Saimaa University of Applied Sciences

Faculty of Business and Culture, Imatra

Tourism, Hotel and Restaurant Management

Gleb Karlov

Business plan of a hostel in Saint Petersburg

Thesis 2015
Abstract

Gleb Karlov

Business plan of a hostel in Saint Petersburg, 56 pages

Saimaa University of Applied Sciences

Tourism and Hospitality, Imatra

Degree Programme in Hotel, Restaurant and Tourism Management

Bachelor’s Thesis 2015

Instructors: Mr. Pekka Mytty, Senior Lecturer, Saimaa UAS

The objective of the thesis was to study how to write a business plan and then
implement it into Russian business environment on an example of a hostel in
the city of Saint Petersburg. The main purpose was to research which
components a proper business plan is comprised of. A business plan is an
important management tool, assisting its readers to assess whether a business
venture has an opportunity to enter the market, work through its milestones and
prevent and mitigate crisis events.

The thesis report consists of a theoretical research on how to found a small- or

medium-scope enterprise in Russia and the empirical part represents an actual
business plan of a hostel in Saint Petersburg. First, the author carefully studied
on all aspects of business planning. The gathered knowledge was later implied
to an exemplary business plan for a new business venture in the hospitality
market of Saint Petersburg.

Due to the fact that this thesis report is a project-based study, the main source
of information we various business literatures, internet sources and author’s
study and work background in the industry. The author hopes that the study will
be beneficial for readers, but it has to be taken into consideration, that the study
shows an example implemented in a specific business environment.

Keywords: Business plan, hostel, Saint Petersburg, research.

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Table of contents

1 Introduction .................................................................................................. 5
1.1 Justification for the topic choice ............................................................. 5
1.2 Aims of Thesis ....................................................................................... 6
1.3 Thesis limitations ................................................................................... 7
1.4 Research Methods ................................................................................. 7
2 Theoretical framework ................................................................................. 8
2.1 Company establishment ............. Ошибка! Закладка не определена.
2.1.1 Business Idea .................................................................................. 8
2.1.2 Business planning ........................................................................... 9
2.1.3 Business models ........................................................................... 11
2.1.4 Funding ......................................................................................... 13
2.1.5 Sources of funding in Russia ......................................................... 15
3 Business planning ...................................................................................... 16
3.1 Executive summary ............................................................................. 16
3.2 Company description ........................................................................... 17
3.2.1 Company name ............................................................................. 18
3.2.2 Company’s location ....................................................................... 18
3.2.3 Mission, vision and goals .............................................................. 19
3.2.4 Legal issues .................................................................................. 20
3.2.5 Description of products and services............................................. 22
3.3 Marketing ............................................................................................. 23
3.3.1 Basic concepts of marketing ......................................................... 24
3.3.2 Customer segmentation ................................................................ 25
3.3.3 Competitor analysis ....................................................................... 26
3.3.4 Market analysis ............................................................................. 26
3.4 Operational plan .................................................................................. 27
3.5 Strategic planning ................................................................................ 28
3.5.1 SWOT Analysis ............................................................................. 28
3.5.2 Porter’s five forces......................................................................... 29
3.6 Human resource management ............................................................ 30
3.7 Financial information ............................................................................ 31
3.8 Appendicies ......................................................................................... 32
4 Business plan of a hostel in Saint Petersburg............................................ 33
4.1 Executive summary ............................................................................. 33
4.2 Project background .............................................................................. 33
4.3 Products and services.......................................................................... 34
4.4 Mission statement ................................................................................ 35
4.5 Marketing ............................................................................................. 36
4.5.1 Target market ................................................................................ 36

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 4.5.2 Competitor analysis ....................................................................... 37
4.5.3 Marketing tools .............................................................................. 39
4.6 Operations ........................................................................................... 41
4.6.1 Location......................................................................................... 41
4.6.2 Project organisation and coordination ........................................... 43
4.6.3 Staff requirements ......................................................................... 43
4.7 Financial planning ................................................................................ 44
4.7.1 Start-up capital .............................................................................. 44
4.7.2 Projected financial statement ........................................................ 46
4.8 SWOT-analysis .................................................................................... 48
4.8.1 Strengths ....................................................................................... 49
4.8.2 Weaknesses .................................................................................. 50
4.8.3 Opportunities ................................................................................. 51
4.8.4 Threats .......................................................................................... 51
5 Conclusions ............................................................................................... 52
6 References ................................................................................................ 54

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1 Introduction

This section of the thesis report identifies the reasons, why author has chosen
this specific topic. At the same time, its aim is to acquaint readers with the aims
and purposes of the project, the scope of work and the general outline of
enterprise.

“By failing to prepare, you are preparing to fail.” (Franklin, B.)

Business plan is a powerful decision making tool, which not only entrepreneurs,
but also investors and partners, will use to evaluate how good and reliable the
business proposal is. Unfortunately, many people underestimate the business
plan potential. For some it is just a fund-raising tool, while others getting money
from their friends and relatives suppose it is unnecessary at all. In this thesis
report, it will be explained what competitive advantages careful business
planning gives to an organization.

The thesis report is comprised of two parts. The theoretical part describes how
to write a proper business plan and establish a small tourism-related enterprise
in Russia. A careful theoretical research is made on an every aspect of
business planning. Moreover, the procedures, which are crucial to found a
company in this market segment and successfully operate it afterwards are
analyzed. The report also contains a detailed analysis of Russian business
environment, explaining how the government helps small- and medium- sized
enterprises, and the tourism market of Saint Petersburg.

The empirical part of the thesis focuses on developing an actual business plan
of a hostel. The information gathered allows to estimate the resource allocation
more accurately. With a real business example in mind, it will be easier for the
author to plan carefully on all stages of the project.

1.1 Justification for the topic choice

The main reason for choosing this certain topic is the author’s interest in
entrepreneurship and performing distinct business related activities

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implemented to the hospitality industry. As the author intends to found their own
business, this project will mark the beginning of the first steps to help in
achieving and executing this goal efficiently.

The bachelor degree in hospitality management, which the author had taken at
the Saimaa University of Applied Sciences, was also one of the strongest
driving factors. During the studies, there was a wide range of courses taught in
numerous disciplines such as accounting and budgeting, planning and strategic
marketing, different management- and HR- related subjects. As a result, all of
the mentioned above broaden one’s knowledge in the field forming explicit
views towards the preferred topic choice. From the author’s point of view, a
business plan is quite a complex notion and consists of various concepts, which
demand vast knowledge in different disciplines. Therefore, this project can be
also viewed as a final assessment of one’s level of expertise with the topic.

At the same time, the idea of running an own business, where the decision-
making process and authority are given to an entrepreneur inspires the author,
as he has strong interest in obtaining entrepreneur experience in certain
business environment.

The reason why a hostel was chosen as the business project was that it is a
relatively small enterprise, which has no need in forming and employing a big
team, and the expenses can be retained at a comparably low level.

Finally, for the aforementioned reasons, the ability to write a proper business
plan gives one a competitive advantage, as any other knowledge broadens
one’s experience. After finishing such a convoluted project, the person will have
a clear view on how any business operates, and what has to be taken into
consideration to maximize the profits and succeed.

1.2 Aims of thesis

As it was already mentioned above, the project is comprised of two parts,

concerning different aspects of business planning. The first main aim of this
thesis is to create a legitimate business plan of a small enterprise (hostel) and
to study carefully the process of establishment of a company in Russian
business environment to provide fresh travel-related decisions, products and

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services, tailored to the needs of both domestic and international visitors. The
study also stands for bringing latest trends in hospitality industry from all over
the world to Russian market in order to strengthen the image of the country and
the city of Saint Petersburg as a tourist destination.

Secondly, as the concept of business planning is not that widely developed in

Russia as in many European countries and the US, this thesis and especially its
theoretical part could assist people interested in opening their own small- or
mid- sized business in this industry. The study stands to examine the
importance of every stage of a business plan and what has to be scrutinized
during that laborious process.

As a result, this thesis should systematically form a clear view on a business-

planning course for the readers, giving them various useful tips and examples.
Still for some of the readers, this study will be limited due to a specific location
and Russian market special features.

1.3 Thesis limitations

A bachelor’s thesis is an operose project, which is on average comprise of

about 40 to 70 pages. Presumably, the author conducting the research and
repsonsible for the project development disposes insufficient experience. With
this in mind, it is crucial to specify the framework of the research in order to
accomplish high-quality results.

1.4 Research Methods

The thesis was carried out as a project-based study; the main part of the work is
concentrated on desk research, divided into two parts: making a theoretical
framework and working on the actual business plan.

A project-based thesis is usually comprised of about 40% of practice and 60%

written work piece that implements usage of practice-as-research methodology.
A project might be implied in various forms, such as historical performance, play
writing, organisation of workshops, design and development, etc. All of the
practical procedures must be built on the basis of a conducted research, which
matches the field of investigation and has an appropriate framework. Hence, a

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project-based thesis is basically built up by appliance of theoretical knowledge
and concepts. (University of Warwick, 2012.)

