Internet Café Business Plan
345 Pine St.
Salem, OR 54228
This business plan for an Internet and coffee café is an excellent example of an owner considering all aspects of starting up from competition to financing and investment to promotion. As a well- rounded plan, this one provides a good checklist for other entrepreneurs to use in completing their own plans. Note the clear language, choice of location (low competition), and consideration of all costs. This plan was compiled using Business PlanPro, by Palo Alto Software ©.
- EXECUTIVE SUMMARY
- COMPANY SUMMARY
- MARKET ANALYSIS SUMMARY
- STRATEGY AND IMPLEMENTATION SUMMARY
- MANAGEMENT SUMMARY
- FINANCIAL PLAN
Wired Bean, unlike most cafes will provide a unique forum for communication and entertainment through the medium of the Internet. Wired Bean, and cafes like it are the answer to an increasing demand. To provide to the general public: (1) access to the methods of communication, and volumes of information now available on the Internet, and (2) access at a cost they can afford and in such a way that they aren't socially, economically, or politically isolated. Wired Bean's goal is to provide the community with a social, educational, entertaining, atmosphere for world wide communication.
This business plan is prepared to obtain financing in the amount of $33,290, to begin work on site preparation and modifications, equipment purchases, and to cover expenses in the first year of operations. The approved financing from the Oregon Economic Development Fund consists of 72% percent of the total borrowing. This debt will be retired within 36 months. They will donate equity of $24,000 that will be cleared at the end of 36 months. Dividends will be paid quarterly on the outstanding equity.
Wired Bean will be incorporated as an LLC corporation. This will shield the owner Peter Jones, and the three outside investors, Jerry Thomas, Jack Simmons, and Gary St. Clair, from issues of personal liability and double taxation. The investors will be treated as shareholders and therefore will not be liable for more than their individual personal investment of $6,000 each. The owner Peter Jones, will contribute $13,000 of his personal savings towards this business venture.
The financing, in addition to the capital contributions from the owner and shareholders, will allow Wired Bean to successfully open and maintain operations through year one. The large initial capital investment will allow Wired Bean to provide it's customers with a fully featured Internet cafe. A unique, upscale, and innovative environment is required to provide the customer with an atmosphere that will spawn socialization. The successful operation of year one will provide Wired Bean with a customer base that will allow it to be self sufficient in year two.
Wired Bean's objectives for the first three years of operation include:
- The creation of a unique, upscale, innovative environment that will differentiate Wired Bean from local coffee houses.
- Educating the community on what the Internet has to offer.
- The formation of an environment that will bring people with diverse interests and backgrounds together in a common forum.
- Good coffee and bakery items at a reasonable price.
- Affordable access to the resources of the Internet and other on-line services.
As the popularity of the Internet continues to grow at an exponential rate, easy and affordable access to the information super highway is quickly becoming a necessity of life. Wired Bean provides communities with the ability to access the Internet. We will provide communities with a place to gather for entertainment, and socialization. People of all ages and backgrounds will come to enjoy the unique, upscale, and innovative environment that Wired Bean provides. Our friendly and resourceful staff educates the community on the benefits of the Internet. Wired Bean also provides the best coffee and bakery items in town.
Keys to Success
The Keys to the success for Wired Bean are:
- The creation of a unique, innovative, upscale atmosphere that will differentiate Wired Bean from other local coffee shops and future Internet cafes.
- The establishment of Wired Bean as a community hub for socialization and entertainment.
- The creation of an environment that won't intimidate the novice user. Wired Bean will position itself as an educational resource for individuals wishing to learn about the benefits the Internet has to offer.
- Great coffee and bakery items.
The risks involved with starting Wired Bean are:
- Will there be a demand for the services offered by Wired Bean in Salem?
- Will the popularity of the Internet continue to grow, or is the Internet a fad?
- Will individuals be willing to pay for the service Wired Bean offers?
- Will the cost of accessing the Internet from home drop so significantly that there will not be a market for Internet Cafes such as Wired Bean?
