Company creation and establishment process

Business Plan -- Solar Panel

Connecticut Solar Energy (CSE) is located at 331 New London Turnpike in Glastonbury. The company is engaged in the business of solar panel installation. The operation will be a two-person partnership consisting of a certified solar panel installer and a business graduate.

The financing requirement to start Connecticut Solar Energy is approximately $50,000. The partners are putting up $20,000 of their own money to start the business, so the remaining financing that will be required is $40,000, given the expected losses until the company becomes profitable. The objective of this business plan is to secure the remaining financing necessary to start Connecticut Solar Energy.

The information contained in this business plan is strictly confidential. It is supplied in this report on the understanding that it will be held in confidence and will not be disclosed to any outside parties without prior written consent from both Paul Smith and Marcin Bakula.

Executive Summary

Connecticut Solar Energy is a company that installs solar panels and provides sales, consulting and service to retail customers in the greater Hartford area. The company is a partnership started by Paul Smith, a licensed installer of solar panels with five years' experience and business school graduate Marcin Bakula. Paul will handle the installation and consulting side of the business while Marcin will handle the marketing, sales, administrative and accounting functions.

The company requires $40,000 in startup financing. The two partners are going to contribute $10,000 each. The startup financing is necessary for the purchase of a truck and supplies, in addition to meeting operating requirements until the company is profitable. The breakeven point for revenue is $59,000 and this is expected to be reached by 2013, based on conservative revenue estimates.

Green energy is a significant trend is society today. The White House supports the development of America's solar panel industry. In Germany, government support has made that country the number one market in the world for solar panels, so similar initiatives in the United States are expected to propel strong growth. The industry already has strong growth, at 30% per year for the past fifteen years. This growth is expected to accelerate in the coming years as the result of government action, increasing fuel prices and greater availability of solar panel technology.

Connecticut Solar Energy plans to focus on the retail segment of the market, servicing homeowners and small businesses. The company intends to focus operations on Greater Hartford but is willing to service other areas of the state if need be, possibly also Springfield, MA. There are a number of competitors in the state, most of them small independent operators much like CSE. The industry's growth rate ensures that there is plenty of business for everybody without engaging in dangerous price competition.

The marketing program for CSE consists of a robust Internet site, signage at the office and on the truck, and a combination of flyers and ads in local newspapers. The objectives of this marketing program will be to increase brand awareness and to entice customers to contact the company. The website is expected to be the key component and will contain a wealth of information about solar panels so that it becomes the go-to site in the area for such information.

The company's business model calls for robust growth in the first three years, achieving profitability in 2013. As the growth rate continues, expansion may be possible by taking on more installers and saturating the local market. The business model calls for aggressive pricing on services, since they will be performed by the owners, and competitive pricing on product, as CSE has less pricing control over product.

The partners believe that the strong growth in the solar panel market gives them a tremendous opportunity. They envision that solar panels will eventually become standard on most homes in Connecticut and believe that by moving into this market and establishing the brand early, they will be able to capitalize on this growth for many years to come, building a powerful business over time that could expand throughout the Northeast.

Industry Analysis

The external environment for solar energy is very favorable. The industry has grown rapidly. In 1985, global solar panel installation was only 21 megawatts. In 2009, it was 7.3 gigawatts. This represented an increase of 6080 megawatts over 2008 levels (SolarBuzz.com, 2010). This growth has occurred as the result of a global trend towards green energy sources. There is increasing awareness both about the relative scarcity of fossil fuels and about the environmental, economic and even national security consequences of fossil fuel dependency. The oil spill in the Gulf of Mexico in April 2010 will only intensify the demand for alternative, non-polluting energy sources such as solar panels.

Nowhere is this shift in public consciousness regarding solar energy more important that in the White House. As President-elect, Barack Obama pledged to shift governmental energy consumption away from fossil fuels. This strategy is part of a broader plan that will bring new jobs in alternative energy. Solar panels, along with wind turbines, were singled out as areas of focus for new American job creation in alternative energy (Change.gov, 2009).

The impact of government policy on industry growth cannot be understated. In Germany, government programs to encourage small scale solar panel installation have made that market the largest in the world for installations. The U.S. market currently sits at 485 megawatts as of 2009. Demand for solar has grown approximately 30% per year for the past fifteen years. Strong growth continues to be projected for the next five years at least. The potential for growth is substantial, as solar energy currently meets just 0.01% of total global energy demand (SolarBuzz.com, 2010).

The Connecticut market is subject to a moderately intense level of competition. Most of the competitors are relatively small businesses not unlike CSE. Some of the competitors include Connecticut Solar Systems, Sunsearch Inc., the Alternative Energy Store, GoGreenSolar, CleanEdison, Akeena Solar, Solar Works Inc. Sunlight Solar Energy, Pure Point Energy, the Ross Solar Group, Waldo Renewable and Southern Exposures Inc. (USCity.net, no date).

