Contents
Executive Summary
Company Summary
Mission
Keys to Success
Objectives
Intellectual Property
Products and Services
Current Situation
Market Analysis Overview
Market Potential for MP3 Players
Market Segmentation
Detailed Market Segmentation
Competition
Strategy and Implementation Summary
Competitive Edge
Marketing Strategy
Sales Strategy
Sales Forecast
Management Summary
Operating Plan
Financial Plan
Investment Offering
Appendix – Financial Plan
Sales Forecast
Projected Profit and Loss
Projected Cash Flow
Projected Balance Sheet
Break-Even Analysis
Financial Ratios
Executive Summary
Sound Rocks will license the technology and complete the design of a device that preserves hearing while listening to an mp3 player using control of the volume through interactive feedback. Many people are concerned about the nerve damage that occurs when a personal mp3 player is set to play too loudly but there is no device on the market that provides immediate feedback onan individual basis. The hearing damage in the population is worse now due to the prevalence of earbuds and the popularity of mp3 players. Sound Rocks’ products will provide a way to reduce temporary hearing loss before the damage is permanent and allow someone to achieve personal control of the music’s sound level.
A positive correlation can be shown between the growth in the population suffering hearing loss diseases in the United States and the increase in mp3 player sales in this country. Recent studies have shown an alarming growth in the number of temporary and permanent hearing-loss cases worldwide. The first step in Sound Rocks’ commercialization plan is to quantify the market segmentation for noise-induced hearing loss and identify key product features for the planned sale of two types of devices-both a hardware device and a software product, along with establishing collaboration agreements with headphone and MP3 player companies such as Bose and Apple.
Other steps in the commercialization process are to negotiate a license for the intellectual property with The University of Texas at El Paso (UTEP) and negotiate and establish a manufacturing process with a company in the Paso Del Norte region. Sound Rocks wants to introduce its innovative products in those world markets with the greatest mp3 consumption and will begin with introducing software and hardware products in the North American market followed then by the European market, where noise exposure limits wererecently adopted for mp3 players. The plan is to expand to other partners and countries during the fourth year of operations and begin research and development on additional products that address hearing issues. While there is currently no direct competition, Sound Rocks must remain vigilant of its market position and actively work to maintain it and develop further innovations in order to stay ahead of the competition.
Investments in prevention and research can have significant, profound, and long-term pay-offs for individuals and communities, and for the economy. Sound Rocks, Inc. wants to raise $700,000 by issuing common stock during the first year, and then borrow $100,000 from an available company credit line during the second year of operations. This Investment will bring Sound Rocks and its shareholders considerable profits by the third year of operations with sales of over $4 million.
Company Summary
Sound Rocks will license the technology from The University of Texas at El Paso (UTEP) and complete the design of a device that provides listeners the ability to achieve control of the volume through interactive feedback. Many individuals are concerned about the nerve damage that occurs when a personal audio/visual player is set too loud but there is no device on the market to provide feedback on the volume where that occurs for an individual. The hearing damage in the population is worse now due to the prevalence of ear buds and the popularity of mp3 players. Sound Rocks’ products will provide a way to reduce temporary hearing loss before the damage is permanent and allow someone to achieve personal control of the music’s sound level.
Mission
Sound Rocks’ mission is to improve the quality of life related to sound by commercializing devices that provide individuals with the capability to manage their threshold level of recognizable sound.
Keys to Success
- Quantify the market segmentation for noise-induced hearing loss
- Negotiate a license for the intellectual property with The University of Texas at El Paso
- Negotiate and establish the manufacturing process with a company in the Paso Del Norte region
- Establish collaboration agreements with headphone and MP3 player companies such as Bose and Apple before launch
- Identify key product features through an extensive market study before the first year of operations
- Expand to other partners and countries during the fourth year of operations
- Innovate additional products that address hearing issues
Objectives
- Carry out quantifiable market surveys and device testing with a range of targeted age groups. The results of the studies will be used for marketing Sound Rock products to potential partners.
- Establish partnerships with at least two company leaders in the mp3 player and headphone industry before the end of the first year.
- Obtain more than 10% market penetration by year four.
- Develop at least two new innovative products related to the hearing loss industry by year four.
