CALMAT BUS-699 Capstone

Capstone is my one of the most important classes I have taken in my CALMAT MBA program. The purpose of this class is to provide students an opportunity to make a business case or study with the information they learned from the program. We are required to practically construct a business plan, make a strategy analysis, or conduct a fundamental business related research. It emphasizes on having a real business exercise with all the knowledge and information we learned from the MBA program.

I have been working in the semiconductor IC design for over 16 year. I always dream someday I could be able to practice the entrepreneurship and create my own startup company. At CALMAT, through this MBA program, I have gained the knowledge and strength on many key areas and fronts in business development and management skills. Therefore, in this capstone class, I plan to make a business plan for a startup semiconductor chip company with all the knowledge I got from this MBA program. I will take this class as a real exercise on a business proposal presenting to a venture. In this business plan (proposal), I am going to cover the following areas:

(1) Define the business and the company
(2) Introducing the technology and its unique application
(3) Industry and marketing analysis
(4) SWOT analysis
(5) Financial plan
(6) Manufactory and operation
(7) Risk and Challenge AnalysisFinancial Need and Executions

Envision Capstone Project

A Business Plan For a Startup Company in Semiconductor Imaging Chip Product Industry

Executive Summery

Semiconductor Image sensor chip products have a huge customer base with annual global sale of over 4 billion unites in 2011. The global market in this industry continuously kept growing with a two digit growth rate every year.  CMOS image chip has very broad applications including cellphone camera, multimedia, automotive, linear scan, digital camera, security control, PC video conferencing, medical equipment, as well as game and toys.    Large market size and diversified applications make the CMOS image industry a good choice for new entrant. With our advanced technology on low power and high speed design, our new company will differentiate ourselves from others and capture a portion of the shares on the big pie in this industry.  We plan to raise $6 millions VC fund to support the development of the product and the company for three years. Our mission is to build application orientated CIS design house and to deliver our customer with a low cost high performance CIS products.   We are targeting to reach the investment break even point within three years and aiming to go public after five years of development.

Product definition

Limited by the process technology, our Initial product is targeting the most popular middle range image sensor chip for middle an low end phone application. Our future product wil be extended to high end image chip as well as other applications

Business goal and objectives

Our short time goal for our business is to deliver our first successful product in 1.5years.   Our product developing plan will be categorized into three phases. The milestone will be set at 8 month for taping pout first design, 12 months to tape out quasi-product design and within 18 months, submit out full production chip for mass production. 

Our long term business goal is to enter mainstream CIS market and become a one of the major player in this industry. In addition, we will extend the CIS application into more other areas.  On the financial front, we are aiming to achieve the financial break even point within three years. We ultimate target is to reach a level for going public after five years of product and business development.

Marketing Plan and Financial analysis:

Based on our marketing and financial analysis, even with a very conservative projection, we plan to penetrate one percent (1%) of the total market share in the second year and extend our market penetration by three percent 3% in the third year.  We will be able to reach the investment balance point within three years.

The Study Plan

In the capstone study, I plan to investigate this project and make the proposal a more realistic business plan. I will add more info for market analysis and SWOT analysis, so as to identify our position and develop right strategy in the highly competitive market. We will develop our practical business strategy to ensure the success of our business and product in the challenging business field.

Day 9 – Strategy (BUS-600)

