2020 IMA Business Case Competition
Transcript of 2020 IMA Business Case Competition
2020 IMA Business Case Competition——Promote uStartup to lead the industry
Team members:刘颖
胡书玉刘笑瑄
徐诺杜一泓
Existing business
Simplified incorporation
Business proposal writing
Social media marketing consulting
2015-2017The business model was very
successfulUSP experienced soaring growth
2018New service SMM was introduced to reverse current situation and help
attract potential venture capital
2017-2018USP experienced a profit decline
in 2018 since founded due to fierce competition
The management wants us to: evaluate financial data find out problems give future strategies to deal with the problems
Case Overview
uStartup(USP) was founded in 2015 to provide legal and business services to student entrepreneurs
Since the second seed funding counts on the accurate valuation on business performance
Development background
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Content1
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Case overview
Current situations & issues
Solution: Financial & Implementation
Expected results
Risk analysis
Summary
• Macro-environment• Industry situation• Financial situation• Company situation
• Service adjustments• Online & offline marketing• Implementation
• Forecast income• Feasibility analysis
• Risk identification• COSO framework
Current situation & issues
•Rapid and sustained
economic growth
•Vigorous development of
the tertiary industry
(service sector)
T Technology
Big Data
Cloud Computing
APP
Precision MarketingIT
AI
Insights:The advancement
of IT have 2 affects
on startup service.
① Accelerat ion
② ToolsDo college students want to start their own business?
69% 31%YES NO
• Highest entrepreneurial intention in the world
• Campus Entrepreneurship Boom
• Social concept changes:
--> Past: a stable job (eg. civil servant)
--> Nowadays: entrepreneurship is a new trend
• Consumer behavior:
take orders on mobile phone rather than PC
SocietyS
45%
46%
47%
48%
49%
50%
51%
52%
53%
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
2014 2015 2016 2017 2018
(100
mill
ion)
GNP of China
Tertiary IndustrySecondary IndustryPrimary IndustryThe Proportion of the Tertiary Industry
EconomyE
We encourage scientific and technicalpersonnels and college students to starttheir own businesses.Government
“We will lower the threshold, expand venturecapital and create a comfortable climate forstartups. We will also develop the startupservice market and build certain platforms tosupport startups.”
State Council
Mass Entrepreneurship and Innovation Policy
Prime Minister
PoliticsP
Current macro-environment >> Policy support, steady economic growth, change of minds and technology advancement
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
IntroductionGrowth
MaturityStable
Insights:① Startup service industry is a sunrise industry. ② Startup service industry is still in the growth stage.
Decentralized(Distrubution in 2016)
Guangdong and Beijing Ranked first(Distrubtion of the 1st and 2nd batches)
Less geographic concentrated & More balanced distribution3
18%
17%
13%11%
8%
7%
7%
5%
14%
The Industry of Newly Registered Enterprises in 2016
Startup Service
E-commerce
Entertainment
Finance
Local Lifestyle
Education
Social Network
Health and Care
Others
Low market entry barriers & More new entrants & Popular choice2
196250
365
444
553607
670
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
0
100
200
300
400
500
600
700
800
2012 2013 2014 2015 2016 2017 2018
Number of Newly Registered Enterprises in China(10k)
Growth Rate
13671528
1819
2187
2596
3034
3474
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
0
500
1000
1500
2000
2500
3000
3500
4000
2012 2013 2014 2015 2016 2017 2018
Number of Existing Enterprises in China(10k)
Growth Rate
Increasing number of S&M enterprises & High demand & Huge market1
Current industry situation >> Huge market demand and the geographically decentralization trend
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
co-working spaces
financing service
professional service
media platform
business incubator
coaching&training
Six Types of Major Business Model and Competitor Landscape
0
2
4
6
8
10Professional Support
Reputation
Media PlatformIT
Customerization
New Entrants
TraditionalEnterprises
1
2
Insights:① Fierce competition② Multi-dimensional pattern③ Specialization and differentiation➡ Expand existing business ➡ Provide more comprehensive and personalized service
Current industry situation >> Competitor profilesCase Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Comparative Advantages of Different Types of Competitors
35.58%
12.77%
45%
5%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00%
gross margin
revenue growth
traditional companies average USP
Current financial situation >> Horizontal comparison between different services
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Overall revenue growth and gross margin Revenue by sector
Cost management problems
Increasing market
competition
Declining of service quality
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
2017 2018
SI BP SMM
-3%
-3%
Current financial situation >> Horizontal comparison between different services
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
CM ratio by sector in 2017 CM ratio by sector in 2018
The CM ratio of both SI and BP has increased, while the CM ratio of SMM is relatively lower
RMB('000) 2017 2018 Growth rate
CostLabor costs 7,160 6,480 10.49%
Platform 2,000 1,200 66.67%
Expenses
Marketing 500 200 150.00%
Rent 520 500 4.00%
Training 400 100 300.00%
Interests 200 200 0.00%
Wages and admin. 1,550 1,500 3.33%
12610
14220
39.10%35.58%
19.27%
13.29%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
11500
12000
12500
13000
13500
14000
14500
2017 2018revenue gross margin net profit margin
Rewarding incentives to
those who introduce customers
The IT team developed a
mobile APP bythemselves
More exclusive consultants and the new service
SMM
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Current financial situation >> Historical comparison on financial performance between 2017 and 2018
Revenue, gross profit margin and net profit margin
Costs and expenses
Capitalize(5 years)
Bring future benefits
Increase net profit margin
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Current financial situation >> Historical comparison on financial performance between 2017 and 2018
Break-even percentage
Margin of safetypercentage
Degree of operating leverage
1.24
1.26
1.25
1.28
2017 2018
SI BP
= 𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐦𝐦𝐦𝐦𝐂𝐂𝐦𝐦𝐂𝐂𝐂𝐂𝐍𝐍𝐍𝐍𝐂𝐂 𝐂𝐂𝐨𝐨𝐍𝐍𝐂𝐂𝐦𝐦𝐂𝐂𝐂𝐂𝐂𝐂𝐦𝐦 𝐂𝐂𝐂𝐂𝐢𝐢𝐂𝐂𝐦𝐦𝐍𝐍=
𝐒𝐒𝐦𝐦𝐒𝐒𝐍𝐍𝐒𝐒 − 𝐁𝐁𝐁𝐁 𝐑𝐑𝐑𝐑𝐁𝐁𝐒𝐒𝐒𝐒𝐦𝐦𝐒𝐒𝐍𝐍𝐒𝐒=
𝐅𝐅𝐂𝐂𝐅𝐅𝐍𝐍𝐅𝐅 𝐢𝐢𝐂𝐂𝐒𝐒𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐦𝐦𝐦𝐦𝐂𝐂𝐦𝐦𝐂𝐂𝐂𝐂 𝐨𝐨𝐍𝐍𝐂𝐂 𝐂𝐂𝐂𝐂𝐂𝐂𝐂𝐂
31.85%
21.58%
80.02% 78.31%80.80% 79.10%
2017 2018
Overall SI BP
68.15%
78.42%
19.98% 21.69%19.20% 20.90%
2017 2018
Overall SI BP
Higher financial risk
Insights:•BP service: main reason for customer satisfaction decrease •Decline in service quality: the proportion of exclusive & non-exclusive consultants•Increasing cost in labor: no equal business volume growth
Problems in business model canvas format
0.78%
3.82%
0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%
Complaint rate
SI
BP80
340
Complaints number comparisonbetween different businesses(2018)
SI
BP
Compared to the growthrate of service numbers (---3.05%), the growth rate ofemployee number (24.6%)is higher.
