Plastics in Space
Assignment #2
Plastics in Space
Recently, you attended an alumni association gathering on Zoom. The topic of this meeting was the amazing career growth of people you went to school with. To your astonishment, you discover that someone from your same major who was, in fact, in your lab group, is currently a Chairperson and CEO of a start-up in the astro-space industry. To make matters more interesting, this person remembers you and reaches out with an opportunity. They offer you an opportunity to join their company as Vice-President in charge of the “manufactured in orbit” space plastics division. You think this is a great idea and want to be a part. You do know that no plastics have yet been manufactured in orbit and this is an extremely high-risk decision with the potential for high reward. This start-up has no resources for this new division and you would need to help develop the resource acquisition, staffing, etc.
To join this effort, you are giving up your current employment. As a dedicated follower of this class, you recognize a number of issues that you must address before moving to the opportunity. Of special interest is your concern about the future for this division. You have a maximum of eight (8) double-spaced pages to formulate your plan for developing this division.
>LTV Template
for Average Initial Sale.
0% 0 or mores times a year, use the section below
$0 %
0.0% $0 0.0% Customer pays on a recurring basis 0 0 Retention Rate 0.0% $0 0.0% Retention Rate 0.0% if giving up equity
%
Year Year Year Year Year 0 1 2 5 $0 $0 $0 $0 $0 $0 0% 0% 0% 0% 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% $0 $0 $0 $0 $0 $0 Retention Rate 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Retention Rate 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 50% 50% 50% 50% 50% 50% 667
444
963
975
$0 $0 $0 $0 $0 $0 $0 3 4 5 6 $0.00 $0.00 $0.00 $0.00 Assumptions Entries Notes Next Product Purchase Rate 0% 0 Periodic Purchases Customer buys 1 or more times a year Typical of many businesses %
%
Recurring Revenue Customer pays on a recurring basis Revenue per billing period 4 Could be a quarterly subscription box Retention Rate 80.0% Addon Sales Any other sales that do not fit in above categories Cost of Capital Day Year Year Year Year Year 80% 80% 80% 80% 68% 68% 68% 68% $160 $160 $160 $160 Retention Rate 80% 80% 80% 80% 80% Addon Sales Revenue $0 $0 $0 $0 $0 929
972
355
674
$67 LTV/CAC ratio 3 4 5 6 8 4
9
Assumptions Entries Notes Periodic Purchases Customer buys 1 or more times a year Recurring Revenue Customer pays on a recurring basis Revenue per billing period %
Customer pays on a recurring basis %
Addon Sales Any other sales that do not fit in above categories Cost of Capital Assume 50% if giving up equity Day Year Year Year Year Year Periodic Purchases – Yearly Revenue $0 $0 $0 $0 $0 Profit from Yearly Revenue $0 $0 $0 $0 $0 $0 $240 $240 $240 $240 85% 85% 85% 85% 95% 95% 95% 95% Addon Sales Revenue $0 $0 $0 $0 $0 Cost of capital rate 50% 50% 50% 50% 50% 50% 0.4444 0.2963 0.1975 0.1317 $24 LTV/CAC ratio 3 4 5 6 8 8
Assumptions Entries Notes This model assumes that Initial purchase is made at beginning of the year 0. If there is no initial purchase, enter $0 for Average Initial Sale. Gross margin is the difference between revenue and cost of goods sold (COGS) divided by revenue. Periodic Purchases Customer buys 1 or more times a year Recurring Revenue Customer pays on a recurring basis Revenue per billing period # months of recurring in Years 2-5 12 Could be a quarterly subscription box %
Addon Sales Any other sales that do not fit in above categories Cost of Capital Assume 50% if giving up equity Day Year Year Year Year Year 65% 65% 65% 65% 65% $0 $0 $0 $0 Periodic Purchases – Yearly Revenue $0 $0 $0 $0 $0 $1,500 $1,500 $1,500 90% 90% 90% 90% Addon Sales Revenue $0 $0 $0 $0 $0 Cost of capital rate 50% 50% 50% 50% 50% 50% $165 LTV/CAC ratio 3 4 5 6 8 9
5
1
2
Assumptions
Entries
Notes
One Time Sale
Average Initial Sale
$
0
This model assumes that Initial purchase is made at beginning of the year 0.
