NEXT GENERATION SAFETY SERVICES, LLC

BUSINESS PLAN
E. Britt Hart Olivia Bagley Kevin Bristow David Brower Jed Feeny

2012

I.

EXECUTIVE SUMMARY

The Opportunity Every day in America, 12 people go to work and never come home.1 Every year 3.3 million Americans suffer a workplace injury from which they may never recover.1 The most disabling injuries involving six or more days away from work cost American employers more than $53 billion a year in workers' compensation costs alone.2 The highest number of workplace injuries, fatalities, and associated costs occur in the construction industry (See Appendix 1, Graph 1). Statistics like these confirm the need for a company dedicated solely to the safety of construction workers if the status quo is to be altered. Next Generation Safety Services, LLC is just such a company that specializes in the design of safety products and equipment for the building market to avert injury, danger, and loss of life. The company puts a heightened emphasis on user safety in its designs and plans to launch its first product design, the Next Generation Ladder, this year. Falls from elevation account for over one third of all deaths in the construction industry (See Appendix 1, Graph 2).3 With proper use of the Next Generation Ladder, the company foresees a 10% increase in lives saved and a 17% reduction in workplace injuries over the next three years. In turn, employers costs will be reduced as well as the economic burden to the United States. The Market and Marketing Strategy The construction industry in the U.S. is expected to experience continued growth over the next five years. This growth will drive demand for new construction of commercial as well as residential spaces, boosting demand for construction equipment and the need for construction safety.4 Currently, there are approximately 777 established companies that manufacturer construction equipment and 3,222 businesses that wholesale construction and mining equipment in the United States. These firms manufacture and sell equipment to over 729,345 construction companies and contractors for use in commercial, residential, road and highway, bridge and tunnel, and utilities construction. From 2007 to 2012, revenue in construction equipment wholesaling increased an average of 0.6% annually to $77.8 billion and generated $3.3 billion in profit.5 Over the next five years to 2017, revenue is projected to grow at an average annual rate of 3.0% to $90.3 billion.5 Next Generation Safety Services marketing strategy includes market push and pull tactics. Obtaining endorsement by the Occupational Safety and Health Administration (OSHA), followed by lobbying to lawmakers for improved construction safety standards that allow its product designs to become the new industry standard, will provide the market push. Consulting with trade unions and trade associations comprised of construction contractors, workers, and equipment manufacturers and distributors will provide the market pull. Next Generation Safety Services markets its patented product designs for licensure to companies that manufacture AND sell construction equipment. However, the company markets to construction companies and contractors, such as Skanska and Brasfield & Gorrie, as

well in its pursuit to target the needs of the end users and encourage purchasing of its products produced by construction equipment manufacturers. The top construction equipment manufacturers and wholesalers that capture the largest portions of the market share include Caterpillar (20.3%), Deere & Company (7.5%), and Terex Corporation (4.2%).5 In an interesting twist, these key customers of the companys patented product designs could turn out to be its key competitors by utilizing in-house designers and engineers as well as extensive resources. However, no one company produces all of the safety products and equipment Next Generation Safety Services plans to design. In addition, Next Generation Safety Services seeks to save lives and reduce injuries by not only meeting industry standards but exceeding those standards in terms of ergonomics and safety. This is a key feature that sets this design and engineering firm apart from its competitors. The Team The executive team is currently comprised of five individuals with experience in engineering, design, statistical analysis, marketing, and entrepreneurship. Britt Hart will oversee operations, Kevin Bristow will oversee product development, David Brower will oversee sales, Jed Feeny will oversee marketing, and Olivia Bagley will oversee financial planning and analysis. In order to ensure Next Generation Safety Services success, the company is seeking to hire an experienced technology officer. In addition, an advisory board will provide critical consultation in the areas of engineering and industry knowledge. Financial Plan Next Generation Safety Services, LLC is seeking an initial investment of $80,000 to finance the first year of business. This money will be used to finalize the design of the first safety product, the Next Generation Ladder, as well as patent this design. In addition, the initial investment will be utilized for general operating expenses, such as legal services and office space. By the end of the third year, 10% market adoption is expected within the new construction equipment market segment. Moreover, a total revenue of $400,000 and a net income of $128,000 is expected by the end of the third year. A potential exit strategy is to sell the company to an existing construction equipment manufacturer and wholesaler or possibly an established design and engineering firm seeking to expand into construction safety or gain greater market share.

