Business Plan Document - ETH Z · SARIS 5 Business Plan Document EXECUTIVE SUMMARY NEWCO is a solar powered mobile charger designed to charge up to six mobile phones at a time and

NEWCO

Business Plan

Document

SARIS 5 Business Plan Document

Contents

Executive Summary ..................................................................................................................... 4

1 Project Background ............................................................................................................... 7

2 The Market ............................................................................................................................ 8

2.1 Targeted Customer Base ............................................................................................... 8

2.2 The need being served ................................................................................................... 9

2.3 Industry Analysis / Porter 5 Forces ................................................................................ 9

3 Business model .................................................................................................................... 12

3.1 Value Proposition ........................................................................................................ 12

3.2 Value Chain .................................................................................................................. 13

3.3 Business model SWOT Analysis ................................................................................... 15

4 Products and Services ......................................................................................................... 18

4.1 Function and feature ................................................................................................... 18

4.2 Design .......................................................................................................................... 19

4.3 Manufacturing and Quality.......................................................................................... 23

4.4 Packaging ..................................................................................................................... 24

4.5 Warranty and After-sales Services .............................................................................. 25

4.6 Intellectual Property Rights ......................................................................................... 25

4.7 Product and Services Analysis ..................................................................................... 26

5 Sales and Distribution ......................................................................................................... 28

6 Marketing Communications and Sales Promotion ............................................................ 31

7 Financials ............................................................................................................................. 34

7.1 Cost assumption and analysis ...................................................................................... 34

7.1.1 Fixed Costs ...................................................................................................... 34

7.1.2 Variable Cost .................................................................................................. 37


7.2 Pricing .......................................................................................................................... 39

7.2.1 Pricing objective ............................................................................................. 39

7.2.2 Pricing considerations .................................................................................... 40

7.2.3 Pricing analysis models .................................................................................. 41

7.3 Price setting ................................................................................................................. 43

7.4 Micro-finance loan ............................................................................................................. 43

7.5 Income Statement ....................................................................................................... 45

7.6 Sensitivity Analysis ....................................................................................................... 46

8 Organisation Structure ........................................................................................................ 48

9 Investment Requirements .................................................................................................. 50


EXECUTIVE SUMMARY

NEWCO is a solar powered mobile charger designed to charge up to six mobile phones at a

time and can continuously charge phones throughout the day. The product aims to ease the

mobile phone charging challenges faced by the people who live without electricity in the rural

areas of Kenya.

Current method of charging mobile phones in these rural areas requires individuals to travel

an average of 10 miles to the nearest electrified town and charge their phones at the grid

connected kiosks by paying about 15 Kenyan shillings (approx. US$ 0.17) per phone. In

addition to the travel time, they need to wait for two hours to avail the service.

From our market research, we gathered that 75% of 39.8 million population of Kenya live in

the rural areas, most of which is un-electrified. About 42% of these people have an active

mobile SIM card (RIA 2007/2008 household survey). IEA in 2008 also reported that 587 million

people in the Sub-Saharan Africa are without electricity and over the past seven years, there

has been a tremendous growth in mobile phone usage in the rural areas of Kenya.

NEWCO directly addresses the charging problem encountered by this massively expanding

mobile phone user community. End users of NEWCO are all the mobile phone users living in

the un-electrified rural Kenya and the target market customers are the kiosk or shop owners

located in or around these areas who would then provide the platform for the end users to

easily charge their mobile phones locally on a regular basis. Our offering allows kiosk/ shop

owners to generate incremental revenue by providing mobile phone charging services and our

product can also be a route to entrepreneurship for small start-ups in the rural areas e.g.

individuals running mobile phone charging businesses. Our offering also includes a micro

finance loan facility option available to both the kiosk/shop owners to purchase our product.

Given the location of our target customers, our primary sales and distribution channel would

be to through direct sales agents (i.e. feet on the street approach) with local language

capabilities. These agents would sell our product directly to kiosk/shop owners or to


individuals looking to start a small enterprise. A possible secondary sales and distribution

channel would be through major retailers with strong regional presence.

In order to facilitate our distribution process, a hub and spoke model will be deployed in

Kenya with hubs strategically located in all the eight provinces and each hub servicing all the

rural areas (‘spokes’) within the province.

Based on our market size and opportunities in Kenya, our base case sales projection for the

first year is 1000 units generating US$150,000 in revenues and we are seeking initial

investment of US$170,000 to finance first year operations. We have already sold two

functional prototypes and have received highly positive feedback.

Over five years of operations, NEWCO is expected to grow and capture a significant market

share to generate a cumulative net income of US$ 3.5m. At that point, the business may be

sold as a going concern to a bigger solar energy player like GO Solar Systems Limited or

Powerpoint System (Ea) Ltd.

Alternatively, we can continue to grow the business (our preferred choice) by leveraging

existing network and brand and expand outside Kenya to other Sub–Saharan African countries

like Nigeria with more than 151 million people, 50% of which live in rural un-electrified areas.

Other potential growth channels include:

• Adding new product features such as capabilities to charge lamps etc.

• Partnership with mobile network operators

• Direct sales to government bodies (e.g. state or local government agencies) in order to

promote young enterprise and alleviate poverty.

With the use of clean energy, NEWCO unit is making the world a better and cleaner place for

current and future generations. NEWCO is not just another product; it encourages enterprise

and helps alleviate poverty especially in the most impoverished regions by connecting rural

areas to the mainstream and providing rural dwellers access to global wealth.


Mobile Charging Kiosks and facilities in Kenya

Fig1: A phone charging kiosk in Kisumu Fig2: Typical local kiosks and stores

Fig3: Mobile phones being charged at a kiosk Fig4: Mobile phones being charged at a kiosk

Fig5: Motoroal solar mobile charger kiosk Fig6: Sony Ericsson solar mobile charger kiosk


1 PROJECT BACKGROUND

NEWCO is for the rural Sub-Saharan Africa. Our immediate focus is one of the countries in this

region, Kenya. Many people living in Kenya’s un-electrified rural areas own mobile phones.

