ustartup: a general meeting of shareholders

uStartup: A General Meeting of Shareholders

Director Vanessa

CFO Xuan

Consultants

Alexander

Jenny

Nathan

Macro Environment

Policy Support More Graduates Advanced technologies

01 01 02 03 04 05BACKGROUNDINTRODUCTION

Tax Relief 2017: 7.9m Big data

Low-interest Loans 2018: 8.2m Block Chain

Development Path

FOUNDED MORE COMPETITORS

DECLINE

2015 2017 2018

01 01 02 03 04 05BACKGROUNDINTRODUCTION

02 01 02 03 04 05

5,100

5,250

7,120

7,360

2,000

0

14,220

12,610

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

18

17

Revenue for 2017 and 2018

2018 2017

■Total 14,220 12,610

■SMM 2000 0

■BP 7,120 7,360

■SI 5,100 5,250

RMB’000

FINANCIALDATA REVENUE

02 01 02 03 04 05

967

844

190

2,000

560

640

0

1,200

0 500 1,000 1,500 2,000 2,500

Cost of website and mobile phone applicationfor 2017 & 2018

1718

2,450

3,510

1,200

7,160

2,725

3,755

0

6,480

0 2,000 4,000 6,000 8,000

Labour cost for 2017 & 2018 1718

Total

SMM

BP

SI

Total

SMM

BP

SI

Since the application is mainly used to order, thenumber of service we provided is treated as thecost driver.We can see that with the development of the new mobile phone application, the total cost increased sharply.

It can be seen that total labour cost hadincreased, but it is the social mediamarketing(SMM) service that contributedto the increase.

RMB’000 RMB’000

FINANCIALDATA COST

02 01 02 03 04 05

18 17SMM 610.43 0.00BP 2766.40 2965.41SI 1683.18 1964.59

0

1,000

2,000

3,000

4,000

5,000

6,000

Gross profit

SI BP SMM

RMB’000

The gross profit increased slightly compared with 2017. From the analysis before we can conclude that the social media marketing(SMM) services is the main reason for the increase.

FINANCIALDATA GROSS PROFIT

Marketing , 200, 8%

Rent, 500, 20%

Training, 100, 4%

Interests, 200, 8%

Wages and admin, 1500,

60%

EXPENSES FOR 2017Marketing ,

500, 16%

Rent, 520, 16%

Training, 400, 13%

Interests, 200, 6%

Wages and admin,

1550, 49%

EXPENSES FOR 2018

MARKETING TRAINING

If we take a look at the expenses respectively, we may see that it isthe marketing and training that took up a large proportion of theincrease in expenses.However, because of the newly-started social media marketing(SMM)services, the increased expenses are within the normal range andrepresent our company’s creativity and motivation.

02 01 02 03 04 05

RMB’000RMB’000

FINANCIALDATA EXPENSES

241.71 210.90

47.39

500

106.60 93.40

200

0

100

200

300

400

500

600

SI BP SMM

Marketing 2018 2017

The rise in marketing expenses illustratesour investment in developing new market. SI & BP ↑ SMM has a relatively low cost

RMB’000TOTAL

193 169

38

400

53 47

100

0

100

200

300

400

500

SI BP SMM

Training 2018 2017

We had spent a larger amount of moneyin training our staff, cause we believethat the core competitiveness is about thequality of our services.

TOTAL

02 01 02 03 04 05

RMB’000

FINANCIALDATA EXPENSES

Rise in expenses

Fall in net profit

• Based on the information above, it is inevitable to spend more money on marketing.

• Moreover, training expenses are part of the necessary cost to improve ourselves.

