Week 8 Discussion - Team Presentations

Master Minds Innovations, LLC.

Business Plan

Chris Forrest, Jessica Harke, Ken Ostarello, Latasha Johnson, Lita Weikert

October 19, 2016

Benedictine University

MBA-559 D1A6 Entrepreneurship

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY 4

Description of the Business Concept and the Business 4

Opportunity and Strategy 4

Target Market and Projections 4

Competitive Advantages 5

The Team 5

The Offering 6

II. THE INDUSTRY AND THE COMPANY AND ITS PRODUCT 6

The Industry 6

The Company and the Concept 7

The Product 7

Entry and Growth Strategy 8

III. MARKET RESEARCH AND ANALYSIS 8

Customers 8

Market Size and Trends 9

Competition and Competitive Edges 9

Estimated Market Share and Sales 9

Ongoing Market Evaluation 10

IV. THE ECONOMICS OF THE BUSINESS 10

Gross and Operating Margins 10

Profit Potential and Durability 11

Sales Budget 11

Fixed, Variable, and Semi-Variable Costs 11

Months to Breakeven 11

Months to Reach Positive Cash Flow 12

V. MARKETING PLAN 12

Overall Marketing Strategy 12

Pricing 12

Sales Tactics 12

Service and Warranty Policies 12

Advertising and Promotion 13

Distribution 13

VI. DESIGN AND DEVELOPMENT PLANS 13

Development Status and Tasks 13

Difficulties and Risks 14

Product Improvement and New Products 14

Costs 14

Proprietary Issues 15

VII. MANUFACTURING AND OPERATIONS PLAN 15

Operating Cycle 15

Geographical Location 16

Facilities and Improvements 16

Strategy and Plans 16

VIII. MANAGEMENT TEAM 17

Organization 17

Key Management Personnel 18

Organizational Chart 19

IX. OVERALL SCHEDULE 19

X. CRITICAL RISKS, PROBLEMS, AND ASSUMPTIONS 20

XI. REFERENCES 23

XII. BIBLIOGRAPHY 26

XIII. APPENDICES 29

A1 – Operating Cycle 29

A2 – Budgeted Income Statement 29

A3 – Sales Budget 2017 30

A4 – Variable and Fixed Selling and Administrative Costs Budget 2017 30

A5 – Breakeven 31

B1 – Overall Schedule 32

B2 – Cash Conversion Cycle 33

Executive Summary

 Master Minds Innovations, LLC, (MMI) will redefine the mobile accessories industry by manufacturing a case that incorporates kinetic technology.  As smartphones have evolved containing endless functions, consumers have experienced battery unreliability (Chris P., 2016).

Description of the Business Concepts and the Business

MMI, incorporated in 2016, in the state of Illinois with five partners who visualized a solution for extended smartphone battery life, yielding a higher level of performance for smartphones. This vision has matured into a reality through the strategically developed business plan we have set forth to bring our product to market.

Opportunity and Strategy

        Our kinetic energy-powered case will be offered for many of the larger manufactured smartphones.  As an example, Apple’s latest model of the iPhone 7 Plus will be thinner and more streamlined. There is speculation regarding how this model would hold a larger battery to sustain longevity and functionality; our invention supplements that concern (Bell, 2016). Utilizing secondary kinetic technology, the phone will be stored within a protective case, which as the user provides motion, recharges the battery, thus experiencing longer battery life.  

Target Market and Projections

Within the telecommunications industry, specifically the high growth mobile communications sector, MMI will initially focus the target market on iPhone users; 82 percent of which is projected to make up the mobile market by 2018, and soon after move to other market movers such as Samsung (Reisinger, 2015; Samsung, 2016).  To ensure our firm is competitively positioned, we will target consumers that heavily rely on their phones for both internet access and telecommunication.  

