Enginekites E245 Final Presentation

FINAL PRESENTATION March 6, 2011

Interviewed: 100 • End Users 50+ • Manufacturers 3 • Partners 25 Domain Experts: 22

Surveyed: 115

Our Team We are passionate kiters and realized we could make the sport

more accessible to others.

Coleman Buckley •  M.S. Biology •  B.S. Biology •  Sponsored

Kitesurfer, 3yrs

Woods Buckley •  M.S. MS&E •  B.S. Earth

Systems •  Surfer, 10yrs

Oliver Riihiluoma •  M.S. ME •  B.S. ME, minor C.S. •  Sponsored Kitesurfer,

2yrs

Megan Lin •  M.S. MS&E •  B.S. Applied-Mathematics

& Economics •  Prospective Kitesurfer

Introducing ENGINE KITES

Our Original Idea

Retailers Online Brick mortar Kite Instructors Manufacturers Technology Distributors Industry Media

Professional Kite Surfers “Joe” Kite Surfer Prospective Kite Surfer

People Manufacturing IP Marketing & Sales Insurance

Kite sales + related gear

Kite design & manufacture Branding Professional sponsors

Retailers Online Brick & Mortar Peer to Peer Direct online

•  Vendor assisted •  Instructor assisted •  Pro assisted

•  Direct

Relationship with Retailers Media Pros Brand Technology

•  High performance at low cost

•  Ease of travel

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Business Overview

Problem - Product - Solution

The Problem •  A kiter needs multiple kites for different wind conditions •  Kites are $1000+ = significant financial barrier to entry

•  Solution is the The Origami System!

Our Product: An Adjustable Kite A light wind kite would be folded to decrease surface area and serve as a high wind kite. The kite adjustment would be quick and done prior to entering the water.

Our Product: An Adjustable Kite • A light wind kite would be folded to decrease surface area and serve as a high wind kite. The kite adjustment would be quick and done prior to entering the water. Engine Kites is a low-cost/niche entrant in a re-

segmented kite market. We make kite surfing financially and physically accessible for any extreme sports

enthusiast.

•  Defining Our Scope

• Canvas #1: Finding the Right Customer

• Canvas #2: Understanding the Industry

• Canvas #3: Building the Company

The Journey

•  Defining Our Scope •  Market Sizing •  Market Opportunity

•  Canvas #1: Finding the Right Customer

•  Canvas #2: Understanding the Industry

•  Canvas #3: Building the Company

The Journey

• 1995: "Hurley and his group realized that the modern surfer

also loved fashion, skate, snow, music and art."

• Revenue 1993: $25 M • 1998: $70 M

The Proxies Brands associated with: equipment, accessories, clothing, sports gear, etc.

The Opportunity

Serviceable $12.1b Extreme

Sports Retail Sales

Phase 1: Gain industry credibility, sell quality, niche product Phase 2: Build the brand, launch new product lines and offerings

*not to scale

$2.6b Extreme Sports Equipment

We compared this to the U.S. Surf Industry:

$6.24b in retail sales in 2010

<15% of sales from equipment

Addressable $567m

(est current # kiters)

Defining Our Scope

•  Canvas #1: Finding the Right Customer • Understanding our customer •  Testing the value proposition



The Journey

Our Original Idea

Retailers Online Brick mortar Kite Instructors Manufacturers Technology Distributors Industry Media





Retailers Online Brick & Mortar Peer to Peer Direct online

•  Vendor assisted •  Instructor assisted •  Pro assisted

•  Direct

Relationship with Retailers Media Pros Brand Technology

•  High performane at low cost


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Our Customers • Professional Kite Surfers

•  Solely concerned with performance

• Average Kite Surfer •  Performance and cost sensitive •  “One less thing to carry” effect

• Prospective Kite Surfer •  Cost sensitive •  Learning barrier

Hypothesis:

Who kitesurfs? 45 Interviews & 115 Surveys

Male Dominated

>50% skateboard or snowboard regularly

$68,000 is the average income

>50% active gamers

60% College Grad

Most people try Kite Surfing at the recommendation of a friend.

Testing:

Pain Points 45 Interviews & 115 Surveys

Existing Kitesurfer Prospective Kitesurfer

Cost of Equipment ✓ ✓

Cost of Lessons ✓

Equipment Mobility ✓ ✓

Infrequency of Sessions (dependent on wind conditions)

✓

Safety Concerns ✓

Testing:

Our Customers • Professional Kite Surfers

•  Solely concerned with performance

• Average Kite Surfer •  Performance and cost sensitive •  “One less thing to carry” effect

• Prospective Kite Surfer •  Cost sensitive •  Learning barrier

Results:

Joe “Dude” Marrama •  Loves to ski, surf, rock climb •  Salary ~100K/year •  Looking for something to do

when the surf’s blown out •  Intimidated by cost and learning

curve of kiting

“Companies need to offer more entry level packages."

