Sample Business Plan s2

A Business & Marketing Planning Solution Center

Sample Business Plan

1 Executive Summary

1.1 Company Mission XYZ Works, Inc., designs, develops and implements Web based applications for the construction industry that help general contractors and owners manage risk, decrease costs, and reduce project cycle time. XYZ’s Business Partner NetworkTM (BPN) simplifies and expedites bid package management, project management, procurement, and communication between teams. The BPNTM interfaces mobile and multi-media technologies with database and transactional systems to provide an interactive communication and business process workflow platform for better management of the full lifecycle of any building project - from design and planning through construction and closeout. The construction industry is a natural fit for such externally hosted Web enabled applications. Various industry publications have covered the concept of such Web sitesi. Unfortunately, these sites require a level of technical expertise to set up and manage that many construction companies do not have or are unwilling to invest in. XYZ is strategically positioned to provide an alternative to managing one’s own information technology infrastructure to provide such services. XYZ's networked solutions require little or no investment in the IT infrastructure from the clients, reduce cycle time, save cost of procurement, reduce cost of changes & extras and eliminate inefficiencies in the construction value-chain. These solutions result in significant savings, 10-15% of the total cost, to the owners and other organizations involved in a construction project. XYZ’s solutions bring the convenience, ease of use, speed, and “anytime-anywhere-access” of the Web and wireless devices to the bricks-and-mortar world of designing, engineering and building large construction projects. At the moment XYZ is collaborating with various user firms to develop and implement the components of the system. This includes the construction of an office complex for a major manufacturing firm in Southeast Michigan, a general contractor and an engineering firm.

1.2 Market Trends Large construction projects involve managing geographically dispersed teams. The challenges and problems facing the firms managing these projects include communications between various teams, coordinating activities of all entities, and keeping up with paper documents whether they are for routine request for information (RFI) or changes in the specifications and design. Increasingly, the industry players are exploring the applicability of technology for document management, communication and applications sharingii. During the last few years, the use of Internet for managing project documentation and improving collaboration has started to take hold in the industry. According to New York Times, many construction executives believe that this medium offers a ready solution to their thorniest problem – how to coordinate the efforts of hundreds of separate teams across the life span of a project as the

Sample Business Plan 1 April 3, 2018 A Business & Marketing Planning Solution Center

original plan evolves. Just as CAD has come to dominate the architectural and engineering design process, and the expenditure for it is considered as part of the cost of doing business, so will Web based services dominate the project management, document management, and communication between construction teamsiii.

1.2.1 Building & Construction Industry The building and construction industry is the largest in the United States:  Over the last five years, it has had 6% average annual growth and the value of new construction for 1999 is well over $700 billion Industrial Buildings Hotels & Motels Offices Other Commercial Residential Public 26,643 15,581 47,239 135,897 321,668 158,104  The purchasing cost of materials, components and supplies is 26% of the total value of new construction, or $216 billion for 1999  In a given quarter there are approximately 17,000 on-going projects, in various phases, of value between $5 millions and $4 billions, including 4,000 new projects starts  The capital equipment acquisition cost is 1.5% of total business, or $12 billion for 1999  The eBusiness for the industry is estimated to grow in five years from $6.3 billion to $141 billion or 10% of the total construction spendingiv The value-chain of the industry has numerous inefficiencies:  Up to 15% of the projects are typically over budget and delayed  Expenses related to communication constitute up to one-third of a project’s cost, directly or indirectly, including the opportunity costs related to delays, and rearranged activities  According to informal studies, the average design and engineering firm that does over $100 million annually spends 5% of its gross revenues on collaboration activity, including plotting and reproducing documents, courier services, travel, and other communication expensesv  The purchase orders are executed on paper and the requests for changes take weeks to go through the approval processes and require the contractors, engineers & architects to add their approval on the same sheet of paper  Many times, due to paper-based system, the sub-contractors bid based upon in-sufficient information, and if a discrepancy is not resolved at the bidding time then it costs greatly later in terms of changes and extras, which are usually priced at a much higher mark-up

1.3 Target Market Segments XYZ’s product offerings are designed for the complete life-cycle activities of a construction project. The company is initially targeting the companies that are involved in the construction of large commercial structures. These structures include industrial units, offices, hotels & motels, religious buildings, educational complexes, hospital & institutional and residential complexes. This target group consists of the owners of the property, general contractors and construction management firms. These targets provide opportunities for repeat businesses, long-term growth and financial stability. Designing, planning and constructing large buildings pose a series of challenges to these firms. XYZ’s solutions effectively addresses these challenges, which include:  Coordinating activities of multiple contractors in multiple locations  Sharing information with geographically dispersed teams

 Managing large documents & drawings and keeping up with changing specifications & requirements  Collaborating and communication with on-site and off-site team members  Maintaining strict control of policies & procedures

1.4 The Products

1.4.1 Business Partner Networktm: an eBusiness Environment

XYZ Works' Business Partner Networktm (BPN) solution enables construction industry professionals to collaborate, communicate and conduct business over the Web. It simplifies and expedites bid package management, project management, procurement functions, and communication between teams. The BPNTM consists of:  Project War Roomtm: The Virtual Workspace XYZ’s Project War Roomtm (PWR) is a Business-Process workflow management system. It enables supervisors to share work schedules, site engineers to file field reports, architects to amend blueprints and executives to check the status of the whole project online. Through this the teams can collaborate, share applications, exchange documents, communicate and conduct virtual conferences. The key features and benefits of PWRTM are:  Change Order and Request For Information (RFI) Management  Project management, reporting, and monitoring  Communication and collaboration  Anytime, anywhere Access  Bid Management Systemtm XYZ’s Bid Management Systemtm (BMS) is an interactive and intuitive multi-media communication platform for bid package preparation, response solicitation and addendum management. It is a Web driven database and document management system that allows users to create, maintain, transmit and monitor specification documents and drawings online. Using the BMSTM, the architects, engineers and contractors can:  Prepare bid packages, addendum and proposals electronically  Distribute documents electronically  Access information and Control the bidding process

1.4.2 Benefits to Clients

The BPNtm offered by XYZ brings significant economic benefits to the clients. The tangible and intangible benefits of BPNtm can save 10%-15% of the total project cost. It will cost 0.5% to 0.75% of the total cost of a mid-sized project. The payment would be spread over the life of the project. The expected ROI to the clients is over 600%.  Reduced cost  Potential to reduce cycle time by 10-15%  Communication costs lowered by 20-60%  Timely and accurate notification of bid  Lower printing and distribution cost addendum eliminates delay  Reduced travel and lost opportunity cost  RFI turnaround time cut by 60-80%  Requisition processing costs cut by 70%  3-5 days reduction in submittals  Procurement cost cut by as much as 15%  Processing time reduced by 50%-70%  Lower litigation expenses  Prompt and precise delivery of documents

 Improved Productivity  Lower investment in IT infrastructure  Freeing of critical resources  Leveraging the investment made by XYZ  Administrative work-time cut by up to 30% in IT infrastructure  Work-site visits reduced by 10-50%

1.5 Competition The business-to-business eCommerce industry is very competitive, and a number of business models are in practice that includes business eCommunities, market-exchanges and integrated service providers. Few start up companies are targeting the online construction and building industry. These include project Webs, online bulletin boards, communication platforms, and networks. XYZ feels that it has a competitive advantage because no other offering provides such a comprehensive solution that integrates the interactive bid management system with the transaction system, mobile & multi media communication, and document exchange platform. The potential market is also very large and geographically dispersed, therefore, can absorb many eCommerce firms.

