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Fall

Chips&Bits [Quality Technology & Service)

Chips & Bits


A Business Proposal
Management Team: Alexis Aria, Andy Ball, Kevin Butz, and Meaghan Davis,
Chelsea Grain

Contents
Executive Summary...3

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Chips & Bits Business Plan

Company Overview....5
Market Opportunity Analysis.........6
Market....6
Customer........6
Competitor......7
SWOT Analysis..8
Market Plan and Tactics...11
Target Market Segments..11
Product Lines12
Pricing..13
Promotion.14
Sales Channel...15
Store Sales.15
Distribution15
Web Sales..15
Management and Human Resources17
Team.17
Personnel Requirements and Management .17
Compensation Packages...............17
Manufacturing Plans19
Financial Statement and Analysis22
Cash Flow22
Income Statement.....23
Balance Sheet...23
Financial Plans.25
Tactics and Future Planning.27

Executive Summary
Overview

Chips & Bits Business Plan

C&B is a computer manufacturing firm that aims to provide high quality


products and service. With a 16% global market share after only 3 quarters, the
company holds an optimistic position as the industry leader in demand growth. With a
focus on investment in research and development, C&B is well positioned to be a
strong competitor in the computer industry this upcoming year.
C&B mission statement:
We aim to provide high performance, exceptional customer service, and
strong security in hopes of keeping office productivity high and all consumers
satisfied.
Market Analysis
The microcomputer industry holds significant room for growth. Recognition
of this opportunity has pulled many startups into the market. The market demand has
increased by 326% in the last quarter with an overall unit demand of 3,872. As the
market has grown substantially in the last quarter, we anticipate that there should
continue to be a 100-200% growth rate in these early stages, with a gradual decrease
in growth as the market matures. Currently, C&B holds a 16% market share which is
delineated as follows: 36% share of the Mercedes segment, 22% share of the Traveler
segment (without having a traveler-specific product), and a 2% share of the
Workhorse segment. We project that there is significant room to expand as we lead the
industry in terms of market share growth, and project an overall market share increase
to at least 20% by quarter 6. There are other 3 competitors in the market: NRG,
Millenial, and XLerate. We believe that we can eventually become one of the stronger
competitors in the market.
Products
C&B began with a primary focus on the Workhorse and Mercedes segments
respectively, with 1 product to address each those markets. However, in response to an
unexpected demand shift due to our competitors choices in the third quarter, our
companys focus shifted as well. We decided to target the Mercedes and Traveler
segments with a tertiary focus on the Workhorse segment. The Workhorse segment
aligns less with our companys values, as we have grown to focus more on quality and
security of the product over minimizing price of production. However, as it is the
largest market segment, we have developed a third product specifically geared
towards the segments needs in efforts to increase our market share there as well.
Thus, we have 3 brands, each strategically created to please a specific market
segment. After another round of financing, we plan to continue investing in Research
and Development to further our quest to produce high quality innovative technology.
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Financial Status
After paying off the emergency loan we received in quarter 2 due to an
oversight in hiring salespeople in the correct location, C&B has been greatly
expanding. We have been focusing more on research and development, advertising
and, creating sales offices in high-demand locations. In the first two quarters, our
revenue was relatively low. In quarter 3 however, we saw a large increase in revenue
of an impressive 3101.4%. Our gross margin has also been increasing and we now
project a conservative estimate of 53.6% growth in quarter 4 -- nearly a 10%
improvement from the previous quarter. Improving our margins also means that we
will see more profits and grow into an even better company. In the absence of a
venture capital investment of $4 million C&B would still be a self-sustainable and
profitable by next quarter. However, we know that there is a great potential growth
opportunity in purchasing the research and development. It would benefit both
investors and our company. Our R&D expenses are targeted toward adding additional
security to our computers, a feature that all three segments want to see in a computer.
We believe that in receiving this funding, C&B will be highly profitable and can
create a huge return for our investors.

Chips & Bits Business Plan

The Company Overview: Chips & Bits


Description of Business and Industry
The computer industry has a lot of room for growth, and as a result, is largely
competitive. As we pay very close attention to market data and customer feedback, we
anticipate that our investment in products that are cutting edge and tailored to the
customers needs give us a strong advantage in garnering market share. Our
distribution channels originate in a sales office in Chicago, and in Shanghai, and one
web channel. We plan to extend across the globe in the future. Our target market is
primarily professional, but not exclusively so. As we grow, we continue to develop
more brands and appeal to more customers.
Our Mission
Founded in 2015, C&B is a multinational corporation that works to provide
high performance, secure technology with exceptional customer service to keep office
productivity high and all consumers satisfied. Our product suite includes three main
computers that address the needs of each of the three market segments. As an effort to
stay abreast of consumer preferences, we have consistently adjusted products to
address customer needs based on feedback, market research, and heavy analysis of
competitors strategies. Our main goals are to lead the market in demand, provide high
quality technology and customer service, and to become leaders of market trends in
the technology industry.
Company Values and Goals
C&Bs company goals include maintaining and slightly increasing market share in our
primary target market segments, Mercedes and Traveler, which tend to be higher
margin. We also plan to substantially break into the lower margin Workhorse segment,
as it has the highest demand. We value being a high quality provider for all with a
product available within the price range of each market segment.

