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THE BUSINESS OPPORTUNITY
BUSINESS OBJECTIVE
For many people, biking serves not only as a fun recreational and healthy activity, but also as a means of transportation, and the number of people who depend on biking for their daily commute will only increase as many cities across the world begin investing further in micro-mobility initiatives related to urban sustainability. This emphasis on improving biking infrastructure however has often overlooked the need for improving biker safety, and while there are a number of risk factors associated with biking, our team has decided to focus primarily on helmets.
While one in every three non-fatal injuries experienced by bicyclists happens to be a head injury, only about 18% of biker riders wear a helmet on average. Though there are a number of reasons why bike riders choose not to wear a helmet, our research has found that most bikers see portability as one of the biggest issues. Bulky by nature, bike helmets are a hassle to bring around. Whether lugging it around with the rest of your personal belongings, using a loose-fitting bike lock to haphazardly secure your helmet only when parked, or forgoing the use of a helmet altogether, many bikers don't have a optimal option for storing their helmet in a readily accessible location that feels secure--but we are looking to change that.
Our team's objective is to design a product that can make bike helmets more portable, in ways that are convenient and consistent for everyday bicyclists commuters. To achieve this, our team has built Zephyr, a helmet mount for bikes that gives people the affordance to keep their helmet with their bike no matter where they go so they never have to worry about carrying, storing, or forgetting it. It's our way of imagining a future where the convenience of bike safety can feel like a breeze.
PRODUCT DESCRIPTION
Zephyr is a helmet mount for bikes that allows bike riders to lock and secure their helmet onto their bicycle for everyday use. Our product specifically focuses on optimizing the convenience of traveling with a helmet and the consistency of having access to a helmet, recognizing that in the alternative case where bike riders do not have access to our product, they are instead often carelessly leaving their helmet at home, keeping it with their bike in an unsecure and/or unfavorable way, or tolerating the weight of carrying it with them at all times. Compared to existing bike locks and helmet locks that are often use as partial solutions to this problem, Zephyr is unique in that it is persistently mounted onto a bike allowing riders to have a pre-determined place to store their helmet that is stationary and secure. This is differentiated from standalone bike locks and helmet locks that require users to always carry these accessories with them and require more difficult and sometimes ineffective assembly. Because Zephyr remains position on the bike at all times compared to alternative products, bike riders have a slimmer chance of forgetting to bring and wear their helmet when needed.
The product itself is composed on three main components. The first is the base plate which comes with two adjustable clamps that allow for easy self-installation when a bike rider first purchases our product. This base plate acts as a mount that allows a helmet to rest on the top tube section of the bike frame between the bike seat and the handlebars so that it is in a convenient location for access. The second component are the bike securing straps. These straps fold over the helmet to keep it secure and in-place on the bike. Lastly, the product comes with an antitheft combination lock that locks the straps to the base plate once the helmet has been secured to the mount. This not only keeps the helmet in a fixed position if the user decides to move around with their bike, but also prevents the helmet from being susceptible to tampering or theft.
When using Zephyr, our user would first unlock the helmet securing straps and place their helmet onto the base plate. Once the helmet is positioned and mounted onto the bike, the user would then take the helmet securing straps and wrap them over the helmet. Then, the user will click the helmet strap lock buckle into the base plate. At the point, the helmet should be locked and secured onto the bike. To unlike and access the helmet, the user would just need to enter the combination they set for the lock. This will release the helmet securing straps from the base plate and allow the user to lift the straps and consequently remove the helmet.
In addition to being consistently mounted to the bike and more convenient to assemble, Zephyr is differentiated in its ability and affordance to provide bike riders with an accessible reminder of head safety by making the helmet visible at all times without sacrificing the user's freedom of choice on whether to wear their helmet or not. In research studies in which bike helmets were made mandatory for riding, observers found that bike safety in these locations also fell. Therefore, Zephyr allows bike riders to secure their helmet consistently and conveniently on their bike whether the bike is parked or being ridden. We believe this will ultimately help encourage greater individual safety precautions without hindering bike commute adoption.
