START UP REDPACK BEACH LOCKERS TO UNLOCK POTENTIALS
“To plan or not to plan its business, that is the question for RedPack.”
In August 2010 the three founders of RedPack Beach Lockers (RedPack) were contemplating the course their company should take. Having worked on the start-up of the business for the last one and half years, the young entrepreneurs were eager to see their company grow. In order to roll out the business on a profitable level, they urgently needed financing. This last stage was everything but easy. Despite their commitment, hard work, and a detailed business plan, they were not yet able to convince a single investor of RedPack’s potential. The three founders started to reflect on the development of their business and the mistakes they had made. One of the main discussion points was the usefulness of a business plan.
RedPack’s initial business plan was to run a simple but innovative business: renting out lockers inside beach bars on Spanish coast for people to store belongings. As the plan developed, however, the entrepreneurs decided to move the target market to Portugal and use the lockers as an advertising platform for revenue.But pressing needs for income forced the company to diversify to the music festivals market and offer cell phone recharge service besides lockers; revenue came from operations.
The process of developing the business plan helped the entrepreneurs re-think and re-evaluate their ideas and identify problems or inconsistencies along the road; it had been an important tool to communicate their ideas with external parties and helped them improve the business model to seek financing; it had also helped them evaluate what they had accomplished and create a prioritized action plan. It had forced them to conduct extensive market research that gave them valuable information about competitors and possible partners.
Although having a business plan had many payoffs, to write it up and frequently update it took the entrepreneurs so much time – one of the entrepreneurs was even convincedthey could better use the time and energy on actual business development, marketing, and operation. Because the environment of a start-up company was turbulent, the entrepreneurs felt they were trying to predict the unpredictable and their business plan could never be up-to-date. In an effort to perfectionize their plan, the entrepreneurs feared they might have lost out on other opportunities.
Hélène de Saint-Front, Davy Bour and André Amaral met in a classroom in Holland in September 2008. After completing their bachelor studies, Hélène, Davy and André went on to study a master’s program in entrepreneurship at the Rotterdam School of Management (RSM). With different backgrounds and personalities, the three students had one thing in common—the dream to become an entrepreneur. The program turned out exciting. It gave them the chance to be in close contact with inspiring entrepreneurs and develop their own practical business plans. The three felt on the right track: Their natural predisposition and the academic environment were likely to help them pursue the entrepreneurial careers of which they dreamed.
Profiles of the Entrepreneurs
Hélène was born in a traditional French family. The third of five children, she learned how to advance her way at an early age. Dedicated to success, she was accepted to RSM, one of the best business schools in Europe. Passionate about business and her career, she is energetic and hard working with great skills in finance and networking. The idea of starting up and growing a business has always attracted her.
Davy was born in a rural area in the north of France. On his 18th birthday, he left France for Holland to start a bachelor study in business administration, and afterward, continued on with a master’s degree. With an unusual mix of creativity and pragmatism, he has great design skills and powerful negotiation skills. He sees entrepreneurship as the fastest way to achieve success.
André is the son of an entrepreneur in Portugal. As a child, he was in close contact with the family business management and eager to follow his father’s example. Getting into entrepreneurship was a natural step. Always attentive to new ideas and opportunities, André’s strength lies in strategy and sales.
Hélène got the idea for RedPack at a workshop she attended at the University of Delft, lectured by Ken Morse, an MIT professor. The purpose of the workshop was for participants to come up with a business idea and develop it at a preliminary level. The workshop began with a brain storming session when the participants shared real-life stories where they felt a lack of a product or service existed in the market.
The case that attracted most attention in Hélène’s group was told by a Spanish student regarding the lack of safety solutions on Spanish beaches. “When I want to go to the sea or take a stroll on the beach, I have to leave all my belongings in a towel without any protection and there are a lot of thieves around. I can’t find any solutions to this problem!” Hélène and her group members immediately recognized the problem. As it was a widespread issue from many parts of the world, creating a solution could lead to a promising business! The idea was simple but innovative—installing lockers at beach bars for people to store their belongings so they can fully enjoy the day at the beach. Thus, RedPack was born! Hélène presented the idea to a board of juries toward the end of the workshop.
RedPack Concept 1: Install small lockers inside beach bars for people to store their belongings. The lockers, operated via a biometric system, will be developed and installed by RedPack. The bar owners will pay a fixed fee to RedPack to use the lockers, which covers the installation and maintenance of the equipment.
The RedPack lockers would be adapted to the beach environment. Ideally product development would take place in collaboration with potential clients to customize to their needs. As a locker filled with wallets and car keys was an attractive prey, further research needed to be done on how to insure the lockers and the valuables inside. RedPack as a start only considered placing lockers inside beach bars and shops, which was not subject to regulations.