II.

THE OPPORTUNITY

The Problem and The Solution In 2010, in the United States alone, 4,547 workers were killed on the job thats more than 87 lives lost a week or more than 12 deaths a day.6 In addition, each year 3.3 million Americans suffer a workplace-related injury.1 The economic burden of occupational fatal and nonfatal injuries in the United States is estimated to be approximately $192.5 billion, a number that includes direct costs, such as medical expenses, as well as indirect costs.7 However, this figure does not take into account all employers costs, costs associated with pain and suffering, or the impact on economic productivity. Although there is a long history of designing for safety for the general public, there has been less emphasis on designing for safety for workers.8 Further studies have indicated that design is a significant contributor in 37% of work-related injuries.8 The construction industry has the highest number of workplace fatal and nonfatal injuries6 and is an area in need of significant improvements in worker safety through a focus on design. With a newly emphasized increase on safety within one of the most dangerous occupations in the world, Next Generation Safety Services, LLC seeks to reduce work-related injuries and save the lives of construction workers through the implementation of tools and equipment that have a heightened emphasis on user safety. This critical goal will be accomplished through the creation of task specific safety modifications and design improvements to existing products in the field. In addition, new safety products and equipment will be designed with built-in protections for workers to ensure numerous safety hazards are addressed. Next Generation Safety Services targets the needs of the end users, which are construction companies and contractors who are responsible for complying with OSHA standards and providing safe and healthy working environments for their employees, who ultimately are the end users of the companys products. The additional features implemented will give Next Generations products a competitive advantage by providing items that appeal to field employees as well as construction company executives, who are seeking to maintain a corporate image of following heightened safety standards. These augmented preventative features on tools and equipment will allow workers to complete their daily tasks effectively, without the concern that the equipment they are using harbors a potential risk. The Next Generation Ladder The leading causes of death within construction are falls, electrocution, being struck by an object, and being caught in or between an object.6 Of these Fatal Four, falls from elevation are the number one cause of death in the construction industry today.3 Moreover, the fatality rate for excavation work is 112% higher than the rate for general construction.9 Due to these statistics, the company plans to launch with the Next Generation Ladder. What the Next Generation Ladder provides is a safer and more secure way of entering and exiting a trench or excavated jobsite. However, this ladder is designed to be used below ground, above ground mounted to a platform, or stand alone. Unlike typical ladders used in the field, the Next Generation Ladder is secured to the trench box by a hinged rung that goes over the top of the

wall and underneath support hooks that are tack welded to the back side of the wall. In addition to slip resistant foot grips, it includes slip resistant hand grips coated in rhino liner. This multi-use ladder also is equipped with a sliding harness clip, so in the event of a fall, the worker stays within 5 feet of the rung he/she fell from. An additional benefit is the ladder is backwards compatible, meaning in addition to manufacturing new structures with this built-in protection, the ladder can be retro-fitted to pre-existing trench shields. The Next Generation Ladder will have several safety amenities that existing technology does not provide. The intended appeal of the companys product lines is that the minimum tolerances should not be the standard of worker safety. Rather, products should go above and beyond the industry standard, with the stated goal of attempting to save lives, prevent injuries, and ensure that workers return home safely to their families every day. The photos below help illustrate the major differences between the companys design and products and methods currently deemed acceptable by OSHA. It should be noted that the Werner Extension Ladder pictured below meets all minimum OSHA regulations. Moreover, the chart comparing the Next Generation Ladder to a typical existing product should provide a general overview of the items upon which the company intends to improve with its first product.

Photos of existing products utilized in construction:

Above Ground View

Below Ground View

Renderings of the Next Generation Ladder retro-fitted on a trench shield, with the ability to be removed and utilized in an above-ground scenario:

NGSS Multi-Use Safety Ladder Lightweight Carbon Fiber Frame No Yes Securable to Equipment No Yes Extendable Yes No Slip Resistant Foot Grips Yes Yes Slip Resistant Hand Grips No Yes Sliding Harness Clip No Yes Removable Yes Yes Chart 1: Werner Extension Ladder versus Next Generation Ladder In terms of the current stage of development, preliminary sketches of the Next Generation Ladder have been created. Calculations will need to be performed by an experienced mechanical engineer to ensure the addition of these features to the design will maintain structural integrity and that no hindrance is created by our retro-fitting process. This would take factors such as material properties, additional weight, and area reduction of hinge points into account. Pending the confirmation of these calculations, a patent from the U.S. Patent and Trademark Office for the initial product design will be obtained. A patent for the Next Generation Ladder, as well as future product designs, will be critical to the preservation of the companys intellectual property and the continuation of the venture. This excludes others from making, using, or selling the companys designs in the United States. Existing patents similar to the first proposed design have been analyzed. Patent #7,530,767 was filed by Mr. Tom Davidson, of Griffin, GA.10 However, in Mr. Davidsons design, the ladder is incorporated as a piece of the trench box itself. The Next Generation Ladder is removable,