MarkeT Analysis
When first identifying our problem, we discovered that over 872,000 people in the US commute by bike everyday. While there are lot more people who choose to occasionally ride their bike when commuting, we believe that these frequent riders would be our target market of super users. These was further validated when we learned that only 18% of bike riders wore a helmet and that about 1 out of every 3 non-fatal bike injuries were preventable head injuries. These statistics were clear market signals for us that this problem was worth solving and that there was potential for introducing a new solution like Zephyr.
To further validate our assumptions and test desirability, we conducted a survey and found that while nearly 70% of respondents ranked safety as their most important concern when riding a bike, nearly 70% of users also chose not to wear a helmet all of the time. This contrast led us to investigate the exact reason why many bike riders choose not to wear a helmet, and our findings led us to understand that it all had to do with portability, comfort, and convenience.
Specifically many riders complained about three primary issues regarding the portability of their helmet:
It was easy to forget the helmet at home
It was a nuisance to carry around by hand or even by backpack
It was a hassle to lock up
We explored this last concern in the most depth, recognizing that by making helmet locking and storage on a bike much more convenient and consistent, problems around forgetting your helmet at home or carrying it with you would be eliminated. We therefore realized that existing bike locks that were used for helmets were not manufactured to sit consistently on bikes, were not designed with the intention to lock helmets, and were a hassle to use, in regards to the method used for locking and the time spent locking. Therefore, we sought to design Zephyr as a solution to address these problems.
Because the product we are producing is quite niche, our market analysis focuses on existing bike locks as a close proxy to our product, since many bike riders use normal bike locks as a substitute for locking their helmet. With this in mind, the global bike locks market is estimated to grow from $1.3 billion in 2020 to $1.8 billion by 2026 at a healthy CAGR of 6.4%. This growth is attributed to the accelerated adoption of micro-mobility infrastructure that is promoting increased use and affordance for biking. Aside from being a growing market, Zephyr fulfills a unique gap that existing key players do not adequately address. From Kryptonite and Master Lock, many household competitors in this space have focused primarily on how to keep a helmet attached to a bike and less susceptible to theft, but Zephyr goes beyond this offering by also adding the benefit of consistency and convenience, making it easier for riders to always keep their helmet with their bike in a readily accessible fashion.
Noticing this gap in the market, where no helmet locks adhered directly onto the bike for persistent use, and pairing it with our consumer research which found that many individuals were hassled by existing locking mechanisms and/or transporting their helmet, we determined that there would be a viable market for introducing Zephyr. Aside from a number of small players that have more consistent solutions usually dedicated to motorcycle bikes, most other major players do not have products focused on both high consistency and convenience. This is shown in our positioning map representing the space Zephyr fits in compared to other key players.
Conjoint: Lock Type
Conjoint: PRICE
Conjoint: LOCKING MECHANISM
Additionally based on our conjoint analysis, lock type was the most important attribute and price was was the second most important attribute consumers considered when purchasing a product that could lock their helmet. Comparing the range of prices across our competitors, most fell in an average range between $25 and $45. Using this, our conjoint analysis revealed that consumers would be willing to purchase Zephyr at any price below that of $38.15. To keep our product on par with other competitors, we positioned our product to then be priced at $35, which would be high enough to cover our direct costs, which would need to be above $28.31, but low enough to compete on par with other players. The standard lock type on many of these locks were number/letter combination locks, which we also feature on the Zephyr helmet mount, and we chose flexible belt loops as our locking mechanism which differentiates it from many of the other competitors on market that use either a lock and clamp mechanism or retractable wires.
CAPITAL AND PERSONNEL RESOURCES
With about 872,000 people who ride their bike to work everyday in the US, and about 18% of people who wear a helmet every day, we believe we can increase helmet adoption to 20% and capture at least 50% of the market against comparable products. Because manufacturing Zephyr is not resource intensive, our initial upfront investment costs are quite low, sitting at around $103,070. This covers general plant and equipment costs, setup costs, and machines for in-house manufacturing.
Our direct costs each year amount to both operating costs and direct material costs. Our direct material costs amount to $25.76 per unit, and when priced at $35, our per unit margin sits at $9.24. To cover our operating costs totaling up to about $158,765 per year, which includes startup salary expenses, marketing, rent and utilities, maintenance, fixed warranty and R&D expenses, and loan payments, we used our optimization analysis to determine that we'll need to sell a minimum of 17,185 units to cover all costs.