Wired Bean, soon to be located in downtown Salem on North River and Pine, will offer the community easy and affordable access to the Internet. Wired Bean will provide full access to E-mail, WWW, FTP, Usenet and other Internet applications such as telnet and gopher. Wired Bean will also provide customers with a unique and innovative environment for enjoying great coffee, specialty beverages, and bakery items..
Wired Bean, will appeal to individuals of all ages and backgrounds. The instructional Internet classes, and the helpful staff that Wired Bean provides, will appeal to the audience that does not associate themselves with the computer age. This educational aspect will attract younger and elder members of the community that are rapidly gaining interest in the unique resources on-line communications have to offer. The downtown location will provide business people with convenient access to their morningcoffee and on-line needs.
Wired Bean is a privately held Oregon Limited Liability Corporation Peter Jones, the founder of Wired Bean, is the majority owner. Jerry Thomas, Jack Simmons, and Gary St. Clair, all hold minority stock positions as private investors.
Wired Bean's start-up costs will cover coffee making, site renovation and modification, capital to cover losses in the first year and the communications equipment necessary to get it's customers on-line.
The communications equipment necessary to provide Wired Bean's customers with a high-speed connection to the Internet and the services it has to offer make up a large portion of the start-up costs. These costs will include the computer terminals and all costs associated with their set-up. Costs will also be designated for the purchase of two laser printers and a scanner.
In addition, costs will be allocated for the purchase of coffee making equipment. One espresso machine, an automatic coffee grinder, and minor additional equipment will be purchased from Allan Brothers.
The site at North River and Pine will require funds for renovation and modification. A single estimated figure will be allocated for this purpose The renovation/modification cost estimate will include the costs associated with preparing the site for opening business.
|Communication Lines Setup||$840|
|Total Start-up Expense||$62,290|
|Start-up Assets Needed|
|Other Short-term Assets||$0|
|Total Short-term Assets||$26,000|
|Total Startup Requirements:||$88,290|
|Left to finance:||$0|
Start-up Funding Plan
|Oregon Economic Development Council||$24,000|
|Interest-free short-term loans||$0|
|Subtotal Short-term Borrowing||$9,290|
|Loss at start-up||($62,290)|
|Total Debt and Equity||$26,000|
Wired Bean will provide full access to E-mail, WWW, FTP, Usenet and other Internet applications such as telnet and gopher. Printing, scanning, and introductory courses to the Internet will also be available to the customer. Wired Bean will also provide customers with a unique and innovative environment for enjoying great coffee, specialty beverages, and bakery items.
Company Locations and Facilities
A site has been chosen at North River and Pine in downtown Salem. This site was chosen for various reasons, including:
- Proximity to the downtown business community.
- Proximity to trendy, upscale restaurants such as Hamilton Bistro.
- Proximity to LTD's Salem Station. Parking availability.
- Low cost rent -85c per square foot for 1700 square feet.
- High visibility.
All of these qualities are consistent with Wired Bean's goal of providing a central hub of communication and socialization for the Salem community.
Wired Bean will provide full access to E-mail, WWW, FTP, Usenet and other Internet applications such as telnet and gopher. In addition Wired Bean will provide an Introduction to the Net class for customers that haven't yet discovered the wonders of the Internet. By offering this class for a modest fee, Wired Bean will increase it's customer base by creating customers. Wired Bean will also provide customers with a unique and innovative environment for enjoying great coffee, specialty beverages, and bakery items.
Wired Bean will offer it's customers full access to the Internet, coffee, and bakery items.
Wired Bean will be the first Internet cafe in Salem. Wired Bean will differentiate itself from the strictly coffee cafes in Salem by providing it's customers with Internet service. The coffee offered at Wired Bean will come from the Frederickson Supply company.
Wired Bean will obtain computer support and Internet access from Capitol Computers located in Salem. Capitol will provide the Internet connections, network consulting, and the hardware required to run the Wired Beanwork. Frederickson Supply will provide Wired Bean with coffee equipment, bulk coffee, and paper supplies. At this time, a contract for the bakery items has not been completed. Wired Bean is currently negotiating with Wonder Bagel and the Belgian Bakery to fulfill the requirement. For startup purposes, Wired Bean will temporarily make use of Costco's fine bakery department.
