Entrepreneurship and Venture Creation - Tech Connect Consulting - Case Study Example

Business Plan Table of Contents The Business.................................................................................3 1.1 Description of the Business.....................................................3 1.2 Market Survey Summary.........................................................4 1.3 Competition and SWOT..........................................................5 1.4 Operation, Staff, and Structure................................................8 1.5 Organisation Chart...................................................................9 1.6 Collaboration and Partnerships..............................................10 1.7 Market and Pricing.................................................................11 2. Financial Data..............................................................................13 2.1 Important Assumptions..........................................................13 2.2 Projected Cash Flow..............................................................13 2.3 Projected Balance Sheet.........................................................14 2.4 Profit and Loss.......................................................................15 3. Risk Analysis...............................................................................17 4. Action Plan..................................................................................18 5. Conclusion...................................................................................19 6. References....................................................................................20 The Business Description of the Business Tech Connect Consulting is a new firm that seeks to provide international high-tech companies introducing new products into the UK market with consultancy services, specifically by targeting new niche markets in the country. The organisation’s partners are experienced professionals in business development, marketing, distribution strategies, and channel development of high-tech products. Technology manufacturers from North America and Asia seeking to access the Western Europe market will require expertise in the opening and selection of channels, evaluation of distributors, and establishment of distribution (Grilli & Murtinu, 2014: p1531). This is the opportunity that Tech Connect wants to leverage. The founders of the firm have experience in market research, marketing of personal computers, and consulting services and are forming the company formalise their consultancy services. Tech Connect aims to attract clients who want temporary and scalable marketing expertise, which may be too expensive and difficult to undertake using permanent, full time staff. Its selling point in achieving this goal will be that clients can leverage expertise on a range of revenue opportunities from one pool, including market research and consultancy on projects (Grilli & Murtinu, 2014: p1531). The starting capital for this business will be £20,000. Currently, this market has no dominant/monopoly position because the large consulting firms and market research companies are not focused on niche markets. Moreover, most of the high tech companies entering the Western Europe market still prefer to conduct most of their market research and business development functions within the organisation (Parida et al, 2012: p291). By providing consultancy services that link market research with the specific goals of these companies, Tech Connect will help open up new niche markets for foreign high tech companies. The level of threat from competing products is low in the UK because the market for these services is heterogeneous, especially since consultancies specialise in different expertise areas, rather than being in competition with each other. However, companies entering this market need a high, established reputation in the high tech marketing industry (Parida et al, 2012: p292). This reputation is tied to competencies in market research, as well as distribution and channel management. Tech Connect will keep all of its core activities in-house, including market research and project consulting. Going forward, the company will seek to introduce electronic and physical newsletter services, while also broadening its coverage to include consultancy services in telecommunications. Market Survey Summary Tech Connect will offer consultancy services for high tech organisations in London and the South and South East regions of the UK, which have the highest concentration of high tech product consumption. Consultancy.uk (2015: p1) reports that the UK market for high tech products consultancy will increase by 40% between 2014 and 2017. Moreover, there is an increasing trend towards consulting solutions, particularly as high tech manufacturers seek out variable cost solutions. Most small independent high-tech consultancy