Gross Margin – Initial Sale
0.
0%
If there is no initial purchase, enter
$0
Next Product Purchase Rate
Next Product Purchase
Year
If product is purchased
1
Periodic Purchases
Periodic Purchases
Customer buys 1 or more times a year
Yearly Revenue
Typical of many businesses
Gross Margin – Yearly Revenue
0.0
Retention Rate
Recurring Revenue
Customer pays on a recurring basis
Average Recurring Revenue
Revenue per billing period
Gross Margin – Recurring Revenue
# months of recurring in Year 1
Could be a monthly subscription
# months of recurring in Years 2-
5
Could be a quarterly subscription box
Addon Sales
Any other sales that do not fit in above categories
Yearly Addon Sales – Year 1 start
Gross Margin – Addon sales
Cost of Capital
Assume
50%
Cost of Capital 50%
If borrowing money, use
12
Day
LTV Calculation
3
4
Initial Sale Revenue
Gross Margin – Initial Sale 0% 0% 0% 0% 0% 0%
Repurchase Rate
Profit from initial sale
Periodic Purchases – Yearly Revenue
Retention Rate 0% 0% 0% 0% 0%
Cumulative Retention Rate
Gross Margin for Yearly Revenue
Gross margin is the difference between revenue and cost of goods sold (COGS) divided by revenue.
Profit from Yearly Revenue
Recurring Revenue $0 $0 $0 $0 $0
Cumulative Retention Rate 0% 0% 0% 0% 0%
Gross Margin for Recurring
Profit from Recurring
Addon Sales Revenue
Cumulative Retention Rate 0% 0% 0% 0% 0%
Gross Margin for Addon sales
Profit from Addon sales
Total Profits
Cost of capital rate
Net Present Value
Factor
1.0000
0.
6
0.4
0.2
0.1
0.1317
Present value of Profits
LTV/Net Present Value of Profits
LTV/CAC ratio
8
CAC (Cost of Customer Acquisition)
$0.00
Example 1
Example – periodic purchases with a quarterly subscription box
One Time Sale
Average Initial Sale $0 This model assumes that Initial purchase is made at beginning of the year 0.
Gross Margin – Initial Sale 0.0%
If there is no initial purchase, enter $0 for Average Initial Sale.
Next Product Purchase Year
If product is purchased 1 or mores times a year, use the Periodic Purchases section below
Yearly Revenue
$32
Gross Margin – Yearly Revenue
6
8.0
Retention Rate
80.0
Average Recurring Revenue
$40
Gross Margin – Recurring Revenue 68.0% Customer pays on a recurring basis
# months of recurring in Year 1 4 Could be a monthly subscription
# months of recurring in Years 2-5
Yearly Addon Sales – Year 1 start $0
Gross Margin – Addon sales 0.0%
Retention Rate 0.0%
Assume 50% if giving up equity
Cost of Capital 1
2%
If borrowing money, use 12%
LTV Calculation 0 1 2 3 4 5
Initial Sale Revenue $0 $0 $0 $0 $0 $0
Gross Margin – Initial Sale 0% 0% 0% 0% 0% 0%
Repurchase Rate 0% 0% 0% 0% 0%
Profit from initial sale $0 $0 $0 $0 $0 $0 Periodic Purchases – Yearly Revenue $32 $32 $32 $32 $32
Retention Rate
80%
Cumulative Retention Rate 80%
64%
51%
41%
33%
Gross Margin for Yearly Revenue
68%
Profit from Yearly Revenue $0
$17
$14
$11
$9
$7
Recurring Revenue
$160
Cumulative Retention Rate 80% 64% 51% 41% 33% Gross Margin for Recurring 68% 68% 68% 68% 68%
Profit from Recurring $0
$87
$70
$56
$45
$36
Retention Rate 0% 0% 0% 0% 0%
Cumulative Retention Rate 0% 0% 0% 0% 0%
Gross Margin for Addon sales 0% 0% 0% 0% 0%
Profit from Addon sales $0 $0 $0 $0 $0 $0 Total Profits $0
$104
$84
$67
$53
$43
Cost of capital rate 12% 12% 12% 12% 12% 12%
Net Present Value Factor 1.0000
0.8
0.7
0.7118
0.6
0.5
Present value of Profits $0
$93
$48
$34
$24
LTV/Net Present Value of Profits
$266
CAC (Cost of Customer Acquisition)
$88.57
$66.43
$
5
3.1
$4
4.2
$33.21
Example 2
Example – recurring revenue only – monthly subscription
One Time Sale
Average Initial Sale $0 This model assumes that Initial purchase is made at beginning of the year 0.
