Internet Service Provider (ISP) Business Plan

Web Solutions, Inc. (Web Solutions) is an Internet Service Provider (ISP) based in Phoenix, Arizona. The company offers the following services to its customers:

• Dialup and dedicated Internet access (up to 64 Kbps).
• High bandwidth Internet access (128 Kbps).
  • Integrated Services Digital Network (ISDN).
  • Digital Subscriber Line (DSL).
  • Wireless.
• Website and virtual domain hosting.
• Server colocation.
• Network design, installation, and administration services.
• Web design (currently outsourced).

Web Solutions is a company driven to provide customers with a complete solution to their entire current and future Internet and private network needs. The company's customer base includes all consumers and all small- to medium-sized businesses, including start-ups.

Web Solutions benefits from several strategic alliances by receiving very competitive pricing on most services, allowing the company to offer competitive pricing on its services to customers.

ISPs offer a way for people to enter the Internet. According to International Data Corporation (IDC), an information technology research and consulting firm located in Framingham, Massachusetts, the consumer ISP market will expand from $10.7 billion in 1998 to $37 billion in 2003.

Competitive threats come from other ISPs located in or around Phoenix, including the following companies: Jump.Net, Arizona.Net, EarthLink, and Mindspring. Most competitors offer solutions for Windows, and perhaps Macintosh, but ignore all other operating systems. With the rise of Linux and other alternative operating systems, there is potential for Web Solutions to surpass its competitors.

Web Solutions has a world-class management team with direct knowledge of the industry, extensive research experience, and unique administration skills. Its team includes Mr. Jason Williams, Mrs. Amy Williams, and Ms. Geena James.

Projected revenues for 2000 through 2002 are $1.5 million, $4.5 million, and $7.5 million, respectively. The company is seeking an investment of $1.5 million. The company primarily needs capital to fund four areas of growth in the company:

1. Increase personnel to handle sales, service, and development efforts.
2. Increase marketing to assure future customers are aware of our offerings and aggressive pricing.
3. Expand our base of operations (using wholesale providers, partnerships, and other mechanisms) to include at least the top 100 U.S. markets for dialup and dedicated Internet access.
4. Perform research and development to bring new products to market.

The mission of Web Solutions is to provide customers with a complete solution to all their current and future Internet and private network needs.

Web Solutions has established a reputation for quality work and plans to continue to enhance its image in the industry. The company seeks to become a well-known and respected provider of advanced network solutions by:

• Increasing service offerings.
• Increasing availability and accessibility to current and future customers.
• Creating innovative, unique, and cost-effective solutions to problems currently faced by customers.

Web Solutions currently delivers Internet service to dialup and ISDN customers, and will commence to sell DSL services by February of this year. The company currently hosts approximately 30 websites and has five colocated servers. Additionally, the company is evaluating e-commerce software, looking for the solution which provides the greatest flexibility while allowing operations to remain simple for its customers.

All services are competitively price and targeted to small "Mom-and-Pop" businesses and small office/home office (SOHO) customers. Web Solutions feels that this market segment has largely been neglected because of the amount of "hand-holding" required by this segment, and the inability to pay the astronomical fees charged by many ISPs for typically poor service and user support.

By working to simplify the creation, management, and support of our services, the company will enable customers to perform many tasks themselves, or automating these tasks based on the customer's stated needs. This will make our pricing more competitive, the customers perception of service high, and the operation as a whole more reliable and profitable.

With current hardware and facilities, the company can do the following:

• Handle an unlimited number of dialup users.
• Handle up to 46 dedicated channels.
• Handle up to 1,000 email users.

Web Solutions is a traditional, full-service ISP, offering dialup and dedicated Internet access, Web and virtual domain hosting, server colocation, and network-related professional solutions (design, installation, management, etc.). The company allows people and companies to access and publish documents on the World Wide Web without the need to hire full-time system administrators, costly high-speed network connections, dedicated servers, and other similar expenses or expertise.

The company provides many of the services that customers need to get online. The company provides both connectivity and consulting on topics ranging from office automation to Web server planning. The company has ongoing research and development to provide solutions to current customer issues (e-commerce, ease-of-use features, etc.) and to develop new products and services which enable the company to enter and compete in new markets and attract new customers.

