Wisconsin Governor's Business Plan Contest

We've decided to participate in the Wisconsin Governor's Business Plan Contest to try to win possible seed capital. The contest description also mentions that participating in this contest may also provide valuable assistance that might help taking the company to the next level. We certainly could use some advice when it comes to manufacturing and taking our products to market. The contest consists of three consecutive phases:

1. an idea abstract
2. executive summary
3. final business plans

Once we complete the idea abstract, a panel of judges takes two weeks to pick the companies that move on to the next phase. For the idea abstract we need to provide responses to four basic questions in less than 250 words. Contestants must choose between four different business categories - Advanced Manufacturing, Life Sciences, Information Technology, and Business Services. Our business does include some IT because we will be developing software for our drivers and control panel applications, but if we really have to choose something it should probably be advanced manufacturing. Here's what I've written in response to the sections for the idea abstract:

Product or Service Description:

Amplio Audio is in the Home Theater Personal Computer industry with an exclusive focus on the audio component of the Home Theater experience. Amplio’s product combines the functionality of a soundcard, A/V receiver and amplifier into a single device, providing consumers with an affordable, audiophile quality listening experience.

Customer Definition: Their Needs - Your Solution:

Our target customers are audio/video enthusiasts who use their personal computers (PCs) to play music, watch live TV, movies, and other content as well as to control and manage their media libraries. Amplio’s products provide customers the best possible audio for their media systems through a direct digital interface to their audio data complemented by a world-class amplifier system.

Market Description, Size and Sales Strategy:

The primary market Amplio Audio hopes to attract are relatively young, technically-savvy, Internet connected North American males with some disposable income. Secondary markets will include the same profile except woman and international markets and professional A/V installers and businesses or educational institutions that purchase presentation equipment. Using the market buildup method to analyze our potential market, we determined the size to be approximately $69 million. Customers will be able to purchase our products directly from Amplio Audio’s website. This is the most effective channel based on our customers preferred way to purchase electronics and computer related products.

Competition: In this section identify possible competitors.

Amplio’s products are designed to compete with the high end of their target market while selling for significantly less than current offerings. This market is currently served with a combination of products from several manufacturers, none of which are designed specifically for home theater applications.

We have until January 31, 2008 before the judges look at our idea abstract, so we will probably make modifications before that time. Feel free to leave a comment if you have any suggestions on ways we can make improvements.

Report Shows More Home Theater Owners Want PC Integration

A recent study by The NPD Group found that 17 percent of consumers are interested in accessing PC content from their home entertainment system (25 percent for consumers with a home network).

“[Faster] Internet access, new content sources, and the evolution of the PC as a multimedia repository promise to change the features and functionality of devices in the home entertainment center,” says Ross Rubin, director of industry analysis for The NPD Group.

Now I need to update my business plan with some of this informtion.

1/3 of Home Networks Used for Entertainment

This was reported awhile ago in ars technica, but I thought it was significant enough (at least for our business plans) to post here.

A study by Forrester Research found that 27% of online adults in the U.S. have a home network. One third of all these home networks are now used to stream music, movies, TV shows, and other media throughout the home.

Some of the numbers used in our business plan to estimate potential market size are based upon a typical user who is tech savvy, etc. If the user has a home network, specifically used for entertainment purposes, they are more likely to be interested in a product like ours, as opposed to someone who doesn't. It is interesting to note that one of the biggest reasons given for using their home networks for entertainment uses was for streaming music.

It's nice to know there is an actual study that shows how many people who fall into this category.

PCs Will Take Over the Living Room

There was an interesting article titled, "Is Console Gaming Over?" in the online version of BusinessWeek today. David Ferrigno, CEO of DISCover and the author of the article, makes the case that PCs will probably replace gaming consoles in the living room.

David mentions that when he worked in the console industry (for 14 years), the analysts predicted the combination of the PC and the Internet would wipe out console gaming. But the console gaming companies went on to create a multi-billion dollar industry. So, the analysts were wrong, the PC did not replace gaming consoles in the living room (except for HTPC enthusiasts like myself).

Now David believes this will change because the price difference between a gaming console and an entertainment/gaming capable PC has shrunk. The PC used to cost 10 times more than the gaming consoles and now since the price of PCs have steadily come down, the PC is only about twice as expensive. However, since the PC can also be used to play, organize and store massive amounts of games and other media including photos, movies and music, you get much more value.

Other factors like portability (with laptops) and performance are better with PCs. And now, new ease-of use features coming to PCs will make them much more appealing for use in the living room. David is also very optimistic about the potential benefits of Microsoft's Vista and the support for advanced technology like DirectX 10 and multi-core processors. Digital distribution (I assume he's referring to the ability to just download a gaming title from an Internet store) will also contribute to the availability and convenience of obtaining a wide variety of games for your PC.

David concludes by basically saying that 'the combination of cost, portability, performance and ease-of use will make the PC fun and easy to use for all forms of media and living room entertainment.'

I hope he's right because it looks like their target market is very similar to ours, except they're going after the gamers and we're targeting the audio enthusiasts.

Many Happy Returns

Or, I hope not so many returns, but when there are returns on rare occasions, our customers are happy and will still be willing to do business with us in the future and may recommend our products to family and friends.

