Section 4
Team 11
Fall 2013
Business Plan
Business Description: Smart Shopper Inc. is an S-corporation based out of Woodland, California. Smart
Shopper operates on the business to business level and serves primarily as a software development company
that incorporates Point of Sale scanning technology to facilitate a user friendly and efficient grocery store
shopping experience.
Team Members:
Email Address
John Clyne
_____________________
_clynejp@dukes.jmu.edu______
Lauren Crain
_____________________
_crainlf@dukes.jmu.edu_______
Jacob Farrell
Joshua Morrow
_____________________
_____________________
_farreljb@dukes.jmu.edu_______
_morrowjl@dukes.jmu.edu_____
Sean O’Connell
_____________________
oconnesr@dukes.jmu.edu____
John Riedy
_____________________
riedyjk@dukes.jmu.edu________
Senai Tesfagiorgis
_____________________
_tesfagsk@dukes.jmu.edu________
TABLE OF CONTENTS
EXECUTIVE SUMMARY
PITCH TO INVESTORS
PRODUCT DESCRIPTION
COMPETITIVE ADVANTAGE
MARKETING
INDUSTRY ANALYSIS
SWOT DIAGRAM
TARGET MARKETING AND SEGMENTATION
3
4
4
4-5
5
5
6
6
MARKET SEGMENTATION ANALYSIS TABLE
7
TRENDS SUPPORTIVE OF TARGET MARKETS
7
POSITIONING STRATEGY
7-8
POSITIONING STATEMENT
8
PERCEPTUAL MAP
8
QUANTIFICATION OF MARKET
8-9
FORECAST ANALYSIS
9-10
FORECASTED SALES
10
MONTHLY FORECAST
10-11
MONTHLY SALES TABLE
10
PRICING STRATEGY
11
PRODUCT STRATEGY
11
BRANDING STRATEGY
11-12
DISTRIBUTION STRATEGY
12
PROMOTIONAL STRATEGY
12
OPERATIONS
12
OPERATIONAL STRATEGY
12
INVENTORY
13
OPERATIONAL PROCESS
13
SOFTWARE PROCESS MAP
14
OPERATIONS PROCESS MAP
14
OUTSOURCING
15
QUALITY ASSURANCE
15
MANAGEMENT
16
ORGANIZATIONAL STRUCTURE
16
ORGANIZATIONAL CHART
16
IDENTIFICATION OF EMPLOYEES
17
COMPENSATION REWARDS AND BENEFITS
__ _17-18
EMPLOYEE WAGES CHART________________________________________________
_ 18
STAFFING_____________________________________________________________________18
BUSINESS CALENDAR____________________________________________________________19
CONCERNS_________________________________________________________________19-20
FINANCIALS__________________________________________________________________20
FINANCIAL PLAN_______________________________________________________________20
BALANCE SHEET_______________________________________________________________21
INCOME STATEMENT___________________________________________________________22
FINANCIAL RATIOS_____________________________________________________________22
STATEMENT OF CASH FLOWS_____________________________________________________23
STATEMENT OF RETAINED EARNINGS_________________________________________ ____23
FINANCIAL NOTES/ASSUMPTIONS_______________________________________________23-24
BIBLIOGRAPHY_____________________________________________________________25-26
2
Executive Summary
Smart Shopper Inc.
Lauren Crain
1542 Tanforan Avenue, Woodland, CA 95776
Phone: (757) 373-9605
Email: Crainlf@dukes.jmu.edu
Amount of Financing Sought:
$1,510,034
Products/Services: Smart Shopper Inc. develops and
installs software on tablets that allow grocery store
customers to experience a more convenient checkout
process. The software will allow customers to locate
specific items throughout the store. Smart Shopper
software will also enable our grocery store clients to
choose from a menu of options to customize their
store database and increase sales through coupons and
complementary recommendation items.
Current Investors:
Company Background: Start-up
Industry: Software Development and
Grocery Store Technologies
Number of Employees: 19
Bank: Bank of America
Future Auditor: Capital Accounting
Founders -$400,000
Venture Capitalists-$500,000
Bank of America-$610,034
Use of Funds: Marketing/Promotional
Expenses, Salaries and Wages,
Transportation Costs, Rent/Utilities,
Operational Expenses, Equipment
Purchase, Software Licensing,
Inventory Purchase
Competitive Advantage: Smart Shopper technology
will derive its competitive advantage primarily through
innovative software technologies in grocery store point
of sale processing.
Markets: The first market targeted over the first two
years will consist of smaller, locally owned grocery
stores looking to differentiate their businesses and
compete with larger chains. After Smart Shopper
proves its product to be beneficial on a smaller scale, a
second target market will be exploited. From year three
on, Smart Shopper will continue to target small grocery stores and the five highest grossing grocery
store chains in Northern California.
Distribution Channels: Smart Shopper software and tablets will be sold directly to grocery stores.
Competition: Revel systems technology, Home Depots First Phone, Motorola Scan It, UPC Bar
Code technology, Point of Sale Processing Technology, Wal-Mart’s RFID chip
Financial Projections:
Revenue:
EBIT:
2014
345,000
(1,219,955)
2015
1,155,000
(782,042)
2016
2,435,000
154,331
3
2017
3,483,000
1,006,222
2018
4,590,000
1,174,395
Pitch to Investors:
An important consideration for grocery stores to operate productively and efficiently is to
have the latest technology in point-of-sale processing (Competitive Landscape, 2013.) The Smart
Shopper will combine these technologies along with superior software to provide grocery stores
with a competitive edge within their market. Investing in Smart Shopper will allow investors to
capitalize on a rapidly growing technological trend penetrating throughout grocery stores and
generate huge rewards through the development of our revolutionary software.
Product Description:
Smart Shopper Inc. will produce and sell tablets to businesses that will improve the shopping
experience making a faster self-checkout process. Our Smart Shopper tablets will be fully equipped
with a credit card reader, a printer, and a front camera that will be used to scan barcodes and
coupons. We will install pre-designed software that stores link to their inventory database and credit
card security system. Kroger, Albertsons, Trader Joes, etc. all have different store layouts. Our
software is designed so that our clients’ stores can upload their inventory, which will then coincide
with the location of items throughout their store. This will allow store inventory to be wirelessly
updated and accessible through each customer’s tablet. There will be a menu of options that our
software programmer previously designed that grocery stores can choose to implement. These
features include the location of items throughout the store, price check, coupons, recommendations
on complementary items, and the ability to make a shopping list online.