Breakeven between total revenue and total costs at 17,185 units sold.
Below represents further details on our investment analysis based on how we plan to go-to-market and grow sales over time, but in general, because our initial investment costs are quite low, we know that we'll be able to breakeven and start recovering our initial investment near the end of Year 2 Q1 of operating, which will allow us to remain profitable so long as we consistently sell above our breakeven point.
BUSINESS INVESTMENT ANALYSIS
COST MODEL
Below represents our cost model including our floor plan for manufacturing costs, our initial investment costs, and our direct material costs. Our initial investment costs includes general plant and equipment costs as well as four machines for in-house production. While we only need one water jet and one laser cutter machine to produce at a rate that would allow us to achieve our optimal units produced per year base on machine load times, we purchased two milling machines to prevent any bottlenecks from occurring, knowing that components from both the waterjet and laser cutter would be going direct to this machine. In total our initial investment cost equates to $103,070 and is expended upfront at the start of our first year of operations.
Our operating costs include both our direct material costs which amounts to $25.76 per unit multiplied by the number of units we end up producing and $158,765.41 annually to cover other operating costs including salary, marketing, rent, maintenance, etc. See below for more numerical details.
PROFIT MODEL
To determine the price we can charge, we used a conjoint analysis to determine the maximum price that was available to us before we loss all market share, which was $38.15. Our price floor then was then based on our expected number of units sold within our first year in Michigan, assuming this was the safest number of units we could sell consistently each year and still be profitable if growth was ignored. So at 23,499 units, we needed a minimum price of $32.52 based on our optimization model. Based on this range, we opted to price Zephyr at $35 to be at the median of products within our category.
Therefore, where Z is the number of Zephyr units, our profit equation is:
$35.00Z > $25.76Z + $158,765.41
[Price] x [Number of Units] > [Cost of Goods Sold] x [Number of Units] + [Fixed Operating Costs]
CONJOINT ANALYSIS
Because the only continuous variable that we primarily competed on with existing products was price, this was the primary variable that informed our market share from the conjoint analysis. We primarily focused on this, since our product is technically a new product on the market, positioned much differently than existing alternatives. At par at the same price, we would have 50% of the market penetration in similar markets. This assumes that 50% of the people who are already in search of a lock for their helmet will likely switch over to Zephyr, recognizing that we have a comparable price but a completely different set of benefits. As mentioned above, we also used the conjoint analysis to determine the maximum price we could charge before our market share dropped to zero due to customer price sensitivity, which amounted to $38.15.
FINANCIAL FORECAST
The following graphs represent our pro forma and breakeven analysis. While conducting an NPV analysis of our financials on a 10-year time horizon and 6% interest rate, we found that selling at the minimum amount of 17,185 units would not be enough to achieve a positive NPV within the near-term, and rather we needed to at least sell 18,698 units. Assuming that we could sell at this rate every year, we would breakeven at the end of Year 9, Q1. For us, this signaled that we needed to make sure we captured a larger market size and developed a go-to-market strategy that allowed us to grow year after year to ensure a sooner return on investment.
Our go-to-market strategy instead was then focused on selling at all major universities in Michigan as well as Detroit and Grand Rapids, which put at 23,499 units in the first year ($55,033 in revenue at PV). This takes into assumption that 42% of the population would own a bike, 80% of those people have a conventional bike, about 74% of those people in each area are expected to commute regularly, 20% are likely to use a helmet, 50% would use our product over competitors, and an 8.20% CAGR in the population riding bikes year over year.
These assumptions then allowed us to target other cities in the Midwest to maintain similar sourcing and distribution costs and penetrate markets that also had micromobility investments underway. This meant going after major cities in Ohio during our second year, which we expect will to sell 50,401 units ($273,133 in revenue at PV), and in Chicago, Illinois at 78,617 units ($476,520 in revenue at PV) in the third year.
Based on this expansion strategy we should be able to breakeven by the end of Year 2 Q1 and will be profitable with increased sales year over year.
For more details on our optimization models, assumptions, citations, and calculations, please via our spreadsheet where all forecasts were made.
Product Optimization.xlsxReport abuse