Question:
Discuss about the Due Diligence Report on NEWCO for Entrepreneurship.
This report basically focuses on the importance, significant and material findings of the due diligence review of the new technology product ‘NEWCO’. NEWCO is the solar powered mobile charger which is designed to charge more than six mobile phones at a time. Objective of this project is to simplify the challenges related to mobile phone charging who live in the non-electricity area in Kenya. This report focuses on the due diligence of this project and reviews the strengths and weaknesses of the business model of NEWCO in the investors’ perspective. It is well known that the project NEWCO is new in the market and for the growth and success; there is the need of investment of fund in the market (Hoskisson, 2009). With the due diligence, investors would be able to analyze and review the strengths and weaknesses of this project. Along with this, they would be able to evaluate that the project is profitable for them or not. Due diligence is the management review of the investors for the specific company and project. Management team of the project is the crucial aspect of the evaluation of the business project. With the process of due diligence, aim of the investors is to evaluate the project to ensure that the project would be successful or not (Burns, 2014).
In case of the project NEWCO, due diligence is done in the investors’ perspective. The process of due diligence is best when it is assumed from the perspective of an investor. An investor always seeks for some return on the investment while investing in the any business or project. If the new product is developed inside the company, it is crucial to view each idea as the new business. Due diligence from the investors’ perspectives is helpful in identifying the problem with the product, resources to launch and develop the product and profit in order to sustain the business. With the help of due diligence, investor would identify the possibilities of profit and warrant the investment (Mouncey & Baker, 2009).
There are some strengths of the business plan of NEWCO. With the business model, company is able to have knowledge and broad expertise about the local market. NEWCO would be able to enjoy the economies of scale with bulk manufacturing. Business model of NEWCO is helpful in establishing effective partnership with other firms; it would be able to get freedom to operate in the market. Further, with the help of proper business model, sales agents would have compensation structure with the commission so that higher sales volumes can be drive. Business model includes proper interaction with the customers to enhance the sales volume which would improve language capabilities of the direct sales agents. Further, business also includes various strategies to improve the business and provide many ideas to facilitate timely sales. The business model of NEWCO describes the process of product design that is very easy to move and portable. So the business model has ability to describe the product effectively among the customers (Gavrrilova, 2014).
Despite of various strengths, there are various weaknesses in the business model of NEWCO which must be addressed on the priority basis. With the given business model, it is observed that there is the lack of intellectual property right protection for NEWCO which can impact the business and create various risks for the future. Business model does not focus on the various ways of protection and risk management factors. Further, effective transport management is lacking the business model as lots of transportation is involved to distribute the finished products. Along with this, this business model does not focus on the strategies to improve the brand image so it seems that there is the lack of brand equity at the initial stage. Further, NEWCO has limited budget and fund. Business model is weak at this point.
This business plan is for NEWCO project which includes new methods for mobile charging. This new project provides such system by which people can charge six mobile phones at one time. It is observed that around 75% of people in Kenya live in the rural areas and most of which are un-electrified. So, people have to face challenges to charge their mobile phones. NEWCO has come with the new concept (Mason, 2015). Although this system is totally new in the market and it is important for the project to focus on the business plan. Basic objective of the business plan of NEWCO is to provide custom solution to the people who are facing charging issues in the rural areas. Along with this, aim of the project is to enhance the efficiency of the customers and establishing long term relationships with the stakeholders. By analyzing the business model of the project, it is observed that there are some areas which must be improved from the perspective of the investors so that more and more profit can be generated (Lymbersky, 2009).
It is well known that NEWCO is providing new technology of mobile charging. In Kenya, many people are living in the un-electrified rural areas and they gave to deal with the challenges to charge their mobiles. Mobile phones are important for the people in current time and they have only device to stay connected with the world. Most of the people are farmers in Kenya and by the mobile phones; they are able to call various suppliers and customers for their products. But for them, there is no easy way to charge their phones as there is the issue of electricity. NEWCO has aim to deal with this issue by providing mobile phone charging facility in the rural areas. This is a new technology for the people who are living in the rural areas. NEWCO is the electric device so; there is the need of security and safety that must be provided to the customers (Teece, 2010).
