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COCOON ESTHETICS


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The pace was frantic. Michelle Hill had less than two weeks before her scheduled meeting with the loan board in Charlottetown, Prince Edward Island, Canada on November 19, 1997. By that time she needed to have completed her business plan, including market projections and pro forma financial statements. The task was made more daunting by the fact that Michelle had never before prepared a business plan. She was professionally trained as an esthetician, but that did not include any training in business management or the use of computers. If she failed to be ready for the meeting, then processing of her loan request would be delayed until 1998.

Michelle breathed deeply and reminded herself that keeping her eye on the goal of becoming an entrepreneur would serve her more than panic. She turned her attention to assembling the information she had gathered in note form. She planned to use this material and the services of the Business Service Centre which offered advice and access to the Internet.

Background

Up until October, 1997, Michelle Hill was content to work for someone else providing esthetic services to clients in the Charlottetown area. She loved the work.

Michelle met many people who seemed drained at the end of their day. For her working in esthetics had the opposite affect. At the end of a day, she often felt more energized than when the day began.

A priority for Michelle was spending time with her spouse and young family who included their three year old son and ten year old daughter. Her three days per week employment with Cinderella's Total Body Care fit her home situation ideally. It afforded her ample family time and the career involvement she wanted.

Michelle was 28 years old .She had worked as an esthetician since graduating in 1991 from the Halifax Business Academy’s one year program in esthetics. Michelle considered graduation to be only the beginning of her training. She participated in several demonstrations, seminars, and workshops to keep up with new developments in the esthetics industry.

Up until 1997, Michelle had not seen a need for her to pursue a formal business education. Beyond the techniques of an esthetician, she believed her greatest asset as an esthetician was her 'people skills'. Michelle was known as a gregarious person who approached her work with energy and enthusiasm.

Cinderella's Total Body Care was located in the same space as the Le Mirage hair salon, since the two businesses shared the same clientele for different services. The space allocated to the esthetic services consisted of a small room at the back of the salon and included shared reception services and a small allocation of space for display of esthetic products.

The business was located in Ellen's Creek Plaza; a small, somewhat upscale 'strip' mall located in the affluent suburb of West Royalty about ten minutes from the city core. The rent for the esthetics business was $320.00 per month, which included utilities and reception.

Michelle's employer had communicated her wish to move to a larger location closer to downtown. The proposed move would involve a change in their hours of operation and working arrangements. Michelle had indicated she was prepared to consider a change in the new year, but not before.

On November 1, 1997, Michelle was surprised by the announcement that Cinderella's would be moving to a downtown location at the end of November.

On the weekend of the announcement Michelle made an immediate decision to end her employment with Cinderella's. She had not planned on going into business so early in her career and family life, but she saw the changing situation at Cinderella’s as an opportunity. Faced with the task of starting her own business, she immediately began the process of planning the business and making arrangements with her family.

Michelle was paid on a commission basis; 45 percent for services and 10 per cent on the retail sales to her clients. For this reason, she had kept a daily record of her revenue in both services and retail sales.

After informing her employer of her decision, she immediately obtained an agreement from the owner of Le Mirage to sublet the space being vacated by Cinderella's under the same terms and conditions.

The decision to start her own business was not as immediate as it might appear. At an early age, Michelle had adopted the practice of writing down goals for herself on separate slips of paper, which she kept at home in a private place. Michelle was not quite sure why or how she acquired the habit of writing down her goals. The pattern she followed was quite consistent. Each goal was written on a separate piece of paper and contained a specific outcome and date. One such goal was to start her own business in the year 2001. On the November weekend she amended the goal by replacing 2001 with 1997.

Unexpected events occurred and frequently goals were realized before the time stated on the slip of paper such as the case in starting her own business. Since beginning the practice of goal-setting, her life by no means followed the goals perfectly.

According to Michelle all her goals were realized, but not always at the time or in the way she had expected. Michelle was convinced that the practice of goal-setting held a metaphysical dimension.

She explained,

" I am careful what I write down as a goal, because I know at some point it is going to happen, so I make sure it is what I want. I write the goals down and forget about them until I decide on occasion to read them over. Striving to accomplish goals is not the answer for me. I set the outcome I want and an opportunity will appear if I look for it. I am amazed how my life unfolds with all kinds of unexpected events and there in the middle of it all is a goal that I wrote. It's like I am just going along for the ride! The decision to start my own business is a good example. There were frustrations and even tears as I tried to pull everything together, but through it all, I knew one way or another my goal was going to happen. The earlier then expected move by Cinderella’s was the opportunity, so I grabbed it."