The phenomenon of brain drain is apparently improved.
A decrease in bothservice level andcustomer
satisfaction.
81
65
Average employee number
15%
35%
2018
2017
Advisors turnover
420
300
2018
2017
Number of Complaints
Current company situation >> Problems of operation and management reflected by the non-financial data
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
A startup service provider mainly focused on college students
Problems with human resource and marketing
SI, BP and the newly introduced SMM as sources of revenue
Increasing expense leads to a significant decrease in profitability
Business Portrait of USP 1
2 SWOT analysis
Facing large market but also fierce competition
Current situation & issues >> Summary
Opportunity Threat
O• Early foundation• Specific target customers• Specialization• One-to-one service
W• Lack of resources & Small scale• Higher price• Low customer satisfaction• Poor cost management
S• Trend of entrepreneur • Huge market demand• Policy support• Multi-dimensional market
T• Other competitors's threat• Loss of human resource• Higher MOS and DOL contribute to
higher financial risk
SWOT
Strength Weakness
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Solution: Financial & Implementation
Strategies fromSWOT AnalysisStrategies fromSWOT AnalysisThe Strategy Clock
Solution: Financial & Implementation >> Strategy OverviewCase Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
LowLow
High
High
Price
PerceivedAddedValue
The Strategy Clock:Bowman's Strategy Options
HybridDifferentiation
Focuseddifferentiation
Low price
Low pricelow added value
Strategies destined for ultimate failure
Customer Segments Strategic GoalsCustomer Segments Strategic GoalsThe Strategy Clock
From Standardization to Specialization
Overall Corporate Strategy
Competitive Strategy
Functional Strategy
Steady Growth Strategy
SO: Support Business GrowthWO: Cooperate With CollegeST: CustomizationWT: Strengthen Competitive Status
Operations:Expand Business & Human ResourceFinance:Lower The CostMarketing:Online & Offline
• Main customers:
College students
[one-to-one specialized service]
• Others:
S&M enterprises
[only standardized service]
Enhance profiles
Grow the business
Maintain excellent service
Strategy 1 >> Setting different prices for different levels of services & providing more choices for different groups with various demand.
2. The new pricing plan for traditional services boosts revenue
price SI service BP service form targeted customers
purpose
low
streamline &
standardize services
polish the existing plan
onlinecountry-wide entrepreneurs
who have basic knowledge
increase the units
highone-on-
one tutoring
customize and whole-
process guidance
offline
university students who are unfamiliar
with the process
increase the price
sales = P × Qlower price attracts more customers from the internet
higher price for higher service quality strengthens the profitability
1. Provide low and high price services to attract different customer groups
origin sales = P × Q = 500 × 10,200 = 5,100,000
higher P' × Q'= 1,000 × 1,500= 1,500,000
higher Q' × P'= 300 × 13,260= 3,978,000
total revenue for SI service= 5,478,000 7.41%
origin sales = P × Q = 800 × 8,900 = 7,120,000
higher P' × Q'= 1,200 × 1500= 1,800,000
higher Q' × P'= 11,570 × 500= 5,785,000
total revenue for BP service= 7,585,000 6.53%
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Strategy 2 >> Further explore the potential market of SMM business
1. Extend the SMM service from advisory to agency to get more revenue
big platforms our company startup companies
no experience to negotiate with the big company
the cost of time and money is high
long term corporation
using AI to analyze
help them connect to
the platform
consult based on the data
offer lower price charge a commission
just providing consulting services is not enough.
2. Signing exclusive contracts to reduce the labor cost and improve the service quality
origin revenue = 1,000 × 2,000 = 2,000,000
expected revenue= 1,000 × 32,000 = 32,000,000
follow the assumption in case:the quantitives of services would grow at a speed of 60%(price remained the same) 60%
origin CM = ( P - VC ) × Q = 800,000
expected CM = 2,880,000CM ratio = price / unit CM = 60%
given the assumption :hire 20 exclusive consultantsfixed wages:80,000; variable commission:400
quite higher
260%
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Strategy 3 >> Launch innovative financing services to earn more profit
1. Providing overall services to help start-ups get financing
Coaching and training the entrepreneurial team
face-to-face meeting recording online classes invite some successful entrepreneurs to give
lectures and share their advice. explain the common mistakes of students in
starting a business, teach the development path and channels of a
start-up company introduce the important matters related to
investment and financing
Helping startup companies get financing
investors
startups
Help the startups get tickets to other official organizers' roadshows
Hold a simulated road show to provide students with the opportunity to polish their performance in road show
charge commission as our revenue
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
pain point:lack of financing resources and social relationship
Coaching and training the entrepreneurial team Helping startup companies get financed
assumption: average amount of successful financing = 3,000,000 we charge 1% of financed amount as our commission considering this is a new business, we conservatively estimate the number of successful financing is 50
per year we plan to hire 20 people and their fixed wage is 20,000 per year and they can get 15,000 as their
commission.
expected revenue per year =1,500,000
total labor cost = variable cost + fixed cost = 750,000 + 400,000 = 1,150,000CM ratio= CM / revenue = 50%Break even point = fixed cost / CM = 27
Insight:the new business creates another way to promote the sales so as to resist more intense competition in the current market
2. Aiming at the target customers to lower down the risk
Industries and regions with a higher number of financing events represent greater potential
Focusing on startups in popular industries and regions makes it more likely that we can help companies raise capital and earn more commissions
Strategy 4 >> Combine both online and offline channels to promote our brand effectively rather than the original reference program.
