Creating an Effective Business Plan
Transcript July 15, 2008

Host: So, let’s get started. First of all, thank you for coming. I’m Pan Jin, the chairman of China Business Plan Competition Organizing Committee. If you would like any further information, do please contact me. Though I have talked with many of you on the phone, I’m excited to meet you in person. Now I’d like to do a little survey first. Who wants to establish your own company? Please raise your hand. How many of you came here without letting your boss know about this seminar? None? How many of you are working in a company and want to start your own business? Who is already an entrepreneur and enjoys it? Oh, seems not that many.

I’m an entrepreneur myself, and we can talk about that off stage. This University of Maryland project is aimed to help entrepreneurs in China to get much more information on entrepreneurship. Of course, according to statistics, only a small number of you will succeed. Then what is our goal? We hope you can accumulate more knowledge, make better use of resources, so finally you can be one of the 2-3 percent of successful entrepreneurs. But success doesn’t mean that you make a lot of money. What is more important is to enjoy the process. We have arranged a series of lectures for you in hope you will learn more and meet more people.

For those who raised their hands, are entrepreneurs already, you may have trouble in financing and personnel management, perhaps many other people encounter these same issues. So you can communicate with each other and find the solution. We have at least six lecture series, during which you can call me if you have any questions, and my business cards are over there. Please also pick up a seminar feedback form. We will have a 2008 China Business Plan Competition final event at the Guanghua School of Management, Peking University on October 29, 2008. I hope you can fill in the form today before you leave. Lucky entrepreneurs and participants will be drawn from the feedback form. Thank you for your participation.

Now let’s welcome Hu Wanjin from Zhongguancun Software Park to deliver a welcome speech.

Hu Wanjin: Welcome to the seminar. Today’s subject is very meaningful. Everyone who raised your hand has a life dream. We have to struggle for it and we pursue perfection. But first of all, we need to pick a dream. I had a life dream before, and I may have more dreams coming in the future.

What I’d like to say is that, from my experience in Zhongguancun Software Park, to make your dream come true, you need to first motivate yourself and pick something you are strongly interested in.

Secondly, we should learn from the successful experience of others, especially those who have founded their own companies. Today we invite Mr. Chen to tell us the rough part of his struggle in the process of starting his business. The story of starting business from scratch can be very helpful.

Thirdly, we better have effective approaches. That is one of the important aspects of this lecture. We should have business idea and business plans. As chairman Pan just mentioned in her speech, most of us want to start our own business but not everyone will succeed. We may intend to write business plans to attract the attention of potential investors, but eventually we should make a plan for ourselves. I believe that we will benefit a lot from this seminar.

Fourthly, we need a friendly platform. No matter which field you are in, software or other related industries, Zhongguancun Software Park is one of the platforms you expect. Maybe every young person has the confidence that he’s talented and nowadays computer technologies are very popular, all of this lays the foundation for realizing our dreams. Zhongguancun Software Park, including our incubator and other enterprises, is an entrepreneurial platform to provide every enterprise, everyone in the software industry with all kinds of services. I will not introduce the specific services this time, but if you have any questions or you need my help, I will more than happy to discuss with you. I will try my best to provide you the best start-up platform.

Mr. Chen will give us a brilliant speech about entrepreneurship later. And what else I’d like to say is that I don't think success is just to get your company listed. The process brings you happiness too. I hope we can enjoy the process while we pursue the result, and both of them are perfect. Thank you.

Host:Thanks, Mr. Hu. Now please welcome Chen Shuning, CEO of Worksoft Creative Software Technology Ltd. Mr. Chen started his business venture more than 10 years ago. And I invited him to share what he has experienced with us. You might not  be clear about your direction and have struggled a lot in preparing to start your own business, the same situation happens to all of us actually. Hope you can get some enlightenment from his experiences.

Chen Shuning: Thanks. I just made a little preparation for today; so let’s talk just like it is. I can’t tell you all my stories in half an hour, and I’ll focus on the outline and things you may have interest in. I will share with you other stuff sometime later.

The highlight is how to write a business plan. Nobody told me how to write it when I began my entrepreneurial career. I learned it in my work. We talk about success and failure. Not everyone can become a successful entrepreneur. It depends on several factors. Firstly, whether you have the passion for entrepreneurship; secondly, whether you have favorable external conditions; thirdly, whether you’ve got the right timing. I am not, of course, suggesting that everyone who is smart enough or wants to succeed can build his own business. However, passion is the most important thing, along with your direction and adherence to it.

I graduated from Tsinghua University. One of my schoolfellows works for Aigo. I appreciate his speech at the university. He said, “You can find water as long as you dig.” So it is essential to insist on your direction you believe in. Only when all the requirements are fulfilled, can you write a good business plan. Now we are in a totally different era. When I was young, I experienced the first years of China reform and opening. I left Tsinghua University to go to Wuhan for graduate studies in 1986. When I came back to Beijing in 1989, political disturbance happened and there were soldiers everywhere. And Tsinghua University lost my ID card. My major was forging of the Machinery Department. And the first company that I worked for was Great Wall Computer Software & Systems Ltd. It’s a totally different field. I hesitated because my major was very popular then. One of my classmates has established a big molding tool factory in Dongguan. That is why I emphasize persistence first.

I didn't learn how to write software, so I experienced a rough time at the beginning. I was looked down upon for almost half a year because I occupied the position and did nothing meaningful. And indeed I was recommended by my mentor to join the company. My wife came to Beijing first, so I was willing to work for any company, which was able to offer me a Beijing residence permit. Two companies provided me the offer. One was Great Wall, and the other was Chinasoft. Both of the IT companies had a certain relationship with me later on. I wondered where I should go when I came to Beijing, because I knew how to use AutoCAD and had a little knowledge with computers. Should I go to Shenzhen to take a job in my field or stay in Beijing for IT? And I chose Beijing. I became a section manager in one year. I worked so hard that I always read programming on the bus to my work. Someone said that I was pretending work hard in front of our boss, but I didn’t care about it. Then I went to America at company expense as a reward. I engaged in import of computer parts for two years, during that time, the D-I-Y market was so hot in the U.S. I made a lot of money in two years, five of us made an annual revenue of USD 90,000,000.

I drove a Lexus 400 in the U.S. and owned two houses among five of us. Although we worked for a state-owned enterprise, we had a very good time and nobody wanted to come back. Life in America was much better. Our enterprise bought me an airline ticket when I went to America and I didn’t see a seat number on it, so I called the airline company to ask if I could bring a chair with me. I didn’t know anything about checking in. It was a popular joke. But now Beijing is even more modern than America. I didn’t give up my major then and still wanted to work in the software industry. I had to make my eight-year learning meaningful. It was not easy to find a job in the computer industry, but I knew the trade well and I earned as much as USD 200,000-300,000 a year, which was almost an astronomical number at that time.