Chips & Bits Business Plan

Market Opportunity Analysis (MOA)


Market Profile
The computer industry in growing quickly and consistently, increasing 326%
in the last quarter alone with an overall unit demand of 3,872. As the market is only
5% saturated, we anticipate that there should continue to be a 150-250% growth rate
in the next 2 to 3 quarters and a total unit demand of 9,680 in quarter 4, with a gradual
decrease in growth as the market matures. The industry consists of three specific
market segments: Mercedes, Workhorse, and Traveler. As it is still a fledgling market,
there is plenty of room to improve in terms of increased market knowledge and
enhanced technologies. As the industry has matured over the last quarters, market data
and technology has improved, and we expect this trend to continue in the next
quarters.
As C&B has made a strong foothold in both the Mercedes and Traveler market
segments, with 36% and 22% market share respectively, we want to maintain and
increase our position in those segments, but also make an effort to break into the
Workhorse segment. Although high margin segments have shown us positive results
in terms of revenue, with such a high growth rate, it is imperative that the company
captures some of the largest segment too. With only 2% market share in the
Workhorse segment at the beginning of quarter 4, we have plenty of room for growth
there. After our first quarter of production, we had only captured around 2% market
share in our primary and secondary market segments, Mercedes and Workhorse.
However, we had unexpectedly captured 4% market share in our untargeted segment,
Traveler. With a renewed focus in the second quarter of production, we increased our
market share to the figures noted above. We anticipate that with a renewed focus on
Mercedes and Traveler and our primary and secondary markets and a tertiary focus on
the Workhorse segment, we will increase our market share across the board. This
projection is additionally supported by our exponential growth in demand between
our first and second quarters of production.
Customer Profile
The computer industry is segmented into 3 distinct markets: Mercedes,
Traveler, and Workhorse.
Mercedes
The Mercedes consumer group is the medium-sized segment globally, with a
12-month total potential demand of 23,257 units, geographically concentrated in order
from most to least in: North America (8,005 units), Europe (6,730 units), Asia (4,802
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units), and South America (3,729 units). With a total demand of 825 units in Q3, the
market is only 3.5% saturated. The main demographics of the market include highpowered professionals in need of a computer with high networking capabilities that
can be used in controlling manufacturing processes, engineering and design, and word
processing. Their main priorities are high performance and fast and powerful
processing. Their web customers prioritize the security of their credit card / identity,
access to human sales and service representatives, and the ability to track their
purchases. They are ranked at the highest price point with 100% of the market willing
to pay $4,100 and less per unit.

Traveler
The Traveler segment is the smallest segment globally, with a 12-month total
potential demand of 18,494 units, geographically concentrated in order from most to
least in: North America (5,762 units), Europe (5,528 units), Asia (3,938 units), and
South America (3,266 units). With a total demand of 1,345 units in Q3, the market is
the most mature market thus far at only 7.3% saturated. The main demographics of
the market include regular users who are consistently on the road in need of a
computer with high networking capabilities that can be used in presentation building,
word processing, and business graphics. Their main priorities are portability, size,
and brand recognition. Their web clientele prioritize security of their personal
information, ease of website navigation, and access to human service and sales
representatives. They are ranked at the medium price point with 100% of the market
willing to pay $3,000 and less per unit.

Workhorse
The Workhorse market segment is the largest globally, with a 12-month total
potential demand of 34,203 units, geographically concentrated in order from most to
least in: North America (9,374 units), Asia (9,081 units), Europe (8,334 units), and
South America (7,414 units). With a total demand of 1,702 units in Q3, the market is
only 5% saturated. The main demographics of the market include regular users in
need of a computer with high networking capabilities that can be used in word
processing, bookkeeping and budgeting, and data management. Their main priorities
are cost efficiency, ease of use, and multitasking abilities. Their web customers
prioritize the security of their personal and payment information, access to human
sales and service representatives, and ease of navigation/purchase. They are ranked at
the lowest price point with 100% of the market willing to pay $2,500 and less per
unit.

Chips & Bits Business Plan

Competitor Profiles
XLerate Inc. (Toughest Competitor Overall and in Workhorse Segment)
XLerate is our toughest competitor overall and in the Workhorse segment with
44% total market share comprising of a 98% market share in the Workhorse segment,
almost a full monopoly. XLerate has maintained a full monopoly over the Workhorse
market since the first quarter of production, and they are the only company to
maintain its market share in its target segment. However, they have decreased around
10% in terms of total market share. Their unit demand has increased 162% since the
first quarter of production. They have the highest demand per salesperson by at least
double, and they have the highest advertising budget with 13 regional ads. Their main
brands are XLerator ($2399 with $300 promotional rebate), which held the highest
demand and was rated 74% acceptable by the workhorse segment and 20% acceptable
in the Mercedes segment. They have had the mostly highly rated advertisements
across all market segments. We anticipate that they will continue to maintain majority
market share in the Workhorse segment, but will make the effort to engage with other
market segments. They will probably also introduce a new brand, as a result. They
could improve in terms of factory worker productivity, and will probably increase
factory worker compensation in response to that. They will probably also need to
increase their manufacturing plants fixed capacity.

Millennial (Toughest competitor in Mercedes Segment)


Millennial has a total current market share of 22%, having captured 63% of
the Mercedes segment and 24% of the Traveler segment. The company currently
holds the most diverse consumer base. Millennial is on an upward trend in terms of
market share, increasing 10% in overall market share since the first quarter of
production. In terms of specific segments, the company has found a 36% decrease in
the Mercedes segment and a 23% increase in the Traveler segment. This
diversification played a large role in increasing their total market share. They are the
only office with a location in Sao Paulo as well as Chicago, additionally including a
web center for sales. The company enjoys high demand, holding 63% in the Mercedes
sector and 24% of the traveler sector with a strong role in the competitive
market.Their current products are the MillennialDesk and MillennialTravel priced at
$3900 (with a $150 rebate) and $2400. These brands have achieved strong marketing
ratings in their respective sectors of Mercedes and Traveler, both at 70%. Although
marginal, the factory productiveness rating is the strongest among the competition at
73%. However, their financial situation still appears to have significant debt, with a
financial performance ranking of -10.0. We anticipate that Millennial will work to
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improve their financial situation with more conservative methods than others, and will
work to capitalize on their new Sao Paulo market and potentially explore adding a
workhorse-targeted product.

