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Business Plan for an IT Company

Project Report 2001 50 Pages

Business economics - Company formation, Business Plans

Excerpt

Table of Content

1. Executive Summary
1.1 Vision
1.2 Company
1.3 Management
1.4 Products
1.5 Market Analysis and Marketing
1.6 Operations
1.7 Financials
1.8 Growth and Exit Strategy

2. Company
2.1 Problem
2.2 Solution
2.3 DTCS Provides Solutions
2.3.1 Benefit and Risks
2.3.2 Technology Requirements
2.3.2 Network Diagrams
2.4 Scope of Start-Up
2.5 Growth Possibilities
2.5.1 Domestic Growth
2.5.2 Going Global
2.5.3 Source of Investment Budget
2.5.4 Standardized versus Customized Plans
2.5.5 Product Modification
2.5.6 Product standardization
2.5.7 Competitive Condition
2.5.8 Company Consideration
2.5.9 Product/ Market Adaptation Strategies
2.5.10 Where to Manufacture
2.6 Legal Issues
2.6.1 Business Form
2.6.2 Location
2.6.3 Tax Concerns
2.6.4 Technology Security/ Intellectual Property Rights

3. Management
3.1 Key Managers
3.2 Ownership and Compensation

4. Products
4.1 Consulting
4.2 Electronic Shelf Label
4.3 IT Infrastructure
4.4 Software
4.5 Maintenance

5. Market Analysis
5.1 Market Research
5.2 Competition
5.3 Target Customers
5.4 Market Size, Trends and Estimated Sales

6. Marketing Strategy
6.1 Overall Marketing Strategy
6.1 Product Positioning
6.2 Pricing
6.4 Place
6.5 Promotion
6.5.1 Objective
6.5.2 Advertising
6.5.3 Sales Promotion

7. Operations Strategy
7.1 Location
7.2 Research and Development
7.3 Production
7.3.1 Demand Management
7.3.2 Manufacturing Management
7.3.3 Transportation Management
7.3.4 Fulfillment Management
7.4 Personnel
7.4.1 Start-Up Situation
7.4.2 Personnel Projections

8. Financial Plan
8.1 Key Assumptions
8.2 Income Statement
8.3 Balance Sheet
8.4 Cash Flow Analysis
8.5 Ratios
8.6 Sources and Use of Funds

9. Exit Strategies

10. Critical Risks and Challenges

11. Appendixes

1. Executive Summary

1.1 Vision

“Empowering Your Prices”

The vision of the Business is to establish a differentiated product with capabilities that will reduce the cost of ownership with a higher return on investment. Offering a product with enhanced features and greater capabilities that is unmatched in this emerging industry will further position DTCS as company of great strength with superior brand and product through technological innovation will increase the possibilities of capturing a significant market share to establish DTCS brand identity and products within the industry. DTCS is positioned to distribute Electronic Labeling Systems (“ELS”) to all major retailers and grocery stores. DTCS product creates value for its customers through increasing efficiency in operations and labor cost savings for any retailers that carry large number of store shelve items. The “ELS” system will provide a digital price for an item on the shelf as well as software to run the wireless price tags. The draw of a system such as ELS will allow a retailer such as Dominick’s to change the price of a product from one central computer rather than changing them by hand on the shelf which requires a night crew and is very labor intensive. Due to the potential competitive advantages and the convenience “ELS” afford its users, we expect this device to become popular to be found on every on every store shelves of large discount chain stores like Wal-Mart and Target. Our intention during the first two years of DTCS operations is to develop a significant customer base that will enable DTCS to develop additional products that expand into other retail segments while integrating our consulting services to generate additional revenues for the long term.

1.2 Company

DTCS Inc. (Digital Technology Capability System) is a privately-held Delaware C corp. operating in the state of Chicago, Illinois since May, 2001, founded by Seth Berk, Neil Cikurel, Wichay Kanchanaprapas, Onal Kucuk, Murtaza Poonawala, Donald Raphael, Andreas Sachs and Vick Vadalkar to commercialise the Electronic Price tags ELSÔ. It is equipped with funds of USD $42,000,000, risen by its founders, banks, Venture Capitalists and strategic alliances. DTCS aims to be the leading niche developer of electronic labelling systems to major retailers and supermarkets within one year. DTCS will provide high added value to these markets with the ability to change prices of items in a matter of seconds, promotions and consulting services in order to implement the system.

