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.

Analysis on Apple Inc. 's Financial Statement (Group Assignment on BUS-600)

In this chapter, we learned the basic accounting principles and analysis techniques.  These allow us to be able to read and understand company’s  financial status through the key statements such as the balance sheet, the Income statement, statement of cash flows, as well  as the shareholder’s equity statement.  With applying these knowledge and theories onto Apple’s case, I observe the following facts and trend from Apple’s Q3 report:

(1)         From the Income statement, Apple’s business financial status is in an excellent condition.  Comparing to the Q3 in the previous year, its total revenue increase by 82%.  Its total revenue reaches the record high up to $28.571 billions.

(2)        Within the fiscal year, the revenue in the Q3 has a 16% increases against previous quarter Q2.

(3)         Although the biggest revenue came from the market in the US, the Asian Pacific market growth rapidly in a speed faster than any other areas up to 247%.

(4)         In the US and European market, the products unit sale were increased not in an aggressive rate (9% in US, and 1% in Europe) comparing to the same quarter last year, but the revenues were significantly increased by 63% in US and 71% in Europe.  This means the revenue in each product unit is largely boosted, which is different from most of the consumer electronic products with lowing sale price.

(5)         Among different products, iPhone champions the major business income in terms of both products units and revenue.  In this fiscal year, iPhone market is in a sharp increase phase on top of all other products.  Its product units sold and revenue in this year increase by 142% and 150% respectively comparing to the last year.  Therefore, it leads to a conclusion that Apple will continue taking iPhone and its service as the core products in their product portfolio. 

(6)         The report also shows that the iPad and its related products and service have soon become another money making product in this year and in the near future.  This product sector gains the biggest increase in the past year on both the product units (183%) and the revenue(179%).

(7)         Another major trend can be found from this report. We noticed that all the iPod products start to phase out from Apple’s product portfolio. Its sale volume and related revenue were quickly dropped down in -20% and -14% respectively.  This also means that Apple has moved its product focus on more high-end high profit margin products such as iPhone and iPads etc..

(8)         From Apple’s operation statement, we learn that Apple’s net income this year increases by nearly double (98.856%) from last year $9.705 billions to $19.299 billions. 

(9)         Apple’s balance sheet shows that the company’s total asset was significantly increases from $75.183 billions in last year up to $106.758 billions.  While its liability changes from last year’s  $27.392 billions to current one with $37.415 billions, leading to a liquidity ratio at 2.8533.

(10)     Apple’s shareholder’s equity now is the same as the total company’s asset, which gives the company’s financial leverage at a value around 1.35.  That means Apple company is operated in a very healthy and conservative financial status.  

(11)     Apple’s statement of cash flow shows the business financial transactions for operation and investment activities.   With large amount of initial money in hand ($11.261 billions), in this fiscal year, Apple’s cash generation by operation activities get over doubled from last year’s $12.912 billions to $27.100 billions in this year.  Its investment was also heavily increased almost three times comparing to the last year up to $27,283 billions.

(12)      In overall statement, I agree with Apple on its accounting statement and its operation strategy. Although Apple is now in its peak time from business point of view, there are many challenges and threatens a head of them. With missing the genius leader like Steve Jobs, will Apple be able to maintain the momentum and creativity? That is the question everybody is asking.  Facing strong competition from Samsung, HTC etc. on the smart phones, many brand names on the tablets, Apple will have a very tough battle a head of them.   In my view, Apple’s success is not purely due to its advanced technologies, or business execution, the success mostly come from the fact that Apple is leading the fashion and trend for the high tech electronic devices and products.  If Apple in the post Steve era could not continue the leadership on this front, the pyramid could collapse. the success mostly come from the fact that Apple is leading the fashion and trend for the high tech electronic devices and products. If Apple in the post Steve era could not continue the leadership on this front, the pyramid could collapse.