Web Solutions selects products which meet the following criterion:

• Benefit to customers/company: the product must materially benefit the customer or the company in some way. This may manifest itself as a side benefit, an improvement on current services, or additional revenue stream to the company.
• Cost/benefit ratio: the benefits realized must be at least as great as the cost of implementation, production, and maintenance of the product.
• Maintainability: the product must be maintainable by PhoenixARIZONA.COM personnel. The company has had some experience with products where source code and other maintenance resources are unavailable and has had major difficulties with these restrictions. The company has a strong preference for Open Source and similar distribution methods where source code is available to personnel to correct problems which vendors consider too unimportant to warrant effort on.

Web Solutions makes a concerted effort to keep customers informed and to remedy problems in the shortest possible times. The company has lost very few customers to technical support issues, and will continue to make high quality support one of its primary goals.

Web Solutions offers telephone support during extended business hours (8 a.m. to 8 p.m.) and has an on-call pager for emergencies (network-down and server-down situations). In the future, the company plans to implement a 24/7 network operations center (NOC) and a toll-free technical support phone number.

When the voice/video/data (VVD) product goes into production, the company plans to have constant monitoring of network connectivity and take preemptive measures to solve developing problems before the customer even notices them. For instance, if it is determined that there is a failing component on the customer's premise equipment, it would trigger a call to the customer and the scheduling of a replacement part before the customer even realizes that the problem exists.

Currently, all products are implementations of Open Source products. The groupware product will be based upon OpenDesk.com's software, which is available under an Open Source license. Web Solutions will be extending the functionality of this product, and release those changes back to the development community.

With the VVD product, the company will have to design and manufacture custom equipment for customers to receive the data and convert it to video or voice.

Currently, the company has no products to return. The company's usage policy states that it will refund a portion of the customers' monthly access fee if there are extended network outages due to events within our control.

The company gives technical advice to pre-sales customers and technical support is offered for all purchases by the customer. These services are offered by Web Solutions at no cost to our clientele.

Free (advertiser supported) back-office service with email, file sharing, calendaring/scheduling, and other applications are options for future services from Web Solutions. This would allow groups (both for-profit and nonprofit) to have the collaboration enjoyed by major corporations with multimillion-dollar management information systems (MIS) budgets for little or no cost. It also would produce an avenue through which to offer future free and pay services.

Web Solutions plans to have the initial launch of the back-office product by March 31st. The company currently has a potential customer (a local radio station) who wishes to privately brand this product and offer it to their customers.

Web Solutions is in the process of researching a future service of integrated voice, video, and data over high speed TCP/IP network connections (DSL, etc.) so as to merge the traditional telephone, cable, and ISP functionalilities, extend them, and affordably offer them to consumers. This product would compete directly with traditional cable and telephone companies, and provide new and innovative revenue streams. Current plans for this product are to price the consumer product very aggressively and take the profit from secondary services such as advertising. Web Solutions plans to have a working prototype of the server and clients needed for the VVD product by October 1, 2000, and a limited launch by March 1, 2001.

The topics which follow discuss our customers, our competitors, and conditions within our industry. The Market Analysis data found in the following table and chart is taken from the 1997 U.S. Census.

Market Analysis (Pie)

Click to Enlarge

 

Market Analysis
Potential Customers	Growth	2000	2001	2002	2003	2004	CAGR
Household Consumers	10%	101,041,000	111,044,059	122,037,421	134,119,126	147,396,919	9.90%
Small Office/Home Office	3%	16,963,070	17,404,110	17,856,617	18,320,889	18,797,232	2.60%
Total	8.94%	118,004,070	128,448,169	139,894,038	152,440,015	166,194,151	8.94%

4.1 Customers and Target Markets

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The company's customer base includes all consumers and all small- to medium-sized businesses, including start-ups. The company plans to concentrate on SOHO clients, as these are perfect targets for our new high-speed offerings, and hold the greatest growth potential for the company. Web Solutions feels that these market segments have special pricing and service needs, and make more dedicated, reliable customers.

The following sub-topics look at the size and concentration of businesses in this group, the way services are bought and sold, and specific competitors.

The company is competing in the low-cost Internet access and website hosting niche of the industry. The industry is moving in the direction of a fusion of VVD services over a single common media (ref. The AOL-Time/Warner merger). This is where all media players must move in order to compete in the coming decade.

The alternative is to be a content provider. This is a less desirable position as it leaves the company too much at the whim of the public and forces the company to renew its efforts continuously to provide usable content.

The ISP industry has begun the process of specialization. Many companies who began by filling all needs (as we do today) have moved into areas which utilize their strengths. These specializations include:

1. Colocation ("Server Hotel") facilities.
2. Web hosting.
3. Dialup access.
4. Content provision.

Additionally, there are a few new markets emerging, such as Applications Service Providers.

