ENIGMA ESCAPE ROOMS Harvard Case Solution & Analysis

ENIGMA ESCAPE ROOMS Case Solution

Decision Criteria:

After analyzing the expansion option from various dimensions, we came to know that it is financially viable and operationally doable for Enigma to open Horror-themed rooms at a different location. During our analyzing process, we found out that, Enigma has a first-mover advantage and knowledge of more customers in the Escape Room Industry of Canada.

The company also has required skills, resources and experience for embarking on expansion plans. As the company already has an experienced staff, who are working for more than a year, It has more than $20,000 in cash available at the moment and financial forecasts shows that it will be a net profit margin of 39% to the company with sales of $48,000 in just nine months. Expanding into a new market will also help the company in reaching to more customers and increasing its awareness in the market, which will improve the brand image of the company.

Option Analysis:

As the expansion is viable in terms of earning potential with just $16500 in initial investment has potential to payback whole investment amount in just nine months. And the company has not been operating Horror-themed rooms in Windsor, so the risk of cannibalization is also very low. Moreover, it can also help to increase both its customer base and market share. However, there are risks associated because horror theme rooms don’t attract everyone, only some part of the large population feel comfortable with horror themes. Parents might not send their children due to its horror theme but overall, it will be a very new experience to the customers, so the company needs to be very careful about the demand forecast and should be prepared for make frequent changes so that customers will not be bored.

As the sales in October are nearly 20% of the total expected sales in the year 2017 because of  Halloween season. The company can take care of this demand-hike by employing part-time labors, just for the month of October, Enigma can provide bonuses and incentives to work extra-time. By doing this, Enigma would cope with high labor demand in the month of October and remaining months demand is expected to be smooth so there would not be much fluctuation in the remaining months.

Option Analysis
Revenue      48,438
Initial Investment Cost 16500
Profit      18,951
Profit margin 39.1%
Risks Most customers might dislike
  No everyone like horror, decrease in turnover.

Recommendation:

After using various analysis tools, we would recommend Enigma Escape Room Inc. to go with the expansion plan of opening new Horror-themed rooms at the new place because not doing expansion has double costs associated with it. First, hidden trail will secure this new place and existence of Enigma would become limited to just Windsor. Secondly, the company already has enough cash in hand, if it will not invest this would be an inefficient effort and will be considered as a waste of crucial resource.
As we also have discussed the strategies to reduce potential risks. Initially, the company should form a team of creative workers, which will work of making continuous changes to make the experience of customers different each time they visit. Moreover, the installation of horror-themed rooms would be an addition and it would not cannibalize the share of existing escape rooms because horror-theme will be at far more existing location and not all people like horror-theme, it has its own specific customers, which makes it very unlikely to affect demand for other themes.

Total Budget: $ 16500
Expected Return: $ 18951 or 39.1%

Exhibit-A

Estimated Income Statement
Year ended May 31,2017 (9-months)
Sales       48,438
October sales 10350
Rest of 8-months till May,31 38088
Expenses
Wages expense              13,136
Rent expense 6750
utility expense 1800
Cleaning and Maintenance                   661
Insurance expense              554.34
Gas expense              866.99
Web Expense              332.14
miscellaneous              539.96
Marketing & Promo Exp. 900
Depreciation expense                1,575
Total expenses       27,115
Profit Before Tax       21,323
Tax    2,372.29
Profit After Tax       18,951
Profit margin (Horror-themed room) 39.1%
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