Cumulative review: Strategy and the business model
Review customer value, strategy, cash, capacity, decision rights, and useful measures through one business.
Connect customer value and money flows from week 1 to market definition, strategic trade-offs, decision rights, and useful metrics.
Overview
ClearFold's owner wants to grow. A restaurant has requested a service the laundry does not normally offer.
Use about three minutes for recall, twelve minutes for the questions, and ten minutes to compare answers. Brief notes and a calculator are enough.
ClearFold, its policies, and all figures are fictional teaching assumptions.
Recall from memory
Without looking back, explain the difference between a growth goal and a strategy. Then recall Northstar from Lesson 013: why was the smaller trial order preferable even though it missed the revenue-growth target?
Business facts
ClearFold serves nearby working households that want clean, folded everyday clothing ready within 24 hours. Customers can use another laundry, wash clothes themselves, or postpone the work.
The company charges $40 per standard-size bag, with a defined weight limit. It excludes delicate garments and specialist stain treatment. Customers find it through neighborhood referrals and local search. Employees sort, wash, dry, fold, and check each bag using laundry equipment, detergent, and a booking system.
Some customers pay on collection; approved customers receive a bill and pay later.
This week's completed work and payments are below. All work was accepted, and all remaining customer payments are expected to be collected. There were no unpaid customer invoices or supplier bills at the week's start. Expenses belong to this week. There are no other transactions; ignore income taxes.
| This week's item | Amount |
|---|---|
| Completed standard bags | 80 at $40 each |
| Cash collected from these customers | $2,200 |
| Total expenses incurred | $2,400 |
| Expenses paid this week | $2,000 |
| Beginning cash | $2,500 |
Last week, 57 of 60 bags were ready within the original 24-hour promise. This week, 72 of 80 were ready on time. Both groups have passed their promised readiness times; all completed bags are included.
The new request
Next week, 90 household bags are already booked. Folding and checking have 100 productive staff-hours available. Each household bag requires one hour at that step. Washing and drying have enough capacity for all work described here.
A restaurant requests ten bags of stained table linens at $60 per bag, due next week. Each restaurant bag requires three folding-and-checking hours. There are no extra hours, outside suppliers, or spare finished goods available.
The restaurant work needs $300 of additional supplies paid before collection. Its other additional costs have not been estimated. No restaurant order has been accepted.
The supervisor may accept standard orders within available capacity and approve additional spending up to $250. Only the owner can approve a new service, larger spending, or changes to existing customer promises.
Review questions
- Define ClearFold's market from the customer's perspective. Name a direct competitor, a substitute, and the option of doing nothing.
- Write a two-sentence strategy identifying the customer, reason to choose ClearFold, and one trade-off. Name one supporting activity and one resource.
- Calculate this week's revenue, profit, ending cash, customer receivables, and supplier payables. Explain why profit and the change in cash differ.
- Calculate next week's required folding-and-checking hours with the restaurant order. How many household bags would need to move beyond the week if all restaurant work were accepted? Can the supervisor approve this?
- Calculate both weeks' on-time rates. Explain why “more bags ready on time” is an incomplete performance claim. Suggest one early signal to investigate.
- Recommend what to do with the restaurant request. Name the decision maker, two people to consult, one missing financial fact, and one customer outcome to protect.
Use your answers to write a three-sentence management brief before reading on.
Answer
Customer value and strategy
A useful market definition is nearby households seeking dependable everyday laundry care with little effort and a short turnaround. Another wash-and-fold provider is a direct competitor. Washing at home is a substitute; postponing laundry is the no-change option.
A reasonable strategy is: “ClearFold serves nearby working households that want everyday laundry ready within 24 hours. It uses a standard bag and repeatable process, while excluding specialist cleaning that could disrupt that promise.”
Checking bags before release is an activity. The booking system and laundry machines are resources.
Revenue, profit, and cash
Revenue is 80 × $40 = $3,200. Profit is $3,200 − $2,400 = $800. Count all expenses incurred, including those not yet paid.
Ending cash is $2,500 + $2,200 − $2,000 = $2,700. Cash increased by $200.
Customers owe $3,200 − $2,200 = $1,000 in accounts receivable. ClearFold owes $2,400 − $2,000 = $400 in accounts payable.
The reconciliation is $800 profit − $1,000 increase in receivables + $400 increase in payables = $200 cash increase. Uncollected revenue raised profit before cash arrived; unpaid expenses reduced profit before cash left.
The income statement reports earnings and expenses, while the cash flow statement explains cash movements. The SEC's introductory guide distinguishes these purposes. Source: SEC.
The $2,700 balance alone does not establish what the owner can spend. The $400 bill and other approaching obligations need payment dates.
Capacity and authority
Booked household work requires 90 × 1 = 90 hours. Restaurant work requires 10 × 3 = 30 hours. Combined demand is 120 hours against 100 available, a 20-hour shortfall.
Accepting all restaurant work would leave 70 hours for households, forcing 20 booked household bags beyond the week. Folding and checking are the bottleneck.
The supervisor must escalate: the request introduces a new service, exceeds the $250 spending limit, and conflicts with existing promises. The owner decides after consulting the supervisor about scheduling and whoever handles payments about cash commitments.
Useful metrics
Last week's on-time rate was 57 ÷ 60 × 100 = 95%. This week's was 72 ÷ 80 × 100 = 90%. The count increased by 15, while the rate fell by five percentage points.
Investigate the share of bags entering folding with enough time remaining to meet the original promise. It may provide an early warning, but its relationship to readiness needs evidence.
Recommendation
Decline the requested timing and explore a later, separately planned trial if the owner wants to investigate restaurant demand.
The $600 restaurant revenue is not profit. Obtain a complete estimate of additional labor, supplies, and other costs, plus collection timing, before evaluating a later trial.
A brief could read: “Protect next week's household commitments and defer the restaurant trial. The owner will consult operations and the payment administrator before approving a new service, because the current request exceeds capacity by 20 hours. Review original 24-hour readiness rates and obtain the trial's full costs and cash dates before reconsidering.”
Recall answers: A growth goal states a desired result; strategy identifies customers, the reason to choose the business, and supporting choices. Northstar's smaller order fit available funding and produced more profit; the larger order had a $12,000 funding gap.
Applying this review
Correct one gap in your reasoning, then keep the management brief.
Sources
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