1. break some sh*t and get the f*ck back to work
Confidential Information Memorandum
Presented to:
Dr. Keith Ward
Prepared by:
Nathalie Phan
Louis Cooper
Grayson Harcourt
Tom Lu
May 8, 2016
3. 3
COMPANY OVERVIEW
Breakroom (the “Company”) is a revolutionary new business that is breaking into the stress relief
industry to provide employees and students alike a new and invigorating way to reduce
workplace stress. Sculpted out of the minds of four visionary St. Edward’s students in 2016, the
Company arose from the need to relieve stress and aggravation brought on by a mixture of
University and workplace duties and requirements. Now in the initial planning stages,
Breakroom is poised to smash into the market later this year with a nominal initial investment.
The Company
Breakroom is a mobile smashing room delivered to end clients to aid in stress relief efforts and
increase employee morale. Through intensive on-line content and guerilla marketing efforts, the
Company envisions explosive expansion and market penetration leading to great profits.
Breakroom’s guiding principles are best described in the Company’s mission statement:
Through personnel invigorated by explosive personalities and grounded in fundamental
customer service initiatives, Breakroom will provide superior, mobile, stress-relief
activities in a convenient environment.
The Team
Breakroom is pioneered by a group of visionary individuals with a diverse background of
building and operating a number of businesses. Initial team members include Nathalie Phan,
Louis Cooper, Grayson Harcourt, and Tom Lu. This energetic and motivated team is guided and
aided by a team of experienced entrepreneurs serving as the Company’s Board of Directors.
The Financials
Guided by a well versed Financial Breaker, Breakroom is poised to return an explosive ROI of
188%. Over a five year period, the Company will capitalize on a 60% gross margin to return a
total of over $4,000,000 to the equity investor.
The Pitch
Breakroom is currently in the development stages. Efforts are being made to secure naming
rights and establish the business as an LLC in Delaware. The Company is seeking a total of
$100,000, at an equal split of debt to equity, to fund the development of the Company’s first
trailer and establish services by August of 2016.
4. 4
COMPANY SERVICES
Breakroom is a B2B venture within the stress relief and mental health and wellness industry. The
business allows medium to large corporations or universities to order “breakrooms” that
conveniently set up and station themselves on the business’s own campus. The breakrooms are
designed to look like office spaces and include props such as tables, chairs, used electronics,
printers, and even guitars. After having signed liability forms, employees of each client are
allowed 5 or more minutes in the breakroom to smash the props with a metal bat while wearing
protective gear.
Market Comparison
While Breakroom does not have many direct competitors (and no direct competitors in Austin),
it indirectly competes with other stress relief businesses such as chiropractic clinics, yoga studios
& gyms, and spas & massage parlors.
Breakroom’s competitive advantage is that it offers businesses mobility and convenience and
that it is the first in the local market of its kind with the closest competition located in Dallas.
Chiropractic clinics
Our furthest competitors are the chiropractic clinics such as the American Chiropractic Clinic in
Austin that focuses on customers that see mostly physical pain rather than mental pain. Though
they are available in Austin, they lack mobile convenience, often require appointments, and can
be costly if certain medical treatments are required. They have a very narrow share of the market.
Yoga Studios & Gyms
There are a plethora of yoga studios and gyms in Austin that operate on donation-based pricing
or affordable monthly membership fees. While there are certain yoga studios that offer corporate
yoga sessions such as Being Well Yoga, sessions are longer than breakroom sessions, lasting
often 30 minutes to an hour. They also do not allow employees to smash objects as a form of
relief.
There are no Austin gyms that offer corporate workout sessions. There are startups and other
businesses like OwnLocal that pay for gym memberships for employees, but there are no
convenient options for workout sessions during office hours.
Spas & Massages
There are plenty of spas and massage parlors in the city of Austin such as multiple Massage
Envy locations. Some massage studios even offer corporate visits such as Hiatus in Austin.
However, these sessions are often not as cost effective as Breakroom sessions and do not offer
any physical activity in their stress relief.
Direct competitors
While there are a number of direct competitors such as Anger Room (Dallas, TX) and Rage
Room (Toronto, Canada), none of them offer the mobile convenience, have little to no
5. 5
proprietary value, can often be more expensive than Breakroom, and are not currently available
in Austin.
GENERAL MARKET COMPARISON
Stress
Relief
Available in
Austin
Mobile
Convenience
Smashing
objects?
