HOPS—Human, Obesity, Pandemic, Solutions—
Weight-Loss Program
Vipin Kalia, MD
29 October 2009
Weight-Loss Program
Vipin Kalia, MD
29 October 2009
Executive Summary
HOPS is a unique approach to overweight and obesity, tailored to provide the physiological and pathological understanding of a health professional to any overweight or obese individual truly serious about regaining a normal and healthy weight. Through detailed and systematic instruction, the program aims to completely restructure the relationship of an individual with food. Contrasted with the superficial approaches of established brands, HOPS is complete and in-depth.
The business model assumes four centers in Indianapolis, one beginning every nine months. Each hosts 200 participants at capacity, using continuously rented hotels. Through use of this existing infrastructure and low-cost multimedia pedagogy, HOPS avoids high overhead, focusing on excellent personnel and effective follow-up. HOPS is franchisable and offers many profit centers. An investor should be looking at this proposal with the intention of investing approximately $6,550,000 in order to start one center for one year of operation. Ideally, HOPS should be begun with four centers in order to capture full economies of scale, with an initial investment of approximately $26 million.
A more detailed presentation of the medical component of HOPS can be seen at www.HOPSWeightLossCenters.com. This Web site is set up for the lay public. The related business proposal can be accessed from www.HOPSWeightLossCenters.blogspot.com.
For more information, please contact Vipin Kalia, MD, (317) 414-4439, kalia_vipin@hotmail.com.
What Is HOPS?
As we are all aware, obesity is a huge problem in our society and growing globally. There are over one billion people who are overweight and obese in the world. This is truly a new and emerging health-care crisis of global pandemic proportions. Our present health-care structure invests only in costs of complications related to obesity and is not focused on prevention of overweight or obesity or the complications they produce. HOPS is designed to change this paradigm. However, in our present health-care structure, there is no compensation for such undertakings, and therefore very little energy and resources are spent on the prevention of obesity.
Common Complications of Obesity
We in the medical community fully recognize and understand all the complications that arise from overweight and obesity, including diabetes, hypertension, and hyperlipidemia, leading to vascular complications. Overweight and obesity have a wear-and-tear effect on joints that leads to degenerative joint diseases and multiple arthritic complications that are complicated by obesity. Other diseases that are complicated by obesity are gout, NASH (nonalcoholic steatohepatitis), and cirrhosis. Other well-known complications include things like obstructive sleep apnea, right-sided heart failure, and well-established links with cancers of the colon, breast, and prostate.
However, once these health-care complications do arise, the costs are astronomical, annually $1.9 trillion. It is estimated that somewhere from 50–75% of health-care dollars are spent on overweight and obesity and its complications. A large percentage of those dollars can be saved and horrendous amount of human misery can be decreased if the trigger of all these complications could be attacked, which obviously is overweight and obesity.
How Does HOPS Work?
HOPS is largely education-based. This program teaches its participants, to a large extent, how health-care providers and physicians think in terms of obesity. These various aspects of obesity are broken down into multiple sub-segments, and each is explained to the participants.
Epidemiology is a spread of disease, and pediatric epidemiology is a spread of obesity in the pediatric population. Various statistical analyses presented by the CDC and other health-care agencies on the spread of obesity, the increasing rate of obesity and its complications, and so on, are covered.
BMI stands for body mass index. Most health-care providers are familiar with what BMI is, but this is explained to the general public in terms that are easily understandable.
Pathogenesis is the mechanisms by which the disease process begins. In this case, the disease process originally is overweight leading to obesity and then its multiple complications. There are multiple factors that lead to the pathogenesis of obesity, starting with sedentary life; energy imbalance; abundance of ready-to-eat, processed food; large portion sizes; labor-saving devices; and multiple others.
Genetics. Genetics does play some role in obesity. It is a multi-factor, multi-genetic disease process. However, the common theme is that, for these genes to be expressed, there always has to be abundant supply of food. Obesity is impossible to produce in a famine-stricken environment. Genes do play a role, but it might be somewhat minor.
The thrifty-gene hypothesis implies that those people who are prone to obesity had ancestors who survived through multiple famines and can now store energy more efficiently.
