the strategic leadership lectures · – master of business administration in international finance...

Strategic Leadership Lectures

Intercontinental Business SchoolSPRING-SUMMER SCHOOL

Southern African Association of Accountants

TOPIC:

VENUE: VICTORIA FALLS

Date: Saturday 20th OCTOBER 2018

Facilitator: Dr Sam Ruturi

LET ME INTRODUCE MYSELF…

PRESENTER: Dr. Sam RUTURIFETC, (Lon),AIBS,(SA);AIB,(SA); Dip. H.F (USA), Grad. Diploma IMM (SA); BBA.(SA) B. Com. (SA) B Phil. (SA);

MSc. (UK); MBA (NUST) ,MBA,(USA) PhD (USA), MCom, (SA). DBA (France) (Pending)

Director & Senior Lecturer: 1. Mortgage Banking School of Southern AfricaPart-Time Lecturer: 2. MBA-GSM; University of Zimbabwe Part-Time Lecturer: 3. MBA-GSB; Chinhoyi University of TechnologyPart-Time Lecturer 4. MBL-GBS; Bindura University of Science& Education Consultant & Facilitator: 5. Strategy, Quality, Change and Housing Finance

Email address: samruturi@yahoo.com Cell; 0734 371 341 / 0712221348/ Tel.

UZ - MBA 543 - MANAGING CHANGE AND COMPLEXITY © DR. RUTURI 2014

Job Challenge What I do for fun

Who I admire Happiest momentin my life

PRESENTER: Dr. Sam RUTURIFETC, (Lon),AIBS,(SA);AIB,(SA); Dip. H.F (USA), Grad. Diploma IMM (SA); BBA.(SA) B. Com. (SA) B Phil. (SA);

MSc. (UK); MBA (NUST) ,MBA,(USA) PhD (USA), MCom, (SA). DBA (France) (Pending)

Director & Senior Lecturer: 1. Mortgage Banking School of Southern AfricaPart-Time Lecturer: 2. MBA-GSM; University of Zimbabwe Part-Time Lecturer: 3. MBA-GSB; Chinhoyi University of TechnologyPart-Time Lecturer 4. MBL-GBS; Bindura University of Science& Education Consultant & Facilitator: 5. Strategy, Quality, Change and Housing Finance

Email address: samruturi@yahoo.com Cell; 0734 371 341 / 0712221348/ Tel.

Day I bought

my first houseTom PETERS

Teaching people to

learn to act on what

they have learnt

LET ME INTRODUCE MYSELF…Dr Sam Ruturi

Play Golf

for Fun

Entrepreneurship and SMEs

Management -How to Start and Sustain Your Business

THE STORY OF AN EAGLE

PLANNING YOUR LIFE IN 6 DAYSNo. of days Developmental

imperative

Threat Developmental

Day 1:

0-12 Years

Bonding Fear Child

Day 2:

13- 24 Years

Learning - Ask

Questions

Juxtaposition Learning

25-36 Years

Serve Your Country-

Working

Entitlement Soldier-

37-48 Years

Create - Something

indispensible -you know

your capabilities

Avarice- desire for

money & material

things

Create Followership

49 – 60

Giving; keep eyes on the

Ball to Avoid Distractions

Distractions Leader; Spreading the

word of prosperity through

mentorship

61 -72 Years

Legacy Let Go -Disappear

into obscurity

Patriach / Matriach

73+ Years

Rest in Peace./Enjoy

bonus Years

Loss of Control Prepare for Eternity

• Destiny is not a matter of chance, it is matter of choice; it is not a thing to be waited for, it is thing to be achieved. –William Jennings Bryan (1860- 1925)

• We determine our own destiny- yet we think, act and spent our time, as if we have another live to lead.

• ‘‘Do not act as if you have a thousand years to live.’’- Marcus Aurelius (121-180)

• Death renders all our ideas, including our idea of reality and self, nonexistent.

• If death comes at a time when all passions are spent , it need not be terrifying.

• We have one life- so we must live our lives out loud.

LIFE VERSUS DEATHLet’s live our lives out loud

LIFE VERSUS DEATHIF YOU ARE YOU HAVE

AND HAVE

20 YEARS OLD = 7 3OO DAYS = 18 250 DAYS LEFT

25 YEARS OLD = 9 125 DAYS = 16 425 DAYS LEFT

HALF WAY = 12 775 DAYS = 12 775 DAYS LEFT

70 YEARS OLD = 25 550 DAYS = ARE YOU SPENDING

THEM WISELY?

• It is not what you have accomplished that benefitsyou that is important, but what you haveaccomplished that benefits others.

• It is not what you have accomplished in relationto others that is important, but what you haveaccomplished in relation to your full potential.

• It is not what you do in your life that is important,but what you cause others to do.

LIFE VERSUS DEATH

• It is not what you have accomplished thatbenefits you that is important, but what youhave accomplished that benefits others.

• It is not what you have accomplished in relationto others that is important, but what you haveaccomplished in relation to your full potential.

• It is not what you do in your life that isimportant, but what you cause others to do.

