A Business & Marketing Planning Solution Center
Sample Business Plan
1
Executive Summary
1.1
Company Mission
XYZ Works, Inc., designs, develops and implements Web based applications for the
construction industry that help general contractors and owners manage risk, decrease costs, and
reduce project cycle time. XYZ’s Business Partner NetworkTM (BPN) simplifies and expedites bid
package management, project management, procurement, and communication between teams.
The BPNTM interfaces mobile and multi-media technologies with database and transactional
systems to provide an interactive communication and business process workflow platform for better
management of the full lifecycle of any building project - from design and planning through
construction and closeout.
The construction industry is a natural fit for such externally hosted Web enabled applications.
Various industry publications have covered the concept of such Web sitesi. Unfortunately, these sites
require a level of technical expertise to set up and manage that many construction companies do not
have or are unwilling to invest in. XYZ is strategically positioned to provide an alternative to
managing one’s own information technology infrastructure to provide such services.
XYZ's networked solutions require little or no investment in the IT infrastructure from the clients,
reduce cycle time, save cost of procurement, reduce cost of changes & extras and eliminate
inefficiencies in the construction value-chain. These solutions result in significant savings, 10-15% of
the total cost, to the owners and other organizations involved in a construction project.
XYZ’s solutions bring the convenience, ease of use, speed, and “anytime-anywhere-access” of
the Web and wireless devices to the bricks-and-mortar world of designing, engineering and building
large construction projects.
At the moment XYZ is collaborating with various user firms to develop and implement the
components of the system. This includes the construction of an office complex for a major
manufacturing firm in Southeast Michigan, a general contractor and an engineering firm.
1.2
Market Trends
Large construction projects involve managing geographically dispersed teams. The challenges
and problems facing the firms managing these projects include communications between various
teams, coordinating activities of all entities, and keeping up with paper documents whether they are
for routine request for information (RFI) or changes in the specifications and design. Increasingly, the
industry players are exploring the applicability of technology for document management,
communication and applications sharingii.
During the last few years, the use of Internet for managing project documentation and improving
collaboration has started to take hold in the industry. According to New York Times, many
construction executives believe that this medium offers a ready solution to their thorniest problem –
how to coordinate the efforts of hundreds of separate teams across the life span of a project as the
Sample Business Plan
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February 5, 2016
A Business & Marketing Planning Solution Center
original plan evolves. Just as CAD has come to dominate the architectural and engineering design
process, and the expenditure for it is considered as part of the cost of doing business, so will Web
based services dominate the project management, document management, and communication
between construction teamsiii.
1.2.1
Building & Construction Industry
The building and construction industry is the largest in the United States:
 Over the last five years, it has had 6% average annual growth and the value of new
construction for 1999 is well over $700 billion
Industrial Buildings
26,643
Hotels & Motels
15,581
Offices
47,239
Other Commercial
135,897
Residential
321,668
Public
158,104
 The purchasing cost of materials, components and supplies is 26% of the total value of new
construction, or $216 billion for 1999
 In a given quarter there are approximately 17,000 on-going projects, in various phases, of
value between $5 millions and $4 billions, including 4,000 new projects starts
 The capital equipment acquisition cost is 1.5% of total business, or $12 billion for 1999
 The eBusiness for the industry is estimated to grow in five years from $6.3 billion to $141
billion or 10% of the total construction spendingiv
The value-chain of the industry has numerous inefficiencies:
 Up to 15% of the projects are typically over budget and delayed
 Expenses related to communication constitute up to one-third of a project’s cost, directly or
indirectly, including the opportunity costs related to delays, and rearranged activities
 According to informal studies, the average design and engineering firm that does over $100
million annually spends 5% of its gross revenues on collaboration activity, including plotting
and reproducing documents, courier services, travel, and other communication expensesv
 The purchase orders are executed on paper and the requests for changes take weeks to go
through the approval processes and require the contractors, engineers & architects to add their
approval on the same sheet of paper
 Many times, due to paper-based system, the sub-contractors bid based upon in-sufficient
information, and if a discrepancy is not resolved at the bidding time then it costs greatly later
in terms of changes and extras, which are usually priced at a much higher mark-up
1.3
Target Market Segments
XYZ’s product offerings are designed for the complete life-cycle activities of a construction
project. The company is initially targeting the companies that are involved in the construction of large
commercial structures. These structures include industrial units, offices, hotels & motels, religious
buildings, educational complexes, hospital & institutional and residential complexes. This target
group consists of the owners of the property, general contractors and construction management firms.
These targets provide opportunities for repeat businesses, long-term growth and financial stability.
Designing, planning and constructing large buildings pose a series of challenges to these firms.
XYZ’s solutions effectively addresses these challenges, which include:
 Coordinating activities of multiple contractors in multiple locations
 Sharing information with geographically dispersed teams
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A Business & Marketing Planning Solution Center

Managing large documents & drawings and keeping up with changing specifications &
requirements
 Collaborating and communication with on-site and off-site team members
 Maintaining strict control of policies & procedures
1.4
1.4.1
The Products
Business Partner Networktm: an eBusiness Environment
XYZ Works' Business Partner Networktm (BPN) solution enables construction industry
professionals to collaborate, communicate and conduct business over the Web. It simplifies and
expedites bid package management, project management, procurement functions, and communication
between teams. The BPNTM consists of:
 Project War Roomtm: The Virtual Workspace
XYZ’s Project War Roomtm (PWR) is a Business-Process workflow management system. It
enables supervisors to share work schedules, site engineers to file field reports, architects to
amend blueprints and executives to check the status of the whole project online. Through this the
teams can collaborate, share applications, exchange documents, communicate and conduct virtual
conferences. The key features and benefits of PWRTM are:
 Change Order and Request For Information (RFI) Management
 Project management, reporting, and monitoring
 Communication and collaboration
 Anytime, anywhere Access
 Bid Management Systemtm
XYZ’s Bid Management Systemtm (BMS) is an interactive and intuitive multi-media
communication platform for bid package preparation, response solicitation and addendum
management. It is a Web driven database and document management system that allows users to
create, maintain, transmit and monitor specification documents and drawings online. Using the
BMSTM, the architects, engineers and contractors can:
 Prepare bid packages, addendum and proposals electronically
 Distribute documents electronically
 Access information and Control the bidding process
1.4.2
Benefits to Clients
The BPNtm offered by XYZ brings significant economic benefits to the clients. The tangible and
intangible benefits of BPNtm can save 10%-15% of the total project cost. It will cost 0.5% to 0.75% of
the total cost of a mid-sized project. The payment would be spread over the life of the project. The
expected ROI to the clients is over 600%.
 Reduced cost
 Communication costs lowered by 20-60%
 Lower printing and distribution cost
 Reduced travel and lost opportunity cost
 Requisition processing costs cut by 70%
 Procurement cost cut by as much as 15%
 Lower litigation expenses
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 Potential to reduce cycle time by 10-15%
 Timely and accurate notification of bid
addendum eliminates delay
 RFI turnaround time cut by 60-80%
 3-5 days reduction in submittals
 Processing time reduced by 50%-70%
 Prompt and precise delivery of documents
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A Business & Marketing Planning Solution Center
 Improved Productivity
 Lower investment in IT infrastructure
 Freeing of critical resources
 Leveraging the investment made by XYZ
in IT infrastructure
 Administrative work-time cut by up to 30%
 Work-site visits reduced by 10-50%
1.5
Competition
The business-to-business eCommerce industry is very competitive, and a number of business
models are in practice that includes business eCommunities, market-exchanges and integrated service
providers. Few start up companies are targeting the online construction and building industry. These
include project Webs, online bulletin boards, communication platforms, and networks. XYZ feels that
it has a competitive advantage because no other offering provides such a comprehensive solution that
integrates the interactive bid management system with the transaction system, mobile & multi media
communication, and document exchange platform. The potential market is also very large and
geographically dispersed, therefore, can absorb many eCommerce firms.
1.6
Pricing & Financials
The pricing structure includes initial setup fee and monthly license fee for a project. Our pricing
structure is expected to give 600% ROI to our clients. XYZ expects to get 0.2% of the total
construction projects by the end of first year and 3% by the end of fifth year. Our return on sales is
estimated to be 37% for the year five. A summary earnings projection follows:
($000)
Year 1 Year 2 Year 3
Revenue 1,066 13,273 86,600
Gross Profit (Loss) 135
8,683 63,662
EBIT (3,059) (393) 21,279
Y1
Y2
Y3
ROS (287%) (3%) 25%
Gross Margin 13% 65% 74%
Operating Margin (200%) 32% 51%
Year 4 Year 5
272,550 499,452
203,434 381,888
85,122 170,957
Y4 Y5
31% 34%
75% 76%
57% 58%
At this time we are seeking to raise $4 million for business and product development.


