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Start-ups manual for Engineers

Start-ups manual for Engineers . Sean Chen CEO, xFuture Inc. Serial Entrepreneur 2012/11. Agenda. 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

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Start-ups manual for Engineers

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  1. Start-ups manual for Engineers Sean Chen CEO, xFuture Inc. Serial Entrepreneur 2012/11

  2. Agenda 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.

  3. Labors vs. Board members • 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

  4. Why Start your own business • 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

  5. Did you grew up? • 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?”

  6. Why NOT start-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?

  7. Take risk • 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.

  8. What is the business idea in your mind? • Examine your idea by 3 steps • Product positioning • Target customer and market • Roadmap to success

  9. 1, Product Positioning

  10. New market, New Product • Excite • One of the first search engine and web portal • 6.7B acquired @Home at 1999 • Now it’s a minimal web site • 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

  11. New market, Old Product • 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 • Sina.com • Copy Yahoo, vision a Chinese web portal market, now it’s Chinese number 1 portal • Copy Twitter, SinaWeibo now is the China largest microblogs web site. • SinaWeibo was not even the first China microblogs services, Fanfou (飯否)was the first.

  12. 1, Product Positioning • 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?”

  13. 2,Target customer and market • 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

  14. Case study • 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. • 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.

  15. Case Study • Sony start-up story • Founder Morita Akio (盛田 昭夫) • Founded at 1946, funding ¥ 190K • 2012 revenue ¥6.395 trillion • 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.

  16. 2,Target customer and market • 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.

  17. 3,Roadmap to success • 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.

  18. Let’s get started 5 steps of preparing your startups - Building a winning team - Access market and target customers - Define Product - Prepare business plan - Funding plan

  19. 1, Building a winning team • “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

  20. 1,Finding a Partner • 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

  21. 1,Founding team • 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

  22. 1,Management 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

  23. 1,Board of Directors • 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.

  24. 1,Advisor board and mentors • 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.

  25. 2,Access market and target customers • 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

  26. Case study • Highly integrated market is not for new heros • Late three kingdom era • Low key, grow and wait for your time • Story of • Oda Nobunaga • ToyotomiHideyoshi • Tokugawa Ieyasu • 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

  27. 3,Define and develop product • 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

  28. 3,Business Model Design • 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.

  29. 3,Define product • 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.

  30. 4,Business Plan • 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

  31. 4,BP contents • 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

  32. 4,BP • 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

  33. 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?

  34. 4,BP: Financial Forecast • Income statement financial forecast model

  35. 4,BP: Financial forecast • Make the assumptions as variables, run some simulations

  36. 5,Funding plan • 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

  37. 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

  38. 5, Fundings • Physiological side of investment • Understand term sheet • The process of Due Diligence (DD) • Company valuation • Government funding - SBIR

  39. A system that fit human nature • 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

  40. One last words

  41. Q&A • Sean Chen • cschen1@yahoo.com • http://startup20.wordpress.com

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