Competitive Advantage:
Smart Shopper Inc. operates on a business to business level. However, our product must
satisfy the needs of not only the businesses we sell to but also our clients’ respective shoppers. Smart
Shopper’s internally designed software will be key to our competitive advantage. Smart Shopper
technology will give our clients options that our competitors do not offer. One advantage of our
software is that it allows shoppers to easily locate the aisles of items throughout the store. There will
also be suggestions on the side of the tablet screen that will give customers advice on
complementary items. For example, if pasta is scanned, then stores will have the capability to choose
a particular pasta sauce they want to display on the side as a suggestion. Smart Shopper Inc. will
develop the software that will allow stores to add their own coupons to the tablet. The Smart
Shopper will also provide coupons for every 5 scanned items that can be used immediately or at a
later date. If they use the coupon immediately, the customer can simply press the coupon on the
tablet and automatically discount their bill. The customer can print the coupon if they choose to use
4
it on a later date. These software capabilities, along with the extinction of lines because of the
attached credit card scanner will create a user-friendly shopping experience for grocery store
customers.
These features not only benefit shoppers, but also add immense value to grocery stores.
Eliminating lines in grocery stores means happier customers that are more likely to shop at our
client’s stores. Smart Shopper’s technology will also enable store managers to know when and how
their customers are shopping, essential in today’s supermarket industry (Imlay, 2006). Self-scanning
technology in grocery stores has shown to increase sales by up to ten percent (Zimmerman, 2011).
Smart Shopper Inc. anticipates grocery store sales to increase even more through the addition of
coupons and suggestions for complimentary items. These software features will lead to more items
being purchased during visits and more repeat customers. Other benefits includes a 7 inch screen
that is twice as large as the leading competitor. This is important because a larger screen makes it
easier to read, more user- friendly, and provides more space for additional features.
Marketing:
Industry Analysis:
According to Porter’s five forces the threat of substitute products is relatively high.
Substitute products include self-checkout systems or checking out with a cashier using current UPC
and point of sale processing technology. The market for technology and self-scanning systems
within stores is growing rapidly. There are multiple new products that are starting to penetrate the
market in this rapidly growing industry. Competitors similar to the Smart Shopper include the
Motorola Scan-It, Home Depots First Touch, iPhone scanners, and Revel Systems. Each of these
products incorporate point of sale processing technology that facilitates the shopping experience for
customers during store visits and enables stores to accurately track inventory. In the future,
Walmart’s RFID chip which automatically scans and updates store inventory when items are
removed from the shelf will become a competitor against the Smart Shopper. The bargaining power
of buyers is high pressure, as Smart Shopper Inc. is a start-up company and has yet to develop any
lasting customer and brand loyalties. The bargaining power of our suppliers is low pressure as the
raw materials used in the Smart Shopper are not very differentiated from our competitor’s products.
The rivalry among existing firms can be seen as high because our main competitors such as
Motorola’s Scan-It are already spreading throughout grocery stores in the Northeast.
5
Table 1-1: SWOT Diagram
Strengths
•We are small and personable to the
company we are servicing
•Will have less clientele so will be more
accommodating with service
•Produce our own software and tablets
Opportunities
•Our product does not exist in California
•Rapid technological movement in society
•Many shoppers strive to be more efficient
during trips
•Self-scanners increase grocery store sales by
10% and increase customer loyalty
Weaknesses
•We are a startup company that
does not have a recognizable brand
•Competing with a known enterprise
•Low Capital budget
Threats
•Shoppers who are not tech savvy
who would prefer checkout lines
•Competes with Motorola/motive scanner
which is a similar existing product
•Self-checkout systems
•Difference in profit margin might not
be enough to make the switch meaning
that fixed cost associated with our product might exceed
that of paying cashier wages
Target Marketing and Segmentation:
We operate on a business to business level and will employ segmentation by organization
type, location, and customer size. These variables will effectively and sufficiently aggregate
prospective business consumers that will respond similarly to the introduction of our Smart Shopper
product. We have decided on three different segments. These include Northern California grocery
stores, retail stores, and hardware stores. These stores will be separated further into the Big Whales,
Regional Chains, and locally owned mom and pop stores. Refer to Table 1-2 for a description of our
designated segments.
We have decided to target grocery stores in Northern California. Over the first two years we
plan on targeting locally owned grocery stores such as Nugget Markets, Fresh and Easy, etc. This
will be our initial target market because we can prove ourselves in the marketplace at a lower risk
and lesser cost. These stores will be enticed by the Smart Shopper because it will differentiate their
businesses from smaller grocery stores and give them a competitive advantage. Once we
demonstrate in the marketplace how effective our product can be for prospective businesses, we will
then proceed to target the Big Whales from year three on. These consist of the top five highest
grossing grocery store chains in Northern California; Kroger, Safeway, Albertsons, Trader Joe’s, and
Smart & Final Stores (Hildebrand, 2004). We decided to wait to target the top grossing grocery
stores until year 3 because these are nationally established enterprises that will require proof that our
product adds value before investing in our technology.
6
Table 1-2: Market Segmentation Analysis
Market
Segment:
Big Whales
Regional
Chains
Mom and
Pop/Locally
Owned
Description:
Grocery Stores, retail stores, and hardware stores that have established themselves as
successful enterprises on the national level. Highest grossing stores with hugely
recognizable name brands. (Kroger, Safeway, Albertsons, Trader Joes, Smart & Final
Stores.
Grocery Stores, retail stores, and hardware stores that are strictly located in the
Northern California region. Recognizable brand for the citizens of California and are
successful chains in their own right.
Segment consists of any stores that are not chains, but rather are independently owned
and operate on a much smaller level.
Trends Supportive of Target Markets
The Supermarket industry in the United States is rapidly changing. Retailers such as WalMart, Costco, Sam’s Club, and various dollar stores have penetrated the food industry and cut into
the market share for traditional grocers (Imlay, 2006). The supermarket industry is faced with the
challenges of maintaining market share and profits while attempting new concepts and store formats
in an effort to differentiate themselves from other types of retailers (Imlay, 2006). Purchasing Smart
Shopper technology will allow small, locally owned grocers to differentiate their businesses and
maintain market share in the multibillion-dollar food industry.