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
become sponsors → enhance popularity among college students
Encourage students to carry out innovation and entrepreneurship → obtain potential customers
accumulate brand reputation
Offline channels
• Cooperate with some student
organizations of the university
• Hold entrepreneurship competitions
• Carry out free training lectures and
salons in universities & invite
seniors to share experience
Online channels
• Create a Q&A communication Forum
• Optimize the website
• Make APP functions integrated and
set up multi-role login interface
• Establish WeChat groups in the
customer's school audit system for quality control
Forum
Insert APP QR code for drainage
APP
Website
WeChatmaintain
customer base
Open and transparent information real-time tracking of service progress online payment A two-way choice for investors and
entrepreneurs
Offline channels
• Cooperate with some student organizations of the university
• Hold entrepreneurship competitions• Carry out free training lectures and
salons in universities & invite seniors to share experience
Online channels
• Create a Q&A communication Forum• Optimize the website which is the most
original way of attracting customers• Make APP functions integrated and set up
multi-role login interface• Establish WeChat groups in the school
combinationinteraction
omni-channel: combination of online and offline
Strategy overview >> New business model has a significant effect on future financial performance
marketing online & offline
simplified incorporationbusiness proposal writing
trademark registrationpatent certificate
basic services
one package service creates more profit margin
social media marketing service
big social media platform
small social media platform
financing helplecture & tutor
road show
get customers
university students
non-student
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
solve the pain point of students is our differentiation
problems solutions
fierce competition
low price strategy
higher labor cost
poor performance
high marketing expense
low sales increase rate
lower price service
ensure market share
high price service with excellent service & extended business line
ensure the profitability
using AI and big data technology
cost-efficient way of promotion 5,100,000 5,478,000
7,120,000 7,585,000
2,000,0003,200,0000
1,500,000
2018's revenue expected revenue
Total service revenue
Financing
SMM
BP
SI
25%
Expected results
2019E 2018 2017
Revenue 17,763,000 14,220,000 12,610,000
Cost of sales:
Labor Costs (9,305,500) (7,160,000) (6,480,000)
Platform (400,000) (2,000,000) (1,200,000)
Total cost of sales (9,705,500) (9,160,000) (7,680,000)
Gross Profit 8,457,500 5,060,000 4,930,000
Expenses:
Marketing (100,000) (500,000) (200,000)
Rent (540,800) (520,000) (500,000)
Training (700,000) (400,000) (100,000)
Interests (200,000) (200,000) (200,000)
Wages and admin (1,627,500) (1,550,000) (1,500,000)
Total expenses (3,168,300) (3,170,000) (2,500,000)
Net operating profits 4,889,200 1,890,000 2,430,000
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Expected results >> Forecast income from operations
1 Pro forma income statement including three years
2019E 2018 MarginRevenue 17763000 14220000 3543000 24.92%
Forecast income from operations
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Expected results >> Forecast income from operations
2 Pro forma income statement comparing two years
Revenue will go up by almost 25% due to SMM and new businessExpenses 2019E 2018 MarginLabor costs (9305500) (7160000) (2145500) 29.97%
Platform (400000) (2000000) (1600000) -80.00%
Marketing (100000) (500000) 400000 -80.00%
Training (700000) (400000) (300000) 75.00%
Main services' high quality costs more
Cut down the supporting costs
Better cost structure
2019E 2018 MarginNet operating profits 4889200 1890000 2999200 158.69%
Gross margin ratio will be 45.36%, close to industry average level 45%
Labor costs 30%
Hire more consultants
Platform costs 80%
Capitalize the R&D expenseMarketing expense 80%
Alter marketing strategy
Training expense 75%
Improve our service quality
Forecast income from operations
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Expected results >> A financing plan for investors
SMM Financing
Labor cost’s difference(2018-2019) 1,680,000 1,150,000
Other expenses’ difference(2018-2019) 300,000
Total 3,130,000
1 Financing Plan
Focus on fund for the development of SMM and
Financing unit
Difference analysis
No given Balance Sheet——hard to estimate cash balance
2 Financing use
3 Feasibility analysis
Sustainable customer network
Revenue 25%
Service quality improvement
Accurate positioning of target customers
Customized and hierarchical service
Hire more exclusive consultants for SMM and Financing
Perfect staff training system
SMM>>steady growth
Financing>>strong start
Risk analysis
Risk MapClassification Solutions
A: Structure risks• Social media imposes
streaming restrictions.• Policy controls KOLs’
advertisements.
B:Operational risks• Privacy data violation• Complaint for low-quality
services about SMM
C:Competiton risks• Homogeneous sevices• Price war & Brain drain• less trust and loyalty to
USP’s KOLs than to other famous KOLs
Make a preliminary planand pay attention to the potential market timely
Review and update the online platfom regularly
Strengthen supervision of users' data protection
Compensate and improve
Optimize personalized and diverse services
Discount & lower cost Increase salaries Cut loss in time according
to sensitivity analysis
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Risk identification >> Overview of Risk analysis
A: Structure
externalcircumstances
B:Operational
the process of operation
C:Competition
competitors & industry
D: Financial
cash flow deficit
Severity
High risk
probability
Medium risk
Low riskA
D
BC
Source: group analysis,information collected online
Lower DOL leads to less increase of EBIT when sales are increasing.