Werner Extension Ladder

with the potential to be utilized in other locations, both above and below ground, throughout the jobsite. The next step is to draft and file a design patent application. The design patent application will need to include the name of the invention, drawings showing the design from six different views, a description of the drawings, and a claim. A hired patent attorney will assist with the requirements of a design patent and file the patent application with the U.S. Patent Office to achieve a patent pending status. Upon receipt of the application, the Patent Office will perform an independent search and corresponding recommendation. Presuming an initial denial by the Office, as is the case with most first submittals, the company will coordinate with the patent attorney to file a response arguing the patentability of the product, utilizing any amendments supplied by the U.S. Patent Office.11 Upon re-submittal and receipt of a Notice of Allowance, the company will pay the governmental Issuance Fee and await the granted patent.

III.

INDUSTRY AND MARKET ANALYSIS

Prevention through design was a novel idea a few years ago. Now this concept of designing structures with built-in protections for workers is finding wider acceptance in the industry.12 Jordan Barab Deputy Assistant Secretary of Labor for Occupational Safety Industry Overview The construction safety industry is an industry that specializes in the design, manufacture, and sale of safety products and equipment for the building market to avert injury, danger, and loss of life. It is essentially a national industry; however, as safety standards in other countries continue to improve, construction safety has the potential of becoming an international industry. The creation of the construction safety industry will serve to increase the quality of items utilized in construction work while minimizing hazards to construction workers. Producers of safety products and equipment include designers and engineers, construction manufacturers, and construction wholesalers. Designers and engineers may be individuals who work for construction manufacturers or independent companies that design and construct machinery and equipment for building purposes. Construction manufacturers are firms that manufacture construction machinery and equipment for use in residential, non-residential, road and highway, as well as other infrastructure construction.4 Construction wholesalers are firms that wholesale specialized machinery and equipment directly to construction companies.5 Consumers include construction companies and contractors who purchase equipment from wholesalers and are responsible for providing safe and healthy working conditions to their employees, the end users of construction equipment, and complying with OSHA standards. Construction manufacturers also may be consumers of construction safety equipment produced by other companies. In addition, construction manufacturers tend to be construction wholesalers, combining the tasks of producing and selling construction equipment.

The Competition Upon Next Generation Safety Services entrance in the market, companies that currently supply the 729,345 construction companies and contractors with products and equipment may attempt to match our safety standards and maintain their market share. The majority of the companys competitors will be well-established suppliers with significant financial means and market penetration. Moreover, several of these suppliers utilize in-house designers and engineers. No one supplier produces all of the safety products and equipment the company plans to design. Depending on the new product designs being presented by Next Generation Safety Services, competitors may include companies, such as: Werner (ladders); Kobalt and DeWalt (tools); Caterpillar, Terex, and Deere & Company (machinery); HexArmor, Northern Tool, and Carhartt (protective clothing). This will require Next Generation to analyze all potential entrants products and business plans individually to gain a competitive advantage over each. Additional competitors may include design and safety engineers seeking to expand into the market for construction safety designs. These difficulties are further explained through the 5 forces model below.

Figure 1. Five Forces Analysis of the Construction Safety Industry Industry Rivalry: High This emerging industry may experience high industry rivalry, as well-established construction manufacturing and wholesaling companies, such as Caterpillar Inc., Deere & Company and Terex Corporation, consider converging on the construction safety industry.

