Confidential
Sound Rocks, Inc.
Contents
Executive Summary.......................................................................................................................................... 4
Company Summary .......................................................................................................................................... 5
Mission ................................................................................................................................................................. 5
Keys to Success ..................................................................................................................................................... 5
Objectives ............................................................................................................................................................. 5
Intellectual Property ............................................................................................................................................. 6
Products and Services ...................................................................................................................................... 6
Current Situation ............................................................................................................................................. 7
Market Analysis Overview ................................................................................................................................ 8
Market Potential for MP3 Players ........................................................................................................................ 9
Market Segmentation......................................................................................................................................... 11
Detailed Market Segmentation ...................................................................................................................... 11
Competition ........................................................................................................................................................ 12
Strategy and Implementation Summary ......................................................................................................... 14
Competitive Edge ............................................................................................................................................... 14
Marketing Strategy ............................................................................................................................................. 14
Sales Strategy ..................................................................................................................................................... 14
Sales Forecast ..................................................................................................................................................... 14
Management Summary .................................................................................................................................. 15
Operating Plan ............................................................................................................................................... 15
Financial Plan................................................................................................................................................. 15
Investment Offering ....................................................................................................................................... 15
Appendix – Financial Plan............................................................................................................................... 17
Sales Forecast ................................................................................................................................................ 17
Projected Profit and Loss.................................................................................................................................... 18
Projected Cash Flow ........................................................................................................................................... 19
Projected Balance Sheet ..................................................................................................................................... 20
Break-Even Analysis ............................................................................................................................................ 21
Financial Ratios ................................................................................................................................................... 22
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Executive Summary
Sound Rocks will license the technology and complete the design of a device that preserves
hearing while listening to an mp3 player using control of the volume through interactive
feedback. Many people are concerned about the nerve damage that occurs when a personal mp3
player is set to play too loudly but there is no device on the market that provides immediate
feedback on an individual basis. The hearing damage in the population is worse now due to the
prevalence of ear buds and the popularity of mp3 players. Sound Rocks’ products will provide a
way to reduce temporary hearing loss before the damage is permanent and allow someone to
achieve personal control of the music’s sound level.
A positive correlation can be shown between the growth in the population suffering hearing
loss diseases in the United States and the increase in mp3 player sales in this country. Recent
studies have shown an alarming growth in the number of temporary and permanent hearing-loss
cases worldwide. The first step in Sound Rocks’ commercialization plan is to quantify the market
segmentation for noise-induced hearing loss and identify key product features for the planned
sale of two types of devices-both a hardware device and a software product, along with
establishing collaboration agreements with headphone and MP3 player companies such as Bose
and Apple.
Other steps in the commercialization process are to negotiate a license for the intellectual
property with The University of Texas at El Paso (UTEP) and negotiate and establish a
manufacturing process with a company in the Paso Del Norte region. Sound Rocks wants to
introduce its innovative products in those world markets with the greatest mp3 consumption and
will begin with introducing software and hardware products in the North American market
followed then by the European market, where noise exposure limits were recently adopted for
mp3 players. The plan is to expand to other partners and countries during the fourth year of
operations and begin research and development on additional products that address hearing
issues. While there is currently no direct competition, Sound Rocks must remain vigilant of its
market position and actively work to maintain it and develop further innovations in order to stay
ahead of the competition.
Investments in prevention and research can have significant, profound, and long-term payoffs for individuals and communities, and for the economy. Sound Rocks, Inc. wants to raise
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$700,000 by issuing common stock during the first year, and then borrow $100,000 from an
available company credit line during the second year of operations. This Investment will bring
Sound Rocks and its shareholders considerable profits by the third year of operations with sales
of over $4 million.
Company Summary
Sound Rocks will license the technology from The University of Texas at El Paso (UTEP) and
complete the design of a device that provides listeners the ability to achieve control of the volume
through interactive feedback. Many individuals are concerned about the nerve damage that
occurs when a personal audio/visual player is set too loud but there is no device on the market to
provide feedback on the volume where that occurs for an individual. The hearing damage in the
population is worse now due to the prevalence of ear buds and the popularity of mp3 players.
Sound Rocks’ products will provide a way to reduce temporary hearing loss before the damage is
permanent and allow someone to achieve personal control of the music’s sound level.
Mission
Sound Rocks’ mission is to improve the quality of life related to sound by commercializing
devices that provide individuals with the capability to manage their threshold level of
recognizable sound.
