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Business Plan: Rainbow Kites, Inc.

SUMMARY


BUSINESS CONCEPT


The Kite industry has expanded rapidly in the past several years and growth is expected to continue at a strong pace for the foreseeable future. This offers excellent opportunities for new companies to enter this market. We intend to address the needs of customers in this market who seek higher quality, higher priced kites. We will address this need by importing, selling and distributing higher end kites in the US and Canada. Distinguishing characteristics of our business will be top quality products, special emphasis on higher end independent retailers, and high level of service.

CURRENT SITUATION


We are a start-up, incorporated in 1998 in the State of California. The principal owner is Tom Anderson whose title is President and who has many years of experience in the toy industry. Other key personnel include Nancy Anderson, his spouse who has experience in customer service, bookkeeping and office work. At this time we are seeking additional equity capital to compliment our own equity investment and seeking to arrange a bank line for inventory and receivables financing. We have firm commitments to distribute several highly sought after overseas kite manufacturers and have verbal commitments from independent retailers primarily along the West Coast to stock our products. We hope to ship our first products within six months of finalizing financing arrangements.

KEY SUCCESS FACTORS


The success of our business will be largely a result of superior products, superior service, extra attention to detail throughout our operation, personnel and our high level of experience in the industry. focus on customers who...). In particular what really sets us apart from the competition is that we are ONLY going to sell high end kites and we are ONLY going to sell to higher end outlets. This will allow us to give absolutely top service and product selection for these accounts without getting distracted from the very different product and service demands of the more mass market outlets.

FINANCIAL SITUATIONS/NEEDS


In order to effectively launch the business, we project a total need for $300,000 in equity financing. Principal uses of the funds will be to finance operations until cash flow becomes positive and to create a stronger balance sheet in order to help secure additional bank lending against to finance inventory and receivables. To date we have raised $132,000 from founders, Tom and Nancy Anderson, and their relatives. We project that the company will be profitable within two years. We project that within three years of reaching break-even that this new investment could be cashed out by either the founding partners purchasing this investment stake or by replacing the investment stake with additional bank financing.

VISION


VISION STATEMENT


Our vision of what our company will become in the future is to have developed relationships with key retailers so strong that they will view us more as indispensable partners, than just another supplier. We will work closely with each retailer we serve to recommend product assortment unique for their customer base, appropriate stocking levels, pricing and display assortments. We will constantly seek out and work with the manufacturers we represent to deliver the most innovative and exciting products possible to the retailers we serve.

MILESTONES


1. Overseas manufacturers agreements in place...done.
2. Verbal commitments from many West Coast retailers...done.
3. Presentation to potential investors...underway now.
4. Presentation to potential banks for inventory and receivable financing...underway now.
5. Financing commitments in place..60 days.
6. Product catalog completed...30 days...
7. Additional sales reps being recruited...underway now..
8. Sales rep selection finalized...60 days.
9. Warehouse lease signed...90 days.
10. First written orders from retailers... 75 days.
11. First orders to manufacturers...110 days.
12. First shipments from our warehouse...160 days.

MARKET ANALYSIS


THE OVERALL MARKET


The overall size of the industry is currently $150 million in the US and Canada. Because the industry includes a very diverse group of product types with significantly different characteristics, it is more meaningful to break out analysis of the industry into roughly two groups. The first group and by far the larger unit volume are lower end kites sold primarily through mass market outlets such as discount department stores. The second group are higher end kites that are sold largely at independent and specialty chain stores. While the unit volume is much less, the dollar volume is approximately the same ($75 million) as that for lower end kites because the average price point is much higher.

CHANGES IN THE MARKET


The most significant development in this marketplace recently has been the shift in toy and kite business away from independent stores to national mass marketers over the past decade. However, recently this trend has slowed as independent toy and novelty retailers have become better at differentiating themselves and their product selections from those offered by national mass marketers.

MARKET SEGMENTS


The market is primarily segmented by distribution channel. The mass market retailers are looking for low-priced products and a high percentage of their products are licensed merchandise, for example based upon kid's cartoon characters. Independent specialty retailers however are trying increasingly to be as different from the mass merchants as possible and are generally selling much higher priced product and seldom want merchandise based upon licensed cartoon characters.

It should be pointed out that there are few stores that sell just kite merchandise--even among independent specialty stores most of the volume in kites is sold at stores that sell a wide assortment of other merchandise such as toys or other novelty items.

