MGMT 230 Entrepreneurship Professor Tyler Wry

Qechy Business Plan

Constance Mietkowski, Clement Mihailescu, and Janelle Tong

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Executive Summary

Company Name: Qechy

Co-Founders: Constance Mietkowski, Clement Mihailescu, and Janelle Tong

Mission: To make gift selecting and giving simpler.

Industry: Gift Giving Industry1

Business Description: Qechy is a gift-giving service that simplifies the entire gift giving process

by helping our customers find the best gift for their friend, family member, or casual

acquaintance (the “giftee”) – all at the click of a mouse. Based on our extensive personality test,

we curate a unique Qechy box that contains five items based on predetermined categories which

match the gift receiver’s preferences, which we then customize and package to be delivered.

Product & Service: Each gift box contains five unique items (each pertaining to our five Qechy

categories: quirky, edgy, cutesy, handy, and yummy) that fit the giftee’s personality type.

Competitors: Our competitors, including companies like Elfster and YourSurprise, consist

primarily of other businesses in the gift industry, namely “gift-suggesting” businesses.

Competitive Advantage: The majority of competitors in the gift industry are merely “gift-

suggesting” companies that offer customers suggestions on gifts to give and direct them to

Amazon and other stores in order to actually fulfill the gift purchase. Qechy, on the other hand,

not only creates specifically-tailored gift boxes, but we also allow customers to purchase the

completed and packaged gift box directly from our website, which ultimately makes us a one-

stop-shop for customers to buy uniquely-curated gift boxes all at the click of a mouse.

Target Customer Segment: We plan to target gift-giving “procrastinators,” or individuals who

struggle to find good gifts for others because they either do not have time or resources to search.

Simplified Financial Plan:

Revenue Streams Cost Structure

Unit Sale of Qechy Boxes Per-Item Cost

Affiliate Fee Customer Acquisition Cost

Advertising Fee Packaging Cost

1 “Gift-giving” (hyphenated) signifies its usage as an adjective; when separated into two words without a hyphen,

“gift giving” refers to its usage as a noun.

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Managerial Organization

Our Qechy team members took on various roles in order to bring the venture all the way

from its ideation phase into its current implementation stage.2 Additional staffing needs in the

future include an information technology director and other fulfillment center managers.

Constance Mietkowski, Co-CEO: From designing the Qechy logo to conducting

interviews in our first round of market research, Constance leveraged her experience in graphic

design as well as her connections on Swarthmore’s campus to assist with promoting our brand

awareness. Even while working as a commuter student, she gathered valuable data on both the

market size and our target consumers, which allowed us to test our hypotheses and assumptions.

Clement Mihailescu, Co-CEO: Through his analytical skills, Clement took on the role as

the primary questioner at every step of our venture, ensuring that every strategy considered and

every action taken contributed to the core lean mentality of our venture. His logical reasoning

allowed us to develop a revenue model and cost structure as well as calculate financial

projections in order to determine the actual potential profitability of our venture.

Janelle Tong, Co-CEO: Leveraging her experience in managing social media pages and

designing websites for other on-campus organizations, Janelle contributed to the development of

Qechy’s external brand by building Qechy’s landing page and official website via Wix, creating

and managing content on the Qechy Facebook page, and filming and editing the final

promotional video featured on both the home page of our website as well as in our sponsored ad

campaign on Facebook. Along with implementing external measures, Janelle also helped

promote the team’s internal communication by writing weekly agendas and messages to keep the

team consistently working on upcoming action items.

2 See Exhibit A.

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Context

Market Size

Gift giving in the United States is currently a $465 billion industry, with some reports

pointing to a heftier $700 billion.3 In 2014, Americans spent around $19 billion and $21 billion

on Valentine’s Day and Mother’s Day alone, and over 90% of American households engaged in

gift giving at some point in the year. Furthermore, although it enjoys peaks during holiday

season, gift giving is an active market throughout the year since 60% of the average gifting

budget is spent within the first 10 months of the year. With the typical annual gifting budget

ranging from $700 to $2000 per person, gift giving is indeed a lucrative industry.