According to information gathered by Pew Research Center, Americans are heavily dependent on their cell phones for staying connected to the preverbal grid (Smith, 2015). An estimated 7 percent to 10 percent of Americans only have access to the internet via their smartphones (Smith, 2015).  As of 201,5 there were 184.2 million US smartphone users, and that number is estimated to increase to 220 million by 2018 (Smith, 2015).  With the estimated increase in smartphone users, we initially project to produce 10,000 units to be sold within our first year.  

Competitive Advantage

        Stand-alone solutions for the power-hungry devices of our time have been weak and our product can absorb much of the market share with our convenient and non-cumbersome technology.  Our product utilizes kinetic technology and will increase our competitive advantage due to differentiation, ease of use, and convenience factor (i.e. not having to carry around a charger or external battery pack).  Our device is embedded discretely within the smartphone case and becomes effective with normal body motion.  No accessory adaptor is needed.

The Team

       Our five-member team has diverse backgrounds and experiences which include venture capitalism, private equity and private placements, business administration, managerial finance, public and private accounting, and most importantly classical mechanics engineering. Our varied learning and management styles offer us a unique business purview as it relates to our company's vision and strategy. Christofer Forrest is acting CFO, Lita Weikert is CEO and president, Jessica Harke is director of sales and marketing, Latasha Johnson is HR director, and Ken Ostarello is chief engineer.  

        Owners are contributing $50k each for startup costs.  Additional capital needed for operations equals $166,100 (phase 1 funding, Q1).  With collateral backing (real property) and good credit, we expect to be approved for the SBA7(A) term loan at 6.25 percent, estimated.  This loan, plus the owner’s contributions will cover start-up and operational costs for the first year of operations; manufacturing is being funded separately. If this fails, we will pursue conventional lending with similar terms.  

Using R&D industry benchmarks, specifically cost of sales and gross profit percentage, we estimate our manufacturing cost to be $36.30 per unit (retails for $100), gross profit of 63.70 percent, $363,000 total (10,000 units for first year sales, beginning 2017 Q3, based on $1,000,000 revenue outlook) (Butler Consultants, n.d.). We will pursue accredited investors through online and local private placement firms that syndicate investment packages to networks of accredited investors (i.e. high net worth individuals; angels), and will render the services of RegulationDResources, located in Lakewood, CO, to facilitate it. Therefore, in our business plan and prospectus, the offering will be $363,000 in funding for a 36 percent equity stake in the company.  These figures indicate a ROE for the investor of 22 percent, and ROC (i.e. ratio takes into account debt) of 15 percent in the first year.  

The Industry and the Company’s Product

The industry. Due to steep market segmentation, we are able to complete an analysis on cellular phone power banks, price range and distribution channels. People around the world have gained access to mobile devices. The accessories market has responded with new and innovative ways to support customers with varying needs. There are nearly 100 unique eco-friendly devices that charge mobile devices. Each has both advantages and disadvantages of using the product. “The rapid proliferation of mobile phones has created a burgeoning market demand for mobile phone accessories globally, leading to an exponential market growth” (Market Research Report, 2016).

Company and concept. MMI has a transparent system to measure environmental performance which includes extraction, manufacturing, maintenance and disposal. As responsible members of the global economy, we are setting the high bar by seeking out electronic component industry standards from around the world.  Our goal is to purchase materials from companies that have a market declaring that a product is in conformity with all applicable essential requirements set out in EU legislation and are RoHS-compliant (Hope Industrial Systems, Inc., n.d.). Manufacturers with fully developed systems for monitoring environmental impacts such as reducing energy consumption and waste production, will be our first points of contact. This will allow us to gather specific environmental performance data on the vendors we use throughout the supply chain.

Product. The kinetic energy-powered protective case will easily adapt to many of the larger manufactured smartphones. Many firms have tried to develop stand-alone solutions for the power-hungry devices of our time; we believe our product can absorb much of the market share with our convenient and non-cumbersome technology.  Our product of kinetic technology will increase our competitive advantage due to the adaptability and low-cost alternative to other battery charging devices.   All new cell phones are accompanied by a device that facilitate recharging. Our device will be an added accessory and is not necessarily needed by all customers. To ensure our firm is competitively positioned, we will focus on people that heavily rely on their phones for both internet access and telecommunication.