In the first summer season, a pilot of about 10 locker units would be placed on the most important blue flag beaches. The purpose was to test the business concept and gather information for further development. If the pilot was successful, RedPack would put in more effort in sales on the most promising European beaches during the next year.
In the pilot, RedPack aimed to rent out the lockers for €7,300 per unit to cover marketing, operation, sales, management, manufacturing, maintenance and insurance costs as well as expected revenues (see Figure 1,2). A manufacturer would take care of locker production on a contractual basis, and the RedPack team would be responsible for the other activities to control costs.
Hélène’s business plan was awarded the prize for best idea of the year. She sawgreat opportunities and was determined to launch this businesssoon and after two years expand it globally (see Figure 3).“We must take this opportunity and have the first lockers installed this summer no matter what… We cannot loose the momentum,” she said.
Developing business plans
Hélène decided to bring her idea to the market. One of the courses she took at RSM, New Venture Planning, asked students – three as a team – to write a detailed business plan for an idea of their own. Hélène took the advantage right away to develop the idea of beach lockers.
She needed two other students to work with her – two people with an entrepreneurial spirit, the knowledge of the target market, and the willingness to take risks. André and Davy were perfect choices. She was friends with both and knew their personal and professional skills. André, speaking Spanish and Portuguese, had networks in both countries – the main target markets for beach lockers. In addition, Andréhad experience in sales from his previous jobs and hoped to start his own business right after graduation. Davy, on the other hand, had moved to Holland four years prior to obtain his bachelor’s degree. He spoke fluent Dutch and was familiar with the culture, which could be helpful in establishing relationships with Dutch manufacturers of digital lockers. He had experience in setting up new business for the company where he worked before. He was also skillful in design and computer programming.
With this broad set of skills, the team members complemented each other: Hélène would be the CEO and in charge of the finance and accounting, Davy the head of marketing and communication, and André the head of sales and operations. When she proposed they join the team, both were excited and accepted the offer without any hesitation.
In the first class, the teacher explained what a business plan was and how it should be structured. From that moment on, the team started to work on the business plan section by section and presented it to the rest of the class for feedback. This was an important exercise that trained students how to present their ideas, and receive external feedback that forced them to re-think some of their assumptions.
As more sections were written, the initial business idea changed drastically. For example, the initial idea was to use biometric sensors in the lockers; however, after some research, the team realized that this system would not be the most efficient on beaches and changed it to a pin code system. Also, during discussions with the professor, they came up with the idea to use the lockers as an advertisement platform for other brands and leverage the revenue streams.
Running into problems
During the course, the team realized that the business plan for any start-up company is a complex document, where most of the answers are based on market research and benchmarking. Start-ups do not have essential records that they can use to estimate market share, revenues, consumer acceptance and all other variables involved in a business. Thus, start-ups have to base their assumptions on available market information to reduce uncertainty as best they can.
The RedPack team soon ran into a serious problem: Because the beach locker concept was innovative, the team members could not find similar cases upon which to base their market research. Lockers were used in many other places, such as train stations, airports, libraries, and shopping malls, but rarely on beaches. The few beaches that actually had lockers available were in Cyprus and Australia. Even so, the lockers there had been installed either in a trailer brought by a car that could stop in the beach parking lot or on the boulevards by the municipalities and could be used for free. Moreover, neither solution used a digital pin code system or had a business model similar to a vending machine.
Still, the team thought it would be important to identify other solutions for safety on the beach, and position RedPack’s concept against these alternatives in terms of price and convenience. After some brain-storming and market research the three young entrepreneurs listed the main solutions for keeping belongings safe on the beach, including: ask your neighbors to watch your belongings while you are away; leave your valuable belongings in the car; use a water proof wallet which you can take everywhere to protect your most valuable belongings; a mountable locker which can be installed on your umbrella; beach chairs or tables with incorporated lockers; lockers installed in a car trailer parked at the beach parking lot; or just an insurance that covers your belongings in case of theft. After mapping out possible competitors and alternative solutions, the RedPack team was convinced that their solution was the best in terms of price and practicality (see Figure 1).
Figure 1: Competitors Diagram
Despite their best efforts, some important information was still missing from the market research. For example, the manufacturers of digital lockers were not sure whether their product would be suitable for a beach environment, where the corrosion might occur quickly due to harsh climate and weather. Lockers were non-existent on the beaches in southern Continental Europe, which made it difficult to evaluate what items users would want to put in a locker and how much they would be willing to pay, and consequently, decide the size and pricing strategy. It was also impossible to collect information about beach bars, to assess their availability of space and the willingness to offer locker service. Due to the novelty of the business idea, the municipalities in Spain had a hard time deciding whether advertising on beach lockers would comply with commercial legislation. It was equally difficult for the team to assess the interest of other brands with whom to become advertising partners.
