HomeSoft Solutions

Business Plan
Developed by MIT student team in 15.390x

1. Executive Summary

As of today, the single-family custom home construction industry is riddled

with inefficiencies that often stem from the interactions between clients and
contractors. Through industry research, our team has discovered that the product
selection process is typically one of the most inefficient of these interactions, and
our service is intended to mitigate this inefficiency and improve the process.
Currently, product selection typically includes visiting overwhelming showrooms
and searching for products throughout various websites, which may not make the
necessary product information available for the contractor.

HomeSoft Solutions is a web service that allows clients to make these

otherwise time-consuming product decisions online without the presence of a
business associate in a very efficient manner. With this service, businesses can
enhance organization, reduce product research and client consultation time, and
make changes to existing product orders seamlessly within a single document.
Clients will benefit in a similar manner by being presented with a wider variety of
product choices and the opportunity to make product decisions at their leisure,
reducing the possibility of stressful interactions with business associates.

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 HomeSoft provides several distinct values for both businesses and clients,
which are derived from the following features:
Clients can search through thousands of products within the web
application through an advanced search engine by selecting a single product that
matches their interests, which narrows the search field. After only a few iterations,
only the most relevant options remain.
After a product is added to the clients project through the web
application, it is organized in real time within a spreadsheet that includes all
pertinent data (cost, ordering information, etc.). The spreadsheet is available to
business associates and can be modified at any time.
Both consultation and product selection time are reduced for
contractors and clients, saving considerable amounts of resources.

Primary market research has revealed that on average, the product selection
process consumes roughly 5-10 hours per week for both contractors and clients,
and contractors do not typically charge extra for this time. Our calculations have
indicated that for an average custom home construction project, over $7,000
worth of time is lost throughout this process, which can be reclaimed through the
use of HomeSoft solutions. This figure alone demonstrates the potential for the
adoption of HomeSoft, which will be required in order for contractors to remain
competitive with early adopters.

Additionally, we expect clients to become enthralled with the service,

promoting its use to contractors in order to save themselves valuable time and
resources, which will encourage further adoption of the service. Contractors serve
as our primary economic buyer, while clients (who may access the basic service

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for free) serve as the end users. While alternative services are available, none of
them currently address the inefficiency in the product selection process, instead
focusing only on providing tools for contractors or clients, without connecting
them.

Potential competitors such as Houzz allow clients to find appropriate

products and sources of inspiration, while BuilderTrend focuses exclusively on
allowing contractors to organize projects effectively. HomeSoft intends to achieve
market penetration with its unique service by marrying these two distinct features
into a single service and creating value for contractors and their respective clients
simultaneously. In order to preserve this advantage, intellectual property patents
will be filed as required and additional features for both parties will be added to
the service on a regular basis. It is anticipated that contractors will use HomeSoft
in addition to alternative services. HomeSoft is aimed specifically at clients and
construction companies/contractors interested in building new mid-value single-
family homes or performing renovations/additions to existing homes.

According to IBISWorld, there are approximately 175,000 establishments

in the United States focused on the construction of new single-family homes, and
over 95,000 establishments dedicated to remodeling single and multi-family
homes. This brings the total addressable market potential to 270,000 unique web
service subscriptions in the United States alone. Assuming subscriptions are sold
at a price of $100-200 per month, the identified target market is worth between
$324M-648M annually within the United States.

Though HomeSoft will initially target the single-family custom home

market segment, the concept can be leveraged to adjacent markets once the

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business achieves significant beachhead market penetration. The HomeSoft sales
process begins by incentivizing potential paying customers
(contractors/construction companies) to adopt the product through
advertisements and sales calls offering a free trial of the service for a single
project. Once the time and monetary savings are realized, the minimum viable
product is expected to sell itself; premium features can be accessed for an
additional fee.

