Home Alive
Senior Design Team 9: 2014 – 2015
Hezkiel Nanda
Okkar Myint
Jeremy Ward
Business 357: Business Aspects for Engineers
Business Proposal
Prof. Paul Holtrop
Calvin College
Monday, December 8, 2014
1
Executive Summary
1.1
Company
HomeAlive LLC
1.2
Company Leadership

1.3
President: The decision maker, supported by four vice presidents.
 Vice President of Engineering: Oversees engineering related operations including
research and development as well as product design.
 Vice President of Manufacturing: Oversees the operations at company’s manufacturing
facilities, and streamlines the manufacturing process.
 Vice President of HR/Finance: Oversees staffing and financial operations.
 Vice President of Marketing and Sales: Oversees branding and maintaining customer
relationships.
Company Brief
HomeAlive LLC is a firm that specializes in designing and producing a home automation control
product. Other products that plug-and-play with the central product will be designed and sold upon a
successful product launch. These other products include electronic locks for doors and thermostats.
Many homes have fallen behind technologically in the electronic device field. HomeAlive LLC’s
products are aimed at advancing the home industries’ technologies through increased accessibility to
these electronic devices.
1.4
Market
HomeAlive LLC targets both new and existing homeowners. The specific target market is the
homeowners who have disposable income, familiarity with electronic devices, and or margin to gain from
increased accessibility to devices. HomeAlive LLC’s customer base is not limited by age or their home
location. HomeAlive LLC’s product will be the most suitable for homes with multiple devices to control.
1.5
Business Strategies
HomeAlive LLC wants to express the image of reliability, accessibility, and sustainability.
HomeAlive LLC will compete by differentiating itself from other products on the market.
1.6
Financial
HomeAlive LLC is requesting $1,120,000 in the first quarter and another $1,220,000 in the
second quarter. HomeAlive LLC plans to use these funds to balance the budget before the predicted
revenues come in the third quarter. HomeAlive LLC’s Cash Flow Statement predicts making payments on
this debt starting in the third quarter, and shows completely paying back these funds by the eighth quarter.
ii
Contents
1
Executive Summary .............................................................................................................. ii
1.1
Company ............................................................................................................................. ii
1.2
Company Leadership .......................................................................................................... ii
1.3
Company Brief .................................................................................................................... ii
1.4
Market ................................................................................................................................. ii
1.5
Business Strategies ............................................................................................................. ii
1.6
Financial.............................................................................................................................. ii
2
Mission & Vision Statement ................................................................................................. 1
2.1
Mission for the Company ................................................................................................... 1
2.2
Vision for the Company ...................................................................................................... 1
2.3
Values & Principles ............................................................................................................ 1
3
Industry Profile & Overview................................................................................................. 1
3.1
Industry Background & Overview ...................................................................................... 1
3.2
Major Customer Groups ..................................................................................................... 1
3.2.1 House ........................................................................................................................... 1
3.3
Regulatory Restrictions....................................................................................................... 2
3.4
Significant Trends ............................................................................................................... 2
3.5
Growth Rate ........................................................................................................................ 2
3.6
Barriers to Entry.................................................................................................................. 2
3.7
Key Success Factors In the Industry ................................................................................... 2
3.8
Outlook for the Future ........................................................................................................ 2
4
Business Strategy .................................................................................................................. 3
4.1
Desired Image & Position in Market .................................................................................. 3
4.2
Company Goals & Objectives ............................................................................................ 3
4.2.1 Operational ................................................................................................................... 3
4.2.2 Financial....................................................................................................................... 3
4.3
SWOT Analysis .................................................................................................................. 3
4.3.1 Internal Strengths ......................................................................................................... 3
4.3.2 Internal Weaknesses..................................................................................................... 3
4.3.3 External Opportunities ................................................................................................. 3
4.3.4 External Threats ........................................................................................................... 3
4.4
Competitive Strategy .......................................................................................................... 3
iii
4.4.1 Differentiation .............................................................................................................. 3
4.4.2 Response ...................................................................................................................... 4
5
Company Products & Services ............................................................................................. 4
5.1
Description .......................................................................................................................... 4
5.1.1 Product or Service Features ......................................................................................... 4
5.1.2 Customer Benefits ........................................................................................................ 4
5.1.3 Warranties & Guarantees ............................................................................................. 4
5.2
Patent or Trademark Protection .......................................................................................... 5
5.3
Future Product or Service Offerings ................................................................................... 5
5.3.1 Problem to Be Solved or Benefit to Be Offered .......................................................... 5
6
Marketing Strategy................................................................................................................ 5
6.1
Target market ...................................................................................................................... 5
6.1.1 Demographic Profile .................................................................................................... 6
6.1.2 Other Significant Customer Characteristics ................................................................. 6
6.2
Customers’ Motivation to Buy............................................................................................ 6
6.3
Market Size & Trends ......................................................................................................... 6
6.3.1 Market Size .................................................................................................................. 6
6.3.2 Market Trends .............................................................................................................. 6
6.4
Advertising & Promotion.................................................................................................... 6
6.4.1 Message........................................................................................................................ 6
6.4.2 Media ........................................................................................................................... 6
6.4.3 Budget .......................................................................................................................... 7