Wired Bean will invest in high-speed computers to provide it's customers with a fast and efficient connection to the Internet. The computers will be reliable and fun to work with. Wired Bean will continue to upgrade and modify the systems to stay current with communications technology. One of the main attractions associated with Internet cafes, is the state of the art equipment available for use. Not everyone has a pentium based PC in their home or office.
As Wired Bean grows, more communications systems will be added. The possibility of additional units has been accounted for in the current floor plan. As the demand for Internet connectivity increases, along with the increase in competition, Wired Bean will continue to add new services to keep it's customer base.
MARKET ANALYSIS SUMMARY
Wired Bean is faced with the exciting opportunity of being the first-mover in the Salem cyber-cafe market. The consistent popularity of coffee combined with the growing interest in the Internet has been proven to be a winning concept in other markets and will produce the same results in Salem.
Wired Bean's customers can be divided into two groups. The first group is familiar with the Internet and desires a progressive and inviting atmosphere where they can get out of their office or bedroom and enjoy a great cup of coffee. The second group is not familiar with the Internet, yet, is just waiting for the right opportunity to enter the on-line community. Wired Bean's target market falls anywhere between the ages of eighteen and fifty. This extremely wide range of ages is due to the factthat both coffee, and the Internet appeal to a variety of people. In addition to these categories, Wired Bean's target market is the educated and upwardly mobile segment of Salem which resides primarily in the central and eastern portions of the city. The majority of these individuals are students and business people.
The retail coffee industry in Salem experienced rapid growth at the beginning of the decade and is now moving into the mature stage of its life-cycle. Many factors contribute to the large demand for good coffee in Salem. The University is a main source of demand for coffee retailers. The climate in Salem is extremely conducive to coffee consumption. Current trends in the Northwest reflect the popularity of fresh, strong, quality coffee and specialty drinks. Salem is a haven for coffee lovers.
The popularity of the Internet is growing exponentially. Those who are familiar with the information superhighway are well aware of how fun and addicting surfing the net can be. Those who have not yet experienced the Internet, need a convenient, relaxed atmosphere where they can feel comfortable learning about and utilizing the current technologies. Wired Bean seeks to provide its customers with affordable Internet access in an innovative and supportive environment.
Do to intense competition, cafe owners must look for ways to differentiate their place of business from others in order to achieve and maintain a competitive advantage. The founder of Wired Bean realizes the need for differentiation and strongly believes that combining a cafe with complete Internet service is the key to success. The fact that no cyber-cafes are established in Salem, presents Wired Bean with a chance to enter the window of opportunity and enter into a profitable niche in the market.
There are approximately sixteen coffee wholesalers in Linn County. These wholesalers distribute coffee and espresso beans to over twenty retailers in the Salem area. Competition in both channels creates an even amount of bargaining power between buyers and suppliers resulting in extremely competitive pricing. Some of these major players in the industry (i.e. Frederickson Supply Co., Inc. and JavaJoint Ltd.) distribute and retail coffee products.
The number of on-line service providers in Salem is approximately eight and counting. These small, regional service providers use a number of different pricing strategies. Some charge a monthly fee while others charge hourly and/or phone fees. Regardless of the pricing method used, obtaining Internet access through one of these firms can be expensive. Larger Internet servers such as America On-line, Prodigy and CompuServe are also fighting for market share in this rapidly growing industry. These service providers are also rather costly for the average consumer. Consumers who are not convinced they would frequently, and consistently travel the Internet, will not be willing to pay these prices.
The dual product/service nature of Wired Bean's business faces competition on two levels. Wired Bean competes not only with coffee retailers, but also with Internet service providers. The good news is that Wired Bean does not currently face any direct competition from other cyber-cafes in the Salem market. There are a total of three cyber-cafes in the state of Oregon. One located in Portland and two in Ashland.
