AdCo, Business Plan Example

Executive Summary

AdCo’s foundation has been inspired by the conviction that focused marketing is going to be the next marketing revolution. The brands need to find ways to engage customers to build long-term relationships because the competition will only grow due to globalization. AdCo will be a San Francisco, California based advertising agency that hopes to gain a major share of the internet advertising market. The company has developed a revolutionary advertising platform codenamed FER which the management believes will give a competitive edge against the competitors and provide tremendous growth opportunities in the internet advertising market.

AdCo will be a one-stop advertising solution center for its clients and will provide every service from building marketing campaigns to placing ads and helping marketers interact with their customers. In addition, the company will also gather research data which will be made available to the clients to help them better understand their customers. AdCo hopes to build a valuable data repository because its business model also gives incentives to the customers to interact with their favorite brands.

The company will initially focus on domestic markets only but expects to expand overseas in the near future in order to meet its multinational clients’ needs. The management believes that they have identified a niche market and will have the first-mover advantage because none of the major advertising agencies are primarily focused on the internet advertising even though they do provide internet advertising services. The company will be primarily equity-financed and plans to sell 10% stake to the founding investors for $5 million. The company expects to be profitable by its third year of operating and achieve total revenues in excess of $150 million by the end of fifth year.

The Industry

Internet has changed the structure and dynamics of advertising industry. Not only has it provided marketers with more options to reach customers but has also made data collection possible in ways that would have been unthinkable even two decades ago. These greater reserves of data have played a major role in the growth of internet advertising and, thus, it is not surprising that internet advertising grew from only $6.01 billion in 2002 to $21.21 in 2007. Even more impressive is the growth in behaviorally targeted online ad spending which grew from $350 million in 2006 to $1.7 billion in 2010 (GrabStats). Jeff Hirsch, President and CEO of Audience Science estimates that behaviorally targeted online ad spending will exceed search marketing by 2020 and will account for 60% or about $30 billion of the total $50 billion total online ad spending in 2020. Audience Science expects that 85% of online advertisers will use behavioral targeting by 2020 (Walsh).

Target Customers  

AdCo plans to target both large companies and small businesses which are focused on local markets. For internal classification purposes, AdCo’s customer base is divided into two segments:  businesses and consumers.  AdCo will have a unique position in the market because it will be able to service small local merchants as well as more established companies.  Local or small merchants often have a hard time competing with large advertisers and AdCo will present them an attractive proposition.  But AdCo will primarily target major media-buying companies and expect them to account for the bulk of the company’s expected revenues.

Businesses

Large:  AdCo will target large companies which are interested in going beyond basic methods of advertising and creating a meaningful and highly targeted online and offline video commercial campaign.  The time and resources required to develop a full-scale video advertising campaign will limit AdCo’s customer base to companies with large scale advertising budgets and the ability to produce high quality commercials and demographic-specific marketing material.

Small:  AdCo will also target small businesses that desire to advertise their products or services to a limited geographical demographic.  These customers will have the opportunity to target their goods and services at highly specific demographic groups who reside near or close to the physical locations of the advertising business. Zip-Codes may serve as important criteria in this regard. The ability to target consumers in need of the product or service located within a short distance is the key to capturing this market.  These smaller businesses will be able to choose advertising medium that best suits their needs and requirements.

Consumers

Advertisers direct the majority of their efforts toward individuals in the age group between 18 and 49 due to this group’s discretionary spending habits and socioeconomic influences.  These individuals have participated in the technological revolution that began in the late 1970s; they are computer literate, interested in technology, and exhibit a diverse taste for a wide range of entertainment and informational content (Wang H. Parks Associates).  Within this group, today’s teenagers have been surrounded by technology since they were born and it is an integral part of their lifestyle.  Cell phones, iPods, instant messaging, text messaging, blogging, YouTube – teenagers are doing it all today.  According to Glovin, “An overwhelming 95% of today’s teenagers use instant messaging, own their own mobile phone, or have a broadband connection at home, and more than one third have all three (Golvin). These groups will be targeted for their technological savvy, since they will be most receptive to trying out new ideas, such as using their cell phones and the Internet to view ads and earn money doing so.

