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Pkolino Business Plan
Pkolino Business Plan
Pkolino Business Plan
Confidential Information
Business Plan - Dated May-2005
Wellesley, Massachusetts – USA
Business Plan
May-2005
Prepared by:
J.B. Schneider &
Antonio Turco-Rivas N.
Contact Information:
Phone: 1-954-557-3271
Email: atrn@pkolino.com
Jb@pkolino.com
Address:
6 Linden Sq,
Wellesley
MA-02482
The information contained in this document is highly confidential. Except if stated herein, none of
the material may be copied, reproduced, distributed, republished, downloaded, displayed, posted or
transmitted in any form or by any means, including, but not limited to, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written authorization from P’kolino, LLC.
Confidential Information
Business Plan - Dated May-2005
Wellesley, Massachusetts – USA
1 Mission Statement
“P’kolino will develop “P’kolino is a product development and marketing company. Our goal is to
innovative playroom
improve play at home by developing and marketing innovative playroom
furniture designed for the
child to improve play”
furniture designed for the child. Our products will grow and adapt to the
child’s stage of development and integrate with toys and activities to
encourage and enhance play”.
2 Industry Overview
1
Source: U.S. Census Bureau – www.census.gov
2
Source: US Department of Commerce – www.commerce.gov
$3.6
$24 $4
$0.4
3
Source: Hoovers Online – www.hoovers.com
4
Source: Industry trade publication “Playthings”
5
Source: Industry trade publication “Playthings”
6
Source: Marketreseach.com
7
Source: revenues for Toy industry leaders from Hoovers Online
8
types of products carry very low margins (average 5% profit margins ). To
compete, companies like Brio, another strong player in this niche, sells low
“$800MM in playroom price train tables to encourage parents to buy their higher margins trains
furniture products are sold
(they lose money on the furniture to sell the toy).
each year by Toy Industry
related companies
According to the Marketreserach.com industry report, of the $34 billion,
$6billion accounts for furniture products. However, this number includes car
9
seats, play pens, strollers, etc. For playroom furniture, our research
indicates that approximately $800MM is sold each year.
Exhibit 3-D
Toy Industry
(US$ Billions)
$34 $6 $0.
Our research concluded that large toy companies dominate the price-
sensitive segment of the playroom furniture market. However for mid and
high-end play furniture products, niche manufacturers and retailers like
Pottery Barn Kids and Land of Nod have taken the lead.
8
Sources: According to 10K fillings for the SEC and/or public financial statements from: Graco, Rubbermaid, Brio and others.
9
Based on Marketresearch.com Industry Report and Sales of top ten manufactures of playroom furniture products
Furniture Toy
Industry Size Industry Industry
$24billion $34billion
Portion considered
children's playroom $.4billion $.8billion
furniture
Playroom
Furniture
Market
$1.2b
The Playroom furniture market (where P’kolino will compete) has inherited
many of the competitive dynamics of its parent industries:
10
Is growing at an average of 7% annually
Is highly seasonal (almost 70% of sales during the Holiday season)
11
Almost 60% of the products are manufactured abroad
For highly price sensitive consumers the market is highly concentrated,
but at mid and high-end income levels niche players dominate
Word of mouth and brand are the main drivers of sales
.
10
Source: Marketresearch.com Industry Report
11
Based on the Management calculations, supported by AFMA information on Furniture Imports
More children are being born: According to the latest statistics from the
National Center for Health Statistics, women in the United States are having
more children now than at any time in almost 30 years. During most of the
1970s and 1980s, the average birthrate was fewer than two children per
woman, today that average has increased to 2.1 children. As a result of this
trend, the population of children age 5 and under is expected to grow in
2004, and to experience gradually increasing annual percentage gains
through 2010.
Mom’s with more income and spending more: More women are having
babies later in life, when their income tends to be higher and more stable.
