Business Plan "GymCrowd"


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Business Plan "GymCrowd"

  1. 1. GymCrowd Mobile Web App Filip Kik (Team Leader/CEO/President) Taron Kephart (Chairman) Brad Shoemaker (CTO) Will Schoellkopf (CTO) 0
  2. 2. Table of Contents Executive Summary Opportunity and Market Analysis The Product and Solution Marketing and Sales Competitor Analysis Risks and Mitigations Organization Financial Plan Financial Harvest Appendix Bibliography Pg. 1 Pg. 2 Pg. 3 Pg. 4 Pg. 5 Pg. 6 Pg. 8 Pg. 9 Pg. 10 Pg. 11 Pg. 13 1
  3. 3. I. Executive Summary Far too often an individual will head over to the gym only to find out that it is overcrowded. Once at the gym, one may notice that all of the treadmills or ellipticals are taken and thus an individual is forced to waste precious time from their busy schedule waiting in line for the next available machine. Similarly, one may arrive at the gym only to realize that all of the free weights are taken up and one cannot find the appropriate weight needed, let alone a matching dumbbell, thus ruining one’s workout. The solution to this problem is a mobile web app for Apple iOS, Android, and Windows Phone called, GymCrowd. GymCrowd is a mobile web app that can be viewed online or on one’s smartphone that tracks and displays how crowded the gym is in real-time. It also displays the least crowded times in the day based on historical usage data. This will be done by working with the gym to have gym members scan their membership cards upon entry and exit, and using their population data to display historical and current crowding inside the gym. The individuals that are most likely to be using this app and paying for its premium features will be college students and anyone in crowded zip-codes. This mobile web app is geared towards the busy college student with irregular gym schedules; however the target audience is any gym-goer throughout all walks of life that wants to maximize their workout, and optimize their time in the gym. To get the app started and working, we will go from gym to gym, starting with popular college gyms in the Los Angeles Area, and introduce the app. We will explain that at little or zero cost to them, our product could be implemented and would result in a happier customer base, which would in turn benefit the gym/owners. Once the app is fully set-up for the gym, posters could be placed throughout the gym, which advertise our app. The gym employers could also advertise it to current and potential members via email and word of mouth. Through the app we will also run our customer satisfaction and user experience survey. GymCrowd would be entering into the mobile app industry and would currently face little competition. There are many gym and fitness related apps on the market, however only one current app displays how crowded a gym is. The only direct competitor, GymFlow, only tracks how crowded the gym is as a whole, and is only designed for use at one location. Our competitive advantage is that GymCrowd will display the crowding at your gym, wherever it may be, and will also display the crowding in individual areas such as the weight room, cardio room, basketball courts and more, which will be done through user check-ins and inputs. Filip Kik, an aerospace engineer grad from UCLA, will be the CEO/President of this venture and will be in charge of the organization, marketing, and expansion of this app. Taron Kephart will be the Chairman, and will be the marketing lead. Will Schoellkopf and Brad Shoemaker will both serve as the Chief Technology Officers (CTO) and will be in charge of the development of the app. We will also hire a Chief Financing Officer (CFO) as head of finance. We require an initial investment of $15,000 which would preferably come from an angel investor. The investment will be used to fund the initial startup costs: laptops, licensing, smartphone devices; as well as the first months total operating expenses: rent, salary, marketing. With the initial investment of $15,000, the app will take two months to develop. We will launch at 4 gyms in the third month, and expect to double the number of participating gyms each month. We estimate $2,300 in return after the third month, and an ever increasing monthly revenue after that, with a break-even point at the start of the 3rd year and an expected 10x return during the 4th. We expect an estimated profit of $340,000 at the end of 5 years. 1
  4. 4. II. Opportunity and Market Analysis Health is an issue that is of great concern to everyone. People in society place a high value on being, and looking, healthy. Going to the gym and exercising is one of the main ways that people improve their health and well-being, get into shape, improve for a sport, change their physique and improve their sex appeal. Also, with the ever increasing number of scientific studies proving the health benefits of exercise, the number of new gym memberships is increasing every year. However, in our busy society one can find it difficult to set aside time for the gym. Thus when an individual makes an effort to go to the gym, they would like to optimize their time spent inside. However, far too often the gym will be overcrowded, and one will be forced to waste precious time from their busy schedules waiting in line for the next available machine, treadmill, or bench. In addition, most of the weights may already be taken, and thus one is forced