SME Start-up, Survival & Growth

1. SME Start-up, Survival& Growth Masato Abe Private Sector and Development Section UN ESCAP27-31 July 2009

2. Day 1

3. 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

8. What are SMEs?

9. Number of Employees • Definition • Typically less than 100 in the Greater Mekong Subregion • Average • Four people per SME (Thailand)

10. SMEs’ Contributions (%)

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 Model Profit Grow to a large firm Maturity Decline Growth Start-up Discontinuation? 0 Years Pick-up Loss Various supports needed at the different stages

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?

18. 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 months Data: National Life Finance Corporation (2007)

20. Start-ups: Sector Composition Japan (2006) Thailand (2005) Services 26% 22% Wholesale/retailer 20% 33% Restaurants/hotels 17% N/A Medical/health care 16% N/A Construction 8% 14% Manufacturing 5% 11% Others 8% 20% Total 100% 100%

21. SMEs’ Net Income in Japan Income before Tax / Total Sales

22. Four Success Factors for Start-ups Entrepreneurship Resources Management Skills Business Plan

23. Four Success Factors for Start-ups Entrepreneurship Resources Management Skills Business Plan

24. Success Factor 1: Entrepreneurship • The 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 Resources Management Skills Business Plan

26. Success Factors 2: Management skills • Strategic thinking • Marketing • Accounting • Finance • HRM • Others

27. Four Success Factors for Start-ups Entrepreneurship Resources Management Skills Business Plan

28. Success Factor 3: Resources • Capitals • Human resources • Physical assets • Intangible resources • Intellectual property • Skills & knowledge • Networks

29. Four Success Factors for Start-ups Entrepreneurship Resources Management Skills BusinessPlan

30. Success Factor 4: Business plan • An executable plan that details how the enterprise is going to meet its objectives • Feasibility study • Market • Customer • Competitor • Supplier • Finance, 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

44. Business Launching!

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