Competitors 

As far as competitors are concerned, AdCo’s primary competitors will be Omnicom Group, WPP Group, Interpublic Group, and Publicis Groupe.

Omnicom Group

Omnicom Group is the world’s largest advertising agency company. The Group’s revenue increased by 7% from $11.7 billion in 2009 to $12.5 billion in 2010. Organic revenue, which factors out currency changes and acquisitions, rose by $749.1 million or 6.4%.  The Group’s net income rose by 4.4% from $793 million in 2009 to $827.7 million in 2010 and diluted earnings per share jumped 6.7% from $2.53 per share to $2.70 per share.  Brand advertising accounted for 45% of the company’s 2010 revenue while marketing services accounted for the rest 55%. Similarly, U.S. accounted for 53% of the revenue while the rest of the world accounted for 47% (Omnicom Group).

WPP Group

WPP Group is ended 2010 with total revenue of approximately $7.12 billion (WPP). The Group employs over 141,000 people in 107 countries and services 300 of the Fortune Global 500, 29 of the Dow Jones 30, and 61 of the NASDAQ 100 companies (WPP). WPP generated 39.2% of its global revenues from advertising and media and the rest 60.8% came from marketing services such as consumer insight, public relations, and branding etc. (WPP).  By the first half of the year 2010, North America accounted for 35.7% of Group’s total revenue, U.K. accounted for 12.2%, Western Continental Europe accounted for 26.2%, and Asia Pacific, Latin America, Africa & Middle East and Central & Eastern Europe accounted for 25.9% of revenue (WPP).

Interpublic Group

Interpublic Group earned a total revenue of $6.53 billion in 2010. U.S. accounted for 56.8% of the Group’s total revenue, U.K accounted for 7.2%, Continental Europe accounted for 13.2%, Asia Pacific accounted for 9.8%, and Latin America and the rest of the world accounted for the remaining 13% (Interrepublic). This makes Interpublic, the most reliant on the U.S. market among the Big Four agency firms even though Omnicom Group with 53% is not much behind. The Group’s top ten clients accounted for 24% of the total revenue in both 2009 and 2010, thus, a loss of even one major client may have a material impact on the company’s financial performance. As of 31 December 2010, the company employed 41,000 people out of which 18,000 were based in the U.S. (Interrepublic).

Publicis Groupe

Publicis Groupe is the world’s fourth-largest agency company and pulled in total revenue of approximately $7.47 billion in 2010 on which it earned approximately $725 million net profit (Bloomberg BusinessWeek). The Group achieved an organic growth of 9.9% year on year in North America and 6% in Europe in 2010. Asia Pacific enjoyed an organic growth of 7%, Latin America enjoyed 13.7%, and Africa and Middle East enjoyed an organic growth of 4.8% in the same period. Of all the Big 4 agency firms, Publicis Groupe is the most dominant in digital technology as a proportion of overall operations and the Group has set a target of achieving 35% of total revenue over the next three years from digital operations. In addition, the Group also plans to boost its share of overall revenue from emerging markets to 30% over the next three years (Sweney).

Company Description

AdCo (derived from Advertising Company) is an advertising company that has developed a proprietary advertizing platform codenamed FER (focus, engagement, relationship) to help clients reach their targeted customer segments more effectively as well as measure the effectiveness of their marketing activities. The company has been registered in San Francisco, California where it will also build it headquarter. The company hopes to build satellite offices in New York, Dallas, Chicago, and Boston in its first year of operations and will seek further expansion as its client-base grows. Since our core customer group will be comprised of large corporations, many with international presence, thus, global expansion will only be a natural step for us in the near future. The company will offer advertizing solutions to its clients on all marketing channels including the internet, radio, TV, print, and mobile.