Keys to Success
 Quantify the market segmentation for noise-induced hearing loss
 Negotiate a license for the intellectual property with The University of Texas at El Paso
 Negotiate and establish the manufacturing process with a company in the Paso Del Norte region
 Establish collaboration agreements with headphone and MP3 player companies such as Bose
and Apple before launch
 Identify key product features through an extensive market study before the first year of
operations
 Expand to other partners and countries during the fourth year of operations
 Innovate additional products that address hearing issues
Objectives
 Carry out quantifiable market surveys and device testing with a range of targeted age groups.
The results of the studies will be used for marketing Sound Rock products to potential partners.
 Establish partnerships with at least two company leaders in the mp3 player and headphone
industry before the end of the first year.
 Obtain more than 10% market penetration by year four.
 Develop at least two new innovative products related to the hearing loss industry by year four.
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 Establish manufacturing capability by the first quarter of 2012
Intellectual Property
Sound Rocks’ invention relates to the general field of hearing preservation and restoration
devices, and more particularly, to a method and apparatus for automatically reducing the volume
level of an audio signal provided to the user. In order to protect the novelty of this product a PCT
Patent Cooperation Treaty patent numbered 13/048,109 and named “Methods and apparatus for
automatically reducing a volume level of an audio signal provided to a user” was filed with the
International Patent Cooperation Union on March 15, 2011 by UTEP.
Products and Services
In an effort to prevent potential hearing problems, Horacio Resendiz of Sound Rocks, in
collaboration with The University of Texas at El Paso professors Dr. Amitava Biswas and Dr. Eric
MacDonald, has created an interactive proof-of concept device that can be incorporated as
firmware in standard MP3 players and most cell phones, or as a small external device to be used
on external headphones or ear buds. Whether firmware or hardware, the device interactively
determines whether short term hearing loss is occurring and automatically responds without
negatively impacting the music quality. User interaction is crucial in order to measure audio
reception and indicate whether the tone played has been heard. Each time the user fails the sound
test performed, the volume is automatically reduced. Disclaimer - please note that no warrants
will be made on whether the user’s hearing has been impaired by the music player. This device
does not explicitly test the user’s hearing but relies on the user’s perceptions and user feedback.
The purchase of this product will be considered an acknowledgment that the user is concerned
about incurring hearing loss that has been linked to listening to excessively loud sound for
extended periods of time. This device will not ensure that some loss of hearing will not result, and
a doctor’s advice should be consulted before listening to loud music.
Details of the basic test are now described. The user reacts to what he/she hears during the 5
to 8 second average pause between songs. The device is able to detect these pauses between
songs. It then emits a noise to let the user know a test is in process and interaction is needed.
Whenever that noise is heard the user needs to press a button which is related to the respective
sound heard. For prototype purposes, two different sounds are randomly used for the beep. Each
sound corresponds to its own button which must be depressed in order to pass the test. The only
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way the test is passed is by correctly distinguishing the sound heard and immediately pressing
the corresponding button on the device. Testing during the pause between songs also has the
advantage of allowing the reduction in volume to be less noticeable when the user happens to fail
the test.
Randomized sounds will be emitted at 60 dB, which is considered a common audible level
since it is the noise level of an average conversation. Volume will be continuously reduced to 60
dB if the test is failed continuously until 60 dB is reached. At this level the volume will no longer
be lowered. The device is also programmed to allow volume recovery. After several failed tests,
the device will still allow the volume to increase if the user passes the test after the person has
manually reduced the music volume to a lower level. The issue is whether the user can overcome
any temporary hearing loss incurred by reducing the volume so the next test can be passed.
Current Situation
The number of mp3 players and other music devices sold across the globe show a strong
growth year by year. Individuals and especially children are now more connected to a
technological world more than ever before. According to information obtained from the
organization “Listen to Your Buds”1, iPods and MP3 player ownership among children has
increased from 18% to 76% in just the past 5 years. However, this continued exposure to new
technological gadgets has not always been accompanied by the correct information needed to
handle the negative effects caused by these technologies. Surveys by “Listen to Your Buds” show
that 47% of teens indicate they are not concerned about hearing loss from personal audio
devices. What is even worse is that leading authorities predict a rise in hearing loss nationally due
to unsafe use of personal audio devices. This rising statistic is mainly due to listening to personal
audio devices now with head phones or ear buds and at volumes greater than 89 decibels. The
majority of mp3 players are able to exceed these levels however both of these effects have a
detrimental effect on hearing.