The birth rates for women in their 30s and older are at their highest level in
" ..More babies, more three decades, up 2%-3% since 1990 for women in their 30s, and up more
disposable income and 12
than 7% for women in their 40s. As a result many of them are coming into
more spending in children’s
the toy and furniture markets with higher disposable income than was
furniture are also driving the
playroom market” previously the case.
“Parents with dollars to spend, typically those who have greater amounts of
education, are increasingly aware of the connection between play and
healthy development. There has been a lot of media coverage about brain
development, with an emphasis on the critical role of a stimulating
environment during the first three years of a child’s life.” As long as the
market approach is toward kids learning more at a younger age, consumers
will pay to get on the higher rung of the educational ladder”
12
Source: U.S. Census Bureau – www.census.gov
New laws: New safety legislation has propelled safer product designs as
the industry and the media warn consumers not to use older products that
13
do not meet current safety standards .
Toys March Up-market: A recent article at the Wall Street Journal (please
refer to Appendix 11.1) explained the profit killing price war landscape for
toy-making and retailing in the mass market, and highlighted how premium
priced toys appear to be outgrowing the simpler less expensive versions.
David Shaw, the new owner of the FAO Schwarz retail stores stated “the
admittedly small niche is a vibrant marketplace full of customers looking for
something different from what’s available at mass retail stores… is a niche
that small retailers and catalogs dominate”.
13
Source: The U.S. Public Interest Research Group
High-end segment: P’kolino will enter the playroom furniture market in this
segment. This segment refers to exclusive products sold primarily through
catalogs, interior-designer depots, trade events, specialty small retailers and
direct. These products are expensive and branded with the designer’s
name. Most of these products are usually designed in Italy, Germany,
" P’kolino market entry Spain, Netherlands, among others. Buyers are looking for something unique
strategy will be to target the and beautiful. Interior designers are the main promoters in this segment;
High-end segment, a small
but profitable spot”
however, some specialty furniture boutiques have also begun to carry
premium furniture for play. Furniture usually takes 6 to 8 weeks for delivery.
Exhibit 3-F
Playroom Furniture Market (US$ MM)
$51
$300
$800
14
Based on primary and secondary research – Interviews with industry experts.
Mid-Segment: Retailers like Pottery Barn Kids, Bellini, Bombay kids, Land
of Nod and specialty catalogs, have become the leaders in this segment.
These companies are mainly furniture retail chains with products designed
with a more conservative classic look and with better materials. The majority
of the pieces are made from wood, normally targeting the family room and
the child’s bedroom. Some of the products are multipurpose (e.g. coffee
The Mid segment is the table that is also a train table). Competition in this segment is considered
sweet spot for P’kolino, with “high” because of the limited number of players. Pottery-Barn, the market
reasonable volume, high leader, is also the style setter for this segment. Delivery of the product to the
margins and less price end customer usually takes up to 4 weeks instead of the take-home
sensitive customers…is approach of mass merchandisers.
driven by quality and looks,
not price.
Most of the products are sold by catalog, although Pottery-barn, Bellini and
Bombay have all opened physical stores to showcase their children’s
product line.
Customers in this segment are looking for more exclusive designs and will
trust companies like Pottery-Barn Kids, The Land of Nod, and Bellini
because of their established reputation for high quality and visually
appealing products. The largest threats for these companies are the copy-
cats (e.g. Ikea and Target) as they manufacture very similar products priced
30-40% less. Copy cats are able to do it because the brand defining product
attribute; beauty, is easily replicated.
15
In a recent article in the Wall Street Journal - Williams-Sonoma:
Seeing A Strong High-End Consumer, it was reported that:
Products like play tables and chairs are sold for less than $200. They are
made of plastic or composite materials and in many cases branded with
cartoon characters. The majority of the products are not designed to
15
Wednesday August 25-2004, WSJ
16
Source: Derived from individual sales from companies financial statements
17
Source: “Playthings” Annual Report
18
Source: Toy Industry Association Annual Report
19
Source: Hoovers Online, SEC filings and Annual Reports from Mattel, Hasbro, Lego and LeapFrog
20
Source: Brio Annual Financial Statements
21
Source: Newell Rubbermaid Annual Report, SEC Filling, Hoovers Online
price tag and quality. The company has had a disappointing year in
the US according to the Wall Street Journal, but remains a
competitor with a strong distribution channel and world-class
product development capabilities.
