The following business plan should be of some historical interest with its 1997 perspective on the possibilities for growth in internet applications.
Jay Beavy was sure he wanted his next venture to be based on the Internet, but was having trouble developing a solid concept. He had made one abortive attempt at forming a Web site design service company. He then considered forming a company to build Internet catalogs for electronic commerce, but found this to be too far outside his expertise.
At a party, a friend of Jay’s mentioned that his son, Ben Thompson, was dabbling in Web site design and doing quite well. Ben’s efforts were on a small scale as he completed college but, with a couple of fellow students assisting him, Ben was building a significant clientele of small to medium size businesses new to the Web. Jay asked Ben’s father, Bob, if he thought Ben might want seed money to take the venture larger upon his graduation, and Bob suggested that Jay propose the idea to Ben.
Ben was excited about the possibility, and had written a brief business plan for such a venture as a school project. The next step would be for Jay to study the plan before proposing a partnership arrangement.
Ben modified the plan to call the company “DistribNet, Inc.” since Jay already owned that domain name on the Internet. The plan he presented follows:
Table of Contents
DistribNet, Inc Business
April 1, 1997
Executive Summary Page 1
DNi is a new business venture created to provide specialized on-line services for small to medium size companies. Its initial focus will be on companies in the Minneapolis/St.Paul area, but markets out-of-state will be evaluated during the second year of operations.
The objective of DNi is to provide its clients with superior on-line services to those provided by competitors, at a highly competitive price. This approach is designed to attract clients that wish to take advantage of this new marketing medium without going broke doing it.
We have determined a price of $1,500 for a basic site; generally well below prices of our competitors.. Additional services will be offered at modest cost.
Our clients for 1998 will be identified by researching directories of companies that fit our definition of the target market. During the first year of operations, we need to sell 104 Web Sites to break-even, but we project a small operating loss. This number, however, is conservative, since we have assumed that first year sales will consist solely of 100 basic sites at $1,500.
Beginning with the second year, we expect operating profits to continue to increase each subsequent year. Our growth will be measured against the rate of industry growth. Although we expect our growth to exceed that of the industry, we have chosen to base our conservative projections on the industry growth rate.
Company Description and Location
DNi will be located in the growing metropolitan area of the Twin Cities of Minnesota. It is important to note, however, that a company such as DNi does not depend on geographic location in order to achieve success. The initial focus will be towards local companies, but with the possibility of expanding to selected markets across the United States.
Strategic Focus and Plan
Mission and Vision
The mission and vision of DNi is to provide our customers with individualized service, expert knowledge of all aspects of Internet marketing and Web Site capabilities, and to ensure that our employees are in command of the current technologies and innovative approaches necessary to develop the best quality Web Sites available.
DNi will be striving to achieve the following goals:
Core Competency and Competitive Advantage
The core competencies of DNi are our professionalism, and extensive Web programming knowledge.
These skills will translate to a competitive advantage over other Web Site developing companies by allowing us to stay on the cutting edge of information and new technology, while providing our customers with services that gain them maximum marketing effectiveness for their Web Site. Our competitive advantage, then, will allow us to provide high quality Web Sites with superior design and better service than that of competitors.
The following SWOT analysis will identify the internal strengths and weaknesses our company has, and the external opportunities and threats with which we are confronted.
Our strength is our team of technically experienced and creative computer programmers and operators. Our team is also experienced in business management, and is able to understand the needs of our customers. We have very little overhead and low operating costs. Opportunities are created by the acceptance and phenomenal growth of the World Wide Web as a tool for business, commerce, and entertainment. The growing access of the general population to personal computers with Internet access, and the growing dependence of large and small companies on computers for their everyday operations, are additional positive indicators for our success.
Initially, our weaknesses are the size of the company, and our newness in the marketplace. While rapid growth is a goal, our limited financial resources may restrict our growth. Our external threats include the problem of being in a market with very easy entry. As the number of Web Sites increases, so does the number of companies willing to help others create them. Also, companies of any size are able to author their own Web Sites if they have personnel with the capability and the time to develop them.
The Internet and the World Wide Web will most certainly change the way companies do business, and the way customers shop. Those that do not embrace the Internet will quickly fall behind. Considering the rate at which the Internet has grown during the last several years. More and more companies seek to promote their products and services on-line, and as new technologies continue to develop, the reasons for not taking advantage of this medium decrease.
Like most other technologies, on-line marketing must be understood by the employees of a company, and this requires some experience with the technology. If a company with no experience on the Internet suddenly decides to use this medium, it is a safe bet that most of its competitors already take advantage of it, and the company is at a competitive disadvantage.
The infrastructure for a new economy is currently being built by the Internet. The number of Web Sites on the Internet has been estimated to double every 53 days (see Chuck Martin’s “The Digital Estate,” McGraw-Hill,1996).
Sustaining this growth are:
As the Internet becomes a utility, and hundreds of millions of people and companies get connected, DNi believes that there will be little choice for companies but to publish as much on the Internet as possible. This will include everything from applications to services.