However, I chose to come back to Great Wall and worked there until I established my company in 1995. Twelve years later, it was listed on AMEX. Persistence is everything. What I am most proud of is that I have only changed my job once in my whole life -- I quit Great Wall in 1995 to establish Worksoft Creative Software Technology Ltd. And half a year later, I set up Chinasoft International Ltd. The former targeted the domestic market and listed in Hongkong, and the latter targeted the overseas market and listed in the U.S. Both of went through reform in later years and it’s a long story, long enough to open a new section of the seminar. Tang Ning will talk about the system of a new enterprise later.

People asked me what I was doing in the first eight years before my company was listed. It was a rough time. I withdrew from Chinasoft because of its state-owned system. The system didn’t suit me. Two people can start to write software if they have a computer. But to establish a business needs a vision. Good management and board of directors is essential. Your investors will be happy to see this is contained in your business plan. At least you have a management structure.

Lack of management structure and clear division between equity and operation might be the obstacle to most enterprises in China. I will talk a little more about this. I believe that one of the biggest determinants of success is being to the right place at the right time with the right people. I think I was clever enough to work for Great Wall for six-and-a-half years before I quit though it was a five-year contract. I was very loyal to Great Wall whether when I was in the U.S. or after I came back. When I quit, my boss told me to ask for half a year off, and if I accomplished nothing, he would take me back. I did so. I quit half a year later after everything went well. That is what I exchanged my loyalty for.

I worked with IBM developing a Chinese version of operating systems. IBM decided to cut off this product, but still needed a company to provide support. They gave me the opportunity. IBM asked Great Wall first but they refused, and so I got the project. I had to return the apartment Great Wall gave me and pay 2000 Yuan per month to rent another. In fact it was not worth the money, but my boss couldn’t change the policy. It was the system’s fault. The project became my turning point. When you write a business plan to recommend a technique, I guess no one will be interested in it because they don’t understand. Money is the only measure of success. You can’t be successful if you have no money. Newton was successful and rich, while many mathematicians had a lot of inventions but no money. An advanced technique without economic return is not a successful plan. At first I was addicted to techniques, until I found I could not make my living.

The color of our company is blue. I appreciate IBM a lot. IBM sent someone from Australia in 1996 to teach me how to write a business plan for three days. I said yes without hesitation when IBM invited me to the lecture. The most important part of writing a business plan is to show the business model that you believe can be executable and bring economic return. The first lesson he taught me was not to rely on the business with IBM, though we had cash flow issue but the business volume and profit margin was good. He said if IBM closed down, my company would close down along with it. I said there was no chance that a big company like IBM would close down. He said it was an assumption, and I told him the assumption was invalid. And he said I was quibbling. The next day I was asked the same question, and my answer was to develop a new client.

He asked me whether I had other questions and what my techniques were about. I told him I was developing a Chinese localization technology, which was applied in Chinese Star. I read Windows source code, but I didn’t realize the technology could be commercialized; otherwise, I could have developed the software one year earlier. That was my weakness. The guy from IBM told me to remember that the lifecycle of technology was much shorter than the lifecycle of business. We should focus on the commercial application of techniques. Few people could undertake the work of software localization more than 10 years ago, because many drivers had to be rewritten. I knew it was a high-end industry beyond my capability. The weaknesses of high-end technologies are bad expansion capability and lack of talent, however it brings you huge profit margin. At least I realized I should decide on business positioning, producing products or providing services.

IBM helped me to figure out how to diversify my client base and my business structure. I made my company’s business plan in 1997 and it has not changed since. I adhere to it. We have both high-end and low-end business in the proper proportions. I once argued with an entrepreneur in Silicon Valley, who began with a unique technology and established a company. I asserted his company would go bankrupt in three years and he felt offended. It proved that I was right. He had a disorderly structure. You have to determine what your market is in the long run.

I used my first business plan to solve two problems that every entrepreneur faces. Earning money is the bottom line of your business. Many people may say that we can establish a subscription company and we don’t focus on a particular market. And someone may think he may lose money today and tomorrow, but will make money eventually. Venture doesn’t depend on passion. Other people can also come up with the ideas you have. For example, the integrated circuit technology was invented at almost the same day by two people in two different places. Your business model should focus on how to earn money instead of how to develop your technology.

It took me three days to complete my first business plan. It was only several pages. We suffered a lot of losses from our wrong system. A listed company has the best system. A listed company has open and fair operating system subject to supervision by laws and publics. You can take one-man rule system and you may succeed if you don’t need help from others. As a service provider we could not succeed by adapting the family business system. We spent too much time on seeking the right system for us. The family business system had no open and rational structure, including equity and incentive mechanisms. I hope you can consider setting up a company incentive mechanism when you are writing the business plan, so that you have capability to attract and keep talens. If you present me with a business plan which will be operated on your own, I will not give you my investment, it is just too risky. The business would fail if you get sick someday later.

Worksoft has taken a long detour. Beijing TV even made a special program discussing that how a company could stand out among others, and the answer is having an effective management structure, a board of directors. It should not be a decision-making body consisting of three brothers with equal share holdings but without a leader. Then the company would have problems, and we will put our hope on such a company. You may have had spoken with one guy for a whole night to determine one issue, but you found the conclusion changed in the following day. Why was it? It was because that he has no decision-making power, as the shares were held equally and the shareholders have great personal loyalty, not daring to take responsibility. Therefore, the equal system is a big issue, which has caused many problems to many Japanese outsourcing companies. In 2001, in order to have the decision-making power and take the lead to reform, I borrowed a lot of money and bought up to two-thirds of the total Worksoft shares after I quit from ICSS. After that, the first action I took was to remove all the family shareholders from the company. I could not do that before I became the major shareholder, since everyone held equal shares, but after that I could perform the rights given by the company law of the PRC. Thus, you will definitely adopt foreign company laws instead of the company law of the PRC while making VC investments, since only foreign company laws can enable options, various derivative instruments and restricted shares, etc. that can help you to set up a new and modern management structure.

We made an angel investment in the U.S. with USD 500,000 invested in an e-mail blocking technology. And the guy even put the money in his personal account and refused to take it out even if we persuaded him for three months, as he could only be assured in that way. He thought he had good sense of morality and affirmed he would never default but just wanted to cinch the money. However, it was not the right practice. I believe that you will get future VC investments and the domestic entity will provide you money as well as accountants. VCs will not send accountants since it always relies on laws and a management structure. You should never treasure the starting point of your company and protect it unreasonably, as you will never make it a larger and stronger company. I have seen a lot of these bad cases, and I believe VCs will also face such upsetting issues, but I hope you are not.

