Faculty of Business Administration  Center for Entrepreneurship 2006 Vice Chancellor’s Cup of Student Entrepreneurship: Faculty of Business Administration Center for Entrepreneurship 2006 Vice Chancellor’s Cup of Student Entrepreneurship Hugh Thomas hugh-thomas@cuhk.edu.hk entrepreneurship@cuhk.edu.hk


Competition Details: Competition Details Groups of one to five CUHK Students Prizes will be awarded as follows: 1st Prize:     HK$5,000 2nd Prize:   HK$3,000 3rd Prize:    HK$1,000 Written Plan Max 20 page text Max 30 page total Presentation: Max 15 minutes Be prepared for 20 minute Q&A


How do you compete?: How do you compete? Get an idea Form a team May include persons who are not CUHK students but they may not present at competition If team includes non-CUHK people, CUHK student role must be substantial equity > 20% Management > 50% Your company must not have substantial sales pre Sept 05 Find an Advisor – any CUHK professor Register by November 1, 2005 Develop and write the plan Submit your plan by January 3 2006 Present the plan in January 21 2006


How are you Judged in the Competition?: How are you Judged in the Competition? Moot Corp: Three-part Evaluation Part I: Written business plan Part II: Presentation and Q&A Part III: Viability of the venture


CUHK Student Presentation Skills Can be Improved!: CUHK Student Presentation Skills Can be Improved! English Language Teaching Unit (ext 7465) peter jakubowicz [peterjak_20@yahoo.com] Toastmasters Hong Kong: http://www.toastmasters.org.hk/ Chung Chi http://www.cuhk.edu.hk/ccc/toastmaster/public/aboutCCTM/aboutCCTM.htm


… but the bottom line is: … but the bottom line is Which plan presents the most attractive investment opportunity?


Examples of Plans: Examples of Plans Colisa: Golden Health: design, patent and market cuffless blood pressure monitoring device Sengital: MIDS Mouse Terminator: design, patent and market products based on low-power wireless motion sensing technology. Tornado: Cleaning service dedicated to elimination dust mites in Hong Kong homes Anti-Coro: installation & servicing of anti-corrosive grounding system for power grids TourIsMe: PDA/cell phone based system to help tourists in Hong Kong identify destinations, route travel, and plan itineraries


… and in Texas: … and in Texas Clear Count Medical Solutions system to count and track surgical sponges in operating rooms. EANeedle: a minimally invasive biopsy procedure using circular ultrasonic energy with thin, flexible interchangeable needles KidSmart: Home smoke detector self recorded with parents voice to wake and give instructions to sleeping children Private Concepts: development, sales & service of self-administered cervical cancer test Intellectual Property can help but is not essential


Purpose of a Business Plan: Purpose of a Business Plan Description of a proposed venture Addressed to a specific person or people Often addressed to potential equity investors May be addressed to bankers to obtain debt financing management to obtain internal funding administrators to obtain approval potential partners, employees, suppliers, buyer`s colleagues to set out goals as a reference guide It must be addressed to someone -- otherwise it lacks focus In VCCE it must be addressed to potential contributor of equity


The Plan is Obsolete as Soon As It is Written: The Plan is Obsolete as Soon As It is Written New discoveries are made, new products and processes displace old Prices change, competitors enter, partners leave, suppliers merge, buyers change, investors commit You learn something new


The Investor Knows That the Plan is Work-in-Progress: The Investor Knows That the Plan is Work-in-Progress In discussions, express flexibility In the plan, describe one course of action You need to write one plan get the money and invest it in one way Finance, set up operations, source inputs, sell output, realize return on investment Limit decision trees in the future – for events beyond your control market sample tests “if A then X; if not A then Y”


Added Bonus of the Plan: Added Bonus of the Plan Requires examination of each part of proposed venture Dispassionate analysis reveals flaws Focuses attention on addressing flaws, improving implementation


A good plan: A good plan anticipates the concerns of the investor addresses those concerns to the investor’s satisfaction is a pleasure to read is as short as practical No filler ! If less than 30 pages is sufficient, use less


The Concerns of the Investor: The Concerns of the Investor Does it create value for end users? Is it a “must buy” so the end user is willing to pay a premium? Is that “must buy” market large? high growth? high margin? with significant barriers to entry? Does the venture’s team fit the opportunity? Criterion: Is this an attractive investment?


