II. Executive Summary - NetFiles by wuyunyi

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									Financial and Strategic Analysis of a Product based
           Start-up [DigiTeck Solutions]




                   Kailash Kotwani
                Instructor: Jeff Morris
                  GE 598, Dec 2006
                          Acknowledgement
I am grateful to Prof. Jeff Morris for his consistent guidance and useful
instructions to write this project. Lectures and material covered in class
provided deep insight for understanding financial aspects of a start-up
company. I am thankful to my friend and classmate Krishna for
working together and providing useful suggestions on several of issues.

Points to be covered
                                     I. Table of Contents
I.      Table of Contents .....................................................................................................

II.     Executive Summary .................................................................................................

III.    Product Description and Reason for choosing it .................................................

IV.     Market Research, Market Size, Demographics …………………………………..

V.     Cost & Sales Price Analysis (Break Even analysis)………………………………

VI.     Marketing Plan (SWOT Analysis) ........................................................................

VII. Operational Plan, Start-up and Operational expenses ......................................

VIII. Financial Statements ................................................................................................

IX.       Economic Value additoin and Future Growth Plans …………………………….
                      II. Executive Summary
DigiTeck Solutions is a small; Chicago based Startup Company specializing in
distribution high-teck low cost innovative products. For initially establishing business,
company will launch Bluetooth headset with inbuilt MP3 Player and Flash Drive.
Through small size and minimal operational cost, DigiTeck Solutions, will try to
consolidate its position in market by offering quality products at competitive prices. The
company's strategy is to consolidate its excellent customer and client service and quality
products by making timely deliveries and having a competitive pricing structure.

DigiTeck Solutions will focus mainly on the distribution headset initially in Chicago and
surrounding area and later in whole United States. In addition, the company will provide
establish relationship with big retailers for supplying them products. Companies with
whom we compete are Motorola, Jabra and Plantronics who have established markets in
bluetooth headsets. Based on success in initial product lines, in the future, the company
plans to diversify into other kinds of range of electronic utility products.
                                  III. Product
       Bluetooth® MP3 Player Headset with Flash Drive
1. Product Description
        This product is a completely new high tech innovative concept of bringing in
several devices in one headset. It is a 3-in-1 gadget integrating all or most of the features
of a MP3 Player, a Flash Drive and a Bluetooth Headset. Discreetly built into the
lightweight headset frames are, on one side, an MP3 player (also plays WMA files), and
on the other side a Bluetooth headset which can be paired with a mobile phone (or any
other Bluetooth enabled device) to enable consumers talk while they listen music or drive
car. Fully adjustable earphones with very sensitive microphone built into the frame can
be used recording voice and playing FM radio same time. Customers can choose between
ranges of size of flash memory onboard depending upon their requirement (256 MB, 512
MB or 1 GB).


Main Features

       Listen to music - MP3, WMA, or WAV formats
       1 Gigabyte storage in flash memory
       Bluetooth functionality, enabling to talk and listen wirelessly /
        handsfree for any Bluetooth cell-phone
       Ringtone indicating call when listening music to avoid missed
        calls
       Other features: voice recorder, store numbers, create
        directories, built in equalizer
       Simple transfer of files to the memory, using USB extension
        cable or wirelessly using high-speed Bluetooth 2.0
       Standard Bluetooth specification enabling to pair up with any
        Bluetooth enabled device like notebook, car-kit, media TV or
        gaming unit.
       Record phone calls using the voice record function
       Internal rechargeable battery, recharges via USB                        Fig. 1 The Product
       Easy controls and volume changing
       Accessories included - see below

Accessories (contained in a box)

       USB extension cable.
       Wall socket-to-USB charger.
       Driver software on a mini-CD plus a music file converter program.
       12 month period warranty card
       English language manual
Further Detailed Technical Specifications

         Digital formats supported: MP3/WAV /WMA
         PC and MAC interface supported: USB2.0
         Full charge play time: 5 hours
         Battery: Built-in Li-ion /3.7v, 150mAh
         Maximum input power rating: 5VDC,150mA
         Voice output power: 55mW
         Earphone output frequency: 5mw
         Voice output frequency: 20Hz-20Khz
         THD: Less than 0.05%
         Recharging time: 3 hours
         Memory Flash: 1GB
         Signal-to-noise ratio: 87.2dB
         Earphone impendence: 16ohm

Dimensions

         Weight: 40g
         Dimensions: 92 x 85 x 40mm
         Extended Length of Earphone fixed lever: 18mm
         Rotary degree of earphone fixed lever: 270 degrees
         Rotary degree of earphone: 90 degrees

Manufacturer and Origin of Product:

   Chinavasion Wholesale Ltd.
   3A, Xinbaohui Building, Nanhai Main Road, Nanshan District
   518054 Shenzhen
   China
   www.chinavasion.com
   Tel: +86-755-26451869
   Fax: +86-755-26451879

Brief Terms settled during quotation process

a.     For bulk order of 1000 Pcs or over discounted price offered equal to $24.9.
b.     For first order, 30% TT in advance for order rest before shipment. Credits may be
offeredif business continued.
c.     Packaging information
       1pc in a color box, 40pcs in a carton
            Carton size:70*51.5*38.7cm
            N.W.:9KG/CTN
            G.W.:10KG/CTN
d.     For the bulk order of 1000 or over manufacturer ready to provide, customized
packaging with company name and logo etc on it. No extra cost.
e.     Warranty for 1 year. If due to transport, pcs get damaged, ready to replace them.
Ready to repair/replace defective pcs under warranty period.
2. Why this product??
        In order to maintain the almost-constant contact that has become commonplace in
today’s society, people have taken to carrying their cell phones virtually everywhere.
There is almost a feeling of disconnect that can be experienced when caught without it.
This new trend, and the subsequent car accidents – of course, has led to the creation of
laws banning the use of hand-held cell phones while driving. The answer to this problem?
Bluetooth technology and Bluetooth headsets paired with cell phones.
        Bluetooth headsets offer a convenient wireless connection to a Bluetooth-enabled
cell phone or computer. This hands-free capability allows users to access their cell phone
to answer or make calls while leaving their hands free for driving. It also allows a user to
walk freely about their office while dictating to a voice-activated word processing
program in their PC. The freedom permitted by Bluetooth technology makes for a safer,
more productive world, while still maintaining the pace we’ve become accustomed to.
        Built in flash drive eliminates the need for carrying extra pen-drive, jocky or flash
disk for data carrying purpose. One can listen to Music peacefully without the fear of
missing calls. One can pair it up with Bluetooth enabled Mobile-TV and watch favorite
shows sitting in any corner of living room without disturbing others. Instead of Using
built in built in MP3 player this can also be paired with better quality portable MP3
Players like ipod providing large range of features.
        All in all this high teck gadget works complement for several other electronics
gadgets at the same time this fully eliminates need of carrying several other gadgets. E.g.
it can work as complement to following Bluetooth enabled devices…
             Cell-phone
             Laptop, Notebook
             Ipod
             Mobile TV
             Car Music System and several others