Since you have made it clear in your mind, you must do something meaningful. We had taken a long detour in the management structure, and the company shares issue was finally resolved till 2003. The company was called Worksoft Creative formerly and was later renamed as Worksoft Innovation. The company soon grew rapidly. We had many executives returning from overseas, some of them willing to get one-fourth of their original pay or even just several thousands RMB, compared to an annual pay of one hundred thousand USD. They had company options, and I bought company shares back to offer to the management team, so the company could grow fast. I originally planned to list the company in 2008, but the company met the listing requirements in 2007. It was unlucky that the stock market began to go down in November that year. I withdrew my decision on listing, but finally it was still listed under the insistence of the management team. The company was listed on December 12 last year, during the U.S.’ biggest bear market. Not soon after I hit the bell, our stock immediately gained 200 points. Then NYSE said, “Don’t go back to Beijing, just stay here.” It was because other stocks all went down before or after me, and our company was the first listed outsourcing software company from China. At the time we getting the investment from VCs in 2005, our company annual revenue had been even less than the annual profits of Sinocom, a software company listed in HK. They asked me how our company could become the leader in this industry, and I said that our company had better foundations, especially the company’s management structure so our company certainly could leap ahead of them, we have surpassed them this year, in both profits and revenue.

Today, I want to share with you something useful within a short time, which is that you must pay more attention to the management structure of your company. I told my employees that anyone who feels not being regulated within the company must be something wrong with the system, which is the same applied to me. It is risky to place  the entire company’s responsibilities on my shoulder, particularly to rely on my thoughts. Since we have a little more time today, I would like to talk about a case of December last year as an example, and then you can tell how the management structure and company’s decision-making mechanism are super important to your business.

Our company was listed in November, on the 23rd I received training and began the road show on the 25th. When pricing our stock, I didn’t believe there was a bear market, and I said we would quit from listing if you insist pricing our stock price low. The meeting started at 2:00 p.m. If the documents could not be submitted before 10:00 a.m. on the 24th, the deadline, the company could not be listed in 2007. I went back to pack my luggage and prepared to go back to Beijing, since my original plan was to list our company in 2008 anyway. The meeting floundered till 9:00 p.m., and the board authorized to me full decision-making power. But I thought we had a decision-making mechanism in our company, so we held an executives committee meeting. I asked all executives to vote on the decision. As there was great risk to place the power solely on me, I thought I must defer the power to the executives committee meeting to make the decision, and so the mechanism worked.

Then the EVPs voted with simple and even ridiculous reasons. Someone voted affirmative to listing as he believed if we couldn’t list, the public would think our company had problems instead of facing a bad timing in the stock market; and someone had funny reasons as he said I returned to my home country and established our company with such a low wage just for the purpose of listing the company, which I had also told to my parents and wife. If the company could not be listed, I would lose my face. Understandable, it was also a respectable reason. Finally, eight executives voted affirmative for the listing while only I voted to decline, so I decided to go for it. The fact is we couldn’t have listed this year if we didn’t catch the late bus last time, only one company was listed this year, compared to a dozen of listed companies last year. There is no chance to be listed this year. I remember a quite successful company with over 70 percent of gross profit margin, but it has only several hundred of shares of trading volume a day, certainly in a period of a bad stock market. It says that being in the right place at the right time with the right people sometimes can be crucial to your business. It is a questionable decision if others do not agree to it. Fortunately, we had a good management structure at that time. Thus, a good CEO should be courageous and dare to take responsibilities, but not be overbearing.

You will also be CEOs, and you should not be overbearing. When you make a decision that is opposed by others, you must be careful, because you might be wrong, just like my story. It is the culture in Worksoft, not for me, but for the entire management team. Worksoft is a very strong and stable company with creative ideas and it has taught me the most in my business building experience. I wonder if you have ever watched a special program on BTV6. It is a very good program discussing company structural transformation. In that program, I talked about two hours, and finally it was edited into a one-and-a-half-hour program. It is the only interview I have ever given without being interrupted during the shooting. Many interviews pause to ask the interviewee to make a pose or not to say something. However, this interview was not interrupted, only one pause for changing the videotape and the MC always rushed me. Others asked me how I could tell my stories so smoothly, and I said because I had paid six or seven years for these lessons.

You should pay more attention to the points I have mentioned while you start up a business. I hope you may learn from my stories today. As it is 4:50 now, I will answer several questions to close today’s speech.

MC: Mr. Chen has to leave at 5:00 for his business appointment, now I would like to pass your questions for sharing with others. Now please take your time to ask questions.

Q:Thank you. I’m a student entrepreneur at university engaged in a trading project of traditional ethnic culture-based products. As many VC investments focus on technology-based projects, it seems to be difficult for us to attract investment. I would like your opinions about how to attract investment for our project.

Chen Shuning: I don’t understand why you think it is difficult. First, you must have not found the right investor. Second, do you have a business model that can generate profits and can be sustainable? You should not ask others to invest in your hobbies, but show them how much money can be made. I find the Iranians are very capable of making a kind of rug. I thought a rug would not cost much, but it is actually priced up to fifty or sixty thousand dollars. So a guy hired local workers to weave the carpet in Iran, with one piece produced for two or three years, so it is very important to see whether it can become an industry. Your project may just be your hobby, certainly I don’t know the specific details, but anyway it is very important for attracting VCs to have a continuously growing profit model.

From the perspective of creativity, I greatly support that Chinese culture-based products can walk out to the world. Recently I make investments on the marketing of some works of art, i.e., Suzhou embroidery, and I want to sell them to the U.S. and Canada. It is purely a personal hobby, and my wife is doing that. I think it will have its market in North America, and the key is how you will organize your business.

Q:My company is a technology-driven company, and I think a company's business plan will always determine the commercial value in the products of a majority of technology-based companies. We didn’t have any problem in the first year. I wonder was there any VP that entered your company while receiving angel investment at the beginning? How much investment did you raise before listing? What percentage did the investments

Chen Shuning: We had an angel investment of RMB 300,000 placed using a unique method, as the investor contributed RMB 300,000 accounting for one-third of the total investment, and I and Chen Yong, another founder of ICSS, each borrowed RMB 100,000 from him, accounting for 30 percent each, and we must repay as soon as the company is profitable. He insisted that I should chip in, because otherwise, he thought I would not have any motive as I didn't take any risks. It is a good concept. You must remember that the risks will always be proportionate to the rewards as the greater the risk is, the more rewards you’ll get. With respect to the marketing issues you mentioned, I want to add that it is also necessary for a successful business to have a competent team, and it may be where the failures lie for many technology-oriented companies. You can see this from Lenovo's Liu Chuanzhi and Ni Guangnan, I always feel nervous when seeing Ni Guangnan. He always concentrates on technology and doesn't care for marketing. Different from him, Liu Chuanzi is a businessman. You must have a team like this and you cannot rely on yourself. Your team should consist of talent with great ability in marketing.