1.6 Pricing & Financials The pricing structure includes initial setup fee and monthly license fee for a project. Our pricing structure is expected to give 600% ROI to our clients. XYZ expects to get 0.2% of the total construction projects by the end of first year and 3% by the end of fifth year. Our return on sales is estimated to be 37% for the year five. A summary earnings projection follows:

($000) Year 1 Year 2 Year 3 Year 4 Year 5 Revenue 1,066 13,273 86,600 272,550 499,452 Gross Profit (Loss) 135 8,683 63,662 203,434 381,888 EBIT (3,059) (393) 21,279 85,122 170,957 Y1 Y2 Y3 Y4 Y5

ROS (287%) (3%) 25% 31% 34%

Gross Margin 13% 65% 74% 75% 76%

Operating Margin (200%) 32% 51% 57% 58%

At this time we are seeking to raise $4 million for business and product development.  Series ‘A’ - $750K  First Month - $300K: For recruitment, development, marketing and promotion  Second Month - $200K  Third Month - $250K: Milestone - Beta site launch  Series ‘B’ - $3,250K - Fourth month

Developm ent Salary 2% 27% 26% Operations Salary Operations Mktg & Prom otion 14% SG&A Salary 20% 11% Cash

Sample Business Plan 4 April 3, 2018

Where the Money Is Going First Five Quarters A Business & Marketing Planning Solution Center

1.7 Team

2 Mission and Vision Our mission is to create competitive advantages and greater economic value for our stakeholders and achieve strategic initiatives through technology, employee involvement and a culture of continuous improvement. XYZ will reach its mission by:

3 Achieving Profitability

Attain positive cash flow and offer services with values that command premium price

4 Providing Satisfying Customer Experience

Deliver a high quality and economically beneficial customer experience that is rich in content

5 Ensuring Quality and Performance

Meet or exceed customer quality expectations and industry standards

6 Maintaining Dynamic Work Environment

Provide challenging and satisfying opportunities for personal and professional growth

7 Staying Ahead of Competition

Establish competitive edge through hard-to-clone applications and first-to-market

8 The Market Opportunity

8.1 Market Trends

8.1.1 Business-to-Business eCommerce

Business-to-Business eCommerce, though still immature, is the fastest growing segment of the Internet. The value of business-to-business transactions conducted on the Internet is 10 to 20 times greater than the value of business-to-consumer transactions.

8.1.1.1 Business-to-Business eCommerce has significant growth  The segment is expected to grow from $28 billion in 1998 to $1.3 trillionvi in 2003  A number of companies are going online to do business and by 2002 and Internet is expected to connect 1.3 million companies for eCommerce

8.1.1.2 Professionals find doing business on Web beneficial  More professionals are going online for Save Time 80% business activities to save time, compare Convenience 85% prices and to get information Access to Customer Opinions 30% Availability of Vendor Information 87%  Over 60% of professionals make purchases Personalized Information 15% online at least once a month after getting No Pressure From Sales Person 59% information from the Web and 20% make Reviews 49% more than five purchases a monthvii. Other 3% Reasons For Professional Shopping (Source: Georgia Institute of Technology) 8.1.1.3 Finding information on the Web is not easy

 34% of users take less than 5 minutes to find information and 30% take more than 10 minutes  70% of users give up if they do not find what they are looking for in 10 minutesviii

8.1.1.4 Professionals find Web Communities usefulix

 Over 56% of professionals get more connected with people having similar interests after getting online as compared to not getting online

8.1.1.5 The ROI for business-to-business eCommerce application is high  On an average, companies realize ROI of over 300% resulting in 28% increase in profitsx  63% of the companies that have implemented eCommerce applications have saved cost, 31% increased revenue and 31% reduced cycle timexi

8.1.1.6 Developing eCommerce Sites is Merchant Server (with database) $25,000 Expensive Content development tools $20,000 Business logic development tools $25,000  Building eCommerce sites is System management & database middle-ware $25,000 expensive Subtotal $95,000 High-End Optional Software  By 2000, businesses will spend Parametric search $20,000 $3.2 billion on eCommerce Configurator $100,000 softwarexii - 52% of this Data mining and analysis $35,000 Subtotal Range $0 to $155,000 expenditure will be by large Total Software Cost: $95,000 to $250,000 firms, 45% by midsize firms Total implementation cost ranges from three to 10 times of and only 3% by small firms Software cost or $300K - $2.5 Mil Midrange eCommerce site - (Source: Forrester Research)

8.2 The Building & Construction Industry The building and Construction industry is the largest industry in the world both in terms of value of business conducted, $3.2 trillion worldwidexiii, and the number of people employed, accounting for about 10% of a country's GNP.

8.2.1 US Construction Industry  Segments, size and growth  The value of business conducted is 4% of GNP and 8% of GDPxiv  The industry has had 6% average annual growth  The value of new construction for 1999 is over $700 billion  The size of the commercial real estate market is estimated at $2.4 trillion, which is roughly 50 times the contract value of annual new commercial constructionxv  Non-residential buildings accounts for 24% of the industry, residential buildings 47% and the highways and other public non building structures account for 13% of the industry In $Million 1998 1999 5 Yr. Change

350 750 Non-Residential Buildings Industrial 32,270 26,643 3% Office 41,541 47,239 17% 300 700 Hotels & Motels 14,904 15,581 35% Other Commercial 53,783 55,701 9% 250 650 Religious 6,729 7,094 15% Educational 9,629 9,359 19% Hospital & Institutional 13,663 12,294 3% 200 600 Miscellaneous 9,395 9,911 12% Total Non-Residential 181,914 183,822 11% 150 550 Total Private Residential 294,326 321,668 6% Total Public Utilities 37,267 41,539 2% Total Public Buildings 66,136 70,406 8% 100 500 1994 1995 1996 1997 1998 1999 Total Public Non-Buildings 79,236 87,697 3%

Non Residential Residential Total Total Construction $665,444 $705,132 6% Value of New Construction Put - Source: US Census Bureau

 Midwest region has significant construction activities (In Millions $) Total Non Residential Buildings Residential Buildings Public Total Midwest 149,926 39,085 68,394 42,448 East North Central 106,505 27,765 48,585 30,154  Industry Purchases  The cost of materials, components, supplies & fuel constitutes 26% of total businessxvi - 1999 estimated cost of materials, components, supplies & fuel is $216 billion  The capital equipment acquisition cost constitutes 1.5% of total value of constructionxvii - 1999 estimated capital equipment purchases is $12 billion  General contractors make 95% of the purchasing decisionsxviii  The building supplies market is highly fragmented, top 20 stores have sales of $400 million and top 20 suppliers have sales of $200 million Top 20 Building Material Stores Top 20 Building Material Suppliers $ Million 1998 $ Million 1998 Carolina Holdings 58 White Aluminum Products 21 Wickes Lumber 46 Vans Lumber & Custom Builders 14 BMHC 44 Judson Lumber 13 BSL Holdings 36 Lumber One 14 Ply-Marts 30 Gypsum Supply 7 White Aluminum Products 21 Manning Building Supplies 17 Manning Building Supplies 17 Thompson Enterprises 6 84 Lumber 17 Ply-Marts 30 Chase-Pitkin Home & Garden 16 Dillman & Upton 4 Sutherland Lumber 16 Gilcrest-Jewett 9 Lumber One 14 Goldston's Building Supply 13 Vans Lumber & Custom Builders 14 Clintonville Lumber 4 Standard Companies 13 Graber Post Buildings 6 Judson Lumber 13 Walker Brothers 4 Goldston's Building Supply 13 A.G. Mauro 7 Eagle Hardware & Garden 11 Standard Companies 13 Tualatin Valley Builders Supply 11 10 Stenerson Brothers Lumber 3 Lanoga Corp. 10 Builders Supply 9 Gilcrest-Jewett 9 Humphrey's Building Supplies 3 Builders Supply 9 Harbin Lumber 2 Total 417 Total 199 Suppliers & Stores: Installed Sales (Source: National Home Center News, May 24, 1999)  Subcontracting  The cost of work sub-contracted out to other construction contractors constitutes 27% of total value of constructionxix - 1999 estimate for subcontracted work is $225 billion  There are over 650,000 establishments, mostly as sub-contractors, doing business in the construction industryxx  Large Projects  In a given quarter there are approximately 17,000 projects of value between $5 million and $4 billion in various phases

Office Project s % # Value 1992 Census -$ Million USA Miami Buildings Offices Pre-Planning 14% 4 42.5 Value of Construction 528,106 7,054 390,814 46,762 Planning 46% 13 242.7 Final Planning 11% 3 47.8 Bidding 4% 1 8.0 Office Buildings All Buildings Start 25% 7 72.6 Project Phase # Of Projects Value # Of Projects Value Total 28 496.1 Start 524 5,436 4,380 45,428 Projects Between $5M & $4Bn in Miami Total 2,096 30,966 17,520 258,801 Source: F. W. Dodge, 1997 1st Quarter Estimate for USA is based upon Miami' share and estimates for all buildings are based upon the share of office buildings Sample Business Plan 9 April 3, 2018 A Business & Marketing Planning Solution Center