       At the same time it replaces following devices fully
            MP3 player
            Flash disk
            Head-phone and Mic set
            Voice Recorder

      As DigiTeck Solutions is committed to its goal of delivering High-Teck
Low Cost goods. New innovative gizmos bring in lot of attention and make
the marketing job much easier at first place. Multi-utilities, multi-functions,
ergonomic design and cost of this product makes it very attractive. This
Product fits very well for establishment and growth of a new entrant in the
Market.
3. A Word about Bluetooth® Technology (Some
Technicalities)
        Very often, we are asked if Bluetooth is going to be the next “killer app” that will
“change the world.” Unfortunately, Bluetooth is a technology and not a “killer
app” in and of itself. Even if “killer apps” were easy to identify, they would not
be that easy to quantify. Depending upon how we define “change the world,”
however, we believe Bluetooth is certainly going to have an impact on how
human beings do things. We have watched Bluetooth for several years now,
trying to identify within it, perhaps not a “killer app” but a beachhead
application or usage model that could highlight the technology’s value
proposition in a way that spurs further consumer adoption. Bluetooth is a
short-range wireless technology that is intended to provide low-cost               Fig. 2 Bluetooth Logo
wireless networking—within a person’s vicinity—hence its classification
as a personal area network (PAN) technology. Although most of the wireless industry has
been focused on cellular phones and PDAs as the dominant application for Bluetooth. It
is believed that in-vehicle or on-walk hands-free communications and music has the
potential to be the most strategic application for Bluetooth technology.

        Bluetooth was designed to provide low-cost, short-range radio links between
mobile phones, mobile PCs and other portable devices. Its biggest attraction is the
prospect of providing a single, global standard for this type of link, enabling different
equipment types from different manufacturers to communicate together anywhere in the
world. To achieve this objective, a Special Interest Group (SIG) was set up by the
original founding companies: Ericsson, IBM, Intel, Nokia and Toshiba. More than 5000
companies have now signed agreements and become SIG “members”.

        The Bluetooth specification includes both simple point-to-point and point-to-
multi-point operation. In point-to-multi-point mode, each Bluetooth “unit” will be able to
communicate with up to seven other units to form a “piconet” or “personal area network
(PAN)” – i.e. a small network of Bluetooth-compliant devices. Moreover, a single device
is able to belong simultaneously to a number of different piconets. A huge number of
potential applications have been proposed for Bluetooth and one of the problems in
analysing the market is deciding which applications will adopt Bluetooth in the long term
and which will not, either because they eventually use a competing wireless technology
or because they stay with a traditional wired approach. The list of potential and actual
applications includes mobile handsets, headsets, PDAs, notebooks, desktop PCs, printers,
automotive, HIDs, digital cameras, gaming equipment, portable digital media players,
audio/HiFi, cordless phones, access points and modems (domestic, corporate/office and
public), add-in cards, industrial and medical applications and list goes endless.

       So far now as many as 30 different profiles for bluetooth devices have been
defined and implemented and several others are being developed. Here we will discuss
those profiles which have use for a Flash Drive based MP3 Player Bluetooth Headset.
a) Advanced Audio Distribution Profile (A2DP)
        A2DP is designed to transfer a 2-channel stereo audio stream, like music from an
MP3 player, to a headset or car radio. This profile relies on AVDTP and GAVDP. It
includes mandatory support for low complexity Sub Band Codec (SBC) and supports
optionally: MPEG-1,2 Audio, MPEG-2,4 AAC and ATRAC, and is extensible to support
manufacturer defined codecs. Most bluetooth stacks implement the SCMS-T copyright
protection. In these cases it is not possible to connect the A2DP headphones for high
quality audio. E.g. the Motorola HT820 can be used for high quality audio only with
certain versions of the Toshiba bluetooth stack.

b) File Transfer Profile (FTP)
        Provides access to the file system on another device. This includes support for
getting folder listings, changing to different folders, getting files, putting files and
deleting files. It uses OBEX as a transport and is based on GOEP.

c) Hands-Free Profile (HFP)

        This is commonly used to allow car hands-free kits to communicate with head
sets and mobile phones in the car. It uses SCO to carry a mono, PCM audio channel. It is
considered to be the killer app for Bluetooth as more Governments are passing legislation
to ban the direct use of mobile phones while driving. Currently in version 1.5.

Operational Range and Power Consumption
       Bluetooth is a radio standard and communications protocol primarily designed for
low power consumption, with a short range (power class dependent: 1 metre, 10 metres,
100 metres) based around low-cost transceiver microchips in each device.
Bluetooth lets these devices communicate with each other when they are in range. The
devices use a radio communications system, so they do not have to be in line of sight of
each other, and can even be in other rooms, so long as the received transmission is
powerful enough.