The team was frustrated and the three friends’ ideas on how to pursue the business plan began to diverge. Hélène, passionate about numbers, financial instruments and planned actions, strongly believed in the usefulness of the business plan. For her, the business plan was an action guide where the assumptions and predictions must be considered accurate and taken seriously.
Davy, a creative mind with a driven attitude, recognized the importance of the business plan in clarifying ideas and re-defining strategies, but saw it less relevant in guiding actions.
André was totally anti-planning. Used to the unplanned lifestyle of southern Europe, he could not accept that assumptions and predictions were accurate. Writing a business plan, in his view, was a waste of time. Moreover, many others had succeeded without planning.
Researching the field in Spain
Despite the divergent opinions about planning, in February 2009, the RedPack team traveled to Spain – their entrance market – for a field research. A few weeks before the trip, the team participated in a business plan competition organized by the technical university of Delft. RedPack was awarded the runner-up prize of €1000, which became, at that stage, the team’s only start-up capital and which was used for their travel budget. To make the most out of the trip, the team decided to spread out along the Spanish coast. While Davy stayed in Holland to keep up with the course work, Hélène traveled to the Cataluña coast and André to the South of Spain, together with his classmate, Daniel Tocca, who had lived in the area and had a useful network.
Before leaving Holland, the team prepared a questionnaire to find out how much people were willing to pay for the locker service, whether they considered it a real need, how big the lockers should be, where they should be placed and which was the best beach to launch the product. The team also planned to talk with beach bar owners to evaluate their openness to having lockers installed in their bars. With “bootstrapping” as their motto, the two groups traveled the coast for a week. While Hélène handed out dozens of questionnaires on the beaches to gather statistics for the business plan (see Appendix 1), André and Daniel talked to many bar owners and local residents to find out their opinions of the product. They also met with municipalities to discuss potential collaborations and legislative issues.
The trip proved extremely helpful, and some of the previous assumptions were challenged by their latest findings. For example, the team had thought about installing only small lockers for the most valuable belongings, but the interview research showed that users preferred bigger lockers for all their belongings. Also, the initial idea of installing lockers inside beach bars was confronted. The team realized that Spanish beach bars usually do not have much room available for lockers, and the majority of the interviewees preferred to have lockers installed in the terrace of the bars.
RedPack Concept 2: Install medium-size lockers inside and outside beach bars, for people to store valuable belongings and backpacks. The lockers are developed by RedPack and equipped with a pin-code system. RedPack operates the lockers and shares revenues with bar owners. The lockers are used as an advertising platform that represents an important revenue source.
The three friends began to evaluate the possibility of developing outdoor lockers to avoid depending on beach bars. With both indoor and outdoor locker systems available, RedPack could reach a larger market share and offer suitable solutions for different cases. The team concluded their business plan and received the best grade in class. After having gone through many changes, the concept was now mature, ready to be turned into a real business. Also the technology that Redpack plans to offer was definitely feasible. The lockerboxes would have to be modified to fit into the beach environment, but in essence they were not a new product, making their realization even easier. The detailed first steps as well as the financial projections of the three RedPack entrepreneurs are presented below. The team used all the data collected to fine-tune their business plan (see Appendix 2) that included detailed profitability and financial analysis (see Appendix 3).
For each customer, RedPack would generate a yearly revenue of €7,966 with 50% generated by advertising, estimated at €2,370 per locker per year. This revenue would be a monthly fixed cash flow for the locker rent based on expected utilization rate, for a maximum of € 2,000 in July, and a variable one for advertising, depending on how attractive the beach was, that the team estimated at €600 per unit per month in peak months.
For 20 bars installed in year one in Spain, RedPack expected to break even with a revenue of €180,000, for an initial investment of €220,000. In year two and three RedPack would expend its customer base in the primary market in other countries and enter the secondary market, expecting to have 250 units in operation by the end of year three. Then on year four and five RedPack would expand massively in the secondary market, to reach a total of 500 customers after five years, which represented 1% of a potential market of around 50,000 beach bars in Europe. This way, RedPack would achieve a 37% net margin and a Return on Average Capital Employed of 45% from year three onwards.
Main costs and cash flows
The main expenses would be salaries (assuming a salary of €4,000 per month for 1 FTE with a 2% yearly increase, and €3,500 per month for the seasonal local operation manager) sinceRedPack sales forces would play a major role in the development of the brand. The depreciation over five years of the lockers estimated at€6,400 per unit (80 small pin code lockers) would account for 27% of the total expenses, and direct costs like installation (€400), maintenance, insurance and storage (€300 per unit per year) would account for another 13%. Marketing expenses (6%) would include communication, selling and promotion. Other expenses were office equipment and travelling costs.
