"Two of the biggest barriers to starting my sole proprietorship are gathering the appropriate market information and convincing the money lenders that I am not just another long haired, 19 year old guy who wants to be a rock star. I have to convince people that I am absolutely set on pursuing my dream of building customized acoustic and electric guitars and offering a full range of stringed musical instrument repair services." These are the thoughts of Chris Griffiths of St. John's, Newfoundland as he begins his business planning during the spring of 1992.
Music has been a lifelong interest of Chris Griffiths's, he started guitar lessons at the age of 12 and has played with various groups in his native city of St. John's, Newfoundland. After graduating high school in June 1991, Chris was undecided as to what career path to follow, so he decided to seek employment in the music field.
Finding employment with a small local music store, Chris quickly learned about the ordering, inventorying and selling of musical equipment. He also became very familiar with the many music manufacturing sales agents from which the store purchased supplies and inventory. In addition, Chris began to complete minor repairs on damaged guitars and to modify guitars to suit specific customer preferences. Even though he had always been aware of the inability of local craftspeople to carry out major guitar repair work, Chris was surprised by the steady stream of customers who were requesting these major guitar repairs. In addition, he shared his customers' frustrations concerning the inconvenience, and high costs of exporting this major repair work to the mainland. Chris began to wonder if a business opportunity was emerging.
This case was prepared by Kathy A. Hickman for the Atlantic Entrepreneurial Institute as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management. Material in this case has been disguised.
Copyright © 1993, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include publication.
By the fall of 1991, Chris was beginning to realize that his opportunities for growth were very limited in his music store position. Therefore, he approached Mr. Chord, the owner of the store, to discuss the possibility of attending an intensive, two-month guitar building and repair course in Michigan, US. Mr. Chord was interested in the addition of guitar manufacturing and repair services to his existing music store operations and agreed to Chris's request for a leave of absence. This demanding, one-on-one course provided Chris with the knowledge and skills required to build acoustic and electric guitars and to repair and refinish stringed musical instruments. In addition, Chris totally built two prototype guitars while completing the course and he proudly carried them home to Newfoundland after graduation.
Chris returned to his position in the music store in December 1991, and looked forward to opportunities to demonstrate the craft he had acquired. Unfortunately, by the spring of 1992, these opportunities had not developed. Sales in the store were fading and Chris was desperately unhappy with his work situation. Fearing his job was in jeopardy, and frustrated that he was unable to pursue his craft, Chris began to think about opening his own small business. He enrolled in a small business night course at Cabot College which provided valuable information regarding the start-up of a small business. At the same time, Chris began purchasing quality tools and collecting information on the guitar industry.
Chris's fears had been well-founded because in May 1992 Chris received his lay-off notice. That lay-off notice, in a very depressed economy, was the turning point in his career. His decision to pursue his business idea was with the realization that this was to be an all out effort with no going back or half-hearted attempts. All of his energy was to be focused on making this business venture come true. With no personal capital and limited business experience, Chris knew that a great challenge lay ahead of him. His first step towards meeting this challenge was to research the potential market for his product.
- What are the barriers which Chris must overcome in order to launch his business idea?
- (a) One of the major barriers which Chris faces is a lack of market information. What kinds of market information do you think Chris must have before he can proceed any further?
(b) Suggest ways that Chris could acquire the information that he requires.
- Design a telephone market survey to help obtain some of this information. Keep in mind that simple, direct and brief questions/ answers are most appropriate.
Chris realized that he needed help in developing a business plan and he understood that a strong business plan was important in convincing investors and lenders that his business was a promising one. For the next five months Chris worked diligently, with Gary Ryan of the Y-Enterprise Center, on completing the 72-page marketing and business plan for Griffiths Guitar Works.
Chris carried out extensive market research by conducting a telephone survey and indepth personal interviews with many local musicians and music store owners. The initial St. John's market analysis indicated that very promising opportunities existed in providing a full range of stringed instrument repair services and suggested that a price of $30 per hour labour charge for repairs would be acceptable to customers. Market information also revealed that there was significant demand for custom built guitars in St. John's. In order to provide customers with full choices in designing their own guitar, Chris realized that heavy investments of time, resources and his labour were required. Chris felt confident that the specialized nature of his business would enable him to operate Guitar Works with no additional employees.
Chris set a selling price of $1000.00 for an acoustic guitar and $1,200.00 for an electric guitar. These prices were in the same range as other quality guitar manufacturers such as Fender. Each guitar was made entirely by hand with attention to quality materials and workmanship. Taking a total of six weeks to complete, each guitar required an average of 35 to 40 person hours.
By producing high quality guitars, Chris realized that his previous employer, Mr. Chord, would view Guitar Works as a direct competitor. In reality, customers wishing customized guitars usually purchased their guitars on the mainland and not from local music stores.
After extensive investigation of the costs of starting up his small business, Chris determined that he required initial capital of $20,000. With no personal capital, and very little collateral (four guitars and some manufacturing tools) on which to base a business or personal loan, Chris struggled to find ways to obtain the needed funding. He knew that a maximum of $30,000 was available to entrepreneurs (under the age of 28) through the Youth Ventures Plan of the Y-Enterprise Centre and that the Atlantic Canada's Opportunities Agencies(ACOA) would sometimes provide grants of up to 50% of start up business capital costs to individuals who were pursuing manufacturing ventures in the Atlantic Provinces. Consequently, Chris was hoping that he would be able to borrow $15,000 from the Youth Ventures Plan and receive a $5,000 grant from ACOA.
Chris had distributed his business plan and funding proposal to the 13 members of the Board of Directors of the Y-Enterprise Centre who would evaluate and decide on Chris's request for funding from the Youth Ventures Plan. He was preparing for the lunch time meeting that would take place in three week's time. He knew that these individuals were experienced businesspeople who would be thoroughly prepared for this meeting.
- Chris realizes that he must convince this group of businesspeople, bankers, entrepreneurs, and government officials to lend him the money that he needs to bring his idea to market. List the many talents and specialized skills which Chris brings to this venture.
- Form groups of three and brainstorm ways that Chris can create a convincing, interesting presentation.