 Approximately 4,000 projects of value between $5M & $4B are started each quarter  The estimated number of such projects in the Midwest and East North Central are 3,500 and 2,500 respectively  The total construction employment varies approximately by 25% from summer to winter and the work does not stop during the winter months, but there are reductions in crew sizes, layoffs, fewer project starts, and weather delays  Approximately 80% of the construction is privately financed and 20% by public agencies  A typical project spends about 8% of the total project cost on designxxi

8.2.2 Technological Analysis

The building and construction industry has not gone through a major technological change in over two decades. Until recently, the industry used computers for little more than financial accounting and project scheduling. Though the industry has benefited from the development of CAD systems, it has been hampered in adopting and using computer technology for day-to-day work amongst the distinct companies on a project. No common application can be shared due to complexities in the hardware, software and maintenance requirements between participants. Given the diversity of the participants, and the magnitude of the data, it is not surprising to find a wide variety of software systems and users with varied degrees of computer expertise on the same project. The highly complex world of construction has largely been ignored or under served by high-tech software application developers who have not recognized the distinct needs, or the vast potential, of this business. From an information technology perspective, managing documents for construction projects is very challenging. Not only are data sets large, but also they typically involve many types of somewhat unstructured, interrelated data. The data is created and used by many types of users and software applications. For example, at any time in a project cycle, any combination of the following participants may require access to query or modify the project data set for various purposes: - The owner/operator of the subject facility - Architects, designers, engineers, project managers - Contractors, estimators, consultants - Suppliers, product manufacturers - Government regulatory agencies

8.2.2.1 Trends  The eCommerce revenue for the industry is estimated to grow from $0.4 billion in 1998 and $6.3 billion in 1999 to $141 billion or 10% of the total construction spendingxxii by 2004  More architecture and design firms use computers than the builders, approximately 45% of these firms use IT as an integral part of corporate strategyxxiii  About 20% of the largest U.S. architectural firms use project-specific Web sites and about a third are using Intranetsxxiv  The use of turnkey software solutions are declining as they are expensive and difficult to maintain - the city of Denver spent over $1 million to install a system to manage the documents for its airport and installing and managing this system was a full time job for several individualsxxv  The Application Service Provider business model, using Internet, for managing project documentation and improving collaboration has started to take hold in the industry

 Architects and managers are realizing that they can take advantages of historical data and documents for new projects if they can access them  Many construction executives believexxvi that Internet offers a ready solution to their thorniest problem, i.e. how to coordinate the activities of geographically dispersed teams  The concept of project web sites is being embraced by the industry  e-Commerce sites require a level of technical expertise to set up and manage that many construction companies do not have or are unwilling to invest in

8.2.3 Industry Dynamics and Value-Chain

The United States building construction industry is intensely competitive and highly fragmented with no participant having greater than 5% market share. Competition in the industry takes a number of forms, including reputation, fee levels, quality of service and degree of risk assumption. Each large population center generally has a number of smaller, locally based building contractors accustomed to undertaking all but the largest and most complicated projects. Also, contractors who have no local presence in areas where a construction project is going on can successfully compete for and obtain projects there, notwithstanding their lack of a local presence. Construction projects typically involve dozens of distinct companies, including engineering, architectural and contracting firms, working closely together in an intense environment over a period of months, or even years. Enormous numbers of documents come into play, from technical drawings and legal contracts to purchase orders, permits, requests for - Planning, engineering, design information (RFI) and schedules. The building industry - Develop bid packages has traditionally been process-bound and paper- - Manual of operations intensive, and projects are often slowed by workflow P issues that are not found in other industries, for - Package Distribution r instance, building code compliance, union and - Pre bid meeting, o - Clarifications, Substitions c u - Pre-construction meeting, r paper work, planning e Drawings Owner RFI m - Construction Oversight Specifications Architect Qualifications e - Submittals, RFIs, change orders n Clarifications Substitution - Dispute resolution General Contractor t Pre-Bid Meeting Drawings Major Subcontractor - Status Reports Addendum Proposal - Payments to subs Bid Award Subcontractor Pre-Bid Meeting Project Close out Documents & Information Flow

prevailing wage concerns, and even bad weather. The matrix of participants, information and transactions for a project is quite large, particularly when plotted over its complete life cycle. Many of these participants are small to medium companies, and are only involved in small roles in the project (although these smaller companies tend to work on many projects at the same time). The practices, procedures and processes used in the industry have evolved over the past two decades from “pure paper” to today’s “computer automated paper.”

8.2.3.1 Bidding for Contracts The industry uses the various methods for contract awards. Some of the jobs are awarded based upon competitive bidding and some may be awarded based upon the negotiations. Usually, in the private construction projects, the owner selects the architect through a non-competitive process. The bidding process to select all the firms for the construction may involve 250 or more firmsxxvii. A typical project may last 2-3 years and involve 30-50 firms located in different cities. Public construction projects use more competitive bidding, though not for the design:  27 states use Design-Build contracts as project delivery methodxxviii  45 states select architect/engineer services through a qualifications-based process  48 states award construction contracts that do not include design by competitive bids

8.2.4 Project Management Managing construction projects is a complex process, entailing a range of operations management tasks such as purchasing, scheduling, fabrication at the job site, inventory control, shipping, coordinating and supervising the network of subcontractors. Most projects require changes during construction. For example, in hospitals, new equipment develops rapidly and must be accommodated during construction. Some times the owners may make the change. Accommodating changes smoothly is one of the biggest factors for the timely completion of projects. The reports used by a general contractor (GC) or construction manager (CM) include forward- looking reports about the indicated outcome for the project, forecasts, operations reports, job minutes etc. The periodicity of these reports varies from weekly, monthly, quarterly and half annuallyxxix. Various periodic meetings that a project team conducts include forward-looking report reviews, operations management meetings, monthly minutes, owner-architect-contractor meetings etc.

8.2.4.1 Challenges of large projects Designing, planning and constructing large buildings pose a series of challenges to the general contractors and the construction management firms responsible for the construction:  Sharing information with geographically  Managing project files in order to eliminate dispersed teams duplicates and ensuring that no file gets lost  Managing complex and large documents &  Managing "as designed" versus "as built" drawings  Coordinating activities of multiple contractors  Ensuring that the information is always current  Collaborating with on-site personnel, and easy to find contractors and other team members  Keeping up with changing specifications and  Complying with safety & regulatory measures requirements  Communicating last minute changes to all

8.2.5 Inefficiencies in the existing Value-Chain Management processes  The bid specifications and drawings are sent through the mail or hand delivered  The specs and drawings are commercially printed, packaged and delivered by the professional firms and the sub-contractors, owner and others purchase copies from them  On an average $33 are spent to mail the packages  On an average a project sees 3-4 addendum to its initial bid package and communicating each addendum may take 1-3 weeksxxx  The purchase orders are executed on paper, are difficult to process and take excess time

 The requests for changes take weeks to go through the approval processes and require the contractors, engineers & architects to add their approval on the same sheet of paper  Up to 15% of projects are typically over budget and delayed  Engineers spend as much as 30% of their time looking for information or in paper workxxxi  Communication constitutes up to one-third of a project’s cost in direct and indirect expenses including the lost opportunities due to the delays and rearranged activities  According to informal studies, the average design and engineering firm that does over $100 million annually spends 5% of its gross revenues on collaboration activity, including plotting and reproducing documents, courier services, travel and other communication expensesxxxii  Many times the sub-contractors bid based upon in-sufficient information due to paper-based communication and, if a discrepancy is not resolved at the bidding time then it costs greatly later in terms of changes and extras, which are usually priced at a much higher levelxxxiii

9 XYZ Works’ Product Offerings

9.1 Overview XYZ Works’ e-Business environment for the construction industry interfaces the mobile & multi- media technologies with the database and transactional systems allowing industry professionals to securely collaborate, communicate and access the information needed to manage the industry value- chain. The value Chain is a network of organizations that add value to the raw materials and intermediate components through upstream and downstream linkages to produce the final product or service. The construction of a structure involves a number of separate and diverse activities covering cost estimating, bidding, contract negotiation, procurement, project planning, scheduling, equipment management, insurance, surety bonds, material control and storage, accounting, payrolls, field cost control, labor relations, project safety, supervisor training, and many others. A construction project team comprises of various combinations of contractors, owners, architects, engineers, workers, lending agencies, government bodies, insurance companies, material suppliers and others parties. The value-chain for the construction industry includes planning, coordination & management of these processes; communication and collaboration between teams that may be geographically dispersed.