Q: I am not a technician but a marketing person, and our team's strength is technology-oriented. However, we’ve got a problem in the company’s operation, i.e., we need a lot of funding. Previously you were in the software outsourcing business, which might have a relatively low demand for funds.

Chen Shuning: There is no start-up business that has no demand for money.

Q: Money related to high investment and high returns. I'm concerned about the seed money obtained by a venture capital company.

Chen Shuning: Well, it varies among different business models. For example, for a non-brand name wine with little public awareness, as long as its commercials are spread out, such a product can become widely known and popular. But my industry is not paved by commercials. People will offer you business opportunities only when you have creative ideas, which you must accumulate step-by-step. Therefore, marketing expenditures are different for different businesses.

For example, a person spent a large amount of money to start a business and recruited an excellent sales team. But Worksoft, you know, did not open positions in America until three months before its listing. The reason was that it was too expensive hiring people in  the states and I was not rich enough to afford it. This business mode is different. I run a small company with over 100 staff, which can't afford a huge cost in sales. A CEO must have control on businesses and processes. If you are in the consumer products business, I think you can rely on commercials. However, if your products are not for end users, you should not spend too much money on commercials. Once there was a software company displayed on billboards all over the airport. But where is it now? The company has gone from business.

Q: Mr. Chen, I feel honored because I also worked at Great Wall Software from 1998 to 2002 after graduating from the university, just like you did. After four-year’s work, I resigned to start up my own business. But I failed and I am now working for one of your competitors. Now I want to ask you, what you are quite familiar with, that there are different models in IT services -- software outsourcing, product development, and project or system integration -- and you have experiences in all of these things. Which model do you think attracts the most investor interest?

Chen Shuning: You may have to write a report later.

Q: This is my personal interest and my boss does not know I'm here for your lecture.

Chen Shuning: If you go to America to run a company dealing with system integration and you use this word, they will know you are in a sunset industry. No one will invest in a system integration company. Companies with the concept of system integration are now going through gradual transformation in America. For example, HP purchased EDS and IBM sold many items ages ago. Do not mention system integration at all. It is service now. And you may not get to the bottom to find out what it really is. People are flattered when we call it service. This is a trend. The framework of the future development of the IT industry must be service, product shape will be weakened gradually. One of my customers runs a company dealing with enterprise search technology in America. I received a call from him today saying that he would sell services instead of product. What he does is still the technology but the form has changed.

The IT industry will be led by service companies in the future. I think investors are more willing to buy shares of service companies.

Q: Great Wall Software, for example, has many key customers in the financial and taxation sectors. Are these key customers concerned about your integration capacity more than service capacity?

Chen Shuning: I think it is changing now. Applications were simple in China, whether they were for banks or some other business sector. For example, AsiaInfo and we did a telecommunication switchboard administration project for Great Wall Software. I was very envious of AsiaInfo and refused when others introduced it to us for we had no such idea at that time. But now, applications are more and more complicated and are never just a program. Take ERP as an example. It was very difficult to promote ERP five or six years ago because compared to any other two companies, it had functions from both of them. So you can not promote it. But you can see what it contains. Great changes took place in recent years. I can see China's progress just from the line in airports: it becomes one line now. Likely, you can see system integration from pulling ropes. The stick and the rope were bought. Previously it pulled the line one by one. But now the principle changes into a line for several windows. So you can not adopt a formal management method. Americans only manage the head of the line while the British manages the tail as well. The real thing it contains is to see whether you enter into a wrong circle. IT industry in China was infrastructure construction in the early period. But I think the opinion on this issue is changing. Why did China choose TCS over other traditional companies? TSC is an Indian company and the change in this is great.

Q: I'm from IEA which is dealing with international study. Encouraged by Mr. Zhu Min, I resigned at the end of 2006 and founded it. It did a pretty good job last year and attracted interest and attention of some venture capitalists. I discovered over the last year, that we need another team. Now I have found an ideal target partner who was my colleague and now is CTO of a listed company. We are quite matched. I was CEO while he was CTO. Now he wants to cooperate with me. He is really perfect. But the problem is that he asked for more equity than me. Now I have several options. Among others, I may comprise to offer him more equity but I keep a golden share for the right of one ticket veto. I have understandings on this project for more than 10 years while he deals with technology.

Chen Shuning: Is he in now?

Q: Not yet. We are still in negotiation. He works here nearby. And one more thing, I am thinking about relative control, for example, each of us holds 30 percent while the supplement team holds the remaining for us or other better solutions. This issue has been bothering me for a few months.

Chen Shuning: It seems to me that as you are the founder, you must be the majority shareholder at the very beginning of the partnership. Otherwise, how can you control the direction of the company? The development would be totally dependent on him and you’ll have to follow him.

Q: Can I put it this way: separate the decision-making power with equity. Offer him more dividends and I keep the decision-making power.

Chen Shuning: You can use options instead of dividends. You can offer him options which must have measurements. You can measure his contributions. If you founded the company and let him become the majority shareholder, who will control the company?

Q: Thank you very much, Mr. Chen.

Chen Shuning: I would like to say one more thing. I once started two companies at the same time. I spent most time at Chinasoft and hired a professional manager for Worksoft who asked a similar question. After he entered, he said, "Chen, give half of the company to me or it will become zero if I make no effort." I replied, "You must be zero now. You'd better leave right now so that I may not become zero." Actually it did not turn out zero in the end. You lead the company as a founder. If your company changes direction, I'm afraid investors may not invest in you. The same for investors for their initial motive and passion is the most important. Otherwise, even if the company makes great progress, your benefits are diluted.

Host:   Thank you, Mr. Chen Shuning. Allow me to say a few words. I'm grateful for Mr. Chen spending time here and I’ve also got a lot of enlightenment. First, be enthusiastic. When you just graduate from college, you have no money, no people and no resources. What you can do is to infect others with your enthusiasm. So you must be enthusiastic.

Second, enthusiasm is not enough. You also have to have company mechanisms and a good equity structure for sustainable development.

Third, for Chen Shuning is very successful, why did he spend an hour, or even nearly an hour and half to offer us a lecture? It’s because he has been one of you. He knows what you’re experiencing and he wants to share with you his experience over the past 10 years, just like many successful start-ups. These are actually important resources for your startup. There are many successful start-ups around you. Go to talk to them. Do not be afraid of no money or no experience. You may not want to talk to me. But they are willing to offer their experience to you to help you make fewer detours. So thank you very much, Mr. Chen Shuning. Now let's take a 10-minute break and then we will move on to the next session.

Host: Now let's welcome Mr. Tang Ning, CEO from China Growth Capital, to give us a real lecture on how to write a detailed business plan. I want to ask if they can ask questions during the training.

Tang Ning: Sure.