Cost per
session
Chiropractic Clinics ✓ ✓ $$$
Yoga Studios / Gym Membership
✓ ✓ Sometimes $
Spas & Massage Parlors ✓ ✓ Sometimes $$
Other “smash rooms” ✓ ✓ $$
Breakroom ✓ ✓ ✓ ✓ $
Proprietary Rights
Breakroom wishes to patent a system that allows for easy and quick set-up and clean up before
and after each session. We are developing a treadmill-based system in our break rooms which are
set up in large trucks. The system will allow for scrap objects after each session to be removed
quickly and placed for recycling. Once all scrap materials are cleared, our team will be able to
quickly reassemble the rooms for more sessions.
We also hope to file for a registered trademark on “The Breakroom,” “Breakroom,” and our logo
as well as copyrighting any digital materials we produce on our website.
Stage of Development
Breakroom is a startup that is currently developing our proprietary system and should launch by
August 1, 2016. We already have a contractual agreement with St. Edward’s University as our
first client. We will be operating on the college campus for 5 days.
6. 6
INDUSTRY AND MARKETPLACE ANALYSIS
For Breakroom, there is little to no direct competition in this anger management sub-industry in
stress relief. Much of the closest competition comes from the spa and wellness industry. In 2013,
the spa and wellness industry generated $14.7 billion from 20,000 locations. This provides us
with some insight and information but our segment is so new that there is not as much
competition currently.
Wellness is all about making healthier lifestyle choices and maintaining your well-being not just
physically but mentally as well. In recent years, more people around the world have begun to
recognize wellness’ importance. This is a trend which has seen the overall value of the industry
increase year-on-year. The Spa and Wellness industry is expected to expand internationally to
$680 billion in revenue by 2017. This shows how our business could compete on an international
level with a market this big and so much still being spent in other countries.
With the giant corporations moving to Austin, and the Spa and Wellness industry as a whole is
expanding, I believe we have a great opportunity here in Austin, Texas, for Breakroom. It’s easy
for employees to get lost in the flow of business. So Breakroom and other competitors offer ways
for these employees to increase job satisfaction, productivity, efficiency, and others.
We conducted a survey about stress and anger relief in relation to support from jobs (see the
following page for results). What our survey showed us is that a majority of people would be
interested in smashing things to relieve stress and improve employee engagement, and many of
those who said yes stated that their current job does not offer any alternatives or any sort of stress
relief at all. After realizing this, we knew we had an opportunity.
Our direct customers will mainly be young professionals, 22-34, who work in these large
corporate companies. Many times, these employees can become alienated or stressed out from
work. Breakroom would give these employees and opportunity to relieve stress while keeping
the employees on site. This can help increase productivity, efficiency, and teambuilding as well.
As previously stated, this market is relatively untapped. In regards to our form of stress relief, the
closest competition is the “Anger Room” in Dallas, Texas. They operate in a similar function to
us, except they are a brick and mortar establishment. Our competitive advantage is our mobility
and ability to come to your business. Otherwise, many companies would have to take a larger
portion of their day off for stress relief to visit this location.
We currently only have two direct competitors that we know of: Anger Room in Dallas, Texas
and Rage Room in Toronto, Canada. Both competitors operate in the same fashion, with a brick
and mortar establishment. Rage Room currently offers other ‘battle sports’, such as archery
dodgeball and Dart of war. With Austin becoming the new Silicon Valley of the South, many
large corporations are moving here. This gives us ample opportunities to create long-term
contracts with these companies employing 500+ people per location.
In this industry, there are not many indirect competitors. Our main indirect competition is the US
health club industry and also the US yoga and Pilates industry. These industries accounted for a
7. 7
combined revenue of $29.25 billion in 2013. Yoga and Pilates offer a, shall we say, gentler stress
relief. Health clubs offer many amenities such as basketball, weight training, dance classes, and
swimming to help relieve stress and exercise (Statista).
Survey Results
8. 8
MARKETING STRATEGY
Service Strategy
Target markets include all business sizes within the following verticals:
Corporate executives
Business executives
Front line and mid-range employees
Student intensive locales
Breakroom will heavily focus on content marketing through blog posts, white papers, sales
collateral, and press. Breakroom’s first step in its overall service strategy will be to raise brand
awareness with the primary target market: mid-size corporate executives/decision-makers. The
Chief Marketing Officer (referred to as the “Marketing Breaker”) will be primarily to aggregate
data and conduct ongoing research in order to create and provide sales collateral and marketing
materials. The company’s position as the first and only stress relief program of its kind in the city
of Austin and the only strictly B2B business in the nation will be greatly emphasized.