Gross Margin – Initial Sale 0.0% If there is no initial purchase, enter $0 for Average Initial Sale.
Next Product Purchase Rate 0%
Next Product Purchase Year 0 If product is purchased 1 or mores times a year, use the Periodic Purchases section below
Yearly Revenue $0 Typical of many businesses
Gross Margin – Yearly Revenue 0.0%
Retention Rate 0.0% Average Recurring Revenue
$20
Gross Margin – Recurring Revenue
95.0
# months of recurring in Year 1 12 Could be a monthly subscription
# months of recurring in Years 2-5 12 Could be a quarterly subscription box
Retention Rate
85.0
Yearly Addon Sales – Year 1 start $0
Gross Margin – Addon sales 0.0%
Retention Rate 0.0%
Cost of Capital 50% If borrowing money, use 12%
LTV Calculation 0 1 2 3 4 5
Initial Sale Revenue $0 $0 $0 $0 $0 $0
Gross Margin – Initial Sale 0% 0% 0% 0% 0% 0%
Repurchase Rate 0% 0% 0% 0% 0%
Profit from initial sale $0 $0 $0 $0 $0 $0
Retention Rate 0% 0% 0% 0% 0%
Cumulative Retention Rate 0% 0% 0% 0% 0%
Gross Margin for Yearly Revenue 0% 0% 0% 0% 0%
Recurring Revenue
$240
Retention Rate
8
5%
Cumulative Retention Rate 85%
72%
61%
52%
44%
Gross Margin for Recurring
95%
Profit from Recurring $0
$194
$165
$140
$119
$101
Retention Rate 0% 0% 0% 0% 0%
Cumulative Retention Rate 0% 0% 0% 0% 0%
Gross Margin for Addon sales 0% 0% 0% 0% 0%
Profit from Addon sales $0 $0 $0 $0 $0 $0 Total Profits $0 $194 $165 $140 $119 $101
Net Present Value Factor 1.0000
0.6667
Present value of Profits $0
$129
$73
$41
$13
LTV/Net Present Value of Profits
$281
CAC (Cost of Customer Acquisition)
$9
3.5
$70.18
$56.15
$46.79
$35.09
Example 3
Example – 1-time sale and monthly recurring revenue
One Time Sale Average Initial Sale
$10,000
Gross Margin – Initial Sale
65.0%
Next Product Purchase Rate
75%
Next Product Purchase Year 5 If product is purchased 1 or mores times a year, use the Periodic Purchases section below
Yearly Revenue $0 Typical of many businesses
Gross Margin – Yearly Revenue 0.0%
Retention Rate 0.0% Average Recurring Revenue
$125
Gross Margin – Recurring Revenue 85.0% Customer pays on a recurring basis
# months of recurring in Year 1 6 Could be a monthly subscription
Retention Rate
90.0
Yearly Addon Sales – Year 1 start $0
Gross Margin – Addon sales 0.0%
Retention Rate 0.0%
Cost of Capital 50% If borrowing money, use 12%
LTV Calculation 0 1 2 3 4 5 Initial Sale Revenue $10,000 $0 $0 $0 $0 $10,000
Gross Margin – Initial Sale
65%
Repurchase Rate 75% 75% 75% 75% 75%
Profit from initial sale
$6,500
$4,875
Retention Rate 0% 0% 0% 0% 0%
Cumulative Retention Rate 0% 0% 0% 0% 0%
Gross Margin for Yearly Revenue 0% 0% 0% 0% 0%
