BizCafe Is a Computer Simulation Part 1

BizCafe is a computer simulation that provides a great way to learn about running a business. It is designed to help you learn about the challenges and rewards of making good decisions in a small, service-based business. You will learn about management, operations, marketing, and accounting by running your own coffee shop for up to 16 simulated weeks. In BizCafe you will typically be making decisions as part of a student management team. Teamwork is increasingly important in business today, and a valuable part of the BizCafe experience is learning how to make the best decisions when confronted with several different opinions. Your group will have to decide how to sort out your priorities and objectives in the context of a limited checkbook balance and a changing environment. At start-up, your team will need to name your business and decide what furniture and equipment best meet your business objectives. You will then make weekly decisions to staff your cafe, price and promote your product, set shop hours, and purchase materials to operate the business. In addition, you may have to respond to issues raised by “incidents” (mini-cases) and complete supplemental assignments chosen by your instructor. You will need to understand the business in order to make good decisions. Therefore, take some time to familiarize yourself with the case before beginning the simulation. While working through your decisions, you will find it helpful to refer to the manual for information and management tips. To get the most out of the BizCafe experience, we recommend the approach outlined on the following page. 3 BizCafe Quick Start Guide 1. READ THE CASE: • Industry background, • Company starting situation. 2. • • • START-UP DECISION: Access simulation from course website. Create and enter a name for your business. Choose furniture and espresso machine. 3. • • • • PERIOD DECISIONS: Weekly Purchases, Staffing and Hours, Marketing, Special Decision. 4. DECISION ANALYSIS: • Cash Budget, • Break-Even, • Decision Summary. Go back to Step 3 until satisfied with decisions. 5. SIMULATION ADVANCES: • Check schedule for times. • Complete decisions before deadline. If the simulation is over, skip to Step 7. 6. EVALUATE RESULTS: • Company reports, • Market reports. Go back to Step 3. 7. SIMULATION ENDS: • Evaluate team performance. • Review what you have learned. Your instructor may require additional assignments during the simulation. Check the schedule and messages on your course website for details. BizCafe Manual The remainder of this manual is divided into the sections described below. Your understanding and success in BizCafe will be greatly enhanced by reading this manual before you begin the simulation. The manual will answer most of the questions students typically have during the simulation experience, and reading it has the added benefit of improving your competitiveness. Contextual help within the simulation interface and Frequently Asked Questions, “FAQs,” on your course site provide more information. The Case presents a description of the coffee shop and the decisions you will be making as a manager of this business. A thorough understanding of your cafe’s situation will help you make better decisions. In addition to appearing in this manual, the case is also available within the simulation interface for your convenience. Business Essentials provides a brief introduction to business management: what it is, why it is important, and what concepts will be used in the simulation. In addition, each of the basic functional areas covered in BizCafe are discussed. The Appendix provides supplemental materials to help you with the simulation experience. There are tips on using the simulation as part of a group. The Glossary contains business terms that are used in the simulation. BIZCAFE Case Jane Valdez was ready for a change after 30 years of 12–15 hour workdays, 6 days a week. Jane had grown up in Collegetown and graduated from the local university there, majoring in engineering with a minor in business. After graduation, she worked at Hewlett-Packard and Apple Computer in the ’70s and ’80s. Like many of the technology workers of that era, she soon forged out on her own, starting several companies, failing at two, but hitting on a successful formula with her third venture—handheld computing devices for hospital applications. In 1995, she took her company public and eventually sold the company before the high-tech bubble burst. Soon thereafter, she was a founding partner of a successful venture capital firm, but now she is ready to return to her roots and slow down a bit. However, she wants to share her success in a unique way, by helping college students learn about business by operating their own company. Select student teams will receive a $25,000 start-up loan at 10% interest to manage their own coffee shop for a year as an independent study for credit. Jane is confident that teams will have no trouble paying back the entire loan with interest by the end of the year. Specialty Coffee Market According to the National Coffee Association, 62% of people drink coffee daily, up from 57% in the previous year. “More of us are drinking coffee, and younger consumers appear to be leading the charge,” said Bill Murray, NCA president and CEO. “A steadily growing taste for gourmet varieties is also driving a wider trend toward specialty beverages.” Some other interesting statistics from the study include the largest one-year increase in past-day espresso—jumping from 18% to 24%; and more than half of all cups of coffee consumed in the past day were gourmet—59% in the past year vs. 46% five years ago. The largest chain specialty coffee shops are Starbucks (26,000+ locations worldwide), Dunkin’ (12,000+ locations), Tim Hortons (4,500+ locations), Costa Coffee (3,400+ locations), and McCafe (1,300+ locations). Despite the ubiquity of these coffee shop chains, there are many single owner or local small chain shops that are thriving, especially thanks to the growing “buy local” movement. Coffee shops not only provide a good cup of specialty coffee but often a place to socialize or work as