The risk is lower when the number of services
goes down
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Margin of Safety Percentage
= ( Sales - BE dollars ) / Sales
MoS Percentage of SMM and T&F is much lower
these two businesses have more risk facing the
uncertain future
Break-even Point
= FC / ( Sales - VC )
new classification of business with different
prices makes some kind of services have lower
break-even point
lower risk
Semi-DIYNon-DIY
AdvancedBasic
Break-even PointMargin of Safety Percentage
Degree of Leverage = (Sales-VC) / (Sales-VC-FC)
3.14
4.63
1.50
0.000.501.001.502.002.503.003.504.004.505.00
2017 2018 2019
Degree of leverage
Risk identification >> Financial Risk Analysis using three accounting indicators
net operating income in grids of this kind of light blue color is higher than the previous one
acceptable
Single factor sensitivity coefficient : The extent to which a change in an independent variable results in a change in the dependent variable, assuming that all other factors remain unchanged
Units(SMM)
PriceFC
Units(T&F)
Price(SMM) Units(T&F)
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Risk identification >> Sensitivity Analysis offers the vary range of different variables that we should pay attention to
1. We recognize some critical risk points with the help of SENSITIVITY ANALYSIS, for the purpose of implementing COSO FRAMEWORK
320000 2880 3040 3200 3360 35201100 416000 528000 640000 752000 8640001050 272000 376000 480000 584000 6880001000 128000 224000 320000 416000 512000950 -16000 72000 160000 248000 336000900 -160000 -80000 0 80000 160000850 -304000 -232000 -160000 -88000 -16000
35000 35 40 45 50 6026000 -15000 40000 95000 150000 26000027000 20000 80000 140000 200000 32000028000 55000 120000 185000 250000 38000030000 125000 200000 275000 350000 50000032000 195000 280000 365000 450000 62000034000 265000 360000 455000 550000 740000
320000 900 950 1000 1050 11001360000 240000 400000 560000 720000 8800001440000 160000 320000 480000 640000 8000001520000 80000 240000 400000 560000 7200001600000 0 160000 320000 480000 6400001680000 -80000 80000 240000 400000 5600001760000 -160000 0 160000 320000 4800001840000 -240000 -80000 80000 240000 400000
350000 45 50 55 60 65350000 325000 400000 475000 550000 625000360000 315000 390000 465000 540000 615000400000 275000 350000 425000 500000 575000410000 265000 340000 415000 490000 565000420000 255000 330000 405000 480000 555000470000 205000 280000 355000 430000 505000480000 195000 270000 345000 420000 495000
The net operating income from a combination of different prices and sales
The net operating income from a combination of different fixed costand units
SMM T&Fprice 10 4sales 6 2VC -4 -2FC -5 -1
The most sensitive variable: price, The least sensitive variable: variable wages for the staffsSo price war in the industry will largely threaten our NOI
Identified risk from sensitive analysis• Decrease in unit service prices of SMM and T&F• Increase in fixed salaries of consultants
if NOI within acceptable level
if NOI lower than previous one
Follow the trends of market: decrease unit service price increase fixed salaries Communicate with related
consultants ,understand and try to satisfy their needs considering theri performances
Cease the operation of that serviceCUT LOSSES IN TIME
Find new business model to adapt to the new market and industry environment
Coping measures in daily operation Check accounts and cash flows regularly in case
of cash drain Choose financing methods wisely and timely to
prevent funding gaps and credit risk
Risk identification >> Risk analysis under the COSO frameworkCase Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Risk Accessment
Control ActivitiesControl Environment
Information and Communication
COSOMonitoring
Build a overall control environment to lower down the risk probability
Form a mature risk accessment system to identify the risk timely
Current situation Key strategies & initiatives Risks Mitigation
Find the painpoints of customers and build our own differentiation
Industry situation• Huge demand for startup services• Low entry barriers & fierce competition• Declining geographic concentration
Financial situation• Higher financial risk• A significant decrease in profitability• Problems with cost management• BP has greater contribution
• A startup service provider mainly focused on college students
• Huge market but also fierce competition• Problems with profitability
Macro-environmental • Policy support & entrepreneurial intention• Rapid and sustained economic growth• Advanced technology accelerate startups
15
• Improve enterprise financial performance• Enhance brand recognition, image and memory
along whole consumer decision journey• Get second seed funding from investors
Brand position• Tailored service for the needs of startups• Differentiate by solving the pain point of students• Provide hierachical service for different needs
Marketing strategy• Set up Wechat groups in targeted universities• Hold campus competition• Construct a forum&optimize APP and web page
Channel optimization• Build an online and offline cycle• Cooperate with universities closely for new clients• Optimize APP and web using experience• Build community on social media like WeChat
Loyalty management• Implement full lifecycle consumer management• Accelerate customer complaint response• Build long-term good relationships with clients
• Structure Risks• Operational Risks• Competition Risks• Financial Risks
Structure Risks• Social media
imposes streaming restrictions.
• Policy controls KOLs’ advertisements.
Operational Risks• Privacy data violation• Complaint for low-
quality services about SMM
Competition Risks• Homogeneous
sevices• Price war & Brain
drain• less trust and loyalty
to USP’s KOLs than to other famous KOLs
Financial Risks• Cash Deficit
• preliminary planning
• Technology maintain and update
• Optimize diverse services
• Increase cousulants' salaries and sales prices of unit service in a limited amount
• Cut loss in time—Stop the strategy which is more likely to lead to cash deficit and credit risk
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Summary >> Our report not only suggests new directions for existing corporate problems but also assesses risks for the new strategy
Company situation• Specific target customers• Specialized service• Low customer satisfaction
Thank you!
Appendix >> Non-financial data
Complaint Rate
SI BP
Number of complains 80 340
Number of services 10200 8900
Complaint rate 0.78% 3.82%
Disproportionate Growth
2017 2018 Growth rate
Average employee number 65 81 24.6%
Number of services 19700 19100 -3.05%
Appendix >> Financial forecast
Current data ValueSMM's sales growth rate in the next two years (with the unit sales price unchanged) 60%
Total market size in 2018 2billionMarket share of SMM after three years 10%Average gross profit margin of industry 45%
Average sales revenue growth rate 5%Rate that customers are dissatisfied with traditional enterprises 50%
Assumption ValueGrowth rate of service times provided by basic services 30%
The financing service unit price is 3 million, and the rate of financing services is 50times a year -
Financing service extraction rate 1%SI service employees can move with SMM and new business departments -
Increase of advanced service quality leads to a halving of the number of services per person per year (150 times) -
Appendix >> Financial forecast
Revenue SI BP
SMM Finance TotalBasic Advance Half-DIY DIY
Unit price 300 1,000 500 1,200 1,000 30,000 -
Times 13,260 1,500 11,570 1,500 3,200 50 -
Subtotal 3,978,000 1,500,000 5,785,000 1,800,000 3,200,000 1,500,000 -
Total 5,478,000 7,585,000 3,200,000 1,500,000 17,763,000 Revenue in
2019 5,100,000 7,120,000 2,000,000 - 14,200,000
Revenue growth rate 7.41% 6.53% 60.00% - 25%
Labor Cost SI BP
SMM Finance TotalBasic Advance Half-DIY DIY
Variable cost / 400 150 450 400 15,000 -
Times 13,260 1,500 11,570 1,500 3,200 50 -
Fixed cost(per employee) 70,000 17,500 37,500 40,000 80,000 20,000 -
Employee number 15 10 16 11 20 20 92
Subtotal 1,050,000 775,000 2,335,500 1,115,000 2,880,000 1,150,000 9305500
Total 1825000 3450500 2,880,000 1,150,000 7160000
Appendix >> Financial forecast
Expenses2018 Reason 2019
Platform 2,000,000 Outsource 2,000,000 Marketing 500,000 Change strategy 100,000
Rent 520,000 Increase as usual 540,800
Training 400,000 Arithmetic progression growth 700,000
Interests 200,000 - 200,000 W&A 1,550,000 Increase by 5% 1,627,500 Total 5,168,300
2019E 2018 2017 Revenue 17,763,000 14,220,000 12,610,000
Cost of sales:Labor Costs (9,305,500) (7,160,000) (6,480,000)
Platform (400,000) (2,000,000) (1,200,000)Total cost of sales (9,705,500) (9,160,000) (7,680,000)
Gross Profit 8,457,500 5,060,000 4,930,000 Expenses:Marketing (100,000) (500,000) (200,000)
Rent (540,800) (520,000) (500,000)Training (700,000) (400,000) (100,000)Interests (200,000) (200,000) (200,000)
Wages and admin (1,627,500) (1,550,000) (1,500,000)Total expenses (3,168,300) (3,170,000) (2,500,000)
Net operating profits 4,889,200 1,890,000 2,430,000
A. Performance appraisal to improve service quality.From part-time consultant to exclusive consultant, the basic salary will be increased in order to motivate consultants to improve their service quality. And after sales return visit, the reasons for the complainant interview, so as to carry out the necessary personnel transfer.