1. Strategy is one of the most critical practices in managing a business. It is a company’s plan to achieve its goal. Strategy thinking involves a comprehensive analysis of a business in relation to its industry, its competitors, and the business environment in both short and long term.
2. Strategic planning can be characterized into two stages:  formation and implementation.  One has to consider the strategy as part of an organization. The well-known seven S models provide a structure with which to consider a company as a whole so that the organization’s problems may be diagnosed and strategy may be developed and implemented.
3. The seven S model include Structure (of a corporation), Strategy (actions), Style (new addition Culture to the basic organization model), Staff (the people), Skill (distinct ability and talent), System ( the procedures to operate and gather information constitute the systems of a company), and Superordinate goals/ Shared value (the value and aspirations, the core of the organization).
4. To make a good identification for a company, we need to introduce the value chain and integration concept. The value chain is the entire process of producing and delivering goods and services. It starts from raw material, tools and equipment, manufacture, distribution all the way to retailers to service the customer.  
5. When business needs to be expanded, the way to expand the business is called as integration. The forward and backward integration are the expansions downstream or upstream along the value chain.  The vertical integration is for the company that participating at many levels of the value chain in an industry. The horizontal integration is related to the expanding on similar or same industry (usually through acquisition).
6. There are three levels of strategies: Functional strategy (the value activities engaged in), Business Strategy (fight with competitions and tactics), and Corporate Strategy (changing company’s course).
7. Business expansion strategy should go with the market-product diagram to identify which quadrant you are in depending on it is a new or old market and product.
8. Industry analysis gives summarize industry competitions into five forces: Threat of substitutes, Threat of new entrants, Bargaining power of supplies, Bargaining power of customers/Buyers, and Intensity of Rivalry among competitors.
9. More generic strategies are the strategies for cost leadership (reduce cost), differentiation (distinguish yours from other competitors), and focus (concentrate on a market area, a market segment or a product). The cost leadership is to achieve lowest cost of production in an industry. The economy of scale shows the cost per unit drops as one more product is made. The learning efficiency comes from six sources: Labor efficiency, New processes an improved methods, Product redesign, Product standardization, Efficiencies of scale, and Substitution.

Day 8 – Economics (BUS-600)

1. From study this chapter, I believe that economics is a theory to view the business in a much bigger picture such as an industry or entire society. It studies how society allocates the limited resources of the earth to insatiable appetites of humans. Supply and demand are the forces at work. They reach equilibrium through market price. That is, the market price allows the quantity supplied equals to the quantity demanded, and then achieves the equilibrium.  
2. There are two levels of economics: Microeconomics and Macroeconomics.   Microeconomics deal with the supply and demand equation of smaller scale economic behavior for individual, family, company, and industry. Macroeconomics studies large scale behavior for entire economy. It concerns itself with the economies of cities, countries, or the world.
3. In Microeconomics, the increase in production of goods or service requires certain cost or sacrifice, these cost is called opportunity cost.  In contract, the added revenue and cost of producing and selling one additional unit is called marginal revenue and cost. To view a value of a product to a consumer, the usefulness or utility of having an additional unit of a product is defined as marginal utility.
4.  Supply equals demand at an equilibrium price. Consumers try to minimize opportunity cost and maximize the marginal profit and utility. The consumer’s responsiveness or sensitivity to change in price is called price elasticity of demand. The elasticity of quantity demand and total revenue con be measured and calculated quantitatively in term of elastic coefficient.
5. We are living in a competitive market structures. There are four basic market structures: Pure monopoly (single seller, multiple buyers for a given product), Oligopoly (few suppliers dominate and set the price and play rules), Monopolistic competition (many product with differentiations), and Pure Competition (may competitors sell a similar substitutable product).
6. Macroeconomics helps us to understand the forces that shape the larger economy in which their companies operate.  Though there are many different theories, the fundamental principles of the macroeconomics may provide the framework within which to take intelligent estimation and projection about the future.
7. Global or International Macroeconomics looks into a much broader view to understand the globalization of the world’s economy, and international economy.  It analyzes the large frameworks to make a prediction on economic stability and inflations.

Day 7 – Operation (BUS-600)

1.      Business operations deal with practical process of making products and providing services.  The study on the business operation will gain the knowledge as well as technical and quantitative approaches to improve the product of goods and services. Historically, several pioneers in this area are Frederick Taylor, Frank and Lillian Gilbreth, as well as Elton Mayo lead the different theories such as Theory X, Y, and Z.

2.      Business operation is neither the scientific method nor a pure human relation. It should be a contingency approach to optimize and combine the two theories.

3.      The operations as the problem solving framework are often facing five major issues in the production and service: Capacity that can be produce, Schedule you plan, Inventory control, Standards for efficient production, and the ways to control the production.

4.      For the capacity, we have six M’s  to guide the manufacturing analysis. They are Methods ( best), Materials (available), Manpower (working force), Machinery (tools), money (finance resource), and Messages (accurate info).

5.      Schedules define when and what you are going to do. Several major form and method of schedules are (i) Henry Gantt and Gantt Chart Scheduling; (ii) Critical path method of scheduling; and (iii) Applying queuing theory to schedule.

6.      Inventory control deals with balance act and supply chain management. Five major and legitimate justifications for holding inventory are Pipeline, Cycle, Safety, Anticipatory, and Speculative.