Profit from Yearly Revenue $0 $0 $0 $0 $0 $0 Recurring Revenue
$750
$1,500
Retention Rate
90%
Cumulative Retention Rate 90%
81%
73%
66%
59%
Gross Margin for Recurring 85% 85% 85% 85% 85%
Profit from Recurring $0
$574
$1,033
$929
$837
$753
Retention Rate 0% 0% 0% 0% 0%
Cumulative Retention Rate 0% 0% 0% 0% 0%
Gross Margin for Addon sales 0% 0% 0% 0% 0%
Profit from Addon sales $0 $0 $0 $0 $0 $0 Total Profits $6,500 $574 $1,033 $929 $837
$5,628
Net Present Value Factor 1.0000 0.6667 0.4444 0.2963 0.1975 0.1317 Present value of Profits $6,500
$383
$459
$275
$741
LTV/Net Present Value of Profits
$8,523
CAC (Cost of Customer Acquisition)
$2,8
41.0
$2,130.81
$1,70
4.6
$1,420.54
$1,06
5.4
Cost of Equity Capital
https://www.planprojections.com/funding/cost-of-equity-financing/
5
40%
Churn
| Churn at different rates | ||||||||||
| Churn Rate | 10% | 15% | 20% | |||||||
| Initial # customers | 100 | |||||||||
| Period 1 | 98.0 | |||||||||
| Period 2 | 96.0 | 9 | 0.3 | 81.0 | 7 | 2.3 | 64.0 | |||
| Period 3 | 94.1 | 85.7 | 72.9 | 6 | 1.4 | 5 | 1.2 | |||
| Period 4 | 92.2 | 8 | 1.5 | 65.6 | 52.2 | |||||
| Period 5 | 90.4 | 7 | 7.4 | 59.0 | 4 | 4.4 | 3 | 2.8 | ||
| Period 6 | 8 | 8.6 | 73.5 | 37.7 | 26.2 | |||||
| Period 7 | 86.8 | 6 | 9.8 | 47.8 | 32.1 | 21.0 | ||||
| Period 8 | 85.1 | 6 | 6.3 | 43.0 | 2 | 7.2 | 16.8 | |||
| Period 9 | 8 | 3.4 | 63.0 | 3 | 8.7 | 23.2 | 13.4 | |||
| Period 10 | 8 | 1.7 | 59.9 | 34.9 | 19.7 | 10.7 | ||||
| Period 11 | 80.1 | 5 | 6.9 | 31.4 | 16.7 | |||||
| Period 12 | 78.5 | 54.0 | 28.2 | 14.2 | ||||||
| Period 13 | 76.9 | 51.3 | 25.4 | 12.1 | 5.5 | |||||
| Period 14 | 75.4 | 48.8 | 22.9 | 10.3 | ||||||
| Period 15 | 7 | 3.9 | 46.3 | 20.6 | ||||||
| Period 16 | 7 | 2.4 | 44.0 | 18.5 | ||||||
| Period 17 | 7 | 0.9 | 4 | 1.8 | ||||||
| Period 18 | 69.5 | 39.7 | 15.0 | |||||||
| Period 19 | 68.1 | 13.5 | ||||||||
| Period 20 | 66.8 | 3 | 5.8 | 12.2 | ||||||
| Period 21 | 65.4 | 34.1 | 10.9 | 3.3 | ||||||
| Period 22 | 64.1 | 32.4 | ||||||||
| Period 23 | 62.8 | 30.7 | 8.9 | |||||||
| Period 24 | 61.6 | 29.2 | 2.0 | |||||||
| Period 25 | 60.3 | 27.7 | ||||||||
| Period 26 | 59.1 | 26.4 | 6.5 | |||||||
| Period 27 | 58.0 | 25.0 | ||||||||
| Period 28 | 56.8 | 2 | 3.8 | 5.2 | 1.1 | |||||
| Period 29 | 55.7 | 22.6 | 4.7 | |||||||
| Period 30 | 54.5 | 21.5 | ||||||||
| Period 31 | 53.5 | 20.4 | ||||||||
| Period 32 | 52.4 | 19.4 | ||||||||
| Period 33 | 18.4 | |||||||||
| Period 34 | 50.3 | 17.5 | ||||||||
| Period 35 | 49.3 | 16.6 | 2.5 | |||||||
| Period 36 | 48.3 | 15.8 |
IE 563
Fall 2020
Episode 12
It is good to be organized…
This week
Organization
Marketing
Assignment #2: Questions????