6.4.4 Plans for Generating Publicity ..................................................................................... 7
6.5
Pricing ................................................................................................................................. 7
6.5.1 Desired Image in Market.............................................................................................. 7
6.5.2 Comparison against Competitors' Prices...................................................................... 7
6.5.3 Discount Policy ............................................................................................................ 7
6.5.4 Gross Profit Margin % Anticipated ............................................................................. 7
6.6
Distribution strategy ........................................................................................................... 7
iv
6.7
7
Test Market Results ............................................................................................................ 8
Competitive Analysis ............................................................................................................ 8
7.1
Existing Competitors .......................................................................................................... 8
7.1.1 Who They Are.............................................................................................................. 8
7.2
Potential Competitors ......................................................................................................... 9
7.2.1 Who They Are.............................................................................................................. 9
8
Description of Management Team ........................................................................................ 9
8.1
Key Managers & Employees .............................................................................................. 9
8.1.1 President ....................................................................................................................... 9
8.1.2 Vice President of Engineering ..................................................................................... 9
8.1.3 Vice President of Manufacturing ............................................................................... 10
8.1.4 Vice President of HR/Finance.................................................................................... 10
8.1.5 Vice Present of Marketing & Sales ............................................................................ 10
8.2
Future Additions to Management Team ........................................................................... 10
8.3
Board of Advisors ............................................................................................................. 10
9
Operations ........................................................................................................................... 11
9.1
Legal Form of Ownership ................................................................................................. 11
9.2
Company Structure ........................................................................................................... 11
9.3
Decision Making Authority .............................................................................................. 11
9.4
Compensation & Benefits Packages ................................................................................. 11
9.5
Product Production ........................................................................................................... 12
9.5.1 Raw Materials ............................................................................................................ 12
9.5.2 Costs........................................................................................................................... 12
9.5.3 Key Supply Chain Components ................................................................................. 12
9.6
Facilities ............................................................................................................................ 12
9.6.1 Location ..................................................................................................................... 12
9.6.2 Layout ........................................................................................................................ 12
9.6.3 Possible Setup Constraints ......................................................................................... 12
9.7
10
Capacity Issues & Constraints .......................................................................................... 12
Financial Forecasts .............................................................................................................. 13
10.1 Key assumptions ............................................................................................................... 13
v
10.2 Financial statements .......................................................................................................... 13
10.2.1 Income statement ....................................................................................................... 13
10.2.2 Balance sheet ............................................................................................................. 13
10.2.3 Cash Flow Statement ................................................................................................. 13
10.3 Break-even analysis .......................................................................................................... 14
10.4 Ratio Analysis ................................................................................................................... 14
11
Loan or Investment Proposal .............................................................................................. 14
11.1 Funds Requested ............................................................................................................... 14
11.2 Purpose & Uses of Funds.................................................................................................. 14
11.3 Repayment or "Cash Out" Schedule ................................................................................. 14
11.4 Timetable for Implementing Plan & Launching the Business .......................................... 14
12
Appendices .......................................................................................................................... 15
vi
2
Mission & Vision Statement
2.1
Mission for the Company
HomeAlive LLC’s mission is to provide to homeowners accessible control of any electronic
devices, smart or non-smart, through a convenient, elegant, and intuitive remote-interface.
2.2
Vision for the Company
HomeAlive LLC’s vision is to make its way into the Home Automation market and claim a
significant portion of market share. Upon meeting this goal, HomeAlive LLC will seek to expand its
product base. This will further HomeAlive LLC’s place in the market. HomeAlive LLC seeks to become
one of the top players in the Home Automation market in the next ten years.
2.3
Values & Principles
HomeAlive LLC has a standard for determining if a product meets our high expectations. Our
products are measured by answering three questions: Does this product embody trust? Has this product
been made using all forms of resources in a most responsible manner? Does this product provide
accessibility to a customer and fulfill our mission?
At HomeAlive LLC, trust is built into our products through ensuring they meet our high
expectations. HomeAlive LLC takes pride in the innovative products it produces. Our products are
designed with justice by keeping our customers in the forefront of our process. Each product brings ease
of use to a home device which may currently be inaccessible. Lastly, HomeAlive LLC is ever conscious
of the impact its products and processes have on the environment. This is accomplished by monitoring
and estimating the resources, such as human effort, materials, and energy, consumed by our products and
processes before, during and after their lifetime.
3
Industry Profile & Overview
3.1
Industry Background & Overview
The home automation industry started when X10 – a communication protocol for sensor networks
– was developed at Pico Electronics in 19751. X10 simplified the process of two devices talking to each
other. X10 modules were sold largely through Radio Shack. Ease of use and large retail distribution by
Radio Shack accelerated home automation, and X10 modules became a popular choice for home
automation enthusiasts until new modern communication protocols such as ZigBee, ZWave, Insteon
arrived. Since then, there are companies that provide home automation solution at different levels of
integration.
3.2
Major Customer Groups
HomeAlive LLC’s products will solely focus on homeowners; however, HomeAlive LLC’s
products are not limited to only houses. They can be employed in any buildings.
3.2.1
House
The House group consists of house constructors, renovators, owners and enthusiasts. House
constructors will use the product, HomeAlive LLC’s home automation system, to build a smart home, and
give the customers the best satisfaction. Home renovators can bring an old out-of-date house to a modern
up-to-date house by integrating HomeAlive LLC’s product. Homeowners can add more functionality to
1
http://www.eddriscoll.com/timeline.html
1
their houses by using HomeAlive LLC smart home system. Finally, enthusiasts the get above benefits
plus the ability to customize the system.