• Access services

  ISPs offer a way for people to enter the Internet. According to IDC, America Online (including subscribers to CompuServe, which AOL acquired in September, 1997), has approximately a 43% share of the total subscribers in the ISP segment, followed by Microsoft's MSN, and AT&T Corporation's WorldNet. After these major players, roughly 5,000 ISPs fight over the remainder of the market. IDC estimates that the consumer ISP market will expand from $10.7 billion in 1998 to $37 billion in 2003.

  When users access the Internet, they dial into the local point of presence (POP) of an ISP or online service provider (OSP). ISPs offer basic, flat-rate Internet access to customers, either through their own networks, or through networks leased from other ISPs. Users dial into an ISP's network through ordinary phone lines and, using a browser, access the Web. OSPs, such as America Online, provide original content in areas such as shopping, news groups, gaming groups, investor information, and magazines.

  Access fees for both ISPs and OSPs typically range from $19.95 to $21.95 per month for unlimited Internet use. The flat rate system was pioneered by America Online in 1996 and has led to an explosion of subscribers. Flat rates have also served to increase the amount of time that users spend online, which has forced many local telephone service companies to upgrade capacity in order to accommodate the heavy usage.

• A taxing issue

  One nettlesome issue that could potentially slow the growth of e-commerce is the taxation of goods and services. Currently, fees paid to ISPs and OSPs are tax-free, except in a few states. Purchases, however, are subject to the same taxes that apply to goods sold in a store or catalog. When online purchases are made, purchasers are technically responsible for remitting state and local taxes. The only exception occurs when a consumer buys from a corporation with a physical presence in that consumer's home state. In actuality, however, online shoppers rarely pay this cyber-taxation.

  While state and local governments are disturbed at this loss of revenue--and the potential loss of immense future revenue--federal governmental officials have adopted a hands-off policy with regard to Internet taxation. In October, 1998, the Internet Tax Freedom Act was passed, placing a three-year ban on any new Internet sales taxes or taxes on ISPs. During this three-year time frame, a committee of government and business representatives known as The Advisory Commission on Electronic Commerce will meet to discuss a more permanent tax policy. The 19 members of the commission include three federal officials, eight business and consumer leaders, and eight representatives of state and local governments.

• ISPs face challenges

  The rise in Internet users has proven to be a boon for Internet service providers, which charge monthly subscription fees in return for providing access. While business has been good for many of these ISPs, a number of challenges threaten the long-term growth and profitability of these companies.

• Broad access becomes more prevalent

  Today, most residential Internet users gain access to the Web via commonplace copper telephone wires. Download speeds are limited to a maximum 56 Kbps and are often significantly slower than that, resulting in frustration among impatient Web surfers. The lack of speed has provided an opportunity for broadband service providers to gain market share. LLC's RoadRunner, which provides high-speed online access, has begun to attract users who desire more speed and are willing to pay a higher price. As of the second quarter of 1999, cable modem users numbered over 1 million, still a small percentage of total Internet users, but growing very rapidly.

• "Free" Internet access proves viable

  While most headlines or advertisements proclaiming free Internet service are actually a bit misleading, the impact of this business model is starting to be felt. The most prominent and successful example of a free ISP is in the United Kingdom, where Freeserve plc does not charge its customers access fees. Unlike the United States, however, local calls in the United Kingdom are billed on a per-minute basis, so heavy Internet users may actually pay more than in the United States.

  In the United States, different types of "free" plans are being marketed. One strategy gives a subscriber free service in exchange for having advertisements scroll constantly across his or her PC screen. A different slant to this marketing scheme allows a consumer to earn a free personal computer, provided that he or she signs up for a few years of Internet service in advance.

The following is a list of services which various websites provide:

1. Destinations. Destinations are places, or websites, located on the Internet where people can go for information, entertainment, or commerce.
2. Content providers. This type of website offers mostly original content (like news articles) to subscribers. Some of the major content providers include ESPN Sports Zone (a joint venture between Infoseek Corp. and Walt Disney Co.), SportsLine USA Inc., privately held The Motley Fool Inc., and MSNBC (a joint venture between Microsoft and NBC). With new websites being established every day, it's difficult to come up with a reasonable estimate for the size of this market.
3. Portals. These websites tend to gather content into one place rather than creating it themselves. Some of the major portals include Yahoo! Inc. (1998 sales of $206 million), Infoseek Corporation ($63 million in fiscal year 1998), and Lycos Inc. ($56 million in fiscal year 1998). Although e-commerce has started to become a larger promotion of these companies' business, portals typically rely on the sale of advertising space to generate revenue.

