Business Plan s4

BUSINESS PLANF L O R A L D E S I G N . C O M ™F L O R A L D E S I G N O F E U R O P E ™ floral artistry – global delivery floraldesign.com ™ floraldesignofeurope.comSecure Online Shopping for Flowers and Gifts WorldwideCombined to Be the World’s Premier Destination for Flowers and GiftsThis business plan is intended solely for informational purposes to assist in determining if you wish to a due-diligence investigation of this project. The information contained herein is believed to be reliable, but the management team makes no representations or warranties with respect to this information. The financial projections that are part of this plan represent estimates based on . . . . extensive research. and on assumptions considered reasonable, but they are of course not guaranteed. The contents of this plan are confidential and are not to be reproduced with express written consent.2 TABLE OF CONTENTSEXECUTIVE SUMMARY...... 1COMPANY OVERVIEW...... 4MISSION STATEMENT...... 4 HISTORY AND CURRENT STATUS...... 4 MARKETS AND PRODUCTS...... 4 OBJECTIVES...... 5 PRODUCT OR SERVICE DESCRIPTION...... 6MARKET COMPARISON...... 6 PROPRIETARY RIGHTS...... 7 STAGE OF DEVELOPMENT...... 7 INDUSTRY AND MARKETPLACE ANALYSIS...... 9MARKET ANALYSIS...... 9 CUSTOMER ANALYSIS...... 10 COMPETITOR ANALYSIS...... 11 MARKETING STRATEGY...... 13PRODUCT/SERVICE STRATEGY...... 13 PRICING STRATEGY...... 14 ADVERTISING AND PROMOTION STRATEGY...... 14 MARKETING AND SALES FORECASTS...... 15 OPERATIONS...... 16OPERATIONS STRATEGY...... 16 SCOPE OF OPERATIONS...... 17 ONGOING OPERATIONS...... 18 OPERATING EXPENSES...... 19 DEVELOPMENT...... 20DEVELOPMENT STRATEGY...... 20 DEVELOPMENT TIMELINE...... 20 FUTURE DEVELOPMENT...... 21 MANAGEMENT...... 22COMPANY ORGANIZATION...... 22 MANAGEMENT TEAM...... 22 STRATEGIC BUSINESS PARTNER...... 23 FUTURE MANAGEMENT TEAM ADDITIONS...... 23 ADMINISTRATIVE EXPENSES...... 24 SUMMARY OF FINANCIALS...... 25FINANCIAL ASSUMPTIONS...... 25 FINANCIAL FORECASTS...... 25 REVENUE, EXPENSE, AND INCOME PROJECTIONS...... 25 CASH FLOW PROJECTIONS...... 26 CAPITAL REQUIREMENTS...... 26 FINANCIAL RISKS...... 261 EXIT STRATEGIES...... 26 VALUATION OF BUSINESS...... 27VALUATION...... 27 APPENDICES...... 28TABLE OF APPENDICES...... 282 EXECUTIVE SUMMARYFloral Design of Europe™, of Boulder, Colorado, has been in business since 1992 providing floral products of contemporary and European design for retail sale both locally and by wire service throughout the world. Its noncommercial Web site, floraldesign.com/ofeurope-usa, has been in operation since 1994. With the full-scale launch and promotion of its new commercial sites, Floral Design of Europe (FDE) is poised to become the Internet’s premier worldwide provider of distinctive floral products and gifts. Floral Design of Europe will raise the level of customer expectation and satisfaction in floral product offerings by setting a new standard of design excellence.PRODUCT DESCRIPTION. Customers will enter Floral Design of Europe’s Web sites using one of three evocative Web addresses: floraldesign.com™ floraldesignofeurope.com floraldesign.com/ofeurope-usaFDE’s Web sites will be as inviting and as easy to access as stepping into a local florist shop. Customers will be able to quickly select an innovatively designed bouquet, plant, or gift on the home page express lane, or chose a selection by occasion or flower type. The site will be intuitively designed for easy navigation by Internet shoppers of all experience levels. Just two to four mouse clicks, and customers are assured that a gift of superior quality and artistry is on its way. MARKETING AND SALES. The market for Internet floral products is flourishing. The ability to see a picture of product offerings online, coupled with the ease of ordering, has made online flower sales one of the most successful commercial Internet categories. Use of the Internet continues to grow rapidly, with the number of worldwide users projected to nearly quadruple over the next five years. While there are many successful Internet florists, none currently emphasize European design, the acknowledged global standard of floral artistry. The entrance of produce giants Dole and Sunkist into the floral products market is creating a compelling need and opportunity for branding in the industry. Floral Design of Europe™ will differentiate its products1 by emphasizing the “floral design” and “floral design of Europe” aspects of it offerings, and its brands, floraldesign.com™ and Floral Design of Europe™. Consumers increasingly are searching for a higher level of floral design, and will find sophisticated and competitively priced products on the Web sites of Floral Design of Europe™. In addition to incorporating the latest electronic commerce technology, our Web sites will offer floral facts and care tips, weekly news features, and links to other related sites. Floral Design of Europe™ will host a chat room to provide a meeting place and forum for both designers and consumers. This will serve to create an awareness of floral design concepts, as well as encourage repeat traffic to FDE’s Web sites, and recognition of its brands.DEVELOPMENT. Floral Design of Europe™ has already designed and photographed its product collection. It is currently in the process of narrowing its inventory to approximately 180 product designs at a variety of price points. Floral Design of Europe currently has one noncommercial information site in operation, floraldesign.com/ofeurope-usa. This site is already attracting more than 6,000 visits per month, even without online ordering capability, without visibility in the major search engines, and without advertising. During the next two months, Floral Design of Europe™ will collaborate with A Net Presence, Inc., a Boulder Internet marketing company, to design and complete its Web sites. Concurrent with placement in domestic search engines, Floral Design of Europe’s Web sites will be listed in all the major European search engines. Over the next five years, our goal is to develop consumer awareness of our brands and grow revenues to more than $2.5 million annually. OPERATIONS. Ongoing operations of Floral Design of Europe™ will include gathering orders from its Web sites and relaying order information to participating florists. These florists, located throughout the world, will fulfill and deliver orders according to Floral Design of Europe specifications. Orders will be accepted primarily via FDE’s Web sites. FDE’s order-processing center will be staffed by hourly employees and managed by a salaried supervisor, who will also be responsible for quality control and customer service. Once an order is received and logged, order-processing personnel will transmit order specifications to fulfilling florists by telephone and fax. As the business develops, order transmittal will evolve to e-mail and automated Internet programs. The 2 database of participating florists will be built by selecting florists who exhibit a commitment to highest quality standards, and who specialize in contemporary and European design. These will be the sole