The most important cash outflow would be the purchase of the lockers just before the high season started. The orderhad to be made after contracts signed with bar owners, allowing RedPack to negotiate with the locker manufacturer to stretch the payment over two months after delivery. Those contracts assess that the lockers would be paid back by the end of the season as the yearly renting price covered the manufacturing, installing and extra services costs for each locker.
Together with owners investment and bank loans, RedPack still needed an external investment of around €600,000 in two rounds, €100,000 in year one and €500,000 in year two. RedPack wanted to have two different kinds of external financing:
- Create a new investment concept with a “locker micro-investment” system where people could team up by two or three and invest in one locker, for a return on investment of 10% in one year. The group most likely to use this system would be RedPack members’ network. RedPack manufacturer should also be interested as they would strongly benefit from a rapid growth. Other parties that might be interested included bar owners, municipalities, and insurance companies.
2. Get one or two private investors on board. RedPack did not see any obstacles as there was a clear market demand and the technological risk was almost non-existent. The business model was also scalable that would allowRedPack to grow at adjustable pace according to market responsiveness to its offering and investment.
With an initial investment of €600,000 and a Net Present Value of €3 million on a five year projection, each euro invested would bring five back, with an internal rate of return at 96%. The time to get the investment back would be in the third quarter of year four.
Each locker would be bought after agreement signed with a bar owner for renting it the next season, thus considerably decreasing the risk of the investment. Those were also the reasons why after this initial investment in year one and two getting bank loans would be easier, so the acquisition of the units in year three and four would be partly financed with short term bank loans to cover the period of time between the buy of lockers and the end of the season (for a maximum of 6 month). After this, the acquisition of the units could be financed internally depending on the speed of market expansion.
Competing in business plan contests
With only one trimester left until the end of the master’s program, the three students had to decide their next steps. HEC, the French business university where Hélène had studied, had a start-up incubator program that seemed to be the best option for RedPack to follow. This six-month program would take place in Paris, and the team would have free office space, legal support, management advisors, access to a vast network, and the chance to be in daily contact with other nascent entrepreneurs. Although Paris was far from RedPack’s potential entry markets, at this stage, the team could not afford moving to Spain. So they opted to move to Paris once the master’s program concluded.
In April 2009, after the New Venture Planning course concluded, all teams were invited to pitch their business ideas in front of a jury that would select four of them to participate in the RSM business plan competition. The winner would represent RSM in the European Business Plan of the Year Competition. RedPack was one of the four teams selected. Aware of the importance of the European competition in helping them to start up their company, Hélène, Davy and André worked hard to improve their business plan and prepared an impressive presentation. They received tremendous help from Felix Guttman, an Amsterdam entrepreneur asked by RSM to advise the team.
The three friends left Holland on May 27, 2009, for Lisbon to join the European competition. They had to compete with teams from 12 of the best European MBA schools. By the end of the first day, the RedPack team was overwhelmed by the high-quality presentations of the other teams – some pitched technologically advanced ideas and others even had registered patents – and they did not expect to enter the final round. At the announcement ceremony, however, RedPack was one of the finalists. Amazed, the team went back to the hotel right away to improve their presentation. The jury had given them a lot of feedback that they wanted to incorporate in the final presentation. Among other things, the judges suggested they develop a payment system through cell phones, which would help avoid money collection issues, provide the opportunity to gather an extensive database, and bring in extra revenues.
After a long night of work and a short night of sleep, the three friends put on their matching suits, with a special touch of red (the company color), and headed out to the main auditorium. Their level of confidence was high: Being included in the final round was already a victory; as the youngest team in the competition, they had no pressure to win. The presentation went even better than planned. The opening and closing videos, which turned the RedPack team into members of the Baywatch cast, worked like a charm. Impressed by their smooth, casual, yet thorough and solid presentation, the judges voted RedPack the winner of European Business Plan of 2009. Steve Lewis, an inspiring British entrepreneur and Chairman of the Jury, closed his announcement saying, “Sometimes the simplest ideas are the most beautiful.”
Later during an informal talk, Steven confessed to the team that what gave them the victory, besides their excellent presentation and preparation, was the feeling that they would turn their business plan into a real venture, along with their matching ties. He asked the team about their future plans and advised them not to go to Paris. “It is an expensive city far from your target markets. Why not start in Portugal? Portugal is a small country with a long coastline where you can quickly spread and test your business idea and then expand to bigger markets.” In fact, the impact of RedPack winning the competition was immediate: The team had a two-page article in the largest Portuguese financial newspaper and was in the process of having conversations with more than one financial institution (see Appendix 4).