Mobile phone is essential for them in the sense that it’s the only device for them to connect

to the external world. They use mobile for business, keeping in touch with their families and

friends and even banking. Most of people in the rural areas are farmers; they organize

collection for their goods, call different suppliers and customers to find out where they can

get the best price etc. However, once the phone runs out of charge, quite unfortunately there

is no easy way to charge the phone because they live in un-electrified areas. The only option

then is to travel 10 or 20 miles, what in most of the cases is just walk, to the nearest

electrified town and get the phones charged from the kiosks by paying a fee. This is extremely

inconvenient resulting in waste of time and effort and loss of opportunity. Often the nearest

electrified town is too distant to charge the phone on a regular basis and keep it switched on

always.

NEWCO aims to tackle this issue by offering mobile phone charging facility in the un-

electrified rural areas. NEWCO is a multiport solar powered mobile phone charging station,

designed to charge six phones in parallel and continuously throughout the day, under

adequate sunlight. It doesn’t require grid electricity power and hence can be installed

anywhere. The target customers are the kiosk / shop owners in and around the un-electrified

areas. The customers can generate revenue by offering charging facility to the local people.

The concept has been field-tested in Kenya and feedbacks have been very encouraging. In a

nutshell, NEWCO connects the rural off-electricity areas to the rest of the world.


2 THE MARKET

We focus on Kenya, which has a territory of 580,000 km2 (somewhat larger than France) and a

population of nearly 39 million residents (2010 data). It has the largest GDP in the East and

Central Africa (2010 data) and the service industry is primarily driven by the

telecommunications sector. Over 19 million of this population use mobile phones and 12.5

million mobile users live in the un-electrified rural areas.

We address our product to the people in the rural areas. They have no, or limited, electricity

supply and have relatively low disposable income. They have families and business contacts

across the country and beyond.

We have a plan to expand to other Sub-Saharan African countries if our venture in Kenya is

successful. A growing figure of 587million people are reported to be without electricity in Sub-

Saharan Africa alone (IEA 2008). The situation is not going to improve in the foreseeable

future. The IEA estimates that by 2030, the number of people living without electricity in the

African continent will reach 700 million.

2.1 TARGETED CUSTOMER BASE

Our direct customers are the kiosk owners in the un-electrified rural areas and individuals

who want to start their own businesses. With NEWCO, they will be able to generate

continuous revenue and improve their financial and social position.

As mentioned above, there are 12.5 million mobile users in rural Kenya. Assuming that they

charge their phones once every 4 days and 10 phones are charged per day by a kiosk using

NEWCO, we estimate the number of NEWCO devices required to satisfy the demand as:

(m/ 4) / 10 = 0.313 m = 313,000 number of NEWCO devices needed every day to charge all

mobiles.


2.2 THE NEED BEING SERVED

There is more than one need being served here. First - we aim to tackle the lack of electricity

supply issues affecting the recent increased use of mobile phones in the developing world.

NEWCO provides people off grid with affordable way to charge their phones in their local

area.

Second - by providing a simple device to charge mobile phones we encourage people to

become entrepreneurs and to start their own businesses (charging kiosks). We might in fact

create jobs and help to reduce the level of poverty in rural areas.

Third - as much important as business side of this project is its social side. We do help people

to stay connected. For many of them mobile phone is the source of information and the only

tool they have to communicate with people across the country and beyond.

2.3 INDUSTRY ANALYSIS / PORTER 5 FORCES

This section analyses the industry using Porter’s 5 forces model

INTERNAL RIVALRY (LOW POWER):

• No like-to-like competition

• Motorola's ‘Motopower’ project has brought 55 solar-powered kiosks to Uganda and

Sony Ericsson solar charging station – installed in 12 African Millennium villages. They

projects have limited availability – exists in prime locations, supports only one brand of

mobile phone and have feature limited to mobile phone charging only

• We distinguish our product by innovation and extra features

• We focus on a unique segment / novel channel

• We have low fixed costs and small number of competitors

• Market is growing fast and has no leader

• Switching cost are relatively high for Kiosk owners (our direct customers)

• Low exit costs


SUPPLIERS (LOW POWER):

• Suppliers are easily replaceable and there are many of them.

• Our suppliers are

o Batteries, Solar panels, Printed Circuit Board, The housing suppliers

o Final Assembly companies – Production

o Micro-finance providers

• Our inputs are not unique

• We can we easily switch to other suppliers

• It would be very difficult to our suppliers to enter our business and to sell directly to our

customers.

BUYERS (MEDIUM POWER):

• Our buyers are kiosk owners in Kenya or/and people who want to start their own

businesses

• We do not sell to one or two big players. If we lose many customers we can still operate!

• Our product cannot be purchased somewhere else/other suppliers, it is unique

• Buyers cannot easily switch to another product because of relatively high cost of

investment

• Product doesn't represent a small expense to our customers itself but combining with

micro-finance service is affordable

• Our buyers cannot integrate backward in the supply chain and start providing product

we provide due to lack of capital

• Our product is easily reproducible. Buyers can assemble their own charger based on our

concept

THREAT OF NEW ENTRANTS (HIGH POWER):

• Threat of new entrants will be reduced by first mover advantage

• It is easy to enter the market


• Customers do not have strong brand loyalty

• Start-up costs are not high in our business

• Production process is not difficult and easy to learn

• Access to inputs is easy

• Utilising patents is not an option

• Marketing is very difficult

• We currently do not have brand image (brand to be built!)

• We will consider reducing price in year 2O3 if there are any new competitors

SUBSTITUTES (MEDIUM POWER):

• Other relatively much more expensive chargers, not that efficient and not universal

(won't work with all mobiles)

• Battery chargers projects as BBOXX or Equinox

• Customers can go to the nearest city with electricity and charge their phones (very

inconvenient)

• It is not easy to switch due to lack of capital


3 BUSINESS MODEL

3.1 VALUE PROPOSITION

Followings are the value propositions of NEWCO

• Continuous revenue inflow without any operating cost – NEWCO unit runs on solar

power and consequently generates revenue without any operating cost at all.

• Alleviating poverty – Considering the economic situation of rural Kenya, this is a

considerable source of revenue, which will help the KIOSK owner to financially support

his family better.