1
Learn about the Risk of Noise-induced Hearing Loss from Personal Audio Technology and Mp3 Players." Listen To Your
Buds - Making Kids Safe In Sound. Web. 26 Feb. 2011. <http://www.listentoyourbuds.org/learn>.
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Market Analysis Overview
Recent studies have shown an alarming growth in the number of temporary and permanent
hearing loss cases worldwide. And according to the Hear-it organization, one of the best examples
of this growth can be observed in the United States where the hearing-loss population has
reached a peak of 33.4 million in 2010 with a continuous increase of 0.5% per year since 2001.
What is more alarming is that even though 43% of the population aged sixty-five and older are
the most affected by hearing-loss associated diseases, a large percentage of the population aged
45 to 64 and 18 to 44 are also being affected in large proportions. The Figure 1 shows the
hearing-loss population growth in the United States from 2001 to 2011.
40
30
20
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Figure 1: U.S. Hearing Loss Population (2001-2011)
U.S. Hearing Loss Population 2001-2011
Source: Hear-it.org
Different factors such as infections, injury, or even age can cause hearing loss among
individuals; however, it has been proven that the main factor in hearing loss among the
population is caused by the prolonged exposure to loud noise (33.7% of all cases have this
origin). The prolonged exposure to loud noise is known as “industrial deafness”; nevertheless,
the exposure to loud noise during work-time is not the only noise exposure causing hearing loss
within the affected population. “Prior to the introduction of MP3 players, hearing loss among
children was estimated at around 12.5%. More recent studies, however, estimate that 16% of
teenagers in the U.S. (approximately 6 million children), suffer from permanent Noise-Induced
Hearing Loss (abbreviated as NIHL)”.2
2
Kean, Cornelia. "MP3 Generation: Noise-induced Hearing Loss Rising among Children and Adolescents :: Article EntToday." EntToday. Jan. 2010. Web. 23 Feb. 2011. <www.enttoday.org/details/article/554357/MP3_Generation_Noiseinduced_hearing_loss_rising_among_children_and_adolescents>.
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As it is possible to observe in Figure 2 and based upon extensive studies in this area, including the
aforementioned research studies, there is a positive correlation between the growth in the
population suffering hearing loss diseases in the United States and the increase in mp3 player
sales in this country.
Figure 2: U.S. MP3 Player Growth (2001-2011)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
MP3 Player Unit Sold (Million)-U.S.
However, this challenging problem does not only affect the American population. “A research
project was jointly organized by the Hong Kong Society for the Deaf, Division of
Otorhinolaryngology, Department of Surgery, the University of Hong Kong and Hong Kong
Playground Association. Over 1,000 youth people were interviewed and the result indicated that
nearly 25% feel that their hearing sensitivity had deteriorated since listening to music players
and around one-fifth of the respondents experiencing tinnitus after using music players”.3
Market Potential for MP3 Players
There are a number of drivers that indicate the tremendous commercial potential for Sound
Rocks' devices. On September 28, 2009, the European Union announced new rules for MP3
players after a report was issued on October 13, 2008 in Brussels by the Scientific Committee on
3
WONG, Doris Chau-min. "Usage Pattern of Personal Stereo Players and Its Potential Effect on the Hearing of Teenagers in
Hong Kong." A Study on “The Impact of MP3 Players on Hearing amongst Young People”. Hong Kong Society for the Deaf,
Division of Otorhinolaryngology, Department of Surgery, the University of Hong Kong and Hong Kong Playground
Association, 2007. Web. 24 Feb. 2011. <hub.hku.hk/bitstream/10722/55485/1/ft.pdf>.
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Emerging and Newly Identified Health Risks. The new rules state that mp3 players must have
controls to limit volume to protect users’ hearing. In order to address this problem Sound Rocks
wants to introduce its innovative products in those world markets with the greatest mp3
consumption. According to the 2006-2011 World Outlook for mp3 players, the Asian, European,
and North American markets are the three largest markets driving the mp3 industry around the
world. Moreover, researchers identify four main companies as the market leaders in the mp3
player industry during 2008. These companies are Apple, SanDisk, Microsoft, and Creative.