After year 2 we will target the Big Whale grocery stores. California households indicate that
the high-end grocery stores we are targeting after year 2 will greatly benefit from the introduction of
the Smart Shopper. California shoppers are spending 20% more at high-end grocers than they are at
more general grocery stores (Hicken, 2013). In addition, the average size of a California household is
2.89 people, third highest in the nation behind Hawaii and Utah (California Average Household
Size, 2010). The more people in a household, the more demand for food. And the more demand for
food, the higher volume of shoppers there are at grocery stores. Although we aren’t selling directly
to the shoppers themselves, our target market will allow us to capitalize in an area where grocery
stores need more efficiency in the marketplace.
Positioning Strategy
Our product is relatively new and unknown in the Northern California region. As a result,
our product will be concentrated in a smaller, less competitive market since California grocery stores
have not been introduced to self-scanning technology. Smart Shopper will establish a head-to-head
position and employ a differentiating strategy based on superior software. We will emphasize user7
friendliness by incorporating a menu of options, allowing grocery store shoppers to locate items
throughout the store and select coupons for complimentary items. Our product will increase grocery
store sales by up to ten percent (Zimmerman, 2011) and maintain market share in an increasingly
competitive food industry. These features along with excellent quality assurance will differentiate our
product based on attributes and quality in the minds of our customers.
Positioning Statement
For grocery stores in Northern California, we will make the grocery store shopping
experience more efficient through our user friendly Smart Shopper tablet. Our innovative software
will separate our product from point of sale processing technology competitors (refer to chart 1-3)
and enable an easier checkout process for shoppers. Our product will make lines extinct and
enhance customer satisfaction. Grocery stores will understand how and when customers like to
shop, leading to increased profits and a more loyal customer base. We guarantee the shopping
experience will never be the same.
Chart 1-3: Perceptual Map
Quantification of Market
In the first 5 years Smart Shopper Inc. will be targeting grocery stores in the Northern part
of California. This encompasses the Bay Area, Capital and Gold Country, the Central Valley, and the
Central Coast. We found there are approximately 3,212 grocery stores in this area. We calculated this
by dividing the number of grocery stores in California (7,737) into the population of California
(38,041,430). This came out to be 4,916 which is the average number of people per grocery store in
8
the state of California. To calculate our market potential, we then divided the population of
Northern California (15,789,982) by the average number of people per grocery store (4,916) to
calculate the number of grocery stores within our target market (Census Bureau, 2007). We found
this to be 3,212 which is 41.5 percent of the grocery stores in the state. In the first two years we will
be targeting locally owned and regional chain grocery stores. There are about 1,374 locally owned
and smaller chain grocery stores within the Northern California region. In years 3 and on we will be
targeting the Big Whales. These include Kroger, Safeway, Albertsons, Trader Joe’s, and Smart and
Final Stores. There are 504 Krogers, 541 Safeways, 483 Albertsons, 117 Trader Joes, and 157 Smart
& Final stores in the state. We took the figure 41.5% and multiplied it by each of these respective
numbers to calculate that there are approximately 209 Krogers, 225 Safeways, 200 Albertsons, 49
Trader Joes, and 65 Smart & Final Stores within our target market. (Hildebrand, 2004) Adding the
1,374 locally owned stores to the total number of big whales (748) means our target market consists
of a total of 2,122 stores. Our market potential is the product of the total number of stores within
our first target market (1,374), the average number of Smart Shoppers sold to each store (25), and
the price of each Smart Shopper ($300). Our total market potential for our smaller target market is
$10,305,000. The market potential for the Big Whales is the product of 748 stores and 50 tablets a
store at $300 per Smart Shopper. This equals $11,220,000. Our total market potential is $21,525,000.
Forecast Analysis
To calculate the amount of forecasted sales for the Smart Shopper, we identified the demand
for a similar product used in Virginia and Maryland. 50 out of 99 or nearly 50% of Giants in
Maryland use self-scanner technology. 28 out of 66 or approximately 42% of Giants use similar
technology in Virginia. This means that 78 out of 165 or 47% of Giants in Virginia and Maryland
employ a similar product (Giants Locations, 2013). 47% of Giants have deemed this a worthwhile
technology since its introduction in 2009; therefore, five years from when we start selling to the Big
Whales, we will capture 47% of our second target market. This is approximately 337 Big Whale
grocery stores in Northern California. Taking the 337 Big Whales we plan to sell to by year 6, and
dividing it by 4 years means that on average we will sell to 89 stores per year.
In the first two years we will be selling 25 tablets per store to smaller, locally owned grocery
stores. We will be operating and selling our product beginning in April. This means we will only be
selling Smart Shoppers three quarters of the year. Multiplying the percentage of months we are
selling in year one by 89 means we would under normal circumstances sell to approximately to 67
9
stores. To account for the fact that we are a new start-up business and don’t have any reference
clients, we plan on selling to just 30 stores in the first year. In year 2 we will continue to market to
small chain grocery stores. We plan on operating at full
capacity and selling to 90 smaller, locally owned grocery
Year
Store Size
Stores
Tablets
Unit
Sold
Sales
2014
Small Chain Stores
30*
25=
750
stores. We project the increased sales because year one
2015
Big Whale
90*
50=
4,750
clientele will demonstrate that the Smart Shopper
2016
Big Whale
95*
50=
4,500
2017
Big Whale
90*
50=
4,500
Small Chain Stores
22*
25=
550
Big Whale
100*
50=
5,000
Small Chain Stores
28*
25=
700
product operates efficiently. This will allow companies to
feel they are taking less of a risk incorporating our
technology because our product will prove to be
2018
beneficial, increasing their sense of security.
Table 1-4: Forecasted Sales
In year 3 we will solely target our Big Whale target market. We will sell an average of 50
scanners to each of our Big Whale grocery stores. We decided we would be able to sell 50 units per
store based on market demand of Motorola’s Scan-It in Maryland and Virginia Giant grocery stores.
They have an average of 48 scanners per store (Giant, 2013). This figure is very comparable with
our average and it’s reasonable to expect that grocery stores in Northern California would need this
amount of tablets to meet consumer demand. We forecast selling our product to 95 Big Whales.