Series ‘A’ - $750K

First Month - $300K: For recruitment, development, marketing and promotion

Second Month - $200K

Third Month - $250K: Milestone - Beta site launch
Series ‘B’ - $3,250K - Fourth month
Development Salary
2%
27%
26%
Operations Salary
Operations
Mktg & Promotion
20%
Sample Business Plan
14%
11%
SG&A Salary
Cash
4
Where the Money Is Going
First Five Quarters
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A Business & Marketing Planning Solution Center
1.7
Sample Business Plan
5
Team
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A Business & Marketing Planning Solution Center
2
Mission and Vision
Our mission is to create competitive advantages and greater economic value for our stakeholders
and achieve strategic initiatives through technology, employee involvement and a culture of
continuous improvement. XYZ will reach its mission by:
 Achieving Profitability
Attain positive cash flow and offer services with values that command premium price
 Providing Satisfying Customer Experience
Deliver a high quality and economically beneficial customer experience that is rich in content
 Ensuring Quality and Performance
Meet or exceed customer quality expectations and industry standards
 Maintaining Dynamic Work Environment
Provide challenging and satisfying opportunities for personal and professional growth
 Staying Ahead of Competition
Establish competitive edge through hard-to-clone applications and first-to-market
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A Business & Marketing Planning Solution Center
3
The Market Opportunity
3.1
3.1.1
Market Trends
Business-to-Business eCommerce
Business-to-Business eCommerce, though still immature, is the fastest growing segment of the
Internet. The value of business-to-business transactions conducted on the Internet is 10 to 20 times
greater than the value of business-to-consumer transactions.
3.1.1.1
Business-to-Business
eCommerce has significant
growth


3.1.1.2
The segment is expected to
grow from $28 billion in
1998 to $1.3 trillionvi in 2003
A number of companies are
going online to do business
and by 2002 and Internet is
expected to connect 1.3
million companies for
eCommerce
Professionals find doing
business on Web beneficial


3.1.1.3
More professionals are going online for
business activities to save time, compare
prices and to get information
Over 60% of professionals make purchases
online at least once a month after getting
information from the Web and 20% make
more than five purchases a monthvii.
Finding information on the Web is not easy


Save Time
Convenience
Access to Customer Opinions
Availability of Vendor Information
Personalized Information
No Pressure From Sales Person
Reviews
Other
80%
85%
30%
87%
15%
59%
49%
3%
Reasons For Professional Shopping
(Source: Georgia Institute of Technology)
34% of users take less than 5 minutes to find information and 30% take more than 10 minutes
70% of users give up if they do not find what they are looking for in 10 minutesviii
Professionals find Web Communities usefulix
3.1.1.4

3.1.1.5
Over 56% of professionals get more connected with people having similar interests after
getting online as compared to not getting online
The ROI for business-to-business eCommerce application is high


On an average, companies realize ROI of over 300% resulting in 28% increase in profitsx
63% of the companies that have implemented eCommerce applications have saved cost, 31%
increased revenue and 31% reduced cycle timexi
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A Business & Marketing Planning Solution Center
3.1.1.6
Merchant Server (with database)
Content development tools
Business logic development tools
System management & database middle-ware
Subtotal
Developing eCommerce Sites is
Expensive


Building eCommerce sites is
expensive
By 2000, businesses will spend
$3.2 billion on eCommerce
softwarexii - 52% of this
expenditure will be by large
firms, 45% by midsize firms
and only 3% by small firms
3.2
$25,000
$20,000
$25,000
$25,000
$95,000
The Building & Construction Industry
The building and Construction industry is the largest industry in the world both in terms of value
of business conducted, $3.2 trillion worldwidexiii, and the number of people employed, accounting for
about 10% of a country's GNP.
3.2.1
US Construction Industry
 Segments, size and growth
 The value of business conducted is 4% of GNP and 8% of GDPxiv
 The industry has had 6% average annual growth
 The value of new construction for 1999 is over $700 billion
 The size of the commercial real estate market is estimated at $2.4 trillion, which is roughly 50
times the contract value of annual new commercial constructionxv
 Non-residential buildings accounts for 24% of the industry, residential buildings 47% and the
highways and other public non building structures account for 13% of the industry
350
750
300
700
250
650
200
600
150
550
100
In $Million 1998
Non-Residential Buildings
Industrial 32,270
Office 41,541
Hotels & Motels 14,904
Other Commercial 53,783
Religious 6,729
Educational 9,629
Hospital & Institutional 13,663
Miscellaneous 9,395
Total Non-Residential 181,914
Total Private Residential 294,326
Total Public Utilities 37,267
Total Public Buildings 66,136
Total Public Non-Buildings 79,236
500
1994
1995
1996
Non Residential
1997
Residential
1998
1999
Total
1999
5 Yr. Change
26,643
47,239
15,581
55,701
7,094
9,359
12,294
9,911
183,822
321,668
41,539
70,406
87,697
3%
17%
35%
9%
15%
19%
3%
12%
11%
6%
2%
8%
3%
Total Construction $665,444 $705,132
6%
Value of New Construction Put - Source: US Census Bureau
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 Midwest region has significant construction activities
(In Millions $) Total Non Residential Buildings Residential Buildings Public
39,085
68,394
42,448
Total Midwest 149,926
27,765
48,585
30,154
East North Central 106,505
 Industry Purchases
 The cost of materials, components, supplies & fuel constitutes 26% of total businessxvi - 1999
estimated cost of materials, components, supplies & fuel is $216 billion
 The capital equipment acquisition cost constitutes 1.5% of total value of constructionxvii 1999 estimated capital equipment purchases is $12 billion
 General contractors make 95% of the purchasing decisionsxviii
 The building supplies market is highly fragmented, top 20 stores have sales of $400 million
and top 20 suppliers have sales of $200 million
Top 20 Building Material Stores
$ Million
1998
Carolina Holdings 58
Wickes Lumber 46
BMHC 44
BSL Holdings 36
Ply-Marts 30
White Aluminum Products 21
Manning Building Supplies 17
84 Lumber 17
Chase-Pitkin Home & Garden 16
Sutherland Lumber 16
Lumber One 14
Vans Lumber & Custom Builders 14
Standard Companies 13
Judson Lumber 13
Goldston's Building Supply 13
Eagle Hardware & Garden 11
Tualatin Valley Builders Supply 11 10
Lanoga Corp. 10
Gilcrest-Jewett 9
Builders Supply 9
417
Total
Top 20 Building Material Suppliers
$ Million
1998
White Aluminum Products 21
Vans Lumber & Custom Builders 14
Judson Lumber 13
Lumber One 14
Gypsum Supply 7
Manning Building Supplies 17
Thompson Enterprises 6
Ply-Marts 30
Dillman & Upton 4
Gilcrest-Jewett 9
Goldston's Building Supply 13
Clintonville Lumber 4
Graber Post Buildings 6
Walker Brothers 4
A.G. Mauro 7
Standard Companies 13
Stenerson Brothers Lumber 3
Builders Supply 9
Humphrey's Building Supplies 3
Harbin Lumber 2
199
Total
Suppliers & Stores: Installed Sales
(Source: National Home Center News, May 24, 1999)
 Subcontracting
 The cost of work sub-contracted out to other construction contractors constitutes 27% of total
value of constructionxix - 1999 estimate for subcontracted work is $225 billion
 There are over 650,000 establishments, mostly as sub-contractors, doing business in the
construction industryxx
 Large Projects
 In a given quarter there are approximately 17,000 projects of value between $5 million and
$4 billion in various phases
Office Project s
Pre-Planning
Planning
Final Planning
Bidding
Start
Total
%
14%
46%
11%
4%
25%
#
4
13
3
1
7
28
Value
42.5
242.7
47.8
8.0
72.6
496.1
1992 Census -$ Million
USA Miami Buildings Offices
Value of Construction 528,106 7,054 390,814 46,762
Office Buildings
All Buildings
Project Phase # Of Projects Value # Of Projects Value
524
5,436
4,380
45,428
Start
2,096
30,966
17,520
258,801
Total
Projects Between $5M & $4Bn in Miami
Source: F. W. Dodge, 1997 1st Quarter
Sample Business Plan
Estimate for USA is based upon Miami' share and estimates for all
buildings are based upon the share of office buildings
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February 5, 2016
A Business & Marketing Planning Solution Center


