CONFIDENTIAL

 

THE SCRIM

 

Business Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ă Alex Arjanov, Sunil Nouraly, Serghey Lupu, March 2001.

Table of Contents

 

1.0 Executive Summary

                1.1 Objectives

1.2 Mission

                1.3 Keys to Success

2.0 Company Summary

                2.1 Company Ownership

                2.2 Startup Summary

                2.3 Company Location

3.0 Plan

                3.1 Business Model

                3.2 Company Positioning

                3.3 Client Base Forecast / Monthly Traffic

                3.4 Front End

                3.5 Back End

                3.6 Future Development

4.0 Sales and Services

4.1 Service provided

                4.2 Computer Gaming League & Tournaments

4.3 Advertising solutions

                                4.3.1 Inside Advertising

                                4.3.2 Website Advertising

                                4.3.3 Tournament Advertising

               

5.0 Market Analysis Summary

                5.1 Market Segmentation

                5.2 Website Demographics

                                5.2.1 Main Target Market Segments’ Needs

                                5.2.2 Market Trends

                                5.2.3 Market Growth

                5.3 Industry Analysis

                                5.3.1 Buying Patterns and Competition Within Industries

                                5.3.2 Competitors of the Scrim

6.0 Marketing Strategy and Implementation Summary

6.1 Opportunity

6.2 Competitive Edge

6.3 Marketing Strategy

                6.3.1 Company Marketing and Entry Strategy

                6.3.2 Pricing Strategy

                6.3.3 Promotion Strategy

                6.4 Sales Strategy

                6.5 Strategic Alliances

7.0 Management Summary

                7.1 Organizational Structure

                7.2 Management Team

8.0 Financial Analysis

                8.1 Assumptions

                8.2 Break-even Analysis

                8.3 Projected Profit and Loss

                8.4 Sensitivity Analysis

9.0 Appendices

 

 

1.0 Executive Summary

 

The Scrim is an entertainment center, a club that in its functionality resembles an Internet café. The club will be a gaming center that will allow its clients to use personal computers on a transactional basis, services ranging from the use of email and browsing of the web to use of a variety of gaming software, which is one of the main goals of the company. The club will invite clients to compete on its LAN as well as with the rest of the gaming community on the net and provide and organizational system for gamers that allows them to compete professionally in created seasons and tournaments. The ranking system will be designed to facilitate many different levels of player skill in an attempt to capture the largest part of the market share and establish the club as a local leader in organizing gaming into a professional industry. The club will also hold 2-6 annual tournaments in the most popular and currently demanded multiplayer games, which include ID’s Quake series, Half-Life, Unreal Tournament, Starcraft, Diablo II and many other games.

The Scrim is expecting to generate a stable client base of players, which will be representing the club on a variety of national and international tournaments, and will be recognized locally and online for their achievements. Recognition will be achieved through a promotional system that will be incorporated in a variety of competitive events held inside the club, thus enabling the client base of the club to be exposed to various advertising. Demographically the client base of the club will be composed of males, between the ages of 14-23, which also happen to form one of the main sections of the target market of high-end computer gaming peripheral manufacturers (such as graphic accelerators, sound cards, and fast micro processors) and software developers. A weekly newsletter will be emailed to the clientele of the club, establishing a personalized contact with the clients of the club and creating room for e-advertisement in form of banners and online surveys apart from physical advertisement inside the club. Being a leading gaming center, The Scrim will offer current gaming reviews and articles demanded by the target market and provide an interactive and eventful development of online gaming into a professional industry.

1.1 Objectives

 

Financial Objectives

·        Hourly rate of $4/hour for use of The Scrim’s machines, subject to initial market entry discounts and further evaluation of the target market segments.

·        Internal club advertising rates per machine hour sold, starting at $0.20 per user reached in year 2002 and subject to reevaluation in subsequent years of operation basing on exposure rates and total client base generated.

·        Tournament static entry fee of $30.00 per player, as financing for tournament events, increasing exposure and promotional value of the company.

·        Maintain sufficient financing to increase hardware inventory at the beginning of second year of operations to match capacity increase.

·        Break-even by the end of year 2003, the second year of operations and close all long-term liabilities

·        Become profitable in first 2 years of operation.

 

Activity Objectives

·        Achieve a starting usage ratio of 75 machine hours (MH) per day of operations increasing monthly at 10% and reaching a target of 214MH / day at the end of first year of operations.

·        Achieve a starting registered client base of 75 players increasing monthly at 15% to 349 at the last month of first year of operations.

·        Maintain an annual growth rate of 20% for years 2 and 3 of operations and 15% for years 4 and 5 of operations.