to stray form their intended workout and/or use an improper dumbbell weight. Furthermore, non-members may be dismayed from joining a gym, and may have to put their health on hold, because the gyms are too crowded. There is currently no effective solution to the growing problem of overcrowded gyms, which is why now is the perfect opportunity to release a mobile web app called GymCrowd that can tell users exactly how crowded the gym is, and also notify users when the gym is not busy. This app will allow people to maximize the quality of their workouts while also optimizing the time spent in the gym. This mobile web app is geared towards the busy college student with irregular gym schedules, and those that are most likely to utilize this app and pay for its premium features will be college students and those living in busy zip codes. However, this mobile web app could highly benefit anyone that has a gym membership, thus the real target audience is any gym-goer throughout all walks of life that wants to maximize their workout and optimize their time in the gym. There is no single specific age group that frequents the gym far more than the other. Those that have a gym membership could be aged anywhere from 16 to the very elderly. Statistics even show that over 25% of all gym memberships are held by people aged 55 and older. This is due to the aging baby boom population and the ever growing awareness of the multitude of health benefits from exercise. Thus there is an even distribution of gym memberships across the age spectrum. However, the age 55+ population may be less likely, as they grow older, to utilize the mobile app/smartphone technology. They may also have more free-time once they retire and thus may not be as subject to a busy schedule. Thus the specified target market is said to be any individual in the entire US that currently holds a gym membership, and that is aged 18-54. Income is not an important factor, as a mobile web app is not expensive in nature, and any individual that holds a gym membership also has enough financial stability or leeway to purchase this mobile web app. To obtain specific population data for the target market, census data is used to obtain the number of individuals in California aged 18-54. This is because the app will initially launch across college and public gyms throughout California. However, eventually the app will expand to all participating gyms throughout the entire US, so census data is obtained for the entire country as well for ages 18-54. The population data is collected for every year from 2006-2011. Knowing that roughly 20% of the US population holds a gym membership, and 25% of California’s population holds a gym membership, the US and California age 18-54 population, for each year, is multiplied by 0.2 and 0.25 respectively. These final population numbers are the official number of people that make up our target market. The final target market values are 2
  5. 5. plotted for each year, and a 10 year future forecast starting from 2011 can be deduced. Figure A in the appendix shows the target market growth from 2004-2021 for the state of California. It can be seen in Figure A that the predicted target market at the start of 2014, which will be the early stages of this venture, will consist of roughly 4,960,000 people. Assuming this venture confined itself to the California market, in 8 years’ time the number of people in our target market will have increased to 5,020,000 people. However, in 1-2 years’ time, we plan to expand our app to the entire United States. Thus as seen in Figure B in the appendix, the estimated number of people in our target market will be 31,700,000 in 2014, and by 2021 our target market is expected to grow to upwards of 32,000,000 people. It is evident that our target market is of great size; and a high portion of that market is looking for ways to optimize and improve their gym experience, with no helpful solution currently available, or on the market. The opportunity is here and the time to act is now. We strive to become the leader in the mobile app fitness industry by helping and engaging the users through a medium that would benefit their quality of exercise and workout time-scheduling through an intuitive and social manner. Our goal is to set the industry standard for helping individuals determine the optimal time to work out or go to the gym. III. The Product and Solution Our solution to the inherent problem of individuals experiencing lackluster and/or timeinefficient workouts due to crowded gyms is a beneficial, effective, and valuable mobile web app. GymCrowd is a mobile web app for Apple iOS, Android, and Windows Phone, that can be viewed online or on one’s smartphone that tracks and displays how crowded the gym is in realtime. It also displays the least crowded times in the day based on historical usage data. Furthermore, the app helps the busy gym-goer further by displaying the crowding in individual areas within the gym, such as the weight room, cardio room, circuit room, basketball courts, racquetball courts, etc. This allows people to further pinpoint if their specific workout will be affected, and allows users to plan ahead and effectively work around it. The app will determine how crowded the gym is, by working with the respective gym’s membership and traffic data. It is standard protocol that when a member enters the gym, they have to scan their membership