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.
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:
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.
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.
- 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:
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.
First we will calculate the left side of the tree, the fix costs per year.
For personnel cost we can assume that we have to employ one employee that we work together with.
The variable costs are assumed to be 30% of a purchase.
Variable costs = €165,000 * 30% = €49,500
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?
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