Sugar bowl case study analysis

Kinard gA4Z7 Susiness FolicY

Sufulr Bowl

Case Questions:

o What challenges does Shelby Givens Face: o During Phase L (Preparing for the Transformation) o During Phase 2 (Renovation and Grand Openingi( o During Phase 3 (701'L12012 Operations)

. By the end of the case, what has Givens done to address the challenges outlined at each stage listed in Quesiion (1) above?

. Which of the actions executed by Givens were most successful in resolving the challenges? Which were least successful? What other options might Givens have

p u rsued ?

o ls Sugar Bowl a viable business? Which forces have the most positive, or negative, impact on the business's profitability.

r What is the daily breakeven number of customers required Q3, 2011. What is it by the end of Q1 2012?

o Givens considers two paths for Wednesday night entertainment: league bowling and exclusive brand rights

o Which option will generate more revenue in the short term? Long term? o ls revenue how success should be measured? Which path'do you think is best for

Sugar Bowl and whY?

o How should Givens evaluate the investor's offer to buy the business, and the New York consulting opportunity that's offered to her at the end of the case? Consider both

financial and Personal goals.

o Once Sugar Bow's financials are more stable, what changes could Givens make to build a stronger organization and culture?

tl HARVARD i BUS IN ESS i SCHOOi.ll

-,j i^ii;1,i,1 RlCH,ARD G. HAMiR}"IES;j

.iI ]5A ZALOSH

Sugar Bowl

Shelby Giyens checked her u'atch as she jogged along Raleigh's Greenway Trail; she u'a'q rurrning

iate agairL, Since Sugar Borvl's iaiinch, there simpiy rt'ere not enough hours in the day to saiis$r the

orr"t1Jh.k.itlg dernands on her tine. Givens couldn't remember ihe last tirne she went to dirurer aI'id a movie rarith friencis. And ',hough ihree monits had passed, she stilI deeply regretted missing her coliege roorrunate's r,,'edding becau,se of an unaniicipated staffing crisis-

Givens had thought "*rat by now, April 2A77, a full year after ttie bou'ling lounge's opening, her fast-paced ald sometimes sleepless enkepreneur:ial Life rvould be slorl'er, or at ieast more predictable- But that simply wasn't the case. Givens loved Raleigh and her job-malagirrg her fanrilf s borvlins legacy was tkilhng, professionally reu'arding, arrd potentially lucrative. Profits were on the rise (See Exhibits 1 and 2 for Sugar Bo'it4 financia,l statements) but the conlinual personal sacrifice was starting

to \^7ear on her. Was this horv she wanled to spend the remainder of her twenties? On the other hand, n'hat job rt'ould ever be as fulfilling or as srimulalirg as the one she had now?

Sugar Bou'l's board meeting rtras fivo weelcs arvay, scheduled for April 3A,2072. Givens had some exciting opportunities to present to her investors. lt t'as irnperative, though, itrat she work through her orvn priorities-financia-l ald othenv-jse=in advance of that meeiing. \Virat was best for Sugar Bowl rvasn't necessarily best for Givens. Or rt'as it?

Background

After graduatir-Lg from business school in 2009, Givens rei-umed to her naiirre Raleieh, NC to implement a hrrnarou-nd of Westlake Lanes. The aliing setrenties-st1,le borvling business was started by her deceased grardfather, Dane Sugar, in an oid mill in downtowl Raleigh. Cuided by an entrepreneurial spirit ald interest in general ma:ragement, Givens tightened cost controls and strea-rrr,lined operations. in just mne months Gir.'ers stopped Westiake's spiraling }osses ald even eamed u s*ull profit. Yei Givers questioned Westiake's ability to sustain healthl' profits over the Iong term, due to a nrirnber of social and environmental factors (see Appendix), including:

' fhe de,clining popularity of rveekly "leagae" bowling teams . The aging popuJation of regulars " Marginal revenue from \\iestlake's limited food and drink menu (pizza and beer) . Coniinually rising healthcare and utilities costs

HB-c profesu Ridrad G, Hmmesh and uritq Alisa Zalmh prepued this i]ffi soleiy as a t'a$s for dass dirusion od not as m odorremmt, a souce o{ pnmary data, or m illu.lraijon of effe*ive or iaef{ective ]]:6agemsl SJibough based on real evoc md dePite EcasioMl retsmcs to actual compmis, this c+e is fictitiou md ay eemblance to actual pemoro or mtiiie is cojnddnbl

Cop;,right @ 20i2 preidmt md Fello*'s of Hanard Coliege. To order copia or reguesi?emisdon to PProduce maiedals, cali l-8OG54f7685, q,rite frm,ard Buinas Publishhg, Bosto& MA 02163, or go to hitpr/ll'm')rbsp.haruad-edu This puniication Fay rioi be ciigitiad. photocopied, or otheffise reproduel, p6te4 or kffimitted, u.iiioui t}.re lEnission of Ho ard Buines School.

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' Increasing forms of competitive farnily entertainment . Less free "famiiy" time due to dual income families ald oversc-heduled kids.

IrL March, 2010 Givens persuaded l{estlake's board to pursue a different path for Westlake: to create a lively and pJush bowling lounge and nightciub. IrLstead of bright lights, an oLd juke-box and a menu consisting of przza, hot dogs arrd beer on tap, crrstomers would enjoy a full bar, table sen,ice and a tapas-style menu of small plates and contemporary finger foods. The lack of any direct competition in Raleigh, paired with Raleigh's ongoing gentrification and influx of young professionals,i led Givens to believe a market existed for such a \renue. She even had a name to propose for the reconceived business: Sugar BowI.

