Due Diligence on the Newco Business Plan - Example

Name of student Name of instructor Course Date Due Diligence on the Newco Business Plan Statement as an Entrepreneur Based on the business plan, it would be prudent to understand that the charging of phones in rural areas through the use of advanced solar technologies in Kenya is not new (Hope, 55). For example, there are those charging systems that besides charging close to ten mobile phones at once, they also provide light for families (Tenenbaum, 39). However, despite this reality, due to the electricity problems among many families in the rural Kenya, the demand for this type of services will remain to be high. The organization structure of the company is well structured. Firstly, the fact that the design and other technical aspects of the project will be done in the UK through the mother company is a prudent decision since the Newco UK has been in this industry for lone and has necessary personnel for the initiative. The Kenya structure of the business is also great since the senior officials will be recruited from within the country. However, the plan fails to provide skills and experiences of individuals who will drive the entire project forward. On the business protection, one of the forms of protection that the company can use in securing the initiative is through licensing the product from the local authority. Although this does not provide any legal framework to protect any such idea, it creates the ownership aspect of the business (Obudho, 93). Secondly, although the case implies that patenting the product might be costly in Kenya; this is the only sure way that the intellectual property law has been applied. However, trademarks are also instrumental in protecting an idea but they mostly focus of the design or packaging of the final product, which might give room for someone to “steal” the idea. Unlike some of the African countries such as Ethiopia, Kenya’s trading environment is liberal such that one is not restricted to do business in certain areas of the country (Jerven, 49). The government does not own the monopoly of controlling all aspects of the markets (The World Factbook). In this way, an investor is allowed to work any part of the country provided laws are followed (The Report: Kenya 2014). Therefore, the innovation by the company can well be operational in rural Kenya without any restrictions. From an entrepreneurial point of view, depending on the type of distribution network used by Newco, the downstream industry could be either concentrated among few firms or fragmented. In the case of Newco distribution strategy, the distribution will be fragmented on a given local town center in rural Kenya. Notably, there are kiosks and retail business in almost every town center in rural parts of Kenya. If Newco is distributed through such outlets, the accessibility will be easier for the end users, thus fragmented distribution in local town centers. The market timing in the business plan is not realistic. Critically to note is that Kenya now is in the process of electrifying its rural area under the “last mile connectivity project” (Brook, 63). The connection charges to the electricity network has been reduced by more than half to about USD 150, which is coincidentally the same price tag for the product, Newco. In the next five years, the government expects to have connected eighty percent of all areas in the country. Currently, all public schools in the country have been connected to the power grid (Gillett, 65). Evidently, with this rate of connection, it is clear that the rural community will be charging their phones in the homes, which will harm the success of Newco. Therefore, although the project is viable at the short term period, it may not be sustainable in Kenya. As an entrepreneur and based on the content of the business plan, the viability of the initiative is also questionable on the basis of the cost of the entire process. For example, more than 50% of the total cost will be spent on human resources. As a starting venture, it would be tricky to direct half of the cost of paying the personnel. In this way the marginal profit of the product will be affected. In fact it is not realistic to increase salaries every year to managers especially the first years of the business. This will harm the sustainability of the initiative. Additionally, the total fixed cost is also expected to increase from year one to year five from twenty to forty percent. The higher volume expected to counter the fixed cost increment is hypothetical, which may drain the business. In this way, even if valuation of the initiative may be realistic but the may not be viable for sustainable investment. Strengths and Weaknesses of NewCo Business Plan Strengths The strategies put in place to ensure that the end user benefits from the product are convincing enough. In the business plan, direct sales have been noted as the most viable method of distributing the product to the local people in the rural Kenya. Preferably, direct sales to local kiosks and business owners will make the Newco accessible at the closet point to the people. Further, the value proportion explained in the business