Welcome to this week’s Premier Business Operations newsletter…

So the first month of 2011 is behind us…  have you made any adjustments to your marketing strategy from last year?  The longer you wait to take action, the deeper hole you will find yourself standing in.  Before I get into this week’s newsletter, I just wanted to remind readers that previous editions can be found online at https://premierbusinessoperations.wordpress.com/ or alternatively by going to the Premier Business Operations website:  www.premier-business-operations.com.   I also wanted to thank everyone that has gone to our Facebook page and become a fan of Premier Business Operations.

This week’s newsletter is a follow-up to the  January 30 newsletter  where I introduced the three lifelong friends Johnny, Bruce and Mike.  You may remember… these are the guys with the business idea of repurposing pallets into home furnishings.  Since that newsletter publication, I’ve had a couple of meetings with them to dig a little deeper into their business plan.  So here are a few discussion items and concerns that I shared with the trio regarding their plan…

  • The amount of labor necessary to repurpose the pallet into usable raw material is too labor intensive, with an estimate of 1 hour of per pallet yielding an estimate of 8-10 board feet wood and this is dependent on the quality of the pallet.  This is approximately enough wood to make an end table.  During the discussion with the fearless trio, I tried to get a better understanding of costs, labor etc.  Beyond the disassembly of the pallet, additional preparation is necessary (planing and joining) before the wood is truly usable, adding another hour to the process.  Assuming that 20 pallets can safely be hauled in the pick-up truck with 2 additional hours of labor and one can estimate that 2.1 man hours will be spent for each 10 board feet of wood.  Assuming a wage of $20 per hour, at $42 this is a rather costly price just for the raw materials for an end table.  As a comparison, I was able to find pricing for red oak at $2.79 per board foot, which I’m sure could be negotiated lower based on volume discount.  Bottom line, unless they can substantially reduce the time to prepare the wood or find cheaper labor than themselves to do this, they would be better off purchasing the wood outright or face an increase in the pricing of the finished product.
  • Since the home furnishing industry is largely tied to the housing industry, it is difficult to for me to believe that this is a thriving market.  In fact, as with the housing market there has been a significant drop (over 10%) in nationwide sales since the recession began.  Depending on the location that number may be even higher.  Although the drop has been nationwide, there may indeed be a niche targeting higher end consumers; those least impacted by the recession.  Of course, this is a smaller target audience and marketing to that audience will require more than just selling out of a garage.  Rich people shop at showrooms on Michigan Avenue, not a garage.
  • Start-up costs came up during our discussion as well…  while Mike personally owns a fair sized wood shop, when you start looking at what he owns there are some gaps in his toolset.  For instance, the wood planer that he has is only suitable for dimensions no wider than 12”; it’s an older Craftsman model.  To seriously consider finishing table tops, a planer that can handle at least 24” is needed – cost, $5,000.  Another shortcoming of Mike’s shop is a lack of wood exhaust system – cost, $2,500.  And one more significant item came up – the capacity of the electrical system in Mike’s garage would need to be doubled.

We spoke for about 2 hours covering a lot of ground beyond what I summarized above.  Unfortunately after putting pencil to paper, it’s hard to envision this being the money making venture that the trio envisioned 

In this particular instance a complete business plan was not developed, but enough of the prominent parts were research and developed to convince the trio that their current direction may need some course correcting.  This is a common path for most entrepreneurs as it’s very rare to stumble on the opportunity that is the “next big thing”.  The biggest lesson here, the trio took the time to meet with me and consider the real showstoppers of the business plan.  Premier Business Operations has the ability to help you analyze your business idea and develop a realistic scenario-based business plan.  To find out more about how Premier Business Operations can help you follow the road to success, please visit our website at www.premier-business-operations.com or contact us at information@premier-business-operations.com

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