The following summarizes the size and structure of the Playroom Furniture
Market:
3 The opportunity
Play is a child’s work and education, it is how they learn and grow. As
parents become more educated about child development and the
importance of play, their willingness to pay for products that encourage or
“Willingness to pay for facilitate play increases. Evidence of this trend is the growing spending on
products that encourage 22
educational toys (growing at 9% for the last three years) , and playroom
child development is on 23
furnishing (growing at 7% per year ). P’kolino has identified a powerful
the rise.” opportunity that leverages this trend.
Through our research we discovered that the basis for play, the play space
and its furniture, were in need of improvement. We identified four key areas
for improvement:
“The basis for play, the Existing playroom furniture compromises play because it is designed for
play space and its miniature adults and not children.
furniture, are in need of
Playroom furniture loses its value fast because children quickly out grow
improvement”
it. One size fits all in playroom furniture simply doesn’t work.
The child’s loses interest in the playroom furniture quickly because it
has few applications.
“Parents want to know Lastly, and probably most obviously, play spaces are cluttered and
the right toy to buy” unorganized.
We also discovered that parents are feeling the pressure of wanting to know
the right toy to buy, at the right time to effectively support the development
of their children.
22
According to Parents Magazine and LeapFrog SEC fillings
23
According to marketresearch.com
These solutions also address the challenges parents have of selecting the
right toys for the right stage because our toy kits will be packaged for
specific stages of child development.
The “grow with the child” capabilities of our products will reduce our
customer’s total cost of ownership and provide us with opportunities for
follow-up sales. Follow up products will be in the form of the development
timed toy kits, upgrade packages and accessories.
Note: the following are pictures of prototypes of the Table A; the actual
product may be different. They are presented here for the purpose of
illustrating the concept
.
Designed at risd
for P’kolino, LLC
Note: the following are pictures of prototypes of the Table B; the actual
product may be different. They are presented here for the purpose of
illustrating the concept
Designed at risd
for P’kolino, LLC
The Toy kits: These pieces are the link between the furniture and the toy.
They are storage compartments that unfold on top of the Table A to change
the table top into an activity or toy /play enhancer. The inside of the toy kit
will be designed to accommodate the requirements of a specific activity and
child stage of development.
For example: if we wanted to convert the table into a toddler “Lego” table,
the interior of the toy kit will have stage appropriate Lego plates attached;
the unit itself will also hold the Lego blocks. When unfolded, it locks on top
of Table A, transforming it into a toddler Lego table. When done, simply fold
it up and store it in our storage unit.
Note: the following are pictures of prototypes of the Toy kits; the actual
product may be different. They are presented here for the purpose of
illustrating the concept
The Storage Unit: this unit will hold up to 10 toy kits and is designed to fit
the design style of Table A. It allows for ease of use and to accommodate
children’s height and strength. The unit is made out of wood, but the
drawers will be light enough so that children can open then.
Note: the following are pictures of prototypes of the storage unit; the actual
product may be different. It is presented here for the purpose of illustrating
the concept
With capabilities of holding Toy kits on top of the piece or in the drawers
Storage Unit
Designed at risd
for P’kolino, LLC
Safety, beauty and fun are absolute necessities in this market. They are the
attributes that most competitors have and ones that we will build our
differentiating attributes on. Our key differentiating benefits will be the
increased functionality, the improved educational value and the multi-
purpose nature of our products. By focusing our product development on
these key attributes we will have a clear competitive advantage.
