Business Plan: the Intelligent Greenhouse Company Limited - Case Study Example

IG COMPANY LIMITED BUSINESS PLAN Strictly Private & Confidential IG Company Limited Road Town Tel: Fax: E-mail: Executive Summary The Intelligent Greenhouse (IG) Company is a service providing and programming firm that develops the programmable logic controller (PLC). The PLC automates the hydroponics thereby ensuring that plants grow under the right pH, nutrient level, temperature, and humidity. The device targets individuals and farmers that intend to grow organic food crops in the UAE particularly in Abu Dhabi which is the initial milestone of the company’s operations. The rising population in the UAE has increased the demand for organic food. However, it is evident that the existing supply is unable to meet the demand for organic food. Individuals and farmers that have resorted to greenhouse farming of organic products have incurred substantial costs in setting up the structures and raising the plants. The ability of the device to automate hydroponics presents a viable opportunity for individuals and farmers that intend to invest in the area. The device guarantees effective resource utilization and minimizes water usage by up to 90%. This implies that investors would incur significantly reduced costs in irrigating their crops. Besides reducing the water requirements of raising crops in a greenhouse, the device also has a solar system that uses solar panels to provide the energy used to run the microcontrollers. As a result, the farmer would not incur additional electricity bills associated with maintaining the system. The competitive advantages of the product include the fact that customers can acquire a high-quality product at competitive prices. The firm also offers installation and maintenance services throughout the lifetime of the project thereby ascertaining customer satisfaction. Currently, the company has already developed prototypes and demonstrated their functioning at agricultural shows and events to farmers and individuals. The founders of the business that head the operations and technical sections as well as the legal/contracts manager are the key individuals and advisors in the business. In partnership with the Abu Dhabi Environment Agency and the UAE Ministry of Climate Change and Environment, the company has managed to demonstrate the practicability of the device to individuals and farmers when applied in a greenhouse. The firm intends to attain a sales revenue of AED 5,653,232 by 2021 at a time when it would have to roll out new devices to farmers upon request because of the expiry of their lifetime. In order to achieve the objective, the company will invest in marketing and advertising to increase its market share and realize more sales. The company will source 50% of its initial capital outlay from its founders. Private equity investors will provide funding for the remainder of the capital outlay. The robustness of the organic food market guarantees a high demand for products and services associated with raising organic food crops. As a result, selling the business to another company would be a potential exit strategy that would assure investors of their returns. Table of Contents The Opportunity and the Market 4 The Product/Service 5 Competitive Business and Growth Strategy 7 Product Development and Production Strategy 8 Marketing & Sales Plans 9 The Company and its Management 10 Roadmap and Milestones 12 Financing Requirements and Deal Structure 13 Appendix 16 The Opportunity and the Market The ability of the present generation to utilize the existing resources effectively and efficiently is detrimental to the availability of the resources to the future generation. The automated programmable logic controller (PLC) system offered by our company is able to achieve the objective of effective resource utilization in the greenhouse. Currently, the UAE is in dire demand of new generation greenhouses that guarantee optimal resource utilization thereby enabling farmers to maximize the output using minimum resource input. The unfavorable climatic conditions presented by the region have also compelled farmers to set up greenhouses in the quest to attain the desired climate control that is perfect in tendering specific types of crops. Therefore, the plc system would be able to monitor and control the conditions of the greenhouse thereby attaining the reduction in resource utilization; especially water by up to 90%. The system targets the organic food sector that grows food crops in greenhouses. Currently, the number of greenhouses in Abu Dhabi, the Western region, and Al Ain are 7,600, 8,250, and 12,000 respectively. The booming organic food sector would also result in an increase in the number of greenhouses that would require hydroponics equipment. The high costs associated with maintaining greenhouses in the UAE have resulted in the importation of food into the country since the available supply does not meet the existing demand (Alshara 181). The project