Year 4 we plan on selling to 90 Big Whales and 22 smaller, locally owned stores giving us a grand
total of 112 new grocery stores. In year 5 Smart Shopper Inc. will sell to 100 Big Whales as well as
28 locally owned grocers. As our brand becomes more recognizable throughout Northern
California, we expect to sell to 16 more stores or roughly a 14% increase from year 4.
Monthly Forecast
Smart Shopper Inc. understands prospective grocery store clients will be more willing to
invest in our product when the new fiscal budget comes out as well as the end of the budget period.
As a result, we anticipate more demand during these periods. We also note that grocery stores will
be less likely to purchase our product during the October through December months due to
seasonal factors. Big holidays such as Thanksgiving and Christmas means a high volume of
customers during these months and prospective businesses will be less willing to invest in new
technology. Therefore, we expect to sell to fewer stores per month on average from October
through December.
Sales
Apr
6
May
4
Jun
5
Jul
3
Table 1-5: Monthly Sales
Aug Sept
Oct
Nov
4
4
3
1
10
Dec
0
Jan
13
Feb
12
Mar
15
Year
70
We forecast our first years monthly forecast, starting in April, to be as followed; 6 stores in
April, 4 stores in May, 5 stores June, 3 stores in July, 4 stores in August, 4 stores in September, 3
stores in October, 1 store in November, 0 stores in December, 13 stores in January, 12 stores in
February, 15 stores in March.
Pricing Strategy
Smart Shopper Inc. will use cost-based pricing by adding a specified percent of cost to the
product. We will make our product for $87(material costs) +$43 (software costs) = $130 and sell it
for $300 a tablet. The average markup for manufactured electronics is between 100% and 200%
(Waits, 2010). A markup of 130% at a price of $300 will be enticing enough for businesses to buy
our product while also satisfying our main goal of maximizing profits. We will be charging each of
our large customers $8,000 per year and $4,000 for small companies to provide them with service
maintenance and replace any defective products.
Product Strategy
In the first two years, Smart Shopper Inc. will practice a niche strategy based on the fact that
self-scanning technology in grocery stores has not spread to the West Coast. We will concentrate our
Smart Shopper technology strictly in the Northern California region and target our marketing
platform to smaller, locally owned grocery stores. These first two years will be critical to our
company’s development as we prove to the Big Whales that the Smart Shopper will add value to
their businesses. Smart Shopper Inc. will also employ a product differentiation strategy based on
software capabilities that our competitors do not currently have. Complementary item coupons and
food aisle locations are not employed by any point of sale processing company within the industry.
In addition, the menu of options created by our internal software-design team will give grocery
stores more flexibility, instead of the “one size fits all” approach that other companies use. These
features will gain Smart Shopper brand recognition. Smart Shopper Inc. will also demonstrate
product and service reliability through quality assurance techniques.
Branding Strategy
Smart Shopper Inc. will employ a family branding strategy, as we will use the company name
to distinguish our product in the marketplace. This is important because we are a start-up company
trying to attain a reputable image. Once clients realize the benefits of our product and the services
we provide, they will associate Smart Shopper tablets with our company being a quality enterprise. If
other Smart Shopper Inc. products were to be released in the future, the marketplace would be more
11
willing to buy into our new products. Our brand promise is to provide a reliable product along with
maintaining quality customer relationships.
Distribution Strategy
Smart Shopper Inc. will be selling directly to grocery stores in the marketplace. We will
design our software in-house and order hardware from a distributor. Technicians will deliver and
install Smart Shopper tablets and software to our grocery store clientele.
Promotional Strategy
Since Smart Shopper Inc. operates on a business to business level, we will use personal
selling to directly target grocery stores within our target markets. Smart Shopper Inc. will use
sampling as a means to promote our product. We are marketing a new, high cost product so
allowing stores to try our product before investing in it will increase our chances of capturing new
clientele. Our key promotional objective is maintaining strong customer relationships and increasing
market share as our brand gains recognition. This will be critical to the foundation of our business.
Not only is it important to gain new clients, but it is essential our company keep existing stores
satisfied with our Smart Shopper product. A substantial amount of our revenue comes from yearly
service charges, and thus it’s important we give grocery stores a reason to continue to use our
product. We will manage our sales reps internally so they are directly tied to the company and
motivated to further the reputation of Smart Shopper Inc. Our sales reps will be sufficient to market
to the Northern California area. Our office is located in Woodland California, a central location that
will enable our sales reps to directly market to smaller grocery stores in Northern California for the
first two years. Once we target the Big Whales, decisions for these stores are executed at a corporate
level, purchasing all the desired scanners at once opposed to buying them incrementally (Jason,
2013). Our promotional budget is strictly comprised of salaries for sales reps and commissions based
on the number of Smart Shoppers sold in a year.
Operations:
Operational strategy:
Smart Shopper Inc. strives to only provide customers with products that are of high quality
and customer service that exceeds expectations. All of our employees will go through intensive
training that will teach them how to recognize quality defects during software development,
installation of software and delivering the final product.
12
Inventory:
We will keep enough raw materials in-stock to produce one month of orders without a delay
from suppliers. This will be our safety stock. It takes 2 weeks to receive raw materials from our
suppliers (Alibaba, 2013). We will keep one month of inventory in stock so that if demand rises we
can meet our customers’ requirements to make sure orders are not delayed.
Operational Process:
Our operational procedure will be assemble-to-order. This will help us lower our cost and
manage the process with a given number of inventories. We will write our software 3 months before
the start of the business and will be updating the system and the tablets frequently with the latest
software technology advancements. As our business grows we will be expanding the SQL database
cloud storage system to hold larger software programs. Our customers have 3 different menu
options to add onto the software which are coupons, complementary items, and store aisle numbers.
Having pre-assembled software will allow us to easily select the specifications that the customer
wants and deliver the products to our customer. Our software will allow the tablets to wirelessly
update the store’s inventory automatically when store aisle setup is changed. The tablet will be able
to scan the three different types of barcodes: linear symbologies, stacked matrix symbologies and
composite symbologies. This will allow us to work with all types of grocery stores.
Credit card security will be easier when working with the large chain grocery stores, since we
are selling to corporate grocers and the stores have uniform security systems. More time will be
spent on developing locally owned store’s software because they have different security systems.
Large chains will involve one software code because their security systems are the same, for each
additional locally owned stores we sell to will require another code. At the start of our business we
expect to sell to locally owned stores and have acquired staffing to reflect the need for more focus
on software.
