Final PaperName: Nasir KhanProfessor: Satesh Bargava Class: EMGT338 Marketing Management Date Due: 06/09/12

1.0 Executive Summary

Pak-Net will provide a unique forum for communication and entertainment through the medium of public Internet access. In the first year, we will set up 35 Internet-enabled pay-stations backed up by UPS (Uninterrupted Power Supply) system in public spaces throughout Islamabad, in locations frequented by business travelers and students, but with no nearby internet cafes or other similar competition. The UPS system will give users the chance to save their data in case of emergency power outage which is fairly frequent in Pakistan due to significant power short fall causing heavy load and hence the power outage. Our flagship location will be next to the bus and train station, where, for less than a dollar, travelers can check email, locate phone numbers, and look up directions on any of the multiple online-mapping sites. They can also simply surf the net, as their time and budget allows. By accepting both real money and credit cards, we can catch both the casual browser and the traveler with money to burn.

Our business plan is prepared to obtain financing in the amount of ~$300,000. The supplemental financing is required to begin the purchase of public Internet terminals, the purchase of an office warehouse, office equipment and supplies and company vehicles, and to cover expenses in the first year of operations. Additional financing has already been secured in the form of $10,500 of personal savings from founders and a long-term loan of $100,000.

Pak-Net will be incorporated as a Limited Liability Corporation. This will shield the owners from issues of personal liability and double taxation. The investors will be treated as shareholders and therefore will not be liable for more than their individual personal investment of $5,250 each.

The financing, in addition to the capital contributions from the owners, will allow us to successfully open and maintain operations through year one. The large initial capital investment will allow us to provide its clients and customers with the most innovative public Internet terminal available. Successful operation in year one will provide Pak-Net a customer base that will allow it to be self-sufficient in year two.

For an investment of ~$300,000, we project dividends of $100,000 in year two, and $200,000 in year three, depending on cash flows. These projections are based on actual business revenues from similar start-up customers of our internet kiosk supplier in other cities and provinces. In the first year, with a break-even point of $38,557 per month, we expect revenues of $727,071 and net profit of 22.87%, or $166,311. By year three, revenues will increase to $1,136,067, and the net worth of Pak-Net will increase to $610,320. Dividends thereafter will depend on cash flows; in year five, investors will have the option of being bought out by the company owners.

1.1 Mission: As the popularity of the Internet continues to grow at an exponential rate, easy and affordable access is quickly becoming a necessity of life. Pak-Net will provide internet users and business travelers alike the ability to access the Internet, via our public Internet terminals or a wireless Wi-Fi connection with UPS system integrated.

1.2 Objectives: Pak-Net's objectives for the first year of operation include:

The introduction of an innovative product that offers an affordable and convenient way for Internet users to access the Internet away from home.  

The creation of a unique environment that allows traveling business people access to their own files and programs.

The placement of 35 public Internet terminals operating throughout Islamabad.

For the following two years our growth objectives includes:

A growth in public Internet terminals placed by 20% each year. A growth in revenues by 25% per year.

2.0 Company Summary

2.1 Ownership: Pak-Net is a privately-held Limited Liability Corporation. Cofounder 1 and Cofounder 2, co-founders of the company, hold equal stock positions of 26% each as majority owners. Investors will receive one share of Pak-Net stock for every $6,244 of investment, up to 48%.

2.2 Start-up Summary: Start-up costs will cover the purchase of public Internet terminals (our long-term assets), the purchase of an office warehouse, office equipment and supplies, company vehicles, capital to cover losses in the first year, and capital to cover any and all expenses required to operate business on a daily basis for the first year.

Start-upStart-up ExpensesMarketing/Advertising $4,000 Design Fee $14,100 Freight $6,250 Utilities $500 Professional Fees $1,500 Insurance $1,500 Supplies $500 Postage $111 Total Start-up Expenses $28,461

Start-up AssetsCash Required $60,000 Other Current Assets $11,400

Long-term Assets $312,810 Total Assets $384,210 Total Requirements $412,671

Start-up FundingStart-up Expenses to Fund $28,461 Start-up Assets to Fund $384,210 Total Funding Required $412,671

Assets Non-cash Assets from Start-up $324,210 Cash Requirements from Start-up $60,000 Additional Cash Raised $0 Cash Balance on Starting Date $60,000 Total Assets $384,210

