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HvacDESIGN CONFIDENTIAL March 2000

hvacDESIGN 1 - An EXECUTIVE SUMMARY (draft)


An IndiaVenture2000 Business idea from SQUIDFIRE
March 2000

CAVEAT

We are submitting an Executive Summary of the Original hvacDESIGN business Idea


for a web-based subscription-based hvac engineering design service. However on
subsequent analysis of market size, we have determined that the target market of
architects, hvac consulting engineers and contractors and hvac equipment
manufacturing majors is far too narrow/small for this idea to result in “big business”
standing on its own unless an aggressive acquisition/reverse merger strategy is
followed to acquire smaller existing hvac design software vendors and rapidly narrow
the available hvac design software choices to just three, one which is cheap and web
based (i.e. hvacDESIGN) and the two others which are expensive and product based
(i.e. Intergraph PDS, Bentley/Triforma).

We are currently exploring morphing this concept into a potentially more attractive
concept that has value for the target market community, i.e. a B2B vertical portal for the
hvac engineering and contracting community that is buyer-biased and allows them to
achieve efficiencies and lower costs in searching for components, models, parts
whether for engineering specifications (features, performance) and/or for lower costs,
with the original hvacDESIGN concept just one part of this more comprehensive vortal.

To that end, we wish to interact with the VC at the VC Clinic to validate this idea. Apart
from adding value to a subscription-based hvac vortal, the hvacDESIGN concept would
appear to be valuable also to a software vendor of hvac engineering design software
and/or a hvac equipment manufacturing major who could use the hvacDESIGN concept
as part of its web site providing a free service to its patrons as well as a powerful
incentive/hook to include only its “house” brands of hvac major equipment such as
chillers, air handling units or its preferred makes of ducting, piping and electrical
equipment.

1
HVAC = Heating, Ventilation and AirConditioning
CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.
HvacDESIGN CONFIDENTIAL March 2000
EXECUTIVE SUMMARY - The (original) Business Idea

hvacDESIGN is a web-based subscription-based or “pay-per-use” service targeted at Architects,


HVAC engineers and contractors and HVAC Equipment Manufacturers. These users can receive
fully engineered 3D drawings of a full heating, ventilation and airconditioning plant system with
full bills of quantities based upon the system parameters and specifications they provide and 3D
Single Line Diagrams (SLDs) drawings they submit to the service. 3D rendering of all duct, piping
and electrical components including complete Bill of Quantities (BOQ) material takeoff/schedules will be
provided over the internet to these users.

Additional revenue streams will be developed for :


• Usage of 3D objects (delivered over the Web) for particular makes of HVAC plant equipment,
special duct fittings, special electrical panel components
• Expert Advice pertaining to the SLD the client submitted with suggestions on improvements
(i.e. rerouting to get better cooling efficiency, lower material costs)
• Sound/Noise Engineering to reduce sound Noise levels
• Energy Savings Recommendations based on the client’s design
ILLUSTRATION

Fig 1 A Single Line Diagram (SLD) Fig 2 : An Engineered 3D Rendering of the SLD

Also on the anvil, is a plan to make hvacDESIGN just one component of a vertical portal for the hvac
engineering industry that offers information and engineering specifications on the various HVAC
engineering equipment and technologies available as well as industry developments and news, a
discussion forum with discussion threads for different aspects, technologies and issues on the HVAC
industry etc.

The Value Proposition

The key to successful HVAC engineering and installation projects is the ability to correctly
estimate the Bill of Quantities involved in the project. An early and accurate estimation of these
permits a rapid start to the installation without any delays involved in withholding issuing
purchase of orders for lack of firmness in quantities needed.

Current situation : As HVAC installations often proceed alongside installations of interiot decor, false
ceilings, lighting and other building utilities, collisions with HVAC ducts and diffusers with other building
utilities often delay and can throw out of gear the estimated quantities of materials involved and can entail
significant amounts of rework.

CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.
HvacDESIGN CONFIDENTIAL March 2000
HVAC Engineers and contractors can avoid a lot of this uncertainty by precisely engineering the HVAC
system required using full 3D rendered drawings of HVAC Cooling equipment, piping routings, ducting
routings, diffuser locations and electric wire routing and electrical panels location. The 3D Engineering
software available today is either too cheap and addresses only parts of the computational/engineering
requirements or is very expensive for a well integrated and comprehensive HVAC engineering software.

CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.
HvacDESIGN CONFIDENTIAL March 2000

Engineering Design – Typical Work Flow:

The Value Proposition : hvacDESIGN aims to radically alter this paradigm by providing the 3D
engineering and drawing service as a web-based service where subscribers would for an annual
subscription fee be provided with free plug-ins for their Web-Browser and a popular 3D CAD drawing
software such as AutoCAD. The Browser plug-ins would permit the subscriber to submit the various
system parameters such as air-flow, heat load, internal/external ambient conditions etc to the system.
The CAD drawing plugins would allow the user to submit 3D single-line "routing" drawings showing the
planned routing of ducting, piping and electrical systems including placement of the HVAC major
equipment such as chillers, air handling units, fans, pumps, motors etc. The user would also specify the
types/models of equipment required such as ducting material, insulation material, diffuser dimensions,
height/width constraints on ducting, piping and other such engineering information. The user will be able
to submit all this information to the hvacDESIGN web service and a few minutes later, a fully engineered
3D drawing with full material takeoffs and computed Bill Of Quantities would be be returned to the user.

CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.
HvacDESIGN CONFIDENTIAL March 2000

Hence the only investment in engineering software that prospective subscribers would need are (a) web
browser (b) a standard 3D drawing package such as AutoCAD,- as compared to the $10,000 to $60,000
per seat cost for high quality HVAC engineering software available in the market today.

The Idea of web-based delivery of engineering design services thus builds on the rising
substitution of "pay-per-use for software" into "pay-per-licenced-copy of software".

Competition

Competition to this web-based deliver of HVAC engineering design services will come from :

• Existing HVAC Engineering Design Products :


• Bentley/Triforma PlantSpace Systems (US based)
• Intergraph's PDS
• SoftDesk 8 AEC with HVAC (US based)
• ARRIS HVAC (US based)
• Cymap (UK based)
• Cadduct (UK based)
• ELITE SOFTWARE (US based)
• MC4 (Italy based)

CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.
HvacDESIGN CONFIDENTIAL March 2000

• Vendors of existing HVAC Engineering Design Products, such as AUTODESK, INTERGRAPH


etc that could make similar moves to web-based engineering design services as they could
conceivably transition their existing engineering design products into web-based backends

• Major manufacturers of HVAC equipment such as Carrier, Trane, Hitachi who could adopt a
similar concept on their web-sites thus providing a similar service to their patrons but with the
catch that it is easier for patrons of their site to use "house branded" equipment rather than
competitor's equipment. For example, if Carrier were to offer such a service, then the only 3D
models of chillers, airhandling equipment that would be available via the web-based service
would be from the Carrier stable of products or from companies "friendly" to Carrier.

The reader is also urged to visit the following links that show how similar web-based engineering
design services are being pursued in the engineering design software arena :

•Alibre.com & 3DModelserver.com (www.alibre.com , http://www.aspnews.com/_News/News000221Alibre.htm )


•Collabware.com ( www.collabware.com )
•Pivotal from Centric Software ( www.centricsoftware.com )
•Fujitsu’s browser based semiconductor chip design (EDA)
( http://www.techweb.com/se/directlink.cgi?EET19990405S0007 )
•Parametric Technology’s Collaborative Product Commerce (CPC) PTC's Collaborative Product Commerce
•Bentley’s aecXML
BLUESTONE AND BENTLEY TO BRING XML-DRIVEN APPLICATIONS TO THE $3.6 TRILLION A/E/C MARKETPLACE