Before his death in 2008, Dane Sugar upgraded \4/estiake's lane machinery and scoring technologv. Givens u'anted to updaie the outdated 16,000 square foot interior, reconfiguring the space to foster casual dining and socia-lizing, as vr'ell as bort'ling, for 150 people, neariy doubling capaity.2 She believed that revenue levels from the new business u'ould support significant jumps in costs, such as rent and insurance.

GiverLs projected she r,r.'ould need $600,000 to renovate the bowling alle,v, and forecasted an additional $100,000 for starbup costs arrd incidenials. She raised $200,000 in the form of convertible notes from friends and family, and secured a 5400,000 SBA loarL from a local bank. Both loans were 5 years in lengthL, commanded 8% interest, and required quarteriy interest-only payments with the principal to be repaid rn ful1 at the end of the terrrL. The balk, howerrer, listed additional terms; failure to comply would result in rate renegotialion or a truncated ioan term.

Loan Terms:

1. Givens provided her home, a downtown Raleigh condorninium, as loal collateral, 2. The venue must open no later than 15 months post-funding. 3- Aclual revenue must reach 7A% of projected re\renue (or $1,000,000) after four operatilg

quarters.

Though $100,000 short of her fundraising goal, Givens reasoned thaf with a rigorous approach to cosi malagement, she couJd navigaie ihe shorL{aU.

Westlake taught me that to be profitable in ihis busiless you need to provide cornpelling entertairmrent and closely watch expenses. U customers enjoy iheir experience they'11 return with thejr friends-that is the cheapest and most effective form of markelilg. But no cosi should be overlooked. Spending just an extra nickel per customer adds up when volume arrd customer lurnover are high,

Phase I: Preparing for the Transformation (Summer 2010)

I learned at Westlake the priceless value of asking for heip-from friends and colleagues, suppliers, and professional contacts- I kept that in mind as I embarked on Sugar Bowl's launch.

1 Bet*een 2000 and 2010, Raleigh's popuJation greN'bv 46-3"/" to 4M,000. lts median age rcas 31.9 and t}ose aged 2i-44 accomted for one *rird of ilre popuJation Forty-sevm perce.rt of residents 25 years or older possessed a college degree (or higher). Source: US Cersus: http:/./ quickfacts.census.gov /q{d/states/37l3755000.htrn1 2 Due to change in busiress, rmt for the space h,as renegotiated md iaaeasecl by 60%-

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Em1sloyees

Givens anticipaied it v,ould take 9 montls to a year before Sugar Bon'l rqas operational. She pla-nned to close\{esttake, which was generating weekly revenues of $f 5,000, in November, 2010 for

iour months of renovations- Three fuIl-ti-n-re employees remained from Westlake:

Salary Responsibility TenureEmployee

Gary Spalding (50)

Shirley Smith (41)

Daniel Sinclair (27)

$40K Maintenance of glo'unds, buildi.irgs & machinery $31K Back office, sales and marketing $24K Kitchen/bar supplies, cooking and sewing food

15 yrs.

23 yrs.

10 yrs.

For employees, a Sugar Bowi trarsition would mean later hours, more crstomers arrd higher

ser'ice exiectations. Oithe th,ree fu1l rime employees, gnly Spaldrng expressed sincere inierest in

working through the transformation- Givens was not ready to invest in any nerv hires jusi )/et, so out

of necelsiq, shl designated Smith, a longtirne employee fa:rtiliar with \{estlake operations, manager

r:ntrl the te*po.ury Jose- Though Smith required frequent direction she u'as irustworthy and loyal'

Researcll

Before proposing tlre bon,iing lourige StrateSl to Westiake,s -board, Givens spent eight weeks

analyzing io.ut unJnuUonwide markerdata and consumer trends related io bowling and evening

entertainmmt, Ttds research provided a solid for.urdation for the assumptions Givens used to craft

pro-forma tinancials for Sugar Bort'l il March,2010'

Aware of the difference between crafting a strategy- arid execudng a vision, Givens sought arL

operational mentor. Tirrough a former business colleagug Givens was introduced to Michaei Burke,

th" gur,.rul manaser of "Hlgtr Rollers," a trendy bowLirtg venue iocated in the heart of Washington,

o.C] after u;1 ir.1rtiul phonJconversation, Burke agreed to meet with Givers in Washington, and to provide her with a generous share of inside business irrformation-

High Rollers exemplified the r.ision i'd porn'ayed to my investors," Give.ts recalled- "r,'Vlren I q,uiked in on Thursday night ai 10pm, it u'as packed with young professionals; most seemed to be jn their hvenlies and e"rly thirties- The iighting was dim, the music r'r'as loud; many Pakons were

bowiing, others eating, ,t*" were dancing, and alt were dri::rking- I was str-uck by how mtrch people were wiiling to pav for the experience'

Like Sugar Bowl, the tligh Rollers facitity held 16 bolvling lanes- Burke told Civens that the average customer spent $62-50 per rzisit, with 50% of revenue from alcohol, 30% {r-om food, arrd 20%

f.om larre admission. Fees for bott'iing were charged by the horir i;rstead of by the game (shoe rental

was free). High Roller's gross profit margrn in 20A9 w'as70"k'