1.3 Management

DTCS Inc. was founded by eight graduate students from Stuart Business School, Illinois Institute of Technology leading by Murtaza Poonawala as Chief Executive Officer and Chief Financial Officer. Neil Cikurel. Onal Kucuk and Andreas Sachs are responsible for the marketing department. Andreas, Chief Marketing Officer credentials consist of an MBA specializing in marketing area. Venkatesh Vadalkar is the Chief Operation Officer and also possesses an MBA degree in Marketing and has an expertise in supply chain. Donald Raphael who is the Chief Information Officer of the company. He will be responsible for R&D and new emerging technologies and infrastructure. Wichaya Kanchanaprapas heads the International Business department and will be responsible for foreign business contracts with the manufacturers. She has also an MBA degree in Marketing. Lastly, Seth Berk who manages the legal services department was a LLM student.

1.4 Products

“The Integrated Solution”

Electronic Labeling System

ELS's lock into place and report when they are moved, they can also display real time data at the shelf edge, helping to manage plan-o-gram compliance and product mix profitability. The system offers many other advantages; such as using your ELS as a promotional tool to draw attention to products and improve capture rates. Promotions and Internet specials can be coordinated. Drive traffic from your store to your Web site or from your Web site to your shelf edge. The ELS system can even help employees quickly find the correct location to stock new products or provide valuable information that aids in-aisle decision making, such as item movement or profit margin.

Our product is a complete electronic digital display system solution that will enable a retailer to control pricing of merchandises and special promotions from a centrally located computer system. The system consists of two main components, a receiver and a transmitter. The display hardware piece will consist of the following characteristics: one is a high-resolution dynamic graphical capability; in addition the system will use an infrared signal to communicate using a wireless system. In terms of manufacturing, the individual display system will be outsourced while the computer hardware system will be sourced through an alliance partner computer manufacturer such as Compaq.

Consulting Services

Consulting services will be offered to potential clients and existing customers on a contractual basis during the gathering phase analysis and integration to provide recommendation on systems and implementation procedure prior to deployment and post deployment support. This service offering is expected to be a significant contributing factor to revenue growth as part of the overall one stop shop solutions strategy.

1.5 Market Analysis and Marketing

The anticipated market for ELS can be simply described as being “huge”. Retailers are looking for an alternative for their paper price tags, which are time, labour and money consuming, but until recently the tags prices were perceived as too expensive low return on investment and therefore the cost of ownerships did not equate the value proposition.

DTSC’S main goal is to create value for its customers and increase their overall operational effectiveness by enabling them to reduce their operating costs and providing an additional revenue channel to their customers in enabling them to offer advertising services on the price tags devices to their suppliers.

We have decided to target large corporate retail chains like Wal-Mart, K-Mart, Target, etc. Our most valued potential customer is Wal-Mart, a market leader in its industry segment and as a first customer would afford credibility to our products, because of its size, market position and reputation.

Wal-Mart has approximately a total of 4,500 stores in the US – 500 are so called “Super Stores”. Exactly these Super Stores have been chosen to be our target, because it would DTCS to achieve economies of scale in our prices, which will be tremendous in increasing the entry barrier in this market. But DTCS doesn’t want to be dependent from only one customer. Other clients we are targeting are K-Mart and Target because of their sizes and their large number of stores. In combining the number of stores of these three companies, DTCS has the potential to supply an estimated 10,000 stores with its technology.

In order for DTCS to reach its long term goal, a classic niche marketing strategy should be develop at the initial launch phase of the product, this can be accomplish by providing a differentiated product from its existing competitors. DTCS goal is to be the one-stop-shop solution for its customers, supporting their business through value-adding products and services. To achieve this objective, brand awareness has to be build in a razor-thin-profit-margins-marketplace.

Although our sales estimate may not be accurate and steer us in the wrong direction; however, we are moving forward with the following assumptions. Conservative sales forecast is estimated to be $12.000.000 including 20 stores in hand and this number will increase to 125 stores and $90.000.000. To be realistic we believe we can have 75 stores and $45.000.000 in the first year and 300 stores and $180.000.000 at the end of the third year. The best-case scenarios is that we could sell our system to 150 stores and generate $90.000.000 in revenue for that period, at the end of year 3 we expect to have 600 stores with $360.000.000.