LIFE VERSUS DEATH

Re-emergence

Birth:Entrepreneurial Start-up

Chaos Decline

Restructuring

Bureaucracy Bashing

Employee Involvement

Continuous Improvement

Cultural Change

Growth

Plateau

Ackerman’s (1997) CHANGE PERSPECTIVES11

Change Perspective 3: TRANSFORMATIONAL CHANGEEmergence of a new state, unknown until it takes shape, out of the

remains of the chaotic death of the old state; time period not easily

controlled

Relevance of Career Experience to

Entrepreneurship• 1981- Accountant and Part Time Teacher &

Lecturer

• 1981- Banker Personnel & Training Manager

• 1996 – Regional Mortgage Manager

• 1991 – Investments Manager

• 1993- Head Mortgage Manager

• 1996- CEO/Managing Director

• 2002- Group CEO: FNHL

• Consultant, CEO, and Lecturer

My Background• EXPERIENCE• 37 Years in Mortgage Banking

and-related business Ventures inall capacities– Founder / CEO, Publishing

Firm– Founder / CEO, Building

Society– Founder / CEO, Financial

Conglomerate and relatedbusiness Construction andproperty development

– Founder / CEO, Real Estateinvestor,

– Founder / CEO, Publishing– venture capital firm– Founder / CEO, Mortgage

Banking School– Corporate finance / M&A,

global investment bank• Authored and published 14 books

and articles

• EDUCATION– DBA - Pending– PhD in Finance Sector

Innovations and Creativity from1750 - 2000

– Master of Business Administrationin International Finance andBanking.

– Master of Science in StrategicManagement

– Master of Business Administration,– Master of Commerce– BBA– BPhil– BCom– Professional Member:– Institute of Bankers of South Africa– Institute Building Society of SA– Institute of housing finance USA– Dip Housing Finance USA– Diploma in Housing & Urban

development UZ

Entrepreneurial Leadership and

Innovation Linkages

Typeof

Venture

Typeof

Entrepreneur

Typeof

Leadership

Innovation

Do the Results of the Assessments Make Sense Given:

Prior Experience

and Education

CareerMid

Career

Stage of Entrepreneurial Career

16 Years15 Years of experience

The Entrepreneurial Process

COMMUNICATION TOOL

Business Plan

CREATIVITY

Ambiguities

Uncertainty

LEADERSHIP

Exogenous Forces

Capital Market Forces

FITS AND GAPS- RESOURCES AND TEAM TO CATCH UP?;- HOW LARGE AND PROFITABLE CAN WE BECOME?

FOUNDER

OPPORTUNITY RESOURCES

The Entrepreneurial Process

OPPORTUNITY

RESOURCES

COMMUNICATION TOOL

Business Plan

CREATIVITY

Ambiguities

Uncertainty

LEADERSHIP

Exogenous Forces

Capital Market Forces

FOUNDER

FITS AND GAPS- RESOURCES AND TEAM

TO CATCH UP?;

- HOW LARGE AND

PROFITABLE CAN WE

BECOME?

Exercise1.1: identify a BUSINESS MODEL of you Choice

Key Partners

KeyActivities

ValueProposition

Relationship CustomerSegment

Key Resources

Channels

Cost Structure Revenue Streams

Source: Osterwalder, A. & Pigneur, Y., 2013. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers (Google eBook), John Wiley & Sons.

CUSTOMERSEGMENTS

▪ Low Cost Housing

▪ Middle Income Earners

▪ First Time Home Buyers

▪ Investment syndicates

DISTRIBUTION

CHANNELS▪ Websites▪ Estate Agents▪ On Site Sales▪ Off Plan

CUSTOMERPROPOSITION

➢Functional Needs▪ Cozy in Winter▪ Warmth in

Winter▪ Investment➢Symbolic Needs▪ Wealth preserve▪ Homeowner➢Emotional Needs▪ Citizen

KEY RESOURCES• Computer

Equipment• Finance• Professional Staff

KEY PARTNERS NETWORKS

▪Local authority▪Professionals▪Financiers▪Developer▪Conveyancers▪Estate Agents▪Contractors ▪Architect

KEY ACTIVITIES▪Mobilise finance

▪ Land Acquisition

▪ Civil Works Drawings

▪ Infrastructure

Construction

▪ Superstructure

Construction

▪ Sales of Houses

▪ Property Transfer

CUSTOMERRELATIONSHIP❑Agent &

Principal Relationship

❑Purchase & Sale agreement

COST STRUCTURE❑ Interest cost❑ Wages & Salaries❑ Cost of Construction❑ Professional Fees

REVENUE STREAMS❑ Sales of Properties❑ Rentals❑ Interest Earned

18UZ - MBA 543 - MANAGING CHANGE AND COMPLEXITY © DR. RUTURI 2015

Who Should Prepare the Plan?

• If the Prospective Owner is the only oneinvolved in the business, he/she should preparethe plan, with the advice and counsel ofcompetent advisers.

• But if the business is to be organized and run bymore than one person, it should be A TeamEffort. You might encourage each manager toprepare a part of the plan.