plan is clear. To the local consumer, it is clear that Newco will be instrumental in alleviating poverty to the local small business owners in that they will be able provide for the relatives, families, as well as expanding their retails outlets. By making the local people able to charge their phones all through, the economic progress of such areas would be fastened. For example, Mpesa, which is a mobile transfer service, will be frequently used and Mpesa businesses will be able to get more customers since local people’s phones will be on most of the times. The pricing model has been well explained. Accordingly, the pricing model adopted provides for flexibility. Notably, the income levels of local people who are in most remote areas in Kenya are almost the same. In this way, having a fixed price tag of USD 150, which is approximately fifteen thousand Kenyan shilling will be fair enough for the retail businesses owners to afford? At the same time, the fixed charging price of fifteen shillings is good enough for local people in rural areas to charge their phones. At a personal level, one price strategy is a suitable pricing model for this initiative. Further, the flexibility of the pricing strategy has been stated in the plan by switching to skimming pricing strategy and to maximum market share based on the market dynamics. The market roll-out plan described in the business plan, based on the sales and distribution strategy is commendable. The entrepreneurs seem to understand the economic situation of the rural Kenya where makeshift business establishments are common. The distribution of the product using this retail business such as kiosks is a wise strategy. Weaknesses Ironically, the business plan for the NEWCO fails to provide the sources of funding that is expected to finance the entire project. In the financial analysis, the business plan has provided for the two types of costs, which are fixed and variable coast. On this two, the plan has detailed the financial expenditure but has not provided for their sources. At the same time, the plan has not included the protection cost for the product thus rendering the entire initiative and idea vulnerable to not only duplication but also copying. In this way, the financial plan fails to allow for a protection strategy. One of the key aspects that are not included in the plan is the timelines based on the milestones that the project will take. Provision of project’s milestones is critical in analyzing the feasibility of a project. The failure to provide timeless has made this business plan weaker, which raises questions on its viability. The business plan only outlines different departments and divisions such as sales and marketing. In this way, it limits attempts to understand individual skills and abilities, including the finances that goes into the hiring the team. The organizational structure was well formulated but the entrepreneurs would have provided the necessary skills that are needed in order to convince any interested party. On the other hand, from the business plan, the Newco does not control the assets for distribution of the product to the local consumers. In fact it would be very difficult to acquire the complementary assets that are needed for the product to reach the end user. Notably, rural areas in Kenya are expansive and remote sections of the country which makes it challenging for even established firms such as Coca Cola to reach all their potential customers in such areas. Additionally, since the company will be earning from the sales made on the product as well as the direct sales to the end consumers, on the context of Kenyan scenario this strategy may not work. The government of Kenya has embarked on an aggressive process of rural electrification (Leys, 19). At the same time, in most of the rural areas the retail business owner will find it cheaper to use electricity in charging phones for local, thus disregarding the purchase of the Newco. Moreover, the entry strategy of the company could be tricky for the business. As a new company in the region, starting off by covering all rural areas in Kenya could lead to failure. Based on the plan, it is clear that the first three years will be difficult and the company may not be able to cover all its starting capital as well as making profit. Critical to note is that the level of competition that is likely to come and its degree is not known, which means that if the competition will be stiff, the company may not be able to reach the break even and make profit, bearing in mind that Kenya is now an emerging market. In reference to the business plan, the entrepreneurs did not use the dual approach method in coming up with the market size of the initiative. The only method used by the entrepreneurs is by assuming that if there are approximately twelve million people in the rural Kenya with mobile phones, this means that they all need to charge their phones, thus making a considerable market size. However, this assumption is flawed since some of the rural people already use solar panels to light their homes as well charging their phones including watching TV among others. Therefore, the twelve million people