150.76

1429.29

309.95

1,890

632.10

1797.90

2,430

0

500

1,000

1,500

2,000

2,500

3,000

SI BP SMM 总计

Net Profit2018 2017

TOTALRMB’000

02 01 02 03 04 05FINANCIALDATA NET PROFIT

0, 1240

10500, 3365

0, 0

10500, 5250

0

1000

2000

3000

4000

5000

6000

0 5000 10000 15000

￥’0

00

SALES

SIMPLIFIED INCORPORATIONIN 2017 COST

REVENUE

0, 1768

10200, 2818

10200, 5100

0

1000

2000

3000

4000

5000

6000

0 5000 10000 15000￥

’000

SALES

SIMPLIFIED INCORPORATION IN 2018 COST

REVENUE

0, 1460

9200, 3410

9200, 7360

010002000300040005000600070008000

0 5000 10000

￥’0

00

SALES

BUSINESS COPYWRITING IN 2017 COST

REVENUE

0, 1932

8900, 3442

8900, 7120

010002000300040005000600070008000

0 5000 10000

￥’0

00

SALES

BUSINESS COPYWRITING IN 2018 COST

REVENUE

Year SI BP

2017 690 2483

2018 932 3064

Year SI BP

2017 93.4% 73%

2018 90.9% 65.9%

Breakeven Point of 2 Kinds of Services

Safety Margin of 2 Kinds of Services

1. The cost of the platform hasbeen allocated to the fixedcost based on the salesvolume of the two product.

2. IT team salaries haven’tbeen capitalized.

Illustration

02 CVP ANALYSIS01 02 03 04 05

Strengths

1.Technology: Independent IT team and online platform Keep independence and have

a safe guarantee when technological problems arise

Form long-term advantageover industry

SI BP SMM

Output-Input Ratio

Operating income

proportion

Output-Input Ratio

Operating income

proportion

Output-Input Ratio

Operating income

proportion

2018

exclusive 2.11 78.43% 2.04 78.65%

Non-excs 2.00 21.57% 2.00 21.35% 1.60 100.00%

total 2.08 100.00% 2.03 100.00% 1.60 100.00%

2017

exclusive 1.85 47.62% 1.93 60.59% / /

Non-excs 2.00 52.38% 2.00 40.22% / /

total 1.93 100.00% 1.96 100.00% / /

2018 2017 Industry Reference SI BP

Customer Satisfaction 62% 70% 50% 75% 56%

Sales Revenue 13% 5% -2.86% -3.26%

2. Staff: Customer satisfaction rate is higher than industry level Staff training has a certain effect Overall service quality is good

3. Service: New service SMM developing rapidly Annual sales revenue growth rate of 13% Expected growth in future: 60%

4. Market: Market size for SMM continue to enlarging Expected size for SMM service in total market in

future: 10%5. Management: Output-Input Ratio is

increasing Working efficiency has been improved Cost and price match well and pricing approach is

appropriately

INTERNAL

03 SWOT ANALYSIS01 02 03 04 05

50%

SI BPYear 2018 2017 Variance 2018 2017 Variance

Sales volume 10,200 10,500 -300 8,900 9,200 -300 Price per service 500 500 / 800 800 /

Revenue(’000) 5,100 5,250 -150 7,120 7,360 -240,

1. Technology: IT platform needs to be updated and cost is high Digital technology needs

constantly updating IT platform’s cost is hard

to reduce SMM’s labor cost is high

2. Staff: Staff quality varies

2018 sales volume: decrease 11%

2018 total population of staff: increase 124%

2018 complaints volume: increase 140%

3. Service: Total Profit decreased

SI&BP’s sales volume declined Total revenue decreased

4. Market: Inefficient Marketing policy Marketing investment---reference program is not effective USP is small scale, risk-taking ability is weak Trial and error costs is high5. Management: Unreasonable wage structure and

incentive scheme Incompatibility of working distribution ratio incentive scheme doesn’t work well

‘000 2018 2017Service SI BP SMM TOTAL SI BP TOTALRevenue 5,100 7,120 2,000 14,220 5,250 7,360 12,610

Laborcost

Exclusive 1,900 2,750 / 4,650 1,350 2,275 3,625

Non-exclusive 550 760 1,200 2,510 1,375 1,480 2,855

Total 2,450 3,510 1,200 7,160 2,725 3,755 6,480

PCT(Labor cost)48.04

%49.30

%60.00

%50.35

%51.90

%51.02

%51.39

%

Online platform 2,000 / 1,200 /Gross profit / / / 5,060 / / 4,930

Expense 3,170 2,500

Net profit before tax / / / 1,890 / / 2,430

2018 2017Services SI BP Total /

No of complaints 80 340 420 300

PCT 19% 81% / /Satisfaction Rate 75% 56% 62% 70%

Weaknesses03 SWOT ANALYSIS

01 02 03 04 05

INTERNAL

1. Policy encouragement Startup wave contributes

to its success

2. An era of digitization Self-media is so

prevalent that stimulates SMM service

3. Expected blooming market (SMM60%*10%)

SMM service has potential to be deeply explored

4. Distinct customer characteristics

School market is waiting for targeted development

5. Active human resources market

Sufficient labor force to facilitate the reform of the salary system

Opportunities & Threats EXTERNAL ENVIRONMENT

1. Fierce competition New entrants join in Traditional company

(much larger in size): low price strategy / high salary temptation

2. Startup waves faded

Decline in aggregate demand for startup market 3. An era of digitization

In order to prevent technology aging, it is necessary to continuously invest in research and development costs