TARGET MARKET AND CUSTOMERS


Our target market is independent and small chain merchants that are committed to selling higher end kite products. We particularly want to focus on accounts that just sell higher end kite products and that are committed to stocking a selection of at least a dozen different kite products. These accounts we feel offer the best growth potential and will benefit the most by the help we can bring to them in selecting and displaying our higher end merchandise.

CUSTOMER NEEDS


The basic need of target retail customers is to differentiate their store from mass market stores and give customers a reason for shopping their store and paying significant premiums for their products instead of getting a low-end product at a discount department store.

These stores really appreciate stocking a line that is not sold at mass market accounts. They also appreciate dealing with an importer who is committed to specialty stores exclusively, not mass market accounts.

CUSTOMER BUYING DECISIONS


The buying decision is almost always made at an in-person sales presentation. The personal touch appears to be essential for moving buyers to action for this product because at these high end retailers are very demanding about the product quality being stocked in their stores. They insist upon seeing finished products, not just mock-ups or catalog pages. Some purchases are made at trade shows, but only a small percentage.

COMPETITIVE ANALYSIS


INDUSTRY OVERVIEW


Across the US and Canada there are many firms that distribute kites. The vast majority however distribute only one or two low end kites as a very small part of their overall distribution business.

There are several distribution firms that offer between a dozen and as many as one hundred kite products. These firms represent many different products and the sale of kites represents a very small fraction of their business. These firms also to a wide variety of outlets including mass merchant accounts.

CHANGES IN THE INDUSTRY


The big change in the kite industry over the last few years has been the concentration of lower end kite sales in mass market accounts, along with a strengthening market for higher end kites in upscale specialty accounts.

Current distributors representing larger kite product lines while still selling to a wide variety of outlets, have tended to focus most of their efforts on selling lower end products to mass market type accounts--where their revenue is much greater.

OPPORTUNITIES


While the competition is well-established in, and gives a lot of focus to, current major markets for this product, they are much less aggressively pursuing the higher end kite market. This market offers terrific potential because it has significant growth potential, and the competition is not well-entrenched here. Furthermore, this market differs from the other markets in the many important ways. While this market may not be the largest, it appears a very solid opportunity for a newer competitor.

THREATS AND RISKS


Because we are a small firm, we do not anticipate a meaningful or prompt reaction to our market entrance from our larger and more established competitors. We think a strong reaction from existing distribution firms is particularly unlikely because the primary competitors derive only a very small percentage of their business from kite sales, and even that revenue is largely from mass market accounts that we plan on avoiding. However, we have developed contingency plans for certain reactions that competitors may make. If a competitor lowers their prices on the exact same product we are offering we will match their price on that product. But we intend as much as possible to emphasize products that our competitors are not selling to begin with.

STRATEGY


KEY COMPETITIVE CAPABILITIES


We are better positioned than our main competitors to take advantage of the increasing demands of upscale independent specialty stores to sharply differentiate their kite selection from those of mass merchants. Because we are going to focus exclusively on importing higher end kites for independent specialty stores we will be much better able to serve their needs than current distributors who handle many items other than kites and also give their primary attention to larger mass merchandise customers.

Tom Anderson's extensive experience in the toy business and his solid knowledge of the kite market in North America, his personal contacts at independent retailers on the West Coast and his contacts at overseas suppliers give us a strong competitive advantage.

Nancy Anderson's background in running offices and handling customer service issues will give us a strong service advantage.

KEY COMPETITIVE WEAKNESSES


Our primary weakness is that we are a new business competing largely against established firms. To significantly build sales, we must not just find new customers--we must take customers away from existing firms. However by offering a superior selection of kites and focusing exclusively on upscale independent stores we feel will can quickly open accounts at many retailers and build strong relationships. Co-founder Tom Anderson has had many discussion with owners and buyers at retailers that confirm this opinion.

Another disadvantage we have is stronger personal ties with accounts on the West Coast of the US and Canada than in other parts these countries. We plan on offsetting this weakness by hiring experienced commission reps for other territories. We have already had preliminary discussions with several highly successful reps and these reps have shown interest in continuing discussions with us.

Financially we do need additional funding. But after the targeted funding is in place we will have ample financing for the foreseeable future.

