Jason O'Neil would like to start up a company called Grounded LLC. It proposes to be the Indianapolis International Airport's first full-service office center. Grounded will operate under the management of Jason and nine client assistants. The business will provide a way for travelers to conduct their day-to-day business operations while on the road. Grounded offers its customers copy and printing services, fax services, a conference room, and pay per use computer terminals to access the Internet via ISDN and T-1 connections. Each office will be equipped with all the amenities business travelers need when they are on the road: Gateway PC, laptop data port, color printer, scanner, fax machine, etc.
Grounded's market niche will be frequent travelers who need Internet connection to stay in communication with their clients and companies. The business has determined it can gain 3.8% market penetration in the first year of operations, equating to 14, 238 total clients.
Sales are anticipated to climb from 45 clients per day in the first month of operations to 70 clients per day in the middle of year three, which is deemed to be maturity (pg 279). Grounded plans to break even by the beginning of its third year of operations.
II.Identification and Analysis of Strategic Issues
Grounded offers a unique service--a full-service office available in an airport. Right now there is little competition for the company. The only other competitors are stand-alone Internet kiosks with slow connections and premiere airline clubs. These two options also lack the customer service that Grounded would provide. Airline clubs may have representatives, but not as many as Grounded will hire. Client assistants are available to answer questions and troubleshoot any computer problems.
Grounded is also in a high traffic area. Eight million passengers pass through Indianapolis International Airport, which also has more than 175 daily departures. Passengers are bound to notice the signs posted in the food court, concourses, and the main shopping area fo the airport. The average patron would probably spend around forty minutes (after removing security time) at the office center (Table 1).
The business center offers a full suite of Microsoft office software, which will likely expand when the company starts growing.
Jason has little experience in management and creating a business with a technical focus. He is mainly relying on the quality of the consultants he will hire to take care of important business matters. Grounded is also dependent on the airport's willingness to let it compete with the already established businesses (e.g. US Airways club, Internet kiosks). If the airport decides not to renew its lease, Grounded will be permanently shut down.
Since Grounded relies part of its success on its customer service, it must hire reliable and friendly employees. The wages are relatively low for a person with advanced computer knowledge. This may be a problem when attracting a good workforce. Increasing the wage to $10/hour or offering an incentive may be more appropriate.
US Airways also maintain two business centers that are similar to Grounded in Philadelphia and Charlotte. It might be a matter of months before they build a new one in Indianapolis. The airport may reject Grounded's proposition because it may interfere its current relationship with US Airways.
As one would conclude from these findings, the services each business provides is essentially the same. In the end, it would be the business traveler who would decide which service he wants. He would probably be less likely to switch if he was already a US Airways club member. In addition, a frequent traveler may enjoy the status of being a member of an up-scale club. On the other hand, people who are not in the airport as much may like that Grounded does not charge a membership fee to use its facility.
Technology continues to grow in importance among frequent business travelers. Americans are becoming increasingly dependent on mobile communication. While the benefit of complimentary local long-distance calls is not as appealing (almost every businessperson has a cell phone), they are more attracted to the computers and Internet service that Grounded will provide.
If Grounded is successful in the Indianapolis International Airport, it can easily be duplicated in other high traffic airports. With a good set of financial statements and collateral to back it up, Grounded can expect business loans from banks and other investors. By following the same formula, Jason can establish similar workstations and increase store recognition.
Currently, the direct competitors are US Airways Club. The only other places that offer Internet are the stand-alone kiosks, but they do not offer the same software capabilities or work space as Grounded does. Jason needs to worry more about the indirect competition facing his company. First, today's traveler is much more wired with communication devices such as cell phones and pagers. Second, passengers only want to spend a limited amount of money at the airport. One is usually more willing to spend it on food and periodicals than working online. Finally, Grounded is only one of the many alternatives for going online. A passenger may wait until she gets home, to the office, or to the hotel, whichever is the most convenient and/or cheapest.
Boeing has also been installing high-speed Internet, data and entertainment connectivity to airplanes. The connection fee is only $30 for the whole flight or $10 per half hour. The service is available in the executive services market in the United States. Market studies in January 2004 indicate customer interest and a successful demonstration of the capabilities of the service. This just adds one more competitor to the already Internet-saturated market.
While technology is a staple in the average consumer's lifestyle, it has a habit of constantly changing. Grounded needs to carefully budget how much it can spend to update its software programs and, more importantly, its hardware. For example, the business plan states that its computers will 128MB of RAM and an Intel Pentium III processor. These specifications are outdated--the average computer should have at least 256 MB of Ram and an Intel Pentium IV processor. It should also include a CD-RW drive to write disks. This is why Grounded and other places offering computing services must update their systems at least every other year.
III. Strategic Recommendations
I recommend lowering the price to those of Internet cafes. $15 an hour seems reasonable enough to attract more than just business executives. Grounded would be able to expand its market share to people who travel in coach, ones who cannot take advantage of the Internet services offered only for first class passengers. Grounded would be more successful if it focuses more on the general population. People who can't afford a club membership are more likely to use Grounded's services.
Grounded should also be aware of the risks of owning computers accessed by the public. Anyone can access pornography web sites or download viruses without the proper software protection. Grounded plans to purchase Norton Antivirus as a defense for this, but it may need to be customized to provide full protection.
Options for growth are outstanding if Grounded expands to places where such computer services are not available. At smaller airports with a lower percentage of business travelers, Grounded can save money by excluding fax machines and scanners. Most users just want to check their email and look at stock quotes.
Jason is taking the right step by already having an elaborate business plan. He knows what his goals are and how much money he requires to open the business. The plan is evidence that he has analyzed all aspects of the venture and prepared effective strategies to deal with the uncertainties that will undoubtedly arise. A well-researched plan will enable him to avoid many of the pitfalls and problems that await every business.
It is never too early to start strategic planning. Strategic planning can solve many problems and can clarify complications that are occurring at the present time for a company. Starting companies face a lot of uncertainty in attempting to become established. By having a formal plan, Jason can focus his energy and resources to ensure he is working toward the same goals and to assess and adjust the organization's direction in response to a changing environment. Since Grounded is just starting out, Jason's strategic plan can be much simpler.
Grounded should encourage frequent business travelers to purchase its annual membership. Although the survey says pay-per-use is more popular, travelers are more likely to look for Grounded in other locations. On the other hand, pay-per-use is a more affordable choice for the average passenger flying coach.
The last chapter of the book deals with venture capital and determining the right kind of financing.The authors also recommend adjusting the assumptions and projections made in the financial plan in order to determine the business's needs under different conditions. Jason never included a plan of the best likely case and the worse likely case. Investors want to know what to expect when the company is not as successful as they had hoped it would be.
Jason should also be aware of his exit plan. Does he still want to continue with the business or get out when it becomes successful? If he decides to start a new business, he must first find a manager that can take over. This manager should have the same enthusiasm and passion for Grounded as Jason. The vision may change when ownership changes, but the core values should be permanent.