2 Theoretical framework

2.1 Business Idea

A successful venture always starts with a business idea. It is the first milestone
when creating a growth company. It is from where any business starts. First, it
is only a vague concept and basically has no commercial value, but after a
credibility check, an entrepreneur will have a more clear view on the idea’s
perspectives and success chances in the market. One should think long-term,
try to analyze the market for areas of growth with future potential, while working
on their business idea.

A business idea might as well be based on entrepreneur’s personal skills and

interests, while at the same time it can be an innovative invention or an
improvement of an already existing product or service. In their article for
Guardian Chris Garden and Catherine Blackburn (2015) suggest newcomer
entrepreneurs pore over their professional and personal background: “Look at
all your historical experiences. You will have developed specific skills in your
career, which maybe provide the basis for a business. In addition, you should
think about the different companies and market sectors that you have worked
in. Think about the skills you have developed outside of work too. In particular,
what do you most enjoy doing when you are not working and what would you
ideally love to spend more time doing?”

However, one of the main points is that the business idea should be addressed
to investors. Because, as it was already mentioned above, there is no monetary
value in it, unless the market welcomes it. A successful business idea must
show investors and future stakeholders how and how much money they will
earn. Henceforth, a good business idea should also answer three essential
questions:

1. What? (What the company will produce or sell?)

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 2. For whom? (What is the target market?)
3. How? (How customers can be reached, funding, personnel, raw
materials, etc.)

The vision of a business idea is to present and explain entrepreneurial process

from the moment an idea is conceived until the new business or a business unit
is introduced to the market. (Hougaard 2006, p.9.)

2.2 Business planning

Finally, when the creative process is finished and the idea is formulated and
defined clearly, it is time to start developing an actual business plan.

First, a business plan is exactly what its name implies. It is a blueprint, detailing
what business or business concept is, what is expected form the business, how
management intends to get the firm to that point, and, of greatest importance,
the specific reasons why it is expected to succeed. The last point is crucial
whether the business plan is used to attract the interest of a prospective
financier or is used internally as the master plan for operating the business.
(DeThomas 2008, p.7)

Business plans are used for many significant reasons. Firstly, it will assist a
novice entrepreneur to assess is the business idea itself is worth it. Because
after a careful research, when all the details and numbers are put together it
may all collapse. Hence, business planning requires accurate analysis, as it is
not only the auxiliary tool to get business loans and funding, as most people
assume, but also a model according to which a business will operate in the
future. It will help executives to stay flexible in the long run and be able to make
required changes in company’s operations in appliance with the market. A
business plan assists a business to look ahead, organize effective allocation of
resources, and focus on key points. Business and strategic planning is needed
to enhance growth and development accordingly to organizational goals and
needs.

Business planning allows entrepreneurs to avoid big mistakes, says Ronick

(2011) in his article for Inc.:” The last thing you want to do is work on your start-
up for a year, only to realize you were doomed to fail from the start. Many

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founders learn the hard way that they did not set aside enough capital to reach
their goals, took on partners with the wrong skills and resources, or do not have
a viable way to make money. Developing and sharing a business plan can help
ensure that you are sprinting down the right path.”

Developing a business plan for the company’s early-stage operations is the first
step to master strategic planning skills. Due to it, an entrepreneur should set the
direction for a company over the next few years. Otherwise, a business faces
huge risks, operating in the fast changing market.

With that in mind, one can definitely say that a business plan is quite a complex
notion and consists of various concepts, which demand vast knowledge in
different disciplines, such as accounting, human resources, strategic and
planning marketing, etc. A future executive may use one out of many
frameworks, while constructing and preparing his or her business plan. A
template, we will use (Bessant, Tidd 2011, p.300.) states, that a typical formal
business plan will include the following sections: details of the product or
service, assessment of the market opportunity, identification of target
customers, barriers to entry and competitor analysis, experience, expertise, and
commitment of the management team, strategy for pricing, distribution and
sales, identification and planning for key risks, cash-flow calculation, including
break-even points and sensitivity, financial and other resource requirements of
the business.

Typically, a business plan should be relatively concise, no more that 10 to 20

pages, begin with an executive summary, and include sections on the product,
markets, technology, development, production, marketing, human resources,
financial estimates with contingency plans, and the timetable and funding
requirements. (Bessant, Tidd 2011, p.433.)

Business planning is the process of thinking and working out the details of one’s
business in order to prevent problems, improve the business and gain more
profit. Planning helps to analyze the potential of the business. It enables
entrepreneurs to identify what is needed along the way towards having a
successful business. (The Government of St. Vincent and the Grenadines
2014.)

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2.3 Business models

Developing a business plan helps entrepreneurs to make crucial decisions,

concerning key business activities and maximizing profits, to understand and
assess financial aspects of the enterprise, including cash-flow and break-even
requirements. At the same time, entrepreneurs are gaining and analyzing
important industry and market information and trends. Entrepreneurs learn to
recognize and prevent risks the business might face. This information will only
benefit the founders, as on the assumption of it, the management team will be
able to set specific goals and objectives for the business. (Abrams 2003, p.10.)

In this section of the thesis report, a closer look is taken at the business model
concept, trying to explain the purpose of having a clear business model for a
business. Once this notion is studied carefully, the reasons for enterprises to
work through a business model will be explained, as well as the benefits of
implementing one to a business.

A good business model has to answer Peter Drucker’s questions: Who is the
customer and what does the customer value? Therefore, it also must be able to
tell managers how the company is going to make money in the market. More
precisely, business model should demonstrate the way organization will deliver
its products and services to target markets at a relevant price in certain
economic environment. (Magretta 2002, p.4-5.)

In their book, John Bessant and Joe Tidd (2011) suggest future executives a
model for innovation and entrepreneurship, which is divided into four key steps:
recognizing the opportunity, funding the resources, developing the venture,
creating value.

The first step reckons that there are plenty of innovation derivers in the
economy, which could take the form of new technological opportunities,
changing requirements in market demands, excessive legislative pressure in
the industry or competitors’ actions. It means that entrepreneurs must be
capable of looking into the future, identify, and make use of future, both positive
and negative trends that the market and economy is facing.

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The next stage is about making strategic choices and bringing up innovation
into the company’s daily operations. At this stage, it is examined if the idea fits
into a business strategy, does the company possess enough expertise and
knowledge in the field or it it needs to conduct external analysis in search for
appropriate information on the case. (Bessant, Tidd 2011, p.411.)

After the first to steps of developing and improving the business model, the time
has come to make those strategic decisions, allocate resources and improve on
weak points revealed during this development process. Meanwhile, a company
has to gradually pull together all the gathered knowledge on all aspects of
business operations. Throughout this stage, entrepreneurs have to balance
creativity by finding innovative ideas, which might help when problems emerge.

Finally, despite all the entrepreneurs’ efforts in recognizing opportunities, finding

resources and developing the venture, still no one guarantees that both partner
companies and customers will deservedly value all this hard work. That is why
founders have to think about and manage how to protect intellectual property
and financial returns. Not to forget that business model development is a
valuable learning process. (Bessant, Tidd 2011, p.25-26.)

Figure 3. Model for innovation and entrepreneurship (Bessant, Tidd 2011, p.26.)

To sum up, one of the main strengths of developing a business model, as a

strategic tool is that it represents how all the components of the business will fit
into the market. The perception of business modeling is equal to scientific

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methods imposed to business: entrepreneurs start with their interpretation of the
company’s operations, which is later tested in real-life business environment
and revised, if required.

2.4 Funding

When having reached the point when the estimated image of the business
concept is ready, the first thing that has to be taken into consideration, is the
start-up capital. According to Bessant, J. Tidd (2011, p.434.), there are four
stages of development, each having different financial requirements: initial
financing for launch, second-round financing for initial development and growth,
third-round financing for consolidation and growth, maturity and exit.

In most cases, an entrepreneur will ask typical lenders i.e. banks for a business
loan. A loan application must be supported by a worthy business plan, proving
that the project will be able to pay interest costs. However, it is not the only way
to raise funding for a business. This section attempts to find out from where new
players can get funding. It can be the owner’s personal savings, loans from
friends and family, as at that stage not many venture capitalists or angel
investors will be interested. Entrepreneurs may as well seek for government
support for the private sector, small- and medium- sized companies. The figure
below demonstrates a few examples of fundraising sources, which change with
the company growth and development:

Figure 1. Financial development stages/Recourses for funding (Bessant, Tidd

2011, p.435.)

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According to the diagram below, which represents the results of a research
“Financing UK small- and medium-sized enterprises” (2008) conducted by
Cambridge Centre for Business Research most common sources of finance for
starting new ventures are. The sources are placed by their prevalence amidst
entrepreneurs.

Figure 2. Diagram of sources of funding (wbs.ac.uk)

In addition, when talking about funding, if one’s company is lucky to find an

angel investor or venture capitals are interested in lending money, one should
learn more about those two notions and how their differ. A business angel
investor is usually an individual investor, who may be willing to invest in early-
stage or start-up business, as well as established companies. The amount of
investment varies from $10k to $100k, but it can also sums up to $1-2 m. Those
people already have entrepreneurship experience, established networks and
contribution to the field. Newcomer entrepreneurs may learn useful professional
skills, when working in such a team. (thebusinessangel.org.)