• It is also recommended having other KeyEmployees help in the planning stage which willimprove communication and motivation.

Sources of Business Capital

Idea Plan Prototype Beta Sales Profitability

Founders, Friends,

Family & Fools

Angel Investors

SBIR/SBTT Grants

Angel Groups

Equity Investors /

Strategic Partners

Venture Capitalists

Initial Public

Offering

Decreasing Risk

BOARD OF DIRECTORS

MANAGEMENT TEAM

Key Introductory ConceptThe diffusion of innovations theory argues there is a chasm

between the early adopters of the product (the technology

enthusiasts and visionaries) and the early majority (the

pragmatists).

Early-Stage Funding Gap for Zimbabwe’s Recovery

Basic Research, Idea

Generation and

Opportunity

Identification Create

New Business Ideas Applied Research& Innovation

Valley of No Capital to Develop Ideas

To Innovation

No Capital

Research & Invention

Innovation: new business

The Struggle of Inventions to Become Innovations

Research & Invention

Innovation & New Business

“Struggle for Life” in a Sea of Technical and Entrepreneurship Risks

BRANSCOMB’S DARWINIAN SEABusiness Risks

SMALL ECONOMIES LIKE SMALL FIRMS ACTUALLY FACE MANY HURDLES

Crossing the Valley of Death and the Darwinian Sea only to Arrive in the Jungle of Prosperity

“Valley of

Death” The Darwinian Sea

Basic ResearchInvention

Research &

InventionInnovation: new

businessViableViable

Business Business

Innovation &New Businesses Must Swim Past:•Management Failure•Technology Obsolescence•Alternative Business Models•Debilitating Legal Proceedings•Hostile Acquisitions

in the

Jungle ofProsperity

REMAIN THE SAME:

(STABILITY STRATEGY)

GET SLIM:

(RETRENCHMENTSTRATEGY)

GROW(GROWTH STRATEGY)

➢Internal ➢External Growth

CORPORATES ARE LIVING ORGANISMS THEY ALSO BEHAVE LIKE HUMAN BEINGS THEY CAN CHOOSE TO:

Strategic Leadership Provides Corporate Level Directional Strategies

CORPORATE GROWTH STRATEGIES

INTERNAL GROWTH STRATEGIES▪PLOUGHING-BACK PROFITS▪ RETAINED EARNINGS

EXTERNAL GROWTH STRATEGIES▪Mergers and Acquisitions▪Franchises▪Strategic Alliances, - Opportunistic, andservice alliance

INCREMENTAL CHANGE TRANSITIONAL CHANGE

STABILITY STRATEGIES

PAUSE/PROCEED-WITH-CAUTION STRATEGYA timeout-opportunity to rest before proceedingwith a growth/retrenchment strategy

NO-CHANGE STRATEGYA do nothing newBefore proceeding with current policies

PROFIT STRATEGYA do-nothingTop management’s passive short-term self-serving response to a difficult situation

STABILITYONE OF CORPORATE LEVEL STRATEGIES USED IN ZIMBABWE:-

RETRENCHMENT STRATEGYMOST COMMON CORPORATE STRATEGY ADOPTED IN ZIMBABWE: RETRENCHMENT

TURNAROUND STRATEGY

CAPTIVE COMPANY STRATEGY

SELL-OUT/ DIVEST STRATEGY

BANKRUPTCY/LIQUIDATION STRATEGY

TO REVERSE THE ASSET STRPPING CULTURETRANSFORMATIONAL CHANGE IS NEEDED

Cash GeneratedCash Use

Cash Cow

Problem Child

10x 1.0x 1xMarket Dominance

Market-Growth

-- - -

The BCG Growth-Share Matrix

ANALYSING PRODUCTS FOR PLOTTING ON THE BCG MATRIX

PRODUCT LINE

SALES in $ Change

Sales ($)

Market

Growth

Rate (%)

Market Share (%)

Relative Market

ShareLast

A 200 250 50 25.00 7.72 0.28

B 420 560 140 33.33 17.28 0.62

C 120 300 180 150.00 9.26 0.33

D 750 900 150 20.00 27.78 1

E 350 400 50 14.29 12.35 0.44

F 410 830 420 102.44 25.62 0.92

Total 2 250 3 240 990 Ave: 44.00 100.00

PLOTTING PRODUCTS INTO THE BCG MATRIX

Problem ChildrenStars

DogsCash Cows

1.1x 0.55x -0.1x0.80x 0.30x1.0x 0.50x0.70x 0.2x0.90x 0.40x0.60x 0.1x 0.0x

HIGH LOW

Relative Market Share

Discussion Questions• Using the BCG Matrix

– Where would you likely categorize the market leader in the typewriter market?

• 10 years ago, where would you have likely categorized a small player in the cell phone business?

• Where would you categorize the market leader in cell phones today?