Product/Service Plan

AdCo’s FER advertising platform is currently in beta trial version after going through a development period of two years. FER maintains a large database of users’ data all of whom have provided voluntary information to the company in exchange for an opportunity to earn income. Users have an opportunity to make money in several ways including incorporating advertising messages in their e-mails. Users are also invited to watch advertisements in both electronic and print media and then answer the questions about the advertisements on AdCo’s website after signing-in through their user accounts. This information is made available to the advertisers who have the opportunity to find out detailed data on the viewers who watched their advertisements as well as their opinions on the advertisement. This is a more focused approach to reaching customers as compared to the present system where advertisers can only guess as to who may watch their advertisements and what they may think about the advertisements.

To our best knowledge, AdCo’s FER advertising platform is one of the very few of its kind in the global advertising industry that is able to:

• Drive targeted consumers to clients’ advertising campaigns across multiple media channels.
• Get clients’ target market to interact with the advertising campaign and keep the consumers engaged.
• Provide accurate measurement and accountability reporting. To further illustrate the point, AdCo is able to tell a client how many minutes a certain target market spent engaged in their brand and what aspects of the advertising campaign generated the most enthusiasm.

The clients will be able to target their market according to the following one or more criteria:

AdCo will provide the service to the customers in two stages: 1. Building Campaign 2. Interaction/Engagement with Consumers.

Building Campaign

AdCo believes in being able to utilize various channels to deliver a message and as such will provide numerous options to clients to reach a targeted market. The solutions for the clients will be created in in four steps:

Create a campaign on FER advertising platform Client will be given access to FER to specify features that he would like to be incorporated into the campaign.

Recommend a solution to Client or let the client choose its own solution AdCo will look at the client’s budget and requirements and recommend appropriate solutions including market channel that would be most effective. The final solution will of course be decided by the client.

Users will be notified of the client’s campaign The targeted audience will be informed about the new advertising campaign and invited to interact with it as well as provide feedback. The users will of course be motivated by the opportunity to earn income.

Detailed reporting A detailed report will be compiled for the clients, customized according to client’s requirements. The client will be able to access information including but not limited to state/province, gender, and income group.

Interaction/Engagement with Consumers:

Adco will make it possible for client’s targeted market to interact with client’s advertising campaigns. Allowing clients to be able to target their campaigns will only be the start of what AdCo will do for clients. AdCo will get clients’ targeted markets to interact with clients’ advertising messages and ensure that consumers engaged with their brand for extended periods of time. Consumers will interact with clients’ messages on various marketing channels including but not limited to:

Many major media companies deliver billions of banner ads per year and yet they cannot offer media buyers and advertisers the same results that AdCo will provide. With banner ads, there is no way to tell who will view it and if clicked, how the customers will interact with the brands’ messages. The banner ads also do not provide any detailed data to the advertisers. AdCo’s approach will provide detailed data, thus, ensuring a higher return on marketing budgets.

Marketing Plan

AdCo will generate interest for its website and FER technology by utilizing a variety of direct and indirect advertising channels that will increase the company’s exposure among its target audience of advertisers, media buyers, and publishers. AdCo will also rely on viral discussion of its advertising services to fuel business growth and bolster brand awareness.  The marketing channels to be employed are further described in detail below:

Online Marketing Channels

Website:   AdCo’s website (www.AdCo.com) will serve as the company’s primary platform for garnering business. The website will include a variety of features such as:

• Internet advertising: To increase online traffic, the company will use a combination of Internet advertising including cost-per-click, Google Ad-words, tags, banner ads, and search engine optimization of its website. This approach will help increase AdCo’s awareness among the online business community as well as the general public.
• E-mail:AdCo will send out regular e-mail alerts via its website. Clients will be able to sign up for free e-mail news and promotion letters by registering through the company’s website.
• S. Stock Exchange:AdCo plans to be listed on NASDAQ’s website as well as the American Stock Exchange at some point in the near future.  Its presence in the stock market will help increase overall brand awareness in the marketplace.

