NewCo Business Plan: Due Diligence - Case Study Example

Name Professor Course Date NewCo Business Plan: ‘Due Diligence’ The mobile phone has been touted as one of the devices that has been and will continue transforming the underdeveloped countries (Wyche & Murphy, 2). Income generation, health and education are some of the areas it is deemed to impact the most. NewCo targeting unelectrified rural areas in Kenya is a strength since most people will certainly welcome the idea of being able to charge the phones at a cheaper cost and they do not have to waste time while at it. Although the Kenyan government has rolled out a rural electrification project, it has not kept pace with demand for electricity in many of the Kenya villages (Wyche & Murphy, 4). Again, as Wyche and Murphy say, the solar power solution to charging mobile phones have been seen as ‘the’ solution to lack of power in rural areas. This businesses idea is not only important for the needs it meets, it is also important since it meets these needs using renewable energy, thus it does not add to the climate challenges of the developing nations. Technology and Appropriability The solar power technology in mobile phone charging is not new in Kenya. According to Innovation and Renewable Electrification in Kenya (IREK) (3), solar energy utilization in Kenya started in the 1980s. People in the rural unelectrified areas use solar panels to generate electricity to power their homes, this is only done by the few who can afford. Portable mobile chargers have been introduced by a number of mobile phone companies like Nokia. Additionally, mobile network providers like Safaricom have introduced the solar energy mobile phones that come with an inbuilt solar charging system. Nevertheless, the use of a mobile device like Solaris for mobile charging business is relatively new. The solar mobile phone charging kiosks are not common in the Kenyan market, and especially in the rural areas. Currently, a lot of local and global environmental conservation groups have been lobbying for business ventures that do not only promise the economic value, but also those that provide a solution to the environmental problems. In this case, solar energy is clean and would be embraced especially if because it demonstrates how it supports economic, environmental and social sustainability (Warneck & Houndonougbo, 362). In situations where the business venture would need to source for funding, it would have choices from economic groups, environmental bodies and social or community support groups. The entrepreneur does not have the freedom to operate. First, the entrepreneur relies on the engineering team in the UK to come up with the Solaris design and manufacturing company in China. The business plan does not indicate whether the workers would be sourced in the respective countries and the legal requirements for their operations or work permits. Although there are plans for a signed agreement of the IPR rights, it could be easy for the idea to be altered or changed. The financial plan allows for a protection strategy in that it is segmented yearly and for the first five years. This would allow for financial decisions to be made at the end of the business year. However, the plan estimates the first and second years would not yield as much returns, which means the first and second years are risky. Although there is a development plan, it is not clear enough and does not show the timelines for the product development and the necessary resources to accomplish the tasks. NewCo does not have the intellectual property right but retains all IPR related to the design. This will be agreed with the manufacturer. The plan proposes that the signed agreement with the manufacturer gives ownership to the firm even if the manufacturer makes additions or adjustments in the process of manufacturing the product. The protection strategy is thoughtful and will protect the idea from being replicated and sold by the manufacturer. Additionally NewCo undertake trademark registration which will deter copiers. The Value Chain Newco has adopted a business model where it makes direct sales to kiosk owners. In this way, it can reach the end user for whom it offers added value. The fact the NewCo owns the design and can control the assets needed to reach the end user makes the idea feasible and profitable. The major weakness in the value proposition is that it targets the customer (kiosk and shop owners, but does not consider the value given to the end user (people who live in rural un-electrified areas of Kenya). Although the plan aims at providing a way for these people to charge their phones at a lesser fee and save them from walking long distances, the business plan does not show how this will be an economic gain for them. Additionally, according to the financials, the cost of charging the mobile phone does not change – it goes for Kshs 10-15. Market One weakness of Newco business plan is how market segmentation was done. The aggregation strategy seems to be used since the target market is treated as a single entity (kiosk and shop owners in rural unelectrified Kenya). Proper market segmentation is required in order for a business to prioritize the needs and wants of the customers (Bose, 115). A proper geographic segmentation would have revealed that there are different places that had more market potential than others. There are rural areas in Kenya that do not enjoy as much sunlight and experience long rainy and cold seasons like the Rift Valley. Business would do well in hot areas like North Eastern and Coast Provinces. However in the Rift Valley and Nyanza provinces, there would be disruptions in business especially during the rainy season Another weakness in the business plan is the market timing. First, the plan coincides with the Kenyan government rural electrification project which targets a huge number of the target market. The project has reduces the electricity set-up fee by half (Kenya Power and Lighting Company, Online). Rural electrification project from the government can reduce the target market a great deal. Currently a project aimed at connecting 314,200 households with power which will translate into 1,571,000 Kenyans having access to power (Kenya Power and Lighting Company, Online). Secondly, the project comes at a time when mobile network providers have or are releasing solar powered mobile phones. These two issues raise the