13
Figure 1-6: Software Process Map
Table 1-7: Software Failure Points
Failure Points
F1 – White Box testing
F2 – Black Box testing
F3 – Front End (interface) software testing
F4 – Usability testing
Description
Software has errors in the development stage.
Software has errors after the development stage
Software does not run smoothly on the OS.
Software is not user friendly.
Figure 1-8: Operations Process Map
14
Failure Point
F1 – Defect products received.
F2 – Software programing problems.
F3 – Software not working as expected.
F4 – Tablet does not perform at the store.
Description
Produced that are ordered from our suppliers do not function
properly so have to be replaced.
Different issues can arise while writing the software.
Final inspection of the tablet before being sent to the customer.
Tablet does not seem to by synchronizing with store network.
Table 1-9: Production Failure Points
Outsourcing:
Accounting, including payroll, will be outsourced because we will not continuously need
their services, and will use their services when need be. We will be outsourcing our accounting to
Capital Accounting located in Woodland, California (Capital Accounting Solutions, 2013). We are
purchasing our tablets from our suppliers, so that we can allocate our resources towards the
software development process.
Quality Assurance:
Smart Shopper has multiple proactive quality assurance steps to ensure when the product
gets to the customer it will work accurately. The first step is to have the software that will be
developed at the start of the company go through a rigorous inspection by the quality manager,
quality testers, and the software programmers will inspect the software. This process will take up to
two weeks. This quality test is very important because it will become the basis for our software
options for our Smart Shopper so only software of the highest quality will suffice. After our
preliminary software has been written our quality inspection will consist of inspecting and testing
each of the tablets. This includes having the quality control manager visually inspect the products
when they arrive from the supplier. The defective products would be noted and reported back to the
supplier. Our quality testers will check the quality of the software and functionality of each tablet
once the software programmers have uploaded the software.
Our reactive quality assurance also consists of multiple steps. Once the technicians have
installed it at each individual store they will make sure the tablets can scan the store items, print
receipts and store coupons. The technicians will show it to store manager so that they understand
the basic functions of the product. They will check the tablets every time they go in the store and
update them when necessary. If somehow the store receives a defective product we will fix or
replace the tablet. Smart Shopper has a one year warranty on the tablet hardware and a lifetime
warranty on the software. We go into such detail with quality inspection of the tablets because we
15
understand how vital it will be for the stores to have products that are user friendly and functional.
A store cannot function without having a proper checkout system and they cannot afford to be
down for even a few hours, so we take quality inspections very seriously.
Management:
Organizational structure:
Smart Shopper will require 19 employees to start up and as the company expands we will hire
accordingly, with our projected sales we expect to have a staff of 24 employees by year 5.
Chart 1-10: Organizational Chart
We will obtain staffing by posting on monster.com, zoominfo.com, as well as local ads in the
newspaper, and local job fairs for basic positions such as technicians, customer service
representatives, janitor and secretary. We will recruit upper level management and sales
representatives that are previously experienced business professionals. Employees that are hired
after startup will go through the same training as employees hired at the startup but they will also
shadow employees already in their position.
We will train all our employees immediately after they join the company. They will have
basic training on the company goals, mission and an overview on the development process of our
product with a focus on the software. The second phase of the training will take a week and involve
specific training depending on what their job is. For software programmers, there will be in-depth
training on the types of software that will be created along with an overview of our software system.
It will be instructed by the software development manager. The training for sales representatives will
be held by the sales manager and involve intensive training on the operation of the product, our
target market, and our positioning strategies. Any time we update the software there will be
additional training session for all employees held by the software development manager. The quality
16
control testers will be trained by the quality control manager on how to detect defects, how the
software should operate and the overall operation of the smart shopper. The technicians will be
trained by the quality control manager on the installation of the product to the stores, how to detect
a defective product that might make it to the store, and an overview of the software and operation
of the smart shopper.
Identification of employees:
The President will run Smart Shopper and oversee daily operations of the smart shopper
product. Our general manager will order the product from Alibaba and relay the order of the
product to the software programmers. The software programmers write codes and interface for the
software of the product. They will also be in charge of uploading the software to the tablets once the
code has been written. Technicians go into the store for installation and maintenance of the product
including updating the smart shopper products when the software is updated. Sales representatives
talk to potential customers and are focused on creating a network among potential clients, product
awareness, and sales. Customer service representatives will answer phone calls from our clients that
may involve questions or quality concerns. Quality testers inspect the product to make sure it is fully
functional and up to par with company standards before the product is given to the customer.
Compensation Rewards and Benefits
All of Smart Shopper employees will receive competitive pay and benefits. To ensure
qualified and motivated employees, Smart Shopper Inc. will pay all employees above the 70th
percentile salary for the State of California. We will also incentivize employees with a 2.5% salary
increase each year that they stay with the company; which will give them motivation to stay with the
company for a number of years. Our sales representatives will receive a great base salary and a
commission plan of 15% of dollar sales each year, which by year 5 under optimistic conditions will
double their salary. Employees will be covered under worker's compensation program through
Zurich Insurance Group - Zurich in North America which will be charged at 1.62% of each
employee’s salary, totaling $9778.32 per year. Employees will be given the option of receiving health
insurance. Our insurance provider will be Kaiser Permanente, which will cost us $5762 per employee
for a total of $109,478 per year. 100% of our health insurance will be cover outpatient surgery and
emergency visits, as well as doctor office visits for a $30 co-pay, prescription drugs and mental
health services. The Federal Unemployment (FUTA) will be taxed at a rate of 0.6% on each
employee’s salary for the first $7000 totaling $588 for each year (Internal Service Revenue 2013).
The California State Unemployment (SUTA) is taxed at a rate of 3.4% on the first $7000 of taxable
17
income earned by each employee for a total of $3332 (California Employment Development
Department, 2013). Social Security will be taxed at a rate of 6.2% on each employee’s wage for a
total of $73,242 (Internal Revenue Service 2013). Medicare is paid at a rate of 1.45% per each
employee’s salary for a total of $8752.20 (Internal Revenue Service, 2013).
Lastly, Smart Shopper employees will receive 10 days paid vacation, which can be used for
personal use, sick days and or vacation. Employees will also be given time off for national holidays.