3.3
Regulatory Restrictions
Currently, there are no specific regulations and requirements on home automation systems.
However, HomeAlive LLC will have to abide by the regulations of electrical safety. Also, HomeAlive
LLC will follow other optional regulations to reflect the company’s mission and vision. For example,
HomeAlive LLC will use RoHS approved materials to avoid customers’ exposure of hazardous materials
in HomeAlive LLC’s products. In addition to reflect HomeAlive LLC’s image of reliability, HomeAlive
LLC will set up a recycle center for HomeAlive LLC’s old products.
3.4
Significant Trends
The significant trend for providers of smart home system is that almost all electronics companies
are trying to come up with their own smart home system. For example, GE has its own Wink smart home
system, and BestBuy has Peq.
The trends for consumers of smart home systems favors HomeAlive LLC as well. The recent
availability of cheap single board computers, such as a Rasperry Pi or Arduino, allows enthusiasts and
other homeowners to automate their home. The number of homeowners who want to automate their home
is increasing and is projected to continue into the future.
3.5
Growth Rate
The smart home market was valued at $33 billion in 2013, and is expected to boom to $71 billion
in 2018 according to Juniper Research. The recent big entrants such as Apple (HomeKit), Google (Nest),
and BestBuy (Peq) strengthened the market. It is clear that the smart home market is measurably
increasing.
3.6
Barriers to Entry
The barriers to entry will be the direct competition with the established brand products. For
example, Lowe’s carries its name in home renovation and building. It has its own smart home system
called Iris. Since Lowe already has a trusted name, customers will favor Iris. HomeAlive LLC has to
compete with Iris to win customers’ trust. In addition, the large upfront capital required for HomeAlive
LLC is also another barrier.
3.7
Key Success Factors In the Industry
The key success factors will be in integrating the system with new and existing home devices
seamlessly. Home automation can be done by an enthusiast if desired. However, such systems are not
reliable and do not integrate well with existing home electronic systems. HomeAlive LLC will provide a
home automation platform that is flexible enough to meet customization of different houses.
3.8
Outlook for the Future
HomeAlive LLC hopes to decrease its production costs over time. As time passes, HomeAlive
LLC will be able to pick up more efficient ways to produce our products. Moreover, as discussed earlier,
the Smart Home market is blooming, and HomeAlive LLC’s aim is to capture that boom.
2
4
Business Strategy
4.1
Desired Image & Position in Market
HomeAlive LLC wants to express the image of reliability, accessibility, and sustainability. The
interface will be elegant and intuitive to use. Each product of HomeAlive LLC is the image bearer of its
esteemed quality. HomeAlive LLC will enter a developing market, with many big-name competitors.
4.2
Company Goals & Objectives
4.2.1
Operational
HomeAlive LLC’s operational goal is to utilize its product with modern age technology for
average household. HomeAlive LLC will provide a low cost and quality product with simple and readily
accessible control for these homes.
4.2.2
Financial
HomeAlive LLC’s financial goal is to make enough profit to sustain company’s loans & debts on
its first product generation. The extra profit will be used to improve the company’s future growth and
develop new products.
4.3
SWOT Analysis
4.3.1
Internal Strengths
HomeAlive LLC is built by a passionate and motivated team, which reflects in the product. The
home automation market has a large potential for new product growth and HomeAlive LLC will use this
to gain market traction, throughout development and support of new devices. Large company bureaucracy
will not slow the team down; instead, necessary designs modifications, per product feedback, will be
made quickly and effectively.
4.3.2
Internal Weaknesses
HomeAlive LLC is not a recognized name and its executives are not experienced in the market.
In the early stages of production, due to lack of name recognition and a small customer base, the cost for
HomeAlive LLC will be more expensive until demand reaches high enough levels to use economies of
scale to lower production costs.
4.3.3
External Opportunities
The market that HomeAlive LLC focuses on is relatively new and broad. Rapid technology
improvement helps the current generation to become familiar when handling technology. This trend is an
excellent opportunity for HomeAlive LLC to emerge into the market. New homeowners with higher
disposable incomes and who have gadgets are the main target. The uniqueness of HomeAlive LLC’s
products will attract new customers.
4.3.4
External Threats
The competition with the established brand products offered by competitors is a strong threat to
HomeAlive LLC. They are well funded and have more resources in their Research and Development
branch. Another threat is the lack of differentiation between the home automation products currently on
the market. Customers who have home automation devices might not be interested in buying HomeAlive
LLC’s products. In order to maintain market share, HomeAlive LLC needs to build customer loyalty and
focus on having a flawless product.
4.4
Competitive Strategy
4.4.1
Differentiation
Customers will want to buy home automation product based on up-to-date technology, ease of
access, and reliability. HomeAlive LLC provides ease of access by creating intuitive and elegant
3
interfaces. Other key differentiation that HomeAlive LLC focuses especially on customer experience and
sustainability of HomeAlive LLC’s products.
4.4.2
Response
HomeAlive LLC’s system design has similar scale compared to other home automation products.
This fact leads to a need for better control and focus. HomeAlive LLC brings more flexibility to
customers who have prior home technology device. HomeAlive LLC offers the embedded technology that
connects all home devices with the central hub. This also helps with the ease of access or quickness of
HomeAlive LLC’s products.
5
Company Products & Services
HomeAlive LLC will solely provide a home automation system that includes a central control
hub and outlet adapters. HomeAlive LLC will also provide services related to the system sold.