LiabilitiesCurrent Borrowing $0 Long-term Liabilities $100,000 Accounts Payable (Outstanding Bills) $2,500 Other Current Liabilities (interest-free) $0 Total Liabilities $102,500

CapitalPlanned InvestmentCofounder 1 $5,250 Cofounder 2 $5,250 Additional Investment Requirement $299,671 Total Planned Investment $310,171 Loss at Start-up (Start-up Expenses) ($28,461)Total Capital $281,710 Total Capital and Liabilities $384,210 Total Funding $412,671

3.0 Product & Services

Pak-Net public Internet terminals will provide customers full access to email, video email, WWW and other applications such as a prepaid storefront. All the kiosks and stations will be backed up by the UPS system.

3.1 Product and service description:

Walk-up Internet Access: Customers pay with either cash or credit card and receive a specific amount of time on the terminal in exchange for their payment. Customers can surf the Internet, check email and send video email.

Wireless Internet Access: Away from the home, Wi-Fi users can access the Internet through our Wireless Hotspots.

Prepaid Storefront: An application that allows customers to purchase products such as Prepaid Calling Cards, Prepaid Wireless Top-up, and Prepaid Mobile Content (games, graphics, ring tones, etc.).

Multimedia Advertising: Companies can advertise using multimedia on-screen advertisements.

Technical Specifications:

Wheelchair Accessible Front access for easy service and maintenance 15.1 inch touch screen LCD monitor Industrial spill and vandal proof keyboard Web Camera with integrated microphone Bill Acceptor and Credit Card Reader Stereo Speakers Wireless Router

PC Specifications:

2.4GHz Intel Celeron Processor 40GB hard Drive 256MB DDR-RAM 52X CD-ROM CD Drive Windows XP Professional 3-Year Hot swap

UPS Specifications:

33% Faster recharging with transfer time of 3ms 600 VA / 360W Capacity with run time of ~17m 230 VAC Input Voltage 140-300 VAC Input Voltage Range 12V7AH x 1

3.2 Competitive Comparison: Pak-Net will be first to place public Internet Terminals in Islamabad. Pak-Net will differentiate itself from other providers in Pakistan by providing its customers with the ability to save their data using UPS as the power backup system.

4.0 Market Analysis Summary

Pak-Net is faced with the exciting opportunity of being the first-mover in the Islamabad public Internet market with UPS system. The National Data Corporation of Pakistan shows that there are more than 18 Million internet users in Pakistan and predicts that by 2013 this is to hit 22 Million (~19% increase rate) off which on average 4.3 Million will be using the service we plan to bring to the market. Our increasingly mobile society manes that a large percentage of these users will access the Internet through public Internet terminals. Research has confirmed that the demand for public Internet terminals is growing exponentially.

4.1 Market Segmentation: Pak-Net's target market includes people between the ages of 18 and 65. According to the 2011 Pakistan Census, Islamabad and its suburbs has roughly 600, 000 residents between the ages of 18 and 65. Of these, many are already internet-savvy. Within this group, we will target two groups in particular:

Students Traveling Business People

Market Segment Analysis

StudentsBusiness peopleOthers

4.2 Competition: The main competitors in the public Internet terminal in Pakistan segment are Brain Net and GWP (Go Wireless Pakistan). However, these businesses have yet to offer the UPS system and establish a presence in Islamabad and the immediate surrounding areas.

Brain Net 40% GWP 35% Others 25%

Brain NetGWP

4.3 Target Market Segment Strategy: Pak-Net's public Internet terminals with UPS system will be a magnet for local and traveling professionals who desire to work or check their email messages away from the office and have the ability to save their data in case of power outage. These professionals will either use our terminals, or connect their notebooks to our wireless Wi-Fi Internet connection.

5.0 Strategy and Implementation Summary

The important strategy focuses on pulling in power Internet users. Power Internet users are extremely familiar with the Internet and its offerings. This group of customers includes students and business professionals. The second strategy focuses on building a large loyal customer base. A large loyal customer base will serve to attract large, medium and small companies as clients for our interactive advertising service.  All of the advertisements can connect the user to the advertiser's web site. Due to the high traffic locations in which our public Internet terminals will be placed, this advertising space will be in high demand.

5.1 Value Proposition: “For students and business travelers, Pak-Net unlike existing providers, will be a provider of convenient and easy access to wireless high-speed Internet connectivity backed-up by UPS (uninterrupted power supply) system that gives users a chance to save their data in case of emergency power outage.”

