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Alight Smart-lighter Business Plan

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Contents Executive Summary ........................................................................................................................................... 3

Product Description .......................................................................................................................................... 4

Market Analysis .................................................................................................................................................. 6

Tobacco Tax ................................................................................................................................................... 6

Smoking Cessation Plans/Treatments........................................................................................................ 6

Our Approach ................................................................................................................................................ 7

Target Demographic ..................................................................................................................................... 8

Business Model & Financial Projection ........................................................................................................ 10

Competition ...................................................................................................................................................... 11

Management & Organization ......................................................................................................................... 13

Current Stage & Partnerships ......................................................................................................................... 13

Financial Requirement..................................................................................................................................... 14

Appendix ........................................................................................................................................................... 14

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Executive Summary

Tobacco smoking costs $300 billion in productivity losses and direct healthcare cost in North

America each year. Current governmental efforts and smoking cessation treatments are not cost

effective and only increase quitting rate by 4-5 percentage points.

In order to help smokers monitor, control, and quit smoking, we want to give users accurate data on

their smoking behavior, provide them with a personalized quitting plan, and facilitate a change in

users’ smoking behavior (e.g. by limiting the location, time of day of smoking).

Alight is a portable electric lighter designed to help smokers control their habit by, firstly,

monitoring smoking times and locations. Secondly, building a personalized cessation plan and

enforcing via strict limits on the ability to light. Lastly, allowing communication of user data to

health professionals.

Our target demographic is male smokers between the ages of 24-44 in North America. We selected

this segment because of its high smoking prevalence, above average disposable income, and

expressed willingness to quit smoking. We expect 9 million direct customers, and 31 million indirect

customers (e.g. women) in North America.

We estimate a combined revenue of $70M if we capture 5% of our target demographic: $45M will

be from selling product directly to consumers via e-commerce, retailing, and a rental model; $25M

will come from selling our meta-data/consulting report/hardware to enterprise and governmental

clients, such as health insurance companies, municipality, and pharmaceutical companies.

There are 5 co-founders in our company with engineering, medical, business, patent law, computer

science, and econometric background. We also have industry/academic partners such as Center for

Addiction and Mental Health, Ryerson University, and TELUS Health.

We have a prototype built for demonstration purposes, and all hardware designs are finalized and

miniaturized except for aesthetic aspects.

We are seeking $200,000 to make our first 100 units for a pilot study.

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Product Description

Alight is battery powered will supply electricity to a heating coil to allow users to light up a cigarette

(the same principle as a car lighter). The same battery will also power a microchip, memory storage

unit, and GPS unit. Users can connect Alight to a computer/USB wall charger to replenish battery.

The battery (1000 mAh) will last one week with normal use (20 cigarettes/ day).

Figure 1 Displays components of Alight on a prototyping board. Figure 2 Shows the circuit board

that will be in the actual product (6 cm x 2.5 cm). Figure 3 Shows the CAD model of the lighter’s

case

Every time the lighter trigger is pressed, Alight will:

1. Count the number of times the user has lit up a cigarette,

2. record the date and time of day, and

3. record GPS coordinates of the user when they are smoking (within 3 meters of accuracy)

Figure 3: case design in CAD

2.5 cm

6 cm

Microchip (send/receives/store data)

Electric Coil (lights the cigarette, represented by a LED light here)

Trigger (for both the Electric Coil and other components)

GPS Unit

Figure 1: breadboard design

6 cm

2.5 cm

Figure 2: integrated circuit design

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When Alight is plugged into a computer (either to charge or access data), the data is transferred to

our website. On the website, the users will see a dashboard which graphically represents the user’s

smoking behavior (Figure 4).

Moreover, users can set goals and limits to when, where, and how many cigarettes they can smoke

(Figure 5). Alternatively, the web server can apply statistical algorithms to the user data and provide

a calculated quitting/weaning plan (Figure 6).

Figure 4: User Interface Layout (under revision)

Figure 5: limit setting panel (under revision) Figure 6: A sample of statistical result based on dummy data (under revision)

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Market Analysis

Smoking costs $300 billion in productivity losses and direct healthcare cost per year, as well as

human suffering smoking related diseases incur. Currently, there are two ways of curbing the

number of smokers: tobacco tax, and smoking cessation plans/treatments.

