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 Financing Entrepreneurial Venture: DayOne Case Analysis

            DayOne is a one-stop resource center for new and expectant mothers started by Andrew Zenoff and Sallie Weld in 2000 (Hedberg, 2004). It offers efficient child-related solutions to essentials needed during pregnancy and after childbirth. Lack of adequate funding is one of the primary challenges that business start-ups face in the current business environment and DayOne is no exception. Therefore, to successfully implement an entrepreneurial venture, working capital, start-up funding, expansion and growth funding must be planned for accurately. Similarly, additional sources of funds should be identified in advance to aid the venture in case a financial need arises. This paper analyses DayOne case study and explores the various types of funding as well as how the DayOne team could have proved their business model to attract additional investment for expansion.

            After the collapse of the Saudi connection, DayOne center is generating a positive income, has a five-year projection, proven managerial performance but still needs capital investment to expand its operations. 

Establishing Credibility to Access Capital

            There are actions that the DayOne team can undertake to establish their credibility and improve their chances of accessing the funding they require to implement their business plan. Some of these actions are discussed below:

            Limiting the Deviations from the Business Plan

One of the reasons why investors are reluctant to invest in DayOne is the deviation from the actual plan which calls for further proof of concept in the second shop. For instance, in the business plan, it is indicated that the center would have bigger space, clear street visibility on a ground floor and have a have business support from the local health institutions (Hedberg, 2004). However, all these are not available in the current operating shop, thus raising a red flag to the investors. To reduce the investment risk perceived by the investors, the team can limit these inconsistencies to improve their credibility and chances of acquiring capital. They can do this by evaluating their relationship with the hospitals and proving to them that they are not their competitors as alleged by the administrators but are rather offering supplementary services after the expiry of the hospital service period. They can also pitch their ideas and offer education in health facilities to win over hospitals as partners. This will enable them to gain full support from the local hospitals thus lowering their business risk to investors.

            Improving Investor Communication

            The DayOne team can also improve their investor communication to build their credibility and enhance their chances of landing an investor to finance their expansion. As highlighted earlier, the are certain deviations in the implementation of the business plan in the first shop. The team can engage investors on a face to face dialogue to inform them about business plan dispersion they have experienced due to lack of proper capital in the implementation of the fast center (Carlos, 2008). Through proper communication and proven management performance and growing financials that the team has, they can prove to potential investors on why they should invest.

            Share Both the Good and the Bad News

As depicted in the case study, the success of the first DayOne center is attributable to customer satisfaction that generates referrals to the business. The team can take advantage of their customer loyalty to spread both the good and the bad news to get the attention of investors (Carlos, 2008). For example, most people in San Francisco are aware that the center contributes to the well-being of new and expectant mothers as well as their children. This positive news should be communicated openly together with the financial challenges that the business is facing. Besides over the three years of the operations, the business has attracted investors who have been touched by the services offered at the center including the Saudi prince whose deal failed to come through.

Other Options to Raise Funds

            So far Andrew and his team has raised capital through their networks such as knowing investors like Mark, the contribution from unknown investors who approached them and those that that were attracted by what they were doing. However, there are other viable options available for the team to raise capital. These options include:

            Grant Funding

 This is non-refundable funding from the federal or state government given to the business for a specific purpose (Robb & Robinson, 2014). Since DayOne center is a “Best of SF” honored establishment and is known in San Francisco to contribute to the well-being of new and expectant mothers as well as their children, the business can seek grants from the government to expand to other locations and continue helping new mothers in their parental journey. This source of funding is non-refundable thus attractive to businesses but it comes in low amounts and takes time and a lot of paperwork. Through this option, the team can only obtain part of the required $1.3 million.

            Debt-Financing

 This option involves raising working capital by offering debt instruments such as bonds to individuals or organizational investors with a guarantee to pay back the principal amount borrowed plus interest (Robb & Robinson, 2014). Through this option, there is no sharing of profits but DayOne will have to provide a guarantee and pay the principal plus interest on time even if the business fails to generate profits. Nevertheless, this should not be a problem because the business has a positive income projection for the coming five years as shown in the table below.

Table 1: DayOne’s Income Projection for the Five Years

            Private Equity Funding

The business can also raise capital by selling its ownership interest (shares). Here Andrew can access the required working capital for expansion by selling shares in the business to an equity investor who can be a family member, a friend or an initial public offering (Robb & Robinson, 2014). This option is capable of attracting large amounts of capital but Andrew will have to give away some ownership interests.

            Loans from Friends and Family

Throughout the life of the first center, Andrew has been sourcing capital single-handedly. However, the whole team can also raise capital by asking for loans from family members and friends to facilitate their business expansion. This option may not be able to raise the required $1.3 million but it can be used to raise the portion of the working capital and the remainder collected using other means.

Proof of the Model

            In my opinion, DayOne has proven the model. Despite the lack of adequate capital and location issues, the business is offering exceptional retailing and service delivery which has led to its active marketing through word of mouth and customer referrals. DayOne has also registered a positive Earnings before interest, tax, depreciation, and amortization (EBITDA) of $120,947 (Hedberg, 2004). This represents a 26.47% growth from the previous year’s earnings. Again, the business is receiving positive feedback from its customers. This implies that the model is working. Even though hospital administrators consider DayOne as a competitor, other professionals in those health institutions still direct new and expectant mothers to the center because of its resource and efficiency. Nonetheless, I believe the model can be improved by addressing the locations issues to improve street visibility and cooperating with hospitals to galvanize their support as reflected in the business plan. Since the first center is already profitable despite the dispersions in implementation, with proper funding the second center is likely to more profitable.

My Concerns

            Hospitals viewing the business as competition. I am concerned that if the relationship with the hospitals is not addressed, the same problem may be experienced in Palo Alto. This would limit the business’s profitability and affect my bottom line as an investor. Again, the business has been operational for three years but the team has not taken any action to address the hospitals ‘stand.

            Covering high overhead costs. Part of the required $ 1.19 million to set up the second location is $ 302,000 overhead cost which seems too high (Hedberg, 2004). The costs are presented in the table below:

Table 2: DayOne’s Corporate Overhead for the New Center            Over-optimistic Projections

The team is projecting that the entire operation’s annual earnings will double each year for the next five years. This may not be attainable if all the problems facing the current center are not addressed.

            The absence of other investors. DayOne is already a profitable establishment with high customer satisfaction and convention rates but still lacks investors to finance its expansion. This is worrying and may discourage investment efforts.

My Investment Decision

As an investor, I would invest in DayOne. This investment decision is based on the following reasons:

            Attractive Profit Margins

The business has attractive profit margins on products and services which determines how long it will take for me to get back my money. The table below summarizes the profit margin on services and products. 

Table 3: DayOne’s Approximate Profit Margins

Steady Exponential Business Growth

The business is expected to grow steadily in the next five years. This implies that with other factors remaining constant, the business is likely to yield steady returns on investment over the projected period.

            Unique Business Concept

 I would invest in DayOne because of the uniqueness of the business concept. The team implanted a unique concept and specialized in fulfilling the needs of the customers better than anyone in the market. This gives the business a competitive advantage over other potential competitors.

            Business Profitability

Despite financial challenges and Andrew not drawing a salary from the business, the profits from business operations have grown steadily for the past three years the center has been operational.

            In summary, for the second center to be more profitable and achieve the potential of the business model, the location and relationship with other relevant groups must be enhanced. Though I would invest in the business, I would stress the same conditions.