Susan: Hi, I am Susan and my friends Frank, Jimmy, and I have been friends since
childhood. We lived in the same neighborhood and attended the same elementary and
high schools in Detroit, Michigan. We worked at a local automotive parts plant, although
we were unemployed due to a "headcount reduction" at our plant.
In the past, we have had many conversations about starting a carpet cleaning business,
considering we all have experience working in carpet cleaning organizations in Detroit.
One day, I called Frank and Jimmy to meet for lunch and discuss the possibilities of
opening a carpet cleaning company. During lunch, we decided to open a small carpet
cleaning business, and spent several hours discussing plans to start the business.
Frank, Jimmy, and I scheduled a meeting with my father to discuss our plans to start a
carpet cleaning company and ask for a loan. The carpet cleaning company would
provide carpet cleaning services to home owners, numerous apartment complexes, and
businesses located throughout the city of Detroit, Michigan, and the surrounding
communities. To differentiate our carpet cleaning company from others in the Detroit
area, we decided to use environmental friendly, non-toxic cleaning agents and offer free
estimates for carpet cleaning. We estimated needing $25,000 in startup capital to fund
the business.
The following is a breakdown of our estimated startup capital:
Used carpet cleaning van with installed carpet cleaning equipment: $11,000
Used portable carpet cleaning machine, hoses, wands, sprayers, and additional
equipment: $4,000
Internet, computer, fax, printer, phone, website, business license, registration,
and business insurance: $5,000
Cash budget for miscellaneous costs: $5,000
Total Startup Capital: $25,000
With a little prodding, my father agreed to give us a three-year $25,000 loan with an
interest rate of 8.5%. Our business model was very simple. We entered into a three-way
partnership, with me managing the office and Frank and Jimmy performing the carpet
cleaning services. Our marketing plan included word of mouth referrals, a website, and
using flyers and brochures I created in our office (a small office in my father’s garage). In
determining our prices and services, we researched carpet cleaning companies in the
Detroit area. Due to a saturated market of carpet cleaning companies, we decided to
offer prices 20% lower than our competitors’ prices to create customer demand for our
carpet cleaning services.
During the first couple of weeks, we only received a few phone calls from homeowners,
although in the third and fourth week, the calls from homeowners picked up and
apartment complex managers began to call to request carpet-cleaning services for 1, 2,
and 3 bedroom units. Soon we were booked up for weeks in advance.What was originally designed to be a Monday through Friday 8 to 5 operation, turned
into a 7-day business averaging between 12-14hours per day. Frank and Jimmy could
not keep up with the number of requests for carpet cleaning, we had serious mechanical
problems with the engine in the carpet cleaning van, and our cleaning equipment was
constantly in repair. In addition, we were spending too much time conducting free
estimates when the clients did not purchase our carpet cleaning service. Customers
began to make complaints concerning the quality of our service, missed appointments,
and poor customer service.
Frank, Jimmy, and I were exhausted in attempting to provide quality services on a daily
basis. Our company, Clean-Air Carpet Cleaning produced a profit in the third and fourth
quarter; however, we decided to close the Clean-Air Carpet Cleaning Company after one
year in business.

What critical errors do you see in the initial planning phase of the Clean-Air Carpet Cleaning Company?

What economic factors do you think Susan, Frank, and Jimmy should have included in their plans for the Clean-Air Carpet Cleaning Company?

What operational improvements would you have suggested for the Clean-Air Carpet Cleaning Company?

What do you think were the main factors contributing to the failure of the Clean-Air Carpet Cleaning Company?