Tobacco Tax

The World Health Organization had concluded that even though increasing tobacco tax has a direct

impact on tobacco consumption (for 10% increase in tobacco tax, there is 4% decrease in

consumption), the tax did not have much effect on people with average level of income. For the low

income demographic, they can always resort to contraband cigarettes; and this is reflected on the

recent attention of contraband coming from indigenous zones in Canada and the US.

Moreover, the tobacco tax revenue collected ($7.3 B in Canada; $28 B in the US, in 2013) is not

enough to cover the healthcare cost/productivity loss due to smoking ($15 B in Canada; $285 B in

the US, in 2013).

Smoking Cessation Plans/Treatments

There are 5 smoking cessation plans/treatments that are clinically studied:

1. Nicotine Replacement Products: e.g. gum, patches

2. Antidepressant: work through inhibiting pleasure centers associated with smoking

3. Cognitive behavioral therapy/community support

4. Digital Aids: e.g. mobile apps, telephone support line

5. Quitting cold-turkey

Based on a meta-analysis conducted by Cochrane, which included ~280 double-blind studies, the

quitting rate within a 6-month frame is as follows:

1. Nicotine Replacement Products: 11% (with a combination of gum and patch)

2. Antidepressant: 10%

3. Cognitive behavioral therapy/community support: result not statistically significant

4. Digital Aids: result not statistically significant

5. Quit cold-turkey: 7%

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Other than marginally effective quitting rates (with a remission rate of 50%), these quitting plans/treatment have major costs for the smokers who undergo them:

1. Nicotine Replacement Products: $300/month (gum plus patch); side-effects (e.g. nausea,

skin-irritation); possible dependency on nicotine replacement products

2. Antidepressant: prescription drugs ($100/month); side-effects (e.g. hallucination, vomiting);

not recommended for people under the age of 18.

3. Cognitive behavioral therapy/community support: opportunity cost due to travelling; high-

cost to tax-payers (over-head associated with hiring doctors, nurses, and therapists);

moderate drop-out rates

4. Digital Aids: bothersome to use, and costly to maintain/develop

5. Quit cold-turkey: emotional distress; withdrawal symptoms (e.g. insomnia, weight-gain)

Our Approach

Through research, we believe that smoking cessation needs the same approach as any other

addiction: give people who are addicted irrefutable data, provide a personalized weaning plan, and

removing or confounding the behavioral cues to said addiction.

Psychological rationalization and denial are common amongst smokers. Our product can produce

accurate, interactive, graphical user generated data which confronts psychological barriers. We also

collect data without the smokers having to deviate from their normal routine, thus increasing

compliance.

Once the data reaches our web server, a statistical algorithm will be able to pick up what factors

(time, location, etc.) truly contribute to smoking behavior, based on personalized data collected

(imagine a smoker waiting at a bus stop with a cup of coffee on a Monday morning; you wouldn’t be

able to figure out what triggers smoking the most without a huge data set).

Lastly, we will recommend to our users a customized quitting plan based on statistical calculations.

For example: “you are most likely to smoke 2 cigarettes at bus-stops early in the morning, would you

like to cut it to 1 cigarette?”

We help users enforce the quitting plan by sending the electronic lighter certain limits, such as where,

when, and how many times the user can activate the lighter.

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Target Demographic

We want to target primarily male smokers between the ages of 24-44 in North America. In Canada,

there are 1.2 million current smokers age 20-24, and 4 million between the age of 24 and up. This

translates roughly to 20% smoking rate in Canada. A closer inspection shows a much higher

smoking rate divided by age group and gender (Figure 7), with 30% prevalence for males aged 20 to

34.

More importantly, income has a direct relationship with smoking prevalence. Data collected by

Physicians for a Smoke-Free Canada shows that the higher the income group, the more number of

smokers in a family (Figure 8).

Figure 7: Percentage of smokers by age group and gender (Canadian Community Health Survey, 2013)

Figure 8: Percentage of smoker by gender and family income (Physicians for a Smoke-Free Canada, 2005)

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When we factor in both income level and age group, family with most smokers all have income above $30k (Figure 9).

