Case Study – Rebirth Youth Group
When we met Rebirth, they had jobs ranging from railway track engineer to dairy farmer. They came together with the vision of starting a business to bring coffee to the low and middle income segments of Nakuru.
They had a clear idea and wanted a 50,000 Ksh loan to buy a mobile coffee cart and sell coffee in specific areas of high demand.
The key in early sessions was helping them understand exactly what their proposition to customers actually was. A tool called the strategy canvas was very useful in aligning their vision for the business with the reality of what customers actually wanted from a refreshments business. Initially the group had an idealised view that they could make coffee on par with Java’s quality (a high end coffee shop chain) at a fraction of the price. In fact, having looked at the customer segment we were targeting (low-middle income), the quality was not paramount. Working through the strategy canvas led us to the following conclusion: presentation (packaging), variety of product and price were the key attributes for a breakthrough refreshment business in the Nakuru market. How well the business achieved these three desired outcomes would dictate how well it could slot in to the low-middle income customer segment, sitting below Java on the price scale but above the street hawkers.
The next key stage was testing. We ran three separate tests, each of which was useful in different ways. The launch of the first test in itself gave the group a new angle to their business: coffee delivery (whereas before they had just envisioned a takeaway business). We set a small target of 10 delivery orders which we achieved in approximately one hour. For the second test we set a target of 50 orders but had to stop the test mid way through as our cups were leaking! For the final test we managed to source new cups at a lower cost and beat the target of 50 – around 70 cups were sold.
Testing accomplished the following things:
- Identified operational problems and inefficiencies with the production process
- Tested the market demand for delivery coffee in town
- Allowed us to get feedback from customers on whether the quality of our offering was good enough
- Provided evidence for the loans panel to see that this was a viable business.
Finally we had a couple of sessions on the cash flow and P&L forecasts for the business idea. We based these forecasts on the results that we had shown in testing. We maintained a fairly conservative outlook with the aim of proving that the loan could feasibly be repaid with basic sales of the same amount shown in testing. Going through the process of forecasting ended up being very useful in allowing the group to understand the potential cash flow issues associated with a high volume, relatively low margin business. It also laid out a clear plan for the group in terms of the timings on when to make large stock purchases.
Reflecting on my time, if I was to do it again I think we spent too long in the classroom planning out our test days. Instead, as soon as we could sort out a station in town, we should have been out trying to sell and see what products worked and what didn’t. Even though we managed to run three very useful tests, there was a whole range of other things we could have tried out: variations on pricing, other product ranges (cold drinks, herbal teas, etc), other locations.