ECOWASH: A BUSINESS OPPORTUNITY WORTH PURSUING?

. The two exchanged contact information and then set up a time to meet so that Patel could see Chaos invention. When they met, Patel was pleasantly surprised to see that Chaos invention was further developed than that of a prototype. Chao had taken her invention out of the laboratory and tested it extensively in the field. The product was ready to be marketed to customers. The business opportunity that Patel had been looking for seemed to be in front of him. Not only was the product ready to be marketed to potential customers, but he and Chao seemed to get along well. Chao seemed willing to enter a partnership with Patel. The venture was his for the taking, but was this a business he should be a part of? THE ECOWASH PRODUCT Chao called her product EcoWash an all-in-one system that could be used to clean both the exterior and interior of any vehicle. Unlike most car washes, where the water used to wash the vehicle was discharged as waste water, the EcoWash system had a patented wash head that vacuumed up the dirty water as soon as the cleaning solution was sprayed onto the vehicles surface. The wash head featured a soft foam brush, power spray and vacuum, which were used to whisk dirt and water away without scratching the surface of the vehicle. The result was an extremely efficient car wash system that was also very ecologically friendly. A car wash performed using the EcoWash system used less than two gallons of water. This was a considerable improvement when compared to the 38 gallons that were typically used at a full-service car wash.1 The EcoWash unit was not only efficient, it was also easy to install. The EcoWash unit and all of the necessary equipment could be mounted on a small pickup truck for use by a two-person crew. Complete controls would allow the operator to regulate water, soap mixtures, spray rate and washing speed. Pre- soaking was unnecessary and washing was fast. Vehicles could be dried with towels to provide the desired finish. In addition to exterior cleaning, the EcoWash unit also functioned as a carpet or upholstery cleaner. The powerful vacuum component could clean even the dirtiest carpets and the built-in sump pump could be used to discharge dirty water into an approved receptacle. As a result, EcoWash was an environmentally friendly carwash service that leant itself to mobile operators as well as those who wished to use it from a stationary location; EcoWash was very dynamic. THE CAR WASH INDUSTRY In 2012, there were approximately 183 million passenger cars, light trucks, vans and sport utility vehicles in the United States.2 A 2011 customer survey by the International Carwash Association3 found that approximately 69 per cent of consumers used professional car washes to clean their vehicles, an increase of 21 percentage points from 1996. Amongst those who used professional car washes, 35 per cent used full- serve car washes and 34 per cent used self-serve car washes. Moreover, almost one out of every three car wash patrons were considered to be frequent washers who washed their vehicle at least three times a month. Consumers who did not consider themselves to be frequent washers cited price, necessity and time as the top three reasons that they did not visit a professional car wash more frequently. A growing concern amongst the American public was the matter of clean water and the environment. The same 2011 study found that 59 per cent of those surveyed expressed interest in going to a car wash that was environmentally friendly, and 60 per cent of those surveyed would tell others about an environmentally wash car wash service. In addition, frequent washers expressed willingness to drive further and pay somewhat more for an environmentally friendly car wash. Because EcoWash was an environmentally friendly alternative to traditional car washes it would have been attractive to these consumers. POTENTIAL CUSTOMER SEGMENTS A lengthy brainstorming session between Patel and Chao resulted in a decision to employ a business-to- business approach. Rather than selling car washes directly to consumers, Chao and Patel felt that their chances for creating a successful business would be better if they pursued business customers. As such, they felt that there were four groups of potential business customers that might be interested in the EcoWash service: 1. Car dealerships: Car dealers required frequent (typically on a weekly basis) washes for a large number of vehicles. If dealerships were located in close proximity to each other it would have been possible for an EcoWash truck to service a large number of customers with little travel between jobs. Moreover, dealerships wanted their vehicles to look their best. Fleet vehicles: Vehicles that were part of fleets (e.g., car rental locations, electric utility vehicles, cable company vans) also required regular washes on a year-round basis. Valets at shopping centers, malls and restaurants: EcoWash could have partnered with valet services or parking garages at upscale shopping centers or restaurants to offer car washes to their patrons. These customers were likely to be less price-sensitive than others, so there may have been potential to generate more revenue with this customer segment than with others. Other aspiring entrepreneurs: A radical option, posed by Patel, was to sell the EcoWash unit to other entrepreneurs or small business owners, who would then use it to offer car washes to others. In other words, the company would be selling a product rather than a service. FINANCIALS An important consideration for Patel when considering the business opportunity was whether it had the potential to move forward and if it could be profitable on a sustainable basis. His preference was to be part of a business that was going to grow rapidly, as it would likely offer tremendous opportunities for professional growth. Nevertheless, he also needed a steady paycheck in order to cover his living expenses. Chao and Patel decided to start the business as one that would offer car wash services to businesses and consumers using the EcoWash product (pursuing customer groups 13, as mentioned in the previous section). They would start with one truck, two car wash workers, one sales person and one manager. The staff would work a standard 40-hour week. Of the eight hours that the car wash staff would be working each day, it was likely that at least two of these hours would not be spent actively washing vehicles. This was to allow for preparation time before leaving the main office, time to setup and put away the car wash equipment at each location and time to drive between the various locations. That left the workers with six hours in which to be productive. After using EcoWash on their own cars and the cars of their friends, Chao and Patel learned that the average time needed to wash a car was 15 minutes. Therefore, each team of workers could wash a maximum of four cars per hour, or 24 cars per day. Assuming that EcoWash charged customers US$254 per car wash, this translated to maximum revenue of $12,0005 per month (see Exhibit 1). CONCLUSION As Patel stood in line at the universitys cafe, he pondered the EcoWash opportunity. EcoWash was clearly much more than an idea: it was a real product that could be used to generate revenue immediately. He and Chao seemed to have complementary skills. She would create innovative products and he would figure out how to make money with them. Most importantly, he wouldnt be an employee, he would be a partner, which meant he would work with someone, rather than for them. While it seemed attractive, launching EcoWash wasnt going to be easy. Because the unit had already been developed, the immediate challenge for EcoWash was marketing the product. What was Patels plan to quickly find customers interested in EcoWash? How would they structure the partnership? Patel had little savings, so the only way he could financially contribute to the business would be if he kept his current job as a bartender. Could EcoWash be successful if the founders only worked there part-time? After getting his coffee, Patel hurried to get to his next class. All the while, he was keenly aware that soon there would be no class to go to and that hed need to make a decision about his future. EXHIBIT 1: PROJECTED FINANCIALS FOR YEARS 13 Year 1 Year 2 Year 3 Number of trucks 1 2 3 Number of car wash workers 2 4 6 Number of sales people 1 1 1 Number of managers 1 1 1 Maximum number of car washes per day 24 48 72 Revenues $156,000 $312,000 $468,000 Expenses: Salaries $100,880 $138,320 $175,760 Supplies & Maintenance $18,720 $37,440 $56,160