 

Other Objectives

·        Establish a reputation of a local leader and professional organizer of the gaming community in Ottawa.

·        Host professional tournaments and maintain an image of professional rating system for a local gaming community.

·        Form a strategic alliance (possible merger) with XGLONLINE, which will become an official Internet face of the club and provide an interactive online gaming league for further organization of competition at all levels and provide a medium for online advertisement.

·        Form strategic alliances with high-tech software and hardware manufacturers enabling corporate sponsorship programs for professional gamers and creating a stable long-term sponsorship relationship with these companies.

·        Form strategic alliances with web casting gaming websites to increase value of sponsor advertisement.

·        Form strategic alliances with competitors in Toronto, London, and Vancouver to establish a first Canadian central gaming league and amplify broadcasting of tournaments on the web and enter TV broadcasting.

·        Exit after seven years upon establishment of the company.

 

1.2 Mission

 

To provide the online computer gaming market with a unique place for gaming, create a rating system for players and establish appropriate recognition functions.  To capture a very specific target market of gamers and channel these consumers to high-tech manufacturers generating profits through innovative advertising solutions. To form a national gamers league and become a leading link in its organizational structure.

 

1.3 Keys to Success

 

1.       Customer satisfaction is of critical importance. Emphasis is placed on the exceptional interior design of the club (thus increasing startup costs) and the development of a promotional system for cyber athletes[1] that will ensure that the club retains existing user base and rapidly generates new clients until capacity is reached.

2.       Maintaining good relationships with company’s sponsors (high-tech manufacturers) for continuous associative value creation, development of sponsorship programs, and further exposure to larger audiences, benefiting both The Scrim and its sponsors.

3.       Establishing a reputation as being the most complete, informal and new age entertainment center, which meets the needs of its clients and exceeds their expectations on service levels, as well as provides unique and creative advertising solutions to its sponsors.

4.       A series of personalized local marketing campaigns in an attempt of early recognition, establishment of word of mouth advertisement and the best gamers club in Ottawa.

 

 

2.0 Company Summary

 

The Scrim is a startup company with an abundant source of human capital providing creative ideas for the business model. The initial management team of 3 full time members will create a unique club, pushing recognition levels of its clients to a new level and establishing an atmosphere that clearly distinguishes The Scrim from its direct and indirect competitors, allowing the company to realize full potential of advertising revenue through innovative advertisement channeling solutions, and further develop an organizational structure of online gaming into a balanced system recognized both nationally and internationally.

 

2.1 Company Ownership

 

            The Scrim will be incorporated in 2002, owned by its three principle founders at 33.3% ownership each.  The company does not plan to source funding for the project by giving up company ownership, until such a time that the company offers an IPO. The company assumes a 100% debt financing for the first two years of operation with further plans to finance operations internally.

 

2.2 Startup Summary

 

            The initial startup cost is $123,057.50. 49% of the company’s initial costs are associated with the purchase of equipment, which includes 25 state of the art PC’s with high end gaming peripherals and a server, powering the local area network (LAN)[2]. 28% of the startup costs are associated with the interior design of the club, which will be highly decorated and designed to provide a perfect atmosphere for gamers to play and build a community, for which we will create a home. The third largest cost is the software purchases, which include license agreements with software companies and will account for full equipment of

Startup Costs

 

 

Domain registration / renewal

               52,50

 

Interior Design Expense

         35 000,00

 

Web development & Hosting expense

           1 000,00

 

Computer equipment purchases & upgrades

         60 000,00

 

Computer software purchases / licenses

           8 000,00

 

Wages expense

           3 200,00

 

Promotion expense

           1 000,00

 

Bank charges expense

              150,00

 

Interest expense

                    -  

 

Telephone expense

              200,00

 

Advertising expense

           1 000,00

 

Cable internet expense

              500,00

 

Office supplies expense

               55,00

 

Rent expense

           3 000,00

 

Utilities expense

           2 600,00

 

Insurance expense

           1 000,00

 

Licenses and registration fees

           1 000,00

 

Accounting and legal fees

              500,00

 

Management salary

           4 800,00

 

Total:

        123 057,50

each machine of the scrim. Those costs form 7% of the total startup financing. The above three costs form the fixed costs of the project, thus illustrating that most of the startup costs are not service related. Other administrative and operating costs form the rest 16% of startup financing and are illustrated on the following diagram.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


2.3 Company Location

 

            The Scrim plans to select a location in down town Ottawa, more precisely in the area of Bank Street. The club must be easily accessible from Rideau center, close to Ottawa University and several high schools that are going to be targeted. The area of the place is expected to be ~3000 ft.2 (~270m2), the rent subsequently estimated to be ~$12.00/ft.2/year, which amounts to ~$36,000.00. Utilities are expected to be ~$10.00/ft.2/year, as approximated from www.ottawaweb.com. The company plans to maintain the location for all years of operation, and a possible expansion assessed in year 3 of operations after liquidation of debt.