could be way too high to consider as the market size. Notably, as noted above the entrepreneurs failed to make proper market segmentation. They would have designated the specific areas that the product would be needed. Instead, the entrepreneur used a general assumption about the market segment as the whole of the rural Kenya, which is not correct. Proposal and Recommendations In any project, it is always prudent to include the monitoring and evaluation measures which measures the progress of the project based on the initial objectives (International, 84). However, this business plan does not also provide for any tools that could help in assessing the outcome of the project and the success level of the product. As a recommendation, it would be wise of balanced scorecard was used in measuring the progress and the outcome of the project. Balanced score card is considered as a management and strategic planning system that is used in aligning business or organizational functions to the vision and mission statements. Based on the four variables of this method, which include an internal business perspective, the customer's perspective, the financial (or shareholder's) perspective and learning perspective, the project stakeholders will be able to assess the success levels during and after the completion of the initiative. In order to ensure that the distribution is easier, it would be prudent to get into contract with the local retail shops and property owners which will allow Newco to decorate some buildings with their colors thus displaying the presence of charging service by Newco. This way, customers will be able to easily spot where to charge their phones (Ikiara, 38). The strategy has been used by many businesses in Kenya, including Safaricom. In light of the entry mode, it would be prudent to start small in a given locality such one county in Kenya before scaling up to other regions. In this way, the company will have understood the performance of the product before spreading it at a national level. The approach towards potential market segment has been flawed from the beginning. In this way, the entrepreneurs would have done more on designating different market segments in Kenya instead of concentrating on the general overview. As a starting step, the initiative would have concentrated on a specific area such as one county with the intention of scaling up gradually to other sections of the market size. Covering the entire nation would be costly for the company and the high cost may not be recovered due to the electrification programs and other factors that may provide stiff competition to Newco. Guidelines to Think About Deal Structure 1. Provide an overview of the way you initially would distribute the shares, before external investment. Financiers Founders Innovators of Technology Management Total Capital shares 40 20 20 20 100% Founder shares 20 40 20 20 100% Technology shares 20 20 40 20 100% Management shares 20 20 20 40 100% 2. Provide an overview of the steps you have taken to close a deal The starting position would be to have the key player in a given type of share take the fifty percent. However, the deal was that the key shareholders take forty percent while the rest share equally the remaining shares. 3. Shareholders Agreement Amount of the capital increase The increment of the capital will be based on if there will be other interested players. Final distribution of shares The final distribution of share will be conducted soon after the commencement of the project. Categories of shares Categories of sheers will include Capital shares Founder shares Technology shares Management shares Board Room Voting Power The voting powers will be based on the number of shares held at an individual basis. Works Cited Brook, Penelope J, and Suzanne Smith. Energy Services for the World's Poor. Washington, DC: World Bank, 2015. Print. Gillett, Merg. Energy-resource Maps. , 2016. Internet resource. Hope, Kempe R. The Political Economy of Development in Kenya. New York: Continuum International Pub. Group, 2012. Print. Ikiara, Gerrishon. Economic Situation in Kenya: Presentation and Analysis. Nairobi, Kenya: Dept. of Economics, University of Nairobi, 1985. Print. International, Business P. U. Kenya Energy Policy, Laws and Regulation Handbook. Place of publication not identified: Intl Business Pubns Usa, 2008. Print. Jerven, Morten. Economic Growth and Measurement Reconsidered in Botswana, Kenya, Tanzania, and Zambia, 1965-1995. Oxford [England: Oxford University Press, 2014. Print. Leys, Colin. Underdevelopment in Kenya: The Political Economy of Neo-Colonialism. Berkeley: University of California Press, 2015. Print. Obudho, Robert A. Demography, Urbanization, and Spatial Planning in Kenya: A Bibliographical Survey. Westport, Conn: Greenwood Press, 2006. Print. Tenenbaum, Bernard W, Chris Greacen, Tilak Siyambalapitiya, and James Knuckles. From the Bottom Up: How Small Power Producers and Mini-Grids Can Deliver Electrification and Renewable Energy in Africa. , 2014. Print. The World Factbook 2007. Washington, D.C: Central Intelligence Agency, 2007. Print. The Report: Kenya 2014. Nairobi]: Oxford Business Group, 2014. Print Read More