7.   Standard and Control are the pair of the key aspect in business operation. Standardize the product specs, the manufacture procedures, and the qualities ensure an efficient production flow, measure and quality control. Standards provide a reference or measure for entire production control, while the tight control ensure all the products align with the same high standards.

Day 6 – Finance (BUS-600)

1. Finance is the quantitative description on the business operation in terms of money. It uses the numbers from accounting and QA chapters to provide financial analysis to guide two major business actions: buying and selling.
2. Investment decision relies on the accurate assessment for the risk and return.  The risks ca nbe evaluated with technical term and parameters such as BETA, the efficient frontier, and the Capital Asset Pricing Model etc.
3. Beta is a measure of risk inherent in a security or a portfolio of securities as it reacts to general market movements.  The efficient frontier is a graph that depict the highest portfolio returns for a give risk level.  In the capital asset pricing model we have K_e=R_f+(K_m-R_f)Beta
4. The efficient market hypothesis assumes that the market can reflect all the current market information in varying degree.  In such a market no one can take advantages of market aberrations to “best the market”. The efficiency of the market can be categorized into three levels: weak, semi-strong, and strong efficiency. 
5.   There are various types of investments such as bonds, stocks and options. Bond is evaluated with interest rate (coupon rate), Maturity cycle, and the risk of default of the issuer.  Company ‘s stock is evaluated with many parameters, such as dividend growth model, price-Earnings ratio, multiple of book value per share, price to sale ratio, asset value per share, and multiple of cash flow per share. Option valuation is determined by five factors: (i) Time until expiration; (ii) the difference between the current stock price and the strike price; (iii) the price volatility of the stock; (iv) the market rate of interest on short-term government securities; and (v) dividend payments on the stock.
6. Financial management performs two major functions: business investment decisions and financial decisions. The investment decisions can be categorized into three areas: (i) accept or reject a single investment proposal; (ii) choose one competing investment over another; and (iii) capital rationing.  The financial management decisions are usually made with payback period method and net present value method.  Companies are usually financed in the following five basic ways: (i) receive credit from suppliers; (ii) obtain lease financing; (iii) obtain bank loans; (iv) issue bonds; and (v) issue stocks.
7. Mergers and acquisitions is one of the most exciting areas of finance. The purposes of the merger and acquisition are (a) diversify the company; (b) improve sales and earnings; (c) purchase an undervalued company; and (d) lower operation cost. The acquisitions also have four different types: friendly acquisition, hostile takeover, nasty purchasing, and leveraged buyout.
8. The valuation process for merger and acquisition normally go through following five steps: (i) Analyze operating activities; (ii) Analyze the investments necessary to replace and to buy new property, plant and equipment; (iii) Determine the working capital requirements of the business; (iv) project the annual operating cash flows and terminal value of the firm; (v) calculate the NPV of those cash flows to evaluate the firm’s value.

Day 5 – Quantitative Analysis (BUS-600)

1. Quantitative analysis provides the basic tools and techniques used in finance, accounting, marketing, and business operation. It helps us to remain objective when solving complicated problems. The key analyses in quantitative analysis are Decision tree analysis, Cash flow analysis, Net Present Value, Probability Theory, and Regression analysis and forecasting.
2. Decision tree analysis is the technique to break complex problems into manageable parts. It is diagrams that include activity forks and event forks. It provides probabilities and the expected monetary value to help deciding for the choices on the best and most efficient approach.
3. Cash flow analysis is using the accounting cash flow theory to analyze quantitatively define the value of the investment, calculating the magnitude of the benefits, determine the timing of the benefit, quantify the uncertainty of the  benefits, as well as estimating whether the benefit is justify the wait.
4. Net present value analysis is a technique to take future cash flows and discount them back to their present value. It provides a quantitative measure for the future projection back to today’s dollar amount.
5. In the business and market, there are many uncertain things that are widely spread out for various possibilities. Probability theory provides statistic techniques to quantify these uncertainties. Analyzing the probability and the distribution will help us to make right decision with scientific meaning.
6. Regression analysis and forecasting are the important method to predict the relations and projections for different variables.  Linear regression model is to determine the relationship between variable that analyst believe intuitively to be related.  Regression analysis involves gathering sufficient data to determine the relationship between variables, such as sales to price, promotion, market forecasting etc. Other technique to help forecasting is Time series technique and moving average analysis, which determine the trend and cycle of the business activity.