While venture capital is more likely to be a company or a business, rather than

an individual, they are seldom interested in early-stage investing, unless

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compelling reasons (e.g. high tech with already successful founders). The
investment amounts usually start from $1 million. Generally, those organizations
manage other people’s money and different institutional funds. Working with
such partners will most likely be paired with them having an ability to influence
the business and decision-making process a lot. (thebusinessangel.org.)

2.5 Sources of funding in Russia

Russian government constantly launches new programs towards the support

and development of small- and medium-sized companies. In this section, the
process of getting government assistance is described. For example, one of the
aforementioned programs provides young enterprises with subsidies, which an
organization can spend on arranging production, raw materials, distribution,
sales, equipment and machinery. Later, a business has to return 50% of the
total loan in 5 years. However, the maximum loan a company is able to get is
only about $6-7k, depending on the exchange rates, as the subsidies are given
in rubles. All of the programs are similar and mostly offer partial compensation
from the total amount spent on company establishment, preferential leasing and
discounts for utility costs. Nowadays, most common governmental programs
are represented as grants, business incubator, free legal and accounting
support, limited returns on renting costs and different educational and
innovative entrepreneurship programs. (gd.ru)

The next source of funding is a classical bank loan. According to the U.S Small
Business Administration (sba.gov), Westpac Group (westpac.com.au) and Euro
Area Statistics (euro-area-statistics.org) interest rates for business loans
(usually 1-7 years) in developed European countries, such as Germany,
Finland, Sweden, France and the US, may vary from 3.5 to about 10%, while
Credit.ru, a project for Russian citizens and companies, providing loan offers
and interest rates, shows that the figures can range from 12 to approximately
28-30%. A notable difference in the rates can be seen. In his article for Forbes
Milov (2013) states that the gap between European and Russian interest rates
for commercial loans is about 10%. Almost 70% of the bank segment is
managed by big national banks. Oligopoly in the bank system causes artificial
interest rates growth.

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3 Business planning

3.1 Executive summary

Knowingly, executive summary is considered to be one of the most crucial

components of a successful business plan. This part of the business plan report
shortly tells readers (mostly investors, bankers or public institutions) outline of
the company's purpose and goals. If the business is in need for finance, then
presenting a trustworthy executive summary is the first possibility to catch
investors’ attention. The executive summary should be able to emphasize the
strengths of the long-term plan and, thus it should also be the last section an
entrepreneur has to work on. Yet it commonly appears first in a business plan
report.

In his article for Inc. Magazine Haden (2015) states, that a good executive
summary fits in one or two pages in the beginning of the actual business plan
and is usually comprised of following components: a brief description of
products and services, a summary of objectives, a solid description of the
market, a high-level justification for viability (including a quick look at your
competition and your competitive advantage), a snapshot of growth potential,
an overview of funding requirements.

Also, according to the article mentioned above when writing an executive

summary for a project, entrepreneurs are recommended to keep in mind three
simple things about the contents of an executive summary.

The first concepts suggests future CEOs to refine and tighten their business
concept, as the summary describes the highlights of a business plan, includes
only the most critical points, and leaves out less important issues and factors. It
is normal to focus on the most demanding potential success drivers.

As the executive summary is developed, it is natural to focus on the issues that

contribute most to potential success. If the concept is too broad, or too

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complicated, there are still adjustments to be made. Most great businesses can
be described in several sentences, not several pages.

In addition, a well worked-through summary allows business owners to

reconstruct their operations. Executive summary appears to be a review of a
more complex plan and assists a businessman in working on weak points and
set the right priorities for a company. One should ask themselves: “What ranks
high in terms of importance? Product development? Research? Acquiring the
right location? Creating strategic partnerships?”, advices the US Small Business
Administration. (sba.gov.)

When an entrepreneur is just launching a company, there only will be presumed

assumptions and common facts about the industry and the market, rather than
an operating business model. Consequently, it will be useful to spotlight
previous experiences and professional background of the management team.
Moreover, it is useful to indicate the reasons why one have come up to
establish a company in this specific field.

3.2 Company description

Before going into details and discussing more complex aspects of a business
and weighty sections of a business plan report, such as financial planning,
marketing strategy or distribution channels, the business plan should include
essential details of the organization. This section is meant to acquaint future
investors with the company name, its products and services, mission statement,
legal status and previously occurred achievements. (Abrams 2002, p.59.)

Company description or company’s background section of the business plan

follows the executive summary and provides readers with crucial information
about the enterprise. Even if the company has just entered the market and
recently started operating, some of the information needed for this part might be
uncertain so far. Hence, an entrepreneur is suggested to detail their goals and
intentions.

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3.2.1 Company name

Company’s name is one of the most important components, when an

entrepreneur is working on creating a successful marketing appeal. It will be the
first thing ones partners, suppliers and customers will pay attention to when
doing business with them. At the same time, creating a suitable name for a
company is a tough and time-consuming process, because in the best-case
scenario it should represent clearly the scope of operations of an enterprise, its
values, expertise, special features of products and services provided to the
market.

Still, many experts stick to another perception on this one. From their
perspective, abstract names make the best brands, forming an image under a
vacant state, while others believe that a company’s name should help its
customers to promptly understand what the business is about. But nowadays, if
supported by an appropriate marketing strategy, any name has a chance to
bring your business sales and increased visibility among competitors.

When entrepreneurs think of a name for their newborn venture, answering

these three simple questions may ease the creative process: how will your
name look? On the web, as part of a logo, on social media; what connotations
does it evoke? Is your name too corporate or not corporate enough? Does it
reflect your business philosophy and culture? Does it appeal to your market?; is
it unique? Pick a name that has not been claimed by others, online or offline. A
quick web search and domain name search (more on this below) will alert you
to any existing use. (sba.gov.)

3.2.2 Company’s location

Firstly, a company’s location in most cases influences customers’ buying

decisions. However, its importance might differ from industry to industry. For
example, it is crucial for almost all hospitality related businesses. Usually
tourists choose a hotel not only by its reviews on service and other amenities,
but by its location too. At the same time, office location of many companies
does not affect their business operations. For instance, if an organization is not

18
into retail distribution and all of their products are delivered from a warehouse
straight to final buyers.

In her article for Entrepreneur magazine Spaeder (2013) states, that it is crucial
to select proper location, if an entrepreneur is about to launch food-related or a
retail business with a storefront. In addition, before settling down, future
executives should check the demographics of the area, research what attracts
potential buyers to a particular district (schools, museums, hospitals, colleges).
If an owner is sure in competitiveness of one’s products and goods, it might be
a good idea to arrange a business venue nearby its competitors, as they
probably already invested money in marketing, and their company will only be
an additional traffic generator for the new enterprise.

3.2.3 Mission, vision and goals

A mission statement should briefly describe company’s operations and the

values standing behind them. It shows what a company is and why it exists. A
mission statement should represent overall organizational goals and objectives.
While at the same time, it should coincide with values and expectations of major
investors and stakeholders. A mission statement should tell what the business
is, and the vision statement tends to express what a company wants become in
future. (Adebisi 2015, p.17.)

According to Evans article for Psychology Today (2010), mission statement

should define the present state and purpose of an organization, answering three
simple, but thoughtful questions: What a company does? Whom a company
does it for? How a company does it?

When a company has developed a clearly defined mission statement, it helps

employees and investors to have a more precise understanding of certain
business related decisions, organizational changes, resources allocation.

A vision statement describes desired future state of an organization, goals the

company has set to reach in 5, 10 or even 20 years. A vision statement should
be written tersely and in an inspirational way, which will make it easy for
workers to keep in mind and follow company’s goals. Directors may change, but

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a transparent vision statement should always help a company to focus on key
points of future development.

Figure 4. Pyramid of mission, vision and goals (prospect-us.co.uk.)

3.2.4 Legal issues

Plenty of legal issues will emerge when a novice entrepreneur is about to start
one’s business. Mostly everything, starting from the business name to its
operations there are legal implications. For instance, an entrepreneur should
check if the chosen name is not taken yet. At the same time, it is crucial to think
of the business structure a company will be using. In addition, an executive
must find out if any business licenses are necessary to operate in a certain field
or area. (alllaw.com)

First, different business structures and types of legal formats are described.
Since the author’s project takes place in Russia, below he will describe possible
forms of incorporation for companies in the country of operations are described:

3.2.5 Commercial and Non-Profit Organizations

Mainly classification of legal entities in Russia is based on whether they are

commercial or non-profit. If a company is dedicated to making profit of its main
business operations, then it is labeled as a commercial organization.