participation criteria, without regard to memberships to flower-by-wire services or volume goals. Flower-by-wire services, such as FTD or Teleflora, will provide payment and record-keeping services for the participating florists. Floral Design of Europe’s expert florists and managers will continually update online product offerings and provide weekly Web site content updates and chat room oversight.MANAGEMENT. Kirt and Brigitte Ohler, the founders of Floral Design of Europe™, have successfully operated in the retail floral industry for six years. They recognized the potential of the Internet in 1994, at which time they created the floraldesign.com/ofeurope-usa site on the Internet. They possess the marketing acumen and proven artistic training to create winning floral designs. The founders will augment the management team by adding experienced operations and marketing managers in the near future, and by hiring additional highly talented managers as the business grows. An influential board of directors will soon be assembled to assist Floral Design of Europe™ in establishing a powerful Internet presence and becoming the world’s premier provider of exceptional floral products and gifts.FINANCIAL SUMMARY. Floral Design of Europe™ conservatively projects doubling its sales each year for the first three years, beginning with 24,000 transactions in the first year at an average price of $39. By year five, the FDE Web sites will generate at least 157,500 transactions, resulting in annual revenues in excess of $2.5 million.EXIT STRATEGY. Using two different methods, we estimate the current value of Floral Design of Europe™ to be $1.8 million. Our exit strategy will be to execute an IPO in year three with an estimated market capitalization of $6 million. Alternatively, we will consider solicitations to sell the business if sufficiently attractive terms are offered. 3 COMPANY OVERVIEW Floral Design of Europe™ is located in Boulder, Colorado. It manufactures and sells retail floral products and gifts in Boulder and the Front Range of Colorado, as well as participating in flower- by-wire transactions in the United States and abroad. The company reorganized in Jan. 1999 as an S-Corporation. Its headquarters will remain in Boulder, and it will continue to operate its retail facility concurrent with its Web retailing operation.MISSION STATEMENTFloral Design of Europe™ brings contemporary and European floral design to the world with the motto “Floral Artistry – Global Delivery.” Our customers appreciate the difference and ask for us by name.HISTORY AND CURRENT STATUSKirt and Brigitte Ohler founded Floral Design of Europe in 1992. It has successfully positioned itself in Boulder and the Front Range as a provider of distinctive contemporary and European designed floral products and gifts, including perishable flowers and plants, as well as dried and silk flowers. Floral Design of Europe™ enjoys the status of being the number-one recommended wedding florist by the Hotel Boulderado, the Stanley Hotel, Traditions Catering, and Colorado Brides’ Magazine. The company is in the process of expanding its Internet presence by leveraging its strategic brand: floraldesign.com™. MARKETS AND PRODUCTSFloral Design of Europe’s Web sites will address the needs of Internet floral shoppers, both at home and in business. The focus will be on customers wishing to send distinctive and/or European designed floral products and gifts to recipients throughout the world. Customers will be offered approximately 180 products on the Web sites, including seasonal floral bouquets and arrangements, dried arrangements, and specialty gifts. Florists trained in European design, the global standard of floral design, will create these products. The target customers of Floral Design 4 of Europe™ are seeking a higher, more sophisticated level of floral artistry, and Floral Design of Europe™ will meet this need to provide excellent customer value.OBJECTIVESFloral Design of Europe™ will utilize its design experience and knowledge of the floral industry to build its Internet superstores. It anticipates the escalating use of the Internet for shopping and information, and will grow its business in tandem with that expansion. Our exit strategy will be to execute an IPO after three years of operation with an estimated market capitalization of $6 million. Alternatively, we will consider solicitations to sell the business if sufficiently attractive terms are offered.5 PRODUCT OR SERVICE DESCRIPTIONFloral Design of Europe™ (FDE) specializes in the manufacture of perishable floral products, including quality fresh cut flowers and plants. It also sells dried and silk flowers, as well as other unique gift items. Products from FDE reflect true European training and artistry, with emphasis on the highest quality and design standards. Customers will place orders with FDE via the Internet and FDE will then utilize its database to contact selected florists in the destination city, and relay order specifications for immediate delivery. By using FDE, customers will be assured complete satisfaction with every order. MARKET COMPARISONWhile there are many successful Internet florists, none specifically offer European design. Because of this market opportunity, FDE anticipates capturing a sizeable share of the Internet retail floral product market. FDE has the rights to three evocative domain names: floraldesign.com™ floraldesignofeurope.com floraldesign.com/ofeurope-usa that will draw customers to our sites by name alone. These names describe the product we offer: true European and domestic designs of superior artistry. Whether customers are seeking European designed products, or the finest quality domestic designs, all three domain names and trade names will lead shoppers to products that will meet their needs and provide outstanding value. Products from FDE will not be more expensive than those offered by competitors, but will be of the highest design standard because the participating florists will be specially selected for their artistry, workmanship, and training.When customers are searching the Internet for exceptional floral products and gifts, they will visit our sites. “Floraldesign.com” means much more than “flowers,” and customers seeking the latest and most innovatively styled arrangements understand this difference. Internet shoppers will find 6 our site easy to navigate, with 180 product offerings in ten to fifteen categories, special features for business customers, express lane ordering, and weekly articles on floral news, and design and care tips. Our sites will incorporate secure shopping features, and will utilize the latest in shopping cart technology. In addition, FDE will host a chat room for consumers and designers to encourage the exchange of ideas and information. This will encourage repeat traffic and increased customer awareness of FDE’s Web sites and its product offerings. Customer satisfaction is 100% guaranteed with replacement of defective product or money back for any purchase failing to fully meet customer expectations.FDE’s target customers will search the