B. Long-term career planning to retain talentsAfter working for a certain number of years, employees can be promoted to be the chief consultant, and then they can become partners and get shares of the company, so as to enhance employees' stickiness to the company, rather than simply increasing the price and increasing our own costs.
C. Excellent students feedbackGraduates who have already been coached can stay on the platform or give lectures
D. Signed "trainee"We directly sign contracts with people who have the intention to work in the industry, promising to train them as exclusive consultants and not leave within a certain period of time in default. This will increase the number of upstream suppliers from the root (because we are actually training suppliers ourselves) and prevent consultants from being lured away by high salaries.
Appendix >> Solve the problem of complaint rate and high salary in the industry
A. Q&A Forum (refer to the NPC Economic Forum)• Rewards will be given to those who upload materials, and the more thumb ups, the
more rewards will be given, so as to encourage users to share seriously and enhance the attractiveness of the platform. Posts are subject to review for quality control
• Users will be charged for downloading materials, from which USP can receive commissions
• Advertisements of the third party or USP itself can be placed on the forum to attract the attention of users
B. APP on mobile phone (multi-role login interface)• Entrepreneurs -- provide transparency information and real-time tracking of service
progress; support online payment• Investors -- similar to Taobao; allows investors to sift through information (eg: industry,
age) to see the basics of each startup, business proposal, etc• Tourists-- introduce specific content of USP’s various services and provide artificial
consultation service
C. Website (the original way to attract customers to know us)• Set up artificial service to provide in-depth consultation for free• Insert the QR code of APP to attract visitors to download it• Set up a special area on the website to introduce successful cases and invite previous
users to share their experiences to enhance brand image
Appendix >> Details about the online platforms
Insights:The advancement of information technolohy will not only arouse passion for entrepreneurship and accelerate development of startup service,but also become the tools to support it.
45%
46%
47%
48%
49%
50%
51%
52%
53%
0
200000
400000
600000
800000
1000000
2014 2015 2016 2017 2018
(100
mill
ion)
GNP of China
Tertiary IndustrySecondary IndustryPrimary IndustryThe Proportion of the Tertiary Industry
PoliticsP E
S T
We encourage scientific and technical personnels and college students to start their own businesses.
Mass Entrepreneurship and Innovation Policy
Prime Minister
“We will lower the threshold, expand venture capital and create a comfortable climate for startups. We will also develop the startup service market and build certain platforms to support startups.”
State Council
Government
Economy•Rapid and sustained economic growth
•Vigorous development of the tertiary industry (service sector)
• Entrepreneurial intention of China is the highest in the world.
• Campus Entrepreneurship Boom• Change in social concepts: --> In the past: a stable job (eg. civil servant)--> Nowadays: entrepreneurship is a new trend• Consumer behavior: take orders on mobile
phone rather than PC
Society
Do college students want to start their own business?69% 31%YES NO
Technology
Big Data
Cloud Computing
APP
Precision MarketingIT
AI
Current macro-environment >> Policy support, steady economic growth, change of minds and technology advancement
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Industry Analysis
Distrubtion of The First and Second Batches of Startup Service Platforms--Guangdong and Beijing Ranked first
The number of S&M enterprises increases steadily, the demand for startup service is high and the market is huge .
1367 15281819
21872596
30343474
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
0
1000
2000
3000
4000
2012 2013 2014 2015 2016 2017 2018
Number of Existing Enterprises in China(10k)
Growth Rate
196250
365444
553607
670
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
0
200
400
600
800
2012 2013 2014 2015 2016 2017 2018
Number of Newly Registered Enterprises in China…Growth Rate
18%
17%
13%11%
8%
7%
7%
5%
14%
The Industry of Newly Registered Enterprises in 2016
Startup Service
E-commerce
Entertainment
Finance
Local Lifestyle
Education
Social Network
Health and Care
Others
1 2
Declining geographic concentration of start-up service platform and more balanced national distribution.3
Distrubution of Startup Service Platforms In 2016 -- Decentralized
Insights:Startup service industry is a sunrise industry that is still in the growth stage.
IntroductionGrowth
MaturityStable
Current industry situation >> Huge market demand and the geographically decentralization trend
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Low market entry barriers. More new entrants. Startup service is the hottest for entrepreneurs.
co-working spaces
financing service
professional service
media platform
business incubator
coaching&training
Six Types of Major Business Model and Competitor Landscape
0
2
4
6
8
10Professional Support
Reputation
Media PlatformIT
Customerization
New Entrants Traditional Enterprises
1
2
Insights:Due to fierce competition, startup service industry is forming a multi-dimensional pattern, with more specialization and differentiation.➡ Expand existing business and try to provide more comprehensive and personalized service.
Current industry situation >> Competitor profilesCase Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Summary:1. Currently there are many subdivided fields forming an obvious industry differentiation trend. 2. Various types of startup
service providers have developed different service features relying on their own resource advantages. 3. They provide targeted services for customers with different fields, backgrounds and characteristics.