NRG (Toughest competitor for Traveler Segment)


NRG has a total current market share of 18%, having captured 52% of the
Traveler segment, making it our toughest competitor within that market. However,
their total market share is on a downward trend, down 14% from the first quarter of
production and down 43% specifically in the traveler segment. They have the lowest
growth rate in demand at just 83%. Currently, they have 2 products in the market: Fire
and Wind. Wind and Fire produce the highest demand in the traveler market and are
respectively rated acceptable by 75% and 73% of the segment, with 100% price
satisfaction at $2,800 and $2,500 respectively. Their brands appeal to no other market
segments. NRG has one location in Chicago and maintains a web center: they have a
strong web presence with the largest web center and have a high rate of sales per
webcenter employee. They invest strongly in marketing, with the second highest
investment in advertising at $188,255 and the highest number of regional
advertisements at 13 ads. Their factory productivity closely follows the trend of
approximately 70% productivity comparable to the other companies in the market. In
terms of financial status, the company holds little debt and holds a financial
performance score of approximately -3.0. We anticipate that NRG will look to
become more competitive in the workhorse market and improve their low marketing
scores in that particular sector either by unveiling a new product or changing their
advertising strategy. We feel that there is steady growth in the company but they are
not an enormous threat in the competing markets besides their significant share in the
traveler sector. We also anticipate that they will increase sales force compensation in
order to increase sales force productivity.
SWOT Analysis
Strengths
We have strong internet based ad campaigns that target the specific types of
customers who we feel would purchase our products. We have the highest number of
salespeople, a competitive sales force, and a well-trained service team. Furthermore,
we compensate our employees very competitively in order to ensure productivity and
satisfaction -- and we achieve that with over 70% productivity per worker on average.
For these reasons, we propose to end future quarters with a large positive cash balance
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Weaknesses
We had a difficult start, and produced many computers that did not satisfy our
markets. We had to scrap them and start over, causing us to lose money that would
have been spent elsewhere. We also accidentally only trained our staff to sell to
Workhorse clients while only producing for Mercedes, but that has since been
corrected as well. Human resources also takes a high expenditure to keep our workers
happy. Our main weaknesses has been recovering from mistakes made in earlier
quarters, but we believed we have learned from our mistakes and will make fewer of
them in the future.
Opportunities
On top of redesigning our computers to better fit our clientele, we also
designed a brand new laptop to break into the Traveler market that we were
previously attaining customers in only by accident. Now that we have a significant
market share (24%) of the Traveler segment, we can capture even more of them with
our new Traveler laptop. Eventually, we would like to make a new office in Paris,
which has no competition currently and has a large Mercedes segment that we could
capture.
Threats
Currently XLerate dominates the Workhorse market we wanted to capture.
Our market share is not as high as we would like it, and if we do not establish our
brands soon, we may miss our opportunity. Other companies are growing steadily, and
we will have to grow at an even faster rate to maintain our presence in this market. We
also need to stay out of debt so that we do not waste money paying interest.

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Marketing Plan and Sales Tactics