9.2 Business Partner Networktm XYZ Works' Business Partner Network tm (BPN) solution is a suite of Web based construction management applications that helps general contractors and owners manage risk, decrease costs, and reduce project cycle time. It enables the contractors to share work schedules, site engineers to file field reports, architects to amend blueprints and executives to check the status of the whole project online. It may operate within an Extranet or over the World Wide Web.

9.2.1 Project War Roomtm: The Virtual Workspace The Project War Room tm (PWR) is a data and Business Process Management system that includes a repository of project documents, a multi-media communication and collaboration platform and a process workflow framework. The key features and benefits of PWRTM are:  Change Order Management  Create, submit, route and track change orders  RFI Management  Create, submit, retrieve and route RFIs electronically  Work Flow  Enforce procedures through automated workflow framework  Electronic log of transactions and communiqués  Transactions routing  Project Reporting  Report and monitor project status online  Maintain project debriefing and review documents  Maintain online weekly & monthly status reports and meeting minutes  Communication and Collaboration Zone  Automated email and fax notification

 Access to unified messaging - email, fax, etc.  Conduct virtual multi-media conferences  Share applications etc. in real time  Share schedules, action items, tasks, deliverables list etc.  Project Detail Maintenance  Maintain project profile and other details  Maintain action items, tasks, deliverables list  Security and Access Control  Role based system access and Multi-tiered security authorizations  Mobile Access  Get mobile access to data and transactions  Virtual University  Reference Library, industry news, articles, white papers and reviews  Experience book, lessons learnt, pros & cons of doing something, references and experiences with vendors, clients  Multi-media training, manuals etc.

9.2.2 Bid Management Systemtm The Bid Management System tm (BMS) is customizable document management system for bid solicitation and management. It is an interactive Web driven database system that allows users to create, maintain, and monitor bid-packages.  Prepare bid packages & proposals electronically  Create bid packages and addendum with specifications and drawings  Submit proposals with specifications, drawings, and other related documents  Track, evaluate and compare proposals  Distribute documents electronically  Distribute and track bid packages and addendum  Distribute documents, policies and procedures to all promptly and precisely  Access and manage project information  Archive and store documents at close out  Anytime access using the Web from anywhere  Track changes and maintain revision history of all documents  Communicate  Conduct virtual multi-media pre-bid meetings  Automated review, approval and notification  Control the business process  Control data access by user or document type to eliminate unauthorized changes  Enforce procedures through automated workflow framework

9.3 Benefits to Clients XYZ Works' solution will bring significant benefits to all participants by reducing the direct and indirect cost associated with the value-chain management functions. The tangible and intangible benefits of the BPNtm have the potential to save 10-15% of the total project cost.  Reduced cost

 Communication costs reduction by 30%-60%xxxiv  Electronic media reduces costs of printing, distribution, courier, phone and fax  Virtual conferences reduce travel expenses and lost opportunity cost  Web-based applications could reduce requisition processing costs by 70% per orderxxxv  Lower opportunity cost due to early commissioning of structures  Reduction in cycle time  Potential to reduce time by 10-15% (up to 4 weeks for a one year project)  60-80% reduction in turnaround time for RFI  3-5 days reduction in submittals turnaround time  Prompt and precise delivery of documents and notifications to the concerned parties  On an average, Web-based applications reduce processing time by 50% to 70%xxxvi  Higher competitiveness of the process would reduce procurement cost of large construction equipment, components and other materials in bulk quantity  Awarding contract through a competitive bidding process results in prices as much as 30% lowerxxxvii than that achieved through a non-competitive process  Web based procurement could reduce procurement cost by as much as 15%xxxviii  Most organizations realize 5% to 10% reduction in prices through increased use of preferred suppliers and improved leverage of contract negotiations  Web based services (ASP delivery model) bring significant economic advantages  Much lower cost for similar solution as XYZ will leverage the investments in technology & infrastructure by providing services to many clients  Scalable and modular multi-platform system ensures customizable solutions for individual project needs  Single point of access for all project related resources, documents and processes  Critical resources will be freed up resulting in higher productivity  Productivity improvement by as much as 75%  Time spent on administrative work reduced by up to 30%  Site visits would be reduced by 10-50%

9.4 Business Partner Networktm In Action

9.4.1 Construction Project Entity Interaction

Architect - Bid General Contractor - Engineer Management System Construction Manager

Architect - Project War Engineer Bid Room Lending Management Institutes System

Subcontractors - Tradecontractors Material General Contractor - Suppliers Construction Manager

Transaction Systems

9.4.2 Project War Roomtm in Action A key element for projects to be profitable is time. The ability to recognize a problem and resolve it quickly can make the difference between a successful project, and one that ends up over time and over budget. Effective communications is one of the most important requirements in ensuring the timely completion of the project. The example below demonstrates how the Project War Room can save a significant amount of cost overruns.

9.4.2.1 A Typical Problem in a Construction Project  A sub-contractor discovers a discrepancy in the blueprints that results in some job being done incorrectly, a problem which may require large change order and expensive remedy  The various firms involved in the construction are in different cities  Other components of the job may also be delayed down the line

9.4.2.2 The Typical Approach (non PWRtm)  A meeting would take place on the job site, for everyone to inspect the problem  The meeting might require several people from various firms to travel long distance, with all the attendant cost and inconvenience, the cost may be borne by the General Contractor  Other affected contractors will need to estimate the cost of remedy (direct cost)  The remedial work may not begin until a change order is issued, which may hold up

several other aspects of the job  The problem may turn into a large cost overrun - a job that requires $35K in direct fix may cost the GC close to $100K

9.4.2.3 The Project War Roomtm Approach  When the problem is identified, the superintendent takes digital photos, goes on-line from the job site and downloads the photos, along with a report and a change order request  The system sends an e-mail to the required parties, alerting them to the condition and schedules an online conference when all participants are available  The conference and all communication for resolution is completed online  The change order is agreed upon and issued online the same day

9.4.2.4 The Outcome  Nobody has to travel, so there is only the time involved in the online meeting itself  This is a savings of most of travel, on-site meeting expense and the opportunity cost  The solution is in works within a few hours, cutting down on secondary schedule slip  Remedial costs are limited to the direct costs of added expense to the work to be redone  This not only saves two-thirds of the cost but also reduces the likelihood of litigation

9.4.3 Other Use Scenariosxxxix Use cases are examples of situations where BPNtm and its components would be employed to perform the construction value-chain management activities. This is not a comprehensive list; rather it is a general indication of the scope of BPNtm. 1. An HVAC representative could query the design documents to get a list of air-handling units and their design parameters which he could to associate to catalog items from his product line that satisfy the design specifications 2. A window manufacturer could query the design documents to get a list of window assemblies and their design parameters, which he could associate to specific catalog items from his product line that meet the relevant design specifications 3. To prepare a bid document, a contractor could get a product manufacturer to send him the estimation data that the manufacturer obtained from the design documents 4. PDA devices could be used to store information at a construction site, such as an item being added to a punch list, and later the information is transferred to BPNtm 5. An architect designing an office building could search the Web for the availability of window systems that meet the a set of criteria (e.g. Kynar Finish, ANSI z97.1, ASTM E283 etc.) 6. A mechanical engineer could query the Web to find out about CAD modeling software that integrates with duct sizing tools 7. A contractor could extract quantities from an estimating tool and dispatch a procurement request to suppliers over the Web 8. Integration with ERP system - a change order is initiated in PWRtm and is routed through the work flow for approval, after approval it is exported and loaded into other systems 9. Daily time sheet can be entered through PWRtm at the job site and reviewed on-line, the information will then be exported to other systems 10. A general contractor can use the system to create a document (e.g. RFI), and then route it through the workflow to other parties (architects, owners, engineers)

9.4.4 A day in the life of Following sub-sections depict how the routine activities of some of the entities involved in the construction project would be affected by the implementation of BPNtm.