card. By collecting the number of users that have scanned their membership cards, the app can effectively display how many people are currently inside, along with what percentage capacity the gym is at. This data will be insured accurate, because gym members will have to scan their cards upon exit as well. Thus the app will constantly have a realtime value of how many people are currently in the gym and how crowded it is. The crowding in individual areas within the gym will be calculated utilizing existing QR code scanning technology. Users can scan the QR codes located in each room to let the app know where they are currently working out, be it the weight room, cardio room, basketball courts, etc. The checkin process will be very simple, fast, and unobtrusive. Certain machines such as the treadmills and ellipticals may have QR codes on them as well in order to have the app display which machine is currently available or occupied. With this technology, instead of normally being forced to wait by the machine, an individual could be free to partake in a different part of their workout, and then return to the machine once the app displays that it is available. In addition to its basic features, GymCrowd will also have some premium features for an extra price. The premium features include the ability to receive text message notifications when the crowding in the gym has fallen below the user’s set ‘GymCrowdingThreshold’. They also 3
  6. 6. include a forum and bulletin where members can communicate with other members within their gym network and talk about new exercise routines, or ask for a spotter or workout partner. With the premium version of the app, users will also receive priority sign-up for classes, and advertisements will be removed. The app will maintain its integrity by enticing the users to check-in whenever and wherever they work out. Not only does the word ‘Crowd’ in ‘GymCrowd’ imply that the app will monitor the crowding in the gym, but the word ‘Crowd’ also means, a group of people with a common interest or set of goals. In the case of the gym, the people inside have the same common interest and goal, which is to get healthier, improve for a sport, or transform their body. Thus users will want to check-in because they know that they would similarly like for others to check in as well whenever they are not in the gym. It is a karma system, and it works on the principle that the more everyone checks-in, the more everyone benefits. People with similar goals and interest are also more likely to help each other out. In order to further promote this, users will receive ‘GymCrowdKarma’ each time they check-in. When a user acquires enough ‘Karma Points’, they will receive free access to the premium features of the app. All of this will ensure the quality, usability, reliability, and integrity of the app. IV. Marketing and Sales GymCrowd is a mobile web app geared towards any gym-goer who wants to optimize their time at the gym. Some of our revenue will be coming from customers who pay for the premium features available, so advertisement of the app and its features is an important consideration. This app will be marketed mostly to those who already have gym memberships, so much of the advertising will be found in gyms and through gym membership applications. It is also important to take into account those who do not already have a gym membership. With much of the population gaining awareness of how unhealthy a large segment of the country is, people are signing up for gym memberships more often. One main excuse many people use for not joining a gym is how crowded it gets in a gym. If we advertise our app before they sign up for a gym membership, it gives added incentive for them to join. To reach our target customer the most important mediums to advertise our product would be online advertisement, and posters in health stores and gyms. Many college students, their parents, and people in the 18-54 year age group use Facebook as a means of social connection and communication. Facebook will allow us to advertise to both those who already have gym membership and those who are looking but have not yet chosen a gym for crowding reasons. Advertising posters will not be limited to advertising only in gyms. Health and nutrition stores like GNC are also perfect places to advertise. People who buy vitamins and protein from these stores would benefit greatly from the more efficient workout experience our app provides. GymCrowd will be offered on multiple smart phone platforms such as the Apple iPhone, Android, and Windows Phone. We will be selling our app through these platform’s app stores for $0.99 and once the app is downloaded and installed, premium features will be made available for $1.99 extra. Each customer has his/her own decision-making and purchasing power, and we will advertise the app’s features, as discussed previously, in the product description to influence the person to buy the app. The features GymCrowd offers for the low price of $0.99 is enough incentive to get people to press that buy button. 4