targets the 34 organic firms already existing in the UAE as well as other firms that are under development. Elite Agro LLC is the main competitor that offers hydroponics systems in the UAE. According to estimations, the global market for hydroponics equipment would increase to US$395.2 by 2020. The Product/Service The programmable logic controller (plc) automates the hydroponics system thereby enabling the automation of the greenhouse environment for effective resource utilization. The device is an upgrade of the existing medium technology utilized in greenhouses in the country. The high-tech device features shading systems, humidity, and temperature control. The systems operate by monitoring the conditions within the greenhouse to ensure the automation of the processes thereby ascertaining ideal growing conditions for the crops. Besides the system functionalities, the firm also provides other services such as the full installation of the greenhouse and maintenance of the system. The humidity control system would reduce water consumption by approximately 90% as compared to the traditional hydroponics. The device also exhibits several performance advantages over its rival products. For instance, the device provides a fully automated system to the farmer thereby eliminating the need for manual controls, as it is the case with traditional hydroponics contained in most systems. Moreover, farmers do not have to pay for the labor costs associated with running the system. The fact that the device utilizes solar energy implies that the farmer would not incur electrical costs, as it is the case under traditional hydroponics. The use of solar energy also indicates that the system is environmental friendly. The automated system does not compel the farmer to incur maintenance costs as the firm provides maintenance services. The solar panels and the automated operating system are the unique features presented by the device. The durable and weather-resistant system operates with the aid of its sensors that interface with the primary microcontroller. In the event that the system requires the intervention of the user, it relays a message via a phone app or a text message to guarantee instant response from the user. The solar panel generates the power required to run the hydroponics system. In order to guarantee a steady power supply, the system also requires the installation of a 12V battery that stores power required by the microcontroller when there is no direct exposure of the solar panels to sunlight. The microcontroller analyzes incoming data from the sensors in a proper way and relays the data via Bluetooth or Wi-Fi to a computer that creates graphs indicating the growth of the plant. The sensor measurements also enable the microcontroller to decide whether it is appropriate to add specific nutrients. The controller communicates to user devices via an adapter with the help of the local Bluetooth connection. The sensors measure different water properties such as conductivity, solid nutrient density, and pH level that enable the plant to thrive in an optimal environment. Our system does not infringe on any third party IP rights such as trademarks, patents, trade secrets, and copyright. As a result, the system can operate freely. The company’s endeavor to avoid potential infringement on third party IP rights aims at preventing the loss of the IP. The UAE economic authority also protects our idea from design patents and ways utility. The total cost of setting up a greenhouse and installing the automated system is AED 138,800. The greenhouse items include the house (AED 60,000), irrigation pipes (AED 20,000), house plastic cover (AED 5,000), fan (AED 3,000), water tanks (AED 2,800), and water pumps (AED 1,000). The solar system included the solar panels (AED 10,000), battery bank (AED 8,500), inverter and controller (AED 3,000). The electronics included the PLC (AED 2,000), temperature and humidity sensors (AED 1,500), and electrical junction box (AED 2,000). Competitive Business and Growth Strategy The business aims at providing customers with new solutions and smart technologies in the provision of hydroponic systems. However, the business faces the main challenge of identifying the proper way of entering the market and convincing customers to purchase its product. The Abu Dhabi Environment Agency and the UAE Ministry of Climate Change and Environment are the potential partners that would enable the business to enter into the market effectively. The partners would also play a pivotal role towards convincing potential customers about the benefits associated with the device. The business would integrate fully into different aspects of the value chain such as the design and assembly, marketing, sales, and after sales services. The business intends to implement the market push, technology pull strategy in convincing customers to purchase its device as shown in the chart below. Figure 1: The Market Push, Technology Pull Strategy From the chart above, it is evident that