The competitors in the field of Web Site authoring are many, and their numbers are increasing every day. A quick search on the World Wide Web for companies who will help you place a static advertisement in the homes of millions of spellbound Internet surfers yields the following results:
There are many who will set up a site with your company’s name on it, and add a little information about you. But there are very few who will take the time to consult with you about your type of business, what information about your customers is important to you, and what information about you is most important for your customers to see.
Many of our competitors are out for the quick sale, moving quickly to the next. What makes us different is our commitment to our clients. Our goal is to tailor our services based on a complete understanding of their business needs; after the construction of their site is complete, we continue to support them by maintaining and updating the content and design of their site frequently. Many other companies are able to offer maintenance and continual improvement, but a scan of the field shows that there are few that are willing to go the extra steps.
We have also chosen to price our services competitively, as we believe that this lower price will enable us to “lock in” customers who currently do not have the budget required to buy the services offered by our competitors.
The “new” DNi began in January of 1997, as the current principals expanded on an earlier plan, while building on and merging with an existing Web domain. DNi’s major asset is its expertise in one of the most significant new marketing tools to come along since the advent of television.
The company’s presence on the Web will be the company brochure, showing prospective customers exactly what our services can do for them and how they will benefit from our help. We will supplement this with advertising in the local media, and through referrals by our satisfied customers.
Our target market is small to medium-sized businesses with a need for inexpensive advertising and marketing tools that will reach the highest number of customers possible. Any business with a product or a service to sell would be able to make use of our services; this is not a very exclusive club.
Those most likely to purchase our service are the smaller businesses seeking inexpensive advertising, an efficient way to take orders, and a reliable way to collect and analyze data about the visitors to their site. In general, these businesses will have computers in use in their workplace, do a good portion of their everyday tasks with their computer’s help, and will be familiar with and/or have access to the Internet.
A study by Hoffman, Novak, and Chatterjee, entitled “Commercial Scenarios for the Web: Opportunities and Challenges,” estimated that 62% of businesses with annual sales between $10,000 and $100,000 use computers for at least part of their business applications. Of those businesses, 55% have Internet access. Businesses with annual sales between $100,000 and $500,000 have a rate of 96% of computer usage, with 85% of those having Internet access.
With all this computer usage and Internet familiarity, most small to medium sized businesses have already realized the benefits of the Internet. However, the same study also estimated that only 8% of all businesses with annual sales less than $500,000 have their own Web Sites.
Obviously, the market is wide open for companies such as DNi. While our initial focus will be on customers in the Minneapolis-St. Paul area, this is an online market, where location matters little.
Marketing and Product Objectives
DNi’s marketing intent is to take advantage of the increasing number of individuals and companies going on-line, which is creating an increased demand for Internet service providers and Web Site developers. The product objectives of DNi are to continually provide high quality, error free Web Site developing, in addition to staying up-to-date with new technologies that will increase the marketing potential and effectiveness of our customers.
DNi will initially target small to medium sized businesses in the Twin City area who do not currently have Internet access and Web Sites. We will identify these companies through business directories.
The market could then expand to larger companies based in the Twin Cities, and companies throughout the United States who will have access to DNi through our Web Site. One of the great advantages of being on-line is that our “local” market is a global one.
Points of Difference
DNi has four main points of difference that set it apart from competitors:
Staff – A professional consulting staff that understands all aspects of business and the full marketing capabilities of the Internet and Web Sites.
New Technologies – DNi strives to provide customers with cutting edge technology, such as tracking Web Site visitors, that will give them a competitive advantage in their line of business.
Consulting Services – DNi provides customers with more than just a Web Site. Consulting with customers regarding their Web Site on an ongoing basis will enable them to utilize the full potential of their on-line presence.
Full Internet Service – DNi can equip their customers with Internet access, an electronic mail program, and site capabilities that include on-line product ordering.
DNi will position their Internet service package as a very effective, low cost way to market a company’s products. Internet marketing also allows a company to easily update pricing and product information. Other services provided by DNi , such as on-line product ordering and electronic mail capabilities, will increase companies’ operational effectiveness.
In addition to our design expertise, we can also offer the hosting of client sites on the DNi server. The primary function of the Web Sites we develop for our clients will be to market products and collect information. The typical DNi site might contain up to 20 Web “pages,” and data collection and interactivity capabilities. Other services offered our clients will include registration of the site with all major search “engines,” and site maintenance and consulting services after the development process.
The differentiating factor in the webs we design is the ability of the Web Site to collect information from those who visit it. The information that will be collected includes:
Product marketing information: This includes a site visitor access profile regarding the various products or services that our client is offering. This information will enable our client to adjust their marketing strategies, change their product line, etc., in an informed and customer-oriented manner.
Demographics: This includes information on visitor name, geographic area, previous visits to our site, previous purchases from the site, etc. Like any marketing organization, we want to know our customers as well as possible so that we may continuously refine our marketing strategy.
