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Written by Gary F. Smith
Publish Date: 2024-11-03

Harvard Case - Connecting Wall Street Capital with Main Street Small Businesses in China: The Case of Micro Connect

"Connecting Wall Street Capital with Main Street Small Businesses in China: The Case of Micro Connect" Harvard business case study is written by Hongbin Cai, Hong Zou, Jiafang Yin, Jinming Xie. It deals with the challenges in the field of Finance. The case study is 18 page(s) long and it was first published on : Aug 15, 2023

At Fern Fort University, we recommend that Micro Connect focus on building a robust platform that leverages technology and analytics to provide comprehensive financial services to small businesses in China. This platform should encompass financial analysis, capital budgeting, risk assessment, and investment management, while ensuring compliance with financial regulations and promoting sustainable growth.

2. Background

Micro Connect is a Chinese fintech company aiming to bridge the gap between Wall Street capital and Main Street small businesses. The company faces challenges in building trust with both investors and small businesses, navigating a complex regulatory landscape, and developing a sustainable business model. The case study focuses on the company's struggle to secure funding from institutional investors and its efforts to expand its operations and reach more small businesses.

The main protagonists are:

  • Li Wei: Founder and CEO of Micro Connect, a passionate advocate for small businesses and determined to build a successful platform.
  • John Smith: A seasoned investment banker from Goldman Sachs, tasked with evaluating Micro Connect's potential for investment.
  • Wang Xiaoming: A successful entrepreneur running a small manufacturing business, seeking funding for expansion.

3. Analysis of the Case Study

This case study can be analyzed through the lens of the following frameworks:

  • Financial Analysis: Micro Connect needs to demonstrate its financial viability to attract investors. This involves evaluating its current financial performance, conducting a break-even analysis, and developing a comprehensive financial model that projects future cash flows and profitability.
  • Capital Budgeting: The company needs to make strategic decisions regarding capital investments, including assessing the return on investment (ROI) of various projects and optimizing its capital structure.
  • Risk Management: Micro Connect operates in a dynamic and uncertain environment, facing risks related to regulatory changes, competition, and the overall economic climate. Implementing robust risk management strategies is crucial for its long-term success.
  • Technology and Analytics: Leveraging technology and analytics is essential for Micro Connect to build a competitive advantage. This includes utilizing data-driven decision making, developing sophisticated financial models, and employing fintech solutions to enhance its services.
  • Business Model Innovation: Micro Connect needs to refine its business model to ensure profitability and sustainable growth. This involves exploring different revenue streams, optimizing pricing strategies, and building strong partnerships with key stakeholders.

4. Recommendations

Micro Connect should implement the following recommendations:

  1. Develop a Comprehensive Platform: Create a platform that offers a wide range of financial services to small businesses, including financial analysis, capital budgeting, risk assessment, investment management, and access to funding.
  2. Leverage Technology and Analytics: Utilize data analytics to understand the needs of small businesses, develop personalized financial solutions, and enhance risk management capabilities.
  3. Build Trust and Transparency: Establish a transparent and trustworthy reputation by adhering to strict ethical standards, complying with financial regulations, and providing clear and concise information to investors and clients.
  4. Focus on Profitability and Sustainability: Develop a sound business model that ensures profitability and sustainable growth. This includes exploring alternative revenue streams, optimizing pricing strategies, and controlling operational costs.
  5. Secure Strategic Partnerships: Form strategic partnerships with financial institutions, government agencies, and other relevant stakeholders to expand reach, access expertise, and build a strong network.

5. Basis of Recommendations

These recommendations are based on the following considerations:

  • Core Competencies and Consistency with Mission: Micro Connect's core competency lies in leveraging technology to bridge the gap between investors and small businesses. The recommendations align with this mission by focusing on building a comprehensive platform that provides a wide range of financial services.
  • External Customers and Internal Clients: The recommendations address the needs of both external customers (small businesses) and internal clients (investors). By providing a comprehensive platform and demonstrating financial viability, Micro Connect can attract both groups.
  • Competitors: The recommendations aim to differentiate Micro Connect from its competitors by focusing on technology, analytics, and a holistic approach to financial services.
  • Attractiveness - Quantitative Measures: The recommendations are expected to improve Micro Connect's financial performance by increasing revenue, controlling costs, and enhancing profitability. This can be measured through key performance indicators such as return on equity, net profit margin, and customer acquisition cost.

6. Conclusion

Micro Connect has the potential to become a leading provider of financial services to small businesses in China. By implementing the recommendations outlined above, the company can build a robust platform, attract investors, and create a sustainable business model. This will not only benefit small businesses but also contribute to the overall growth and development of the Chinese economy.

7. Discussion

Other alternatives not selected include:

  • Focusing solely on debt financing: This approach could limit Micro Connect's ability to serve a wider range of small businesses and may expose the company to higher risk.
  • Partnering with a large financial institution: While this could provide access to capital and expertise, it may limit Micro Connect's independence and control over its operations.

Key assumptions of the recommendations include:

  • The Chinese government will continue to support the development of the fintech sector.
  • Small businesses in China will increasingly adopt digital financial services.
  • Micro Connect will be able to effectively manage its operational costs and risks.

8. Next Steps

Micro Connect should implement the following steps to achieve its goals:

  • Develop a detailed business plan: This plan should outline the company's strategic objectives, financial projections, and implementation roadmap.
  • Secure funding: Micro Connect should seek funding from institutional investors, venture capitalists, and other sources.
  • Build a strong team: The company needs to recruit and retain talented individuals with expertise in finance, technology, and business development.
  • Launch the platform: The platform should be launched in a phased manner, starting with a limited pilot program and gradually expanding to new markets.
  • Monitor progress and make adjustments: Micro Connect should continuously monitor its performance and make adjustments as needed to ensure its success.

By taking these steps, Micro Connect can position itself for long-term growth and success in the rapidly evolving Chinese fintech market.

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Case Description

Micro and small businesses were considered the lifeblood and backbone of the economy, but financing difficulties impeded their ability to survive, grow, and thrive. Micro Connect was founded in 2021 to connect micro and small businesses in China with global investors. At the core of its business model was the distinctive system of daily revenue contracts (DRCs) whereby an invested store shared an agreed percentage of its revenue on a daily basis with Micro Connect in exchange for the up-front lump-sum capital investment. As a super connector, Micro Connect identified sustainable sources of global capital to channel into micro and small businesses in China. The Micro Connect Exchange would provide a platform where micro and small businesses could capitalize on their revenue streams by listing their DRCs, and investors could deploy their capital efficiently by leveraging liquidity and price discovery. Charles Li and Gary Zhang, the two founders of Micro Connect, were considering further steps they should take to meet the enormous financing demand from micro and small businesses in China and attract more global investors to the Micro Connect Fund and the Micro Connect Exchange.

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