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Funding Proposal for Entrepreneur Project Funding

3479 words (14 pages) Business Assignment

24th Nov 2020 Business Assignment Reference this

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Introduction

The identified entrepreneurial project is the incorporation of ProDelivery, a courier service company that will use drones as part of its modes of delivery. The idea for providing courier services is a good business opportunity because people in the current business and home environments are increasingly adopting busier lifestyles and demanding delivery services. Even in smaller towns in the country, courier services are always on demand. This market need has not been adequately met by the existing courier companies and the national postal service. Furthermore, existing companies that offer courier services have been slow to integrate recent technological advancements into their service delivery. As such, the use of drones in the proposed entrepreneur project will profoundly influence the company’s success.

Key Criteria for the Proposition

A key criterion for the proposition is the innovativeness of the business idea and its potential to grow and generate profits. In the contemporary global business environment where technology is evolving at a breath-taking pace, almost all business ideas must integrate the changes in technology. An entrepreneur must structure and model his or her business idea in such a way that it exploits the evolving technological advancements that have changed the business world (Baron & Shane, 2007, p.11). As such, the success of the courier business will be based on its effectiveness in integrating the latest technological advancements such as drones.

This report presents a proposal for the funding of an innovative entrepreneurial project. The report covers funding needs, business valuation, product definition, financial instruments, consideration for the next round of funding, management structure, risk mitigation, and exiting the business. These aspects of the report detail the feasibility of the courier business and why it should be funded.

Funding Need

The courier business will need funding to start-up and operate effectively. It will require an initial investment of £2 million, part of which will be used to procure drones for delivering the packages and other products. A portion of the investment will be allocated to getting necessary licenses and operating certificates. Resource allocation will also be needed to set up a website and establish electronic systems ordering the services, monitoring the delivery progress, and making payment. Furthermore, money will also be required to pay influencers to enhance the organization’s social media presence. The business projects to make a net profit of £86,000 in the first years of its operation. In subsequent years, the profit is expected to increase exponentially. 

The business has several options for getting funding. Some of these options are getting a bank loan, attracting angel investors, crowdfunding, and getting a venture capitalist. Considering that the business is technology-oriented and has very high growth potential, the most preferred source of funding is venture capitalist. Venture capitalists are willing to invest in technology-driven companies and businesses with high-growth potential in sectors such as biotechnology, communications, and information technology. As such, the courier business has a high likelihood of attracting venture capitalists because many of its operations are premised on technological advancements.

Discounted Cash Flows for the Entrepreneurial Project

Before the venture capitalists can invest in the business, they will have to determine the company’s valuation. The most common way for determining the company’s valuation is through the discounted cash flows. Investment analysts and professional investors commonly use the discounted cash flow method to establish how much to pay for a company, whether it is for buying the whole company or for the company’s shares. The discounted cash flows for the courier business for five years of operation are as shown below.

Year

Actual Cash Flow

Discounted Cash Flow

1

£100,000

£86,957

2

£103,000

£77,883

3

£106,090

£69,756

4

£109,273

£62,473

5

£112,551

£55,958

Product Definition

The courier business will deliver products ranging from small packages like envelopes to large shipments for individuals and companies. The company will combine all these package types in an attempt to maximize profits. In cases where the business will not have the required equipment or mode of transport needed to deliver a particular package, it will subcontract the service to an established courier. All the products that meet the standards of drone delivery will be delivered to customers using drones. The target market for the business will be small and medium-sized enterprises in major towns and their environs as well as individuals working in those towns. The business will also seek customers from households that would want the services of a delivery company. The firm will also establish a website where customers can visit and request for the courier services.

The business will target both residential and commercial customers that want items delivered for them. The company will pick up and deliver different kinds of packages, including perishable goods, checks and money orders, or body organs for healthcare facilities. The company will establish an online platform where customers can use their smartphones or other internet-enabled devices to request the courier service and check on the delivery progress. This service will be attractive to customers because of its integration of technology in its service offering. The courier business is relatively easier to start and less costly. Also, there are minimal requirements in terms of formal training and certification to provide courier services. All that one needs is the ability to effectively communicate with the customers and deliver items promptly and in their right manner.

Financial Instruments

A venture capitalist will demand an equity position in the business with the exchange of the fund in the company’s operations. The amount of funding that a venture capitalist will be willing to give out will depend on the business’ level of risk and the potential to generate huge returns in the future. As such, the founder of the courier business will have to give up some equity or ownership in the business to an external party. The organization will look for venture capitalists who bring relevant knowledge and experience to the business. The aim will be identifying a venture capitalist who shares in the organization’s vision and believes in the ability of the organization to turn its business idea into a profitable, successful venture.