A brief note on patent law issues
We can talk a lot about patents and legal struggles but…
I’m not a patent attorney. Thus, I don’t give legal advice.
Every situation is different.
Law is based on precedents.
So, if you are really inventing and think you may have something of economic value, you need professional advice. Fortunately…..
We live in interesting times…
MIT Antifragile Entrepreneurship Speaker Series: A Must Watch, Free & Available NowClassics
So, we have something to do, now what?
Getting organized is a useful thing.
Let’s talk about the firm
Then, let’s talk about the need to “get out there and sell, sell, sell.”
Organizations. . .
When you start a venture, you need to organize in some way. This gives you a legal form for your venture. How you choose will cost you but can save you lots of grief and money.
Legal forms of organization
Another key point—expert advice is important. Lots of reading can be confusing.
See table 10.1, page 214.
Some key issues: liability, continuity, taxes.
B Corporations https://bcorporation.net/
Certified B Corporations are a new kind of business that balances purpose and profit. They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This is a community of leaders, driving a global movement of people using business as a force for good.
Getting organized can save you trouble
Who owns your name?
Who owns your ideas?
Who is liable for debts?
Naming your firm
Legal rights to use a name.
Translates well/ doesn’t embarrass.
Memorable.
Watch out for abbreviations.
Part of your business plan is a marketing and sales plan
Marketing has to do with securing, serving, and keeping customers. (Delivering value that customers actually want and will pay for is a useful follow-up.)
If your idea is wonderful, you now need a customer.
Marketing objectives
Sales goals
Market share
Regional plans
Market segments
Product positioning
Consider your product. Design product and image accordingly.
Who will buy it?
Why will they buy it?
How do you serve that audience?
Simple Non-Engineering Examples:
Market Research
Asking your friends may actually help but don’t count on it. You need something a little more sciency.
Purchase research from a firm.
Do it yourself, hire your friends who majored in marketing…..
Brand Identity
Why you?
Awareness
Perceptions of Quality
Connections
Loyalty
Brand Equity
An interesting concept.
Example: What does Oakley Sunglasses or Dallas Cowboys or Real Madrid mean to you?
One more time. . .
Strengths
Weaknesses
Opportunities
Threats
Several wise people have said
Your greatest strength is your greatest weakness.
IE 563
Fall 2020
Episode 12
It is good to be organized…
This week
Organization
Marketing
Assignment #2: Questions????
A brief note on patent law issues
We can talk a lot about patents and legal struggles but…
I’m not a patent attorney. Thus, I don’t give legal advice.
Every situation is different.
Law is based on precedents.
So, if you are really inventing and think you may have something of economic value, you need professional advice. Fortunately…..
We live in interesting times…
https
://www.d-eship.com/articles/mit-antifragile-entrepreneurship-speaker-series-a-must-watch-free-available-now
/
So, we have something to do, now what?
Getting organized is a useful thing.
Let’s talk about the firm
Then, let’s talk about the need to “get out there and sell, sell, sell.”
Organizations. . .
When you start a venture, you need to organize in some way. This gives you a legal form for your venture. How you choose will cost you but can save you lots of grief and money.
Legal forms of organization
Another key point—expert advice is important. Lots of reading can be confusing.
See table 10.1, page 214.
Some key issues: liability, continuity, taxes.
B Corporations https://bcorporation.net/
Certified B Corporations are a new kind of business that balances purpose and profit. They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. This is a community of leaders, driving a global movement of people using business as a force for good.
Getting organized can save you trouble
Who owns your name?
Who owns your ideas?
Who is liable for debts?
Naming your firm
Legal rights to use a name.
Translates well/ doesn’t embarrass.
Memorable.
Watch out for abbreviations.
Part of your business plan is a marketing and sales plan
Marketing has to do with securing, serving, and keeping customers. (Delivering value that customers actually want and will pay for is a useful follow-up.)
If your idea is wonderful, you now need a customer.
Marketing objectives
Sales goals
Market share
Regional plans
Market segments
Product positioning
Consider your product. Design product and image accordingly.