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Commercial organizations may appear in form of business partnerships or
companies, production cooperatives, state or municipal unitary enterprises.
While companies, which do not make profit within their main business activities
are recognized as non-commercial organizations. Non-commercial
organizations may be established in the form of consumer cooperatives, social
or religious organizations, institutions, charitable or other foundations, or in
other forms as provided by the law. (nsplaw.com)

3.2.6 Partnerships

In this type of legal format the participants are referred as general partners, who
conduct business on behalf of their partnership, and are held jointly liable for the
obligations of the latter taking into account that their property may be used to
cover their liabilities within the framework of their joint liability.
Limited Partnership is a partnership where, along with the general partners, one
or a few investing participants (limited partners) are involved and they bear their
risks of loss connected with the business of a partnership to the extent of the
amount of money invested whilst they do not participate in business activities
carried on by a partnership.
This from of incorporation is not very common nowadays, as general partner
are facing high economic risks, while the limited liability companies are more
convenient in this regard. (nsplaw.com)

3.2.7 Limited Liability Companies

A limited liability company ("LLC") is a company established by one or a few

persons, the charter capital of which is divided into participatory interests
(units); the participants of a company are not liable for a company's obligations
and are bearing their risks of loss connected with a company's business in the
amount equal to the cost of their participatory interests (units) in the charter
capital. An LLC is not entitled to issue shares. Appears to be the most used
business format in Russia. (nsplaw.com)

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3.2.8 Additional liability companies

As contrasted with those of an LLC, the participants of an Additional Liability

Company ("ALC") are jointly liable for a company's obligations to the extent of
their personal property, taking into account an amount equal for all of the
participants representing the even multiple to the cost of their participatory
interests (units) as provided for by the company Charter. In other respects, the
regulation of an ALC business is similar to the one of a LLC. This type of legal
entity is very rarely seen in Russia. (nsplaw.com)

3.2.9 Joint Stock Companies

A commercial organization, the charter capital of which is divided into a certain

number of shares certifying the participants' (shareholders') personal rights
relating to a company, is recognized as a Joint Stock Company ("JCS"). In JCS,
shareholders are not liable for a company's obligations and are bearing their
risks of losses in connection with the company's business activity to the extent
of the value of their shares. (nsplaw.com)

3.3 Description of products and services

In his article for Inc. magazine, Haden (2015) states that this section of your
business plan should be short, though contain a clear description of produced
goods or provided services. One of the most important things to mention for an
entrepreneur in this section is how the company’s products and services will
differ from competitors’ offers. Of course, a broad definition needed for
innovative products and services, because there might be yet no existing
market for them and an entrepreneur must explain the nature of the product. Do
not forget to mention competitive pricing policy and cost-efficiency, if your
company is entering a developed market. In this case, a business plan probably
does not need detailed explanation.

While working on the product description section in your business plan, Haden
(2015) suggests answering these key questions: are products or services in
development or existing (and on the market?); what is the timeline for bringing
new products and services to market? what makes your products or services

22
different? Are there competitive advantages compared with offerings from other
competitors? Are there competitive disadvantages you will need to overcome?
(And if so, how?); is price an issue? Will your operating costs be low enough to
allow a reasonable profit margin?; how will you acquire your products? Are you
the manufacturer? Do you assemble products using components provided by
others? Do you purchase products from suppliers or wholesalers? If your
business takes off, is a steady supply of products available?

3.4 Marketing

Organizations of all kinds worldwide are constantly engaged in developing

marketing strategies for their operations. That is why, an entrepreneur should
prove to future investors the capability to adequately assess the market,
understand and reach targeted segments and follow key principles of
marketing. (Robinson 1999, p.15.)

First, a businessperson should remember the P’s, which probably every

undergraduate student knows. However, one should not underestimate this
notion, as it might be useful, while developing your marketing strategy. The 4
P’s model is comprise of such components as, product, price, place and
promotion. In this section of the thesis report, the author will explain briefly each
of the constituents.

Obviously, this product part must contain a description of a product or service a

company is providing to the market. It should include well-stated product
characteristics, and, most important, the benefits customers will get, while using
your product. Tell your potential buyers why the product is unique. All of the
aforementioned will help to create a loud and clear marketing message.

Pricing is one of the most essential things when developing a product outline. In
order to select the right pricing policies an entrepreneur should carefully analyze
and study the market. To this prospective in time, founders should also clearly
understand and have estimated assumptions on the account of production and
other start-up expenses.

Place matters, as it was already mentioned above. An entrepreneur should

think of the ways the products and services will be delivered to potential

23
customers. For online stores it is crucial to have a brick and mortar store, as the
buying encounter process may affect customers’ buying decisions. If the
company is involved in manufacturing and distributing of goods, then it should
think of the delivery terms and costs, while reliable suppliers and partners at the
same time.

Finally, after the product cycle is almost finished, it is time to think of how the
business is going to reach its potential customers. Which marketing channels
an organization is going to use? Not to forget, that an efficient marketing
campaign might be very costly. When developing a marketing strategy for your
business, it is always crucial to project and analyze the desired results.

However, many experts offer a revision of the 4 P’s model, reckoning there are
still important touch points, when developing a worthy marketing strategy. For
instance, the 5th P can be described as People. This component touches on an
important side of the business, describing the level of service and those who
are responsible for it.

3.4.1 Basic concepts of marketing

Companies need growth in the long run to be able to attract new customers,
retain old ones, satisfy their stakeholders and compete in the market more
effectively. Marketing is the tool organizations use to achieve this growth. One
of the main functions of marketing is “to make selling superfluous”, as Peter
Drucker (1999) has stated. Marketing helps entrepreneurs to determine and
assess market opportunities, develop strategies to achieve prominence and
take leading positions in the market.

Nevertheless, marketing is a very complex notion and has different objectives,

images and effectiveness to particular fields. Still, marketing is not equal to
selling, because the development process starts long before the product or
service enters the market. Efficient marketing campaigns allow companies to
focus on catching customers’ preference. Jack Welch, General Electric’s CEO
told to his employees: “Companies can’t give job security. Only customers can!”
It is the reason why customer satisfaction and retention appears to be crucial
when it comes to marketing. Marketing specialists worldwide study customers’

24
needs and wants to provide them with a product, tailored to the research
results. They develop wining offers for each of the marketing segments on a
continuous basis. All of the aforementioned allows companies to predict future
market trends and produce the desired product on time. (Kotler 1999, p.18-22.)

Figure 5. Core marketing concepts (Kotler 1999, p.19.)

3.4.2 Customer segmentation

Research says that there are more than 600 000 companies are established
yearly only in the US. Hence, newcomer entrepreneurs should understand that
most of these businesses somehow found their niche and the next thing future
executives should do is to define their target customers. It is essential for a
business to understand its customers. Depending on the ability to distinguish
different customer groups and their wants and needs, an organization either
succeeds in the market or incurs losses due to inefficient usage of marketing
tools.

25
Customer segmentation appears to be a process, which divides market into
specific groups in order to develop distinguished marketing strategies according
to each of those groups’ preferences. There are plenty of segmentation
techniques based on distinct criteria or attributes used for customer
segmentation. (Tsiptsis 2009, p.4.)

Customer segmentation is a very powerful managerial tool, which might help a

business to define its most and least profitable clients. With its help companies
are able to build relationship with customers and tailor produced products to
their needs. If used correctly a company would be able to categorize their
customers by various factors, such as geographical location, size and type of
organization, their lifestyle and interests, attitudes and behavior.

3.4.3 Competitor analysis

In his book “The art of Intelligence” (2014), Lahneman claims that a well-
designed market position is crucial for any enterprise in today’s market and
competitor analysis will allow players to understand and estimate probability,
timing, nature, intensity and the ability of its initiatives.

Every business has competition. Experienced entrepreneurs are always aware

of the competition and ready to face it. However, people, who are new to the
business and are just about to launch their business to the market might
underestimate the importance of competitor analysis and therefore fail to
assess the impact of competition to their business. (R., Abrams, 2003, p.108.)

3.4.4 Market analysis

Running a successfully operating business demands vast knowledge in many

disciplines, a lot of time and effort. However, if the entrepreneur is often only
starting one’s venture and does not possess all the needed information about
the market, competitors and potential customers. In that case, a carefully
conducted marketing research implied to the business model will provide a
founder with all the needed information, granting one with an ability to tailor the
business offers accordingly to the market and increasing company’s chances
for success.

26
First, the author will give a definition of marketing research provided by Beri in
his book “Marketing Research” (2013, p.4): “Marketing research is a systematic
and objective study of problems pertaining to the marketing of goods and
services. It may be emphasized that it is not restricted to any particular area of
marketing, but it’s applicable to all its phases and aspects.”

In addition, the author of the thesis report will describe different types of
marketing research, as many people see marketing research as consumer
surveys, while it is an integral part of the whole marketing research process.

There are distinguished 5 types of marketing research and their descriptions will
be stated below: product research (design, development and testing of new and
existing products), sales research (concerned with all of the sales and
distribution activities of a company), customer research (buying behavior),
pricing research, advertising research (media research and copy testing).

Finally, it would be useful to mention the scope of marketing research in order

to clarify and increase one’s awareness on what a marketing research can do.
A marketing research is scattered in its methods and procedures, which makes
it difficult to view the studied problem as a whole. Good coordination between
manager and the marketing team is crucial, as without proper testing of the
results a marketing research might prove to be wrong. (Beri 2013, p.8-9.)