Entry and growth strategy. To gain competitive advantage in the mobile accessories market, key providers largely rely on strong distribution channels such as multi-brand distributors and retailers of mobile accessories in order to better cater to consumers (Market Research Report 2016). MMI, will initially focus the target market on iPhone users, 82 percent of which is projected to make up the mobile market by 2018, and soon after move to other market movers such as Samsung (Reisinger, 2015; Samsung, 2016). Globally, the mobile phone accessories market is projected to account for US$121,726.4M by the end of 2025. APEJ, North America, and Western Europe are collectively expected to account for 79.6 percent market share by 2025 (Market Research Report, 2016). This is great news for our company since “an annual growth rate of 30 to 50 percent creates niches for new entrants…if a $100 million market grows at 50 percent per year it has the potential to become a $1 billion industry” (Spinelli, 2012, p. 142). An estimated 7 percent to 10 percent of Americans only have access to the internet via their smartphone (Smith, 2015).  Market trends point to our cell phone case being placed in a mid-level price range.

Market Research and Analysis

Customers. The technology being proposed will be marketed to the users of cellular telephones who often times find themselves running low on battery power in their devices. Our product could be sold directly to customers, contained within a standard protective case with the added benefit of supplemental charging from kinetic energy. Sales could be made through e-commerce sites like Amazon as well as traditional brick-and-mortar store shelves.

Market size and trends. Today there are about 2 billion smartphone users worldwide, and is expected to increase to over 6 billion by 2020 (Kissonergis, 2015). About 80 percent of this growth will occur in the emerging markets in Asia Pacific, the Middle East, and Africa (Lunden, 2015). This global growth will only further increase people’s reliance on their smartphone for communication, business, and entertainment.

Competition and competitive edges. While there are no known competitors producing a kinetic energy charging case, there is no shortage of substitute products, including external battery packs and cases that have additional battery power built in (Ampy, n.d.). A device that provides longer battery life by using kinetic energy to charge provides the distinct value over any substitute product in that it provides longer battery life at no cost to the user and it happens automatically as the user moves throughout the day.

Estimated market share and sales. One of the most important specifications to consumers is the battery life, and our product enhances battery capacity (Wagner, 2013). Consumers are willing to pay a premium for it; we have only indirect competition. Salability is viable in the mobile accessories sector.

We have a strategic value-based technology that will be offered as an option to the mobile accessories sector. Due to the proprietary technology we are developing, and a high importance to acquirers, we expect a high value-added for domestic and international consumers from strategic importance; 3.0 times sales in 2018 conservatively.

Domestic demographics allocate more discretionary income to products of convenience; this includes outdoor enthusiasts, and business professionals in a myriad of industries. Note referenced percentage of population totally reliant on smartphones. Worldwide cell phone subscribers equal 7 billion as of 2014 (96.9 per 100 people), 2 billion of which use smartphones, but only 40.7 per 100 people have internet (The World Bank, n.d.).

There are roughly 3 billion smartphone subscribers globally, 6.1 projected by 2020 (Lunden, 2015). Average growth rate of approximately 17 percent per year until 2020. Sales in dollars will increase to $1,170,000 in 2018, $1,368,900 in 2019, and $1,601,613 in 2020 respectively. Unit sales increase from 10,000 to 11,700 in 2018, 13,689 in 2019, and 16,016.13 in 2020 respectively.

Ongoing market evaluation. Utilizing The Federal Reserve, World Bank, European Central Bank, as well as macroeconomic figures in emerging markets, we will be able to predict economic shifts and how they correlate to our growth strategy, pricing, and production facility expansion activities.