Who will buy it?
Why will they buy it?
How do you serve that audience?
Simple Non-Engineering Examples:
Market Research
Asking your friends may actually help but don’t count on it. You need something a little more sciency.
Purchase research from a firm.
Do it yourself, hire your friends who majored in marketing…..
Brand Identity
Why you?
Awareness
Perceptions of Quality
Connections
Loyalty
Brand Equity
An interesting concept.
Example: What does Oakley Sunglasses or Dallas Cowboys or Real Madrid mean to you?
One more time. . .
Strengths
Weaknesses
Opportunities
Threats
Several wise people have said
Your greatest strength is your greatest weakness.
IE 563
Episode 13
Fall 2020
Customers are interesting to study and good to find/keep.
1
Why you?
The question we never get tired of asking.
How do we know what to answer?
What does the customer want?
Marketing
By the way, technical marketing and sales can be an interesting career field. Have you ever thought about it?
Engineers and scientists often are the right people to market technical products and software.
Brand Identity
Why you?
Awareness
Perceptions of Quality
Connections
Loyalty
Brand Equity
An interesting concept.
Example: What does Oakley Sunglasses or Apple or Tesla mean to you? Or, for that matter, NMSU?
What affects brand equity?
One more time. . .
Strengths
Weaknesses
Opportunities
Threats
Customer Relationship Management (CRM)
Searching for and finding customers.
An on-going conversation.
Customer database.
Manage data/ manage customer relationships.
Use your data wisely. . .
There’s software available to help do this.
Spend the time necessary to keep customers. Studies often show that it costs more to develop a new customer than hold on to an old customer. Both are critical.
Typical CRM activities
Service
Loyalty programs
Rewards programs
Community building
Customization
Customer Value? https://www.d-eship.com/articles/ltv-calculation-spreadsheet
/
Customization is a critical new activity
The ability to provide custom products is not a new thing but is quite useful. CAD/CAM/CIM practices help make this work.
3D prototype machines—another possibility?
Dell is cited in the text but consider others.
Customization can be an engineering design/ product marketing strategy
Examples: Modules, Make to order, colored packaging, etc.
Gift packaging/holiday packaging.
Cars.
Aircraft
Diffusion of Innovation
Diffusion of innovation has been studied endlessly. It’s like change– the more things change the more they stay the same…..
When you think about marketing, you think innovation.
Remember: Marketing objectives
Sales goals
Market share
Regional plans
Market segments
If you like, you can use Aulet’s terms: See http://www.d-eship.com
Now, think about who your product or service would appeal to…..
See table 9.9, page 202.
Examples
Innovations in materials.
New audio/video equipment, new computer equipment, etc.
Assignment #3
IE 563
Fall 2020
Something from Nothing
Recently, a new opportunity has presented itself. Specifically, you have decided to form a company to create and sell computer code for data mining. The new company you have dreamed up will be called “Making Something from Nothing.” In doing some initial analysis, you discover the following:
-Your current life costs about $2500 a month to operate. This includes all the basics.
-Health insurance will now costs $600 a month.
-A new computer and subsequent upgrades will be needed: $3000 every six months
-A business phone will be needed at $140 a month.
-Peppermint and pumpkin spice lattes cost $3.95—you consume about 20-40 per month.
You can continue to operate out of your current residence or you can rent an office spot for $350 a month. This office spot is sort of a cubicle in a large area of an office building shared amongst similar entrepreneurs with a meeting room available for your use when hosting clients. Alternatively, you could use the conference room on an “as-needed” basis for $100 per meeting. Social distancing and cleaning expenses cost about $20/month.
Thanksgiving is coming up and you would like to pitch a well-meaning (and ready to invest) relative on your idea. There are two such relatives in your family so you have two shots at this pitch. On November 15, you receive some information that changes your pitch slightly—your first client appears. This client has asked you to develop some code and has offered $35,000 for what looks like one-to-two months of work starting January 1. They only pay, however, 30 days after the work is accepted.
Discuss how you would present this to your well-meaning relative. You have up to five pages to set up your plan including how much you’ll ask as an investment by your relative. Show a model of estimated cash flow for two years starting January 1.