1.6 Operations

DTCS’s Head office is based in Chicago, Illinois. The company has strategically based its four distribution centers and sales offices in the United States. One in the state of New York where we receive our products that have been shipped form China, and one in Chicago which serves as a central distribution center for the mid west and the southern states. The other two distribution centers are based in the states of California and Washington. These will distribute to the west coast and also to the neighboring Midwest states. Inventory managers will control all the distribution centers. The manufacturing of the product is outsourced and the manufacturing plant is located in China. Our development and testing lab will be based in where there is a large pool of labor is available

The products are shipped form China in batches. Our inventory managers will manage the incoming shipments. All products will be tested before they are sent out to the customers. Testing procedures are of the following sequence; each batch is tested by a technical team in loading the software into the tags and tests them for functionality using an in-house installed system. Once a batch is approved, then the batch of tags will be sent to one of the distribution centers depending on where the order originated and has to be fulfilled. Our company distributes the product to the customer’s corporate office and products will be distributed leveraging the customer’s distribution network. Once a product is distributed from the corporate headquarters, a consultant will then be dispatched to perform the installation along the chain’s night crew. Individual store installation can be accomplished within two weeks. Customers will be trained on site on learning how to resolved basic issues and running the ELS. We will also provide yearly maintenance support contract as part of the initial purchase agreement. Orders from the customer is always taken in advance for efficient delivery.

1.7 Financials

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1.8 Growth and Exit Strategy

Growth Strategy

In this paper, growth possibilities are divided into domestic and international growth possibilities. For the domestic growth, DTCS will initially target large discount stores such as Kmart, Wal-Mart and Target in Chicago and then the firm plans to expand to major cities. DTCS also see opportunities in attracting local supermarket as well as selective upscale department stores. In targeting the global market, DTCS plans to enter the European markets because the a lower end version of the product has been in existence for almost 1 year and has faced stiff resistance from potential customers because of a low value proposition. Turkey and Germany will be the first two countries targeted and later expand the business to the rest of the European market. This section also explains how it will be possible. DTCS includes following issues in this section: source of investment budget, standardized versus customized plans, competitive condition, company consideration, product/market adaptation strategies, and where to manufacture.

Exit strategy

DTSC expects a steady growth over the next five years as it continues to introduce modified software/hardware for different purposes. As the company grows, investors will make a return on their investment when DTSC goes public. The exit strategy of DTSC includes, IPO, Private sale, Merger and Management buy out.

2. Company

2.1 Problem

“Time and money consuming price tag changes”

The grocery business is moving into a very complex and competitive market in effort to meet with different customer needs, delivery models, value propositions, and customer relationships. While supermarkets and others have the resources and knowledge capital to compete in this environment, they also need to fine-tune their processes and organizational structures model that is efficient and cost effective. They are increasingly operating on razor thin profit margins, and fierce competition from traditional brick & mortar and recent new comers in the e-Market delivery companies such as Peapod will force many to seek alternative methods and devices to improve operations in meeting bottom line profitability.

While investigating into the viability of Electronic Labelling Systems, several members noticed that typical supermarkets have to change their items’ price tags daily to reflect a change in the price of that product. There are several employees of these firms that will run around changing the prices on the shelf as well as placing advertisements on the shelf for items that go on sale. This repetitive task is very time consuming because an average supermarket contains more than 20,000 items. This is also quite expensive because of the manpower needed to perform this task as well as the cost of printing for the current system used in those businesses.

2.2 Solution

Some supermarkets change prices on over 4000 items a week, a process that eats up a lot of man-hours. ELS's are automatically updated when the price master file is changed, allowing employees to take care of customers instead of managing paper labels. Promotions and pricing can now be time and event driven; responding instantly to competitive pricing, or taking advantage of supplier cost reductions and passing along savings to customers.

DTCS represents an integrated set of databases, software and mobile devices that will deliver specialized capabilities to store shelves instantly without any major efforts on store personnel through a robust technical infrastructure supporting any firm’s business strategy. This ELS system will provide relief from these remedial tasks of changing the price tags on a store shelf. The ability to update any price changes immediately from one central computer will provide great benefits to any firm that utilizes the new technology of ELS. Furthermore, ELS will be able to display when an item is on sale. This will be an eye catcher to the average shopper and will make them stop and look and see what the item is and the price for that item.