   According to Jupiter Communications, a market research firm based in New York City, advertisers spent approximately $2 billion for online ads in 1998. Jupiter believes that this number will hit $9 billion in 2002.

4. Communities. Communities are similar to portals, in that their primary revenue streams come from advertisers. Some of the major community sites include Geocities (1998 sales of $18.4 million), now a part of Yahoo! Xoom.com Inc. ($8.3 million), and theglobe.com Inc. ($5.5 million).
5. Business-to-consumer e-commerce. Estimates for the amount of online spending by consumers in 1998 range from $7 billion to $13 billion, with at least 25% occurring during the Christmas shopping season. Forrester Research, an information technology research firm in Cambridge, Massachusetts, believes that online retail spending will hit $108 billion in 2003.

   Some of the major publicly traded online retailers included Amazon.com Inc. (1998 sales of $610 million), CDnow Inc. ($98 million), barnesandnoble. com Inc. ($62 million), and Beyond.com corp. ($37 million). A variety of "real-world" companies including Gap Inc., Lands' End Inc., and Macy's have established retail operations on the Internet.

6. Business-to-business e-commerce. Although there are very few pure business-to-business e-commerce firms, this segment dwarfs the business-to-consumer sector. Forrester believes that this market, which totaled $43 billion in 1998, should rise to $1.3 trillion by 2003.

   Most companies in this category, like Cisco Systems and Dell Computer Corporation, have other sales channels, but are increasingly using the Internet to lower costs and reach a wider customer base. Dell generates an estimated $30 million in sales every day via the Internet, while Cisco estimates that it produces approximately $33 million a day in sales through the Internet.

7. Auctions. The online market for auctions is headed by eBay Inc., (1998 revenues of $86.1 million, with $745 million of gross merchandise sales).

    

8. Hardware: networking equipment. The hardware sector provides the infrastructure on which the Internet is built. Hardware companies provide the equipment that forms the interconnections between the networks that comprise the Internet. Their products steer traffic through a spiderweb of routes to the correct destination. One critical piece of networking equipment is the router, which acts as a traffic officer by directing data to the proper destination. Another key element of the Internet infrastructure is a remote access concentrator. Access concentrators link employees and customers to an organization's internal network, and link consumers to the Internet via their ISP.

Web Solutions believes that its customers choose its products and services based on the following criteria:

• Price.
• Experience.
• Reputation.
• Service.
• Accessibility.

Competitive threats come from other ISPs, including the following companies: Jump.Net, Arizona.Net, AOL, EarthLink, Mindspring, and Prodigy Internet. Most of our competitors offer solutions for Windows, and perhaps Mac, but ignore all other operating systems. With the rise of Linux and other alternative operating systems, there is potential for Web Solutions to surpass its competitors.

Key competitors are detailed as follows:

Jump.Net

Jump.Net offers a wide variety of services to match customer needs. They have split information into two categories:

1. Basic service: for customers looking for a simple, inexpensive way to connect their home or business to the Internet.
2. Complete details: for customers who need a custom solution for unique requirements, Jump.net offers the following services:

Connectivity:

• ADSL & SDSL.
• Modem service.
• ISDN.
• Nationwide access.

 

Special Services:

• Colocation.
• FTP services.
• Hardware sales.
• Leased lines.
• Telnet-only service.
• Web hosting.

Arizona.Net

Arizona.Net is San Antonio's first and largest ISP. Locally owned and operated since 1994, Arizona.Net specializes in modem dial-up, ISDN, dedicated local area network (LAN) access and T1 (a high-speed network link that transmits data at 1.5 Mbps) to the Internet. Arizona.Net now serves Phoenix, San Antonio, Houston, Dallas, Spring, Georgetown, Dripping Springs, Bandera, New Braunfels, and Boerne.

For dialup connections, Arizona.Net uses an all-digital modem pool consisting of equipment from US Robotics, Ascend, and Livingston. All of their locations maintain a full 56k modem pool, upgraded to the latest version of the v.90 standard. These digital modems allow for a more reliable connection, and enable them to make ISDN connections on the same equipment, so they can offer 64k ISDN service with all dialup accounts. To make sure that customers can get to their services, Arizona.Net maintains a no-busy-signal policy.

