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Start-ups manual for Engineers
Sean ChenCEO, xFuture Inc.
Serial Entrepreneur2012/11
1, Why Start-ups?2, Why not start-ups?3, What is the business idea in your mind?4, 5 steps of preparing your startups
- Building a winning team- Access market and target customers- Define Product- Prepare business plan- Funding plan
5, Do-it and beyond.
Agenda
Labor side: ◦ Two questions:
Which part of the income statement are you in? Which side of the balance sheet are you in?
Board member side:◦ Which part of the financial statement are they in?
Everyone is a disposal resource, except the board
Different way of seeing things Change your life by switch roles As good as revolution
Labors vs. Board members
Slave vs. Freedom Money is not the thing, but if you are stuck on it, it
become the thing Four way to become financial independence before 30
◦ Marry it◦ Inherit it◦ Win lottery◦ Start up your own business
3 ways of creating your own future◦ Work hard, and make money from employment◦ Invest hard, and make money from money◦ Startup hard, create your stock like printing money
Change your destiny, create your own life
Why Start your own business
The facts:◦ There are only very few people can be CEO◦ No one really care what you want and what you think◦ Only Power and Money talks◦ You are not in control of your life◦ Things typically do not happen as you wish◦ Even if it happened as you wished, bad things always come with good things. ◦ Whatever you think you have done a great work, your boss always think that’s
just your job Wake up:
◦ There is no fair game: 1% vs. 90% income, Top 400 vs. 150M fortune, 1% vs. 99% success
◦ Step outside of the wall and grow up When changes or unreasonable requests happened:
◦ Would you just accept it?◦ Or Fight back?◦ Or ask the questions “why do you think this change will help?”◦ Always ask “Why me?”
Did you grew up?
Not ready? No good topic? Too young (or too old)? Afraid of uncertainty? Parents want you to have a PhD? Finding a job is normal, right? Accepting failure? Long-term commitment? Ready for suck all your time and efforts in here? Money is not the only thing?
Why NOT start-up?
Assuming you take a strange new flavor of bottle drink with purple color, sticky, not clear on what it made of, to the below places. What is the percentage people would like to try it out?◦ Kindergarten ◦ Elementary school◦ High School◦ University◦ Office building
The answer might be 40%, 30%, 20% 10%, then 0% The fact is that the older the people get, the lesser risk they
would take. So, if you are suitable to starting up, start the plan now, act
now. If you are not a risk taker, stay where you are, don’t do the
startups just because you want to do it.
Take risk
Examine your idea by 3 steps1. Product positioning2. Target customer and market3. Roadmap to success
What is the business idea in your mind?
New Market Old Market
New Product Technology Push - Need market educationRequire bigger capitalOK for BIG start-ups
Market Pull –Niche productKnown requirementsBest for start-ups
Old Product Copycat, but goodLocalize popular productsSell it in the local marketSecond best for start-ups
Money businessRequire top sales to make saleNo good for start-ups
1, Product Positioning
Webvan◦ Online grocery store◦ 1999-2001, 2000
IPO, raised 375M◦ Burned out more
than 1B USD ◦ The largest dotcom
flop in history◦ Borders is gone too
Excite ◦ One of the first
search engine and web portal
◦ 6.7B acquired @Home at 1999
◦ Now it’s a minimal web site
New market, New Product
Sina.com◦ Copy Yahoo, vision a
Chinese web portal market, now it’s Chinese number 1 portal
◦ Copy Twitter, Sina Weibo now is the China largest microblogs web site.
◦ Sina Weibo was not even the first China microblogs services, Fanfou ( 飯否 ) was the first.
Facebook◦ Not the first social
network web site◦ Myspace, Friendster,
Linkedin, delicous.. Were there already
◦ It’s the largest social network web site in the world
New market, Old Product
4 elements of successful product position◦ Try not to change consumer behaves◦ Simple understand-able Product differentiations◦ Low cost of building◦ Focus specific market and target customers
Product is the core of your idea, verify your idea with your friends, ask them “will you buy it?”, “Who will pay the money?”
1, Product Positioning
The value of start-ups:◦ Creating New products (or services) for specific customers’
needs, and cannot not be produced by big company in time. The key to success is
◦ “Closer to Customers”, ◦ “Speed”, ◦ “Flexible”.
At this moment of time, there must be someone in other part of world thinking the same idea as you are now, and maybe already ahead of you. ◦ Local is better than Global
Understand and design the segments of your customers:◦ Age, Location, Gender, Professions, Incomes, Races, Life style,
etc.◦ B2C is better than B2B
2,Target customer and market
Apple vs. HP Steve Wozniak invented
personal computer when worked for HP
HP did not think a $4,000 hobby machine can be profitable
Apple then founded Apple vs. Zerox
Zerox invented GUI Zerox did not think GUI
can make big money so it sell the patents to Apple
Apple then created MacOS.