Approximately 4,000 projects of value between $5M & $4B are started each quarter
The estimated number of such projects in the Midwest and East North Central are 3,500 and
2,500 respectively
 The total construction employment varies approximately by 25% from summer to winter and the
work does not stop during the winter months, but there are reductions in crew sizes, layoffs,
fewer project starts, and weather delays
 Approximately 80% of the construction is privately financed and 20% by public agencies
 A typical project spends about 8% of the total project cost on designxxi
3.2.2
Technological Analysis
The building and construction industry has not gone through a major technological change in over
two decades. Until recently, the industry used computers for little more than financial accounting and
project scheduling. Though the industry has benefited from the development of CAD systems, it has
been hampered in adopting and using computer technology for day-to-day work amongst the distinct
companies on a project. No common application can be shared due to complexities in the hardware,
software and maintenance requirements between participants. Given the diversity of the participants,
and the magnitude of the data, it is not surprising to find a wide variety of software systems and users
with varied degrees of computer expertise on the same project.
The highly complex world of construction has largely been ignored or under served by high-tech
software application developers who have not recognized the distinct needs, or the vast potential, of
this business. From an information technology perspective, managing documents for construction
projects is very challenging. Not only are data sets large, but also they typically involve many types
of somewhat unstructured, interrelated data. The data is created and used by many types of users and
software applications. For example, at any time in a project cycle, any combination of the following
participants may require access to query or modify the project data set for various purposes:
- The owner/operator of the subject facility
- Architects, designers, engineers, project managers
- Contractors, estimators, consultants
- Suppliers, product manufacturers
- Government regulatory agencies
3.2.2.1
Trends
 The eCommerce revenue for the industry is estimated to grow from $0.4 billion in 1998 and
$6.3 billion in 1999 to $141 billion or 10% of the total construction spendingxxii by 2004
 More architecture and design firms use computers than the builders, approximately 45% of
these firms use IT as an integral part of corporate strategyxxiii
 About 20% of the largest U.S. architectural firms use project-specific Web sites and about a
third are using Intranetsxxiv
 The use of turnkey software solutions are declining as they are expensive and difficult to
maintain - the city of Denver spent over $1 million to install a system to manage the
documents for its airport and installing and managing this system was a full time job for
several individualsxxv
 The Application Service Provider business model, using Internet, for managing project
documentation and improving collaboration has started to take hold in the industry
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



3.2.3
Architects and managers are realizing that they can take advantages of historical data and
documents for new projects if they can access them
Many construction executives believexxvi that Internet offers a ready solution to their thorniest
problem, i.e. how to coordinate the activities of geographically dispersed teams
The concept of project web sites is being embraced by the industry
e-Commerce sites require a level of technical expertise to set up and manage that many
construction companies do not have or are unwilling to invest in
Industry Dynamics and Value-Chain
The United States building construction industry is intensely competitive and highly fragmented
with no participant having greater than 5% market share. Competition in the industry takes a number
of forms, including reputation, fee levels, quality of service and degree of risk assumption. Each large
population center generally has a number of smaller, locally based building contractors accustomed to
undertaking all but the largest and most complicated projects. Also, contractors who have no local
presence in areas where a construction project is going on can successfully compete for and obtain
projects there, notwithstanding their lack of a local presence.
Construction projects typically involve dozens of distinct companies, including engineering,
architectural and contracting firms, working closely together in an intense environment over a period
of months, or even years. Enormous numbers of
documents come into play, from technical drawings and
- Planning, engineering, design
legal contracts to purchase orders, permits, requests for
information (RFI) and schedules. The building industry
- Develop bid packages
has traditionally been process-bound and paper- M anual of operations
P
intensive, and projects are often slowed by workflow
- Package Distribution
r
issues that are not found in other industries, for
o
Pre
bid
meeting,
instance, building code compliance, union and
- Clarifications, Substitions
c
prevailing wage concerns, and even bad weather.
u
Owner
Drawings
Specifications
Clarifications
Pre-Bid M eeting
General Contractor
Qualifications
Substitution
Drawings
M ajor Subcontractor
Addendum
Bid Award
Architect
RFI
Proposal
Pre-Bid M eeting
Subcontractor
Documents & Information Flow
- Pre-construction meeting,
paper work, planning
- Construction Oversight
- Submittals, RFIs, change orders
- Dispute resolution
r
e
m
e
n
t
- Status Reports
- Payments to subs
Project Close out
The matrix of participants, information and
transactions for a project is quite large, particularly when plotted over its complete life cycle. Many of
these participants are small to medium companies, and are only involved in small roles in the project
(although these smaller companies tend to work on many projects at the same time). The practices,
procedures and processes used in the industry have evolved over the past two decades from “pure
paper” to today’s “computer automated paper.”
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3.2.3.1
Bidding for Contracts
The industry uses the various methods for contract awards. Some of the jobs are awarded based
upon competitive bidding and some may be awarded based upon the negotiations. Usually, in the
private construction projects, the owner selects the architect through a non-competitive process. The
bidding process to select all the firms for the construction may involve 250 or more firmsxxvii. A
typical project may last 2-3 years and involve 30-50 firms located in different cities.
Public construction projects use more competitive bidding, though not for the design:
 27 states use Design-Build contracts as project delivery methodxxviii
 45 states select architect/engineer services through a qualifications-based process
 48 states award construction contracts that do not include design by competitive bids
3.2.4
Project Management
Managing construction projects is a complex process, entailing a range of operations management
tasks such as purchasing, scheduling, fabrication at the job site, inventory control, shipping,
coordinating and supervising the network of subcontractors. Most projects require changes during
construction. For example, in hospitals, new equipment develops rapidly and must be accommodated
during construction. Some times the owners may make the change. Accommodating changes
smoothly is one of the biggest factors for the timely completion of projects.
The reports used by a general contractor (GC) or construction manager (CM) include forwardlooking reports about the indicated outcome for the project, forecasts, operations reports, job minutes
etc. The periodicity of these reports varies from weekly, monthly, quarterly and half annuallyxxix.
Various periodic meetings that a project team conducts include forward-looking report reviews,
operations management meetings, monthly minutes, owner-architect-contractor meetings etc.
3.2.4.1
Challenges of large projects
Designing, planning and constructing large buildings pose a series of challenges to the general
contractors and the construction management firms responsible for the construction:
 Sharing information with geographically
dispersed teams
 Managing complex and large documents &
drawings
 Ensuring that the information is always current
and easy to find
 Keeping up with changing specifications and
requirements
3.2.5
 Managing project files in order to eliminate
duplicates and ensuring that no file gets lost
 Managing "as designed" versus "as built"
 Coordinating activities of multiple contractors
 Collaborating with on-site personnel,
contractors and other team members
 Complying with safety & regulatory measures
 Communicating last minute changes to all
Inefficiencies in the existing Value-Chain Management processes



The bid specifications and drawings are sent through the mail or hand delivered

The specs and drawings are commercially printed, packaged and delivered by the
professional firms and the sub-contractors, owner and others purchase copies from them

On an average $33 are spent to mail the packages
On an average a project sees 3-4 addendum to its initial bid package and communicating each
addendum may take 1-3 weeksxxx
The purchase orders are executed on paper, are difficult to process and take excess time
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





The requests for changes take weeks to go through the approval processes and require the
contractors, engineers & architects to add their approval on the same sheet of paper
Up to 15% of projects are typically over budget and delayed
Engineers spend as much as 30% of their time looking for information or in paper workxxxi
Communication constitutes up to one-third of a project’s cost in direct and indirect expenses
including the lost opportunities due to the delays and rearranged activities
According to informal studies, the average design and engineering firm that does over $100
million annually spends 5% of its gross revenues on collaboration activity, including plotting
and reproducing documents, courier services, travel and other communication expensesxxxii
Many times the sub-contractors bid based upon in-sufficient information due to paper-based
communication and, if a discrepancy is not resolved at the bidding time then it costs greatly
later in terms of changes and extras, which are usually priced at a much higher levelxxxiii
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4
XYZ Works’ Product Offerings
4.1
Overview
XYZ Works’ e-Business environment for the construction industry interfaces the mobile & multimedia technologies with the database and transactional systems allowing industry professionals to
securely collaborate, communicate and access the information needed to manage the industry valuechain.
The value Chain is a network of organizations that add value to the raw materials and
intermediate components through upstream and downstream linkages to produce the final product or
service. The construction of a structure involves a number of separate and diverse activities covering
cost estimating, bidding, contract negotiation, procurement, project planning, scheduling, equipment
management, insurance, surety bonds, material control and storage, accounting, payrolls, field cost
control, labor relations, project safety, supervisor training, and many others. A construction project
team comprises of various combinations of contractors, owners, architects, engineers, workers,
lending agencies, government bodies, insurance companies, material suppliers and others parties. The
value-chain for the construction industry includes planning, coordination & management of these
processes; communication and collaboration between teams that may be geographically dispersed.
4.2
Business Partner Networktm
XYZ Works' Business Partner Networktm (BPN) solution is a suite of Web based construction
management applications that helps general contractors and owners manage risk, decrease costs, and
reduce project cycle time. It enables the contractors to share work schedules, site engineers to file
field reports, architects to amend blueprints and executives to check the status of the whole project
online. It may operate within an Extranet or over the World Wide Web.
4.2.1
Project War Roomtm: The Virtual Workspace
The Project War Roomtm (PWR) is a data and Business Process Management system that
includes a repository of project documents, a multi-media communication and collaboration
platform and a process workflow framework. The key features and benefits of PWRTM are:
 Change Order Management
 Create, submit, route and track change orders
 RFI Management
 Create, submit, retrieve and route RFIs electronically
 Work Flow
 Enforce procedures through automated workflow framework
 Electronic log of transactions and communiqués
 Transactions routing
 Project Reporting
 Report and monitor project status online
 Maintain project debriefing and review documents
 Maintain online weekly & monthly status reports and meeting minutes
 Communication and Collaboration Zone
 Automated email and fax notification
 Access to unified messaging - email, fax, etc.
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