Furthermore, clients using the HomeSoft service will be incentivized in a

similar manner to upgrade to a premium membership, which will likewise unlock
additional features. Our teams financial requirements include the salaries/benefits
of employees and founders, the cost of a basic IT and communications
infrastructure, and fees associated with web hosting and cloud storage services.
These requirements are outlined with each stage of development and operation,
as shown below:
Stage 1 - Research and Development - $1.6M (8-12 months):
During this stage, a team of 10 software developers and web designers will be
hired to design and prototype a web application that meets the needs of the
HomeSoft service.
Stage 2 - Alpha Testing - $800,000 (4-10 months): In this stage, the
web application will be heavily tested by the development team. Bugs and user
interface adjustments will be addressed as required.
Stage 3 - Beta Testing - $1.1M (2-3 months): In this stage, a team
of 12 salespeople will be brought onboard to sell subscriptions of the web
application to highly valuable companies and clients. Beta testing will be
performed, and will rely on user feedback. The user interface will likely be
adjusted in this stage. Any remaining bugs will be eliminated.

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 Stage 4 - Marketing and Sales - Approximately $3.6M annually:
Advertisements will be purchased in magazines such as Builder and Better Home
and Gardens, and subscriptions will be provided free of charge to a limited
number of major companies who agree to advertise HomeSoft on their website.
Social media will be used heavily for promotion, as well as consistent presence at
expos across the country.

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2. Founding Team

Jake Avory, CEO - Jacob is a second-year graduate student at
Massachusetts Institute of Technology studying aeronautical engineering. His
prior experience includes management and process efficiency improvement of a
small custodial business, as well as web design.

Mark Sele, CFO - Marc is a senior undergraduate student at Berlin School

of Finance & Management studying finance. He has worked for two years in one
of the largest German banks and gained experience in M&A and Capital Markets.

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3. Market Segmentation and Selection of the Beachhead
Market

The building construction sector was segmented into commercial,

residential, and industrial building construction industries. ABC software will
provide the greatest value to the residential building industry, and thus was
selected as the target market.

This segment was then further divided into single and multi-family
segments. The single-family segment was selected due to the relatively high rate of
custom home and remodeling jobs, and the beachhead market was identified as
the mid-value homes within this segment.

$338B is spent each year on building construction, of which nearly $114B

is dedicated to residential construction. The residential construction sector is
expected to grow through 2018 at an average of 8.3%, with growth drivers
including interest rates, value of construction, per capita disposable income, and
the national unemployment rate. The figure below illustrates the market
segmentation process and revenue streams of each identified segment.

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4. Total Addressable Market Size (TAM)

In Calculating the TAM, we took a two-pronged approach. After

interviewing a number of contractors and doing due diligence, we discovered that
the volume of work that each contractor takes on varies substantially. Feedback
we received was mixed, with smaller contractors preferring a one-time fee per
project and larger contractors having a preference for a monthly fee. Based on
this feedback, we calculated our TAM both ways to establish a price point for the
product that come to the same total. This proved that either monetization
approach is viable, as well as a hybrid approach if we deem it necessary.

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5. End User Profile and Persona

Personifications of the beachhead market were derived directly from

information gathered through interviews of single-family custom homeowners
and home building companies. Both are represented here as end-users and
economic buyers, respectively.

End-User: Jane Herthel is a 38 year-old Caucasian woman. She is on a

marketing team for Oracle Corporation, telecommuting from home in Santa
Barbara, CA. Jane has in income of $65k per year, but combined with her
husband Chris, the household income is $215k per year, pending Chris year-end
bonus which makes up 20% of his income on average. She attended the
University of California Los Angeles (UCLA), earning a BA in marketing and
communications. Jane and Chris have a newborn baby girl. Her family lives in Los
Angeles, a two hour drive South from Santa Barbara.

Jane has not been a standout employee since she decided to have a baby, at
which point, that became her number one priority. She is not expecting a
promotion nor does she want any more responsibility, but is expecting a gradual
increase in salary over time. She attends several marketing seminars and
conferences around the US every year for Oracle Corporation.

Jane listens to 80s and 90s pop and alternative music, such as Dave
Matthews Band and Madonna. Most of her friends live in the greater Los
Angeles area and have families of their own. Jane spends most of her time with
other mothers and their children who she met through social meet-up groups in
Santa Barbara. They take the kids to the beach, the park, the zoo, and other

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attractions in town. Jane goes for a walk every morning with a revolving handful
of women in the neighborhood.