Developing a business plan was only one of the challenges. Michelle knew that her decision to start her business meant a change in her home life. She realized that, in addition to serving clients, she would have the added responsibilities of banking, ordering materials, scheduling, and a host of other daily matters which did not concern her when she was an employee. All these business matters were sure to affect the time she would have to spend with her family.

Although Michelle's family expressed support, there was definite apprehension on everyone's part as to how the demands of establishing and running a business could be balanced with what had been up to now a busy, but manageable home situation. It was obvious that the decision to go into business would require a change in lifestyle for Michelle and the members of her family. Michelle also believed that it might be necessary to ask her husband to bear all of the household expenses for a few months until the business was more established.

"At first it all seemed so overwhelming; doing a plan, getting a loan, deciding on inventory and supplies, and making changes at home. It was all so new, yet it was exciting. I guess all new businesses face the same things. For families, I suppose it can be seen as the price to pay or a sacrifice. Another way to look at it is to see it as simply a change - a change which in the end can be good for everyone," explained Michelle.

" I love what I do and I believe everyone is better off when each of us is happy with their life. My husband and I agree on this, so he is very supportive of my decision."

Added to the practical demands was the issue of time constraints. Michelle knew she had less than a month to get her business going. Otherwise, the continuity with her clientele would be broken in the middle of the high-demand Christmas period and she could lose her location at Le Mirage.

The Industry

The esthetics (also spelled aesthetics) industry included a whole range of services associated with enhancing the physical beauty of a person. An esthetics practice included traditional services such as manicure, pedicure, hair removal by electrolysis or waxing, skin care, and the proper use and application of beauty aids such as makeup. Also other services such as aroma therapy, massage and various forms of whole body treatments are includes in the bailiwick of esthetic services. A full service esthetics business was properly described as a spa. A typical esthetics business, if there is such a thing, included any range of the aforementioned services depending on clientele and the resources of the business.

A central feature of any esthetics practice beyond the equipment and facilities was the esthetician. Esthetics services was the quintessential personal service wherein such issues as competence, confidentiality, trust, and an ongoing relationship with clientele were critical for a successful practice. If "only your hairdresser knows for sure," then it can be said that your esthetician knows more than your hairdresser.

Estheticians are trained in the fundamental skills of their practice at any number of public or private educational institutions throughout North America. Beyond the basic training which takes about a year, estheticians were able to take training in additional services. In larger centres, some estheticians specialized. For example, aroma therapy which involved combining facial massage techniques against a back-drop of customized aromas to enhance relaxation, was growing in popularity. Consequently, new products and techniques were being offered to estheticians who combined this information with their own creativity to better meet the needs of individual clients.

Estheticians, like health care professionals, relied on the salespeople from supply companies to keep them up-to-date on the latest products, equipment, and techniques. Also, national and regional trade shows served the goal of staying current in the rapidly evolving esthetics industry.

"I find the trade shows exciting," explained Michelle.

"You can see the future there. On PEI, people are only starting to demand some of the esthetic services that are commonplace in larger centres."

A unique aspect of the esthetics industry was revealed in some of the philosophical issues associated with personal beautification. Understanding these issues contained practical applications for the business. It helped to explain why some ancient practices remained popular to the present day and how an esthetician might assess a particular client's needs.

Michelle had her own views on what beautification was about.

"At first glance, you might think this business is just about physical beauty. Well, that is only part of it. Esthetics is about inner beauty - feeling good about yourself and who you are. That is what I try to focus on. Esthetics is just one tool in a whole picture. Frustration with my own acne problem is what got me interested in the business in the first place. The clincher for me though was one particular client, who I met early in my career. This person in her forties had a professional career and family. She had a severe facial hair problem. I discovered two years later, that she had contemplated suicide. The client had been convinced that her facial hair problem could only get worse! Electrolysis, in her case contributed to a completely new outlook on life. Her response to the treatment and many others since, though not all as severe, convinced me that esthetics was what I was meant to do. I love what I do because I get to see how good people feel after even something as simple as a manicure. For some, just dumping the guilt associated with indulging themselves is enough to change their attitude."

The Market

Almost all of Michelle's clientele consisted of women, although in other markets men were becoming purchasers of selected esthetic services such as removal of unwanted hair, hand care, skin care, and aroma therapy. The general consensus in the industry was that men represented a potential growth opportunity for the future. Much of the industry focus remained on the rapidly growing demand among women (see Appendix A for PEI population statistics). There were no published statistics specific to purchasing patterns for esthetic services. Esthetic services purchases were included with purchases under the personal care category published by Statistics Canada (see Appendix A).

Michelle was convinced of the growth in the industry because of the number of new clients coming to her. In less than a year, Michelle's clientele had grown to include over 400 people. Most of these clients were people who had never before purchased esthetic services. Michelle described most of her clients as fortyish and working outside the home.