Burke credited cost-effectirre online marketing, word of mouth "buzz," and prirrate event sales

efforts 1a ith High Rollers' corrsistent and robust revenue stream. High Rollers collected email addresses for er-ery crutomer and sent monthly special offers and "refet a fi-iend" iicentives to them

to drive ,"p""t ur,i nerv business. A part-tirne event planner cold-called targeted companieq to pitch private events for slorver v'eelrrights.

ln Burke, Gir.'ens folnd an experienced mentor. She proposed a standing monthly phone caJt and

Burke agreed r.t'hen she made the following offer: "lJ I pu1l thjs off in Raleigh I will rehrrn the favor b), cu11l11g you every month to tell you about ne-w concepts that are ilcreasing my revenue and

imp rovin g my margin-s. "

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Desigtt

Before speaking rt'ith any design professionais Gir.ers analyzed the table and bar configurations that would provide greatest profiiabrlity for a 150 capacity. She decided thaf in addition to piush seating and tabies at each lane's end, she v'ould order 25 two-person tables and one pool table for the rear third of the building's space. Flexibi.lity to reconfigure the space for small groups, iarge groups, and private errents r+'as critical.

Civerrs so[cited quotes from three professional Raleigh design firrrs for Sugar Bowl's renovation- Estirnates ranged from $500,000 to $750,000, with fifteen percent of total project costs attributed to design fees.

I was always ihinking about how to shave costs- Who might value the opportunity to u'ork on Sugar Bowl for belora'-markei rates? Tu'o Raleigh universities offered degrees irl Architechre and Design. I contacted the deans, proposed our project as al independent study and r.t'as contacted by several teams o{ graduate students wiiiing to work rt'ith me for three srlmmer months at no cost in reiurn for academic credit- Though I'd be more involved in the design, I'd save arould $90,000 and thai was u'orth it to me-

The team that impressed Givens most also mirrored her desired demographic. She also hired a licensed architect to revielv design and architectural plars, ensuring they rvere in iine with current safety and building codes. The plans were ready by October, and she selected a general contractor, Mj.ke I{alker, whose estimatelvas 25% less than compelitirre estimates. \A/hat Walker lacked in experience (his business was just 3 years old) he made up for u'ith enthusiasm; he u'as willing to subsidize his labor for the opporllnity to u'ork on a hi.gh-profile downtomr project and to display signage on Sugar Bowl's exterior.

Food €t Beaerage

Civens recognized that Sugar Bo*'1 possessed an extremeiy vulnubt" grandfathered asset be;.6n6 bowling la-nes: a state-'issued liquor License and cor:nty permit to serve not just beer but the full range of alcoholic beverages.3 But bringing the "right" businesses to the neighborhood was importalt to residents and govemment officials. They fought strongly against businesses that posed a threat to the newly cultivated district-

Sugar Bowl tvas also licensed to prepare and serve hot arrd cold food onsite. The existing menu of przza and mainskeam draft beer w'ould be repiaced, but Givens did not have the furrds to build and run a fuLl-sewice restauralt facility in the existing space.

Though kiichen inprovements would be necessary, employing offsite caterers would cost far less thal the price of a full restaurant kitchen installation. I partnered wiih a Raleigh iood caterer with an offuite facility that could prepare tapas-style appetizers and small piates.

The terms of the caterine contract are Listed belorv.

Cost per menu item Mini:nun-r order per night # Catering employees required per night Catering wage Reguired advance notice for catering estimates

$s.00 300 items J

$12 per hour 5 days

3Iotggl, Gjvers's grmdfather teminated liquor sen,ice in m attempt to (1) reduce site damage, (2) deter rou,dy customers, md (3) reduce insurance costs. The strategy worked md he kept $re policy in place bdefiniteiy.

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Phase II: Renovation (Fall 2010 arrd \{intet 2811} and Grand Opening (spring 2011)

Westlake closed for renovations in November for four months, but by December \{alker, the

contractor, was alread;r rveeks betrrnd schedule due to the following:

. Missed deadline {or permit fililg: 3 rveeks

. Deiiverl of incorrect materials/reorder & redelivery: 2 weeks

' Bui-lder staffing shortage: 1 week

The Grald Op"r1*g, originally plarrned for early March, \\ras now set for the end of April' and

unexpected costs had uit"ud! dirninished Givens' $100,000 "incidentais" budget by $35'000'

Operaliorts:

Each week,s deiay, I calculated, wouid cost me a mjrdmum of $30,000 in lost Sugar Bon''l revenue I

ra,as rtorried - about not meeting the bank's timeline for openrng, about depleting cash resewes, about the capabili[r of the cona"actor I'd selecied. I figured that firing him, thoug]1 would noi speed up the process or save money-

Iliring s General Maruger

Givens recalled:

As spring approached, I designated the second w-eek of February to hire staff, finalize catering and

bar menus, and research mirketing options- Bui *ren, another water pipe burst, city officials demanded a walk-through and fini design orders needed to be placed' Despite 18 hour days, I couldn,t keep up iryith ttr"e demands on *y tim". I desperately needed to delegaie responsibilities, immediately, to someone capable of ildependent direction'

Burke recommended one of his former wait staff supervisors and bar maragers, Sarah Pety-, to

GiverLs. Though she lived in Washington DC, Burke felt that Givens could ltre her to Raleigh rvith

the right opporiurLity and compensation.