Janes hero is her mother. She is motivated to mold the environment in

which she will raise her daughter. What Jane fears most is her family being broken
up in any way as well as losing any financial income stream, on which they so
heavily depend. Her priority is raising her daughter, having the perfect home,
and having her parents visit and stay in her manicured guest bedroom.

Economic Buyer: Bryan Henson, a 40 year-old Caucasian male, is the

President of Allen Associates Construction in Santa Barbara, California. Bryan
makes $200k per year, pending his sales bonus, which makes up the majority of
his salary. Bryan earned a BA in business management from Humboldt State and
a Masters of Science in Environmental Business Management from the
University of California, Santa Barbara. Bryan has a wife, two daughters, and a
newborn son. He is married to his job and the idyllic scenario that the company
grows into something magnificent. Bryan has done well for himself, starting with
the company as a project manager and working his way into the role of president.
His aspirations have changed to growing the company and making it more
profitable. He is an active member of the community in Santa Barbara, the US
Green Building Council, National Association of Home Builders, and The Young
Presidents Organization. Bryan attends many conferences and presentations each
year. He is constantly seeking ways to increase the bottom line of his company.

Bryan listens to Van Morrison and other similar soft rock music. A good
segment of his social life is work-related, as his bread and butter is getting jobs
from his community. The rest of his time is spent at his home in Ojai, California,

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sitting by the pool with his family and trying to relax, winding down from the
high stress environment of homebuilding. Bryans heroes are young & successful
CEOs of companies akin to Allen Associates, clever Authors such as Malcolm
Gladwell, and famous clients he has had in the past.

Bryan is motivated by money, increasing his companys bottom line and

decreasing his stress level, figuring out clever management techniques to delegate
responsibility to other people in the company, and the overall growth of his
company, aiming at branching out to satellite cities in California. Bryans biggest
fears are the next housing bubble bursting, lawsuits from past or current clients
that could wipe out the company, the safety of his children, and insubordination
from people that work for him. His priorities include increasing his bottom line
and breadth in the marketplace, continuing to make strides forward in his career
path no matter what direction it takes him, making time for raising his kids, and
making his wife happy.

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6. Value Proposition

The market for HomeSoft Solutions is two-sided, with single-family

custom home contractors as the economic buyers and their respective clients as
the end users. The Figure 1 below illustrates how HomeSoft streamlines the
process of selecting and ordering products, with the transparent steps being
eliminated from the process, reducing it to a 4 step process.

Primary market research has indicated the when building a new home, the top
priorities of the end users are to make the perfect product selection and keeping
cost and time consumption as low as possible. Current construction clients will be
propelled to adopt HomeSoft because it provides them with more product
options, greater pricing transparency, a reduced level of stress throughout the
process, and is expected to reduce product selection time by at least 50%. The
transparent red steps show how clients currently make product selections, all of
which are replaced through using the HomeSoft website. The end users priorities
are in saving time and reducing stress during product selection, and HomeSoft
satisfies both of these simply and elegantly.

Figure 1: The current product selection cycle (transparent) and the product
selection cycle with HomeSoft.

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 Figure 2: Time consumption and cost of the product selection process in
the as is state versus the possible state with HomeSoft.

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 The value proposition to the contractor comes in the form of reducing the
time and energy spent on assisting the client to make product decisions, resulting
in reduced overhead and faster job completion. Our survey broke the project into
5 phases, and contractors allocated time spent on making and organizing the
decisions in each phase. This quantified total time spent on the existing inefficient
process. Management labor rates were applied to hours spent to generate a
monetary value to execute the process for a 12 month project. Using industry
knowledge and feedback, HomeSoft percent reduction multipliers were generated.
Utilizing the percent reduction multipliers, time and money saved was quantified.
Worthy of note, are the value-adds that are difficult to quantify. These include but
are not limited to; powerful sales tool, central format for organization within the
company, generating as built information for past jobs, generating user manuals
for clients, and relieving high stress level of clientele and contractor which creates
symbiotic relationships. The cost and time savings shown in figure 2 satisfy the
contractors main priorities.

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 Given this value proposition, contractors will happily leave behind their
inefficient processes for a streamlined and easy to use software. HomeSoft will
have strategic partnerships with big name brands, instilling full confidence in the
contractor.

