Business Plan for an IT Company

by

 Andreas Sachs

and 

Seth Berk, Neil Cikurel, Wichaya Kanchanprapas, 
Onal Kucuk, Murtaza Poonawala, Donald Raphael, Vick Vadalkar

TABLE OF CONTENT

1. EXECUTIVE SUMMARY 6
1.1 VISION 6
1.2 COMPANY 6
1.3 MANAGEMENT 6
1.4 PRODUCTS 7
1.5 MARKET ANALYSIS AND MARKETING 7
1.6 OPERATIONS 8
1.7 FINANCIALS 9
1.8 GROWTH AND EXIT STRATEGY 9

2. COMPANY 11
2.1 PROBLEM 11
2.2 SOLUTION 11
2.3 DTCS PROVIDES SOLUTIONS 12
2.3.1 BENEFIT AND RISKS 12
2.3.2 TECHNOLOGY REQUIREMENTS 13
2.3.2 NETWORK DIAGRAMS 13
2.4 SCOPE OF START-UP 14
2.5 GROWTH POSSIBILITIES 14
2.5.1 DOMESTIC GROWTH 14
2.5.2 GOING GLOBAL 14
2.5.3 SOURCE OF INVESTMENT BUDGET 15
2.5.4 STANDARDIZED VERSUS CUSTOMIZED PLANS 15
2.5.5 PRODUCT MODIFICATION 15
2.5.6 PRODUCT STANDARDIZATION 15
2.5.7 COMPETITIVE CONDITION 15
2.5.8 COMPANY CONSIDERATION 15
2.5.9 PRODUCT/ MARKET ADAPTATION STRATEGIES 16
2.5.10 WHERE TO MANUFACTURE 16
2.6 LEGAL ISSUES 16
2.6.1 BUSINESS FORM 16
2.6.2 LOCATION 17
2.6.3 TAX CONCERNS 17
2.6.4 TECHNOLOGY SECURITY/ INTELLECTUAL PROPERTY RIGHTS 18

3. MANAGEMENT 19
3.1 KEY MANAGERS 19
3.2 OWNERSHIP AND COMPENSATION 20

4. PRODUCTS 22
4.1 CONSULTING 22
4.2 ELECTRONIC SHELF LABEL 22
4.3 IT INFRASTRUCTURE 23
4.4 SOFTWARE 23
4.5 MAINTENANCE 23

5. MARKET ANALYSIS 24
5.1 MARKET RESEARCH 24
5.2 COMPETITION 25
5.3 TARGET CUSTOMERS 26
5.4 MARKET SIZE, TRENDS AND ESTIMATED SALES 26

6. MARKETING STRATEGY 29
6.1 OVERALL MARKETING STRATEGY 29
6.1 PRODUCT POSITIONING 30
6.2 PRICING 31
6.4 PLACE 32
6.5 PROMOTION 33
6.5.1 OBJECTIVE 33
6.5.2 ADVERTISING 33
6.5.3 SALES PROMOTION 34

7. OPERATIONS STRATEGY 36
7.1 LOCATION 36
7.2 RESEARCH AND DEVELOPMENT 36
7.3 PRODUCTION 36
7.3.1 DEMAND MANAGEMENT 37
7.3.2 MANUFACTURING MANAGEMENT 37
7.3.3 TRANSPORTATION MANAGEMENT 38
7.3.4 FULFILLMENT MANAGEMENT 39
7.4 PERSONNEL 39
7.4.1 START-UP SITUATION 39
7.4.2 PERSONNEL PROJECTIONS 40

8. FINANCIAL PLAN 41
8.1 KEY ASSUMPTIONS 41
8.2 INCOME STATEMENT 42
8.3 BALANCE SHEET 43
8.4 CASH FLOW ANALYSIS 44
8.5 RATIOS 44
8.6 SOURCES AND USE OF FUNDS 45

9. EXIT STRATEGIES 46

10. CRITICAL RISKS AND CHALLENGES 47

11. APPENDIXES 49

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.

[...]