  7. 7. Product Development and Operations Currently GymCrowd is in the development stages, and to get the app started, our team will go to local gyms around popular colleges in the Los Angeles Area to introduce the app. We must also find a programming team to make the app as simple and seamless to use as possible to maximize the customer experience when using the app. We then need to contact each of the platforms to distribute our app on their app stores. We also need to follow up with the gyms we want in order to introduce our app and to work with their membership scanning system upon entry and exit. When the user scans into the gym with their access code or card, our app will be updated with that information. Once our product is implemented on this small scale, it would result in a happier customer base, and both gym owners and gym goers will further advertise our product to other members and friends. From this small scale we will distribute posters to gyms around all of California. This process will start by the third month of operations. California has a large gym membership base and is the perfect starting point for our app. Once we gain enough momentum in California, we can then start to distribute throughout the country. We would of course need to update our apps with new gym information for each new gym added to our market, so our programming development team would stay on until our app was finished for most of the large gyms throughout the country. When this time comes, we can either expand and create more apps or sell our company. This will be further discussed in the following sections. Some major hurdles that we must take into account throughout the development of our product would not only be advertising to the various gyms throughout the country, but also to work with gyms to implement our QR code system for the workout machines and rooms. In the early stages of our app, we can simply have people check in to specific equipment by name, but to make things simpler for them; our app will utilize the camera/scanner function on the smart phone for easy and quick check in. V. Competitor Analysis Currently there is only one competitor in the mobile app industry that would directly compete with GymCrowd. There are many gym and fitness related apps that give nutritional information, workout guides, diet information, etc., yet only one, GymFlow, monitors how crowded the gym is. However, GymFlow only tracks how crowded a gym is as a whole, and can only be used at one gym location: the Lyon Center at USC. GymCrowd will allow you to track multiple gyms as well as crowding in individual areas within the gym. The users can check into the equipment they use, so that there will be real time statistics on what equipment is available. GymFlow is also only available for the iPhone in the Apple App Store. GymCrowd will be available on multiple platforms and people with Android, iPhone, or Windows Phone could all communicate together and contribute to the data pool needed for the app to be more effective. Since we will have more users contributing to when equipment is being used, there will be far less opportunity for people who don’t have the app to jump on equipment before people who do use the app. This will give people who don't have the app more incentive to actually buy the app, so they could experience the same advantage users will have. Our app would also have a waitlist feature for people waiting in line for equipment. They can show up when it is their turn to use the equipment and it would give the person using the equipment incentive to not overextend their workout on one piece of equipment. This of course 5
  8. 8. requires that many people are using the app within the gym, and with proper advertising information around the gym, and word of mouth of the gym employees, everyone’s workouts can be much more effective and efficient. Many people bring their smart phones to listen to music at the gym, so adding utility to something they would already be carrying around would be simple and easy to do. GymCrowd is a social app as well. People using the app would want others to check in to equipment and rooms so that they can effectively use the app. This would give them more incentive to check in to the equipment and rooms they are using. This cyclical effect due to karma would make our app more beneficial to everyone. Through the use of “Karma Points” people will continue to use our app to complete their gym workouts and everyone will be happy and possibly get out of the gym a lot faster with an equally if not more effective workout. Other possible sources of competition would come from substitute products, such as general fitness apps that are free on the market. One app that is currently available is “VirtuaGym Fitness Home and Gym.” This app gives possible workouts and instructions for each workout, but it does not provide any information on whether specific equipment is available or not. Another app called “Total Gym Fitness” is an app that provides a service to map your progress, utilities to track your health, and connects to the social network Twitter. The competitive advantage we have over this app is that GymCrowd not only has a social aspect to it through its member forum and “Karma Points” system, but it also provides real-time data to make a person’s workout even more effective and efficient. If we consider the six forces model, we must also look at the threat of entry by new competitors. Because we are making an app that has little direct competition, we can rapidly expand our app with little to no interference. Once our app is established, it will become the standard, and people will be drawn into our app from this notion, and current users won’t leave due to switching