Preliminary Business Case - MISST Collaboration Site

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Preliminary Business Case

Nutri
-
Go

Sarah Stottsberry, Tom Vaughn, Phil Laube


Nutri
-
Go

is a comprehensive, yet easy to use
,

nutrition and tracking
application

that can aid individuals in
accomplishing their exercise and nutrition goals. It is designed for

the overweight individual who will realize
significant

results by simply increasing their physical activity
to at least 30 minutes a day, and

by substituting their
existing diet with more nutritional items and consuming fewer calories a day.


In recent ye
ars, great success has been realized at women
-
only and men
-
only franchise fitness centers. Curves™
proudly acknowledges that it helps its members change their lives in just 30 minutes a day.
The fitness centers
provide a very structured workout, designed

for an individual
who has a limited amount of time available to

workout. Significantly overweight individuals are rea
lizing dramatic weight loss results in the beginning. However,
over time their bodies become resilient to this activity and the person r
eaches a weight loss plateau that can only
be overcome by continuing to modify their workout routines, while adhering to a more nutritional diet. Nut
ri
-
Go is
a simple
application

that will help the consumer to advance to this next level of their fitness c
hallenge. By having
an easy way to track nutrition and fitness activities at home or on
-
the
-
go, consumers will be empowered to
continue their weight loss journey, giving them the confidence they need to succeed.


Product Description


Nutri
-
Go

is a compreh
ensive nutrition and exercise tracking program that can be run on a variety of smartphone
devices
with
built in cameras. The program allows
one

to easily track nutrition, fitness, and health information. It
is designed f
or the time challenged consumer
.


Basic information is obtained from the user during the startup routine of the application including height and
weight. This enables the
application

to compute the users

Body Mass
Index (
BMI
)

which registers whether the
user
is

underweight, normal weight
, overweight, or obese. Lifestyle questions
allow

the
application

to suggest a
nutrition and exercise plan that is likely to be successful for the individual. Standard Lifestyle categories are
presented, but the user
may
also
let the application suggest a
n appropriate Lifestyle by
answer
ing

a few more
detailed questions. The Lifestyle targets allow a user to select
from a
n appropriate
list of workout options
. Nutri
-
Go

will monitor their

progress against benchmarks related to the Lifestyle choice.
Once s
etup is complete the
application

can be used to enter exercise and nutrition information immediately. The user
-
friendly main menu
features

large buttons for the user to indicate whether they want to track nutrition or exercise at a given moment.


Standa
rd Lifestyle Categories Include:




“Infrequent Exerciser”





“Slow Moving Senior”



“Exhausted Student”



“Busy Mom”



“Overworked Executive”



“Diabetic”



“Heart Attack Survivor”



“Experienced Exerciser”



and others


Attention:

S
pecial caution and care will be given

to

all users by

display
ing

appropriate messages suggesting that the
user contact a healthcare professional in the event that they are just beginning an exercise routine, or plan to make
significant changes in their diet.
Nutri
-
Go
will make clear that t
he

purpose of
the

application

is to offer suggestions on
ways to meet weight loss and nutrition goals, but that it should never

be a replacement for sound, medical advice.


Nutrition

Nutrition tracking offers the ability for the user scan a food label, ent
er a recipe, or select a previous item from the
database. Depending on whether the user is dealing with a store bought item, or a combination recipe, the user
will be asked to enter the number of grams they have consumed. For those individuals who strugg
le with this
determination, helpful suggestions and hints are available
to

help the user

estimate their consumption amount by
Nutri
-
Go Business Case

Sarah Stottsberry, Tom Vaughn, Phil Laube



Page

2

reviewing example serving sizes and gram equivalents. While it may seem like our starter database has all the
items the user will

need
,

item databases
can
become obsolete quickly
due to the varieties of

new

items that are
introduced
.
In the event the item does not appear in the databas
e,
the user can simply choose to scan a new food
item. On
-
screen instructions will direct the use
r to take a picture of the new item’s food label. The picture is
reviewed immediately for proper resolution, and in just seconds, a new food item is entered into the database. An
optional barcode scanner is also available that can quickly give the user a
ccess to existing items by scanning the
item barcode.