Anatomy is essentially how the body looks from the inside. Unless the general public can visualize how their bodies look on the inside and how all these body parts fit and function together, it is usually difficult for them to see how all these body parts have evolved in the pathogenesis of obesity. Some of these different aspects of anatomy are explained, concentrating mainly on the GI tract, heart, vascular structures, lungs, liver, brain, and neuroanatomy.
Physiology is how all these anatomical body parts work together to produce metabolic results. The functioning of various body parts is explained in a limited fashion, with some concentration on the GI tract.
Neuroanatomy. Neuroanatomy is important to explain so people have some idea how the brain functions, how the feedback loops function in the brain, and how these various structures, especially the satiety and hunger centers, play a roll in their moods and also in their level of food consumption.
Neurophysiology is explained for similar reasons as neuroanatomy, discussing the functioning of the brain and the role various parts of the brain play in pathogenesis of obesity.
Neuropsychology is human behavior in the brain. It plays a critical role in the pathogenesis of obesity. HOPS covers the reasons why abundant food combined with the human love for sedentary life is a recipe for disaster.
Food as Anxiolytic. Food as Antidepressant. Food to a large extent has the role of anxiolytics and antidepressants in the lives of much of our population. How food interacts in various stages of and augments mood and alleviates anxiety/depression are covered.
Negative and Positive Feedback Loops are very important for people to understand in that most of the diet programs fail because they do not keep negative feedback loops in mind, especially when calorie restriction is done in its present format.
Metabolic Syndrome. In the clinical world, metabolic syndrome is well-known and understood, however the general public is largely unaware that even a few extra pounds lead to metabolic syndrome, resulting in insulin resistance, endothelial damage, vascular damage, and all multiple complications that follow.
Health Complications. All the diseases are demystified to a large extent and brought down to an understandable level for a common educated person, including diabetes, hypertension, hyperlipidemia, degenerative joint disease, and cancers, especially those of the colon, prostate, and breast, and their link with obesity.
Obesity and Modern Medical Technology. Modern medical technology, especially x-rays, CT scans, MRIs, cardiac catheterization tables, fluoroscopic radiographic techniques, and physical exams, essentially becomes useless in light of obesity.
Risk to Health Care Workers. Obesity is hazardous to nursing staff and other health-care personnel who take care of these patients, with a higher risk of the following injuries: mechanical, elbow, shoulder, and back, with multiple complications.
Chemistry. Chemistry is superficially explained: how foods are composed, how they break down into its various different ingredients, and how they interact to cause obesity.
Carbohydrates. Carbohydrates, followed by carbon, hydrogen, oxygen, and how these molecules interact to form various food structures and how each plays a role in obesity and its control.
Difference between Starch and Fiber. The same carbon, hydrogen, and oxygen, when combined in certain formats, can become glycogen and starches or simple sugars or both. When combined in different chemical formations, they can become fiber, and these differences in chemical bonds are used for weight loss.
Social Isolation and Discrimination. The various social effects, including discrimination with jobs, housing, and social interactions, are discussed at length for counseling purposes.
Psychological Implications of Obesity. Low self-esteem, psychological isolation, and depression that have higher incidence in obesity are discussed in great detail.
Cost of Obesity and Poverty Link. Cost of obesity in terms of medical and health-care costs, along with the link with poverty, are discussed at great length, including how these various social, psychological, and economic factors interact.
Environment. Environment plays a very strong role in expressing obesity genes. Especially, sedentary life, labor-saving devices, and abundant high-fat/high-calorie fast foods also lead to obesity.
Calorie is defined and explained in general terms.
Calorie Requirements is explained to patients as well as how to calculate it easily.
Basic Food Calorie Contents. The difference between the caloric contents of protein, fats, carbohydrates, and so on.
Exercise. The role of exercise in obesity prevention and its other benefits, including vascular.
Treatments. Various treatment methodologies and why most of them do not work. Why most drugs have failed in the past. Receptors are explained in terms of lock-and-key mechanisms and how it is essential to understanding why drugs have not worked and are not likely to work. Most of the drugs like Redux and Phentermine interact with multiple receptors throughout the body, and therefore have difficult-to-control side effects and are not likely to be successful. Drugs that work directly in the CNS, like Redux, have had similar complications. Other drugs like Xenical, though having no CNS side-effects, do have some minimal gastrointestinal side-effects including malabsorption. Their main limitation is that they help one to lose only maybe five to seven pounds a year.