The Economics of the Business

Gross and operating margins. The magnitude of gross margins is in line with industry benchmarks.  Using the above stated selling price and cost of goods sold, our projected gross margin is 64 percent, gross income is $637,000 for 2017.  Operating income is projected at $220,900 for 2017; operating margin of 22%. Please see Appendix A2

As stated above, we will heavily market our product within the mobile accessories market, a sub-sector of the telecommunications industry. Contribution analysis, specifically concerning contribution margin is speculative.  As stated earlier, industry benchmarks put cost of sales around 36 percent, further in-depth look at manufacturing costs for our product will be published in 2017 financials once all known fixed, direct and variable cost that contribute to the projected cost of sales.   

Profit potential and durability. Our product has attractive margins and profit expectations.  Due to mobile accessory sales coinciding with cellular devices point-of-sale, or shortly thereafter, we expect our profit to remain stable and durable.  As mobile phone technology increases (i.e. new phone models), so, too, will the design of our product.  Upgrading manufacturing operations will affect cash flow to some degree, but the intensity and magnitude of sales within the industry will absorb much of those profit constricting activities, as sales for the new designs will be occurring shortly after.  Our supply-chain, Japanese outsourced lean manufacturing, and our utilization of Amazon’s fulfillment and distribution channel, their value chain, as discussed in other sections, will aid in profit durability, all of which contributes to an optimistic lead time for our product.  

Predicting market trends and researching new product arrivals will enable us to focus on upcoming offering potentials.  Our chief engineer, in collaboration with all department heads will assess this environment for competitive intelligence.  Developing a technology patent will add to the durability to our profit stream, by creating a heavy barrier to enter the mobile accessories sector for other firms or products.

Sales budget. Please see Appendix A3

Variable and fixed cost selling and administrative cost.   Please see Appendix A4.

Industry benchmarks put total expenses at 52.05 percent (Butler, n.d.).  Our projected total expenses of 42 percent leave room for unknown quantities in variable cost comparatively.  

Breakeven.  As stated earlier, a precise contribution is difficult to project.  Notwithstanding manufacturing cost, estimated at $363,000 for 2017, we were able to pin down breakeven in dollars at $762,717.39 which we expect to occur in Q1 of 2019 (fixed cost $701,700, variable expense 8 percent of sales, contribution margin ration 92 percent). However, financing obligations accounted for, we will narrow the breakeven further in 2018. Please see Appendix A5.

Positive cash flow.  As sales ramp up, positive cash flow is anticipated in Q3 of 2017.  This is based on the estimation of 2,500 units being sold, and will bring an anticipated $25,000 in profit during this quarter of sales. See Appendix A5.

Marketing Plan

Overall marketing strategy. MMI will be gearing our marketing efforts towards constant smartphone users, with marketing focused on word of mouth conversations with the target group and social media outlets for a minimal cost. Our product will be introduced in the Chicagoland area before it is released to the rest of the country.

Pricing. The cost of our product to manufacture is $36.30 and charging $100 per unit (comparable to competitor - Ampy). Our gross margin is 70 percent which leaves a margin to account for costs, warranty and free shipping. Smartphone users regularly spend $20-$60 for cell phone cases (Otterbox, 2016).

Sales tactics. Methods for sales will include word of mouth and social media. After 1,000 units sold, there will be a release of the product nationally. The release of the product internationally will be started when 10,000 units are sold. The marketing cost initially will include $300 for supplying the product to customers for trial as well as a small budget of $2400 for social media advertisements.

Service and warranty policies. The company will offer a 30-day guarantee on the case with 100 percent refund and free return shipping and handling back to the manufacturer. The company will offer a 90-day guarantee on the actual kinetic mechanism with 100 percent refund and free return shipping and handling back to the manufacturer.  

Advertising and promotion. Advertising and promotion will announce the all-inclusive case with enclosed kinetic mechanism.  Our competitors advertise and promote having to wear their charger and the necessity of using adaptors in order to charge the smartphone.  This truly allows our product to be on the cutting edge especially for those who rely heavily on their smartphones or do not have access to electricity for charging.  Areas to advertise our product include social media and word of mouth through target groups.