3.5 Operational plan

An owner of the business must have enough expertise in one’s business day-to-
day operations. Otherwise, it would be hard to coordinate the management
process. An entrepreneur should focus on key processes within the
organization. This section in a business plan report should provide readers on
business daily operations, facility requirements, management information
system, showing control of stock, raw materials, quality assurance and finally
IT-requirements of the venture. (canadabusiness.ca)

27
3.6 Strategic planning

Strategic planning is considered one of the most important components of a

business plan. It allows entrepreneurs to assess perspectives of their
companies, evaluating weaknesses and strengths. Strategic planning is a
powerful management tool, which grants executives an ability to stay flexible in
a constantly changing market environment and to adjust the operations. In
addition, a company is now capable of identifying and preventing risks in the
long prospective. In this section of the thesis report, the author will describe two
most common strategic planning models. Those are SWOT analysis and
Porter’s five forces.

3.6.1 SWOT Analysis

SWOT analysis is a powerful tool, which allows entrepreneurs to understand

their strengths and weaknesses, identify future business opportunity and to
prevent and mitigate the risks a company will face.

SWOT-matrix is comprised of four elements: strengths are the characteristics of

the business or project that give it an advantage over others; weaknesses
appear to be the characteristics that place the business or project at a
disadvantage relative to others; opportunities are the elements that the project
could exploit to its advantage; threats are elements in the environment that
could cause trouble for the business or project. (en.wikipedia.org).

Summarily, SWOT Analysis is a compelling business tool used for analyzing

present state of the business and its future prospective. It helps to focus on
strengths, improve weak points, identify and make use of opportunities and
forecast possible threats. In addition, it appears to be a universal tool, which
can be implemented, for instance, to a launch of a new product to the market.
(mindtools.com)

28
Figure 6. Example of a SWOT Analysis matrix (mindtools.com).

3.6.2 Porter’s five forces

Harvard Business School’s Michael E. Porter developed this model in 1979. It

allows an existing business model to acquire a clear understanding of its future
prospects in the market, by analyzing other companies in the industry context,
which itself is being influenced by five forces. (businessnewsdaily.com)

This strategic planning model states that there are five factors, which determine
the competition’s levels inside the industry. Those five factors are represented
as: rivalry, which is measured depending on the industry and the amount of
operating companies within it, fighting for the market share; threat of substitutes
shows how products are affected when there are more and more alternatives in
the market and demand becomes pliable; buyer power represents an impact
customers have on an industry; supplier power tends to explain that powerful
suppliers endeavor an influence on the producing industry; threat of new
entrants explains that new firms on the market can still affect the competition
levels. (quickmba.com).

29
The figure below will display a more detailed view on Mr. Porter’s model.

Figure 7. Diagram of Porter’s 5 forces. (quickmba.com)

3.7 Human resource management

Despite the industry a company is operating in, the success of the enterprise is
directly linked with people who work for it. Their contribution and effort,
professionalism, experience and expertise in the filed affect company’s
operations strongly. Hence, a well-organized and coordinated human resource
management practices might help the business to grow and prosper in the long
run.

This section of a future business plan report should contain information about
how an entrepreneur intends to manage their employees and human resource
processes. It is advisable to describe a company’s short- and long-term
recruitment policy, management and training. A detailed explanation of what
qualities and qualifications an entrepreneur is seeking from future employees is
needed. In addition, the estimated number of required staff members
accordingly to customer flow projections and forecasts. At the same time,

30
salaries for each position and bonus-rewarding systems should be described in
this section. (canadabusiness.ca)

In their book “Fundamentals of Human Resource Management” (2014, p.15)

Wright, Gerhart, Noe and Hollenbeck claim that: “Effective management of
human resources can form the foundation of a high-performance work system –
an organization, in which technology, organizational structure, people, and
processes work together seamlessly to give an organization an advantage in
the competitive environment.”

3.8 Financial information

Financial details are a critical aspect of an every business. Probably, it is the

part, which every investor studies most carefully. Henceforth, it must be
detailed, providing estimated costs of launching the business to the market, and
what most important – to display investors their future earnings, including
timing, amount, etc. It is a very powerful business tool, which allows
entrepreneurs to have control over all of the company’s operations. Of course, it
might be hard for novice entrepreneurs to handle over this section by
themselves, thus, they might ask accounting experts to take part in financial
planning process. Still, a businessperson should have a clear insight on the
subject.

In his article for Entrepreneur Berry (2011) advises to tailor every business plan
to its business needs and goals, but despite this fact, entrepreneurs almost
always have to work with specific financial projections. Finance and accounting
deal with the three fundamental financial statements, which are the income
statement (profit/loss statement), the balance sheet and the cash flow. The
main difference, while using these tools for your business plan is that usually
they tend to describe past transactions, but in our case we have to use
estimated guesses on how these statements will look in future. That is why, a
high level of expertise in the certain field is required from an entrepreneur, or
otherwise it would be hard to forecast market and business directions and
trends.

31
Commonly, businesses split financial planning into two categories: long-term
planning and short-term planning (less than a year).

One of the main goals of short-term planning is to keep a company’s liquidity on

a needed level. It assists entrepreneurs to manage the amount of cash in hand
and to make sure the liquid assets of the company allow to sufficiently running
day-to-day operations and payments. If novice entrepreneurs struggle from
cash losses, Yritys-Suomi suggests a few ways to cover the shortage by:
increasing storage rotation, a short-term bank loan, increasing capital financing,
accelerating sales receivables (cash discounts, shortening of payment terms),
delaying the disbursements of accounts payable, acquiring an account with an
overdraft facility. (yrityssuomi.fi).

Also, there are plenty of various financial models, which could be built in a
business plan and used for different purposes. These are cash-flow projections,
income statement, breakeven analysis, start-up costs and funding, balance
sheet, etc. Named forms appear to be the most important ones, as they allow
entrepreneurs to see what the revenue should be to reach breakeven point, to
calculate net- and gross-profit, how many units should be sold to how many
customers for a business venture to pay off, to prepare and analyze the budget
for upcoming year of operations. A careful analysis of these financial forms
allows entrepreneurs to assess one’s business opportunities and to develop a
business strategy based on the numbers and facts. (Abrams 2010, p.267-273.)

3.9 Appendices

When the business plan document is almost ready, an entrepreneur has to think
of documents, which might support one’s business proposal. It is advisable not
to insert those documents into the main body of the business plan report to
avoid making it complicated for investors to read. It is also crucial to have
appendix within easy reach.

This section of the business plan report might consist of both entrepreneur’s
and company’s credit history, CVs of key managers, detailed description of the
product, including its images, contracts, patients, licenses, etc. (sba.gov)

32
4 Business plan of a hostel in Saint Petersburg

4.1 Executive summary

The most distinguished hospitality businesses, whether it is a hotel or a

restaurant, are famous because of a unique location, design or product, but
there is one aspect, which unites them all. It is providing outstanding and high-
quality service to their guests. Service is a very complex notion, which includes
every contact point with a guest. That is why working on an every single aspect
of it is so crucial.

Obtaining almost two diplomas in tourism, after a careful research of Saint

Petersburg accommodation services sector, the author noticed of a significant
difference in the quality of service between European and Russian hostels,
while the hostel market share of the whole accommodation segment is
ridiculously small. Due to this reason, bringing fresh ideas and new approaches
to this market will find its customers.

The project this business plan is all about is a concept of a modern hostel in the
city center of Saint Petersburg. While main aims of the project are to provide
fresh travel-related decisions, products and services, tailored to the needs of
both domestic and international visitors and bring latest trends in hospitality
industry from all over the world to the Russian market in order to strengthen the
image of the country and the city of Saint Petersburg as a tourist destination.

The competition inside this market segment is constantly growing. Combined

with the vast investments into tourism development of Saint Petersburg
including legal aspects, law regulations and governmental support, this market
will serve as a great start-up ground for an ambitious project, which intends to
grow from year to year and expand both inside and outside the country.

4.2 Project background

The urge for this project came after a careful research and analysis of tourism
market in Russia and Saint Petersburg in particular. Tourism is one of the
biggest and most important economy sectors of the city and its contribution to
well-being of the city is tremendous. Only during the year 2013 Saint Petersburg

33
became a tourist destination for about 6.3 million tourists, including about 3.5
million of domestic travelers, while the rest are international visitors. In addition,
this number seems to grow in a few years. In addition, relying on customers’
reviews TripAdvisor rated Saint Petersburg as 9th most attractive tourist
destination in Europe and 16th worldwide. (tripadvisor.com).

As well, tourism sector should work for the benefit of the brand of the
destination. Nowadays, there are about 640 hotels and mini-hotels operating in
Saint Petersburg with a total of 27000 rooms. However, the hostel segment is
still in development and according to 2014 statistics reckons only about 150
premises with an overall capacity of approximately 1200 rooms. In terms of the
accommodation segment, hostels comprise only about 3% of the whole market,
compared to 15-20% share in most of European countries.