Pak-Net will differentiate itself by providing the community with an innovative product that offers a convenient and affordable way to access the Internet away from home and the office along with the power outage back-up system. We will enjoy the traditional benefits of being first to the market. As a small company looking to establish itself, we will be attentive and flexible in meeting our customers' demands.

5.2 Key Milestones: The Pak-Net management team has established key milestones to keep the business plan priorities in place. Responsibility for implementation falls on the shoulders of Cofounders. This Milestones Chart below will be updated as the year progresses using the actual tables. New milestones will be added as the first year of operations commences.

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5.3 Marketing Strategy: Pak-Net will position itself as an aggressive, innovative company that supplies the market with an affordable way to access the Internet away from home and the office. Pak-Net will use advertising as its main source of promotion. We will acquire the services of Khan Communications Group and Pakistan Mark International, Inc. to launch a diverse advertising campaign placed on television, radio, the Internet and in the local newspaper. 

Our brochures, letterhead and business correspondence will further reinforce these concepts. We also recognize that it costs six times more to attract a customer than to retain one. With this in mind, we will operate under the principle that our best marketing is an exceedingly satisfied customer.    

5.4 Pricing: Pak-Net bases its prices for Internet and wireless Wi-Fi usage on the "retail profit analysis" provided by our supplier, A-One, Inc. They have been in the industry for 5 years and have developed a solid pricing strategy.

Determining a fair-market, per-transaction fee for Internet and wireless Wi-Fi usage is more difficult because there is no direct competition from another public internet terminal business in Islamabad. Therefore, we considered two sources to determine the hourly charge rate. First, we considered the cost to use other Internet servers, whether it is a local networking firm or a provider. Internet access providers use different pricing schemes. Some charge a monthly fee, while others charge an hourly fee. In addition, some providers use a strategy with a combination of both pricing schemes. Thus, it can quickly become a high monthly cost for the individual. Second, Pak-Net looked at how public Internet terminals in other markets, such as India and Bangladesh, went about pricing Internet access.  Evaluating these two factors resulted in the following:

Walk-up Internet Access - Customers utilizing the terminals for internet access will be charged a .25 per minute transaction fee.

Wireless Internet Access - Customers utilizing the wireless Wi-Fi connection will incur a fee of $3.95 per hour with a one hour minimum.

5.5 Promotion Strategy: Pak-Net will implement a pull strategy in order to build consumer awareness and demand. Initially, Pak-Net has budgeted $5,000 for promotional efforts. Pak-Net realizes that in the future, when competition enters the market, additional revenues must be allocated for promotion in order to maintain market share.

5.6 Sales Strategy: Pak-Net employs route operators to collect all sales transactions and to perform routine maintenance on its terminals. Each route operator is responsible for keeping the terminals on his route stocked, clean and operational. Our Sales Forecast is based upon real revenue reports from other customers of our supplier A-One, operating in similar setting. Prepaid products and advertising will yield the greatest revenue per unit, but we expect the greatest number of transactions will be in walk-up internet access and Wi-Fi access.

Sales Forecast Years Year 1 Year 2 Year 3

Unit SalesWalk-Up Internet Access 48,787 60,984 76,230 Wireless Wi-Fi Access 23,092 28,865 36,081 Prepaid Products 19,677 24,596 30,745 Multimedia Advertising 5,854 7,318 9,147 Total Unit Sales 97,411 121,763 152,203

Unit Prices Year 1 Year 2 Year 3Walk-Up Internet Access $3.00 $3.00 $3.00 Wireless Wi-Fi Access $3.95 $3.95 $3.95 Prepaid Products $10.00 $10.00 $10.00 Multimedia Advertising $50.00 $50.00 $50.00

SalesWalk-Up Internet Access $146,361 $182,951 $228,689 Wireless Wi-Fi Access $91,215 $114,017 $142,521 Prepaid Products $196,774 $245,963 $307,453 Multimedia Advertising $292,721 $365,875 $457,344 Total Sales $727,071 $908,806 $1,136,007

Direct Unit Costs Year 1 Year 2 Year 3Walk-Up Internet Access $0.60 $0.60 $0.60 Wireless Wi-Fi Access $0.40 $0.40 $0.40 Prepaid Products $1.00 $1.00 $1.00 Multimedia Advertising $5.00 $5.00 $5.00