It is observed that NEWCO is the new system of mobile charging. So, there are the possibilities that people are not much aware about this. It is the responsibility of the project and team members to provide safe and secured product so that that they feel free in purchasing the charging systems. For this manner, management team can adopt some forms of protection in the product.
There are basically four types of Intellectual property protection for the for the technology products i.e. trade secrets, patents, trademarks and software copyright. NEWCO can apply for the patent and trademark protection. Further, there are no formal registration processes for the trade secrets as every company uses different strategy for the trade secret protection. Holding patent and other rights, NEWCO would be able to provide moiré profit to the investors. NEWCO can license its patents to generate more revenue.
When a company is planning to launch new products, it has to analyze the market as it would get freedom o operate in the market or not. In case of NEWCO, it is observed that in the rural areas of Kenya there is the lack of electricity. People have to deal with the challenges to charge their mobile phones. This shows that no one company has come up with such kind of project. So, it is assumed that the project NEWCO would get success in the Kenya’s rural market. The team members have to analyze the competitors in the market who have same patent to operate the business. The entrepreneur will get freedom to operate in the Kenya market as there are small numbers of competitors. Team members of the project would be prepare if there are any new competitors (Filet, 2013).
By analyzing the financial plan of NEWCO, it is observed that the business of NEWCO is quite attractive and started with the low sales volume. But, there is the possibility that the business will make loss in the long run. The reason is that in the first year, the business is very challenging in terms of new geography and setting up new strategy would be difficult for the project team members. There are depreciation and income tax charges that are challenges for the small business in Kenya. So, in the first year, business does not have sufficient fund to implement protection strategies effectively (Seshadri, 2009).
Creating a strong value proposition means to be better than competitors and being more successful in the market. NEWCO is very innovative product which would provide values to the customers. This product is convenient, meets the lack of current market and easy to use by the customers. The product will make the life of customers easier by not having worry about the battery of their mobile phones. The strategy of NEWCO is to focus on the ease of the buying process of the final consumers (Payne & Holt, 2008). The target customers and end users for NEWCO are people aged 20 to 35 with the middle income and interested in the innovations. Since the product offers the solar power to charge the mobile phone. This will eliminate the use of electric charges and risk of dead phone. It will create great convenience to the customers and mobile phone users so that they will no longer have to worry about charging the phone all the time. There are many rural areas in Kenya with no connection of the electricity grid or expensive or unreliable power access. This little solar power gadget is proving to be innovative (Joshi, 2009).
For the product NEWCO, company would use cost-based pricing strategy that would include designing of the product and then setting the prices based o costs. After analyzing various costs that will be applied to the product and achieving a markup, the price of a product will be decided. The unit price will decrease as the variable costs will be decreased. So, the prices for the NEWCO will be affordable for every customer so they can purchase the product easily (Marcer, 2012).
Mobile phones are responsible for the huge electricity consumption. Solar mobile phone chargers can be helpful to decrease this consumption. The development of NEWCO will increase the use of mobile phones and make the phone accessible for the poorer people in all over the world. So, team would adopt proper growth strategy for the success of the new product in the market. With proper pricing and positioning strategy, the solar mobile charger would be able to reach various customers in rural areas who have no access of electricity. The solar power mobile charger is the growing consumer demand for the environmental sustainability. Along with this, solar power is the infinite resource and that will continue to advance in the effectiveness and efficiency. So for the investors, it is worthy investment as it will continue to improve over the time (Farahmand, 2011).
The market for NEWCO is horizontal and there are wide ranges of opportunities in the market of Kenya. For the product NEWCO, entrepreneurs are focusing on the country Kenya and the country has population of nearly 30 million residents. It is observed that over 19 million people in this population are using mobile phones. Along with this, around 12.5 million mobile users are living in the rural areas which are un-electrified area. Along with this, it is also assumed that the demand for NEWCO will increase in future and take off at a fast pace. Mobile phone industry is one of the fastest growing industries in the world. The global mobile industry is now most fastest and vibrant industry in all over the world. The demand of NEWCO will increase as they are simple to use, affordable for the people and saves time. In the scarcity of electricity, there is the need of the solar mobile charger that can charge every mobile phone (Fifield, 2012).