“Packaging” in this business refers to the design of Web pages. Our designs will reflect simplicity with a high level of functionality. One of the big concerns of web design is the accessibility of the page to visitors, that is time required to load at the visitor’s computer. Currently, most people access the Internet by dial-up connections (see Georgia Tech Research Corp. “GVU’s 4th WWW User Survey”, 1995). The standard phone line is a rather slow channel for information flow, and Web site design must acknowledge this limitation.
The typical DNi site will be priced at $1500. This is a very competitive price, lower than that of competitors who offer similar characteristics in webs. Research done by ActivMedia Inc. shows that a typical site’s development costs by a company with 500 employees is in the range of $10,000 to $100,000 (see Web Marketing Insider “Reports and Surveys”, 1996).
NetMarketing sent out bids for three prototypical sites to 21 web developers and ad agencies. Each participant was given a site description and asked to submit a bid for a small site (about 20 pages), a medium-sized site (about 100 pages) and a large advanced site (custom programming, database front-end, secure transaction capability, etc.). NetMarketing’s findings indicate that prices for web development vary greatly. For example, bids for the large site ranged from $15,000 to $2.8 million.
We have chosen to price our product at the lower end of the price continuum in our industry, even though our product is relatively high in quality, so that we can more easily penetrate the market. Since there is so much competition present in this fast-growing industry, our strategy is to lead the market in both cost and quality.
The primary goal of our promotion strategy is to bring about name recognition and brand awareness. We hope to make “DNi web” connote a highly interactive data collection and marketing tool. Promotion will be done through on-line, print, and referral methods, and sales presentations to prospective customers.
On-line: We will promote our products by advertising in frequently visited sites on the Web, registering our Web Site with search engines, and participating in on-line forums for Web development questions. Also, we will provide a daily tip in Web development at our site for beginning, intermediate and advanced Web developers; daily tips elicit frequent visits and also associate our name with expertise in Web development.
Print: We will have ads in small business journals and other popular business and Web development magazines to promote our name in our targeted market.
Referrals: Our clients will find it easy to refer our services to acquaintances. Through our close and on-going relationship with our clients, we will develop many promising leads.
Sales Presentations: We will identify potential clients that will benefit from our services, and offer to present them full explanations of the advantage of a DNi site.
Place (Distribution) Strategy
Distribution of the product will take place entirely on-line; there is no need to have a traditional place of distribution. For face-to-face consulting, our offices will be in the Minneapolis area. We will also consult via “cyber-conferencing,” and personal visits to remote client locations, depending on their needs and preferences.
DNi will begin with four principals, each with business expertise and extensive computer training. They will also serve as the board of directors, and work full-time in the business.
The principals are Ben Thompson, Amanda Wyatt, Chad Allen, and Cari Lee. Mr. Thompson will serve as president of the corporation; the Board will elect the corporate secretary.
Financial Data and Projections
Clearly, on-line marketing has benefited greatly from the explosive growth of the Internet and Web. The number of users of the Net/Web was projected to reach a high of 6.7 billion people worldwide in the year 2008 (see Internet Usage Statistics for current estimates).
Since DNi is a new venture, it has based its projections on extensive research of the general market. Although attempts to predict future growth should be considered carefully, DNi is confident of future demand for its services.
Two financing scenarios are offered: a self-financed startup, and one utilizing venture capital.
The first assumes that the venture will be financed through the limited resources of the principals and any family money that they can borrow. The expense structure under this scenario is as follows:
|Expenses||Annual Fixed Costs|
|Rental of Office||$6,000|
|Rental of Office Furniture||$3,600|
|Rent of PC/Server Equipment||$6,400|
|Wages for 4 Employees||$140,000|
|Total Fixed Costs||$156,000|
Break-even sales = $156,000/$1,500 per site = 104
Equipment will be rented to allow continuous upgrades as new technology becomes available. Note that there are no variable costs, since we are selling the services of full-time employees.
While it would be possible to lower expenses at startup by using contract labor rather than full-time employees, we feel that any unused site design capacity can be productively utilized in the marketing campaign. Similarly, while we could begin by working at home, it is our sense that an office presence enhances our credibility with the target market
With this strategy, we have developed the following implementation plan. We would like to complete the pre-opening activities in the remainder of 1997 to allow for a full year of revenues in 1998.
The following five-year projection is based on the above expense structure and implementation schedule. Sales estimates are in the number of basic sites sold, since it is difficult to characterize an average Web site design cost. Additional design services on an hourly or contract basis are expected, but are not included. Annual growth in sales is felt to be extremely conservative.
|Revenues/Profit, Scenario 1||
|Revenues/Profit, Scenario 1||
Note that the loss in Year 1 is minimal, and is more than exceeded by profits in Year 2. Projected sales are well within the capacity of the principals to fulfill; the profitability of work beyond this capacity will be balanced against the cost of contract labor.
The preferred approach is to pursue a rapid-growth strategy. Due to the limited resources of the principals, this strategy requires outside investment.
The realities of starting such a venture “from scratch” cause us to project first-year performance at no more than under Scenario 1. Growth in succeeding years will be measured against the industry growth rate.
Wishing you success,
John B. Vinturella, Ph.D.
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