Market Research

Shopping for gifts is a source of stress for a large portion of consumers, especially during

the holiday season. Indeed, gifts are a way for individuals to strengthen existing relationship, or

to develop new ones. They are a medium used to send a certain message to the recipient. For a

majority of people, the quality of the gift is directly correlated to how much one cares for and

knows about another being. The level of stress associated with gift giving differs based on the

personality of the gift giver and their approach to the gifting experience. Research shows that gift

givers can be categorized in three main segments:4

1) The Planner/Practical Shopper: usually female, plans in advance, spends more than

average, enjoys the entire gift-selecting process;

2) The Practical Giver/Normative Gift Shopper: predominantly male, spends just about

average, does not mind the gift-purchasing experience but leaves it until the last minute;

3 http://abcnews.go.com/WN/mailform?id=14998335 4 http://usatoday30.usatoday.com/life/lifestyle/holiday/story/2011-11-27/gift-giving-personalities/51425834/1

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3) The Procrastinator / Gift-Challenged Male: he enjoys offering gifts but thoroughly

dislikes the entire gift-shopping experience; he wants to find the perfect gift but is

undecided when it comes to selecting gifts, which becomes a substantial source of stress.

Due to their clear pain points, we identified this customer segment as our lead adopters.

Competitive Environment

Born out of a desire to provide a solution to the time-consuming aspect of gift giving,

Qechy is unlike any other company currently on the market. It is important to note that we are a

“gift-curating” business while our closest competitors, such as Elfster and YourSurprise, are

solely focused on “gift-suggesting” services. These competitors only provide a general list of gift

ideas and then redirect the customer to other brick-and-mortar stores or online platforms like

Amazon on which they can purchase the gifts.

On the other hand, Qechy not only provides gift suggestions to the customer, but the

purchasing step is also integrated in our website to provide customers with a central location to

engage with during the entire gift giving process from gift finding all the way to packaging and

shipping. Furthermore, Qechy differentiates itself from other actors on the market in that it offers

both a high level of personalization, and a time-efficient platform for anyone to find the perfect

gift. Elfster and YourSurprise generate gift suggestions based, respectively, on the giftee’s wish

list, or according to the occasion and the recipient’s age or relation to the gifter and therefore do

not match Qechy’s level of personalization. Large purchasing platforms such as Amazon solve

the time-consuming element but lack personalization, while other businesses (like Etsy) are all

about the personal touch but take eons to sift through. By innovatively addressing both pain

points of the gift-giving process, Qechy creates its own niche within the online gift-giving

industry and therefore has no direct competitors.

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Business Model Components

Customer Value Proposition & Operational Model

Qechy helps customers choose gift boxes based on a simple three-step process.5 First, our

gifter goes on the Qechy website and takes our personality test based on their knowledge of the

giftee. This assigns the giftee one of five personality types: Eco-friendly, Geeky, Sporty, Trendy,

or Utilitarian. If the gifter does not believe the test result is accurate, he or she is able to pick the

personality type they believe best fits their giftee. Once the giftee’s personality type is

determined, the gifter is shown the gift box associated to that personality type. Every gift box

consists of five items, each fitting in a category: Quirky, Edgy, Cutesy, Handy, Yummy (Qechy).

At this point, the gifter has the ability to discard any item(s) he or she believes the giftee would

not appreciate while also specifying the reason for the change. Based on this feedback, an

alternate item appears to replace the discarded one. In this way, the gifter maintains some control

over his present to the giftee, but still takes advantage of the time-saving aspect of Qechy.

Lead Customers

As mentioned in the market research segment, the “Procrastinator” personality type has a

clearly defined pain point (i.e. the consumer dislikes the process of shopping for gifts) that our

business strives to solve. We therefore identify the “procrastinator / gift-challenged male” as our

key lead customer. Within this personality type, Qechy specifically targets college-age

millennials (18-25) who need to find a gift for a friend or acquaintance. We target college-aged

customers for three main reasons. First, college students are price-sensitive and will respond

positively to our competitive prices. Second, college students are too busy - from going to class,

studying and being involved in different groups on campus - to spend time going to brick-and-

5 See Exhibit B.

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mortar stores or exploring the internet for good gift ideas, and yet they want to surprise their

giftee with a present they will adore. Finally, college students are technologically-savvy and

more likely than any other age group to rely on an online gift-giving service.