I met SaralL at Sugar Bor,',1 - she was eager for a sta-rt-up, and I valued her operalional experience trernendously. pG, we clicked on a persinai lerrel. But I could-n't afford her current $75'000 salary'

In exchange for a smaller salary of $55,000, Petty requested authoriLy to mn the caiering and

restaurant operation, a 3% equity stake and a two year contract'

Frankly, it was more ihan I wanted to give up, economical1 Td personally' However, I trusted

Bi:rke's recommendation ard my gut instirrct, arrd offered her a job on her terms, witlt one stipulation: that her two-year .otttt'I.t would take effeci only after she met or exceeded specific goals in the firsi three post-openi-ng montls-

pefly started on March 1"'and i.rrr-rnediatelv began tackling Givens's to-do list. "Shelby u'as hper-

sensitive to ne\ r and 'nexpected costs," said.-Petty. "She asked me to solicit at least three quotes for

new products alld services, to msure we were getting a fair market price'"

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Settirtg Pricing

Civens leaned on Petty's experience to finalize hours of operation and rates for bowiing, food arrd beverages-

Hours of operation

Lar-re Rental

Expected # of customer rotations/night

l'{axirnum # of customers

6prn to 2am, 7 days/week

$40 per hour, or $l0/hour per person ,1

150 (or, 450/rught assuming 3 rotations)

Organizational

Givers divided the staff into three divisions- Petty managed restaurant operations, and Givens managed bou'Ling operations and sales (including marketing and events). Both Givers and Petty agreed that hiring a part-lirne bookkeeper io keep track of receipts ald deposits rvas critical. Reluctaltly, Givens acknort4edged thai elirninating emplorree health insurance coverage (whuch had acconnted tor 72ok of Westlake's fixed experses) was fiscaily responsible.

Gary Spalding, u,ith his lale machinery experlise, i^/as an instmmental emplovee She offered Spalding a raise equal to the value of his insuralce, which he rejected. LJltimatel;' a 30% salary increase and an extra trvo weeks of vacation arnually convinced hLim to stay. Pelly said:

Smith arid Sinclair, old Westlake employees, didrL'i meet any of the criteria r.ve set for Sugar Bora'l emplovees. Slreiby didn't *'ant to ternrinate them out of a sense of loyalty, but our budget was very tight and rve had to make the most productive choices for Sugar Bor.r'1.

Givens terminated Sindair (a lackluster kitchen worker who had been on temporarlr ieave) but not Srnittr, who had r.vorked for Darre Sugar for more tlun 20 vears, remained loya1 to Westlake after his death, and helped Giverrs iearn the br:siness during her firsi months on site. However, Smiih's passive complaints about late hours and heavier workloads exasperated Pet{.y. Smith was offered a choice of two jobs: (1) al hourly wage greeter and shoe counter cashier or (2) a comrnission-based private event sales person.4 She viewed both as demotions, but chose to work in event sales.

The netl. staff consisted of four full-time emplovees, fir'e part-tjrne emplo;rees (crrsiomer-fucing cashiers/shoe rental specialists), eight u'ait staff and trvo ba-rtenders. A part-fime accou.ntant paid bills, tracked weekly expenses ald prepareci monthly financial statements.

The rninirnum wage compensation was $2.15 per hour for dpped employees, and $7-25 per hour for hor:rly workers. Thalks to Sugar Bowl's proxirLity to nearby r:niversities, college and graduate students filled bar and wait staff posilions filled within trvo weeks.

Firutncial Controls

"Employing a group of young and sociable employees luualiy meant higher levels of slu:irrkage, said Pefly, using arr indushy tei-m to describe employees' unauthorized distribution of free or discounted consumables to friends and acquaintances. "At High Roilers in D.C., most ernployees found it hard to resist giving freebies to friends. I knew that implementing and consi-siently appti'ing management controls at Sugar Borvl would be critical""

4 S*jth't compensation a'as $250 per u,eeiq plLrs 10% of total revenue fiom private events she booked. Smith did not receive health jrsumce as part of her new comperuation package.

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Petty's proposed management controls:

Problem Control

Liquor theft

Unexpected losses

Shrinkage

Unauthorized charges

Manager presenl ald sig'nahrre required to remove Liquor botCes fron, inventorJ' closet.

Monthlf in\rentory check of food, liquor and supplies-

Indepeniient auditing of daily cash receipts, checked against number of customer:s, actual sa-les arrd bank deposits.

All deliveries over $150 must be accompanied by an authorized purchase order.

Marketing for tlrc Gra-rLd Cpening

ArTaertising: Sugar Bowl's target market consisted of 1,oung professionajs and older graduate students. Both groups used online tools and services fi^equeniiy, and Givens believed online ads, direct emails ald social media charlrrels offered better r.a,lue and tracking capability than traditional oFtlrne media.s

Givens budgeted $40,000 for oniile ald offlile markeling materials, adverlising arrd promotions from }r4ay launch ihrough the end of 201 1. See Exhibit 3 for results from fir'e summer test marketing campaigrrs, which Givens used as a reference for marketing and adrreriislrrg spending.

Public Relatioirs: For the Grand Opening, a low cost, aftention-grabblng PR sturt helped boost ar4rareness and inkigue on a sunny Saturday afiemoon- A $200 pemit enabled staff to assemble fit'o makeshjft bowling lanes in lhe road, with Sugar Bou'L t-shirts au'arded to anyone who bowled a str-ike. Music played, wait staff sen/ed free lemonade, iced tea ald a samplirrg of menu items, and hefry crowd gathered. A few drivers seemed disgn-rntled but overa11, the mood was positive. Givens, doing meet-and-greet the entire time, made the acquaintance of nearly tivo dozen comrnercial and residentiai neighbors, teliing then-1, "We t'ill be good neighbors. lf you ever har.e a problem, call me directiy; here's my card."