Exercise

Similarly exercise tracking is made simple by giving the user easy to follow on
-
screen prompts. According to the
Lifestyle target chosen, basic equipment

options

will be available upon
applic
ation
setup.
T
he user is
able to

add
other equipment and/or activities. Included in the options is the ability to select standard hydraulic machines
available at franchise fitness centers across the country. This greatly simplif
ies

the user

interface, m
aking Nutri
-
Go
a great option for members

of these fitness centers
. While many standard equipment and activities are available,
users also
have

the option to enter unique exercise

alternatives
.
A

few simple questions about the activity
allow

the
applicati
on

to

automatically add the activity along with an estimated number of calories per hour that can be
realized by performing the activity
.

Once the exercise equipment or activity is chosen, the user is asked to enter
the number of minutes spent performing t
he activity, and Nutri
-
Go does the rest.


Nutri
-
Go also offers basic reports that will help the user

evaluate their results.

The
r
eports concentrate on simple
evaluation statistics including BMI, caloric intake, fat and cholesterol intake, sugar and sodi
um intake, as well as a
caloric intake versus the energy burned during their documented exercise activities. This type of analysis is ideal
for the significantly overweight individual who quickly and effortlessly needs a way to obtain an overall evaluati
on

of their efforts
. More detailed reports will be available on
-
demand, but the standard
report offering
keep
s

it
simple

for the user
.



Online Community

Finally, Nutri
-
Go will offer a subscription based online community that can be used to help the i
ndividual gain the
motivation needed in order to carry out their plan. Nutri
-
Go can
automatically
email
a
summary
of
the user’s
information to the subscription service. After the subscription is complete,
a

discussion board and peer group
are
available
to the user that

include other people
who

share
similar

lifestyle and habits. Often times,
one is

motivated in the gym environment, but the connection is lost

when returning home
. Nutri
-
Go
’s online
-
community

allows the user to continue a degree of connec
tion while also
providing

tools need
ed

to easily track nutrition and
exercise information

on
-
the
-
go
. Ultimately,
this will help the individual succeed at their weight and nutrition plan.


Device

The device of choice will be a
s
martphone

running Windows Mo
bile

with built in camera and optional optical
scanner. An economical choice may be the Palm Treo with a built
-
in 1.3 megapixle camera. A SD Scan card,
engineered by Socket Communications, Inc., could be added for those that want the ease of the barcode
functionality.
E
xisting
digital camera

OCR technology
gives

the ability
to input food items into the database

simply

by
photograph
ing

a food label.
V
endors such as ABBYY software house offer a Modile OCR SDK that can be used to
implement optical characte
r recognition (OCR) technology
with

a
smartphone digital camera.


Target Market

Obesity is a serious concern in our society today, and one that needs a solution

according to the US Government.

They have already set a goal t
o
reduce the prevalence of obesi
ty to 15% by the year 2010.
This is fueled my r
ecent
studies
showing

that medical spending
due to overweight and obese conditions

will top $92.6 billion or 9.2 percent
of U.S. health expenditures

per year
.

Adding to this cost
is the l
ost productivity re
lated to obesity

among
Americans age 17 to 64 at

$3.9 billion
. At a given moment, there are

approximately 113 million people trying
to
lose weight and this number is growing.


Nutri
-
Go Business Case

Sarah Stottsberry, Tom Vaughn, Phil Laube



Page

3

0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
%
1971-
1974
1976-
1980
1988-
1994
1999-
2000
2001-
2002
2003-
2004
% of U.S. Population Overweight or Obese
Age 20 to 74
Overweight but not obese
Obese
i
Total diet industry
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
$65.00
$70.00
$75.00
2002
2003
2004
2005
2006
2007
2008
2009
2010
Billions
ii

As the

American nation wakes up
to the obesity crisis, the demand for new and innovative ways to help individuals
achieve positive results
will grow dramatically over the coming years.