Pricing Strategy
Breakroom is a relatively affordable way to relieve stress. Being one-of-a-kind, Breakroom must
compete only with indirect competitors within the stress relief industry such as commercial yoga
instructors and mobile massage therapy businesses. Client companies are expected to pay for
these programs on behalf of their employees. Each 5-minute session in the Breakroom will cost
$25 per person. Companies larger than 100 people will receive a 10% discount.
Advertising and Promotion Strategy
Breakroom’s main goal in its promotion strategy is to reach decision-makers by maintaining a
regularly updated blog on its main website, creating a weekly newsletter, reaching out and
pitching to media companies to feature the business in business magazines such as Inc,
Bloomberg Magazine, Fortune Magazine, Forbes, Harvard Business Review, and Fast Company
both online and in print. Breakroom will also be implementing a social media campaign to target
and gain awareness from corporate employees through Facebook, Twitter, and Instagram. The
main social media network used, however, will be LinkedIn. The company will create blog posts
through LinkedIn and post company updates as well as third party relevant articles.
Another promotions strategy is focused on yearly SXSW demos. Each year, Breakroom will host
events to gain awareness in the market and provide discounted sessions to attendees of the
events.
Lastly, Breakroom will depend heavily on SEO, optimizing for search phrases an keywords such
as “employee stress,” “stress relief,” “Austin stress relief,” “austin breakroom,” “business stress
relief,” and similar terms.
9. 9
Sales Strategy
Using content management systems and CRM software, the Marketing Breaker and Executive
Breaker will be responsible for generating leads and overall business development throughout
the first two years. This includes reaching out to business executives and pitching the service to
various potential clients. Once contact is made either in person or via email or phone call, leads
will be sent a couple of marketing promotional items (koozies, magnets, pens, etc.) in the mail 1
week following and again the week after with an invitation to follow up. After each step in this
process, the Marketing Breaker is to record progress within the CRM program.
Marketing and Sales Forecasts
The current stress relief industry in Austin is comprised of 2,017,008 business employees
(Bureau of Labor Statistics). Assuming Breakroom enters the market with one operating trailer
(three breakrooms) and adds one trailer each year thereafter, the business is expected to serve
nine people per day for five days a week and gradually see a monthly 1.5% increase of market
share. If the business operates at an assumed 8 hours per day and 20 days per month, the initial
market share for the first full year of operations will be 0.19% and grow to 3.25% by the year
2021. (Fig. 1)
Figure 1
As discussed in the financials section, the major assumption of our business model is that 50% of
customers will choose the 5-mintue smashing option, 25% of customers prefer to the 10-mintue
smashing option, and the last 25% of customers will select the 15-minute smashing option. There
are additional 5 minutes to cleanup and re-installment after every smashing service and there are
extra 3 minutes for margins of error. Therefore, the average selling price is 40 dollars and the
average service time will be 17 minutes. (Fig. 2)
11. 11
OPERATIONS
Breakroom is a mobile stress relief service. We come to your business, park our trailer in an
appropriate spot in a parking lot or common space, and let the employees have their turn
relieving stress and anger one by one. With many large corporations relocating to Austin, this
gives us ample opportunities to create long-term contracts with companies such as Dell,
Facebook, and Google. This mobility is what sets us apart from our competitors, such as Anger
Room in Dallas and Rage Room in Toronto.
Operations Strategy
Our strategy is straightforward and stems from our slogan: break some sh*t and get the f*ck back
to work. We believe our competitive advantage of being mobile is what companies need for
stress relieving and employee engagement. When many companies have team building and
employee engagement events, they usually require taking a majority of a day off of work which
can result in lower revenues. Our business model allows these employees to stay on campus,
relieve their stress or anger, and go back to their jobs. This could increase productivity,
efficiency, and even the overall well-being of an employee.
Scope of Operations
Our business practices and operations will all be controlled internally and ran by us. We will be
in charge of our own accounting, payroll, marketing, HR, etc. Everything we use will be created
in the United States except for our bulk items purchased from China.
Ongoing Operations
Beginning August 1st of this year, we will have our first trailer. This will have one driver with
three break rooms operating eight hours a day, five days a week. One of the upper management
team members will be the first temporary driver until we find someone else full-time. We will
train drivers as well when they are hired. The upper management team will be working together
as a whole and will continue their associated duties. As the business grows, we expect to add one
trailer and one driver every year for the projected five years. This will give us some tangible
assets to sell with the business after this anticipated five-year period.