STRATEGY


Our strategy is to focus 100% of our efforts on the market for upscale kites. By focusing all of our effort and energy on this particular niche, we expect to quickly develop and maintain a leadership position. While other firms try to be all things to all people, we believe that our singular focus will give us significant advantages. Most of the firms serving this niche now also serve much larger markets and give only secondary attention to the upscale. On the other hand, our firm will give our total focus to this niche; our key people will stay in personal touch with customers in this niche; and we will be able to respond to changes in this market much faster than our competitors.

We will offer the best, most highly personalized service in the marketplace we serve. Especially being a very small, owner-operated company, we intend to use this to our advantage to be absolutely certain that every one of our customers receives excellent service. We will go out of our way to make sure that our customers know that they truly matter to us. For example we will carefully recommend seasonal inventory plans for each store that reflects the customer traffic that the store receives. We will also make display suggestions and to create a number of displays that can be adopted to the needs of particular stores. Sales reps and in-house employees who deal with customers will be carefully trained and will be given wide latitude for insuring that customers are always satisfied.

PRODUCTS/SERVICES


PRODUCT/SERVICE DESCRIPTION


Our underlying philosophy in selecting products has been to choose lines that will bring excitement, surprise and satisfaction to demanding higher end customers. We personally test each individual product. Special attention is giving to ease of assembly, durability, and general overall attraction.

We prefer to choose lines that we can represent exclusively, but because our first priority is on representing top-of-the-line merchandise, we have agreed to take on two leading lines on a non-exclusive basis.

A complete draft copy of our first catalog detailing our initial product lines and products is available upon request.

An important component of our business is not just our products but our service.

These are some of the important service elements we offer:

-Stocking of all products offered in our West Coast warehouse, avoiding long waits to fill orders from overseas
-Detailed advice on inventory planning and sales forecasting for individual stores
-Display fixtures custom built to suit the needs of our customers
-Full returnability for any product defects
-Coordination of co-operative advertising programs with manufacturers

POSITIONING OF PRODUCTS/SERVICES


We intend to position our business not just as a distributor of products, but a partner bringing a high level of service to the stores that we enter into business with.

We will work with stores through merchandise selection and display options to significantly increase the sales and profitability of their kite business. By doing this we expect to develop a strong loyalty among our customers.

SALES AND MARKETING


MARKETING STRATEGY


Our basic marketing strategy is to work with our retailers on a one-to-one basis to develop unique marketing programs for them. Especially because we want to develop close working relationships with our customers we want to establish accounts in as personable a way as possible too. Hence we will overwhelmingly emphasis in-person sales calls to build accounts.

We will closely integrate all of our marketing and sales efforts to project a consistent image of our company and a consistent positioning of our products or services. We will build this image around our name "Rainbow Kites, Inc." and will emphasize to retailers to wonderful color and excitement that a well-done display of top quality kites can add to their store.

While we will attend some trade shows and produce a color catalog these marketing initiatives are seen as supporting, not competing with our independent sales representatives.

SALES TACTICS


Our primary sales method is face-to-face selling by independent reps A particularly important aspect of our sales process is that we will fly all of our independent reps to our West Coast office to extensively train them in how product line, in building displays, and in building a bigger kite business for our customers.

We will insist that our independent reps represent only non-competing, non-kite lines. We will stay in close phone contact with our reps in addition to having sales meetings with them at least four times per year, usually at major trade shows.

We will pay our reps on a "ledger" basis, giving them commission on all sales in their exclusive territories even if the account phoned the order in directly to our main office.

ADVERTISING


We will have a small advertising budget, devoted exclusively to trade publications designed to reach buyers and owners of upscale independent stores. The objective of our trade advertising will be to limited to reinforcing the image of our company and the excitement of stocking upscale kites. All ads will be four-color and between 1/4 and 1/8 page in size. Each ad will prominently feature our logo and a bright, colorful, changing display of upscale kites.

We will also work with our retailers to obtain co-op advertising funds for their own local advertising. Currently very little co-op money is being provided by kite manufacturers, but we believe that we can make more funds available especially if we work with a US ad agency to develop effective advertising layouts and copy that our retailers could use.

PUBLICITY


Our publicity effort will be three fold. For one we will send news releases to trade magazine to try to get product or company feature coverage in front of the eyes of retailers. Second we will product a few generic press releases about kites that our retailers can use to try to obtain publicity coverage for their stores in local publications. Third we shall have a quarterly newsletter for retailers that we are currently serving or hope to be serving. We anticipate sending 1,000 copies of the news release out our first year and gradually increasing to 2,000 copies by our third year. In the newsletter we will highlight not just our products, but also display ideas and success stories of stores who increased their kite sales.