Figures 3 and 4 illustrate the worldwide market potential for mp3 players and the worldwide
mp3 manufacturers’ market share during 2008 for the mp3 player industry.
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Market Segmentation
Sound Rocks will target different segments in order to fit the needs of all of its potential
customers. First, the market will be divided in terms of geographical locations. Different markets
have been considered as potential regions to launch the product; however, it has been decided
that the North American and the European markets offer the best introductory opportunities. The
first aspect taken into account in their selection was the previously mentioned regulations
established by the European Union during 2008 for the production and distribution of mp3
players. Specialists argue that these regulations will soon be in effect in the United States as well.
Moreover, the American market is a prime target due to its geographic proximity and the close
relationship that the company has with its customers in terms of cultural background.
Additionally, future markets such as Japan and China are also under consideration due to these
countries’ economic growth and large population.
Detailed Market Segmentation
With the main geographic groups established, Sound Rocks will divide the target market into
different subgroups in order to better satisfy the individual needs of each customer. Table A
identifies several segments of the market based upon different characteristics such as age, social
pattern, type of buyer, race, and income.
Table A: Target Market Distribution based on Customer Characteristics
Segment
Age
Social
Pattern
Type of
Buyer
Group Name
Characteristic
6 – 18
Children and teenagers are the most common users of MP3 Player
19 – 25
55 % of current college students are at risk of permanent hearing
loss due to exposure to loud noise.
25 – 35
Young Adults - usually first-time parents who have a very high
sense of responsibility.
Parents
Sense of Awareness for their children health.
HealthConscious
Consumers
Innovators
Individuals interested in healthy habits will be more interested in
ensuring their hearing isn’t damaged.
Imitators
Represent the greatest amount of customers in the technological
industry. They buy the products that everyone else is buying.
Opinion Leaders
Influence the purchasing decision of the other customers
Innovators are interested and appreciate new products
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Race
Caucasians
Income
>$25,000
“Whites are proportionately overrepresented among people with
hearing loss. They comprise 91% of the population with hearing
loss, but only 83% of the general population in U.S.” (National
Academy on an Aging Society)
Middle-High and High income customers are more likely to
regularly purchase or replace mp3 players and be concerned
about hearing loss.
Competition
It is important to understand that the continued growth of the hearing-loss population is
increasing the number of companies and organization around the world which are in turn
starting to pay attention to this market. However in the mp3 player industry, Sound Rocks has no
direct competition providing the same products and services because they have developed an
innovative concept. On the other hand, it is important to mention that there are indirect
competitors who are currently leaders in the hearing-loss industry. Additionally we can predict
that new companies involved in technological products will emerge as direct competitors for us
in the long run. For this reason, Sound Rocks must remain vigilant of its market position and
actively work to maintain it by developing further innovations in order to stay ahead of the
competition. The following chart illustrates the distribution of the competition in the market.
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Chart 1: Distribution of the Competition in the MP3 Player Market
Direct
No direct
competition
currently exists
Medical (Cochlear)
Implants
Competition
Indirect
Future
Medical treatments
Medical
Supplements
Medical Devices
Hearing Aids
(Amplifiers)
Potential music
device
manufacturing
companies
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Strategy and Implementation Summary
In order to achieve the objectives mentioned in this business plan, Sound Rocks plans to
implement an integrated marketing campaign which will facilitate the coordination among the
different departments of the company. This marketing strategy will also serve as a road map to
our employees and world partners in the development of quality products, outstanding customer
service, and an appropriate sense of social and environmental responsibility.
Competitive Edge
Currently there are no means to detect and compare the decibel level of sound to the user’s
hearing threshold and intervene when it has the potential to cause permanent hearing loss.
Marketing Strategy
Sound Rocks plans to implement a business-to-business marketing strategy. The intention is
to target the main players in the mp3 player industry such as Apple, San Disk, Microsoft, and
Creative. Also, we want to target different companies from the headphone industry such as Bose.
As part of our contract with these companies we intend to establish policies by which they will be
responsible for the distribution and promotion of the products to the final consumers. We also do
not discard the future possibility of making alliances with big box retailers such as Wal-Mart or
Best Buy who will market and distribute the products.
Sales Strategy
Using a business-to-business based sales strategy Sound Rocks plans to implement a direct
sales strategy with its customers (the companies stated in the previous section). Sound Rocks will
initially establish relationships with key decision makers at each company and negotiate terms
with a predicted maximum of 10 companies.