Comparative Advantages of Different Types of Competitors
35.58%
12.77%
45%
5%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00%
gross margin
revenue growth
traditional companies average USP
2 BP has a greater contribution to revenue compared to the other two services
2017 2018
1 Although USP’s revenue growth rate is higher than the industry average, its gross profit margin is lower
There are some problems with cost management
3 The CM ratio of both of SI and BP has increased, while the CM ratio of SMM is relatively lower
SICM ratio=59.5%
BPCM ratio=61.2%
𝐶𝐶𝐶𝐶 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 =𝐶𝐶𝑟𝑟𝐶𝐶𝑟𝑟𝑟𝑟𝑟𝑟𝐶𝐶𝐶𝐶𝑟𝑟𝑟𝑟𝑟𝑟𝐶𝐶 𝑚𝑚𝑟𝑟𝑟𝑟𝑚𝑚𝑟𝑟𝐶𝐶
𝑆𝑆𝑟𝑟𝑆𝑆𝑆𝑆𝑆𝑆
2017
Current financial situation >> Horizontal comparison between different services
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►summary
>
2018
Insight:Both MoS and DoL show that we have higher financial risk
80.80%
79.10%
80.02%
78.31%
31.85%
21.58%
2017
2018
overall BP SI
1 Due to the decrease in sales caused by fierce competition, both services and the overall margin of safety have declined
2017 SI BP
sales 5,250,000 7,360,000
break-even point 1,007,997 1,470,378
margin of safety 4,242,003 5,889,622
2018 SI BP
sales 5,100,000 7,120,000
break-even point 1,065,672 1,544,469
margin of safety 4,034,328 5,575,531
Margin of safety percentage = 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝑜𝑜𝑜𝑜 𝑠𝑠𝑀𝑀𝑜𝑜𝑠𝑠𝑠𝑠𝑠𝑠 𝑀𝑀𝑀𝑀 𝑑𝑑𝑜𝑜𝑑𝑑𝑑𝑑𝑀𝑀𝑀𝑀𝑠𝑠
𝑆𝑆𝑀𝑀𝑑𝑑𝑠𝑠𝑠𝑠 𝑀𝑀𝑀𝑀 𝑑𝑑𝑜𝑜𝑑𝑑𝑑𝑑𝑀𝑀𝑀𝑀𝑠𝑠
2
1.24
1.26
1.25
1.28
2017 2018
SI BP
Both of SI and BP show an increase in degree of operating leverage, and the DOL of BP is higher than that of SI
Degree of operating leverage = 𝐶𝐶𝑜𝑜𝑀𝑀𝑠𝑠𝑀𝑀𝑀𝑀𝐶𝐶𝐶𝐶𝑠𝑠𝑀𝑀𝑜𝑜𝑀𝑀𝑚𝑚𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑁𝑁𝑠𝑠𝑠𝑠 𝑜𝑜𝑜𝑜𝑠𝑠𝑀𝑀𝑀𝑀𝑠𝑠𝑀𝑀𝑀𝑀𝑀𝑀 𝑜𝑜𝑀𝑀𝑜𝑜𝑜𝑜𝑀𝑀𝑠𝑠
greater sensitivity & higher risk
Higher DOL
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Current financial situation >> Horizontal comparison between different services
1 From 2017 to 2018, in spite of the substantial increase in revenue, both gross profit margin and net profit margin declined
RMB('000) 2017 2018 Growth rate
Costlabor costs 7,160 6,480 10.49%
platform 2,000 1,200 66.67%
Expenses
marketing 500 200 150.00%
rent 520 500 4.00%
training 400 100 300.00%
interests 200 200 0.00%
wages and admin 1,550 1,500 3.33%
12610
14220
39.10%35.58%
19.27%
13.29%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
11500
12000
12500
13000
13500
14000
14500
2017 2018
revenue gross margin net profit margin
2
Launched a reference program rewarding incentives to those
who introduce customers
platform costs & marketing &
training expenses have increased by more than
50%
The IT team developed a mobile APP by themselves
Signed exclusive consultantsand developed the new service
SMM
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Current financial situation >> Historical comparison between financial performance in 2017 and 2018
Both costs and expenses have increased significantly from 2017 to 2018
Insight:The increase of various expenses leads to a significant decrease in profitability
80
340
Complaints number comparisonbetween different businesses(2018)
SI
BP
0.78%
3.82%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
Complaint rate
SI
BP
Insights:• The decrease in customer satisfaction
in 2017-2018 are mainly due to BP service.
• The decline in service quality is related to the proportion of exclusive and non-exclusive consultants.
• The increasing cost in labor didn't bring out a equally business volume growth.
Current company situation >> Problems of operation and management reflected by the non-fincial data
There is a decrease in the service level and customer satisfaction.
The phenomenon of brain drain is apparently improved.
Compared to the growth rate of service numbers(-3.05%), the growth rate of employee number(24.6%) is higher.
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
420
300
2018
2017
Number of Complaints
15%
35%
2018
2017
Advisors turnover
81
65
2…
2…
Average employee number
problems in business model canvas format
A startup service provider mainly focused on college students
Problems with human resource and marketing
SI, BP and the newly introduced SMM as sources of revenue
Increasing expense leads to a significant decrease in profitability
Business Portrait of USP 1
2 SWOT analysis
Facing large market but also fierce competition
Current situation & issues >> Summary
Opportunity Threat
S
O
W
T• Early foundation• Specific target customers• Specialization• One-to-one service
• Lack of resources & Small scale• Higher price• Low customer satisfaction• Poor cost management
• Trend of entrepreneur • Huge market demand• Policy support• Multi-dimensional market
• Other competitors's threat• Loss of human resource• Higher MOS and DOL contribute to
higher financial risk
SWOT
Strength Weakness
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Solution: Financial & Implementation
• Main cutomers: College students[one-to-one specialized service]• Others:S&M enterprises [only standardized service]
LowLow
High
High
Price
PerceivedAddedValue
The Strategy Clock:Bowman's Strategy Options
HybridDifferentiation
Focuseddifferentiation
Low price
Low pricelow added value
Strategies destined for ultimate failure
From Standardization to Specialization
Overall Corporate Strategy
Competitve Strategy
Functional Strategy
Strategies from SWOT Analysis
Steady Growth Strategy
SO: Support Business GrowthWO: Cooperate With CollegeST: CustomizationWT: Strengthen Competitive Status
Operations:Expand Business& Human Resource
Finance:Lower The Cost
Market:Online & Offline
1 2
3 4Customer Segments Strategic Goals
Enhance profiles Grow the business Maintain excellent service
The Strategy Clock
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Solution: Financial & Implementation >> Strategy Overview
Strategy 1 >> Setting different prices for different levels of services & providing more choices for different groups with various demand.
2. The new pricing plan for traditional services boosts revenue
price SI service BP service form targeted customers
purpose
low
streamline &
standardize services
polish the existing plan
onlinecountry-wide entrepreneurs
who have basic knowledge
increase the units
highone-on-
one tutoring
customize and whole-
process guidance
offline
university students who are unfamiliar
with the process
increase the price
sales = P × Qlower price attracts more customers from the internet
higher price for higher service quality strengthens the profitability
1. Provide low and high price services to attract different customer groups
origin sales = P × Q = 500 × 10,200 = 5,100,000
higher P' × Q'= 1,000 × 1,500= 1,500,000
higher Q' × P'= 300 × 13,260= 3,978,000
total revenue for SI service= 5,478,000 7.41%
origin sales = P × Q = 800 × 8,900 = 7,120,000
higher P' × Q'= 1,200 × 1500= 1,800,000
higher Q' × P'= 11,570 × 500= 5,785,000
total revenue for BP service= 7,585,000 6.53%
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Strategy 1 >> Further explore the potential market of SMM business
1. Extend the SMM service from advisory to agency to get more revenue
big platforms our company startup companies
no experience to negotiate with the big company
the cost of time and money is high
long term corporation
using AI to analyze
help them connect to
the platform
consult based on the data
offer lower price charge a commission
just providing consulting services is not enough.