 

3.0 Plan

 

3.1 Business Model

 

             The management team focuses the business model around the The Scrim’s ability to generate sufficient clientele levels for its daily operations and furthermore on the ability of channeling sponsors advertising effectively to their target markets ensuring satisfaction levels at both ends. Furthermore, the team will focus on an establishment of a solid relationship with a web casting gaming websites to broadcast The Scrim’s most popular tournaments and create additional advertisement revenues for all the parties involved. 

 

3.2 Company Positioning

 

            The company will position itself as an industry’s local leader and centralize Ottawa’s gaming community, becoming its communication center, and the location of a variety of competitive events. The Scrim will specialize on the satisfaction of its customers and design a competitive ranking system that will ensure brand loyalty, brand recognition, and word of mouth advertising.

 

3.3 Client Base Forecast / Monthly Traffic

 

            Preliminary market research indicated that The Scrim would be able to generate an initial user base of at least 75 local gamers although the strategy for market entry suggests that this number is likely to be much higher. However, on a basis of conservatism management considers this number sufficient for the first day of operations. Throughout the first month of operations The Scrim is expecting to sell on average 75 MH daily, which amounts to 2325 MH for the first month of operations, assuming that The Scrim operates every day. Through an extensive marketing campaigns and the market entry strategy, the company plans to generate a 10% monthly growth of Machine Hours sold and a 15% monthly growth of the total client base. At the end of the first year of operations monthly machine hours are expected to be near 214 subsequently growing at 20% per year in years 2 and 3 of operations and at 15% for the years 4 and 5 as further shown in the financial analysis. An increase in capacity is planned in year 2 to match the increase in client base of the club (see Appendix B). The following graph indicates mentioned traffic rates over the first year of operations.

 

3.4 Front End

 

            The front end of the company encompasses the club itself. The interior design of the club is going to be managed thematically by a talented designer and will incorporate all the needed accessories to make the Scrim the best gaming club in Ottawa. The color scheme and the logo of the club will be selected on a contest basis. The club will support individual light sources for all the client computers, have 12 Dolby Digital Surround system speakers mounted around the room for ongoing music selection, two big flat-screen Sony Trinitrons will show a list of top players of the club and display the most interesting ongoing games/demos and current events. Two vending machines for snacks and beverages will be available. Furthermore, the club will keep a wall of fame, where most successful gamers will be recognized and future prizes announced and displayed.  The core competency of the company’s management lies within the knowledge of the gaming community and its expertise in analysis of the target market. The scrim will be one of the first clubs to offer gamers something they always strived for but were not able to get – recognition.

LAN administrators of the scrim will be selected to create a friendly and informal atmosphere for the clients.

Internal advertisement will be available in form of posters, prizes, screen savers, and PC wallpapers, with certain specifications discussed further in section 4.0 Sales and Services.

 

3.5 Back End

 

            The network of The Scrim will be powered by an SQLä server and an IISä web server backed with bandwidth. The server will be connected to the web via T3 Internet connection, and will establish a passive push LAN to maximize control of the client computers inside the club.  The website of the club will initially be for informative purposes only and will be hosted on The Scrim’s server. It will have all sufficient information about the company and a variety of gaming related pages to attract our initial clients.

 

3.6 Future Development

 

In August of the first year of operations The Scrim will enter in a strategic alliance with XGLONLINE.com, which will officially become the company’s website and take over the net face of the company. For more information about XGLONLINE refer to Appendix C.  The Scrim will be the physical face of XGLONLINE and host the tournaments announced on the website and via email to clients of the club. XGLONLINE in turn takes over the organizational aspect of the business model and will determine overall strategy and direction of professional gaming first in Ottawa and then on a national level by year 3 of operations. The Scrim will consider introducing a simple food stand service inside the bar after the liquidation of debt and available internal financing. Presently an agreement with a local fast food company for mutually promoting discounts will be considered.

 

4.0 Sales and Services

 

Sales and Services of The Scrim can be grouped in two major sections: the first one refers to the services provided for the club’s clients, professional gamers, and the second one to the sales of advertisement solutions to the company’s sponsors, high end software and hardware manufacturers.

