ASP Software Developer Business Plan
Despite the prolonged slide in the industry, the housing segment in the US construction market gained a record of $550.14 billion last year. This sector is also showing steady growth for the next two years. Among the top revenue generating sectors is new single family housing construction, which comprised 67% of total residential construction in the US.
Over the years, the business model in the industry had shifted toward greater cost efficiency. Low entry barriers, other than the need to obtain state-based licenses and registration, had spawned more service providers. However, competition is largely based on reputation and proven performance as many new competitors find it difficult to establish a foothold quickly.
Existing firms have several advantages:
– Access to a pool of skilled subcontractors.
– Ongoing arrangements with materials suppliers.
– Ongoing arrangements with financial institutions and property developers.
– Can display completed examples of their work and leverage "word-of-mouth" referrals.
KnaelHaed ASPware (KnaelHaed) is a provider of Web-based vertical market software applications. The DigitalSuspenders is an online software solution offered by KnaelHaed ASPware in support of the building construction process.
The Problem
The construction industry lags behind other industries in research and development (R&D) investment. R&D investments for mature US companies are typically around 3.5% of sales. For some industries such as aerospace, that number can be 7% to 14%. However, the construction industry only reinvests 0.5% of sales. The reasons for the low reinvestment vary but are generally due to costs and complexity. Most construction firms are small and operate on thin profit margins, so technology spending is often seen as an unaffordable luxury.
The Solution
The DigitalSuspenders will be an integrated family of Web-based software applications that support the entire building lifecycle from conception to facility management. The suite will support the needs of small contractors by offering online collaboration, digital takeoff, estimating, and project and property management capabilities, all presented in an easy to understand and use format.
The Market Size
The home construction industry is comprised of 163,703 establishments and employed 796,880 persons according to the most recent Economic Census. The industry had grown to a record 175,000 establishments, while the commercial and institutional building industry is comprised of 34,588 establishments in the US according to the most recent Economic Census. The construction industry accounts for approximately 8% of US GDP.
Start-up Costs
KnaelHaed ASPware anticipates initially requiring $120,000 to complete the beta prototype of the DigitalSuspenders, provide for legal and infrastructure expenses, and cultivate potential customers. To finance the start-up, we intend to seek initial capital from angel investors and corporate partners.
Potential Payoff
KnaelHaed ASPware anticipates break-even within two years. In addition to our product sales, we expect royalty revenue from licensing our position sensing and software technology. Within three to five years, KnaelHaed ASPware anticipates an IPO or sale of the company to fuel further growth and offer liquidity to investors.
Management Team
Paul Peen, the current President & Chief Executive Officer, has over 20 years of experience in commercial software development, including stints at Microsoft and Expedia.com.
Leveraging connectivity, interactivity, and speed, KnaelHaed ASPware is the first of its kind offering both efficiency and cost-saving strategy to builders and subcontractors. KnaelHaed offers competitive pricing on solutions by outsourcing. KnaelHaed ASPware is committed to creating new ideas in the development of its model that is useful in accomplishing clients’ objectives. Together, the owners’ passion and accumulated field work have made KnaelHaed ASPware more than just another outsourcing hub, but a catalyst for the next e-commerce re-invention.
KnaelHaed ASPware aims to provide a more cost-effective solution for custom builders, general contractors, design builders, engineer-contractors, joint-venture contractors, and turnkey contractors, allowing them to outsource their work efficiently.
This disruptive model challenges high-priced construction software companies that charge thousands of dollars for their software. Instead, KnaelHaed ASPware offers a subset of these capabilities for free, utilizing the open-source business model to provide better solutions for all stakeholders.
Our target markets are small and medium-sized builders and subcontractors who wish to benefit from outsourcing. Currently, software companies dominate this industry, making it expensive for smaller users. However, as the typical home builders construct only about a dozen homes per year, only a few companies can afford premium software packages.
Approximately 60% of the total US market, which is equivalent to 118,980 establishments, falls within the small and medium builder criteria. Our focus is on these establishments, prioritizing cost efficiency and precise results.
The construction industry, valued at $787 billion, offers significant growth potential. Despite experiencing low growth, this market is highly fragmented with over 200,000 establishments recorded in the US alone.
The keys to our success are:
– Building and maintaining strategic alliances with software vendors and industry-related business partners.
– Adopting a customer- and market-focused sales and marketing paradigm.
– Managing the business through the implementation of a Balanced Scorecard, consistently measuring and adjusting key metrics for employee learning and growth, financial goals, internal business processes, and customer satisfaction.
KnaelHaed ASPware is a serviced website that facilitates the creation and dissemination of electronic construction documents, including plans, estimates, schedules, budgets, and proposals. It connects builders, subcontractors, and building owners for project management and collaboration. By using off-the-shelf industry-leading software applications, outsourced workers overseas produce these documents, which are then posted to a secure website. Our goal is to help builders reduce labor costs and streamline operations.
To attract builders and promote the use of 3D building designs, KnaelHaed ASPware will provide free 3D building models. Additionally, we will offer various knowledge services related to estimating, proposals, budgets, and facilities maintenance. The facilities maintenance functionality integrates with KnaelHaed ASPware’s 3D building models, similar to offline CAFM software packages. Our service targets both home builders and commercial builders.