HomeAlive LLC plans to provide more products in the future.
5.1
Description
5.1.1
Product or Service Features
HomeAlive LLC’s first product will focus on automating home’s lighting system. HomeAlive
LLC’s system has two sub-systems – a physical and software system. The physical sub-system consists of
a central control hub and two outlet adapters. The software sub-system consists of a central server and a
mobile/web user interface. Customers will be able to control their lighting devices in their house by
plugging into HomeAlive LLC’s outlet adapters. Using their mobile phones, they can send commands
such as turn on/off to their devices. The central server will process the commands and will direct it to
center hub which in turn transfers the commands to the device.
In addition, HomeAlive LLC will like to expand its product line in the future by providing
automation system for home entertainment, home security, thermostats, and so on.
5.1.2
Customer Benefits
Customers will benefit in many ways from HomeAlive LLC’s solution. For example, customers
will be able to set up rules like turning off all the lights automatically at midnight or a set time. Customers
will be able to save energy and lower their energy bills. In addition, HomeAlive LLC’s solution will bring
conveniences to daily life. As an example, imagine a situation where you are away and forget to turn off
your stove. If you do not take action to turn it off, not only it will raise your bill but also put your house in
danger of fire. In such case, HomeAlive LLC’s solution comes handy. With one simple command
HomeAlive LLC’s system will turn the stove off.
5.1.3
Warranties & Guarantees
HomeAlive LLC will provide a one year warranty for the system plus a month of technical
support after initial purchase. Customers will be able to choose to continue their support after one month.
If they choose to continue, a nominal fee will be charged monthly.
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5.2
Patent or Trademark Protection
As of now, HomeAlive LLC is not seeking any patent. HomeAlive LLC has obtained trademark
for HomeAlive LLC’s products as pictured in Figure 1.
Figure 1: HomeAlive LLC Logo
5.3
Future Product or Service Offerings
As discussed above, HomeAlive LLC intends to expand product line to cover every aspects of
home automation including entertainment, security systems, and thermostats.
5.3.1
Problem to Be Solved or Benefit to Be Offered
There are four problems and opportunities that are related to this project: house modernization
rates, device inaccessibility, productivity improvements, and home monitoring.
House modernization rates refers to the problem that homes in the modern world are not taking
advantage of new technologies. This is caused by house longevity and high renovation costs; the home
automation system prototype should show that its mass production and installation would be possible at
an affordable price.
Device inaccessibility refers to the problem that many household devices are unnecessarily
difficult to interact with; it should be possible to control any electrical device one owns without needing
to walk over to them, and from anywhere in the world. The home automation system prototype should
show that secure access to home devices is possible from remote locations.
Productivity improvements refers to an opportunity to introduce time-savings into the daily lives
of those who would use the home automation system. Integrating household devices and allowing them to
be automatically and remotely managed can increase ease-of-life and decrease wasted time.
Home monitoring refers to the opportunity to observe and control household devices more
effectively. The home automation system should allow for greater security and reduced energy
consumption by providing homeowners with a single interface for interacting with several devices. The
system should also address this opportunity by providing automatic device control scheduling and homemode settings.
6
6.1
Marketing Strategy
Target market
HomeAlive LLC targets both new and existing homeowners. The specific target market is the
homeowners who have disposable income, familiarity with electronic devices, and or margin to gain from
increased accessibility to devices.
5
6.1.1
Demographic Profile
HomeAlive LLC’s product is not limited by customers’ home location and age. The product is
more appropriate for homes in urban or suburban area rather than rural areas. The reason is because of the
readily available internet access and large electricity capacity for urban and suburban areas. People in
suburban or urban area will want to have instant accessibility to control their homes. They are also more
familiar with the technological growth. In terms of age scope, the suitable customer’s age is highly
depended on their ability to use mobile devices. HomeAlive LLC expands the scope of demographic
wide.
6.1.2
Other Significant Customer Characteristics
The technical level required in using HomeAlive LLC’s products will vary depending on
technological familiarity. The product can be used by customers without prior programming knowledge.
Customers with greater programming language may improve the default program with custom changes.
However, HomeAlive LLC will restrict the changes over server and security configurations. This will
allow user to change the graphic display themes and buttons default settings.
6.2
Customers’ Motivation to Buy
Customers will buy HomeAlive LLC products for added convenience in ease of access to control
their devices at home. Homeowners with similar mindset and disposable incomes will have the
motivation to buy home automation product. HomeAlive LLC will focus on its differentiation to attract
loyal customers.
6.3
Market Size & Trends
6.3.1
Market Size
Home automation market have increased greatly in less than 5 years. According to Transparency
Market Research, the Home Automation Market was valued at $3.6 billion in 2012. This market size is
very large for a new emerging technology.
6.3.2
Market Trends
The expected market value in 2019 will be around $16.4 billion. The compound annual growth
rate (CAGR) is around 24.6% from 2013 to 2019. The recent big entrants such as Apple (HomeKit),
Google (Nest), and BestBuy (Peq) strengthened the market. It is clear that the smart home market is
increasing.2
6.4
Advertising & Promotion
6.4.1
Message
HomeAlive LLC sees words of mouth as the most ideal way of advertising. Families with
HomeAlive LLC’s product are suggested to share their experience to others. The primary message that
HomeAlive LLC expects from the customers is its vision and purpose. HomeAlive LLC may give certain
discounts to homeowners who invite other homeowners to buy the product. Other than solving home
issues, HomeAlive LLC expects the central message of the advertisement to have strong relation with
reliability, accessibility, and sustainability.