Microsoft vs. CP/M◦ CP/M was the first PC OS ◦ CP/M was bigger than Microsoft◦ CP/M management was not
open and flexible to IBM offers◦ Microsoft took the offer at 1980
Microsoft vs. IBM◦ IBM was too big, did not care
too much on the PC market◦ IBM fully supported MS for the
PC market, and not sign excusive deal, because of ignorance.
◦ Microsoft grew under the protection of IBM, until it’s too big and too late to regret.
Case study
Sony start-up story◦ Founder Morita
Akio ( 盛田 昭夫 )◦ Founded at 1946,
funding ¥ 190K ◦ 2012 revenue ¥
6.395 trillion
Case Study Morita San was not happy for
the sales of his first invention, a electronic voice recorder
He did not understand why people would buy useless things like antique. Rather to buy useful like voice recorder.
He realized that customer felt “value”, when buying antique, so he need to find customers felt “value” for Sony’s voice recorder.
The first customer is Tokyo court, for the reason of lacking staff for fast typing note taker.
The basic principle of creating new start-ups, is the term “VALUE”
The necessity of existence of start-ups is based on: ◦ For a specific market, and a specific set of
customers, can feel the “value” of the products you produced. So they will buy the product from you. And your company eventually is profitable.
2,Target customer and market
Ask yourself the following questions:◦ What is the roadmap in your mind, for your company to be
successful? Or, ◦ 3 Years from now, what is the company position in your target
market? What percentage of the market share from your products? According to GE’s research, a company with 30% market
share are always profitable, with 15% less market share are always in loss.
The market is not a overall market, it’s the specific target market.
“Profitable” is the key for start-ups to survive. But “Grow” is where the start-ups can be successful.
Start-ups should always use the fastest speed to grow to certain market shares, then use its loyal customers network, to grow even bigger.
3,Roadmap to success
5 steps of preparing your startups- Building a winning team- Access market and target customers- Define Product- Prepare business plan- Funding plan
Let’s get started
“Location, location, location” is for good house “People, People, People” is for good start-ups #1 important thing for start-ups: Good people
◦ People is the key to make start-ups to work. Idea, product, market, business plan can all go wrong, but the right people can correct it and make it to work.
Understand yourself first◦ Logical or Sensational, Sales dog/social network animal or Nerd / Geek,
Management experience, Decisive, Thoughtfulness, Preciseness, Flexibility, Friendly, Team work…
◦ Find your partners/managers/staffs/board by fill up your weakness, in terms of Personality, not by Skills
As a company you need to build Founding team Management team Company staffs Board of Directors Advisory board
1, Building a winning team
Most of the first-time startup founders got into troubles here◦ Friendship broken◦ Law suit
Finding the right partners◦ You need to work with your partner before, colleagues or
classmate are good◦ Integrity first – smartness is much less important than
personality◦ There is only one in the team can be the leader◦ Don’t force it, like marriage◦ Do not have too many people in the founding team, 2-3 are
good, too many typically means you cannot distinguish 1) investors 2)first employee from founders
◦ Trust your instincts
1,Finding a Partner
Initial roles in a start-ups◦ CEO: assuming you: responsible for company overall operations, and
fundings◦ CTO, or VP of Engineering: responsible for product design & development◦ COO, or VP of sales & marketing: Responsible for sales & marketing, also
company PR. This role can be deferred if product needs time to develop. Are you suitable for company CEO, are you
◦ Fluency on speech◦ Persistence◦ Optimist (even tomorrow is the end of world) ◦ People connections for funding◦ Not afraid of going to court
You do not need CFO, VP of HR, VP of legal, and other G&A initially, they came later. Those professions can be in your advisory board first
1,Founding team
Management is your core team, they do not need to be founders, but is as important as founders to make your company to work
Standard of picking management for start-ups◦ Big company-oriented is a no no◦ Mr. Yes, open-minded◦ Positive thinking◦ Energized◦ Honesty, direct, high integrity◦ Respect to others◦ Understand Leverage◦ Good sense of ownership◦ Not easily give-up
1,Management team
Directors power came from shareholders The board can fire/hire CEO, determine management
salary/bonus, approve new funding, issue shares/options/warrant. CEO reports to the board.
In Taiwan, 3 board member and one auditors are required to form a Ltd. Corporation. Chairman of the board represent the company including legal liability.
For start-ups, the best scenario is the CEO & Chairman is the one who holding the biggest shares. In Taiwan, because the typical share structure design, the biggest shareholder is mostly investors.
1,Board of Directors
Advisory board◦ Cheaper way to hire first-tier people to be in your
team◦ Advisor / consultants do not have legal obligation
to the company Mentor
◦ You need to find a mentor to help you along in the start-up road.