She said, "They are classic baby boomer types. They have reached a stage in life where they have more money and their children are older. They believe it is now time to spend some money on themselves. It's okay to indulge themselves. Of course, esthetic challenges like facial hair and skin care are more prevalent after you hit thirty - thirty-five. One of my clients gave me the name of my business. As she [the client] was leaving, she remarked that she felt like a caterpillar coming out of cocoon as a butterfly. I decided back then, that would be the name for my business - cocoon."

Fifty percent, or more, of sales are for hair removal. Among this group, over forty percent choose waxing while the remainder select the more expensive electrolysis method.

The next most popular service is cosmetic application, which provided a boost to retail products (a sample list of services and prices is presented in Appendix B). Overall, retail sales of products averaged about 10% of total revenues. Michelle believed there was great potential to increase retail sales with better display and promotion of the products. Average markups on these items were about 40% (gross margin on sales).

Competition

There were approximately 30 estheticians on PEI, according to their association which Michelle served as secretary - treasurer. In the Charlottetown area, there were thirteen businesses offering esthetic services. In most cases, the esthetics businesses were either located within, or otherwise associated with the traditional hair salons in Charlottetown.

Michelle was aware that her decision to set out on her own would add to the competition. But competition did not concern her.

"This is the kind of business where clients are quite loyal. At least I have found it that way. A personal relationship develops between a client and their esthetician . I am the answer to competition. I pay attention to what each individual needs and the new things like aroma therapy give you the chance to customize to each client. When a customer is happy with you, they tell other people," explained Michelle.

Michelle planned to build on the practice of referrals by rewarding clients with discounts based on the number of new clients they sent her way.

Financial Information

Michelle felt some degree of anxiety about preparing the financial statements that would be necessary to obtain a loan. She felt that she knew enough about the business to make a good estimate on most of her costs. The challenge would be to put it all in the proper form of a cash flow statement and balance sheet projected over three years.

On the Internet, she found a site which simply required her to answer questions and the program would construct the statements. The challenge then became learning to be comfortable using the computer resources available to her.

Michelle reviewed her daily sales record. The records were complete for January to October of 1997. She felt that they were a good source for projecting sales (this information is summarized in Appendix C).

Michelle thought that she would need to have at least one employee on a part-time basis for days off and busy times like the Christmas season. She agreed with her husband that she would not make a contribution to household expenses for at least three months. This would keep her draw on revenues to a minimum, so she estimated about $1600 per month for total wages and benefits. This figure was based on paying $200 per week to herself and a part-time employee.

Michelle had contacted suppliers to get estimates on the cost of getting her business started. She estimated her equipment and materials costs to be about $10,000 with the electrolysis machine representing about one third of the total. She estimated that she would need about $3000 in inventories. Suppliers expected to be paid on delivery. She was told that there would be other incidental start up costs like business registration, professional fees, and uniforms.

The guide to business plans that Michelle looked at included a list of other items to consider such as; advertising, depreciation, vehicle expenses, bad debts, and telephone. Michelle felt that many of these did not apply to her plan, or at least, they would represent incidental costs.

Conclusion

"A few months before all this, I had spent a lot of my savings on a trip out west for my cousin's wedding, so I only had a thousand dollars to put into my business. I had a moment of regret about spending money for the trip, but only a moment. The trip indirectly, contributed to my business decisions because prior to going, I was suffering uncertainty about my life. This was before I knew about Cinderella’s moving. The trip was great for me. I cannot point to one particular thing that happened. Most of the change was internal. I just felt more settled; "centred" is the word everyone uses these days. Thank God! If I didn't have my feet firmly on the ground, I doubt that I would have been able to deal with all this." explained Michelle. .

Michelle had been told that she could qualify for assistance under Young Entrepreneurs ConneXion Jeunes Entrepreneur program. This program came under the Atlantic Canada Opportunities Agency (ACOA), but was delivered by Community Business Development Corporations (CBDC). ACOA had 40 CBDC's throughout Atlantic Canada. The CBDC along with other delivery agents form loan boards made up of active and retired business people to assess applications.

This particular program applied to youth between the ages of 18 and 29, and was highly flexible in terms of application, types of business, and repayment terms (details on this program are in Appendix D).

In Michelle's discussions with ACOA, she was told that they were limiting their loan amounts because of year-end budget limits. Instead of getting the maximum loan, she was told that she could only get $10,000. She was advised to contact Canadian Youth Business for additional funds, if required. Michelle estimated she might need another three to four thousand dollars.