6.4.2 Media
The advertisement strategy that the company will focus on is using popular media such as social
media or TV advertisement. HomeAlive LLC will start with its company website to attract customers.
The next step is to promote HomeAlive LLC’s product through Facebook, Twitter, and YouTube. All
HomeAlive LLC messages will be in the form of interactive and engaging videos. This video will include
current and general home issues and how HomeAlive LLC will solve it. Many demonstrations will be
2
http://www.prweb.com/releases/2013/10/prweb11202450.htm
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displayed visually. There is a high possibility that homeowners will know HomeAlive LLC’s product
through TV advertisement. TV advertisement is the most ideal and the strongest promotional tool.
6.4.3
Budget
HomeAlive LLC will outsource a graphic design team to create the media demonstration and
promotion. The cost per project will vary upon the promotion variable cost. The allocated budget for
advertising and promotion will be around $50,000 per year. The website will be managed by one of
HomeAlive LLC’s employee. However, HomeAlive LLC will have to pay for the domain hosting
depending on the website sizes.
6.4.4
Plans for Generating Publicity
The strongest way that HomeAlive LLC plans to generate publicity is by displaying
demonstrational units that display HomeAlive LLC’s smart home platform to homeowners. HomeAlive
LLC will also use special discounts, social media, and TV advertisement to connect with customers and
their families.
6.5
Pricing
6.5.1
Desired Image in Market
HomeAlive LLC aims to have as many loyal customers as possible while maintaining a highquality product and at a low cost.
6.5.2
Comparison against Competitors' Prices
HomeAlive LLC competitive selling price will be explained in its Competitive Analysis section.
Its selling price will be comparable with competitor’s prices. HomeAlive LLC will offer a reasonable
competitive price.
6.5.3
Discount Policy
Discount is highly related to HomeAlive LLC’s promotional events. One month upon entering the
market, HomeAlive LLC will sell its product lower than its usual selling price. Lowering the price will
attract new homeowners that have not entered the home automation market. The discount will continue
for the customers who promote HomeAlive LLC’s product to others. HomeAlive LLC will maintain a
good relationship with its customers by providing technical and warranty support. Discounts on the new
products will be given to existing customers. In addition, HomeAlive LLC will have a referral discount
program in order to promote the word-of-mouth marketing.
6.5.4
Gross Profit Margin % Anticipated
According to the financial analysis, the gross profit margin is fluctuating quarterly. The detailed
ration analysis is provided in the Appendix (Figure 7).
6.6
Distribution strategy
HomeAlive LLC will distribute the products in two ways. First, the product will be marketed
through internet sellers such as amazon, eBay and will be shipped to customers who like to use our
product. Second, the product will be distributed through a mutually beneficial partnership with a strategic
partner. The current trend is that most electronics related company are trying to come up with their own
smart home system. For example, GE has its own Wink smart home system, and BestBuy has Peq.
However, there are a few retailers and department stores who are interested in smart home market but do
not have the technology or resource to do so. HomeAlive LLC will partner with such a strategic partner in
order to make it accessible to everyone.
7
6.7
Test Market Results
The test market analysis is yet to be completed. It is a work in progress, and HomeAlive LLC
does not have conclusive results.
7
Competitive Analysis
7.1
Existing Competitors
There have been a few smart home products such as Google’s Nest, Philip’s Hue light bulb, etc.
However, the existing products still lack a seamless system that would connect all devices. The market
has been trying to fill that gap. Lowe’s Iris is an example of such attempts. HomeAlive LLC will also
offer this feature connection to its costumer.
7.1.1
Who They Are
According to Top Consumer Reviews, there are at least four established competitors that have
similar product with HomeAlive LLC home automation system: Frontpoint, ELAN, Vivint, and Savant. 3
Frontpoint
Frontpoint focused on securing home with cellular monitoring feature. Their total monitoring
system detects fire, environmental, and life safety emergencies. Other home automation feature includes
lights, thermostats, and locks. Frontpoint promote the image of safety and comfortable home. Frontpoint
does not handle specific device control other than lights and thermostat. Their system could not support
other home automation products.4
ELAN
ELAN g! does not focus on security system. Their strength is controlling entertainment system
through smartphones or computers and other user interfaces. They made their own amplifiers, lighting
control, user interfaces, and system controllers. The company’s motto is “focused and flexible and
designed to meet your needs.” ELAN does not offer compatibility with other home automation devices.
They made their unique system. Their mobile touch interfaces overlaps the purpose of controlling through
smartphone or computers.5
Vivint
Vivint offers a broad range of features. They handle security, cloud backup, energy management,
thermostat, light, and remote access aspect. They separate their product line into three areas: home
security, energy management, and home automation. Their strength is on the security camera live
streaming feature. Vivint system cannot connect to other home automation devices. Another weakness is
the need for battery replacement for some of Vivint security devices.6
Savant
Savant product is similar to ELAN. They focus on the entertainment feature. They also have
lighting, climate, security, and energy aspect. Their strength is the ease of access GUI on smartphones or
computer. Savant cannot handle other home automation system. They do not support specific devices
such as coffee makers or washing machines.7
3
http://www.topconsumerreviews.com/home-automation/
http://secure.frontpointsecurity.com/topconsumerreviews-homeautomation/homepage-3434R15642SO.html
5
http://www.elanhomesystems.com/default.asp
6
http://www.vivintsource.com/home-automation?kbid=49166
7
https://www.savant.com/
4
8
7.2
Potential Competitors
7.2.1
Who They Are
The two big competitor that will emerge to the market this coming year are Google and
Microsoft.