Diets, such as Weight Watchers®, Atkins, Slim-Fast®, and calorie reductions, are explained in detail as to why they are not successful in the long term.
Surgery is very successful, but its main limitations are cost and post-surgical complications. Therefore it might remain selectively acceptable for a very small percentage of patients but cannot be generalized for the public.
The basic mechanism of surgery is the creation of a small pouch in the stomach or a reduction in the absorptive area. A surgical technique is filling the gastric pouch with inert volume, like the Brazilian intragastric balloon. Surgery is not ruled out, but these three surgical techniques rely on one underlying method, the creation of a small pouch and filling it with some inert or inactive volume. However, the same mechanism can be replicated by a simple HOPS diet.
The HOPS diet relies on filling the gastric pouch with inert volume that comes from fiber. Though there is a great body of scientific literature on high-volume, low–calorie-dense foods, i.e., fruits and vegetables, their main limitation is their lack of taste. The reason this program has been integrated with nutritionists with multiethnic backgrounds and multicultural culinary backgrounds is that we look toward other cultures and societies for how we can make fruits and vegetables palatable to the American taste buds. In the short term, we do not need to look for very fancy ways of making high-fiber, low–calorie-dense fruits and vegetables palatable to Americans. Companies like Mrs. Dash have already imported a large variety of spices that are largely compatible with American palettes. As our program evolves, we would definitely borrow from other cultures around the world that have adopted methods of flavoring high-volume, high-fiber, low–calorie-dense foods in multiple ways other than cream, butter, cheese, ketchup, and so on.
Unique Features of the HOPS Diet
The HOPS diet is based on solid medical and nutritional science and clinical experience, simplifying and demystifying them and making them understandable to the average person without significant clinical or nutritional involvement.
The next unique feature of the HOPS diet is high-fiber, low–calorie-dense foods. As mentioned before, the gastric pouch is largely filled with these foods, and the feedback loop continues to provide positive information to the satiety center.
GVSC stands for gastric volume/satiety center mismatch, another new and unique concept developed in this program. The larger percentage of diets fail because they all restrict calories along with the volume of food consumed. A certain volume of food has to be in the gastric pouch, distending it, before positive feedback from the vagus nerve can be sent to the satiety center in the brain. There is no way of getting around a certain volume of food. And that gastric volume can be accomplished only with low–calorie-dense foods. Most of the diet programs fail because they rely on high–calorie-dense, low-volume foods, and there is a chronic feeling of hunger. Satiety from food plays the role of anxiolytic or antidepressant or both. Denied this, the various neurotransmitters are not released in the satiety center in these diet programs. HOPS is unique in that it keeps this concept as it develops this new gastric volume/satiety center mismatch concept and further evolves this concept to keep the neurotransmitter feedback loop in mind.
Flaw of Food Pyramid. One of the reasons hundreds of millions of dollars of research in the food pyramid have not led to any useful reduction of obesity is that the food pyramid talks in terms of servings of food. In HOPS, we get away from the number of servings of food and rely on human intuition of when the stomach is full. People are encouraged to eat, on the average, to fill about 85–90 percent of their gastric volume with high-fiber, low–calorie-dense foods, regardless of how many servings it takes. If that gastric volume is filled with low–calorie-dense, high-fiber foods, it’s immaterial how many servings are consumed. The food pyramid in general is a good guide, but when people are sitting at the dining table they rarely think in terms of number of servings but instead think in terms of satiety and relief from hunger.
Flaw of salad. There is nothing wrong with lettuce-based salads, but they are extremely high–calorie-dense and offer a very low effective volume in the gastric pouch. In the HOPS DVDs and on Internet, a very nice experiment is shown in which you actually blend lettuce-based salad and see that the effective volume for a large salad is very little, one-fourth to one-fifth of the actual volume that is seen on the plate, because lettuce is largely filled with air pockets. If you blend the same volume of fruits and vegetables and use high-fiber fruits and vegetables, you will get a high effective volume that is used in filling the stomach pouch.