Promotion can occur by participating in technological product shows and all types of business conferences.  Advertising agencies will be utilized to assist with the distribution of this information.   The exhibit display will serve as a direct, powerful reflection of the quality and reputation of our company.  It will provide a strong first impression and communicate our services.  The average costs of a display are approximately $30,000 but can be reused for many trade shows and other conferences or seminars (Trade Show Display Product: How Much Will You Need to Spend? n.d.).  At these trade shows, raffling of ten devices as “giveaways” will occur.  This is a sure way to get the word out about how great our product performs.

Distribution. Due to the time constraint on developing a prototype through testing and then full production, distribution generally takes six months (Dupree, n.d.).  The product release date is scheduled for July 2017.  Each unit will be packaged and shipped in its own box from distribution centers in United States.  The cost per unit for packaging is $2.25 (Greasley, 2013).  Due to variability of shipping costs, the company will purchase a selling contract with Amazon.com which costs $39.99 per month with additional selling fees to include the use of the Amazon fulfillment center.  No pre-approval from Amazon is required due to selling this in the “Electronics (Accessories)” area (Amazon Services, n.d.).

Design and Development Plan

Development status and tasks. Currently, our product is in the design phase and needs to be tested by users in order to determine any adjustments that need to be made prior to our regional launch in July 2017. Our company has experience which will help us engineer a product that will be appealing in functionality and looks. We are testing the product on family, friends and colleagues with an expected review of the product to be completed by March 2017. After this initial test group, we will offer to another test group of consumers and have a final product review in May 2017 before the product release in July.

Difficulties and risks. Although no major design problems are anticipated due to past experiences, the goal for the product is to develop a sleek case that consumers will not be weighed down by the kinetic charger that is inside of the case. The cost of design and development related to the release of the product will have a buffer time of two months after our final product review with early consumers.

Product improvement and new products. As discussed, our case’s sleek design with the multifunctional charging ability will initially be designed for iPhone users with room for expansion to other major phones such as Samsung or other Android devices. With each release of new generation phones from each company, we will develop new cases that will fit these phones and as our technology increases, have sleeker cases for consumers. MMI will only be developing this product for consumers until we have a stronger hold on the marketplace. Once we have recognition, we will research other products, provide enhanced designed options and have a recycling program for cases that are outdated or damaged.

Costs. Initially, each team member will provide $50,000 toward start-up costs. A budget was created. There was consideration in expenses such as consulting fees, production fees, and normal operational expenses. It is important to include expenses for consultation because they can provide experience, efficiency, perspective, reduce management burden and provide leverage in negotiations. They also provide advice for obtaining equity, raising capital, overall business development and developing the exit strategy (Consulting Fee Rates, n.d.).

A 12-month cash flow analysis was created (appendix A5) in order to manage cash flow during the first 12 months. It is important to provide a structure to explain changes in cash, provide understanding of the overall operating, investing and financial activities and show the company's solvency and liquidity (Lee, 2011). Having a sound cash flow analysis also allows the company to establish a contingency plan for those unforeseen incidents that may occur. The company has decided to add a 15 percent contingency to the budget to cover any unforeseen expenses (Strider, n.d.).

Proprietary issues. The kinetic mechanism technology prototype will be developed. Once this occurs, a patent will be pursued in order to provide protection and exclusive rights to this technology. Proprietary agreements will be developed outlining the proprietary ownership of the kinetic mechanism and case. This will outline the prototype information as well as business practices, pricing, customer lists and technical information that is forbidden to share. All team members, employees as well as business associates who have obtained access to this information will be required to sign an agreement with the company. This agreement will include actions taken for breach of the agreement including legal action. There will be a determination period for termination of this agreement, if the technical and engineering information is sold or released for public use (What is a Proprietary Agreement? n.d.).

Manufacturing and Operations Plan

Operating cycle. The device will be produced in an assembly line that will combine robotic assembly along with skilled and unskilled labor. This will include the assembly of the parts that make up the kinetic energy harvester (skilled labor) and then fitting this portion into a variety of cases (unskilled labor), shaped to fit the device they are going to charge. High demand for seasonal and other anticipated production loads will be dealt with by pre-planning overtime for skilled labor and a combination of hiring temporary unskilled laborers on a part time basis.