• Encouraging growth and helping the society to prosper – NEWCO will enable poor

villagers to charge their mobile phones locally and keep the phones running always. This

will ultimately help them to operate their trade better by staying connected to the

suppliers and customers, keep in touch with their acquaintances and save unnecessary

travel time.

• Promoting renewable energy usage – NEWCO, being a fully solar powered charging

module, promotes the use of renewable energy.

• Sustainable and highly scalable – This is a highly scalable product and business. Many

additional features can be added to this module by making minor modifications. Also

the business model can be expanded to include other similar products, geographies etc.


3.2 VALUE CHAIN

There are different business models that can be deployed by NEWCO in Kenya such as:

• Partnering with mobile network providers and selling through them

• Direct Sales to major retail and distribution network

• Direct sales to kiosk/shop owners

• Leases to kiosk/shop

Our research however shows that the most effective and profitable business model for

NEWCO to deploy in Kenya is the ‘Direct sales to kiosk/shop owners (or individuals)’ given

that these kiosk/shops are easily accessible by final users of the product (i.e. people who live

and/or work in rural un-electrified areas of Kenya).

The benefits of Direct Sales to kiosk model to NEWCO are as follows:

• Potential for higher margins compared to other probable business models such as sale

to a distributor network where margin would be low given the huge bargaining power of

the Distributor network.

• NEWCO would have the opportunity to negotiate with owners of kiosk / shop any

branding potentials such as painting the kiosk / shops with NEWCO logos & symbols etc.

similar to what some big businesses like Coca Cola / Motorola do in the market. Dealing

directly with kiosk/shop owners gives NEWCO this interesting platform for advertising

• NEWCO will also have the opportunity to have a direct feedback on product

enhancement allowing for business to further strengthen its value proposition.

The following diagram shows the NEWCO value chain for the direct sales business model. The

first two elements in the chain i.e. sourcing components and design, engineering, productions

are same irrespective of which business model is chosen. The distribution, sales and end user

servicing will vary considerably depending on different business models.

NEWCO 5 Business Plan Document

Fig7: NEWCO value chain

All the components including the electrical, housing and solar panel for NEWCO will be

sourced from China. Chinese manufacturers offer quality components for low price and the

bargaining power is even more if the components are bought in bulk.

Although NEWCO module is designed and engineered in UK, the production of the units will

be outsourced to China. The components will be directly delivered to the outsourced

manufacturing partner. The manufacturer will be responsible for the complete integration,

quality check and packaging.

The manufacturer will ship the batches of ‘ready to be sold’ units to the central warehouse of

NEWCO Kenya. From the central warehouse, the units will be distributed to the regional hubs

and from there picked up by the sales agents to directly sell to the kiosk owners.

Once the units are sold to the kiosk owners, they will ultimately provide the mobile charging

service to the end users. NEWCO Kenya will also be responsible for the after sales customer

service in the event of customer complaints or problems with the product.

SOLARIS 5 Business Plan Document

3.3 BUSINESS MODEL SWOT ANALYSIS

Strength Weakness A strong management team which has an

in-depth industry knowledge and broad

expertise about the local market

• NEWCO would enjoy economies of scale

through bulk manufacturing of units in

China

• Through partnership with Microfinance

firm, NEWCO will be a lot more

affordable especially to small enterprises

• With directs sales agents, NEWCO would

be able to put ‘feet on the street’ for

better market penetration

• The direct sales agents will have

compensation structure which is

weighted more towards commissions and

will drive higher sales volumes

• Language capabilities of direct sales

agents will increase interaction with

target market customers leading up to

increase in sales volumes

• The chosen strategic hub locations spread

across all provinces with further facilitate

timely sales

• Product design is such that NEWCO unit

are very portable and easy to move from

one place to another

• Lack of Intellectual property right

protection for NEWCO in Kenya opens

door to risks of counterfeiting

• A lot of transportation is involved in

getting finished product from the

manufacturer to the point of sale to

kiosk/shop owners in the rural un-

electrified areas increasing cost

• Lack of brand equity at the initial stage

• Processes, system and logistics would

have to be set up from scratch taking up

a huge amount of time and costs

• Budget is currently limited to funds raised

by ideator and unless there is an injection

of capital from business angels or venture

capital business growth would be limited

• All staff including direct sales agents

would have to be trained

• Customers in case of any accidental

damage cannot easily repair NEWCO

product locally.


• NEWCO units has a very high solar power

utilisation

• Product is very reliable and has a shelve

life of up to 5 years

Opportunity Threat • Realistic potential for expansion into

other Sub–Saharan African countries like

such as Nigeria with 151Million people of

which over 50% live and work in rural

areas

• Ease of business expansion leveraging

existing network and experience from

Kenya operations

• Potential for partnership with mobile

network providers in other Sub–Saharan

African countries

• Ability to source cheap raw materials and

labour cost both on the manufacturing (in

China) and operational fronts (in Kenya)

• NEWCO unit can also be used to charge

other units, such as lamps for use later in

the evenings in the dark

• Scope exists to further improve profit

margins by seeking better supplier deals

in the future

• Business growth would help develop and

establish the brand equity of NEWCO in

the market place

• Product can be easily duplicated

• Rural electrification project by

government bodies would reduce target

market

• It would be very hard especially at the

initial stage for NEWCO to attract good

direct sales agents

• Political instability and in-fighting in

Kenya may impact business operation

• Adverse weather or climate change may

also impact sales albeit in the interim

• There could be an increased competition

from other sources of power, e.g. diesel

especially when oil prices are significantly

low

• Dependence on microfinance firm for

financing might affect sales especially

during an economic crisis such as the last

global financial crisis in 2008

• Exchange rate fluctuation will impact

costs and profitability

• Changes in legislation could have an

impact on production and sales


• Retention of key staff such as hub

manager and COO is very critical to the

success of the business

• Very vulnerable to reactive attack by a

major players

• Risk of theft on both internal and external

fronts

• Direct sales agents may have little loyalty

given that they are not on a permanent

employee contract


4 PRODUCTS AND SERVICES

4.1 FUNCTION AND FEATURE

This project aims to provide local kiosks in rural un-electrified areas with a system that

charges mobile phones using solar energy. It is composed of a solar panel that converts

sunlight into electrical energy. A simple electronic circuit adopts harvested sun power to

levels suitable for charging mobile phone batteries. A rechargeable sealed lead acid battery is

included. It stores extra power that is not used during the day. It can be used to charge more

phones during the night hours.

