SME Start-up, Survival

& Growth

Masato AbePrivate Sector and

Development SectionUN ESCAP

27-31 July 2009

Day 1

Introduction

4

Objectives to the Five-day Workshop Understand SMEs’ opportunities &

challenges Learn skills & techniques for effective SME

development at both corporate & public levels

Identify workable action plans & policy options

Share knowledge & experience

5

Methodology Lecture Discussion Case study Individual exercise Pair-work Group work A team competition

6

Outline Day 1

Introduction Overview of SMEs and their opportunities Business start-up Team competition on business start-up

Days 2 and 3 Team competition on business start-up

Day 4 Site visit (morning) Survival & development (afternoon)

Day 5 Business competitiveness Policy options for SME development Conclusion Prizes!

7

Lecturer’s Background Merchant / farmer’s family Japanese / US business Marketing, business administration &

economics UN Asia-Pacific

What are SMEs?

9

Number of Employees Definition

Typically less than 100 in the Greater Mekong Subregion

Average Four people per SME (Thailand)

Country Number of employeesCambodia Micro

SmallMediumLarge

< 1011-5051-100>100

Lao PDR SmallMedium

≤19 ≤99

Myanmar MicroSmallMediumLarge

< 1010-5051-100>100

Viet Nam MicroSmall

1-910-50

10

SMEs’ ContributionsMalaysia Thailand Philippines Republic of

KoreaJapan China Indonesia India

SMEestablishments

94 98 99 99 99 99 99 95

Employment 40 56 69 69 88 74 99 80

Value added 26 47 32 46 56 60 63 40

(%)

11

Important Role Seeds to be large enterprises &

multinationals Dynamic Innovation Critical members of

global/regional/national value chains

12

SMEs’ Typical Capacities Disadvantage

Resources Technology & knowledge Network

Advantage Flexibility Specialization (niche market)

Low bargaining power (low price & high cost) Low income (Less profit) High debt structure (high cost) Weak management (less training) Weak HR base (less salary)

13

Corporate Life ModelProfit

Years0

Start-up

Pick-up

Maturity

Decline

Discontinuation?

Grow to a large firm

Various supports needed at the different stagesLoss

Growth

14

SMEs’ Life Start-up a vulnerable time

2/3 discontinued within 5 years (USA) 40% discontinued within 2 years (UK) Approx. 40% in red after 1 year (Japan)

Pick-up Growth Maturity Decline Discontinuation / dissolution

Inheritance strategy (e.g. aging) Few SMEs can grow to large enterprises

15

Policy Objectives Increase the number of start-ups Decrease the rate of failures Create entrepreneurship culture Enhance access to finance Develop & transfer technology Prioritize sectors with strategic importance Provide business development services

Accounting, marketing, technology transfer, intellectual property right, legal advice

Others

16

Challenges for Policymaking Scattered targets (high transaction costs) Lack of economy of scale Limited public resources Limited understanding about the targets Limited communication channels Limited knowledge & skills

17

Discussion Share your observation, view and/or

experience in SME development Any initiatives in your country? Necessary public interventions at a

different growth stage?

Start-up

19

Start-ups: Japanese experience 41.4 years old (Entrepreneurs) 3.9 employees 100K US$ of start-up funds

35%: Own capital 15%: Support of family, relatives and friends 50%: Public grants & commercial loans, including public

loan guarantees Man: 84.5%; Women: 15.5% College degree or above: 33.1% 60% of start-ups achieve break-even within 15

monthsData: National Life Finance Corporation (2007)

20

Start-ups: Sector Composition

Services 26% 22%Wholesale/retailer 20% 33%Restaurants/hotels 17% N/AMedical/health care 16% N/A

Construction 8% 14%Manufacturing 5% 11%

Others 8% 20%Total 100% 100%

Japan(2006)

Thailand(2005)

21

SMEs’ Net Income in Japan

0.0

0.5

1.0

1.5

2.0

2.5

3.0

01 02 03 04 05 06 (Year)

(%)

ManufacturingConstruction

AverageServicesRetail

Transportation

Wholesales

Income before Tax / Total Sales

22

Four Success Factors for Start-ups

Entrepreneurship

ResourcesManagement Skills

Business Plan

23

Four Success Factors for Start-ups

Entrepreneurship

ResourcesManagement Skills

Business Plan

24

Success Factor 1: EntrepreneurshipThe individual and/or team process of

doing something new or something different to add value to the society

Risk taking behaviours for future gains…..