Threats

Opportunities


a. Technology: Independent IT team and online platformb. Staff: Customer satisfaction rate is higher than

industry levelc. Service: New service SMM developing rapidlyd. Market: Market size for SMM continue to enlarginge. Management: Output-Input Ratio is increasing

a. Technology: IT platform need to be updated and cost is high

b. Staff: Staff quality variesc. Service: Total Profit decreasedd. Market: Inefficient Marketing policye. Management: Unreasonable wage structure

and incentive scheme

a. Policy encouragementb. An era of digitization c. Expected blooming market d. Distinct customer characteri

sticse. Active HR market

I. Release customized services to adjust within customer feedback

II. Respond to national appeal for probably profitable chances

III. Learn from an industry benchmark and create a brand effect of SMM

IV. Build one-window service

I. Raise BP, SMM and depress SI pricesII. Reduce low-marginIII. Establish cooperation with universities and

hold a competition annually to attract students

IV. Advertising by means of social media (Twitter, WeChat, etc.)

a. Fierce competitionb. Startup waves fadedc. An era of digitization

I. Reduce investment in RNDII. Determine percentage for each order according to

customer satisfactionIII. Develop communication between different companies

in the marketIV. Inclined company’s operation to SMM service

I. Stop SI serviceII. Raise funds and cut costsIII. Establish competitive serviceIV. Invest in major business

Opportunities

WeaknessStrengths

Threats

S-O √ W-O √

W-T ×S-T √

External

Internal


RISK SEVERITYLOW MEDIUM HIGH

LIKELIHOO

D

LOW LOW LOW MODERATE

MEDIU

MLOW MODERATE MODERATELY

HIGHHIGH

MODERATELY LOW MODERATE HIGH

Authority and pledge to the

ERM

RISK Management

policy

Mixer of ERM in the institution Risk Assessment

Risk Response Communication and reporting

Information and Communication Monitoring

T H E E I G H T E L E M E N T S O F C O S OM O D E L

We use COSO RISK MANAGEMENT MODEL and RISK and CONTROL MATRIX (RACM) to assess USP, as the information we have acquired is incomplete.

04 COSO ANALYSIS01 02 03 04 05

A. Market share shrinking due to capitalentry of large companies

B. The new business SMM developed bythe company is not welcomed by themarket

C. The possible collapse of the company'sreputation caused by the decline incustomer satisfaction

D. Sole consultants are at risk of staffturnover

Several potential risks for USP Company

Probability for risk A： HighINDICATORS:Decline in USP’s profits and the increase in market research and development costs.SEVERITY： HighIf the risk occurred,USP is likely to be compressed by large companies and lose much market space, so the severity of the risk is high.

Probability for risk B： MediumINDICATORS:SMM market has a broad and promising prospect, and it will continue to rise in the next three years.SEVERITY： MediumAs a brand new and emerging business area of the company, USP could bear the failure and other possible losses.

Probability for risk C： MediumINDICATORS:The company’s current satisfaction has dropped from 70% in 2017 to 62%.SEVERITY： HighFor consulting companies, user satisfaction is very important, so the degree of risk threat is high.

Probability for risk D： MediumINDICATORS: Senior employees are very important to the company, and the recent competitors are poaching them.SEVERITY： MediumIt is considerably important but not vital.


FOMULA:

R:RiskS:SeverityO:LikehoodHigh (9-12 points) Medium (5-8 points) Low (0-4 points)

Hazard determination and injury estimation

Likelihood SeverityRisk

Coefficient

Risk A 10 12 120

Risk B 2 6 12

Risk C 6 10 60

Risk D 6 6 36

Results on RCAM

Therefore, it can be concluded that risk A and risk C are relatively risky and highly likely, risk D is moderately likely to occur, and risk B basically does not occur and is less harmful.

