Answer all the following questions based on what you will read in world file below. Also, add as much of details on each answer.1- How should a business plan be structured and what should it include?2- Why did professors consider RedPack’s business plan to be so good? 3- What are, in your opinion, the pros & cons of business planning?4- How did RedPack’s business plan evolve over time? 5- Do you think that business planning was important for RedPack? Would you continue to work on the business plan if you were they?6- Which aspects are, in your view, the most important in RedPack’s latest development? Can you sketch an outline of an updated version of business plan for RedPack?
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START UP REDPACK BEACH LOCKERS TO UNLOCK POTENTIALS
“To plan or not to plan its business, that is the question for RedPack.”
In August 2010 the three founders of RedPack Beach Lockers (RedPack) were contemplating the
course their company should take. Having worked on the start-up of the business for the last one
and half years, the young entrepreneurs were eager to see their company grow. In order to roll
out the business on a profitable level, they urgently needed financing. This last stage was
everything but easy. Despite their commitment, hard work, and a detailed business plan, they
were not yet able to convince a single investor of RedPack’s potential. The three founders started
to reflect on the development of their business and the mistakes they had made. One of the main
discussion points was the usefulness of a business plan.
RedPack’s initial business plan was to run a simple but innovative business: renting out lockers
inside beach bars on Spanish coast for people to store belongings. As the plan developed,
however, the entrepreneurs decided to move the target market to Portugal and use the lockers as
an advertising platform for revenue.But pressing needs for income forced the company to
diversify to the music festivals market and offer cell phone recharge service besides lockers;
revenue came from operations.
The process of developing the business plan helped the entrepreneurs re-think and re-evaluate
their ideas and identify problems or inconsistencies along the road; it had been an important tool
to communicate their ideas with external parties and helped them improve the business model to
seek financing; it had also helped them evaluate what they had accomplished and create a
prioritized action plan. It had forced them to conduct extensive market research that gave them
valuable information about competitors and possible partners.
Although having a business plan had many payoffs, to write it up and frequently update it took
the entrepreneurs so much time – one of the entrepreneurs was even convincedthey could better
use the time and energy on actual business development, marketing, and operation. Because the
environment of a start-up company was turbulent, the entrepreneurs felt they were trying to
predict the unpredictable and their business plan could never be up-to-date. In an effort to
perfectionize their plan, the entrepreneurs feared they might have lost out on other opportunities.
Hélène de Saint-Front, Davy Bour and André Amaral met in a classroom in Holland in
September 2008. After completing their bachelor studies, Hélène, Davy and André went on to
study a master’s program in entrepreneurship at the Rotterdam School of Management (RSM).
With different backgrounds and personalities, the three students had one thing in common—the
dream to become an entrepreneur. The program turned out exciting. It gave them the chance to
be in close contact with inspiring entrepreneurs and develop their own practical business plans.
The three felt on the right track: Their natural predisposition and the academic environment were
likely to help them pursue the entrepreneurial careers of which they dreamed.
Profiles of the Entrepreneurs
Hélène was born in a traditional French family. The third of five children, she
learned how to advance her way at an early age. Dedicated to success, she was
accepted to RSM, one of the best business schools in Europe. Passionate about
business and her career, she is energetic and hard working with great skills in
finance and networking. The idea of starting up and growing a business has always
Davy was born in a rural area in the north of France. On his 18th birthday, he left
France for Holland to start a bachelor study in business administration, and
afterward, continued on with a master’s degree. With an unusual mix of creativity
and pragmatism, he has great design skills and powerful negotiation skills. He sees
entrepreneurship as the fastest way to achieve success.
André is the son of an entrepreneur in Portugal. As a child, he was in close contact
with the family business management and eager to follow his father’s example.
Getting into entrepreneurship was a natural step. Always attentive to new ideas and
opportunities, André’s strength lies in strategy and sales.