The next unique feature in HOPS is that people are encouraged to fill their stomach from 75–90%, based on the amount of weight they need to lose, with high-fiber, low–calorie-dense foods, and then 10–25% of the final food consumption should be regular foods, whatever they enjoy and have always enjoyed. The satiety center is fooled in the end when regular foods are consumed, and the same amount of endorphins and other neurotransmitters are released in the satiety center and multiple other centers in the brain that dictate the amount of food consumption. Those aspects of neuroanatomy and neurophysiology are kept in mind with this program. HOPS is based on the fact that the satiety center always has to be satisfied, and if it is not satisfied no diet program will be successful long-term. The stomach is filled three to four times a day, and the satiety center is continuously pacified
Lifestyle Change. We are asking people to make a lifestyle change that is actually rather difficult to accomplish, however, because this program keeps the satiety/hunger center in mind, it is somewhat easier than other diet programs, though requiring continuous support from fellow dieters and overweight/obese persons. Therefore this is going to be a largely Internet-based program where within each ZIP code people can form their own support groups after they have graduated. People are also going to be offered ongoing refresher courses.
Exercise. Exercise and support groups are very important. Exercise is something easy to slip from when you are in isolation, but the Alcoholics Anonymous® (AA) model is largely borrowed from, supporting this lifestyle change with exercise groups. Internet technology would be used for continuing support groups. People can interconnect with each other in their own ZIP codes and form lifestyle change groups, including HOPS diet-program ongoing support groups along with exercise groups.
The Stop Light System is green for go, yellow for caution, and red for stop. All foods are divided into these groups. Unlimited amounts and quantities of green foods—the aforementioned low–calorie-dense foods, fresh fruits, and vegetables—can be consumed. Yellow-light foods include the usual foods people have always eaten. We encourage them to continue eating what they have always eaten but in much smaller volumes. Red, of course, is stop. The traditional flavoring methods of foods have to stop, though a small amount of desserts and so on are encouraged for multiple reasons: one is that they promote positive feedback to the satiety and mood centers and release healthful neurotransmitters. Also, when this diet continues to be eaten—large volumes of fruits and vegetables combined with usual foods people have always eaten and small amounts of desserts they have enjoyed—no nutritional deficiencies have to be worried about.
Unique economic features of HOPS weight-loss programs include training low-cost persons for implementation. Persons with high school education and above-average intelligence and common sense are trained to become weight-loss educators. Multimedia technologies such as DVDs and MS PowerPoint presentations can be replicated and used for training personnel and also for training clients for weight loss. The most frequently asked questions and answers can be made available in the same format. Therefore high-cost personnel are used minimally. Once we have large access to the obese population, about 25–33% of them would have a higher level of questions, medical problems, or economical resources. Those who have higher economic resources and inquisitiveness would have access to our MDs, PhDs, and RDs at much higher cost. Therefore, our uniquely educated persons and resources are reserved for people who are able and willing to pay much higher resource costs.
Practical Implementation of HOPS, In-Residence
The existing programs, shown on the right in the table below, do not work for long-term weight maintenance. HOPS adopts the in-depth principles on the left to ensure a lifetime of improved weight and health:
What Works What Does Not Work
• education • appetite suppressors
• in-patient intensives • “fat-burners”
• medical supervision • pre-made meals
• exercise • fad diets
• support groups • bariatric surgery
• nutrition • prescription medication
Even where the existing programs use education, they do not convey the full spectrum of information in HOPS. And, when you are in your normal environment and getting only light exposure to the pathophysiology of obesity, it is very hard to get your mind to focus in an exclusive and life-changing way on this problem. At 50+ pounds overweight, you need dedicated attention and effort—a perfected embodiment of the “fat farm” concept—to make a change. For this, an extended in-residence immersion is needed. Just like AA, graduates would have ongoing support groups. This is a serious missing factor in existing programs.
Advantages
HOPS will have the following advantages, compared to other centers:
• The program would be centered on standardized multimedia presentations, run by the trained weight loss educators mentioned above, with conferences for three to four hours/day.
• Participants would eat standardized meals, demonstrating the effectiveness of high-fiber, low–calorie-dense eating.
• A recreational therapist would provide education on recreation and exercise.
• Participants would receive a whole day of programs for two to four months. They would have to be willing to devote two or three months to see significant progress.