Direct Cost of SalesWalk-Up Internet Access $29,272 $36,590 $45,738 Wireless Wi-Fi Access $9,122 $11,402 $14,252 Prepaid Products $19,677 $24,596 $30,745 Multimedia Advertising $29,272 $36,588 $45,734 Subtotal Direct Cost of Sales $87,343 $109,176 $136,470

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Yearly sales trend per serviceMultimedia AdvertisingPrepaid ProductsWireless Wi-Fi AccessWalk-Up Internet Access

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6.0 Staffing Plan

Pak-Net is owned and operated by the two founders. The company, being small in nature, requires a simple organizational structure. Implementation of this organizational form calls for the owners to make all of the major management decisions in addition to monitoring all other business activities.

The staff will consist of 8 full-time route operators working forty hours a week at $10.00 per hour. In addition, one full-time technician (who is more technologically oriented to handle minor terminal repairs/inquiries) will be employed to work forty hours a week at $12.00 per hour. This simple structure provides a great deal of flexibility and allows communication to disperse quickly and directly. Because of these characteristics, there are few coordination problems seen at Pak-Net that are common within larger organizational chains. This strategy will enable Pak-Net to react quickly to changes in the market.

7.0 Financial Plan

Sales: Pak-Net is basing their projected Internet usage sales on the financial snapshot information provided to them by A-One, Inc. Internet usage was estimated by calculating the average number of minutes each customer will spend accessing the Internet and then generating a conservative estimate as to how many transactions will be made per day.

Cost of Goods Sold: The cost of goods sold was determined by the "retail profit analysis" we obtained from A-One, Inc. The cost of prepaid calling cards is 20% of the selling price. The cost of Internet access is $50 per month, paid to another supplier for networking fees. The cost of terminal placement is 20% of total internet access sales.

Salaries Expense: The founders of Pak-Net will each receive a salary of $42,889 in year one, $49,680 in year two, and $59,616 in year three.

Payroll Expense: Pak-Net intends to hire eight full-time employees at $10.00/hour and a full-time technician at $12.00/hour. The total cost of employing nine people at these rates for the first year is $14,720/month.

Rent Expense: Pak-Net is looking to purchase a 2200 square foot facility at $104.74/sq. foot.

Utilities Expense: Pak-Net is responsible for the payment of utilities including electric, water and garbage disposal. The basic monthly service charge for utilities expense will be $168.04. The phone bill will generated by five phone lines; one will be dedicated to a modem and four for business purposes. The basic monthly service charge for each line provided by Bellsouth is $59.95/month. Therefore, the total cost associated with the five phone lines is estimated at $299.75/month.

Marketing Expense: Pak-Net will allocate $50,000 for promotional expenses at the time of start-up. These dollars will be used for advertising on television, radio, the Internet and the local newspapers in order to build consumer awareness. For additional information, please refer to section 5.0 of the business plan.

Insurance Expense: Pak-Net has allocated $1,500 for insurance for the first year. As revenue increases in the second and third year of business, Pak-Net intends to invest more money for additional insurance coverage.

Legal and Consulting Fees: The cost of obtaining legal consultation in order to draw up the paper work necessary for client contracts is $1,500.

Depreciation: In depreciating our capital equipment, we used the Modified Accelerated Cost Recovery Method. We depreciated our terminals over a three-year time period.

Taxes: Pak-Net is an LLC and, as an entity, it is not taxed. However, there is a 10% payroll burden.

7.1 Break-even Analysis: Break-even data is presented below. With estimated monthly operating expenses at approximately $37,400, including everything from payroll to rent and insurance to maintenance of the kiosks, and average direct costs at roughly 90¢ for every $7.46 of sales, we reach break-even at approximately 5,171 sales per month. We project reaching the break-even point in the seventh month.

Break-even Analysis

Monthly Units Break-even 5,171 Monthly Revenue Break-even $38,579

Assumptions:

Average Per-Unit Revenue $7.46 Average Per-Unit Variable Cost $0.90 Estimated Monthly Fixed Cost $33,925

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SalesFixedTotal CostBEU approx. =5171.49390243903

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7.3 Projected Profit and Loss: Table below contains our projections for profit and loss data. We anticipate a net profit of approximately $166,311 in the first year, as the Pak-Net idea catches on and sales increase. With a net profit margin of ~23%, these projections are well within a reasonable range.