Target Markets
C&B originally decided to target the Workhorse and Mercedes segment. We
believed that we would be able to make powerful computers at the cheapest price
possible. We realized that the Mercedes segment would want more powerful and
consequently more expensive computers, while Workhorse would want more
affordable ones. We also believed that customer service and high security would be
important to all consumers in this industry, so we decided to focus specifically on
those two features. In fact, this quarter we are investing $2.5 million into R&D for a
security suite because we value it so highly. We chose the Workhorse and Mercedes
segments not only because we felt we could appeal most strongly to these two
markets, but also because they were the biggest in terms of market size and therefore
offered the most potential. Workhorse is by far the largest segment, with a market size
of 9,374 in our Chicago market, and 9,081 in Shanghai. Mercedes is a close 8,005 in
Chicago, and 4,802 in Shanghai. The Traveler market was much smaller -- around
50% of that of the Workhorse for both segments -- so in order to reach the highest
number of people from a marketing perspective, these segments were the obvious
choice.
We expected that the Workhorse segment and Mercedes segment would
compliment each other well. The Mercedes, though smaller, would be able to afford
better computers, so we could make more profit per laptop targeting them. While the
Workhorse would offer smaller margins, we expected to be selling enough product
that it would still be an equally profitable segment.
We created two computers, one for each segment. We believed we created
them based on the top reported preferences for our target markets. However, due to an
error, our product launch failed when we did not hire our sales people in the right
markets. We ended up creating computers for the Mercedes segment in one region,
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while only hiring Workhorse salesmen in the other. With no salesmen to promote our
product, very few were sold and our company went largely unnoticed.
The following quarter, we had a lot of debt because of our mistake. We wanted
to improve our brand this time around, but at the same time, did not want to spend
money on marketing when our company was failing. We thought it would be smart to
minimize marketing costs while in debt, but to try to use our money effectively. We
spent $15,000 on market research and also updated our advertisements. We also
noticed how consumers were responding to the market, and even made a new product
specifically designed to fit the Workhorse niche that we believed was still accessible.
While XLerate managed to claim 98% of the Workhorse share early on, we were not
ready to give up. At this point, we unintentionally gained a lot of attention from the
Traveler segment. In fact, we claimed 22% of their market without even trying. At this
point, we realized that this was a market that needed a product. From here, we agreed
to appeal to all three market segments, while maintaining our business model to make
the fastest, most secure computers at the cheapest price.
Despite our difficult start, we have learned a lot in our first three quarters as
business owners, and we do not make the same mistakes twice. After much market
research, we are highly confident that we have produced computers that our market
segments will love, placed ads in places they will be seen, and hired salespeople in the
correct locations. Finally, we have modified our target markets so that we will target
them in the following order: 1) Mercedes, 2) Traveler, 3) Workhorse.
This quarter, we polled consumers for what they were looking for in a laptop,
and filtered those responses in order of importance. On top of this, we took note of
what consumers were buying which laptops that were already on the market. We
strategically produced new computers using both consumer response information, and
data on consumer behavior within the market. It is because of this new evaluation that
we are more confident than ever that this quarter will be our strongest one yet.
Product Lines
Chips & Bits currently has three products for sale. The Desk 2.0 is our new
edition for the Mercedes segment. We noticed that none of the laptops on the market
are satisfying the Mercedes segment, except for one of Millenials desktops which just
barely scores a 70. Our Desk 2.0 comes in second, at a score of 60. We also noticed
that the Mercedes segment rated price as 100 for every computer on the market,
meaning nobody on the market is pricing anything too high for their segment. We
deduced that the Mercedes therefore requires a better laptop than the ones on the
market -- even if they have to pay for it. We created our Desk 2.0 by adding every
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feature available to us, except games because we didnt think this would appeal to
them. We hope that this is the kind of desktop they are looking for, even if they have
to pay extra to get it.
We noticed we could charge more for mercedes and improve our brand. they
felt nobody in the entire market was charging too much. 100% of them were satisfied
by all prices in the market. We hope to make a desktop they will love by including
every feature available to us. while we originally wanted to try to save costs where
possible, it has become apparent that to mercedes customers money is no object, and
they would prefer to have the absolute best computer money can by.
Our second product, Lab 1.0 targets the Traveler. Though originally created
for the Workhorse, our Traveler rated our only laptop a 68, while the Workhorse rated
it a 30. We realized that this was wrong to try to sell a laptop to a Workhorse, because
they only want their computer at home. They also want a cheaper price, and laptops
are inherently more expensive. We therefore revamped our laptop and came out with a
brand new Lab 2.0, specifically designed for the Traveler segment. We used their
consumer data to tweak the features to better fit this segment. We expect to claim even
more of their market in the future quarter.
For our final product, the Work 1.0, we target the Workhorse. XLerate is
dominating the Workhorse market with a 99% share. We recognized that XLerate
clearly understood the Workhorse segment the best, and no longer tried to outdo them.
Instead, we imitated their product and made one nearly identical to the one they
managed to sell so much of, but with slightly less features. We expect to be able to
break into this market next quarter by selling at a cheaper price than XLerate. We can
do this because our cost of production is cheaper. We also notice that while XLerate
has this market almost entirely to themselves, the Workhorse only rated their
computer a 74. But second to them is our Desk 1.0 at 40. Such a large gap explains
why Workhorse unanimously chooses their product. Next quarter, we think we will
offer much greater competition.
Pricing
Our pricing has been very well received. In fact, our target markets report
100% satisfaction with our price. We are proud of this, as it is a part of our mission
statement to supply products at the most affordable price. We also noticed it as an
opportunity for growth. For example, as mentioned above, the Mercedes segment is
not very satisfied with any of the products in the market, but it is satisfied with the
price. We therefore will make them a better product because they are willing to pay
for it. We will sell our Desk 2.0 at $4,050 with a $100 rebate, $150 above Milenials
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Desk product. We anticipate margins (with respect to production) of around $1000 per
unit, or 25%.
The Traveler market we expect to be the easiest to capture because we have
already gotten a good portion of their market without targeting them at all.
Unfortunately, laptops are naturally more expensive than desktops, so we could not
keep the price too low. But this segment needs a laptop and are willing to pay for
portability. We are selling our Lab 2.0 at $2,799 with a $199 rebate. We anticipate
margins (with respect to production) of around $400 per unit, or 15%.
As for the Workhorse, they are the most sensitive segment in regards to price.
We believe we can undercut the current market leader on price by producing a laptop
with fewer features. Though it may not have everything the Workhorse would want in
a desktop, price is their biggest factor in choosing what to buy. By making a cheaper
laptop, we hope to offer an alternative that does not exist but is still appealing to this
segment. Since workhorse clients would prefer cheaper cost, we hope that they would
be satisfied with a laptop that is less expensive but has similar features to the one they
already enjoy. We will sell our Work 1.0 at $100 below XLerates XLerator price, at
2,299 with a $299 rebate. We anticipate margins (with respect to production) of
around $100 per unit, or 5%.
Promotion
Making cuts on marketing after quarter 2 to conserve our money and prevent
more debt taught us why marketing is important. Our sales were low during quarter 3
because of this, however C&B stands by its decision. We did not have a whole lot of
products to sell at this point, nor did we know if consumers would like them. We
advertised modestly as a test to feel out the market, and we learned what we needed
to. Now we are stronger than ever, with products strategically designed based on
consumer reports and competitor products that we are very confident will appeal to
the designated markets. This means we are ready to promote heavily.
Along with designing our new laptops, we had to design a new advertisement
for each one. Of the 9 ads currently produced between the four companies, only two
of them were deemed acceptable by the workhorse segment alone. The rest of the ads
were deemed unsatisfactory by all market segments. We took this into careful
consideration. An advertisement should be well-placed and appealing to the target
market in order for it to be effective, and currently no company seems to be doing this
well. We went back over consumer reports and carefully designed the advertisement
with features we felt would appeal to our targets. We also looked closely at what the
satisfactory ads had that ours did not, and made changes accordingly. For the
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Workhorse segment in particular, we used our imitation strategy because XLerate


again proved they knew how to appeal to this segment.
In the previous quarter, our competitors placed 10-13 ads in major media,
while we placed 3. This quarter, we are placing 5 for each market segment, for a total
of 15. We looked at consumer reports for where each segment would most likely see
an ad, and chose accordingly. We also filtered by price, expecting that as long as we
chose a cheaper media within the top 5 segment reports, a large portion of our target
would still see the ad. Overall, we spent $117,678 on ad placement, a necessary
investment that will surely gain us profits in the near future.