The following day tJ'rree reporters contacted Givens and within 48 hours Sugar Bowl was feahrred on two television news prograrrls, a radio shorv, and in the local newspaper's Sunday busiless secfion.

Phase III: 201U12 Operations Sugar Bowl opened for business on Thursday, May 5" 2011,7 weeks later ihan plalned due to

construction, distribution and permitting delays. The first weekend's attendalce averaged 60% capacity.6

UnpredictabiliQ

Civens shrrggled to predict catering estimaies as early sumrner attendance fluctuated. One rainy Friday night nearly exceeded maximum capacity with 425 customem, bui ihe next nighf a balmy Saturda}', there were just 100 patrors all night. By the end of ]u"ne, altendance was averaging 35%

5 A thltd p..*. "mail

service cost $50 per monrh for unlimjted mafu, compued to $250 for a single black md u,hite display ad ir Raleigh's Smday paper. 6 Gir'"* detemined that eveni:rg capaciti, was 450 {or, t}rre "cyc1es" of L50 each).

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caPacity from Thursday to Sunday, and just 15% Monday through Wedlesday. To make matters worse, average spending, at $40 Per perso.n, was lower than anticipated. Givens hoped, but could not be sure, that low Patronage was due to a dirninished summer population. She debated making irnrnediate use of the Q3 marketing funds.

In |uly, two waiters quit simulianeously because their earnings rt'ere lower than expected. Pety caught a third gwing away drinks and fired her on the spot; she later overheard Smith grurnble to a fellolt' employee "Well, that's not how it used to be around here." That weekend both Petq' and Givens rolled up their sieeves and rt'aited tables; Givens had forgotten how stressful arrd tiring the job could be. Finding, hiring and kaining each ne\4r employee took 10 days and cost roughly $250.

ln October, machinery for two lanes r:;rerpectedly malfunctioned while Gary Spalding $ras on vacation. An out of state servicer repaired them, but it took a u'eek's ti-rne and iotaled $26,000.

Customer Experience

Girzens noted that once irside, customers enjoyed themselves. To r.erifu her hunch she asked custorners to rate their experience on a 1 to 5 scale as they tumed in their shoes. 85% responded w-ith the most favorabie rating. For the less posiiive responses, complaints focused on cost, wait times, and group (as opposed to singles) orientation.

Priaate Eaents

Smith struggled as an event sales agen! focusing her efforts only on Raleigh businesses ald academic departments w-ith rn'hom she shared personal connections. In september she quit-

"Smith rvas close with my grandfather and she knew ma_ny of m;r rgi3ti.res; it was a delicate situation and I handled it poorly. Buf I am not sure rt'hat else I could have done. There sirnply u'asn't a good roie for her at Sugar Bowl. "

To replace Smith, Givens hjred a pari-time event plamer, Charlie Campbell. Campbell had been unemployed, and u'as eager for a job. As such he, too, agreed to work.mostly on comrnission. Campbell had both sales experience arrd an extensive personal network at high tech and biotech companies all over the Research Triangle. Wiihin a month he'd booked two prirrate events (listed below) arrd made substaltive contact rvith HR malagers at 21 companies.

Company Event Revenue # People Length

SJ.'rnbia

Lerner-Wright $s,000

$4,700

60

fU

3 hours

3 hor:rs

Not warrting to sacrifice re\renues from Thursday to Sunday, Givens designated Monday a1d Tuesday nights for private events. Bv November, Campbell secured four holiday parties and reported interest in three more for (potentially) $35,000 in revenue. Gir.ens kner,r' she would have to irnprove his compensation if she wanted to keep hirn.

Gaining MomeTltum

September and October revenues grew as word spread among graduate students and the yor:ng Professional circuit (See Exhibit 4: Weekly Attendarice Snapshot). At,erage spending clirnbed to M5, and by November, Thursday-Sunday nights averaged 60% capacity. But Monday, Tuesday and Wednesday patronage-udess booked with private events-iaaguished at 15% capacitv. The sprirLg

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a11d srmaer's lower-than forecasted revenues had drajned cash arid Sugar Bowl's incidentals "cusirion" was a mere $15,000 by December.

With profits in mind, Girrerrs and Petty identified the four menu items and three specialty drinks

that offered highest contribution margirs and guided staff to gently promote those iterfts. By Decemt'er, Petty had a good idea of customer tastes and Preferences:

As a resu-lt of the meticulous record keepilg marrdaied bv our bookkeeper, tn'eaking menu choices

u,as slralghffont,ard. For example, we noticed that of our menu of ffieen tapas o{ferings, the six

top-selJ.eri vrere ordered 50% more than tfre least popular offerirrgs. We narrorn'ed menu opfions,

utrd re-.,egotiated catering costs (which fell by 25%), and increased prices by 10% for best-sellilg plates, These changes lifted average revenue per person to S50 b;' the end of December-

S t r at e gic P ar tner ship s

Bowling ieagues athacied a steady slream of customers on slor^rer nights were a key benefit of the ,'old' Westiake business model. Givens w-ondered rf she had made a mistake iri excluding league players completely from her new strateg'y. IrL February of 2A72, Givens contacied a local dating sen'ice to explore a partnerslLip. The datirig sen.ice said ii could gather 60 singles under the age of 35 for an eight week \{ednesday night bowling league. The sen ice rt ould pay Sugar Borvl $120 Per person f& resen'ed bowling trom 7pm io 10pm, a Sugar Bor.t'l t-shirt (cost $5.00 each), and 50% off ine drink per person per evenirLg. With the help of iJ".e dating serv-ice anaiyst, Givens prolected the average ord", ?o. each singie *o,ttd amoi.nt to 1.5 drjnks and 2 iapas plates per Person each rught-7 And,; similar 2010 parkrership at a rock-dimbing facilily resulted in 50% of sirrgles becorning repeat customers.

