Technology and appropriability position of the Newco business idea
The project aims to provide local kiosks in rural un-electrified areas in Kenya with a system that charges mobile phones using solar energy. The construction description proves that the product is a CEH device, and its configuration and process of manufacturing have been thoroughly considered. However, the authors of the plan assume that it would be difficult to achieve protection for the product based on its technical design since the device is not technical innovation. Furthermore, enforcing patents is likely to cost more than the potential recovery. The Agreement for retaining the IPR as well as the trademark registration are highly recommended for the company. Nevertheless, the facility of the device duplication and the absence of patent protection may render the product less attractive to future investors. The financial analysis of the product development and a development plan suggests a degree of a protection strategy, but it cannot guarantee the appropriate level of security.
The value chains
The company proposes a clear scheme of the product’s value chain and proves that it may easily reach the end user. The functional prototype of the device was sold to a kiosk owner in Kenya for USD 80 and received extremely positive feedback from the customer. The price was recovered within two months, which implies that a slightly higher price would be appropriate. It illustrates that a value proposition is clear and well-planned, even though the company does not control the necessary assets required to reach the end user, and relies completely on investments from business angels or venture capital. However, the structure of the company remains non-transparent, and its impact on added value may be a subject of discussion.
The business models
The chosen business model suggests direct sales to shop owners or individuals, where the primary channel is the deployment of direct sales agents and the secondary channel means sales through local retail chains. The pricing analysis and model are elaborate and taking into consideration the preliminary tests of the product; it may be assumed that such model might work under the given conditions. The strategies of company’s growth have multiple options, for example, adding new product features, establishing a partnership with mobile network operators or direct sales to government bodies, but it seems that not all of them have been examined in detail.
The market
The entrepreneurs do not provide information about the approach used to calculate the market size, but the market segmentation and the priorities look credible and obvious. From market research, they gathered that 75% of 39.8 million population of Kenya live in rural areas, most of which is un-electrified. About 42% of these people have an active mobile SIM card, according to RIA 2007/2008 household survey. IEA in 2008 also reported that 587 million people in Sub-Saharan Africa have no electricity and over the past seven years, there has been tremendous growth in mobile phone usage in the rural areas of Kenya. Although this data is not very specific and insufficient, it allows us to assess the target market segment. The device is being marketed as a niche product for un-electrified rural areas only, which may mean the lack of direct competition at the initial stage. The market rollout plan succeeds to growth strategies of the company, and it lacks sufficient details as well. The analysis of market timing is provided in the section of the financial summary, but it looks overly optimistic and lacks a few factors that may influence the timing significantly.
The team
The entrepreneurs claim to be a strong management team that has the in-depth industry knowledge and broad expertise about the local market. According to the business plan, some specialists, for example, hub managers, chief operating officers, and design/engineering team would be hired to support the company growth in the first year, and later the team will expand further. The accounts, legal and HR divisions will be fully outsourced for cost effectiveness, which seems a reasonable solution, at least at the beginning. An assistant and admin functions that will address the day-to-day necessities and support the business operations are not intended for outsourcing; however, this decision might require reconsideration.
The financials
The most important section of the plan is probably the financial section because most entrepreneurs tend to overestimate their revenues as well as underestimate their costs. Thus, a business plan should demonstrate realistic figures adjusted for risks, economic downturns or recessions, and cost overruns.
The financial analysis and summary of this business plan contain a few figures, some of which are legitimate, while others, like the CEO’s remuneration of USD 40,000 in the second year, need substantial justification. The cost assumptions look realistic, while not taking into account the possible changes in the situation that may lead to reconsidering the financials. However, the revenues may be somewhat overly optimistic, especially considering that the plan focuses on keeping the price such that the customers would be able to recover their capital investment within three months. Association with a micro-financial organization also looks questionable. The lack of information about micro-financial organizations that might be interested in cooperation, as well as the lack of details in terms of cooperation does not add appeal to this proposal. The typical requirements of a microfinance loan, for example, one week lead time for loan approval from the moment of application and a minimum loan amount of USD 50 may frighten the customers rather than attract them.
Deal Structure
A set of terms and conditions, specifying the way to conclude a small business acquisition, is called a deal structure. It is essential to define the structure of purchase because it becomes the basis for purchase agreement and may later define the success of business ownership transfer. Since the amount of owned assets of NEWCO are not specified in the plan, except the mention that the budget is currently limited to funds raised by the ideator, the business completely relies on a capital injection from an investor. The company seeks US$ 170,000 investment to cover the first-year operational expenditure including the fixed and the variable cost, and for this much of investment, it will offer 20% of the equity. According to this offer, the most appropriate deal structure might be an asset purchase, where the buyer outlines the assets and liabilities, he agrees to purchase which should be transferred to an existing entity or newly created entity, with the seller retaining the shares of an existing organization. All other assets remain under the seller’s ownership. The share of 20%, initially proposed by the company, should be negotiated with regard to a detailed analysis of a business plan and its overall attractiveness.