Day 4 – Organizational Behavior (BUS-600)

1. Organizational Behavior (OB) provides a three step techniques to solve organizational problems: Step one is problem definition. It finds the gap and deviation of the results from expectation, manages the level of problem scope, and identifies the issue as a source problem or causal chains. The second step is to analyze the problem and understand the causes. The third step is the action planning, which contain the sub-steps like set specific goal, define activities/resources/needs/ responsibilities, set timetable, forecast outcomes, develop contingencies, formulating detail plans and implement, supervise executions of the plan.
2. APCFB is a human psychology model – starting from assumption, affecting perception, drawing conclusion, prompting feeling, and driving behavior.
3. Expectation theory outlines the factors that produce motivation with individuals. Motivation serves as a function of how an employee’s actions translate into a reward.
4. Good leader should have the vision, commitment, and management aspects of leadership. He/she need to be creative and pay attention on active listening to gain the insight. They should understand the power on the job. Power is derived from more than a title. There are five forms of powers: Coercive power (based on fear to be punished), Reward power (based on expectation of receiving praise or reward), Referent power (being admired regardless of formal job status), Legitimate power (holding a hierarchy position), and Expert power (own special skill, knowledge or experiences).
5. Basic organizational model contains six elements that define the organization. They are Strategy, Policies and Procedures, Structure, System, Climate, and Culture.
6. From system theory point of view, a company is an organization with functions much like a body. It goes through a series of growth and crisis period during its lifetime, showing as an evolution and revolution pattern.

Day 3 – Accounting (BUS 600)

1. Accounting system records a given company’s financial status on asset it own, liabilities it owe, its operation performance, its financial situation and its cash flow.  Fundamental accounting rules are in the areas for entity, cash and accrual accounting, objective, conservatism, going concern, consistency and materiality.
2. There are three key financial statements. They are the balance sheet, the income statement and the statement of cash flow. 
3. Balance sheet covers company’s asset, liability and owner’s equity.  They have the relation represented by a fundamental accounting equation:

Assets (A) = Liabilities (L) – Owner’s Equity (OE)

4. Accounting uses journal double entry system which is easier to check and verify the account data. In typical accounting entry, people use  left ( Debit) and right (Credit) in T-table format. For a company, a net working capital is defined as the current assets subtracting the current liabilities.
5. Income statement shows the “flow” of activities and transactions over a specific period. The income comes from the Revenue subtracting the Expenses. Key terminologies on this front include Gross Margin (=Sales – COGS), Cost of Good Sale (COGS = Beginning inventory + Net Purchases – Ending Inventory), Operation Profit (the earnings before interest and tax (EBIT)), and Net Income (The pure income after tax and all other cost).
6. The Statement of Cash Flow gives the financial status and transaction flow. It covers operation activities, investment activities, and financial activities.
7. The accounting statements can be interpreted by using ratios. Liquidity ratios give measure for the cash on hand that can be converted to pay all the bills (LR = Asset/Liability).  Capitalization ratios give the measure for company’s liabilities, investor’s financing and funding. It includes the Financial Leverage (= (Total liabilities + Owners’ Equity)/OE) and Long-term Debt to Capital (= long term debt/(liabilities + OE) ).  Activity Ratios give the measure for how actively the firm’s assets are being deployed. It includes Assets Turnover per period (= Sales / Total Assets), Inventory Turns per Period (= COGS/Average Inventory Held During the period), Days Sale in Inventory (= Ending Inventory / (COGS/365) ).  The Profitability ratios provide the measure for how profitable the company is in the relation to the assets and sales. They are the Return on Sales (ROS = Net Income / Sales), and Return of Equity (ROE = net Income / Owner’s equity).
8. Company’s operating results can be analyzed and managed using variances, such as Purchase Price Variance, Material or Labor Efficiency Variance, Material Price Variance, and Material Efficiency Variance.