Tang Ning: I'm glad to talk with you. Business plan competitions in China do help many enterprises, so it is very meaningful. You may be very familiar with business plans, now I want to ask all of you a question; do you think business plans are used to communicate with VCs? Not so many, just a few. In addition to this purpose, for those who did not raise your hands just now, what are are other purposes of business plans, please?

Q: to communicate with the government.

Tang Ning: They can be used to communicate with VCs and the government. What else?

Q: to sort out thoughts.

Q: to provide a way for the team to unify their thoughts.

Tang Ning: These answers are quite balanced. In some training occasions before, almost all participants said that the business plan was for VCs. It really isn’t. During the process of writing your business plan, whether a year or in a fixed term, you have to make the so-called review and outlook. Actually this is also a good form for sorting your thoughts and doing a business plan.

I want to ask all of you: how many entrepreneurs want to finance or integrate with VCs, now or three or six months later? There are considerable enterprises hoping to finance or integrate with VCs. Let’s continue what Mr. Chen just said for he looks at business plans from the perspective of an entrepreneur. But we are more from the capital market and the investment.

You may be familiar with “Win in China” or other programs. If you are in an elevator and you only have three minutes to talk to an investor to strike on him and attract him and try your best to convince him to get interested in you, what will you say for he is interested in many

Actually, what you have to say are the key points in your business plan because you have to pop out with your uniqueness and to differentiate yourself from any other business, any other transaction or any other enterprise. No matter your business plan is just a piece of paper -- we call a simple version an executive summary, or a PPT with ten or twenty pages, or a hundred-page photo-illustrated one with a lot of data -- its main purpose is to set out what you have to say to a VC within three minutes or to yourself at night, like whether it is worthwhile for you to do this business or this enterprise, why you want to do this, what is the value for you to do this and what do you think it solves.

First, I'd like to talk about how we should think of the value of the enterprise, which enterprises are valuable and how you should think of what you do and the value of your enterprises as entrepreneurs. You do a business plan in order to have a better consideration on a valuable enterprise. How can you make it from scratch? Which framework is your thought relying on? And which framework is used to make your business plan? I think this is a point and I'd like to it share with you.

As a good enterprise -- you may compare what you did with following standards to find out how to mark your own cause -- first it must have a big market which, in my opinion, is a prominent feature of an outstanding enterprise. For a huge market opportunity you must solve a very large market problem. The larger the problem your enterprise solves, the larger its value is. It is very important what kind of a market you are in: whether it is a 1 billion, 10 billion or 100 billion market or it grows at the rate of 10 percent, 20 percent, 50 percent or even 100 percent? Because there are many other people casting eyes on this market in addition to you. If the market is quite huge, you may have a lot of space to try to look for the opportunity in this market through different models. But if the market is small, the space will be very narrow but there are still a large number of people involved. As a result, you will trap yourself in a very narrow space and it is not good for your growth and expansion.

For example, some entrepreneurs and friends asked just now whether their enterprises belong to the culture industry and whether cultural enterprises are valuable or not for we do not understand the culture well. If you run a restaurant, a restaurant dealing with a private kitchen, investors will not offer investment to you. Even if your dishes are yummy, your market is very limited. You are in an area and your business may be roaring all the time, but your growth is small. Is it because the whole catering industry is poor? Of course not. South Beauty is listed. Real Kungfu and Little-sheep, hot pot from Chongqing are also successful enterprises. Their models are more fit to the market. First, the market is huge. Although you are in the same catering market, you are a private kitchen restaurant while they have chain restaurants all over the country or even all over the world. This is quite different. They can run a restaurant in Shanghai in the same color, decoration and assortment and have a standard reproducible arrangement. This is the second thing we talk about: what is your business model? Which business model should you use to catch the market opportunity when you are in a huge market?

After I came back to China, I joined AsiaInfo which was listed in NASDQ together with Sina, Sohu, Starcom, etc. and is among China's first Top 500 enterprises. When I was in AsiaInfo, I also stated that different models would bring different values. For example, at that time, we sold to China Mobile who now has a box named SMS gateway, containing server software. We sold the SMS gateway to China Mobile. But they were not sure whether SMS would be profitable. So they said, "We are unsure whether it can make profit or not. Shall we share the risk, like you gain 0.01 RMB for each SMS sent?" AsiaInfo replied, "This is impossible. We do the software and the solution. If you want, you can buy it with 1 million U.S. dollars." China Mobile had no choice but to spend several million Yuan to buy the little SMS gateway. Surprisingly, SMS is hot. Sina and Sohu now also conduct mobile value-added services to share profits with the operator for each SMS.

Actually, regardless of AsiaInfo or Sina, they all solve a big problem, that is to help all people to communicate via SMS, no particular difference. But if you adopt a model of cooperative operation, like the service model Mr. Chen just said, you can make long-term profits, 0.01 RMB for each SMS. But what AsiaInfo did at that time is totally different. But we felt very excited and glad for we finally sold the first set to the operator and we even counted how many were sold in each province. You are thinking about what kind of model shall be used to operate a huge market and huge opportunity. Therefore, the second point that whether the business model of your enterprise is smart enough to enable you to use it to interact with each aspect of the market and to bring the most lasting benefit sharing depends directly on your own business model. For your enterprise, its profits shall be endless and shall be in a high growth.

Again, for example, there are many consulting firms. They work laboriously, because they have to look for new projects each year. Once a new project is obtained, they are excited and then a dozen men are engaged in the project for several months until it is completed. After that, they can earn hundreds of thousands, if they have had a good deal. However, what about the next year? They have to look for new clients. Generally, they would think that since they have done a project for this client last year, which serves a standard, why the client doesn’t give them a project worth several millions again, so that they can continue. This is one way of doing business. We have a very good friend. Since he runs the business, it occurs to him that he cannot do business in this way, which is exhausting, and he wonders whether he can make it a service model, that is, after one project is finished, one has to maintain it every year. It seems difficult to manage one’s own team, because it involves the implementation of SAP, not ERP, whose implementation is difficult. When the team one manages is ambitious and leaves for a better job or salary, he would be at a loss at what to do. At this moment, I can help him solve the problem and he is free from this kind of troubles all the year round as long as he offers a check every year. If he has any problem, he can call our colleagues. Sometimes, there are no problems at all and even if there are problems, while this problem, now that problem, they can be settled by several people in the service center, who can deal with 10 clients, 20 clients or even 50 clients. When the clients amount to 500, what we have to do is add several employees, which is true. Therefore, it is clear that it will not lead to a linear increase. Through thinking he figures out the right model. Let us look at the second point: when one copes with a big social issue, what model should he employ so as to earn money and to ensure his own long-term interest as well? We can find that many enterprises make a contribution to society, but almost earn no money. They wait for some concept such as Web 2.0 to emerge, that is, to first provide people with good service and then wait for them to pay. This is what was done in the past, for we all have seen that Sina and Netease got no money and that even if Ding Lei offered the shares for free, nobody wanted them. Indeed, the way of transforming the user groups into income and profit may emerge in donkey’s years, but no one knows what way the second generation Internet will employ. Appreciation of mobile is out of the question, because mobile is suffered with “strike-hard” and has almost exposed its limited ability. The advertising industry is similar and what measures it will take is still a question. In view of this, whether we investors dare to invest and have to wait for donkey’s years to make money is a big challenge. What on earth is the profit model? What business model should we use? I think these are what we must make clear at the second point.