When it comes to services aspects, tourism sector in Russia faces serious trust
issues concerning low qualifications of personnel, poor language skills and
safety. That is why government plans vast investments in the industry to
improve on the weak points, including infrastructure, employee training
programs and support of the private sector, where many of the hostels belong.
All of these measures will result in quite fast return on investment of about 4 to
8 years, increase of the employment level and currency flow to the country.

Finally, Russia is considered one of the fastest growing emerging markets in the
world nowadays. Due to that fact many innovative and modern decisions in
different industries still did not find its used. That is why an attempt to bring up
fresh ideas and business approaches might have high approval rate among
both workers and customers.

4.3 Products and services

The purpose of the business is to provide accommodation and travel-related

products and services for both domestic and international tourists visiting the
city of Saint Petersburg. The business will seek to bring up fresh ideas and
business approaches concerning hospitality industry. The implementation of the
latest trends in the industry will be one of the key success drivers standing in

34
line with highly motivated professionals employed and delivering high-quality
service to the guests. The enterprise will stand in compliance with affordable
prices and abide excellent hospitality standards. These factors will help the
business to gain a strong market share at the early beginning stage of
operations, gaining word-of-mouth and attracting more customers. The hostel
will provide concierge services, allowing guests to book tickets to various
cultural events and excursions. The needed tourist information on different
aspects of travelling through the city will be also provided. The venue will offer
on-site food and beverages, snacks and will be equipped with a couple of
vending machines.

4.4 Mission statement

As it was already mentioned above, the mission statement should be clear for:
customers to allow them to understand which of their problems the company is
giving solution to; founders and employees so they would all understand their
tasks clearly and be able to adjust their business operations according to the
chosen mission; and finally a mission statement should inform investors what
goals an entrepreneur is pursuing and how one is going to make money.

The mission statement of the hostel will be comprised of a few objectives, which
the company will try to reach to become profitable and attract customers.

Our mission is to develop a working and profitable business model of a small

enterprise in the HoReCa market in the city of Saint Petersburg and be able to
further not only to successfully compete with market incumbents, but also to
become the leader in the segment. Our goal is to make sure they say this hostel
is the best place for low-budget travelers to stay around the whole city. In the
next few paragraphs the actions to reach it will be described.

The hostel and its employees are going to provide guests with high-quality
services and products. The venue itself will be equipped with all the needed
amenities to create a cozy, warm and pleasant atmosphere during our guests’
stay.

35
Guests will have an opportunity to get a clear vision on our company,
understand its products and services, check the room rates, upcoming events
beforehand. At the same time, we will try to maximally easy all these processes
including booking through the usage of an easy-to-use website.
We would do it what most of our guests would consider more than a fair price
(yet maintain approximately 40% margins.) In the upcoming three years of
operations, we expect our occupancy rates to grow by about 45%. (Therefore
we need 300 new guests a month.)
At the same time our hostel is going to try to be a good citizen of our
community. Hence, we are going to use recyclable materials while constructing
the venue and use environmentally friendly packaging for our products.
We are going to take good care of our employees, both medical and dental,
because the more they are satisfied with their working conditions the better they
do their jobs. It will create brand advocates and give a company good
perspective on expansion in the nearest future.
Finally, by combining coziness of the stay, professionalism of our employees,
high-quality standards for our products and services, we will contribute to
creating a good image of Saint Petersburg as a world-class, safe and
entertaining tourist destination.

4.5 Marketing

4.5.1 Target market

Hostels are mostly oriented for young tourists and backpackers, whose budget
is limited, but they still are willing to travel and explore the world. There will be
no distinction made upon the customers’ age, gender or nationality. Hostel’s
guests will be mainly seeking accommodation for a shot-term stay of average
about 4.5 days as statistics indicate. Therefore, the enterprise should be
equipped with all the needed amenities to make its guests’ stay as comfortable
and pleasant as possible.

36
Figure 8. Distribution of age segments in hostels (Bourget 2012)

Figure 9. Tourists’ types in hostels in Europe (Bourget 2012)

4.5.2 Competitor analysis

The city of Saint Petersburg offers its guests a broad range of accommodating
options, depending on the price segments. As low budget travelling is getting
more and wider spread, there are new players appearing on the market every
day. Hence, a careful analysis of one of the most successful hostels will be
conducted.

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Hostel chain “Friends” (friendsplace.ru)

Nowadays, “Friends” is one of the most powerful players on the market. They
are represented as a hostel chain with 12 hostels located within the central
district of Saint Petersburg and many hostels by their brand in other cities in
Russia. The company opened its first hostel in 2009. They gain competitive
advantage through offering a wide range of different services to their guests, for
example, they provide free phone calls worldwide for their guests and many of
the services, which you will usually find only in hotels. At the same time, they
conduct free master-classes, excursions, lections and other entertaining events.
All of the mentioned above combined with quite democratic pricing policy (from
about €15 per sleeping place and approximately €30-40 per room) and high
standards of service makes them one of the best hostels in the city.

Hostel “Soul Kitchen” (soulkitchenhostel.com)

This hostel opened its doors in 2009, located in the historic center of Saint
Petersburg. Since then the hostel got plenty of awards both domestic and
international. For example, it is included in 10 best hostels in Europe. In
addition, in 2014 it was considered the best hostel in Europe, the best hostel in
Russia and the best small hostel in the world by Hostelworld.com. Recently they
opened their second hostel in Saint Petersburg. These hostels provide a wide
range of facilities for their guests and are famous for their interiors and location
(the building the hostel in located is 150 years old). Now their management
team provides consultations on developing hostel sites worldwide. The prices
may vary from about €17-25 per a place in a dorm-style room to approximately
€40-100 per a single room.

“Mir” Hostel (mirhostel.com)

They now have four hostels in the city center of Saint Petersburg. As many of
the hotels, they provide their guests with free breakfasts, Wi-Fi connection,
guest computers and many other facilities. Now the company is planning to
expand and enter the mini-hotel market becoming a three-star hotel actually.
The prices are rather affordable and start from €15 in dorm-style rooms to about
€50 for a double room.

38
Summarily, the hostel segment in the city of Saint Petersburg is still in
development with many new players entering the market. Yet, there are a
couple of big players, who determine the trends and bring renovations to this
segment. These hostels are out of competition for new enterprises, as building
up such a facility requires vast funding, for instance, to create the first “Mir”
hostel its founders had invested approximately €75000. We can see a trend,
according to which big hostels eventually decide to go to mini-hotel segment,
setting higher prices, while providing same services.

4.5.3 Marketing tools

This part of the business plan aims to acquaint readers about the marketing part
of the project. As the company is now only entering the market, it has to inform
and increase awareness among its potential customers, create a clear image
for the brand. Also at the moment, we cannot be sure if the hostel will be
successful and will show sufficiently good figures, so our company is not going
to invest large sums of money in marketing. Making the most use of all available
marketing tools is for now the primary goal.

Moving on to marketing methods used, I want to start with printed advertising.

We will print flyers and brochures with a short description of our product,
showing basic facts, services and facilities provided and our competitive
advantages. The outputs are to be spread through stores, events and trade
shows, referring to travel, tourism, hospitality, etc. This will allow us to draw the
attention of people, interested in similar or related products and services.

Furthermore, a part of printed ads will be small review articles, which will take
place in sports, lifestyle magazines and tourism and hospitality related
magazines. In the second place, to return to the point of our relatively small
budget, hence, on the early beginning stage there will be no TV-commercials.
But a low budget advertising video will take place to be located on different
theme-related web-pages and resources. The message of the video is not only
about to tell people how safe and convenient our hostel is, but to outline the

39
high standards of service, exceptional design decisions and effective pricing
policy.

Finally, one of the main platforms for advertising will be internet. Mostly it will
consist of display ads, linked straight to our web page. The ads are to be
located on theme-related resources such as magazines, shops, blogs, etc. web
sites. Also behavioral targeted and contextual will take place, they can be
positioned on any web page and depend only on specific customers search
requests and needs. Internet advertising will include information distribution
through social networks (Facebook, Twitter, VK, etc.), basically this method is
targeted for teens and young adults.

We cannot ignore the fact that nowadays trade shows, different kinds of events
and exhibitions gather numerous amounts of people. Moreover, our potential
customers can be among them, which is important. At the same time, such
events can help our company to spotlight the product in the media. Thanks to
these events, customers can know in detail about the hostel. They can get a
wider and clearer image, which is critical. Getting tangible experience is very
important in the evaluation- and decision-making process. They can evaluate
the product themselves.

Above all, we can organize different kinds of events in the hostel, such as
lectures, master-classes, game evening inviting professionals both from abroad
and Russia. It will help to draw media attention and spread the word-of-mouth.
To increase sales, especially during early period, we can use a wide variety of
sales promotions with a different frequency (even seasonal).

First, as I already mentioned above, our company will be exposed on different

exhibitions, so we can sell examples on a lower rate, than it is supposed to. As
a part of the online marketing campaign, it could be a good idea to launch some
interactive service to attract people. The web page itself should be informative
enough, providing all the needed information on not only pricing and
accommodation, but travel related information on roaming through the city of
Saint Petersburg. All this activities could be located on our web page and are

40
easily reached via smartphones, let us say, through QR (quick-response)
codes, located on printed materials. These codes will link our potential
customers straight to the activities, so we can simplify access to promotions,
without the usage of any secondary sources.