firms in the UK charge approximately £8000 per month for consultancy services, although this figure may vary depending on the type of services and market conditions (Consultancy.uk, 2014: p1). On the other hand, market research firms like Synovate charge £5,000 for a report, which is the standard rate for majority of companies. Major players in these markets include Synovate, Experian, Datamonitor, Ipsos MORI, Vision One Research, and IFF Research that target large and mid-level companies wanting to enter or expand in the UK market (Consultancy.uk, 2015: p1). On the other hand, major players in the market-specific and function-specific consultancy markets include ChannelMark and ChannelStrategies for channel development. The high-tech consultancy industry is defined by Knockaert and Ucbasaran (2013; p74) as disorganised and pulverised, involving hundreds of small consulting firms, as well as individual consultants for each of the more renowned companies. Participants in the market range from thousands of individuals to a number of international brand-name firms. Most of the small, independent consultancy firms are mainly quality-driven since international clients are looking for services that do not risk their reputation in new markets, rather than looking for bargains. As technology becomes a major driving force of the UK economy, high-tech marketing has changed dramatically. This has made the market more open to high tech consultancy companies, while the fact that the industry is still in its growth phase makes market penetration easier due to the lack of established players (gartner.com, 2015: p1). Tech Connection’s customers will mainly be international and domestic high tech manufacturers seeking to either enter or expand in the UK market. In this case, the main clients will be medium-sized high-tech growth firms, especially those dealing with multi-media, software, and related growth fields. Competition and SWOT i. Competition Currently, there is no company with a monopoly position in the target market because it is still a largely untapped niche market with most companies either conducting in-house market research and business development or larger companies that are too generalist in nature (sourceforconsulting.com, 2013: p10). However, this market is such that other companies, including the generalist ones, have the ability to offer substitute services. Still, they would need the right mix of expertise that enhances their reputation as an all-round consultancy service, which is where Tech Connect hopes to create and sustain a strong market position. Direct competitors include smaller consulting companies and brand-name consulting companies that offer similar and competing services, while indirect competition is more pervasive and includes organisations that decide to conduct their activities in-house (sourceforconsulting.com, 2013: p11). Moreover, distributors who provide their clients with cross-market options, as well as horizontal marketing consultants, also provide indirect competition to Tech Connects proposed business. ii. SWOT Analysis Strengths The founding partners have true expertise in this niche area and will enrich the consultancy services together Absence of large overheads and delivery on promised expertise The founding partners have individual market networks that will be useful in the market research operations. Weaknesses Lack of resources to conduct enough general marketing and reliance on word-of-mouth to generate leads, especially for the consultancy services Shortage of adequate staff may make it difficult to leverage human resources in detailed research and documentation, especially for the market research service The company is not yet a brand-name, which may make Tech Connect a risky choice Opportunities Internet growth continues to necessitate the entry of major tech companies into international marketing, which is an opportunity for high-tech consultancy services Growth in the UK for high-tech products consumption has made manufacturers more willing to enter the market Challenges of hiring full-time staff, including costs and red tape in EU countries, means these companies will tend to higher short-term, local expertise Threats There is an increasing trend for companies entering the UK market to use consultancy services based in main-land Europe Brand-name consultancy firms may also begin to form specialised units for the niche market Tech Connect is targeting The unique selling point for the project-based and retainer consultancy services is that Tech Connects founding partners have years of experience in critical areas that international companies must establish in new markets, including distribution and channel management, marketing, market research, and business development. Thus, the high tech manufacturer can leverage high-quality expertise in different revenue generating opportunities from one firm. In