Operating Expenses
Our operating expenses will be mainly upfront costs and maintenance costs. Some upfront costs
are purchasing and customizing of our trailer, protective gear, and the truck lease. There are also
variable expenses such as fuel, bulk purchases of items, and others that can add up. Our cost of
goods sold are held at 40% of total revenues. According to our calculations, the average service
will cost $40 and last 17 minutes. Coming from our income statement, our projected operating
expenses for 2017 total to $153,980. We expect that to rise another $120,000 in 2018 but we
have projected that we will be profiting as a business as of this point.
12. 12
MANAGEMENT
Organization
As mentioned earlier, Breakroom will be established in Delaware as Limited Liability Company.
The Company will initially be managed by a team of four members in addition to a Board of
Directors (the “BoD”). The BoD will perform oversight duties to ensure the proper Company
trajectory is followed as well as acting as a knowledge base for the management team to seek
advice from. A Breakroom organization chart is as follows:
The Team
Board of Directors
The Board of Directors will initially include three visionary members who are leaders within
their respective industries. The first three members include:
Chris Shonk: Chris is the founder of ATX Seed Ventures and owner or operator of
most all Texas locations of Massage Envy.
Gordon Logan: Gordon is the founder and CEO of Sports Clips.
Chad Jernigan: Chad is a serial entrepreneur and the founder of Diff Eyewear and
Aurora Vizion.
Management Team
The management team is built from an enterprising mix of recent college graduates who have a
diverse background of experience. Together, they have over 20 years of experience building and
operating a diverse set of businesses. While a complete set of resumes may be found in Exhibits
A – D, a short description of positions is as follows:
Grayson Harcourt: Grayson has a diverse 15 year history of building and managing
businesses in verticals such as education and manufacturing. Grayson will act as the
Company’s Executive Breaker.
Louis Cooper: Louis has a broad range of experience including marketing, sales, and
operations in industries such as music, hospitality, and entertainment. Louis will serve
as the Company’s Operations Breaker.
BoD
Grayson
Harcourt
Nathalie Phan
Louis Cooper
Tom Lu
13. 13
Tom Lu: Tom has a wide range of financial experience gained from companies in the
payment-processing and trading industries. Tom will act as Breakroom’s Financial
Breaker.
Nathalie Phan: Nathalie has a wide range of experience that includes founding her
own streaming music business and performing a gambit of marketing activities.
Nathalie will serve as Breakroom’s Marketing Breaker.
While members of Breakroom hold official titles, and have duties that are to be expected with
such titles, all members will work to establish and grow the business. In similar fashion then,
most of the members will receive compensation only through distributed profits. As the
Company’s operating executive, Grayson will receive an annual salary of $40,000 to both build
and operate the first trailer. As the business grows, additional employees will be hired at a
comparable salary to operate additional trailers.
Administrative Expenses
Administrative expenses for Breakroom are almost entirely made up of salaries and related
benefits. On top of the $40,000 salaries, this expense vertical includes credit card processing
fees, telephone expenses, website expenses, and other related items.
14. 14
FINANCIALS
Please refer to Exhibit 1 through Exhibit 19 for detailed financial figures.
Assumptions and Forecasts
The major assumption of the financial model is that 50% of customers will choose the 5-mintue
smashing option, 25% of customers will choose the 10-mintue smashing option, and the last 25%
of customers will select the 15-minute smashing option. There are additional 5 minutes budgeted
to cleanup and reconfigure after every smashing service and there are an extra 3 minutes for
various margins of error. Therefore, the average selling price is 40 dollars and the average
service time will be 17 minutes.
A 42 foot long trailer, which costs $36,000 to purchase and modify, will be separated into 3
smashing rooms and 1 storage room. We can serve 86 people in an 8-hour day and 1,719 people
in a 20-day month on the condition of reaching maximum capacity. We believe we can only
serve 10% of the maximum capacity, which is 9 people a day in the first operating month. The
percentage of capacity we service will grow by 1.5% every month in the first operating year. In
year two, the percentage of capacity that we serve will grow by 2% every month, with 2 trailers
and 6 smashing rooms in service. In year three, the percentage of capacity will grow by 2%
every quarter, with 3 trailers and 9 smashing rooms in service. In year four and five, the
percentage of capacity will grow by 4% on year to year basis, with 4 and 5 trailers respectively.