\4eanr,,,hile, Petty attended one evening the short' of a Raleigh-based amateur eighties cover band

with a loyal late,twenties following. The tfuee person band, Zu-lu" played one sold-out shorv every other n,eek to a crorryd of 120 at a small bar donntown. The bar, however, was closing and Zuiu needed a ner^r home for six months for their Wednesday night pgs. \{ith some milor furnihrre maneuvering, P"tiy figured Sugar Borvl hrad enough room to accommodate the bald' their instru-rnents, a1d a standirig crort'd of 75 in the bar and restaurant area. Zulu's fee rvas $1,500 per nighi. The trvice-monthly show began at 9pm ar'd lasted 3 hours. Petty estimaied, based on past bar arr6 admission revenues, that fans 1,ould pa;, $L0 to hear Zuiu. and order 2.5 drinks arrd 1 tapas piate

each; she expected only a few of the larres to be in use during the show. According io the closing bar's owner, fars were loyai to Zu1u, noi thet venue. He guessed that behveen 5% and 10ok of Zwlu fans became repeat customers.

April2A72

Sugar Bowl's revenue strearis corrtinued to fluchrate, and as surnmer approached Givens wondired iJ the number of customers u'ould once again drop precipitousiy. However, the positil'e energ]- on crortded nights was motivating. Dn.itlg these moments, as she watched throngs of .*stJn-,e.s enioying themseives in the compan;r of rriends, Givens felt tremendous achievement- She

sensed her business was poised for groivtjl but in rt'hat direction? A second locaLion? A fralchise opportunity? Expansion of the curent iocation?

On a neighboring blocl, Givens noticed two new businesses under constr-ucliorr-a lvire and cheese bar, and an art studio that plarrred io offer evening painiing classes (along u'ith beer and

7 Qt ZOLZ average price for one d;i& was $10, ard one ta.pa-s Plate was $8

HARVARD BUSINESS SCFIOOL I BRiEFCASES

9L3-537 I SugarBowl

wine) for adults. Clearly, the neighborhood was flourishing. Bt:t a241ane bowting facility on the outskirts of Raleigh had ciosed for good after 30 years.

In eariy April, Givens fielded lwo surprising and monumentai phone calls; the first was from a local investor. He said he'd accompanied his son to Sugar Bowl on several occasions over the last six months, and noted its rise in populariiy amons his son's peers. He then asked if Givens would consider selling Sugar Bowi ard suggested $1 million as a sf:rting point for negotiations. Givens was tom. A sale at the right price could generate Givens and the business's investors, inciuding friends and famiLy, immediate financial benefits--Givens, wi*r a 25"/" stake, could potentially pay off her student loans. But Givens wasn't sure she was ready to sell now thai she'd survived the tumuituous first frt'o years of operations" And how u'ould her extended family feel about selling her graldfather's business to al outsider?

l,ater that sarare u/eek, a busiless school friend called Givens out of fhe blue- The management consulting firm for whom he n'orked \vas grolring, and they'd asked hirn to build arrd lead a group focused on smail business operatiors. Would Givens be interested in joimng his group in New York City, he asked? Though bavel n'as a corsideratiory work-life balance was a priority for the firm and hours u'ere prediciable. Givera's salar;'rt'ou,ld more than double, arld a hefty signing bonus u'ouid help to ease the tralsilion. It was a line of \^/ork that had intrigued her in the past, and arl offer she could not ignore.

Pondering tlrcfuture

Before commi:licating r,,.ith her board or responding wanted to understand:

to the investor and/or her friend, she

. lVhether she u'as on track to repay her loans within the five year timeframe.

. The n.^lrrLber of customers per day needed to break by the end of QI 2AI2, as compared to nearly a year earlier, Q3 2011.

. The benefits and drart'backs--economic and otherwise-for Wednesday night options: Singles League or Zulu venue.

. Mondays and Tuesday potential- With customer breakeven ln m;ria, did it make sense to close aitogether il no private events rvere scheduled? Were there other options?

Looking back at her experience at Sugar Bowi, Givens reflected: The past 18 months have afforded me an ilcredilrle opporhrnity; I've been exposed to general management much earlier than most of my busirress school classmates arld for that I am graiefuL i'm certainly proud of the progress we'l'e made with Sugar Bowl.

From the outside it would appear that our success has come from leveraging the urban lounge concept. To me, however, that's not the case-it is the combination of careful cost management together il.ith the nert' strategy that has propelled our success. My greatesi accompiishmeni, I think, was maintaining tight cost controls through our trarsition-

Bon'Iing is currently experiencing a renaissarce, with young professionals *joy*g urban lourrges Like ours and famfies pah-onizing big-box entertainment centers. Yet the long term viabiliY of either of these busirress types is unk:roH'n. Who knows *'hat the next trend in entertainment rrill be? We't'e made a large investment irr Sugar Bov'l but I do worry that its novelty rvill be lost on future generations. PIus, i am saddled with debi arld my investors are rvaiting for a retum as r,r.ell. I ajso rt onder at'n'h.at point I should pursue a larger generai management role to further my o\{n career.