Sales Channel:
Distribution
C&B operates sales offices in both Chicago and Shanghai. We feel that by
having two offices, we are able to successfully reach into two different populations,
covering most of North America and Asia. It is our goal to soon be able to open a
third office in Paris, which not only has the largest Mercedes segment second only to
Chicago, but also currently has no competition. This would allow us to control the
European market as well, and with our new Desk 2.0, we believe it is a likely
possibility.
Store Sales
C&B currently places a great emphasis on its stores, relying on them for
73.7% of our total computer sales. As of right now, we have 7 sales people in both our
Chicago stores and our Shanghai stores. At each location, we have trained our
workforce to be able to sell all three of our computer brands. We are confident that
our employees at our stores will be able to help all types of customers, regardless of
their desired brand. We look forward to hiring more salespeople as our company
grows to better accommodate our growing customer base. Additionally, service repair
workers have become increasingly important to us at our stores. For this reason, we
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plan to hire additional service people to work alongside our sales force in both our
Chicago and Shanghai locations. At C&B, it is our goal for our customers to leave our
store satisfied, both with their purchases and their service. In order to ensure that we
continue to please our customers, we are committed to maintaining a sufficient
number of sales and service employees at all of store locations.
Web Sales
As of right now, our web sales currently account for 26.3% of our total
computer sales. We run all of our web sales out of our web center based in Chicago.
We currently have four web sales people and two service people hired. In order to
keep up with a growing demand for our web sales, we plan to continually hire both
additional web service and sales people. As C&B continues to grow, we expect web
sales to increase linearly. In order to reach out to more web consumers, we will begin
employing new techniques, such as listing our company on major electronics websites
and coming up more frequently on search engines. We feel this will give us a
competitive advantage when people decide to purchase their computers online. In
addition, we feel strongly that the presentation of our website is extremely important
to our company. For this reason, we will be investing into more web maintenance and
additional web features in the coming weeks. We feel that our website should be easy
to navigate and possess features that make computer shopping easy for our
consumers. By continually upgrading our website and hiring additional employees,
we are confident that our web sales will continue to increase, ultimately taking up a
larger percentage of our total revenue.

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Management and Human Resources


Management Team
The management team has a streamlined system of creating value. Each
member does outside research to best serve their vertical, followed by a group
strategy meeting to ensure that we are all working towards the same communal goals.
Lastly, the president follows a review process to ensure that every verticals expenses
and decisions are in concordance. Each executive team member has his or her own
strengths. Kevin Butz focuses on Sales Management as he had experience in dealing
with sales and distribution channels, Meaghan Davis functions as the Vice President
of Finance as she has a background in financial accounting, Andy Ball functions as
the Vice President of Marketing as he had previously managed a technology
marketing portfolio, Alexis Aria is the Vice President of Manufacturing with advanced
experience assessing manufacturing using the the Global Value Chain system, and
lastly, Chelsea Grain functions as the President of the company and the Vice President
of Human Resources as she had significant experience in management and leadership.

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Personnel Requirements and Management


There are no specific hiring requirements within the firm. However, we
dedicate ourselves to producing high quality technology, and thus, require high
quality employees. We only have values in which we prefer innovative, creative, and
hardworking individuals that hold themselves accountable for all projects. As a result
of our high expectations, we have generous compensation packages and make an
effort to lead the market in terms of worker compensation.
Compensation Packages
Our company believes strongly in investing in our workforce. As a result, ideally, the
compensation packages are increased every quarter. We began in the first production
quarter leading the industry in both factory worker and sales force compensation. Our
sales force held a $32,000 base salary with full health coverage, 2 weeks of vacation
time, and a pension contribution of 7% of their salary, ultimately costing around
$43,057 per year. This fell above industry average in each category. Our factory
workers held a base salary of $18,000 with full health benefits, one week of vacation
time, and a pension contribution of 7% of their salary, costing a total of $23,686 per
year. This also fell above the industry average. However, due to a tight expenditure in
the second production quarter, we were unable to achieve our goal, and were
surpassed by the other companies. In the fourth quarter, we have increased our
investment across the board. Our sales force base salary has increased to $35,000
while maintaining the full health coverage, 2 weeks of vacation, and a pension
contribution of 7% of their salary, totaling $47,094 per year. Our factory worker
compensation has increased to a base salary of $22,000, a continuation of full health
benefits, 1 week of vacation time, and a pension contribution of 7% of their salary,
totaling $28,950 per year. Both of these packages fall above industry average.

18

Chips & Bits Business Plan

Manufacturing Plan
Production Plan
Lean manufacturing is one of C&Bs strengths: we have consistently produced
to demand; although our current market share is small, our decisions to tailor
production to demand has enabled us to avoid significant debt and oversight in
judging our sales revenue. We initially chose to retain a small amount of inventory (50
Lab Pro models), but we did not realize the detrimental qualities of this choice.
Consequently, we scrapped our inventory in the next quarter for a cost of
approximately $35,000 and changed our brand to better fit customer needs. Currently,
we carry no inventory and do not intend to do soour only variable that could
potentially change this decision is whether we ultimately produce a model that proves
to be a cash cow and wish to take advantage of production over two quarters.
Our current production plant is centered in Shanghai, China. The location
19

Chips & Bits Business Plan

allows for C&B to take advantage of the benefits of offshoring; namely, lower prices
for our customers fueled by lower production costs in labor, raw materials, and trade
restrictions. Presently, fixed capacity is set at 50 units per day (per 65 day/13 week
period) and we are well below this maximum limit. To avoid crowded conditions and
overworked employees, we operate at a capacity of 35 units per day, and again fall
well below this maximum (specifics below in chart). We anticipate that in quarter 4,
demand will improve for our products, based on our three new models: Desk 2.0
(marketed towards Mercedes sector), Work 1.0 (marketed toward Workhorse sector),
and Lab 2.0 (marketed towards Traveler sector). If this is the case, we intend to
expand our fixed capacity by 25-50 units, enabling production of 75-100 units per
day. Since we are still paying off debt, we are slowly expanding, but hope to take
advantage of larger factory size and smaller overhead costs in the future. We intend to
expand in the next few quarters and increase our ability to serve a growing market.

Capacity and Cost Current situations and projections (highlighted current quarter)
Q1

Q2

Q3

Q4

Q5

Q6

Q7-10 (avg)

Fixed Capacity (Per quarter)

1625

3250

3250

3250

6500

19500

Operating Capacity (Per quarter)

975

1950

2275

2925

4875

16575

Percentage in use

9%

31%

69%

90%

75%

85%

600

600

1100

1100

7200

Capital Investment (k)

Employees
Our factory has coordinated with human resources to hire workers on a need
basis. Currently, we are often sending our workers home because we do not have
enough demand to produce a days worth of work. We operated at about 31% of
capacity in Quarter 3, up from 9% the previous quarter. We aim to improve this
problem with our three new product lines aimed directly at our target sectors in
Quarter 4. Productivity has been consistent at 70%, but we may choose to up
productivity depending on demand.
We have attempted to provide a model that overpays our employees slightly
and offers the highest health benefits to retain loyalty and keep employees happy and
productive. As we increase the size of our factory, we will be able to reduce costs of
overheads and can redistribute operating capacity to avoid overcrowding and
employee dissatisfaction. We aim to retain works and provide benefits more attractive
than our competitors: strong employee benefits have been within our mission
20

Chips & Bits Business Plan

statement since the founding of C&B, as we believe that the cost of training and
loyalty are paramount to our success.