Initially, we will probably only sell our products directly from our Website. That may change in the future if we can build an effective sales channel with distributors and/or dealers. When we sell direct to customers from our Website, we will need to meet their expectations regarding returns and warranty service. Since people won't normally have the opportunity to audition our products at a local dealer, we will need a fairly liberal return policy. However, if some people abuse this policy, we will lose potential revenue and may have to offset it with higher prices.

Quite a few years ago, I purchased the complete inventory of a high-end Hi-Fi dealer. Actually, they went bankrupt and I purchased their stock from the bank. I planned to keep a few items and knew that I could sell the other stuff and almost break even. Anyhow, it was my first experience with selling stereo equipment and I learned that the Hi-Fi business is not easy. I sold the stuff out of my basement or traded with real dealers in the area. I got to know a few of these dealers through my trading and learned just how challenging it is for them. Some of their customers take advantage of the dealer's return policies to the point where it becomes somewhat of a game. One of the people who was interested in a pair of my speakers asked me to deliver the speakers to his apartment because he didn't have a vehicle large enough to haul them. When I arrived at his place and carried them into his room, I learned that all the other equipment was on loan from other dealers. He explained that he had been auditioning equipment for over a year and didn't find the right combination to suit his tastes. The dealers told me that this wasn't really that unusual. Most of them limited the time period to a week or so, but there were some that allowed the customer to keep the equipment longer if they were confident that it would eventually lead to a sale. I've also read several comments on audio/video forums from people who like to audition a lot of different preamps, amps and speakers.

To be honest with you, the potential for abuse has me a little worried. If an item is returned, you can't sell it to someone else as a new product even if it still looks perfect. If the item is damaged, you may have other costs associated with refurbishing.

One of the most successful online companies, Dell, has a 21 day return policy for most of their products. For some items the return is limited to within 14 days and others go up to 30 days. On the Dell website it says you can return items for a credit or refund of the purchase price, less shipping and handling and restocking fees. If the product is not defective a restocking fee of 15% is applied. The items have to be returned in original packaging with all documentation, software, cables, etc. Another online company, Outlaw Audio, has a 30 day satisfaction guarantee. If the customer decides to return the item, he/she gets a prepaid shipping label and returns the product to Outlaw, who inspects the item to insure it was shipped back in original condition. Upon satisfactory inspection, the customer is given a full refund for the purchase price minus the original outbound freight cost. They don't mention what would happen if the returned items are not in the original condition, but I assume there may be other deductions for repairs. Another online audio company, Hsu Research, also offers a 30 day satisfaction guarantee. The customer has to get an RMA number and then pay to have it shipped back to Hsu. If the complete product is returned in "like new" condition, Hsu provides a refund of the purchase price minus the original shipping charges. If the product is not in "like new" condition, the return item may be refused or a 15% restocking fee might be applied.

Based on this limited survey, it looks like a 30 day return policy makes the most sense. By charging the customer for shipping, we may be able to discourage anyone who might otherwise take advantage of having free use of our products for a period of time, while still giving someone the opportunity to return it if it doesn't meet their needs or expectations. Maybe if the item isn't returned within this period they would be charged a restocking fee. And if the item is damaged, they might be charged for repairs.

Once a product has been opened, it cannot be resold as new, so obviously the price of these items has to be reduced. Dell has 3 categories of products they sell other than new: 'previously ordered new' are items that were never turned on and are in perfect condition (not sure how we'd determine this, except maybe with a sticker over the power socket); 'certified refurbished' are items that are retested and refurbished to original factory specifications; and 'scratch and dent' are items with cosmetic blemishes that do not impact performance. Outlaw doesn't apply any categories to their returned items, so you pay the same for a "B-stock" product with or without blemishes.

I'd like to get some feedback regarding different product return policies. What kind of return policy do you demand before you are willing to purchase from an online store? If you have any suggestions or questions, please leave a comment.

Who is Amplio Audio?

Here's an excerpt from our business plan that might help to explain who we are and what we are trying to do. This is basically the executive summary.

Amplio Audio is a startup business in the HTPC (Home Theater Personal Computer) industry with an exclusive focus on the audio component of the Home Theater experience. Our target customers are audio/video enthusiasts who use their personal computers (PCs) to play music, watch live TV, movies, and other video content as well as to control and manage their media libraries. Amplio’s products provide our customers the best possible audio for their media systems through a direct digital interface to their audio data complemented by a world-class amplifier system and speaker interface. Amplio’s products are designed to compete with the high end of their target market while selling for significantly less than current offerings.

Amplio Audio is actively developing prototype products. A conceptual prototype was completed in March, 2006. This is the first device to integrate audiophile quality amplification in a single, user configurable package compatible with Windows or Macintosh computers. This prototype was built using Amplio-designed circuitry that connects audiophile quality amplifiers to a commercial interface unit. Amplio is now developing a working prototype including a customized interface unit, improved application software and consumer-oriented packaging.

Amplio Audio fills a growing market niche, providing audiophile quality components that interface with consumer’s Windows or Macintosh PCs and their home entertainment systems. This market is currently served with a combination of products from several manufacturers, none of which are designed specifically for home theater applications. Amplio’s product combines the functionality of a soundcard, home theater receiver and amplifier into a single device, providing consumers with an affordable, audiophile quality listening experience.