Concerntrated

Market

Penetration

Market

Development

Product

Development

Diversification

Existing

Existing New

Market

Penetration

Market Development

PRODUCT DEVELOPMENT

Diversification

Existing

Existing New

BCG AND ANSOFF MATRICESExisting PRODUCTS New

MARKET PENETRATION (Grow market Increase Market Share)

PRODUCT DEVELOPMENT(New / Improved Products)

MARKET DEVELOPMENT

(New Customers For Existing Products) DIVERSIFICATION (New Products into New Markets)

For CASH COW use

For STAR use

For DOGS use

For PROBLEM CHILD use

New Products/ Markets

Market Penetration

Productivity

Forecast

evenue (

Budget $ t + 2013 t + 2014 t + 2015

ANSOFF MATRIX

Change Asset Base

Market Development

Market Penetration

Product Development

New Segment

Existing markets

Convert non

Take Competitor customer

Increase price / reduce

discounts

Improve asset

Utilisation

Improve product / sales mix / Margins

Cost reduction

(PAF Model)

Cash & Margin Focus

New markets

Increase Usage

Growth Focus

Productivity Growth

Existing Assets

Profit Improvement

Investment-Innovation-Diversification

Divestment-Redeployment of Capital Resources

Sales Revenue Growth

Growth Focus

WHY HAVE A BUSINESS PLAN?

• What?– Roadmap and a Powerful Communication

Tool– Forces an entrepreneur to be disciplined to think

through every facet of the plan– Serves as a benchmark for control or Self-checking

tool– Serves as a Resources Mobilisation Tool; funding or

financing proposal or prospectus– Serves as a Strategic, Administrative and Operating

guide;

• Why?– 1,000,001 questions– Infinite number of possibilities– Distractions galore

Preliminaries of Business Plan

•Title Page

•Confidentiality and

Copyright

•Disclaimers

EXECUTIVE SUMMARY

• Description of the Business Concept and the Business

• Opportunity and Strategy

• Target Market and Projections

• Competitive Advantages

• Costs

• Sustainability

• The Team and Advisors

• The Offering

THE INDUSTRY, THE COMPANY AND ITS PRODUCTS OR SERVICES

• THE INDUSTRY THE COMPANY AND ITS PRODUCTS OR SERVICES

• The Industry

• The Company and the Concept

• The Products or Services

• Entry and Growth Strategy

MARKET RESEARCH AND ANALYSIS

• Customers

• Market Size and Trends

• Competition and competitive

Advantages

• Estimated Market Share and Sales

• Ongoing Market Evaluation

OPPORTUNITY AND STRATEGY

❖ HEART OF THE PROCESS– 100 IDEAS REVIEWED; <10% MERIT DUE DILIGENCE

❖ CHARACTERISTICS OF GOOD OPPORTUNITIES

– MARKET DEMAND❖ BASIS OF VALUE

– NEW FUNCTIONAL NEEDS OR EXISTING NEED AT SUBSTANTIALLY LOWER COST

❖ MAGNITUDE OF VALUE– ECONOMIC OR EMOTIONAL VALUE

– WHAT SIZE AND FUTURE SUPPLY-DEMAND PATTERNS

– MARKET STRUCTURE AND SIZE❖ DEMAND DRIVERS AND GROWTH POTENTIAL

❖ BARRIERS OF ENTRY AND COMPETITIVE ADVANTAGES

– MARGIN AND OPERATING STRUCTURE❖ HIGH OPERATING LEVERAGE

❖ CAPITAL REQUIREMENTS– TECHNICAL, MANUFACTURING, MARKETING AND DISTRIBUTION RESOURCES TO

CAPTURE VALUE

Competitive advantages

• 1. Market share

• 2. Cost structure/cost advantages

• 3. Product/service quality

• 4. Technological know-how

• 5. Marketing know-how

• 6. Management

• 7. Location/distribution advantages

• 8. Financial resources

• 9. Own brands, patents, etc.

• 10. Spare capacity

HOUSING DEMAND

BOTTOM OF THE PYRAMID (BOP) PYRAMID

3% High Income

7% High IncomeMore than $20,000 p.a. [≈$55+ per day)

25% Middle Income$1,500 - $20,000 p.a.

[≈$4 - $55 per day)

65% Low IncomeLess than $1,500 p.a. Less than $4 per day

INCOME PER CAPITAZimbabwean Population

Tier 4

Tier 3

Tier 2

Customer Segments

• Low Income 65% 950 500 950 500

Competition and competitive AdvantagesCompetitive advantages/ success criteria <<Competitor is Stronger

We are stronger>>

1 2 3 4 5 6 7 8 9

1. Market share

2. Cost structure/cost advantages

3. Product/service quality

4. Technological know-how

5. Marketing know-how

6. Management

7. Location/distribution advantages

8. Financial resources

9. Own brands, patents, etc.

10. Spare capacity

Overall Evaluation/ Summary

Analysis of Market AttractivenessCompetitive advantages/ success criteria <<Very Negative

Very Positive>>

1 2 3 4 5 6 7 8 9

1. Market Size

2. Market Growth

3. Branch profitability

4. Innovation potential of the industry

5. Competition intensity

6. Recession susceptibility

7. Substitution danger

8. Client loyalty

9. Security of supply (materials/spare parts)

10. Regulatory/public opinion risks

Overall Evaluation/ Summary

Position in the MarketEv

1 2 3 4 5 6 7 8 9

Evaluation of competitive advantages

Position in the MarketM

h ConcentrateConcentrate your activitieson niches. Specialize in thefew products/services thatyou can do best.