Internet using the words “flowers,” “floral,” “florist,” and “floral design.” The floraldesign.com/ofeurope-usa site is currently drawing more than 200 Internet visits per day, and has been recently ranked fourth in terms of visitors to the site on the BizWiz – The Top 100 World Business Charts. PROPRIETARY RIGHTSFDE has trademarked the names: floraldesign.com™  Floral Design of Europe™Additionally, FDE owns the rights to the Web domain names: floraldesignofeurope.com  floraldesign.com™  floraldesign.com/ofeurope-usa  floraldesign.net  1800floraldesign.comSTAGE OF DEVELOPMENT FDE has been successfully operating in Colorado since 1992. As a member of AFS and Florafax flower wire services, it has extensive experience with receiving and fulfilling local orders, and in placing orders with florists throughout the United States and the world. FDE has been operating a Web site at address floraldesign.com/ofeurope-usa since 1994. This site serves only as an Internet business card, offering information about FDE, but does not have online shopping 7 capacity. Even without advertising, promotion, or online purchasing capability, this site consistently yields an average of two sales per day. New sites are in development and will be functional spring 1999. These sites will be accessed using the three addresses: floraldesign.com™ floraldesignofeurope.com floraldesign.com/ofeurope-usa and will incorporate the latest Web e-commerce features. In particular, customers will be able to place orders from the Web and will not be required to place orders via telephone. These new sites will be listed on the major North American and European search engines. It is anticipated that these sites will attract 40,000 visitors per month by summer 1999. The floral designs to be offered online have already been created and photographed. These are proven and popular arrangements. During the next sixty days, Kirt Ohler will narrow down the online inventory to 180 produces, and work with FDE’s Internet marketing services provider, A Net Presence, Inc., to complete and test the new Web sites.8 INDUSTRY AND MARKETPLACE ANALYSISMARKET ANALYSIS The floral industry serves the needs of people shopping for gifts and seeking to beautify their environment, both indoors and outdoors. Flowers also play an important role in special occasions, weddings and funerals. The primary market segments are retail florist shops, supermarkets with floral departments, retail nurseries, lawn and garden supply stores, wholesalers, and growers. The retail indoor floral segment of the market is the focus of this analysis.THE MARKET. Estimated sales for year 2001 in the retail floral industry are $16.5 billion, in the United States, and $41.5 billion globally. Continued growth in this industry is demonstrated by U.S. sales of $14 billion in 1997 and $15 billion in 1998.1 Of these sales 48% represent outdoor bedding/garden plants, 28% cut flowers, 15% flowering houseplants, and 9% green plants.2 In 1997 traditional florists sold $7.7 billion, while grocery stores and home improvement/hardware stores (mass marketers) sold $6.3 billion.3 Overall, retail florists’ sales growth averaged 5.5% in 1997.4 Some industry leaders project 5% growth will be the norm in the coming years. The floral industry enjoys the advantages of matching an endlessly renewable resource with a consistently growing marketplace demand. As long as there are birthdays, holidays, and special occasions, there will be a thriving market for floral products. MARKET TRENDS. Despite the fact that the floral industry is a mature industry, several trends in the market are dramatically changing its profile. Increased sales of non-food items in grocery stores, as well as the introduction of super home improvement stores selling flowers, have shifted floral product revenues. Branding has become a new marketing tool for the floral industry, with mass marketers as well as wholesalers targeted. Technology and improved communication are also impacting the industry, allowing flower importers to bypass brokers and middlemen, thereby reducing costs and delivering a fresher product to the retailer. In addition, electronic commerce is rapidly becoming a major influence in the industry. 9 Although the introduction of floral products into mass merchandising venues has resulted in a decline in sales for traditional retail florists, traditional florists have maintained a strong presence in the market. Their dollar share of consumer spending fell slightly from 58.3% in 1993 to 54.9% in 1997. Mass marketers have increased their market share by only 2.9% since 1993, with increases at home improvement centers counterbalanced by losses in supermarkets. At the same time the sales for traditional florists generated by toll-free, 800 numbers increased from 1.7% to 3.5%.5 The Society of American Florists now estimates that flower-by-wire business accounts for 20% of traditional florists’ sales. Mass marketers will soon be utilizing the brand power of produce giants Dole Foods and Sunkist to market fresh flower products. It is hoped in the industry that these internationally recognized brands will encourage more frequent floral purchases. It is also projected that branding will increasingly differentiate floral product offerings.Electronic commerce is one of the most important trends in the floral industry. Favorite product categories for online shopping include audio CDs, personal computers, travel service and flowers.6 During the past 10 years flowers have accounted for approximately 25% of online sales on the leading Internet services, and it is projected that online flower and gift sales will increase over 1,500% by the year 2000.7 A rapidly increasing user base, increased competition, and better selection should push online sales of gifts and flowers from $311 million last year to an estimated $563 million in 1999.8 In 1997 nearly 30 million Americans age 18 and older researched products or services online. Eleven million adults, or 27%, purchased something online, exceeding $3 billion.9 An additional $4.2 billion in consumer spending was influenced by online information as consumers used the information to place telephone orders or visit local stores. It is projected that online spending will hit $34 billion by 2002.10 The major trends in the floral industry are rapidly increasing online sales, the utilization of branding as a marketing tool, and the reduction in distribution layers. These factors combine to indicate an excellent opportunity for florists who can operate efficiently on the Internet by supplying a quality product with a name and brand presence that captures customer loyalty.10 CUSTOMER ANALYSISWomen make 79% of the purchases of fresh cut flowers, flowering houseplants, green plants and bedding/garden plants, while men make only 21% of such purchases. Buyers shopping for themselves make 65% of the purchases, with gifts accounting for the remaining 35%. For cut flowers only, the male purchasing percentage increases slightly to 35%, and purchases for self are at 30% and gifts at 70%. Most floral purchases, 85%, are made for non-calendar related occasions. Holidays such as Christmas, Chanukah, Mother’s Day, Easter, Passover, Valentine’s Day and Thanksgiving account for the remaining 15% of purchases.11 Research indicates that 25% of Americans and 60% of Europeans purchase fresh flowers regularly.12 Age demographics are also important for understanding floral product customers. In markets where the predominant consumer age is 35-44, including a high percentage of employed females, floral sales are higher than average. 