costs. This way we take out the threat of this new competition. The bargaining power of customers and complementors must also be taken into account. Our base app is $0.99 and is a very reasonable price for the amount of features and service it provides. VI. Risks and Mitigations There are several potential risks for our product, but we acknowledge them and will work to mitigate them. The different risks fall into four major categories: market/competition, technology/product, management/team, and financial. Market and competition risks involve competitive advantages and disadvantages, and how to be successful as a business. Technology and product risks include difficulties with creating an application for smartphones. Management and team risks include risks within our organization. Finally, financial risks detail issues with our customers not using our app in the way it was intended or not using our app in the long-term to support us financially. There are several general market and competition risks to being a new business in the app industry. In particular, it is very important that we are a first mover of our product. One of the biggest competitive advantages we have is that our current existing competitors do not have a loyal following. This is crucial to our success because if one of our competitors becomes the best known for gym crowd information, they will become the name brand for fitness applications. Part of what makes our app so successful is the large amount of users we will have to update the information in our app frequently. If our competitors are able to make a popular app first, then they will have a majority of our market share and it will be difficult to convince 6
  9. 9. their users to switch to our app since our competitors already have the necessary popularity. We will mitigate this risk by working in rapid development to get our product released early so that we can capture the majority of the market before any of our competitors’ offerings become popular. Technology and product risks pose a real threat for our technology venture. However, since we will be developing our application in-house, we can guarantee that our app will be working properly. Furthermore, we will have an easy to use feedback feature so that our users can tell us where they feel we could improve the user interface of our app so that it’s easier for them. However, there is risk of technical difficulty in people’s membership cards not scanning correctly when they enter the gym or not being able to scan the QR codes on individual rooms or machines to easily check in how crowded a room or machine is or in showing whether or not it is available. QR code scanning technology is a proprietary software function that we would just purchase from the existing technology. We wouldn’t spend our resources developing a system such as this in-house. The benefit of purchasing an existing QR code scanning system is that it is a well-tested and fully developed service. However, if there is a problem with our QR code scanning system not working, it will be difficult for us to repair it since we didn’t write the software ourselves. We mitigate this risk by developing a strong relationship with our QR code scanning software supplier so that they may help us quickly and efficiently if need be. Management and team risks revolve primarily around the possibility that our team may not be working with a clear vision and equal amount of motivation and ambition as our original founders. We mitigate these risks however by keeping our company as a relatively small organization with a flat organization so that all workers and managers have a personal relationship and that all personnel can be involved in making decisions. Furthermore, as part of the hiring process, we only hire people who actively enjoy going to the gym. By staffing ourselves with people who would like to use the app we are developing for their own personal use once it is complete, we can develop a product that not only satisfies our high standards but also the standards of our customers. A final category of risk for our endeavor is financial risk. The success of our app hinges on our users all collectively scanning their membership cards to show they’ve entered the gym, as well as taking out their phones to scan each machine as they want to use it, or scanning the various rooms of the gym as they enter. If our users determine that they find it inconvenient to interrupt their workout by always scanning the machines they want to use, it will limit the effectiveness of GymCrowd. However, we have mitigated this risk by developing a robust incentives system to draw users to utilize our app. We will develop a points based system GymCrowdKarma. Every time a user scans into the gym, scans into a room they enter, scans how many people are in line for a certain machine, or even checks whether other rooms in the gym are crowded, they will earn Karma Points. By earning Karma Points, our users will earn certain rewards such as priority registration for gym classes, a free upgrade to GymCrowd’s premium features, advertisements disabled on the app, or even moderator privileges on GymCrowd’s forums. With these incentives, we mitigate the possibility that our users won’t want to actively scan the machines in the gym and thereby minimize its usefulness. For us to continue to be financially viable, we need to ensure that our product is used as intended. Another financial concern that some have of our new business is that, once people have reviewed our historical data and determined when is the best time to go to the gym for their personal schedule, they will not need to use our app anymore. However, this risk is greatly mitigated by the very nature of our application. Unlike traffic on the freeways, crowding at the 7