4.2.2
 Conduct virtual multi-media conferences
 Share applications etc. in real time
 Share schedules, action items, tasks, deliverables list etc.
Project Detail Maintenance
 Maintain project profile and other details
 Maintain action items, tasks, deliverables list
Security and Access Control
 Role based system access and Multi-tiered security authorizations
Mobile Access
 Get mobile access to data and transactions
Virtual University
 Reference Library, industry news, articles, white papers and reviews
 Experience book, lessons learnt, pros & cons of doing something, references and
experiences with vendors, clients
 Multi-media training, manuals etc.
Bid Management Systemtm
The Bid Management Systemtm (BMS) is customizable document management system for bid
solicitation and management. It is an interactive Web driven database system that allows users to
create, maintain, and monitor bid-packages.
 Prepare bid packages & proposals electronically

Create bid packages and addendum with specifications and drawings

Submit proposals with specifications, drawings, and other related documents

Track, evaluate and compare proposals
 Distribute documents electronically

Distribute and track bid packages and addendum

Distribute documents, policies and procedures to all promptly and precisely
 Access and manage project information

Archive and store documents at close out

Anytime access using the Web from anywhere

Track changes and maintain revision history of all documents
 Communicate

Conduct virtual multi-media pre-bid meetings

Automated review, approval and notification
 Control the business process

Control data access by user or document type to eliminate unauthorized changes

Enforce procedures through automated workflow framework
4.3
Benefits to Clients
XYZ Works' solution will bring significant benefits to all participants by reducing the direct and
indirect cost associated with the value-chain management functions. The tangible and intangible
benefits of the BPNtm have the potential to save 10-15% of the total project cost.
 Reduced cost
 Communication costs reduction by 30%-60%xxxiv
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



Electronic media reduces costs of printing, distribution, courier, phone and fax
Virtual conferences reduce travel expenses and lost opportunity cost
Web-based applications could reduce requisition processing costs by 70% per orderxxxv
Lower opportunity cost due to early commissioning of structures
 Reduction in cycle time
 Potential to reduce time by 10-15% (up to 4 weeks for a one year project)
 60-80% reduction in turnaround time for RFI
 3-5 days reduction in submittals turnaround time
 Prompt and precise delivery of documents and notifications to the concerned parties
 On an average, Web-based applications reduce processing time by 50% to 70%xxxvi
 Higher competitiveness of the process would reduce procurement cost of large construction
equipment, components and other materials in bulk quantity
 Awarding contract through a competitive bidding process results in prices as much as
30% lowerxxxvii than that achieved through a non-competitive process
 Web based procurement could reduce procurement cost by as much as 15%xxxviii
 Most organizations realize 5% to 10% reduction in prices through increased use of
preferred suppliers and improved leverage of contract negotiations
 Web based services (ASP delivery model) bring significant economic advantages
 Much lower cost for similar solution as XYZ will leverage the investments in technology
& infrastructure by providing services to many clients
 Scalable and modular multi-platform system ensures customizable solutions for
individual project needs
 Single point of access for all project related resources, documents and processes
 Critical resources will be freed up resulting in higher productivity
 Productivity improvement by as much as 75%
 Time spent on administrative work reduced by up to 30%
 Site visits would be reduced by 10-50%
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4.4
4.4.1
Business Partner Networktm In Action
Construction Project Entity Interaction
Architect Engineer
Bid
M anagement
System
General Contractor Construction M anager
Owner
Lending
Institutes
General Contractor Construction M anager
Architect Engineer
Project War
Room
Bid
M anagement
System
Subcontractors Tradecontractors
M aterial
Suppliers
Transaction
Systems
4.4.2
Project War Roomtm in Action
A key element for projects to be profitable is time. The ability to recognize a problem and resolve
it quickly can make the difference between a successful project, and one that ends up over time and
over budget. Effective communications is one of the most important requirements in ensuring the
timely completion of the project. The example below demonstrates how the Project War Room can
save a significant amount of cost overruns.
4.4.2.1
A Typical Problem in a Construction Project
 A sub-contractor discovers a discrepancy in the blueprints that results in some job being
done incorrectly, a problem which may require large change order and expensive remedy
 The various firms involved in the construction are in different cities
 Other components of the job may also be delayed down the line
4.4.2.2
The Typical Approach (non PWRtm)
 A meeting would take place on the job site, for everyone to inspect the problem
 The meeting might require several people from various firms to travel long distance, with
all the attendant cost and inconvenience, the cost may be borne by the General Contractor
 Other affected contractors will need to estimate the cost of remedy (direct cost)
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

The remedial work may not begin until a change order is issued, which may hold up
several other aspects of the job
The problem may turn into a large cost overrun - a job that requires $35K in direct fix
may cost the GC close to $100K
4.4.2.3
The Project War Roomtm Approach
 When the problem is identified, the superintendent takes digital photos, goes on-line from
the job site and downloads the photos, along with a report and a change order request
 The system sends an e-mail to the required parties, alerting them to the condition and
schedules an online conference when all participants are available
 The conference and all communication for resolution is completed online
 The change order is agreed upon and issued online the same day
4.4.2.4
The Outcome
 Nobody has to travel, so there is only the time involved in the online meeting itself
 This is a savings of most of travel, on-site meeting expense and the opportunity cost
 The solution is in works within a few hours, cutting down on secondary schedule slip
 Remedial costs are limited to the direct costs of added expense to the work to be redone
 This not only saves two-thirds of the cost but also reduces the likelihood of litigation
4.4.3
Other Use Scenariosxxxix
Use cases are examples of situations where BPNtm and its components would be employed to
perform the construction value-chain management activities. This is not a comprehensive list; rather it
is a general indication of the scope of BPNtm.
1. An HVAC representative could query the design documents to get a list of air-handling units
and their design parameters which he could to associate to catalog items from his product line
that satisfy the design specifications
2. A window manufacturer could query the design documents to get a list of window assemblies
and their design parameters, which he could associate to specific catalog items from his
product line that meet the relevant design specifications
3. To prepare a bid document, a contractor could get a product manufacturer to send him the
estimation data that the manufacturer obtained from the design documents
4. PDA devices could be used to store information at a construction site, such as an item being
added to a punch list, and later the information is transferred to BPNtm
5. An architect designing an office building could search the Web for the availability of window
systems that meet the a set of criteria (e.g. Kynar Finish, ANSI z97.1, ASTM E283 etc.)
6. A mechanical engineer could query the Web to find out about CAD modeling software that
integrates with duct sizing tools
7. A contractor could extract quantities from an estimating tool and dispatch a procurement
request to suppliers over the Web
8. Integration with ERP system - a change order is initiated in PWRtm and is routed through the
work flow for approval, after approval it is exported and loaded into other systems
9. Daily time sheet can be entered through PWRtm at the job site and reviewed on-line, the
information will then be exported to other systems
10. A general contractor can use the system to create a document (e.g. RFI), and then route it
through the workflow to other parties (architects, owners, engineers)
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4.4.4
A day in the life of
Following sub-sections depict how the routine activities of some of the entities involved in the
construction project would be affected by the implementation of BPNtm.
4.4.4.1
Principal or business owner
A business owner is concerned with the P/L of business and wants maximum return on
investment. He or she oversees the functional areas through department or functional managers.
 Typical Day Before System

Phone functional managers to ask for reports on their functional areas

May need to wait for return call, or for manager to compile the information requested
in order to be able to make informed decisions
 Dilemma

