Sample Business Plan Zydeco

Executive Brief _e [etat._ i_.T_at_n & tech_o_ Con_rly Table of Contents I. The Company 3 4 5 7 7 9 10 11 14 16 19 20 21 22 II. Retailing and the New Customer Information Firm III. The Model IV. Operating Strategy by Division A. The Merchandising Strategy B. The Marketing Strategy C. The Business Development Strategy D. The Technology Strategy E. The Customer Support Strategy V. The Competition and Competitive Advantages VI. Execution Strategy and Timeline VII. Financial Projections VIII.The Management Team IX. Funding Requirements I. The Company Zydeco.com isa retailinformation and technologycompanydeployinga uniquee-commerceconceptthat representsthe nextgenerationof the onlineretail business. Utilizinghighlysophisticated and proprietary personalizationtechnology,targeted retailing practices and extensive merchandisingand branding expertise, Zydeco.com'stechnology platformallows the Company to develop a compelling B2C ecommerceproposition and, ultimately,to becomea premierB2B providerof highvalue'informationand technologyto the $3 trilliondollarretail industry.The Company'spowerfulpersonalizationtechnologies and informationprofiling capabilitieswill serve as the foundationfor three distinct,integratedbusiness strategies:a highly differentiatedconsumer retail site, a wholesale distributionchannel, and a retail industryspecificapplication servicesdivision. Consumer Retail The Zydeco.com retail conceptis founded on the premisethat there is inherentvalue in a shopping experiencedefinedby the individual's lifestyleand personalpreferences. Our proprietarytechnologywill allow us to track and analyze browsingand purchasingbehaviorsin order to create unique product offerings in response to individual preferences. Zydeco.com's shoppingexperience can best be describedas a superb "personal shopper,"one that seems to intuitivelyrecognize your lifestyle and personalshoppingneeds and desires. Our productofferingis a broad and compellingassortmentof uniqueand hard-to-find goodsthat speak to the individuallifestylepreferencesof Zydeco's customers. The Company believesthat it will be able to maintaintraditionalretail marginsby negotiatingfavorable drop-ship agreements with its manufacturers while eliminating inventorycosts. Revenue will be generatedboth by traditionalretail marginas well as auctioncommissions. e intendto offerinnovative W community and eventdrivenprograms that willgeneratetrafficand maintainthismarginstructure. Wholesale Distribution Zydeco's enabling technology,once established and tested in our retail environment, has unique applicationin the wholesalecommunity. Personalizationand profilingof the wholesale buyer provides extraordinaryadded value to this marketplace.The retail siteprovidesan obvioustarget marketof smallto medium-sizedmanufacturers who are alreadyfamiliarwith the Zydeco concept. Our technologywill affordthe opportunity profile,track and manage wholesalecustomerswith substantially to greater levels of information than are availabletoday.The initialwholesalerevenuemodelassumeswholesalenetwork membership fees, a percentagecommission all wholesaletransactionsand a commission all sales of on generatedwithinthe business auctionsite. Retail ASP Services As Zydeco's uniquetechnologyand information systemdevelops,it is highlyapplicableand marketable across a wide range of retail industrysegments. The Company intends to license this proprietary technologyto diversesegmentsof the retail industry,includingmanufacturers, erchants,retailersand m retailaggregators.The Companyhas projectedrevenuesfor its retail hostingservicessegment, and has notforecastedany revenuesfor otherASP servicesduringthe initialstartupand expansionperiod.These figureswill be added as the Companydefinesthe actual roll-outschedulefor theseservices.The current financial projections showsignificant peratingprofitin Year Two withoutall the RetailASP assumptions. o i_ _: ",mll'..__ ,_,_. _ . -, _,_,_'_: _ _ ; -_.:_:_!_._ _,,,_ ........ _i_ii_<,_ _ _ ,i _ _i_:i_ _ ,_'_!i_ "_" _iii_i_ ,_,_,_,_,_ • • • :_._ ,_,_i_ _ _'i_i!i_ _ , ,_ • • .,.ii_i_i_ii>,_ _ ,_,_ / II. Retailing and the New Customer Information Firm Retailing is being forever changed by the advent of e-commerce, 24/7 shopping and a new access to global merchandising no longer limited by proximity or time. This ongoing evolution has positioned the customer with remarkable access to product, well beyond the reach of the family minivan. This level of choice creates an ever-increasing demand on the retailer to find ways to better fulfill the needs of their customer. In order to compete effectively, retailers need new, better and faster sources of information about the customer. Information is becoming a key asset and information technology the medium for a relationship with the customer. Intelligent retail strategy is placing the emphasis on the customer. This key trend will increasingly have e-commerce companies relying on personalization profiling and relationship technology to engage and retain customers based on consumer profiles and lifestyles. Personalization is an emerging market that analysts predict will exceed $22 billion by 2004. Robert Blattberg, professor of retailing at Kellogg Graduate School of Retailing, has identified the new retail model as a "Customer Information Firm" (CIF). He states that the CIF designs all of its strategies and tactics based on available information to maximize the value of its customer assets, not its physical assets. He posits that there will be a transition from the old retailer with a physical distribution firm with some information, to the new retailer--a customer information firm. Zydeco.com is a next generation online retail company, a "Customer Information Firm." The Company's core concept is combining the best retail merchandising practices with state-of-the-art technology to create a superior online shopping experience for the consumer and superior technology-driven services to retail manufacturers. This unique combination of marketing, retail expertise and technology will change the buying and selling experience found on the Internet today from one of low-margin/commodity goods to one of a high-quality, contextual experience within a defined lifestyle that creates opportunities for the consumer and the retail manufacturer. Information is the filter for the efficient delivery of these valueadded services. The growth of online retailing continues despite the recent stock market shake-out of B2C enterprises. According to a recent study by International Data Corporation, online purchasers will grow to 29% of the total online population by the end of this year, and Forrester predicts total online retail sales of $38 billion through this holiday season. As a percentage of all retail sales, Boston Consulting Group estimated 1999 at 1.4%, and predicts 2.4% this year. To place that number in perspective, by comparison, the large and established retail catalog industry generated 4.4% of all retail sales last year. This year, first quarter Internet retail sales were $7 billion. Internet shopping transactions increased 372% in the 52 weeks ending May 5, 2000. Internet sales, overall, are projected to grow to $108 billion by 2003. Z deco:com: Executive'Bi;ii_f. ;:_ ............................. ._:_i_ i_'_ " _ ..... '::_,_:_ ! i._, -'' ?