Paris and the south of Spain were out of their plans; Portugal was the new target market and the team had to act fast. After the event, André stayed in Portugal an extra week to find beach bars where they could install lockers for a pilot run. At the end of the week, André had made deals with seven beach bars in the Lisbon region that were willing to be part of the first pilot program. As soon as he returned to Holland, the team went to the Chamber of Commerce and registered their company: RedPack Beach Lockers was no longer just a business plan anymore!
Since the seven beach bars were waiting for the lockers, the team had to get the products ready fast. Although they knew where to order the lockers, the deadline was too ambitious for most manufacturers. The structure of the lockers had to be purchased from one company and the electronic pin-code system from another. The main issue was to get the structure ready on time because the seven locker units had customized measures and had to be handmade. After some extensive research and hard negotiation, they were able to find a producer that could satisfy their requirements. To meet the deadline, the team had to spent days in the factory helping assemble the digital system while learning how to operate the lockers.
Confident about their project, the three nascent entrepreneurs decided to get personal loans to finance the pilot. Between family and bank loans, they were able to gather around €70,000 of start-up capital that would be used to launch the pilot and support the first months of operation. The team now had the money to launch their product in the market, but things already had deviated significantly from the original plan: The target market had changed, the cost of the lockers was higher, the timeline had been revised, and the financing strategy was altered.
Running the Pilot
In the first week of August, the lockers arrived in Portugal. The process was not as smooth as planned, either. Some bar owners did not provide the space for lockers as agreed, others had changed their minds about wanting the lockers, and others had their bars closed during the time arranged for delivery. Last minute adjustment and additional negotiations were necessary, but after two days of hard work, the seven locker units were finally installed.
Locker units installed in the beach bars
The summer was half gone and the beach users did not seem to quickly accept the new service. The team decided to order and distribute beach goodies with the RedPack logo to attract customers. In addition, hundreds of flyers were printed and handed out at the entrance of the beach, and big posters were placed outside of the bars. The usage of the lockers was still far from the expected, however. The team tested various promotion strategies on different beaches to evaluate what was more efficient. The result was disappointing: Promotion did not influence the usage.
Then the team changed the pricing strategy to test price sensitivity. Initially, they had programmed the system with a fluctuating price. The user would insert €3 in the locker, then, depending on usage time, the locker would give back some change or not. Some people expressed that this payment system was difficult to understand, so the team decided to change the price to a flat rate of €1. This attracted more users, but still not as many as expected.
The team noticed that the location where the lockers were installed might influence the usage. Some preferred the lockers installed closer to people, instead of inside beach bars. This meant the lockers had to be placed outside directly on the sand, which would mean legislation, safety, and weather complications. Also, the team learned that many bikers going to the beach had a problem for keeping their helmet, but the lockers were not big enough for helmets.
According to the final business plan, the bar owners did not have to pay for having the lockers installed in their bars. They needed only to monitor and operate the lockers and would get a percentage of the revenues. But because the owners made no investment, they were not committed to monitoring and operating the lockers. One important lesson the team learned: Bar owners mattered.
Hélène, Davy and André were frustrated at the results of the pilot. But at the same time, the enthusiasm of the Portuguese media on RedPack kept boosting their confidence. During the first two weeks of operations, RedPack already had an article in the biggest Portuguese surf magazine, a radio interview, an article in a major weekly news magazine, and even a television interview (see Appendix 5).
The three young entrepreneurs were confused by the contradictory reactions. Hélène asked whether the business idea was wrong, while Davy wondered whether they should have chosen a Spanish or more popular beach, and André thought the timing was the key –they should begin the following year when summer started and give people more time to get used to the idea. Surrounded by uncertainties, the RedPack team knew it was not the time to stop. Hélène proposed they go forward with the outdoor lockers they had included in the business plan. “We should talk to the municipalities about the possibility to install the lockers directly on the sand,” she said. But André was not enthusiastic: “I think we are too attached to the business plan. We should take advantage of the upcoming winter season to explore other markets like nightclubs and music festivals.” The team had to decide what to do next.
Their first decision was to get back to the contacts made during the European Business Plan Competition. Among financial institutions and business angel associations, there should be some that could advice them or even invest in them. The first organization they approached was Caixa BI, the investment department of Caixa Geral de Depósitos, the largest Portuguese bank. During the competition, the team met a representative of Caixa BI who showed interest in having future conversations with RedPack. After a couple of phone calls, he was able to arrange a meeting for RedPack to meet the director of the bank.