Threat of New Entrants: Moderate Threat of new entrants is moderate as barriers to entry are medium. The threat of potential entrants will be minimized through effective patenting of company safety products, using very broad definitions that make it difficult to replicate these products without infringing upon the patents. As mentioned, well-established construction manufacturing companies may consider converging on the construction safety industry. These companies have economies of scale, high research and development spending, and long-standing relationships with buyers that will assist them in gaining market share.4 In addition, seeing the opportunity to establish themselves in a niche market, design and engineering firms may enter the industry. Threat of Substitutes: High The newly designed products that fall under the construction safety industry will have no exact substitutes. However, consumers are not required to purchase these safer products and may choose to continue to use old methods and equipment. Thus, at this time the threat of substitutes is high, as consumers weigh the price-performance trade-off to the industrys products and find switching costs to be low. The creation of backwards compatible products for existing construction equipment and the patenting of new designs will assist with the threat of substitutes. Bargaining Power of Buyers: High At this time, buyer power is high within the construction safety industry. Though numerous, buyers are not required to purchase the safer products generated by this industry and may continue to take advantage of the competition between firms in the construction equipment wholesaling industry. The goal is to mitigate both the threat of substitutes and buyer power through an appeal to construction workers in the field. While they are not involved with the actual purchasing of products and equipment, an appeal to trade unions that represent these workers stating the goal of maintaining their safety creates a forum and an ally to lobby for the implementation of Next Generation products. However, working with OSHA to improve upon the minimum industry safety standards will reduce buyer power and the threat of substitutes as well, as the unique products created by Next Generation Safety Services become necessary for consumers to operate and stay within regulations. Bargaining Power of Suppliers: Low Supplier power is low. The cost of materials as well as labor costs will impact the industry but not significantly.

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Key Customers The customers Next Generation Safety Services seeks to acquire are construction equipment manufacturers and wholesalers to whom the company intends to license patented product designs. By extension, the construction companies and contractors that purchase construction products and equipment from these manufacturers and wholesalers are the target consumers. The market is not limited to only large, general contracting firms. Whether building a highway, skyscraper, or residential housing, contractors are required by law to provide proper equipment for their workers. Though there are approximately 777 established construction equipment manufacturers and 3,222 construction and mining equipment wholesalers in the United States, the top three companies that perform both functions and maintain the majority of the market share include: Caterpillar with 20.3% of the market share, Deere & Company with 7.5% of the market share, and Terex Corporation with 4.2%.5 These three construction equipment manufacturers and wholesalers will provide the starting ground for a customer base for Next Generation Safety Services patented product designs. In addition, the company plans to market to construction companies and contractors, such as Skanska and Brasfield & Gorrie, to encourage the purchasing of its products produced by these key construction equipment manufacturers and wholesalers. The Future Overall, the construction industry shows promising growth for the next decade and beyond.13 The market for construction safety will continue to grow with the increased demand for new construction.4 In addition, as new technologies develop, additional risks are created, necessitating additional safety needs and regulations. Prevention through Design is a concept that has the support of safety groups, such as OSHA and NIOSH, as well as labor unions and trade associations. The National Institute for Occupational Safety and Health (NIOSH) asserts that one of the best ways to prevent and control occupational fatal and nonfatal injuries is to design out or minimize hazards and risks early in the design process.8 Governing bodies in construction safety are trending towards exactly what Next Generation Safety Services is proposing, and the company is entering the market at the start of this new trend. While the foundation for a profitable market under prevention through design is already forming, this idea may greatly accelerate the market for safety products and equipment within the construction industry. More importantly, successful implementation of prevention through design concepts can have substantial impacts on worker health and safety. Next Generation Safety Services goal is to save lives and reduce injuries by not only meeting industry standards but exceeding those standards in terms of ergonomics and safety. This is a key feature that sets the company apart from its competitors. With the companys projected market penetration over the next three years, Next Generation Safety Services foresees a 10% increase in lives saved and a 17% reduction in workplace injures due to the utilization of its designs within the industry. In turn, employers costs for labor turnover, retraining and hiring, and pain and suffering will be reduced as well as the negative impact on productivity and the American economy.

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IV.