To serve the increased amount of customers, the company will hire one additional full-time
employee every year (Exhibit 14).
The cost of things that people will break is intentionally kept at 40% of the selling price. For
example, in a 5-minute smashing option, a customer will smash a total value of 10 dollar things.
We will buy things in bulk from Alibaba to keep costs low and refill our inventories every
month. With our calculation, in a 5-minute smashing option, a customer can break 4 coffee cups,
3 plates, 2 phones, 1 printer, 1 laptop, 1 fan, 1 printer, 1 folding table, and 1 small guitar (Exhibit
13).
In the first operating year, we believe marketing is very crucial, so we planed to spend a total of
$58,000, which includes content marketing, lead generation, flyers, guerilla marketing, on-line
videos, and social media. The costs are based on the average prices people are paying in the
market today. In year two and four, we use the same marketing materials from the first and third
year, respectively. In year three and five, we refresh our advertisements by allocating more
budget to marketing expenses (Exhibit 15 – Exhibit 18).
Since Breakroom is set up as a limited liability company, the company itself does not generate
any tax expense. In the first year, we have a net loss of $71,781; however, we are able to yield a
net income of $116,899 by scaling our operation with multiple trailers (Exhibit 1 – Exhibit 4).
In the case of breakeven analysis, we need to serve at least 5,223 customers in year one, 12,418
customers in year two, 21,844 in year three, 30,213 in year four, and 39,303 in year five to
breakeven (Exhibit 19).
15. 15
Capital Requirements
To support the operation, we need to raise a total of $50,000 in equity and $50,000 in debt. The
funds we raise will cover the first 42ft trailer with modification, a truck lease, the purchase of
inventory to break, insurance for one year, some miscellaneous expenses, marketing expenses for
the first half of the year, legal expenses, and some cash reserves. (Exhibit 9 – Exhibit 12).
Financial Risks
The major risks of the operation are the costs of fuel, shipment costs of purchasing items from
China, and the interest rate. The price of fuel is on the raising trend, which will incur additional
costs on transportation and shipment from China. Because Breakroom is only a startup company,
the bank will charge us a higher interest rate. In the financial model, we assume the bank charge
us a rate of 7% per annum; however, it could be higher. The availability of the inventory will
also be an underlying risk within the operation of Breakroom.
Exit Strategies
Breakroom will issue 50% of the net income as dividends in year 2, 80% in year 3, and 90% in
year 4 and 5 to our equity investors, and sell the company in year 5 at an EBITDA multiple of
3.5x for a value of $3.2 million. With strong dividends and a promising terminal value, our
equity investors have a potential to earn a ROI of 188 percent. As for the debt investor,
Breakroom will pay 7% on the outstanding balance and a pay-down factor of 5% every year with
5% of the line of credit secured by the inventory. As a result, the debt investor will earn a ROI of
7.12 percent.
16. 16
FUNDING REQUEST
Dear Potential Investor:
Thank you for the opportunity to be considered as a potential investor of Breakroom. We believe
Breakroom is your gold mine to earn 188% ROI while also pioneering a new business vertical.
Have you ever felt so stressed at work that you wanted to break something? Breakroom operates
in a stress relieving industry. We provide mobile stress relieving solutions to raise morale and
engagement in stressful working environments. We drive a trailer from companies to companies
and offer employees stress relief by breaking things like guitars, TVs, phones, and printers in our
safe and secure trailer. In the first two operating years, we only target businesses in the greater
Austin area. After then, we expand our operations to other major cities throughout Texas.
Breakroom is seeking $50,000 in equity and $50,000 in debt to support the development of the
business. The funds will cover the items shown in the following table:
In the case of breakeven analysis, we need to serve 14 customers per service room in a day to
break even. For our equity investors, Breakroom will issue 50% of net income as dividends in
year 2, 80% in year 3, and 90% in year 4 and 5. In year 5, we intend to sell Breakroom at an
EBITDA multiple of 3.5x representing a value of $3.2 million. With outstanding dividends, you
have the opportunity to earn 188% return on investment in five years.
Although the business is expected to operate at a loss in the first year, due to intensive marketing
campaigns to strengthen brand awareness, said losses can be used as tax credits for your
advantage. We believe Breakroom will be sustainable and stable in early year 3 as the Company
maintains a net profit margin of 31.5% from then on.
Are you stressed about not earning 188% ROI? Good – invest with Breakroom and relieve it!
Sincerely,
Breakroom