Key Partners & Resources

Our collaborators will consist primarily of businesses who choose to join our affiliate

system: companies wishing to place their products inside our gift boxes as a way of directly

promoting their goods to our customers will join our affiliate system by paying a fee and giving

us a discount on their products ranging from 35% to 75% of retail price (see Financial Section

for details). We anticipate maintaining strong relationships with our suppliers by allowing them

to use Qechy as a marketing platform (i.e. having their products in our boxes and in the hands of

our consumers promotes their own brand awareness). So far, our online marketing campaign has

established our brand name and has attracted the first group of potential Qechy users. We believe

that this initial success, paired with a “marketing platform” through Qechy’s boxes, will

convince multiple suppliers to join our affiliate system and sell their goods to us at discounted

prices. We expect the number of these affiliate suppliers to be small in the early stages of our

venture as we start to scale, but we assume that this number will grow considerably as our

company expands.6 Some of the potential collaborators that we will initially target include:

- Individual Etsy Sellers: a wide variety of artists who sell their products on Etsy

- DHGate: B2B website where businesses buy directly from Chinese manufacturers

- Thinkgeek: an online retailer that caters to technology enthusiasts

- TheoChocolate: chocolate makers who roast fair-traded and organic cocoa beans

6 See Key Remaining Assumptions & Risks (p.12)

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Lean Methodology

In an effort to be as productive and cost-effective as possible in our early stages, we

decided to adopt a combination of hypothesis-driven experimentation, minimum-viable-product

(MVP) testing, and validated learning.

Key Assumptions and Associated Hypotheses

Assumption 1:

People are comfortable with involving a third-

party in their gift-giving process.

Hypothesis 1:

At least 50% of our survey respondents have

previously asked someone else to select a gift

for another person on their behalf.

Testing the validity of this assumption through this falsifiable hypothesis would

determine the appropriateness of our customer value proposition.

Assumption 2:

People find the dual-surprise element (which

was originally in of our value proposition)

appropriate in the gift giving process.

Hypothesis 2:

At least 70% of our survey respondents are

comfortable with not knowing what will go

into their Qechy gift box.

This assumption was also relevant since one of our venture’s previous selling points was

ostensibly this dual-surprise element. Its associated hypothesis was rejected by the results

gathered in the first part of what is listed as our third MVP test.

MVP Test 1: Qualtrics Survey, Landing Page

After garnering a total of 126 responses since releasing our Qualtrics survey, we

validated one of our primary hypotheses that at least 50% of our survey respondents have

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previously asked someone else to select a gift for another person on their behalf, with 55% of

respondents having done so in the past.7 This ultimately confirmed that involving a third party in

the gift-giving process was acceptable behavior in the market.

MVP Test 2: Facebook Sponsored Ad Campaign, Promotional Video, Redesigned Website

In order to increase online awareness of our brand, we created a Facebook page and

invited relevant consumers (i.e. college students from both Penn and Swarthmore) to like the

page.8 From there, we invested $15 into running a Facebook Sponsored Ad campaign that

advertised our website via a short promotional video featuring Mike, a persona who represented

the target “procrastinator” market whose pain point we sought out to resolve. After running the

campaign for six days, we received over 900 video views and reached over 4,200 people,

resulting in a $0.02 cost per video view.9 Interestingly enough, 68% of both the number of

people reached and the total number of video views were from ad placements seen on the

newsfeeds of mobile devices, which suggested to us that we should consider looking into

developing the mobile compatibility of our website in order to increase the overall user

experience with our Qechy brand.10 Additionally, after reaching over 100 likes within the first

two weeks of making our Facebook page live, we were able to garner valuable insights into the

online behavior of our target market segment, particularly the times during the day at which they

were most active online.11

7 See Exhibit C. 8 See Exhibit D. 9 See Exhibit E. 10 See Exhibit F. 11 See Exhibit G.

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MVP Test 3: Interviews using Personality Test and Sample Qechy Boxes

Over the past few months we built five different “sample” Qechy boxes and conducted

two series of interviews. The first round of interviews was intended to identify trends in

consumers’ preferences and to determine whether our current business model meets those

preferences. Firstly, most respondents indicated that they wanted their gifts to be relevant to the

receiver’s interests and tastes, which could support the personality test component of our

business model. Most of our interviewees also indicated that they would be most likely to buy a

Qechy box for a second-degree relationship rather than for a close friend or family member.