All costs of this time off have been accounted for and any additional time off needed must notify
the managers at least two weeks in advance. Additional time off will not be paid leave. All days off
will be on a year-by-year basis and will not accumulate so all employees are encouraged to use all of
their days throughout the year. The following table shows the breakdown of information provided
above.
Chart 1-11: Employee Wages Chart
Staffing:
At Smart Shopper our goal is to create products of high quality, and we strive to keep our
customer satisfaction ratings high. If our customer service representatives do not meet their monthly
goals for a period of 3 months they will have to meet with upper-level management. If this occurs
for the next 3 month period that employee will be terminated. If our technicians receive a customer
satisfaction rating of less than 85% for a period of 6 months they will also be under grounds for
dismissal. We take pride in the types of product we are giving to our consumers and if our quality
inspectors fail to meet 92% of quality inspections for a period of 6 months they will be terminated.
If our demand rises faster than we have expected we will hire additional employees, with the first
being sales representatives, technicians and software programmers. If demand does not meet what
18
we have forecasted we will either reduce the hours of our employees or potentially let go ones that
are not needed until demand rises again.
Business Calendar:
Here is a timeline from initial investments to the opening of the business:
Date(s)
Day(s)
from Day
One
Event
Date(s)
October 1, 2013
-93
January 17, 2014
15
Post the additional job openings
December 2,
2013
-31
January 20, 2014
18
Hire software programmers and
manager
January 2, 2014
0
0
January 2, 2014
0
January 3, 2014
1
January 22, 2014 –
January 29, 2014
January 30, 2014 –
April 30, 2014
February 3, 2014 –
February 14, 2014
February 18, 2014
20 – 27
January 2, 2014
January 3, 2014
1
Pitch business idea to
venture capitalists –
startup capital
Post software
programmers and
software manager job
openings
Seed capital from business
members
Register and attain
business license
Obtain a federal employer
identification number
Establish checking account
and credit card
Attain startup capital from
banks
January 3, 2014
1
January 3, 2014
1
January 6, 2014
4
January 6, 2014
4
January 7, 2014
– January 17,
2014
5-15
Obtain a CA sales tax
vendor ID number
Purchase CA retail permit
and pay S-Corp fees
Acquire business
insurance
Enter rent agreement
Choose software
programmers and
manager applicants and
perform interviews
Day(s) from
Day One
28 – 117
32 -43
Event
Train software programmers and
manager
Software development process
47
Choose job applicants and perform
interviews
Hire employees
February 20, 2014
– February 28,
2014
April 1, 2014
49 -57
Train employees
86
Begin selling to businesses
April 21, 2014 –
May 5, 2014
May 1, 2014
106 - 120
Quality software testing
116
First inventories arrive
May 6, 2014
121
May 8, 2014
123
Assemble products to be models for
potential clients
Smart Shopper Inc. Opens
Concerns:
Do Stores run the Risk of Theft?
One of the main concerns pertaining to the implementation of the Smart Shopper is the risk
of grocery store customers leaving the store without paying for all items in their shopping cart.
Although it is ultimately up to store management, this problem can be addressed through
conducting random audits on customer carts as they leave the store. This will require an employee of
the store to verify that all items have been scanned and paid for properly. Other stores that
incorporate similar self-checkout systems have proven this to be an effective measure of preventing
theft and will mitigate risk associated with the Smart Shopper.
19
Is the Smart Shopper Financially worth it for grocery stores?
The Smart Shopper will eliminate the need to pay cashier wages which will save grocery stores on
average 377,377 in annual salaries. Although the Smart Shopper will require an installation fee as
well as a yearly maintenance cost, it will cost far less to invest in Smart Shopper technology than it
would to pay cashier annual salaries.
What if Customers Pay with Cash?
Smart Shopper tablets are designed so that grocery store shoppers can swipe their credit cards on
the attached credit card reader without having to check out with a cashier. Customers that would
like to pay with cash will have to pay the amount rung up on the tablet to a grocery store employee.
Although this means the customer will have to wait to checkout before leaving the store, it will still
drastically reduce wait time since the items will have already been scanned.
Financials:
Financial Plan
Smart Shopper, Inc. will seek a total investment of $2,654,818 composed of a $400,000
contribution from the founders, three separate loans acquired from Bank of America amounting to
$1,454,818, and two issues of 36,000 and 12,000 shares of $25 par stock sold to venture capitalists
totaling $1,200,000. With these funds, Smart Shopper, Inc. will build a strong foundation to compete
in the mobile point of sales software industry. An investor of Smart Shopper, Inc. will begin to
recognize returns of a 25% dividend payout ratio in Year 3, reaching 59% and Dividends of $14 per
share by Year 5. An extraordinary ROE of 280% can be expected by the end of year 5 with growth
continuing in the future. An IRR of 34.6%, MIRR of 34%, and NPV $475,508 can be expected as
Smart Shopper reinvests at the WACC of 25%. After the fifth year of operations, Smart Shopper,
Inc. will continue to grow at a yearly rate of 24% into perpetuity. Smart Shopper, Inc. will
demonstrate increasing sales as it gains brand recognition from corporate chain grocers throughout
the United States. At the end of year 5 we will have $700,000 excess cash to spend. This money will
go toward research and development to create mobile point of sale software to be incorporated in
superstores and retail store. In order to do this we will hire a new team of software programmers.
Also, we will plan on increasing our database storage to meet our expanding customer base. This is a
good idea because the technology field is an ever changing and rapidly advancing field.
20
21
22
23
Financial Notes/Assumptions:
**Legal Entity: Smart Shopper, Inc. will be founded as an S-Corporation for tax benefits and limited liability to stockholders
1.)
Contributed Capital - At inception; John Clyne, Sean O’Connell, Lauren Crain, Jake Farrell, Senai Tesfagiorgis, Josh Morrow, and John
Riedy contributed combined capital of $400,000.
2.) Common Stock - 36,000 shares of common stock were issued and outstanding on inception with a par value of $25. $25 per share * 20,000
shares to outside investors = $500,000. Contributed capital amounts to: $400,000 ÷ $25 per share = 16,000 shares. The founders will
maintain 44% ownership throughout the first year. During Year 2, 12,000 additional shares of common stock will be issued at $25 per
share amounting to $300,000. The founders will now maintain 33% ownership from Year 2 onwards. For a total of 48,000 shares by the
end of year 2.