Hélène got the idea for RedPack at a workshop she attended at the University of Delft, lectured
by Ken Morse, an MIT professor. The purpose of the workshop was for participants to come up
with a business idea and develop it at a preliminary level. The workshop began with a brain
storming session when the participants shared real-life stories where they felt a lack of a product
or service existed in the market.
The case that attracted most attention in Hélène’s group was told by a Spanish student regarding
the lack of safety solutions on Spanish beaches. “When I want to go to the sea or take a stroll on
the beach, I have to leave all my belongings in a towel without any protection and there are a lot
of thieves around. I can’t find any solutions to this problem!” Hélène and her group members
immediately recognized the problem. As it was a widespread issue from many parts of the world,
creating a solution could lead to a promising business! The idea was simple but innovative—
installing lockers at beach bars for people to store their belongings so they can fully enjoy the
day at the beach. Thus, RedPack was born! Hélène presented the idea to a board of juries toward
the end of the workshop.
RedPack Concept 1: Install small lockers inside beach bars for people to store their
belongings. The lockers, operated via a biometric system, will be developed and
installed by RedPack. The bar owners will pay a fixed fee to RedPack to use the
lockers, which covers the installation and maintenance of the equipment.
The RedPack lockers would be adapted to the beach environment. Ideally product development
would take place in collaboration with potential clients to customize to their needs. As a locker
filled with wallets and car keys was an attractive prey, further research needed to be done on how
to insure the lockers and the valuables inside. RedPack as a start only considered placing lockers
inside beach bars and shops, which was not subject to regulations.
In the first summer season, a pilot of about 10 locker units would be placed on the most
important blue flag beaches. The purpose was to test the business concept and gather information
for further development. If the pilot was successful, RedPack would put in more effort in sales
on the most promising European beaches during the next year.
In the pilot, RedPack aimed to rent out the lockers for €7,300 per unit to cover marketing,
operation, sales, management, manufacturing, maintenance and insurance costs as well as
expected revenues (see Figure 1,2). A manufacturer would take care of locker production on a
contractual basis, and the RedPack team would be responsible for the other activities to control
Hélène’s business plan was awarded the prize for best idea of the year. She sawgreat
opportunities and was determined to launch this businesssoon and after two years expand it
globally (see Figure 3).“We must take this opportunity and have the first lockers installed this
summer no matter what… We cannot loose the momentum,” she said.
the market. One of the courses she took at RSM, New Venture Planning, asked students – three
as a team – to write a detailed business plan for an idea of their own. Hélène took the advantage
right away to develop the idea of beach lockers.
She needed two other students to work with her – two people with an entrepreneurial spirit, the
knowledge of the target market, and the willingness to take risks. André and Davy were perfect
choices. She was friends with both and knew their personal and professional skills. André,
speaking Spanish and Portuguese, had networks in both countries – the main target markets for
beach lockers. In addition, Andréhad experience in sales from his previous jobs and hoped to
start his own business right after graduation. Davy, on the other hand, had moved to Holland four
years prior to obtain his bachelor’s degree. He spoke fluent Dutch and was familiar with the
culture, which could be helpful in establishing relationships with Dutch manufacturers of digital
lockers. He had experience in setting up new business for the company where he worked before.
He was also skillful in design and computer programming.
With this broad set of skills, the team members complemented each other: Hélène would be the
CEO and in charge of the finance and accounting, Davy the head of marketing and
communication, and André the head of sales and operations. When she proposed they join the
team, both were excited and accepted the offer without any hesitation.
In the first class, the teacher explained what a business plan was and how it should be structured.
From that moment on, the team started to work on the business plan section by section and
presented it to the rest of the class for feedback. This was an important exercise that trained
students how to present their ideas, and receive external feedback that forced them to re-think
some of their assumptions.
As more sections were written, the initial business idea changed drastically. For example, the
initial idea was to use biometric sensors in the lockers; however, after some research, the team
realized that this system would not be the most efficient on beaches and changed it to a pin code
system. Also, during discussions with the professor, they came up with the idea to use the
lockers as an advertisement platform for other brands and leverage the revenue streams.