Third, people and the team are what we are concerned about when we evaluate an enterprise. A team refers to which group of people is gathered to do what, especially in earlier projects. People all say that whether an enterprise possesses a good foundation depends on whether people there are complementary to each other and whether it has a sound corporate governance structure. “Corporate governance structure” is really a big phrase. Practically speaking, it refers to whether there are good rules of the game, and whether the several like-minded people, or at least like-minded for the time being, are able to guarantee a long-term good mechanism, so as to draw the strong points of each other to offset their weaknesses and thus go further in their business. At the same time, fresh blood should be absorbed constantly on the road to make the enterprise better.

Therefore, when we evaluate many teams and enterprises, we add many important weighted scores to the success factors of a team, which is the most difficult point and should be paid attention to. When one proposes a business plan, the above mentioned three points should be vividly manifested. Comparatively speaking, the market is easy to understand, for at most it may bother you that you have to buy marketing research report from IDC, which tells you that the market is huge. It is definitely huge. I also bought some reports and consulted some experts to understand the market.

Which model to employ is much more artistic. Does the model last long while it remains active or is it only feasible for this period of time, but not for the next period, or can it maintain good interaction between previous and later development? Suppose one wants to share China Mobile’s profit. If they are agreed this year, will they agree to do this next year? The answer to this question can be obtained through scientific research and revised through hard work and therefore, it is relatively easy. However, it is difficult to manifest a team in designing a business plan, which I think is relatively difficult, because one cannot predict who the CEO or VP will be and what their background will be. In fact, whenever we read a business plan, we would find it inadequate. Therefore, we will to a certainty go to enterprises, talk with people there and investigate, and in addition, we will also try to know the CEO or some other members in the enterprise from the third or fourth party, which is really a big challenge for us investors, for we should have an acquaintance circle large enough so that anything said or anybody mentioned can be associated with some of our acquaintances. In this way, we can judge whether he is a good guy, honest and capable. All these must be done to evaluate a team.

If an enterprise can skillfully resolve a very big social issue in a very large market, and it gathers a group of people who are enthusiastic, willing to do things and qualified with various qualities required by a successful enterprise, we believe that this will be a very good enterprise. I think whether one writes a business plan or considers one’s own enterprise, for instance, one makes a business plan to evaluate the development stage of his own enterprise or wants to know what the deficiencies are and what is to be added, etc., they should employ the standards mentioned above, I think. First, one should ask himself what the deficiencies are. Then, in the course of making the plan, he can make excellent targeted compensation, which I think is very necessary.

Another point I would like to share with you concerns the employment of so-called business plans. What I mentioned above, including hope for interaction with VC investors, the use of business plans and the criteria or forms to follow, is enough in terms of employment. The Internet in the U.S. suffered its bubble period in the 1990s. At that time, business plans were very thick and looked like a yearbook and they were full of illustrations and predictions towards the future. Why is it so? Because at that time, these enterprises were relatively young and so they had no historical data and only had expectations of the future. So they had to download many reports without much content. Since they had nothing to write about today and yesterday and they only had the expectation of tomorrow, they wrote in great detail their growth factors, such as what they would be like this year, next year, etc. You may have already noticed that nowadays, in China’s capital market, nobody employs Word to make business plans. If you have these kind of ideas, never waste your precious time. You can make a PPT with a dozen to twenty pages and the PPT should make clear several points mentioned above, including what the market opportunities are, what social problems have been settled and what method has been employed, what the products and service are, what the marketing tools are, what the modes of sale are, where the competitive advantages lie and what the uniqueness of your business is.

Meanwhile, you should also make clear the team’s features. If you have made these clear, you will reproduce a very vivid enterprise. Meanwhile, the enterprise must have a relatively perfect model, including a financial model, which is relatively more quantified. The financial model should state clearly the past, present and future financial conditions of the enterprise. The past is definitely real, so is the present. And the future must be predicted. How to predict this? One must make hypothesis based on actual situations. Suppose one does business, engaged in education and training specifically, and he manages a training class, then how does he extend his business to other parts of the country? We have invested in many education and training enterprises and at present we have 10 locations nationwide, three in Beijing, three in Shanghai, two in Tianjin and two in Hangzhou. He may predict that there will be 60 locations nationwide by the end of this year. If one goes to a city to open up a new location, how does he start from scratch? How does one open up the market at the very beginning and thus let people know he is able to run training classes and how many classes he can run? How many classes should be run in top-tier cities and how many in just-below-top-tier cities? All these questions as well as others must be answered based on historical data. Similarly, you must make predictions when you make business plans to predict future financial conditions.

As an investor, I would challenge him when I read his prospectus. He says by the end of the year there will be 60 locations despite the present 10. I would negate it and say he cannot do that. When he says that we can open up five locations in Suzhou, I will tell him that Suzhou is too small to support five locations. I will challenge him. When he says we can develop 50 locations from 10 points, I will tell him that based on our experience, he can not open up several locations every day as if he were planting seeds, which is impossible in practice. Then he has to answer my questions. He must tell me that they have a location-opening squad and they are planting seeds day and night and that every location was opened up on time. Then I will believe that by the end of the year there will be 60 locations. This kind of financial model will transform all qualitative data, such as the scale of the market, the models employed to dominate the market and the qualities of the team, etc., into quantitative data, so that we can challenge him directly, according to the numbers. When I ask him about this situation or that idea, he can answer with numbers. In this way, we can communicate the development of the enterprise for the next 12 or even 18 months. From the perspective of an investor, with these numbers, he can have a basic knowledge of his enterprise, so his purposes of making this business plan, that is, self-education, self-study and self-reflection, will have been achieved. Meanwhile, his purpose of communicating with the external world and his investors and thus being understood by them is also achieved.

Therefore, I think in terms of the components of a business plan, a PPT from a dozen to 20 slides together, with a relatively comprehensive financial model is all right. At the very beginning of communication, there should be an executive summary, which is also important, because people are busy and they may do not have time to skim a 15-slide PPT even if you offer it. In this case, you must impress him in three minutes by the business you are engaged in. You can do this by putting your executive summary, i.e., the executive summary of the enterprise, on one page, together with the questions we discussed before. If answers to these questions are adequate and convincing, they will enjoy our attention and favor. And follow-up communications will be arranged. In terms of the employment of business plans, I do not think it is necessary to pack together all information and email it to the potential investors. At the very beginning, an executive summary is enough. Meanwhile, in the process of your interaction with VCs and investors, of course you must observe the extent of their enthusiasm towards the business you are engaged in.