2. Signing exclusive contracts to reduce the labor cost and improve the service quality
origin revenue = 1,000 × 2,000 = 2,000,000
expected revenue= 1,000 × 32,000 = 32,000,000
follow the assumption in case:the quantitives of services would grow at a speed of 60%(price remained the same) 60%
origin CM = ( P - VC ) × Q = 800,000
expected CM = 2,880,000CM ratio = price / unit CM = 60%
given the assumption :hire 20 exclusive consultantsfixed wages:80,000; variable commission:400
quite higher
260%
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Strategy 1 >> Launch innovative financing services to earn more profit1. Providing overall services to help start-ups get financing
Coaching and training the entrepreneurial team
face-to-face meeting recording online classes invite some successful entrepreneurs to give
lectures and share their advice. explain the common mistakes of students in
starting a business, teach the development path and channels of a
start-up company introduce the important matters related to
investment and financing
Helping startup companies get financing
investors
startups
Help the startups get tickets to other official organizers' roadshows
Hold a simulated road show to provide students with the opportunity to polish their performance in road show
charge commission as our revenue
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Industries and regions with a higher number of financing events represent greater potential
Focusing on startups in hot industries and regions makes it more likely that we can help companies raise capital and earn more commissions
Strategy 1 >> Launch innovative financing services to earn more profit
1. Providing overall services to help start-ups get financing
Coaching and training the entrepreneurial team Helping startup companies get financing
assumption: average amount of successful financing = 3,000,000 we charge 1% of financed amount as our commission considering this is a new business, we conservatively estimate the number of successful financing
is 50 per year we plan to hire 20 people and their fixed wage is 20,000 per year and they can get 15,000 as their
commission.
Insight:the new business creates another way to promote the sales so as to resist more intense competition in the existing market
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
expected revenue per year =1,500,000total labor cost = variable cost + fixed cost = 750,000 + 400,000=1,150,000CM ratio= CM / revenue = 50%Break even point = fixed cost / CM = 27
Strategy 2 >> Combine both online and offline channels to promote our brand effectively rather than the original reference program.
omni-channel:com
bination of online and offline
combination
Offline channels
Online channels
• Create a Q&A communication Forum• Optimize the website which is the most
original way of attracting customers• Make APP functions integrated and set
up multi-role login interface• Establish WeChat groups in the
customer's school
• Cooperate with some student organizations of the university
• Hold entrepreneurship competitions• Carry out free training lectures and
salons in universities & invite seniors to share experience
become sponsors of their activities to enhance the popularity among college students
encourage college students to carry out innovation and entrepreneurship, so as to obtain potential customers
accumulate brand reputation
interaction
audit system for quality control
Forum
Insert APP QR code for drainage
APP
website
maintain customer base
, Open and transparent information real-time tracking of service progress online payment A two-way choice for investors and
entrepreneurs
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Strategy overview >> New business model has a significant effect on future financial performance
marketing online & offline
get customersuniversity students
non-student
simplified incorporation
business proposal writing
trademark registration
patent certificate
basic services
social media marketing service
financing help
one package service creates more profit margin
big social media platform
small social media platform
lecture & tutor
road show
25%
fierce competition leads to low price strategy
problem solutionsetting lower price service to
ensure the market share
the trend of low price strategy and higher labor
cost leads to the poor financial performance
setting high price service with excellent service quality &
extended business line to ensure the profitability
high existing marketingexpense for reference fee
with low sales increase rate
using AI and big data technology to promote our brand is more
cost-effecient
solve the pain point of students is our differentiation
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Implementation >> Five-year roadmap
Marketing• set up Wechat group in
targeted universities• build a Q&A forum• upgrade the version of APP• hold campus competition• optimize web page
Given moretime 1. Analyze the performance of new business to decide the future develop plans.
2. Explore the deep demand of clients and enlarge the targeted customers to get more profit.14
TimeTarget
Year 2019
H1 H2
Year 2020
H1 H2
Year 2021
H1 H2
Year 2022
H1 H2Priority
Optimize existing business sign up for cooperation with
big platforms develop technical team to
improve precision marketing improve the internal
management mechanism for consultants
Year 2023
H1 H2
Build new financing business• design some related courses• Seek investment channels for
cooperation• Find willing investors to
attend mock roadshows
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Expected results
2019E 2018 2017 Revenue 17,763,000 14,220,000 12,610,000
Cost of sales:Labor Costs (9,305,500) (7,160,000) (6,480,000)
Platform (400,000) (2,000,000) (1,200,000)Total cost of sales (9,705,500) (9,160,000) (7,680,000)
Gross Profit 8,457,500 5,060,000 4,930,000 Expenses:Marketing (100,000) (500,000) (200,000)
Rent (540,800) (520,000) (500,000)Training (700,000) (400,000) (100,000)Interests (200,000) (200,000) (200,000)
Wages and admin (1,627,500) (1,550,000) (1,500,000)Total expenses (3,168,300) (3,170,000) (2,500,000)
Net operating profits 4,889,200 1,890,000 2,430,000
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Expected results >> Forecast income from operations
1. Pro forma income statement including three years
Insight:We predict that the new strategy will change the landscape in 2018, with better cost management and a significant increase in revenue.
R 25 G62 B117
2019E 2018 MarginRevenue 17763000 14220000 3543000 24.92%
expense 2019E 2018 MarginLabor costs (9305500) (7160000) (2145500) 29.97%
Platform (400000) (2000000) (1600000) -80.00%
Marketing (100000) (500000) 400000 -80.00%
Training (700000) (400000) (300000) 75.00%
2019E 2018 MarginNet operating profits 4889200 1890000 2999200 158.69%
Revenue will go up by almost 25% due to SMM and new business
Gross margin ratio will be 45.36%, close to industry average level 45%
Forecast income from operations
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Expected results >> Forecast income from operations
2. Pro forma income statement comparing two years
Labor costs 30%
hire more consultants
Platform costs 80%
capitalize the R&D expenseMarketing expense 80%
alter marketing strategy
Training expense 75%
improve our service qualitymain services' high quality costs more
cut down the cost of supporting activities
better cost structure
Forecast income from operations
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Expected results >> A financing plan for investors
SMM Financing
Labor cost’s difference(2018-2019) 1,680,000 1,150,000
Other expenses’ difference(2018-2019) 300,000
Total 3,130,000
1 Financing Plan
Focus on fund for the development of SMM and
Financing unit
Difference analysis
No given Balance Sheet——hard to estimate cash balance
2 Financing use
3 Feasibility analysis
Sustainable customer network
Revenue 25%
Service quality improvement
Accurate positioning of target customers
Customized and hierarchical service
Hire more exclusive consultants for SMM and Financing
Perfect staff training system
SMM>>steady growth
Financing>>strong start
Risk analysis
Risk MapClassification Solutions
A: Structure risks• Social media imposes
streaming restrictions.• Policy controls KOLs’
advertisements.