In addition, this demographic wants to quit smoking within a 6 months window. The Center for

Addiction and Mental Health (CAMH) indicated that among the smokers surveyed, 56% have

intentions to quit smoking in the next 6 months, while 25% plans to quit within 30 days (Figure 10).

This indicates that we have a Canadian market the size of 1M smokers (6M males age 24-44 X 30%

smoking population X 50% smokers who want to quit).

Figure 9: percentage of smoker by age, and family income (Physicians for a Smoke-Free Canada, 2005)

Figure 10: percentage of smokers considering quitting from 2002-2012 (Centre for Addition and Mental Health, 2012)

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If we apply the same estimation to the US market, adjusting for population differences, we would

have 8M market size in the US (52M males age 24-44). In total, we have 9M potential customers

who would have the purchasing power and interest to buy our product. When we include female

smokers, smoker’s friends/family who want them to quit, and younger/older demographic, we

estimate the market reach a cumulative of 40 M in the US and Canada.

Business Model & Financial Projection Alight stands to make money by three distinct routes:

1. Direct sale to customers. Production costs for a single lighter are estimated at $35-$40. The

price point will be set at $80-$100 in order to ensure a 100% margin. The markets we aim to

deploy are those in North America, India, and China. Based on a conservative 5% of North

American smokers, we might stand to make $80M (year to year market penetration, and the

number of new and ex-smokers may affect future revenue, but we assume that smoking will

never go away).

Future iterations may incorporate an online rental-and-refurbishment service, where the user

pays a small fee per month until they have quit, or decide to give up on the product (on the

condition that the lighter is returned without damage).

2. Selling the product to enterprises for distribution, and/or integration into their research

structures. These might include insurance companies, hospitals, pharmaceutical companies,

private practices, nicotine replacement cessation-aids. By distributing our product through

these trust channels, it both solidifies our relationship with the end consumers, and also

strengthens our position with respect to data acquisition and analysis (potential revenue

varies due to the unit price we will charge these institutions and demand).

3. Data mining: Based on the data collected from smokers, consulting/marketing reports might

be prepared for both public and private sectors. These reports might be generated in

collaboration with clinical studies on public health, in partnership with or sold to players in

the healthcare industry, as well as those in pharmaceutical, health insurance, and tobacco

industries (revenue depends on marketing budget and research budget of private companies

and governments).

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Competition We will not compare our product to pharmacological treatments (i.e. nicotine replacement product

& antidepressant), nor therapy based treatment, since we think we have created a new category of

smoking cessation aid.

There is only one competitor in our space, called Quitbit (Figure 11). It is the only hardware that

tracks cigarette smoking without manual user input on the market (at least for now). Quitbit is led by

two electrical engineers with product development background, and it got $50,000 funding from

KickStarter, and $150,000 seed money from angle investors. It has an LCD display that gives live

feed back to the time since the user last smoked a cigarette, and it pairs wirelessly with the iPhone.

Quibit is supposed to be shipped in December 2014 to KickStarter backers, however recent post

(March 2nd) on their KickStarter page suggest that backers still didn’t receive any products. Also it

could not be found in any retail stores (MSRP $99).

The competitive advantages of Quitbit is that it was first to market (well, sort of), and it had

garnered great press coverage (e.g. Engadget, WSJ, Wired). However, there are glaring weaknesses

for its business model, domain expertise, financial health, and management team.

Quitbit does not have any patents based on Google and US Patent Office search, and has no

partnership with any health organizations. We consider the later a fatal mistake (or inadequacy),

since a lack of partnership greatly reduced market access and the potential to make those partners

your clients (a low traction in North America may be the consequent of this). In comparison, our

strategy starts with taking health industry partners).

Figure 11: Quitbit product & iOS app

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Table 1: Quitbit compared to Alight

Secondly, there was no indication that Quitbit will put any of the data generated into use, either to

benefit end-user or other potential clients. Meanwhile data generation and processing (statistical

analysis) had been our focus from the beginning.