Geographical location. The device is similar to the kinetic charging device used inside of Seiko watches, which are produced in Japan. For this reason, the skilled portion of the assembly will take place there. Since the harvesting portion of the product is small and lightweight, it will be shipped to the USA where final assembly will take place by unskilled labor. Since using Amazon to fulfill our orders, final product assembly will take place in Ruskin, Florida, which is home to a one million square foot Amazon fulfillment center.

Facilities and improvements. For the specialty assembly in Japan, proprietary machines and tools will need to be purchased. For the location in Florida, no special tools are needed. For both locations, due to the compact nature of the device, relatively small warehouses, less than 5000 square feet, can be used. In Japan, the parts needed for assembly are readily available locally, so there is not a need to stock large quantities of them. Once final assembly occurs in Florida, the product will be delivered to the local Amazon warehouse for distribution to their fulfillment network. As demand for our product increases, the Japan location can be expanded with additional floor space, machines, and employees to meet the demand. For final assembly within the US, expansion will occur at the Ruskin location. Utilizing the Japanese strength in machining, and aligning geographical logistics with Amazon, we hope to create economies of scale within our supply chain.

Strategy and plans. All necessary parts will be purchased and then assembled by us. In Japan, the components will be purchased from local machine shops and then assembled by our specialists. We will work with the local machinists to ensure that the components are high quality and within the tolerances that are required. For the US location, the cases will be subcontracted out from existing manufacturers, with the device being secured to the inside of the case. This will allow us to offer the customers a wide variety of case styles and colors with little to no development costs.

Production plan is straightforward. We produce 2500 units for sale each quarter, starting in 2017Q2 for sale in Q3. Starting in 2018Q2 production will be ramped up to 2925 units, but this figure is an estimate and can be adjusted accordingly.

Through a vigorous quality control program, we will ensure the integrity of our products is upheld and uncompromised by verifying correct specifications are met, raw materials sourced match stress tests, and personnel oversight to reveal training deficiencies or equipment efficiency improvements where needed. We will employ classic theory of total quality control (i.e. planning, training, inspecting, improvement) (Thompson, n.d).

Management Team

Organization. The five-member team has diverse backgrounds and experiences. For example, professional experience includes venture capitalism, private equity and private placements, business administration, managerial finance, public and private accounting, and most importantly classical mechanics engineering. Our varied learning and management styles offer us a unique business purview as it relates to our company's vision and strategy. Chris Forrest is acting CFO, Lita Weikert is CEO and president, Jessica Pavlinec is director of sales and marketing, Latasha Johnson is HR director, and Ken Ostarello is chief engineer.

MMI’s Human Resource department has well-defined policies and procedures to ensure all staff are appropriately qualified and trained for their roles both prior to joining MMI and during their employment. To ensure we attract and retain the best talent possible, applicants are screened for specific educational and professional experiences. All executive team biographies can be found on the corporate website.

Key Management Personnel. The Chief Financial officer is responsible for fiscal management of the organization and the Chief Executive Officer manages the day-to-day operations. The Director of Sales and Marketing is responsible for analyzing market segmentation, creating sales strategies to be implemented by the sales team. The Chief Engineer will oversee the design, assembly and production of the device. He will also, be responsible for launching new products in the future. The Human Resource Director is responsible for recruitment/talent acquisition, seamless new hire onboarding and investing in the professional development of all employees. To ensure future viability, the founders will not draw a salary from the business until a profit is realized.

The Board of Directors is fully engaged and committed to governance responsibilities. The board operates within outlined bylaws that are written for the purpose of internal management of the Board and company activities. The Board is comprised of five appointed voting members who each serve a four-year term. The Board approves/advises on major changes to the company structure, the hiring of the internal audit firm, performs reviews of financial reports, investments and deposits. The Board will work closely with the executive team to align the company’s mission and strategic initiatives with available resources.

Organizational Chart

Overall Schedule

See Appendices B1, and B2.