Matt Sexton Founder Collegiate Kiteboarding Association

Customer Archetype:

Joe “Dude” Marrama •  Loves to ski, surf, rock climb •  Salary ~100K/year •  Looking for something to do

when the surf’s blown out •  Intimidated by cost and learning

curve of kiting

“Companies need to offer more entry level packages."

Matt Sexton Founder Collegiate Kiteboarding Association

Customer Archetype:

He bought our Kite!



•  Canvas #2: Understanding the Industry •  Building the kites • Understanding our channels, How do people buy kites? •  Partner strategy


The Journey

Canvas #2

VARs Online Brick mortar Kite Instructors Manufacturers Technology OEM Distributors Industry Media Partner

•  High performance and quality at low cost



People Manufacturing IP Marketing & Sales Warranty, replacement parts Insurance


Kite design & manufacture Branding Expos Professional sponsors

Retailers Online Brick & Mortar Peer to Peer Direct online Referrals?

•  Vendor assisted

•  Instructor assisted

•  Pro assisted •  Partner? •  Direct

Partner? Relationship with Retailers Media Pros Brand & OEM Technology

Other boarders (snow, skate and surf)

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Channel Flow

Retailers & Partners 35-45% markup

Website

Build & Deliver Kites

Design product Build Brand Create Demand Direct Sales

Merchandize Articulate Value

Deliver Orders

Distributor

$70

$400-$500 w/ bar and lines (20 kite production run)

Contracted manufacturer

$25

~$7,000 Software Program

$42/year

70% margin Direct

3 days

2+ weeks

35% margin

Unit Economics For Each Kite Sold Gross Revenue 1,000 Cost of Goods Sold Manufacturing 500 Distribution 25 Customer Acquisition 60 Total COGS 585 Gross Profit $415

Unit Economics

How did we calculate Customer Acquisition? Dependent on Sales Channel: •  commission •  retail space •  website

Dependent on Marketing Strategy: •  advertisement •  free lessons

For Each Kite Sold Gross Revenue 1,000 Cost of Goods Sold Manufacturing 500 Distribution 25 Customer Acquisition 60 Total COGS 585 Gross Profit $415

Exploring Channels & Partners

Hypothesis:

Direct - Referrals - Retail, 30 interviews

•  Most kite companies now sell direct

•  Kiters rely on brand and industry reviews •  New consumers use instructor recommendations

•  Typical channel margin is 20-45% •  Manufacturer/Retailer relationship is key, highly

political

Results:

Customer Reach Through Hotels Insight: on vacation, individuals typically not

considered part of the "Extreme Sports crowd" are still likely to try out extreme sports

Hypothesis:

Customer Reach Through Hotels Many hotels/resorts already offer kitesurfing

vacations and partner with kitesurfing equipment companies or kitesurfing lesson

providers. Receptive response to our pitch: free lessons &

commission on sales.

Results:

Customer Reach Through Major Label Idea: Partnering with a major label would give our

product immediate credibility

Hypothesis:

Customer Reach Through Major Label Reality check: Major labels aren't willing to take the risk

of partnering with an unproven brand and product.

Results:

The Competition

The Kitesurfing marketplace is crowded. Hypothesis: No single company with significant (>20%) market share = low cost to entry

Hypothesis:

The Kitesurfing marketplace is crowded. Hypothesis: No single company with significant (>20%) market share = low cost of entry Yes, but... The market is saturated and more people are making kites than selling them and it is a monoculture.

Results:

A Lack of Diversity

Technology Sets Us Apart Our Competitive Advantage




•  Canvas #3: Building the Company •  Lessons learned • Next steps

The Journey

Canvas #3

VARs Online Brick mortar Kite Instructors Manufacturers Industry Media Partner OEM Distributors

•  High performance and quality at low cost

• Ease of travel • Up to date

wind conditions

• Reduced environmental impact


People Marketing & Sales Manufacturing IP Warranty, replacement parts Insurance Website Maintenance


Kite design & manufacture Branding Expos

Retailers Direct online Partner

•  Vendor assisted •  Instructor assisted •  Direct •  Website •  Partner

Partner Industry Relationships Brand Technology Website

Accessories

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50+

30

45+

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7

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Introducing Engine Kites

Demand Generation • Website

• Wind conditions + news and social

• Effective Channel Management • Website, direct • Retailer & Partners (later)

• Build credibility, educate users • Free Beach lessons • Kite Expos • Pro Riders + Online Media • Ads and reviews in industry journals + presence on online forums

Hypothesis:

Price and Bundling •  Validated Hook! People want Kitesurfing lessons!

•  100 email addresses for those interested in kite lessons •  Instructors tells us paid lesson conversion rate to purchase: ~75%

•  Validated Price Point! $1000 • However, people expect deals • Bundling with free lessons, repairs or other equipment is added benefit

Testing:

We sold some kites! 5 commitments to purchase •  For those that did not buy...there

was a high demand to demo the product

Goal: •  Sell 20 kites first, before building

them

Prospective Kiters

Results:

Experienced Kiters

"Looks interesting. I could see this marketed as a one kite quiver which would be really nice for travel. Price, it could go for the equivalent of a kite and a half I would think. Performance an durability would be key" "Rad idea for your kite I like the idea of having the ability to change kites without having to walk to your car and pump up another kite. as long as the

kite performance was the same I would say it would be worth at least 50% more"

"If this kite rocked it - just flew amazingly, and the price was significantly

less than the cost of two kites - I could see it being appealing. If the kite flew at a mediocre level, the cost was only minimally different than the cost of two kites...I'd definitely go for the 9m and 7m kites (more range and no alteration necessary)"

Performance takes priority.