Google: Google Nest
Google is a fully established technology company. On October 2014, Google acquired Revolv
Company. Revolv is famous for their smart hub technology. Google plans to enter the home automation
market this coming year. They will be able to support other home automation devices including the
specific devices such as a coffee maker. The threat that Google carries is an alternative home automation
system with very low cost for homeowners. Disloyal HomeAlive LLC’s customer will move to a lower
cost home automation.
Microsoft: HomeOS
Microsoft is conducting research in the home automation area. The research focuses on finding
solution for middle-class customer to manage and extend the current technology for home automation
purposes. The HomeOS will be able to connect to locks, lights, thermostats, cameras, and motion sensors.
The devices that HomeOS supports can be from many other companies. Microsoft is a trusted company
that holds big market share in the technology market. Potentially, disloyal customer will choose
Microsoft’s product over HomeAlive LLC.
8
Description of Management Team
HomeAlive LLC is founded by four young innovative entrepreneurs – Andrew Jo, Okkar Moe
Myint, Hezkiel Nanda, and Jeremy Ward. Currently, three out of four founding members also serve in
management team to direct the company and succeed together.
The following provides a detailed account on key positions and individuals in management team.
8.1
Key Managers & Employees
8.1.1
President
The president has the decision making power and supported by four vice presidents who each
lead special departments within the company. The president of the company is critical in driving the
company to success. Thus, the company desires an experienced leader who is both innovative and
entrepreneurial such as Elon Musk. The company is looking for potential candidates.
8.1.2
Vice President of Engineering
The VP of Engineering is responsible for engineering related operations including research and
development as well as product design. This position has not been filled as well. An ideal candidate will
have previous experiences in leading engineering projects, and passionate about current technology.
The vice president of Engineering is supported by three following head-managers.
Head of Product Development: Jeremy Ward
Head of Product Development is responsible for overseeing the company’s current and new
product development operations and testing. Currently, this position is undertaken by Jeremy Ward.
Mr. Ward is a senior electrical engineering student at Calvin. He had previously interned at Shape
Corporation where he managed and provided innovative solutions. His solutions resulted in increasing the
efficiency of entire manufacturing process.
9
Head of Software Development: Okkar Moe Myint
Head of Software Development is responsible for the development of software system for
company’s products. The position is undertaken by Okkar Moe Myint.
Okkar Moe Myint is a senior Electrical Engineering student with international background. He
had previously interned as a software engineer at Egemin Automation Inc. where he researched,
proposed, and implemented a version control system. In addition, he was one of the faces for Calvin
College’s diversity program.
Head of Research & Development: Hezkiel Nanda
Head of Research and Development is responsible for monitoring modern technology and
improving the quality of products. The research and development will be focused not only on improving
communication protocols but also on prototyping new products. The position is undertaken by Hezkiel
Nanda.
Hezkiel Nanda is also senior electrical engineering student with mathematics minor. He had
devoted his high school years on perfecting his knowledge on business operations and strategies. He
possesses a business acumen. In addition, he has a mind of research. He had previously researched on
injecting medicine to the body’s immune system through nasal passage.
8.1.3
Vice President of Manufacturing
The VP of Manufacturing is responsible for turning the product design into real products. The VP
of manufacture oversees the operations at company’s manufacturing facilities, and streamlines the
manufacturing process. This position has not been filled. The company has offered the position to Mr.
Chris Christiani who possess more than 30 years of experience in LED industry.
8.1.4
Vice President of HR/Finance
The VP of HR/Finance is responsible for staffing and financial operations. This position has not
been filled. An ideal candidate will have background in accounting and resource management.
8.1.5
Vice Present of Marketing & Sales
The VP of Marketing and Sales is responsible for branding and maintaining customer
relationships. This position again has not been filled. The company desires a candidate who has a
background in marketing and sales as well as in engineering.
8.2
Future Additions to Management Team
As mentioned above, the President and Vice Presidents will be hired in the future. In addition,
company has plan to employ more as the company grows.
8.3
Board of Advisors
In addition to above major management roles, the board of advisers oversee management of the
team’s performance, and guide the company accordingly. The board of directors consists of founders,
management teams and other industry experts. For example, Mr. Mark Michermarhuizen is a wellrespected engineer who previously held head of manager and other leadership positions at Dematic and
Johnson Controls. He is currently a Professor at Calvin College, and providing feedback to the
management team when required. In addition, David van Geest is a lead software developer at SpinDance
Inc. and periodically providing technical insights to the problems HomeAlive LLC is facing.
10
9
Operations
9.1
Legal Form of Ownership
HomeAlive will be a Limited Liability Corporation (LLC). The LLC structure offers more
benefits and flexibility to a startup company like HomeAlive. First of all, the tax implications of LLCs are
simpler compared to other types of corporations.8 Second, the owners (members) of the company are not
personally liable for the debts and claims of the business in case of failure.9 Third, the management
structure is flexible for LLCs which allows to form the most efficient management team suited for the
company. In addition, LLCs have less formality; it doesn’t require meeting minutes and so on. As a result,
becoming a LLC is less hassle and more beneficial to owners as well as to the company.