13It is easy to understand why Internet floral purchasing is growing at such a rapid rate. According to The Industry Standard, during the third week in January 1999, men and women aged 35-49 comprised 39% of Web visitors. Internet users are also more likely to be able to afford gifts, with 46% of experienced users earning in excess of $50,000 and possessing a college degree.14 The high income and educational level of many Internet users indicates a customer base that appreciates higher quality in floral design. The number of Internet users is continuing to grow, with more diverse and less affluent people logging on in increasing numbers. This trend will ensure a growing customer base, and products that offer solid value will appeal to customers of all income levels. Companies that have a global message stand to benefit from the fact that 30% of traffic to U.S. sites originates internationally, of which 36% is European, 28% Asian, 26% Canadian, and 6% Latin American.15Customers who shop online for floral products are looking for a good selection of bouquets, gifts, and gift baskets with a variety of prices. The site should be easily navigated and provide good search options, such as searches organized by arrangement, occasion, and price. Some sites offer additional features such as e-mail occasion reminders, quotes to use on gift tags, and floral care tips. Causes of customer dissatisfaction include orders not arriving on time, delivered floral arrangements not looking like the item selected online, and poor product longevity. 11 COMPETITOR ANALYSISThis section will focus on the retail floral sales market segment, and specifically on competitors that utilize the Internet to generate sales or that engage in a marketing strategy that includes product branding. The traditional retail florist market is fragmented, with over 27,000 florist shops competing with 23,000 supermarkets.16 Florists can sell product outside of their local market by utilizing networks of florists who fulfill orders all over the world. In flower-by-wire transactions, the originating florist retains a 20% service fee and forwards approximately 80% of the sales price to the wire service provider. The wire service provider retains 2-5% of the sales price, and then forwards the balance to the florist who will fill the order.In addition to the many small florists, there are several giant floral retailers that are setting new trends in the industry. The largest floral company is 1-800-FLOWERS, with 1998 sales of $300 million. The company owns or franchises about 150 stores in major metropolitan areas and has about 3,800 partner shops. The success of this company can be partially attributed to its name, easily remembered and synonymous with the product. 1-800-FLOWERS sells its products primarily by telephone, but its Internet sales department, the Interactive Services Division, has a growth rate of 100% per year. This division expects to generate 12-15% of the company’s annual revenue, or approximately $40 million in 1999.17 1-800-FLOWERS is in the process of repositioning itself as a global player. New advertising campaigns will feature flowers coming from Europe and Africa.18FTD Corporation, through its subsidiary Florists’ Transworld Delivery, links more than 20,000 florists belonging to the FTD Association in the U.S. and Canada, and is affiliated with 32,000 additional florists in 140 other countries. 1998 sales for FTD were $161 million. Flowers can be purchased from FTD by visiting FTD florists, using its toll free number, or visiting its Web site. FTD advertising encourages customers to ask for FTD by name to assure highest quality, artistry and dependability. Florafax International, Inc. recently merged with Gerald Stevens, Inc. Florafax is one of the largest flowers-by-wire providers in the U.S. Gerald Stevens currently owns 113 stores and plans to have 1,000 within 5 years, including 500 supermarket locations. The company focuses on 12 customized quality and service, and plans to utilize Florafax International’s sales and marketing expertise to create a national brand known for its design and product. One of the oldest online flower merchants, PC Flowers, recently merged with Fingerhut, one of the largest direct marketers in the United States. Fingerhut predicts that within 5 years Internet retailing may be half of its business.19 PC Flowers has broadened its offerings to include flowers shipped directly from growers, as well as their FTD branded floral products and other gift items.20These competitors clearly understand the huge potential of Internet marketing and are attempting to win customers with brand and quality image. There appears to be gap, however. While high quality and design are often advertised, there is little emphasis on European design. Since many Internet users are well educated and knowledgeable about flowers, they will seek out European design as the acknowledged standard in floral product offerings. In addition, Europeans purchase flowers much more frequently than Americans, and almost 11% of traffic to U.S. sites is European. Since European design is the global standard in floral artistry, Europeans sending floral gifts to the United States will be attracted to an Internet site offering European design.MARKETING STRATEGYFloral Design of Europe™ will sell floral products and gifts primarily via the Internet. FDE’s evocative domain names will attract customers by name alone because the domain names summarize its product offerings. Once customers visit the sites, they will choose to purchase from FDE because they will find the experience easy and pleasant, with the products and features they desire at competitive prices. FDE will build customer awareness by utilizing proven Internet marketing techniques, as well as traditional advertising and promotional strategies. TARGET MARKETAs summarized in the previous section, the number of Internet users is rapidly growing, as is the revenue generated by online flower sales. The trend toward branding floral products will raise customer expectations for quality, and will differentiate products that have heretofore 13 been generic. FDE will exploit these converging factors by introducing distinctive, branded floral products for online consumers.FDE’s target customers are Internet users who understand and appreciate the difference between “flowers” and “floral design.” These customers know that there is a centuries old tradition of floral artistry in Europe, making European design the acknowledged global standard of floral design. European florists are generally much more highly trained than American