Ultimately, HOPS is franchisable, even internationally. After all, the “P” in HOPS stands for “pandemic,” which the phenomenon of overweight and obesity indeed is. The four proposed centers for Indianapolis will serve as the prototypes and proofs-of-concept. The attractiveness of the business model revolves around the following points:
• no infrastructure costs
• intellectual property is largely developed
• low replication cost
As discussed above, a later enhancement of HOPS will be the Internet support system, arranged by ZIP codes. This will serve as a profit center as well, with additional marketing of products and services. For those who “fall off the wagon,” in-residence refresher courses at a substantial discount would be made available. An additional revenue stream could come through a personal coaching model, in which the program educators could provide telephone support, perhaps an unlimited amount on the basis of a yearly fee.
Financials
Assumptions:
Each participant would be charged $120/day. Maximum capacity within a rented hotel would be achieved over about six months; a new hotel program would be opened every nine months, to a maximum of four in the Indianapolis area. Additional revenue could be generated from high-margin merchandising and adjunct programs (average sales per buyer listed for each):
• “skinny” clothes, $500
• before-and-after pictures, $200
• educational materials, $150
• souvenirs, $60
products total: $910
• yoga and meditation classes, $300
• massage, $400
yoga/meditation/massage total: $700
• personal trainers, $500
• personal psychological counseling, $300
• personal nutritional counseling, $300
• boutique medical counseling, $1000
training/counseling total: $2100
total: $3710
Ten percent of the participants will spend this much by graduation, after an average of three months. At least half of the participants would use on-site medical services:
$250 on first visit, $100 on second visit, covering:
o hypertension
o cholesterol
o diabetes
o blood workups
o arthritis
At full occupancy of 200 participants, with half participating in the medical services during a three-month stay, the following yearly revenue would be generated:
100 participants x [$250 (first month) + $100 (second month) + $100 (third month)] = $45,000
$45,000 x 4 quarters = $180,000/year
(Note that $250 in the first month is very conservative. The real revenue could be as high as $450 in the first few weeks.)
For the sake of simplicity, sales tax is not considered, and cost of sales is estimated at 50% for both products and non-HOPS services.
The start-up costs for HOPS would involve a refinement of existing intellectual property into professionally produced DVDs and associated MS PowerPoint® presentations, as well as a user-friendly Web presence. This is estimated at about $250,000.
In hotels, about half the rooms stay empty about half the year. Renting an entire hotel with catering/dining facilities, you could get double occupancy for about $80 per night ($40/participant). Feeding costs per person would be $10–20/day. The meeting space would cost perhaps $500/day and would be used for about 250 days/year, totaling $125,000/year.
Table 1: Staff Salaries
MBA (1) $125,000
manager, (1) per location $75,000
nutritionist (1) $75,000
psychologist (1) $75,000
educators (3) per location @ $40,000/yr $120,000
receptionists (2) per location @ $30,000 $60,000
chefs (2*) per location @ $25,000/yr $50,000
recreational therapists (2) per location @ $30,000/yr $60,000
sales (1) $60,000
total $700,000
*As additional centers are opened, chefs would be shared among them. For the sake of simplicity, the present model assumes two per location.
Advertising would be 50% of sales each month for the first year, to establish brand identity, and then drop to 25% by the third year. The assumption might be considered high, but the competition in the weight-loss industry is very well-funded and established, with high barriers to entry. Though different methods are used in the business world to establish a budget for marketing, some consumer goods companies using the percent of sales method do spend this much in the first year to get people’s attention for a new product.
Table 2: Sales Forecast
Sales Forecast
Year 1 Year 2 Year 3
Sales
HOPS participation $7,483,320 $19,438,380 $30,937,140
products $70,525 $168,350 $261,625
counseling services $143,500 $372,750 $593,250
medical services $145,625 $393,750 $631,875
massage/yoga/meditation $47,767 $124,073 $197,468
Total Sales $7,890,737 $20,497,303 $32,621,358
Direct Cost of Sales Year 1 Year 2 Year 3
products $35,263 $84,176 $130,813
counseling services $71,750 $186,375 $296,625
medical services $72,813 $196,875 $315,938
massage/yoga/meditation $23,884 $62,036 $98,734
Subtotal Direct Cost of Sales $203,710 $529,462 $842,110
Table 2 explanation: The columns above containing values for Year 1 present the totals from the monthly values in Table 9, which itself draws from monthly values for the first year in Table 14. The columns for Years 2–3 are generated directly from yearly totals in Table 14. See Table 9 for a line-by-line explanation.