25

Four Success Factors for Start-ups

Entrepreneurship

ResourcesManagement Skills

Business Plan

26

Success Factors 2: Management skills

Strategic thinking Marketing Accounting Finance HRM Others

27

Four Success Factors for Start-ups

Entrepreneurship

ResourcesManagement Skills

Business Plan

28

Success Factor 3: Resources

CapitalsHuman resourcesPhysical assets Intangible resources

Intellectual property Skills & knowledge Networks

29

Four Success Factors for Start-ups

Entrepreneurship

ResourcesManagement Skills

Business Plan

30

Success Factor 4: Business plan

An executable plan that details how the enterprise is going to meet its objectives

Feasibility studyMarketCustomerCompetitorSupplierFinance, etc

31

Individual Exercise: Check Points for Start-ups (1)

Assume that you are about to launch a new business

Answer the following questions

Entrepreneurship Do you really want to run business? Why? Are you confident to be successful? How?

32

Check Points for Start-ups (2) Management skills

Do you have any business experience? If yes, describe it

Have you forecasted sales, costs and profits? Resources

Will your family support your plan? Have you secured adequate start-up funds,

with both capitals and loans? How much? Have you hired adequate and quality

employees? How many? What are their roles?

33

Check Points for Start-ups (3) Business plan

Do you know customers and market well? Who are the customers?

Can you provide competitive products/services? What are they?

Have you decided where you run the business? Where?

Have you completed a business plan?

Share the results with a classmate

34

Five Steps for Start-ups

Business Idea

Feasibility Study

Business Plan

Execution

Start-up

35

The First Step: Create Business Ideas

Business Idea

Feasibility Study

Business Plan

Execution

Start-up

36

The 2nd Step: Feasibility Study

Business Idea

Feasibility Study

Business Plan

Execution

Start-up

37

Step 2: Conduct Feasibility Studies Value chain analysis

Customers Products / services Competitors Channels & distributions Suppliers Facilities Employees Advertisements Sales plan Cost structures Funding requirements

38

A simplified value chains

39

The 3rd Step: Business Plan

Business Idea

Feasibility Study

Business Plan

Execution

Start-up

40

Step 3: Develop a Business Plan A business plan is to:

Detail out the business ideas into key success factors as well as executable actions

Include the outcomes of the value chain analysis

Develop sales, supply and financial plans Apply for financial support to public &

commercial financial institutions Find any missing holes

41

The 4th Step: Execution

Business Idea

Feasibility Study

Business Plan

Execution

Start-up

42

Step 4: Execute the Business Plan Registration & licensing Fund raising Contracts Leasing Facilities Employment Procurement Production Advertisement

43

The Final Step: Launching Business

Business Ideas

Feasibility Studies

Business Plan

Execution

Start-up

Business Launching!

Business Plan Development

A Team Competition

46

Business Plan Competition Each team, which comprises of 3-4 people, will develop a

simplified two-page business plan Any line of business & location (the simpler the better) Use US$ Freely access to outside resources (Internet, libraries, MI

staff) & consult with other teams My multiple roles as financial/service providers:

Governmental, provincial or tax office Business association Financial institution Business service provider (e.g. accounting, consulting,

marketing, legal matters) Three pre-appointed meetings (20 min.) with me

(morning/afternoon of 28 July; morning of 29 July) 15 minutes team presentation in any format (Wednesday

afternoon, 29 July) Ranked by all participants, MI staff and me Prizes at the end of the week

47

Team Formation

48

What is the Business Plan? Objectives

Detail out a business idea to workable actions Develop sales, supply & financial plans Mobilize financial support from the public and

commercial financial institutions Find any missing holes

Various users Entrepreneurs

Develop a concrete & executable plan Brush up ideas

Public & commercial financial institutions Evaluate feasibility for funding consideration Use it as a supporting document for grants/loans

Employees / suppliers Know a clear corporate direction

49

What is the Business Plan? (continued) Resources mobilization

Finance HR

Three financial scenarios Conservative Most likely Ambitious

“Plan-Do-See” process

50

A Simplified Business Plan Two-page business plan, widely used in Japan Two-part format