  10. 10. gym can be very unpredictable. On a daily basis, the gym is never always crowded at the exact same time every same day of the week. The crowds at the gym are always changing due to various factors such as holidays, midterm exams, as well as the randomness of everyone’s daily lives. GymCrowd has the benefit of displaying in real-time how crowded the gym is at any given moment. To further take advantage of this, we will introduce a premium feature where we send our users text alerts when the gym is less crowded than the user’s selected Crowding Threshold. Moreover, if users did stop using our application, since we have already made the 99 cent sale for our customer to purchase our app, there is no financial loss if they stop using it. We would like our users to use GymCrowd for a long time, so they can encourage their friends to purchase it as well, but we will not experience any losses if they stop using our app after they’ve bought it. VII. Organization Our team’s organization is very important to us because we want our whole team to represent our broad venture vision so each team member can serve as an ambassador properly representing us to outside parties. We will only hire employees that share our passion and enthusiasm for working out at the gym and recognize the opportunity for us to start this venture. Only by being gym members who work out regularly do we fully appreciate just how frustrating it can be to arrive at the gym, only to find that it is overcrowded. We want this application to exist so badly, that we will be creating it ourselves. This shows our commitment to our venture, and our employees will have the same level of commitment since they share in our current frustration, and also long for the positive impact GymCrowd will provide. Each of our four founders will hold executive titles in our company. Filip Kik will be our CEO and President. He will be in charge of organizing negotiations and meetings with investors as well as local gym owners and filing any necessary legal paperwork. Taron Kephart will be Chairman of our organization. His responsibilities will involve the heavy marketing campaign to promote GymCrowd. Will Schoellkopf and Brad Shoemaker will both serve as Chief Technology Officers (CTO’s). Will will be designing the front end of our application and the look and feel of our user interface. Brad will be implementing the back end of our app and making it simple for our developers to make updates to our databases as necessary. The only additional early key employee we will need to hire will be a Chief Financial Officer (CFO). We will look to hire an individual with a strong background in financials of startup businesses, with an emphasis in the app industry, to help our company be financially stable and grow appropriately according to our financial forecasts. Filip and Taron have both earned aerospace engineering degrees from UCLA. Having graduated from a high-caliber school and developing a detail-oriented and problem solving mindset from their rigorous engineering curriculums, they have exactly the talents needed to grow GymCrowd into a profitable venture. Filip will do a thorough job to recruit investors and local gyms, and meet all our legal obligations. Taron’s critical thinking and creativity he has developed from imagining new and innovative airplane designs will lend itself well to him finding innovative ways to reach our audience. Both Will and Brad have earned computer science degrees from UCLA, so they have the necessary programming experience to develop our app. Our CFO will have the necessary business background to support all of our venture’s financial needs. 8
  11. 11. Instead of the usual hierarchical organization many companies follow, GymCrowd follows a flat organization (See Figure C in appendix). This allows all of the members of our team to be directly involved in the decision making process. Furthermore, it removes much of the risk for miscommunication amongst staff, and allows for each individual to have a complete understanding of the company’s vision and feel more like an integral part of our venture by promoting employee involvement. Each executive officer is expected to hire one to two more people to execute their particular functional department, leading to a total head count between ten and fifteen people. However, by keeping ourselves a small organization, we can use our flat organizational structure to rapidly respond to customer feedback as necessary and work as efficiently as possible. VIII. Financial Plan Resources  Physical Resources – In order to develop the app, several tools will need to be purchased and an office space must be leased out in order to maximize productivity. A small location can be found for around $1000 a month. Each of the three developers will need a laptop which will add about $1000 each or $3000 in total. In order to test the product, an Android phone and tablet, Windows phone and tablet, as well as an iPhone and iPad will be required, adding about $2000. Additionally, an extra $1000 must be set aside for miscellaneous technical purchases such as software licenses.  