Uniqueness of the Idea and Distinctive Features of hvacDESIGN

hvacDESIGN’s unique competitive advantages (apart from first mover advantages) would stem from :
• Low “pay-per-use”/subscription charges
• Extremely easy-to-use plug-ins into popular drawing/engineering design software that allow 3D SLD
creation and 3D hvac terminal and equipment definition and placement
• Very Rapid turnaround of accurately engineered hvac designs based on client SLDs
• Ready-to-use parts library of 3D objects of HVAC equipment and terminals, piping, pipe fittings,
valves, and electrical panel components

Market Size and Growth

This web based service is aimed at the restricted market of HVACR engineers, contractors,
manufacturers. Estimates of the number of professional HVAC consultants range from 2,500 in India, to
3,000 in Australia, to anywhere between 7,000 to 30,000 in the USA. The market is therefore a
niche/narrowly focused market and the pricing of the service will have to be set accordingly (see below).

Growth will not come from the existing base of HVAC engineers as this will largely remain static over
time.

As this is a new service, the growth will come from increasing conversion/switching rate of HVACR
professionals who switch from using manual/existing HVAC engineering software to WEB-based
engineering design services.

Pricing and Revenue Streams

A Subscription based model is planned whereby an annual subscription fee will be charged for
membership to this service and thereby access to the engineering design services.

CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.
HvacDESIGN CONFIDENTIAL March 2000
Additional charges in the form of rate slabs for basic/premium services is envisaged whereby expert
advice will also be offered to subscribers as well as access to additional design services such as energy
savings/audit, noise engineering etc.

Advertising revenues is also possible and welcome but is not being considered as a significant revenue
stream for purposes of financial viability of this business idea.

Pricing of this service has to be set keeping in mind that the intent is to encourage HVAC engineers to
switch from expensive HVAC engineering software priced on a per-seat basis to a web-based annual
subscription design service.

Pricing will also have to be done keeping in mind at least two classes of users : the individual practising
HVAC engineer (or a small firm of max three-five HVAC engineers) vs the Large hvac engineering and
design firms with 25-100 HVAC engineers globally.

Accordingly, indicative pricing (at this time) is likely to be in the range of $2,500 per annum for a single
subscriber pack, $10,000 per annum for 5-subscriber pack permitting upto 5 simultaneous usages
(named user basis) from the same corporate entity. Corporations requiring more than 5 subscriptions
would buy as many 5-subscriber packs as required or separate negotiated pricing could be offered
depending on the desired subscription level.

Note that this pricing has been set so as to compete with manual ductulators on the one hand and on the
other hand the cost of HVAC Engineering software which costs between $10,000 to $60,000 for a
reasonable integrated HVAC engineering design functionality, an investment which typically occurs in 5
year cycles before a similar investment has to be made in the next upgrade of the software.

A subscriber base of around 200 at the end of the first full year of operations is targeted to make the
venture commercially viable, increasing over the next few years to at least 1,000 in three years. Annual
Revenue expectations are therefore around $ 0.5 million in the first year to around $ 2.5 million from the
third year onwards. This could be much higher if the trategy of acquiring/reverse merging with
ELITE/CYMAP is followed as explained towards the end of the next section.

Marketing Strategy

The marketing strategy for this business would be to raise awareness –through advertising, participation
in industry seminars, engineering design software seminars and the like- of this product through the hvac
engineering associations (ASHRAE and others) and the other HVAC trade organisations (ACCA,..) and
publications (HVACR “The NEWS”). Direct targeting –most likely be email- of members of these trade
organisations would also be necessary.

Similar marketing/selling efforts in parallel would be targeted at leading (Bigger and larger) HVAC
Engineering consulting and contracting firms with the objective of encouraging trials and switching to theh
hvacDESIGN web-based service.