From technical point of view NEWCO system has the following specifications:

• Efficiency: it uses multi-crystalline solar cells, which have high efficiency for converting

solar energy to electrical energy with reasonable cost.

• Robustness: it works in both sunny and shade conditions. A battery is included as energy

storage and backup. Its size is chosen in proportion with the size of the solar panel and

the intended purpose.

• Maintenance free: the electronics are simple and robust. The solar panel lifetime is 25

years; the batteries life time is 5 years. And the electronics can work for tens of years.

• Affordable: the selling price of the system is within easy reach of kiosk owners.

The whole system is packaged inside bespoke housing with six USB standard connection

points. Under full sunlight, it can charge six phones in parallel. If fewer phones are connected,

extra-unused power is stored in the backup battery. An overcharge protection circuit makes

sure the battery is safely charged and has a prolonged life. Each USB socket has an indication

LED that lights if a phone is connected and being charged; its light faints when the phone

battery is fully charged. A set of phone adaptor connectors is provided with system. It gives

allows charging a wide range of mobile phones.


4.2 DESIGN

The NEWCO concept represents the core values of the proposed business initiative. Given the

nature of the target market, the ease of use and reliability factors of the product surfaced as

priorities and has been translated into the design as follows:

Fig8: The NEWCO system

The product is comprised of four elements that function together as a modular system that is

adaptable to different usage contexts and eliminates the need for fixtures and fittings. In

figure 1 we can see that these elements are: a charging module (A), a 10W solar panel (B), a

lockable NEWCO Clamp (C), and a power splitter and phone storage tray (D).

For the standard operation of the product, the solar panel needs to be exposed to sunlight

and connected to the charging module. The battery inside this module stores power and

sends a constant supply to the phone tray through a USB cable, which in turn splits this power

into six individual cables ready to supply any mobile phone.

Aside from its unique ability to charge multiple phones simultaneously, it is the physical

implementation of this renewable energy product that sets it apart. The primary market

research gathered by our team, exposed the wide variety of circumstances in which our main

customers (rural kiosk owners) operate their businesses and the different infrastructure from


within which they do it. A product with a successful penetration of this market is one that can

integrate well across this varied context.

Fig9: Lockable NEWCO clamp and solar panel.

Fig10: Charging Module and phone tray

The NEWCO can be made ready to use very quickly and in almost any situation. This is due to

the different configurations the modular system allows for. Figures 2 and 3 show the standard

kiosk configuration, where the solar panel is securely mounted on the roof with the lockable


NEWCO Clamp and the charging module is mounted to the indoor counter-top, where the

salesperson deals with the customer. At the end of the day, the roof-mounted clamp can be

unlocked and along with the panel, stored indoors overnight.

Fig 11 and 12: Standalone table-top configurations

The product can also function as a standalone module by taking advantage of the clamping

system integrated in the charging module. In this way, both the solar panel and the phone

tray may be secured to the charging module and rested on any surface. The significant weight


of the battery inside the module keeps the unit stable and able to cope with a breeze. The C

clamp element may also be used when it is practical to separate the phone tray from the solar

panel. This might be true when the sales person retreats to a shaded place and wants to stay

close to his customers’ phones, or when it is necessary to change the solar panel’s angle

towards the sun. Figure 6 shows the three angles that are achievable.

Fig13: Possible solar panel angles

During the development of the concept, it was always apparent that the price point of the

product had to be kept low and consequently, the production costs had to be minimized. The

main areas of concern in this respect were the cost of the solar panel and of the production of

injection moulded plastic parts (charging module and C clamp) of which the tooling cost could

be prohibitive.

To keep tooling costs low, the charging module and C clamp were designed to use the same

mould and hence cut this cost in half per product. The solar panel is outsourced and very

simply mounted onto a flat laser-cut panel at minimal cost. The phone tray is also laser cut

from a flat sheet and bent in two places, requiring no initial tooling costs.


4.3 MANUFACTURING AND QUALITY

Engineering and design work for NEWCO will be led by the NEWCO business entity in the UK

to ensure that the product meets specifications and quality standards. However,

manufacturing will be carried out where ever this proves to be most cost effective, China

being the most obvious choice. The product will be fully manufactured and packaged in one

location, ready for distribution in Kenya.

The production will tightly follow a full manufacturing specification drafted by the firm and

agreed upon by the manufacturers. This will outline all materials, dimensions, tolerances,

designs, processes, control checks, etc. Quality procedures and testing will also be specified in

order to meet relevant standards including European CE safety standards, as an electrical

safety benchmark.

Along with a full specification, an agreement between the manufacturer and the NEWCO

business entity will exist in order to identify the working terms between the companies and to

avoid as many disputes as possible; for example, an agreement that the moulds and tooling

produced by the manufacturer should be made available for purchase by the firm if required

in the future.


4.4 PACKAGING

All four components will be packaged in the same box, protected in a contoured Styrofoam

block. The product will be preassembled in the standalone table-top configuration to cut

down learning time and prevent misinterpretation of the instructional documentation.

Fig14: Packaging and illustrative poster

This documentation will be integrated with the packaging in the form of a visual poster

created by unfolding the outer sleeve of the box. This poster will be double sided, having the

usability information on the inside, and promotional graphics on the outside to allow it to be

used by the kiosk owner as a means to locally advertise his new service.

The final product will be a package, which includes

• 1 Solar panel

• 1 Charging module

• 6 Different type mobile phone charging USB interfaces

• Installation instruction and warranty card


4.5 WARRANTY AND AFTER-SALES SERVICES

Upon purchase of the NEWCO unit, a limited product warranty will be provided for one year

from the date of purchase. The warranty will cover all components for manufacturing quality

and workmanship and ensure that the product functions as specified. The warranty would not

cover accidental damage, misuse, general wear and tear, etc. Under a valid warranty

agreement the purchaser will be due replacement parts if not functioning, or a full

replacement of the product. The local distribution hub will handle this service for NEWCO.