Caixa asked RedPack to send them the business plan. Once again, the team got back on the plan and updated it. While updating the plan, the three entrepreneurs were forced to face the discouraging results of the pilot and re-think their strategy. Clearly, relying only on the beach market was not the best strategy to grow their business. It was time to think seriously about alternative markets. After some research and brainstorming, the team agreed that RedPack’s best option was to expand to the music festivals. Similar to beaches, music festivals – representing a large market in Portugal – lacked safety solutions. The concept of installing lockers in festivals was a proven success in Northern Europe, which made it less risky to implement than beach lockers.
RedPack presented its new business plan to Mr. José Furtado, Director of Caixa BI. Mr. Furtado said he felt it was too early to invest in RedPack but gave the team some suggestions on how to grow their business faster with lower risks. According to Furtado, the best way to conquer a large market share within the first years of operation was to leverage even more advertising potential and partner with a single strong brand that wished to be associated with a useful community service for the leisure and entertainment markets.
The idea was appealing. If a big brand got interested in sponsoring the manufacturing of the lockers, and in return, using the inside of the lockers as an advertisement platform to distribute samples of merchandising, RedPack would benefit from first mover advantage, creating solid entry barriers for future competitors. This strategy would allow financing growth with a low risk because the revenues would not be dependent on the usage of the lockers.
With this sponsorship strategy in mind, the RedPack team began to look for the right brands to approach. A good sponsor would be a brand with strong image recognition and a high marketing budge, associated with leisure and entertainment, and preferably already present on the beaches and at festivals. The brands that fulfilled all the requirements were cell phone operators: Vodafone and TMN (Portugal’s largest cell phone operator), which might also help RedPack develop the cell phone payment system. Apart from the two cell phone operators, RedPack wanted to purpose the sponsorship agreement to the bank Caixa Geral de Depósitos because of its association with safety. With these three brands as initial targets, the RedPack team sent out customized proposals to each of them (see Appendix 6).
Unfortunately, reactions were not positive. RedPack was not able to reach an agreement with any of the three companies. In the meantime, the team learned that the only way to install brand customized lockers directly on the sand was to get a special license from local authorities to show that the lockers were a useful service for the beach users. The legal constraint on top of the difficulty to close a sponsorship agreement forced RedPack, once again, to adjust its strategic focus. “What are we doing wrong?” André asked. “The concept makes sense, and we’ve put together a great proposal. I was confident that we would get someone on board.”
Diversifying the market
At this stage, diversifying to the events and music festival markets appeared to be RedPack’s best option, even though, according to the initial plan, this diversification would only happen in the third year of operations. Before approaching the market, the team had to decide what the next generation of lockers would be. The pilot proved that the standard digital system was problematic and had to be replaced by a different technology.
RedPack’s first idea was to develop a customized digital system. This would allow them to define the product according to their own requirements, place them as the only provider of this solution in the Iberian market, and most importantly, give them an IP address they could use for licensing. After several meetings with a Dutch software developer, however, the team learned that this technology was extremely expensive. They had no choice but to look for a different supplier.
Then they came across another Dutch company, Veecos. With significant experience in the market and a complete system that fulfilled all of RedPack’s requirements, Veecos seemed to be a perfect partner. After the first meeting, both parties thought a partnership could be beneficial. Despite its advanced technology, Veecos had a poor sales strategy and consequently a small market share. RedPack could help it increase sales volume and penetrate foreign markets where this technology did not exist. For RedPack, having an exclusivity agreement with Veecos meant an advantage over its potential competitors. Because of the large purchase volume, Veecos agreed to give RedPack a discount, but no deal could be signed until RedPack had secured the capital and the market for future expansion.
RedPack had to find a way to grow – before it was even off the ground. The team’s personal network proved to be crucial. Portugal is a small country where informal networks play an important roll in business. Through a friend of a friend, RedPack scheduled a meeting with Luís Oliva, the director of SANAP Ambiente, a company with a core business of renting portable toilets to events. Belonging to a large Portuguese group, SANAP is the undisputable market leader in Portugal where it supplies all major events, including music festivals. SANAP could not only become RedPack’s key partner but also help RedPack expand to Spain where SANAP had a presence as well.
The meeting was fruitful. Mr. Oliva immediately recognized RedPack’s business potential and saw its service as complementary to those offered by SANAP and other companies in the group. Besides portable toilets, this group also supplied rental modular containers (used for ticket offices, dressing rooms and bars) and outdoor tables and benches. Lockers would be one more service added to the bundle. Still looking for start-up capital, the team offered SANAP the opportunity to invest in RedPack and become its shareholder. Mr. Oliva asked them to submit a written proposal, which would be presented to the board of the group. A few weeks after the team submitted their proposal (see Appendix 7), they were informed that the board did not approve any investments. Mr. Oliva, however, believed in RedPack and was willing to support it as long as no investment had to be made.