the expressed market need would determine the type of devices developed by the company. The firm would endeavor to produce devices that respond to the needs of farmers of organic foods in the UAE. The competitive landscape of the business comprises of Emirati farms, the UAE hydroponic company, and hydroponic service companies. In the quest to attain competitive advantage, the competitive factors that the business intends to adopt include offering competitive prices, delivering effective customer services, developing high quality systems, enhancing creativity and innovation, and attaining customer satisfaction. Product Development and Production Strategy Development Since the device is an upgrade of the existing technology, the developers have already designed and created the prototype project. The entrepreneurs also offer interested customers the opportunity to view the working of the system in agricultural shows hosted by the partners in conjunction with the developers. Therefore, the product has already reached its final stage of development and it is ready for implementation in selected greenhouses of the interested clients. However, the project awaits approval from the Abu Dhabi Environment Agency and the UAE Ministry of Climate Change and Environment before its enrollment into the market. The business would offer the product as either a single device or a comprehensive package consisting of the greenhouse, solar system, and the automated system. The partners and customers at the show would participate in the testing of the product at the show. Production Since the device is an upgrade of an existing technology, the company would start by licensing the product to protect its IP rights and patent. The firm will develop the product at its premises and deliver them to clients upon the placement of orders. The physical production process covers all aspects associated with the hydroponics system. These include solar panels, battery bank, inverter and controller, PLC, temperature and humidity sensors, electrical junction box, house (1030), irrigation pipes, house plastic cover, fan, water tanks, water pumps, and other related infrastructure. The cost of a single installation would depend on whether the customer already possesses an operating greenhouse or the farmer intends to acquire the full system. In the event that the customer intends to set up a full system, the client would have to pay AED 138,800. Table 1 in the appendix section shows the individual items and their respective costs. The regular maintenance services would provide the basis for quality assurance. The firm would avail its maintenance officials that would be monitoring the performance of the system to ensure that the automated hydroponic system performs according to the expected standards. This would include conducting regular checks on pH, nutrients, humidity, and temperature to ensure that the system attains the desired conditions necessary for the proper growth of the plant. Marketing and Sales Plans Marketing Strategy Emphasizing the high quality of the automated hydroponic device would be the core marketing strategy that the firm would implement to market the product. Besides offering high quality products, the firm will also offer its products at competitive prices. The total cost of AED 138,500 will eliminate the existing fear that setting up an automated hydroponics system is expensive. Effective service delivery suffices to be the other key pillar of the marketing mix. The firm will mobilize its team of talented workforce to set up the greenhouse and the automating device as well as testing the system to ascertain that it performs in accordance with the expectations. In order to reach a substantial proportion of the customer population, the firm will market its product on social media sites that will have a link to its website. Moreover, the firm will also advertise its product on TV and radio channels besides erecting billboards on highways and populated areas. In the quest to make the adverts newsworthy, the firm will use the story of a farmer that uses the system to maximize the output and minimize the resources used in growing organic crops. The story will elicit interest from the audience bearing in mind the current deficit of organic food in the Emirate. Table 2 in the appendix shows the selling and administration expenses associated with the project. The UAE Ministry of Climate Change and Environment and the Abu Dhabi Environment Agency are the agencies that will ascertain the practical implementation of the project using the stated budget. The marketing intends to increase the sales of the project throughout the five-year period by increasing the awareness of the device and its functionality to potential customers. Sales and Distribution The device targets individual farmers and organizations that engage in the production of organic food crops in a greenhouse. The selection of the market segment emanates from the need of the customers to reduce the costs associated