Must track down multiple entities to gather information on project timelines,
customer satisfaction, cash flow, and sales information
 Typical Day After System

Access online the project schedules to predict cash flow and settlement pace

Check Project War Roomtm for any issues that should get his attention

Check approved WO/PO list to gauge cash-flow requirements

Check ‘Lot Control’ information and see the number of deposits and purchase
agreements at any given time
4.4.4.2
Construction Manager
A construction manager tends to have more hands on approach to management and field issues.
He or she is concerned about handling multiple projects and priorities and is responsible for
monitoring the progress of all development projects and ensuring that the supervisors are maintaining
schedules and quality as required.
 Typical day before system

Site visits and phone calls to supervisors to check project progress

Assist supervisors in resolution of problems
 Dilemma

Ensuring that the supervisors have sufficient information to do their jobs effectively

May not be able to catch supervisors at available time, delaying the receipt of
information
 Typical Day After System

Check schedules online or see if any special issues need his or her attention

Review site photos and correspondence from office, eliminating unnecessary site
visits made to gather information, allowing for quicker response time to
Subcontractor/Supplier issues and Customer Concerns
4.4.4.3
Main Office
The personnel in the main office are concerned with the administrative functions of the company,
including accounting, purchasing, and marketing.
 Typical Day Before System

Find information on file and forward to relevant parties

Process paper invoices
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


Maintain files for paperwork including work orders, purchase orders, PAs, Change
Orders

Assemble “closing packet” from files that may not be complete
Dilemma

Paper invoices go through a long cycle of approvals through the field and central
office, often resulting in lost invoices, double-payments, or late payment

Ensure that files are complete and up-to-date and that the field offices have the same
information
Typical Day After System

Generate Work Orders and Purchase Order and export to Web-site, print settlement
statement from complete and accurate information, download completed WO/PO for
processing
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5
Target Market Segments
Construction activities are generally administered or managed at a relatively fixed place of
business, but the actual construction work is performed at one or more different project sites. The
industry comprises of establishments engaged in a variety of activities. These activities include
construction of buildings and other structures, additions, alterations, reconstruction, installation, and
maintenance and repairs. The industry also includes establishments engaged in demolition or
wrecking of buildings and other structures, clearing of building sites, sale of materials from the
demolished structures, blasting, test drilling, landfill, leveling, earthmoving, excavating, land
drainage, and other land preparation. The suppliers of materials and equipment to the industry are also
affected by the dynamics of the construction industry.
Internet technologies and ASP delivery model is ideal for some of the activities and construction
companies. The value chain management processes can be divided in four key areasxl: Planning,
Procurement, Production, and Distribution. With respect to construction industry, these areas would
be Planning, Procurement, Construction, and Supervision.
Web-enabled services provide great opportunities to create strategic and operating advantages in
the planning, supervision and procurement areas in the building and construction industry. They are
very useful for communications, document management and transactive systems for the projects that
last for a long duration and involve various geographically dispersed firms.
5.1
Types of Construction
Different segments within the construction industry have unique production processes. These
production processes are distinguished by their specialized use of human resources and physical
capital. XYZ Works’ Business Partner Networktm is ideally suited for the construction of large
commercial structures. These structures include industrial units, offices, hotels & motels, religious
buildings, educational complexes, hospital & institutional and residential complexes.
5.1.1
Non-Residential Building Construction
The non-residential buildings
other than housing are constructed
for institutional, educational, light
industrial, commercial, social,
religious, governmental, and
recreational purposes.
Industrial
Office
Hotels, motels
Other commercial
Religious
Educational
Hospital, institutional
Miscellaneous
Total
1994
1995
1996
1997
1998
1999
30,412 34,013 34,046 32,358 33,282 27,568
22,178 25,613 27,886 34,305 41,541 47,239
4,648
7,112
10,912 12,898 14,904 15,580
37,551 42,654 48,188 51,809 53,783 55,702
3,869
4,326
4,534
5,777
6,729
7,094
25,183 31,276 33,890 37,608 39,545 43,277
16,219 15,484 16,252 18,480 17,641 16,338
6,002
6,071
7,650
9,223
9,395
9,911
146,062 166,549 183,358 202,458 216,820 222,709
This segment accounts for 3035% of the new construction.
Private capital finances most
construction. 80% of the educational construction and 25% of hospital and institutional construction
is financed through public funds. The types of construction firms that undertake such projects include
manufacturing and industrial building general contractors, design builders, engineer-constructors,
joint venture contractors, turnkey contractors and construction management firms specializing in
commercial, institutional, manufacturing and industrial buildings.
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5.1.2
Residential Construction
This segment consists of single-family and multi-family housing.

Single Family Housing
The single-family residential housing units include single family detached houses, town
houses, row houses where each housing unit is separated by a ground-to-roof wall and where
no housing units are constructed above or below.
Single Family
Multi-Family
Improvements
Total Residential