        Maximum Permitted Power Maximum Permitted Power     Range
Class
                (mW)                    (dBm)           (approximate)


Class 1 100 mW                          20 dBm                          ~100 meters


Class 2 2.5 mW                          4 dBm                           ~10 meters


Class 3 1 mW                            0 dBm                           ~1 meter
                         IV. Market Research
1. Objective
        The original objective of this market research is to forecast sales figures, analyze
consumer behavior and reasons to help setting up sales prices. As the product selected in
previous section do not have long presence in market and is very new, available data is
inadequate to come to any conclusion. But definitely we can make certain assumptions
and then try to relate and extrapolate. We know this product is mix of features of mainly
following three products.
    1) Portable MP3 Player
    2) Bluetooth Headset
    3) Flash Drive
        These products have long presence in market and their data is widely published.
We will try to analyze market figures for above three products and then try to conclude
estimates for our product. As the product is designed in the form of a headset, for our
analysis we can assume that predominantly its bluetooth headset. MP3 Player and Flash
Drive are secondary features of this product. At the end of this section we will try to do
SWOT analysis to have feel of DigitTeck Solutions situation in current market scenario.
In this section our goal is to get answers of following questions first for these three
products and then extrapolate them for our product?
        i) What is the total size of market?
        ii) Current demand in target market
        iii) Trends in target market—growth trends, trends in consumer preferences, and
trends in product development
        iv) What percent share of the market will DigiTeck Solutions have?.
        v) Growth potential and opportunity for a business of this size.
        vi)What barriers to entry do company face in entering this market as a new
company with a new product?

        In following sections, glimpse of market research have been given for MP3
Player, Flash Drives and Bluetooth Headsets.
2.       Portable MP3 Player
This section presents some of short surveys and news articles to capture the overall
essence of Portable digital MP3 Player US market. Numbers slightly vary from survey to
survey either due to sampling error or Time-Frame error.

A) Piece of Consumer Behavior Report by www.PriceGrabber.com April
2006
Mobile Lifestyles: MP3 Player Trends
        It’s not just a fashion statement, 75% of respondents say they did or would buy an
         Apple iPod because they believe it is the best technical MP3 player, and only 25%
         say it was because it was the “in” brand.
        Apple continues to be the dominant leader for MP3 players holding 61% share of
         the market based on referred dollars and 49% of the market based on clickthrus to
         merchants, a 29% increase in market share y-o-y.

     Fig 3: Apple iPods vs. non-Apple MP3 players: Market Share and Average Prices
              Year   Manufacturer   Referred Dollars   Clickthrus   Avg Price
              2006   Apple          61%                49%          $244
              2006   non-Apple      39%                51%          $188
              2005   Apple          47%                38%          $281
              2005   non-Apple      53%                62%          $215

Source: Market Reporter PriceGrabber.com 2006
* Share based on referred dollars and clickthrus to merchant as of Q1 2006 and Q1 2005
** Non-Apple MP3 player manufacturers consists of over 12 major manufacturers

B) Excerpt of News Article: Rio Exits the MP3 Player Business (PC Magazine,
August 2005)
Rio was the first major brand to enter the market portable MP3 Player market in 1998,
and will be the first to leave when D&M Holdings Inc. shutters its Rio division at the end
of this September.
Last year, Apple Computer Inc.'s iPod racked up an eighty percent market share, making
itself by far the dominant force in the market (September 2005).
The departure of the player who invented the game raises the question, "Can anybody
other than Apple make money on MP3 players?"
Creative Labs Inc. has also been taking a beating in the MP3 player business. The
company posted a $31.9 million loss for the quarter ending in June and has been rumored
to be seeking an injection of new capital to stay afloat.
Companies that are likely to hang on in the MP3 player market will be those with
compelling reasons to be there other than simply selling MP3 players.
One bright spot in the picture is the size of the untapped market that remains. Only 11
percent of Americans own an MP3 player, and even fewer people outside the United
States have bought one.
C) Excerpt of News Article: SanDisk is Number Two in US MP3 Player Market
(www.i4u.com, Feb 2006)
SanDisk rose to the number two spot in the MP3 player market during the holiday season
in the United States. SanDisk sold 1 million of their low cost flash based mp3 players.
We reported recently that Creative is the number two in the mp3 player market with 2.6
million players sold. I think that number is global. That means SanDisk is the distant
number two in the US and Creative is the distant number two world-wide in the MP3
player market. Nobody is able to touch Apple right now; they sold 14 million players in
the same time frame.
D) Excerpt of News Article: Dell withdraws from MP3 player market (22nd
August 2006 www.macc.com)
Dell has apparently conceded defeat in the MP3 player market, as reports indicate that the
company is no longer selling any of its MP3 players and has removed most referencs to
its DJ Ditty MP3 player from the Dell website. Electronista notes that the Texas-based
Dell originally entered the digital audio player market in late 2003 to capitalize on the
rapidly expanding popularity of Apple's iPod; however, despite attempts to compete with
Apple on features and price, Dell has consistently struggled to find significant
marketshare.




                               Fig. 4. MP3 Player Pricing Trends
Summary of MP3 Player Market Research

     The worldwide market for Flash-based and Hard Disk Drive (HDD)-based
      players reached 140 million units in 2005, up from 35 million units in 2004.
      Expectations for this market are high, with In-Stat forecasting unit
      shipments to reach 286 million by 2010.
     US market reached 54 Millions units in 2005. Apple is very dominant in US
      market with more than 75% of share (sales 39.8 Million units). Apple’s
      presence is so dominant that big players like Dell, Rio and Creative found it
      hard to survive in this market.
     Consumers buy non Apple MP3 players only if either they are very cheap or
      if they provide many other features like large flash drives at low cost.
     Still large part of the US market is untapped, only 11% of Americans owns a
      MP3 player. Sales growth figure shows this market has huge potential.
     Consumer can get good branded 1GB MP3 Player anything from $61
      (Creative Nano) to $138 (iPod Nano). Consumer ready to pay large price for
      technology and brand.
3. Bluetooth headset
Sales and market of bluetooth headset is completely driven by presence of bluetooth
chips in various other devices like cell-phones, Notebook or car kit. First we will look at
bluetooth chip market and then we will go ahead on other applications.