The current size for the weight loss related
market is estimated at $
55

billion. Depending on the def
inition of this market, expenditures are likely

to

reach
$
100
billion, with some

analysts

considering this to be a

conservative estimate.
While this number seems large,
when
you consider the fact that there are over sixty million obese individuals in the U
nited States and

that this
number

increases at an alarming rate each year, the number becomes realistic.

Additionally, it has been found
that
overweight and obesity are increasing in both men and women. The latest estimates are that
33

percent of
U.S. ad
ults aged 20 to 74 years are overweight, and an additional
34

percent are obese. About half of all women
aged 20 to 74 are overweight or obese. The percentages of obese women among African American, Native
American and Mexican American women are even highe
r.

While there are many people in the
United States
that are in need

of

exercise and better nutrition, we cannot
accept that all individuals will want to make a change
to
their lifestyle
. It is estimated that

75 percent of those
individuals who are overw
eight are trying to lose weight through diet, exercise or a combination of both,
and while
their track record for trying is good, their track record for succeeding is not. Within five years, most dieters will
regain the weight they lost
iii
. And, after five y
ears, they may even weigh more than when they started the original
weight
-
loss effort. The number one reason for failure is setting unrealistic goals. Nutri
-
Go

attacks this challenge
head on by ensuring that nutrition and exercise goals are realistic and a
chievable. It does this by focusing on the
Lifestyle options selected by the user and offering a user
-
friendly interface that allows the user to track their
progress in just minutes a day.


To

have a personal trainer available at a moments
notice

is not
a

reality

for most
. Most people cannot afford this
type of service, and don’t have the time needed to research effective workouts
for
their lifestyle and body
composition.
Nutri
-
Go
, designed for a
s
mart
p
hone running the Windows Mobile operating system,
of
fers an
economical option that provides a level of exercise and nutrition guidance that is ideal for a significantly
overweight individual.



The
s
martphone market
is growing fast
.
Smartphone sales were 7.6 million units in 2006 and projected to be 12
mi
llion units in 2007. By 2012, sales are expected to reach 32 million units. Windows Mobile is grabbing an
increasing share of the smartphone market, currently holding a 5.6% share. This would equate to 1.8 million units
in 2012. Windows Mobile position

in the marketplace is currently stable with much opportunity for growth. One
of Windows Mobile’s strengths is its connection to enterprise computing (such as Outlook and MS Exchange).
Some forecasts have predicted that Windows Mobile would grow to

be a
dominate player with

up to 29% of the
smartphone market.


Competition

Competitors to the Nutri
-
Go include: software for mobile devices offered in a standalone environment or in
combination with a desktop application and unique single purpose devices.


Nutri
-
Go Business Case

Sarah Stottsberry, Tom Vaughn, Phil Laube



Page

4

Sof
tware

Several mobile applications exist for nutrition and lifestyle management. These applications run on Palm,
Windows Mobile and Blackberry devices. The most comprehensive of these that we found is an application called
WeightMania developed by Edward
A Greenwood Inc. WeightMania is a desktop application that offers an add
-
on
for the Palm OS. It maintains history on several pieces of health information:



Meals



Exercise



Medical history (sleep, blood pressure, cholesterol, blood sugar)



Weight and body me
asurements (waist, body fat %, body mass index, heart rate and 8 other body
measurements)



Notes on the day, including weather


It also includes calculators to help compute the user’s body fat % (BF) and body mass index (BMI). The product
advertises an 8,0
00 item database of foods to assist in calculating food consumption.