KnaelHaed ASPware is owned by Mr. Paul Peen, a software development expert with over 25 years of experience in the industry. The company is a limited liability company headquartered in Bigburg-by-Bay. Mr. Peen and selected investors are the shareholders.
The total start-up requirements, including legal costs, logo design, stationery, and related expenses, amount to $120,710. This funding will come from a direct owner investment of $10,000 and financing of $110,710. Please refer to the table and chart below for more details.
Start-up Requirements
Start-up Expenses:
– Legal: $1,000
– Stationery etc.: $800
– Rent: $4,800
– Software: $21,000
– Server and Hardware: $23,000
– Sales Campaign: $5,000
– Logo/Brand Development: $1,000
– Web Design: $4,000
– Domain/Hosting: $110
– Total Start-up Expenses: $60,710
Start-up Assets:
– Cash Required: $60,000
– Other Current Assets: $0
– Long-term Assets: $0
– Total Assets: $60,000
Total Requirements: $120,710
2.3 Company Locations and Facilities
KnaelHaed ASPware will be based in Bigburg-by-Bay. The office lease average is $6 per square foot in our area, and the Company will occupy approximately 800 sq. feet of space for day-to-day operations. There will be four management employees covering Web Maintenance and General Administration.
Products and Services
KnaelHaed ASPware’s DigitalSuspenders package will offer services to produce construction documents at low cost as well as a medium for its business actors to collaborate on both housing and commercial projects. The business will combine aspects of open source software with a two-tiered site membership. The entry level is free, subsidized by targeted advertisement utilizing Ad Sense by Google and paid members. However, visitors are required to fill out registration to acquire user names and passwords to access the site. The purpose of free access is to encourage visitors to eventually pay for the membership.
Paying members will enjoy more benefits. The concept is dubbed software-on-demand, a chopped version of an open source application for members, so members only pay for the applications they need for their projects. The software will be cheaper and simpler to deploy, as well as easy to support.
The products that KnaelHaed ASPware’s DigitalSuspenders package will deliver include:
– Rough 3D building model
– Conceptual estimate (builder)
– Actual estimate (subcontractor, builder)
– Schedule (subcontractor, builder)
– Budget (subcontractor, builder)
– Proposal (subcontractor)
– Tablet PC software for accessing building information (subcontractor, builder)
– Detailed 3D building model (builder, owner)
– Facilities maintenance functionality (owner)
3.1 Competitive Comparison
KnaelHaed ASPware will be facing few direct competitors in the industry, and since it will be the first to offer the combination of functionality and connectivity, its success will surely be quickly copied by competitors.
– DreamHouse.com (www.dreamhouse.com): Their site allows non-registered users to freely browse the portfolios of architects and builders who offer their building plans for sale. It is a classified ad site where revenue is generated through listings of vendors and commission on plan purchases by home owners. The site provides answers to future home owners such as where to obtain financing. The Company also offers 24/7 customer service available through toll-free phone numbers.
– Builder Management Technology (www.buildermt.com/vdsee.html): Builder Management Technology (BuilderMT) only offers 3D models and walkthroughs to large builders who can afford a $5,000 price tag. There is one feature called ProDatabase, designed to get builders up and running quickly. The database includes General Ledger, Job Cost Accounting, Purchasing, and Scheduling data that can be easily implemented. BuilderMT also operates a Web-based “Virtual Design Center” (VDSee), so that builders can offer anyone access to the site. VDSee offers fully scaled 3D images of whole-houses, house exteriors, or specific rooms that users can “walk through” and fill with selected appliances from catalogs provided by partner vendors. Similar to DreamHouse.com, BuilderMT is geared strictly to the home builder market and acts only as a referral to business partners in the area.
– The BlueBook (www.thebluebook.com): The site provides easy access to continually updated information for each of The Blue Book’s regional editions (printed). Not yet online, but soon the services will be made available to Internet users, where construction buyers and sellers will also have free access to an online bidding and procurement system. Revenue is generated from listings.
3.2 Sales Literature
This business will begin with a general corporate brochure establishing offered services. This brochure will be developed as part of the start-up expenses or sales campaign and distributed to a list of local builders and subcontractors as a direct mailing strategy to “pull” users into the site.
Literature and mailing for the initial market forums will be very important, with the need to establish a high-quality look and feel in order to create a trustworthy sense of professionalism.
3.3 Business Process
The big idea of KnaelHaed ASPware is the next generation construction blueprint that will be implemented in a phased manner:
1. 3D models for builders (residential initially) at a lower price point than competitors’ software (average $5,000 per model). KnaelHaed ASPware offers them at $1,000 per model. This will be used mainly as a PR and marketing tool to attract consumers and as a service differentiator for the builders.
– 3D views of the building linked to vendor, subcontract, and schedule data
– GPS-enabled so that the building viewers are standing in front of is the building viewers see on their screen. This will be a paid product/service that will be first offered to large builders. KnaelHaed ASPware will also use their input to help improve the product.