RISK SEVERITY

LOW MEDIUM HIGH

LIKELIHOO

D

LOW RISK B

MEDIU

M

RISK D RISK C

HIGH RISK A

R S O= ×


‘REN DAN HE YI’ (RDHY) MODEL

‘REN’

an open concept &not limited to the

inside of the company

‘DAN’

user value, not an order in a narrow sense

‘HE YI’The value realization

of employees is consistent with the created user value

Zero distance DecentralizationDisintermediation

EMPLOYEES Customized serviceORDERS WORK GROUP

04 RISK MANAGEMENT01 02 03 04 05

HIGH QUALITY

How does RDHY MODEL deal with the risks?

1 COMPANY

EMPLOYEES

CLIENTS

2

3

1 CLENTS

EMPLOYEES

COMPANY

2

3

• RDHY can effectively enhance the competitiveness of USP and guarantee its market share to the greatest extent.

• Achieve the purpose of private customization after using this model

• Use big data technology to improve quality

2. RISK C

3. RISK D

1. RISK A

• Salary-driven so the incentive effect is stronger• Every employee is his or her own “CEO”

“Customer First”

04 RISK MANAGEMENT01 02 03 04 05

FINANCE

CUSTOMER

INTERNAL PROCESS

LEARNING ANDGROWTH

Optimize products’ combination to achieve long-term profitability

Operation management process

Innovative management process

Legal socialprocess

Customermanagement process

PriceProduct Service

Enhance customer stickiness Improve customer profitability

Increase sales revenue

Adjust salary structure

Enhance online platform utilization value

Strengthen customer value

Growth strategy Productivity strategy

• After-sales service• Risk management

• Customer discovery• Customer maintenance• Customer growth

• Product design• Platform building• Company listing

• Environmental• Staff recruitment• Social responsibility

Customer relationship Brand

StaffStrengthen professional

training

Organizationadjust organizational

structure

ServiceImprove the ability of customized services

InformationOptimize the IT

platform

Building differential competitiveness

04OVERALL STRATEGY01 02 03 04 05

Departmental Integration

Platform Capitalization

Oriented Problems

Market Environment

Declining Profits

Declining Revenue & Poor Feedback

Poor Feedback

Salary Structure Reform

Quality Governance

Suggestions

01

02

03

04

05

Human Resources Reform Performance Differences

05 OPTIMIZED PLAN01 02 03 04 05

Departmental Integration

Rotation of department executives

Bundling

Problem-oriented:Market environment

Companies from traditional markets:

occupy the market with low prices

The customer satisfaction rate

of USP company overall: higher

The customer satisfaction rate

of BP in USP:

significantly lower than that of SI

Two services were provided by

different groups of consultants with

no overlap between them.

Change the sales model, launch two or three

products for bundling sales (SI+BP;

SI+BP+SMM), and give customers preferential

prices for bundled services. increase sales

increase customer stickiness

Replace a single service with application

scenarios, and cover a single industry with

a brand ecology.

Imitating the rotation system of senior

management positions in companies such as

Huawei, the management of SI, BP, and SMM

take turns in different departments. strengthening communication

avoiding completely alienated situations

“One professional area, more familiar

areas."SYNERGY



Pre-process gross profit (rate)

Post-process gross profit (rate)

Pre-process net profit (rate)

Post-process net profit (rate)

2017 4,930,000（39%） 5,230,000（41%） 2,430,000（19%） 2,730,000（22%）

2018 5,060,000（36%） 5,610,000（39%） 1,890,000（13%） 2,440,000（17%）


Decreasing costIncreasing gross

profitIncreasing gross

profit margin

Problem-oriented: Declining profits

Gross profit: increased by only 2.64% year-on-year

Pre-tax net profit: fell by 22.22% year-on-year

Considering company control & technical needs in the long term:

future development in information era → no outsourcing

Adjustments of accounting treatment:

cost of IT infrastructure → capitalized

team salary → expensed


SI BP SMM Total

Output-input ratio

Operating income prop.

Output-input ratio


Output-input ratio


Output-input ratio

2018

Exclusive 2.11 78.4% 2.04 78.7% 2.06

Non-exc. 2.00 21.6% 2.00 21.3% 1.67 100.0% 1.84

Total 2.08 100.0% 2.03 100.0% 1.67 100.0% 1.99

2017

Exclusive 1.85 47.6% 1.93 60.6% 1.90

Non-exc. 2.00 52.4% 2.00 40.2% 2.00

Total 1.93 100.0% 1.96 100.0% 1.95

Human Resources Reform

Problem-oriented: Performance differencesThe output-input ratio of EE has improved significantly

in 2018, and it has surpassed the performance of NEE.

