Case

# Startup VS Consulting

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## Problemdefinition

Your objective today is to make a decision: you have an offer from a consulting company which will pay you €50.000 per year.

On the other hand, you always wanted to create your own startup in your favorite city. What would be the income difference?

## Kommentare

This case is deliberately open so that the interviewee has to build a good structure at the beginning to which they need to refer a lot.

The important thing in this case is not to get lost in too many details when estimating revenue and costs of the virtual startup, but at the same time build on realistic assumptions.

The industry is basically the choice of the interviewee. In the example we choose a small café in Berlin, Germany.

## Detaillierte Lösung

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.

The following structure provides an overview of the case:

### I. Revenue

#### Usually, revenue estimations can be carried out by the simple formula:

Here the interviewee should find reasonable assumptions for #costumers and the income per customer for his start-up.

Share Table 1 about customer and calculation details if inquired.

Information that can be shared if inquired:
• # of customers/purchases per day: in a small cafe start-up this can be estimated by the size of the cafe (max. 1 customer per 2 m2) and the opening hours. For a more realistic number consider hours of full and little occupancy and build an average over time.
• Example:
• Cafe area: 40 m2,
• 20 customers at high
• 3 customers at low capacity
• 14h open
• Income per customer and year is assumed to be €5.

This leads to 110 customers per day:

The total income will be €165.000 per year:

### II. Costs

According to the structure, the second estimation will be the costs.

Share Diagram 2 with the cost calculation tree. Share Table 2 if information about the calculation details is inquired.

#### Fix costs

First we will calculate the left side of the tree, the fix costs per year.

Rent:

Personnel costs:

For personnel cost we can assume that we have to employ one employee that we work together with.

#### Variable costs

The variable costs are assumed to be 30% of a purchase.

Variable costs = €165,000 * 30% = €49,500

### III. Profit

Profit = Revenue - Costs

= €165,000 - €92,700 = €72,300

The difference to the job offer is = 72,300 – 50,000 = 22,300 € /year

After the calculation is finished, the interviewee should come back to his structure and answer the following question.

#### Consider your profit analysis. What decision would you make and why?

This question opens a general discussion about the attractiveness and future of entrepreneurship or a employee position, in this case a consultant.

A good response to this question should focus on the attractiveness of both options in general terms, the future of the business and personal goals.

• What do the future margins/salaries look like? How big can they grow over time?
• How are the working conditions and hours in both options?
• How profitable is the startup in the chosen city?
• Are there many competitors?
• What are personal goals to achieve in both occupations?
• Entrepreneurship is far more risky than employment. What would be the worst case scenario in both options?

#### Conclusion

The conclusion should be that this startup might be more profitable than a job but is more risky. One should only go ahead with this idea if opportunities are very good and the startup matches personal goals

• Special location with big market demand or growth
• Low local competition

## Schwierige Fragen

### What other factors/questions could play a role in your decision? Name a few.

• What do the future margins/salaries look like? How big can they grow over time?
• How are the working conditions and hours in both options?
• How profitable is the startup in the chosen city?
• Are there many competitors?
• What are personal goals to achieve in both occupations?
• Entrepreneurship is far more risky than employment. What would be the worst case scenario in both options?

More questions to be added by you, interviewer!

At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the interviewees solve the case very fast).

Verwandte Consulting-Fragen
Bisher beste Antwort von 3 Antworten:

As you describe it, this is the longest version of this case format; normally too long for an oral interview, so it's super important to listen whether the question is about if (the client should ente... (mehr)

Beste Antwort bisher:

Hi, The general framework for pricing is: Cost base - Value based - Competitor based - pricing strategy 1. Cost based - you actually check what are the costs and apply standard industry / target... (mehr)

Hi there, I would start by asking some general questions to have a better feeling on the case: 1) Does our client provides this new service elsewhere? If not, does our client already has the cap... (mehr)

Beste Antwort bisher:

Hi Elisey, I would personally not recommend to use a single framework for all the so-called business situations (M&A, Entry, New product, Operations etc). Although this would help to more easil... (mehr)

Bisher beste Antwort von 2 Antworten:

Hi, 1) You proactively ask in the beginning, even before drawing the structure (something like "What kind of products / revenue sources do we have) and then split the structure into price, qty,... (mehr)

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Case-Exhibits

Every time-related variable (e.g. rent, # purchases, etc.) is based on one year.

Consider your profit analysis. What decision would you make and why?