Production Costs and Demand Projection


Our company has had limited success thus far in entering a top market share
role. We effectively disrupted the market in the Mercedes sector with Desk 1.0 with a
36% turnaround in market share during the first release of the product. Unfortunately,
we have failed to capture positive reviews about our previous products and have
maintained the lowest total market share. We have declined to make any headway in
the Workhouse sector with a 2% market share, but we are confident that our new
product is unlike any others on the market and will provide the features important to
our audience for a competitive price. We found that we were lacking in advertising
expenditure and expanded our efforts to compete on a more level playing field. We
expect that our market share will rise dramatically in the next quarter due to these
significant changes to our business model.
Demand projections have been modest due to conservative planning: we have
high hopes for our brand but we are also aware of the possibility of negative feedback.
We have invested heavily in our companys future and have made efforts to buy any
market research and R&D information that is available to better provide a product the
public is willing to buy. Due to the saturation in the market and the increasingly
competitive tactics, we have taken an incremental approach to our expansion into
larger market share. We expect that in Quarter 4, we can gain about 69% of our fixed
capacity2275 unitswith these changes and hope to dramatically expand to about
16,575 units in the next year. With these expansions, we anticipate decreased
overheads and decreased costs per unit. We plan to invest heavily in R&D in the
future and withhold high productivity ideally against high demand.

Production Cost vs. Demand Results and Projections (highlighted current quarter)
Q2

Q3

Q4

Q5

Q6

Q7-10

Next Year

Operating Capacity

975

1950

2275

2925

4875

16575

22100

Productivity

9%

31%

69%

90%

75%

85%

85%

Units Produced

138

616

1560

2925

4875

16575

22100

Avg cost per unit

1700

1403

1350

1300

1150

1000

800

21

Chips & Bits Business Plan

450

950

1560

2925

4875

16575

22100

88

616

Stock Outs

Cost in R&D

120000

2.74M

Demand Projection
Actual Demand

Competitive Advantages and Risks


Our production towards demand model has greatly aided our efforts to reduce
costs in production and we feel as though we are finally reaching a point in which
C&B can take off financially and sell successfully in the current market. However, we
are low on capital. We are relying on these new products to boost sales in a way in
which we have not experienced before, but we are aware that we have not proven a
strong brand in the past and we have not yet been able to test our new products in the
market. It is possible that our new products will perform poorly, our advertising will
not reach the proper audience, or we will encounter unexpected risks. Conversely, we
may experience exponential growth. This would alleviate some financial tension and
bolster our brand reputation. However, we decided to wait to expand our factory until
we have stronger capital and faith in our brand selling successfully. Since we will
need time to expand and compete in a rapidly growing market, it is possible that we
could suffer stocks outs for an extended period of time.

Financial Statements and Analysis


Cash flow
The statement of cash flows allows us to determine the sources of our
spending and how this changes as the game progresses. In looking at the revenue
increase in between quarters 2 and 3 it can be noted that the revenue grew
approximately 1.75 million dollars, or a 3101.4% increase. Despite to an increase in
production our gross margin remained consistently at 47.9% between the two
22

Chips & Bits Business Plan

quarters. The fourth quarter we expect to see the market growth rate to double. We
revitalized our marketing strategies as well as our product designs and now expect to
have a 25% market share in Workhorse, 40% in Traveler, and 50% in Mercedes. From
these market shares we are expecting revenue to be $4.2 million, an increase of $2.4
million, or 133% growth. The margin percentage will increase from 43.2% to 53.6%.
This can be attributed to the slight increase in prices and the increased production
capacity, lowering our costs. One thing we noticed was that our prices were lower
than the other competitors and 100% of each market segment was willing to pay that
price for our products. Based on this, we were able to create computers for each
segment with our priorities being: mercedes, traveler and workhorse and raise the
prices slightly in order to still remain competitive, but ensure that we try and capture
as much revenue as possible. From research, the typical gross margin range for a
personal computer industry is around 50-100%. We project our margin at the lower
end of the range because we are trying to produce more product at a lower cost in
order to turn a profit.

Revenue and Margin Trend in Cash Flow


Quarter

Revenue

$56,682

$1,814,634

$4,151,537

COGS

$29,518

$946,256

$1,779,704

Gross Margin

45.6%

43.2%

53.6%

In quarter two our two biggest expenses can be found in the excess capacity costs,
sales office and web center expenses, and sales force expense. Looking at quarter 4
we project an increase in the sales force expense, due to the hiring of more
salespeople, a maintenance of sales office and web expense and a decrease in the
excess capacity cost due to better resource management. In quarter 4 we see a large
focus on research and development, with expenditures increasing from $120,000 to
$2,738,312. Looking at the below chart, Q4 we will request additional funding to try
and accomplish this ambitious research and development spending. We expect this
spending to be highly profitable because of the high investment in the future. WE
intend on developing features that will please our clients and in turn bring in more
revenue. These features will become available in Q5 and we will begin to see the
returns then.
23

Chips & Bits Business Plan

Cash Balance with Projected Expenses


Quarter

Net Cash
Flow

-$580,000

-$1,371,480

-$541,042

-$1,809,767

$1,270,900

-$156,233

Cash
Balance

$820,000

$1

$307,478

$2,497,711

$2,668,611

$2,912,378

For more detailed listing of expenses, please see Appendix for full Cash Flow.