Selective investmentand growthConsider in particular buildingup strengths (managementimprovements, cost reduction,quality upgrading, newtechnologies, etc.).

Maximize investment and

grow M

Partnership Consider joining forces witha partner, perhaps with astrong company interestedin entering your type ofbusiness/market or youtype of clients.

Gradual

development Strengthenyour competitiveness throughincremental improvements (asyou earn) and shift emphasisto the most attractive marketsegments of the business.

Selective investment

& growth Identify themost attractive growthsegments of your market andinvest in them (intensifymarketing / promotion,expand geographically etc.).

Divest

Partnership Consider

joining forces with a partner,perhaps with a companyinterested in some of the strongfeatures of your company(infrastructure, networks,location, human resources, etc.).

Harvest/diversify Maintain your position and get as much as you can from the market. Consider diversifying and entering new markets, possibly through the development of new products.

Low Medium High

Relative Competitive advantages

THE ECONOMICS OF THE BUSINESS

• Gross Operating Margins

• Profit Potential and Durability

• Fixed Variable,

• Semi-variable Costs

• Months to Break-even

• Months to Reach Positive Cash Flows

MARKETING PLAN• Overall Marketing Plan

• Pricing

• Sales Tactics

• Service and Warranty Policy

• Advertising and Promotion

• Distribution

Integrated Marketing Communication PlanPromotion Channels

Product Lines Mix Prom.

Budget

Cost $Low Cost- Semi Detached

Low Cost Detached

MiddleIncome

Clusters Housing

Advertising -Below the Line

Resume, Business

Brochures, Leaflets

Resume,

Business card.

Brochures,

Leaflets

Resume,

Business card,

Brochures,

Leaflets

Resume,

Business card,

Brochures,

Leaflets

AdvertisingAbove the Line

Social Media

LinkedIn,

Social Media

LinkedIn,

Social Media

LinkedIn,

Social Media

LinkedIn,

Radio, TVs, Bills

boards, Signage

Radio, TVs, Bills

boards, Signage

Radio, TVs, B/

boards,

Radio, TVs, Bills

boards, Signage

Public Relations

Sundowners,

Cocktails

Sundowners,

Cocktails

Sundowners,

Cocktails

Sundowners,

Cocktails

Personal Selling

Road Shows, Show

Road Shows,

Show Days

Road Shows,

Show Days

Road Shows,

Show Days

Sales Promotion

Show Days, Golf

Day, Estate Agents

Show Days, Golf

day, Estate

Agents

Show Days,

Golf day,Estate

Agents

Show Days, Golf

day, Estate

Agents

Direct Marketing

Employer Assisted,

Pension Fund

Assisted,

Cooperatives,

Municipalities,

Employer

Assisted,

Pension Fund

Assisted,

Cooperatives

Employer

Assisted,

Pension Fund

Assisted,

Cooperatives

Employer

Assisted,

Pension Fund

Assisted,

Cooperatives

DESIGN AND DEVELOPMENT PLAN

• Development status and tasks

• Difficulties and risks

• Product improvement and new

Product

• Costs

• Proprietary Issues

MANUFACTURING AND OPERATIONS PLAN

• Operating Cycle

• Geographical Location

• Facilities Improvements

• Strategy and Plans

• Regulatory and Legal Issues

Determine the feasibility and strategiesnecessary to establish new business lines.

1. Staffing – current, repurpose and new

2. Space – current, repurpose and new

3. Distribution Channels and networks

4. Scope of services to be provided

5. Information Technology Plan needs

6. Marketing Strategies

7. Business Partnerships and Strategic Alliances Opportunities

8. Financial and Human Resources Management

Manufacturing and Operational

Operations Strategy and Plans

Develop a structure or partnership that supports the provision of the business line.

1. Current Corporate Structure with expanded programming

2. Subsidiary Corporations- Strategic Business Units (SBUs)

3. Joint Ventures

4. Franchises

Assure compliance with state laws, industry, local authority and professional regulations. Examples may include:1. Company Registration; Certificate of Incorporation ❖ Clinic Licensure,❖ Pharmacy Licensure❖ Bank Licence❖ Estate Agent licence

2. Local Authority Licensures3. Pensions and Medicaid & Medicare requirements4. Contract negotiations and credentialing

Legal & Regulatory Issues Analysis

• The meaning of the term

• Four forms of legal defense

– Patent

– Copyright

– Trademark-

– Trade Secret

• Confidentiality Agreements

Legal & Regulatory Issues Analysis

• Construction permits;

• Environment-related permits;

• Health- and sanitary-related approvals;

• Work permits for foreign employees;

• Foreign currency exchange andinternational procurement permissions;

• Import of machinery and equipment;

• Import of raw materials and components;

• Land and water use rights.