Testing:

Keeping Customers Engaged

This was our plan... •  Focus on building

awareness and user base in Bay Area before expanding. Main goal: build brand loyalty

•  Contact earlyvangelists

•  Explore partnerships

Hypothesis:

CLICK TO DEMO TODAY!

Free wind conditions brought to you by:

Please share your email to access to free wind conditions and latest product developments Email:



Site Value Prop: •  Bay Area Kitesurfers want current wind conditions (100% of those interviewed) •  Install approval granted for 3 pilot sites •  Users must share email to access site data •  Users can easily demo, purchase and register for lessons via

site

Unanticipated Challenges • Don Montague – “Godfather of kiting”

•  Designed the software most kite companies use, set-up the first kite factory in China, hold multiple kite related patents, knows everybody and everything about the kite industry.

• Don's Insights: •  Shared some interesting numbers

•  ~100,000 kites sold/year, no company sells more than 20,000 units/year

•  Materials costs have tripled in the last 5 years, pushing down margin

•  Most companies just treading water, not making much profit. •  High risk – lawsuits, recalls, etc. •  Even if we get a toe-hold locally, difficult to expand

Results:

Moving Forward •  At this time committing to building a company doesn't seem like a good idea.

•  Value prop remains valid, new strategy is to license to existing brands, let them fight it out.

Pivot: •  Patent and license kite design to other manufacturers •  Offer Don a percentage of revenue from profits and have

him go to bat for us getting licenses sold.

Lessons Learned

•  A good product doesn’t make a good business •  Passion for your product AND customers is key •  Team culture is critical •  Value of getting out of the building •  Accessibility of getting through to large businesses

Appendix: Canvases 1-7

The Canvas #1

Retailers •  Online •  Brick mortar •  Kite Instructors Manufacturers •  Technology Distributors Industry Media

•  High performance at low cost

•  Ease of

travel





Retailers •  Online •  Brick & Mortar •  Peer to Peer Direct online

•  Vendor assisted

•  Instructor assisted

•  Pro assisted •  Direct

Relationship with •  Retailers •  Media •  Pros Brand Technology

The Canvas #2

VARs Online Brick mortar Kite Instructors Manufacturers Technology OEM Distributors Industry Media Partner?

High performance and quality at low cost Ease of travel


People Manufacturing IP Marketing & Sales Warranty, replacement parts Insurance


Kite design & manufacture Branding Expos Professional sponsors

Retailers Online Brick & Mortar Peer to Peer Direct online Referrals?

Vendor assisted Instructor assisted Pro assisted Partner? Direct

Partner? Relationship with Retailers Media Pros Brand & OEM Technology


High performance and quality at low cost Ease of travel Up to date wind conditions Reduced environmental impact

Prospective Kite Surfer

Insurance



VARS Website online

Partners

Manufacturers OEMs?

Industry Media

Distributors

Branding Kite Expos Pro sponsors

Kite design & Manufacture

Industry Relationships

Brand

Technology

People

People

Manufacturing

IP

Marketing

Warranty, replacement

“Joe” Kitesurfer

Retailers

Direct

Partners

Vendor Assisted

Partner

Website

Accessories

Retailer Partner Product Marketing Engine Kites Customer

Website Maintenance

Website

Canvas # 3

High performance and quality at low cost Ease of travel Reduced environmental impact

Prospective Kite Surfer

Insurance



VARS Website online

Partners

Manufacturers OEMs?

Industry Media

Distributors

Branding Kite Expos Pro sponsors

Kite design & Manufacture

Industry Relationships

Brand

Technology

People

People

Manufacturing

IP

Marketing

Warranty, replacement

“Joe” Kitesurfer

Retailers

Direct

Partners

Vendor Assisted

Partner

Direct

Accessories

Retailer Partner Product Marketing Engine Kites Customer Canvas # 4

The Canvas #5










Accessories

2 0 13 13

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30+

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Canvas #6










Accessories

20 5 45

45+

50+

30

45+

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7

5

Canvas #7

VARs Online Brick mortar Kite Instructors Manufacturers Industry Media






Retailers Direct online

Vendor assisted Instructor assisted Direct Website

Industry Relationships Brand Technology Website

Accessories

20 6 45 45

50+

30

5

3

8

7

Licensing? 1

Questions?

Enginekites E245 Final Presentation

Education

kite adjustment

high wind kite

segmented kite market

kite surfing financiallyand

industry canvas

right customer canvas

mse sponsored kitesurfer

multiple kites