Governance: Scenario Analysis of Bobu Nitro Cold Brew Proposal
Governance: Scenario Analysis of Bobu Nitro Cold Brew Proposal
Couple of months back, I bought some Bobu tokens, as the concept of character governance really excited me. Fast forward to last week, yoshitaka.eth put up a proposal to launch a new product line from Red bean coffee- Nitro Cold Brew.
Red Bean Coffee wanted to leverage Bobu’s IP to launch Bobu Nitro Cold Brew. After looking at the financials, and seeing the general sentiment on twitter around the proposal, I decided to do a scenario analysis to help voters make an informed decision.
1. Proposal Summary
Here’s a quick summary of the proposal
The proposal outlined the launch of the "Bobu Nitro Cold Brew" product line by Red Bean Coffee (RBC). They wanted to leverage Bobu's decentralized IP and brand to create a global coffee consumable that resonates with consumers worldwide.
RBC plans to produce a line of Bobu-inspired Nitro Cold Brew products, with flavor names and packaging design chosen by Bobu token holders.
The proposal seeks a grant of $30,000 from the Bobu treasury to support production and marketing initiatives. A portion of the net sales from Nitro Cold Brew will be directed back to the Bobu treasury, further benefiting Bobu's IP and token holders.
2. The Challenges
Interestingly enough, there were questions being asked about the execution and use of treasury funds. This is why I wanted to conduct a scenario analysis to address their concerns.
The three core concerns around the proposal revolved around:
Execution risk- The track record of the team & the execution risk.
Accountability- Are you serious about this project ?
Exploitability- Are you trying to exploit the community treasury?
3. Analysis
Before conducting the analysis, it is important to note that there was limited data available, no access to RBC's past financials, and time constraints. With this analysis, my goal was to help voters make an informed decision in a span of just 3 days.
With that being said, let’s take a look at Red Bean Coffee's sales forecast for Nitro Cold Brew for the first year-
Selling price of one can: $3.83
Estimated selling velocity per month: 833 cans
Royalties for the first 10,000 cans: 10%
Royalties after the first 10,000 cans: 5% indefinitely
Q1. Even though it's a grant, how long will it take for RBC to pay back the initial $30,000 invested using royalties to the Bobu treasury?
The first step is to determine how long it will take to sell the first 10,000 cans. 10,000 cans / 833 per month = 12 months
At a rate of 833 cans per month, it will take 12 months to sell 10,000 cans. Now, let's calculate the revenue to understand how much will be paid back to the treasury in a year.
Revenue for the first 10,000 cans = $3.83 x 10,000 = $38,300
At 10% royalties, $3,830 will be paid back to the treasury in 1 year.
To recoup the initial investment of $30,000:
$30,000 - $3,830 = $26,170 will be the remainder with royalties dropping to 5%
Q2. How long will it take to pay back the remaining $26,170 at 5% royalties?
Monthly revenue = 833 x $3.83 = $3,190.39
At 5% royalties, the monthly royalty paid back to the Bobu treasury is $159.52. $26,170 / $159.52 = 163.98 months
At this rate, it takes 14.5 years (163 + 12 months initially) to recoup the initial amount invested by the treasury.
4. Scenario Analysis
In the above analysis, sales velocity and revenue were kept constant to assess the royalties being paid back.
In the proposal, they’ve mentioned about selling the product via Amazon. Which is why I decided to use it as a proxy to assess demand for Nitro Cold Brew. While, I could have used other social channels to understand the popularity of the product among consumers, it wouldn’t have given me an idea about the sales numbers.
After searching for Cold Nitro Brew on Amazon, I found two things. There are mainstream brands such as Starbucks & Monster operating in the category, and then there are new & upcoming brands such as High Brew.
Starbucks: 40,000 cans per month at $3.37
Monster: 12,000 cans per month at $2.79
High Brew: 12,000 cans per month at $2.83.
From the limited data, we can infer that-
The presence of mainstream brands like Starbucks and Monster, along with their sales numbers, indicates significant demand for Nitro Cold Brew in the retail segment.
Brand value is inconsequential, as High Brew Coffee, despite being a small business, competes successfully with established brands like Monster.
Starbucks sells 3.5 times more cans per month than its competitors, which can be attributed to their use of Amazon Ads despite being a high-trust brand.
With this, we can now use it to conduct scenario analysis after the 1st year.
Why after the 1st year?
For any new brand entering the market, it takes anywhere b/w 8-12 months to drive brand awareness & build trust with the consumers.
Case I: Increased Demand
First, let’s look at a scenario where the demand for Bobu Nitro Cold Brew increases similar to Monster & High Brew coffee.
Assuming a sales velocity of 12,000 cans per month after the first year, the analysis explores how long it will take to pay back the treasury.
Monthly revenue = 12,000 cans x $3.83 = $45,960 per month
At 5% royalties, $2,298 will be paid back to the treasury per month.
Time taken to pay back = $26,170 / $2,298 = 11.3 months
It will take an additional 11.3 months after the first year to pay back the treasury. This is a favourable outcome considering the initial concerns.
Case II: Significant Increase in Sales Velocity
Considering a sales velocity of 40,000 cans per month, the analysis explores the time required to pay back the remaining $26,170 to the Bobu treasury.
Monthly revenue = 40,000 cans x $3.83 = $153,200
At 5% royalties, $7,660 will be paid back to the treasury every month.
Time taken to pay back = $26,170 / $7,660 = 3.41 months
If the sales velocity increases to 40,000 units per month after the first year, it will only take 3.41 months to pay back the remaining $26,170 to the Bobu treasury.
By taking a quantitative approach, we were able to address concerns regarding the ability to repay the treasury. However, it is essential to note that the goal of the experiment was not solely focused on ROI, as $30,000 is a small amount in the grand scheme of things. The primary objective of the proposal was IP expansion, capturing mindshare, and activating new audiences, which helps in expanding the Azuki IP at it’s core.
Conclusion
By employing a quantitative approach, we were able to help voters make an informed decision before casting their vote.
As the space evolves and new community-generated products emerge, similar challenges are expected. However, through careful analysis and evaluation, stakeholders can make informed decisions and support initiatives that align with the community's values and goals.