Quitbit’s features-selection is also questionable. A LCD screen and wireless connectivity (mobile

app) does not produce any new category of data; mobile app maintenance and update will be costly;

iOS-only will restrict user base; functionalities on the iOS app suffer from the blandness of other

mobile-app based smoking cessation aids.

Lastly, there is no monetization strategy beyond retailing and e-commerce, and there is no indication

for any growth/R&D plan. Our estimates say they are running out of money, without any possibility

of attracting external funds ($200,000 (budget) - $20,000 (R&D) - $10,000 (living expenses) -

$100,000 (setup cost for supply-chain & logistics) – $40,000 (raw material cost) - $ 10,000 (trade-

shows).

All these weaknesses displayed by the product features, business models, and financial planning

reflect the lack of diversity and domain knowledge of the Quitbit management team. Looking from

these aspects, we think Quitbit is running out of steam and money, and their current management

team is unlikely to bring it back into competition with us. Table 1 captures the difference between

Alight and Quitbit.

Quitbit Alight

Industry/Academic

Partners

None

Center for Addiction and Mental Health Ryerson University- Ted Rogers School of Management George Brown/Centennial College TELUS Health

Patents None In talk with a patent agent, and we have a co-founder who went to the UK for patent law for 1 year.

Data/Domaine Expertise

None

Other than electric engineers, we have co-founders who have RN, MBA, BCompSc, and MA Economics designations

Business Model Retail Retail/Hardware as a Service/Enterprise/Government/Data Mining

Major Hardware Features LCD, bluetooth GPS

Software Platform

iOS app only

Web-based (universal)

Financial Status Running out of $200,000 seed fund and still hasn’t fulfilled a shipment

$1,000 R&D cost

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Management & Organization The following describes the founders’ background, equity allocation, and voting rights.

� Peter Zhang (founder): MBA, RN, BScN (17.5% equity* 50% voting rights)

� Louidgie Theoret (co-founder): BEng in Mechatronics (17.5% equity, 10% voting rights)

� Zeeshan Shahid (co-founder): BEng in Mechatronics (30% equity, 10% voting rights)

� Daniel Elbirt (co-founder): BEng in Civil, Law school (patent-law, retracted) (17.5% equity,

10% voting rights)

� Raaj Mehta (co-founder): BCompSc (17.5% equity, 10% voting rights)

� Vlad Dobrescu (consultant): BA Economics, MA Economics (0% equity, 10% voting rights)

*Percentage prorated to reflect investor’s share, e.g. if investors are interested in 50% of the company, 17.5% x (1-50%) = 8.75%. We offer up to 50% of equity, taken away proportional from founders equities.

Current Stage & Partnerships We started the project on January 1st, 2015 and so far we have all the electronic components and

software working and tested. We wrote 2,000 lines of code (Arduino ~600, Interface ~500, Website

and database ~800, CAD ~100), and have our backend software (statistical package) and user

interface ready. Our prototype is ready for demonstration purposes, with both the printed circuit

board design and the case design under revision. Table 2 shows our current industry/academic

partners, and the scope of the partnership.

Partner Scope Center for Addiction and Mental

Health (CAMH) x Demo for senior management of the Nicotine

Addition Clinic under CAMH in late April.

Ryerson University- Ted Rogers School of Management

x Access to government grant only available for university affiliated projects.

x Mentorship & academic support from the interim director of the Ryerson MBA MTI program.

x Access to multiple professors from: Engineering, Econometrics, and Healthcare Management departments.

George Brown College x Access to government grant only available for

university affiliated projects. x Planning for a pilot/research study.

Centennial College x Access to government grant only available for

university affiliated projects. x Planning for a pilot/research study.

Table 2: Partnership and Scope

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TELUS Health

x Mentorship & business support from a Sr. marketing manager.

x Access to senior management in various departments.

x Demo for senior management in late May.

Financial Requirement

We estimate the regulatory and patent-filling cost to be $30,000. Setting up manufacturing &

logistics will be close to $200,000. Meanwhile, no founders will take any salary before the company

becomes profitable (2 of the founders are still in school, while 3 have full-time jobs).

Appendix

Figure 12: case concept design