9.4.4.1 Principal or business owner A business owner is concerned with the P/L of business and wants maximum return on investment. He or she oversees the functional areas through department or functional managers.  Typical Day Before System  Phone functional managers to ask for reports on their functional areas  May need to wait for return call, or for manager to compile the information requested in order to be able to make informed decisions  Dilemma  Must track down multiple entities to gather information on project timelines, customer satisfaction, cash flow, and sales information  Typical Day After System  Access online the project schedules to predict cash flow and settlement pace  Check Project War Roomtm for any issues that should get his attention  Check approved WO/PO list to gauge cash-flow requirements  Check ‘Lot Control’ information and see the number of deposits and purchase agreements at any given time

9.4.4.2 Construction Manager A construction manager tends to have more hands on approach to management and field issues. He or she is concerned about handling multiple projects and priorities and is responsible for monitoring the progress of all development projects and ensuring that the supervisors are maintaining schedules and quality as required.  Typical day before system  Site visits and phone calls to supervisors to check project progress  Assist supervisors in resolution of problems  Dilemma  Ensuring that the supervisors have sufficient information to do their jobs effectively  May not be able to catch supervisors at available time, delaying the receipt of information  Typical Day After System  Check schedules online or see if any special issues need his or her attention  Review site photos and correspondence from office, eliminating unnecessary site visits made to gather information, allowing for quicker response time to Subcontractor/Supplier issues and Customer Concerns

9.4.4.3 Main Office The personnel in the main office are concerned with the administrative functions of the company, including accounting, purchasing, and marketing.  Typical Day Before System  Find information on file and forward to relevant parties  Process paper invoices

 Maintain files for paperwork including work orders, purchase orders, PAs, Change Orders  Assemble “closing packet” from files that may not be complete  Dilemma  Paper invoices go through a long cycle of approvals through the field and central office, often resulting in lost invoices, double-payments, or late payment  Ensure that files are complete and up-to-date and that the field offices have the same information  Typical Day After System  Generate Work Orders and Purchase Order and export to Web-site, print settlement statement from complete and accurate information, download completed WO/PO for processing

10 Target Market Segments Construction activities are generally administered or managed at a relatively fixed place of business, but the actual construction work is performed at one or more different project sites. The industry comprises of establishments engaged in a variety of activities. These activities include construction of buildings and other structures, additions, alterations, reconstruction, installation, and maintenance and repairs. The industry also includes establishments engaged in demolition or wrecking of buildings and other structures, clearing of building sites, sale of materials from the demolished structures, blasting, test drilling, landfill, leveling, earthmoving, excavating, land drainage, and other land preparation. The suppliers of materials and equipment to the industry are also affected by the dynamics of the construction industry. Internet technologies and ASP delivery model is ideal for some of the activities and construction companies. The value chain management processes can be divided in four key areasxl: Planning, Procurement, Production, and Distribution. With respect to construction industry, these areas would be Planning, Procurement, Construction, and Supervision. Web-enabled services provide great opportunities to create strategic and operating advantages in the planning, supervision and procurement areas in the building and construction industry. They are very useful for communications, document management and transactive systems for the projects that last for a long duration and involve various geographically dispersed firms.

10.1 Types of Construction Different segments within the construction industry have unique production processes. These production processes are distinguished by their specialized use of human resources and physical capital. XYZ Works’ Business Partner Networktm is ideally suited for the construction of large commercial structures. These structures include industrial units, offices, hotels & motels, religious buildings, educational complexes, hospital & institutional and residential complexes.

10.1.1 Non-Residential Building Construction

The non-residential buildings 1994 1995 1996 1997 1998 1999 other than housing are constructed Industrial 30,412 34,013 34,046 32,358 33,282 27,568 for institutional, educational, light Office 22,178 25,613 27,886 34,305 41,541 47,239 industrial, commercial, social, Hotels, motels 4,648 7,112 10,912 12,898 14,904 15,580 Other commercial 37,551 42,654 48,188 51,809 53,783 55,702 religious, governmental, and Religious 3,869 4,326 4,534 5,777 6,729 7,094 recreational purposes. Educational 25,183 31,276 33,890 37,608 39,545 43,277 Hospital, institutional 16,219 15,484 16,252 18,480 17,641 16,338 This segment accounts for 30- Miscellaneous 6,002 6,071 7,650 9,223 9,395 9,911 35% of the new construction. Total 146,062 166,549 183,358 202,458 216,820 222,709 Private capital finances most construction. 80% of the educational construction and 25% of hospital and institutional construction is financed through public funds. The types of construction firms that undertake such projects include manufacturing and industrial building general contractors, design builders, engineer-constructors, joint venture contractors, turnkey contractors and construction management firms specializing in commercial, institutional, manufacturing and industrial buildings.

10.1.2 Residential Construction

This segment consists of single-family and multi-family housing.

 Single Family Housing The single-family residential housing units include single family detached houses, town houses, row houses where each housing unit is separated by a ground-to-roof wall and where no housing units are constructed above or below.

1994 1995 1996 1997 1998 1999 Single Family 153,838 145,009 159,124 164,444 189,453 212,668 Multi-Family 14,081 17,889 20,324 22,883 24,457 27,720 Improvements 70,955 67,790 77,012 78,535 80,417 319,670 Total Residential 238,874 230,688 256,460 265,863 294,326 321,669

 Multifamily Housing Construction The multi-family residential housing units include high-rise apartments, garden, and town house apartments where each unit is not separated by a ground-to-roof wall. The units may be constructed for sale as condominiums or cooperatives, or for rental as apartments. This category of construction is dominated by small building firms and normally accounts for 40-45% of new construction. Less than 2% of construction is financed through public funds. This segment also includes additions and alterations to mobile homes and on-site assembly of modular and prefabricated houses. Historically, residential construction has been characterized by instability of market demand and is strongly influence by government regulation and national monetary policy. Design of this type of construction is generally done by owners, architects, or the builders themselves. Construction is performed by the owner, builder-vendors, or independent contractors. Firms that undertake such projects include single-family housing custom builders, general contractors, design builders, engineer-constructors, joint-venture contractors, turnkey contractors and single-family construction management firms. These firms construct the structures for others or on their own account for sale as speculative or operative builders.

10.1.3 Engineering and Non-Building Construction This is a very broad category that covers structures planned and designed by the engineers and whose design is more concerned with functional aspects rather than aesthetics and involves field 1994 1995 1996 1997 1998 1999 Non-Building 132,567 135,701 138,294 142,554 145,316 148,132 materials such as earth, rock, steel, asphalt, concrete, timbers, and piping. Most engineering projects are publicly financed and account for 20-25% of the new construction. This segment includes highway & airfield construction, heavy construction and utility construction.

10.2 Primary Users of the System XYZ’s product offerings are designed for the complete life-cycle activities of a construction project. The company is initially targeting the companies that are involved in building of large commercial structures. This target group consists of the owners of the property, general contractors and construction management firms. This target provides opportunities for repeat businesses, long-

term growth and financial stability. XYZ’s solutions effectively addresses the challenges of designing and building these projects:  Coordinating activities of multiple contractors in multiple locations  Sharing information with geographically dispersed teams  Managing complex and large documents and drawings  Keeping up with changing specifications and requirements  Communicating with on-site and off site team members  Maintaining strict control of policies & procedures  Ensuring that the information is always current and easy to find  Communicating last minute changes to the team  Managing project files in order to eliminate duplicates and ensure that no files get lost  Complying with complex safety & regulatory measures

10.2.1 General Contractor A general contractor (GC) or the prime contractor is a firm that is in contract with the owner for the construction of the project, either in its entirety or for some specialized portion thereof. The general contractor is a party that brings together all of the diverse elements and inputs of the construction process into a single, coordinated effort. The essential function of the general contractor is close management control of construction and ordinarily, this contractor is in complete and sole charge of the field operations, including procurement and provision of necessary construction materials and equipment. The chief contribution of the general contractor to the construction process is the ability to marshal and allocate the resources of manpower, equipment, and materials to the project in order to achieve completion at maximum efficiency of time and cost. In general, these firms specialize to some extent, limiting their efforts to a relatively narrow range of construction types. Specialization is usual and necessary due to radically different equipment requirements, construction methods, trade and supervisory skills, contract provisions, and financial arrangements involved in different construction categories.