The most prominent means of industry segmentation is by customer type. There are two main markets for solar panels in the Connecticut -- retail and institutional. The retail market consists of homes and small businesses. This market is focused on driving down energy costs. The cost of acquiring new customers in this market can be high, as promotion is required and the size of the contracts is generally small. The institutional market is focused on large businesses and government entities. As with the smaller markets, these customers are driven by a desire to lower total energy costs. They often require more complex systems, but the contract sizes are much larger than in the retail market.

The solar panel market in Connecticut is expected to boom in the next 2-3 years. Past growth rates are in the 30% per year range and this is not expected to change. Strong growth has been projected for the coming five years by industry analysts (SolarBuzz.com, 2010). In addition, strong government support for green energy is expected to create incentives for consumers and small businesses to switch to renewable sources of energy, of which solar is the most readily accessible to the retail consumer. Favorable policies from the White House are expected over the next few years to increase the pace of adoption of solar panels. In addition, the Connecticut Green Energy Fund is a state-level initiative that provides financial incentives for solar energy and can even provide panel installation work -- partnering with the Fund can help us to absorb some of this business.

Description of Venture

Connecticut Solar Energy is a marketer and installer of solar energy solutions. The company's primary business will be in solar panel installation. Secondary businesses will include the solar energy consulting and the sale (without installation) of solar energy supplies.

The primary supplier to CSE will be the manufacturers of solar panels. The leading producer of solar panels in the United States is SunPower. For solar inverters, OutBack and Mastervolt are the leading American suppliers. Suppliers of mounting systems include Direct Power & Water and UniRac. In the industry, the brand of cell is also considered to be important. We expect to work with the top manufacturers to deliver the best value to our customers. The top cell manufacturers are considered to be Sharp, Q-Cells and BP Solar (Environmental Leader, 2007).

Connecticut Solar Energy will offer a number of different services. The two main components of our service will be sales and installation. The sale component will involve marketing solar products to a wide variety of retail customers. These components may or may not require specialized installation, depending on the product. In general, however, we expect to market alongside the solar products our installation. Installation is considered to be a value-added service where we can offer superior performance to our competitors. CSE will also offer two other forms of service as well. These are the servicing of solar panels and consulting with respect to solar needs. CSE is capable of fine-tuning, improving or repairing solar panel systems as need be. The company is also capable of providing consulting services. There are many customers who do not fully understand how solar energy systems function and can benefit from the consulting function. Consulting will also act as a marketing tool, driving customers to our sales and installation business.

In the early stages, the business is expected to be small. The partners will be responsible for the company's work in the early stages of development. The staff will number three. However, because we view the market as being subject to rapid growth, it is expected that the company will be able to grow rapidly. There are contingency plans in place to help shepherd the company through a rapid growth process.

During the launch phase of the company, a small office will be required to support the back office function. One receptionist/dispatcher/bookkeeper will be required to work in the office part-time to assist the partners. Supplies needed to build the business will need to be acquired. At the office, this will include office furniture and equipment, including lap tops for the technicians. A truck will be required -- a pickup is fine -- and should be painted to serve as a mobile advertisement for the business. As well, the partners will require tools in order to perform installations. These supplies, except for the truck, will cost in the area of around $10,000. The truck could cost between $15,000-$30,000 depending on the availability of a quality used vehicle (i.e. On that is devoid of physical defect, which would detract from the image that the company is trying to project). This gives a total supply cost of $25,000-$40,000.

The partners in the business are Paul Smith and Marcin Bakula. Smith, 25, is a licensed solar panel installer with five years of experience in the industry. His primary role in the company will be in the installation, consulting and service functions. Paul will have some managerial input, especially with regards to technical matters. Paul will have 50% of the equity in the partnership. His work experience is primarily in solar panel installation. Paul also has customer service experience from prior part-time work and has dealt directly with customers on technical issues during his tenure in solar panel installation. Paul has the blessing of his previous employer in this venture and is not subject to a no-compete clause.

Marcin, 23, will be in charge of the business aspect of the business. His role will be split between time at the office and time on the road. Marcin will manage the sales function acting as a liaison with both customers and potential customers. Marcin will also perform the management functions at the company, including the hiring of the office staff, the preparation of budgets, the handling of governmental paperwork, accounting and other business functions. Marcin is finishing his undergraduate degree in business administration. This included coursework on running small businesses, accounting, marketing and management. Marcin's work experience is in retail sales and customer service, giving him strong interpersonal experience and the ability to close sales and to offer a superior level of customer service. Upon completion of the degree, Marcin will move full-time into the launch of Connecticut Solar Energy. Marcin will have 50% equity in the venture.