A) Excerpt from News Article: BLUETOOTH® WIRELESS TECHNOLOGY
SURPASSES ONE BILLION DEVICES (13-Nov-2006 Bluetooth SIG www.bluetooth.com )
Installed base of more than one billion products gives consumers more than five billion
ways to use the global wireless standard.
Bluetooth enabled products are now in the hands of one billion consumers worldwide
said the Bluetooth Special Interest Group (SIG) today. Citing shipment information from
ABI Research, the trade association announced that the installed base of Bluetooth
devices reached one billion in early November. Weekly shipments of the wireless devices
continue at a pace of 12 million per week.
"To put this number in perspective, one billion is greater than the number of PC users in
the world and equal to the number of mobile phones shipped this year," said Michael
Foley, Ph.D., executive director, Bluetooth SIG. "Reaching the one billion milestone is a
huge win for the Bluetooth industry and we want to congratulate and thank our 6,000
member companies whose innovation and products got us here. These are the same
companies, along with new members, that will drive us towards our next goal of shipping
two billion devices IN ONE YEAR in 2010. Exciting things are shaping up for Bluetooth
wireless technology and with the advent of several new uses of the technology in 2007 in
the home entertainment, medical and gaming arenas, I feel confident that Bluetooth
technology will continue to surpass expectations."
Cellular handsets continue to dominate shipment numbers, along with audio headsets.
Stereo headsets, vehicles, media players, notebooks/PCs, and mice/keyboard devices also
contribute to shipment numbers. Medical devices, gaming devices, camcorders,
projectors and digital cameras are expected to grow in volume after the introduction of
the high-speed Bluetooth specification in 2007.
"One change in the marketplace we see really driving adoption of Bluetooth stereo
headsets and contributing to that next billion devices is the growth of mobile TV,"
said Yoram Solomon, director of strategic marketing and industry relations, Texas
Instruments, and president of the Mobile DTV Alliance. "It's pretty simple -- people want
good quality sound when watching TV and the speaker built into mobile phones isn't
going to cut it. Bluetooth stereo headsets provide the key quality component to the
mobile TV experience."
November has been declared "Bluetooth Music Month" by the Bluetooth Special Interest
Group (SIG) in order to highlight the many ways consumers can listen to Hi-Fi stereo
music wirelessly.

B) News: Bluetooth and Wireless LAN 2002.
“Bluetooth shipments have now overtaken 802.11b shipments. The time has come for the
two standards to stop fighting and agree that both are successful and complementary. The
reality is that by the end of 2006, Bluetooth will ship as many products in one week as
Wi-Fi ships in the entire year.”
        Fig. 5 Exponential Growth in sales of bluetooth chips from 2001 to 2006

C) Article from instat.com: Bluetooth Chip Makers (2006)
CSR and Broadcom dominated Bluetooth chip sales last year, with a combined 80
percent of the market (see chart), but several other vendors—including Infineon, Marvell,
Philips, RF Micro Devices, STMicrodevices and Texas Instruments (TI)—are also vying
for sales. TI appears to be the third-largest vendor, and Amir Faintuch, TI's Bluetooth
business director, claims that his company has been gaining market share this year.
Bluetooth chip set prices have fallen in recent years from more than $5 to the low $2
range. But Faintuch vows to drive prices even lower with aggressive integration and size
reductions. "You'll see a $1 device eventually," he says, adding that Bluetooth chips are
becoming "a saturated, commodity market" in which only the biggest, most efficient
suppliers will survive. The industry's next competitive front is likely to be chips
combining Bluetooth with FM radio, WiFi and ultra-wideband (UWB) networking.




Fig. 6: Bluetooth Chip Suppliers Market Share
D) Bluetooth in Mobile handset: In-stat Research Article

According to In-Stat Research, streaming music is the most accepted multimedia service
offered by wireless carriers. Bluetooth devices that are able to wirelessly stream high-
quality music are enabled with the Advanced Audio Distribution Profile (A2DP) which
ensures interoperability among devices with the same profile. Many new phones on the
market include the A2DP profile, enabling consumers to download songs to their phone
and listen to CD-quality sound wirelessly through their Bluetooth stereo headset or other
audio playback devices. Samsung, LG, Nokia and Motorola are just a few of the
manufacturers that offer A2DP enabled phones. A few of the phones available today
include the LG Chocolate, the LG LX 550 and the Nokia 8810. Fig. 7 below shows
number of bluetooth qualified models release by major companies last year.




 Fig. 7 Bluetooth qualified models released by major cell-phone manufacturers last year
E) Bluetooth in Vehicles in European Market

Bluetooth, a very prominent technology in the European telematics and infotainment
market, currently is the widely established PAN (personal area networking) standard in
the European automotive market. Currently 66 vehicle models (40 Million Vehicles) in
Europe are equipped with a Bluetooth module, either independently or integrated with
the navigation system. Bluetooth currently has a penetration level of close to 20 percent
in Europe, and this is expected to reach 90 percent in 2010. Fig 8 shows the penetration
of Bluetooth in vehicles since 2001, projected to 2010.




    Fig 8. Penetration rate and vehicles equipped with bluetooth in European Market

F) Bluetooth Headset Market Players

Motorola, Jabra and Plantronics were the world's big three Bluetooth headset vendors,
taking a combined 57 percent share of total global sales in 2005, according to the latest
research from Strategy Analytics.
Motorola, the world's second biggest mobile phone maker, controlled 28.2 percent of the
Bluetooth headset market, while Denmark's Jabra unit was second with 16.3 percent and
Plantronics came in third with 12.3 percent market share. Driven by market demand for
music phones, approximately one in every eight Bluetooth phones sold in 2006 will
support A2DP (Advanced Audio Distribution Profile), a new profile allowing consumers
to enjoy wireless music by beaming stereo sound to a stereo Bluetooth headset. Fueled
the by falling prices of Bluetooth headsets, as well as traffic laws requiring
handsfree calling while driving, global sales rose 153 percent to 33 million units in
2005, and are expected to grow 70 percent in 2006.
G) Share of Bluetooth headsets and Penetration in Cell phones: ABI News Article

