Transcript Engineering your Start-ups

Sean Chen
CEO, xFuture Inc.
Serial Entrepreneur
2012/11
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Why Start-ups?
Why not start-ups?
What is the business idea in your mind?
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.
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Labor side:
◦ Two questions:
 Which part of the income statement are you in?
 Which side of the balance sheet are you in?
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Board member side:
◦ Which part of the financial statement are they in?
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Everyone is a disposal resource, except the
board
Different way of seeing things
Change your life by switch roles
As good as revolution
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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
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Marry it
Inherit it
Win lottery
Start up your own business
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3 ways of creating your own future
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Change your destiny, create your own life
◦ Work hard, and make money from employment
◦ Invest hard, and make money from money
◦ Startup hard, create your stock like printing money
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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
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Wake up:
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When changes or unreasonable requests happened:
◦ 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
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Would you just accept it?
Or Fight back?
Or ask the questions “why do you think this change will help?”
Always ask “Why me?”
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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?
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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?
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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.
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Examine your idea by 3 steps
1. Product positioning
2. Target customer and market
3. Roadmap to success
New Market
Old Market
New Product
Technology Push Need market education
Require bigger capital
OK for BIG start-ups
Market Pull –
Niche product
Known requirements
Best for start-ups
Old Product
Copycat, but good
Localize popular products
Sell it in the local market
Second best for start-ups
Money business
Require top sales to make
sale
No good for start-ups
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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
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Excite
◦ One of the first
search engine and
web portal
◦ 6.7B acquired
@Home at 1999
◦ Now it’s a minimal
web site
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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.
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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
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4 elements of successful product position
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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?”
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The value of start-ups:
◦ Creating New products (or services) for specific customers’ needs,
and cannot not be produced by big company in time.
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The key to success is
◦ “Closer to Customers”,
◦ “Speed”,
◦ “Flexible”.
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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
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Understand and design the segments of your customers:
◦ Age, Location, Gender, Professions, Incomes, Races, Life style, etc.
◦ B2C is better than B2B
 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.
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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
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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.
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Sony start-up story
◦ Founder Morita Akio (盛田 昭夫)
◦ Founded at 1946, funding ¥ 190K
◦ 2012 revenue ¥6.395 trillion
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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.
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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.
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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.
5 steps of preparing your startups
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Building a winning team
Access market and target customers
Define Product
Prepare business plan
Funding plan
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“Location, location, location” is for good house
“People, People, People” is for good start-ups
#1 important thing for start-ups: Good people
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Understand yourself first
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As a company you need to build
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◦ 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.
◦ 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
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Founding team
Management team
Company staffs
Board of Directors
Advisory board
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Most of the first-time startup founders got into
troubles here
◦ Friendship broken
◦ Law suit
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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
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Initial roles in a start-ups
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Are you suitable for company CEO, are you
◦ 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.
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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
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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
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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
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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.
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Advisory board
◦ Cheaper way to hire first-tier people to be in your
team
◦ Advisor / consultants do not have legal obligation
to the company
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Mentor
◦ You need to find a mentor to help you along in the
start-up road.
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Right market is the second most important for the success
of a start-ups
Right market is more important than right product idea
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Growing market is suitable for start-ups
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Highly integrated market is deadly for start-ups
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Understand market needs and estimated size
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Low key, grow silently, survive and wait for your
opportunity
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◦ Ex. Yield improvement project
◦ Ex. Mobile, apps, internet, biotech..
◦ Ex. Cable business, Telco
◦ Estimated volume
◦ Growth rate
◦ Market segments
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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
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Highly integrated
market is not for
new heros
◦ Late three kingdom
era
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Low key, grow and
wait for your time
◦ Story of
 Oda Nobunaga
 Toyotomi Hideyoshi
 Tokugawa Ieyasu
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Product vs. Services
The “Value”
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You need to really understand the “needs”
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◦ B2C: sense of security, sense of owning, Feeling, Vanity,
home sickness, hope..
◦ B2B: Financial, Political, Strategic related topics
◦ 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
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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.
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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.
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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
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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
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Investors will focus on
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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
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Company Vision
Founding team commitment
Highly focused execution plan
Money Exit strategy
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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?
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Income statement financial forecast model
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Make the assumptions as variables, run some
simulations
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Money is not the most important thing for startups, but without money, you cannot do a thing.
Funding, the first real challenge for start-ups
◦ Always Chicken-egg problem
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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
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Lean Start-up is also great too
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Save, Save, Save
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Share structure design
◦ Taiwan – NTD10, simple and easy, favor to
investors
◦ US – flexible, and complicated, favor to seasoned
entrepreneur
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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
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Physiological side of investment
Understand term sheet
The process of Due Diligence (DD)
Company valuation
Government funding - SBIR
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Why people join start-ups?
◦ For better financial rewards
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Human nature
◦ Desire, Selfish, Lazy, Vanity-> Fame, Money
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The system – “Rewards immediately for hard
working with results, otherwise none”
◦ Founder share plan
◦ Contracts
◦ Investment Terms
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Force people to do good thing to the company
All in writings
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Sean Chen
[email protected]
http://startup20.wordpress.com