1994
1995
1996
1997
1998
1999
153,838 145,009 159,124 164,444 189,453 212,668
14,081 17,889 20,324 22,883 24,457 27,720
70,955 67,790 77,012 78,535 80,417 319,670
238,874 230,688 256,460 265,863 294,326 321,669
Multifamily Housing Construction
The multi-family residential housing units include high-rise apartments, garden, and town
house apartments where each unit is not separated by a ground-to-roof wall. The units may be
constructed for sale as condominiums or cooperatives, or for rental as apartments.
This category of construction is dominated by small building firms and normally accounts
for 40-45% of new construction. Less than 2% of construction is financed through public funds.
This segment also includes additions and alterations to mobile homes and on-site assembly of
modular and prefabricated houses. Historically, residential construction has been characterized
by instability of market demand and is strongly influence by government regulation and national
monetary policy.
Design of this type of construction is generally done by owners, architects, or the builders
themselves. Construction is performed by the owner, builder-vendors, or independent
contractors. Firms that undertake such projects include single-family housing custom builders,
general contractors, design builders, engineer-constructors, joint-venture contractors, turnkey
contractors and single-family construction management firms. These firms construct the
structures for others or on their own account for sale as speculative or operative builders.
5.1.3
Engineering and Non-Building Construction
This is a very broad category that covers structures planned and designed by the engineers and
whose design is more concerned
with functional aspects rather than
1994
1995
1996
1997
1998
1999
aesthetics and involves field
Non-Building 132,567 135,701 138,294 142,554 145,316 148,132
materials such as earth, rock, steel,
asphalt, concrete, timbers, and
piping. Most engineering projects are publicly financed and account for 20-25% of the new
construction. This segment includes highway & airfield construction, heavy construction and utility
construction.
5.2
Primary Users of the System
XYZ’s product offerings are designed for the complete life-cycle activities of a construction
project. The company is initially targeting the companies that are involved in building of large
commercial structures. This target group consists of the owners of the property, general contractors
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and construction management firms. This target provides opportunities for repeat businesses, longterm growth and financial stability. XYZ’s solutions effectively addresses the challenges of designing
and building these projects:
 Coordinating activities of multiple contractors in multiple locations
 Sharing information with geographically dispersed teams
 Managing complex and large documents and drawings
 Keeping up with changing specifications and requirements
 Communicating with on-site and off site team members
 Maintaining strict control of policies & procedures
 Ensuring that the information is always current and easy to find
 Communicating last minute changes to the team
 Managing project files in order to eliminate duplicates and ensure that no files get lost
 Complying with complex safety & regulatory measures
5.2.1
General Contractor
A general contractor (GC) or the prime contractor is a firm that is in contract with the owner for
the construction of the project, either in its entirety or for some specialized portion thereof. The
general contractor is a party that brings together all of the diverse elements and inputs of the
construction process into a single, coordinated effort.
The essential function of the general contractor is close management control of construction and
ordinarily, this contractor is in complete and sole charge of the field operations, including
procurement and provision of necessary construction materials and equipment. The chief contribution
of the general contractor to the construction process is the ability to marshal and allocate the
resources of manpower, equipment, and materials to the project in order to achieve completion at
maximum efficiency of time and cost.
In general, these firms specialize to some extent, limiting their efforts to a relatively narrow range
of construction types. Specialization is usual and necessary due to radically different equipment
requirements, construction methods, trade and supervisory skills, contract provisions, and financial
arrangements involved in different construction categories.
5.2.2
Owners of Propertiesxli
The owner, public or private, is the instigating party for whose purposes the structure is designed
and built. Public owners must proceed in accordance with applicable statutes and administrative
directives pertaining to the advertising for bids, bidding procedures, construction contracts, contract
administration, and other matters relating to design and construction process. Most owners relegate by
contract the design to professional architect-engineer firms and the field construction-to-construction
contractors. Many industrial and public owners have established their own construction organizations
that work actively and closely with the design and construction of their projects. Types of owners that
present good opportunities are:
 Commercial Real Estate Developers
 Corporate Owners
 Health Care Buyers
 Public Buyers (Buildings)
 Hotels and Residential
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6
Competition
The Business-to-Business eCommerce industry is very competitive and a number of models are
in practice, which include bid-opportunity search engines, business eCommunities, EDI service
providers, supplier catalogs, RFQ posting boards and integrated service providers.
The eCommerce market is evolving fast and is subject to rapid technological changes. The
barriers to entry are low hence the intensity of competition is expected to increase in the future
resulting in price reductions and reduced gross margins. eCommerce competitors vary in size, scope
and breadth of the products and services offered. The principal competitive factors affecting this
market include a significant base of customers, breadth and depth of solution, critical mass of buyers
and suppliers, product quality and performance, customer service, core technology, product features,
strategic alliances and strong balance sheet. The direct competition for XYZ Works is likely to come
from Bidcom.com, Cephren.com, Buzzsaw.com, Bricsnet.com and e-Builders.com.
6.1.1.1
Bidcom.com
Bidcom.com, based in San Francisco was established in early 1997, the company has raised over
$64 million in venture capital funding from organizations such as Internet Capital Group (ICG) and
Oracle Venture Fund. Its solution, In-Site, is delivered as a suite of business-to-business services, and
helps companies manage risk, drive down costs, and complete building projects on time. These
services are designed to support all participants through the complete lifecycle of multiple building
projects. The owners and clients who have used in-Site include Charles Schwab & Co., City and
County of San Francisco, Federated Department Stores, The Gap, Siemens, SOKA University,
Stanford University, Sun Microsystems, Inc., University of San Francisco, Visa, Ziff-Davis,
Swinerton & Walberg, DPR Construction, Turner Construction, HOK, Gensler, and Summit
Architects. In-Site is priced based on per user, per month license fee. The prices start at $1,500 per
month per project with discounts for enterprise agreements.
6.1.1.2
Cephren.com
Cephren.com is the new entity formed by the merger of Blueline Online, Inc., a provider of
Internet-based project collaboration services to construction industry, and eBricks.com Inc., a
provider of product and equipment procurement services. Cephren has raised over $50 million from
GE Equity Investments, GE Power Systems, Goldman Sachs & Co. and Grupo Picking Pack (GPP).
6.1.1.3
Bricsnet.com
Bricsnet, a European company, was founded in 1986 to develop high-end architectural computeraided design software. In 1997 Bentley acquired the rights to the Bricsnet technology and Bricsnet
continues to be a reseller of Bentley. Its Initial Public Offering took place on June 30, 1999 on the
pan-European stock exchange EASDAQ. Later it acquired three Internet companies. On December 1,
1999, Bricsnet launched the Bricsnet.com e-marketplace for the building industry. Bricsnet.com is an
integrated work-centric environment, where building professionals access industry information,
obtain mission-critical software applications, and share project information.
6.1.1.4
Buzzsaw.com
Buzzsaw.com is a privately held company backed by Autodesk®, Inc., a supplier of PC design
software and digital content creation tools for the building industry. One of the largest software
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companies in the world, Autodesk has more than four million customers in over 150 countries.
Founded in 1999 and headquartered in San Francisco, buzzsaw.com has created an Internet hub that
delivers integrated business-to-business collaboration and e-commerce services
6.1.1.5
e-Builder.com
e-Builder™ is an Internet-based communication tool that dramatically enhances the exchange of
information among construction project participants. It is created by MP Interactive Corporation, a
company founded in February 1995, and headquartered in Gainesville, Florida.
6.2
Competitive Advantages
Business-to-Business eCommerce has good potential to impact the value-chain for the building
and construction industry. The current technology has capabilities to develop services to benefit the
industry. The competitive advantages amongst various business models will depend upon:
 Technical superiority and reliability of the solution
 Relevancy and value proposition of the services to the supply-chain network
 Ability to select and dominate a niche market segment
XYZ feels that it has a competitive advantage because no other offering provides such a
comprehensive solution, as proposed by it, that integrates the interactive bid management system with
the transaction system, mobile & multi media communication and document exchange platform. XYZ
Works plans to create a market for itself and establish a strong customer base by taking advantages of
the present competitive environment that offers good opportunities.
 The size of the industry creates room for many more eCommerce solution providers
 Most of the present competition is concentrated in the Silicon Valley in California, and would
not be able to target rest of the country for some time

Table below breaks down the construction market estimates by regions
(In $ Million except
Projects)
New England
Middle Atlantic
East North Central
West North Central
South Atlantic
East South Central
West South Central
Mountain
Pacific
Total
24,114
47,416
106,505
43,422
181,433
33,827
70,423
83,361
114,631
Non Residential
Buildings
6,286
12,361
27,765
11,320
47,298
8,818
18,359
21,731
29,883
Residential
Buildings
11,000
21,630
48,585
19,808
82,766
15,431
32,126
38,028
52,293
Public
6,827
13,425
30,154
12,294
51,369
9,577
19,939
23,602
32,455
Projects between
$5mil and $4bn
487
1,188
2,438
1,055
4,841
947
1,939
1,954
2,152