Traditional Marketing Channels

• Word of mouth:During the startup phase, AdCo will heavily rely on viral marketing to boost sales in order to fuel growth. The company will strive to differentiate itself from the competition on the basis of customer service and quality of service. As businesses observe the quality of AdCo’s services, they will engage in the viral discussion of its product, resulting in additional traffic on the company’s website as well as increased service inquiries.
• Television:Television is a great marketing channel to reach a large target population on a national level. This is why AdCo plans to advertise on local cable station affiliates such as CW, Fox, CBS, NBC, and ABC etc.
• Radio spots: AdCo will capitalize on drive-time radio advertising spots such as early morning and early evening to promote its brand and services.

Operations and Development Plan

AdCo has created an easy way for advertisers and consumers to connect and have mutually beneficial relationship. The company will strive to reach all types of advertisers, specifically online advertisers.  The company’s technology can cross all media formats, including print, radio, and television.

With its brand and guiding principles established, AdCo will exemplify its mission and goals, build client loyalty, and persuade advertisers and consumers to utilize its services.  Advertisers desire another outlet to divulge their message and product and AdCo will give advertisers an access to valuable demographic information as well as spearhead their advertising campaign. The company has created a comprehensive advertising campaign that will exercise a strategic fusion of online and traditional publicity channels aimed to cultivate a strong and respected corporate reputation in the marketplace. As AdCo identifies changing market needs and trends, it will adjust its advertising campaign to reach new users.

Adco will face direct competition from advertising agencies such as Omnicom, WPP Group, Interpublic, and Publicus, first in domestic markets and later in international markets. None of these competitors are primarily focused on serving the online advertising community though some of these advertising conglomerates have done some effective online marketing campaigns. AdCo will differentiate itself through a major focus on internet advertising as well as taking a novel approach to producing accurate demographic data for their clients.

Management Team

The management team consists of a Chairman/President, Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Technology Officer (CTO), and Chief Marketing Officer (CMO). The Chairman/President has been working with the CEO in setting company’s strategic visions and building relationships with the potential clients. The Chairman/President and the CEO have extensive industry experience and will be instrumental in leading the company through the initial stages and effectively deploying its human and financial capital.

The CFO has twenty years combined experience in advertising sector as well as investment banking. The CTO has extensive software development experience, with specific project management and integration capabilities. He will be responsible for developing the company’s technologies as well as overseeing the integration of various technology suppliers. CMO will work closely with the CEO to promote the company as well as build clientele:

Critical Risks

Adverse Economic Conditions: Adverse economic conditions may force us to miss some of our financial targets and scale back our expansion plans. Difficult economic climate sometimes forces advertisers to cut back on their marketing budgets including internet advertising. We do hope to minimize the adverse impact of adverse economic climate by diversifying our client base and focusing more on big corporations that can withstand difficult economic climate better than small businesses.

Credit Markets: Our start-up capital will be provided by stakeholders but at some point in the near future, we may be forced to access the credit markets. Our ability to get access to credit at favorable terms will depend upon various factors some of which will be economic-specific and others will be company-specific.

Proprietary Technology: We believe that our proprietary advertising platform FER will be our differentiating asset from the competition and we plan to further strengthen our core competencies by staying at the edge of technology innovations. But we realize we are up against competitors with huge resources and it is possible that they may succeed in coming up with an advertising platform that gets greater acceptance than ours in the market.

Government Regulations: Internet advertising is a relatively new industry and, thus, may be exposed to a range of regulations some of whom may be shaped by the privacy concerns. A great deal of uncertainty exists regarding future government regulations, thus, our success will also depend upon building a business model that doesn’t lose its effectiveness in the face of new regulations that may limit access to consumer data or make it more expensive to acquire.

Geographical factors: We will initially focus on domestic markets which may have different economic realities. In addition, we plan to expand into international markets which will expose the company to even greater uncertainties and variations in economic conditions. Moreover, different countries have different laws which may increase our compliance costs and make our business model more complex.