Pricing for the Palm OS application is $14.99, but requires the purchase of a desktop application which starts at
$59.99. Despite the database size, dining out options are limited. I
nput of foods is cumbersome, even using the
search features. Especially difficult is the input of prepared items (a simple turkey sandwich requires at least 3
entries for the 2 slices of bread, the slices of turkey meat and a pickle).


Other mobile appl
ications operate in a similar manner and range in price from $19.99 to $29.99. They offer
different combinations of the above features without the desktop tie
-
in. They include: MobiSystems Diets by
Mobile Systems Inc., Total Fitness by MOBITEQ, and My P
ersonal Diet by VidaOne.


Single Purpose Devices

The Nutrition Assistant from Robi is an example of a single purpose device for monitoring food consumption. It
sells for $29.99 and is similar in function to a pocket calculator. Its display of informati
on is limited and only has a
database of 800 basic foods with only an additional 100 user defined foods.


Comparison to Nutri
-
Go

The Nutri
-
Go product offers similar tracking of nutrition, weight and exercise to the mobile software applications.
It will se
ll at a comparable price point. What sets the Nutri
-
Go apart is its ease of use for someone who is
significantly overweight and desires a device that will help them easily track nutrition and exercise information.
The interface is unique in that the user

is not overwhelmed with

features, allowing the

individual

to focus on
tracking information
in just minutes a day. This makes Nutri
-
Go a superior product for the market we intend to
penetrate. The most important features that aid in its ease of use is th
e
integrated
OCR

or optional bar code

scanning for input of food items, the large easy to read interface for input, onscreen step by step instructions, and
the lifestyle target selections.


Sales Channel

In

a world that is consumed by the internet and th
e need for information,
there is

a great opportunity to market
Nutri
-
Go
. Often times, fitness and nutrition challenged individuals are online and in search of ideas and products
that will help alleviate their problems. Thousands of searches on major sear
ch engine
s

for fitness related
information occur every day. We will capitalize on this knowledge and will ensure that our site appears for fitness
related searches

at places such at Google and Yahoo
.
G
etting someone to our site is the first step, we wil
l
then
gain the trust of the individual by offering free newsletters and community offerings. Once we have gained the
trust needed for a potential purchase, we will ensure that our product features, intentions, and benefits are clearly
displayed for the p
otential
consumer
.


Additionally, direct marketing to franchise fitness centers will be an important aspect of our marketing strategy
.

T
his
application

is ideal for those individuals who have exhausted their workout potential of gym activity alone and
ne
ed a way to track
nutrition and exercise information on
-
the
-
go
. We will realize the best results if we ensure that
Nutri
-
Go Business Case

Sarah Stottsberry, Tom Vaughn, Phil Laube



Page

5

the potential consumer can trust that we have their best interests in mind. By offering free trials to direct
consumers,
and

by offering it

at popular fitness franchise establishments, potential consumers

will have

a safe
environment in which to realize the benefits that Nutri
-
Go has to offer and will
entice them to purchase
.


We

will continue to refine the Nutri
-
Go product, ensuring that our

current users
continue to
realize success from
our product.
U
ltimately the buying decision
is
based on whether our
application

provide
s

value to the customer.
Our online community of friends will be
one of
our best marketing strateg
ies
.
W
e will
find po
tential new
customers

in
the

natural network of friends, family, and co
-
workers

by
continually satisfying existing consumers.

Sales leads would be would be met through
our own website and
mobile software web sites such as handago.com
,
c
lickapps.com and ha
ndmark.com.
.


Financial Plan


The accompanying schedules show the expected return on investment for the Nutri
-
Go product. We are
requesting an initial investment of $900,000 to start operations for the product. As shown in the profit and loss
statement,

t
he product is projected to turn a profit in the
4
th

year of operations and break even in the
same
year.
The anticipated return
on this investment is
87
%

after the first five years of operations.