 

4.1 Service Provided

 

            Service provided by The Scrim can be summarized as hourly rental of the club’s PC’s to its clients for a certain fee, which on average is estimated to be $4. Each member of the club will receive a membership card, providing in exchange their e-mail address and other requested information that is to specify a member’s own peripheral preferences for future advertisement channeling. A member may come and use any free PC’s for any allowed purpose (e-mail, web, gaming) at any time during the hours of operation of the club, provided he prepaid the fee in cash. Initially The Scrim does not allow any credit sales, however, an Interac system is to be installed in the beginning of the second year for convenience of the club’s clients as part of renovations. The Scrim’s other services include tournament hosting, during which transactional operations are temporarily ceased for an organized event, where larger audiences will be attracted, and sponsors will be exposed to maximum numbers of potential clients. The club’s members will be able to bring their own PCs; The Scrim will provide at least 10 open slots for those customers. Also, customers will be able to bring parts of their own hardware, more specifically mice, keyboards, and headphones, the club permits the use of personal hardware for increased customer satisfaction.

 

 

4.2 Computer Gaming League and Tournaments

 

            The Scrim will provide an online gaming league for competitive players involved in a variety of first person shooter games and certain live strategy games. The club will encompass a variety of ladders, each corresponding to a specific game or a specific branch of the game (mod), which may be either single player, or team based. Players will enter the lower part of the ladder and have an opportunity to compete for higher rank positions. Furthermore, each ladder will be divided into three divisions (Novice, Semi-Pro, Pro) to segregate the players on the basis of their skill. Each player/team is required to progress through the Novice level in order to reach a higher division. The scrim introduces promotions in the Pro division, that being the incentive for all divisions to compete and move up. In august the organization of the ladders will be taken over by the interactive ladder brought in by XGLONLINE. A participant in a ladder (player/team) is obliged to maintain their account active, which implies challenge higher rank teams or accept challenges from lower rank teams. The segregation of players allows The Scrim and XGLONLINE to successfully allocate specific advertisements to corresponding market segments. This design structure of the competition system is what enables the company to capture both the entry level and the professional players, and allows more effective advertising strategies to be implemented.

 

 

4.3 Advertising Solutions

 

4.3.1 Inside Advertising

 

Advertising inside the club is going to be implemented on a monthly basis and costs allocated basing on the daily MH (machine hours sold) exposure and the total client levels. These advertisements will be of a general nature in form of posters, screen savers and wallpapers on client PCs. Some channeling solutions may be implemented upon request of sponsors via the club’s Server. Nevertheless, this type of advertisement is limited in its channeling ability.       

 

4.3.2 Website Advertising

 

            Website advertising is what enables the company to channel specific advertisements to specific clients as they log into the company’s website. This advertisement may be in a form of banners or survey research; sponsors will be able to select required options. The most aggressive form of advertising remains e-mail, however The Scrim and XGLONLINE will remain very careful with this type of advertising since aggressive advertising tends to produce a negative image about the company. Standard 7” x 1” banners are to be the standard advertisement channel displayed for a specific period of time. Current Java script and HTML standards allow the advertisements to be animated, have up to 16.8 million colors and provide a hyperlink to the advertisers website. The company will be designed to attract competitive players who will then be exposed to the advertising, while visiting the website to maintain their accounts.

 

4.3.3  Tournament Advertising

 

            Tournament Advertising will assume a form of posters, and various prizes for the competitors. In an attempt to capture the value, The Scrim will approach manufacturers of various hardware and software to provide the prizes for the top winning teams in exchange for exposure, net broadcast and a text mentioning on the website. Tournament sponsors are, therefore, offered a more general solution, while likely exposed to larger audiences. The tournaments are going to be LAN based events of an extremely high promotional value with prize fund exceeding $5000US. During these tournaments, best players will achieve continent-wide recognition via web-casting, IRC centers, and website overviews, the sponsors of The Scrim will have an opportunity of reaching the maximum of their target markets, while the software companies will have a chance to establish brand awareness of their new games. Research indicates that LAN tournaments hosted by CPL (USA based professional league) played a major role in the success of several online action games.

 

5.0 Market Analysis Summary

 

The market for online computer gaming leagues and gaming centers is new and expanding quickly.  The first online league was established in July 1997 following the rapid development in network gaming involving more than one human player.  Online gaming leagues take on a role of organization of gaming, propose a hierarchy system, and create a basis of skill comparisons across geographical areas. Currently, the market is in its development stage, there are very few online leagues, and there are no Canadian leagues. Most of the leagues that exist do not compete actively, because they capture different market segments.

 

5.1 Market Segmentation

 

            Our primary target includes two main sections, which are further segmented into sub markets (for additional overview see the target market model in Appendix A):

 

1.       Competitive players - males aged 14 to 23, with a family income of $27,000 or greater.