MANAGEMENT TEAM• Shareholders, Rights, and Restrictions

• Governance

– Board of Directors and

– Board Committees;

• Management Team

– Executive management;

– Middle management;

• External support services:

– Advisory Board, and Industry Experts

– Professional Advisors; Consultants

– Lawyers, and Auditors

– Banks, and Corporate Risk Advisors

– Finance and Insurance Services

Investors Invest in People and

not in Business

Particular features on which an investor will be placing emphasis are:

• Technical skills and competences of managers;

• Attitudes and human characteristics of managers;

• Team spirit;

• Values and norms of the firm;

• Compatibility of business type and people’s culture.

KEY EXECUTIVE MANAGEMENT

• Key Management Personnel– Highlight collective industry experience

– Past successes of:

• General management (Chief Executive Officer-CEO);

• Financial management (Chief Financial Officer-CFO) and

• Operations and Administration;

• Marketing and Sales Management;

• Production Management.

MANAGEMENT TEAM• Organisation Structure/Chart/Organogram

• Human Resource Policies and Strategies– Management compensation and ownership

– Employment and Other Agreements

– Employee and Executive Share Option and BonusPlans

– Employee Housing Policies

– Medical Aid and Group Life and Accident Cover

– Company Motor Vehicle Policy

– Employee Pension Fund Benefits

– Job Descriptions and Job Evaluation Systems

OVERALL SCHEDULEThis provides a Gantt Chart of activities to be undertaken;

▪Business plan development and private placement documents

• Incorporation of the venture

• Road shows for fund raising and Closing dates

• Completion and design development

• Recruitment of Key Personnel

• Launch of the company and its products etc; etc;.

CRITICAL RISKS, PROBLEMS, AND ASSUMPTIONS

•Risks

•Problems

•Assumptions–Economic and market conditions

Idea of Some POSSIBLE RISKS You Run And Have To Cope With:

❖ Key employees leave the business.

❖ Your competitors cut their prices.

❖ Changes in the rates of exchange affect your exports unfavourably.

❖ A key customer cancels a major contract.

❖ New unforeseen regulatory requirements have a negative impact on sales.

❖ The industry's growth rate drops.

❖ An economic crisis decreases the purchasing power of your customers.

❖ Design or manufacturing costs exceed your projections.

❖ Your sales projections are not achieved.

❖ An important advertising campaign fails.

❖ Important subcontractors fail to make deliveries.

❖ Your competitors introduce a new, better product or service at a lower price.

Consider some common mistakes as potential risks. Some of the most important ones are:

• Paying employees too much or too little;• Hiring friends rather than the most qualified

candidates;• Underestimating costs;• Overestimating the growth of sales;• Underestimating the length of the sales cycle;• Underestimating competition;• Fast growth which cannot be properly dealt with

by the organization;• Trying to do everything for everybody.

THE FINANCIAL PLAN• Actual Income Statements and Balance Sheet

• Pro Forma Comprehensive Income Statement

• Pro Forma Comprehensive Statement of Financial Position (Balance Sheet)

• Pro Forma Cash Flow Statement ()

• Break-even Chart and Calculations

• Investment Ratios

• Cost Control

• Highlights

PROPOSED COMPANY OFFERING

• Desired Financing

• Offering:

– Type

– Amount,

– Time and

– Terms

• Capitalisation

• Use of Funds: CAPEX, OPEX

• Investor’s Return

APPENDICESAll Pieces of Evidence such as:

❖ Curriculum Vitae (CVs) of Key Management Personnel;

❖ Company Registration Legal Documents (e.g., Photocopies of Certificate of Incorporation, CR 14 Forms, CR 6, CR2, and CR11

❖ Memorandum and Articles of Association

❖ Local Authority Office or Factory Licences and Trade Licences

❖ Product Literature and Brochures

❖ Testimonials and News Articles

❖ Statement of Current Net Worth of Directors

❖ Asset Valuations Report;

❖ Historical Financial Statements and Auditor’s Reports;

❖ Proposed or Actual Lease Agreements and Contracts

❖ Letters of Intent or Commitment from Potential Investors

❖ Price List and Quotations from Suppliers

❖ Market Research Report and Data

❖ Plans and Design Specifications

Prof RAO Dubai Entrepreneurship

Financing Your Venture

• Not all startups require external funding

• Cash flow comes ultimately and most importantly from customers, NOT from investors

• Benefits of external funding– Cash

• Faster growth

• Staying power

• Competitive positioning

• Credibility

– Value-add investors

• Credibility

• Customer/partner introductions (“Keiretsu” effect)

• Management expertise

Financing Options

• Non-Equity– Personal funds

– Personal debt

– Grants and awards

– Customer pre-sales

– Venture leasing

– Receivables financing

– Business loans

– In-kind contributions

– Joint ventures

• Equity

– Venture capital

– Angels

– The “3Fs” – Friends,

Family and Fools

– Corporate direct

investment

Equity is the most

expensive form of capital!

Major Financing Questions

• How much?

• When?

• From where / whom?

• What terms?