relation to the market research services, the founding partners have a wide network of freelance, qualified professionals who will always be available for market research and development of market reports alongside the current partners. This will ensure that the company can provide quality market information in a short period of time. Operation, Staff and Structure Operation, Staff and Structure To begin with, the founding partners of Tech Connect will need to establish a reputation for expertise, specifically by being visible at industry events and major trade press. In this case, the objective is for the partners to be introduced as experts in international market entry consultancy at two major events in the first year (Boone et al, 2013: p23). Moreover, the firm will also need brand-name references from its customers for market research activities, which will be achieved by getting at least two brand names that Tech Connect can cite as customers by the end of the first year. The founding partners will all be involved in achieving the core proposition of this business by providing clients with their respective expertise. David Long will be the firm’s CEO and will cover consultancy dealing with distribution management, while Lucy McCain will be the firm’s CFO and will cover marketing consultancy. Collin Castle will be the director of product development in charge of channel development consultancy, while Aiden Luke will be the 2nd director of product development and in charge of market research. Below is the organisational chart for Tech Connect and the salary structure; Tech Connect Organisational Chart Personnel Estimates Partners £44,000 Consultants £0 Editorial Staff £10,000 Director of Operations £10,000 Customer Support £7,5000 Director of Business Development £10,000 Sales people £10,000 Secretarial £3,250 Total people 8 Total payroll £94,750 Table 1: Tech Connect Estimate Salary Structure The initial location of Tech Connects offices will be in East London Tech City, which is the heart of the UK technology and high technology sector. The company will be accommodated in an A-quality office within this location. The firm’s legal structure is to be a limited liability partnership, in which the sharing of profits and responsibilities will be set out in the limited liability partnership agreement (Morse, 2012: p33). In case of business debt, the partners will only be liable for the amount that they invest in Tech Connect. With regards to proposed investment requirements, the company will be looking for angel investors, particularly those who have made their fortune from technology. They will be offered 20% of the company for £180,000, £130,000 of which will be current debt and £50,000 of which will be long-term debt. Two of the investors will be offered non-executive positions, specifically those with long-term high-tech experience. Collaboration and Partnerships Tech Connect will, at present, seek to form strategic alliances with marketing companies, while the experience and background of the company’s partners means that it is possible to collaborate with their former firms for activities that need to be outsourced. Strategic alliances are generally agreements in which different parties decide to pursue common and agreed upon goals and objectives, while maintaining their independent status (Tata Consultancy Services, 2015: p1). The high-tech industry has one of the most entangled and complex supply chain structure among all other industry sectors, mostly operating in the form of a matrix structure. As such, providing consultancy services for high tech manufacturers will require Tech Connect to form strategic alliances with electronics manufacturing service companies who play a critical role in the distribution and channel management processes. Presently, the company is discussing such an alliance with JJS Manufacturing, which is headquartered in London and will provide additional expertise on channel management. Once the high tech manufacturers seeking Tech Connects’ services ship in their products, it will be critical for Tech Connect to have contacts with specialist high tech distributors, distribution and storage facilities, and retail channels. It is expected that the strategic alliance with JJS Manufacturing will provide the required expertise in this area of the business. Marketing & Pricing There are several ways of categorising business strategies, one of which is through the description of the company’s degree or extent of aggressiveness rated according to risk propensity, marketing assertiveness, product innovation, financial leverage, and decision-making speed (Kourdi, 2013: p29). Tech Connect will be using the prospector strategy, which is very aggressive and involves active attempts to stimulate new opportunities when entering a new market or expanding into new markets. The company will pursue new market development vigorously