Exchanging equity for funds from venture capitalists is a better option than crowdfunding and blockchain for various reasons. Getting funds from venture capitalists will be easier for the company because most venture capitalists want to invest their money in innovative entrepreneurial projects that have high growth potential. The other funding options have their limitations that make them inappropriate for the courier business. For instance, seeking funds through crowdsourcing will present difficulties in creating and selling shares. The shares in the crowdfunding option are usually unlisted, which will mean that the investors will lack the flexibility of selling them. Although the business has high growth potential, it is perilous, which makes it unfavorable to find funds through crowdfunding.

Blockchain is also not appropriate for the business because of various reasons, including scalability, privacy, and regulations. For instance, Bitcoin is the most successful blockchain technology yet only 0.1 percent of the world population uses it. The technology can process only less than ten transactions per second, while other options such as Visa can handle tens of thousands of transactions per second (Niranjanamurthy et al., 2018, p.7). The slow transaction-processing speed will not be appropriate for the courier business, especially because the company will focus on growth and expansion. The other disadvantage of the blockchain is that data is encrypted and anonymous, meaning that every person on the network can rightfully access the data. The access by anyone potentially compromises the privacy of other users.

Competitive Analysis

The courier industry is very competitive with rivals in both the domestic and international business landscapes. The main competitors for ProDelivery include FedEx, DHL, Blue Dart, and CH Robinson. Although these companies have already saturated the market, there is still an opportunity for ProDelivery to attain great success by focusing on technology integration. The unique selling point for ProDelivery will be the use of drones in its delivery processes. The company will use this point to attain a competitive edge over the other companies because many of these companies have not adequately exploited the capabilities of drones for delivery operations.

Despite the existence of numerous courier companies in the country, the market demands are still not adequately met. Most of these existing courier companies fail in vital elements such as technology integration and the quality of services. These companies have been unable to match the efficiency that most customers are looking for in the delivery industry. Most customers want courier companies that are small enough to offer personalized services and still big enough to deliver on the same day, even at odd hours. This is in line with Bhide’s (1996, p.120) statement that businesses that personalize their services to customers tend to attain high levels of success. Very few of the existing courier companies meet these criteria. For this reason, there is a window of opportunity for a start-up courier business in the industry.

Opportunities in the industry will present avenues for the increased demand of the delivery services and the subsequent company’s growth. A vital aspect that offers opportunities for the courier business is the potential for innovation. In the courier industry, customers are looking for companies that can innovate the services to make delivery easier, more efficient, and less costly. For this reason, the company will strive to invent new features to add to its courier services to propel the business to new heights.

Scaling the Idea for the Next Round of Funding

For the courier business to remain sustainable and be attractive to investors for the next round of funding, it has to be strategic in its operations. To position itself for the next round of funding, the company will have to put together its business plan detailing clear strategies for its services and the path to achieving high profitability and growth. The company’s executives will also have to demonstrate to venture capitalists the plan they have in leveraging on technology to ensure increased success and growth. The company’s business idea is based on the importance of using technology as a platform for establishing a competitive edge over other courier businesses in the industry. The integration of technology in the business will allow the company to be more efficient through reduced paperwork, better storage of customer information, and the ability to enable customers to use GPS technology to track the progress of their deliveries. Since only a few courier companies in the industry utilize these technological advancements, having a business that integrates them creates a competitive edge.

The courier business will also look forward to the next round of funding through preparation in its market development strategy. The company will extensively invest in the promotion of services in new geographical areas. It will also commit to presenting the services through various media platforms. For instance, if the business notices that it is older adults that predominantly order for the company’s courier services, it will try to attract young customers by placing advertisements in publications that younger customers read. The focus of this strategy will be exploiting a market that is already existing. Other than scaling the business for the next round of funding, the market development strategy will also serve to add value during the first round of the business.

Management Structure and Building the Team

The management structure entails the relationship between various roles in the courier business. Through the structure, members of the organization can understand how the various roles are linked and the levels of responsibility involved in each part. The board of directors will have the task of making major business decisions and giving directions for the business. The board will also have the responsibility of recruiting and dismissing the company’s senior management. Besides, the board will be involved in the financing of the business and approving the budgets for operations. Other responsibilities include approving employees’ salaries as well as other compensations such as stock. For the board of directors to be successful in their duties, they will need to have a capable team.