10 BRTEFCASES I HARVARD BUSINESS SCHOOL

Sugar Eoa'i I 913-537

Appendix

Oven'iew of Bowling Industry in 2011

Current figures show there ate more S,an 100 mjllion bowlers in 90 counlries worldwide, and

more than Z0 n-,i-llion in the United States alone; this makes bowiing, a $7 billion irdush-w in the

United States, the most popular played sport in the United States today. lncreased parlicipation from

both women and childien has fueled bowling's grorvth over the last decade. The sport's a\rerage

customer boasts a household ilcome of nearly $58,000.

The most widespread form of botviing in ihe U.S, is Ten-Pin Bowling. One game consists of 10

"{tarnes,'of 10 pins each, Wjth each fralre, each player receives hvo chances (or rolls) to knock down

pins, and on the tenth and final frame, three chances- A perfect score--arl extremely rare event-is 300. Fr.q,rur,t recreational bowlers generally average betq'een l-20 and 175 points Per game.

Bowling,s popularity jn *re United States exploded in the 1950s, mostly dr.re to television corierage

of bowling toumamene. Iri ihe 1960s, improvements in lane machinery and technology fueled additional"growih, which continued through the 1970s as widespread parlicipation in league bou'Jing

spread. Tifuically, league bort4ers comrnitted to weekly bovr'ling sessiors for 32 v'eeks, ensurrng a

con-si'stent revenue slream for bort'Lilg cenlers.

Eegiming in the laie 1980s, however, industry growth stagnated-as league participation declined.

eowUig ."i"., turned to recreational bou,lers for revenues, competing for their dollars against other fornrs Jf fanril;, entertainment. Also during this time the bowiing industry grappled with its reputation as arL outdated, old-timers activity. This image was fueied in part by old, wom faciiities and al aging customer base.

Over the last 15 years, maly borvLing centers have updated their facilities with one of tr'vo markets

in mind-fa1nliies or young urbalites. T1ose pursuing families often create family enterta-inment centers, -wifh bowling-ptorrlaittg just one part of a larger entertajnment experience. The "upscale

bort,iing lolnge" has grou;n in popuiarity since roughly 2000 in larger urban narkets. These facilities

target i1- to 35-year-o1d urban du'ellers, providing an altematirre to bars and live music venues- Ofien rvith o"util," lighting displays and themed entertainment they are as much night- and dance- ciub as they are bo*[.,g alle,v.

- They may feature pool or biliiards as well as bowling, and provide

upscale dining options ard a fuIi bar.

kr the Uniied States, there are 5,350 bowting centers, u'iih an average of 20 ianes each- The inciustry is higgy fragmenied. Together, the five largest owners ou"n just 8% of total borvLing facilities- Bowling centers are predomjnantly family-orvned'

HARVARD BUSINESS SCHOOL I BRIEFCASES 11

9'13-537 1 SugarBowl

Exhibit 1 Sugar Bowl Balance Sheet

December 31 2OAG2072 2005 2008zoaT 7fr09 2010 zB77 ASSETS Current Assets Cash Irverrtory Fixed Assets Propertv, Plani & Eqrrilment Tota-l Assets

LIABILIT]ES Accounts Payable Debt Total Liabilities

EQUTIY Comon Stock Retained Earnings Tota} Equiil,

$ ss,488 $ 15,412

$ 54,ffi7 $ 104,907

$

$ s

fi u,473 fi 6,s7L

$ 132,103 5 163,747

$ 15,000 $ 72r,557 $ 135,567

$ 30p00 $ (3,420) $ 26580

$ 29,667 $ 7,94i

$ 184,122 $ 216,732

$ 2s.000 $ 948s0 $ 119fs0

$ 130,000 $ (33,118) $ 96,882

$ 9.057 $ 42oA

$ 178,M6 $ 191,303

$ 30p00 g 124,208 $ 1s4,208

$ 130,000 $ (ezeOs) $ 37,095

$ 298,806 $ 2400s

$ 66,594 $ 83,950

$

$

$

$ $

408,s00 $ 6s8,962 73L,311 $ 809,506

8,488 $ 51,99s 724,208 $ 724208 749,696 $ 7/6,203

$ 130,000 $ 130,000 $ (160,490) $ (e6,6en $ (30,490) $ 33.303

$

$

$

L4,907

40,000 54,907

30,000 0,000

50.000

12 BRIEFCASES I HAHVARD BUSINESS SCHOOL

NT QUARTERLY |A]\nillAL':'

Income L:rre Rental Food Sale

W.r-tt"t " Sugu Bowl Sugar BowI Sugar Bowl Sugar Bowl

o3 2010 o7207\a 03 2011 Q4 2011 Ql 2012 Wistlake 1.,1, 1,:,;..,',$u. g.'ar Bow]

,',,'2010.:, j:: :: : :,:::::::,,2011 : :.. :

$ 18,290 $ 106,707 fi 179,077 $ 2:?5,400 fi 267,510 $ 17,i50 fi 7A392 S 159,667 $ 44€,500 $ 4\B'270q ?0-571 $ 99.460 S 243.763 $ 559,27C $ 501,550

, $ ,'. 398;950 i .:,$...,.'561,128 , $,,,,, ', 56;9]p ;r,',: $ , ;'678559 , $,,,,69,890,,':fi ,': 9|.)2493