_ .... i ........... ! III. The Model The Retail Site ModelSeptember 2000 The first strategy is the completion of the retail consumer web site. The plan is to utilize the site as the "beta" for the development of consumer profiling for our technology platform. Executing on its retail strategy, Zydeco.com creates a unique, lifestyle-oriented web environment personalized that seamlessly products, information integrates and events and : • The !i,! to a consumer most likely benefit from them. to purchase The Zydeco.com personalization technology is unique because it develops information about the specific lifestyles of each customer. This technology will allow consumers to have their own "personal shopper," that knows their tastes and looks for products, content and events--just for them. The technology will employ a neural networkclustering engine to create unique and personal lifestyles for each customer. Once the system has been "gifted" with sufficient inputs from the consumer base, the Company will have a psychographic modeling system that does not currently exist in the retail industry. Zydeco.com selects manufacturers who create the unique products that are suited to the Zydeco lifestyles. We develop and maintain the Zydeco.com web site to ensure a compelling, attractive and dynamic presentation of products. Manufacturers receive orders from Zydeco.com and ship directly to the customer. The Company handles the entire front end of the transaction, including credit card processing, freight invoices, order tracking and customer communication. TheWholesaleServicesChannelModel-- Q1 2001 The combination of our manufacturing client base and our technology make the wholesale strategy a natural component of the Zydeco.com model. Manufacturers will be able to build their own storefronts, and offer products and services enhancing market share and service to their existing customer base. Manufacturers will have access to our customer profiling capability, a service unique in the wholesaling industry. This added value will convey a strategic advantage to our wholesale site. The manufacturing client will have access to specific information about purchasing trends by consumer lifestyle when planning or producing new or additional products or services. Reports detailing lifestyle purchase trends will be an important part of the information offered to our manufacturer client base. Zydeco.com's wholesale network members will find this new channel a convenient and reliable resource for raw materials and other components needed to produce their goods. From this channel, manufacturers will establish their own online distribution and service model directly to wholesale buyers, independent service providers (contractors) and product brokers and representatives. These manufacturers will, in turn, evolve into merchants, capable of leveraging the vast infrastructure, sales and business channels, network, technology and service organization capabilities of Zydeco.com. Manufacturers will sell to these wholesale buying parties from either their wholesale storefronts, the ,_ aeco.co _xe t_rl t _ ;_ .......... " .......... _'_" _ ........................ _ • _!_,_ _,_i_,_!i_,,_:,_ ,_ _,_o_,_ .........._ commercial Request for Services portal, or from an industry-based business-to-business wholesale auction environment. The Application Services Model - Midyear 2002 Zydeco.com has the opportunityto provideunique applicationservicesto multiplesectors of the retail industry.The Companybelievesthat itcan providesyndication the manufacturing for community,design centers and merchandisemarts to facilitatea global 24/7 access to productsand services--in effect redefiningdistribution channels and fulfillmentsegments of the retail industry. As an example, the technologywillenable the Company to offer interiordesignersand otherindependentservice providers (contractors)a personalizedindustry profile that will conduct productsearch services, enabling the designerorcontractor searchfor productsbased on theirclients'lifestyleprofiles.This isan innovation to that gives the Zydeco.com commercialclient a significantcompetitiveadvantage.The Company has defined a strategy to license the technology to companies such as catalogers, e-retailers,and othercompaniesinvolvedin targetedmarketingstrategies. The Companyintendsto initiatethe first phase of this strategywhen its proprietaryPersonalAssistance Logic(PAL) has been populatedwithenoughinputsto be auto-sustaining.The Companybelievesthere is significant potential for manufacturing companies or individual service representatives (e.g., professional designers) in the retail industry to use profiling and personalizationinformation to differentiate productsand buildcustomerloyalty. Financial Opportunity Any one of these strategies or a combination of them is a compelling financial model. It includes a highly streamlined distribution system that partners with the manufacturer to leverage return on investment by maintaining traditional retail margins without the typical redundant inventory or infrastructure investment. It includes advertising and commercial wholesale opportunities to provide a profitable and growing revenuestream. It providesa significant sales base from the application and services strategy. _,T,_ c...... ,,_ ,_,,_,,,._"_'_'_: o,_, _,,,=: ,_,_, ......,;_':-_ g ....... _:_-_'_ .... __,_7_ ¸ _;_:.__ ,_ i: - • , • _•• • _ •_ Zydeco.c0m Executive_ Brief__'_._ ', _:. ;_:_,_=_ _.... ._ '_'%_ _6 _'= •"' _t IV. Operating Strategy by Division A. The Merchandising Strategy The Companyseeks to supplyuniqueproducts,directfrom the manufacturer, nd highlytargetedto our a customers'lifestyles. Zydeco will represent only productsthat have attributesof personalizationand personality(with inherentpropertieswhose appeal is measurable),which will enable the Company to "learn"from the purchasingmotivations and lifestyleattributes the purchaser. This uniqueassortment, of combinedwith our ability to profile a customerby lifestyle, will allow us to present a personalized assortmentof products each consumer,on each visit. to Our initial offering is expected to include roughly 3000 products. It is our expectation that this number will grow to an offering of more than 10,000 products by the end of Year One. Our manufacturer base is expected to grow from 500 to 1500 in the same time period. Our manufacturer base is comprised of designers, production artisans and merchants who all share a common theme: passion for the products they produce. It is the Company's objective to create a selling environment that communicates that passion to the customer. It is the Company's belief that an environment that highlights both the uniqueness of the product, and the "human-ness" of its source, is key to adding value in the eyes of the customer. Zydeco will endeavor to recreate the atmosphere of personal interaction that the customer would experience if they were buying their product directly from its creator. While Zydeco.com's merchandising strategy and product mix is both a focus and a strength, our key point of differentiation remains our ability to access our customers preferences, profile consumers by lifestyle and deliver highly targeted, personalized product assortments (ranging from hard-to-find to traditional items), content (events, feature articles) and services (site features, gift finders, support). This unique ability allows us to present a highly personalized and individual assortment of product to each customer on each visit. It is this differentiator that the Company believes will continue to set it apart from e-retail competitors. At launch, the Company will have multiple lifestyle-oriented product assortments (e.g., Soho, Suburban Chic, Timberline, Outdoor Enthusiast, Worklife, etc.), each unique to a specific personality. Ultimately, the lines between these will blur, and the list will expand to accommodate a unique lifestyle for each and every customer. Product Offerings The Company's seasonally appropriate product lines will incorporate offerings in four primary segments: Specialty Apparel, Home Accessories, Personal