With a bill of seven unprofitable locker units installed on the beach plus the living expenses in Portugal, RedPack had to find a way to make money or the company would not survive much longer. The team decided to approach a different group: business angels. They got in touch with the Portuguese Association of Business Angels (APBA) and a boutique business angel group from the North of Portugal called AdVenture. RedPack’s victory in the European business plan competition was a stamp of legitimacy, which helped it get access to the angels. Meetings were held, presentations were made and the business plan was presented, which was a completely different version from what was written for the RSM course.
Both angels were impressed by the team’s presentation and entrepreneurial spirit. But once again, the financing did not go through. APBA said that it was too early to invest in such an unproven concept and that they would consider an investment once more pilots were done. AdVenture, managed by two English and one Dutch, was less risk averse, but was uncomfortable with the fact that the founders had side jobs to support their living. It did not want major involvement in RedPack’s management and suggested the founders get more involved. RedPack could not afford that, however, because the money AdVenture was willing to invest was not enough to cover all expenses and grow the business.
The three entrepreneurs were running out of ideas on how to raise start-up funds. One last option was to win a substantial award or prize for an entrepreneurship competition. In April 2010, the team applied to a Portuguese national business plan competition. The competition was divided into three rounds. In the first round, the participants had to send their business plans via e-mail to the organizer, the National Association of Young Entrepreneurs (ANJE). The best groups were then selected to enter the second round where they would present their plans to a jury of three members. RedPack submitted their latest business plan revised after talking to SANAP and AdVenture. As expected they entered the second round and their presentation, given in May 2010, got positive feedback. In June 2010, the team received an email announcing it was one of the five finalists. The final round would be held in Lisbon in September 2010, where a cash prize of €19.000 would be given to the winner – this would partially relieve RedPack’s financing problem if they won.
As the summer approached, the team received a call from Luís Oliva, director of SANAP, saying that the company was interested in trying RedPack lockers in some summer festivals. Without any time or money to order new lockers, the team decided to use five of the seven locker units installed on the beaches to test a pilot at music festivals. The lockers were removed from the beach bars and installed in a SANAP container that would travel from festival to festival from July to September 2010.
A container with RedPack lockers at a music festival
The festivals proved to be an attractive market. During the first festival, the RedPack team identified an opportunity that had not been considered in any previous planning. This three-day festival took place one-hour away from Lisbon, and most of the visitors camped in the surrounding area of the festival. On the first day, the team noticed that many people were looking for a place to recharge their cell phones, so they decided to rent out the five vacant electric plugs in the container and charge customers by the hour. The news quickly spread out: From the second day onwards, all the plugs were fully booked. “I am so glad we got the chance to enter in the music festival market,” said Davy. “It seems we can be successful here, especially with a partnership as strong and valuable as the one with SANAP.”
By the second festival, the team prepared many more new multi-plugs in the container to charge 22 cell phones simultaneously. The service was even a bigger success than the first time; there were often 30-minute queues outside the container. By the end of the five-day festival, two-thirds of RedPack’s revenues had been generated from recharging cell phones.
RedPack began to receive requests from other Portuguese event organizers. At the same time, it has been contacted every week by people interested in expanding the concept of beach and festival lockers to other countries, from Ireland and France, to Israel and Brazil.
RedPack Concept 3: Install medium and large lockers inside beach bars and at music festivals for users to store belongings, backpacks, jackets and helmets, and recharge cell phones and other electronic devices. The lockers are equipped with a pin-code payment system and a coin collector. RedPack operates the lockers and shares revenues with beach bar owners and festival logistics partners. The lockers are not used for advertising.
Shaping RedPack’s future
In August 2010, Hélène, Davy and André were busy preparing for the final round of the Portuguese business plan competition to win €19,000 in start-up capital. Business planning had been useful in starting-up RedPack’s business: It helped the team refine and adjust their business idea; it helped them win competitions and receive much valuable advices; it motivated them to turn the idea into a real venture; and it also helped them communicate their thoughts to potential investors and partners.
Their opinions about whether a written business plan would still be useful after the competition, however, remained divergent. Hélène believed it was the business plan that helped open up many doors to RedPack, so they should continue focusing on it: “We will have a lot of exposure with this competition; there are many potential investors in the audience, and getting so far means they believe in us and in our business plan. I have a good feeling about this, the future of RedPack may be about to change.” Davy saw the business plan merely as a communication tool to get their ideas out to potential investors and partners – it should not be an action guide to limit the team’s freedom. André was still convinced that writing up and updating the business plan was too costly – they could better use the time and energy on actual business development, marketing, and operation. “We shouldn’t be losing so much time updating the business plan,” he said. The jury will not be looking into details, and we will not be using it much after the competition… As we know, many assumptions will be dated within one month! Plus, the locker manufacturer, the beach bar owners, SANAP, the music festival organizers… no one ever saw the business plan and we did business anyways. And I still believe we could have seen other diversifying opportunities, like the music festivals, if we were not so focused on the business plan for the beach market. It might have been a useful tool to start-up the company, but I don’t think it will help us much from now on.”