1. Business Proposal (first page) Line of business Location Start-up date Missions, objectives & business opportunity Background & experience Products & services Strength Customers, channels & distributions Suppliers (procurement)

2. Financial planning (second page) Capital requirement & funding plan Income forecast (beginning & 1 year later)

51

Necessary Components Marketing Sales forecast Procurement Production Funding Income forecast Others…

52

Marketing Plan To whom: Customers What: Products / services How: Channels & distributions;

Internet; price & sales terms; volume

Where: Country, city, area, shop By whom: Employees When: Business hours

53

Sales Forecast The most difficult part in the business

plan, especially for start-ups Uncertainty & seasonal factors Three scenarios (ideally)

Conservative Most likely Ambitious

54

Sales Forecast (continued) Different methods by sector

1. Retailer Expected sales amount per 1m x square meters

2. Services (restaurants, barbers/beauty shops) Sales per customer x No. of seats x turnover rate

3. Labour intensive sector (autosales, cosmetics, building cleaning) Sales amount per labour x No. of employees

4. Asset intensive sector (manufacturing, printing, transportation) Capacity of assets x No. of facility x utilization

55

Procurement Plan What: Materials, components,

labours, services Where: Suppliers & supply markets When: Leadtime How: Price & payment terms How much: Volume, quantity, duration

56

Production Plan (if needed) What: Products & services Where: Factories & warehouses When: Leadtime How: Methods, technology,

machineries, equipments How much: Volume, quantity

57

Funding Plan Funds needed for a start-up

Facilities & equipments (factories, warehouses, shops, machines, goods & automobiles)

Operating costs (supplies, salaries, rents, interests) – at least for 2-3 months

Funds raising Own capitals (ideally, more than 50% of total funds) Support from family, relatives, friends and others Public grants Public loans (normally collateral required) Commercial loans (collateral required) Others

Funds Needed & Funds Raising must be equal

58

Income Forecast Two kinds of monthly income forecasts

(beginning & 1 year later) Details

Revenues (most likely) Costs of products / services if any Operating expenses

Salaries Rents for facilities Others (advertisements, utilities, etc.)

Interests (5%) / installments of loans, if any Net income

Tax (30%)

59

A Good Business Plan Two parts of the business plan (business

proposal & financial plan) are consistent Funding plan can support both initial asset

investments & operating expenses (at least initial 2-3 months)

Make business in black in 1 year Make sure adequate provision for loan

installments

60

Create a Business Idea Get a novel idea through

Knowledge & experience Copying and modifying something marketable

Three techniques1) Reviewing available resources2) “Negative keyword” method3) “Who x What x How” method

61

Reviewing Available Resources (1)

Natural endowment Human resources Financial assets Tangible assets Human networks Yourself

62

Reviewing Available Resources (2)

Human ResourcesExperience, educationcertificates,interests &hobbies

NetworksSupporters,

family& friends

MoneyOwn capitalsgrants, loans

& salaries

AssetsBuildings,facilities,equipments & intellectual property

Entrepreneur

63

“Negative Keyword” Method Expensive Inconvenient Lacking Late / slow Old / outdated Unstylish Confused Ugly Unsatisfactory Unreliable …

64

“Who x What x How” Method (1)

Examples

Customers Products / Services Channels & DistributionsX X

Femaleprofessionals Stylish dresses High-end specialized shop

at a prestigious locationX X

Middle agedcitizens Healthy foods Restaurant with low

calorie dishesX X

Pre-schoolchildren

ConversationalEnglish Bilingual kindergartenX X

Who What How

65

“Who x What x How” Method (2)

Who

What

How

Young mid-classprofessionals

Affordablesecondhand

cars

Online auctionw/ quality assurance

66

Individual Exercise Come up with 1 to 3 ideas for any line of

business, which you may wish to run if you have opportunity

Use three methods Reviewing available resources “Negative keyword” method “Who x What x How” method

Think twice why you like it (them) Write down your ideas as detailed as possible Discuss the ideas with teammates

67

House Cleaning Matters Time schedule Assumptions & logical reasoning Outside resources (Internet, libraries, MI staff) Consultation with other teams Three 20-minute consultative meetings per team

(afternoon & morning of 28 July; morning of 29 July)

My roles A 15-minute team presentation in any format with

any supplemental materials, plus a 5-minute Q&A session (Wednesday afternoon)

Ranked by all participants Order of the presentations Prizes at the end of the week

Day 2

Team Competition

Day 3

Team Competition

Team Presentations

71

Order of Team Presentations Group X on “ “ Group Y on “ “ Group Z on “ “

72

Evaluation Rank 1 for the best & 7 for the worst

based on the below criteria: Creativity of business ideas Feasibility of the proposal Financial robustness Quality of presentation

But do not rank your own team!