Day 2 -- Ethics

1. Though the primary purpose for doing business is to make money and get profit, business owner and employees can’t do whatever they want only based on their business interest.  They first have to be honest citizen. They have to be responsible for the entire society.
2. In typical business operation, one may encounter many different issues such as: environmental issues, corporate restructuring, employee privacy issues, diversity in race and genders, sexual harassment, conduct of multinational corporations (bribery), and other illegal operation conducts.
3. Ethics normally can’t be clearly defined as black or white, right or wrong. The gray shade areas make the ethics be relativism.  There are four type of relativisms: naive relativism (individual standard), role relativism (private and public roles), social group relativism (social norms to render ethical judgment), and culture relativism (moral standard under different culture).
4. Stakeholder analysis provides a tool to weight various elements and reach a decision. It evaluates all the harms and benefits to every stakeholders including the decision maker, executives, customers, shareholders, supplies, government, special interest groups, affected communities, the environment, future generations, competitors, as well as the layers and court.
5. US government passed a law in 2002 to regulate the ethics for business conduct. The law is called Sarbanes-Oxley Act 2002, which legislate ethics in corporate America.  This law includes four group of rules: Financial accounting rules, Internal control rules, executive ethical conduct rules, and ethical conduct rule for related parties.
 

Day 1 -- Marketing

1. Marketing is one of the most important segments for business. It is a process by which companies create value for customers and build strong customer relationships in order to capture value from customer in return.  Marketing integrates all the functions of a business and speaks directly to the customer through advertising, salespeople, and marketing activities. 
2. Marketing strategy process have seven key steps: (i) Customer analysis; (ii) Market analysis; (iii) Competition and self evaluation; (iv) Distribution channels; (v)  Marketing mix; (vi) Business Economics; (vii)Revision and extension.
3. Customer analysis give us a clear picture on who are your targeting customer, what is your customer need, which category of the customer, what value you can bring to your customer, what is buying process, who need the product and how important the product or service to them.
4. Market analysis help us to understand the market nature, size, variation, growth trend, and segment, etc..  From this analysis, we will learn competitive factors, the key information about the product on the market such as qualities, price, the way of advertising, R&D background and services.
5. Competitive analysis will help one to identify his product and company position in the market in term of business size, share, reputation and historical performances. It can basically be summarized as SWOT analysis.  This analysis will identify one’s strength, find his weakness, grasp the opportunity, and understand the threat and challenges.  Through that he/she will have a better knowledge on our true position in the competitive market place, and further to specify our target and objectives, develop his special plan, goal and strategy.
6. Market mix addresses the key concepts for what we called the 4Ps: that is, Product, Place, Promotion, and Price.   The product identification will guide one to make differentiation in his product. Know the market place will help him to better reach the market segment, build good distribution channels.  
7. Promotion provides the best and efficient way to motivate, attract and sometimes educate the customer to adapt this product. And finally price will be set depend on its product quality, an true cost, as well as profit and strategy plan.
8. Finally one needs to make correct evaluation on the economics. This includes detail financial calculation on business breaking even point, fixed cost, payback period, economic environment and its impact on the product business goal.
9. These analysis need to be frequently revised and adding extensions to accurately track the market changes, the new product need, and new market trend.

BUS-600 Personal Vision and Goal

I have been working in the semiconductor industry for over 15 years.  My expertise and experiences are most focused on the CMOS image IC chip design area.  In my entire semiconductor professional career, I grew from analog IC design engineer to project manager, from design principal all the way to engineering director.  With my strong technology background and years of industry experiences, a dream on starting my own business has long been buried in my mind.   In the past, I used to pay much more attention on mastering key technologies, later on, I realized that making a successful business is far from only taking technology advantages.   One needs to build a business mind and develop the strength on the business management, strategy planning, financial operation, and effective marketing.  Though I have led various teams and worked on many design projects before, I am still not strong enough on my business knowledge and management skills.  This is also the reason I would like to attend CALMAT to study my MBA.  I want to gain the knowledge and strength on all the key fronts in business development and management skills.  Using my technology advantages and the MBA training, I will be able to achieve my goal to build a successful business in rest of my professional career.