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7. Competitive Advantage

HomeSoft Solutions intends to fill a void in the home construction

industry by offering a service that combines powerful organizational capacity with
an effective and user-friendly interface.

Existing services that have attained appreciable market penetration typically

focus on one feature or another, with none excelling in both aspects. Three major
competitors have been identified in the market: Procore, Build.com, and
BuilderTrend. Procore centralizes their service on providing exceptional
organizational tools, but fails to allow users to make product selections.
Build.com allows limited organization, and focuses primarily on decision-making.
BuilderTrend strikes a balance between these two features, but does not provide
either to an adequate degree. Products are available for viewing by contractors,
but unlike HomeSoft, they are unavailable to clients. Additionally, BuilderTrend
does not automatically generate purchase spreadsheets. The figure below visually
describes the value position of competing companies, as well as the anticipated
position of HomeSoft Solutions.

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 HOMESOFT COMPETITION

HomeSoft, at its core, is primarily focused on simplifying the arduous task

of client decision making as it relates to products. Furthermore, the key focus of
the software is to focus on the synthesis between client decisions and
organizational records of the contractor. Rather than address project management
as a whole, HomeSoft focuses on this glaring inefficiency in the marketplace. The
key focus of the software will always be to shave time off of the decision making
process, rendering it unique to other software that takes a more broad approach
at the project as a whole. Though HomeSofts anticipated contractor subscription

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fee of $200 per month (free for clients) is greater than BuilderTrends starting
price, BuilderTrends price rapidly expands with project volume while
HomeSofts cost remains flat. After doing some investigation, we were quoted
$40,000 per year to utilize the Procore software, which puts them out of range of
our product as they are clearly going for another market.

The network effect also has the potential to exist within our core. We
anticipate that clients and contractors alike will begin referring other users from
both sides, which will necessitate the use of HomeSoft for other contractors to
remain competitive. The core of HomeSoft will need to be protected by resisting
the temptation to generate additional profit by increasing subscription fees,
continually updating product and inspiration images, and responding
appropriately to all constructive criticism with service updates in order to keep the
HomeSoft service both exciting and competitive. In regard to the tangential space
of the decision making and organizational synthesis, the most likely new entrants
into this space are Build.com and Houzz. Both are big companies that would have
the funding to make the shift, and the content to back it up.

Since the virtues of HomeSoft do not rely on intellectual property or

proprietary technology, measures to protect them will not be required. Looking
forward, one area that IP will arise is the algorithm and macro driven process of
populating contractor forms that record all the data generated from HomeSoft
software. The figure below identifies many important characteristic of potential
competing companies.

After analyzing the competition for HomeSoft, we have determined that

we have no direct competitors as of now. However, it has become abundantly

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clear that there are many companies operating in the same space, focusing on the
same inefficiency in the marketplace. In order to successfully enter the market,

HomeSoft will have to keep focused on the primary task at hand, solving
the decision making inefficiencies in a way that is engaging and fun for the end-
user. Knowledge of the industry will be key in this process, and will be
HomeSofts competitive advantage over other competitors, as they focus on only
one side of the contractor/client synthesis to solve the problem. Creating value
for the contractor and client alike, and responding to each of their needs, will be
HomeSofts unique key to success.

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8. Business Model and Pricing

The HomeSoft Solutions team has spent a great deal of time deliberating
on the best business model to maximize both profits and customer
satisfaction. While the market for HomeSoft is two-sided and includes
contractors and their respective clients, the value created by the HomeSoft
platform is heavily weighted in the favor of the contractor, who is the primary
economic buyer. Primary market analysis has shown that on an average project of
9 months in length, a contractor utilizing HomeSoft can expect to save
an average of $7,000. We intend to harness roughly 3% of this created value by
charging contractors $200, using a per-project basis as the primary element
of our business model, which is a hybrid of several mainstream business models.

Through primary market research, the team discovered that similar

services typically employ a monthly subscription business model
(Build.com, BuilderTrend, ProCore), beginning at an average price of $150 per
month, but quickly escalating with respect to project volume. While still
effective, this model fails to capture the value of smaller companies, many of
which have extended project completion times and are thus unwilling to pay a
premium on a per-month basis. The per-project business model makes the
service attractive to smaller companies, while still remaining attractive to
larger companies which typically operate at a higher profit margin. The per-
project basis allows major companies to pick and choose which jobs theyll use
HomeSoft on, providing a level of flexibility unfound in a per-month
subscription fee and essentially allowing contractors to set their own total
price.