Heavy competition between coffee retailers in Salem, creates an industry where all firms face the same costs. There is a positive relationship between price and quality of coffee. Some coffees retail at $8/pound while other, more exotic beans may sell for as high as $16/pound. Wholesalers sell beans to retailers at an average of a 50 percent discount. For example, a pound of Sumatran beans wholesales for $6.95 and retails for $13.95. And as in most industries, price decreases as volume increases.
Competition and Buying Patterns
The main competitors in the retail coffee segment are Purgatory Cafe, Mud Hub, JavaJoint and Frederickson Supply These businesses are located in or near the downtown area, and target a similar segment to Wired Bean's (i.e. educated, upwardly mobile students and business people).
Competition from on-line service providers comes from locally owned businesses as well as national firms. There are approximately eight, local, on-line service providers in Salem. This number is expected to grow with the increasing demand for Internet access. Larger, on-line service providers such as AOL and CompuServe are also a competitive threat to Wired Bean. Due to the nature of the Internet, there are no geographical boundaries restricting competition.
Factors such as current trends, addiction and historical sales data ensure that the high demand for coffee will remain constant over the next five years. The rapid growth of the Internet and on-line services that has been witnessed world-wide is only the tip of the iceberg. The potential growth of the Internet is enormous, to the point where one day, a computer terminal with on-line connection will be as common and necessary as a telephone. This may be ten or twenty years down the road, but for the next five years, the on-line service provider market is sure to experience tremendous growth. Being the first cyber-cafe in Salem, Wired Bean will enjoy the first-mover advantages of name recognition and customer loyalty. Initially Wired Bean will hold a 100 percent share of the cyber-cafe market in Salem. In the next five years, competitors will enter the market. Wired Bean has set a goal to maintain greater than a 50 percent market share.
|Potential Customers||Customers||Growth rate|
A market survey was conducted in the Fall of 1996. Key questions were asked of fifty potential customers. Some key finding include:
- Thirty five subjects said they would be willing to pay for access to the internet.
- Five dollars an hour was the most popular hourly internet fee.
- Twenty four subjects use the internet to communicate with others on a regular basis.
STRATEGY AND IMPLEMENTATION SUMMARY
Wired Bean will follow a differentiation strategy to achieve a competitive advantage in the cafe market. By providing Internet service, Wired Bean separates itself from all other cafes in Salem. In addition, Wired Bean provides a comfortable environment with coffee and bakery items, distinguishing itself from other Internet providers in Salem.
Wired Bean will position itself as an upscale coffee house and Internet service provider. It will serve high-quality coffee and espresso specialty drinks at a competitive price. Due to the number of cafes in Salem, it is important that Wired Bean sets fair prices for its coffee. Wired Bean will use advertising as its main source of promotion. Ads placed in The Daily Cyclone, Salem Weekly, and the Jubilee Herald will help build customer awareness. Accompanying the ad, will be a coupon for a freehour of Internet travel. Furthermore, Wired Bean will give away three free hours of Internet use to beginners who sign up for an introduction to the Internet workshop provided by Wired Bean.
Target Markets and Market Segments
Wired Bean intends to cater to people who want a guided tour on their first spin around the information highway and to experienced users eager to indulge their passion for computers in a social setting. Furthermore, Wired Bean will be a magnet for local and traveling professionals who desire to work or check their e-mail messages in a friendly atmosphere. These professionals will either use Wired Bean's PCs, or plug their notebooks into Internet connections. Wired Bean's target market covers a wide range of ages. From members of Generation X who grew up surrounded by computers, to Baby Boomers who have come to the realization that people today, cannot afford to ignore computers.
Wired Bean bases it's prices for coffee and specialty drinks on the "Retail Profit Analysis" provided by our supplier; Frederickson Supply Co., Inc. Frederickson Supply has been in the coffee business for 22 years and has developed a solid pricing strategy.