If customers report a busy signal, Arizona.Net has the ability to connect as many telephone lines as necessary to relieve the problem. Currently, none of their locations are having any problems with busy signals. Arizona.Net maintains multiple separate T3 (a high-speed network link that transmits data at 45 Mpbs) connections to the Internet backbone through multiple backbone providers. These separate connections give Arizona.Net more than enough bandwidth to handle future growth as well as provide the security of uninterrupted service.

EarthLink

EarthLink helps its members have an enjoyable and productive Internet experience by providing reliable, unlimited Internet access and Web hosting services, outstanding technical support, useful information, and innovative services. Prices are among the lowest in the industry. EarthLink offers the following services:

• Internet access.
• High-speed access.
• Web hosting.
• EarthLink Sprint bundle.

Mindspring

MindSpring Biz delivers complete Business Internet Solutions for any small business backed with its award winning service and support. Its business plans--whether Web Hosting, e-commerce, high speed dedicated access, or Web Design--are packaged to fit customer needs today and are tailored to grow along with business for tomorrow. Mindspring offers the following business solutions:

• Web hosting.
• Business access.
• E-commerce.
• Domain reservation.
• Dedicated access.
• MindSpring dialup access.
• SDSL Waiting Lis.
• Promotional solutions.
• Help desk.

The company recognizes that it is subject to both market and industry risks. The company's view of its risks, as well as how each is being addressed, is as follows:

• Regulations. Possible problems caused by a sudden increase in regulation by local, State, or Federal authorities. One way the company can reduce this risk is to diversify into several different, but related, business areas. If one area becomes too heavily regulated it may be sold and the profit rolled back into the company to bolster the remaining business or start a new venture.
• Monopolistic pricing. Aggressive or monopolistic pricing by large or heavily-funded providers. By holding prices down, it becomes difficult for competitors to "low-ball" the company. By diversifying, we can protect business in one area by bundling it with offerings from another area, meeting the needs of the customers and strengthening their ties to the company.
• Legal matters. Lawsuits stemming from user abuse or accessibility of pornographic or questionable materials. The courts have historically classified ISP's as "carriers" unless the ISP made an incomplete effort to actively filter material posted by or made available to its users. The company's usage policy clearly states that illegal behavior will result in termination of service, but we do not otherwise attempt to control the access of its users or their content, thus maintaining the company's stance as a "carrier" in the eyes of the law. If the legal environment should change, the company will modify its policies and procedures to conform to the prevailing legal environment.
• Technology. Sudden and unexpected shifts in technology or the popularity of the Internet. The company will maintain an active research and development effort, as well as ongoing review of forthcoming technologies from competitors and vendors, in order to stay near the top of the technological curve. Also, the diversification of the company's business allows it to respond to shifts in revenue by redistributing material and personnel into those efforts most likely to generate the highest return on investment.

The Web Solutions strategy is to achieve name recognition and attract customers by aggressively pricing its services. Once customers have been acquired, the company will seek to offer them additional services which will increase margins and provide them with useful solutions they would not otherwise find.

The company will also implement a low-cost strategy. This will be achieved by working to establish and develop agreements with local media companies to exchange services for discounted advertising and other exposures. Web Solutions' market strategy is to build on its core portfolio of products and services using the company's expertise in the ISP industry.

The company will leverage its discounted services to help provide secondary income streams. For instance, the company plans to launch free email services, business directories, and other similar services which will attract current and potential customers to our Web pages. These "page views" will be used to generate advertising revenue, as well as increase exposure of our own products and services.

Web Solutions will be able to excel in the market because the company is small, highly focused, and motivated. The company can respond quickly to changing opportunities and take advantage of the latest technologies.

The company plans to expand its marketing efforts, service offerings, and production. It is anticipated that additional services will be offered and more personnel hired within 30 days of initial capital funding. Web Solutions plans to capitalize on the following areas of growth:

• High-speed Internet connectivity via DSL, Wireless, and other technologies.
• Web hosting and design tailored to small, local businesses.
• E-commerce and associated online databases.

Web Solutions is currently the lowest-priced provider in Phoenix for most commercial services, and its reputation has been consistently high. Size gives the company a competitive advantage, in that it can see where the industry is going and move in that direction more quickly than the competition. This also allows the company to be more efficent at recruiting and hiring highly creative and talented individuals who tend to shy away from large "corporate" environments. The company has worked to overcome old mistakes made by existing ISPs by hiring technically-savvy individuals.