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 While not a genuine business model, the freemium model will be
employed on the client side. Since the value received by the clients is so much
lower relative to that received by the contractor, clients will be allowed to use
the service for free, with the option to upgrade their account to unlock
additional services and perks for a fee. This model is being employed on
the client side to ensure that their reception and feedback of the service will be
positive, making clients much more likely to refer friends and contractors to
the HomeSoft service and improving market share. We expect to charge $10
per month for a premium membership, which corresponds to the lower
end of the industrys pricing spectrum on the client side. We anticipate that
premium members are likely to cancel their membership following the completion
of their project.

Various methods will be used to quickly and effectively acquire new

customers and improve customer satisfaction/retention, including discounts for
free projects to contractors upon the successful (paid membership) referral of
other contractors. A free month of premium service will be made available to
clients upon the successful referral of other clients, and a year membership
will be provided to clients who successfully refer a contractor. This year
membership enables the client to utilize the software for free for the length of
their project. This is intended to create a positive feedback loop, reducing the
cost of customer acquisition and allowing HomeSoft to grow its market share
with a lesser investment in advertising. To reduce friction in adopting the
product, a free two-month trial membership will be made available to new
contractors considering the service.

The anticipated HomeSoft community also creates significant value for

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potential advertisers. Advertising will be made available to major suppliers of
home products and related services, and these companies are expected to jump at
the opportunity to expose their products and services to such a large and
highly targeted audience. Research has shown that Houzz.com charges a
$1,500 per month starting price for a well-placed advertisement on their website,
which is reasonably competitive with other advertising rates and on the lower
end of the pricing spectrum. HomeSoft intends to undercut this rate,
charging only $1,000 a month initially until a larger market share has been
garnered. Free or subsidized advertising will be made available to well-
established companies agreeing to reciprocate advertising of HomeSoft on their
own website at a reduced cost.

Additionally, data collected from contractors and clients may be resold to

third parties for a fee. Market research has shown that selling standard data
(gender, occupation, income, etc.) typically generates between $1,300 and $6,600
per person per year. Regularly selling collected data to third parties will serve as an
additional revenue stream to the company. The figure below serves to visually
illustrate the various revenue streams and values contributed to HomeSoft
Solutions by its array of users:

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 The diversity of HomeSofts revenue streams and the various methods
employed to encourage acceptance of the new service will help ensure stability
through rapid growth, and is expected to be much more profitable than similar
one-dimensional business models. Primary market research has shown that the
total addressable market value is approximately equal when charging $200 per
month versus $200 per project, and the per-project model allows us to offer a
degree of pricing flexibility that will differentiate our company and give our
customers the power to set their own price. Appropriate pricing for the
miscellaneous HomeSoft services was identified by researching the prices of
similar and well-known services, and then reducing the proposed fee to a level
that would reduce customer friction while still allowing HomeSoft to remain
profitable. Our team is thoroughly convinced that the HomeSoft business model
is novel, profitable, and sustainable.

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9. Financial Projections

Detailed financial planning is

essential in projecting the feasibility of
HomeSoft Solutions. This document
outlines the financial needs and
strategies of the company, projects
revenue and expense streams over
time, and ultimately allows for an
analysis of the cash flow breakeven point. Additionally, a sensitivity analysis was
performed in order to determine the feasibility and sustainability of the company
in varying market environments.

HomeSoft will operate in a two-sided market, with contractors and/or

construction companies as the primary economic buyers and their respective
clients as the end users. Four potential revenue streams have been identified
throughout market research. The graphic to the right illustrates these
revenue streams in a manner similar to Maslows hierarchy of needs, with the
primary and most important revenue stream at the bottom, followed by
ancillary revenue streams of decreasing importance and magnitude above.