Financial Resources – To pay for the physical resources as well as salaries for the hired developers we will likely need to assistance of several angel investors. Financial Projections One Time Costs: $3000 – 3 laptops $2000 – Android, Windows and iOS devices to test on $1000 – Software license expenses =$6000 Monthly Costs: $1000 – office space $6000 – single employee salary $2000 – traveling/marketing costs =$9000 Determining the expected income is somewhat of a challenge since the growth rate of our app is difficult to estimate. Users will have 3 options in purchasing our app. The $0.99 version will display the primary population data that is the main draw of our product. Ads will be visible to earn increased revenue as well. A $1 fee can be paid in order to permanently remove these ads and allow the user a cleaner experience. The $2.99 premium version will block ads, allow the user to receive alert notifications whenever the gym is at a particular threshold, and grant access to a posting board to find other gym members for spotting or working out together. Alternatively, users can start at the $0.99 tier and earn karma points for a free upgrade to premium. Since most people are very price conscious, we can reasonably expect about 80% of purchases will be the $0.99, 10% will be $1.99, and the last 10% will be $2.99. The number of app purchases will be incredibly low at the start, but we expect it to begin picking up after a few months as it becomes 9
  12. 12. easier and easier to accommodate more gyms. Table D in the appendix shows our conservative estimated number of sales in each time period. The app will require 2 months of development during which no sales can be made. After completion, the number of sales starts very low since the number of gyms that support the product will be very small, but as it becomes applicable to more people, sales will grow at an extreme rate. Unfortunately, the market will eventually reach a point of lowered growth and sales are expected to remain consistent but still produce increased profit, especially when adding in ad revenue. From these estimated user values we can predict our revenue stream by the following formula: Revenue = (# sales) * [(0.99 * 0.8) + (1.99 * 0.1) + (2.99 * 0.1)] – 30% for app store cut. Also, we can make the assumption that each user will add $1 in ad revenue per year. This allows us to come up with a more direct formula by condensing the above and adding this fact: Revenue = (# sales) * 0.903 + (# sales total * 0.5) The 0.903 is the result of the number in the previous revenue equation, and we only take 50% of the number of app sales as users because we expect a high number to stop using the app after a short period. The results of the yearly revenues can be seen in the income statement in Figure F of the appendix. The cash flow plot as seen in Figure E in the appendix shows that the payback period lasts until just barely after the 2 year mark. Year 3 is profitable after just a mere week or two. The cash flow is most negative in the first year. Initial start-up expenses are $6000 and then throughout the year the spending outpaces the income. Year two will end that trend and set up our venture on the path towards profitability. The year end results will just barely miss the breakeven point, but year three will be the start of significant profits for each year. After the payback period we can expect continuous profit with small dips whenever the firm must expand and hire a new employee. This scenario is seen in the drop off between years 3 and 4. The employment expenses rose and it cut in deeply to the profits, but this is a consequence of a growing business and the decrease in profits should rebound as revenue grows further. Overall the company shall expect a consistent healthy profit even through years six, seven, and eight. IX. Financial Harvest Investors will inevitably want to reap in the rewards for the success of our app, and there are several traditional ways of doing this. An initial public offering won't work because we will not have a significant enough annual revenue. Our goal will therefore be to sell our firm to an acquiring firm. Fitness is a major industry and certainly there are several companies that could use our service to complement their offerings. In order to expedite the benefits towards investors, dividends will also be paid out in any year that net income exceeds $50,000 and this payment shall scale upwards from that value. We expect a few years of these dividends while we wait for a worthwhile offer from someone to purchase our company. 10
  13. 13. Appendix Figure A Figure B Figure C 11
  14. 14. 1st Month 2nd Month 3rd Month 4th Month 5th Month unreleased unreleased 2000 sales 4000 sales 6000 sales st nd rd th 1 Year 2 Year 3 Year 4 Year 5th Year 50,000 sales 125,000 sales 140,000 sales 145,000 sales 150,000 sales Figure D Figure E Year 1 2 3 4 5 Gross Profit 70150 200375 283920 360935 440450 Units Sold 50000 125000 140000 145000 150000 Marketing 20000 30000 30000 30000 30000 Employment 72000 144000 146000 220000 230000 Operational 6000 6000 20000 25000 180000 182000 270000 285000 -24850 20375 101920 90935 155450 Accumulated -24850 Income -4475 97445 188380 343830 3000 Total Expense 95000 Net Income Figure F 12
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