with running greenhouses and yielding maximum returns from their investment. In order to avail the product to customers, the firm will avail the devices in its local distribution centers to reduce the time taken to avail the raw materials at the customer’s location. The firm will use its sales workforce to prevent retailers from charging exorbitant prices that will prevent customers from purchasing the product. However, the firm will ensure that it realizes the 10% target profit margin on all materials supplied to the customer. The local distribution centers will warehouse the products. Customer invoicing will take place upon the placement of an order by the customer. However, the firm will offer the receipt after availing the product to the customer and setting up the entire system. The Company and Its Management The Intelligent Greenhouse (IG) Company is a service providing and programming company that develops the programmable logic controller (plc). The PLC automates the hydroponics. The business idea emanated from the rising concern of organic food shortage in Abu Dhabi and the other UAE emirates. Even though farmers had delved into organic farming, the yield from the available food crops was inadequate to serve the needs of the population. The ability of the device to automate the hydroponics thereby reducing the amount of water required to grow organic food crops by up to 90% presented a good investment idea to the founders of the company. Besides regulating humidity, the device also regulates nutrients, temperature, and pH to ascertain that the environment is conducive for the growth of organic food crops. The founders of the device are software developers that are agricultural enthusiasts. Upon identifying the need for the implementation of automated agricultural services in the organic food sector, the founders embarked on upgrading the traditional hydroponics to take into account the much-needed automation. As a result, the developers created the software that allows farmers to monitor the growth of the crop from their location on a smartphone or PC. The display system gives the farmer the real state of growth of plants in the greenhouse. The developers also found it necessary to use solar panels that would provide solar energy to run the microcontrollers as opposed to the traditional hydroponics system that relied on the supply of electrical energy. Moreover, the developers of the system saw the need of storing the tapped solar energy in a 12V battery to ensure the availability of adequate energy to serve the needs of the automation systems in the absence of direct sunlight. The founders of the company are the managers of the company since the firm is a start-up. One of the managers heads the operations department whereas the other manager heads the technical department. The firm also has an Incident Commander that reports to the managers in the event of an incident either in response to a customer demand for the product or a concern raised by a customer about functionality of the device. Below the Commander, the organizational structure entails the Human Resource Manager, Information Technology Manager, Finance/Administration Manager, and the Legal/Contracts Manager. The HR Manager performs all roles associated with hiring the sales and technical staff necessary in availing the product to customers and dealing with its installation, maintenance, and repair. The Finance/Administration Manager handles all financial transactions that take place between the company and customers. The Information Technology Manager collects up to date information in the organic food sector and reports such information to the General Managers that embark on integrating customer demands in the development of the product. This ensures that the developed product meets customer specifications and demands. The personnel also ensure that the developed product bears the intended technological specifications. Finally, the Legal/Contracts Manager ensures that the company operates according to the law to prevent the contravention or infringement of IP rights associated with trademarks and patent. The firm also has business function leaders located at its strategic distribution points. The role of the leaders is to interact directly with customers thereby taking orders and ensuring the delivery and assembly of the device and its associated components at the premise of the customer. The business leaders also report to the Incident Commander about the concerns raised by customers on the product. At the lowest level of the hierarchy are sales and distribution agents that distribute the product to customers. The chart below shows the organizational structure. Figure 2: The Organizational Structure The company has already created a working prototype that is available for demonstration at agricultural shows and following the request of the customer. The firm has already demonstrated the prototype to its partners in the Ministry. However, the number of real-time software developers