Determining a fair market, hourly price, for on-line use is more difficult because there is no direct competition from another cyber-cafe in Salem. Therefore, Wired Bean considered three sources to determine the hourly charge rate. First, the cost to use other Internet servers, whether it is a local networking firm or a provider such as America On-line. Internet access providers use different pricing schemes. Some charge a monthly fee, while others charge an hourly fee. In addition, some providers use a strategy with a combination of both pricing schemes. Thus, it can quickly become a high monthly cost for the individual. Second, Wired Bean looked at how cyber-cafes in other markets such as Portland and Ashland went about pricing Internet access. Third, Wired Bean used the market survey conducted in the Fall of 1996. Evaluating these three factors resulted in Wired Bean's hourly price of five dollars.
Wired Bean will implement a pull strategy in order to build consumer awareness and demand. Initially, Wired Bean has budgeted $5,000 for promotional efforts which will include advertising with coupons for a free hour of Internet time in local publications and in-house promotions such as offering customers free Internet time if they pay for an introduction to the Internet workshop taught by Wired Bean's computer technician. Wired Bean realizes that in the future, when competition enters the market, additional revenues must be allocated for promotion in order to maintain market share.
As a retail establishment, Wired Bean employs people to handle sales transactions. Computer literacy is a requirement for Wired Bean employees. If an employee does not possess basic computer skills when they are hired, they are trained by our full-time technician. Our full-time technician is also available for customers in need of assistance. Wired Bean's commitment to friendly, helpful service is one of the key factors that distinguishes Wired Bean from other Internet cafes.
Service and Support
Any customer who runs into trouble working on a terminal can ask Wired Bean's full-time technician for assistance. If the technician is not available, Wired Bean's part-time employees are trained to deal with common problems encountered by novices. Also, if Wired Bean's founder, Peter Jones is around, he is always willing to personally help a customer.
In the event that a customer is unsatisfied with a food or beverage product, Wired Bean will courteously remedy the situation by either replacing the item, or offering a complete refund.
Wired Bean will purchase coffee beans from Frederickson Supply Co., Inc., a coffee wholesaler and retailer based in Corvallis. Frederickson Supply is extremely supportive of its buyers. They sell as well as lease coffee equipment such as grinders and espresso machines. Frederickson Supply provides the following: a one or two year parts and labor limited warranty, installation and testing, on-call service (24hrs/day-7 days/week), training on-site, or at their Corvallis facility, and a start-up kit including syrups, chocolate and other supplies necessary to operate an espresso machine.
From the time of start-up, Wired Bean has allocated $5,000 for promotional efforts. The majority of these funds will go towards advertising, while the remaining dollars support in-house promotions such as coupons for free Internet access. Wired Bean realizes that direct competition is just around the corner. Therefore, Wired Bean is planning on contributing an additional 2%-5% of revenue toward promotion as it becomes necessary to combat competitive threats. Due to the uncertainty of competition at the present time, Wired Bean is not setting a scheduled plan for implementation of sales promotions.
Wired Bean is owned and operated by Mr. Peter Jones. The company, being small in nature, requires a simple organizational structure. Implementation of this organizational form calls for the owner, Mr. Jones, to make all of the major management decisions in addition to monitoring all other business activities.
The staff will consist of six, part-time employees working thirty hours a week at $5.50 per hour. In addition, one full-time technician (who is more technologically oriented to handle minor terminal repairs/inquiries) will be employed to work forty hours a week at $10.00 per hour. The three private investors, Jerry Thomas, Jack Simmons and Gary St. Clair will not be included in management decisions. This simple structure provides a great deal of flexibility and allows communication to disperse quickly and directly. Because of these characteristics, there are few coordination problems seen at Wired Bean that are common within larger organizational chains. This strategy will enable Wired Bean to react quickly to changes in the market. In the future, a full-time manager will be employed.
|Part Time 1||$7,920||$8,158||$8,402|
|Part Time 2||$7,920||$8,158||$8,402|
|Part Time 3||$7,920||$8,158||$8,402|
|Part Time 4||$7,920||$8,158||$8,402|
|Part Time 5||$7,920||$8,158||$8,402|
|Part Time 6||$7,920||$8,158||$8,402|
Summary of Financial Statement
Sales: Wired Bean is basing their projected coffee and espresso sales on the financial snapshot information provided to them by Frederickson Supply Co. Internet sales were estimated by calculating the total number of hours each terminal will be active each day and then generating a conservative estimate as to how many hours will be purchased by consumers.
