There are several problems with the startup Earth class mail that Ron Wheeler is propositioning. The first is the market problem which is the mail market. There is not enough compelling reason for customers to shift from the traditional mail services to the startup as the contents of the mail will eventually be delivered physically to the recipient. The current mail providers can equally put in place a similar process to compete with the startup and the competition at the early life stage of the startup could mean its death (Bergfeld 2015). The value proposition to ask is “is it a service that is nice to have or a must have?” The answer is it nice to have and not a must.
The second reason is the business model that stands the chance to fail from the difficulty of acquiring new customers. Already the startup has overinvested in projected future volumes of mail, yet is not sure that the volumes will be actualized (Blank and Dorf 2012). The cost of acquiring the customer for this startup will be higher than the lifetime value that the customer will bring. The success of the startup will require repeat customers or customers on contract. The cost of acquiring the new customers will depend on the way the startup can scale up to acquire the new customers and then monetize them at a value that should be higher than the cost of acquiring them. Following the rule of capital efficiency which requires recovery of cost in less than twelve months, the startup may run into liquidity problems.
The business should in the short term reduce staff in order to save on the little revenue it is making currently (Williams and Nadin 2013).. The business should freeze hiring until it has expanded and the need to employ will be based on the expanded business. The two partners meanwhile can work more in the business and agree to pay themselves what is acceptable while ploughing back the rest of the money back into the business.
The other advice that can be given is for the business in to order to improve business volume is to consider moving to a new location with high visibility as well as foot traffic in order to increase sales (Comberg, Seith, German and Velamuri 2014). The product they are offering is a product that needs high visibility in the way it is displayed to attract customers. Being a gourmet product, the visibility will advertise the business without any extra cost of advertising and will result in lovers of chocolate and its related products patronizing the business. Word of mouth references by new customers to their friend s will be easier if the location is visible and if it is in a place with high foot traffic.
Bergfeld, A. F. (2015). Business Acceleration 2.0 The strategic acceleration of successful startups. Norderstedt, Books on Demand.
Blank, S. G., & Dorf, B. (2012). The startup owner's manual. the step-by-step guide for building a great company Vol. 1 Vol. 1. Pescadero, CA: K & S Ranch
Comberg, C., Seith, F., German, A. & Velamuri, V.K. 2014, "Pivots in Startups: Factors Influencing Business Model Innovation in Startups", The International Society for Professional Innovation Management (ISPIM), Manchester, pp. 1.
Williams, C.C. & Nadin, S. 2013, "Harnessing the hidden enterprise culture", Journal of Small Business and Enterprise Development, vol. 20, no. 2, pp. 434-447.
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