A Value Proposition: A Value Proposition You wake up in the middle of the night to the sound of a smoke detector. Immediately your thoughts go to your children. Will they wake up? Will they know what to do? The chance of dying in a fire is cut in half by a smoke alarm. Tests have shown that most children (1) do not wake up to the sound of a smoke alarm and (2) do not know what to do if they do wake up: they remain in their rooms A Child will wake to the sound of a parent calling his name and will do what a voice message from his parent tells them KidSmart is a pre-recorded voice smoke detector and instruction system that can save your child’s life KidSmart winner of Moot Corp Competition in Texas


A Value Proposition: A Value Proposition “Pap smears administered by a doctor are extremely uncomfortable, intrusive and dreaded by most women I know, although [they] endure it for [their] health … women have a choice. They can be screened for cervical cancer … or they can run the risk of … cancer The Pevlon Home Cervical Cancer Screen is a … patent-pending device that will enable women to … self administer a cervical cancer screen … in their homes… ” from the Executive Summary of Private Concepts winner of Moot Corp Competition in Texas


Sources for Start-Up Ideas : Sources for Start-Up Ideas Your knowledge of markets Friends, family, colleagues CUHK RTAO’ Technology Digest http://www.cuhk.edu.hk/rtao/patent/ Center For Innovation and Technology www.cintec.cuhke.edu.hk KY Leung CUHK Professors who contact us Other universities’ researchers Your model must be commercially viable


Forecasts: Forecasts Aim for middle ground -- your best guess List your assumptions and potential ranges Back up those assumptions with full references to Historical trends Expert and industry opinion


Your Business Plan is a Prospectus: Your Business Plan is a Prospectus Statements about past and present must be true Investor will do due diligence Lies will be discovered if the plan is taken seriously If an investor relies on false information in the prospectus and suffers a loss because of that reliance, you are personally liable


Slide21: No Plagiarism When you quote use quotation marks. Fully reference your sources in footnotes Merriam Webster Dictionary: pla·gia·rize (Etymology: plagiary Date: 1716)  Transitive senses : to steal and pass off (the ideas or words of another) as one's own : use (another's production) without crediting the source.   Intransitive senses : to commit literary theft : present as new and original an idea or product derived from an existing source. Plagiarism is easy to spot


I will look for plagiarism in Competition Plans. If I find plagiarism I will disqualify your plan.: I will look for plagiarism in Competition Plans. If I find plagiarism I will disqualify your plan. CUPID will help me .


“So how do I write the plan?”: The classic solution: go to the net! http://www.pasware.com/ “So how do I write the plan?” Caution: Focus on Content!! NOT FORM!!!


Focus on Your Business Model: Focus on Your Business Model Be simple Be clear Be credible


Parts of the Business Plan: Parts of the Business Plan Summary business model value proposition for customer how we translate customer value into profits what we want from the investor What the investor gets in return Body market opportunity and potential the team competitive analysis planned milestones financing implications Appendices 1-2 pages 10-18 pages 5-10 pages


There are 111 books listed in the library on how to write of business plan: There are 111 books listed in the library on how to write of business plan


The Body: Possible topic headings: (Timmons Chapter 11): The Body: Possible topic headings: (Timmons Chapter 11) 1. Industry 2. Market Research 3. Economics of the Business 4. Marketing Plan 5. Design and Development Plans 6. Manufacturing / Service Production 7. Management Team 8. Schedule 9. Critical Risks 10. Financial Plan 11. The Offering


The cookbook software / textbook approach: The cookbook software / textbook approach A Good Checklist: have I covered all of the points? May not yield a good sales document After you have produced all of the ideas, rewrite them Remember 95% of plans are not seriously considered by the investor.


creative insights on the market opportunity: creative insights on the market opportunity This is the heart of plan and most difficult to write must be based on real investigation exhaust secondary sources industry analysis trade associations Trade periodicals talk to potential customers (primary market research) The investor wants to invest in professionally implemented creativity… … but the investor is cynical


What is: What is The Fatal Flaw ? It’s not scaleable. Where’s your manufacturing expertise? Why not just sell the patent? Why should I finance your lifestyle? I’m not convinced the consumer thinks he has a problem? How much advertising can you buy for $10,000? Is there anything that is patentable? Your distributors are family-run small businesses. How do you contact them? What about foreign competitors? What about FDA Approval? What about UL Approvals. What’s your breakeven ? Who writes your content? What stops someone in Shenzhen producing it for $5 less? How did you validate your market assumptions? Product Liability will kill you Portals don’t make money. I can’t visualize your product. How did you calculate your market size? Who are You guys??


1. Industry: 1. Industry Books: complete but quickly dated Internet: may be up to date but reliability varies greatly Periodicals, trade journals, newspapers: worth a trip to CUHK library Consulting companies, investment banks: Interviews: the best source, but time consuming


2. Market Research: 2. Market Research A credible plan eases customer pain. Focus on the customer need that you satisfy. Identify what factors make customers buy. Identify your competitors. State why competitors fail to satisfy.