($500,000)
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
2008
2009
2010
2011
2012
Net income


Assumptions


Sales

Sales for Nutri
-
Go are based on the number of adults attempting to diet overlaid with the number of Windows
Mobile smartphone users. It is projected that 74 mi
llion adults are attempting to lose weight. In 2007,
smartphone sales are projected at almost 12 million units. We have proposed only a modest penetration of
the
market for forecasting purposes. The actual sales could be much higher. We plan to approac
h existing diet plans
to offer Nutri
-
Go to their clients as a supplement to their already successful system
. The initial target for this plan
is the fast growing Curves™ program. Nutri
-
Go’s focus on both diet and exercise is an excellent complement to the
Curves™ system; and Curves™ does not offer a system like Nutri
-
Go to its clients. Detailed calculations
of the sales
market are included as the second schedule (sheet).

Nutri
-
Go Business Case

Sarah Stottsberry, Tom Vaughn, Phil Laube



Page

6

Sources of Revenue
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2008
2009
2010
2011
2012
(000's)
Web subscriptions
Sales - Partner
Sales - Direct


Cost of sales

and com
mission

Cost of sales for our product consists of the licensing fee for the OCR technology used to scan nutrition
information. If a customer wishes to utilize a bar code scanning card, we will direct them to a recommended
vendor to purchase that directly.



Sales of mobile software are often best accomplished through marketplace sites such as handango.com and
others. Commission on these sites runs from 35% to 40% of the sales generated. We have estimated that one
-
half
of our direct sales will occur thro
ugh these sites, with the other half occurring through our own web site. Sales at
our web site will incur a bank/merchant processing fee for credit card transactions of 2.5%.


Development

costs

Detailed on the third sheet, development costs include an e
stimate of 1,000 hours to develop the initial product,
with additional staff added in year 3 for continuing updates, modifications for partner programs and development
of new markets. Included in development is one application support person to assist wit
h initial testing

and
business analysis;

and
to
begin to develop the support function for the product. Bringing this person on during the
development and testing phase will help product development and ensure a strong support function when the
product is
released. Good technical support in the early phase of product launch is essential to a new product’s
success. Other development costs include the cost of the development environment and equipment necessary to
allow sufficient testing of the product. Em
ployer taxes of 8% are included and a 7% allowance is made for other
benefits, such as a healthcare plan. Healthcare would be purchased through a group plan, such as that offered by
some larger chambers of commerce (Cleveland’s COSE plan is available to c
ompanies throughout Ohio as one
example).


Overhead and start up costs

Overhead and start up costs include a controller/accountant at the beginning of operations. This person will assist
with business analysis and will also assist with product development

in the initial presentations of the product to
partners. Other year 1 operating costs include fees for the initial audit of the company. It is anticipated that the
company that will be formed to sell Nutri
-
Go will require additional capital at some poin
t in its future. This capital,
whether obtained from a financial institution, additional investors or the public markets, will require audited
financial statements. Allowances are made for rent, utilities and supplies. Insurance includes general liabili
ty to
protect the company, as well as directors and officers (D&O) insurance to protect the investors, officers and
employees. In year 3, we anticipate hiring a person to be in charge of marketing Nutri
-
Go to new potential
partners and new markets. Benef
its and taxes are included as above for all personnel.


Startup equipment will include basic office furniture, computers and a laptop / projector for sales presentations to
potential partners.
Web hosting through a 3
rd

party is included
. We intend to uti
lize a 3
rd

party, such as our
Nutri
-
Go Business Case

Sarah Stottsberry, Tom Vaughn, Phil Laube



Page

7

financial institution, for processing the cash receipts from our web site sales. This common practice avoids the
expense and difficulty of PCI/DSS standards and other security concerns and regulations related to processing an
d
storage of credit card information.


ROI

We have used a 7.75% factor to determine the net present value of the gross profit, operating costs and net
income from Nutri
-
Go, based on the current prime interest rate from the Wall Street Journal.



Risks


Ri
sks to this forecast include:



Lack of expected sales



Inability to negotiate a partnership with Curves™ or similar program



Higher percentage of sales through marketplace sites



Longer development time or additional development resources


Lack of expected sales

An inability to reach the indicated sales would ce
rtainly delay the break even point for the product and reduce the
ROI. This could be through longer development, missed anticipation of market needs or overestimation of the
acceptance of the product. We have addressed this through the use of conservativ
e estimates of the anticipated
market penetration for Nutri
-
Go; and in when sales would start. Our overall estimates for market penetration are
conservative and the share of the Windows Mobile environment is based only on its current market share. Many
f
orecasts show that the Windows Mobile OS will gain market share in the smartphone market, as is evidenced by
Palm’s decision to include this on their Treo™ line of smartphones. We have not anticipated any sales in the first
year of operations. The produc
t is anticipated to take approximately 1,000 hours or about 6 months to develop.
The forecast allows for one full year to develop and test the product.
Additionally, we plan to
complet
e

development
of the smart phone application

by

October 2009

so that w
e can have the opportunity to meet the
demand of the dieting season, usually experienced from January through April
.
Additional comments on
development are made below.


Delay or failure in partnership negotiations

Included in the sales forecasts is a part
nership arrangement with Curves™ or a similar program. It is possible that
we could be unsuccessful in negotiating such an arrangement or that these programs already have products under
development. We did find that Weight Watchers™ has developed a mobil
e application to assist its clients in
calculating and tracking its ‘points’ program. We have found no evidence that Curves™ is working on a similar
product and do believe that Nutri
-
Go will be an excellent complement to the Curves™ program. Our forecast
ed
revenue is primarily generated through direct sales, so we believe that if we did fail on this strategy, it would not
be a reason to cancel the product. It would only delay the break even point and reduce the five year ROI.


Higher percentage of sales
through marketplace sites

It is possible that a higher percentage of sales for our product will come through marketplace sites such as
handango.com or others. This would increase substantially the cost of sales. If this were the case, we would still
reta
in at least 60% of the revenue from the sale. We also believe that this risk is partially offset by our
conservative estimates on sales. Like the risk in partnership negotiations, this would potentially delay the break
even and reduce the five year ROI,
but would not be a reason to cancel the product.


Longer development time or additional development resources

It is possible that development of Nutri
-
Go could take longer than anticipated or require additional resources. We
have allowed an extra 6 months in the forecast for delays. If additional development resources were required, the
requested capital would a
llow us to accelerate the addition of these resources.


Nutri
-
Go Business Case

Sarah Stottsberry, Tom Vaughn, Phil Laube



Page

8

We have allowed for the above risks in the forecast. We believe that sales for Nutri
-
Go will begin in the second
year of operation or earlier. The requested capital would allow us to fund the compan
y through two full years,
even with no sales. At the end of year one, we would be able to assess the progress of development and have
additional market information to determine whether this forecast is feasible or conservative. At that time we
would be a
ble to determine whether the initial requested capital is sufficient to bring the product to market or
whether the sales expectations allow for a reasonable ROI. If these were not attainable at that time, we would
then recommend cancellation of the produc
t.


We do believe from the information that we have and the discussion of the risks, that our forecast is attainable.
Nutri
-
Go meets the needs of the diet and health conscious community and complements existing programs such as
Curves™. All of this offer
s incredible potential for the success of the Nutri
-
Go product.





i

SOURCES: Centers for Disease Control and Prevention, National Center for Health

Statistics.

National Health Examination
Survey and National Health and Nutrition

Examination Survey.

ii

Marketdata press release, April 2007, “Weight Loss Market”

http://www.mkt
-
data
-
ent.com/pressreleases/pressreleases.htm

iii

Polly Hitchcock Noël and Jacqueline A Pugh,


Management of overweight and obese adults
”, 10/5/02,
http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1124275