysis we will post the results.

Tell us  … So what do you think of our approach published in this and the previous posts on how we are going about to identify a location and final business concept?

Locating PeanieSutra

location-location-location

So where should we locate PeanieSutra?

Some commercial guru once said that there are three key success factors to winning in the  consumer business, these are three …. location, location, location.

Having only travel within and never lived in any of the countries we intend to establish a business, we surely have our task cut out for us. Not only doe we need the right street location, we need to first identify the country that is best for our business concept.

In fact, in our case, location can be divided into three categories:

  1. Country
  2. Area / Town
  3. Street / Beach

This means we have to obtain and analyse data and information from a macro through to the micro level. Fortunately, and thank god, the internet goes long way to get this done.

You may be wondering what data and information (facts) we are gathering. And secondly how do we go about analysing it.

Okay, so first let’s explore the facts that we are gathering. At the moment we are focussed on reducing a preselected shortlist of countries down to a prioritised 2 or 3.

To aid this process of identifying a suitable country we gather the following information and facts:

  1. Social: Population, Population growth, tourism and tourism growth
  2. Economic: Gross Domestic product and growth rate, inflation rate
  3. Tax: Business-, personal-, and sales tax
  4. Ownership law: Business and property
  5. Business environment: Ease of doing business
  6. Environmental Risk: Cyclone, Tsunami, Earthquake history and predications
  7. Financial Risk: Money laundering/terrorist financing risks, Corruption risks, Governance related risks, Narcotics Major List, Financial transparency risks
  8. Political Stability
  9. Work Ethic

Once we have a country, we need to zoom into identifying specific areas / towns. For this we gather the following information and facts:

  1. Population density
  2. Tourism numbers: visitors, length of stay, accommodation, existing facilities
  3. Current Infrastructure: roads, buildings, communication, internet
  4. Planned Infrastructure
  5. Accessibility: ports, suppliers, medical and hospitals

In the town/area we need a specific street / beach location. This dependent on:

  1. Access to target market: Walk by traffic
  2. Availability, state and cost for buildings / space

Once we have the facts, or even during the gathering process, we score the locations against each criteria. For example, at the country level.

  1. Each of the 9 criteria are weighted. That is, not all criteria are equal, so a 100 points is distributed across the 9 criteria.
  2. A confidence level is given to the quality of the facts gathered for each criteria. 100 = 100% confident that the data is correct.
  3. Then each country receives a score, relative to the other countries and our own expectations, on a scale of 1-10, where 10 = excellent.
  4. The number for the three points are multiplied (1 x 2 x 3 = index score) and tallied up. The country with the highest score is the preferred one.

The current standing, after 65% of the analysis completed, sees the following Island States in the running:

  1. The Cook Islands
  2. Vanuatu
  3. Fiji
  4. Tonga
  5. French Polynesia

Okay, so that is the science behind identifying the right location. How do we bring in intuition, which we believe has a key role to play in entrepreneurship?

Even when gathering the best available data and information, we still lack the first hand feel for the location. For this we need to go to ground zero … stay tuned … in due course will bring you the result of the analysis followed by live reporting when we visit the selected locations around April / May 2016.

In the next post we will chat about how we are filtering our business concept ideas.

Real? Win? Worth?

Which way to go

Many of you have asked what we busy with at the moment.

As you can image, to launch a new venture in a foreign country requires extra research. Currently we have an idea. This idea is very much driven by passion and a vision … two absolutely key ingredients to the eventual success of anything, new of old.

However, we are two practical individuals with extensive business experience, so we know we need to test the viability of this idea. How do we approach this?

We have what is called a Real-Win-Worth analysis. This means, we gather facts and data to verify the:

  • reality of the concept. That is, is it realistic?
  • our ability to win with this idea. That is, can we pull it through?
  • will it deliver the results we want. That is, is it all worth it?

The primary purpose of this process is to prioritise a location and make a final decision on what and where.

Right now we have commenced the long process of gathering data and facts in order to conduct the analysis. This process has two main phases:

  1. Desk research on macro information to identify potential locations.
  2. Location visit to verify facts and gather additional in-depth information.

You may be asking, “So what are some the evaluation criteria we will be using?” And I would respond, “That is a brilliant question, and here are our current thought. These are the questions we are asking and looking to find answers”.

Real

  • Is there a need, want, or problem to solve ?
  • Is there a set of customers able and willing to buy ?
  • Is the targeted market SIZE attractive (e.g. tourist numbers, etc)?
  • Is the targeted market GROWTH attractive (e.g. economic, visitors etc)?
  • Is the targeted market TREND attractive (e.g. accommodation, entertainment, food and beverage trends)?
  • Are there any regulatory or legal barriers to entering the market (also as a non citizen)?
  • Are there any consumable supply chain issues?
  • Do we obtain the right assets to maintain the business (e.g. people, equipment, space, time)?

Win

  • Political, economic and social stability (including cultural practices)?
  • Can our offer be competitive on value, service, and concept?
  • Can we leverage our intangible assets (e.g. knowledge, relationships, strengths)?
  • Marketing, promotion or communication needs for success?
  • Can our business model win vs. our competition?
  • Do we have access to the  necessary capabilities/ resources to execute (internal: people, capital, equipment, expertise, etc.)?

Worth

  • Will we be able to live the lifestyle we desire!?
  • What will it cost to succeed?
  • Is the profitability adequate?

 

But I would immediately add that this where we can do with your input. Tell us what you think.

What else should we consider, eliminate or change?