staff the R&D department, as R&D will be
a key platform for building growth, and to
hire experienced ERP implementation proj-
ect managers to help minimize the risks
involved in these types of projects. In addi-
tion, MedTrack will be building its market-
ing and distribution network, thereby ensur-
ing that distributors and in-house sales force
are equipped to provide all the necessary
information hospitals will need to make
their purchasing decisions. Initial manage-
ment of human resources (HR) will be
shared by the other managers. As MedTrack
continues to grow, it will staff a separate HR
department to manage employee relations
and a purchasing department to manage
relationships with suppliers. Particular
emphasis will be provided to customer serv-
ice and training. The customer service
department will be state of the art, as it will
have an area that will be dedicated to provid-
ing excellent training to customers and
another that will focus on ensuring proper
functionality of all systems. MedTrack will
also strengthen its R&D department by hir-
ing the best software developers and an IT
manager who will help guide the continuous
improvement of all systems. Through mar-
keting research, MedTrack will always be in
tune with the customer’s needs.
Furthermore, the company will continuous-
ly focus on the development and training of
all employees because this will be critical in
maintaining competitive advantage.
MedTrack will reward people who respect
the company’s purpose and values and who
work toward the company’s goals.
OWNERSHIP
Form of the Business
The most appropriate legal form of the busi-
ness is a C corporation. That form will
ensure the limited liability of the owners, as
well as the continued life of the firm after its
founders withdraw from the business. The
drawback is the ”double taxation” of profits
at the corporate and personal income tax lev-
els. However, the effect of this shortcoming
will be mitigated by the plans of the founders
not to take salaries for the first year, and com-
pensated by the ability of the corporate legal
form to participate easily in an IPO.
Equity Positions
The founders plan to retain 87 percent of ini-
tial equity and use the remaining shares to
finance the venture. Further dilution of the
founders’ equity is expected as additional
management staff is hired. In order to bene-
fit from the experience of its investor(s),
MedTrack will look for a value-added VC
with experience in the high-tech sector and
RFID in particular. The projected five-year
cash flows have been estimated based on a 40
percent IRR for the VCs, which is compara-
ble to existing VC expectations.
The founders have a total of $1 million of
personal funds to invest. The remaining $5
million of the $6 million initial investment
will be obtained through a VC firm.
Allocating 13 percent of the total cash flow
to the repayment of the VC’s investment will
give MedTrack an IRR of 40 percent.CRITICAL RISKS AND
CONTINGENCIES
The risks associated with the critical success
factors for this new venture are important
insofar as they could jeopardize the entire
endeavor. There are several critical success
factors that will determine the course of the
enterprise. The first is defining and sticking
with the firm’s core competence. MedTrack’s
strategy will be to differentiate itself by offer-
ing a complete tracking solution that fits cus-
tomers’ needs, rather than simply providing
the RFID technology.
MedTrack’s core competence will be its
ability to understand hospitals’ tracking
needs better that any of the direct competi-
tors or other providers of RFID technology,
and to design the system that meets these
needs. To that end, MedTrack’s strategy willMedTrack 439