in the company raises certain concerns about the ability of the company to develop real-time programs within the shortest time possible to meet customer specifications. The company has endeavored to select the best programmers from the market to meet the skills gap. The Incident Commander and the Legal/Contracts Manager are the main advisors to the business. The former advises the business on matters associated with developing products that meet customer specifications whereas the latter advises the business on legal matters. The firm has also collaborated with the Abu Dhabi Environment Agency and the UAE Ministry of Climate Change and Environment to ensure the development of a feasible product that reflects the needs of customers. The business intends to extend its operations in the other UAE emirates as well as other foreign markets. Roadmap and Milestones The founders of the company endeavored to incorporate the firm in January. The incorporation aimed at ensuring that the company operated in accordance with the UAE Companies Act. Before venturing into incorporating the company, the firm had already developed working prototypes of the device. The Abu Dhabi Environment Agency and the UAE Ministry of Climate Change and Environment were the partners that witnessed the working of the prototypes and helped the company in the incorporation process. In February 2017, the founders of the company embarked on conducting field trials to communicate the performance of the automated hydroponics device to the public. The Manager Operations was responsible for relaying the message to individuals in the field trials. After convincing farmers and individuals in the field trials, the founders of the firm through the HR Manager embarked on the process of hiring sales representatives that would avail the products to customers from their various local distribution points identified by the company. In the hiring process, the company selected sales representatives with good communication skills and engaged them in a one-week long training on the installation of the entire system in a greenhouse. The founders also displayed the product at trade shows at the World of Perishables 2016, AGRA Middle East 2017, and the Dubai Drink Technology Expo. The trade shows played a massive role in creating awareness among potential buyers about the existence of the product. The trade shows also enabled the company to explain to enthusiasts about the functionality aspects of the project and quality assurance aspects. The firm also opened its distribution stores in the Emirate and assigned the sales representatives to each of the stores to await commencement of operations as soon as possible. Because of the massive influx of demand from customers, the company purchased the materials and availed them to the distribution centers based on the demand exhibited by customers from the centers. The company started its operations in March 2017 having availed all the required materials at its distribution centers and met all legal requirements associated with its operations. In the month, the company also recorded its first sales on the accounts receivable and went into full-scale operation based on the existing customer demand. Financial Requirements and Deal Structure The IG Company ensured that all products availed to customers yielded 10% profit. The company also charges AED 25,000 as the installation fees for the project. Moreover, the firm charges AED 1,000 on a monthly basis as the maintenance fees. The automated hydroponics plc system has a lifetime of five years with no salvage value. The Establishment Cost Table 3 below shows the costs associated with establishing the company. Item Amount Car 100,000 Office equipment, Furniture, & Decoration 30,000 Supplies and stationary 2,000 Legal and registration Fees 20,000 Website (hosting & Design 10,000 Software 5,000 Tools 30,000 Total 197,000 Table 3: The Costs of establishing the IG Company Table 3 above reveals the costs associated with establishing the IG Company. It is evident that the company acquired a car at AED 100,000, office equipment, furniture, and decoration at AED 30,000, and supplies and stationery at AED 2,000. The company also incurred AED 20,000 as the legal and registration fees and AED 10,000 in designing and hosting its website. Furthermore, the firm incurred AED 5,000 in purchasing the software and AED 30,000 in purchasing the tools. Variable Costs These are costs incurred by the customer before the company sets up the entire system. The costs depend on the number of orders placed by the customer that also indicates the number of greenhouses that the customer intends to set up and automate. Table 4 below shows the variable costs associated with setting up the full system. Variable Cost Amount Solar Panels 10,000 Battery Bank 8,500 Invertor and Controller 3,000 PLC 2,000 Temperature and humidity Sensors 1,500 Electrical junction box 2,000 House 10*30 60,000 Irrigation pipes 20,000 House Plastic cover 5,000 Fan 3,000 Water