Running into problems
During the course, the team realized that the business plan for any start-up company is a complex
document, where most of the answers are based on market research and benchmarking. Start-ups
do not have essential records that they can use to estimate market share, revenues, consumer
acceptance and all other variables involved in a business. Thus, start-ups have to base their
assumptions on available market information to reduce uncertainty as best they can.
The RedPack team soon ran into a serious problem: Because the beach locker concept was
innovative, the team members could not find similar cases upon which to base their market
research. Lockers were used in many other places, such as train stations, airports, libraries, and
shopping malls, but rarely on beaches. The few beaches that actually had lockers available were
in Cyprus and Australia. Even so, the lockers there had been installed either in a trailer brought
by a car that could stop in the beach parking lot or on the boulevards by the municipalities and
could be used for free. Moreover, neither solution used a digital pin code system or had a
business model similar to a vending machine.
Still, the team thought it would be important to identify other solutions for safety on the beach,
and position RedPack’s concept against these alternatives in terms of price and convenience.
After some brain-storming and market research the three young entrepreneurs listed the main
solutions for keeping belongings safe on the beach, including: ask your neighbors to watch your
belongings while you are away; leave your valuable belongings in the car; use a water proof
wallet which you can take everywhere to protect your most valuable belongings; a mountable
locker which can be installed on your umbrella; beach chairs or tables with incorporated lockers;
lockers installed in a car trailer parked at the beach parking lot; or just an insurance that covers
your belongings in case of theft. After mapping out possible competitors and alternative
solutions, the RedPack team was convinced that their solution was the best in terms of price and
practicality (see Figure 1).
Figure 1: Competitors Diagram
Despite their best efforts, some important information was still missing from the market
research. For example, the manufacturers of digital lockers were not sure whether their product
would be suitable for a beach environment, where the corrosion might occur quickly due to harsh
climate and weather. Lockers were non-existent on the beaches in southern Continental Europe,
which made it difficult to evaluate what items users would want to put in a locker and how much
they would be willing to pay, and consequently, decide the size and pricing strategy. It was also
impossible to collect information about beach bars, to assess their availability of space and the
willingness to offer locker service. Due to the novelty of the business idea, the municipalities in
Spain had a hard time deciding whether advertising on beach lockers would comply with
commercial legislation. It was equally difficult for the team to assess the interest of other brands
with whom to become advertising partners.
The team was frustrated and the three friends’ ideas on how to pursue the business plan began to
diverge. Hélène, passionate about numbers, financial instruments and planned actions, strongly
believed in the usefulness of the business plan. For her, the business plan was an action guide
where the assumptions and predictions must be considered accurate and taken seriously.
Davy, a creative mind with a driven attitude, recognized the importance of the business plan in
clarifying ideas and re-defining strategies, but saw it less relevant in guiding actions.
André was totally anti-planning. Used to the unplanned lifestyle of southern Europe, he could not
accept that assumptions and predictions were accurate. Writing a business plan, in his view, was
a waste of time. Moreover, many others had succeeded without planning.
Researching the field in Spain
Despite the divergent opinions about planning, in February 2009, the RedPack team traveled to
Spain – their entrance market – for a field research. A few weeks before the trip, the team
participated in a business plan competition organized by the technical university of Delft.
RedPack was awarded the runner-up prize of €1000, which became, at that stage, the team’s only
start-up capital and which was used for their travel budget. To make the most out of the trip, the
team decided to spread out along the Spanish coast. While Davy stayed in Holland to keep up
with the course work, Hélène traveled to the Cataluña coast and André to the South of Spain,
together with his classmate, Daniel Tocca, who had lived in the area and had a useful network.