– Have as many plans available as possible
– Encourage architects to submit their plans in 3D
– Encourage builders working from these plans to use our site.
KnaelHaed ASPware offers a tiered pricing structure for the website starting at free. Then it will charge for customization and make those customized features only available to those who have paid for them. There will be different memberships and pricing structures for our various users: builders, subcontractors, property managers, and consumers.
3.4 Technology
New technology has changed almost everything about the distribution of software today. The ASP (Application Service Provider) model makes it easier for construction software vendors to sell and get customers up and running, lending itself to a more scalable and profitable business model. KnaelHaed ASPware intends to become the leader and the most creative provider of Web-based software applications in the construction market. The Company will do this by developing an innovative and progressive development and management team. KnaelHaed ASPware will also accomplish this goal by using clients’ input to further develop the products and services.
Market Analysis Summary
Demand for family housing construction is subject to both short-term and long-term influences. Short-term influences include factors such as movements in interest rates, housing affordability, and stimulatory government policy. The long-term influences include trends in population growth and settlement, the aging of existing stock, and buyer preferences between single-family and multi-family housing.
In the commercial sectors, the demand factors vary according to the type of buildings, such as schools, hospitals, museums, etc. Current economic conditions and the level of investor confidence play an important role in determining the overall level of activity in this industry.
4.1 Market Segmentation
Housing Construction
Demand for family housing construction is subject to both short-term and long-term influences. Short-term influences include factors such as movements in interest rates, housing affordability, and stimulatory government policy. The long-term influences include trends in population growth and settlement, the aging of existing stock, and buyer preferences between single-family and multi-family housing.
Short-term Determinants
The impact of current economic conditions on consumer confidence is important. Consumers must be confident of job security and future household income to commit to buying a home. Housing affordability is also a key factor driving the housing investment cycle. The affordability ratio is directly influenced by the level of mortgage interest rates and the price of land, labor, and materials.
The prevailing cost of renting residential accommodation relative to the cost of purchasing impacts short-term demand for housing. Medium-term government policy on housing investment includes local government zoning and conveyancing regulations and costs, government grants and subsidies to home buyers, and changes in the tax treatment of tax-effective investments.
Approximately 6% of the total value of residential building construction in the US is funded by the public sector. Fluctuations in public budget allocations towards housing construction mainly result from variations in the fiscal stance and the stage of the economic cycle.
Natural disasters can stimulate short-term demand for new housing construction irrespective of the underlying trends in housing demand.
Long-term Underlying Demand
Long-term demographic trends indicate the required minimum stock of housing. Demographic factors influencing single-family housing demand include population growth rates, trends in net migration, population dispersion, the age composition of the population, and the rate of household formation.
Long-term trends in income growth and distribution and general economic development also influence housing demand. The aging and demolition of existing housing stock underpin the long-term demand for replacement stock.
Commercial and Institutional Construction
In the commercial sectors, the demand factors vary according to the type of buildings, such as schools, hospitals, museums, etc. However, current economic conditions and the level of investor confidence play an important role in determining the overall level of activity in this industry.
Key economic factors influencing investment decisions include the prevailing level of interest rates and availability of finance, current and expected rates of general economic growth, expected yield on investment, taxation treatment of building investment, vacancy rates of existing building stock, the rate of replacement of aging building stock, federal and state government fiscal positions, trends in the public/private sector mix in the provision of services, changes in the structure, distribution, and size of the population.
Demand Determinants in Commercial Building Segment
Office construction is principally determined by growth in the service sector workforce, growth in foreign investment inflow, and developer speculative activity. The average age of commercial office stock is an important determinant of demand for the addition of new stock or the upgrade of existing stock.
Retail building construction is principally determined by shopping preferences/patterns, population growth rates and catchment areas, and patterns in consumption expenditure.
Hotel construction is determined by growth in international and domestic tourism, major cultural, sporting, and business events, growth in casino licenses, and existing supply of accommodation.
Other commercial building construction is determined by population growth and urban spread, tourism growth and growth in leisure time, and major cultural and sporting events.
Demand Determinants in the Institutional Building Segment
Demand for education facilities construction is influenced by public sector capital expenditure growth, growth in demand for education and child care services, demographic factors, the size of the average class/teacher ratio, and the renewal of existing building stock.
Demand for health facilities construction is determined by public fixed capital expenditure growth, health insurance arrangements, population growth and age distribution, existing supply of hospital beds per capita, and the situation with hospital waiting lists.
Demand for religious building construction is determined by population growth and dispersion, social and cultural trends, and trends in the inflow of migrants from less represented religious backgrounds.
Demand for barracks, aircraft hangars, and other military buildings is determined by defense budgets, armed service intake trends, and defense planning.
Demand for specialist public services buildings such as postal distribution centers, currency mints, and utility distribution installations is determined by government budget policies, planning issues, and the growth and distribution of the population.
Demand for construction of public access buildings such as law courts, libraries, museums, and art galleries is determined by the aging and capacities of existing stock, budgetary position, private philanthropy, and the timing of special events.
Demand for correctional buildings and detention centers is determined by budget policies and planning issues, growth in the privatization of service delivery, and growth in the prison population.
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