Tanks 2,800 Water pumps 1,000 Other Infrastructure 20,000 Total 138,800 Table 4: The Variable Costs associated with setting up the Project From the table above, it is evident that a customer would incur AED 138,800 to purchase the full system. The company offers the solar panels at AED 10,000, battery banks at AED 8,500, inverter and controller at AED 3,000, and PLC at AED 2,000. The firm also charges AED 1,500 and 2,000 for the temperature and humidity sensors and electrical junction box respectively. The company charges AED 60,000 for the house, AED 20,000 for the irrigation pipes, and AED 5,000 for the house plastic cover, and AED 3,000 for the fan. Finally, the company charges AED 2,800, AED 1,000, and AED 20,000 for the water tanks, water pumps, and other infrastructure. Besides the variable costs associated with selling the full system to the customer, the company also incurs annual fixed costs associated with running the business. The costs cover items such as rent (AED 60,000), technical salary (AED 168,000), labor (AED 96,000), and housing for employees (AED 50,000). At the onset of the business, the firm will hire two technical staff and four sales and distribution staff. The table below shows the fixed costs that the company incurs in running the business. Fixed Cost Cost / year Note Rent 60000 Technical Salary 168000 2 technical staff Labor 96000 4 Labors Housing for employees 50000   Table 5: The Fixed costs associated with running the business Founders’ capital will form the bulk of the finances used to fund the company. To be precise, the funds provided by the founders will account for 50% of the total funds required to finance the project. The company will source the remainder from equity investors that intend to have a stake in the company. However, the founders convinced private equity investors about the potential of the project and its ability to spark immediate interest and elicit high demand. As a result, there is a guarantee of high returns on the part of the investors. The 50% available funding for the project is enough to jumpstart the operations of the project in the event that the private equity investors delay to avail their funds. Since the seed company does not intend to laden its balance sheet with debts, the founders did not seek a loan from a financial institution. On the contrary, they decided to avail the capital from their private kitty and private equity investors. The investors would receive a return that is proportional to the amount of capital that they invest in the business. It is evident that the booming market for organic foods will lure investors into the sector thus providing a guarantee for the continued growth and expansion of the business. This in turn assures investors of their return. Appendix Depreciation Depreciation Cost Y1 Y2 Y3 Y4 Y5 Car 100,000 20000 20000 20000 20000 20000 Office equipment, Furniture, Decoration) 30,000 6000 6000 6000 6000 6000 Website (hosting & Desgin) 10,000 2000 2000 2000 2000 2000 Software 5,000 1000 1000 1000 1000 1000 Tools 30,000 6000 6000 6000 6000 6000 Total 175,000 35,000 35,000 35,000 35,000 35,000 Income Statement Revenue 2017 2018 2019 2020 2021 Sales revenue 2,665,200 3,198,240 3,908,960 4,619,680 5,508,080 Service revenue 0 84,000 100,800 120,960 145,152 Total Revenues 2,665,200 3,282,240 4,009,760 4,740,640 5,653,232 Cost of Goods Sold           Cost of goods Sold (variable cost * of project 2,082,000 2,498,400 3,053,600 3,608,800 4,302,800 Gross Profit (total revenue – Cost of goods sold) 583,200 783,840 956,160 1,131,840 1,350,432 Selling & Admin. Expenses           Total Expenses (Fixed cost + other expense as advertisements + depreciation) 541,000 569,600 623,060 681,866 746,553 Income from Continuing Operations 42,200 214,240 333,100 449,974 603,879 Balance Sheet Assets 2017 2018 2019 2020 2021 Cash (income + depreciation + legal expense + supplies) 99,200 348,440 716,540 1,201,514 1,840,393 Fixed Assets 175,000 175,000 175,000 175,000 175,000 Accumulated Depreciation متراكم الاهلاك -35,000 -70,000 -105,000 -140,000 -175,000 Total of Assets 239,200 453,440 786,540 1,236,514 1,840,393 Liabilities           Short term Liabilities 0 0 0 0 0 Long term Liabilities 0 0 0 0 0 Owners’ Equity           Capital (establishment cost) 197,000 197,000 197,000 197,000 197,000 Returned Earning (متراكم ال income) 42,200 256,440 589,540 1,039,514 1,643,393 Total of Liability and O.E 239,200 453,440 786,540 1,236,514 1,840,393 Break-even Point Contribution Margin 2017 2018 2019 2020 2021 Sales Price per unit (variable cost*1.1)+25000 177,680 177,680 177,680 177,680 177,680 Variable Cost(variable cost 138,800 138,800 138,800 138,800 138,800 Contribution Margin (AED) =s.p-v.c 38,880 38,880 38,880 38,880 38,880 Contribution Margin (Ratio) (s.p-v.c)/S.P 21.88% 21.88% 21.88% 21.88% 21.88% Break Even Point           Break Even Point (AED) total expense/CM ratio 2,472,348 2,603,049 2,847,359 3,116,100 3,411,715 Break Even Point (Project) ) total expense/CM AED 14 15 16 18 19 Read More