The Autoshop team plans to use the initial $1.6 million investment to perform market
research to validate their concept, contract with brand and store design consultants,
construct a website, lease space and build-out the first store. This is a risky venture for
investors as the first round of financing only covers processes leading up to opening of
the first store. It doesn’t appear to cover initial product stock or local promotions and
advertising. The team also need to perform further research to evaluate if their concept
is even profitable. If the business fails to get off the ground then investors have no way
to recoup their money.
Their projections on revenue generated from birthday parties is overstated and will not
have as positive an impact on their business model as they state. Having one race
track which must be shared by a birthday party of 12 in addition to their regular in-store
customers has the potential for overcrowding and could have a negative impact on
purchase revenue. Their statement that birthday parties will be instrumental to their
business is false considering their projections estimate birthday party revenue to
account between 1.5% – 11% of total sales during the first year. The assumption that
birthday party revenue will begin generating $5,000 per month beginning in the second
month is exaggerated. Personally, I believe $30 per partygoer is excessive as
compared to alternative businesses to host birthday parties.
This startup is doomed to fail no matter what changes are made because it will not