– Security

– Valuation

– Control

– Timing

Raise Money from a Position of

Strength

• Have cash in the bank

• Prepare to build your company without any

outside investment (bootstrap)

• Seek to secure multiple competing offers

• Raise money when you can, not when you

have to (Sun Tzu – “In times of war,

prepare for peace”)

• Have a call to action

Seek True Value-Added Investors

• Understand your business

• Operating experience

• Domain and/or geographic experience

• Rolodex / network

• Relevant portfolio

• Relevant limited partners (in your space)

• Deep pockets / courage to stay the course

Fundraising Process

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Business Plan

Submissions

Investor

Presentations

Term Sheet

Negotiations

Documentation

Funding

Budget 4-5 months, or more

Peace and Prosperity Through Science and Collaboration www.crdf.org

Lifecycle of a Startup

• Conception /

Invention

• Seed Stage– Formation / incorporation

– Market research

– Product research

• Early Stage– Product development

– Team formation

– Infrastructure build-out

• Launch

• Growth Stage

• Expansion Phase

• Exit

• Post-Exit

Lifecycle of a Startup

• Conception /

Invention

• Seed Stage– Formation /

incorporation

– Market research

– Product research

• Early Stage– Product development

– Team formation

– Infrastructure build-out

• Launch

• Growth Stage

• Expansion Phase

• Exit

• Post-Exit

Startup Fundamentals

Solid foundation =

best chance of

funding your venture

Pour a Solid Foundation

• Market-driven concept– Talk to prospective customers– Assess market and competition

• Resolve legal issues upfront– Satisfy prior employment obligations– Incorporate properly– Check intellectual property rights– Spin-out cleanly

• Form a solid team– Management, board, advisors, professionals – Teamwork begets success

• If possible, kick-start the business– Spin-out / acquisition– Key customer

Be Market-Driven!

• Purchase decisions are based on relationships –

understand your customers

• Understand and model your customers’

economic benefit:– How are they currently solving the problem?

– How will their work processes change by using your product?

– What is their economic benefit / ROI?

• Your product / service must be better, faster and

cheaper

Protect Your Assets!

Cash Flow is Your Life Blood!

• CFIMITYM

• Cash flow comes ultimately and most

importantly from customers, not from

investors

• Profit is not cash flow

• Capitalize properly

Business Planning

• “The plan is useless; it’s the planning

that’s important.”– General Dwight D. Eisenhower,

on the success of his D-Day invasion plan

• The process of uncovering and identifying

what creates and drives value in your

business, and the risks involved

• A business plan is an output of the

business planning process

Output of the Business Planning

Process

• Business plan (narrative)

• Pro forma financial statements

• PowerPoint pitch (12-13 pages)

• Elevator pitch (1-2 minutes)

A Business Plan…

• Describes all the critical internal and external elements and strategies for guiding the direction of your company

• Communicates how you will create sustainable value

• Identifies risks and uncertainties and communicates how you will manage them

• Describes the company’s structure, objectives and future plans

Uses of a Business Plan (Internal)

• Refining your product /

service strategy

• Identifying key

customers

• Identifying milestones

and timelines

• Helping set objectives

& performance metrics

• Managing risk and

uncertainty

• Motivating and focusing employees

• Analyzing capital budgeting decisions

• Facilitating new product development

• Integrating new acquisitions

• Facilitating restarts, restructuring and turnarounds

Uses of a Business Plan (External)

• Attracting key employees

• Educating potential investors

• Arranging strategic alliances

• Obtaining large contracts with strategic

customers

• Facilitating mergers and acquisitions

The 12-13 Page PowerPoint Pitch

1. Summary (1)– Mission statement

– What is the idea?

– How will it create value?

– Timeline / milestones

– Expected results

– Specific request (e.g., $)

The Mission Statement

To create [value/EVA]

by [product/service] for/to [customer(s)] by…

Strategic

Objective 1

Strategic

Objective 2

Strategic

Objective 3

The Mission Statement

Mission Statement Example

To be Ukraine’s leading producer of “A-

class” widgets to the _______ sector by:

– Securing exclusive purchase contracts with 3

of the top 10 customers of A-class widgets in

Ukraine;

– Creating proprietary manufacturing methods

for the highest yield of A-class widgets; and

– Building a world-class team of research &

development scientists and engineers.

2. Market Overview (2)– Substantiation of need

– The opportunity (size, trends, etc.)

– Markey validation

– Identification of prospective customers

Major Pain Points

• What is the major pain your customers face currently and/or in the future?– Cost

– Convenience

– Growth

– Focus

– Time-to-market

– Regulatory compliance

• Why are alternative products/services not addressing the pain (fully)?

• Why won’t this change?

Favorable Market Dynamics

• The market is large for our product/service:– Size stat 1

– Size stat 2

– Size stat 3

• The market is growing for our product / service:– Growth stat 1

– Growth stat 2

– Growth stat 3

• Market trends favor us:– Trend 1

– Trend 2

– Trend 3

2. Market Overview (2)– Substantiation of need

– The opportunity (size, trends, etc.)