Income Statement
The income statement gives an insight into the profitability of C&B as well as the
earnings per share. While quarter 3 we focused on minimizing costs and repaying the
emergency loan, quarter 4 we intend on focusing a great deal on expanding and
spending a lot of money on this as well as the fixed costs. Quarter 5 we expect to see a
large net income. This can be attributed this to an increase in research and
development spending and the introduction of a new feature. Earnings per share
dramatically increases from -$23 in quarter 4 to $28 and $33 in quarters 5 and 6
respectively. Looking at this data, we can see that our company will see impressive
growth from quarter 4 to quarter 5.
Net Income and Earnings Per Share Trend
Quarter

Net Income

-580,000

-1,314,487

-673,035

-1,859,767

$2,300,900

$2,690,933

Earnings Per
Share

-29

-42

-16

-23

28

33

Balance Sheet
The balance sheet displays the assets and liabilities that C&B currently holds. At this
moment in time, we have no emergency or regular loans, as we have paid off our
emergency loan in quarter 3, and we have no debt capacity. Noted in the chart below,
the cash to total asset ratio has improved from a low in quarter 2 of nearly 0% to a
healthy 21.5-69,9%, which shows that our revenue is being utilised appropriately.
Looking ahead to the market projections, we are expecting total assets to increase in
Q4 and Q5 as we expect to see more demand of our products.
24

Chips & Bits Business Plan

Cash and Total Assets


Quarter

Asset in
Cash

$820,000

$1

$307,478

$2,497,711

$2,668,611

$2,668,611

Total

$1,420,000

$1,256,95

$1,432,478

$3,572,711

$5,873,611

$9,564,545

Financial Plan
25

Chips & Bits Business Plan

Financial Assumptions
This quarter we are focusing a large amount of capital on research and
development to improve the available features of the computer, therefore increasing
our fixed costs. In absence of this additional $4 million to fund our research and
development, by quarter 4 C&B will have lower variable costs as well as increased
price, leading to a healthier business. We, however, feel that this investment in R&D
will greatly benefit both our investors and our company more generally. These
features will appeal to the customers and lead to an increase in revenue.
Funding Needs
We would like to request $4 million in funding in order to pay for this new
research and development expense, launching a new security feature in Q5 as well as
three new computer designs appealing to the three market segments. As noted in the
income statement analysis, we will expect to breakeven in quarter 5.
How are we going to spend the Investment?
As seen in the pie chart below, we anticipate spending the large majority
(67.5%) on research and development, which we know will appeal to our clients. We
are focusing on a security suite as all three client segments voted that security was the
most important feature they look for when purchasing a computer.
Pie Chart on Spending Investment Funds

Return on investment to investors


26

Chips & Bits Business Plan

Looking at the analysis of the financials, we know that C&B can be a very
profitable business. We realize that by investing the $4 million, the venture capitalists
will then be holding 50% of the companys shares. With this knowledge, we must
keep in mind the earnings per share. This number increases to $28 and $33 per every
100 dollars in quarter 5 and 6 respected.

27

Chips & Bits Business Plan

Tactical and Future Planning Projection until Quarter 6

Tactical Plan
Quarter
1

Segments Targeted

Quarter 2

Quarter 3

Workhorse Workhorse
Mercedes
Mercedes

Number of New Brands

Quarter 4

Workhorse
Mercedes
Traveler

Quarter 5

Quarter 6

Workhorse
Mercedes
Traveler

Workhorse
Mercedes
Traveler

Workhorse
Mercedes
Traveler

Lab 2.0
Desk 2.0
Work 1.0

Names of New Brands

Lab Pro
Lab

None

Lab 1.0
Desk 1.0

None

None

Brands for Sale & Price

None

Lab Pro
(3149)

Lab 1.0 (2299) Lab 2.0 (2799) None


Desk 1.0 (3449) Desk 2.0 (4050)
Work 1.0
(2299)

None

Average Selling Price

Brand Feature R&D

None

3,149

None

2,889

None

Security suite

Projects
Brand Feature R&D

81,737

78,000

15,000

36,000

Office
upgrade
High speed

Fail-proof
ultra cap.

Expense

Advertising Budget
Web Marketing Budget

28

Chips & Bits Business Plan

Sales Offices Opened

Sales Office Expense

Web Centers Opened

Web Center Expense

Number of Office Sales

ShanghaiAPAC

ChicagoNORAM

260,000

ChicagoNORAM

None

380,000

None

None

ParisEMEA

None

None

None

None

220,000

None

200,000

160,000

160,000

14

32

27

18

616

1,560

2,200

2,820

35,050

56,682

1,814,634

4,192,375

6,820,000

8,742,000

29,518

864,262

1,779,250

2,970,000

3,807,000

People
Unit Demand per Office
Sales Person
Number of Web Sales
People
Unit Demand per Web
Sales Person