ToGl g rse,ori 5 276,559 $ 582,451 $ 1,283,i70 s 1]72364 $ , ,s25,660 , , ,,, $ ,2, 42;180

Vriable Cost of Sales Food Puchased Iiquor Puchased Food & Reveraqe Sunr

$ s,145 $ 39,420 $ 110,250 $ 181,386 5 199,335 $ 4,7t4 $ 29,838 $ 10s,000 fi 249,530 $ 201,600 s 3,772 $ 35,953 g 729,757 $ U4,500 $ 147'011

I :: . :::: . r:: :.: : ,:..,, '..:,:, .:.::, '

5'.,;: 1:L,17 976:',.,,,,'l :$ii.: :iJ51,056 $ ',, 13;978..: i' ,$::.33436S $'', . 1rrr81,':,., '5' , 779,6\0

T s rs'O:t $ 10s210 $ 34a,407 $ 545,49 --fi j+7f16 $,., 43.735,, ,,,:, g ,.,::195;033

General Overhead Expenses Mmkethg and Advertising Salries: Fu]l Tine Salaries: Pa:t Time Caterirg wage Coupons legal and Audit Lrcrruce & Pemuts Ofice Supplies Rer.t Repaii & Maintenance labor Repau & Maintemce Suopiies Utilities Travel & Promotion Lrsurance \4isceJlmeous

$ 2820 $ 10,000 $ 1s,000 $ 15,000 $ 15,000 $ 29,400 $ 48,498 $ 48,498 $ 4e,498 $ €,498 $ 9,241 $ 20,130 5 187)0 S' 31528 $ 23,900

n/a $ 16,128 $ 25,920 $ 32,077 $ 75'920 $ 2,339 $ 7,000 $ 9,000 $ 11,000 $ 9,000 5 7,172 $ 3,600 $ 3.600 s 3,600 $ 3,600 $ 440 $ 1115 5 7,47r $ 6,000 $ 6,000 $ 794 $ 1,950 $ 3,450 $ s,450 $ 3,450 s 76,s49 $ 43,000 $ 43,000 $ 43.000 $ 43,000 $ 13,83E $ 14,000 $ 29,5s0 S 34'550 $ 29Js0 $ 24,s5s $ 45,000 $ 49,000 $ s8,000 $ 53,000 $ 7,137 $ 15,000 $ 25,100 $ 24,040 $ 23"520 $ 263 $ 8,ooo $ 3,ooo $ 3,ooo $ 3,ooo $ 14.700 $ 2S,s00 $ 2s,s00 $ 33,000 $ 33,000 $ 450 $ 6,000 $ 8,500 $ 7500 $ 9,700

.'$ 9:s0 $ 4{.000 $ lDrltr0 s 145,494 $ 30,800 5,73.)75

c. .. 7arfr< s 7,090 s 2z,qp 5 7"040 , ,$ 10,800 $ 6F00 $ ,10;910- $ 2,740', $ 108s0 $ 89.830'S 129.000

I :$.:.:..'102,7O0 .: r, $'.,,' ,78,100rt s 57500 s 15:.000 5 Tt,tq ,r$ 65,140 s .. - ,: $ :141000$ 49-ooo 5 9opoo $.. 1500. $ 22^r)00

Total General g rrs":zs fi 269,787 $ 314J13 $ 359,ry! ----ql{liq S:' :5i6510 : 'r,,,f 9QJ:87

Ilterest paymmt Bank lrterest pavment: Frimds & FamiiY Deprriation

Tax

fi r,8s7 $ 8,000 $ s,000 $ 8,000 $ 8,000 $ 4,000.00 $ 4.0c0.00 $ 4,000.00 $ 4,0cc.00

$ 2,100 $ 3.ooo $ 3,ooo $ 3,ooo $ 3!oo

s 7,678 $ 1q?42q__-$ !o-124q

.::$:::: ::r:8;000 :,,. t$,.. , :16,000 , t$'':,'

, .9,oq0, ,,,,, i $: ,ii. 14000,:..

.r : !:,:. . r:: ir . :.r : $ :.jf .79;566:

Net Income { +.422 $ {112,932) $ (91,269) $ 231'055 $ 774,329 . $ .'.',{575E5) , :,.l, ::$ '"' 63;793

Suga Bowl 1 9L?-537

Exhibit 2 Sugar Bowl Irrcome Statements: Quarierly and Alr,uai

ae220llrepresertsjustgu,eeksofsugarBou,lOperations. Notethefacilityclosedfo;renovationsinNovember2010,adreopenedurearlyMay20ll-

HARVABD BUSINESS SCHOOL i BRiEFCASES 13

913-537 -1"4-

Exhibit 3 Marl

Exhibit 4 Weekly Attendance and Revenue Snapshot

a Does not ilclude Private Event patronage

e hdijne I

q1iec1rmq1l to ars;; g;;i r1nii1 L1't Dirqc! Emajl!o Rgn!e_d Talgqt lmail Lig| Group Buylng Of fer sociat Mediq WgQ"site

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Weekly Attendance Snapshot a Average g Per Person

2011

Q2 Q3 Q4

2012

Q1

Monday 67 67 75

Monday 101

Tueoday

59 59 94

Tueoday 125

Wed.

75 190

Wed. 120

Thursday Ls4 200

308

Thursday 378

Friday 160 ,LT3

350

Friday 411

Saturday

180 220 385

Saturday 420

Sunday r/4 1'7")

299

Sunday 335

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