Output-input ratio of employees in SMM was relatively

low probably with the intention to seize the market with

low prices.

In 2018 EE created most of the revenue of SI and BP.

Training expenses: remarkably improve

the performance of EE

Salary structure reform: more attractive

exclusive contract, turning more NEE

into EE

60% growth rate of SMM business: USP

can hire more employees for SMM



From Employers

Problem-oriented:Declining revenue & Poor feedback

360 degree performance appraisal [Google]

SI and BP sales declined.

Customer satisfaction also showed negative changes.

Output-input ratio of

senior employees ↑

consider

appropriate wages

for arranging EE

in the SMM to take

on the broad

market potential.

Optimize the salary

structure

fixed costs ↓

variable costs ↑

improve

remuneration

package of EE

Develop employee

incentive plans.

high customer

satisfaction (SI)

evident customer

satisfaction

improvements (BP)

Employees' personal

reflection of service

volume and quality

matters.

reasonably adjust

expectations

build a scientific

salary structure

From EmployeesFrom Departments From Customers

Performance-related Pay Share Options


From the perspective of employees (2018)

Revised Original

SI BP SI BP

EE fixed cost 644,000 920,000 700,000 1,000,000

EE var. unit cost 162 270 150 250

EE var. cost 1,438,560 2,153,520 1,200,000 1,750,000

EE total cost 2,082,560 3,073,520 1,900,000 2,750,000

Salary Reform Plan (Example)

Revised Original

SI BP SMM SI BP SMM

EE fixed unit cost 39,100 42,500

EE var. unit cost 162 270 400 150 250 /

NEE var. unit cost 250 400 600 250 400 600

Estimate for 2019 Optimistic Neutral Pessimistic Contrast (2018)

Total sales 29,009 22,160 20,056 21,100

EE sales 24,109 18,900 17,400 15,000

NEE sales 4,900 3,260 2,656 6,100

EE var. cost 5,439,030 4,464,600 4,146,000 2,950,000

EE fixed cost 2,150,500 2,150,500 2,150,500 1,700,000

EE total cost 7,589,530 6,615,100 6,296,500 4,650,000

NEE total cost 1,790,000 1,266,000 1,090,400 2,510,000

Total labor cost 9,379,530 7,881,100 7,386,900 7,160,000

Revenue 19,347,200 15,332,000 14,020,800 14,220,000

Contribution 9,967,670 7,450,900 6,633,900 7,060,000

Based on performance of 2018, under the new salary structure, EE could have obtained higher wages.

The attractiveness of exclusive contracts to NEE will increase and USP will attract outstanding NEE

talents and benefit long-term development.

As the contracted employees have stronger business capabilities, the company can gain more profits. Even

under pessimistic market conditions, the company will not suffer a huge plunge in profits.



Quality Governance

Solution

Breakthrough point: Service PLUS

Solution

Customized service

Problem-oriented:Poor feedback

The customers of the new business SMM are

mainly start-up companies, and USP is more likely

to serve the same customer for multiple times,

while the SI and BP businesses need to leave a good

first impression on new customers.

75%

56%

62%

50%

40%

45%

50%

55%

60%

65%

70%

75%

80%CUSTOMER SATISFACTION RATE

SI BP Total Market Ave.

Competitors Industryusing low price

strategy to acquire market share

not satisfying customers

(50% satisfaction rate)

Customer Stickiness Brand Ecology

Differentiation Competitive Advantages


Quality Governance

Service PLUS

PRODUCT SALES USE LOST

SolidQuality

SolidSellingPoint

SolidCare

SolidCompensation

View Quality Governance from the Perspective of the Entire Service Chain

Improve service quality

Enhance service competitiveness

Strengthen customer care

Compensate lost customers


Conclusion

• unique user groups

• service quality: higher

than the average level

• attractiveness to senior

employees

• future performance > short-term profitability

• layout SMM business in advance showing

great potential and market shares

For small businesses such as USP:

create their own brand features

and customized services

promising developmental

prospects, covering:

service types,

service quality,

customer stickiness,

employee management,

…

Obvious advantages

Competitive pressure

Focus ondevelopment

Great prospects

USP — Utilize Superb Potential

THANKS FOR LISTENING!AND…ANY QUESTIONS?

ustartup: a general meeting of shareholders

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