Bottlieb Innovations, Inc., is a start-up company that manufactures a product that will revolutionize the land assessment industry. Bottlieb’s Digital Geographer product is a simple device which, through patented technology, computes the area of a walked perimeter.
The marketing and financial strategies presented in this plan serve as a set of guidelines for management as the start-up company enters its first year of production. The most conservative possible numbers and projections are used throughout the plan.
Bottlieb Innovations, Inc. is located in an industrial district of Escondido, CA. The approximately 1,500 square-foot, freeway-close facility includes office, workshop, and assembly space, as well as ample parking.
George S. Bottlieb, president and CEO, is responsible for product design, development, sales, and overall business management. Jay Rosenburg, Jr., vice-president, shares the responsibility for business management, with a particular focus on operations, marketing, and finance. Since the company is very small, both the president and VP will initially have to focus on tasks such as product assembly, packaging, order processing, and shipping. Other management personnel will be added as the company grows. Production personnel will initially be contracted from temporary employment agencies to eliminate the overhead associated with benefits.
The company will institute an aggressive bonus plan, linked to exceptional company performance. The bonus plan, coupled with the opportunity to work for a company that has such tremendous growth potential, should help attract and retain key personnel.
The company has developed, and is preparing to manufacture, a simple device, the Digital Geographer, which will compute the area of a walked perimeter in a fraction of the time required by current area measurement techniques, which rely on distance measuring wheel technology. Because the Digital Geographer contains few components, its manufacturing process is expected to be relatively simple.
No fair comparisons can be made between the functionality of Bottlieb’s Digital Geographer and the distance wheels offered by a range of other manufacturers. The Digital Geographer transforms complex area measurements into a simple task. What used to require several measurements, a large degree of estimation, and a lot of geometric calculations, now only requires the abilities to walk and push a button. The importance of accurate area measurement is well known by contractors. Better knowing the scope of a job can help to eliminate the costs associated with underestimating in a competitive market.
Bottlieb Innovations, Inc. assembles its own products, using local vendors for materials and services. The company owns molds for making plastic components such as the wheel and encoder box.
Plans for a follow on product, the DG-3000, are already underway. The DG-3000 will use two wheels and a differential-based system, instead of an electronic compass, for determining directional changes. Bottlieb Innovations is also developing plans for future products that include software interfaces, as well as future iterations of the DG-3000 which may utilize a Global Positioning Satellite (GPS) system.
Analysis has shown that the annual global revenue from the sales of measuring wheels is roughly $100M, with the average price about $50 (U.S. dollars). This implies that approximately two million distance wheels are sold annually worldwide. Bottlieb Innovations conservatively estimates that within this market, one-third of the demand is generated due to customer need to calculate area and distance versus distance measurement only. If this estimate is reasonable, there is potential demand for 600,000+ units per year in the area measurement segment.
If Bottlieb Innovations can capture 1% of this segment, the company will sell 6,000 units per year. As long as the market recognizes and values the superiority of the Digital Geographer and customer buying habits can be changed, the market potential is very strong.
There are three basic market segments in the current distance-wheel market:
- Construction, including appraising, engineering, and small-scale surveying.
- Agricultural, including large-scale surveying.
Bottlieb Innovations will target current buyers of 10″ to 18″ distance wheels in the construction, appraising, small-scale surveying industries. More specifically, the Digital Geographer is targeted specifically at buyers who use their distance wheels to measure area. The majority of Bottlieb’s initial sales will be directly to customers in California’s fast-growing construction industry, but the company plans to swiftly expand its domestic and worldwide sales.
Since Bottlieb’s product represents a leap in technology, there are no direct competitors for the Digital Geographer product. However, Bottlieb expects to sell the Digital Geographer to a significant portion of the current distance wheel market. The current distance wheel market: Rollertape, Measure Man, TruMeasure, and Rollersure can be considered Bottlieb’s competitors.
Competitors in the distance wheel market typically sell through tool distributors. Some of the larger wheels are sold through agricultural supply distributors. Distributors handle the burden of product placement issues as well as the issues encountered in dealing with individual customers. Distance wheels are also sold at large retail home improvement chains (e.g. Home Depot).
Current measuring wheel industry growth is difficult to forecast because of the large number of privately-owned companies that operate in the industry. Although worldwide growth in construction is a strong indicator that the market is growing, Bottlieb Innovations does not necessarily anticipate a unit sales growth in the measuring wheel industry over the next few years because it expects to gain market share from the existing market. Bottlieb’s growth is not as dependent upon the entire market size growing as it is upon generating interest, awareness, and excitement for the Digital Geographer product.
Bottlieb expects direct marketing and product reputation, as well as sales through major distributors and home improvement stores, to briskly expand market demand throughout the state, region, and nation within the next five years. Initial domestic success and favorable Web-based sales will determine whether Bottlieb Innovations will be able to focus on global expansion within this period.
Bottlieb Innovations’ sales forecast assumes constant, non-seasonal growth and an average revenue of $425 per unit. Since volume requirements will drive production, and our suppliers have substantial discounts associated with larger volumes, it is possible that we will lower the price of the Digital Geographer if the sales volume increases substantially. However, we will not allow the price decrease to cut into our profit margin.
It is difficult to know how many of our customers will pay in the neighborhood of $600 for a Digital Geographer, but we expect to ramp up to 100 units per month within the first year. If demand for the product turns out to be greater than expected, the facility in Escondido is capable of producing up to 500 units per month. The company expects to make excellently large profits on sales by Year 2.
Bottlieb’s management seeks to make the business profitable within one year of the start of production, scheduled to begin early in the third quarter of Year 1. Production capacity can quickly ramp up as needed. It may be increased to as many as 500 units per month in the current facility if demand is sufficient.
Management’s challenge is to generate enough interest for the product in local and regional distance-wheel markets to reach sales of 100 units per month by the last month of Year1. This will ensure that the profitability goal is met, and will allow for further expansion into national and global markets.
Bottlieb Innovations strives “through relentless innovation and creativity, to extend the overwhelming power of technology to practical, accurate, time-saving devices that enable increases in customer productivity.” The company’s mission statement reflects the blend of creativity and pragmatism that Bottlieb’s management believes is necessary to successfully invent, market, produce, and sell breakthrough products.
Although the Digital Geographer is Bottlieb Innovations’ first and only product, the founder and management are constantly evaluating the market feasibility of a wide range of breakthrough product ideas. The anticipated revenues generated by the Digital Geographer product will be used to improve future iterations of the product, as well as to fund research and development of future innovative products, possibly in unrelated fields.
1.3 Keys to Success
- Since Bottlieb’s Digital Geographer product is so revolutionary, it essentially creates a new, segmented market. Bottlieb’s management has targeted existing distance-wheel buyers, and needs to convince these customers of the Digital Geographer’s added value.
- Product quality must be exceptional, since the company’s reputation will initially be driven by the experiences of users as well as word of mouth advertising.
- Accurate production planning, cost controlling, and accurate budgeting are needed to ensure the financial health of the business.
- The temptation to concentrate only on growth, while neglecting profitability, must be avoided.