9.2
Company Structure
The company consists of four departments – engineering, manufacturing, HR/finance and
marketing/sales. Each department is governed by a vice president of that department. Above the vice
presidents is the president of the company. Figure 2 shows the structure of HomeAlive LLC.
President
VP of
Engineering
Head of
Product Dev.
Product Dev.
Team
Head of
Software Dev.
VP of
Manufacturing
Head of
Research and
Dev.
Software Dev.
Team
R&D
Team
VP of
HR/Finance
Manufacturing
Team
VP of
Marketing/Sales
HR
Team
Marketing
Team
Finance
Team
Customer
Support Team
Figure 2: HomeAlive LLC Structure
9.3
Decision Making Authority
Though the president possess executive decision making power, the decision making power starts
with the vice presidents of the company. A critical decision for the company has to be done with the
president’s approval. Small decisions, in each department, can performed independently by vice
presidents. In the case of disagreement between the vice presidents and the president, the board of
advisers and owners of the company will step in decision making process.
9.4
Compensation & Benefits Packages
At HomeAlive LLC, employees are treated as the most valuable assets of the company. Thus,
HomeAlive LLC’s employees will receive competitive pay as well as common benefits such as health
insurance, life insurance, and employer match. The company will also offer sick time, and vacation times
to all employees. As the company grows, the benefits will increase, and employees will receive bonuses
based on their performance.
8
9
http://sbinformation.about.com/od/ownership1/a/llctax.htm
http://www.limitedliabilitycompanycenter.com/how_limited_is_limited_liability.html
11
9.5
Product Production
The blue print for the production process is a work in progress. The manufacturing team is
developing it, and the final plan will require approval from Vice President of Manufacturing.
9.5.1
Raw Materials
No raw materials will be used in HomeAlive LLC’s products. The products will be produced
using other finish goods including circuit components, charging cables, and servers. There are many other
components required for production process. The Printed Circuit Boards (PCBs) required for the central
hub and outlet adapter will be manufactured at a PCB printing company. Similarly, the casing for central
hub and outlet adapters will be ordered from third party companies. The packaging of final product will
be done in house. The servers will be purchased, not manufactured.
9.5.2
Costs
Summing up the costs for these aforementioned components, the material costs for the starter kit
will be $41.30 and the server will cost $155.00. See Appendix for a break out in costs (Figure 9 - 10).
9.5.3
Key Supply Chain Components
The main components for HomeAlive LLC’s home automation system will be integrated circuits
(ICs), voltage regulators, current sensors, MOSFETS and other electronic components such as resistors,
inductors, and capacitors. The key supplier has not been chosen yet; however, the company is leaning
toward DigiKey as its main supplier since its offers the lowest price and stocks quality products.
9.6
Facilities
9.6.1
Location
HomeAlive LLC will operation will be based in a Silicon Valley office. Silicon Valley is chosen
due to it being the center of technology and startups. People in the area are well trained. In addition, the
third party companies that company is planning to outsource are also located in the same area.
9.6.2
Layout
HomeAlive LLC will require an office and an assembling factory. They will be located together.
All components will be assembled at the factory and shipped out to the professional packaging service
company. The factory will be similar to a warehouse structure, but have many individual assembling
units.
9.6.3
Possible Setup Constraints
The set up constraints will be in finding the strategic location for HomeAlive LLC’s office and
assembling factory. Other than that, there are no significant constraints.
9.7
Capacity Issues & Constraints
The possible constraints will be in raising the startup capital needed to rollout the operation and
keep it above the red, financially, until the third quarter, when revenue is projected to start coming.
HomeAlive LLC plans to mass produce its products in order to offer them at a competitive price. Since
the company will be receiving 80% of the components from third party suppliers, it is really important to
have mutually beneficial agreements with suppliers. Thus, another constraints may lie in signing the
contracts with the suppliers.
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10 Financial Forecasts
10.1 Key assumptions
HomeAlive LLC’s financial forecasts are based on several key assumptions. Most of the financial
predictions are either directly or indirectly based on the revenue received. The assumed revenue affects
the cash flows, the amount of money requested, the Gross Margin, Profit Margin on Sales, Total Asset
Turnover, Debt to Asset Ratio, and Break even analysis. Each year has its own amount of product
produce. The product is assumed to be sold and collected as revenue spaced over four quarters. It is
assumed that in the year it was produced 16% (1/6) will be sold in the third quarter and 50% (1/2) in the
fourth. Then, in the year following in the first quarter 8% (1/12) will be sold and in the second quarter the
final 25% (1/4) will be sold. See Appendix (Figure 16-18) for the quarterly Cash Flow Statement and its
explanation (Figure 19). The forecasts assume the necessary loans will be received, and the calculations
for paying back the loans are made assuming 10% interest on the principal. HomeAlive LLC assumes that
it will break even upon selling 18,021 starter kits and 4,505 servers. Along with this assumption is the
supposition that for every four starter kits purchased one server will be sold.
10.2 Financial statements
10.2.1 Income statement
An income sheet highlights the profit or loss of a company over a period of time. HomeAlive
LLC’s Pro-Forma Statement of Income (Appendix Figure 3) shows a positive net income in each year.
Assuming sales revenue picks up in the third and fourth quarter of the first year, HomeAlive LLC should
be able to make a profit in the first year. The second and third years see an increase in profit through
increasing production.