“very, very buoyant at the moment," says Stuart Carlaw, a wireless analyst with ABI
Research. He expects about 540 million Bluetooth chips to be shipped this year, up 70
percent from 317 million in 2005, with shipments growing to 1 billion units annually by
2009.
What's fueling the growth? "Two words," says InStat analyst Brian O'Rourke: "Mobile
phones," (InStat is a division of EB's parent company.) Handset makers initially dragged
their feet on adding Bluetooth capabilities, but that started to change by 2004 as chip
costs fell and interoperability problems between Bluetooth and WiFi networks were
resolved. Bluetooth was used first in expensive multimedia phones such as flagship Razr
from Motorola (Broadcom's biggest Bluetooth chip customer) but now is making inroads
into midrange and even some lower-cost phones.
O'Rourke estimates that about one third of the GSM handsets shipped in 2005 were
Bluetooth-enabled, compared to 10 to 20 percent of CDMA phones, the prevalent U.S.
mobile standard. Analysts expect up to 90 percent of phones eventually to be Bluetooth-
equipped. Bluetooth headset sales also are growing fast. InStat forecasts that shipments of
Bluetooth mono headsets will increase from 33 million in 2005 to 55 million in 2006.


Summary for Bluetooth Headset Market Research
      Bluetooth Headset Market is mainly driven by other bluetooth enable
       complementary gadgets like cell-phones, in-vehicle bluetooth module,
       Notebook, MP3 Players etc.
      Sales of bluetooth chips are rising exponentially at average annual rate
       between 60 to 70%. Expected to reach sales of more than one billion units in
       just 2009 and Two billions in 2010.
      Technological improvements are steadily bringing down bluetooth chipset
       prices. It has reached to $2 at current level and expected to drop in future
       too. These developments are making this technology available to Mass
       Levels.
      At present 33% of all GSM cell-phones are bluetooth enabled. Analysts
       expect up to 90 percent of all phones eventually to be Bluetooth-equipped by
       2009 to 2010.
      Legislative laws against direct use of cell-phones in vehicles are heavily
       boosting use of bluetooth headsets in cars too.
      At present 10% of all bluetooth chips are used headsets. In 2006, 55 Million
       Units of bluetooth heads were sold. It is expected to grow these sales at
       steady rate of 70% reaching sales of 450 Million units in 2010.
4. Flash Drive
In this section we will try capture price changes in Flash Drive. Its Market Size, Sales
Revenues and other trends.




                    Fig 9: Change in price/Mbyte from 1988 to 1996




                   Fig 10: Change in price/Mbyte from 2004 to 2009
   Fig 11: Change in sales revenues of flash drive market from 2001 to 2009




Fig 12: Monthly Price Variation from Jan-04 to May-06 for Flash Memory cards
For Q2 2006, the average price for flash memory cards was $74, a 12% y-o-y decrease
from Q2 2005. Comparing Q2 2006 to average prices at Q2 2004 showed a 21%
decrease. Flash memory manufacturers continue to push out new products with higher
storage capacity which keeps the marketplace active. A year ago, the average price for
the top 1GB memory cards was $81 as compared to $49 today.
�� May and June 2006 shows a further declining trend, dipping below the $70 - $90 range
that the flash memory market maintained for almost two years.
�� According to the top 15 flash memory cards, the average price by memory capacity is
as follows:
2GB = $90
1GB = $49
�� Ten out of the top 15 are produced by SanDisk. SanDisk continues to be the main
manufacturer, holding 44% of the market share based on referred dollars and 41% share
of the market based on clickthrus to merchant as of Q2 2006. (www.pricegrabber.com)




                       Fig 13. Prices of top 15 Flash Cards 2006

Summary Flash Drive Market:

      Market size for 2006 year was 150 Million units. Sales Revenues are
       increasing at average rate of 70%.
      Price per/mbyte is steadily falling at 50% rate
      One can get branded 1GB card for anything from $26 to $47
       5. Estimating DigiTeck Solutions Sales
As product selected is mainly a bluetooth headset we will assume that most of the sales
(85 %) will come from headset market share, partial from Flash drive market (15%). In
our recent market research study we concluded that MP3 Player market is completely
monopolized by Apples iPod with lot of barriers for new players. Hence we will assume
no market share in MP3 Player. Presence of MP3 Player in product will mainly add as
feature to attract customers looking for bluetooth headset or Flash Drive.

Estimated Sales of bluetooth headset in 2007 = 93 Millions
Estimated Sales of Flash Drives in 2007 = 200 Millions

Through sales and marketing efforts, DigiTeck Solution will be able to pick up 0.0035%
share of bluetooth headset market and 0.0005% share of flash drive market.

Expected sales = 93 M x0.0035%+200x0.0005%= 3990 units

So DigiTeck Solution is expecting to achieve sales of around 3990 units in 2007
financial year. It is expecting growth of around 20% in coming years.
         V. Cost Analysis and Pricing Strategy
Estimating cost of goods sold
The inventory is acquired from a Chinese manufacturer periodically. After having
enquired with various manufacturers in China, Digiteck Soluations has finalized the best
deal from Chinavasion, Shenzhen. The quotations that they have submitted for us are as
follows:

The minimum quantity that is to be ordered is 1000 pieces. They can also make a trial
order of 10 pieces for testing the quality of the products initially. No additional cost need
to be paid for the inspection because the manufacturer’s Quality Control department will
totally check the goods before shipping them to us. They guarantee 100% quality for
headsets. They have agreed to the terms that they would replace for free in case of defect
for first three months and repair free in one year (with the shipping costs on them). Also,
they will do customized packaging for my company with company name and logo on box
if minimum quantity is 1000pcs. They also do custom graphics on the products totaling to
about 10cents/piece. They have agreed to deliver the product Shenzhen seaport for free as
they have their own delivery trucks. The payment terms agreed upon are 30% T/T
(telegraphic transfer) deposit and 70% balance before shipment
We intend to get the quality control done by another neutral company in order to ensure
quality of the products. A quality control firm was contacted Shenzhen for quality testing
purpose. They charge 50 cents per piece for normal standardized quality testing which
would be useful as we cannot trust this new relationship forming a new manufacturer.
Quality firm’s officer will visit Chinavision’s specified location for testing product and
putting ‘tested and checked’ logo on each product.

