BUSINESS PLANS

60-Second Business Plan: The Butts Stop Here

How's this for a breathtaking market? The 35-million Americans who try to stop smoking every year.
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60-Second Business Plan

THE PITCH: Sure, Web-based businesses are risky. But QuitNet president Chris Cartter does happen to have a breathtakingly big market: the estimated 35 million U.S. smokers who try to quit in any given year.

QuitNet is a for-profit smoking-cessation program that's run exclusively on the Web. The site, which is free for users, offers a full range of diagnostic and quitting tools, including a system to match smokers up with quitting buddies and a "quit-date wizard" that helps smokers choose the optimal day to stop. It also provides free round-the-clock live chat rooms, message boards, and instant messages. And according to Cartter, it's the most active community of nicotine addicts on the Web. "Every day there are about 2,500 support messages posted by users," says Cartter. "There's not a minute of the day or night that the site is empty."

QuitNet's site, which claims an average of 50,000 visitors a month, began life in 1995 as a nonprofit run by the Boston University School of Public Health. The company, which is still based in BU's offices, incorporated as a business two years ago in hopes of expanding revenues beyond foundation grants. One big source of income: the $200 billion plus in tobacco-litigation-settlement funds that became available to the states starting in 1999. Cartter expects that at least 10% of tobacco-settlement dollars will fuel smoking-prevention and -cessation programs during the next 25 years. "Decision makers with pots of money to spend on helping people quit smoking are looking for cost-effective ways to address this problem," says Cartter, who previously headed up online services for a Boston University-based nonprofit.

New Jersey has already laid out $59,000 to have QuitNet build a customized Web site for the state's health department and will pay an additional $30 for each registrant to the site. So far, roughly 5,000 New Jersey smokers have signed up. The five-employee QuitNet has also landed contracts to build sites for the state of Colorado and for three county health departments in Maryland and Illinois and is now targeting managed-care companies and major health plans.

Down the road Cartter hopes to pull in more revenues by charging QuitNet users for a premium package of services, such as access to online counselors. And he sees an even heftier payoff in plans to offer direct sales of nicotine gum, patches, and other FDA-approved smoking-cessation aids. QuitNet is negotiating with pharmaceutical giant GlaxoSmithKline to serve as an online retailer of the company's nicotine-replacement products and hopes to line up other pharmaceutical companies as suppliers in the year ahead. Indeed, QuitNet projects that online sales of stop-smoking products alone will bring in $2.1 million in revenues by the end of 2003. "The vendors need our service to sell the next box," says Cartter. And QuitNet needs vendors like Glaxo to help keep the company from, well, going up in smoke.


The Quick Once-Over

Formal Projections *: $1 million in revenues, $823,000 net loss in 2001; $4.4 million in revenues, $534,000 net profit in 2002; $9.7 million in revenues, $2.6 million net profit in 2003; $21 million in revenues, $6.4 million net profit in 2004; $36 million in revenues, $11 million net profit in 2005

Total Capital Raised: $450,000 from angel investors and Boston University. QuitNet has an agreement with BU to use its offices and computers in exchange for equity in the company.

Biggest First-Year Expense: Sales and marketing, totaling $573,500

First-Year Operating Expenses: $1.3 million

* Based on numbers provided in the business plan. According to Cartter, revenues for 2001 were $475,000, and projected revenues for 2002 are now $3 million.


The Weigh-in: Our Panel Rates the Plan

Hot Property or Flameout?

WHO: Dr. David B. Nash, professor of health policy at Jefferson Medical College in Philadelphia

RATING: 7.5 to 8 (on a scale of 1 to 10, with 10 being the highest)

"Overall, QuitNet is original, intriguing, and clever -- as well as first to market -- and probably would appeal to a fairly broad number of people who smoke. But its revenue projections, which show a 400% increase in two years, are very ambitious. Nothing works that way. BU is a blessing and a curse. The academic roots provide access to talent and great ideas, and the company has a strong scientific advisory committee. But where's the board of directors -- the businesspeople that could help it?

"The plan also exhibits a syndrome that I'll call channel crowding. It doesn't explain clearly how the company will separate the free services from the enhanced services. Also, after September 11 the states have no money to spend on smoking cessation. There are 100 people in every state capital lining up to get the tobacco-litigation money, so QuitNet should not count on those dollars."


WHO: Susannah Gray, a high-yield health-care analyst for Merrill Lynch, based in New York City

RATING: 6

"Probably all of us in financial services have a bias against Internet companies, but QuitNet uses the Web not so much to sell a product as to provide a service, and that's an important distinction when it comes to drawing in customers. Once users get dependent on the site, they'll be more likely to pay for the enhanced services.

"That said, one of the most difficult hurdles for QuitNet will be getting the word out about the site, which means that advertising expenses may be higher than the plan outlines. I think the company may find that the free service is sufficient for many of its customers, and as a result some of the other revenue streams may be more limited than it thinks. Persuading the managed-care companies to be sponsors is going to be a tough sell, because managed-care companies are all about statistics and probability, and I don't see any hard statistics in the plan about how many smokers who use the service actually succeed in quitting."


WHO: Craig S. Russell, president and CEO of CareWise Inc., a consulting firm based in Seattle that advises businesses on efficient health-care spending

RATING: 7

"The university backing as a Betty Crocker seal of approval has merit in the marketplace. So that's a plus. The number of distribution channels that lead to the revenue streams reduce risk to investors. And the efficiency of QuitNet's delivery system certainly has promise. But it's yet unproven if the Web can actually serve as a source of treatment rather than just a way to transfer information.

"The plan also fails to address user-privacy concerns. QuitNet supplies sponsors, such as states, with data about registrants' usage of their sites, which may make end users nervous and cost QuitNet customers. It's a big whoops not to address that issue."


WHO: Susan Curry, professor of health policy at the University of Illinois at Chicago

RATING: 7.5

"The quitting strategies on the site -- changing your cigarette brand, dealing with urges to smoke, and so on -- are state-of-the-art. The emphasis on support is right on target. I've run dozens of stop-smoking groups, and often it's the members, rather than the leader, who play the biggest role in participants' success. But the plan contains no data about treatment outcomes. Some of the text on the site -- for example, how nicotine works in the body and what withdrawal symptoms are like -- is too academic. And there's no strategy for directly recruiting customers by, say, running pop-up ads on sites that smokers frequent."


Incubator

High Concept: Bright Writes
Dossier: The Sturgeon General
Search: Everything You Need to Know About Everything You Need to Know About
Main Street: The Odds Are Stacked
60-Second Business Plan: The Butts Stop Here
Business for Sale: Wanna Sit in the Driver's Seat?


Please e-mail your comments to editors@inc.com.

Last updated: Mar 1, 2002




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