THE MARKETING PLAN

Marketing Strategy In order to ensure the success of this venture, Next Generation Safety Services must take steps to place its products at the forefront of the market. The companys marketing strategy will incorporate push and pull tactics to penetrate the market and increase sales. One strategy for pushing product designs through the market is through government endorsement. Initially, Next Generation will pursue endorsement by the Occupational Safety and Health Administration. Over time, the firm will lobby lawmakers to pass laws raising industry safety standards and making the companys designs the rule, not the exception. Another strategy for marketing the companys products focuses on market pull tactics. Through labor unions, the company will approach construction workers, who are unsatisfied with the current safety standards in the construction industry. Representatives from the company will pitch Next Generation products to these organizations, emphasizing the reduction in workplace accidents and vast improvements in safety with proper use of these products. In addition to labor unions, the firm will appeal to construction companies and general contractors. Emphasis will be placed on the reduction in employers costs associated with the use of the companys exceptional products through reduced workers compensation payments, reduced costs of labor turnover, and reduced fines and penalties from safety violations. Gaining the favor of these companies may very well create a pull within the market that will create a shift in regulation standards instilled by OSHA. Finally, the company will market to relevant trade associations that even include construction equipment manufacturers and wholesalers, such as the Associated General Contractors of America, the Associated Equipment Distributors, and the Association of Equipment Manufacturers. Next Generation Safety Services will generate money by licensing its technology to construction equipment manufacturers and wholesalers. Initially, the company will contact the dominant manufacturers and wholesalers in the construction equipment industry determined through industry research. The company will send a brief marketing letter to each individual manufacturer. The letter will express Next Generations interest in licensing the companys patents to the manufacturer. In addition, the letter will include a brochure of product designs, the company website, and contact information. The brochure will be brief, but contain several photographs that describe the companys designs and benefits. Sending a copy of patent drawings also will be considered. If the manufacturer has not contacted the company after a few weeks, a call will be made regarding the business proposal. Next Generation Safety Services will consider paying a small fee to be featured in the United States Patent and Trademark Offices official gazette. This will provide the company with additional publicity and provide awareness of company patents available for licensing.

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Revenue Projections The contractual agreement between Next Generation Safety Services and construction equipment manufacturers will include details for upfront payments, royalty percentages, and infringement issues. The company will pursue a non-exclusive license that allows for multiple parties to use its patents, as this will allow for faster market penetration of the companys products. The advantage of licensing patents to equipment manufacturers is the firm is not responsible for production of the safety products and equipment. The production costs, variable costs, and fixed costs will be the concern of the equipment manufacturers. Revenue will be generated through licensing contracts and royalties (See Appendix 4, Graph 3). Target customers include construction equipment manufacturers and wholesalers and indirectly construction companies and general contractors. Next Generation Safety Services sells non-exclusive licenses for the use of product patents to construction equipment manufacturers, utilizing contracts that last three years at $10,000 per year. In addition, the company receives royalties from manufacturers based on the number of units sold to construction companies and general contractors. For the initial product design, the Next Generation Ladder, the company expects to receive royalties of 5% from the selling price of each unit sold. However, the exact percentage of the royalty will depend on negotiations and agreed upon terms and conditions between the firm and the specific equipment manufacturer. The Next Generation Ladder is available at a twelve foot length for $225, a sixteen foot length for $250, and twenty foot length for $275.14, 15 These are suggested retail prices, though manufacturers may decide to sell them at a different price. As the companys product lines expand by the third year of business, licenses will continue to be offered for $10,000 each. The company anticipates the royalty per unit sold to be 3-5% of the selling price.16 Currently, the three largest construction equipment manufacturers and wholesalers are Caterpillar Inc., Deere & Company, and Terex Corporation.4,5 Next Generation Safety Services aims to sell licensing contracts to at least three different manufacturers to produce the Next Generation Ladder within the first year. If the company fails to sell licensing contracts to at least three different manufacturers within year one, a major reassessment of the business plan will be performed. However, one exception would be if one of the manufacturers acquired within the first year was Caterpillar Inc., who has the largest market share in both the construction machinery manufacturing and construction and mining equipment wholesaling industries.4,5 If the company licenses with Caterpillar Inc. to manufacture and sell the Next Generation Ladder, this would dramatically increase the awareness of the companys brand and lead to a steady growth within the business. In the first year, Next Generation Safety Services will focus on selling licenses to manufacture this improved product design to as many construction equipment manufacturers as possible in order reach company projections and maximize market penetration. If stated goals are met and licenses are sold to three different manufacturers, the company will receive $10,000 x 3 = $30,000 in licensing fees after the first year.