2.3 DTCS Provides Solutions

DTCS ELS’s system is an elegantly simple design. Our technology doesn't require a connection between shelf labels and the shelf rail. Advanced tag management software allows you to move tags throughout the store with the same portability as RF or infrared tags. All power and two-way communication are supplied inductively. This power and communication infrastructure is extremely reliable and protects your investment from obsolescence. In addition, unlimited promotional graphical messages and data can be communicated to the tags and to your customers with no power concerns. You never need to replace or dispose of batteries. ELS tags can be placed anywhere in the store, including peg hooks, refrigerated areas and even freezers. Two tag sizes are available: our standard tag, as shown, and our small tag; ideal for spices and HBA items.

Another key enhancement in DTCS ELS products is that displays are much larger with graphic capabilities than the existing products in the market place, our display has full graphical motion, 256 color that is compatible to any laptop display, this capability in turn will allow our customers to offer advertising spaces as an option to their suppliers. It represents an additional revenue channel if they choose to exercise it as mean of reducing their cost of ownership of our system.

2.3.1 Benefit and Risks

Some supermarkets change prices on over 4000 items a week, a process that eats up a lot of man-hours. ELS's are automatically updated when the price master file is changed, allowing employees to take care of customers instead of managing paper labels. Promotions and pricing can now be time and event driven; responding instantly to competitive pricing, or taking advantage of supplier cost reductions and passing along savings to customers.

There are various benefits to ELS. Primarily it will cut the cost of reproducing price tags and placing them on the shelf below the item that they are intended for. The ELS will be a uniform price tag that can be placed under any item and programmed to contain that items on its (LCD) liquid crystal display. This system will also provide a source informative data, which will be compatible with the register system that is presently in place so as to provide an idea of when customers buy an item and what the cost of that item was at the time of purchase. In the future ELS will be able to identify when a shelf will need to be restocked by using an Infrared scanner that notices when an item is removed from the shelf.

On the other hand, there are several risks for DTCS and ELS. Failure to fully realize the benefits of the new device may potentially scare future venture capitalist. Damage to credibility of all involved and future employment possibilities. Higher than necessary costs to bring device to market can be a serious strain on the financial well being of a new venture, such as DTCS.

2.3.2 Technology Requirements

In order to run a system such as ELS, there is certain technological items that are need to be in place in order to achieve maximum optimization of the product. These items consist of computer hardware, servers, mobile display devices, infrared receivers & transmitter.

Miscellaneous requirements:

- FCC Regulations: Securing operational frequency for devices
- Establish sourcing options for hardware/ software
- Determine bandwidth operational metrics for capacity planning.
- Network infrastructure
- Programming Skill sets

2.3.2 Network Diagrams

illustration not visible in this excerpt

2.4 Scope of Start-Up

Our company will have the head office located in Chicago, Illinois. Our company is called DTCS (Digital Technology Capability System). We manufacture wireless price tags for department stores and giant grocery stores. We are outsourcing the manufacturing of the price tags. The manufacturing will be done in China. The computers, which will be used as an interface and will be supplied by our alliance stores in the United States. The development of the software will be done at our lab in Chicago.

We plan to place distribution centres around the west coast and the east coast so as to serve the American Market. The founders, Venture Capitalist, will generate the capital cost of approximately 42 million in loans from the bank and strategic alliances with selected main customers. We plan to expand into international market once we are well established in the domestic Market. Licensing of DTCS technologies will fund essentially all the capital cost of expansion beyond the United States.

2.5 Growth Possibilities

2.5.1 Domestic Growth

DTCS starts to target chain stores such as K-Mart, Wal-Mart and Target in Chicago area at the beginning and then goes further to the major cities such as New York City. The management team expects that one of these stores will be attracted to DTCS products because of its characteristics and its advantages in both short run and long run. As the management team forecasts high growth possibility, the company will raise the entry barrier to the market place using economies of scale to reduce the cost and capture a significant share of the market. If the project is successful in implementing the first step, our management plan is to expand the business to local supermarkets such as Dominick’s and Jewel as well as department stores such as Marshall Field. All other details will be discussed throughout this document.