– Markey validation

– Identification of prospective customers

3. Description of Product / Service (2)

– Overview of product / service, including high-level technology description

– Specific value proposition (including qualitative & quantitative customer benefits)

– Correlate product / service features & benefits with market needs

– Value chain dynamics

4. Operating Plan (2)– Production /

manufacturing

– Marketing / distribution

– Sales & marketing plan

5. Competitive Environment (2)

– Sustainable competitive advantages

– Alternatives

– Competition (existing and potential

What’s Proprietary About Your

Idea?• Competitive Advantages

– Proprietary IPR

– Exclusive distribution

– Exclusive content / sources

– Proprietary manufacturing

– Proprietary integration

– Installed base / customer contracts

– Unparalleled capital structure

– Unparalleled scale, scope and/or focus

– Team with unique expertise and/or access

– First mover advantage

• Distinguish between momentary and sustainable

• Must correlate to strategic objectives

Peace and Prosperity

Through Science and

Collaboration www.crdf.org

manufacturing

– Alternatives

6. The Team (1)– Management expertise

& relevance

– Board, advisors, professionals & others

– Identify key hiring needs

7. Financials (1-2)– Pro forma snapshot

– Key metrics / drivers

– Funding requirements (optional)

Financial Projections(in thousands) 2007 2008 2009 2010

Revenue driver 1 (1)

Revenue driver 2 (2)

Cost driver 1 (3)

Net Revenue

– Cost of Sales (4)

= Gross Profit

– SG&A (5)

= Pre-tax Income (Loss)

(1) Assumption 1

(2) Assumption 2

(3) Assumption 3

(4) Assumption 4

(5) Assumption 5

Numbers will

prove wrong!

Key is to

understand

drivers and

assumptions

since…

Funding Requirements• Does your venture need external financing?

– How much & when?

– Venture capital, debt, etc.

• Capital structure considerations– Options plans, etc.

– Position vis-à-vis in-kind contributions

• Use of proceeds; e.g.:

Staff $200,000

Technology & IPR development 150,000

Equipment & facilities 200,000

Other legal, operations, SG&A and misc. 100,000

Reserve (net of cash on hand) 100,000

Total $750,000

manufacturing

– Alternatives

6. The Team (1)– Management expertise

& relevance

– Board, advisors, professionals & others

– Identify key hiring needs

7. Financials (1-2)– Pro forma snapshot

– Key metrics / drivers

– Funding requirements (optional)

8. Road Map (1)– Major accomplishments

– 90-day plan

– Horizon

9. Appendix (as long as you want)

– Market details (e.g., surveys)

– Product details

– Operating & financial details

– Résumés (CVs)

– Articles / research reports

– Patents & IPRs

– Key contracts

– Brochures

The Elevator Pitch

• One of the most important “outputs” of business planning

• Convinces the “target person” to schedule a longer meeting with you

• Empowers and enables the “target person” to convince other appropriate people to become interested in your idea

• Resonates, demonstrates sincerity

• Communicates a sense of value, empathy and urgency

• No more than 1-2 minutes!

Part I Summary

• Pour a solid foundation

• Protect your strategic assets (like IPRs)

• Value is in the business planning, not the

business plan

• Be concise and to the point with pitch

materials

• Be top-down customer-driven, not bottom-

up product-driven

Fundraising Lessons

• Network to gain access to VCs

• Don’t get hung-up on confidentiality

• Be persistent

• Be humble yet confident, and always

courteous and professional

• Embrace and learn from rejection

• Be greedy in the long-run (any % of

something > 100% of nothing!)

Believe In Your Idea!

“The wireless music box has no imaginable commercial value.”

David Sarnoff Associates, in rejecting a proposal for investment in the radio in the 1920s

“We don't like their sound, and guitar music is on the way out.”

Decca Recording Co., rejecting the Beatles in 1962

“There’s never going to be a market for the telephone, and therefore we

have declined the offer to take a license.”

Chairman of Western Union, in its annual report from the late 1800s

“Who the hell wants to copy a document on plain paper?”

National Inventors Council, as told in 1940 to Chester Carlson, founder of XEROX

Attributes of a Successful

Entrepreneur

• Problem solver

• Decisive

• Leader & motivator

• Humble

• Passionate

• Persistent

• Optimistic

• Professional

• High integrity

• Critical path doer

• Impatient / bias

toward action (with

analysis)

• Rejoices in others’

victories

• Focused on the long-

term goal

and … Just Do It!

Closing thoughts…• Focus on the long-run

– What goes around comes around

– Friendships last longer than jobs

– Don’t let greed blind the objective

• Make the most of the experience

– Listen & learn

– Failure or rejection is what you make of it

• Entrepreneurship is a lifestyle choice

– Balance your risk & return

– Seize opportunities

– Life’s short, have fun!

Dr Sam RuturiMBSSA Training and Advisory Services

A division of

Mortgage Banking School of Southern Africa (Private) Limited

80 Folyjon Crescent, Folyjon Estate, Glen Lorne, HarareEmail: samruturi@yahoo.com; ruturis@commerce.uz.ac.zw

samruturi@mbssa.netenquiries@mbssa.net ; infor@mbssa.net

Telephone:263 773610 590, 263 712 610 590Cell; 263 - 0734 371 341 or 263 - 0712 221 348

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