Offering

The following tables detail the required funding in order to commence company’s daily operations. Start-up expenses include all the expenditures that would be incurred before the company starts earning revenue.  Start-up assets include both short and long term-assets. The ‘cash required’ in the asset table represents the balance of cash at the beginning of first month. Total start-up requirements, which can be funded with loans (liabilities) and/or investment, equal the sum of start-up expenses and assets and total $5 million. The company plans to sell a 10% stake to the founding investors for $5 million.

Financial Plan

AdCo will charge for its services by the units at the rate of $0.50 per unit. The unit could mean hour, ad click, or any other basis depending upon the type of service provided. The company’s products and services will be divided into four categories which are Standard, Interactive Research, Gaming, and Emails. The last three are self explanatory while Standard will include everything else including advertising and marketing campaigns. The company expects tremendous growth from second year and onwards once it has established itself in the first year and has developed important industry contacts and secured clients. The company projects total revenues of approximately $0.13 million, $7.36 million, $37.98 million, $75.97 million, and $151.94 million in the first five years respectively.

AdCo’s management believes that the company will barely break-even in its second year of operations and will be profitable by the third year. The company expects to earn pre-tax profits of $10.3 million, $23.18 million, and $49 million in its third, fourth, and fifth years of operations respectively. The company still has not figured out the tax rate it may incur because it hopes to benefit from certain tax incentives and subsidies due to employment creation that would help it achieve lower tax rates in its initial years of operations.

As far as company’s capital structure is concerned, the company’s total assets are expected to grow from less than a million dollars in the first two years to approximately $91 million by the end of the fifth year. The company will be primarily equity financed and the management does not plan any long term debt financing in the first years which will be positive news for the founding investors.

In the short term, the company’s almost whole asset base is expected to be comprised of cash reserves. This is because we do not plan to own any property or building until we have a better idea of our growth potential. In addition, being primarily a service company we will not have any inventory either. Our major assets in the initial phase are expected to be data center, brand name, patents, and our intellectual capital.

As the above graph indicates, Standard will be the largest contributor to the company’s total revenues over the five year period, with email marketing as the second largest contributor. From the third year, Standard alone is expected to contribute a little over half of the company’s total revenues. Overall, gaming is expected to be the least important revenue stream though future trends could change that.

References

Bloomberg BusinessWeek. Publicis Groupe (PUB:EN Paris). 25 November 2011 <http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=PUB:FP>.

Golvin, Charles S. How Youth Communicate. May 2007. 4 November 2011 <http://www.forrester.com/Research/Document/Excerpt/0,7211,37052,00.html>.

GrabStats. Online Advertising Statistics. 4 November 2011 <http://grabstats.com/statcategorymain.asp?StatCatID=4>.

Interpublic. 4 November 2011 <http://www.interpublic.com/>.

Interrepublic. 2010 Annual Report. 4 November 2011 <http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9ODk4NzV8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1>.

Omnicom Group. 2010 Financial Highlights. 4 November 2011 <http://www.omnicomgroup.com/aboutomnicomgroup/financialhighlights>.

Sweney, Mark. Publicis revenue up 8.3% in 2010. 10 February 2011. 4 November 2011 <http://www.guardian.co.uk/media/2011/feb/10/publicis-2010-results>.

Walsh, Mark. Behavioral Targeting To Surpass Search Advertising By 2020. 27 February 2009. 4 November 2011 <http://www.mediapost.com/publications/article/101147/>.

Wang H. Parks Associates. “The Changing Face of Advertising in the Digital Age.” Research Paper. 2005.

WPP. Client developments in the first half of 2010. 4 November 2011 <http://www.wpp.com/interimreports/2010/report-to-share-owners/operations-review/client-developments.html>.

—. Revenue by communications services sector and brand. 4 November 2011 <http://www.wpp.com/interimreports/2010/report-to-share-owners/operations-review/css-brand-revenue.html>.

—. Revenue by region. 4 November 2011 <http://www.wpp.com/interimreports/2010/report-to-share-owners/operations-review/revenue-by-region.html>.

—. Unaudited condensed consolidated interim income statement. 4 November 2011 <http://www.wpp.com/interimreports/2010/interim-financial-statements/index.html>.