Assignment 29A

*Changes in red

Opportunity:

·      Since the creation of the microwave, we have become reliant on its ability to warm foods extremely quickly, essentially removing the need for toasters or ovens in many situations. The issue that I have noticed is the fact that food from a microwave might be hot, but it is usually too hot or doesn’t taste like it is supposed to. Anyone who regularly uses microwaves and is not satisfied with the food that comes out needs a solution.

·      To my knowledge, this opportunity has existed since people started using microwaves, assuming that they have only gotten better over the years and not declined in overall quality.

·      This is a very wide market. I do not think it is an unfair assumption to say that all or most microwaves perform in a similar manner across the world. Therefore, this market has the potential to span the entire world and across all demographics, since everyone either has a microwave or needs another heating solution.

·      People currently just use what is available to them (ie. microwave) but many people I have talked to are not satisfied with this solution but do not know of another. I think that many other people would feel the same way.

·      Depending on initial market demand after release, this could potentially be an opportunity in which a new solution is a staple in homes all across the world.

·      This window will remain open until one of two things happens: either microwaves are innovated to correct this problem, or another solution is presented and succeeds in the market.

Innovation:

Product

·      The product that I am offering is essentially a fully mobile heating solution. It would act more like a mobile oven than a microwave as it would heat food up with direct heat rather than stimulating the water molecules in the food. The product itself is would just be the heating system, but it would only be useful attached to a container or mug. For this reason, the other half of my product would be containers and mugs that this system could be used with.

·      The heating system would be the easiest part of the product to get. There are plenty of heating elements on the market so it would not be hard to source those from another company. It would be powered by batteries and have a heating pad if it were not the ready-to-use, integrated containers or mugs. The integrated containers would be one piece and very easy to use. The most difficult part of creating this product would be finding or creating a synthetic plastic that could withstand high temperatures without warping or melting.

Profitability

·      I would sell the integrated containers and mugs, stand-alone heating systems to be attached to any usable container, and the containers themselves which could withstand the heat.

·      I would target a 30-40% profit margin on this package of products considering the interest on venture capital raised so I would initially need to make a gross margin of around 60% before operating expenses.

·      Assumed Costs:

o   Heating system - $4 per unit

o   Containers - $2 per unit

·      Sale Price:

o   Heating system - $14

o   Containers - $5-6

o   Integrated system - $16-19

Venture Concept:

This product will remove the need to use a microwave when warming foods that do not otherwise need to be put in the oven. It won’t be quite as quick at heating food or drinks up but it will not make food soggy and gross after heating or overheated. It would also be completely mobile so it could be used at work, on family outings, or other occasions away from the home.

I don’t think that many customers would buy this product if it was not mobile. The real attraction to it is the fact that it could be taken anywhere and keep food warm while transporting it or simply heat it up once you get to your destination. There aren’t many competitors if any at all right now. I think I would try to sell this product through online retailers initially and use their fulfillment centers. This would reduce shipping and handling costs for me while increasing the value to the customer. This business setup does not require many employees. After the research and development stage is complete, I think I would only need about two or three employees to handle customer service, supply logistics, and accounting.

Three additional points

I think that my unfair advantage would be knowledge of raising capital and the connections I have made working for a mezzanine investment fund. This has taught me a lot about how startup companies succeed and fail and how they get off the ground in the first place.

The next thing that I think would happen would be to expand out of just online retailers and move into the brick and mortar stores. This would obviously have to coincide with a larger product mix and possibly a cooling system to complement the heating system.

If I were to launch this today, I would want to have a company that generates around $1 million of EBITDA within the next 5 years. That signals that the company is stable enough to move into long term growth and I could either sell it or raise more growth capital for a later sale.

2) The only feedback I received was to look into potentiometers as a heating source. I then looking into some heating elements because I realized that there wouldn’t be a reason to produce them myself.

3) I changed the way we would get the heating element. Sourcing them from another company would lower the price because I wouldn’t have to set up a whole division for producing those units. I also lowered the prices since my cost would be lower.