Profit and Loss Year 1 Year 2 Year 3

Sales $727,071 $908,806 $1,136,007 Direct Cost of Sales $87,343 $109,176 $136,470 Other $0 $0 $0 Total Cost of Sales $87,343 $109,176 $136,470

Gross Margin $639,728 $799,630 $999,537 Gross Margin % 87.99% 87.99% 87.99%

ExpensesPayroll $284,498 $309,440 $397,952 Sales and Marketing and Other Expenses

$53,598 $59,174 $68,279

Depreciation $44,676 $45,000 $45,000 Utilities $5,613 $6,174 $6,792 Insurance $1,500 $6,000 $7,500 Maintenance/Repairs $3,500 $4,200 $5,800 Travel $13,717 $24,652 $29,961

Payroll Taxes $0 $0 $0

Total Operating Expenses $407,102 $454,640 $561,284 Profit Before Interest and Taxes $232,626 $344,990 $438,253 Earnings before Taxes, depreciation, & amortization $277,302 $389,990 $483,253 Interest Expense $10,877 $8,500 $7,500 Taxes Incurred $55,437 $84,122 $109,483

Net Profit $166,311 $252,367 $321,270 Net Profit/Sales 22.87% 27.77% 28.28%

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7.4 Projected Cash Flow: Cash flow data for the first three years is presented in the table below. The table shows anticipated repayment of the long-term loan, as well as projected dividends which will be paid to investors in years two and three. In year three, we will purchase two more pay kiosks terminals for new locations.

Cash Flow Year 1 Year 2 Year 3

Cash Sales $727,071 $908,806 $1,136,007 Subtotal Cash from Operations $727,071 $908,806 $1,136,007 Additional Cash ReceivedSales Tax, VAT, HST/GST Received $0 $0 $0 New Current Borrowing $0 $0 $0

New Other Liabilities (interest-free) $0 $0 $0 New Long-term Liabilities $0 $0 $0 Sales of Other Current Assets $0 $0 $0 Sales of Long-term Assets $0 $0 $0 New Investment Received $0 $0 $0 Subtotal Cash Received $727,071 $908,806 $1,136,007

Expenditures Year 1 Year 2 Year 3Expenditures from OperationsCash Spending $284,498 $309,440 $397,952 Bill Payments $184,060 $327,202 $366,049 Subtotal Spent on Operations $468,558 $636,642 $764,001

Additional Cash SpentSales Tax, VAT, HST/GST Paid Out $0 $0 $0 Principal Repayment of Current Borrowing $0 $0 $0 Other Liabilities Principal Repayment $0 $0 $0 Long-term Liabilities Principal Repayment $10,000 $10,000 $10,000 Purchase Other Current Assets $0 $0 $0 Purchase Long-term Assets $0 $0 $40,000 Dividends $0 $100,000 $200,000 Subtotal Cash Spent $478,558 $746,642 $1,014,001

Net Cash Flow $248,513 $162,163 $122,006 Cash Balance $308,513 $470,676 $592,682

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7.5 Balance Sheet: Our projected balance sheet is presented in the table below. As sales increase, and we repay our long-term loan, the net worth of the company will increase from start-up to year three.

Balance Sheet Year 1 Year 2 Year 3

Assets

Current AssetsCash $308,513 $470,676 $592,682 Other Current Assets $11,400 $11,400 $11,400 Total Current Assets $319,913 $482,076 $604,082

Long-term AssetsLong-term Assets $312,810 $312,810 $352,810 Accumulated Depreciation $44,676 $89,676 $134,676 Total Long-term Assets $268,134 $223,134 $218,134 Total Assets $588,047 $705,210 $822,216

Liabilities and Capital Year 1 Year 2 Year 3

Current LiabilitiesAccounts Payable $50,026 $24,822 $30,558 Current Borrowing $0 $0 $0 Other Current Liabilities $0 $0 $0 Subtotal Current Liabilities $50,026 $24,822 $30,558

Long-term Liabilities $90,000 $80,000 $70,000 Total Liabilities $140,026 $104,822 $100,558

Paid-in Capital $310,171 $310,171 $310,171 Retained Earnings ($28,461) $37,850 $90,217 Earnings $166,311 $252,367 $321,270 Total Capital $448,021 $600,388 $721,658 Total Liabilities and Capital $588,047 $705,210 $822,216

Net Worth $448,021 $600,388 $721,658