Accessories and Home Furnishings. Each of these retail categories encompasses product assortments sufficiently unique to allow the Company to measure individual consumer purchasing behavior and buying motivation for profiling. There are 18 product categories resident within these segments: Furniture Personal Accessories Kitchen Items/Cookware Jewelry Indoor & Outdoor Art Custom Sporting Goods Interior Furnishings Aromatherapy/Candles Gourmet Foods Floral Services Musical Instruments Custom Tools Apparel Bed/Bath/Linen Fragrances Specialty Toys Garden Items Lifestyle Books, CDs While it is the Company's expectation to be perceived as a personal shopping site, Zydeco will have a strong focus on gifts and gift giving as well. Product Sourcing and Presentation Zydeco,com sources products from its Merchandising Division. This organization is divided into three areas: • Professional Merchandisers promotional offerings. • Retail Specialists are located in various regions of the country. The Company's team of highly are the Brand Managers for Zydeco.com. They are responsible for the overall product assortment, and will ensure that all categories are represented in basic, seasonal and experienced retail merchandisers canvases both regional and national markets across all product areas in search of the freshest and most unique product stories. They report to the Brand Managers, and are tasked with the responsibility of finding regional manufacturers who fit our brand and product classifications. • Field Scouts represent a sourcing organization unique in the retail industry. This self-employed group will become the product representatives for Zydeco.com, seeking out unique products that are made and sold in their "neighborhoods." By our launch, Zydeco will have Field Scouts in every state with the specific mission to find those unique products and stories that have not yet reached, and may never reach, the regional or national markets. Once the Field Scout has identified a potential Zydeco manufacturer, they are referred to the in-house of loyalty, merchandising organization for review and final it generates for selection. The benefits of this approach are the national grass roots coverage of emerging vendors, the encouragement Zydeco.com. unlike any other--rich and the word-of-mouth marketing opportunities This unique initiative will ensure that the Zydeco product assortment will consistently be in character and filled with the human story of passion and creativity. In effect, the Zydeco.com Field Scout will become the"Mary Kay" of the dot-com era. B. The Marketing Strategy Zydeco.com: The Retail Brand Zydeco.com's initialmarketingfocus will be on buildingbrand awareness and drivinga high quality, stronglypredisposed retailcustomerto our site. It isthe Company'sbeliefthatthis is mostefficientlyand effectivelyaccomplishedthroughtargeted marketingmethods that providehighly personalizedcontact and communication. he followingare the key initiatives placefor the launchseason: T in Public Relations and Media Tour It is the Company's belief that our unique approachto "personalization," our highly engaging product storiesand our nationwidesearchfor Field Scoutscreate compellingopportunities local media and for lifestylemagazine coverage.The Companywill concentrateon 18 targeted NorthAmericanmarketsfor publicrelationsopportunities focusingon regional manufacturers, heir productstoriesand engagement t withZydeco.com. Beginning August15 and continuing throughOctober,Zydecowill embarkon itsfirst"Road Trip"to recruit Charter Field Scouts, create local media events and promote the Zydeco story. Executive Management will begin a strong awareness/visibility/differentiation tour in Fall 2000 focusing on industry analysts, and national and regional media throughout North America, to engage local markets on the benefits of Zydeco.com in their communities. Field Scout Recruiting and Networking The Field Scout Program is central to our sourcing strategy, and is equally important in consistently reinforcing our grassroots marketing strategy. It is the Company's belief that these Scouts will become our "lead makers." They will be armed with collateral that will allow them to engage new customers on our behalf, incenting them to a first visit, and will be personally rewarded when a customer makes his or her first purchase. Direct Marketing The Company's direct marketing strategy, consistent with our overall strategy, is highly personalized and targeted to the individual. Over the course of our launch season, Zydeco will deploy a series of direct mail campaigns specifically targeting consumers who have: 1) A strong history of direct mail purchase (i.e., catalog buyers, specialty retail) 2) An established e-commerce history (have visited/purchased on the Web) 3) A clear preference for products within our lifestyle-oriented focus These target customers will be selected from well-established catalog/e-retail lists, with a focus on the most productive customers. It is the Company's belief that targeting potential customers who have both proven direct mail and online purchase history, combined with a strong affinity toward our lifestyle offerings, will prove a highly effective prospecting model. _,_Z_$co.com Execut,veBrmf .. ; !_:_ _. " _ __ ..... _._ ,9=, _. ] , . .. . ,. " . • Partnerships, Affiliate Programs and Sponsorships Affiliate programs and portal partnerships are a key component of our strategy and will be actively developed to provide additional traffic and revenue to the consumer site. Sponsorships are strong viral marketing opportunities and will be tested on an opportunistic basis. A monthly calendar of promotions, campaigns and events has been created that, when implemented, is forecast to provide the Company with over 3 million visits from our targeted customers this year. C. The Business Development Strategy In addition to the Company's consumer retail business, there are three primary areas where Zydeco.com will provide significant value and advantage to the retail industry and to the fragmented market of retail manufacturers/merchants. These are: 1) the retail industry wholesale environment, 2) the resource/materials procurement and supply chain services environment, and 3) the information and data services environment specific to the retail industry. These operations will complement the Zydeco retail strategy, and provide the Company with an opportunity to sell to a group of customers that might not visit and purchase from the retail site. Wholesale Environment Our wholesale model will feature a branded wholesale storefront designed to drive product sales volumes for our manufacturing partners. In addition to improved access with retail outlets, our clients will enjoy access to wholesale buyers, wholesale aggregators and independent services providers (contractors), including interior designers/decorators, contract purchasers of furnishings, small "local" retailers and stage/set designers in, for example, the home furnishings market. Zydeco will enable design professionals and retailers to locate and obtain differentiating products by participating in an environment that offers global product selection, available for inspection and purchase 24 hours a day. The same artificial intelligence technology that will be developed and used for the retail operation will streamline and expand the sourcing of products in these wholesale channels. The Company will also launch a wholesale business-to-business auction site for our network members. Manufacturers will be able to sell surplus goods to others in the network as well as to their existing customer base. Third parties will provide additional services, as needs are identified and solutions