Also, the estimated charge for shipping the inventory by sea to New-York sea port would
be USD 300.00 for 1000 pieces with a lead time of 15-17 days. On the other hand, the air
shipping will be 4.6USD/Kg with a lead time of 5-6 working days. We will prefer getting
it shipped through seaport as it is cheaper method.
Finally, the customs duties had been determined to be in the range of USD 50.00 –
70.00/bill (for importing 1000 pieces of headsets). The taxes may be in the range of 2-5%
(this is a rough estimate decided after calling up the U.S. customs office, officers at the
Port of Chicago and checking out the website www.customs.gov). And the cost for
shipping the freight from the port of New-York to the office would amount to
approximately 25 cents/unit (inventory is near the office in Chicago) for 1000 pieces.
Obviously, the shipping charge depends on the volume and weight of the package
Adding all mentioned costs above to estimate cost of single unit roughly.

 Sr.no                         Expenditure Type                             Amount (USD)
1         Cost of basic single headset                                      24.9
2         Insurance expense while in courier                                0.1
3         Cost of custom graphic design on unit                             0.1
4         Quality Control expense per unit                                  0.5
5         Courier charge Seaport from Shenzhen to New York                  0.3
6         Customs and Taxes per unit                                        1.1
7         Courier from Seaport to office                                    0.25
          Total                                                             27.25


For initial inventory of 1000 units, cost = 27.25*1000=27250 USD


                         BREAK EVEN Analysis
Very few companies enjoy “Price Freedom”. Unless our company has product monopoly,
COMPETITION will be a limiting factor on the price one can set for product. As long as
customer has a choice of a range of products in industry, from inexpensive to expensive,
we will not have price freedom. In this section we are assuming Gross Profit Margin of
40% based for this kind of industry based on research done previous section. He we will
be estimating number of minimum units required to be sold in first year to break even or
cover the minimum business fixed costs.

We assume 40% as gross profit margin.
Therefore GMR = Gross Margin Ratio = 0.4

Selling Price = COGS/(1-GMR)

Therefore, Sales Price = 27.25/(1-0.4) = $45.4

Now, fixed annual operating expenses estimated in operating expenses sheet =
32,060 USD

Number of units to break even = Operating Expenses/(Sales price – COGS)
                              = 39260/(45.5-27.25) = 2151

This means that minimum of 2151 units are required to be sold in first year to break
even or to cover fixed operating expenses. In our previous Market Research Section
we estimated it is possible to achieve sales of around 4000 units ($0.18 Million as
revenues) in first year. At this stage this business looks promising if all the estimates,
assumptions and predictions go along.
                                    VI. Marketing Plan

1. SWOT Analysis
                Strengths                                    Weaknesses
1.New High Tech Product                       1.New in industry, No experience
2.Several Secondary Features                  2.Set-up and Start-up delays
3.Low Cost Product                            3.New Product, Lack of faith from
4.Technical Knowledge Expertise               consumers
5.Small size company, small payroll bill      4.No brand reputation
6.Low Operational expenses



               Opportunities                                     Threats
1.Potential growing Market of product         1.Emergence of New Technology, making
2.Increasing Applications of product          this product obsolete
3.Advantages of first entry.                  2.Steadily falling prices, risk associated
                                              with maintaining inventory
                                              3.Steadily falling prices, cutting margins
                                              4.New product, risk of complete rejection
                                              by consumer




2. Sales Model
Products in this marketplace are typically purchased through catalogs, web-sites and trade
shows. The purchase decision is a simple matter of comparing the estimated number of
instance of use to the purchase price. To the customer, products are not readily available
if they are not listed among common sources such as catalogs, etc. In the case of specialty
products however, a simple descriptive web presence along with appropriate search
engine listings suffice. A considerable portion of our advertising budget will be used for
Internet advertising such as banners and site-promoting services. We also plan on a mass
postcard mailing media blitz to electronic shops like Best Buy, Circuit City etc. and to
advertise in most of the major in-line computer magazines.
3. Sales & Marketing Plans
DigiTeck Solutions market approach plan for the products will consist of development of
formal distribution channels and partners, and public relations and advertising activities
designed to create awareness and product interest.

4. Distribution Channels
Our channel development efforts will focus forming strong relationships with sales
brokers or agents. Company may hire outside salespersons to assist in setting up
distribution relationships. Company will pay them on commission basis. Commissions
per unit offers are usually lucrative as it provides incentives equivalent to efforts. Also
focus on creating equitable partnerships with equipment retailers. Organizations which
publish catalogs and web sites that serve our target will provide the line share of needed
sales efforts for company to be successful. These strategic relationships are meant to
allow faster dissemination for the technology and provide funding for market-by-market
commercialization efforts. Once the sales have achieved sufficient mass, company can
hire experienced sales-and-marketing director to handle this function.
                        VII. Operational Plan
                     Start-up and Operating Expenditures

Startup Expenditure

Given below is a detailed list of the startup expenditure possible for the company. Please
note that this is a conservative estimate and the actual cost may vary depending on
various conditions.

Start-up Investemtn
Equity Investments: Company has an equity investor in the form of the founder, Kailash
Kotwani. According to the analysis of initial startup expenses, it was found that company
would require a total initial investment of $75,000. Out of this, $40,000 would be put by
the founder and the rest is taken on loan. Starting initial investment will be sufficient
enough to pay all the expenses (including loan and interest payments). Also expecting to
maintain positive cash flow at any point of time throughout the course of business

Loan Proceeds: Business loan amounting to $35,000.