florists since they are required to undertake years of study to obtain certification. American consumers are increasingly searching out florists who offer European design as well as innovative domestic floral design. FDE will meet the needs of savvy customers for whom distinctive design is important, and who appreciate the convenience and ease of online shopping. PRODUCT/SERVICE STRATEGYSince 1992 FDE has been manufacturing and delivering superior products and service with outstanding value to its customers. FDE will use its knowledge of floral design techniques to create a wide variety of winning arrangements from around the world for online sale. Photographs of these designs will be displayed in every category on its Internet sites, allowing customers to view the products they are buying. FDE will utilize a network of specially selected florists from its worldwide database to fulfill orders, and communicate with those florists by fax, e-mail, and phone to assure correct reproduction of the designs. This florist network will be developed with highest floral design standards as the sole participation requirement, and will not be influenced by fees or memberships. FDE’s customers will know that when they purchase a product from FDE, exceptional artistry and careful attention to detail is guaranteed. Customers searching the Internet will find the products they desire simply by searching on the words “floral design.” Competitors may also advertise “European” and “floral design,” but FDE’s domain names will immediately communicate the focus of the company’s core business. FDE will differentiate itself from competitors not only by delivering contemporary and European floral design, but also by featuring its careful execution of orders. FDE’s Web sites will be accessible, fun, and quick to navigate for computer users of all experience levels. The sites will be “grandmother friendly,” so that novice computer users of all ages will find it a pleasure to shop at FDE. FDE will add value for its customers by becoming a source of 14 information about floral products, providing links to other Web sites of interest, and by building a sense of community with its online chat room. PRICING STRATEGYThe products offered at FDE’s Internet sites will be competitively priced with products offered on other sites. Customers will not have to pay a premium for a higher level of design because better technique does not cost more. In fact, the designs offered by FDE will utilize raw materials more effectively, thereby keeping product cost down. Prices for its online products will range from $30 to $250. ADVERTISING AND PROMOTION STRATEGYFDE’s initial advertising and promotional focus will be on attracting customers who are searching the World Wide Web. With time, FDE will employ more traditional radio and print media advertising in addition to proven Internet promotional and advertising techniques.The first tier of activities will utilize low cost advertising and promotional strategies. FDE’s Web pages will be submitted to all of the pertinent domestic and European search engines and domestic Web site directories. Newsgroups and mailing lists will be monitored and contacted in order to create an awareness of FDE’s products and to establish FDE as experts in the floral industry. Strategic links with online purveyors of goods and services of interest to FDE customers will be established. Web site related press releases will be sent to pre- selected media outlets. FDE’s chat room will provide a meeting place for designers and consumers for the exchange of ideas and information. This will serve to promote floraldesign.com and Floral Design of Europe’s brand names and images, as well as generating repeat traffic. Customers will receive an e-mail thank-you note after every order, which will serve to put FDE’s domain names in front of the customer again and offer further service. The second tier of the advertising activities includes banner ad planning, development, testing, and media purchasing. Mailing lists will be developed by FDE to notify customers of special promotional offers. FDE will offer its customers the opportunity to register in order to receive targeted e-mail advertising and/or participate in automatic gift giving plans. 15 MARKETING AND SALES FORECASTSFDE’s current site, floraldesign.com/ofeurope-usa is drawing over 6000 visits per month. We conservatively project attracting at least 100,000 visits per month in year one when all three URLs are listed in the major search engines. Using a conversion rate of 2% we expect to generate 24,000 orders during the first year, and double the number of transactions every year for the first three years.Year 1 Year 2 Year 3 Year 4 Year 5 Visits per month 100,000 200,000 400,000 525,000 656,250 Visits per year 1,200,000 2,400,000 4,800,000 6,300,000 7,875,000 Purchase rate / visit 2.0% 2.0% 2.0% 2.0% 2.0% Orders sold 24,000 48,000 96,000 126,000 157,500 Price per Unit $39.00 $39.00 $39.00 $39.00 $39.00 Gross Sales $936,000 $1,872,000 $3,744,000 $4,914,000 $6,142,500 Percent retained 23% 23% 23% 23% 23% Wire service fee $7.00 $7.00 $7.00 $7.00 $7.00 Sales retained $215,280 $430,560 $861,120 $1,130,220 $1,412,775 Wire service income $168,000 $336,000 $672,000 $882,000 $1,102,500 Net Revenue $383,280 $766,560 $1,533,120 $2,012,220 $2,515,275 16 OPERATIONSImagine stepping into flower shop where every bouquet has the unique design and special touches that make it a display of floral art, not just a bunch of flowers. Visitors to the Web sites of Floral Design of Europe will be able to see the 180 different floral and plant arrangements more easily than in a physical flower shop. From the home page, visitors will quickly and easily navigate through the site to select floral and gift arrangements by occasion, flower type, and price point, or if they wish, simply click on the express lane to shop instantly. A few minutes spent online with FDE will speed a touch of elegance on its way to a loved one or a business associate.OPERATIONS STRATEGYFDE’s target customers are Internet shoppers looking for a high level of floral design. FDE’s Web sites will delight novice as well as experienced Internet shoppers by making the online shopping experience a pleasure. FDE will utilize the latest electronic commerce technology to design intuitive, creative and dynamic sites. Shoppers will be able to choose from a variety of occasion choices, categories of floral design, and containers, such as baskets and vases. They will also be able to select among several price points for most products. FDE will offer its customers beautiful and sophisticated designs at competitive prices. The designs created by FDE will have maximum artistic impact, but will conserve raw material costs. FDE will build a preferred florist list by reviewing florists’ advertising and conducting telephone interviews. Florists selected by FDE will be highly trained and capable of understanding the design mechanics that maximize floral presentation. Faithful reproduction of designs will be assured because participating florists will receive instructions