10.2.2 Owners of Propertiesxli The owner, public or private, is the instigating party for whose purposes the structure is designed and built. Public owners must proceed in accordance with applicable statutes and administrative directives pertaining to the advertising for bids, bidding procedures, construction contracts, contract administration, and other matters relating to design and construction process. Most owners relegate by contract the design to professional architect-engineer firms and the field construction-to- construction contractors. Many industrial and public owners have established their own construction organizations that work actively and closely with the design and construction of their projects. Types of owners that present good opportunities are:  Commercial Real Estate Developers  Corporate Owners  Health Care Buyers  Public Buyers (Buildings)  Hotels and Residential

11 Competition The Business-to-Business eCommerce industry is very competitive and a number of models are in practice, which include bid-opportunity search engines, business eCommunities, EDI service providers, supplier catalogs, RFQ posting boards and integrated service providers. The eCommerce market is evolving fast and is subject to rapid technological changes. The barriers to entry are low hence the intensity of competition is expected to increase in the future resulting in price reductions and reduced gross margins. eCommerce competitors vary in size, scope and breadth of the products and services offered. The principal competitive factors affecting this market include a significant base of customers, breadth and depth of solution, critical mass of buyers and suppliers, product quality and performance, customer service, core technology, product features, strategic alliances and strong balance sheet. The direct competition for XYZ Works is likely to come from Bidcom.com, Cephren.com, Buzzsaw.com, Bricsnet.com and e-Builders.com.

11.1.1.1 Bidcom.com Bidcom.com, based in San Francisco was established in early 1997, the company has raised over $64 million in venture capital funding from organizations such as Internet Capital Group (ICG) and Oracle Venture Fund. Its solution, In-Site, is delivered as a suite of business-to-business services, and helps companies manage risk, drive down costs, and complete building projects on time. These services are designed to support all participants through the complete lifecycle of multiple building projects. The owners and clients who have used in-Site include Charles Schwab & Co., City and County of San Francisco, Federated Department Stores, The Gap, Siemens, SOKA University, Stanford University, Sun Microsystems, Inc., University of San Francisco, Visa, Ziff-Davis, Swinerton & Walberg, DPR Construction, Turner Construction, HOK, Gensler, and Summit Architects. In-Site is priced based on per user, per month license fee. The prices start at $1,500 per month per project with discounts for enterprise agreements.

11.1.1.2 Cephren.com Cephren.com is the new entity formed by the merger of Blueline Online, Inc., a provider of Internet-based project collaboration services to construction industry, and eBricks.com Inc., a provider of product and equipment procurement services. Cephren has raised over $50 million from GE Equity Investments, GE Power Systems, Goldman Sachs & Co. and Grupo Picking Pack (GPP).

11.1.1.3 Bricsnet.com

Bricsnet, a European company, was founded in 1986 to develop high-end architectural computer- aided design software. In 1997 Bentley acquired the rights to the Bricsnet technology and Bricsnet continues to be a reseller of Bentley. Its Initial Public Offering took place on June 30, 1999 on the pan-European stock exchange EASDAQ. Later it acquired three Internet companies. On December 1, 1999, Bricsnet launched the Bricsnet.com e-marketplace for the building industry. Bricsnet.com is an integrated work-centric environment, where building professionals access industry information, obtain mission-critical software applications, and share project information.

11.1.1.4 Buzzsaw.com Buzzsaw.com is a privately held company backed by Autodesk®, Inc., a supplier of PC design software and digital content creation tools for the building industry. One of the largest software

companies in the world, Autodesk has more than four million customers in over 150 countries. Founded in 1999 and headquartered in San Francisco, buzzsaw.com has created an Internet hub that delivers integrated business-to-business collaboration and e-commerce services

11.1.1.5 e-Builder.com e-Builder™ is an Internet-based communication tool that dramatically enhances the exchange of information among construction project participants. It is created by MP Interactive Corporation, a company founded in February 1995, and headquartered in Gainesville, Florida.

11.2 Competitive Advantages Business-to-Business eCommerce has good potential to impact the value-chain for the building and construction industry. The current technology has capabilities to develop services to benefit the industry. The competitive advantages amongst various business models will depend upon:  Technical superiority and reliability of the solution  Relevancy and value proposition of the services to the supply-chain network  Ability to select and dominate a niche market segment XYZ feels that it has a competitive advantage because no other offering provides such a comprehensive solution, as proposed by it, that integrates the interactive bid management system with the transaction system, mobile & multi media communication and document exchange platform. XYZ Works plans to create a market for itself and establish a strong customer base by taking advantages of the present competitive environment that offers good opportunities.  The size of the industry creates room for many more eCommerce solution providers  Most of the present competition is concentrated in the Silicon Valley in California, and would not be able to target rest of the country for some time  Table below breaks down the construction market estimates by regions (In $ Million except Total Non Residential Residential Public Projects between Projects) Buildings Buildings $5mil and $4bn New England 24,114 6,286 11,000 6,827 487 Middle Atlantic 47,416 12,361 21,630 13,425 1,188 East North Central 106,505 27,765 48,585 30,154 2,438 West North Central 43,422 11,320 19,808 12,294 1,055 South Atlantic 181,433 47,298 82,766 51,369 4,841 East South Central 33,827 8,818 15,431 9,577 947 West South Central 70,423 18,359 32,126 19,939 1,939 Mountain 83,361 21,731 38,028 23,602 1,954 Pacific 114,631 29,883 52,293 32,455 2,152

 Midwest and especially, East North Central region gives provides XYZ with a good opportunity to establish a strong beach-head within next nine to twelve months  Due to the critical nature of supply-chain management and lack of a long track-record of Internet based solutions, organizations want close relationship with the solution provider

12 Growth Strategies

12.1 Marketing Strategy Early business-to-business eCommerce service providers have demonstrated the advantages of real-time competitive bidding and e-market spaces. To establish in this market, a new entrant needs to take a niche market approach and that is what XYZ Works will adopt.

12.1.1 Positioning

The positioning strategy is designed to define a target competition for XYZ. The fundamental premises behind the products and services offerings of XYZ are: 1. The building & construction industry has lots of inefficiencies that arise from communication gaps, paper based systems and other elements that increase the cycle time, redundant and time consuming processes, and cost 2. The Web platform along with the multi-media and mobile technology offer the opportunity to develop business solutions that will eliminate significant inefficiencies XYZ Works will position itself broadly as a technologist company that uses the technology to provide business solutions. XYZ will become a 'Business Process Improvement' company that brings a 'New Approach to Value Chain Management'. The industry values the relationship aspect along with the cost and quality. Our operations and strategies will be to become the customer intimate firm. More specific positioning and the reason to buy would be that our products and services are 'Most Reliable', 'Easiest to use' and provide 'Best value for money'.

12.1.2 Target Market The initial target market decision would be an early source of differentiation for XYZ. The products and services are designed for a complete construction project, though some components could be used by smaller groups within a construction contracting company or by a network of these companies. The users of these products and services include executives, supervisors, architects, engineers and contractors. Only some of them would be either the decision-maker or instrumental in making the decision to purchase our services and we would seek them out to market our services. In this industry, the owners of the property - i.e. large corporations, real-estate companies and government are the ones that pay the cost of a project. XYZ will target them for the initial customer base as it is easier to quantify the bottom line impact for them and also as they have significant influence over other entities in the value chain about the implementation of technological solutions. This group consists of facilities and construction departments of real estate developers, corporations, health care firms, public agencies and hotels. Another target group consists of general contractors and construction management firms. They would also be the significant beneficiaries of our products and services. Our products and services will reduce their cost of construction and also enable them to better manage the projects and improve the procurement operations. The architects, consultants and lending institutions also have influence to initiate the implementation of technology solution and we will target them to become our endorser. Concentration on this type of client base will also allow us to mitigate the cyclical and seasonal revenues, which are often typical of the construction industry.