The management team will remain static during the R&D stage. We will begin hiring employees in Q3 of the 3rd year of operations as the firm anticipates breaking even in Q1 of 2019. Most of the production and operations will be outsourced to the manufacturer in both Japan and Florida and will not require us to hire staffing. Executive salaries will total $250, 000 for the first year. Salaries will increase vis-a-vie bonuses and shareholder equity as the company becomes more profitable. $11,300 of the initial seed monies will be used to purchase equipment, office furnishings and fixtures during the launch phase. The equipment cost will include securing the proprietary machines and tools needed to outfit the Japan factory. After the breakeven point, forecasted to occur in year 3, we will begin to hire part-time labors and full time office staffing to keep up with demand.

However, the schedule will have to be altered if sales are not realized as forecasted. Economic slowing events like decreasing competitor prices and low employment could negatively affect sales in the summer months, especially since these are historically slow retail sales quarters, “In July 2016, most retail segments, including sporting goods, general merchandise and building materials, saw reduced spending, while online and other non-store sales saw an increase of 1.3 percent seasonally adjusted over the previous month and 10.1 percent unadjusted year-over-year” (Reynolds, 2016). That being said, should the number of units sold dip below 2,925 between 2018 and 2019 we would fall below our sales floor and thus prevent us from meeting the breakeven point. As a direct result of this, hiring new staff members would be delayed. Management of the firm will not be affected in other ways as our internal cash controls provide for a 15 percent contingency via a mix of short-term financing options and capital.

Critical Risks, Problems and Assumptions

Risks we are taking with the launch of this product are minimal, but still could play a factor as we move forward with product launch. There are a lot of moving parts that need to be in check when creating a business. These involve things from product scheduling and development, product releasing, receiving the product, shipping the product and keeping a good cash flow on the budget during the whole period of time.

For our product, we would be risking a short amount of time in-between the final product review and the launch of the product. This could delay the initial release of the product, which could upset consumers and in turn give us a bad reputation and create bad word of mouth. Another risk we could run into is have a delay in receiving our product from our warehouse in Japan because it is overseas. This risk, in particular, also increases the amount of money we need for producing and shipping our product. Keeping these costs down will preserve our funds before or after we have sales. These two factors will be especially important when it comes to product launching. Once we receive regular shipments from the warehouse in Japan, there will be little to no risk with receiving portions from our product there.

Due to our detailed budget, outlined in appendix A4, we are the only product of our exact kind, we have minimal risk of having our competitors cut their prices. Currently, the cell phone market is on an upswing. According to Gartner, total sales of smartphones grew 4.3 percent from 2015 to 2016 (Gartner, 2016). As it pertains to a cell phone case, 25 percent of smartphone users do not use them (NPD, 2013). This will allow for us to target 75 percent of cell phone users to change their case to something that has a multifunctional purpose.

If we do not achieve the sale projections we set, especially as phones turn to new styles and sizes, we run the risk of having a product that may be outdated, unusable and leave us with an excess of inventory. In these situations, we could start offering price decreases and other deals to consumers who are still using the older versions of the phone.

As our product is released into our regional start area, it is important for us to be very vigilant of the amount of product we are ordering, producing and the amount of money we have on hand at all times. If we become lax on monitoring operations and cash flow, we may need to borrow money from a bank or investor. The most important thing we will need to keep in check is the number of funds available prior to and after obtaining orders. If we are able to stay stable in cash flow, then we will be able to have one less risk factor when it comes to having a successful business.

As a company, MMI will have a successful business. If there are scenarios we need to push back a product launch date or shipping date, we will provide a service recovery to preserve our integrity and enhance the customer experience. This could range from free product shipping to a discount or refund of their money.

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Appendices

Appendix A

1. Operating Cycle

2. Budgeted Income Statement

3. Sales Budget 2017

4. Variable and fixed selling and administrative costs budget 2017

5. Breakeven

Appendix B

1. Overall Schedule

2. Cash Conversion Cycle