The business of renting out lockers at music festivals looked most promising: The team was even presented with opportunities for international expansion, which they never dreamed of happening so quickly – even before the company took off. Shall they grab the opportunities or was it wiser to wait until RedPack was on a solid track? Since the festival market proved lucrative, shall they duplicate the business idea and apply it to other event markets? Also, should they consider integrating RedPack into SANAP to solve the financing problem or shall they strive to stay independent? All these questions were not included in the business plan, which focused entirely on the beach market. While the team was making up its mind on what to do next, they also had to decide whether it was worthwhile to write up a new business plan considering the opportunity cost it would occur, or would it be more beneficial to focus their time and energy on other business development activities.
Appendix 1: Results of the field research in Spain (sample of 200 people in Cataluña and Andalucía)
Appendix 2: RedPack Business Plan
Table of Content
- Product description
- The team
- Competitive analysis
- Marketing, branding & pricing strategies
- Supply chain, operational organization & realization
- Risks and protectability
- Profitability and financial summary
- Team & advisors
- Financial assumptions
- Profit & loss for bar-owners
- Profit & loss for RedPack
- Balance sheet RedPack
- Cash flow statement RedPack
- Product visual
- Panel study
Beach tourism is the fastest growing sector in European tourism, with more than 110 million beach tourists a year. Theft is a growing concern for beach users. For instance in Spanish beaches, 500,000 incidents occurred last year. As a result, beach users are afraid of getting stolen, and cannot relax or enjoy themselves, while municipalities are overwhelmed with complaints.
This concern is compounded by exponential increase of personal valuables in recent years. Indeed, the average value of the things people carry with them at all time averages €1000 (e.g. wallet, mp3, fashion items, phone… amongst the most commonly stolen items in beach environment).
Unfortunately, all the solutions available on the market fail to address this issue effectively; be it in terms of price or convenience. An innovative solution is RedPack Beach Lockers, customized indoor beach lockers rented out to beach establishment owners for a maximum of convenience.
Indeed, RedPack is an all-in, hassle free proposition for bar owners because it takes care of the upfront payment, maintenance, depreciation and insurance, while the renting system allows them to hedge against seasonality. More importantly, RedPack allows the bar owners to generate extra revenues amounting to €15,000 per season. For €2 a day, beach users get an effective keyless solution that maximizes convenience; while being amazed by a surprise box experience. Indeed, RedPack innovative Beach Lockers will be used as a communication and advertising media. For instance, samples, free daily newspapers, coupons, lottery ticket or a paper trash bag will be distributed through the lockers. Benefiting from a first mover advantage together with a patented pin-code system licensed exclusively to RedPack, RedPack would be well protected against potential entrants.
RedPack’s concern for sustainable development leads to partnering with BlueFlag organization, European label of sustainable beaches, which would be our primary market (2,743 beaches and around 20,000 bars in Europe and Turkey) starting in Spain and Portugal (625 beaches and 5,7000 bars). RedPack will also cooperate with local municipalities in order to further promote satefy and environmental friendliness.
Finally, with a total investment of €600,000 in two years, RedPack expects to break even after first year and subsequently grow to achieve a revenue approximating €5 million by the end of its fifth year of operation for a Net Present Value of €3 million. The easy scalability of the project allow to scale up and down at almost no cost depending on the market responsiveness, thus considerably decreasing the risk for investors while RedPack would get a Net Present Value of €3 million with and internal rate of return of 96% per year on a five years projection.
Appendix 3: RedPack Financial Analysis
Articles in the newspapers Financial Times and Diário Económico after RedPack’s victory in the European Business Plan of the Year Competition
Magazine article and TV interview about the launching of RedPack Beach Lockers in Summer 2009
The cover of the sponsorship proposal sent to Vodafone
Partnership proposal for SANAP
- How should a business plan be structured and what should it include?
- Why did professors consider RedPack’s business plan to be so good?
- What are, in your opinion, the pros & cons of business planning?
- How did RedPack’s business plan evolve over time?
- Do you think that business planning was important for RedPack? Would you continue to work on the business plan if you were they?
- Which aspects are, in your view, the most important in RedPack’s latest development? Can you sketch an outline of an updated version of business plan for RedPack?
- The venture capital market in Portugal is small, which poses a major obstacle for start-ups. Over the past few years, some successful businessmen began to invest in new companies, creating a new sphere in the Portuguese market, so they are called “business angels.” ↑