The first six months of operation will not see any revenue, as is
expected for most emerging businesses. During this time, emphasis will be
placed on developing the HomeSoft web service and advertising a free
subscription to a beta version of the program (for both primary economic
buyers and end users) in order to obtain constructive feedback for
future improvement. During this period, an initial cash infusion (anticipated

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from an angel investor) of at least $852,000 will be required to cover
operational expenses and salaries of web developers. We expect our first
paying customers to be obtained at the beginning of Q3 in year one, when our
initial team of 8 salespeople are brought onboard. At this point, Series A
fundraising will begin, which will need to generate a minimum of $3.4M for
continued operation up until the expected cash flow breakeven point in Q4
of year two in the likely scenario. Because we intend to lease all required
equipment and expect to be able to receive subscription premiums in near real-
time, our income statement and cash flow statement are approximately equal.

As shown in the graphic above, our primary revenue stream will be

based on commercial subscriptions to the service by contractors and
construction companies. Around the end of year two, we expect to see an
appreciable revenue stream from user subscriptions to the premium service, and
after year three, we expect our client base to be large enough to attract advertisers,
who will benefit from a highly-targeted audience which (in most cases) is
expected to have a reasonable amount of disposable income. Finally, near the end
of year five, we expect our client base to be large enough to profit from selling the
data of our customers.

Pricing for the HomeSoft service will be initially set at $200 per
month for commercial subscriptions, and $10 per month for premium user
subscriptions.

Additional models for pricing may be considered in the future, but are
not considered in this relatively short-term analysis. Advertising opportunities
will be offered for $1,000 per month, and data is expected to be sold at the low

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end of the market rate at $100 per commercial subscription per month. In
order to remain conservative in our projections, only the revenue stream
obtained from commercial subscriptions is considered. Each of our scenarios
maintains a different set of assumptions, including growth rate, initial
customer base, and real estate cost. These assumptions are outlined in the
table below:

The following table displays projections for the number of commercial

subscriptions and revenue by year for each the three scenarios:

Incurred expenses throughout operation have been closely examined.

Because HomeSoft is considered software as a service, the cost of goods
sold (COGS) consists only of the salaries/benefits of the web developers,
in addition to software/hosting fees and the IT infrastructure. We expect
to hire 10 web developers in the beginning of Q1, year one, and maintain this
number of developers throughout year three. This results in a COGS
expenditure totaling $1.6M annually.

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 In addition to the COGS, other expenses must be considered. These
expenses include sales and marketing, among others, and are listed in the
table below with the respective total expenses for each year.

A team of 8 salespeople and 4 technical support people is employed for

the last 6 months of year one, and these numbers are increased to 12 and 8
respectively at the beginning of year two. Real estate requirements are
assumed to be 100 square meters for year one, and 200 square meters
thereafter. General and administration costs are comprised of the IT
infrastructure required for sales, as well as a modest $40,000 salary for each
of the two founders.

Breakeven analysis has shown that in our most likely case, breakeven
occurs in Q4 of year two and the company will become self-sustaining. In the
best case, breakeven occurs in Q2 of year two, or about six months sooner than
the likely case. Both of these scenarios are represented by the charts below:

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 An additional analysis of cumulative cash flow (most likely case) shown
below illustrates our cash flow breakeven point at the minimum of the curve
(Q4 Y2) as well as our total breakeven when the curve intersects the horizontal
axis (Q3 Y3). Cash infusions are shown by the red columns.

With respect to company ownership, we expect to allocate 15% to the

initial angel investor, with an additional 25% allocated to the investors within
Series A funding.

9% will be reserved as stock options for current and future employees,

with the remaining 51% being retained by the founders to maintain a
majority share of the company. We expect negotiations to make these figures
difficult to attain.

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 Even under worst-case conditions, we expect to become profitable by
the end of year three. Furthermore, highly conservative assumptions were made
in the likely scenario analysis with respect to growth rate, customer base, and
other variables. Our funding requirements total approximately $4.0M over the
first year, and we do not expect to require additional funding, although
alternative fundraising avenues may be available if required. After year three,
we expect our customer base to exceed 6,600, which is approximately 4% of our
total addressable market. At this point, additional revenue streams are
expected to become significant, supplementing our total revenue and
accelerating our path to cash flow breakeven if it has not yet been achieved.
These financial estimates reassure our expectation that HomeSoft Solutions
can become a profitable and sustainable business within a reasonable timeframe.

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