Exhibit 5-B
Attribute Comparison Chart – P’kolino’s Assessment (rankings: 1 is best in the category, 10 is the worst)
Brio Mass 3 5 2 3 7 7
Fischer Price Mass 1 2 3 1 6 8
Imaginarium Mass 4 4 4 4 4 9
Little Tykes Mass 5 1 6 5 2 10
Truck High 9 10 8 10 8 5
Casa Kids High 10 9 9 9 9 6
Videl High 6 6 10 8 10 4
Market Entry:
P’kolino will first target the high-end playroom market because of its
favorable characteristics:
• it values innovation, the brand over price,
• its consumers are market influencers and
• it offers the highest margins.
Growth Strategy:
Growth in the high-end market is limited due to its size. In order to increase
our customer base for sales of additional P’kolino products we will need to
expand into the larger Mid-market segment. To do this we will leverage our
high-end brand reputation and introduce lower costs tables and storage,
with similar attributes, into the larger mid-market. We expect to execute this
expansion in our third year of operation.
Exhibit 5-C
Market Penetration Strategy
Low PRICE High
PÕ
kolino (1)
PÕ
kolino (2) Custom made
Many Boutiques
Small Designers (Truck)
Vibel L Õ
achitecte
Pottery-Barn Kids
ATTRIBUTES
Land of Nods
Fisher Price Bombay Bellini
Few Imaginarium
Brio
Little tikes
Licensed (standard)
PÕkolino
High Mid Mass Strategy
12,000
10,000
8,000
6,000
4,000
2,000
0
Year 1 Year 2 Year 3 Year 4 Year 5
Tables 690 1,445 1,951 2,634 3,555
Storage Unit 228 477 824 1,169 1,533
Kits 1,313 3,851 4,814 7,618 11,027
5 Marketing Plan
Our primary customers will be parents who want the best for their children,
are willing, and able, to pay a premium for a better product.
These parents are in parenting groups such as: Mothers Forums and Play
Groups, and enroll children in early developmental classes (e.g. Creative
Movements). They subscribe to parenting magazines, read parenting books
or consult with Child Development/Parenting Experts. As a result, they are
influenced by “Authorities” either through reading/educating they have done
themselves or by first hand interaction with teachers/care-givers.
24
Source: Simmons data cited by Interep
25
Source: Simmons data cited by Interep
26
Source: Simmons Market Research Bureau, Fall 2002 Study of Media and Markets; Packaged Facts
27
Other furniture merchants have proven success in direct channels. Land of Nod estimated at nearly 100% sales are direct; through
catalog and web. Pottery Barn Kids – direct sales = 72% of its $392MM in revenue. As stated in the 11/18/04 WSJ’s “William
Sonoma’s, inc Third Quarter 2004 results.
designs. For example, The Museum of Modern Arts (MoMA) store which
features uniquely designed and educationally beneficial products. This
strategy will help us reach the right customer and generate some exposure
for our products. To encourage customer interaction with us we will offer a
free Toy Kit to those who have purchased a table or storage unit through a
retail channel. The customer will redeem the free kit through a direct
channel (web or mail) so that we may capture relevant customer data. This
customer data is critical to our direct marketing to support our migration of
customers to the direct sales channels as well as to encourage future
purchases.
Direct to the Customer: The goal is to have 85% of our revenue come
through direct channels (web, mail and phone). Based on the proven
success of other furniture merchants in direct channels (Land of Nod
28
estimated at nearly 100% sales are direct; through catalog and web .
29
Pottery Barn Kids – direct sales = 72% of its $392MM in revenue ) we
believe this is achievable.
The primary direct channel will be through the Internet as 70% of our target
customers have high-speed Internet access. We will also offer mail and
phone orders.
28
Our estimate based on Land of Nods business model of direct sales and no retail store to date.
29
As stated in the 11/18/04 WSJ’s “William Sonoma’s, inc Third Quarter 2004 results.