Operations Plan

The company is going to be operated on a split mobile/office platform. The office will be the center of customer contact and will be where records are kept. The office will be located at 331 New London Turnpike in Glastonbury, CT, in a small office visible from the road. The office will contain a fireproof safe and other security measures in order to protect the company and its most important information.

The two partners expect to spend most of their time on the road, meeting with and servicing customers. To facilitate this, they will be in constant contact with the office and with each other. The use of mobile technology -- laptops, Blackberries -- will allow for them to be on the road without compromising the flow of communication. This use of mobile communication will allow them to service a broader area than would otherwise be possible for such a small company. The service area is expected to be roughly the state of Connecticut, although the primary market will be in the greater Hartford area, including New Britain, Manchester and west to Bristol. The population of this area is approximately 1.2 million and the state's population is 3.5 million. Business is expected to be concentrated in the Hartford area, in particular in the suburbs, which have a greater concentration of wealth than in the inner city.

Leads are expected to be generated through advertising, through word of mouth, and through referrals from agencies such as the Connecticut Clean Energy Fund. The initial point of contact will be the office, either through the office staff member or through Marcin. When the office staff receives an inquiry, this will be passed along to Marcin who will then follow up. The customer will be contacted over the phone initially and an appointment scheduled for consultation. Only once the consultation has taken place is a visit by Paul scheduled.

The consultation will reveal the amount and scope of the work that needs to be done. With this knowledge, either Marcin or Paul will be able to ensure that adequate supplies are on hand. Once the supplies are ready, the appointment can take place. Paul will do the work, with the bill presented to the customer at that time based on the estimate provided by Marcin. An incentive will be given for early payment in order to keep accounts receivable low.

Technology will be used in many ways in this company. As mentioned previously, mobile information technology will be critical to maintaining constant communication between the partners and the office. This will allow the partners to spend more time on the road, making sales and installing solar panels. In addition, two other major uses for software will be inventory management and customer relationship management.

Inventory management is critical for two reasons. The first is that it helps to keep costs down. The more inventory is held by the company, the larger the office and storage space needed will be. In addition, inventory represents money spent that is not earning the company revenue. Efficient business practice demands that inventory levels be tightly controlled, sufficient only to ensure that there are no delays in service. An inventory management system will allow the partners to keep careful track of inventory and ensure that ordering is conducted in a timely fashion. Having a professional inventory management system will allow the partners to link with their suppliers, streamlining the ordering process.

Solar panel customers can be repeat customers, even at the retail level. These customers, after seeing the financial benefits of solar panel, may wish to expand their use of solar energy. As such, it is felt that a strong customer relationship management system will allow CSE to drive repeat business. The cost of a new sale from an old customer is much lower than the cost of an equivalent new sale from a new customer. Therefore, a CRM system is required to log all information about each customer. This allows anybody in the company to easily access customer information in the event that the customer makes another contact. It also allows Marcin to schedule follow-up calls that may generate either service or new installation business. In addition, such follow-up communication allows the company to better understand the value that it offers customers. It will help to provide customer satisfaction benchmarks that the company can use to improve its service function across the board. At this point, the company's knowledge of its customer is largely speculative. The process of information gathering is essential to adapting marketing, sales and service systems at a later point.

Marketing Plan

There are several elements to the marketing plan that need to be considered. These are pricing, distribution, promotion, produce forecasts and controls. Each of these will be considered in turn in this section of the business plan.

There are two elements to price -- product and service. The price needs to reflect the nature of the marketplace and the overall strategy of the company. Solar panel installation is a largely undifferentiated field. The level of competition is high but there are few dominant competitors. Connecticut Solar Energy can focus on developing competitive advantage by offering superior service, but this is not a source of sustainable competitive advantage. The company can also compete on the basis of a low cost strategy, but to succeed this will require high volumes, something that is all but impossible for a two-person company.

The price, therefore, should reflect a premium positioning but should also be set with the understanding that the company has yet to establish a premium product/service offering in the marketplace. Thus, the company's prices will need to be competitive until the brand reputation can be established that supports higher pricing levels. Prices will be benchmarked against a basket of competitor's prices. The objective will be to set a gross margin on products of 30%, and a gross margin on service of 50%. If these margin targets can be achieved with price points that in within 20% of the mean price on a given product or service in the competitor's basket, then that is ideal. What this means is that if the mean price for panels is $1.20 per watt and the customer wants a 280 watt system installed, the panel cost will be $336. CSEs price point will be between $269 and $403. If the wholesale cost of such panels is $0.80 per watt, CSE can charge $291 for the cost of panels and meet margin expectations while falling well short of the mean retail cost of such panels. It is clear that in order for the product pricing strategy to work, CSE will need to negotiate the best possible prices from our suppliers.