The concentrated marketing activities of Web Solutions focus on the business mission and are comprehensive in nature. The following activities are the marketing department's mission:

• Advertising design and placement.
• Public relations schedules and press releases throughout each year.
• Creation of annual advertorial (advertisement/tutorial) themes for trade journals and industry conferences.
• Planning and execution of all industry conferences, including the reservation of space, booths, personnel, messages, literature, etc.
• Collection, analysis, and internal dissemination of competitive information.
• Creation and maintenance of all corporate literature.
• Design, maintenance, and monitoring of websites.
• Design and creation of sales support material.
• Collection and dissemination of client testimonials.

To generate sales, the company uses direct marketing, computer reseller and repair facilities, and high-traffic areas (e.g. store checkout stands). Currently, several local companies display the company's CD-ROMs at their checkout stands in the Phoenix area in exchange for free Web hosting.

Marketing initiatives will focus on four areas: Colocation ("Server Hotel") facilities, Web hosting, dialup access, and content provision. Marketing activities will be concentrated in the following categories:

• Contact Campaigns. This initiative will encompass various methods of reaching potential customers to generate interest, followed by direct mail to the potential customer.
• Print Advertising. Ads will be developed and placed in several industry publications.
• Trade Shows. The company will participate in selected local and national shows that will provide an opportunity to develop exposure. This is a very effective tool in creating awareness and stimulating lead activity.
• Industry Organizations and Associates. The recommendation is to join a number of organizations that are relevant to the company as a whole. This initiative will create awareness of the company within the industry, and provide networking opportunities.
• Telemarketing Campaign. Telemarketing activities geared to identify qualified leads, follow-up on sales progress to the qualified leads, and assurance that new potential contact lists are current and accurate.
• Promotional GiveAways. This is a traditional way of advertising a company's name by giving something away. This will be used in conjunction with community service organization fund-raising efforts and traditional advertising.

Web Solutions currently has strategic relationships with:

• World Communications for Internet service.
• Phoenix DSL Networks for DSL resale.
• Phoenix Communications for high-speed wireless.
• Internet of Phoenix for dialup connectivity (they provide wholesale pricing in the Phoenix area).

Web Solutions benefits from these relationships by receiving very competitive pricing on most of these services, allowing the company to offer competitive pricing on its services to customers.

The company is currently pursuing an agreement with a local radio station to provide Web-hosting services which will eventually include extended email services and dial-up access offered to their listeners under a co-branding agreement. There have also been discussions about this becoming a nationwide collaboration between Web Solutions and the stations' parent company, Jordan's Media.

The company plans to develop community calendaring and groupware applications for use by the company and the afore-mentioned radio station. This will provide a simple, useful tool for organizations, businesses, and individuals to organize, plan, announce, and track projects and events. This is being based on the Open Source project maintained at www.opendesk.com and will most likely be developed to contain both Open Source and proprietary components.

In the future, the company plans to partner with backbone providers, wholesale carriers, and other strategic organizations to:

• Reduce cost of goods and services utilized.
• Increase the number and variety of goods and services offered to customers.
• Chart the growth of the company into new territories.

At this time, the company is establishing re-seller agreements with DSL and Wireless high-bandwidth providers, and other services which will allow the company to compete in these markets, thus allowing for broader consumer recognition.

The company's management philosophy is based on responsibility and mutual respect. Web Solutions has an environment and structure that encourages productivity and respect for customers and fellow employees. The company's goal is to create an environment where:

• Creativity can flourish.
• Generating new ideas and products is well rewarded.
• Management structure is relatively flat and communication is encouraged.
• Mutual respect and sharing of knowledge is encouraged.

 

Personnel Plan
	2000	2001	2002
Donald Williams	$30,000	$30,000	$40,000
Amy Williams	$30,000	$30,000	$40,000
Geena James	$36,000	$45,000	$45,000
Dialup Services Manager	$45,000	$55,000	$65,000
R & D Manager	$60,000	$60,000	$70,000
R & D Researcher	$60,000	$60,000	$70,000
Technical Support Personnel	$31,200	$31,200	$31,200
Technical Support Personnel	$15,600	$31,200	$31,200
Total People	8	8	8
Total Payroll	$307,800	$342,400	$392,400

6.1 Officers and Key Employees

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Web Solution's management is highly experienced and qualified. Key members of its management teams are listed below.

• Donald Williams - President
• Amy Williams - Secretary
• Geena James - Treasurer

This section presents our financial projections for the term of the plan.

The sales forecast chart and table are presented below. Final sales forecasts are based on predictions mentioned in the Executive Summary.

Sales Monthly

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The company is raising $1.5 million for the purpose of growth and operations. This funding will cover operating expenses and product development during this period. The following is a breakdown of how the funds will be used.