A local technical helpline will also be available for after sale support and general queries to be

answered. In the case where components of NEWCO units have reached the end of their

lives, the firm’s distribution hub will accept these components for disposal/repair and sell

replacement parts.

4.6 INTELLECTUAL PROPERTY RIGHTS

In terms of patent protection, it would be difficult to achieve protection for the NEWCO based

on its technical design. Although the concept is novel in the African market, the NEWCO is not

technically innovative enough to allow for new patent claims to be made. Furthermore,

enforcing patents within African nations is difficult and for the particular case, enforcing is

likely to cost more than the potential recovery.

It is important that all IPR related to design and manufacture is retained by the NEWCO

business entity, as agreed upon within the manufacturing specification and agreement. This

agreement should ensure that the IPR is owned by the firm and remains its property even if

the manufacturer makes adjustments, additions through the process. The agreement should

also involve non-disclosure, non-use and non-circumvent clauses.

Trademark registration for NEWCO would also be recommended within all target market

nations. This would deter copiers and can be more easily enforced within Africa.


4.7 PRODUCT AND SERVICES ANALYSIS

This section analyses the products and services from different aspects.

Fig 15: Product and Service analysis

Dimensions Offering Interpretation of the offering Price Competitive To ensure the customers get a decent ROI and the

capital payback period is maximum 3 months. With the microfinance loan option, the price doesn’t need to be a leader in the market. Also this is a product for the mass and hence premium price won’t sell. The competitive price would result in high volume and aid capture a decent market share.

Features Customised Green and renewable energy with multiple features. The unit has six USB ports and hence six USB compatible devices can be charged simultaneously. The devices can range from mobile phones to reading lamps to digital cameras and many more.

Quality Excellent / Average Industry standard is met and the quality of components can be guaranteed. With carefully selected manufacturing partners and sophisticated


production processes, each unit has 5 years

average life span.

Support Standard Standard support is provided with 1 year standard warranty. However, any damaged or non-functional unit can only be replaced at authorised partner retailer outlets.

Availability Restricted / Selective

Products are targeted for un-electrified rural areas only. Direct sales and retailer networks will be used to sell products. Limited number of products will be available in retail outlets in the urban areas, primarily for advertisement and awareness generation purposes.

Reputation Respected / Functional

Features and benefits are the major concerns of the customers in this market. Good design and durability of the product will generate better perception. With more sales and word of mouth, NEWCO brand will be gradually established.


5 SALES AND DISTRIBUTION

There are two effective sales and distribution channel for our chosen business model of direct

sales to kiosk/shop owners (or individuals) with the primary channel being the deployment of

direct sales agents to sell directly to kiosk/shop owners and the secondary channel being sales

through local retail chains.

In order to successfully run the primary channel, the business will be looking to hire locally

and a big proportion of the compensation for these direct sale agents would be sales

commissions, which would help aggressively drive product sales especially at the initial stage.

Direct sales agents will cover rural areas where they are very fluent in the local languages, e.g.

agents that are fluent in Niger-Congo languages will be deployed to areas with predominantly

Bantus settlers and agents fluent in Nilo-Saharan language will similarly be deployed in areas

with Nilote settlers. This system will help NEWCO gain more market audience leading to sales.

A major challenge faced by NEWCO in deploying direct sales approach is that the logistic

required for launching a successful direct sales channel can be very expensive and time

consuming to set up. Another challenge is in finding good and trustworthy agents to be the

representatives (i.e. the face) of NEWCO in the market place, although relying on referrals

and local checks to ensure that hired agents are of good standing within the community

would help.

For NEWCO to deliver product to clients in an efficient way and run a successful direct sales

business model, a ‘hub & spoke’ distribution system would be implemented and by the time

the business is fully grown, each of the eight administrative provinces (mikoa) within Kenya

would serve as a hub where our main storage facilities would be located and supplies into

spokes (target market in the rural areas within each province) would then be out of the hub

storage for that province (hub expansion would be in stages and in line with business growth).

The storage would be warehouses located in a secured part of each province.


Finished goods shipped into Kenya directly from manufacturers in China would initially be

stocked in the main warehouse located in Nairobi before being dispatched to other hub(s) in

the country for sale.

For effective running of the ‘hub & spoke’ model, a hub / province manager would be

employed and this employee would then be responsible for managing each hub and ensuring

that the hub is appropriately stocked. This person would also be responsible for hiring a team

leader who in turn would hire and manage the direct sale agents who would sell NEWCO

product directly to kiosk/ shop owners or individuals.

The hub manager in Nairobi would also double as the Chief operating officer (COO) of NEWCO

in Kenya with management oversight on the other hubs and all hub managers reporting

directly to him and him reporting directly to the senior management team.

Transportation of stock from Nairobi hub to other hubs in Kenya would be by local

transportation, such as buses and mini trucks and the frequency of distribution although

dependent on sales volume is expected to be once per quarter (to minimize transportation

costs). Volume per delivery to each hub is expected to increase in equal proportion to the

increase in sales volume to ensure the hubs are not under stocked at any point in time and in

order to get the product from storage to kiosks and shops direct sales agents will use local

taxis to transport stocks from the hub warehouse to their markets.

Sales process would require direct sales agents responsible for a particular rural area to

market the product from kiosk to kiosk throughout the entire rural area. The process also

involves a short demonstration to the kiosk on how the product works after which the sales

agent will then sign up interested kiosk / shop owners by recording their details and

introducing them to the micro finance firm who would then carry out necessary checks and

grant the credit facility (i.e. pay NEWCO for the unit directly on behalf of the client) before the

product is delivered to the client by NEWCO agent. If the client does not require a loan facility

to pay for the product, the sales agent will take payment via MPESA (local mobile payment

platform in Kenya) or take cash payment on the spot.


The secondary sales channel (sales through local retail chains) would be beneficial to NEWCO

and even more when the business has built some brand equity in the market which can be

leveraged while negotiating with regional retail chains.