3.) Dividends Policy - Calculated at 25% of Net Income. Due to a surplus of cash in Year 5, we decided to increase the dividend to 59% of net
income to appeal to investors. Year 3 dividends paid will amount to $33,594. Year 4 dividends paid amount to $248,442. Year 5 dividends
paid amount to $664,969.
4.) Sales Revenue – 750 units are sold in year one based on sales forecasts. Sales for each year can be found in Forecast chart 1-4. Dollar sales
were calculated by multiplying unit sales by the $300 selling price and adding a $4000 annual service fee for small stores and an $8000
annual service fee for large stores.
5.) Cost of Goods (Material) – Cost of Goods (Materials) was computed by multiplying the variable expense of each unit ($87.816) by the
units purchased each year (units sold + two months of additional inventory). Yr. 1  (750*87.816) =$65,862+ (2/12*(750*87.816)) =
$76,839 Production Materials Purchased.
Chart 1-12
System Sales
Unit Sales
Dollars Sales
Variable cost
Materials Purchases
Year 1
30
750
$225,000.00
$65,862.00
$76,839.00
Year 2
90
2250
$675,000.00
$197,586.00
$230,517.00
Year 3
85
4250
$1,275,000.00
$373,218.00
$435,421.00
Year 4
112
5050
$1,515,000.00
$443,470.80
$517,382.60
Year 5
128
5700
$1,710,000.00
$500,551.20
$583,976.40
6.)
Cost of Goods (Labor) – Cost of Goods (Labor) was computed by adding the salaries of Production Workers, Software Programmers, and
Quality Control Testers.
7.) Salary/Wages - Refer to Table 1-11 for annual employee expenses (salaries, health insurance, and employment taxes). Each year we
increased salaries by 2.5% as an added employee incentive. Sales Reps are paid on a yearly salary + commission. Commission featured 1-13.
Chart 1-13
Unit Sales
Dollar Sales
Commission Percentage
Total Commission
Number of Sales Reps
Commission Per Sales Rep
8.)
9.)
10.)
11.)
12.)
13.)
14.)
15.)
16.)
17.)
18.)
19.)
Year 1
750
$225,000.00
15.00%
$33,750.00
2
$16,875.00
Year 2
2250
$675,000.00
15.00%
$101,250.00
2
$50,625.00
Year 3
4250
$1,275,000.00
15.00%
$191,250.00
3
$63,750.00
Year 4
5050
$1,515,000.00
15.00%
$227,250.00
4
$56,812.50
Year 5
5700
$1,710,000.00
15.00%
$256,500.00
4
$64,125.00
Employee Benefits – Provided an annual healthcare payment of $5,762.00 per employee plus base salary raise (Table 1-4).
Employee Tax Expense – Mandatory deductions include Social Security (6.2%), FUTA (6% on first $7000 earned), SUTA (3.4% on first
$7000 earned), Medicare (1.45%), and Workers Comp (1.62%). Tax deducted from workers payroll each year, adjusted for base salary raise.
Utilities + Internet & Phone – Estimated cost of Water + Electric ($2500), Waste Disposal ($264), and Internet + Phone ($4500) for all
locations.
Fixed Assets
a.
Office Equipment – Purchase of $10,983.31 of computers, software, etc. $1500 salvage value. 5-year useful life. $1,896.66
annual depreciation using straight line.
b.
Truck – Purchase of $18,459 service and delivery truck. $5000 salvage value. 8-year useful life. $1,682.38 annual depreciation
using straight line.
Fuel Expense – The truck will drive an average of 50 miles (25 each way) to each store. The truck gas tank holds 25 gallons of gas and
earns an estimated 6 miles per gallon. The formula: ((30 customers*50 avg. miles)/6mph = 250 total gallons of gas used in year one. With
the current price of gas in California being $3.52, the total fuel expense in yr 1 = $880.
Travel Expense – $80 average meal price, $140 average hotel room fee. Values are calculated assuming 2/3 of clients are being treated to
lunch/dinner and reps require hotels for 1/3 of their trips to corporate chain grocers.
Inventory Management – Inventory will be managed so that 2 months of additional inventory is always on hand to account for potential
demand increases.
Payment Policy - For all purchases in one month: 15% - Month of Purchase; 65% - Month 2; 20% - Month 3. Terms have been arranged
with suppliers as 2/10, N/90.
Composition of Debt – Consists of three, 6% bank loans offered from Bank of America. The Year 1 Loan = $610,034, Year 2 Loan =
$750,965, and Year 3 Loan = $93,819. Smart Shopper, Inc. withdrew these loans in order meet our target ending cash balance. All loans will
be paid off by 2017. The financial statements quantify the interest and principal paid over all 5 years.
Rent Expense – Rent expense is an annual payment of $45,888 for a 12,000 sq ft. Software Development and Office Facility. Payment is
calculated by multiplying the $.32 dollar/sq ft. charge by the 12,000 sq ft. layout.
Insurance Expense – General Liability Insurance Expense ($3646), Truck Insurance ($1800), and Business Insurance Expense ($5446) were
determined by applying for quotes and filling out worker and business specific information.
Audit Expense – Audit Expense ($8000) determined by reviewing small business audit quotes and adjusting for our industry.
24
20.) Database Expense – Expenses for maintaining the software database cost $538 for years 1-2 then $1,027 years 3-5.
21.) Packing Fee – purchase of each of box equals $.70. Each box can hold 5 tablets. Total units produced (750)/5 tablets per box x $.70 per
box = $105 packaging fee for year 1.
22.) Inflation – The necessary expenses are affected by inflation at a rate of 1.2% each year
23.) Research and Development – Smart Shopper, Inc. invested surplus cash of $700,000 in Research and Development. This amount will fund
development of new software, additional hiring of staff, and increases in database storage.
24.) Target Ending Cash Balance - Target Ending Cash balance for the firm is equal to 2 months of salaries expense, benefits expense, and rent
expense for each year.
- Year 1: ($681,070+$79,465+$45,888) x 2/12 = $134,404
- Year 2: ($893,624+$88,602+$46,439) x 2/12 = $171,444
- Year 3: ($951,970+$89,599+$46,996) x 2/12 = $181,427
- Year 4: ($1,050,955+$90,090+$47,560) x 2/12 = $198,101
- Year 5: ($1,101,081+$90,592+$48,131) x 2/12 = $206,634
Bibliography:
Burris, J (2013, September 12). Telephone Interview.