Labor costs are an area where CSE has more flexibility. The company's variable labor component consists of the two owners. Thus, while a nominal $20 rate may be attributed to Paul for an hour of labor, resulting in a $40 per hour charge to the client, as an owner Paul receives in theory both the labor hour cost and the margin. Thus, we have significant flexibility over our labor costs when the partners are conducting the labor. This gives us the ability to price labor at a very competitive rate. We expect that in order to build our market share we will need to do this. Labor costs offered to the customer will depend on not only our analysis of the mean rates of our local competitors, but will also on the size and nature of the job in question.

An aggressive pricing strategy with respect to labor will help to build market share. One of the main selling points of solar panels is the savings that they will offer to the consumers. We believe that because the argument in favor of solar panels is strictly economic, that customers are going to be price sensitive and that the industry overall will be subject to a high price elasticity of demand. As such, it is believed that we can build our business quickly by undercutting the competition. As we grow, we will have less flexibility with regards to undercutting the competition on labor rates as hired installers will reduce our flexibility with respect to the base rate upon which our margins are based -- we can reduce our own rate knowing that we will benefit from the increase in business it brings but we cannot reduce the rate of non-owner staff in the same way.

As a service, distribution is conducted by the partners, who drive to the site in order to conduct both consulting/sales calls and installations. A pickup truck will be used to deliver the product at the customer's site.

As a new business, we will need to place significant emphasis on promotion. However, promotion is going to be constrained by a limited budget. This means that some of the more effective means of establishing the brand, such as television or magazine advertisements, will be priced out of our reach. The promotional plan will include the following -- signage, the Internet, flyers and possibly local newspaper ads. Signage is the easiest to execute and will consist primarily of signage on the pickup truck and at the office. Signage will cost approximately $1,000 total. Signage has the benefit of reaching thousands of eyeballs, both in passing vehicles on the New London Turnpike and in all the vehicles that are in traffic with the company truck. Signage is affordable and for the most part is a basic necessity for these two points of signage. The downside of signage is that it conveys very little information. There is limited capability to send a clear message to consumers or to instill a call to action. The basic message the signage should convey is the name of the company, contact information and a short slogan, along the lines of "Solar panels save you money! Call us to find out how."

The Internet is the first stop for consumers wishing to find out about a business. We will need to have a website. The more informative our site is, the more effective it will be. The Internet can cover a lot of basic information that would otherwise need to be addressed in person. If our site conveys more information than the sites of our competitors we will be the go-to source for information about solar panels in Connecticut. The site should link up with our customer service, through email or even text message (during business hours for the latter). This allows customers to contact us more easily. We would not post prices on the website, as this is not only proprietary information but is also subject to negotiation with the customer based on their needs. The Internet is a relatively cheap form of promotion but is not personal. It also is dependent on the ability of our site to be picked up search engines. There are possibilities for the use of social media -- these can be explored at a later date when the company is larger and a full-time position can be dedicated to marketing matters. The partners will initially be focused on serving customers.

The third component of the promotional program will be flyers and local newspaper ads. These cost more -- ranging from $500-$2,000 depending on the degree of market penetration that is sought. The production of these ads will likely involve a graphics specialist, which could increase the cost. These ads are effective in bringing new business to the company that has not previously considered solar panels (those who are already considering solar panels will find the website first). Thus, they reach a different component of our target market than does the website. In addition, these ads drive phone calls and website visits. In the early stages of the business, print promotions will be required in order to gain exposure for the Connecticut Solar Energy brand name.

The initial objectives of the marketing campaign will be measured by a handful of key metrics, including market awareness of the brand, sales growth and market share. Follow-up surveys may be required in order to test brand awareness. Sales and market share statistics can be compiled internally. New customers will be surveyed to determine how they found out about the company. This will help in guiding future marketing efforts by illustrating which parts of the promotional plan have been the most effective. We believe that you cannot know too much about the customers, because that knowledge can give us insight into finding new customers.

A final component of the marketing plan will be referrals. We will entreat our customers to refer their friends to us, under the principle that if you do not ask, you will not receive. We may consider the use of referral incentives in order to increase the number of referrals generated.

With the information gathered, controls can be implemented. These controls will set limits on the amount of spending of different components of the market program to the benefits that they are expected to yield. A flyer may generate profit, for example, but it may not generate as much profit as the website. This would indicate that more money should be spent on the website. By making adjustments based on information, we can better control our marketing spending, maximizing effectiveness.

Organizational Plan

Connecticut Solar Energy will be organized as a partnership. Partnership is a simpler form of business organization. In legal terms, a partnership is an unincorporated business and is commonly used to carry on a trade, which is the initial business of CSE. Each person contributes money or labor and the partners then share in the profits. Each partner -- Paul and Marcin -- will receive a 50% share in the business. According to the IRS (2009), a partnership does not pay income taxes. Rather, the profits flow from the partnership to the partners, who then pay the taxes on their personal income tax statements. Partnerships do not have legal liability -- that falls to the partners.