4.6 Operations

4.6.1 Location

As the hostel the author intends to open is a low-budget venture, an ideal

location for it would be a 4-5 room flat in the center of Saint Petersburg. The flat
should be located nearby some of the most famous sights of the city and at the
same time not far away from the possible means of transportation, such as
buses, subway, etc.

The author chose to rent a flat of 137m2 in the heart of Saint Petersburg and to
renovate it to his needs in order to accommodate guests. The venue is located
near Admiralteyskaya subway station. This location provides guests easy
access to all the needed means of transportation, most popular sights, such as
Russian Museum, State Hermitage Museum, Savior on the Spilled Blood
Cathedral, etc. Also there are a wide range of cafes, restaurants, bars and night
clubs located nearby.

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Figure 10. Location of the hostel (google.maps.com)

Each room will be comprised of about three or four bunk beds, closets, all the
needed bathing equipment, such as towels, shampoos, etc. for each guest,
TVs, high-speed Wi-Fi connection. One of the rooms will be used as a lobby or
a guest room where visitors can read, use guest computers; the vending
machines are to be located in this room. To make the stay more entertaining a
small library, various table games will be available for the guests. One of the
most important aspects is to organize spacious bathing zone, with hair-dryers,
towels, shower cabins, all the needed bathing facilities. If the budget allows us
to build up a small sauna for the guests, it will be a good competitive advantage
also.

Here is an exemplary plan of the flat, after the renovation:

Figure 11. Plan of the hostel

One of the rooms will be used as a kitchen zone, equipped with all the needed
machinery (a stove, coffee machine, cutlery, etc.) Free tea, coffee and snacks
will be available for the guests during their stay.

42
4.6.2 Project organisation and coordination

The first important aspect of establishing the business is finding an appropriate

location and premises. Afterwards we have to officially register the company to
be able to conduct further operations. At this point, an enterprise should order
an acquiring terminal and a cash machine to conduct further operation and be
able to reckon with its suppliers. Next, it is important to calculate estimated
financial assumptions, which will be spent on the refurbishment of the chosen
premises. The rental agreement should be assigned with the management
company of the venue for its future usage as a hostel. The long-term rental
agreement must be registered through the Federal Registration System of
Russia. Henceforth, we should find proper materials for the renovation of the
hostel and agree with subcontractors on dates and payment terms. To keep the
guests entertained the hostel should have high-speed internet connection and
television. Subsequently one should start the process of employment and
create a team of professionals, who will provide visitors with exceptional
service. At this point, all the equipment should be ordered and delivered to the
premises. Finally, the business can operate at full capacity.

4.6.3 Staff requirements

As the author tends to open a small-sized enterprise, there is no need to

employ a big number of workers. One of the critical points for a hostel is to have
a good receptionist who will welcome guests, provide them with needed
information and look after the overall state of the premises. The reception
should be available for the guests 24/7. Henceforth, one person should be able
to handle all the duties. The shifts can vary from a 12-hour shift to a 24-hour
shift. The first option implies employees to work for 2 days followed by 2 days
off. The second choice intends a receptionist to stay in the hostel for a 24-hour
shift followed by 3 days off. All of the receptionists should have at least finished
a vocational school related to hospitality and must be able to provide sufficient
English language knowledge.

When it comes to cleaning, depending on the occupancy rates, we are most

likely to use outsourcing companies, which will provide the hostel with house
cleaners.

43
There is no need in creating a PR or marketing departments, as the owner will
manage these business activities, as well as revenue and risk management. It
would be nice to employ people you have already worked with or familiar with. It
would ease the management process and the communication process.

4.7 Financial planning

When it comes to funding, any organization needs a certain amount of cash to

start operation and keep the business financially stabilized. Thus, capital
requirement planning is essential before there is an opportunity to carry out the
business. After thorough financial planning based on the assumptions, the
search for the source of funding will start. It is crucial to examine all the possible
challenges and threats the business might face. The hostel project itself is not
very costly, as it does not require big numbers of employees and usually is
operated on the rented premises. In addition, after a detailed business plan is
ready, the project will probably recourse to different crowd funding platforms like
Kickstarter. Furthermore, there are different competitions and grants for novel
enterprises held by various business sources. If the project stands out and
obscures all competitors with its unique selling proposition, there is a source on
the web called AngelList (https://angel.co), where investors from all over the
world seek for interesting projects to increase their profits. Finally, an
organization is always able to take a business loan and try to get subsidies from
different governmental and private organizations.

4.7.1 Start-up capital

Need for capital Euro

Investments
Facilities
first two months Rent 1000
Reparation & Renovation 5000

Interior decorating,
furnishing

Bunk bed x6 336

Double bed x1 70

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 Box-spring x13 442
Pillows x14 112
Blankets x14 189
Bed linen x14 138
Towels x28 84
Plaids x20 70
Tables x5 300
Chairs x16 384
Stools x10 80
Cupboards x3 865
Hangers x3 39
Modular sofas x5 810
Chandeliers, floor lamps x8 385
Mirrors x5 35
Kitchen set 1035
Cutlery 80
Bath amenities 150
Reception desk 430

Equipment and machinery

Washing machine x2 320

Fridge 485
Stove 190
Kitchenware 100
Microwave 55
Kettle x2 28
Water cooler 110
Coffee maker 75
Hoover 100
Wi-Fi connection 100
Monitoring system 750
Web development 1000

Marketing 1000

Staff salary & outsourcing

2 months
Receptionists x2 2020
Cleaning 500

Licensing
Company registration 50
Sanitary license 800
Cash register license 0
Fire supervision license 0

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 Total need for capital 19717

Sources of funding

Loan capital Loan from investor 10000

Loan from friends 5000

Owner's capital Owner's own equipment 1000

Owner's own investment 4000

20000

As the estimated calculations show, the author needs 20000 Euros to launch
the venue. It is expected to get ten thousand Euros from a private investor
reached through a developed business networking in the city of business
operations. It is explained by high interest rates when getting a business loan
from banks. Due to the type of the business venture the author also does not
expect to get any subsidies from the government. Hence, the private investor
option seems to be the best option for such business, as there is no need for
vast amounts of funding. The author expects to agree on a 15-20% of the profit
going to the investor.

4.7.2 Projected financial statement

Year 1 Year 2 Year 3

Euro % Euro % Euro %
Revenue 39200 51000 60600
Accommodation 25000 33500 39500
Services 8500 10500 12350
Food & Beverage 5700 7000 8750
Variable expenses 9111 10542 11806
Food & Beverage 2750 3300 3950
Maintenance 850 1035 1125
Booking systems commission 837 726 435
Outsourcing cleaning 3000 3300 3500
Tax (6%) 1674 2181 2796
Fixed costs 20278 21491 22291
Rent 6000 6000 6000
Utilities 1960 2550 3030

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 Salaries for receptionists 8640 9120 9360
Employee pension (31% to Gov.) 2678 2821 2901
Advertising 1000 1000 1000
Loan payment (15%) 5880 7650 9090
Gross margin 25.1 37.19 43.7
Gross profit 9811 18967 26503

The numbers presented may differ from the real results, but the author
conducted a careful and thoughtful research, while seeking for best suppliers in
the city of Saint Petersburg, providing affordable prices for small business
ventures. The costs growth rate tends to keep up with the market, so the
salaries will increase; the same will work with the overnight stays rate. For the
first year the author presumes the average occupancy rate will stay at about 40-
50%, because the hostel is new to the market, and one of the main goals for a
newcomer entrepreneur will be to accumulate permanent customer flow. One of
the main traffic creators in the early beginning stage will be different booking
systems, but from year to year the company intends to spend more on web-
development and create an own web-page with a booking engine to minimize
the commission rates to the third parties. Hopefully, after a year of successful
operations, receiving good customer feedback, the occupancy rate will
increase, but the author will try to keep the figures realistic. The projected
average occupancy rate for the second year is about 60%, probably reaching its
peak of about 80-85% in high season. And finally, after getting known the
customers and the word-of-mouth spread around the world, the author expects
the occupancy rate for the third year of operations to be at the average level of
approximately 70-80%.