Regional retailers in Kenya such as Nakymatt would offer a ready-made platform to sell our

product as this retailer has presence in almost all our hubs e.g. Meru area of Eastern

province not to mention Mombasa and Karen district areas and leveraging existing

network of such retailer would be beneficial to NEWCO. The retailers would also be serviced

from existing hub warehouse and the hub manager would be responsible for managing the

relationship with retail chain within their region / province. Sales by the retailers would

mostly be cash, but customers interested in micro finance be directed to the nearest hub to

sign up for the facility.

A MAP OF KENYA SHOWING THE KEY HUBS/PROVINCES

Fig16: Map of Kenya (http://www.mapsofworld.com/kenya/kenya-political-map.html)


6 MARKETING COMMUNICATIONS AND SALES PROMOTION

Market communications strategy is important to raise the product awareness and scale up the

market share at the product launching stage, making the business more profitable and

sustainable in the long run. The objective of NEWCO marketing communication is to create a

new product category which could satisfy mobile users’ need of charging their mobile phones

by using the renewable energy – solar energy, with the benefit of extremely low cost. In

addition, building the awareness of product and solution and introducing microfinance

payment scheme are other main objectives when the communications strategy is formulated.

The communication message will be properly designed with the emphasis on features of

renewable energy, high investment return and sustainable quality. Kiosk owners and their

customers, mobile users, are expected to be more price conscious because of rural poverty

and low disposable income. Intangible benefits such as brand, design and innovative

technology would be relatively less addressed when the message is conveyed.

Apart of the distribution strategy that product will be sold via direct sales and personal

communication channels, NEWCO will engage with a variety of media entities including

newspapers and radio broadcasting agencies which will help NEWCO advertise its product.

Radio broadcasting with local dialects is a popular way in which people living in rural areas

receive information and news every day. Product leaflets and posters will be produced for

direct sales force or distribution partners to help them better explain and demonstrate the

product functionalities and commercial terms in front of the customers. Furthermore, the

company will design a company web portal which has friendly interface between the company

and other constituents including customers and potential investors. The company’s vision and

mission which are to connect people living in poverty to the rest of the world will be

communicated and a set of video clips will be showed online for the purpose of better

illustrating the features of the product and explaining the benefits and values kiosk owners

can benefit from and ultimately to their customers, mobile end users.


Although it has been approved that it would be difficult to adapt the business model which is

partnering with mobile operator and deliver NEWCO’s product through their distribution

network, NEWCO will continuously seek the opportunity by utilising their mobile network

distributing capability by sending the text messages to all relevant customers including the

kiosk owners and mobile users in order to build the product awareness at the initial stage.

This could be an effective and efficient way to greatly catch the target customers and through

selecting the specific numbering range, the messages could be accurately and effectively

addressed to the mobile customers who are living in rural areas and they could be either the

kiosk owners who could possibly run the mobile charging business or the mobile users who

need mobile charging service.

Several key public relation agencies with the expertise in ICT, green energy business will be

engaged with and some media spaces will be secured in order to advertise NEWCO business’s

value proposition. Boosting local economy, promoting the green technology and creating the

value for the local community will be key focuses circulating among the society. Through the

time that the business has been gradually developed, NEWCO could substantially influence

the local business environment. It would be possible that mobile service operators raise the

interests and negotiate the possibility of cooperating with NEWCO in the near future. NEWCO

will allocate certain resources to build and maintain a harmonious relationship with local

governments and authorities because they have an enormously influence over the business

environment.

Sales promotion will be another approach to increase the competitive advantage when the

competition turns fierce. A slight premium price of US$150 will be set at the outset of the

product launch and the pricing strategy will be proactively adjusted when new entrants enter

the market with the substitute products. With the support of micro-financing fund

incentive which will be illustrated in another section, the customers do not need to pay the

high upfront cost and one year installment payment plan could help them make the

purchase decision easily and huge amount of profit can be earned after 3 month payback

period.


Complying with the communications strategy we have described, the company is required to

commit upfront communication budget for the first year, especially for the first 6 months

during which the company will conduct promotion campaign, design the website and produce

the advertisement materials. 5% of sales revenue will be allocated to communications

programme during the first year and the proportion of communications expenses will be

gradually reduced afterwards considering the product awareness has been built up.


7 FINANCIALS

7.1 COST ASSUMPTION AND ANALYSIS

The costs for NEWCO business entity are logically split into two parts; fixed and variable.

7.1.1 FIXED COSTS

Human Resources - Human resources cost represents approximately 50% of total fixed cost

through 5 years and aligning with the organizational structure, several functions are set up to

support an efficient and manageable business operation.

The company has one CEO who is the founder of NEWCO business and he will work on a

voluntary basis during the first year. He’ll have a remuneration of USD 40,000 in the second

year which will increase by 10% year on year.

A design and engineering team will be based in the UK where talented and skillful people

can be employed in order to sustain its competitive advantages in terms of cost efficiency

and product, design innovations. First year is vital for design and engineering and a full

time recourse will be recruited for the same. Spending budget on 2nd and 3rd year with

respect to design and engineering process will be relatively constrained by recruiting

freelancers because the company is going to deliberately reduce the redesign and model

change so that cost reduction can be achieved while the market share is generally

established. However, 4th year onwards, the company needs to focus on further

innovation and addition of features to sustain the business.

Sales and marketing is one of the major challenges for success of NEWCO and 5 fulltime

managers will be recruited in Kenya from the first year. One of them is responsible for

marketing and the rest four will ensure effective and efficient sales drive and manage the

sales force. The number of managers will remain same over the 5 years but they’ll receive

12% salary increase year on year to keep themselves motivated.

Also a fulltime staff will be recruited in the first year to manage internal administration. As the

business grows, an additional staff will be recruited every year.


Services rendered by third parties The accounting and legal handlings sides and market

research will be outsourced to the third parties. The accounting and legal fees are expected to

increase by 20% year on year. However, the market research is perceived as extremely

important in the first year but the budget in halved from the second year as the market

research will be less critical and will be primarily used to spot new entrants and NEWCO

market share.