Post-Presentation Discussion

74

Question 1 What were difficult?

75

Question 2 How did your team solve those

difficulties?

76

Question 3 What kinds of risk or uncertainty did you

find in your and other’s business plan?

77

Question 4 What are key success factors for business

start-ups?

78

Question 5 What kind of outside support are most

welcome from: Governments Local governments (provinces/cities) Financial institutions Business associations (ex, chambers of

commerce) Business service providers

Accountants Business consultants Lawyers

International development agencies?

79

Four Success Factors for Start-ups

Entrepreneurship

ResourcesManagement Skills

Business Plan

80

Key Success factors in Literature (1) Entrepreneurship

Deep market knowledge Good personal characters Good ideas

Management skills General management Understanding of legal requirements (ex,

business registration) Cost reduction Cash flow HRM

81

Key Success factors in Literature (2) Resources

Family supports Adequate start-up funds Substantial own capitals Assets Technology, knowledge, knowhow Supporters (ex, Engel investors)

Business plan A unique & well developed business plan Clear corporate missions Clear strength Competitive products / services Strong customer base even before started Favourable external environment (market, customer

needs, deregulation, public spending, urbanization, change in transportation systems, technological advancement, economic boom or decline)

Day 4

Survival & Growth

84

Start-up 1st 2nd 3rd 4th 5th

High

Revenue

Low

Year

SME Growth Model

85

US Venture Growth Model

Source: Kao and Liang (2001)

Star

tup

Early

D

evel

opm

ent

Dev

elop

men

t &

gro

wth

Tran

sitio

n

Expa

nsio

n

Le

vel o

f suc

cess

(m

easu

red

by c

ash

flow

pr

ofit

and

RO

I)

Cash req’d to stay in business

(short term)

Cash drain

Profit req’d to stay in business

(long term)

Cash drain

ROI req’d to support growth & expansion

Growth process

86

SMEs’ Growth: Four Critical Issues1. Customer development2. Cash flow management3. Human resources management4. Risk of unchanged

87

Customer Development (1) Competitiveness of products / services Positioning of products / services New customer development Costs of customer development Customer retention Customer satisfaction Customer relationship management

88

High

Cost

Low

SalespersonMass Media(Newspaper,Magazine,TV, Radio)Direct Mail (Mail, Fax,

Telephone)

Email, Homepage

WideTarget CustomersNarrow

Customer Development (2)

Trade Fair/Exhibition

89

Cash Flow Management (1) The biggest reason of corporate failure Time gap between receivables & payables

Sales CustomerPayment

Procurement Payment tosuppliers

Receivables

PayablesTime Gap

Operating funds needed

90

Cash Flow Management (2) Sales terms Procurement terms Short leadtime to cashing Inventory management Sales of unproductive assets Cost reduction Risk of easy loans for operating funds

High interests Late action for fundamental change (ex,

turnaround management)

91

Cash Flow Management (3) Simple Cash flow forecast

92

Human Resources Management Hiring methods

Family, relatives, friends Word of mouth Newspapers, magazines Internet/websites Governments/local public offices Recruitment consultants Head hunting

Compensation Rewards & recognition

93

Risk of Unchanged Only species that adapt themselves to

the changed environments can survive ultimately (Darwin’s theory of natural selection)

Danger of unfitting to changing environments

Continuously provide present products & services may be inadequate for future survival and growth

Turnaround before declining

94

Three Useful Techniques for Turnaround Management1. Market & Product (Service) Mix Analysis2. Mission Analysis3. SWOT Analysis

95

Three Useful Techniques for Turnaround Management1. Mission Analysis2. Market & Product (Service) Mix Analysis3. SWOT Analysis

96

Mission AnalysisIdentify the key tasks of corporate functions / human resources

QuestionsWhat is the mission of a automobile salesperson? What is his/her most important

task? What is his/her most productive

activity?