Building a team for the courier business will entail following a series of steps related to identifying and hiring the right individuals to provide the services. The first step will be defining the organization’s desired business culture and finding people who fit that culture. The business culture will be established around excellent customer service, transparency, and accountability. The goal of this courier business is to leverage on technology to provide the best service options for timely delivery at the best possible rates. The firm aims at providing customer-centered services that exceed the customers’ expectations in the areas of prompt delivery, dependability, and high quality. As such, those who will be selected to be part of the team will need to be ready and willing to identify with this business culture and organization goal. Furthermore, the chosen people should demonstrate the ability to work together as a team (Mullins, 2012, p.51). This means that members of the team will be aligned in their actions and thinking toward achieving a common organizational goal.

Lastly, the business will also consider the specific qualifications and skills necessary for success in the courier industry. Some crucial skills that the team members will need to work for the courier business include effective communication, time management, critical thinking, judgment and decision-making. Successfully working in a courier business requires active listening where the courier gives full attention to what the customers are saying, taking time to understand what they are saying, and appropriately asking questions (Ho et al., 2012, p.116). There is no specific formal training or education required to work in a courier business. All the team members need is the ability to communicate clearly with the customers, manage their time well, think critically, and make sound judgments and decisions.

Risk Mitigation

Like any other start-up, the entrepreneurial project is a risky venture. For a business to thrive in a competitive environment, it has to take more and more risks. Risk-taking creates opportunities for innovation and competition. As such, the courier business will need to have a risk mitigation plan to ensure its success and continued sustainability. The business will need to prepare a risk management plan, clearly understand it and consistently improve upon it.

A risk management plan for the courier business will follow various steps. The first step is the identification and assessment of the risks. Some of the risks that the firm will have to deal with include losses, theft or damage of the delivered products, supply chain interruptions, return of packages, reputational risks, strategic risks, and legal risks. Instead of avoiding the risks, the courier business should try understanding and identifying the levels of risks, and then adequately engage in the strategic planning and mitigation of the risks.

Exiting the Business

Like any other business, the courier business is expected to go through a series of changes in the course of its lifetime, and the business owner should ensure that he understands exactly where the company is in the life cycle to prepare for the next stage and to know the right time for exiting. The first three stages of the business life cycle which are launch, growth, and shake-out, are not the right time for the owner to exit from the business. This is because under these stages, the company will still be establishing its ground in the market, and any significant changes in its management could severely affect its operations and continued profitability (Muda & Rahman, 2016, p.684). 

The launch stage will not be an ideal time to exit from the business because it will be a time that the company is starting its business operations, and the revenues are increasing slowly. This phase of the business will need the owner’s input to instill core values and establish a strong business culture. Exiting the business during the growth stage or the shake-out stage would also not be a good idea for the owner. During these stages, the company will be experiencing expansion, and it will be making huge profits. The owner may want to stick around during these stages to realize the business dream of exponential growth.

The right time for the owner to exit from the business is either during the maturity stage or the decline stage of the business. During these stages, the business’ revenues start to decrease, and the profit margins reduce. The business owner may want to exit the company during these stages to allow for its restructuring. For it to survive, it will need to evolve, and different ownership would help facilitateits evolution. The business owner could want to exit the business by positioning the company to be a desirable acquisition. Another bigger company could then acquire the business.

Conclusion

In conclusion, the entrepreneurial project has high growth potential because of its integration of the latest technological innovations in its delivery services. The cash flow discounting for the business shows impressive results that will be attractive to venture capitalists. Venture capital is the ideal funding option for the business because it favors technology-oriented business projects. The company will focus on enhancing its innovativeness and market development strategy as its premise for the next round of funding. Exiting the company will be either during the maturity stage or the decline stage of the business.

References

  • Baron, R., and Shane, S., 2007. Entrepreneurship: A process perspective. Nelson Education.
  • Bhide, A., 1996. The questions every entrepreneur must answer. Harvard business review, 74(6), p.120.
  • Ho, J.S.Y., Teik, D.O.L., Tiffany, F., Kok, L.F. and Teh, T.Y., 2012. Logistic service quality among courier services in Malaysia. International Journal of Trade, Economics, and Finance, 3(4), pp.113-117.
  • Muda, S., and Rahman, M.R.C.A., 2016. Human capital in SMEs life cycle perspective. Procedia Economics and Finance, 35(2016), pp.683-689.
  • Mullins, J., 2012. The new business road test: What entrepreneurs and executives should do before writing a business plan. Pearson UK.
  • Niranjanamurthy, M., Nithya, B.N., and Jagannatha, S., 2018. Analysis of Blockchain technology: pros, cons, and SWOT. Cluster Computing, pp.1-15.

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