From our perspective, if we like you and your company, it is a good sign if we ask to visit your company. This is very important. Many of our colleagues, some of whom are successful investors, have been accustomed to the fixed mode of “coming in.” He invites entrepreneurs to his office, one from nine to half past nine, another from half past nine to ten o’clock, so on and so forth. In this case, he deals with the entrepreneurs in a stylized way, which I think should be avoided, because when you look for investors and partners, you must have deep passion and enthusiasm towards your business. Then you must take him to the places where you work every day and let him share every minute of your work. He should be willing to talk with you and listen to you, whether it be about the competitive advantages of your company or what you are worried about. I think this is also very important.

Let’s briefly skim the PPT. As to us at China Growth Capital, I have talked about what enterprises we have invested in and what kind of style we prefer. In addition, we have also talked about the meaning and application of business plans and the ways to employ business plans. If it has something to do with the communication with VCs, what should be paid attention to and how?

The way to write business plans is also covered in my speech, that is, what aspects should be included, what constitutes a business plan and what are common practices. Just now, we also discussed the components of a business plan, that is, an executive summary, a financial model and a PPT. Sufficient employment of a business plan requires communication at the very beginning and subsequent in-depth communication. In the process of communication, it is all right if your English is not good enough, because you can speak Chinese. If the other side cannot appreciate your Chinese, he may not be a good partner.

In addition, the communication should be carried out by the CEO himself, and cannot be entrusted to anyone else. The CEO must do the communication himself and explain some key issues. I have also talked about how to write a business plan. As to its employment, you should bear in mind that the plan is not only made for others, but also for yourself. In fact, if you have clearly stated what your market opportunities are, what your products and service are, what your model is, how you would like to do marketing and sales, what the situation of competition is, what a group of people you are, how your financial condition is and what your financing plan is, then you would make a very good business plan.   

Next, let’s talk about some common practices. As to how to make financial model, we briefly discussed that just now. When you create a financial model, you must base it on the actual development of your business. A financial model is not something abstract, but something very concrete, so it must be correlated with your daily work. If you think it is impossible to open up 60 locations, then you should not write it in the business plan, because it cannot hold water. You can only write the real number of resources you have, but sometimes you can be a little optimistic. Generally speaking, entrepreneurs are always over optimistic.

If you are able to distinguish in your financial model what are hypotheses and what is logical, you can deduce your earnings, your cost structure, your expense structure and the expected profit. I think these constitute the basic knowledge concerning a business plan. I think you are more or less familiar with this kind of communication, whether from your reading or from various TV lectures. Then, I would like to reserve the rest of my lecture for interaction, which may be better to help solve your practical problems.

Q: Nice to meet you, Mr. Tang. I am also a student from Peking University. We would like to set up an information search engine to provide people with various daily leisure and lifestyle information. The potential market in China is above five billion Yuan. The service charge in the first year is 45 million or so and this charge will be transformed into some other business models in one or two years. Since our field is only at its new stage in China, we are confronted with some problems when we consider market share and the service condition on the part of users. We employ some methods used in traditional fields to solve these problems, for instance, information search on car-equipped GPS and cell phones. First, the materials we employ come from other fields. Second, we first comprehensively analyze some relatively newly integrated products and services and then, measure the total market share and use habits of users. But this gives rise to problems. I would like to know how to solve these problems.

Tang Ning: You mean to assess the size?

Q: Yes.

Tang Ning: This is to certain extent related to the development phase of the enterprise. If you already have a client base, you will know what kind of clients will pay you, how much money in which way every month. However, if your enterprise has not developed to that phase, it is much more difficult to assess. Generally, it is called assumption. If you are at the assumption stage, you can deduce an assumption. Assessment in innovative fields is especially difficult. It is true.

Q: Our innovation is an assumption. In 2008, the number of cars equipped with GPS is 1.5 million and the market share of our partner is 30 percent. Among the 30 percent, the frequency of client use falls between 32 and 44.1 percent. Every year the clients are asked to pay RMB1500 Yuan and we set the price at RMB300.

Tang Ning: Yes, you can do that. That is your financial model hypothesis. Next, I will doubt the information you offer; I will listen; and I will ask questions politely. After that, when I go home, I have my homework to do. After I finish it, I will talk to you again and ask you to explain every hypothesis you have made. This is the process. Although I know the process, I am not going to comment on any of the four points you mentioned, nor will I comment on the price, whether it is RMB200 Yuan, or it is RMB300 Yuan.

Q: Will you get interested in our company when it comes up?

Tang Ning: When I get it from you, I am interested. We understand it's a large market for the location-based service. However, in my opinion, your company is at a very early phase right now and in the current capital market, there will rarely be investors who are interested in such a company. The investment for your current company will be primarily from angel investors or yourself. 

Q: Are you interested?

Tang Ning: I suggest that in the current capital market, the so-called project which is still in mind or a company-to-be will rely on your money or angel capital. Thus, who will be the angel? There is a 3F theory, that is, family, friends and fools can be your angel. When will your business develop to a level which is suitable for investment from investment institutions? The answer is when there is some confirmation of the concept and there are investors for your described products or service in the market. You do not need too many clients, but only one does will not work because he/she must be your friend or family. There should be at least dozens of clients who like your goods or service and the last one of that dozens of people would be your real client, and there should be at least five companies like your goods or service and the last of those five companies would be your real enterprise client.

You must start off into the market by yourself unless you adopt a so-called super-cat model, which means some hot and successful business models in western countries adopted by local market in China, and you are the first to run such a business model with much stronger execution than others.

Q: We are just in that model.

Q: I have two questions. The first one is related to the concept, that is, how far would you like to see in the business plan, and specifically, would you like to see a further-seeing person?

Tang Ning: No.

Q: Tang Ning: In our experience, entrepreneurs always know what happens today, but never know what will happen tomorrow. So, if what you told me is about something in a very large market, it will occur to me how much your company will develop in the market. With information about your current development, I can understand what you did yesterday, what you are doing right now and what you will do tomorrow accordingly. However, I cannot understand what you are talking about in three years. A clear description of six months or 16 months is ok for me.

Q: I have a project with a great difference between phase one and phase two, which concerns a platform built in the first two years and then the phase two. My question is whether I should make one or two business plans.

Tang Ning: Why two plans? One business one plan with phase one prepared for the second.

Q: Yes, theoretically it is. However, the second business plan needs a lot of assumptions from the phase one which is totally different from the second phase. I’m not sure it's suitable to mix the twin plans together.

Tang Ning: It's OK for you just to write "how-to" in business plan.

Q: Will you invest in industries that you are not familiar with? How will you take management after investment? I would like to extend the previous gentleman’s question – what if it's a small-market project.