Infrastructure and Operations - The second big proportion of fixed cost is the infrastructure

and operational cost required to support NEWCO business on a day to day basis. Regional

warehouses and hubs to stock NEWCO are one of the primary requirements and the budget

increases year on year as the business grows. Rental offices, office stationaries consume a

relatively smaller percentage of the total cost. Insurance is mandatory and the budget

increases with the size of the business. Travel expenses are very high as the CEO will be

primarily based in UK and will be travelling between UK and Kenya, although CEO will be

primarily based in Kenya. The travel expenses also include local travel for marketing and

networking purposes. As the business grows, more and more assets like cars, vans, small

offices will be owned by the business.

Marketing - Marketing budget includes core marketing activities like advertisements, setting

up stalls in different localities. A successful and continuous marketing drive is critical for the

success of NEWCO and consequently the marketing budget is very high and increases as the

business grows. Budget is allocated to build and maintain partner networks as well.

An upfront investment will be made to build the branding awareness through advertisement

and promotion plan and the market materials including brochures and leaflets will be

prepared in advance to help sales force better demonstrate the products.

Product - The plastic housing mould for NEWCO will cost USD 10,000 and this is an upfront

cost that will be incurred. In addition to this, R&D will be performed on the product (in line

with Human Resources cost) in the first year primarily, less in the second and third year and

then against extensively in the fourth and fifth year for further innovation.


Although the total amount of fixed cost will steadily increase from year 1 to 5, ranging from

20% to 40% annually, the average fixed cost will be reduced dramatically due to the higher

volume of product sold in the market year after year.


7.1.2 VARIABLE COST

Components Cost - The electrical component cost, for NEWCO is USD50.01 for production of

one unit. However, if components are purchased in bulk of 1000, the cost is significantly

reduced to USD23.29. The plastic housing, manufactured in China will cost USD 1.5 per unit on

average. Following is the bill of materials of NEWCO electrical components.

Assembly and production - The entire assembly, quality control and packaging operation will

be outsourced to China and these costs will vary over the years depending on the number of

units produced. The table below shows the breakdown of different costs incurred for

producing NEWCO.


Sales - NEWCO will adopt direct sales distribution strategy and a sales force will be formed

and be responsible for direct sales to NEWCO’s targeted customers. Sales team will work on

contract basis and basic pay plus commission will be the remuneration structure for them.

Shipping and distribution - The shipping cost from China to the warehouses in Kenya and

distribution from the warehouse to the customers are also included in the variable costs.

Cost advantage is the business strategy which the company should pursue aggressively

without any doubt. Analysing the cost elements by using value chain could help better

understand the key components of the company costs. Human resource is the critical

challenge where it required the company to recruit the right talented people who are willing

to devote their efforts and capable of delivering their tasks on this start-up business. Choosing

the right suppliers which can guarantee the low input cost, efficient production process and

high quality output is the key to build the competitive advantages of the cost efficiency.

NEWCO will simplify the supplier relationship management and minimise the number of

direct contractors the production process is related to. Although the production could include

a series of tasks within the outsource value chain, such as sourcing different raw materials,

assembling, packaging and shipping, simple supplier management including one stop shopping

procurement will help NEWCO ensure the product quality and emphasise the supplier’s


responsibility and accountability. Product design, engineering as well as local sales and

marketing are the areas NEWCO experts are good at while the production function will be

outsourced to a third party that can generate the value of cost advantage and enhanced the

company's productivity and competitiveness in the local market. Distribution is the key area

the firm should well tackle with and the cost on this category will be closely monitored and

assessed.

7.2 PRICING

Following sections describes different pricing consideration and the rationale behind choosing

the price for NEWCO.

7.2.1 PRICING OBJECTIVE

Maximum market share - The Company needs boost the sales volume within a few months

after launching the product in order to quickly reach the breakeven volume. Large volume of

sales will result in low unit cost and the fixed cost can be diluted by high volume of products.

Maximum market skimming - Owing to targeting a niche market segment and lack of a direct

competition at the initial stage, renewable energy and innovative technology could be the

reasons to justify a slightly reasonable premium charged to customers. The premium price will

be a signal of novel quality of products and the price can be gradually dropped over the five

years when the competitors and substitutive solutions emerge.

Customer value - One of the objectives is to keep the price such that the customers should be

able to recover the capital investment within 3 months.

Breakeven - The price of the product should be such that the breakeven point for the business

is achieved within the 2nd year.


7.2.2 PRICING CONSIDERATIONS

Price elasticity of demand - Despite the fact that customers in rural areas have almost no

disposable income and are very much concerned about the return on their investment, we

expected that the customers will be less price sensitive about NEWCO. This is because:

• This is a direct solution to a massive problem and generates continuous inflow of

revenue

• There is no direct competition on this product

• Kiosk owners’ payback period is within 3 months, which is extremely attractive

• The product has a life span of 5 years and customers will not buy NEWCO repeatedly

• The customers don’t have global awareness or reach and hence can’t access all the

other alternatives. This product will be delivered to their door step.

Although the further market testing should be arranged to estimate the demand curve of

NEWCO product, we can preliminarily determine that there is an inelastic demand curve for

NEWCO product. It is another reason to justify that NEWCO would adopt penetration pricing

strategy with a bit premium added on it. Through the time passed by, the price will be steadily

reduced in order to catch up the maximum profit for every layer of customers.

Competition - Currently, in the Kenya market, there is no product that provides identical

function. The product is unique in the sense that it provides

• Multiple charging points

• Supports any mobile phone brand

• Connected through USB, so can be used to charge any USB compatible electronics

devices

Apart from the functions and features, NEWCO comes with the warranty and after sales

service, which adds the more value on top of the basic function. A reasonable price premium

is justified. The target is for the company to build a market share while not compromising the

profitability in the short term.


Price tested - The functional prototype of NEWCO (not the final commercial model shown in

the design section) was sold to a kiosk owner in Kenya for USD 80. Three months after the

sale, we have received extremely positive feedback from the customer. The price was

recovered within two months and the customer wanted to buy another unit. Although ideally

a large amount of samples should be collected in order to reevaluate the feasibility and

sensitivity of the proposed prices, slightly higher prices approach would be appropriate to

test.

7.2.3 PRICING ANALYSIS MODELS

Cost Plus - The following table shows the cost plus calculation for the 5 years. In the first year,

the cost is extremely high because of upfront investments like the plastic housing mould and

small sales volume. It’s evident that the total cost per unit is decreasing year on year,

primarily due to the increased sales volume.