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For a successful start, Next Generation Safety Services will contract with three equipment manufacturers and sell 10,000 units of the Next Generation Ladder in the first year. This figure is based on internet research that estimates the number of ladders sold by small businesses to niche markets is between 2,000 and 5,000 per year.4, 17 However, the company expects to market to a much wider audience than sought after by small ladder companies. For the purpose of this estimate, assume each ladder sells for $250. If there are 10,000 units sold x $250 each = $2,500,000. Of this $2,500,000, the company expects to receive about 5% in royalties, thus $2,500,000 x .05 = $125,000 per year from royalties. When licensing fees from manufacturers after the first year are factored into the estimate, the total revenue is about $30,000 + $125,000 = $155,000 after the first year of business. As Next Generation Safety Services licenses to other equipment manufacturers and more people within the industry become aware of the companys brand, the number of units sold will increase. In 2012, revenue in the construction and mining equipment wholesaling industry is expected to increase to $77.8 billion and generate $3.3 billion in profit, a number that is expected to grow 3.0% over the next five years.5 The new construction equipment segment accounts for 16.8% of this $3.3 billion in profit, generating $554,400,000 in profit for the industry.5 After three years, Next Generation Safety Services expects to capture a small percentage of this segment. However, the company anticipates capturing a significant (10%) market share of the ladder portion of the new construction equipment segment acquiring 1 out of every 10 ladders sold in the U.S. over the next three years. The breakdown of the first three years is as follows: Year Licensing Units Sold Average Royalties Fee per price of per unit Mfr. each unit sold 3 $10,000 10,000 $250 5% 8 $10,000 15,000 $250 5% 15 $10,000 20,000 $250 5% Chart 2: Total Revenue Projections for First Three Years of Business # of Mfr. Total Revenue $155,000 $267,500 $400,000

First Second Third

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V.

OPERATIONS AND MANAGEMENT PLAN

Key Process As a design and engineering firm that licenses product designs to construction equipment manufacturers and wholesalers for production and distribution, Next Generation Safety Services immediate plan is to contract with an experienced mechanical engineer to ensure the structural integrity of the Next Generation Ladder and secure a design patent from the U.S. Patent and Trademark Office for this initial product design. At that point the company will be able to contact construction equipment manufacturers and begin business negotiations for the licensing of the design. The focus for the first year will be licensing the rights to manufacture and sell the Next Generation Ladder, a process that will continue over three years. The success of this product will allow the company to emerge from the ladder design phase and move forward with additional products. By the second year, the focus will shift to research and development of other safety products. Next Generation Safety Services will begin the process of thoroughly analyzing other construction safety hazards as well as currently available products utilized in a wide array of potentially dangerous construction environments. Not only will these new products seek to minimize fatalities, they will also serve to mitigate less extreme hazards such as hearing loss, burns, and pinch points, encompassing a wider array of safety issues and thus providing a larger viable market. Among ideas being discussed is a noise protection technology. This will be an improvement over the simple earplugs used in practice today. The goal is to patent and license an additional product to manufacturers by the end of the third year. The overall picture for Next Generation Safety Services is to continue to create and patent innovative construction safety products that will cover a wide array of safety concerns throughout the industry. See Appendix 2 for a workflow diagram. Location Next Generation Safety Services, LLC will operate in Raleigh, North Carolina. This is an ideal location as it is the current location of all the executive team members. In addition, Raleigh is home to several patent attorneys and is a hub for the fields of design and engineering. Since construction equipment manufacturers and wholesalers are not confined to a particular region, there is no need for the business to relocate. When manufacturers show interest in licensing products after receiving mailed letters and specifications, a representative from the company will travel to those businesses to inspect the companies operations and to further negotiate business deals. Process Outsourcing Certain aspects of the business, including accounting, consulting and legal services, will be outsourced. A patent attorney will be hired to draft and file design patents. In addition, legal council will be sought to assist with licensing agreements and business contracts. Contracting

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with a mechanical engineer will assist with the technical end of product designs. Finally, a professional accountant will be hired to assist with tax questions and year end requirements. The Team The executive team is currently comprised of five individuals willing to work without pay for the first year in exchange for equity in the company. The chart below provides their education as well as which function of the business each member will oversee. Members Britt Hart David Brower Jed Feeny Kevin Bristow Olivia Bagley Education Oversee Anthropology Operations Chemical Engineering Sales Sociology Marketing Civil Engineering Product Development Statistics Financial Planning and Analysis Chart 3: Next Generation Safety Services Executive Team