Midwest and especially, East North Central region gives provides XYZ with a good
opportunity to establish a strong beach-head within next nine to twelve months
Due to the critical nature of supply-chain management and lack of a long track-record of
Internet based solutions, organizations want close relationship with the solution provider
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7
Growth Strategies
7.1
Marketing Strategy
Early business-to-business eCommerce service providers have demonstrated the advantages of
real-time competitive bidding and e-market spaces. To establish in this market, a new entrant needs to
take a niche market approach and that is what XYZ Works will adopt.
7.1.1
Positioning
The positioning strategy is designed to define a target competition for XYZ. The fundamental
premises behind the products and services offerings of XYZ are:
1. The building & construction industry has lots of inefficiencies that arise from
communication gaps, paper based systems and other elements that increase the cycle
time, redundant and time consuming processes, and cost
2. The Web platform along with the multi-media and mobile technology offer the
opportunity to develop business solutions that will eliminate significant inefficiencies
XYZ Works will position itself broadly as a technologist company that uses the technology to
provide business solutions. XYZ will become a 'Business Process Improvement' company that brings
a 'New Approach to Value Chain Management'. The industry values the relationship aspect along
with the cost and quality. Our operations and strategies will be to become the customer intimate firm.
More specific positioning and the reason to buy would be that our products and services are 'Most
Reliable', 'Easiest to use' and provide 'Best value for money'.
7.1.2
Target Market
The initial target market decision would be an early source of differentiation for XYZ. The
products and services are designed for a complete construction project, though some components
could be used by smaller groups within a construction contracting company or by a network of these
companies. The users of these products and services include executives, supervisors, architects,
engineers and contractors. Only some of them would be either the decision-maker or instrumental in
making the decision to purchase our services and we would seek them out to market our services.
In this industry, the owners of the property - i.e. large corporations, real-estate companies and
government are the ones that pay the cost of a project. XYZ will target them for the initial customer
base as it is easier to quantify the bottom line impact for them and also as they have significant
influence over other entities in the value chain about the implementation of technological solutions.
This group consists of facilities and construction departments of real estate developers, corporations,
health care firms, public agencies and hotels.
Another target group consists of general contractors and construction management firms. They
would also be the significant beneficiaries of our products and services. Our products and services
will reduce their cost of construction and also enable them to better manage the projects and improve
the procurement operations. The architects, consultants and lending institutions also have influence to
initiate the implementation of technology solution and we will target them to become our endorser.
Concentration on this type of client base will also allow us to mitigate the cyclical and seasonal
revenues, which are often typical of the construction industry.
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7.1.3
Rollout Plan
The rollout market penetration strategy will occur in three phases.
Phase I
New Products For
New Types Of
Customers
7.1.3.1
Phase II
Sell More of
Existing Products
to Existing Types
Of Customers
Phase III
Design N ew
Products for
Existing
Customers
M odify Existing
Products for New
Tyeps Of
Customers
Phase I
The objective of Phase I is to deploy the base product and establish customer references. To
achieve this XYZ would implement ‘beta-sites’ for different components of the BPNtm. These
initial beta-sites are used to evaluate the performance benefits of the solution, provide customer
demonstration and build a track record. These early customers would provide excellent consulting
resources for product development, implementation and client development effort estimation.
The market for Web based applications and services for building & construction industry is
not yet fully developed and such a category is not properly defined so the initial strategies would
define the target competition and develop the differentiation value proposition. The target
customers in this phase would be the organizations that are looking to build competitive
advantages through the strategic use of sourcing processes. These organizations would have
demanding requirements that would rigorously test our solution, assisting us in designing a
robust, reliable and scalable solution. This phase is expected to last six months.
7.1.3.2
Phase II
The objective of phase II is to achieve a dominant position in one or two narrowly bounded
market segments. The experience and knowledge gathered in Phase I would help in selecting
these narrow market segments. The segment-targeting strategy has potential to generate word-ofmouth leverage. This phase would also be used to develop strategic alliances with technology
companies, management consultants and clients to accelerate growth rate and to develop ancillary
& support products and applications. This phase is expected to last 12-18 months.
7.1.3.3
Phase III
This phase would adopt a mass-market strategy for the deployment of the common standard
infrastructures. In this phase, XYZ would develop specific strategies to counter the competition,
expand distribution channel and implement different components of the BPNtm in other industries.
7.1.4
Strategic Alliances and Partnerships
To ensure the delivery of a comprehensive solution to customers, XYZ Works will need to
establish strategic relationships with various organizations. XYZ is already in discussion with some
of software and hardware vendors for product development and implementation partnership.
The objective of these alliances is to focus on the core area of expertise, while leveraging the
strengths of complementary technologies and the influence of partners. Such relationships will be in
following general categories: Software & Hardware vendors, Systems Integrators, construction
consultants, architects and contractors. The relationship with software platform providers would be
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helpful in developing products and infrastructure solutions. The relationships with consultants and
System Integrators would be useful to implement product solutions. XYZ will also need to develop
relationships to ensure the reliability, scalability and performance of its solutions on various hardware
platforms. Relationships with industry players would be important for the project implementation and
generating sales leads.
7.1.5
Communication and Promotion Strategy
The initial communication strategy will rely on the personal contacts. Initially, Web presence
would also be minimal. This approach is adopted so as not give away too much of our competitive
information and to focus the efforts of the company on the product development and build a reference
customer base. Such an approach is feasible for the initial phase, as the deployment BPNtm solution
would entail close working relationship with the clients. After the launch of few beta-sites, XYZ will
adopt a more active communication strategy.
XYZ will also use other communications avenues including:
 Presentation at hospital associations to generate awareness among the hospital facilities
managers
 Becoming part of the local community and having relationships with local planning boards
and construction organizations
 Establishing relationships and partnerships with architects, engineers and consultants to
generate word of mouth leverage and references
 Email list notification about the industry developments and XYZ Works
7.2
Client Development
The client development efforts would be directed to find opportunities where an organization is
looking for savings opportunities and improving the construction project activities. The primary
model for the client development would be direct sales approach.
7.2.1
Direct Sales Team
Building and Construction industry is a relationship dominated industry and will remain so. The
subjective criteria including referrals have significant influence over the decision making process. For
the success of the company, the message needs to be taken to the senior executives and decisionmakers in purchasing, operations, and finance. The decision-makers in IT department would also play
a role. A direct sales model would be needed to establish relationship and network with these senior
level executives.
XYZ plans to develop this team gradually. The initial selling would be done by the core team
members, board of directors and their network of contacts. XYZ is also augmenting these activities by
forming partnerships with the professional marketing services that provide such client development
services.
7.2.2
Implementation Team
For the initial launch period, the users would need some handholding to get the benefits out of the
systems. It is assumed that a number of potential users may not be highly computer savvy. To make
the adoption of our products, and the use of computers in the industry, a good training program would
be developed and implemented.
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Pre
Archive +
Close Out
Decid ing What
& How to DO
Close Out
Consulting
Take Strategic
Decision
Feasibility +
IT advice +
Expertise
Understand
Requirement & Options
Customer
Activi ty
Cycle
M aintain +
Support
Develop
Solution
Operations
Keeping It Go ing
Doing It
Post
Install
Training + Get
Users Online
Train
System
Integration
During
Pilot +
Setup
Customer Activity Cycle - Business Partner Networktm Implementation
The implementation team would work with the owner and general contractor to help them make a
strategic decision to use eBusiness environment for their project. Next it will work with them to
identify the requirements and options available for savings. A solution will be developed that will
serve their needs. In some cases, the team may need to incorporate some requirements specific to a
particular project, owner or the general contractor. During installation, the team will set up the project
environment, train the users and enable the group of users to access various features and function. For
the duration of the construction project, XYZ work will maintain the system, provide support and
assist the users in achieving their objectives.
The idea behind this is that XYZ would not only sell the superior purchase value but also
superior use value. We would not view a project as a one-time sales but as a continuing relationship
with repeat business opportunities.
The products and services are designed to be offered as Web driven application from a central
server. This way we can support many projects and leverage our hardware investment and support
and maintenance team. It is possible that due to privacy concerns and some other reasons an owner or
general contractor may insist upon having their project hosted at servers maintained by their in-house
IT department. This would require different implementation methods and team.
7.3
Revenue Model
Increasing the number of revenue streams is at the heart of our business development objectives.
The starting up strategy includes implementations of beta-sites. These beta-sites would be used to test
the products and develop detailed functional requirements. Another initial sales method would be
trial-period for the use of services. The revenue from these implementations is expected to be
negligible. However, they will make excellent referrals.
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Different components of the BPNtm provide opportunities to be packaged separately. The modular
approach will enable XYZ to reach a bigger customer base, launch the products and services earlier
and also gradually introduce the customers to the complete BPNtm. These components have potential
to generate following revenue types of streams:
7.3.1.1
Business Partner Networktm


Monthly user license, with discounts for quarterly, half-annual and annual contracts, paid
by the Owner or the GC/CM
Current tiered pricing
Initial setup fee
10 concurrent users monthly license
25 concurrent users monthly license
25+ concurrent users monthly license


7.3.1.2
Monthly
$1,500
$2,400
$3,840
Unlimited responders for bid management system
The procurement network will use transaction fee of 0.25-0.5% of the total value of the
transaction charged to the supplier
Project War Room


Monthly user license, with discounts for quarterly, half-annual and annual contracts
Current tiered pricing
Initial setup fee
10 concurrent users monthly license
25 concurrent users monthly license
25+ concurrent users monthly license
7.3.1.3
One Time
$2,000
One Time
$1,000
Monthly
$750
$1,200
$1,920
Bid Management System


Monthly user license, with discounts for quarterly, half-annual and annual contracts
Current tiered pricing
Initial setup fee
10 concurrent users monthly license
25 concurrent users monthly license
25+ concurrent users monthly license
Sample Business Plan
30
One Time
$1,000
Monthly
$750
$1,200
$1,920
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8
Financials
8.1
Funding Requirements
Currently, XYZ Works is seeking the investment of $4 million for business development. The
founders provided the initial startup financing. This money is used to develop the business plan,
product development plan, and the team for prototype development. Though, we are seeking an
equity investor, we are willing to explore alternate forms of investment such as convertible preferred
stock or convertible debt. Although we would welcome multiple investors, we prefer that each party
invest a minimum of $75,000. We are also open the structure of the investment deal. The funds would
be used for product development, business development and building the team. Estimated needs for
product development is $1.3 million, which includes estimates for software, hardware, consulting and
payroll. Estimated need for marketing and promotions $1.2 million and the rest, $1.5 million, is for
general business development.
 Series ‘A’ - $750K