well. Jane hopes her students can capitalize on these trends! Overview Jane studied various locations and found a good potential storefront on Main Street, not far from the business school and on the downtown pedestrian mall. There are a number of retail establishments nearby such as restaurants, clothing shops, as well as service businesses. The retail space available contains 1,000 sq. ft. with glass frontage on Main Street and 2nd Street, providing good visibility for pedestrian foot traffic (see layout). The space is next door to R.C. Fox Women’s Clothing, an independent retailer catering to more upscale buyers. Across the street is a trendy restaurant, Salamanca, which is primarily a dinner destination. Next to the restaurant is Readerwise Booksellers, an independent bookstore which has been in business over 20 years. Rent is $24 per square foot per year, or $24,000 total for the year. A deposit equal to one month’s rent must be paid in advance, and monthly rent of $2,000 is due on the first day of each month. In addition to paying rent, the lessee (your company) will also be responsible for paying utilities—water and electricity. These are estimated at approximately $500/month based on historical usage of the restaurant that had previously occupied the location but may vary based on hours open and traffic. A $500 deposit is required for utilities. Jane expects the coffee shop to be a success because of the good location downtown near retailers and the business school. For instance, businesspeople might stop by on their way to work or for a meeting place; students could go between classes and at night; and local residents would find the shop a great place to meet friends or relax while they are downtown shopping. She expects long-term demand to be primarily a function of the quality of the experience— atmosphere, length of wait, friendliness of the staff, etc.—and the price charged for the coffee. The students have some sales information on a specialty drink shop that recently closed because the owner moved to another area. Though not a perfect comparison and incomplete, Jane believes this information will be helpful to the students when trying to calculate the necessary operational capacity for the shop. However, these values are from a more established business, and demand will certainly be different based on pricing, advertising, and quality of the experience in the coffee shop. Pat’s Coffee and Chocolate: Weekly Demand (Cups Ordered) Week Starting Jan 1st Jan 8th Jan 15th Jan 22nd Daily (M–F) 1000 1150 1070 1045 Saturday 750 720 780 950 Sunday 550 510 530 690 Price $3.50 $3.50 $3.50 $3.50 Jane also suggested to the students that the shop could stimulate additional demand through advertising and by offering special promotional deals. She has arranged for a team of information technology students to create a website for the business as a course project, and online and radio advertising can be used to drive traffic to the site. In addition, the local weekly circular has a weekly poll on many of the local businesses including two awards given to specialty drink shops. Jane knows the importance of such awards for wordof-mouth and creating a “buzz” around a business. Jane wants to be sure her students are aiming to win one of these two awards: • • Best in town specialty drink—ambiance, Best in town specialty drink—satisfaction. Jane knows that the easy—and fun—part of running a business is creating the concept and setting up everything. However, she also knows that most retail shop success, especially for service oriented shops, is made “in the trenches”—the day-to-day running of the business. Will her students hire enough quality staff to serve the customers in a friendly and timely manner? Will they have enough supplies and inventory so they don’t run out of what customers want? Will they be able to handle the rushes before class and work? It sounds easy enough, but her students will likely need a cadre of part-time college students to work at the shop. Keeping them organized, attentive, and happy working there won’t be simple. Customer satisfaction is an important measure for capturing the experience that visitors have at the coffee shop. Long lines and impatient employees will surely have an impact on this measure. Finally, the financials should add up over the course of the semester. Jane expects more expenditures relative to revenues in the early weeks, but as the weeks progress, she expects the cafe to become profitable. Students should keep a careful eye on their checkbook and cash balance. Eventually, daily receipts will need to cover the expenses such as rent, utilities, wages, advertising, and product costs (cost of goods sold). It will be a tall order but one Jane believes will be a great learning experience. Start-up Decisions To start your business, you will need to decide on a name for your cafe, how to furnish it, and what equipment to buy for producing your product. The name you choose should reflect the vision you have for your cafe and differentiate your product from your competitors’. Jane found some used tables and chairs at a local thrift and antique shop for $2,000. You can purchase these or select from a variety of new boutique sets of tables and chairs. The new furniture costs $4,000. Both used and new furniture options will provide sufficient seating for the shop. Your team will also need to purchase new equipment for producing your product. Jane found a new basic 2-cup espresso maker for $3,000, or you can purchase a 4-cup model that is potentially 30% faster for $6,000. There was already a counter, sink, and enough room in the storage area for coffee beans, cups, and other items necessary to run the business. Equipment Options Model Duo Capacity 2-cup Speed Basic Price $3,000 Auto-Four 4-cup Up to 30% faster $6,000 The furniture and equipment you purchase at start-up may affect the operation and perception of your cafe. Make your selections carefully, as you may not have the opportunity to make changes later. The cost of the furniture and equipment will come out of your checking account before you open on January 1st and will be depreciated over five years.