12.1.3 Rollout Plan The rollout market penetration strategy will occur in three phases.

Phase I Phase II Phase III Sell More of Design New Modify Existing New Products For Existing Products Products for Products for New New Types Of to Existing Types Existing Tyeps Of Customers Of Customers Customers Customers

12.1.3.1 Phase I The objective of Phase I is to deploy the base product and establish customer references. To achieve this XYZ would implement ‘beta-sites’ for different components of the BPNtm. These initial beta-sites are used to evaluate the performance benefits of the solution, provide customer demonstration and build a track record. These early customers would provide excellent consulting resources for product development, implementation and client development effort estimation. The market for Web based applications and services for building & construction industry is not yet fully developed and such a category is not properly defined so the initial strategies would define the target competition and develop the differentiation value proposition. The target customers in this phase would be the organizations that are looking to build competitive advantages through the strategic use of sourcing processes. These organizations would have demanding requirements that would rigorously test our solution, assisting us in designing a robust, reliable and scalable solution. This phase is expected to last six months.

12.1.3.2 Phase II The objective of phase II is to achieve a dominant position in one or two narrowly bounded market segments. The experience and knowledge gathered in Phase I would help in selecting these narrow market segments. The segment-targeting strategy has potential to generate word-of- mouth leverage. This phase would also be used to develop strategic alliances with technology companies, management consultants and clients to accelerate growth rate and to develop ancillary & support products and applications. This phase is expected to last 12-18 months.

12.1.3.3 Phase III This phase would adopt a mass-market strategy for the deployment of the common standard infrastructures. In this phase, XYZ would develop specific strategies to counter the competition, expand distribution channel and implement different components of the BPNtm in other industries.

12.1.4 Strategic Alliances and Partnerships To ensure the delivery of a comprehensive solution to customers, XYZ Works will need to establish strategic relationships with various organizations. XYZ is already in discussion with some of software and hardware vendors for product development and implementation partnership. The objective of these alliances is to focus on the core area of expertise, while leveraging the strengths of complementary technologies and the influence of partners. Such relationships will be in following general categories: Software & Hardware vendors, Systems Integrators, construction consultants, architects and contractors. The relationship with software platform providers would be helpful in developing products and infrastructure solutions. The relationships with consultants and

System Integrators would be useful to implement product solutions. XYZ will also need to develop relationships to ensure the reliability, scalability and performance of its solutions on various hardware platforms. Relationships with industry players would be important for the project implementation and generating sales leads.

12.1.5 Communication and Promotion Strategy The initial communication strategy will rely on the personal contacts. Initially, Web presence would also be minimal. This approach is adopted so as not give away too much of our competitive information and to focus the efforts of the company on the product development and build a reference customer base. Such an approach is feasible for the initial phase, as the deployment BPNtm solution would entail close working relationship with the clients. After the launch of few beta-sites, XYZ will adopt a more active communication strategy. XYZ will also use other communications avenues including:  Presentation at hospital associations to generate awareness among the hospital facilities managers  Becoming part of the local community and having relationships with local planning boards and construction organizations  Establishing relationships and partnerships with architects, engineers and consultants to generate word of mouth leverage and references  Email list notification about the industry developments and XYZ Works

12.2 Client Development The client development efforts would be directed to find opportunities where an organization is looking for savings opportunities and improving the construction project activities. The primary model for the client development would be direct sales approach.

12.2.1 Direct Sales Team Building and Construction industry is a relationship dominated industry and will remain so. The subjective criteria including referrals have significant influence over the decision making process. For the success of the company, the message needs to be taken to the senior executives and decision- makers in purchasing, operations, and finance. The decision-makers in IT department would also play a role. A direct sales model would be needed to establish relationship and network with these senior level executives. XYZ plans to develop this team gradually. The initial selling would be done by the core team members, board of directors and their network of contacts. XYZ is also augmenting these activities by forming partnerships with the professional marketing services that provide such client development services.

12.2.2 Implementation Team For the initial launch period, the users would need some handholding to get the benefits out of the systems. It is assumed that a number of potential users may not be highly computer savvy. To make the adoption of our products, and the use of computers in the industry, a good training program would be developed and implemented.

Pre Consulting Take Strategic Decision Archive + Decid ing What Close Out & How to DO Feasibility + Close Out IT advice + Expertise Understand Requirement & Options

Customer Activity Maintain + Cycle System Support Develop Integration Operations Solution

Keeping It Go ing Doing It During Post

Install Pilot + Training + Get Train Setup Users Online

Customer Activity Cycle - Business Partner Network tm Implementation

The implementation team would work with the owner and general contractor to help them make a strategic decision to use eBusiness environment for their project. Next it will work with them to identify the requirements and options available for savings. A solution will be developed that will serve their needs. In some cases, the team may need to incorporate some requirements specific to a particular project, owner or the general contractor. During installation, the team will set up the project environment, train the users and enable the group of users to access various features and function. For the duration of the construction project, XYZ work will maintain the system, provide support and assist the users in achieving their objectives. The idea behind this is that XYZ would not only sell the superior purchase value but also superior use value. We would not view a project as a one-time sales but as a continuing relationship with repeat business opportunities. The products and services are designed to be offered as Web driven application from a central server. This way we can support many projects and leverage our hardware investment and support and maintenance team. It is possible that due to privacy concerns and some other reasons an owner or general contractor may insist upon having their project hosted at servers maintained by their in-house IT department. This would require different implementation methods and team.

12.3 Revenue Model Increasing the number of revenue streams is at the heart of our business development objectives. The starting up strategy includes implementations of beta-sites. These beta-sites would be used to test the products and develop detailed functional requirements. Another initial sales method would be trial-period for the use of services. The revenue from these implementations is expected to be negligible. However, they will make excellent referrals.

Different components of the BPNtm provide opportunities to be packaged separately. The modular approach will enable XYZ to reach a bigger customer base, launch the products and services earlier and also gradually introduce the customers to the complete BPNtm. These components have potential to generate following revenue types of streams:

12.3.1.1 Business Partner Networktm  Monthly user license, with discounts for quarterly, half-annual and annual contracts, paid by the Owner or the GC/CM  Current tiered pricing One Time Monthly Initial setup fee $2,000 10 concurrent users monthly license $1,500 25 concurrent users monthly license $2,400 25+ concurrent users monthly license $3,840  Unlimited responders for bid management system  The procurement network will use transaction fee of 0.25-0.5% of the total value of the transaction charged to the supplier

12.3.1.2 Project War Room  Monthly user license, with discounts for quarterly, half-annual and annual contracts  Current tiered pricing One Time Monthly Initial setup fee $1,000 10 concurrent users monthly license $750 25 concurrent users monthly license $1,200 25+ concurrent users monthly license $1,920

12.3.1.3 Bid Management System  Monthly user license, with discounts for quarterly, half-annual and annual contracts  Current tiered pricing One Time Monthly Initial setup fee $1,000 10 concurrent users monthly license $750 25 concurrent users monthly license $1,200 25+ concurrent users monthly license $1,920

13 Financials

13.1 Funding Requirements Currently, XYZ Works is seeking the investment of $4 million for business development. The founders provided the initial startup financing. This money is used to develop the business plan, product development plan, and the team for prototype development. Though, we are seeking an equity investor, we are willing to explore alternate forms of investment such as convertible preferred stock or convertible debt. Although we would welcome multiple investors, we prefer that each party invest a minimum of $75,000. We are also open the structure of the investment deal. The funds would be used for product development, business development and building the team. Estimated needs for product development is $1.3 million, which includes estimates for software, hardware, consulting and payroll. Estimated need for marketing and promotions $1.2 million and the rest, $1.5 million, is for general business development.  Series ‘A’ - $750K  First Month - $300K: For recruitment, development, marketing and promotion  Second Month - $200K  Third Month - $250K: Milestone - Beta site launch  Series ‘B’ - $3,250K - Fourth month

2% Development Salary 2,482 27% 26% Operations Salary Financing Operations Revenue 4,000 Mktg & Promotion 14% SG&A Salary 20% 11% Cash

Sources of Funds - First Five Quarters Uses of Funds - First Five Quarters

13.2 Product Development Year 1 Year 2 Year 3 ($000 except people) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Development Personnel 7 12 22 22 30 30 30 30 35 35 35 35 Support & Implementation Personnel 5 10 13 13 14 15 28 40 51 67 75 75 Total Payroll 204 353 600 617 852 870 1,112 1,334 1,780 2,104 2,266 2,266 HW, SW, & Infrastructure 44 24 80 15 74 17 80 33 84 39 72 15 Total Development 248 377 680 632 925 887 1,191 1,367 1,864 2,143 2,338 2,281