Cost of Goods Sold: The cost of goods sold for coffee related products was determined by the "retail profit analysis" we obtained from Frederickson Supply Co. The cost of bakery items is 20% of the selling price. The cost of Internet access is $660 per month, paid to Capitol Computers for networking fees. The cost of e-mail accounts is 25% of the selling price.
Fixture Costs: Fixture costs associated with starting Wired Bean are the following: 11 computers = $22,000, two printers = $1,000, one scanner = $500, one espresso machine = $10,700, one automatic espresso grinder = $795, two coffee/food preparation counters = $1,000, one information display counter = $1,000, one drinking/eating counter = $500, sixteen stools = $1,600, six computer desks w/chairs = $2,400, stationary goods = $500, two telephones = $200, decoration expense = $14,110 for a total fixture cost of $50,000.
Salaries Expense: The founder of Wired Bean, Peter Jones, will receive a salary of $24,000 in year 1, $36,000 in year 2 and $48,000 in year 3.
Payroll Expense: Wired Bean intends to hire six part-time employees at $5.75/hour and a full-time technician at $10.00/hour. The total cost of employing seven people at these rates for the first year is $7,240/month.
Rent Expense: Wired Bean is leasing a 1700 square foot facility at $.85/sq. foot. The lease agreement Wired Bean signed specifies that we pay $1445/month for a total of 36 months. At the end of the third year, the lease is open for negotiations and Wired Bean may or may not re-sign the lease depending on the demands of the leasor.
Utilities Expense: As stated in the contract, the lessor is responsible for the payment of utilities including: gas, and garbage disposal and real estate taxes. The only utilities expense that Wired Bean must pay is the phone bill generated by fifteen phone lines; thirteen will be dedicated to modems and two for business purposes. The basic monthly service charge for each line provided by US West is $17.29. The 13 lines used to connect the modems will make local calls to the network provided by Capitol resulting in a monthly charge of $224.77. The two additional lines used for business communication will cost $34.58/month plus long distance fees. Wired Bean assumes that it will not make more than $40.00/month in long distance calls. Therefore, the total cost associated with the two business lines is estimated at $74.58/month and the total phone expense at $299.35/month. In addition, there will be an additional utility expense of $800 for estimated EWEB bills.
Marketing Expense: Wired Bean will allocate $5,000 for promotional expenses at the time of start-up. These dollars will be used for advertising in local newspapers in order to build consumer awareness. For additional information please refer to section 5.0 of the business plan.
Insurance Expense: Wired Bean has allocated $1,440 for insurance for the first year. As revenue increases in the second and third year of business, Wired Bean intends to invest more money for additional insurance coverage.
Legal and Consulting Fees: The cost of obtaining legal consultation in order to draw up the paper work necessary for an LLC is $1,000.
Depreciation: In depreciating our capital equipment, Wired Bean used the Modified Accelerated Cost Recovery Method. We depreciated our computers over a five year time period and our fixtures over seven years.
Taxes: Wired Bean is an LLC and as an entity it is not taxed. However, there is a 26% payroll burden.
Accounts Payable: Wired Bean acquired a $24,000 loan from a bank at a 10% interest rate. The loan will be paid back at $750/month over the next three years. The $9,290 short term loan will be paid back at a rate of 8%.
|Appendix: Personnel Plan|
|Part Time 1||$660||$660||$660||$660||$660||$660|
|Part Time 2||$660||$660||$660||$660||$660||$660|
|Part Time 3||$660||$660||$660||$660||$660||$660|
|Part Time 4||$660||$660||$660||$660||$660||$660|
|Part Time 5||$660||$660||$660||$660||$660||$660|
|Part Time 6||$660||$660||$660||$660||$660||$660|