From our second round of interviews, we gathered data on whether people would be willing to

pay for certain Qechy boxes after going through a rudimentary version of the entire gift-selection

process (i.e. taking the personality test to determine a personality type and reviewing the

respective Qechy box shown in five images of items to see if they would be willing to pay for

such a box). From this data, 75% of our interviewees expressed interest in our boxes, with 47%

of them stating that they would purchase the box immediately. The other 53% stated our original

price of $30 per box was too high but would be willing to pay between $10 and $20 per box.

Go-To-Market Strategy

Based on the current status of Qechy’s online presence, our primary go-to-market

strategy would be to increase brand awareness and engagement on Facebook, as it is the primary

platform that our target demographic (i.e. millennial college students) uses. The benefits of using

Facebook as a promotional channel can be evidenced in the MVP test we conducted through

running a sponsored Facebook ad campaign. Considering the low cost per customer conversion

($0.02) into video views, it would be viable for us to pursue more ad campaigns in the future

with an increasing focus toward converting people to our actual website via our “Shop Now”

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button that is directly linked to our home page. The vast majority of users accessed our Facebook

page on their mobile phone rather than on a computer desktop. This suggests that we should look

into creating an additional mobile compatibility element to our online gift-selection process -

Apple Store and Android app - in order to further promote the ease of user experience on our

platform. Finally, while our customer interactions are primarily based online, we will eventually

need to establish a physical fulfillment center in order to process all of our future gift box

requests and to store our purchased inventory items for pre-made gift boxes.

Financial Model

The profitability of our venture relies heavily on supplier partnerships since our main

costs will come from purchasing items that go inside each Qechy gift box. In the early stages of

our venture, with no partnered suppliers, we will incur all of the costs associated with the

purchase of these items. As our customer-base begins to grow, however, brands can join our

affiliate system to place their products in our boxes while also offering discounts on their items

(ranging from 35% to 75% of retail price) and paying us a premium affiliate fee. As our

company scales further and more suppliers seek to place their products in our boxes, we expect

our partners to give us larger discounts. For the time being, we foresee three main revenue

streams and a trinomial cost structure.

Revenue Streams:

1. Unit Sale of Qechy Boxes: $15 per Qechy box

2. Affiliate Fee: Partners will pay a $3 per-box fee to feature their items in our boxes.

3. Advertising Fee: Interested companies can pay a small fee ($0.10 - $0.50) per box to

place a flyer inside of our boxes.

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Cost Structure:

1. Variable Costs:

a. Items inside Boxes: Based on the sample boxes we have created, the five items of

a box will cost an average total of $22.174 (to be discounted as we get affiliates).

b. Customer Acquisition Cost: Based on the results of our Facebook Ad Campaign,

acquiring one customer will cost approximately $10.00 in the early stages of our

venture. After we expand and start to rely on word-of-mouth awareness from

satisfied customers, we expect our C.A.C. to gradually drop to $2.50 (although

this figure is just a tentative projection).

2. Fixed Costs:

a. Packaging: Each Qechy box will initially cost $3.00 to package and wrap.

b. Shipping: Shipping costs will be charged to the customer.

Our two-year financial projections begin with a private beta period of 3 months, during

which we will gradually get a select group of customers to try out our product. During our first 5

months of operations, our customer acquisition cost will remain at $10.00 (estimated from the

results of our Facebook Ad Campaign), and we will receive no discounts or affiliate money due

to a lack of partnered suppliers. We predict that our first affiliated supplier will join us during our

6th month of operations, at which point the cost of gift items will diminish slightly, and revenues

will increase from the affiliate premium; we will have incurred losses of around $2000 by then.

With an expected 30 customers at that point, we expect word-of-mouth to take off (especially on

college campuses), thereby lowering our customer acquisition cost to $7.50. Over the following

18 months we will continue to grow and attract partners (5 affiliates), lowering our per-box item-

cost to a low ~$5.50 and increasing our per-box affiliate revenue to $15 (5*$3). Over the course