1. State 3 channels that EcoWash as car wash service could use to reach customers and provide one reason why each channel can be effective.

   Follow this structure:

   Channel 1:

   Reason

   Channel 2:

   Reason

   Channel 3:

   Reason

2. Question 2

   0.66 Points

   Write a (lean start-up) hypothesis for EcoWash as a car washing service that focuses on testing one key element (e.g., one of the nine building blocks) of the Business Model Canvas (BMC).

   Follow this structure:

   BMC element:

   Hypothesis:

3. Question 3

   0.66 Points

   A key driver of revenues for the EcoWash business model focused on aspiring entrepreneurs would be:

   Choose one option

   1. Number of cars per car dealership

   2. None of the other answers are correct

   3. Number of cars washed

   4. Number of EcoWash units sold

4. Question 4

   0.66 Points

   Based on the 25$ price point, state 2 key assumptions that would drive the estimation of Eco-wash margins as a car washing service and EXPLAIN why they are relevant .

   Follow this structure:

   Assumption 1:

   Reason:

   Assumption 2:

   Reason:

5. Question 5

   0.66 Points

   When thinking of scaling up EcoWash, which of the following is not a dimension that needs to be considered? Choose one option.

   1. Growing the customer base

   2. Growing revenues

   3. Growing the organizational size

   4. Growing the number of product features

6. Question 6

   0.66 Points

   If Patel and Chao had agreed the 40/60 equity division and the angel investor gets 25% of the ownership as the result of her investment, what would be the impact of dillution on Patels and Chaos ownership?

   1. They will have 10% (Patel) and 15% (Chao) of EcoWash

   2. Because angel investors do not acquire equity of the company, Patel and Chao will retain their 40% and 60% ownership

   3. They will have 30% (Patel) and 45% (Chao) of EcoWash

   4. Because they are founders of the company they will retain the 40% and 60% ownership

7. Question 7

   0.66 Points

   Explain 3 factors that Patel and Chao should consider when discussing how to split the equity of the venture. Then explain, briefly, why each of these factors are important.

   Structure your answer as follows:

   Factor 1:

   Explanation:

   Factor 2:

   Explanation:

   Factor 3:

   Explanation:

8. Question 8

   0.66 Points

   What change in EcoWash would not constitute a pivot? Choose only one option.

   1. Increasing the US$25 per wash launching price

   2. Selling the business

   3. Modifying the cleaning features of EcoWash

   4. Consider another customer set

9. Question 9

   0.66 Points

   Chaos approach to building EcoWash is not considered a lean start-up approach because...

   Choose only one option.

   1. She built the product with no input from customers

   2. She didn't write a business plan

   3. She didn't approach professional investors

   4. All of the other answers are correct

10. Question 10

    0.66 Points

    What is the riskiest assumption that EcoWash needs to test for the vehicle fleets customer segment problem. Explain why you think it is the riskiest. Use this structure:

    Assumption:

    Why it is the riskiest:

11. Question 11

    0.66 Points

    Identify two key features and the corresponding benefit that would drive the EcoWash value proposition.

    Structure your answer as follows:

    Feature 1:

    Benefit:

    Feature 2:

    Benefit:

12. Question 12

    0.66 Points

    Patel and Chao decided to conduct customer interviews for valet service. Which of the following would represent adequate interview questions?

    Choose one option

    1. How often would you use a car-washing service provided by your valet at the mall while you are running your errands?

    2. Do you think car-washing service should become more environmentally friendly?

    3. None of the other questions is adequate

    4. Will you be willing to pay 25$ to get your car cleaned while you are shopping at the mall with a mobile environmentally friendly car washing service?

13. Question 13

    0.66 Points

    State two customer discovery and validation tools/techniques that Chao could be using to find out whether a problem and a market exist for Eco-wash. Give one reason why each tool would be effective.

    Structure your answer as follows:

    Tool 1:

    Explanation:

    Tool 2:

    Explanation

14. Question 14

    0.66 Points

    Patel and Chao have decided they would finance EcoWash through bootstrapping. Which of the following is not considered an advantage of bootstrapping?

    1. Not giving up equity

    2. Discipline

    3. Accessing huge amounts of funds

    4. Realistic growth rates

15. Question 15

    0.66 Points

    Patel and Chao have received the offer from an angel investor to invest $200,000 in exchange for a 25% ownership stake. The pre-money valuation of EcoWash is...

    Choose one option

    1. 200,000 $

    2. 600,000 $

    3. 1,000,000 $

    4. 800,000 $