13.3 SG & A Year 1 Year 2 Year 3 ($000 except people) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Total Personnel 8 12 12 18 19 22 28 30 30 29 32 32 Total Payroll 165 283 305 390 510 578 739 784 855 831 908 908 Infrastructure & Mktg. Expense 73 76 76 127 133 159 214 206 352 712 1,235 1,482 Promotion 20 45 135 281 354 567 896 1,501 480 3,318 34,640 109,020 Total SG&A 258 404 515 798 997 1,303 1,850 2,491 1,688 4,861 36,783 111,410

13.4 Income Projections ($000 except projects) Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 New Projects 1 1 2 2 3 5 7 11 16 16 22 29 New Construction Value 10 10 20 20 30 50 70 110 160 160 220 290 Projects on hand 1 2 4 6 9 14 21 32 48 64 86 115 Revenue 4 5 11 15 23 36 55 85 129 165 229 308 Total Cost Of Sales 40 26 33 43 48 71 99 91 105 112 125 140 Operating Profit (Loss) (36) (21) (22) (28) (24) (34) (44) (5) 24 54 105 168 Total Development 67 43 43 80 75 76 173 133 133 132 132 132 Total SG & A 72 85 101 110 151 144 154 170 191 235 245 318 EBIT (Loss) (175) (148) (167) (218) (250) (254) (371) (308) (300) (313) (273) (283) EBIT (Loss) Cumulative (175) (323) (490) (708) (958) (1,212) (1,583) (1,891) (2,191) (2,504) (2,777) (3,059)

Year 2 ($000 except projects) Q1 Q2 Q3 Q4 Year 1 Year 2 Year 3 Year 4 Year 5 New Projects 77 81 152 328 115 638 3,016 4,784 5,556 New Construction Value 770 810 1,520 3,280 1,150 6,380 30,160 47,840 55,560 Projects on hand at the End 185 237 288 351 115 351 434 482 518 Revenue 1,416 2,267 3,586 6,005 1,066 13,273 86,600 272,550 499,452 Total Cost Of Sales 579 750 1,287 1,974 931 4,590 22,938 69,116 117,564 Operating Profit (Loss) 837 1,517 2,299 4,030 135 8,683 63,662 203,434 381,888 Total Development 630 591 621 594 1,218 2,435 3,007 3,609 4,330 Total SG & A 997 1,303 1,850 2,491 1,976 6,641 39,376 114,703 206,600 EBIT (Loss) (789) (377) (172) 946 (3,059) (393) 21,279 85,122 170,957 EBIT (Loss) Cumulative (3,849) (4,226) (4,398) (3,453) (3,059) (3,453) 17,827 102,949 273,906

300 Revenue EBIT 200

0 Year 1 Year 2 Year 3 Year 4 Year 5

13.4.1 Measurement Ratios  Profitability Ratios Y1 Y2 Y3 Y4 Y5 ROS (287%) (3%) 25% 31% 34% Gross Margin 13% 65% 74% 75% 76% Operating Margin (200%) 32% 51% 57% 58%  Positive gross margin after ten months and 50 projects  Positive EBIT after seven quarters and 800 projects  Management discipline and Capital Efficiency Y1 Y2 Y3 R & D $0.88 $5.45 $28.80 Marketing $1.11 $3.01 $19.29 G & A $1.05 $5.95 $28.95

13.5 Exit Strategy The company is in very early stage of its life cycle. At this moment, it is developing the product. We aim to establish the viability of the business model and the solution, build a reference customer base, attain positive cash flow and then seek one of the following two exit strategies. The preferred exit strategy is to get acquired by a pure Internet play company that has competence in our area of expertise. Window of opportunity for this strategy will open between six-nine months of operations. The second preference is to take the company public within next three years after establishing the profitability.

Month 2 Month 4 IPO window opens $200K $3,250K Potential Valuation - $200+ Million Month 9 Month 24 Month 18

Month 10-12 Month 6 Next round of funding - $17-20 M illion Month 1 Month 1 $300K $200K Buyout window opens Beta Site Potential Valuation - $40+ M illion

14 Risks XYZ Works’ business model faces significant risks. Some of these risks are:  We will accumulation large losses in the beginning, and when we will achieve the profitability is not certain. Our profitability will depend upon the our success in increasing the revenue and number of revenue streams  The eCommerce market category has limited history so it is difficult to evaluate any business  Financial results may be affected by fluctuations in the construction industry and seasonal impact. We are currently unable to assess the seasonal effect on our business  Our market is becoming more competitive and we may suffer price reductions  The B-to-B eCommerce market for our services is intensely competitive, evolving and subject to rapid technological change  To remain competitive, we must continue to enhance and improve the ease of use, responsiveness, functionality and features of our services  We expect the intensity of competition to increase which may result in changes in our pricing model, reduced gross margins etc. which may reduce our future profitability  In addition, technological barriers to entry are relatively low  Some of our competitors have more resources and broader and deeper customer access than we do  Our competitors may be able to respond more quickly than we can to new technologies or changes in Internet user preferences and devote greater resources than we can to the development, promotion and sale of their services  Our failure to develop brand recognition could limit or reduce the demand for our services and result in significant loss of the anticipated benefits from our marketing expenditures  If we fail to manage our growth, our ability to market, sell and develop our services could be harmed  If we fail to attract and retain qualified personnel, our ability to compete could be harmed  If we fail to adequately protect our proprietary rights, we could lose these rights and our business could be harmed. Our services could infringe the intellectual property rights of others causing costly litigation and the loss of significant rights.  If we experience system failures, our reputation would be harmed and users might seek alternative service providers, causing us to lose revenues  We may have capacity restraints that could limit the growth of or reduce our revenues  General Contractors and sub-contractors may be reluctant to accept an internet-based application service provider services  We depend on the increasing use of the Internet and if the use of the Internet does not grow, our revenues may not grow and could decline and our business could be harmed  Failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new products and services could reduce our ability to compete and result in lower revenues

15 Organization

Technology Client Relationship Corporate Affairs

Client Solutions: Client Solution: Engineering & Technology Finance Technology Construction

Product Operations Development & Support Market & Personnel Relationship Development Project Implementation Development

Architecture & Technical Specifications Business Strategy Media & Brand Business Specifications Equity

Sample Business Plan 35 April 3, 2018 i A-E-C Automation Newsletter, August 1999 ii Wall Street Journal, 11/15/99 iii A-E-C Automation Newsletter, December 1999 iv Forrester Research v A-E-C Automation, December 1999 vi IDC vii Georgia Institute of Technology – 10th GVU User Survey viii Georgia Institute of Technology – 10th GVU User Survey ix Georgia Institute of Technology – 10th GVU User Survey x Killen and Associates, 1996 xi A Forrester Research survey xii Forrester Research xiii Engineering-News Record xiv Engineering-News Record, Dec. 1998 xv F. W. Dodge Division of The McGraw-Hill companies xvi Census Bureau - 1992 Census xvii Census Bureau - 1992 Census xviii Sweet's Group, A division of McGraw Hill companies xix Census Bureau - 1992 Census xx Census Bureau xxi William D. Mahoney, Public Works 1997 Cost book, BNI Building News, Boston, Massachusetts (1997) xxii Forrester Research xxiii : Financial Executives Institute & Computer Sciences Corp., Oct. 1998 xxiv American Institute of Architects (AIA) xxv A-E-C Automation Newsletter, March 1997 xxvi New York Times Feb 21, 2000 xxvii Interviews with Industry Experts & contractors xxviii The Cost Of Inaction Does Massachusetts Need Public Construction REFORM? Pioneer Institute of Public Policy Research xxix Harvard Business Review Case: Turner Construction Company 9-585-31 xxx Interviews with Industry Experts & contractors xxxi Aberdeen Research Group xxxii A-E-C Automation, December 1999 xxxiii Interviews with Industry Experts & contractors xxxiv Industry Sources, competitive offerings xxxv Aberdeen Research Group xxxvi Aberdeen Research Group xxxvii Aberdeen Research Group survey of large companies in several key industries, including automotive, chemicals, computer equipment, government, telecommunications, and utilities xxxviii Aberdeen Research Group xxxix aecXML.org xl Supply-Chain Council’s Supply Chain Operations Reference Model xli Harvard Business Review Case: Turner Construction Company 9-585-31