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of these 18 months, the amount of boxes that we sell on a monthly basis will grow exponentially

as our Qechy brand gains more awareness and legitimacy. Our projected total EBITDA by the

end of these first 24 months surpasses $600,000. See the Appendix below for our financial

projections assuming that 5 companies join our affiliate program12, the evolution of our per-box

profit over the first 24 months of operations13, and the associated evolution of our total EBITDA

over the first 16 months14 and 24 months15 of operations. However, an important caveat is that

our projections rely on the assumption that suppliers will join our affiliate system in the early

stage of our venture even though our customer base is still small, so we plan on conducting more

future MVP tests (addressed in the next section). We have also calculated conservative

projections assuming we only attract 3 affiliates (instead of 5), which would result in a total

EBITDA after two years of $120,000.16

Remaining Assumptions & Risks

While we addressed the main assumptions and associated hypotheses during the early

stages of our entrepreneurial journey, we still have some key assumptions which remain to be

tested. These unchecked assumptions add some risk to our venture, and for this reason we have

come up with hypotheses that will be tested through two additional MVP tests.

Remaining Assumption #1:

Suppliers will join our affiliate system, even

if we do not have a huge customer base.

Remaining Hypothesis #1:

At least 3 companies will show interest in the

affiliate system that we will pitch to them.

12 See Exhibit H. 13 See Exhibit I. 14 See Exhibit J. 15 See Exhibit K. 16 See Exhibit L.

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This assumption and hypothesis are crucial for the successful growth of our venture

because having heavily discounted items will give us the ability to scale higher-quality boxes

with greater margins, thereby allowing us to spend more money on marketing and branding. This

in turn lets us acquire more customers and scale much faster, which leads us to our second

remaining assumption below. If we are unable to get a suppliers to join our affiliate system

quickly, we run the risk of simply not being able to operate for more than a few months.

Remaining Assumption #2:

As our company scales, more suppliers are

willing to partner with us, and our company

grows further.

Remaining Hypothesis #2:

With three partnered suppliers, Qechy will

surpass 500 boxes sold per month by the end

of its first year of operations.

This assumption and hypothesis are essential since a lot of our resources will be spent on

acquiring partners in the hopes of scaling as a result. If the addition of more partners does not

lead to the growth of our company, we run the risk of being burdened by growing inventory costs

and unsatisfied affiliates, which will tarnish our brand image from the supplier side.

Remaining MVP Test: Contact fifteen companies, pitch them our idea as well as our affiliate

program and ask if they are interested in joining (Deadline: 3-4 months)

This MVP test will serve to gauge companies’ interest in our product. If we can get at

least three companies to sign up for the mock affiliate system that we pitch to them, then we can

reasonably assume that these companies would be willing to actually partner with us within the

next six months. This test will be conducted during our private beta period.

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Conclusions

Ultimately, Qechy was created in order to help make gift giving simpler. Between the

extensive amount of market research that we have gathered, the three main MVP tests that we

have conducted, and the financial projections that we have calculated, we believe that there is a

potential for our venture to be viable in this gift-giving market. Future plans for Qechy include

the following:

1) Creating a loyalty program to incentivize people to come back to our platform to

purchase other Qechy boxes.

2) Implementing a product line extension with smaller, cheaper “Qechy Lite” boxes to cater

to individuals with a smaller budget

3) Conducting geographic expansion (assuming we have the financial means to do so)

starting on the East Coast and then, through our team members’ connections to France,

eventually to European countries.

All in all, the main takeaway we have gained from Qechy is that building an entirely new

start-up is time consuming yet incredibly rewarding, and regardless of where our future career

paths may take us, we have all learnt a great deal about our own abilities and passions through

Qechy.

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Appendix

Exhibit A: Qechy Team

Exhibit B: Qechy Infographic

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Exhibit C: Qualtrics Survey Data

“Have you ever asked someone else to purchase a gift for another person on your behalf?”

Exhibit D: Qechy Facebook Page

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Exhibit E: Facebook Sponsored Ad Campaign: Post Reach and Engagement Statistics

Exhibit F: Facebook Sponsored Ad Campaign: Placement Statistics

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Exhibit G: Facebook Page User Behavior and Target Market Insights

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Exhibit H: Financial Projections (5 Affiliates)

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Exhibit I: Profit per Qechy Box Over First 24 Months of Operations (5 Affiliates)

Exhibit J: Total EBITDA Over First 16 Months of Operations (5 Affiliates)

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Exhibit K: Total EBITDA Over First 24 Months of Operations (5 Affiliates)

Exhibit L - Total EBITDA Over First 24 Months of Operations (3 Affiliates)