Use of mobile phones is increasing day by day and for the people living in the rural areas, mobile phones are only medium to stay connected with the world. But in those areas, electricity is always a problem and it is becoming a serious issue for people to keep their phones charge. In order to solve this issue, NEWCO is launched that will eliminate the use of electric chargers and provides more convenient way to charge the phones with the environment friendly way.
The geographic factors include the area where the product is launched. NEWCO would be effectively offered in the rural and urban areas of Kenya. The reason is that there is the issue of electricity. There are around 12.5 million customers who are living in the rural areas of Kenya. It is true that the solar panel work better when sun shines. But, team has to make the people understand that solar panel can also work also without bright sun. Solar panels catch the solar beams by the clouds and they are able to change the rays in to the electricity in the cloudy weather conditions. Solar mobile charger can be very useful in the rural and urban areas where the supply of electricity is unpredictable or power grid is unreliable. Many experts have recommended that solar powered mobile chargers will be most successful in the rural area of Kenya. The chargers would come up with the reasonable prices which would be more affordable for the people who are living in the rural areas (Glowik & Smyczek, 2011).
The most important demographic criteria include income, age, occupation and education. For the product NEWCO, people will be targeted with the average age of 20 to 46 years. The reason is that these target customers are willing to adopt new and innovative products. in the rural areas, most of the people are farmers so, for NEWCO, middle income level customers will be targeted.
The intentions and interest of the people are continuously increasing towards the sustainable technology. The product NEWCO will provide a convenience to the customers to charge the mobile phones by the solar power charger. The perceived vale and versatility of the product has ability to achieve mass appeal of the market. The attitudes of solar charger NEWCO wants to improve positive and sustainable solutions for all the mobile users (Schnaars, 2010).
For the success of the product, it is important to focus on the market entry timing. For NEWCO, any time would be suitable to enter in the rural market of Kenya as the issue of electricity is permanent there. Along with this, there is no such competitor there which is providing this type of technology. So, NEWCO has advantage in this manner and it can enter in the market at any time (Lee, 2009).
For the manufacturing of NEWCO, the design and engineering team is based on the county UK. There are skillful and talented people who are employed to sustain competitive advantage in terms of design innovations, cost efficiency and product. For designing the product NEWCO, it is important to have full time resource by recruiting designers and engineers. After spending budget on 2nd and 3rd year with the design and engineering process, freelancers will be recruited as company is going to redesign the model so that cost reduction can be achieved. Further, there is the sales and marketing team and various managers are recruited in Kenya for the marketing purpose. The marketing team is accountable for the marketing processes and ensures the effective and efficient sales drive and manages the sales force. Along with this, there is the fulltime staff also to manage the internal operations in the business (Drummond, Ensor & Ashford, 2012).
In the financial part of NEWCO, it is observed that the financial part is divided for the various departments. The fund is distributed for the each business operation i.e. human resource, sales and marketing, product manufacturing and infrastructure and operations. These all expenses come under the fixed cost. It is analyzed that company has effectively distributed the fund into each departments. The upfront investment by the firm would build branding awareness. Firm has focused on the cost plus pricing analysis to analyze various costs in starting. The total cost per unit is decreasing due to decreased sales volume. NEWCO is new in the technology industry and it is assumed that the firm will meet the breakeven point in the second year. The balance sheet of the firm includes credit amounts and terms of suppliers in inventory as the short term liabilities (Toor & Dhir, 2011). Firm has GAP model for the effective financial operations. Based on the cost analysis, firm has five year financial plan. It is observed that with the increase of the products, the fixed cost over the previous year would also will reduce dramatically because of the higher volume of product sold. Based on these assumptions, it is observed that the financial plan for NEWCO is realistic for the investors and they will gain good returns within next five years (Gruca & Rego, 2009).
Conclusion
Due diligence is the process to review the business plan of a product or new project. For NEWCO, this report describes the due diligence of business model and analyzes whether it is profitable or not. Based on the above discussion, it is observed by the business model of NEWCO that this is the new project for those people who live in the rural areas of Kenya. People have to face challenges to charge their mobile phones due to the unreliability of electricity. Although the business model of NEWCO is quite impressive from the investor’s perspectives but there is the need to improve the model in terms of some factors. Based on the analysis and review, it is analyzed that this new project will be profitable for the investors but they will get the returns from the second year after the sale of the products.
References
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