Britt Hart has been the Director of Marketing and Design for a recreation company and Vice President of a consulting firm specializing in community improvement projects. In addition, Britt has been a founding partner in three start-up companies and has experience with business development. Kevin Bristow is a trained engineer with a business background and has experience in product development and design considerations. Moreover, Kevin provides his expertise as a member of a safety committee and has a network of contacts in the structural engineering field. Jed Feeny's sociology and business background assists in the development of ideas on how best to sell and promote the company's designs, performing market research, and interacting with social organizations relevant to the industry. David Brower's engineering and business background assists him with the sale of the company's designs. In addition, David has networking experience as well as experience with start-up companies. Olivia Bagley utilizes her statistics and business background to assist with the financial planning and analysis necessary for the company's successful operation. An advisory board consisting of engineers, designers, as well as representatives from OSHA, relevant labor unions and trade associations will provide further consumer, engineering, and industry knowledge. The company is seeking to hire an experienced technology officer (CTO) after year three. Moreover, Britt Hart has agreed to oversee operations until a CEO with industry experience can be hired after year three. At that time, Britt Hart will become Director of Sales and Marketing. The current executives comprise the five founders of Next Generation Safety Services and will split the equity of the business evenly. Compensation and equity allocations for investors and future executive officers will be negotiated among the five founders, each relinquishing an equal percentage of their 20% equity in the business to provide for these equity allocations.

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VI.

FINANCIAL PLAN

Financials The cost of the initial patent for the Next Generation Ladder will be $18,000 at most.18 The company has budgeted $2000 for the creation of contractual agreements with manufacturing companies as well as other potential legal costs ($2,000 per quarter). Other outsourcing services have been factored in as well, such as accounting services ($2,000). A consultation fee of $10,000 has been factored into first year projections for a professional mechanical engineer to confirm that the ladder is capable of performing its designed task. Payroll expenses are minimized, as the five founders have agreed to forego a salary in the first year of business. General and administrative expenses are expected in the first year, including renting office space ($30,000), utilities ($12,000), and insurance ($12,000). Direct marketing and brochures will be utilized to reach construction equipment manufacturers and wholesalers. As the company plans to reach licensing agreements with 3 equipment manufacturers in the first year, the allocated $6000 will be sufficient in covering sales and marketing expenses. Moreover, Next Generation Safety Services plans on collecting a 5% royalty from each ladder sold to help fund the second and third year of business. Expenses greatly increase in the second year. The executive team comprised of the five founders will start collecting a $25,000 salary as well as health benefits. Though general and administrative expenses continue in year two, more funds will be allocated to research and development ($40,000). Research and development on other safety products will help further position the company in the newly developed construction safety industry. Additional outsourcing expenses are included in the budget as well. For example, $8,000 has been set aside under legal expenses to contract a lobbyist to contest current industry safety standards. Improved industry safety standards will increase the demand for the companys products, which in turn will increase sales. These increased expenses will cause the company to incur a loss in its second year of business. Fortune reverses in the third year, as Next Generation Safety Services breaks even and experiences a slight profit. Increased revenue from licensing fees and royalties contribute to this turn around. Most expenses seen in the second year carry over into the third year with a slight increase in legal fees ($26,000) due to a projected increase in the number of contractual agreements needed between the company and manufacturers. Fewer funds are allocated to research and development in the third year, as the focus will be on the launch of an additional safety product designed in the second year of business. A summary of expenses is outlined in Appendix 3. Exit Strategy A potential exit strategy is acquisition by an existing construction equipment manufacturer and wholesaler, such as Caterpillar, Terex, or Deere & Company. Two scenarios provide the opportunity for Next Generation Safety Services to become attractive to acquire. One, the

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companys product designs provide the means to produce superior products but the company is struggling to market its product designs on a large scale. In this scenario the construction equipment manufacturer acquires the company and uses their well-established brand name to push the products through the market. Two, Next Generation product designs provide the means to produce superior products, and the company finds it is actually displacing the market. In this instance, a well-established equipment manufacturer may seek to acquire the company to minimize the threat. An established design and engineering firm may seek to expand into the construction safety market as well and acquire the company. Funds Next Generation Safety Services requires an $80,000 initial investment to finance the first year of business. This investment will cover startup costs, including general and administrative expenses, sales and marketing expenses, and outsourcing expenses. Specifically, this money will be used to finalize and patent the design of the Next Generation Ladder. The portion of equity granted for the stated investment will fall between 10% and 20%, the final amount being obtained through negotiations with the potential investor. However, each founder has agreed to relinquish 2%-4% of their equity in the business in order to secure an investor. With this $80,000 initial investment and a 25% discount rate, the company predicts a net present value of $608 with a 44% internal rate of return. Estimates indicate the company will break-even in year three with a constant revenue growth of 49.5% (See Appendix 4, Graph 4).