Canadian Youth Business is a program similar to the CBDC in structure, but it was run as a joint initiative among the chartered banks. The loans they approve were guaranteed by the government. This meant that no personal guarantees were required to secure a loan. If the business failed, then the government paid off the loan. Unlike ConneXion, they did not provide seed capital, but often 'topped up' seed capital loans when additional funds were justified. For Michelle this meant two loan board meetings instead of one.

"Although I was a bit intimidated by the financial stuff, I was not going to let that stop me from getting the business plan in on time. I knew that the biggest asset in my business was me and the records I kept supported that. I would just put it together the best way I could. I was told that the main thing they wanted to know was where would the money come from and could I support a loan. I had committed myself to the space and ordered my supplies, so I had to do it," concluded Michelle.

 


Appendix : A

Selected Population Figures for PEI and Charlottetown
based on the 1996 census estimates

Total Population :
PEI 134,600
Charlottetown 57,000

 

PEI Charlottetown
Age Group M F M F
35 --- 39 5900 6000 2500 2775
40 --- 44 3900 4000 1668 1844
45 --- 49 4800 4800 2017 2162
50 --- 54 2900 2900 1242 1327
55 --- 59 3200 3200 1326 1416
60 --- 64 2700 2800 1068 1182
65 --- 69 2400 2600 921 1090
70 + 5400 8000 2101 3514

 

Average Household Expenditures
1994 - 1997
(dollars)
Year 1997 1996 1995 1994
Total (all items) 44,543 43,714 45,529 41,841
Personal Care 1,867 1,700 1,767 1,583

 

Total # of households in PEI (1996) 21,600

Source: Financial Post - Canadian Markets


Appendix : B

Sample of Esthetic Services with 1997 Prices

Hair Removal :
Waxing $40.00 per hr.
Electrolysis $ 1.00 per min.
Makeup Application & Lessons $15.00 per 1/2 hr.
Manicure $15.00*
Pedicure $25.00*
Lash & Brow Tinting $10.00 - $15.00*
Aroma/Acupressure Therapy $25.00 per hour
Facial Treatment $40.00 - $55.00*
Skin Treatments $20.00 - $30.00*

* figures shown denote the total fee.
Source : Cocoon Esthetics


Appendix : C

Weekly Average Service & Retail Revenues for Esthetics
January - October
Three day week
1997

Month Service Retail
January $482 $111
February $513 $140
March $454 $110
April $574 $212
May $660 $130
June $630 $55
July $663 $190
August $522 $105
September $531 $90
October $646 $64

Source
: Michelle Hill

 


Appendix : D

Program Information
on
Young Entrepreneurs ConneXion Jeunes Entrepreneur

WHY SUCH A PROGRAM NOW ?

The Atlantic Canada Opportunities Agency (ACOA) is committed to helping young Atlantic Canadians acquire the skills needed to prosper in the 21st century.

Through partnerships with the 40 Community Business Development Corporations (CBDC) as well as other delivery agents, ACOA is helping to address some of the greatest obstacles facing young entrepreneurs: access to capital and good, sound business advice.

ACOA's Young Entrepreneurs ConneXion Seed Capital and Counselling Program effectively responds to these needs by helping those under 30 years of age access small business start-up and expansion financing of up to $15,000 while providing them with sound business counselling and training.

This program ensures that active and aspiring young entrepreneurs throughout Atlantic Canada enjoy equal access to the information and capital they need to make their business succeed.

WHO IS ELIGIBLE AND WHAT QUALIFIES?

  • applicants must be residents of Atlantic Canada and between the ages of 18 and 29 inclusive (applicants under the age of 19 require the co-signature of an adult)
  • the loan must be invested in the start up, expansion, or modernization of a business
  • the applicant must be the majority owner of the business
  • businesses in most sectors are eligible, including retail and personal services, as well as seasonal enterprises
  • the loan is intended as a long-term investment in the financing of any costs of the business including fixed assets, start-up costs and working capital
  • the loan may be used as equity to attract other investors
  • the loan cannot be used to purchase an existing business
  • the loan cannot be used for refinancing of existing debts or business restructuring

WHAT IS THE SEED CAPITAL AND COUNSELLING PROGRAM ALL ABOUT?

  • access to a maximum of $15,000 in the form of a repayable, unsecured personal loan
  • equity not necessarily required
  • flexible interest and repayment terms
  • business counselling or training costs, up to a maximum of $2,000, paid for by ACOA

Source : ACOA accessed in August, 1998


This case was prepared by Tim Carroll of University of PEI for the Acadia Institute of Case Studies as a basis for classroom discussion, and is not meant to illustrate either effective or ineffective management. Some elements of this case have been disguised.

Copyright 1999, the Acadia Institute of Case Studies, Acadia University. Reproduction of this case is allowed without permission for educational purposes, but all such reproductions must acknowledge the copyright. This permission does not include publication.

 


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