Public Relations
Public Relations will be at the center of our communications plan. The first
phase of this plan is to utilize the PR potential of the cooperation of Babson,
the #1 entrepreneurial school and RISD, the #1 school of design to support
P’kolino. We have brought together these school’s PR departments and
have agreements to promote the story at no cost to us. To that end, we are
developing a video documentary of the product design process to be used
as a PR asset for the schools and P’kolino. From this PR exposure we
intend to interest target market publications (e.g. Parenting Magazine) in
P’kolino’s story.
Grassroots Marketing
Grassroots Marketing will be how we get the customers interacting with the
product and start the word-of-mouth engine running. We will start this
grassroots effort in Boston targeting Mother’s Forums, Play Groups and Day
Care Centers (e.g. Bright Horizons). We will expand this effort strategically
through major metros in the Northeast. These customers will be driven to
the direct channels for purchase.
Word-of-Mouth
As noted, word-of-mouth is a powerful tool is this market. We will
Word-of-mouth is a encourage word-of-mouth by identifying key influencers in target markets
powerful medium in
this market.
and seek to make them advocates of P’kolino products. Additionally, we will
seek a child development expert endorsement to add additional credibility.
Advertising
The intent of the advertising will be to increase awareness of P’kolino in the
High-end market. Our advertising efforts will be very targeted selecting
advertising mediums that reach a high concentration of our target customer
that we may not have access to through our marketing efforts. The
advertising media will be print because of its ability to show our product for a
relatively low cost. These adds will drive customers back to p’kolino.com for
more information or purchase.
Direct Mail
In the first year of operation and in preparation for the 2005 Christmas
season we will run a direct mail test. This mailing will target high-end
customers in the Northeast to keep resources and expense to a minimum.
A successful test would result in about 1+% purchase rate of those mailed.
Should this test prove successful we will look to roll-out a larger direct
campaign prior to the Christmas season.
Year 2 will serve as preparation and learning for the expansion into the mid-
market where some of the guerilla tactics may still apply but our marketing
efforts will have to grow to a new scale.
In Years 3-5 will we continue to shift our marketing mix to mediums that
enable us to reach more customers. However, it will be critical to do so in
an increasingly targeted manner. Direct marketing (mail and web) will be our
primary medium because of its ability to target precise customer segments,
gather marketing and purchase behavior data and enable us to maintain
one-to-one communications for an extended customer relationship. With
this data we can become increasingly efficient at acquiring and retaining
customers and thus reducing our marketing expense per sale.
6 The Team
Antonio Turco-Rivas: co-founder and Sales & Operations Manager is a
Babson MBA 2005 and father of one. He has successfully launched two
technology ventures in Latin America. Antonio’s background also includes
two years as a Corporate Finance consultant for Venezuela’s most
important Investment Bank’s and two years as a special assets Manager at
the fifth largest Latin American Bank in the US. Antonio is a proven
entrepreneur, manager and sales professional.
Advisors: Individuals for these roles are currently being evaluated and will
be filled at a later date.
Child Development Expert
Manufacturing Expert
Juvenile Product Market Expert
7 Operations
Mfg. Mfg.
receives develops Production
Product
designs prototype begins
ready for
shipment
PÕkolino
reviews
prototype
30
Outsourcing cost for manufacturing, packaging, shipping are included in the Cost of goods sold, based on industry average (AFMA)
31
Sources: AFMA – American Furniture Manufacturing Association
32
Operations Cycle is a 14 week process for existing products, and an 18 week process for new products
Exhibit 8-B
P’kolino Product Development Process
Learn
Opportunity
Concept Testing and Operations
Assessment Look Try Level Design Detail Design
Development Refinement Cycle
+ Planning
Concept + Critical
Mission Ask Prototype Spec. Production
Design
Approval Review Review Approval
Review
Prototyping
33
Based on the current P’kolino product development process.
For the first product line the company leveraged its relationship with RISD to
take the opportunity and translate it into a product. For the second
generation of products P’kolino will have to assemble a product
development team comprised of both full-time employees and collaborators.