- Establish manufacturing capability by the first quarter of 2012
Intellectual Property
Sound Rocks’invention relates to the general field of hearing preservation and restoration devices, and more particularly, to a method and apparatus for automatically reducing the volume level of anaudio signal provided to the user. In order to protect the novelty of this product a PCTPatent Cooperation Treaty patent numbered 13/048,109 and named “Methods and apparatus for automatically reducing a volume level of an audio signal provided to a user” wasfiled with theInternational Patent Cooperation Unionon March 15, 2011 by UTEP.
Products and Services
In an effort to prevent potential hearing problems, Horacio Resendiz of Sound Rocks, in collaboration with The University of Texas at El Paso professors Dr. Amitava Biswas and Dr. Eric MacDonald, has created an interactive proof-of concept device that can be incorporated as firmware in standard MP3 players and most cell phones, or as a small external device to be used onexternal headphones or earbuds. Whether firmware or hardware, the device interactively determines whether short term hearing loss is occurring and automatically responds without negatively impacting the music quality. User interaction is crucial in order to measure audio reception and indicate whether the tone played has been heard. Each time the user fails the sound test performed, the volume is automatically reduced. Disclaimer - please note that no warrants will be made on whether the user’s hearing has been impaired by the music player. This device does not explicitly test the user’s hearing but relies on the user’s perceptions and user feedback. The purchase of this product will be considered an acknowledgment that the user is concerned about incurring hearing loss that has been linked to listening to excessively loud sound for extended periods of time. This device will not ensure that some loss of hearing will not result, and a doctor’s advice should be consulted before listening to loud music.
Details of the basic test are now described. The user reacts to what he/she hears during the 5 to 8 second average pause between songs. The device is able to detect these pauses between songs.It then emits a noiseto let the user know a test is in process and interaction is needed. Whenever that noise is heard the user needs to press a button which is related to the respective sound heard. For prototype purposes, two different sounds are randomly used for the beep. Each sound corresponds to its own button which must be depressed in order to pass the test. The only way the test is passed is bycorrectly distinguishingthe sound heard and immediately pressing the corresponding button on the device. Testing during the pause between songs also has the advantage of allowing the reduction in volume to be less noticeable when the user happens to fail the test.
Randomized sounds will be emitted at 60 dB, which is considered a common audible levelsince it is the noise level of an average conversation. Volume will be continuously reduced to 60 dB if the test is failed continuously until 60 dB is reached. At this level the volume will no longer be lowered. The device is also programmed to allow volume recovery. After several failed tests, the device will still allow the volume to increase if the user passes the test after the person has manually reduced the music volume to a lower level. The issue is whether the user canovercome any temporary hearing loss incurredby reducing the volume so the next test can be passed.
Current Situation
The number of mp3 players and other music devices sold across the globe show a strong growth year by year. Individuals and especially children are now more connected to a technological world more than ever before. According to information obtained from the organization “Listen to Your Buds”[1], iPods and MP3 player ownership among children has increased from 18% to 76% in just the past 5 years. However, this continued exposure to new technological gadgets has not always been accompanied by the correct information needed to handle the negative effects caused by these technologies. Surveys by “Listen to Your Buds” show that 47% of teens indicate they are not concerned about hearing loss from personal audio devices. What is even worse is that leading authorities predict a rise in hearing loss nationally due to unsafe use of personal audio devices. This rising statistic is mainly due to listening to personal audio devices now with head phones or ear buds and at volumes greater than 89 decibels. The majority of mp3 players are able to exceed these levels however both of these effectshave a detrimental effect on hearing.
Market Analysis Overview
Recent studies have shown an alarming growth in the number of temporary and permanent hearing loss cases worldwide. And according to the Hear-it organization, one of the best examples of this growth can be observed in the United States where the hearing-loss population has reached a peak of 33.4 million in 2010 with a continuous increase of 0.5% per year since 2001. What is more alarming is that even though 43% of the population aged sixty-five and older are the most affected by hearing-loss associated diseases, a large percentage of the population aged 45 to 64 and 18 to 44 are also being affected in large proportions. The Figure 1shows the hearing-loss population growth in the United States from 2001 to 2011.
Source: Hear-it.org
Different factors such as infections, injury, or even age can cause hearing loss among individuals; however, it has been proven that the main factor in hearing loss among the population is caused by the prolonged exposure to loud noise (33.7% of all cases have this origin). The prolonged exposure to loud noise is known as “industrial deafness”; nevertheless, the exposure to loud noise during work-time is not the only noise exposure causing hearing loss within the affected population. “Prior to the introduction of MP3 players, hearing loss among children was estimated at around 12.5%. More recent studies, however, estimate that 16% of teenagers in the U.S. (approximately 6 million children), suffer from permanent Noise-Induced Hearing Loss (abbreviated as NIHL)”.[2]
As it is possible to observe in Figure 2and based upon extensive studiesin this area, including the aforementioned research studies, there is a positive correlation between the growth in the population suffering hearing loss diseases in the United States and the increase in mp3 player sales in this country.