sustainability concern. How sustainable will the business be, when the government electrification project is successful? The mobile charging kiosks may lose their meaning since each person can charge from their houses. Financials The setting up costs for the system, processes and logistics is high. Additionally, the total budget is being raised by the ideator. This limits the business and growth potential of the project. Partnership with mobile operators would make the business more feasible especially in the area of funding. NewCo proposes to offer micro-finance loans to buy the charging devices. Although the plan mentions of a probable partnership with equity, it does not say how the partnership will work. How much will equity earn from the deal. In addition, it mentions of 18% p.a. interest rate. However, according to a new bill passed into law, interest rates for banks have been capped in Kenya. The entrepreneur has to factor in all the important information. The revenues, cost and investment assumptions seem reasonable. However, the promise the customer would recover the money in three months is slightly overambitious. The revenue generated at three months is $155, the device costs $150, in this case, although the cost of device has been recovered, the set up cost for the business has not been factored in. For new kiosk owners, they invest more money because of the start-up cost. Nevertheless, the profits for both Newco and the customer (kiosk and shop owners) are reasonable. Products and Services IREK (3) says that most of solar powered projects in Kenya failed because of installation and maintenance related problems. Poor quality of products and the design has been attributed to the slow market growth. Customers do not have the expertise of repairing the device and there is no offering of how they would repair the devices in case of damage. The only offering is to take them to the strategic hubs which would not only be time consuming but also inconvenient. Additionally phone security is a major issue in areas where theft rate is high. People in such areas are not willing to leave their phones without someone attending them. The business plan does not show how security has been catered for. Newco focuses on provinces for the strategic hub locations. Currently, Kenya is not sub-divided into provinces but counties. It is subdivided into 47 countries and administrative and business centers are devolved to the counties. Therefore the hubs may not adequately serve the different regions effectively. Using hubs and storage warehouses located in each province would not be enough and services would be relatively far from the kiosk owners. For instance, if a strategic hub for the Rift Valley province would be set up in Nakuru, a kiosk owner from Lokichogio would have to travel for 657Kilometers (approximately 13.5 hours). If the same hub is situated at Lodwar (administrative Center of Turkana County), the kiosk owner would have to travel for only 4 hours (200Kilometers). If the planned hubs are 8 (according to the number of provinces that once subdivided Kenya), then their number have to be increased to 47. In this way, kiosk owners will not have to travel big distances when they need services for their devices. This is a very important consideration for the business plan since building the hubs and the logistics involved are significant. Charging the phone alone could limit the business potential of the charging devices. Including radios and lights as items that could still be charged by the device would increase the potential as well as the customer base. For instance, people without mobile phones but have a radio of light could use the services from a mobile charging device. Again availability of spare parts has not been factored in. Since the kiosks are located in rural areas, it is important to factor in how the customers will access spare parts The charging unit has USB ports and only phones that are USB compatible can be charged using this device. Most people in the rural areas in Kenya own phones within the price range of 1,000 and 5,000 Kenya Shillings. Most of the phones within this price range do not have a charging system that is USB compatible. In this regard, this device would not be helpful to the people it is targeted for. The phone used by people in the rural areas use the pin charging system and many may not have a USB port. Limiting charging to only phones that are USB compatible would exclude most mobile users and would not be profitable for kiosk owners. To solve this problem, the design of the device could be slightly changed to include universal charging capability. As such, the device will be capable of charging any mobile phone, as well as lights and radios. To overcome logistical and financial challenges, the entrepreneurs can perform thorough research into the most promising counties in Kenya. For instance, those with the highest number of people without electricity, those counties which are not scheduled for electrification in the government electrification project, in the near future and those counties without long rainy and cold seasons. The project will then focus on those areas and continue penetrating to other counties as the brand establishes itself. This suggestion would go in line with the financial projection of hiring 5 fulltime managers in Kenya. The managers can be hired and placed in the counties with the highest potential for growth and expansion. Works Cited Innovation and Renewable Electrification in Kenya, “A Desk Assessment on the Overviews of Current Solar and Wind Energy Projects in Kenya”, (IREK), http://irekproject.net/files/2015/11/Solar_and_wind_energy_projects_Kenya-IREK1.pdf. Bose, Tarun Kanti. "Market Segmentation And Customer Focus Strategies And Their Contribution Towards Effective Value Chain Management". International Journal of Marketing Studies, Vol. 4, no. 3, 2012, p. 115. Kenya Power and Lighting Company. "Electrification Project | Kplc.Co.Ke". Kplc.Co.Ke, 2016, http://www.kplc.co.ke/content/item/1119/electrification-project-. Warnecke, Tonia, and Ahiteme N. Houndonougbo. "Let There Be Light: Social Enterprise, Solar Power, and Sustainable Development." Journal of Economic Issues (M.E. Sharpe Inc.) 50.2 (2016): 362-372 Wyche, Susan and Laura Murphy. "Powering the Cellphone Revolution: Findings from Mobile Phone Charging Trials in Off-Grid Kenya’". Changing Perspectives, 2013. Read More