Tang Ning: The first question is whether to invest in fields which I am not familiar with and the second one is how to manage my investment since.

Q: Someone told me that we should invest in profit-making projects where I figure there is very serious logic mistake.

Tang Ning: I don't think so. We do not invest in projects as long as there are profits. The said private kitchen is a good project, so it is considerable if a reasonable price is available. We won't invest in fields which we are not familiar with because there are so many barriers there and we cannot give any support for the enterprises. We are familiar with education and training, finance, Internet and business process outsourcing, which all belong to the outsourcing industry. If you have a project about clean energy in which field we do not understand, we can refer you to our friends who understand and can help you.

How do we manage our investment? We are not familiar with management but we cooperate with enterprises closely. Take China Growth Capital for example, we are not an institutional investor and have no IDG capital like Stanford University, which invests other people's money other than their own, which is the so-called modernized LPGP model for investing institutions. On the other hand, we invest our own money in early-phase enterprises. We focus on early-stage projects and enterprises, and we will offer all-around support for them after investment, such as team building and opportunities to develop business. We help companies to develop team members in different phases with discussion on strategy direction and the profitability. Besides, early-stage companies hope to build connection and interaction with large companies, whether they are user groups or channels, where we can give them a hand based on our expertise in this field.

In addition, when companies develop to a certain scale, we will introduce famous institutional investors like IDG and KP, etc. to make them scale up. That's our "how-to" script. It's not a problem for us to manage because we are part of the companies and we wish to support them in every aspect. Some institutional investors just take a hands-off management approach, many of which have no official board of directors after investment. We had two companies cooperating with IDG in 2003 and 2004 respectively which we invested in before IDG. We have a good time in cooperation even without quarterly meetings but with all decisions done successfully. On the other hand, there are some formal companies convening quarterly meetings where the CEO consults and communicates with directors by PPT and everybody makes big decisions. In my opinion, different investors have great different investing styles. Some investors get involved in a bit more management. However, in the current Chinese capital market, we find few investors who can provide support but not mix-up.

The mature VC in Silicon Valley is born to reach appreciation and it's inconceivable to invest in a non-appreciable project.

Q: It is limited in level of the board of directors.

Tang Ning: It depends because it's impossible to get through almost everyday, but if you have some resources, such as a good channel which is able to interact with this company, I will visit the channel with you together. And we have a good time on the way, which is a kind of appreciation too. We achieve so-called appreciation by cooperating with companies and supporting companies with management as well as operation.

Q: I have four questions.

Question: Are you interested in international cooperation on youth education and exchanges, such as summer camp and winter camp?

Tang Ning: Yes, very much.

Q: The company is not mine which ranks the first in the industry but is not interested in raising funds because it's a state-owned company with very complex equity structure. If you are interested, let's get down to the next question.

Tang Ning: I am interested in your first question, your vision.

Q: My company is NEA-established at the end of 2006. My second question is: why does China Growth Capital focus more on target companies compared with other investment companies. 

Tang Ning: What are these for the above points?

Q: Anything else?

Tang Ning: Nothing.

Q: What kinds of teams are you interested in?

Tang Ning: It depends. There are many successful business management models in China according to Mr. Chen. Some are ruled by the voice of one alone, some are two in one box, and some are three more heads. Hence, when we communicate with the team, what we want to figure out is the decision-making and interaction method inside the team, and whether such a mechanism is suitable for the long-term development of the company, which is a very interactive course demanding to be straight. So it depends.

Many entrepreneurs have great passion and innovative ideas, etc., but everybody has weakness so our job is trying to help them. No one can get opportunity from a perfect man.

Q: Thank you.

Q: Thank you Mr. Tang. You have mentioned my question, the cultural industry, at the beginning in your private kitchen example. I am dealing with ethnic cultural products, and we prefer a production business model. The initial idea not only included products but also involved ethnic food and medical treatment, which has been clearly mentioned in my business plan. You just said the business plan was very important. However, we have run the business for more than a year without a registered company. We did not keep specific account of the initial sales for normal production because we lacked relevant experience. The company wasn't registered until more than one year passed. How will I write about my financial condition in the business plan?

Tang Ning: It's not a big deal. A lot of things have their original sin and this does not count. We would like to take every effort to prove what you told us. For example, we will talk with your clients who have bought your products or services to judge whether they are satisfied and whether they are going to keep buying instead of checking tax bills. We call it a way to take verification. Among many cases of our investment in education and training industry, they are trading all in cash and not all turnovers are counted into the company account, some of which at least in the beginning were not counted into the company account for any reason. How do we handle this? Our first step is to go through the whole structure and cut down. The second step is to use other methods to minimize tax, such as to pay Deloitte for tax minimization. There will be costs. It's not so much to pay some directors as to pay Deloitte experts who will help you out for both tax reduction and business performance. How come you don't you have Deloitte in mind? It needs time, so we don't care.

Q: The project I am talking about is kind of special because it involves the ethnic culture promotion which is somehow related to the government under the progressive social background. The project also wins support from the Central Committee of the Communist Youth League in Beijing covering relationships, resources and promotion. However, the biggest problem is the lack of money. We hoped to run a large project valued at 10 million at the beginning because the project of 56 ethnic groups is really huge, but in the actual operation, it was run with tens of thousand Yuan in over one year. Finally, we found that the large capital is just what the project needs. Running the project with tens of thousand Yuan is just like doing business in the wholesale market. Our problem is that the investment from the government is so conceptive while VC from many enterprises and investment companies prefer technical projects which don't understand our project and will be scared to get a shot.

Tang Ning: The capital of a company can come from various resources including the government, VCs, 3Fs and some insiders. Many cultural insiders in China will help you out. Cultural celebrities who like your project may be your spokespeople after investment, which should be counted into value-added service. In my opinion, what you need is creativity, just be flexible and go for it. Besides, the most suitable investment style for you is either the fool-style angel or the insiders who can understand what you are going to do better. I feel a project of 56 ethnic groups is like the Arabian Nights, but the boss of Ethnic Park may regret not having met you earlier.

Q: I have tried what you proposed but the investment they can provide is so little, such as hundreds of thousand Yuan.

Tang Ning: Well, it needs accumulation if there is no better method available. Besides, you can look for investment from cultural giants who especially like such a large project. 

Q: Do you know someone like that?

Tang Ning: Not really. Ok, if no more questions, thank you everyone.

Host: What I want to add is that this is a serial lecture and we will discuss how to make your financial model at the same venue and the same time on August 1. As an entrepreneur, I find it also very important that your project must bring value for others so that you will enjoy the operation, which will be enjoyable for not only you but also your clients and partners. So, the best project is not the most profitable but the one that can bring value for others.

Let's call it a day. Thank you very much for coming. Please don't forget hand in your feedback. We have a surprise for you.