sourced by Zydeco.com. Supply Chain Services Zydeco will offer its wholesale network a convenientand reliable source for the raw materials and componentsrequiredto producetheir products.These serviceswill expand over time to include the delivery of core database and personalizationtechnology,providedby Zydeco.com, and through the expertise of our partnered/third party solutions providers, address the needs of our manufacturing partners in the following areas: hardware/communications, desktop solutions, inventory management, eprocurement, e-commerce, supply chain management and extranets. Zydeco.com will operate and maintain both the wholesale and supply chain environments, providing all of the required order services functionality. _"Zydeco com Executwe_Bnef , • __ ...... _,_:_ :, _:_-_,,_ _:10_ The wholesale operations and supply chain services are a valuable complement to Zydeco's retail strategy and are driven by the same profiling technology used in the development of the retail site, enabling the wholesale channel to benefit from the experiences of the retail business, and to profile their optimal wholesale buyers. These environments provide Zydeco.com with a healthy, diversified set of revenue opportunities. Retail Data, Reports and Application Services The Company'sPersonalAssistantLogic(PAL) technologyenablesZydeco.com to provideadvertisers, marketersand research organizationswith a wealth of trend targeted and aggregated (non-personal) information aboutthe lifestylepreferencesand purchasing behaviorof consumersontheWeb. The Company will be able to offer test markets for new product concepts, product performance/acceptance analytics, insights into purchasing decisions and enhanced demographic information for a wide variety of corporate purchasers--with unprecedented detail and accuracy. Zydeco.com intends to make these services available via the licensure of the technology or on an outsourced basis complete with consulting, application development, customer service and maintenance services for the technology. The Company also intends to provide unique customized solutions for product access to industry participants (purchasers). These applications will enable interior designers, for example, to search for products based on the lifestyle profiles of their clients. Zydeco will provide aggregated, demographic and psychographic data that can be sorted by product category, season or by a variety of other criteria specific to the needs of a client. The Company intends to license these personalization profiling capabilities to companies involved in the development of targeted and/or multiple marketing strategies. D. The Technology Strategy B2C Technology - "Psychographic" Neural Network Profiling Technology The core asset of Zydeco.com is a proprietary, artificial intelligence based, neural network enabled retail personalization and consumer profiling technology developed through the information cultivated from the Company's three distinct business areas. As such, the central business model of the Company is the development of this asset and its subsequent ability to accumulate targeted consumer and retail manufacturer specific purchase/sales data that can produce predictable purchasing/selling behavior, forecasted retail trends, provide targeted profiles and match ideal buyers with sellers. This technology will allow consumers, retail manufacturers and wholesale buyers to experience an entirely new level of accuracy, convenience, service and productivity on the Web. The Company's technology, developed by interactions with customers from our central platform, and enhanced by data received during these interactions, ultimately provides adaptively shared, industry-segment specific technology value to all participants within the retail industry (i.e., consumers, manufacturers, retailers and wholesale buyers). The Company's charter for development of this enabling technology is to build a retail industry specific technology, then decentralize its use (similar to the Linux OS model) by distributing portions of it in various forms under licensure, affiliate site and partnership agreements, and through portal environments across the globe. This strategy allows the proprietary artificial intelligence technology to be validated in open markets, to acquire millions of users' profile data anonymously (ensuring their privacy), and to continuously refine its own "engine," without surrendering the profitable licensure model. At the core of the B2C component is a permission-based personalization engine, PAL (Personalization Assistance Logic), that captures behavioral characteristics reflecting tastes, interests and preferences on behalf of the customer while the customer is visiting our site, or any of our partner sites. This psychographic information is then leveraged against other data from demographic, geographic and legacy data sources, and correlated against data collected on behalf of our other customers. The collection of data in this manner provides a comprehensive/comparative profile for each individual who visits our site. Our data collection activities are always permission-based, achieved through multiple privacy encryption protocols involving both anonymous client/server "cookies" with encryption and automated Iogin authentication. Customer trust and confidence is of the utmost importance to Zydeco.com. We respect and protect the sensitivity of personal data at all times so that our customers are always comfortable in coming back to visit our site. The personalization engine utilizes both proprietary technology, as well as off-the-shelf support tools to capture information about a customer based on the objects the customer accesses. There will be a large variety of elements that the customer will have access to as they log into the Zydeco.com site. Each element available for view or purchase is categorized by item type (e.g., home furnishings, custom sporting goods, mountain climbing article, etc.) along with the lifestyle it belongs to (Suburban Chic, Soho, Outdoor Enthusiast, etc.). As elements are examined, studied and purchased, information about the transactions is routed to a proprietary data store that characterizes and reflects that customer's behavior. As characterization elements are collected, an overall profile of customer tastes begins to emerge. Real time data mining tools will be deployed to examine the collection of data elements, and real time decisions will be made to determine which (web) objects should be presented to the customer as a next step in his or her shopping experience. This approach to the provision of service is analogous to using a search engine without ever having to enter data in the search field. The engine anticipates what the customer wants based upon their profile and previous behaviors, then develops an optimal product assortment prior to the customers' next visit. The Zydeco.com personalization engine will also work to deliver the pages of affiliate sites as the customer clicks through the affiliate program link on any of the Zydeco pages. This approach provides the customer with multiple features, including breadth and scope of content outside of the Zydeco parent site, intelligence gathered by our personalization engine, and access to the products and services directly provided by our affiliates--all the while retaining the comfortable look and feel of the Zydeco experience. This personalized, knowledge-based approach enables a win-win situation for both Zydeco.com and its valued customer. The customer wins by being immersed in a world uniquely spun from their own, observed behaviors--displaying products, articles and event information that reflects their lifestyle, interests, collecting habits and personal preferences. Furthermore, the environment for the customer is developed seamlessly requiring only the customer's "normal behavior" to make the engine run. Zydeco.com wins by feeding captured data into a system that grows in intellectual property with each piece of data it receives. The database can then be tapped in many ways to provide sophisticated analysis on consumer preferences and web behaviors. .... .,;_D'._-_;_ _ ...... ;7_._ ...... "............