10.2.2 Balance sheet
A balance sheet displays the net assets, liabilities and capital of a company at a particular point in
time. In HomeAlive LLC’s case this is not very different from the cash flow statement, because
HomeAlive LLC greatly reduces its liabilities in the first year, and by the second year HomeAlive LLC is
debt and liability free. HomeAlive LLC outsources most of its production to reduce fixed cost and
liabilities. This, in turn, reduces HomeAlive LLC’s non-cash assets by not owning much equipment.
HomeAlive LLC does not have any investments, further simplifying the balance sheet. The result is a
balance that closely follows the cash flow statement, and for that reason is not included.
10.2.3 Cash Flow Statement
A cash flow is found by taking the amount of cash for a given period and subtracting all of the
fixed and variable cost. This is the bottom line amount of cash in the bank account. This number should
not be negative. If it is the company cannot pay its bills.
HomeAlive LLC has negative cash flow in the first three quarters. This is from the cost of starting
and lack of revenue. To pay the bills HomeAlive LLC must take out a loan for $1,120,000 in the first
quarter and $1,220,000 in the second quarter.
HomeAlive LLC seeks to maximize its total asset turnover. While it is a good idea to have some
capital reserved for emergencies, large sums of cash that is not being used to generate more revenue is
being wasted. In year 2 and 3 HomeAlive LLC’s bank account gets larger. This cash will be used to
launch other products such as devices that may be coupled with HomeAlive LLC starter kit. This cash
will also be used to expand and increase production.
See Appendix for an annual and quarterly Cash Flow Statements (Figure 4, 16 - 19).
13
10.3 Break-even analysis
The fundamental question to answer when proposing a business is how much product needs to be
made, assuming it all sells, in order to cover the fixed and variable costs. This is the point where the
finances are netted to zero. This is called break-even analysis.
HomeAlive LLC has two products it sells. The starter kit is sold for $125 and comes with an offsite server rental fee included. If a homeowner wants to own the server one may be purchased for $175.
This server comes with the software downloaded onto it. HomeAlive LLC uses a model that predicts 25%
of customers who buy a starter kit will also buy a server. Using this information HomeAlive LLC needs
to sell 18,021 starter kits and 4505 servers in the first year, 18,745 starter kits and 4,686 servers in the
second year, and 17365 starter kits and 4341 servers in the third year.
10.4 Ratio Analysis
HomeAlive LLC uses the following four ratios (quarterly gross margin, profit margin, asset
turnover, and debt to asset ratio) to measure the health, growth, and asset management of the company.
See the Appendix for a sheet containing quarterly ratios (Figure 7). Also see Appendix for an explanation
of how each of these ratios are calculated (Figure 20 - 21).
The gross and profit margins are low in the first quarter of each year. This is because revenues are
down after the holiday season. They improve in the second quarter with predicted increase revenue. In the
third quarter many people are on vacation and revenue is down again. Finally in the fourth quarter these
margins are high. Revenues increase with the holiday season boosting these margins.
The total asset turnover is very poor until revenues start coming in the third quarter. This ratio is
best in the early second year. The third year could improve by reinvesting the cash asset into other
products as mentioned earlier.
The debt to asset ratio is the worst at the beginning. Startup costs are not covered by revenues
until the third quarter. It takes well into the second year before the debt of startup is paid off.
11 Loan or Investment Proposal
11.1 Funds Requested
HomeAlive LLC will not seek to use any money from its leadership. This will allow for decisions
to be made without the effect of personal agendas. HomeAlive LLC will need some capital to start. Thus,
a loan for $1,120,000 will be taken out and $1,220,000 in the second quarter.
11.2 Purpose & Uses of Funds
These loans will pay for all of the cost of the operations. This includes fixed and variable costs,
equipment, etc.
11.3 Repayment or "Cash Out" Schedule
In the event of HomeAlive LLC is splitting, assuming the loans have already been paid back,
HomeAlive LLC can easily dissolve its assets. This is because cash will be the biggest asset. HomeAlive
LLC has very little equipment or facilities that it owns. The strategy would be to pay off any outstanding
debts and split the remaining assets with the employees based on rank in the company.
11.4 Timetable for Implementing Plan & Launching the Business
HomeAlive LLC plans on launching in September of 2015. This will give enough time to set-up
agreements with suppliers and finish the initial design.
14
12 Appendices
Figure 3. Statement of Income
Figure 4. Statement of Cash Flows
15
Figure 5. Break-Even Analysis
16
Figure 6. Ratio Analysis
Figure 7. Revenue Sheet – If Everything Produced In a Year Is Sold In That Year
17
Figure 8. Fixed & Variable Costs Sheet Break-Downs with Totals
18
Figure 9. Material Costs Sheet
19
Figure 10. Material Costs Sheet (cont.)
Figure 11. Fixed Cost of Goods Sold
20
Figure 12. Variable Cost of Goods Sold
Figure 13. Variable Cost of Operation
21
Figure 14. Variable Cost of Operation (cont.)
22
Figure 15. Fixed Cost of Operation
23
Figure 16. Cash Flow Statement (Quarterly) Year 1
Figure 17. Cash Flow Statement (Quarterly) Year 2
24
Figure 18. Cash Flow Statement (Quarterly) Year 3
Figure 19. Cash Flow Statement (Quarterly) Revenue Explanation
25
Figure 20. Ratio Analysis Calculation Year 1 & 2
26
Figure 21. Ratio Analysis Calculation Year 3
27