via e-mail, phone or fax. Products featured on FDE’s sites will be sophisticated and elegant. There will be no teddy bears or coffee mugs, and customers will not be wasting time looking at “kitschy” merchandise. The market FDE serves will choose to shop at FDE because they understand that the words “floral design” mean that an extra element of style is added to flower and plant products. FDE will add value for customers through original designs, created by its highly trained and experienced florists. FDE will also help educate customers about elements and trends in both domestic and 17 European floral design by offering information and articles on its Web sites and by hosting a chat room.FDE’s Web sites will be created and maintained by A Net Presence, Inc., which has extensive Web design experience. The emphasis will be on making the sites intuitive for users of all experience levels. Careful attention to layout will ensure Web pages that follow an easy logic, without distracting clutter. Shoppers will be able to select their purchases with 2 to 4 mouse clicks. The Web sites will incorporate the latest shopping cart technology, and will provide security with a SSL (Secure Sockets Layer) certificate and encryption between the order receiving server and the server that e-mails the order information to FDE. Additional features will include thank-you e-mails to customers, e-mail reminders for gift giving occasions, special services for business clients, and registration for customers who wish to have gifts sent automatically, for Mother’s Day, birthdays, anniversaries, etc. The Web sites will link to other sites of interest to FDE’s customers, such as Bride’s Magazine.Customers will receive a money back or product replacement guarantee. If not satisfied with the delivered product, customers can call FDE’s toll free service number. FDE will then contact the delivering florist for replacement, or refund the customer’s money via credit card credit. SCOPE OF OPERATIONSFDE will create designs and maintain artistic control of most of the products offered on its sites. A few selected AFS designs will be offered on the floraldesign.com™ site. Orders will be taken from the Web sites by FDE employees, and then relayed to florists in the destination city by telephone. These select florists will then fill and deliver the order to FDE’s specifications. FDE currently has the capacity to handle 60 new online orders per day. Additional office space and phone lines will be added as needed, along with employees. Temporary employees will be utilized for immediate and seasonal personnel requirements. These employees will relay the order information to the destination florists. 18 When orders are received for distant destinations, FDE will retain 23% of the sale price plus a $6.99 wire service charge. The remaining 77% will be forwarded to a flower-by-wire service, such as Teleflora, AFS, or FTD. The flower-by-wire service will handle payment to the receiving florist and maintain transaction records. The fee for this service is 2 to 5% of the sales price. FDE derives a cash flow benefit by utilizing a flower-by-wire service because the service bills FDE 30-45 days after FDE has received the customer order and payment. A Net Presence, Inc. will design and manage the Web sites. It will provide graphic design, technological expertise, and Internet marketing services. Ongoing services will include measuring advertising strategy performance and tracking visitor demographics. ONGOING OPERATIONSFDE employees will receive incoming Internet orders on a continuous basis throughout the day. They will then relay the orders by telephone and/or fax to the florist in the destination city. E- mail will also be utilized whenever possible, and it is expected that within three years most of the order information will be relayed via e-mail or will be fully automated using Internet services. The order gathering and call center will operate twelve hours per day, six days per week. A call center manager will oversee the order downloading process, supervise the hourly employees, and provide quality control and customer service support. Part-time and temporary employees will be utilized as needed to meet seasonal requirements. Kirt Ohler will manage the online business, and Brigitte Ohler will provide artistic direction, oversee the creation of new designs, and write weekly Web site content updates. Web site content will also be collected from independent sources, such as floral design training institutions.19 OPERATING EXPENSESOperating expenses will include office supplies, ISP hosting charges, bank transaction fees, telephone and utility services for the call center, and additional office space and telephone service as needed. Salaries will be paid to Kirt and Brigitte Ohler and two employees. Hourly wages will be paid to at least one employee, with others added as needed. Costs for the commercial Web sites will apply by spring 1999, as well as advertising costs. A Net Presence, Inc. will retain 2% of the revenue generated by online sales. COST OF GOODS & SERVICES Year 1 Year 2 Year 3 Year 4 Year 5 Long Distance Charges $1,200 $1,200 $1,200 $630 $788 Call Center Expenses $48,000 $48,000 $48,000 $25,200 $31,500 Webmaster Commission $7,666 $15,331 $30,662 $40,244 $50,306 Total Direct Costs $56,866 $64,531 $79,862 $66,074 $82,593 Total Indirect Costs $72,634 $94,052 $112,601 $186,979 $218,378 Cost of Goods & Services $129,500 $158,583 $192,464 $253,054 $300,971 20 DEVELOPMENTFloral Design of Europe™ will have its new Web sites operational within 60 days in order to fully exploit the lucrative Mother’s Day season for floral gift sales. DEVELOPMENT STRATEGYFDE’s development strategy is to minimize upfront expenses and cash requirements by entering into a strategic partnership with A Net Presence, Inc., a Boulder Web development firm. In return for 2% of future revenues, A Net Presence, Inc. will create, develop, and maintain FDE’s commercial Web sites. Additionally, FDE will not undertake expensive marketing and advertising efforts for the first year of its operations. Instead, it will rely on the drawing power of its evocative domain names that will be registered with the major North American and European search engines upon launch of the new Web sites. By minimizing its upfront investments and development efforts, FDE will be able to more quickly bring its Web presence to market and begin acquiring market experience and knowledge to aid future development.DEVELOPMENT TIMELINEThe new Web sites will undergo testing within 60 days and will be introduced by summer 1999. Since the design and photography of FDE’s product line has already been completed, the primary focus of development activities will be on selecting the images to be shown on the sites, creating an effective layout, matching the size of the inventory with the online shopping software solution, and testing the Web sites. The timeline below shows the development plan for FDE’s new Web sites:WEEK 1 2 3 4 5 6 7 8 9 10 11 ACTIVITY Select product offerings Design layout Evaluate inventory/software