_".-!_:_!_; _ - .,_,_#._" " _ °_'_ B2B Technology - Legacy System/Data Integration Modeler Technology The Zydeco.com technology base can seamlessly link to its manufacturers' databases (via the Web) for real time inventory, ship-to, new product and back-order data without requiring the manufacturer to modify their existing business systems. This valuable system integration is achieved using a combination of commercial and proprietary database mapping software. Zydeco.com will link its centralized manufacturer databases with commercial shipping systems (such as UPS and FedEx) to track order fulfillment from a shipping label printed at the source (manufacturer's location), to barcode scanning and identification by the delivery person, through the fulfillment channel to the doorstep of the consumer. The wholesale services channel network, raw materials network, consumer access, and order processing services are all delivered via the same technology infrastructure. In this way, Zydeco provides a secure, web-based, virtual private network portal for manufacturers to conduct enterprise transactions, without EDI or other proprietary systems. Emerging industry standard technology, along with proprietary soft assets, will be deployed to provide real time data access to and from our member manufacturers \ for product and inventory updates, shipping/tracking functions, and customer service support. This aliows any wholesale buyer to shop with ease using only a browser. Zydeco.com, as value-added intermediary, I is well positioned to collect fees and/or participate in the value of the transaction it enabled. What this provides for Zydeco.com is a seamless integration of the Zydeco product catalog with the Each business manufacturer's view of quantities on hand, back-order and customization characteristics. partner will connect directly to our corporate network to conduct various aspects of their business. ,This close-knit approach provides an unprecedented array of resources to our merchant partners that, When viewed from the wholesaler or merchant perspective, provides a cohesive, unified support structure for their transactions, and accurate, up-to-the-minute information about their relationship with Zydeco.com and its customer base. B2B Wholesale Auction Site - How Businesses Can Buy from and Sell to Other Businesses The wholesale auction site provides an open-market opportunity for wholesalers and manufacturers to sell and trade goods and services to other wholesalers and manufacturers as well as direct to the consumer. The technology enables parameters of product need from wholesale buyers to be continuously identified, then automatically matched with appropriate or relational products from Zydeco's manufac!urer network. Meanwhile, Zydeco observes request behaviors and operates as a retail industry specific search engine that can "learn" from each request. The auction site will be deployed using proprietary software tools and connectivity to our network of merchants and wholesalers. This will ensure that business relationships and integrity are maintained. B2B Site Hosting (ISP) Model - The Premium Partners Program Zydeco.com has an extensive and comprehensive platform of hardware and software assets that will enable us to provide enterprise-level performance, reliability, availability and scalability for our B2C and B2B activities. Site hosting services will be made available to specified business partners through our Premium Partners Program. This program will allow our partners to share in the use of our hardware infrastructure, enterprise-level network, web site platform operations, database, backup/recovery, security, credit card Zvdeco.com Executive Brief _ ._>_ _,*_,<_.c - 13,,.:- I and purchase order transaction processing, as well as support services that adhere standardized policies and procedures developed specifically for Zydeco.com. Service are in place to support a mission-critical computing complex that is designed to achieve (average downtime: 1 minute per month). The network, operating system, database and will all be built on this highly available and reliable platform. Hosting partners will also benefit from the Zydeco.com infrastructure. Zydeco.com to retail industry level agreements 99.995% uptime support systems will build close affiliations with our Premium Partners in order to provide click stream analysis, site behavior profiling, linkbacks, click-through and referrals. All customer activity that originates at Zydeco.com and is clicked through to our Premium Partners will also be captured by our personalization engine and stored in our customer profile database. These capabilities bring our retail customer the unique Zydeco.com experience, while at the same time providing tremendous value to our affiliate partners. B2B Software Licensure (ASP) Model Zydeco.com believes that the development of its proprietary technology and personalization engine (PAL) will give the Company a tremendous competitive advantage in the retail industry. It is the belief of the Company that it can license and sell the technology to external-model businesses in the retail industry, as well as to non-retail business segments. Zydeco.com benefits from this model by licensing a valuable web asset that can be used in many ways by many web-centric companies, and may very well be the next generation search engine for the new Internet, allowing the Company to enjoy the sustained revenue of both licensure and sales generated from its use. E. The Customer Support Strategy Zydeco.com has a remarkable opportunity to surpass the standards of web-based customer service, as they presently exist, and to provide exceptional customer service, both to the consumer and to the merchant/manufacturer. The Retail Site For consumers, the Company will provide a knowledgeable representative at every point of contact who, via the technology, is aware of the customer's personal preferences and who will, as a result, engender individual recognition, familiarity and reliance. The Company's plan is to provide each consumer with a level of service equal to, or exceeding, the best that they have experienced in either the bricks-and-mortar or catalog environments. Zydeco.com will invest in technology, skilled personnel and infrastructure to ensure the highest level of service possible. To support the Company's requirements for service, Zydeco.com has chosen an industry-leading software platform (which will be combined with the Company's own proprietary technologies) that will enable the following standards: • • Software that ties into the Oracle database of customer "knowledge" Allows Customer Service and Merchant Services to use different respective customers • Real time phone support solutions to interact with their • • • Real time email support Ability to order products via telephone Real time order notification and account history profiling, permitting process specific preferences of an individual customer the Company to retain and • Cross-selling capabilities at every opportunity of contact (i.e., introducing additional or related products of specific lifestyle interest at the time of order, return notification or problem resolution) • • Order notification status and