Marketing and sales will also require additional personal, as well as in-
house administrative and customer service support. Our staffing plan
34
follows:
Exhibit 8-C
P’kolino Staffing Plan
Staffing Plan Year 1 Year 2 Year 3 Year 4 Year 5
CEO 1 1 1 1 1
$40,000 $70,000 $120,000 $150,000 $220,000
COO 1 1 1 1 1
$40,000 $70,000 $120,000 $130,000 $130,000
Product Development Manager 0 1 1 1 1
$67,000 $69,680 $72,467 $75,366 $78,381
Product Development Staff 0 1 1 1 1
$52,000 $54,080 $56,243 $58,493 $60,833
Operations and Logistics Manager 0 0 1 1 1
$60,000 $62,400 $64,896 $67,492 $70,192
Marketing Manager 0 0 1 1 1
$74,000 $76,960 $80,038 $83,240 $86,570
Sales Manager 1 1 1 1 1
$35,000 $70,000 $72,800 $75,712 $78,740
Sales and Marketing Staff 0 0 1 2 2
$54,000 $56,160 $58,406 $60,743 $63,172
Direct Channel Support 0 0 1 1 1
$60,000 $62,400 $64,896 $67,492 $70,192
Customer Service Staff 0 0 1 1 1
$45,000 $46,800 $48,672 $50,619 $52,644
Office Administration 0 1 1 1 1
$32,000 $33,280 $34,611 $35,996 $37,435
Accounting 0 0 1 1 1
$35,000 $36,400 $37,856 $39,370 $40,945
Advisors 1 1 1 1 1
$20,000 $31,200 $32,448 $33,746 $35,096
Total Headcount 4 7 13 14 14
Total Salaries $135,000 $398,240 $863,334 $989,010 $1,087,371
Benefits $20,250 $59,736 $129,500 $148,352 $163,106
Total Compensation $155,250 $457,976 $992,835 $1,137,362 $1,250,476
34
Salaries are based on Boston average salaries for the respective positions according to the Career Journal (Wall Street Journal online
edition) salary search (Salaryexpert.com)
Month/ Activity M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 M13 M14 M15 M16 M17 M18 M19 M20 M21 M22 M23
Secure Funding
Launch RISD/BABSON PR
campaing
Production 150 tables +
strogare + kits
Website development
Develop Institutional sales
Channel
Hire Marketing / Tech
intern
Office relocation
Launch Grassroot
marketing camping
Collection efforts
Production - 400 tables +
storage + kits
Hire Product Development
Manager
Website Improvements
Marketing campaing
Production - 500 tables +
storage + kits
Collection efforts
8 Critical Risks
Highly competitive market – All segment of this market are highly competitive
especially the mid and mass. P’kolino will compete with a distinctive product and
a different value proposition as a niche player. Establishing our brand in the
high-end segment and then moving down to more competitive markets.
However, the potential remains that competitor will identify our niche, before our
brand has a foothold. We will rely on innovation and speed to compete if
competitors attack our niche.
Lawsuits – Although we will take precautions to make our product safe for
children it is possible that a child may injure themselves while using one of our
products. We will carry product liability insurance to protect us financially from
such an event but the potential brand damage must be recognized.
Product defects and/or recall – P’kolino will take precautions to develop durable,
reliable and safe products. Using materials that have proven to stand the test of
time. However, it is possible given the expected useful life of these products
and the use of children that these products could break creating hazards for
children. Should this occur and depending on the situation P’kolino may be
obligated or feel it necessary to issue a recall of the defective product. Some of
the manufacturers we have identified carry insurance in case the defect is
caused by some error during the manufacturing process. We will further explore
this possibility.
Sales lower than expected – In case this happens P’kolino will have the
capability of adjust production volume and shift strategy fairly quickly because of
its size and structure. We will also retain sufficient cash to support an increase
in the number of inventory days.