solutions Test Web sites Open Web sites for business Search engine placement USA Search engine placement Europe 21 Open chat room FUTURE DEVELOPMENTFuture development plans include expansion of Web site content, links to other sites, and other community building features. FDE’s goal is to become the premier Internet resource for floral product customers, providing information and opportunity for interaction. FDE will capitalize on its brand recognition by opening retail outlets in supermarkets. These store-in-stores will be operated by FDE employees and will provide a high level of floral design and service. Customers will be offered contemporary and European designed products, not the bunches of flowers currently sold in supermarkets. Also under consideration is a non-perishable product fulfillment center. This center would stock and provide worldwide shipment of dried and silk flower arrangements and other gift items.22 MANAGEMENTCOMPANY ORGANIZATIONFloral Design of Europe™ is an S-corporation. Its founders, who bring a background of successful enterprise development and artistic training, currently manage it. Future organization will reflect the needs of a growing corporation and will include experienced managers from the disciplines of marketing, finance, human resources, law, and Internet operations.MANAGEMENT TEAMKirt Ohler President and CEO Kirt Ohler attended Pepperdine University, where he studied math, architecture and hotel and restaurant management. As the California/Nevada territory district manager of the Footlocker Division of Kinney Shoes from 1980-1983, he was responsible for the opening and development of numerous stores. From 1983-1992 he was executive chef at the Moonshadows Restaurant in Malibu, Ca., the Palm Beach Country Club, Palm Beach, Fl., and Casa Marina, Key West, Fl. As executive chef he was responsible for the overall operations of the restaurants and supervised approximately 60 employees. All three establishments enjoyed significantly increased sales revenues and reduced food costs under his leadership. In Key West he also operated a successful charter fishing boat business. In 1992 he founded Floral Design of Europe in Boulder, Co., and has expanded the business from an initial investment of $7,000 to current assets of $150,000, with annual sales of $200,000. Brigitte Ohler Chairperson and Treasurer Brigitte Ohler earned certification as florist in 1986 in Switzerland from the Schweizerische Eidgenossenschaft after completing four years study. She illustrated the book, Advent Kranze (Advent Wreaths) in 1986. She was the florist at the prestigious Palacehotel in St. Moritz from 1990-1992. In 1992 she co-founded Floral Design of Europe in Boulder, Co., and has designed and created the floral arrangements for the business. She will continue to provide the artistic direction and product development for Floral Design of Europe. 23 STRATEGIC BUSINESS PARTNERFloral Design of Europe has formed a strategic partnership with A Net Presence, Inc. of Boulder, a Web design firm, and its president, Mr. Kurt Eherenman. In return for a percentage of future sales A Net Presence, Inc. will design and maintain FDE’s new Web sites as described earlier.Kurt Eherenman President and Principal Designer A Net Presence, Inc. Kurt Eherenman assisted over 80 companies with Web site design, development and implementation. Skills: Creative vision, graphic design, layout, style guides. Extensive DHTML and HTML programming using Allaire Homesite and Macromedia Dreamweaver, Image creation and manipulation utilizing the latest Adobe, Quark and Macromedia products: Photoshop, Illustrator, Pagemaker, Quark, Freehand, Fireworks. Multi-Media/CD-Rom Production utilizing Flash and Macromedia Director. 3-D Graphics & Animation utilizing Strata Studio Pro and Alias- Wavefront.FUTURE MANAGEMENT TEAM ADDITIONSTo complement its founder management team as business grows over time, FDE will add a call center manager and a marketing manager. CALL CENTER MANAGER. This individual will have customer service, supervisory, administrative, and operations experience. S/he will be responsible for the ongoing call center operations, including overseeing hourly employees, managing customer service issues, and monitoring quality control.MARKETING MANAGER. This person will have marketing, advertising, and Internet operations experience. S/he will be responsible for coordinating traditional media advertising and promotional strategies with the Internet marketing strategies. S/he will also develop new content for the Web pages and chat room.24 We anticipate that business volume will require that the Call Center Manager will need to be hired sometime during the first year. In order to sustain market share and revenue growth, the marketing manager will be hired in the second year. Anticipated salaries are shown here:Year 1 Year 2 Year 3 Year 4 Year 5 Call Center Manager 40,000 50,000 50,000 50,000 50,000 Marketing Manager 0 50,000 60,000 60,000 60,000 ADMINISTRATIVE EXPENSES Based on the revenues projected in the sales and marketing forecast, we anticipate the following administrative expenses:ADMIN EXPENSES Year 1 Year 2 Year 3 Year 4 Year 5 Sales & Marketing 55,500 117,000 136,700 146,050 154,205 Research & Development 56,250 69,500 84,050 99,750 101,500 General & Administration 78,500 92,000 105,500 118,000 131,500 Total Operating Expenses 190,250 278,500 326,250 363,800 387,205 25 SUMMARY OF FINANCIALSFloral Design of Europe™ is poised to take advantage of the convergence of several highly beneficial market conditions. The growth of Internet sales, and specifically the widespread usage of the Internet for floral sales, indicates an excellent opportunity for FDE. We consider the following projections to be conservative.FINANCIAL ASSUMPTIONSFDE assumes that Internet usage for shopping will continue to grow, and that online floral sales will continue to rise with the increase in Internet users. FDE assumes that it can provide a higher level of quality and design by utilizing only highly trained florists, and that it can do so at competitive prices. It also assumes that the increasingly global nature of Internet commerce will be to its advantage because it will offer global delivery of its products, and market its products to an international standard. FINANCIAL FORECASTSFDE will be profitable the first year, and continue to almost double its revenues for the first three years. At the same time, its profit margins are expected to increase from 9.9% the first year to 43.6% in year five.REVENUE, EXPENSE, AND INCOME PROJECTIONSINCOME Year 1 Year 2 Year 3 Year 4 Year 5 NET REVENUES 383,280 766,560 1,533,120 2,012,220 2,515,275 COST OF GOODS SOLD 129,500 158,583 192,464 253,054 300,971 GROSS PROFIT 253,780 607,977 1,340,656 1,759,166 2,214,304 TOTAL OPERATING EXPENSES 190,250 278,500 326,250 363,800 387,205 EARNINGS FROM OPERATIONS 63,530 329,477 1,014,406 1,395,366 1,827,099 NET EARNINGS $38,118 $197,686 $608,644 $837,220 $1,096,25926 CASH FLOW PROJECTIONSThe cash flow projections shown here are determined using the income and expense statements