Figure 1: sales by year
Table 3: Personnel
Personnel Plan
Year 1 Year 2 Year 3
MBA $125,000 $125,000 $125,000
managers $93,750 $187,500 $281,250
educators $150,000 $315,000 $496,125
receptionists $75,000 $157,500 $248,040
chefs $62,490 $133,740 $214,650
recreational therapists $75,000 $157,500 $248,040
psychologist $75,000 $75,000 $75,000
sales $60,000 $63,000 $66,150
nutritionist $75,000 $75,000 $75,000
Total Payroll $791,240 $1,289,240 $1,829,255
Table 3 explanation: Table 1 presents raw salaries per employee, whereas Table 3, based on Table 15, includes assumptions about when certain numbers of such employees would be needed as the project expands. All numbers are drawn from the last column for each year in Table 15.
Table 4: Start-up Funding
Start-up Funding
Start-up Expenses to Fund $250,000
Start-up Assets to Fund $25,000
Total Funding Required $275,000
Assets
Cash Requirements from Start-up $25,000
Additional Cash Raised $40,000
Cash Balance on Starting Date $65,000
Total Assets $65,000
Liabilities and Capital
Capital
Planned Investment
Owner $0
Investor $315,000
Total Planned Investment $315,000
Loss at Start-up (Start-up Expenses) ($250,000)
Total Capital $65,000
Total Capital and Liabilities $65,000
Total Funding $315,000
Table 4 explanation: “Start-up assets to fund” is set at $25,000 as contingency funding, carried down to the Assets section as “Cash Requirement from Start-up.” In order to maintain a positive cash balance during the beginning months of the business, $40,000 additional is needed, “Additional Cash Raised.”
The division of funding between Owner and Investor is arbitrary. So long as $315,000 is available at the start of business, it doesn’t matter from where it comes. However, Dr. Kalia has already invested considerable time and money to develop the intellectual component of HOPS, and is therefore seeking complete funding through an investment mechanism.
Table 5: Break-even Analysis
Break-even Analysis
Monthly Revenue Break-even $706,452
Assumptions:
Average Percent Variable Cost 3%
Estimated Monthly Fixed Cost $688,214
Table 5 explanation: “Break-even” can be calculated in various ways. The method used here is the most common. Financial experts advise against paying particularly close attention to break-even calculations, recognizing that they contain averages and are not therefore very accurate.
Per analysis in Business Plan Pro® software, which was used to build Table 5, upon reaching a monthly revenue of $706,452, both fixed and variable costs are covered. The Average Percent Variable Cost of 3% is an estimated average of direct costs as a percentage of sales. The Estimated Monthly Fixed Costs is based on the sum of payroll, marketing/promotion, rent, payroll taxes, and meals for the first year, divided by twelve.
Figure 2: break-even analysis
Figure 2 explanation: This figure is a graphical version of Table 5, with the diagonal line crossing $0 at a monthly revenue of $706,452, representing break-even.
Table 6: Profit and Loss
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $7,890,737 $20,497,303 $32,621,358
Direct Costs of Goods $203,710 $529,462 $842,110
------------ ------------ ------------
Cost of Goods Sold $203,710 $529,462 $842,110
Gross Margin $7,687,027 $19,967,841 $31,779,248
Gross Margin % 97.42% 97.42% 97.42%
Expenses
Payroll $791,240 $1,289,240 $1,829,255
Marketing/Promotion $3,754,770 $6,803,433 $7,734,285
Rent $3,552,875 $7,613,298 $11,419,953
Payroll Taxes $118,686 $193,386 $274,388
Meals $41,000 $106,500 $169,500
------------ ------------ ------------
Total Operating Expenses $8,258,571 $16,005,857 $21,427,381
Profit Before Interest and Taxes ($571,544) $3,961,984 $10,351,867
EBITDA ($571,544) $3,961,984 $10,351,867
Net Profit ($571,544) $3,961,984 $10,351,867
Net Profit/Sales -7.24% 19.33% 31.73%
Table 6 explanation: The columns above containing values for Year 1 present the totals from the monthly values in Table 12, which itself draws from monthly values for the first year in Table 14. The columns for Years 2–3 are generated directly from yearly totals in Table 14. See Table 12 for a line-by-line explanation.