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APPENDIX 1: CONSTRUCTION INDUSTRY GRAPHS Graph 1

Graph 2

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APPENDIX 2: NEXT GENERATION SAFETY SERVICES WORK DIAGRAM

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Product developer examines construction problems

Developer designs a solution

Work with attorney to patent design

Can patent

Cannot patent

- Consult with engineer to finalize design - Finance figures appropriate cost -Marketing researches manufacturers interested - Marketing designs brochure and letters for potential clients

Research other solutions

Send letters to potential clients

Manufacturer responds

Manufacturer does not respond

They want further information

They decline

Sales team calls them

Sales member meets with them

They want more information

They decline

They accept

They decline Sales member meets with them

Hire lawyer to negotiate contracts

They accept

They decline

Hire lawyer to negotiate contracts

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Income Statement Year 1 Q'2 Q'3 $ $ $ 20,000 31,000 51,000 - $ 51,000 $ $ $ $ 31,000 31,000 - $ 31,000 $ $ $ $

Year 2 Q'4 47,000 47,000 - $ 47,000 $ Total $ $ $ 30,000 125,000 155,000 - $ 155,000 $ $ 80,000 $ 187,500 $ 267,500 267,500 $

Year 3

Q'1 Revenues Licenses Fees Royalties Total Revenues Total Cost of Goods Sold Gross Margin Operating Expenses Payroll Expenses Consultant 5 Co-Founders Total Payroll Expenses Payroll taxes Workers Compensation Health Insurance Total Loaded Payroll Expenses Sales & Marketing Expenses Advertising Total Sales & Marketing Expenses $ $ $ $ $ 10,000 16,000 26,000 - $ 26,000 $

$ 150,000 $ 250,000 $ 400,000

400,000

$ $ $ $ $ $ $

10,000 $ - $ 10,000 800 $ $ $ $

- $ - $ $ $ $ $

- $ - $ $ $ $ $

- $ - $ $ $ $ $

- $ - $ 10,000 800 $ $ $ $

- $ 125,000 $ 125,000 10,000 6,250 20,000 $ $ $ $

131,250 131,250 10,500 6,563 20,000 168,313

10,800 $

- $

- $

- $

10,800 $

161,250 $

$ $

1,500 $ 1,500 $

1,500 $ 1,500 $

1,500 $ 1,500 $

1,500 $ 1,500 $

6,000 $ 6,000 $

6,000 $ 6,000 $

6,000 6,000

General & Administrative Expenses Rent $ Real estate taxes $ Common area maintenance expenses $ Legal $ Accounting $ Utilities $ Office supplies $ Insurance $ Research & Development $ Total G& A Expenses Total Operating Expenses Operating Income $ $ $

7,500 1,250 750 20,000 500 3,000 300 3,000 1,000

$ $ $ $ $ $ $ $ $

7,500 1,250 750 2,000 500 3,000 300 3,000 1,000

$ $ $ $ $ $ $ $ $

7,500 1,250 750 2,000 500 3,000 300 3,000 1,000

$ $ $ $ $ $ $ $ $

7,500 1,250 750 2,000 500 3,000 300 3,000 1,000

$ $ $ $ $ $ $ $ $

30,000 5,000 3,000 26,000 2,000 12,000 1,200 12,000 4,000

$ $ $ $ $ $ $ $ $

30,000 5,000 3,000 24,000 2,000 12,000 1,200 13,200 40,000

$ $ $ $ $ $ $ $ $

30,000 5,000 3,000 26,000 2,000 12,000 1,200 14,520 4,000 97,720 272,033 127,968

37,300 $ 49,600 $ (23,600) $

19,300 $ 20,800 $ 30,200 $

19,300 $ 20,800 $ 10,200 $

19,300 $ 20,800 $ 26,200 $

95,200 $ 112,000 $ 43,000 $

130,400 $ 297,650 $ (30,150) $

Net Income

(23,600) $

30,200 $

10,200 $

26,200 $

43,000 $

(30,200) $

128,000

APPENDIX 3: NEXT GENERATION SAFETY SERVICES INCOME STATEMENT

22

APPENDIX 4: FINANCIAL GRAPHS GRAPH 3

GRAPH 4

23

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