summarized above, and assume no infusion of new capital into FDE.CASH FLOW Begin Year 1 Year 2 Year 3 Year 4 Year 5 OPERATING ACTIVITIES Net Cash Provided by Operating Activities 23,716 185,379 581,078 826,408 1,090,107 Net Cash Used in Investing Activities (10,000) (5,000) (10,000) (15,000) (20,000) INCREASE/(DECREASE) IN CASH 13,716 180,379 571,078 811,408 1,070,107 CASH AT BEGINNING OF YEAR 0 13,716 194,095 765,173 1,576,580 CASH AT END OF YEAR 0 13,716 194,095 765,173 1,576,580 2,646,687 CAPITAL REQUIREMENTS None. This plan will be entirely self-funding if revenue and expense targets are met.FINANCIAL RISKSThe initial financial risk is quite low because the only absolutely required outlay of funds is the percentage of revenues owed the Web site developer. The current retail store already possesses the minimal infrastructure needed to handle the expected start-up sales volume. The major risk would be explosive demand immediately upon the opening of online ordering capability. Mitigation for that situation would include utilizing one or more of the flower-by-wire services to fulfill existing orders, and closing the Web sites until additional office space, personnel and equipment could be brought on board.EXIT STRATEGIESThe planned exit strategy for FDE principals and investors is an IPO in year three. Based on the current revenue projections, that offer will be $6,086,440.27 VALUATION OF BUSINESSWe have valued our business using two widely accepted business valuation techniques: discounted cash flows (DCF) and the venture capital method (VCM). An annual discount rate of 50 percent was used for each, reflecting the inherent uncertainty and risk surrounding a new business venture. The two methods yield results that are in close congruence to one another.VENTURE CAPITAL METHOD. The venture capital method assumes that a company will tender an initial public offering of stock at some known date in the future. The earnings of the company on that date are multiplied by an appropriate price/earnings multiple to determine the future market value of the company. The future value is then discounted back to the present using an appropriate discount rate, determining the current valuation of the company. Floral Design of Europe (FDE) intends to initiate a public offering of its stock after 3 years of operations. Projected profits in the third year are forecast to be $608,644. Using a very conservative price/earnings ratio of 10 (current Internet IPO’s are launching with P/E ratios that are many multiples of 10), the future value of FDE at the time of its IPO is projected as $6,086,440. Discounting this future value back to the present using a 50 percent discount rate yields a current valuation for FDE of $1,803,389.DISCOUNTED CASH FLOW (DCF) METHOD. The DCF valuation method calculates the value of future cash flows using an appropriate discount rate. The projected cash flows for FDE are shown in the appendices for the five-year planning horizon. To value the company, cash flows in year five are assumed to continue to perpetuity. To determine the value of the company at the end of its third year, the projected stream of cash flows beyond year three were discounted back to year three using a discount rate of 20%. This lower discount rate is justified since FDE will presumably be well established, profitable, and secure after its third year. The value of the company at the end of its third year is thus calculated to be $5,134,L. Discounting this value back to the present using a 50 percent discount rate (recognizing the increased risk inherent in the28 early years of the company), along with projected cash flows in years one, two, and three, provides a current valuation for FDE of $1,779,987. VALUATION Both the venture capital method and discounted cash flow method provide conservative valuations for FDE of about $1.8 million, which we take to be the value of the business at this time.29 APPENDICESTABLE OF APPENDICES Financial Statements  Income Statement [5 years]  Balance Sheets [5 years]  Cash Flow Statements [5 years]  Other supporting financial statementsFootnotes Sources30 FOOTNOTES31 1 Doug Tsuruoka, Will Consumers Say It With Flowers Over The Web?,” Investor’s Business Daily, , Dec. 22, 1998, page A9.2 Society of American Florists, Industry Snapshot, http://www.aboutflowers.com, accessed Feb. 2, 1999.3 AFS Floral Finance, Feb. 1999, page 7.4 Tom Prince and Tim Prince, “Who’s Growing? Who’s Not?,” Floral Management, Jan. 1999, page 26.5 Floral Trend Tracker, Spring 1998.6 USA Today, June 17, 1997, page 9E.7 PCFlowers & Gifts Partner Network, http://www.pcflowers.com, accessed March 2, 1999.8 Michelle V. Rafter, “Internet Flower Sellers See Rosy Valentine’s Day,” Yahoo! News, http://dailynews.yahoo.com, Feb. 5 1999, accessed Feb. 16, 1999.9 Tim Clark, “Buyers Taking Dollars Online,” http://CNET News.com, Feb. 11 1998, accessed Feb 12, 1999. 10 Paul Nicholls, “Study: Internet Affected $7.5 Billion in ’97 Consumer Sales,” http://InernetNews.com, Canada, May7, 1998, accessed Feb. 15, 1999.11 Society of American Florists, Industry Snapshot, http://www.aboutflowers.com, accessed Feb. 2, 1999.12 Beth Berselli, “U.S.A. Floral Unveils Plan to Buy a Top Flower Importer,” The Washington Post, Aug. 14, 1998, page G01.13 Tom Prince and Tim Prince, “Who’s Growing? Who’s Not?” Floral Management, Jan. 1999, page 27.14 “Web Newcomers Have Their Own Agenda,” The Industry Standard, Feb. 1, 1999, page 46.15 Ann Handley, “Forrester Forum: Making Internet Marketing Pay Off, Day1,” http//www.emarketer.com, Oct. 5, 1998, accessed Feb. 27, 1999.16 Society of American Florists, Industry Snapshot, http://www.aboutflowers.com, accessed Feb. 2, 1999.17 “E-Commerce Business is in Full Bloom at 1-800-Flowers,” PR Newswire, Nov. 11, 1998.18 “1-800-Flowers Goes Global in New Campaign,” ADWEEK Eastern Edition, Oct. 12, 1998.19 “Fingerhut Executive Views Internet as Route to Expand, Save on Postage,” Saint Paul Pioneer Press, Aug. 1998.20 About PCF&G, http://www.pcflowers.com, accessed Feb. 16, 1999. SOURCES OF INFORMATION These sources not previously listed in footnotes.The 1997 American Internet User Survey, http://etrg.findsvp.com/internet/overview.html.CyberAtlas: Traffic Patterns, http://www.cyberatlas.com.Cyber Dialogue Free Data, http://www.cyberdialogue.com.David R. Truog, Internet Commerce: The open Market Solution, Open Market, Inc. Nov. 14, 1997.Emarketer, http://www.emarketer.com.Encyclopedia of American Industries, Vol.2 Service and Non-Manufacturing Industries, Scott Heil and Terrance W. Peck (editors), 1998, SIC 5992, pages 824-826.Hoover’s Company Capsules, http://www.hoovers.com.The Industry Standard, Feb.8, 1999. InfoDial Electronic Commerce Web Hosting, http://www.infodial.net.Internet Best Practices, http://www.webcentricman.com.Kristin Young, “Gerald Stevens, Inc.: Why Florafax?” Floral Management, Feb. 1999, page 36.The Society of American Florists, http://www.safnow.org.Standard and Poor’s Industry Surveys, Retailing: Specialty, Vol. 166, No. 40, Sect. 1, Oct.1, 1998, pages 11- 12.

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