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FCM1: Business Performance Report
CarboFi Custom Bikes
Performance Report
1. Business Overview
CarboFi Custom Bikes started as a company to make custom Carbon Fiber bikes available to the average person, providing valuable R&D for the Carbon Fiber bike industry, serving a worldwide market with locations in New York City, Bangalore, Rio De Janeiro, and Amsterdam. We are selling products to the three major bicycle market types of Recreational, Mountain, and Speed bikes, and own the largest share of each of these markets, and 42% of the overall market, with the potential to gain a larger share soon. We provide quality compensation and benefits for our employees to encourage them to stay and utilize 9 3D printers to provide an output of 72 units per day, with more capacity to come.
2. Financial Analysis
Topic 1 – Use of Loans and Cash
During my simulation, for the first year I did not take out any loans and did operate at a loss for the first two quarters. I operated on a cash basis, and even kept a balance in a CD to gain some interest income. Once we opened up a R&D Division, an initial loan was taken out to cover the cost of the initial R&D, with the thought process of “R&D is going to improve profitability in the long run, long past the payments on the loan, and will make us more marketable in the short term.” This decision ended up paying off, as by the end of the simulation, we held 42% of the market interest. This can be seen by the increase over the final 2 quarters with record sales and profits in each quarter.
Topic 2 – Research and development
In Q4, when R&D became available in Brand Management, I was given the opportunity to research changes that would improve the perception people had of CarboFi, as well as open doors for changes to our products that would increase their value monetarily and component wise. I decided that we would spend just under a million dollars in Q4 and Q5 to research improvements to the suspension system (which would increase the value on the Mountain and Recreational bike options that we offered), bike computers (which would greatly benefit all types of bikes), a stronger lighter carbon fiber material (again being more valuable for all bike variants), and, in Q5 specifically, new decal options. The plan was to have these all completed by the time that we reached Q6, so we could introduce a new line of bikes that show cased our newly developed technologies and saw that the market responded well to our new lines of bikes. We can come to this conclusion by seeing the 2 million dollars increase in sales quarter over quarter from Q6 to Q7, and an increase of 12% in market share from Q6 to Q7.
Topic 3 – Pricing (including rebates)
At the beginning of the simulation, and even through the first year, I didn’t go beyond the suggested Market Value and price. After this and seeing that I was at 100% on the price
satisfaction, I started to make minor increases to price, and lowering the rebate available on older models of bikes. In my business model, we would manufacture the newest version of the various bikes along with the one version previous. This was done to simplify the process of production and to allow us to keep our prices competitive and profitable for our company. As we viewed how the market responded to the changes in price and rebates, we fine- tuned those price adjustments to still bring in more revenue and chose to keep a rebate on our older models that we were still selling (though at a steep decrease from the rebate offered on the newer models to keep the interest on the newer more expensive models. Ultimately, we found that as long as we were releasing new models with better features, the market was okay with being slightly above the suggested market value for the bikes, and we were able to use that to increase our profits, as seen over the last three quarters. I would refer specifically to our sales of the CarboFi Crzrx4, which was only priced 100 over their price willing to pay and brought in an additional 100,000 in sales revenue and we were slightly behind on demand.
3. SWOT Analysis
SWOT Diagram
STRENGTH
Extensive R&D research
WEAKNESS
Advertising is consistently rated lower than competitors. OPPORTUNITY All Competitors are losing market share across all segments
THREAT
A merger of any combination of our competitors could threaten our market position and give other advantages.
SWOT Justification
Strength The rapid R&D strides in the company with the plans currently in progress and planned for future quarters can show the potential buyer that we are an innovative and adapting business who isn’t afraid to put our money where our mouth is. As we keep this point strong, the public perception could be very valuable in making CarboFi the go to name/brand in Carbon Fiber bikes. Weakness Only once or twice in the entirety of the simulation did the advertising for our products rank even acceptable, let alone beat out competitors. While we have been more aggressive with online advertising options, our printed advertisements leave to be desired. A suggestion might be to find an outside consultant/company to assist with and/or handle advertising for our products and improve our public appeal. Opportunity We have been in the top 2 of the market shares we’ve competed in every quarter, which gives us a unique opportunity. If we were to focus on the market segment, we are weakest in (for example, we only have 32% of the Speed bike segment versus 44% and 52% of recreation and mountain mike segments respectively) then we might be able to further dethrone our competition further, and even open opportunities to open shops in more locations and/or acquire or take over lower performing competition to expand our reach.
I chose to include this to show the usage of debt in my company. Most of the other individuals did not utilize debt in their company, which might have hindered their profitability in the long run, and kind of clotheslines growth. In my company, we didn’t utilize debt to purchase more printers or to pay employees. Rather, we used a loan to pay for our initial R&D to bring us to bear faster with more significant R&D items, namely the very expensive Carbon Fiber material Research, Bike Computer Research, and the Full Suspension research. These three items are the most expensive, but they are also the most sought-after features in bikes, especially in the markets that are being serviced. We decided that utilizing debt to be the first to market with these improvements while maintaining profitability would be the best option for us. Operating Expenses
The last graph I’d like to share is Operating Expenses. I was initially surprised by this graph, as the total revenues were increasing at a steady pace, as were the Cost of Goods Sold, but Operating expenses still dove by several thousand dollars from Q5 to Q6. I was able to find that my first R&D projects were very expensive for Q4 and Q5, with a cost of just under a million in Q4, and over a million in Q5. This was caused by major R&D research happening that finished up at the end of Q5, and ultimately led to lower R&D costs while still actively researching better product ideas. Having the lower Operating expenses helped to bring about the best quarter on record for our business.
5. Recommendations
SMART Goals
I would provide the goal to be a 40% market share in the speed bike by the end of Q7, maintain at least a 50% market share overall in Q8, and begin talks to acquire the weakest of the competitors in Q9. To accomplish the speed bike goal, creating a new line of speed bikes using the freshly researched improvements and features, and possibly undercutting the market price will allow the company to improve its sales in regard to speed bikes, and allow the company to gain that 10% increase in the Speed market segment. As long as the company continues to actively invest in R&D in Q8 and provide new models for salespeople to work with, it will be easy to maintain the overall 50% market share, which is only 8% more than what is currently held, and the increase in Speed will improve. By that point, the weakest competitor (Bright Cycle in this instance) would be in a prime position to begin talks about acquisition in Q9 and be ready to draw up final paperwork and submit for approval by end of Q10. Further goals can and should be evaluated then.
References
There is not external references for this report.