Table 7: Cash Flow
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $7,890,737 $20,497,303 $32,621,358
Subtotal Cash from Operations $7,890,737 $20,497,303 $32,621,358
Subtotal Cash Received $7,890,737 $20,497,303 $32,621,358
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $791,240 $1,289,240 $1,829,255
Bill Payments $6,598,456 $15,065,561 $20,013,319
Subtotal Spent on Operations $7,389,696 $16,354,801 $21,842,574
Subtotal Cash Spent $7,389,696 $16,354,801 $21,842,574
Net Cash Flow $501,041 $4,142,502 $10,778,784
Cash Balance $566,041 $4,708,542 $15,487,326
Table 7 explanation: See Table 12 for a line-by-line explanation.
Table 8: Balance Sheet
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $566,041 $4,708,542 $15,487,326
Total Current Assets $566,041 $4,708,542 $15,487,326
Total Assets $566,041 $4,708,542 $15,487,326
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $1,072,585 $1,253,102 $1,680,019
Subtotal Current Liabilities $1,072,585 $1,253,102 $1,680,019
Total Liabilities $1,072,585 $1,253,102 $1,680,019
Paid-in Capital $315,000 $315,000 $315,000
Retained Earnings ($250,000) ($821,544) $3,140,440
Earnings ($571,544) $3,961,984 $10,351,867
Total Capital ($506,544) $3,455,440 $13,807,307
Total Liabilities and Capital $566,041 $4,708,542 $15,487,326
Net Worth ($506,544) $3,455,440 $13,807,307
Table 8 explanation: See Table 13 for a line-by-line explanation.
Market
HOPS has worked for over 4500 patients when applied one person at a time by founder Vipin Kalia, M.D. However, this is still a tiny fraction of the potential customer base. The initial core market for HOPS is determined by considering that 65% of the population in Indianapolis is outside of statistical ideal weight parameters (perhaps more, given that the city is one of the fattest in the country ). The Indianapolis metropolitan-area population in 2007 was estimated at about 2,000,000. About 5% of the population has a median household income >$75,000. This leaves 65,000 wealthy, overweight people, about half of whom are obese.
The weight-loss industry, of which HOPS can become a chief player, is dynamic and growing. Marketdata, a market research firm, has tracked diet and weight loss trends since 1989. It released a landmark 307-page report on the industry in 2005, which predicted that revenues would reach $61 billion by 2008. This complex industry has a combination of upward and downward trends that point to a confused market, ever in search of a truly effective, cost-effective, and easy solution to the “battle of the bulge.” One of the growth segments is the diet center concept, which HOPS can corner for Indianapolis through its integrative approach and a concentrated and vigorous marketing campaign pointing out the weaknesses of competing systems.
Another important target of marketing should be medical doctors treating the complications of obesity. The professional referral base includes the community of physicians in the metro area, and of course there are other potential referring professionals, including therapists and nurses. Of particular interest as a unique niche would be bariatric surgery centers for pre- and post-surgery care and associated nutritional deficiencies, dumping syndrome, and fitness concerns. Similarly, orthopedic surgeons and endocrinologists could have substantial and untapped need for the services of HOPS.
While all overweight and obese persons could benefit from HOPS programs, most of these people either lack motivation to improve or desire an effortless magic solution. The population subset likely to be natural early adopters of a complete “marathon” approach, seeking permanent and comprehensive support, is the same market sought by HOPS. This “Oprah crowd” understands that there is neither a quick fix nor a simple solution that works for everyone. These more holistic thinkers will gravitate toward a program with a scientific and medical basis and an educational dimension aimed at changing their relationship with food and making them more fit. Out of the above-mentioned 65,000, perhaps 10% fit this “Oprah” demographic, yielding 6500 people as a potential easy initial market (or half that, if just obese people are considered, many of whom are too fat to work anyway, and thus would have the required time). The real percentage is probably higher, more like 25%, but 10% provides a conservative argument.
Evaluation
A large body of nutritional and medical scientific literature that has been taken into account to develop HOPS. However, HOPS itself has not yet been tested long-term. As a large client base is developed and tracked longitudinally, the intention will be to validate the HOPS hypotheses through careful research.
