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1. Introduction
This business plan is for the creation of a new Internet Service Provider based in _________. The new company, XYZ.Net, will offer access to the Internet via high-speed modems for home and business users.
This plan outlines the market in this area, the investment required, and the launch and operation strategy of an Internet Service Provider (ISP). Financial projections are included as well as an "exit strategy" for establishing a value for the venture after two years of growth.
2. Executive Summary
This year has seen some dramatic changes in the Internet world. A stock market correction has changed the focus of investors and the press away from content and e-commerce businesses to Internet Infrastructure. The one area of the Internet that has not seen any signs of slowing down is the growth in users. This industry has been doubling in size every 6 months for the last 6 years.
As major communications companies such as ATT, MCI, Ameritech, and UUnet have been formulating their Internet Strategies an explosion of smaller firms have begun to offer dial-up access to the Internet. Over 1,300 new ISPs were created in 1995 alone. Despite popular press accounts of a "consolidation" this growth rate has extended into 1999. This growth in small entrepreneurial ISPs will continue because the large companies have to invest tens of millions of dollars to reach their current customer base. Whereas, a smaller firm can justify investing less than $150,000 to meet the demands of a local population or a business community.
There are several ways to look at the Internet. For an ISP the model of interest is the "distribution" model. An ISP is a service-based company that resells bandwidth. It pays a monthly or annual fee to an upstream provider for a high-speed link to the Internet Backbones, and resells connectivity in smaller chunks to its customer base. A dial-up ISP in this market usually has a T1 (1.54 MBPS) connection to an upstream provider and sells 56 KBPS connections via modem. A T1 connection allows the ISP to support 200 modems simultaneously. Because all subscribers do not use the service at once, a subscriber-to-modem ratio of ten is possible. This means that a customer base of 2,000 subscribers can be supported with one T1 connection. As the ISP grows beyond this, and as it offers higher speed services it purchases more bandwidth from its upstream provider.
This plan is for the creation of a single Point Of Presence (POP) dial-up Internet Service Provider (ISP). The services that will be provided to the local calling area include:
- High speed reliable Internet connectivity at 56 KBPS.
- Web page hosting -Email accounts
- Domain Name Service
- Network News Service
- ISDN -T-1 connections for businesses
Other services that will be offered in later stages of development include:
- DSL -Shared office space
- Web/e-commerce consulting services
The launch of this enterprise can be accomplished in as little as eight weeks from ordering equipment and lines. Based on past reported experience of other startup ISP's new subscribers will be added at the rate of 100/month after the initial ramp up. The assumptions in the attached pro-forma spreadsheets are that the subscriber base will reach 1,100 by the end of the first 12 months of operation, and 2,200 by the end of the second year. Break even cash flow will be achieved in the ninth month. Sales in the second year will be $482,000; profits will be $120,000. The investment in this venture will consist of capital equipment $41,000 and working capital of $49,000. An investment of $91,000 will thus generate a return of 131% in the second year.
There are several ways to value a subscriber-based business for eventual sale. One way is multiple of cash flow. Internet businesses are commanding over 20 times cash flow today but it is hard to predict what the "market" will be in two years. If a figure of 10 times cash flow is used the value of the company would be $2.6 Million (based on projected 3rd year cash flow). Another way is to look at other industries such as cable television. The going rate in that industry is $2,000/subscriber. Since Internet revenue is similar to cable subscription revenue per user this factor could be used. Based on that the value of the company would be $4 Million. These valuations are good returns on an initial investment of $91 Thousand (4 to 8 times return). The proposed investor equity stake of 24% will yield at sale of the company, $624K-$960K. A 6 to 10 times return over three years.
3. The Internet
4. The Market
5. The Competition
6. The Management Team
7. Launch Strategy
8. Growth Strategy
9. Exit Strategy
10. Financials
11. Conclusion
Even though there are over 4,000 ISP's in the United States there are still many communities that are under-served. The local ISP provides a key service to its community by being the catalyst for e-commerce development. The ISP can tailor services to fit many different needs. Consulting, web hosting, Internet Security, and maintenance are all add-on services that can add to our business. With our launch our community will finally have a service provider that plans to grow with the community and understands its needs.
Reprinted with permission by - Richard Stiennon May 16, 1996
Threat Chaos Blog
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