using offensive marketing, while also responding quickly to signs of opportunity in the market with minimal market analysis or research. The target market will be medium-sized high tech manufacturing companies, including manufacturers of computer software and hardware and firms offering networking and other related high-tech services seeking to enter the UK market. Tech Connect will target the executives of these small and mid-sized high-tech manufacturers, including sales managers, general managers, and marketing managers. The standard service offering for Tech Connect involves consultancy services, which will be billed based on project proposal completion. In cases where the company feels that there is an opportunity for mid to long-term consultancy, the partners are willing to consider retainer consulting relationships. Finally, the company will also be offering market research services. The market for these services, as already noted, is the UK market, specifically for international high tech manufacturing companies seeking to expand into the UK market. Branding for the business will be a slow and long-term undertaking, mostly because the main method used for marketing the company is based on repeat business and word of mouth (Coomber, 2012: p51). However, the Tech Connect logo will be used during industry events when one of the partners is on stage, as well as on the market research reports presented to clients. Tech Connect’s philosophy will be to offer high quality consultancy services that result in innovative solutions for channel development, market development, and business development for the company’s clients in the UK market. The firm seeks to provide a more attractive alternative to use of in-house resources for international firms with our knowhow, practical experience, and contacts. Tech Connect, thus, will be able to remain financially sustainable by charging higher prices for consulting and providing higher client value. Consulting services will be charged at £5,000 in terms of project consulting, £10,000 every month for retainer consultancy, and £2,000 for market research. Financial Data Important Assumptions In the key financial assumptions, Tech Connect plans for an average of 45 days as collection days and a net 30-day basis for expenses, while only invoices will be used for sales. Moreover, the company also expects current day interest rates to prevail for the next five years, especially since they have remained unchanged for the last six years. General Assumptions Year 1 Year 2 Year 3 Year 4 Year 5 Current Rates of Interest 0.5% 0.5% 0.5% 0.5% 0.5% Long-term rates of interest 0.5% 0.5% 0.5% 0.5% 0.5% Taxation rate 30% 30% 30% 30% 30% Projected Cash Flow Year 1 Year 2 Year 3 Year 4 Year 5 Cash Sales £0 £0 £0 £0 £0 Cash from Receivables £495,000 £528,000 £663,000 £740,000 £830,000 Subtotal Cash from Operations £495,000 £528,000 £663,000 £740,000 £830,000 Additional Cash Received New Current Borrowing £30,000 £100,000 £0 £0 £0 New Long term Liabilities £50,000 £0 £0 £0 £0 New Investment Received £8,000 £0 £0 £0 £0 Sub-Total Cash Received £583,000 £628,000 £663,000 £740,000 £830,000 Expenditures Year 1 Year 2 Year 3 Year 4 Year 5 Expenditures from Operations Cash Spending £194,750 £377,000 £432,000 £510,000 £600,000 Bill Payments £144,281 £152,988 £191,895 £211,345 £210,289 Sub-total Spent on Operations £339,031 £529,988 £623,895 £721,345 £810,289 Additional Cash Spent Principal repayment of Current Borrowing £0 £30,000 £50,000 £0 £0 Long-term Liabilities Principal Repayment £600 £10,000 £10,000 £0 £0 Sub-total Cash Spent £539,631 £569,988 £683,895 £721,345 £810,289 Net Cash Flow £43,369 £58,012 (£20,895) £18,655 £19,711 Projected Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5 Assets Current Assets Cash £93,179 £152,362 £131,600 £140,500 £142,000 Accounts Receivable £97,000 £143,370 £180,236 £195,230 £201,222 Total Current Assets £190,179 £295,732 £311,836 £335,730 £343,222 Total Long-term Assets £0 £0 £0 £0 £0 Total Assets £190,179 £295,732 £311,836 £335,730 £343,222 Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5 Current Liabilities Accounts Payable £32,720 £37,636 £49,635 £50,213 £50,981 Current Borrowing £30,000 £100,000 £50,000 £0 £0 Sub-total Current Liabilities £62,720 £137,636 £99,635 £50,213 £50,981 Long-term Liabilities £49,400 £39,400 £29,400 £19,400 £9,400 Total Liabilities £112,120 £177,036 £129,035 £69,613 £69,781 Paid-in Capital £58,000 £58,000 £58,000 £58,000 £58,000 Earnings £20,600 £40,096 £64,106 £70,000 £81,000 Total Capital £78,600 £118,696 £182,802 £128,000 £139,000 Total Liabilities and Capital £190,719 £295,731 £311,837 £197,613 £208,781 Net Worth £78,600 £118,696 £182,802 £128,000 £139,000 Profit and Loss Year 1 Year 2 Year 3 Year 4 Year 5 Sales £592,000 £875,000 £1,100,000 £1,214,000 £1,259,000 Direct Cost of Sales £159,000 £219,000 £289,000 £320,000 £359,000 Total Cost of Sales £592,000 £875,000 £1,100,000 £1,214,000 £1,259,000 Gross Margin £433,000 £656,000 £811,000 £894,000 £900,000 Gross Margin % 73.14% 74.97% 73.73% 73.64% 71.49% Expenses Payroll £194,750 £377,000 £432,000 £450,100 £485,000 Marketing/Promotion £162,000 £137,000 £195,000 £180,000 £185,000 Leased Equipment £6,000 £7,000 £7,000 £8,000 £8,000 Utilities £12,000 £12,000 £12,000 £12,000 £12,000 Insurance £3,600 £2,000 £2,000 £2,000 £2,000 Rent £18,000 £52,780 £60,480 £61,200 64,280 Total Operating Expenses £396,350 £587,780 £708,480 £713,300 £756,280 Profit before Taxes and Interest £36,650 £68,220 £102,520 £180,700 £143,720 Earnings before Interest, Taxes, Depreciation and Amortization £36,650 £68,220 £102,520 £180,700 £143,720 Interest Expense £7,222 £10,940 £10,940 £10,940 £10,940 Taxes Incurred £8,828 £17,184 £27,474 £35,312 £43,109 Net Profit £20,600 £40,096 £64,106 £134,448 £46,562 Net Profit/Sales 3.48% 4.58% 5.83% 11.07% 3.70% Risk Analysis Risk Probability Severity Contingency Market risks such as; Failure of consumers to buy our services Competitors may cut prices An important client may switch to a competitor Requirements to create changes in consumer behaviour Medium High The contingency plan for this eventuality is to; Set out prices that the company can offer to maintain current sales volume Identify prospects or clients that can increase the firm’s business to cover loss of a client Technical risks, such as; Failure to deliver on promises to the client Failure to deliver on promises on time and on budget Medium High Tech Connect will take out insurance to cover several insurable risks, such as restitution and recovery risks for the client Operational risks such as; Failure of customer support service operations Failure in the firm’s day-to-day operations Medium Medium Employee education and training, as well as close management oversight of employees Tech Connect will also ensure that there are alternative IT facilities in case of failure in a major system Tech Connect may also exit one of the businesses if its failure threatens the firm’s reputation Action Plan Milestones Apr. May June July Aug Sept. Oct. Nov. Dec. Jan. Feb Mar. Business Plan Logo Design Retainer Consultancy Contracts Stationery Brochures Financial data Presentation Initial Mailing Office Location Office Equipment Other Conclusion This paper has provided a business plan for Tech Connect, a high-tech products consultancy services firm that will provide these services to international high-tech manufacturers seeking to access the UK market. The clients that Tech Connect seeks to attract will need temporary and scalable marketing expertise, which may be too expensive to hire full-time, permanent staff to do. The plan has also identified the expertise of Tech Connect’s different partners in areas as diverse as channel and distribution management, marketing research, and business development, which the clients can access from one firm, rather than different generalised firms. This business idea is supported by the fact that the UK market for high-tech consultancy will increase by 40% between 2014 and 2017. References Boone, C., OConnor, M. F., & Smith, D. (2013). High tech consulting marketplace: Key trends, profiles and forecasts. Peterborough, N.H: Kennedy Information. Consultancy.uk. (2015, February 2). Technology, Media & Telecom consulting reaches 5 billion. Retrieved April 18, 2015, from http://www.consultancy.uk/news/1431/technology-media-telecom-consulting-grows-to-5-billion Consultancy.uk. (2014). Consultancy Fees & Rates. Retrieved April 18, 2015, from http://www.consultancy.uk/consulting-industry/fees-rates Coomber, S. (2012). Branding. Oxford, U.K: Capstone Pub. gartner.com. (2015). High-Tech & Telecom Professionals. Retrieved April 18, 2015, from Gartner: http://www.gartner.com/technology/technology_professionals.jsp Grilli, L., & Murtinu, S. (2014). Government, venture capital and the growth of European high-tech entrepreneurial firms. Research Policy, 43(9), 1523-1543 Knockaert, M., & Ucbasaran, D. (2013). The Service Role of Outside Boards in High Tech Start-ups: A Resource Dependency Perspective. British Journal of Management, 24(1), 69-84 Kourdi, J. (2013). Business strategy: A guide to effective decision making. London: Profile. Morse, G. (2012). Palmers limited liability partnership law. London: Sweet & Maxwell. Parida, V., Westerberg, M., & Frishammar, J. (2012). Inbound open innovation activities in high‐tech SMEs: the impact on innovation performance. Journal of Small Business Management, 50(2), 283-309 sourceforconsulting.com. (2013). The UK Consulting Market in 2013. Retrieved April 18, 2015, from http://www.sourceforconsulting.com/files/file/Consulting_Market_ProgrammeUK_sample(1).pdf. Tata Consultancy Services. (2015). Strategic Partners. Retrieved April 18, 2015, from http://www.tcs.com/about/corp_facts/alliances/strategic-partners/Pages/default.aspx Read More