Customer Value Based - Our market research shows that a kiosk in Kenya typically charges 10

to 15 phones in a day and customers pay KSh 15 to KSh 20 for charging a single phone. Based

on this information, being more conservative and a capital payback period of 3 months, the

following table calculates the value of NEWCO perceived by the customer. As the table shows,

if the customer pays all the revenue he earns in 3 months towards the price of NEWCO, he’d

pay USD 155.77. The exchange rate for USD to KSh has been fluctuating extremely recently.

For standardising calculation, an exchange rate of KSh 1 = USD 0.011538 has been considered.



7.3 PRICE SETTING

After considering the cost plus and the value based analysis, an introductory price of USD 150

has been decided for NEWCO. NEWCO will adapt one price strategy i.e. offering the same

price nationwide. If the price is proved to be higher than the customer’s expectation at the

outset of product launch, skimming pricing strategy could be swiftly shifted to maximum

market share by reducing the price to a lower margin level in order to get the broad

acceptance from customers.

Following table shows the margins generated with the set price.

7.4 MICRO-FINANCE LOAN

Offering the customers micro-financing loan to buy NEWCO is an option currently being

considered. This facility will help customers to escape a lump sum upfront payment to buy the

product and consequently more customers will be willing to buy NEWCO. This will in turn

result in more volume and market penetration.

We’ve spoken to couple of micro-finance organisations in Kenya and among those, the Equity

Bank is interested in the proposal of partnering with us, primarily to get more people to sign

up to accounts and to take loans. Followings are the requirements for a typical microfinance

loan in Kenya:

• Minimum loan amount is USD50

• One week lead time for loan approval from application (require interview, income

evidence, ID)


• Repayments made monthly within a total period of between 1 day to 12 months

• Typical interest rate is 18% p.a.

These criteria suits perfectly for the target customers of NEWCO. With a continuous inflow of

revenue, the KIOSK owners can comfortably make the monthly repayments. Also with the

loan option, the revenue will be realised by the NEWCO business entity at the point of sale

and the NEWCO business entity will not be involved in any repayment arrangements. Further

discussions with the micro-finance organisations are in progress.

In case the required documents are not available, another option, which is being considered

for micro-financing, is cross guarantee. By this arrangement, multiple people mutually

guarantee the repayments of the loan so that if the primary borrower defaults, the guarantors

are liable to repay the money. However, to what extent this option is feasible in Kenyan

market is subject to the approval and agreement by such entities.


Also the NEWCO charging unit will be the collateral for the loan. In the event of no repayment

by the borrower, the NEWCO unit will be repossessed by the company. This unit will be

refurbished and sold again.

7.5 INCOME STATEMENT

Following table represents the income statement projection for the next five years. Due to the

heavy upfront cost and less sales volume, the EBITDA and the net income is negative in the

first year. However, with the increased sales from the second year onwards, the business

turns into profit.


The sales volumes are low in the first year two years because these years are quite challenging

in terms of creating footsteps in a new geography, setting up the business, building the

network, gaining customer’s confidence and establishing the credential. The sales volume

starts to pick up from the third year.

Couple of highlights on the income statement:

• Depreciation and Amortisation is considered as 20% of the cost

• There is no debt and hence the business doesn’t pay any interest

• The income tax is assumed to be 30% for small business in Kenya

• The business is continually growing year on year, evident from the revenue and the

gross profit.

• Cost of goods sold (COGS) is reduced year on year, primarily because of the increased

volume and reduced production cost per unit.

• The business achieves break even in the second year of operation

• Second year onwards, the net income increases approximately 45% to 55% year on year

• The business generates a cumulative net income of USD 4m at the end of 5th year.

7.6 SENSITIVITY ANALYSIS

A sensitivity analysis has been performed on the income statement.

The cumulative NPV of the net income for the base case is US$ 2.37m at the end of fifth year.

If the sales volumes increase by 10% every year, the cumulative NPV is US$ 2.67m i.e. an

increase of US$ 300,000. And if the sales volumes decrease by 10% every year, the cumulative

NPV is US$ 2.08m i.e. a decrease by US$ 290,000. The fixed costs are considerably low

compared to the variable costs and that’s why the variation of net income is almost

proportional to the variation in the sales volume. This makes the NEWCO business quite

attractive as even with low sales volumes, the possibility of the business making a loss in the

long run is very low. The summary financials are shown in the next page.



8 ORGANISATION STRUCTURE

Two NEWCO business entities will be incorporated; NEWCO UK, the parent holding company

and NEWCO Kenya, a 100% subsidiary of SOALRIS UK.

Fig17: Organisational Structure

The entire and design and engineering work will be carried out in UK and the design and

engineering division will be under NEWCO UK. A designer will be appointed to take care of

the NEWCO module.

Manufacturing and production of NEWCO modules will be completely outsourced to China

and will be fully managed by NEWCO UK.

The accounts, legal and HR divisions will be fully outsourced for both NEWCO UK and NEWCO

Kenya for cost effectiveness.

NEWCO Kenya Operations will primarily consist of Marketing, Sales & Distribution and

Customer Services divisions. A marketing resource will heading the marketing division and will


be responsible for advertising and promoting NEWCO. The sales and distribution division will

be managing regional distribution hubs. Highly efficient and experienced regional hub

managers will be recruited, who will manage the direct sales force. Customer Services division

will address any post sales issues.

An assistant and admin function will address the day to day necessities and support the

business operations.


9 INVESTMENT REQUIREMENTS

From the business plan, it’s evident that this business has tremendous potential. Although the

immediate target market is Kenya, the potential market includes all the un-electrified areas in

the Sub-Saharan Africa and other under-developed countries. Although the business yields a

hefty cumulative net income, it makes a little loss in the first year and needs capital to sustain

the first year.

NEWCO UK seeks US$ 170,000 investment to cover the first year operational expenditure

including the fixed and the variable cost. For this much of investment, NEWCO UK will offer

20% of the equity.

Documents

Business Plan Document - ETH Z · SARIS 5 Business Plan Document EXECUTIVE SUMMARY NEWCO is a solar powered mobile charger designed to charge up to six mobile phones at a time and