Projected Demand

Revenue from Unwanted


Inventory

Projected Revenue

Cost of Goods Sold

29

Chips & Bits Business Plan

Factory Worker

23,686

23,686

43,057

43,057

96,878

215,286

306,111

400,000

520,000

67,739

88,396

47,100

47,100

65,570

Total Sales Force Expense

164,617

303,682

353,211

447,100

585,570

Addition to Fixed Capacity

25

25

50

25

600,000

600,000

1,100,000

600,000

1,625

3,250

3,250

3,250

6,500

50

800

50

68

616

68

616

1,375

3,000

5,800

50

800

2,980

185

Compensation
Average Sales Person
Compensation

Sales Force Salaries


Cost to Hire and Lay Off
Sales People

Investment in Fixed
Capacity
Available Fixed Capacity

Starting Inventory
Unwanted Inventory

Production Volume

Available Inventory

Ending Inventory

Lost Sales

30

Chips & Bits Business Plan

Average Unit Production

0.00

1,639.87

1,403.02

111,511

864,262

30

29

30

95

120,000

Conventional Bank Loans

Emergency Loan

Cost
Total Production Cost

% Lost Capacity Due to

1,779,250

4,050,000

6,750,000

885

1,833

3,750

6,250

120,000

2,738,312

180,000

120,000

151,481

151,481

2,000,000

3,000,000

4,000,000

1,420,000

1,256,995

1,432,478

Employee Morale
Operating Capacity to
Satisfy Production Volume

Total R&D Cost

Total Debt Level

Equity Investment

Total Assets

Appendix A
Pro Forma Cash Flow, Income Statement, and Balance Sheet
31

Chips & Bits Business Plan

Pro Forma Cash Flow


Quarter 1
Beginning Cash
Balance

Quarter 2
0

Quarter 3

820,000

Quarter 4
1

Quarter 5

307,478

Quarter 6

2,497,711

2,668,611

8,742,000

Receipts and Disbursements from Operating Activities


0

56,682

1,814,634

4,151,537

6,820,000

- Rebates

Revenues

1,341

84,192

147,969

- Production

111,511

864,262

1,779,704

4,050,000

6,750,000

120,000

120,000

2,738,312

180,000

120,000

- Advertising

81,737

78,000

207,678

300,000

200,000

- Sales Force
Expense

174,617

351,682

417,209

447,100

585,570

460,000

540,000

380,000

380,000

380,000

380,000

- Marketing
Research

15,000

15,000

15,000

- Shipping

1,616

27,276

51,852

- Inventory
Holding Cost

8,199

108,000

402,300

- Excess Capacity
Cost

479,141

391,689

139,580

- Web Marketing
Expenses

15,000

36,000

84,000

84,000

84,000

- Income Taxes

376,363

+ Interest Income

- Interest Charges

7,574

+ Licensing
Income

- Licensing Fees

+ Other Income

- Other Expenses

= Net Operating
Cash Flow

-580,000

-1,371,480

-541,042

-1,809,767

1,270,900

-156,233

- Research and
Development

- Sales Office and


Web Center
Expenses

Investing Activities
Fixed Plant
Capacity
= Total Investing
Activities

600,000

600,000

1,100,000

600,000

600,000

600,000

1,100,000

600,000

Financing Activities
Increase in
Common Stock

2,000,000

1,000,000

1,000,000

4,000,000

1,000,000

+ Borrow
Conventional Loan

- Repay
Conventional Loan

+ Borrow
Emergency Loan

151,481

- Repay Emergency
Loan

151,481

32

Chips & Bits Business Plan

- Deposit 3 Month
Certificate

+ Withdraw 3
Month Certificate

2,000,000

1,151,481

848,519

4,000,000

1,000,000

820,000

307,478

2,497,711

2,668,611

2,912,378

= Total Financing
Activities

Cash Balance,
End of Period

Cost of Goods Sold


Starting Inventory

81,994

1,080,000

+ Production

111,511

864,262

1,779,704

4,050,000

6,750,000

= Available
Inventory

111,511

946,256

1,779,704

4,050,000

7,830,000

29,518

946,256

1,779,704

2,970,000

3,807,000

81,994

1,080,000

4,023,000

- Cost of Goods
Sold
= Ending
Inventory

Pro Forma Income Statement


Quarter
1

Quarter
2

Quarter
3

Quarter
4

Quarter
5

Quarter
6

Gross Profit
Revenues

56,682

1,814,634

4,151,537

6,820,000

8,742,000

- Rebates

1,341

84,192

147,969

- Cost of Goods Sold

29,518

946,256

1,779,704

2,970,000

3,807,000

= Gross Profit

25,823

784,186

2,223,864

3,850,000

4,935,000

Expenses
Research and Development

120,000

120,000

2,738,312

180,000

120,000

+ Advertising

81,737

78,000

207,678

300,000

200,000

+ Sales Force Expense

174,617

351,682

417,209

447,100

585,570

460,000

540,000

380,000

380,000

380,000

380,000

+ Marketing Research

15,000

15,000

15,000

+ Shipping

1,616

27,276

51,852

+ Sales Office and Web Center Expenses

33

Chips & Bits Business Plan

+ Inventory Holding Cost

8,199

108,000

402,300

+ Excess Capacity Cost

479,141

391,689

139,580

+ Depreciation

25,000

50,000

50,000

50,000

95,833

+ Web Marketing Expenses

15,000

36,000

84,000

84,000

84,000

= Total Expenses

580,000

1,340,310

1,449,648

4,083,631

1,549,100

1,867,703

Operating Profit

-580,000

-1,314,487

-665,461

-1,859,767

2,300,900

3,067,297

Miscellaneous Income and Expenses


+ Licensing Income

- Licensing Fees

+ Other Income

- Other Expenses

-580,000

-1,314,487

-665,461

-1,859,767

2,300,900

3,067,297

+ Interest Income

- Interest Charges

7,574

-580,000

-1,314,487

-673,035

-1,859,767

2,300,900

3,067,297

- Loss Carry Forward

2,300,900

2,126,389

= Taxable Income

940,908

- Income Taxes

376,363

-580,000

-1,314,487

-673,035

-1,859,767

2,300,900

2,690,933

-29

-42

-16

-23

28

33

= Earnings Before Interest and Taxes

= Income Before Taxes

= Net Income

Earnings per Share

34

Chips & Bits Business Plan

Pro Forma Balance Sheet


Quarter 1

Quarter 2

Quarter 3

Quarter 4

Quarter 5

Quarter 6

Current Assets
Cash

820,000

307,478

2,497,711

2,668,611

2,912,378

+ 3 Month
Certificate of
Deposit

+ Finished Goods
Inventory

81,994

1,080,000

4,023,000

Long Term Assets


+ Net Fixed
Assets
= Total

600,000

1,175,000

1,125,000

1,075,000

2,125,000

2,629,167

1,420,000

1,256,995

1,432,478

3,572,711

5,873,611

9,564,545

Debt
Conventional
Bank Loan

+ Emergency
Loan

151,481

Equity
+ Common Stock
+ Retained
Earnings
= Total

2,000,000

3,000,000

4,000,000

8,000,000

8,000,000

9,000,000

-580,000

-1,894,487

-2,567,522

-4,427,289

-2,126,389

564,545

1,420,000

1,256,995

1,432,478

3,572,711

5,873,611

9,564,545

35

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