97

Individual ExerciseIdentify the key tasks of your job

Pick the most critical task among them

98

Three Useful Techniques for Turnaround Management1. Mission Analysis2. Market & Product (Service) Mix Analysis3. SWOT Analysis

99

Market & Product/Service Mix Analysis Sale promotion

New market penetration

New product/service development

New Business

Present products/services Present MarketX

New Products/Services New MarketX

New Products/Services Present MarketX

Present Products/Services New MarketX

100

Team Exercise Conduct the Market & Product Mix Analysis

based on the business plan which your team developed

101

Team Exercise (Optional) Develop a one-year cash flow forecast for

the business plan which your team developed

Submit it by Friday (1.30 p.m.) for additional credit to team competition

Day 5

103

Three Useful Techniques for Turnaround Management1. Mission Analysis2. Market & Product (Service) Mix Analysis3. SWOT Analysis

104

SWOT Analysis (1) Probably the most popular technique for turnaround management

Positive Negative

Internal(Strength) (Weakness)

External(Opportunity) (Threat)

X X X X

105

SWOT Analysis: A Case (1)Positive Negative

Internal(Strength)- Low cost

- Good after-service

(Weakness)- Little customer

base

External

(Opportunity)- Growing market

(aging, beauty conscious)

- Unsatisfactory products / services

(Threat)- Dominance by market leaders

Hair piece (wig for men) sales through Internet with intensive after services

106

Group work Conduct the SWOT analysis for MI by the

business plan team

Five-minute verbal presentation by team

107

SMEs’ OptionsUnchanged (risk of change)Better start from known areas

Use core competenciesSynergy with the present business

New business plan developmentMarket research for new product

/service developmentCollaborate with others

108

SMEs’ Options: Restart-up

PresentBusiness Plan

NewBusiness Plan

New Products / ServicesTurnaround, Diversification, M&A

Changing Business EnvironmentMarket maturity, changed customer needs, globalization, foreign competitionUrbanization, deregulation, less public spending, technology advancement

Business Competitiveness

110

Determinants of Business Competitiveness External to enterprise

Market access Access to resources Business related regulatory framework Supporting services

Internal to enterprise Contestable market power Capacity to respond effectively to competitors Capacity & flexibility to respond to changing

circumstances Capacity to create new market niches

111

External: Market Access Significant home markets Penetration into export markets GSP treatment Trade and investment liberalization

Regional Trade Agreements (RTAs) Bilateral Trade Agreements (BTAs) Bilateral Investment Treaties (BITs)

The establishment of foreign operations …

112

External: Access to Resources People Skills, knowledge & technology Capitals Supplies Natural endowment …

113

External: Regulatory Framework The process of business registration &

licensing Taxation Competition Bankruptcy Property & intellectual property rights Trade and investment policy Customs procedures …

114

External: Supporting Services Physical infrastructure & logistics systems General & vocational education Training services Professional services, such as accounting

& legal advice …

115

Internal: Market Power Branding Customer loyalty Distribution channels Pricing Quality …

116

Internal: Capacity to respond effectively to competitors Substitutes for products & services Diversified product & service lines Low cost structure Flexibility …

117

Internal: Capability & flexibility to respond to changing circumstances The availability of key resources Capacity for process & product innovation Flexible supply chains …

118

Internal: Capability to create new market niches Marketing capability Culture of innovation Customer (or market) orientation …

119

Competitiveness Enhancement QDC

Quality Delivery Cost (price)

Cost saving Productivity up (input vs. output) Flexibility up New ideas

120

Discussion Share any policy initiatives in your

country to improve business (enterprise) competitiveness

Other Key Issues

122

Business Registration & Licensing Cheaper & faster business registration Incentives to be formal

Reduce business in the informal sector Incentives needed

Access to finance Grants Training Networking Information

Effective & reasonable tax collection system

123

Access to Finance Own capitals Family, relatives, friends Commercial loans Public grants Public loans Collaterals

Land registration Micro loans Angles

124

Session-end Discussion (1) What are the issues & obstacles to

improve the determinants of business competitiveness in your country?

How can you react to improve pro-business conditions in your country?

Any cooperation with neighbouring countries to improve business competitiveness in your country?

125

Session-end Discussion (2) What should be the role of key

stakeholders to play for SME development? Governments Financial institutes Business associations Business service providers

Conclusion

Feedback

Prizes!