2.5.2 Going Global

Entering the global market is the latest step that DTCS prepares to penetrate the market in order to expand and sell more products. In the field of international business, DTCS management team is concern about its international activities in the area of foreign regulations, competitive practices, and labor regulations. Market research in these countries will be a key component in their development. In the initial phase, DTCS expects to expand and capture a significant share of the European market because a low-end version of the ELS system already exists.

DTCS has more basic knowledge of how to do the business in these two countries according to our team managers’ background. From our research, the management found that ELS has already existed in the corporate stores and wholesale stores in Germany and large stores in Turkey. Consequently, this is just the next plan, which the company continuously invest more time into this step in order to immediately implement after the product is successfully introduce to the home market.

2.5.3 Source of Investment Budget

Since DTCS is expected to generate substantial amount of profits in the U.S. market, the management team has decided the next phase will be to expand the business in the global market. The company, thus, would need a huge investment to run business internationally regarding to high technology product offering. In addition, the DTCS management team decides to enter stock exchange market in order to increase financial resource for this foreign investment. DTCS would reserve 55% ownership and 45% for alliance with the local partner.

2.5.4 Standardized versus Customized Plans

DTCS management determines the most effective status for products in international markets. As mentioned above, the company will first penetrate German and Turkish markets after success in the next few years. Some features of product and service offerings would have to be slightly adapted to the nature and needs of these two markets whereas some would probably remain standardized.

2.5.5 Product Modification

Language difference – The language used for ELS’s display and manuals should be described in both English and local language such as Turkish and German.

Durability and quality - In Germany, customers concern about the quality of product rather than price. Therefore, DTCS plans to have a high control and careful product testing before delivering to customers.

2.5.6 Product standardization

Characteristics – All characteristics are standardized such as size, display screen, etc. Some characteristics can be customized as requested. The price will vary according to expenses.

2.5.7 Competitive Condition

DTCS has enhanced product to be active device, which differentiate itself from existing product that stores are using in most European markets. Besides, it creates a niche for itself in international market comparing competitors.

2.5.8 Company Consideration

DTCS mandate $US10 million for the first-year ROI and $US 10 million for the second-year ROI that an entry strategy must achieve, which can lead to product adaptation strategies to bring first-year costs in line with this profit objective.

2.5.9 Product/ Market Adaptation Strategies

DTCS decides to apply product adaptation, communication extension strategy, which means. Differing local language-spoken and condition mandates changes in the product while the communication strategy remain essentially unchanged. As ELS will be placed in stores, users would probably prefer local language as well as English manuals and display to only English.

As mentioned above that DTCS is interested in entering the European markets, the management team considers that many European countries are turning to use both euro currency as well as national currency in the future. This shows that ELS will probably benefit the customers according to price easily changed.

2.5.10 Where to Manufacture

The management does not yet decide in which country they will locate its factory when they launch business internationally. However, they will locate its activities either to gain access to cheap labor, capital, materials and other inputs, or to sell close to its customers and avoid transportation and tariff costs. As well, the firm would decide to invest where its activities will be able to learn and innovate most effectively.

2.6 Legal Issues

2.6.1 Business Form

In forming a new venture one must consider several different forms available. For instance there are limited liability companies, general partnerships, sole proprietorships to name just a few. In organizing DTCS, the entity will be a C corporation for various reasons.

First, a corporation limits the liability for the organizers as well as the future shareholders. This may be an over exaggeration because most lenders will not provide capital to a small corporation without a personal guarantor, If owning valuable assets we might want to pursue forming a separate company to own these assets and lease them to DTCS as another way of limiting liability to the company.

Secondly, the corporate form offers the advantage of centralized management, but in a small closely held corporation all owners will often be involved in management. This is advantageous to DTCS so that we may maintain control over the day-to-day operations. However, having to maintain the three-tiered structure of shareholders, officers and directors may be somewhat costly and cumbersome.

[...]

Details

Pages
50
Year
2001
ISBN (eBook)
9783638120357
ISBN (Book)
9783640529773
File size
756 KB
Language
English
Catalog Number
v3331
Institution / College
Stuart School of Business Illinois – Business
Grade
A+ = 1,0
Tags
Business Plan Company

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Title: Business Plan for an IT Company