In 1992, National Institutes of Health Technology Conference published a list of recommendations for consumers considering weight-loss programs. It was not aware at the time of any programs that could answer these criteria, nor have any programs complied since. The report states:
In evaluating a weight loss method or program, one should not be distracted by anecdotal “success” stories, or by advertising claims. The information that should be obtained about the program includes:
• The percentage of all participants who complete it.
• The percentage of those completing the program who achieve various degrees of weight loss.
• The proportion of that weight loss that is maintained at 1, 3, and 5 years.
• The number of participants who experienced negative medical effects as well as their kind and severity.
Reliable statistics of this kind are not provided currently by any commercial diet plan or program. This information should be available for all supervised programs, including those based in hospitals or clinics.
HOPS has a clear and unambiguous opportunity to find convincing and verifiable answers to these questions that competitors would not be able to match, and to publish this information in a refereed scientific forum.
Glossary for Terms Not Defined Elsewhere
Direct Cost of Sales: the money spent either to acquire goods to sell or to pay for services rendered
Pro Forma: predicted values, typically month-by-month for the first year, and yearly for the following two years
Category Sub-category Total Grand total
Cost One-time cost of multimedia development converting all HOPS IP into professional-quality MS PowerPoint presentations/DVD/Internet $250,000
Annual cost of labor:
- MBA (1)
- manager (1)
- nutritionist (1)
- psychologist (1)
- educators (3) per location @ $40,000/yr
- receptionist (2) per location @ $30,000/yr
- chefs (2) per location @ $25,000/yr
- recreational therapists (2) per location @ $30,000/yr
- sales (1)
$125,000
$75,000
$75,000
$75,000
$120,000
$120,000
$50,000
$60,000
$60,000
$700,000
Advertising/marketing/promotion $3,754,770
Cost of conference room rental, $500 x 250 days $125,000
Room rental cost, $80/rm x 100 rooms x 315 days/yr $2,520,000
Food cost, $20 x 200 people x 315 days $1,260,000
Subtotal expense/yr w/o advertising $4,855,000
Subtotal expense/yr with advertising $8,609,770
Contingency funding for
12-month fixed expense (payroll, marketing/promotion, and payroll taxes for first two years—$13,098255—divided by two). An investor should be looking at this proposal with the intention of investing approximately $6,550,000 in order to start one center for one year of operation. $6,550,000
For maximum effect and to get quick brand establishment, four centers would be needed and a commitment of 4 x contingency funding. Ideally, HOPS should be begun with four centers in order to capture full economies of scale, with an initial investment of approximately $26 million. $26,200,000
In month 9 of Table 9, one center is running at full capacity. As a simple calculation of auxiliary services cost of sales, if we multiply the cost of sales figures for products, counseling services, and massage/yoga/meditation across twelve months, we get $221,160. Table 9 provides more accurate data, assuming ramp-ups of services. $221,160
In month 9 of Table 9, one center is running at full capacity. As a simple calculation of primary medical services cost of sales, if we multiply the sales figures for medical services across twelve months, we get $60,000. Table 9 provides more accurate data, assuming ramp-ups of services. $60,000 $35,090,930
An investor should be looking at this proposal with the intention of investing approximately $6,550,000 in order to start one center for one year of operation. Ideally, HOPS should be begun with four centers in order to capture full economies of scale, with an initial investment of approximately $26 million.
Revenue Cost per bed/person/day = $120
$120 x 200 people x 365 days $8,760,000
average sales per buyer:
• “skinny” clothes, $500
• before-and-after pictures, $200
• educational materials, $150
• souvenirs, $60
products total: $910
• yoga and meditation classes, $300
• massage, $400
yoga/meditation/massage total: $700
• personal trainers, $500
• personal psychological counseling, $300
• personal nutritional counseling, $300
• boutique medical counseling, $1000
training/counseling total: $2100
total: $3710
In month 9 of Table 9, one center is running at full capacity. As a simple calculation of auxiliary services revenue, if we multiply the sales figures for products, counseling services, and massage/yoga/meditation across twelve months, we get $442,320. Table 9 provides more accurate data, assuming ramp-ups of services. $442,320
In month 9 of Table 9, one center is running at full capacity. As a simple calculation of primary medical services revenue, if we multiply the sales figures for medical services across twelve months, we get $120,000. Table 9 provides more accurate data, assuming ramp-ups of services. $120,000
$9,322,320