Before leaving Holland, the team prepared a questionnaire to find out how much people were
willing to pay for the locker service, whether they considered it a real need, how big the lockers
should be, where they should be placed and which was the best beach to launch the product. The
team also planned to talk with beach bar owners to evaluate their openness to having lockers
installed in their bars. With “bootstrapping” as their motto, the two groups traveled the coast for
a week. While Hélène handed out dozens of questionnaires on the beaches to gather statistics for
the business plan (see Appendix 1), André and Daniel talked to many bar owners and local
residents to find out their opinions of the product. They also met with municipalities to discuss
potential collaborations and legislative issues.
The trip proved extremely helpful, and some of the previous assumptions were challenged by
their latest findings. For example, the team had thought about installing only small lockers for
the most valuable belongings, but the interview research showed that users preferred bigger
lockers for all their belongings. Also, the initial idea of installing lockers inside beach bars was
confronted. The team realized that Spanish beach bars usually do not have much room available
for lockers, and the majority of the interviewees preferred to have lockers installed in the terrace
of the bars.
RedPack Concept 2: Install medium-size lockers inside and outside beach bars, for
people to store valuable belongings and backpacks. The lockers are developed by
RedPack and equipped with a pin-code system. RedPack operates the lockers and
shares revenues with bar owners. The lockers are used as an advertising platform
that represents an important revenue source.
The three friends began to evaluate the possibility of developing outdoor lockers to avoid
depending on beach bars. With both indoor and outdoor locker systems available, RedPack could
reach a larger market share and offer suitable solutions for different cases. The team concluded
their business plan and received the best grade in class. After having gone through many
changes, the concept was now mature, ready to be turned into a real business. Also the
technology that Redpack plans to offer was definitely feasible. The lockerboxes would have to
be modified to fit into the beach environment, but in essence they were not a new product,
making their realization even easier. The detailed first steps as well as the financial projections of
the three RedPack entrepreneurs are presented below. The team used all the data collected to
fine-tune their business plan (see Appendix 2) that included detailed profitability and financial
analysis (see Appendix 3).
For each customer, RedPack would generate a yearly revenue of €7,966 with 50% generated by
advertising, estimated at €2,370 per locker per year. This revenue would be a monthly fixed cash
flow for the locker rent based on expected utilization rate, for a maximum of € 2,000 in July, and
a variable one for advertising, depending on how attractive the beach was, that the team
estimated at €600 per unit per month in peak months.
For 20 bars installed in year one in Spain, RedPack expected to break even with a revenue of
€180,000, for an initial investment of €220,000. In year two and three RedPack would expend its
customer base in the primary market in other countries and enter the secondary market,
expecting to have 250 units in operation by the end of year three. Then on year four and five
RedPack would expand massively in the secondary market, to reach a total of 500 customers
after five years, which represented 1% of a potential market of around 50,000 beach bars in
Europe. This way, RedPack would achieve a 37% net margin and a Return on Average Capital
Employed of 45% from year three onwards.
Main costs and cash flows
The main expenses would be salaries (assuming a salary of €4,000 per month for 1 FTE with a
2% yearly increase, and €3,500 per month for the seasonal local operation manager)
sinceRedPack sales forces would play a major role in the development of the brand. The
depreciation over five years of the lockers estimated at€6,400 per unit (80 small pin code
lockers) would account for 27% of the total expenses, and direct costs like installation (€400),
maintenance, insurance and storage (€300 per unit per year) would account for another 13%.
Marketing expenses (6%) would include communication, selling and promotion. Other expenses
were office equipment and travelling costs.
The most important cash outflow would be the purchase of the lockers just before the high
season started. The orderhad to be made after contracts signed with bar owners, allowing
RedPack to negotiate with the locker manufacturer to stretch the payment over two months after
delivery. Those contracts assess that the lockers would be paid back by the end of the season as
the yearly renting price covered the manufacturing, installing and extra services costs for each
Together with owners investment and bank loans, RedPack still needed an external investment of
around €600,000 in two rounds, €100,000 in year one and €500,000 i …
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