3. Economics of the Business: 3. Economics of the Business Cost to develop, produce & deliver output Price of alternatives for the customer Volume of the market Predicted unit growth of the market Price and cost forecasts


4. Marketing Plan: 4. Marketing Plan How do you deliver the product or service Direct ? Phone ? Internet ? Agents ? Dealerships ? Outsource ? How do you react to the inevitable response of competitors? State the % of market you plan to achieve and how you will achieve it. Do not just state the profits that will be achieved if you gain x%


5. Design and Development Plans: 5. Design and Development Plans What is the current stage of your product / service? What are the precise steps to take it from current state to market? What works in the lab may not work in the factory How is product / service improved on on-going basis? define all technical terms / acronyms


6. Manufacturing / Service production: 6. Manufacturing / Service production Scale and organization of production / distribution details of capital and setup operating costs of achieving required scale production lead time quality control system outsourcing of manufacturing, distribution, servicing, etc


7. Management Team: 7. Management Team the most important single variable for outside equity investors in your plan: refer to strengths of management team in body by citing facts, not boasting place CVs and contact numbers / emails in appendix recognize gaps in team and say how to fill them discuss contracts and compensation of key people use boards of advisors Only claim participation by those who will favorably respond to a due diligence call


8. Schedule: 8. Schedule Make a schedule of activities list the tasks that need to be done place them on a calendar simple milestones in body full schedule in the appendix


Uses of Milestones: Uses of Milestones Month 5 Working Prototype This is a Milestone … or a Gravestone


9. Critical Risks: 9. Critical Risks Failure to attract buyers Competition Departure of key individuals Technical problems rolling out product/service Frankly state the extent to which you can address the risks


10. Financial Plan: 10. Financial Plan In the Body, just give a summary major expenditures and income for first years to breakeven cash inflows costs and revenues modest description of expected returns Include full pro-formas in appendix


11. The Offering: 11. The Offering How much money are you asking for? When are the equity contributions to be paid in, and in what amounts? What percent of equity does the investor receive? What else besides money do you want from your investor?


An offer values the enterprise: An offer values the enterprise You ask for US$3 m. You give up 60% of the company Valuation of company: 3/.6 = $5 m. Value of company before external equity inflow:$2 million (your share before and after) Reality Check: creativity + sweat equity to date + barriers value > $2 m. ?


Appendices: Appendices May Contain Short CVs of team and profiles of partners Contracts, patents, correspondence Pictures of product Market research details Rollout schedule Pro-formas, assumptions and sensitivities state fully sources of each data item Reader should be able to trace logic from raw data in appendix to statements in body


And FINALLY …write the Executive Summary: And FINALLY …write the Executive Summary Source of value for customer Business model, opportunity and strategy Comparative advantages What we want from investor... why we need it, and ... why it’s good for the investor this is the elevator pitch The Last part of the plan you write The first -- maybe only -- part they read


In the Competition, experts will review plans: In the Competition, experts will review plans Venture Capitalists Incubator Fund Managers Entrepreneurs They want to give you advice to help your plan


Entrepreneurship Festival: Entrepreneurship Festival Lady Shaw Building CUHK 2005/9/8 5:30 – 9:30 pm Free drinks and food Talks by entrepreneurs, and competition winners Entrepreneurship idea generation workshop


Digital Entertainment Cyberport Good Business Plan Writing Seminar: Digital Entertainment Cyberport Good Business Plan Writing Seminar 2005/9/10 9:00 am – 1:30 CUHK Town Centre, Central $50 seminar cost or free to helpers. Seats are limited. Cyberport wants to help entrepreneurs improve the quality of plans written for its competition to enter its incubator (entry 2005/10/31). www.cyberport.hk


HKVCA Conference: HKVCA Conference Hong Kong Survival and Resilience Monday September 12 HK Convention and Exhibition Center 7:45 am – 5:00 pm $200 for attendance of sessions and coffee breaks Lunch only available if you pay the full attendance charge of $1,900


Planning a new venture is a lot of work …: Planning a new venture is a lot of work … … but in the process, you learn a lot and in the end you could design a winning plan


Winners represent CUHK: Winners represent CUHK 2nd Place: Asia Moot Corp in Bangkok in March 2006 1st Place: Moot Corp in Texas in May 2006 CE will pay half the cost of participation in other recognized Contests


Questions: Questions Center for Entrepreneurship http://www.cuhk.edu.hk/centre/entrepreneurship/ Rosanna Lo  Tel.:(852) 2609-7542 Fax:(852) 2609-7180 Me – Hugh Thomas: 26097649; hugh-thomas@cuhk.edu.hk ihome.cuhk.edu.hk/~b100534/Courses Contacts: