Web & Social Media Analytics Previous Year Question Paper.pdf
Craft guitars e s t a b l i s h e d 2 0 1 5
1. craft Guitars
E s t a b l i s h e d 2 0 1 5
Company History:
Craft Guitars (CG) manufacturers musical instruments and was
founded in 2015 by Mary Garcia. Ms.
Garcia has an extensive background in music, her father and
mother are both performers in local bands,
and she has been a guitar player since age 4. She graduated
from California State University San
Bernardino with a BA in marketing in 2004 and was hired by
Gibson Brands in Nashville, Tennessee to
work in their marketing department. Gibson manufactures
guitars and other instruments including the
iconic Gibson Les Paul guitar. In 2009 she moved to Guild
Guitars (owned by Fender Electric Instrument
Manufacturing Company) in Scottsdale Arizona as the VP of
marketing and promotions. In 2014 Fender
sold Guild Guitars to Cordoba Music Group in Santa Monica,
California and Ms. Garcia remained with
Cordoba during the transition but left at the end of 2014 and
launched CG the following year. In 2019
Ms. Garcia received a Master of Science in Entrepreneurship &
Innovation degree from CSUSB.
2. CG manufacturers guitars including custom orders, acoustic,
and electric models. Custom models are
designed for and by the customer with prices from $2,500 to
$10,000 depending on material, with the
average being $5,400. Standard models are priced from $800 to
$2,000, with an average of $1,300. The
company currently leases a 15,030 square foot production
facility in San Bernardino, California and
employs 78 workers.
CG was started with an investment of $200,000 from Ms. Garcia
and a $300,000 private stock sale to
family and senior management. Sales increased rapidly in the
first six-years of operations, but growth
has begun to trend slower. The company has successfully been
able to maintain margins despite the
rapid growth. Management meets weekly to discuss production,
suppliers, labor issues, and review
financial results.
A few weeks ago, the owner of the building CG is leasing
offered to sell the property. After negotiating
a sale price of $3,450,000 the company began working on a
business plan to request a loan of $2,760,000
(80% LTV) from their bank.
Products:
CG began as a custom design shop and has built a reputation for
innovative and unique creations. The
company’s big break came when noted guitarist and Black Keys
3. front-man Dan Auerbach was
photographed with his custom CG guitar for the cover of Guitar
World Magazine. In 2018 influential
guitarist Nita Strauss ordered a custom acoustic model from CG.
Strauss, who had previously never
owned an acoustic guitar, has a signature Ibanez electric guitar.
The CG brand quickly became a
sensation in the music industry after Strauss used the guitar for
a video and song on her solo album
“Controlled Chaos”.
The custom shop continues to produce creative models using
exotic woods and the highest quality
workmanship. At least six unique designs are introduced each
year and production is strictly limited to
no more than 25 guitars per design. These guitars are typically
sold out before they are manufactured
despite having a significant cost (up to $10,000). The typical
buyer is a guitar collector, and CG’s
customer base includes people that have purchased multiple
limited production models.
Some custom CG models are made-to-order with customers
using the company website to design their
guitar. The website is highly interactive allowing the user to
create whatever instrument they want. It
will even allow uploading of pictures or hand drawn images.
The customer can choose the wood and
other materials and see a rendering of what the finished product
4. will look like. Once a design has been
completed the customer can discuss the guitar with an
experienced craftsman to complete the order.
This is typically the employee that will craft the guitar. These
one-of-a-kind guitars are the most
expensive with an elevated level of customer service and
interaction. Features can include having a
name imbedded in the finger board, length and shape of the
body, location and number of pick-ups,
uniquely designed tuning keys, etc. The customer can even
choose to have the entire production
process recorded (for an additional fee). The finished guitar is
delivered in a custom CG case.
Beginning in 2017 CG began producing a line of standard
guitars (both electric and acoustic) to appeal
to a broader base. These models still feature excel lent
workmanship but use less expensive woods and
have a more traditional look. The CG standard line is priced
lower than the custom models and sold at
various retail music stores as well as the company website.
CG’s sales growth has been primarily through
this line of products which increased from 1,835 units sold in
2018 ($1,835,000) to 2,132 units in 2020
($2,771,600).
Next 5-years:
5. The company is focused on continued brand development,
improving their website and social media
presence. The workforce will see a modest increase over the
next 5-years and CG will continue to add
efficiency improving equipment to the factory. The company is
discussing hiring a full-time sales force
(4 people) to make personal calls on smaller music stores to
promote their line of standard guitars. The
company is also exploring development of a bass guitar model,
both electric and acoustic. Other projects
may include a branded clothing line (t-shirts and hats),
instrument cleaning products, stands, cases, and
other accessories.
Exit Strategy:
The company estimates annual sales will reach $25,000,000 in
12-years at which time they will seek a
buyer. Senior management is hopeful that CG will be purchased
by a larger company that will retain the
employees and continue to utilize the production facility. Ms.
Garcia and her officers have extensive
contacts in the music industry and are confident their company
will be an attractive acquisition, allowing
them to negotiate an acceptable sale, with a goal of 5 – 7x
EBITDA (between $22 to $31 million).
Additionally, the company will have the commercial property
that will add value and another $3 to $4
million to the sale price.
Marketing:
The company has primarily used traditional print media to
6. advertise the website and products. CG runs
a half-page or quarter-page ad in Guitar World Magazine,
Premier Guitar, and Acoustic Guitar Magazine
a few times a year. The company also has a limited budget for
advertisement in on-line publications
including Guitar World Magazine, Rolling Stone, and Billboard.
The marketing budget will be $180,000
in 2021, $225,000 in 2022, and $280,000 in 2023. CG has
additional money for IT and maintenance of
the website.
A few amateur guitar players have posted videos using CG
models to YouTube, TikTok, Facebook and
other platforms. Despite this the company is just beginning to
explore expansion into social media. The
marketing team is developing a series of instructional videos
and a factory tour video showing how a
guitar is built.
CG is a member of the National Association of Music
Merchants (NAMM) and has attended their trade
shows over the years. The company has a custom booth that
they use for this and other similar events
including concerts, fairs, and conventions.
The company website is a featured sales tool and allows users to
design a custom guitar, interact with
company craftsman, and follow the production of their guitar.
Virtually all custom-made guitar orders
start with a website visit. Orders for standard models also use
the website.
Competition:
Acoustic and electric guitar manufacturing is a multi-billion-
dollar industry, estimates are $8 billion. The
7. sales had been trending downward but have seen a recent and
substantial increase due in part to the
COVID-19 pandemic. People began looking for indoor hobbies
and learning to play the guitar has been
one of the more popular pursuits.
The industry is fragmented with several large manufacturers and
many smaller, custom, and boutique
manufacturers (known as luthiers). Industry leaders include:
C.F. Martin and Co.
Established in 1883 and headquartered in Nazareth,
Pennsylvania. The company is well known for
manufacturing acoustic guitars. Revenue is estimated at $120
million for this privately held company
that employs approximately 600 people.
Fender Musical Instruments Corp.
Founded in 1946 and is headquartered in Scottsdale, Arizona.
Fender manufacturers many different
musical instruments and is well known for their electric guitars,
especially Stratocaster model. Brands
include Fender, Gretsch, and Squier. The company is private,
but sales are estimated at $500 to $700
million annually.
Gibson Brands, Inc.
Headquartered in Nashville, Tennessee and started in 1902.
Gibson manufacturers the well-known Les
Paul model. The company is privately held and filed a chapter
11 bankruptcy in 2018. Now owned
primarily by the private equity firm KKR & Co. Gibson appears
8. ready retake a leadership role in the
industry. The company also owns Epiphone guitars.
Hoshino Gakki Co.
Was founded in 1908 and is headquartered in Nagoya, Japan.
The company markets their electric and
acoustic guitars under the Ibanez brand name.
Organizational Structure:
CG has the following management organizational structure:
The management committee meets weekly to review plans, sales
orders, supplies, production, and
marketing.
Mary Garcia
CEO and President
COO
Production
Manager
Supply Manager
CFO
Accounts
9. Manager
CMO
Marketing
Manager
IT Manager
Board of Directors:
Mary Garcia – Board Chair
Ms. Garcia is the founder of Craft Guitars.
Michael Stull, PhD
Dr. Stull is the Director of the School of Entrepreneurship at
CSUSB and the Director of the Inland Empire
Center for Entrepreneurship. He has over 30-years of
entrepreneurship experience. Dr. Stull received
his BA/MBA from CSUSB and an EDM from Case Western.
Connie Liu, CPA
Ms. Liu is a partner with the accounting firm of Anderson, Turk
& Smith, LLP in San Bernardino and has
over 25-years of public accounting experience. Ms. Lie has a
BA from UCR and an MBA in accounting
from CSUSB.
Don Edwards, Esq.
Mr. Edwards is a partner with the law firm of Edwards, Charles,
Lewis & Tork in Redlands. He has over
30-years of experience in corporate law. He has a BA from
UCLA and a JD from Stanford University.
10. Susan Rodriguez
Ms. Rodriguez is the owner of SSR Manufacturing, Inc. in
Fontana, which she founded in 1983. SSR
manufacturers wood furniture and had sales over $240 million
in 2020. Ms. Rodriguez has an BA from
CSUSB and an executive MBA from USC Marshall School of
Business.
Sheri Moore
Ms. Moore is the President and CEO of San Bernardino Assist,
a nonprofit dedicated to providing services
to the homeless. Ms. Moore has a BA from CSUSB.
The board meets monthly to review financial information,
approve projections, assist in resource
management, provide feedback on products and production.
Need:
CG is seeking a commercial real estate loan of $2,760,000 or
80% of the purchase price ($3,450,000) to
buy a 15,030 SF building in San Bernardino, California. The
building sits on 0.80 acres and has 2,760 SF
of dedicated office space, 4 loading docks, and is zoned
industrial. The concrete tilt-up construction was
completed in 1988 and the building has a newer (1-year old)
roof.
Shareholders are contributing $150,000 (stock purchase) and the
remaining $540,000 of the down
11. payment will come from the company, along with the estimated
$62,000 in closing costs.
Historic Financial Statements
Balance Sheet 2018 2019 2020
Cash $ 50,000 2.1% $ 80,000 2.6% $
70,000 1.9%
Marketable Securities $ 80,000 3.3% $ 162,000
5.2% $ 375,000 10.1%
Accounts Receivable $ 340,000 14.1% $ 405,000
13.1% $ 485,000 13.1%
Inventory $ 415,000 17.2% $ 488,000 15.7% $
590,000 15.9%
Other Current Assets $ 95,000 3.9% $ 102,700
3.3% $ 32,000 0.9%
Total Current Assets $ 980,000 40.6% $ 1,237,700
39.9% $ 1,552,000 41.8%
Machinery $ 1,060,000 43.9% $ 1,310,000 42.3% $
1,590,000 42.8%