updates to wireless devices, PDA's System allows C/S to identify the caller before answering the phone, pulling user information from the database to the C/S agent while the phone rings • Collaborative "managed monitor" web browser capabilities and real time chat support from within the C/S center The Customer Service Group will be staffed by trained individuals who will act as the customer's advocate within our company. The staffing plan will be based on the timing and frequency of customer inquiries, with the consistent goal of providing 24/7 in-house staff coverage. The Wholesale Site For the manufacturer, Zydeco will provide a Merchant Services Coordinator who is consistently familiar with the relationship, order history, growth practices and requirements of their specific business, and who will seamlessly facilitate both their ability to sell their products to consumers, and to buy and/or sell products, services and solutions within the wholesale channel. The Company plans to staff this operation with experienced business and retail industry personnel from both the manufacturing and the wholesale environments. These individuals will be responsible for the initial interview with each manufacturer, gathering the necessary information to qualify and integrate them into the Zydeco Wholesale Services Channel system. Each Merchant Services Coordinator will have specific accounts and will serve as the facilitator/monitor for the manufacturer, profiling the unique environment of each enterprise and identifying opportunities to assist the relationship as well as to service and sell solutions. To the merchant/manufacturing base, the Manufacturer Services Group (MSG) will act as the account manager specific to their business. Even as the Company identifies the merchant/manufacturer as a partner in fulfillment, it sees them as customers in a service opportunity, building retention and relationship at each touch. For both retail customer and manufacturer, the "permission-profiling and related services" methodology the Company is developing allows Zydeco to identify, retain and understand the individual relationship and account service needs, instantaneously providing the service representative with suggestions on how best to service them. Examples of this include: • • • Providing information about consumer patterns such as site visits and customer inquiry ratios Providing unit sales and trend information for our manufacturing client base Automated order tracking information, monthly sales volumes and click stream traffic analysis This strategy combines the best of technology and support practices, and will enable the Company to establish and maintain the highest in customer support standards. V. The Competition and Competitive Advantages Zydeco.com has peripheral competitors in all of its sectors: the consumer retail site, the wholesale distribution channel and the information technology division. The following synopsis discusses the key differentiators in each category. Retail Competitors in this sector include established multi-channel retailers like Eddie Bauer, catalog-to-web retailers such as Fingerhut, and the many Internet pure-plays: GoodHome and Living in home d_cor; Eziba and Guild in art and craft; and broad line merchandisers such as EzShop and BuyltNow. Zydeco.com has three primary competitive advantages: 1) a comprehensive range and depth of unique, high-quality products at competitive prices; 2) an approach to merchandising presentation that is highly informed by the best practices in traditional retail; and 3) a site experience that is rich, engaging, friendly and personally relevant to each customer's lifestyle. At the core of Zydeco.com's retail offering is a selection of products that are not readily available anywhere else. With a unique sourcing strategy and lifestyle segmentation as the key criteria, Zydeco's products are different from those carried by traditional, catalog and other online retailers. In addition, Zydeco's merchandising approach matches customer lifestyles to products that reinforce those lifestyles and interests--no other site is doing this. Finally, the site design, architecture and features are all designed to create a very humanistic and positive shopping environment that encourages trust and loyalty--resulting in higher rates of add-on sale and repeat purchases. Wholesale There are several significant competitors to Zydeco.com within the wholesale side of the retail industry. Our focus on SMEs (Small to Medium Enterprise) provides a modest advantage, reducing obvious competitors to no more than three: ForRetail, HotOffTheWire and BuyLink. All three support supplierbuyer transactions and provide some form of industry-related content. However, at this time none has achieved significant penetration into the wholesale market, so there is ample opportunity to seize significant market share. Most likely, wholesale buyers will continue as they have in the past--utilizing more than one source for their product requirements. Zydeco.com, by leveraging its product sourcing capability and unique lifestyle-related products, presents greater depth and tighter focus of product lines--a very marketable differentiator in the wholesale segment. Even more significant is our ability to use the same profiling technology on the consumer side to store individual location or customer merchandise preferences. For small retailers, our system extends their inventory and facilitates customer reminder notices; for designers and commercial buyers, we supply a convenient means of accessing and updating client preferences. Finally, we will go beyond basic news and tradeshow notices to provide retail trend reports, mini-portals for specific buyer segments (designer/decorator, retailer, etc.) and auctions for surplus and rare products. Personalization Technology .i J Personalization is a relatively broad term; several companies already provide this feature at a range of levels. Typical techniques include collaborative filtration, clickstream data analysis, consumer data analysis, explicit profiling and merchandising expertise (applied through business rules based systems). Vendors include Art Technology Group, LikeMinds, Net Perceptions, Cogit, Exterprise, and others. The approach that Zydeco.com is taking to this issue is the single most unique element of its business. Zydeco.com adds to these other systems a database structure that uses a self-evolving referential engine based on neural networking that gains intelligence over time. More importantly, it can make its own inferences, generate its own questions and draw its own conclusions. Thus, rather than making forecasts by comparing aggregated data to an individual using probability theory, the system actually begins to understand the individual. The closest competitors in this arena would be the consumer data warehousing/analysis companies that are partnering with, investing in or acquiring companies that can help them develop dynamic psychographic profiling. Most notable among these are EquiFax, TDS, CACI, Axciom and Claritas. Indeed, Zydeco.com intends to approach some of these companies for certain of its data inputs. None of them, however, is using this additional element and because of their raw data inputs (non-interactive purchase data), it is difficult to reverse engineer their databases to accommodate it. The value of consumer data resides not simply in having it, but in its manipulation and the way it is deployed. Zydeco.com's technology provides an additional layer of knowledge and very unique and precise segmentation. In addition, because we combine raw consumer data with dynamic retail profiling knowledge from our commerce site, our system can build