1,Advisor board and mentors
Right market is the second most important for the success of a start-ups
Right market is more important than right product idea◦ Ex. Yield improvement project
Growing market is suitable for start-ups◦ Ex. Mobile, apps, internet, biotech..
Highly integrated market is deadly for start-ups◦ Ex. Cable business, Telco
Understand market needs and estimated size◦ Estimated volume◦ Growth rate◦ Market segments
Low key, grow silently, survive and wait for your opportunity
2,Access market and target customers
Dragoniptv.com◦ Web TV service for
oversea’s Chinese◦ 60,000 customers after
one month of launching beta services
◦ Being shutdown by force after one month
◦ Step into current market players
Highly integrated market is not for new heros◦ Late three kingdom
era Low key, grow and
wait for your time◦ Story of
Oda Nobunaga Toyotomi Hideyoshi Tokugawa Ieyasu
Case study
Product vs. Services The “Value”
◦ B2C: sense of security, sense of owning, Feeling, Vanity, home sickness, hope..
◦ B2B: Financial, Political, Strategic related topics You need to really understand the “needs”
◦ You or the team have to be the target customers◦ You like to use on what you have created
Opportunity driven vs. Demands driven Market survey
◦ The expensive way –Markey survey, Gartner/IDC/IEK/MIC..◦ The start-ups way – Use own eyes, feet, hands, ears, talking to
TA, doing your own survey. Using google, FB, Weibo to get the data you want
3,Define and develop product
Always ask – Why customers would pay? B2C: Pricing model, conversion rate,
Channel cost B2B: Direct sales, Indirect sales B2B2C, B2C2B… In reality, business model are always
changing, “the planned” typically is not “the actual” business model.
3,Business Model Design
Not to challenge the existent consumer buying behaves Understand the total spending budget for your target
customers Whoever win the mob, Win the war
◦ Ex. Internet, Facebook◦ Ex. Oracle vs. Salesforce.com◦ Ex. Why black market, why bidding web site fails, why not gambling?
Perception is everything – product differentiations Low cost, high value Stickiness Easy product description Good User interface Simple software engineering, only focus on spec define and
testing sheet.
3,Define product
Business plan is needed, the process of creating BP is even more important than the actual outputs
Reviewing the Team, product, market, business model, financial forecast, during the BP writing process
BP is a promotional documents, to sell your idea to investors
BP can be words or PPT, but cannot be both. BP is a constant changing document, need to
custom made per investors
4,Business Plan
Product it service intro Business model and growth strategy Market size, rate of growth and market segments Competition analysis How to acquire customers Sales, Channel planning, and sales forecast Management team and profiles Development capacity and experience Manufacturing capacity and experience HR planning and reward system Financial outlooks and milestones Cash flow estimation Share structure Funding plan: Amount&Terms, Post money capital structure, Use of
Proceed
4,BP contents
Investors will focus on◦ Passionate and experienced team◦ Right market segment and growth potentials◦ Unique and/or killer apps or technology◦ Way to be successful – Execution plan◦ Good ROI
Some will also see◦ Company Vision◦ Founding team commitment◦ Highly focused execution plan◦ Money Exit strategy
4,BP
There are also “must-ask” questions / Answers◦ Entry barrier, how to stop others to copy your idea◦ What is the content of your entry barrier,
technology, market uniqueness, patents or people?
◦ What is the competitor market share and pricing strategy?
◦ Whether founding team worked together before?◦ When do you expect to break even?
4,BP
Income statement financial forecast model
4,BP: Financial Forecast
Make the assumptions as variables, run some simulations
4,BP: Financial forecast
Money is not the most important thing for start-ups, but without money, you cannot do a thing.
Funding, the first real challenge for start-ups◦ Always Chicken-egg problem
How much money do you need to start your own business? ◦ Use the least amount of money to start your business◦ Calculate the minimal cost for two year, including
staffs, outsourcing, rental, utility, IDC.. – your start-up cost
Lean Start-up is also great too Save, Save, Save
5,Funding plan
Share structure design◦ Taiwan – NTD10, simple and easy, favor to
investors◦ US – flexible, and complicated, favor to seasoned
entrepreneur Step-up funding plan
◦ Seed financing - Self◦ Startup financing – Friend & Family (&Fool)◦ Expansion financing – Investors, VC, corporate
investor, may need multiple rounds. ◦ IPO or M&A
5, Funding plan
Physiological side of investment Understand term sheet The process of Due Diligence (DD) Company valuation Government funding - SBIR
5, Fundings
Why people join start-ups?◦ For better financial rewards
Human nature ◦ Desire, Selfish, Lazy, Vanity-> Fame, Money
The system – “Rewards immediately for hard working with results, otherwise none”◦ Founder share plan◦ Contracts◦ Investment Terms
Force people to do good thing to the company All in writings
A system that fit human nature
One last words