The table below will explain some of the projected assumptions:

Year 1 Year 2 Year 2

Overnight stays € 25 000 € 33 500 € 39 500
Avg. occupancy rate (%) 40 60 75
Avg. rate/night € 11 € 11 € 10
Guests daily ~5-6 ~8 ~10-12
Services € 8 500 € 10 500 € 12 350
Concierge services € 2 000 € 2 100 € 1 830
Laundry € 3 800 € 5 100 € 6 570
Safes, luggage room € 2 700 € 3 300 € 3 950

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Food & Beverage € 5 700 € 7 000 € 8 750
Breakfasts € 3 200 € 4 400 € 5 500
Vending machine € 2 500 € 2 600 € 3 250

The approximate prices for the services would be about three Euros for using a
Laundromat with a projected percent of guests using this service of about fifty to
seventy. When it comes to concierge services the hostel will take a small
commission on the tickets, excursions and taxis booked by the workers. The
company will try to establish partnership with booking services for various
events, expecting to get the tickets at a lower price. In addition, providing safes
for the guests to keep their belongings will cost also about two to three Euros
for the period of stay. The author supposes that an average of about sixty to
eighty percent of guests will be interested in using this service. Equally
important it will be to provide guests with a nutritious breakfast, so they can go
and explore the city. The estimated price for a breakfast in the hostel will be
about three to four euros, compared to the prices in cafes and restaurants,
especially in the city center, it is more than affordable. That is why the author
expects, that around fifty or even more percentage of guests will be interested
in such an offer. At the same time, the hostel will be equipped with a vending
machine serving customers with various snacks and soft drinks. The
expectations are about at least one or two guests using the machine daily with
an average order of three to four euros. Later on, when the real demand is
known, there might be assorted snacks added to the menu, such as
sandwiches, salads, etc.

4.8 SWOT-analysis

Strengths: Weaknesses:

 Owner’s education and  Lack of entrepreneurial

experience in the field experience
 Friendly English-speaking  Tight competition
staff
 Economic crisis
 High service standards
 Political factors
 Democratic prices
 Russian business environment

48
 Opportunities: Threats:

 Adding more services  Hard to get experienced staff

with sufficient language skills
 Expansion around the city,
then nationally  Decrease in tourist flow due to
economic and political factors
 Opportunity for creating a
franchise model  Changes in laws and
legislations, which may affect
 Organizing events business operations
 Build international partnership
 Inefficient usage of marketing
for further expansion
and distribution channels

4.8.1 Strengths

First of all, author’s education in the hospitality industry will be useful, while
opening such a project. During the studies one has gathered knowledge in
different subjects, such as revenue management, marketing, accounting, etc. It
eases the process and does not require long and tedious research procedure
on every aspect of business planning and operating the venture. In addition, the
author has slight work experience in hotel industry, as he has worked in the
front office of a hostel and later in a luxurious boutique hotel in Saint
Petersburg. It gives one an advantage in understanding on how a business
works from the inside.

More than affordable prices will also be an advantage as the author will try to
minimize costs in order to keep prices lower than competitors’. Of course, this
will negatively influence on the income at first, but the author believes that
building large base of content customers is far more important than making big
money, especially during the first year of work.

Last but least, the hostel will employ professionals, with good language skills
and education and work background in the HoReCa industry. It will allow the
company to set high standards of service, making our guests leave oddly
satisfied and spreading word-of-mouth on the internet and among their friends.

49
4.8.2 Weaknesses

The first problem the business project will probably run into is insufficient
funding. It is the issue most new to the business projects are struggling from,
even if the project itself is worked through at all its stages.

Finding a business angel might be sometimes an impossible task. Of course

there are different programs helping entrepreneurs on the early stages and also
wide networking in the sphere of operations can help in finding starting capital.

The next big thing the author currently missing is entrepreneurship experience.
As he already mentioned above, he has previous working experience in
hospitality industry, including hotel business. But luckily there are a lot of
different sources of information, especially in the internet, about how to run a
business with real life examples. At the same time the author hopes to have an
experienced professional who will be his mentor, guiding him through this
uneasy way.

In the meantime, the hostel segment in accommodating market is still in deep

development, but there are already some big players who set the trends for this
niche. The solution for this problem should be efficient marketing and keeping
high standards of service, because not all of the enterprises in this sphere pay
careful attention to the service quality, especially in Russia. That is why
developing a feedback system and working on a detailed service blueprint will
help the business to differ from its competitors.

And the last, but not the least problem that can stand in the way of a successful
business is Russian business environment. It is very hard to open and run a
lucrative business in this country, as many researchers say that more than 50%
of all new businesses are being shut down after one or two years of operations.
The solution might be found upstairs, where the government is now actually
working on different programs to support small- and medium-scope enterprises.

Finally, the political and economic situation is quite complicated not only in
Russia, but in many European countries. It can result in decreased tourist flow,
inflation, raise in prices for supplies, while profits will probably decrease also or
stay at least at the same level.

50
4.8.3 Opportunities

If you want to create a lucrative business with a repeatable sales-model, you

should always stay in touch and explore your customers’ needs and wants. At
the same time an entreprreneur has to follow all the relted news and trends in
the industry worldwide to bring innovation into one’s project. Another great
opportunity would be possible investments from third parties (sponsors, banks,
etc.).

If the hostel is warmly welcomed and managed to create a constant customer

flow, it means the business model has proven itself and someone might be
interested in buying a ready-made profitable business model. It is a chance to
expand both around the city and later on around the whole country.
Furthermore, it increases the brand awareness, which will help to boost the
number of incoming guests. Certainly, to attract more customers and increase
brand awareness it would be a good decision to hold different events at the
hostel, such as various master classes, lectures, movie nights, etc.

4.8.4 Threats

As we all know, the political and economic situation in the world affects a lot on
the amount of incoming tourists. It can hardly influent on foreign tourists,
because the tourist flow has slightly decreased a lot in the last few months.
Probably the author will have to tailor his business more for the domestic
customers to stay afloat.

The author wants his guests to be oddly satisfied, due to this aspect he has
chosen to set very high service standards, which of course require a team of
professionals and strict staff policies. So it can be problematic to find suitable
workers. But in any case the author is going to provide training for new
employees so they would give guests with the best possible experience.

And finally, one has to work on the marketing strategy carefully and choose the
right marketing channels. One of the mistakes many new businesses and
startups do is that they spend huge sums on marketing and advertising, trying
to create a buzz around their product or service, trying to speed up the first
customer wave, not thinking of how to create a repeatable sales model.

51
5 Conclusions

The main purpose of this thesis report was to investigate how to right a proper
business plan of a small- and medium-sized enterprise and then how to
implement the gained knowledge on an example of a small hostel in the city of
Saint Petersburg.

The author found this topic quite challenging as a business plan is a very
complex notion, which requires specific knowledge and is comprised of various
disciplines. Partly, it was a rehearsal of what the author had learned during his
studies at Saimaa UAS. Despite, there were still aspects, which needed a more
careful and thoughtful research concerning the business plan concept and its
constituents. At the same time accurate analysis of the Russian tourism market
and the hotel and hostel segment of Saint Petersburg in particular took place.
The author expects it will only increase the feasibility of the business venture, if
tested in real life business environment. One of the most challenging aspects of
founding an enterprise for the author was to study the laws and regulations
which the business must be complied with to start and subsequently run the
operations successfully.

The idea of choosing a specific topic generally came after a desire to obtain
entrepreneurial experience. And, as mentioned above, based on previous
education and work experience, the author choose the theme for his thesis to
be a business plan of a hostel in Saint Petersburg. The hostel project was
chosen because of a relatively small scope of the enterprise. It is much easier
for a novice businessman to run such a venture, compared to a full-size hotel or
even a restaurant.

Now, the author would like to tell about the course of both research and
implementation process. First, a lot of literature and different business-related
internet sources were used to investigate, what a business plan is and of what a
proper business plan is comprised of. After a thoughtful research was
conducted, the most important notes were written down and a study about how
to write a business plan was compelled. The gained knowledge gave the author
an opportunity to imply it in his project. Also, before the writing process had
started, the author researched the hotel (also mini-hotel) and hostel segment of

52
the accommodation market of Saint Petersburg, went to check the competitors’
venues on provided services and products. Based on the facts, which are
described in the Project Background paragraph, for example, and on the basis
of the knowledge of the city and its market, the author supposes such a project
might successfully operate attracting both domestic and international visitors.
The touristic market of Saint Petersburg is constantly growing and the
government plans to invest vast amounts of money to make it similar to
European countries, increase the services standards by applying strict company
and staff policies and improve the infrastructure to make it easier for tourists to
travel around the city and visit desired sights.

From the author’s point of view a business plan is a crucial decision making
tool, but first of all, it allows a novice entrepreneur to assess the chances of
success for future business venture. Hence, only if the credibility check is done,
and there are possibilities for a new player to enter the market, a business plan
is used as one if not the most important fund-raising tool, shown both to
investors, bankers or friends and relatives, who want to know how the money
will be spent. Also business planning allows an entrepreneur to compile all the
ideas and thoughts concerning his endeavors on creating a business in one
written and well-structured document, in such form it is not only easier to
develop on your business model’s milestones, but in addition to detect and
mitigate the probability of crisis events for a future business. For this reason, the
author believes that the developed business plan will result in a profitable
business model, which will find its niche in the hostel segment and has a
potential for future growth and expansion, both around the city and nationally.

To sum up, the author would like to say that writing a worthy business plan is
truly a difficult task, which requires vast knowledge in different disciplines, but it
does not end or rely only on one’s education, knowledge or experience. To
make all the gears work an entrepreneur has to put a lot of effort to the project,
and the quality and enthusiasm of how one does it may be a determining factor.
Altogether the author hopes that this academic project will help those who are
planning to open a small- or medium-sized enterprise in Russia or are just
curious about what a business plan is comprised of.

53
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