TRADE SHOWS, ET. AL.


We will have a small booth or table top display at four national conventions each year, including the National Toy Show in February in New York, The Toy and Hobby Show in April in Toronto, The International Gift Show in Las Vegas and the West Coast Toy and Gift Fair in May. We will emphasize not just our products but the custom-built displays that we are producing for retailers.

We will also provide limited funds for display space for our independent reps at regional trade shows that they attend. Typically we will pay for one table top display.

OPERATIONS


KEY PERSONNEL


The Company will be managed by the two founding partners, whose individual areas of expertise covers many of the functional aspects of the business. Tom Anderson will serve as the President of the Company, and will be responsible for Product Selection and Sales & Marketing. Nancy Anderson will be the Vice President, in charge of Administration. She will be responsible for customer service, accounting, shipping and the general administration of the business.

Tom Anderson has a long history of experience in the Toy Business and specifically in Kites. For several years he grew the Kite business at Ocean Gifts and Toys in Los Angeles into one of the largest and most profitable exciting in the country. Tom has a many industry contacts and an in-depth knowledge of the kite and toy business. See Tom's resume for further details.

Nancy Anderson directed a staff of twelve as the manager of customer service for LA Selections, a major local jobber of novelty goods. She has also held a wide variety of other inside business and operations positions. See Nancy's resume for further details.

ORGANIZATIONAL STRUCTURE


The organizational structure is very simple. The independent commissioned reps will report to Tom Anderson. And support staff at the office and warehouse will report to Nancy. Because Tom will frequently go on buying trips to the Far East or be on the road selling, Nancy will be able to support any day-to-day needs that the reps may have. However even when Tom is on the road he will be in constant touch by computer or phone.

PRODUCT/SERVICE DELIVERY


In order to deliver high quality, personalized service we will carefully select all employees--especially sales reps and customer service representatives who deal directly with customers. Tom is currently interviewing candidates for sales reps. We will carefully review references not from past employers or manufacturers but from retailers whom these sales reps have served. We will also make sure that each employee understands our way of delivering quality service to each customer. We will have immediate back-up support available by phone from our office for more difficult service issues. And we will give employees enough latitude so that they can respond immediately to almost all customer requests or complaints--which in this industry usually means granting prompt credit for damaged merchandise.

CUSTOMER SERVICE/SUPPORT


We intend to prioritize customer service and make it a key component of our marketing programs. We believe that providing our customers with what they want, when and how they want it, is the key to repeat business and to word-of-mouth advertising. Not only will we train our employees to deliver excellent service, we will give them the flexibility to respond creatively to client requests. In addition, we will continually monitor our clients' level of satisfaction with our service through surveys and other convenient feedback opportunities.

Initially we expect to have few enough accounts so that Nancy and one additional employee can handle all customer service issues. Having just one employee to train should help insure that Nancy can help make the new hire a top performer. As our business grows we intend to hire additional customer service people one at a time and pay a premium over market labor rates to attract and retain quality help.

Shipping problems are a huge issue with the firms that we compete with largely because they insist on using surface shipping methods to keep their costs down to charge low prices to keep their mass merchant accounts happy.

We intend to use air freight to import our kites from the Far East. This will add to our costs slightly. But because all of our products are more expensive it makes more sense for us. It will also allow us to have much thinner inventories in our warehouse without risking stocking out.

Our relatively high cost of shipping has put us at a competitive disadvantage. The current cost of shipping for an average order is $..., which we feel can be reduced by ...%. We intend to achieve this cost reduction by putting our overall shipping requirements out to bid.

FACILITIES


We plan to lease approximately 10,000 square feet of space as soon as our financing is finalized. We have a specific property in mind and have a tentative agreement with the landlord's agent. This building located near LAX airport has 8,500 feet of warehouse space and a small 850 square foot office. The lease rate is $6.35 per foot triple net for a 2 year lease with the option for two additional years at an increase of 5.9% per year.

The building is located in a busy industrial neighborhood, but because we do not intend to have customers visit us we have decided we are better off with a lower-rent location, than a location that could double as a fancy showroom.

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