Real-Estate Loans: Not Applicable


Security Deposits

(i) Rent (last month's): Initially home apartment will be used for office space and
warehousing purpose. The partial rent of an apartment space around southern (or
northern) suburbs is considered as $1400/month (Full rent is around 2800 USD for 1000
sq feet).
Source: http://www.officespaces.us/cgi-bin/officespaces/details.cgi?ID=1222
http://www.instant-
offices.com/results.asp?country=35&dist=381%2C288%2C290&cid=&rgns=&cit
ydropdown=299-7-35&pc=&regiondropdown=

(ii) Telephone Deposit: None. The charge for a new broadband telephone line is $49.99
plus taxes from Vonage. But, let us approximate the deposit to $200.
Source: http://www.vonage.com/services_premium_sb.php
http://www.whitefence.com/WebObjects/WhiteFence.woa/216/wo/Mjpd855eFSRRo1yu
Nzbko0/4.0.5.0.0.0.21.0.9.3.1.1.0.2.0.4.0.0.8.0.1.0.0?477965825
(iii) Utilities Deposit: Approximately $300.




Source: http://www.psnh.com/SharePDFs/Summary_of_Rates.pdf
http://www.chicagoartistsresource.org/?q=node/253

(iv) Other deposits: Set aside $500 for miscellaneous charges.



Startup expenses

(i) Accounting fees: Typically, it would cost about $1000 for the first year and increases
with the sales.

(ii) Activation Fee: Typically around $300 in Illinois state.
Source: http://www.gather.com/viewArticle.jsp?articleId=281474976718557

(iii) Corporate Fees & Taxes: 150 USD

(iv) Federal Tax ID: 30 USD

(v) Fictitious Name Costs: 50 USD

(vi) Insurance: Depending on the level of coverage, insurance can vary from $2000 to
$10,000 per year. Let us assume an average value of $250 for pre-startup
Annual insurance costs = 2400 paid in installments of 2
Source: http://www.digital-
web.com/articles/building_your_own_startup_technology_company_part_2/

(vii) Legal & Consulting Fees: In between $1500-$5000 depending on the level of
service. Let us assume a value of $2000 for our situation as we do not need high level of
guidance.
Source: http://www.digital-
web.com/articles/building_your_own_startup_technology_company_part_2/

(viii) Meals & Entertainment: Estimated at $600 per year. This would serve well for
business meals with potential customers.

(ix) Office Supplies: Office supplies –$720 annually for paper, pens, pencils, stapler etc.
Source: http://www.officedepot.com/

(x) Payroll Expenses (training/setup): NA

(xi) Salaries & Wages: Kailash Kotwani is the sole owner of stock of DigiTeck
Solutions which is a S corp. and since owner works part-time on this business, company
would not consider employment of any sort in the near future. But based on the growth/
performance assessment of the company after one year, a decision would be taken
whether to start hiring employees or not.

(xii) Payroll Taxes: NA

(xiii) Benefits: NA

(xiv) Pre-opening advertising: Estimated at $2000 for free T-shirts, sposoring a
community event to publicize the company.
First Years Advertisement Expenditure was estimated as $9,200
(xv) Printing (cards, stationery and brochures): estimates the total charge to be around
$500 for printing banners and brochures at pre-start-up stage.

(xvi) Sales Tax Permit: As the information from the source mentions there are no sales
taxes permit fees for retailers.
Source: http://www.revenue.state.il.us/publications/pubs/pub-113.pdf

(xvii) Other Start-up Expenses: Company has allotted about $1000 for miscellaneous
start-up expenses.

(xviii) Opening Inventory: Since the business would be slow in the beginning and
would take some months to develop the good client relationship, company believes an
investment of about $27,250 for buying 1000 units as initial inventory.
Capital Expenditures

(i) Computer Equipment: company intend to buy a laptop costing around $1000 which
could serve well during traveling and also for accounting purposes.
Source:
http://www.dell.com/content/products/compare.aspx/inspn_lo?c=us&cs=04&l=en&s=bsd

(ii) Equipment/Machinery: Printer and fax machine other scanning instruments (2 in1
machine)- $1000
Source: http://www.amazon.com/Fax-Machines-Office-
Electronics/b?ie=UTF8&node=172582
http://www.dell.com/content/products/compare.aspx/colorlaser?c=us&cs=04&l=en&s=bs
d

(iii) Furniture & Fixtures: An office table, chair and accompanying couch for visitors
for $1500.
Source:
http://www.staples.com/webapp/wcs/stores/servlet/StaplesProductDisplay?ts=116389976
1643&storeId=10001&productId=155203&catalogId=10051&langId=-
1&cmArea=FEATURED:SC2:CG33

http://www.furniture.com/common/product/ProductInfo.aspx?itemid=143128&ChildId=1
39608&xs=593c5b8c651-8021-4730-b98a-c8a72d23a13b

(iv) Vehicles: company intends to buy a second hand BMW car which would serve as an
office vehicle. This would cost about $5,000.
Source: http://motors.listings.ebay.com/Cars-
Trucks_BMW_W0QQfromZR4QQsacatZ6006QQsocmdZListingItemList

(v) Leasehold Improvements: Company does not intend to improve any lease holding.
We intend to use home aparment as office as well as warehouse. Depending on the
profitability of the business, decision will be taken later whether to move into a bigger
warehouse or not. Also, effort is made to find the warehouses which lease out yearly
rather than long term leases.

(vi) Buildings: Company does not intend to buy or lease any building for at least first 3-5
years of operation or till the net profits reach 3MM which ever is earlier.

(vii) Land: Similar to above, we do not intend to buy or lease any land.
Operational Plan
For proper execution of daily operations of Company, it was determined to maintain the
following percentage of sales to customers paying cash and the rest of the sales are made
to the customers on credit. These percentages would be useful in order to attract more
customers who typically need the goods for credit. And we intend to collect the credit
sales within 3months to make sure that company is running on healthy cash flows. Also,

                                             Year 1          Year 2         Year 3
           Percent Cash Sales
                                               40%            50%            60%
           Percent Credit Sales                60%            50%            40%

Company estimates that 0.5% would run into bad debts. Also, we expect that about 3% of
the products are returned back into the inventory and resold.
Sales Assumptions

First, let us assume that company starts its operations from January 2007. The following
are the major assumptions made for forecasting the sales.
    1. Assumed very small sales in first two months of start of business.
    2. The publicity and advertising for the company started at least one month before
         the opening of the company in January, 2007. This means that Company registers
         sales from the first month of operation itself.