The more aggressive and bold move would be to acquire customers through actual buyouts of the
more fragmented base of software vendors that produce popular and lower end hvAC engineering design
software, such as ELITE SOFTWARE (USA) and CYMAP (UK). Such acquisitions would have the effect
of acquiring a potential customer base of at least a 1000 to 2000 users apart from acquisition of a sound
body of hvac engineering design software expertise and restricting the choices of hvac engineering
design software to a maximum of three or four packages of which two are high-end high-priced software.
Execution of this move could proceed in two ways : (a) hvacDESIGN buys out one/both these firms but
that would require money (b) one of these firms buys out hvacDESIGN and then swallows the other firm
to achieve critical mass and pose a serious real challenge to the other two/three big hvac engineering
design software products, i.e. AutoDesk S8 AEC w/HVAC, Triforma/Bentley, Intergraph PDS. This latter
option would thus require only enough financing to make hvacDESIGN a serious threat or a valuable
proposition to either/both of ELITE/CYMAP for them to consider a buyout of hvacDESIGN. The intent of
CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.
HvacDESIGN CONFIDENTIAL March 2000
going down this route is obvious : To become possibly the only hvac engineering design
software that every hvac design engineer uses. This is really the only way to play the game in a
very narrow market with multiple software vendors trying to address this same small market. The
initial upfront investment is large but provides long-term recurring revenues as the barriers to acceptance
of another product in this reconfigured space would be too high for another entrant to climb, especially if
the subcription fees are set at levels low enough with a wide and deep basket of value (through a buyer
controlled hvac vortal) so that existing customers see no convincing need to switch out of this service.

Organisation

experince and skills does your team lack? How and with whom will these gaps be closed?

Strong HVAC Engineering Domain Knowledge; Engineering Software Customisation (person


identifed; available)

Web Server & Programming Skills: To Be Identified (TBI) in addition to albert

Creation of HVAC Parts Library : Could be contracted out as job work

Web Operations : TBI; needed in the runup to going live and after

Finance & Legal: TBI;

Sales & Marketing : TBI. Earlier the better. issues such as team chemistry , domain knowledge
(credibility in the HVAC world) are key

Funding Requirements – Initial stage estimates

Estimated funding requirements towards initial capital investment and first year running
operational costs are anticipated to total to around $500,000 required for development of the web
based application system and get the system in a state of “ready-to-go-live”. Marketing costs,
product launch costs, etc prio and post launch are not yet estimated and would be additional. Financing
required to buyout/reverse merge with existing software vendors such as ELITE/CYMAP has not yet
been estimated, though at this time annual sales of each of these companies is only around $ 1 million
each.

Exit Options

The only feasible exit option for this business idea is a strategic sale to:
(a) a company like a HVAC engineering design software vendor who could transition from a
purely “product licence” based revenue stream to a “web-based service and recurring
revenue” stream (see discussion at end of section on marketing strategy)
(b) or a HVAC equipment major( or even more than one eqpmt manufacturer) who could include
this web-based service as part of its Web Site/Portal.

Team Profile

Albert D. Lewis has over 18 years experience in the I.T. industry, initially as a Systems Specialist with
Tata Burroughs (since Tata Unisys and Tata InfoTech) and subsequently as a consultant in the area of
I.T. Strategy with a Strategy Consulting Firm based in Mumbai. As a Systems Specialist with Tata
Burroughs, Albert essentially worked on (and lead project teams and design effort) special systems
development projects (with a focus on networking systems and systems software) internationally with
CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.
HvacDESIGN CONFIDENTIAL March 2000
customers such as U.S. Steel, British Telecom, Credit Agricole, W.L. Gore and others. As a consultant in
the area of I.T. Strategy, Albert has worked on I.T. Strategy development for leading Indian companies.
Albert is a graduate of IIT Kanpur and holds an MBA from INSEAD, France. Albert is well informed and
aware of the various technologies underlying the development of web-based applications and would be
principally involved in the technology choices and shaping of the technical architecture of the
hvacDESIGN services.

Varinder Marwah is a Mechanical Engineer with a leading HVAC Engineering Major in India and has
been involved with design engineering and planning for several major HVAC engineering jobs in India for
over 5 years. Varinder is also fluent and has in-depth experience with 3D Engineering Design Software
such as ProE and AutoDesk/AutoCAD software and with HVAC Engineering Design Software including
customising AUTOCAD .

CONFIDENTIAL.
This business idea is the intellectual property of Albert Lewis and Varinder
Marwah, March 28 2000.