previously unseen forecasts and correlations. This provides a solid advantage for our own commerce activities, and a lucrative revenue stream through data reporting and analysis sales. For The Consumer Zydeco.com is developing a unique personalization technology that places the online customer at the center of the visitation and selection process. This is superior to today's e-retail models that place products and/or services at the center, forcing the customer to edit out products that don't interest them. To further enhance our partnerships, the Company is focused on real time customer service and support for both the consumer and the manufacturing base. Zydeco.com provides consumers with broad categories and a wide selection of products--from furniture, interior furnishings, linens, bed, bath and cookware, to apparel, accessories, gourmet and garden items. These distinctive manufacturer selections enable us to offer a depth of unique product choices not found in local stores, catalogs or via other electronic media, and not as susceptible to diminishing margins characteristic of most commodity-oriented pure-play Internet retailers who compete on price and the broad availability of their products. This positions Zydeco.com oriented, custom-order product assortment. as the premier retailer of a lifestyle- For The Manufacturer Zydeco.com is targeting small to medium enterprise retail manufacturers who produce unique collections of retail products selected for their exceptional design, inherent story and profiling value. These product properties enable the Company's data profiling requirements of consumers' lifestyles, online behaviors and product preferences (products selected for their ability to "identify" a lifestyle pattern of a consumer). These manufacturers can't effectively sell on the Internet, nor can they invest in the leading edge technology necessary to win on the Web today. Further, they don't have the resources to develop a national brand, large distribution channels, e-commerce or customer service operations. Zydeco.com provides an option that does not currently exist for this large group of small to medium enterprise manufacturing companies: • • • We offer the marketing expertise to focus branding resources where the transaction happens We offer a "Best of Class" web distribution channel We offer proprietary products technology to target customers specifically interested in a manufacturer's This partnership with our manufacturing base provides efficiencies in the financial model that do not exist in the bricks and mortar world, or in current e-retail formats. The following matrix compares cost centers in each of these formats and effectively demonstrates power of the Zydeco-Manufacturer partnership. the brick/mortar manufacturer _ e-retail _,: manufacturer _:zyde¢o.com _ manufacturer Inventory Warehouse Distribution Fulfillment Freight Marketing _ _ _ _ _ _ _ _ _, .. _ _ _ ¢_ C_ <_ _ _ <_ _ _ _ C> _ .j Duplicate costs are eliminated. In the Zydeco-Manufacturer model, manufacturer cost centers are reduced to inventory, warehousing and fulfillment. Zydeco.com absorbs marketing, sales and freight costs. The extra expense layer of the distributor (bricks and mortar retail, or e-retail with inventory, warehousing and distribution) is eliminated. In addition, the Company is developing two private subscriber network environments for our manufacturing client base. The first is a wholesale network for commercial buyers, interior designers and other subscribing merchandisers. It provides unlimited access to the participating manufacturer lines, and access to our wholesale auction site. The second network brings raw materials and resources to our small-and medium-sized merchants. Zydeco.com will offer our manufacturing base access to a network of suppliers providing discounts. This is the Zydeco.com partnership at work. The manufacturer will have the option to license the personalization technology to develop differentiated products that will enhance their product assortments. The technology will enable the manufacturer to market their assortments to companies and designers who are most likely to sell their products. VI. Execution Strategy and Timeline The roll-out schedule for each of our business strategies is designed to ensure that the supporting infrastructure is developed before we launch a segment in the marketplace. The Company has created the following graphic representation of the launch timelines for the consumer, wholesale and applications services businesses over a four-year period. The consumer segment includes the retail site, the retail , Zydeco.com Executwe B[_ef _ , _,_ _ _ . _: ........ 8 - auction site and the personalization technology component. The wholesale segment includes the wholesale storefront network, the wholesale auction site and the supply chain network. The application services segment includes the hosting applications, the technology licensing and the information brokerage components. This timeline is intended to provide an overview of the major parts of our business strategy and not a comprehensive listing of the implementation details. KEY RETAIL SITE Consumer site WHOLESALE _ _ _ _ NETWORK ASP _ C_) _ Hosting one ASP licensure AFFILIATES NETWORK _ Launch Business storefronts Business auction Supply chain network Independent contract serv|ces network [site launch] Consumer auction site PAL integration Technology information brokerage VII. Financial Projections It is the Company's belief that it can generate revenue from each of its distinct business strategies, with each subsidizing the development of a shared technology that enables all three models. The result is a highly licensable technology application and information services bureau to the Retail Industry, and a financial projection that shows profitability by 2003, with significant returns in the years beyond. The Company makes the following assumptions relative to the financial projections: • Revenue is assumed to start in Q3 2000. Consistent with industry practice, retail revenue is recorded for only that portion of the total retail sale that is retained. The "Memo Retail Sales" numbers are disclosed to better explain the total actual volume of retail sales that are generated by the Zydeco.com retail strategy. • "Costs of Revenue" consist of shipping charges, bank charges and a reserve for losses or shrinkage. These costs are a percentage of the retail sale and remain consistent throughout the years projected. Depreciation is calculated using the straight-line method over three years for computers and related hardware, for software and for leasehold improvements (current period of the non-renewable Zydeco.com has assumed seven years for furniture and fixtures. lease). • • Interest is calculated at 10% of the outstanding principal balance of the line of credit. Revenues: Memo Retail Sales Retail Revenue (includingAuctions) Advertising Revenue Wholesale Revenue ASP-Application Services Total Revenue $ $ 4,131,450 1,280,749 40,000 116,000 1,436,749 $ $ 28,999,292 9,859,759 667,837 855,240 1,293,000 12,675,836 $ $ 94,281,174 33,941,223 1,236,750 5,549,137 2,874,000 43,601,109 $ $ 117,898,141 45,390,784 1,669,612 7,768,792 4,590,O00 59,419,188 Costs & Expenses: Costs of Revenue Merchandising Business Development MarCom Portal Operations Networks/IS Advanced Products Merchant Services/CS Accounting/Finance Central Services Total Costs & Expenses 363,568 658,784 439,316 2,006,665 1,013,519 1,448,874 476,695 483,185 193,003 1,616,810 8,700,417 2,551,938 1,514,512 1,337,244 5,165,218 2,717,056 3,947,202 1,761,537 1,180,542 1,113,258 2,812,289 24,100,796 7,825,337 1,984,459 1,582,666 14,521,907 3,467,711 4,871,302 2,494,754 