B:Operational risks• Privacy data violation• Complaint for low-quality
services about SMM
C:Competiton risks• Homogeneous sevices• Price war & Brain drain• less trust and loyalty to
USP’s KOLs than to other famous KOLs
Make a preliminary planand pay attention to the potential market timely
Review and update the online platfom regularly
Strengthen supervision of users' data protection
Compensate and improve
Optimize personalized and diverse services
Discount & lower cost Increase salaries Cut loss in time according
to sensitivity analysis
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Risk identification >> Overview of Risk analysis
A: Structure
externalcircumstances
B:Operational
the process of operation
C:Competition
competitors & industry
D: Financial
cash flow deficit
Severity
High risk
probability
Medium risk
Low riskA
D
BC
Source: group analysis,information collected online
Lower DOL leads to less increase of EBIT when sales are increasing.
The risk is lower when the number of services
goes down
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Margin of Safety Percentage
= ( Sales - BE dollars ) / Sales
MoS Percentage of SMM and T&F is much lower
these two businesses have more risk facing the
uncertain future
Break-even Point
= FC / ( Sales - VC )
new classification of business with different
prices makes some kind of services have lower
break-even point
lower risk
Semi-DIYNon-DIY
AdvancedBasic
Break-even PointMargin of Safety Percentage
Degree of Leverage = (Sales-VC) / (Sales-VC-FC)
3.14
4.63
1.50
0.000.501.001.502.002.503.003.504.004.505.00
2017 2018 2019
Degree of leverage
Risk identification >> Financial Risk Analysis using three accounting indicators
net operating income in grids of this kind of light blue color is higher than the previous one
acceptable
Single factor sensitivity coefficient : The extent to which a change in an independent variable results in a change in the dependent variable, assuming that all other factors remain unchanged
Units(SMM)
PriceFC
Units(T&F)
Price(SMM) Units(T&F)
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Risk identification >> Sensitivity Analysis offers the vary range of different variables that we should pay attention to
1. We recognize some critical risk points with the help of SENSITIVITY ANALYSIS, for the purpose of implementing COSO FRAMEWORK
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35000 35 40 45 50 6026000 -15000 40000 95000 150000 26000027000 20000 80000 140000 200000 32000028000 55000 120000 185000 250000 38000030000 125000 200000 275000 350000 50000032000 195000 280000 365000 450000 62000034000 265000 360000 455000 550000 740000
320000 900 950 1000 1050 11001360000 240000 400000 560000 720000 8800001440000 160000 320000 480000 640000 8000001520000 80000 240000 400000 560000 7200001600000 0 160000 320000 480000 6400001680000 -80000 80000 240000 400000 5600001760000 -160000 0 160000 320000 4800001840000 -240000 -80000 80000 240000 400000
350000 45 50 55 60 65350000 325000 400000 475000 550000 625000360000 315000 390000 465000 540000 615000400000 275000 350000 425000 500000 575000410000 265000 340000 415000 490000 565000420000 255000 330000 405000 480000 555000470000 205000 280000 355000 430000 505000480000 195000 270000 345000 420000 495000
The net operating income from a combination of different prices and sales
The net operating income from a combination of different fixed costand units
SMM T&Fprice 10 4sales 6 2VC -4 -2FC -5 -1
The most sensitive variable: price, The least sensitive variable: variable wages for the staffsSo price war in the industry will largely threaten our NOI
Identified risk from sensitive analysis• Decrease in unit service prices of SMM and T&F• Increase in fixed salaries of consultants
if NOI within acceptable level
if NOI lower than previous one
Follow the trends of market: decrease unit service price increase fixed salaries Communicate with related
consultants ,understand and try to satisfy their needs considering theri performances
Cease the operation of that serviceCUT LOSSES IN TIME
Find new business model to adapt to the new market and industry environment
Coping measures in daily operation Check accounts and cash flows regularly in case
of cash drain Choose financing methods wisely and timely to
prevent funding gaps and credit risk
Risk identification >> Risk analysis under the COSO frameworkCase Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Risk Accessment
Control ActivitiesControl Environment
Information and Communication
COSOMonitoring
Build a overall control environment to lower down the risk probability
Form a mature risk accessment system to identify the risk timely
Current situation Key strategies & initiatives Risks Mitigation
Find the painpoints of customers and build our own differentiation
Industry situation• Huge demand for startup services• Low entry barriers & fierce competition• Declining geographic concentration
Financial situation• Higher financial risk• A significant decrease in profitability• Problems with cost management• BP has greater contribution
• A startup service provider mainly focused on college students
• Huge market but also fierce competition• Problems with profitability
Macro-environmental • Policy support & entrepreneurial intention• Rapid and sustained economic growth• Advanced technology accelerate startups
15
• Improve enterprise financial performance• Enhance brand recognition, image and memory
along whole consumer decision journey• Get second seed funding from investors
Brand position• Tailored service for the needs of startups• Differentiate by solving the pain point of students• Provide hierachical service for different needs
Marketing strategy• Set up Wechat groups in targeted universities• Hold campus competition• Construct a forum&optimize APP and web page
Channel optimization• Build an online and offline cycle• Cooperate with universities closely for new clients• Optimize APP and web using experience• Build community on social media like WeChat
Loyalty management• Implement full lifecycle consumer management• Accelerate customer complaint response• Build long-term good relationships with clients
• Structure Risks• Operational Risks• Competition Risks• Financial Risks
Structure Risks• Social media
imposes streaming restrictions.
• Policy controls KOLs’ advertisements.
Operational Risks• Privacy data violation• Complaint for low-
quality services about SMM
Competition Risks• Homogeneous
sevices• Price war & Brain
drain• less trust and loyalty
to USP’s KOLs than to other famous KOLs
Financial Risks• Cash Deficit
• preliminary planning
• Technology maintain and update
• Optimize diverse services
• Increase consultants' salaries and sales prices of unit service in a limited amount
• Cut loss in time—Stop the strategy which is more likely to lead to cash deficit and credit risk
Case Overview ►Current situation & issues ►Solution: Financial & Implementation ►Expected results ►Risk ►Summary
Summary >> Our report not only suggests new directions for existing corporate problems but also assesses risks for the new strategy
Company situation• Specific target customers• Specialized service• Low customer satisfaction