Sales Forecast
Assuming a $6/unit price for the volume-control software and a 2.9% penetration by year
two, potential sales are anticipated to be around half a million dollars. Add to this the over 125
million players sold in the United States in the last three years that could be retrofitted with a
new volume-control device at $15/device and at 0.2% penetration, an additional half a million
dollars in sales can be anticipated for a total of approximately $1 million sales by the second year
of operations. By the fifth year Sound Rocks Co. estimates the price per unit will be$5 for the
software and $13 for the hardware device. Costs are estimated to decrease by 20 to 33% creating
potential sales of more than $37 million in the United States.
The total global MP3 market is approximately $12.5 billion which represents annually about
74 million MP3 units. Addressing the global market Sound Rocks sales could at least double to
$80 million in the sixth year from entering that market. The projected market for a volumecontrol device(s) is huge and potentially very profitable.
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Management Summary
The management team will conduct
a search for an experienced CEO and be
advised by Drs. Amitava Biswas and
Eric MacDonald, inventors of the
technology. Horacio, Leandro and
Carolina all graduated or are about to
graduate from UTEP. Horacio has a
Bachelor of Science in Engineering
while Leandro has a Business
Administration degree specializing in
Marketing and Carolina will graduate
in May with a specialty in Finance. All
three have a few years experience
through internships and are now also
Leandro S. Brandi
Carolina Rocha
Horacio Resendiz
pursuing Masters in their field at UTEP.
Operating Plan
Sound Rocks plans to outsource all manufacturing to a local company in the El Paso Del Norte
region including software, hardware, packaging, and shipping. Sound Rocks will take care of
company operations, administration, sales and market research.
Financial Plan
Five-year projections for the Profit and Loss, Cash Flow and Balance Sheet and a Break Even
Analysis are in the Appendix along with the projected sales forecast. The plan incorporates
several assumptions:
 All MP3 players come with or will be used with earphones
 The average cost per MP3 player is $170
 Sales of at least 50,000 devices (in a combination of hardware and software) can be
achieved during the first year
 A growth rate of 100% can be achieved within the second year and 400% for the next three
years
 Variable cost of goods sold for the software is $1 to $1.50 and hardware is $5 to $6
 An achievable selling price of $7 for the software and $15 for hardware is assumed during
the first year, then the price will decrease approximately 10% per year
Investment Offering
Investments in prevention and research can have significant, profound, and long-term payoffs for individuals, communities, and for the economy. Sound Rocks Inc. wants to raise $700,000
by issuing common stock during the first year, and then borrow $100,000 from an available
company credit line during the second year of operations. This investment will bring Sound Rocks
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and its shareholders considerable profits by the third year of operations with sales of over $4
million.
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Appendix – Financial Plan
Sales Forecast
Product/Service A (Software)
Price Per Unit
Variable Cost Per Unit
Gross Margin Per Unit
$
$
$
Projected Unit Sales
Projected Revenue
Projected Variable Cost
Projected Gross Margin
$
$
$
Product/Service B (Hardware)
Price Per Unit
Variable Cost Per Unit
Gross Margin Per Unit
$
$
$
Projected Unit Sales
Projected Revenue
Projected Variable Cost
Projected Gross Margin
$
$
$
Year 1
Year 2
Year 3
Year 4
Year 5
7.00
1.50
5.50
6.00
1.50
4.50
5.50
1.25
4.25
5.25
1.00
4.25
4.75
1.00
3.75
33,000
66,000
330,000
1,650,000
3,300,000
231,000
49,500
181,500
396,000
99,000
297,000
1,815,000
412,500
1,402,500
8,662,500
1,650,000
7,012,500
15,675,000
3,300,000
12,375,000
Year 1
Year 2
Year 3
Year 4
Year 5
15.00
6.00
9.00
15.00
6.00
9.00
14.50
5.50
9.00
13.50
5.00
8.50
12.50
5.00
7.50
17,000
34,000
170,000
850,000
1,700,000
255,000
102,000
153,000
510,000
204,000
306,000
2,465,000
935,000
1,530,000
11,475,000
4,250,000
7,225,000
21,250,000
8,500,000
12,750,000
100.00%
21.43%
78.57%
100.00%
40.00%
60.00%
Projected Profit and Loss
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Projected Cash Flow
Projected Balance Sheet
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Break-Even Analysis
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Financial Ratios
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