However, this challenging problem does not only affect the American population. “A research project was jointly organized by the Hong Kong Society for the Deaf, Division of Otorhinolaryngology, Department of Surgery, the University of Hong Kong and Hong Kong Playground Association. Over 1,000 youth people were interviewed and the result indicated that nearly 25% feel that their hearing sensitivity had deteriorated since listening to music players and around one-fifth of the respondents experiencing tinnitus after using music players”.[3]
Market Potential for MP3 Players
There are a number of drivers that indicate the tremendous commercial potential for Sound Rocks' devices.On September 28, 2009, the European Union announced new rules for MP3 players after a report was issued on October 13, 2008 in Brussels by the Scientific Committee on Emerging and Newly Identified Health Risks. The new rules state that mp3 players must have controls to limit volume to protect users’ hearing. In order to address this problem Sound Rocks wants to introduce its innovative products in those world markets with the greatest mp3 consumption. According to the 2006-2011 World Outlook for mp3 players, the Asian, European, and North American markets are the three largest markets driving the mp3 industry around the world. Moreover, researchers identify four main companies as the market leaders in the mp3 player industry during 2008. These companies are Apple, SanDisk, Microsoft, and Creative. Figures 3 and 4illustrate the worldwide market potential for mp3 players and the worldwide mp3 manufacturers’ market share during 2008 for the mp3 player industry.
Market Segmentation
Sound Rocks will target different segments in order to fit the needs of all of its potential customers. First, the market will be divided in terms of geographical locations. Different markets have been considered as potential regions to launch the product; however, it has been decided that the North American and the European markets offer the best introductory opportunities. The first aspect taken into account in their selection was the previously mentioned regulations established by the European Union during 2008 for the production and distribution of mp3 players. Specialists argue that these regulations will soon be in effect in the United States as well. Moreover, the American market is a prime target due to its geographic proximity and the close relationship that the company has with its customers in terms of cultural background. Additionally, future markets such as Japan and China are also under consideration due to these countries’ economic growth and large population.
Detailed Market Segmentation
With the main geographic groups established, Sound Rocks will divide the target market into different subgroups in order to better satisfy the individual needs of each customer. Table Aidentifies several segments of the market based upon different characteristics such as age, social pattern, type of buyer, race, and income.
Table A: Target Market Distribution based on Customer Characteristics
Segment / Group Name / CharacteristicAge / 6 – 18 / Children and teenagers are the most common users of MP3 Player
19 – 25 / 55 % of current college students are at risk of permanent hearing loss due to exposure to loud noise.
25 – 35 / Young Adults - usually first-time parents who have a very high sense of responsibility.
Social Pattern / Parents / Sense of Awareness for their children health.
Health-Conscious Consumers / Individuals interested in healthy habits will be more interested in ensuring their hearing isn’t damaged.
Type of Buyer / Innovators / Innovators are interested and appreciate new products
Imitators / Represent the greatest amount of customers in the technological industry. They buy the products that everyone else is buying.
Opinion Leaders / Influence the purchasing decision of the other customers
Race / Caucasians / “Whites are proportionately overrepresented among people with hearing loss. They comprise 91% of the population with hearing loss, but only 83% of the general population in U.S.” (National Academy on an Aging Society)
Income / >$25,000 / Middle-High and High income customers are more likely to regularly purchase or replace mp3 players and be concerned about hearing loss.
Competition
It is important to understand that the continued growth of the hearing-loss population is increasing the number of companies and organization around the world which are in turn starting to pay attention to this market. However in the mp3 player industry, Sound Rocks has no direct competition providing the same products and services because they have developed an innovative concept. On the other hand, it is important to mention that there are indirect competitors who are currently leaders in the hearing-loss industry. Additionally we can predict that new companies involved in technological products will emerge as direct competitors for us in the long run. For this reason, Sound Rocks must remain vigilant of its market position and actively work to maintain it by developing further innovations in order to stay ahead of the competition. The following chart illustrates the distribution of the competition in the market.