    3. The sales increase slowly in the first 6 months as it takes time to develop the
        customer confidence. So, the inventory required would be less initially.
    4. The sales are expected to increase at 20% each year.
    5. The sales tend to stagnate a bit in the summer June and July and will catch up
        slowly in August.
    6. Sales increases at the start of holiday season in November And finally it would
        peak in December
    7. Sales price is brought down when sales decreases. Discount of 5% during holiday
        seasons in the month of November and December.
    8. Inventory is bought when the cost of product are the cheapest. The gross profit
        margin would be maintained at 40%.
    9. Since the present market price of the bluetooth head set is about $60.00, we would
        try to make an introductory offer starting at $45.99. Assuming Low prices as
        weapon to enter in market. MP3 Player with flash drive will work as motive to
        attract customers.
    10. The growth rate would be slow in the first year and would pick up by the end of
        third year.
    11. Company estimates that 0.5% would run into bad debts. Also, we expect that
        about 3% of the products are returned back into the inventory and resold

.
                                         Monthly Sales Revenue
                35,042
                30,042
                25,042
   Sales $




                20,042
                15,042
                10,042
                 5,042
                         42
                              0                      5                       10               15
                                      year 2007             MonthYear 2009
                                                      Year 2008


Above graph shows variation of monthly sales revenues for three years.The following
graph shows the variation in the sales price of headset with time. For simplicity of
analysis, it will be assumed that the seasonal variation in price of the flash drive is the
same for all the three years.


                                       Monthly Avg. Sales Price Variation
                47
           46.5
                46
           45.5
 Unit Price $




                45
           44.5
                44
           43.5
                43
           42.5
                42
                     0            2       4          6           8          10    12   14
                                                         Month
                             Inventory Assumptions


   1. Initial Inventory bought before Start-up business is bought on Cash. As the
      relationship develops with supplier, he agrees to provide 2 months credit on 60 %
      of total payment and rest 40% on cash.
   2. Inventory is ordered in summer or off-season times as the manufacturing cost
      would be less.
   3. Inventory Purchase cost includes all costs mentioned in following table. Hence
      other production costs are kept zero.

 Sr.no                        Expenditure Type                        Amount (USD)
1        Cost of basic single headset                                 24.9
2        Insurance expense while in courier                           0.1
3        Cost of custom graphic design on unit                        0.1
4        Quality Control expense per unit                             0.5
5        Courier charge Seaport from Shenzhen to New York             0.3
6        Customs and Taxes per unit                                   1.1
7        Courier from Seaport to office                               0.25
         Total                                                        27.25


   4. Less amount of inventory is ordered for about four five times a year. This is
      because costs of headset keep fluctuating due to several reasons. Not to block
      large amount of cash in inventory as there value cost associated with money.
   5. The inventory projections would increase slowly from the first year to the third
      year as the business picks up momentum.
   6. Repairs and Maintenance cost includes cost of custom graphic design on unit and
      cost for quality control =0.1+0.5=0.6 cents per unit .
   7. Freight in Total charges = 0.3+0.25 = 0.55 cents per unit
   8. Customs and Total Taxes add up to $1.1 per unit. These expense are mentioned
      into other production expense item section
VIII. Financial Statements
 (Click this link for all Financial Statements)
  IX. Ratio Analysis, NPV and Value addition, Future
                     Growth Plans
Values of different Profitability Ratios obtained from Financial Project Template


Ratio                              2007                    2008                2009
Operating Margin                 11.50%                  23.42%              29.47%


Net Margin                       10.51%                  23.30%              29.47%


Return on Assets
(ROA)                            26.13%                  52.25%              53.19%


Return on Equity
(ROE)                            34.80%                  57.00%              57.52%


Above ratios Shows Company is posing decent Net Margin of 10.51% in first year
its and increasing to 29.47% in 2009. ROA and ROE are also improving year by
year. These numbers point to healthy start-up which poses decent growth in coming
years.

Present Value analysis:
Expected Net Income 2007 before taxes= 18,404

Expected Net Income 2008 before taxes = 50,161

Expected Net Income 2009 before taxes = 84,733

Present Value of Future cash flows = 18404/(1+0.7) + (50161/1+0.7)2 +
84733/(1+0.7)3 = 17200+43812.56+69167 = 130,179 USD

Present value = 130,179 USD (Here discount rate of 7% was assumed).

This is consistent with the information found from balance sheet where Total Equity
of company is growing from $52,8883 at the end 2007 to $147,309 at the end of 2009.
We are getting decent number for present value of future cash flows. We can
assume the same as Net Present Value of this business project as Net Income already
takes into account the initial investment. Also it was assumed that company will
continue to sell same and one product with increasing annual growth rate of 20%.
As company is settled and shows growth rates, company can diversify into various
other product lines. So in actual net profit posed by company will be more than the
ones we have estimated in this analysis.

Based on above analysis following Future Growth Plans are suggested

1.Company should diversify in other electronic product lines from the start of
second year to show excellent growth in profit rates.

2.Company can seek loans to fulfill goal of investing in other product lines this will
also ensure companies liquidity.

3. For first year company was run from home apartment, it can start its business
from its own office premise from second year and can invest in real estate at the end
of third year. DigiTeck Solutions can also consider option of its own retail outlets at
couple of places in Business Areas.

4. In future course of action, company can think of horizontal and vertical
integration. E.g it can assemble product by purchasing raw materials from various
other companies. E.g. it can purchase display from one company, flash memory
from other company and headset speakers from third and get it assembled by
fourth company all in China.

5. Targeting different market locations and distributing warehouses in those areas
will cut down the transport cost and provide fast access to markets remotely located.

								
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