Significant Assumptions

1. Nature and Limitation of Projections. This financial projection is based on sales volume at the levels described in the revenue section and presents, to the best of management's knowledge and belief, the company's expected assets, liabilities, capital, revenues, and expenses. The projections reflect management's judgement of the expected conditions and its expected course of action, given the hypothetical assumptions.
2. Revenues. The company's revenue is derived primarily from subscriptions. Revenue projections are based on the 1999 sales in the comparable market nationwide, based on industry average. The exact numbers can be found in the Sales Forecast table and chart section.
3. Expenses. The company's expenses are primarily those of salaries, sales commissions, and administrative costs. Other expenses are based on management's estimates and industry averages.

The table below outlines the general assumptions of Web Solutions.

 

General Assumptions
	2000	2001	2002
Plan Month	1	2	3
Current Interest Rate	10.00%	10.00%	10.00%
Long-term Interest Rate	10.00%	10.00%	10.00%
Tax Rate	25.42%	25.00%	25.42%
Sales on Credit %	15.00%	15.00%	15.00%
Other	0	0	0

7.3 Untitled-2

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The following table and chart reflect the company's break-even estimates. These are based on fixed and variable cost estimates derived from past income statement data. Given that Web Solutions has little in the way of marginal costs, the break even analysis reflects the industry's high gross margins. Unless one of the potential future risks seriously impacts profitability, or the company loses its ability to rapidly adjust to changing market conditions, the company does not see this as a serious issue.

 

Break-even Analysis:
Monthly Units Break-even	41,368
Monthly Revenue Break-even	$41,368
Assumptions:
Average Per-Unit Revenue	$1.00
Average Per-Unit Variable Cost	$0.05
Estimated Monthly Fixed Cost	$39,228

7.4 Projected Profit and Loss

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Web Solutions is in the early stage of development, thus initial projections have only been made on accounts that are believed to most drive the income statement. The following table provides Web Solution's projected income statements for 2000-2002.

 

Pro Forma Profit and Loss
	2000	2001	2002
Sales	$1,500,000	$4,500,000	$7,500,000
Direct Cost of Sales	$77,596	$84,296	$88,796
Other	$0	$0	$0
	------------	------------	------------
Total Cost of Sales	$77,596	$84,296	$88,796
Gross Margin	$1,422,404	$4,415,704	$7,411,204
Gross Margin %	94.83%	98.13%	98.82%
Expenses:
Payroll	$307,800	$342,400	$392,400
Sales and Marketing and Other Expenses	$41,468	$41,468	$41,468
Depreciation	$0	$0	$0
Legal Fees	$300	$300	$300
Utilities	$3,600	$3,600	$3,600
Insurance	$4,200	$4,200	$4,200
Mortgage	$67,200	$67,200	$67,200
Payroll Taxes	$46,170	$51,360	$58,860
Other	$0	$0	$0
	------------	------------	------------
Total Operating Expenses	$470,738	$510,528	$568,028
Profit Before Interest and Taxes	$951,666	$3,905,176	$6,843,176
Interest Expense	$65,506	$51,131	$36,131
Taxes Incurred	$225,583	$963,511	$1,730,124
Net Profit	$660,577	$2,890,534	$5,076,921
Net Profit/Sales	44.04%	64.23%	67.69%

7.5 Projected Cash Flow

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This chart and table show our cash flow and cash balance projections.

Cash

Click to Enlarge

 

Pro Forma Cash Flow
	2000	2001	2002
Cash Received
Cash from Operations:
Cash Sales	$1,275,000	$3,825,000	$6,375,000
Cash from Receivables	$220,905	$619,810	$1,069,810
Subtotal Cash from Operations	$1,495,905	$4,444,810	$7,444,810
Additional Cash Received
Sales 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	$1,495,905	$4,444,810	$7,444,810
Expenditures	2000	2001	2002
Expenditures from Operations:
Cash Spending	$48,141	$121,571	$194,346
Payment of Accounts Payable	$829,560	$1,438,462	$2,179,741
Subtotal Spent on Operations	$877,701	$1,560,033	$2,374,086
Additional Cash Spent
Sales 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	$150,000	$150,000	$150,000
Purchase Other Current Assets	$0	$0	$0
Purchase Long-term Assets	$0	$0	$0
Dividends	$0	$0	$0
Subtotal Cash Spent	$1,027,701	$1,710,033	$2,524,086
Net Cash Flow	$468,204	$2,734,777	$4,920,724
Cash Balance	$580,816	$3,315,593	$8,236,316

7.6 Balance Sheets - Projected

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The following table outlines Web Solution's projected balance sheets for fiscal years 2000-2002.