First Month - $300K: For recruitment, development, marketing and promotion

Second Month - $200K

Third Month - $250K: Milestone - Beta site launch
 Series ‘B’ - $3,250K - Fourth month
Development Salary
2%
2,482
Financing
27%
26%
Operations
Revenue
Mktg & Promotion
4,000
20%
Sources of Funds - First Five Quarters
8.2
($000 except people)
Q1
Development Personnel 7
Support & Implementation Personnel 5
Total Payroll 204
HW, SW, & Infrastructure 44
Total Development 248
Sample Business Plan
Operations Salary
14%
11%
SG&A Salary
Cash
Uses of Funds - First Five Quarters
Product Development
Year 1
Year 2
Q2
Q3 Q4 Q1
Q2
Q3
Q4
12
22 22 30
30
30
30
10
13 13 14
15
28
40
353
600 617 852 870 1,112 1,334
24
80 15 74
17
80
33
377
680 632 925 887 1,191 1,367
31
Q1
35
51
1,780
84
1,864
Year 3
Q2
Q3
Q4
35
35
35
67
75
75
2,104 2,266 2,266
39
72
15
2,143 2,338 2,281
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8.3
($000 except people)
Total Personnel
Total Payroll
Infrastructure & Mktg. Expense
Promotion
Total SG&A
Q1
8
165
73
20
258
Year 1
Q2
Q3
12
12
283
305
76
76
45
135
404
515
8.4
SG & A
Q4
18
390
127
281
798
Q1
19
510
133
354
997
Year 2
Year 3
Q2
Q3
Q4
Q1
Q2
Q3
22
28
30
30
29
32
578
739
784
855
831
908
159
214
206
352
712
1,235
567
896 1,501 480
3,318 34,640
1,303 1,850 2,491 1,688 4,861 36,783
Q4
32
908
1,482
109,020
111,410
Income Projections
($000 except projects) Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
New Projects
1
1
2
2
3
5
7
11
16
16
22
29
New Construction Value 10
10
20
20
30
50
70
110
160
160
220
290
Projects on hand
1
2
4
6
9
14
21
32
48
64
86
115
Revenue
4
5
11
15
23
36
55
85
129
165
229
308
Total Cost Of Sales
40
26
33
43
48
71
99
91
105
112
125
140
Operating Profit (Loss) (36)
(21)
(22)
(28)
(24)
(34)
(44)
(5)
24
54
105
168
Total Development 67
43
43
80
75
76
173
133
133
132
132
132
Total SG & A 72
85
101
110
151
144
154
170
191
235
245
318
EBIT (Loss) (175) (148) (167) (218) (250) (254) (371) (308) (300)
(313)
(273)
(283)
EBIT (Loss) Cumulative (175) (323) (490) (708) (958) (1,212) (1,583) (1,891) (2,191) (2,504) (2,777) (3,059)
Year 2
($000 except projects)
Q1
Q2
Q3
Q4
Year 1 Year 2
New Projects
77
81
152
328
115
638
New Construction Value 770
810
1,520
3,280
1,150
6,380
Projects on hand at the End 185
237
288
351
115
351
Revenue 1,416
2,267
3,586
6,005
1,066 13,273
Total Cost Of Sales 579
750
1,287
1,974
931
4,590
Operating Profit (Loss) 837
1,517
2,299
4,030
135
8,683
Total Development 630
591
621
594
1,218
2,435
Total SG & A 997
1,303
1,850
2,491
1,976
6,641
EBIT (Loss) (789)
(377)
(172)
946
(3,059) (393)
EBIT (Loss) Cumulative (3,849) (4,226) (4,398) (3,453) (3,059) (3,453)
Year 3
3,016
30,160
434
86,600
22,938
63,662
3,007
39,376
21,279
17,827
Year 4
4,784
47,840
482
272,550
69,116
203,434
3,609
114,703
85,122
102,949
Year 5
5,556
55,560
518
499,452
117,564
381,888
4,330
206,600
170,957
273,906
600
500
400
300
Revenue
EBIT
200
100
0
Year 1
Year 2
Year 3
Year 4
Year 5
(100)
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8.4.1
Measurement Ratios
 Profitability Ratios
Y1
Y2
Y3 Y4 Y5
ROS (287%) (3%) 25% 31% 34%
Gross Margin 13% 65% 74% 75% 76%
Operating Margin (200%) 32% 51% 57% 58%



Positive gross margin after ten months and 50 projects
Positive EBIT after seven quarters and 800 projects
Management discipline and Capital Efficiency
Y1
Y2
Y3
R & D $0.88 $5.45 $28.80
Marketing $1.11 $3.01 $19.29
G & A $1.05 $5.95 $28.95
8.5
Exit Strategy
The company is in very early stage of its life cycle. At this moment, it is developing the product.
We aim to establish the viability of the business model and the solution, build a reference customer
base, attain positive cash flow and then seek one of the following two exit strategies. The preferred
exit strategy is to get acquired by a pure Internet play company that has competence in our area of
expertise. Window of opportunity for this strategy will open between six-nine months of operations.
The second preference is to take the company public within next three years after establishing the
profitability.
Month 2
$200K
IPO window opens
Potential Valuat ion - $200+ Million
Month 4
$3,250K
Month 9
Month 18
Month 10-12
Next round of funding - $17-20 M illion
Month 6
Month 1
$300K
Sample Business Plan
Month 1
$200K
Beta Site
Month 24
Buyout window opens
Potential Valuat ion - $40+ M illion
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9
Risks
XYZ Works’ business model faces significant risks. Some of these risks are:













We will accumulation large losses in the beginning, and when we will achieve the
profitability is not certain. Our profitability will depend upon the our success in increasing the
revenue and number of revenue streams
The eCommerce market category has limited history so it is difficult to evaluate any business
Financial results may be affected by fluctuations in the construction industry and seasonal
impact. We are currently unable to assess the seasonal effect on our business
Our market is becoming more competitive and we may suffer price reductions

The B-to-B eCommerce market for our services is intensely competitive, evolving and
subject to rapid technological change

To remain competitive, we must continue to enhance and improve the ease of use,
responsiveness, functionality and features of our services

We expect the intensity of competition to increase which may result in changes in our
pricing model, reduced gross margins etc. which may reduce our future profitability

In addition, technological barriers to entry are relatively low

Some of our competitors have more resources and broader and deeper customer access
than we do

Our competitors may be able to respond more quickly than we can to new technologies or
changes in Internet user preferences and devote greater resources than we can to the
development, promotion and sale of their services
Our failure to develop brand recognition could limit or reduce the demand for our services
and result in significant loss of the anticipated benefits from our marketing expenditures
If we fail to manage our growth, our ability to market, sell and develop our services could be
harmed
If we fail to attract and retain qualified personnel, our ability to compete could be harmed
If we fail to adequately protect our proprietary rights, we could lose these rights and our
business could be harmed. Our services could infringe the intellectual property rights of
others causing costly litigation and the loss of significant rights.
If we experience system failures, our reputation would be harmed and users might seek
alternative service providers, causing us to lose revenues
We may have capacity restraints that could limit the growth of or reduce our revenues
General Contractors and sub-contractors may be reluctant to accept an internet-based
application service provider services
We depend on the increasing use of the Internet and if the use of the Internet does not grow,
our revenues may not grow and could decline and our business could be harmed
Failure to raise additional capital or generate the significant capital necessary to expand our
operations and invest in new products and services could reduce our ability to compete and
result in lower revenues
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10 Organization
Technology
Engineering & Technology
Product
Development
Client Relationship
Client Solutions:
Technology
Operations
& Support
Client Solution:
Construction
Finance
M arket &
Relationship
Development
Project Implementation
Architecture & Technical
Specifications
M edia & Brand
Equity
Business Specifications
Corporate Affairs
Personnel
Development
Business
Strategy
i
A-E-C Automation Newsletter, August 1999
Wall Street Journal, 11/15/99
iii
A-E-C Automation Newsletter, December 1999
iv
Forrester Research
v
A-E-C Automation, December 1999
vi
IDC
vii
Georgia Institute of Technology – 10th GVU User Survey
viii
Georgia Institute of Technology – 10th GVU User Survey
ix
Georgia Institute of Technology – 10th GVU User Survey
x
Killen and Associates, 1996
xi
A Forrester Research survey
xii
Forrester Research
xiii
Engineering-News Record
xiv
Engineering-News Record, Dec. 1998
xv
F. W. Dodge Division of The McGraw-Hill companies
xvi
Census Bureau - 1992 Census
xvii
Census Bureau - 1992 Census
xviii
Sweet's Group, A division of McGraw Hill companies
xix
Census Bureau - 1992 Census
xx
Census Bureau
xxi
William D. Mahoney, Public Works 1997 Cost book, BNI Building News, Boston, Massachusetts (1997)
xxii
Forrester Research
xxiii
: Financial Executives Institute & Computer Sciences Corp., Oct. 1998
xxiv
American Institute of Architects (AIA)
xxv
A-E-C Automation Newsletter, March 1997
xxvi
New York Times Feb 21, 2000
xxvii
Interviews with Industry Experts & contractors
xxviii
The Cost Of Inaction Does Massachusetts Need Public Construction REFORM? Pioneer Institute of Public Policy Research
xxix
Harvard Business Review Case: Turner Construction Company 9-585-31
xxx
Interviews with Industry Experts & contractors
xxxi
Aberdeen Research Group
xxxii
A-E-C Automation, December 1999
ii
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February 5, 2016
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xxxiii xxxiii
Interviews with Industry Experts & contractors
Industry Sources, competitive offerings
xxxv
Aberdeen Research Group
xxxvi
Aberdeen Research Group
xxxvii
Aberdeen Research Group survey of large companies in several key industries, including automotive, chemicals, computer equipment,
government, telecommunications, and utilities
xxxviii
Aberdeen Research Group
xxxix
aecXML.org
xl
Supply-Chain Council’s Supply Chain Operations Reference Model
xli
Harvard Business Review Case: Turner Construction Company 9-585-31
xxxiv
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February 5, 2016