1,213,653 1,213,284 3,556,103 42,731,176 10,375,036 2,083,682 1,661,800 18,152,384 3,641,096 5,358,432 2,557,123 1,274,336 1,273,948 3,733,909 50,111,745 EBITDA Depreciation & Amortization Interest Expense Net Profit (Loss) $ (7,263,668) 541,903 .... (7,805,570) $ (11,424,960) 1,337,621 869,933 1,451,901 9,307,444 1,055,877 (i2,762,580) .... $ (581,968) $ 8,251,566 .... ...... • All sales are paid using credit cards. Receivables are calculated using "Memo Retail Sales" and represent a three-day "lag" before funds are credited to the Zydeco.com account. • Accrued expenses represent net 30-day terms for all expenses except payroll-related are assumed to be paid in the month incurred. • There are two equity financings assumed: August 2000 and March 2001. A line of credit assumption has been made for November 2001 and May 2002. costs, which VIII. The Management Team Monte Gibbs _ iCEO, Chairman and Founder With more than ten years of commercial experience in the practical application and development of largescale e-retail sites and web technology solutions, Monte brings an extensive technology, design and consulting background to Zydeco.com. He has developed a wide range of e-commerce solutions, Internet and Web services divisions, software applications and technologies, including technologies for e-retail, online personalization and artificial intelligence. Responsible for overseeing Internet strategies for the Company, online artificial intelligence technology and advanced retail product development, he is also the creative force and the inspiration driving the Company's unique and innovative vision. As an Internet and Web industry professional with MCI, IBM and Epoch Internet during the 1990s and as a consultant to retail, advertising and technology industries, Monte advised and developed online solutions for multiple Fortune 500 clients, including National Geographic, The Limited, Macy's, the NHL, USTA, the 1996 Olympic Games, the PGA and SP Richards. Prior to forming Zydeco in early 1999, Monte developed a wide range of e-retail sites and online branding solutions for numerous companies and organizations, and serves as an active member of standards bodies for online privacy, artificial intelligence research and as a contributing member of the Web Consortium. Monte attended Appalachian State University in North Carolina with a concentration in computer sciences before contributing to programs for the National Science Foundation and work with the CERN Research Facility. Arlee Jensen _ Chief Retail Officer Arlee is responsible for guiding Zydeco.com's merchandising strategy and retail operations, as well as for sourcing and managing its substantial manufacturer base. A retail veteran with tremendous energy and personal flair, Arlee brings decades of executive experience with well-known and respected companies, including Eddie Bauer, Brotmans/Bottoms, Frederick and Nelson, and Meier and Frank. Most recently, Arlee was CEO and President of Garden Botanika. She was one of the founding members of this unique, specialty retail company, responsible for retail operations, staffing, store design and product and brand development. Mike Fisher _ Chief Operating Officer A seasoned professional, Mike manages Zydeco.com's innovative merchant relations, fulfillment and customer service operations. With over 30 years of retail experience, he has led several enterprises from startup phase to multi-million dollar businesses. Prior to joining Zydeco, Mike was the Chief Operating jL _'"_ _, _:,_::_:'_ _ _ _ '_ i!_::_! _ • _;_i_i:_:_! _i_! __i_i_!_!_:__-_i _:_"i' -_';!/ii i ii_!_'_!_'_!_!_i_'_'_i_ii:!i_?'_'_'_ii_:_l_ _!_'!!_'_i_iiii_i i:i:_: __!_:_"__ _'_ Officer at Seattle Coffee Company, where he had responsibility for the day-to-day operations of the company. Before Seattle Coffee, he spent five years at both Garden Botanika and Imaginarium as CO0 for each of these specialty retail companies. Known for his skilled leadership, Mike planned and directed Garden Botanika's aggressive store roll out, taking that company from 20 stores in 1993 to 280 stores by the end of 1997. Support Management Team Pat Bergamasco Jake Smith John Payne Glenn Fujimoto Doug Kaimakis Jim Tanner Vice President, Channel Business Development Vice President, Consumer Business Development Vice President, Network and Information Technology Director, Network and Information Technology Director, Marketing Communications Director, Customer and Merchant Services IX. Funding Requirements The Company is raising $10 million to be used to complete the retail site, expand the manufacturing client base, continue the Company's technology development, invest in targeted marketing efforts, continue the build out of the consumer and manufacturer services infrastructure, and increase staffing to support growth. The current round of financing will enable the Company to achieve its primary second stage commercial objectives, including: • Commercial development and launch of its Wholesale Services Channel and Retail Industry ASP business strategies in 2001 • • Continued development of the Company's core retail artificial intelligence and profiling technology Targeted marketing e-retail site and customer acquisition programs driving customers to the consumer • Targeted visibility strategies to capture market share of the merchant/manufacturer Wholesale Services and ASP Channel Expansion and enabling of the merchant/manufacturer business divisions base for the • base in each of the Company's distinct • • • Continued development of branded alliances and strategic partnerships Expansion of the consumer and manufacturer operations infrastructure Increase staffing of technical development and support personnel A $2.5 million Series A Preferred round was completed in January 2000, and has enabled the Company to achieve its primary early-stage objectives, including the development of company operations and infrastructure, as well as hiring of the initial team (27 personnel). In addition, the Company has developed relationships with approximately 600 new merchants/manufacturers, created its consumer brand, developed multiple product assortments featuring thousands of individual products, and has achieved strategic relationships with branded portals, content and technology partners. _:_:_ , :!i_i_i_i_ _ _¸i_i_!_===_=_i_=_i_i_i_ _::_i_/i_ _i_i_i_i_: :_:!_l::_ ¸ :_:_ ¸__i_i_/_i_i_!_i_i_i_ii_i_ii_iiii_ii:_:_ _:,_i_!_i_i_i_i_i_i_i_i_i_i_i_!_ _,, _ :i_:_ _i_i_ !:;il_ii _¸ _:_ i iiiiiiiii_: _iiii_ • _ :_: '_,_ ;:i _t-_m_.}_ii!:i_i_!ii_> ,_ ii:_!i!ii_i!ii_i!_!i i!!i!_i_i'_:_!_!_i_:_"__ _ iii!!!_: '_iiiiiii _:_,i ! _ _'i!_ i:!_i:ill ,_,__i !iil_J _ _._._l_'_,_._ • '_-_ _ '_ .... _,_ • , _,_ _,_ _:_i_iiiiii_i_ '_ • _:_I!!i _ _,',_._ _ _ • ' _@°._ _'_!_ii!_!!i_!_!it_i__<_ _i •i_ _' .... __i_,_ i Toward its three distinct business strategies, the Company has deployed a commercially scalable operating platform that supports the scheduled launch of the commercial e-retail site this fall, enables the Company's Wholesale and ASP site operations, and supports the development of the Company's retail artificial intelligence technology. To this purpose, the Company successfully negotiated for and deployed over $3 million in hardware and software assets from: • IBM • Cisco Systems • Hitachi Data Storage Systems • Commerce Route • NetPerceptions • Oracle The Company has defined payment schedules with these vendors that extend into subsequent rounds of financing, allowing Zydeco.com to immediately deploy the most reliable, commercially scalable site management, networking, telephony and e-commerce platform systems available, supporting the Company's operations through the 2000 holiday e-commerce season and well beyond.