Cashier - Grocery Store Salaries in Sacramento, CA | Salary.com. (n.d.). Salary.com. Retrieved
September 12, 2013, from http://www1.salary.com/CA/Sacramento/Cashier-GroceryStore-salary.html
Chido, J (2013, October 1). Telephone Interview.
Competitive Landscape. (n.d.). IBIS World. Retrieved September 18, 2013, from
http://clients1.ibisworld.com/reports/us/industry/competitivelandscape.aspx?entid=1040#
MSC
Danny (2013, September 12). Telephone Interview.
David (2013, September 12). Telephone Interview.
Department of the Treasury, Internal Revenue Service. (2013). Employer's tax guide (15). Retrieved
from website: http://www.irs.gov/pub/irs-pdf/p15.pdf
Get affordable health insurance. (2013). Retrieved from http://www.ehealthinsurance.com/
Hicken, M. (2013, May 08). Consumers spending nearly 10% more than in 2009. CNNMoney.
Retrieved September 12, 2013, from http://money.cnn.com/2013/05/08/pf/consumerspending/index.html
Hildebrand, A. (2004, November). The California food system in numbers: A fact sheet [PDF]. Ecotrust.
Industry financial ratios. (2012, 05 12). Retrieved from
ohttp://www.bizminer.com/industries/Electronic-Computer-Manufacturing-334111
Imlay, Thom. (2006). Challenges in Today’s Supermarket Industry. Retrieved November 16, 2013.
http://msdn.microsoft.com/en-us/library/aa479076.aspx
Jason (2013, November 1). Telephone Interview
Johnson, H. (n.d.). California's Population (PPIC Publication). California's Population (PPIC
Publication). Retrieved September 18, 2013, from
http://www.ppic.org/main/publication_show.asp?i=259
Machado, S. (2013, September). Commercial Property Listings. Showcase. Retrieved September 18,
2013, from
http://www.showcase.com/?Q=D7085273C45E49692EF6E217AE024E996305797333FC4
E958EC2378A8DCDC512FE11442FB80A5CAA99A20AA0F12A29AB0ECD25D93AA44
9094A4CD4E6721591109E3963AF4090F3EF0620B88DC298701F
MC17 series. (2013, March). Motorola. Retrieved September 12, 2013, from
http://www.motorolasolutions.com/web/Business/Products/Mobile%20Computers/Hand
held%20Computers/MC17/_Documents/Static%20Files/MC17-Spec-Sheet-0908.pdf
Morrow, R (2013, October 1). Telephone Interview.
25
MyStore411. (n.d.). Giant Food Locations & Hours in Maryland. Retrieved September 12, 2013, from
http://www.mystore411.com/store/list_state/831/maryland/Giant-Food-store-locations
Occupational Employment and Wages, May 2012. (n.d.). Bureau of Labor Statistics. Retrieved
September 18, 2013, from http://www.bls.gov/oes/current/oes412011.htm
Products. (n.d.). Fastenal. Retrieved October 5, 2013, from
http://www.fastenal.com/web/products/fasteners/bolts/cap-screws-hexbolts/_/Navigation?term=bolts
Retail Markup on Common Items. (n.d.). Wise Bread. Retrieved November 21, 2013, from
http://www.wisebread.com/cheat-sheet-retail-markup-on-common-items
Samuels, D. (2012, March 23). E la carte put orders on its tab. Silicon Valley Business Journal. Retrieved
September 12, 2013, from http://www.bizjournals.com/sanjose/printedition/2012/03/23/e-la-carte-puts-orders-on-its-tab.ht ml?page=all
SCAN IT! (n.d.). Giant. Retrieved September 12, 2013, from
https://www.giantfood.com/our_stores/offerings/departments_partners/index.htm?svcid
=SCAN_IT
7 Inch Tablet 7 Shenzhen Tablet bulk wholesale android tablets. (n.d.). Alibaba.com. Retrieved
September 6, 2013, from http://www.alibaba.com/productgs/830161153/7_Inch_Tablet_7_Shenzhen_Tablet.html?s=p
Stanley Bostitch Electric Air Compressor. (n.d.). Lowes. Retrieved October 5, 2013, from
http://www.lowes.com/pd_497142-354CAP2060P_0__?productId=4778272&Ntt=air+compressor&pl=1&currentURL=%3FNtt
%3Dair%2Bcompressor&facetInfo=
Unemployment insurance (ui) tax. (2010). Retrieved from
http://www.edd.ca.gov/payroll_taxes/Unemployment_Insurance_Tax.htm
United States - Average household size, 2005-2009 by State. (2010). United States - Average Household
Size, 2005-2009 by State. Retrieved September 18, 2013, from
http://www.indexmundi.com/facts/united-states/quick-facts/all-states/average-householdsize
United States, US Census Bureau. (2009, May). Methodology and Data Used to Select Training Locations
and Regional Outreach Centers. Retrieved September 18, 2013, from
http://wedrawthelines.ca.gov/downloads/meeting_handouts_feb2011/redist_assistance_sit
es_method_appendix_i.pdf
Used trucks for sale. (2013). Retrieved from http://www.usedtrucks.ryder.com/start/default.aspx
Webster, M., & Hoch, T. (n.d.). Modiv and Motorola Deploy Personal Shopper Solution to250 Stop
& Shop Company Stores Under the Brand Name “Scan It!”. Modiv Media™. Retrieved
September 12, 2013, from http://www.modivmedia.com/company/news/pr_090505.html
What is the cost of general liability insurance for a small business? (n.d.). Tech Insurance. Retrieved
September 28, 2013, from http://www.easybib.com/cite/form/website/apa
Why outsource your accounting?. (n.d.). Capital Accounting Solutions. Retrieved November 21, 2013, from
http://www.capital-accounting.com/
Y. Q., Mui. (2009, May 5). Giant Food Shoppers Can Scan as they go. Retrieved September 12, 2013,
from http://ehis.ebscohost.com/ehost/detail?sid=7a6b8a52-9274-4af0-98261864b6d242aa%40sessionmgr112&vid=1&hid=104&bdata=JnNpdGU9ZWhvc3QtbGl2ZS
ZzY29wZT1zaXRl#db=bwh&AN=WPT106308472709
26