 

Pro Forma Balance Sheet
Assets
Current Assets	2000	2001	2002
Cash	$580,816	$3,315,593	$8,236,316
Accounts Receivable	$27,595	$82,785	$137,975
Other Current Assets	$34,650	$34,650	$34,650
Total Current Assets	$643,061	$3,433,028	$8,408,941
Long-term Assets
Long-term Assets	$331,650	$331,650	$331,650
Accumulated Depreciation	$0	$0	$0
Total Long-term Assets	$331,650	$331,650	$331,650
Total Assets	$974,711	$3,764,678	$8,740,591
Liabilities and Capital
Current Liabilities	2000	2001	2002
Accounts Payable	$32,409	$81,842	$130,835
Current Borrowing	$90,338	$90,338	$90,338
Other Current Liabilities	$90,338	$90,338	$90,338
Subtotal Current Liabilities	$213,084	$262,517	$311,510
Long-term Liabilities	$495,975	$345,975	$195,975
Total Liabilities	$709,059	$608,492	$507,485
Paid-in Capital	$0	$0	$0
Retained Earnings	($394,925)	$265,652	$3,156,186
Earnings	$660,577	$2,890,534	$5,076,921
Total Capital	$265,652	$3,156,186	$8,233,107
Total Liabilities and Capital	$974,711	$3,764,678	$8,740,591
Net Worth	$265,652	$3,156,186	$8,233,107

7.7 Business Ratios

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Standard business ratios are shown in this table. Industy Profile ratios are based on Standard Industrial Classification (SIC) Index code 7375.

 

Ratio Analysis
	2000	2001	2002	Industry Profile
Sales Growth	21.21%	200.00%	66.67%	9.70%
Percent of Total Assets
Accounts Receivable	2.83%	2.20%	1.58%	25.00%
Inventory	0.00%	0.00%	0.00%	5.30%
Other Current Assets	3.55%	0.92%	0.40%	46.30%
Total Current Assets	65.97%	91.19%	96.21%	76.60%
Long-term Assets	34.03%	8.81%	3.79%	23.40%
Total Assets	100.00%	100.00%	100.00%	100.00%
Current Liabilities	21.86%	6.97%	3.56%	49.40%
Long-term Liabilities	50.88%	9.19%	2.24%	21.20%
Total Liabilities	72.75%	16.16%	5.81%	70.60%
Net Worth	27.25%	83.84%	94.19%	29.40%
Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	94.83%	98.13%	98.82%	0.00%
Selling, General & Administrative Expenses	50.52%	33.89%	30.75%	78.10%
Advertising Expenses	1.67%	0.56%	0.33%	0.90%
Profit Before Interest and Taxes	63.44%	86.78%	91.24%	1.90%
Main Ratios
Current	3.02	13.08	26.99	1.57
Quick	3.02	13.08	26.99	1.19
Total Debt to Total Assets	72.75%	16.16%	5.81%	70.60%
Pre-tax Return on Net Worth	333.58%	122.11%	82.68%	4.10%
Pre-tax Return on Assets	90.92%	102.37%	77.88%	13.80%
Additional Ratios	2000	2001	2002
Net Profit Margin	44.04%	64.23%	67.69%	n.a
Return on Equity	248.66%	91.58%	61.66%	n.a
Activity Ratios
Accounts Receivable Turnover	8.15	8.15	8.15	n.a
Collection Days	48	30	36	n.a
Inventory Turnover	0.00	0.00	0.00	n.a
Accounts Payable Turnover	24.42	18.18	17.03	n.a
Payment Days	17	14	17	n.a
Total Asset Turnover	1.54	1.20	0.86	n.a
Debt Ratios
Debt to Net Worth	2.67	0.19	0.06	n.a
Current Liab. to Liab.	0.30	0.43	0.61	n.a
Liquidity Ratios
Net Working Capital	$429,977	$3,170,511	$8,097,432	n.a
Interest Coverage	14.53	76.38	189.40	n.a
Additional Ratios
Assets to Sales	0.65	0.84	1.17	n.a
Current Debt/Total Assets	22%	7%	4%	n.a
Acid Test	2.89	12.76	26.55	n.a
Sales/Net Worth	5.65	1.43	0.91	n.a
Dividend Payout	0.00	0.00	0.00	n.a