Malaysia's digital economy is similar to Singapore and Brunei.

Recently, I was invited to speak on entrepreneurship and consumer Internet trends in a private event hosted by Penn Olson during Startups in Asia, which happened from 2nd to 4th February.

In this article, I will highlight additional perspectives to shed greater light on the ideas presented during my talk, which gave the audience a better grasp on the consumer internet space in Southeast Asia.

Two clusters of economies in Southeast Asia, based on mobile and Internet penetration rates

Glancing at the mobile and internet penetration rates in ASEAN countries, we see two prevailing trends (see slide 4 of the presentation provided below).

But before that, it’s important to note that the internet penetration rate is constructed based on the number of broadband internet subscribers divided by the total population, while the mobile penetration rate is calculated using the number of mobile subscribers (mobile phones are not distinguished as either featured/WAP phones or smartphones). As a result, mobile penetration rates are usually more than 100 percent, which just means that most users own more than one phone.

Taking into consideration the ratio of mobile and internet penetration rates, we see two clusters forming: The digital economies of Singapore, Brunei and Malaysia share very similar behaviour where smartphone ownership is becoming significant in the cities, while the Philippines, Indonesia, Thailand and Vietnam represent emerging digital economies where smartphone penetration are relatively low but the consumers uses social media with low mobile rates without knowing that they are accessing the Internet.

Looking at Cambodia, which may represent a potential digital economy of 53 million people, one can conjecture that it is heading in a similar direction as Vietnam or Thailand. As for Myanmar, the infrastructure must be built first before a digital economy can arise.

Missing elements in the Southeast Asia Ecosystem

I have indicated in my talk that there are at least three missing elements (and they may be more). Let’s start from the first issue: the lack of series A funding in the region of US$0.5M to US$2M. The reason why most investors avoid this funding range is because it’s a risky stage where a company can grow into a proper and sustainable entity or go south if they cannot find sustainable revenue streams.

As a result, most companies which can potentially grow will not be considered by investors. However, seed funding is readily available because the quantum of investment is low. To get a better chance of obtaining funding in this range I talked about, the company has to leapfrog and generate significant revenues quickly, otherwise it is very tough to move forward.

The second issue is the dearth of talent to scale the company. If we match founders from Southeast Asia to Silicon Valley, the difference is not that wide apart. The real difference is in the management team with people who are formerly from big companies that can help to scale the company. We read often from tech blogs about the movement of people from one big tech company to another, but this phenomenon is very rare in Southeast Asia. The reason is that most start-ups cannot afford the lifestyle of these executives and the opportunity of exits are very minimal.

The last issue relates to most VCs in Southeast Asia: A lot of them are former financiers and not really business operators by experience. We cannot fault them for their backgrounds, but it does have an impact on how they assess companies.

To be blunt, a former banker constructs a company’s valuation by profit and loss. If Facebook was started in Southeast Asia, they can never survive. The reason is that they did not generate any revenue or profit until their pre-IPO investment round. Of course, Facebook was a bit bet and the odds of finding companies like it are really small.

But I am seeing good signs in Singapore where we have people like Meng Weng Wong (co-founder of JFDI Asia) and Batara Eto from East Ventures who are former entrepreneurs running venture incubators and are investors as well.

Photo: WhizKris

Facebook is the ultimate acqhire company.

Acqhire is the new buzzword referring to an exit strategy when big tech companies purchase small companies, primarily as a talent recruitment strategy, sometimes with a significant signing bonus.

So far, to the best of my knowledge, it only happens in the US.

Facebook is probably the most well-known company involved in such takeover types. It started with several companies: Friendfeed, Beluga and most recently, Gowalla. Several investors (or tech pundits) for example, Mike Arrington & Jason Calacanis have provided their perspectives on the acqhire issue specifically on the Gowalla case. Hence I thought it might be interesting topic to examine in Asia.

In my own humble opinion, I don’t think that it will ever happen for tech companies in Asia and here are several reasons why:

Your investors do not know how to sell.

Most venture capitalists in Asia are not sophisticated enough to sell their portfolio of companies to potential acquirers. So, do you think that they are smart enough to structure a acqhire deal with the companies? Another argument is that in the web-tech space, the big four companies (Google, Facebook, Apple & Amazon) together with Microsoft are all located in the US, and hence it’s difficult for Asian investors to get them to acquire.

While we see more Chinese & Japanese companies extending their reach to Southeast Asia, the investors are rarely involved in structuring these acquisitions. Usually in Asia, the entrepreneurs do the work most of the time. Time and time again, it’s easier to remind most readers that most venture capitalists in Asia are a bunch of bankers who have no operations experience and that’s why they cannot structure deals in the way how the US guys does it.

Less frequency of acquisitions for tech companies in Asia due to technology arbitrage and pricing.

First of all, most owners of Asian companies or conglomerates are thrifty and less expansive in their acquisitions. Our environment is less sophisticated as compared to Silicon Valley. Most conglomerates purchase for functionality and not the complete package that comes with the acquisition, which include talent and other assets of the company which are not exactly functional, like a sales and marketing division.

Facebook’s rationale for acquisitions like Gowalla and Friendfeed, on the other hand, is to hire talent for Facebook.

They will put a price on the founders and then pay the rest with the stocks of the parent company. That’s also the reason why Twitter rejected the bid from Facebook four years ago, because the amount for payout was too low, based on rumors at that point of time.

As far as obtaining expertise goes, Asian companies prefer to build the same technology by outsourcing to a Chinese or Indian firm, as it’s cheaper. Hence the tech arbitrage is the costs in cloning the same company overseas as opposed to locally.

Asian companies only buy one talent and not an entire team of players.

To an Asian owner, it’s too expensive to buy a team. Just buy the top guy and that’s enough. In Silicon Valley, if we examine the acqhire cases, they usually involve the acquisition of teams of engineers. One case stood out in Asia was the acquisition of Ngmoco by DeNA, and the sole reason was that the founder was a former employee of Electronic Arts.

In conclusion, it is not difficult to fathom why acqhires are ridiculously difficult to execute for Asian companies in simple words: sophistication, arbitrage, price.

Image: Andrew Feinberg

There has been strong resistance against both bills not just from many technology entrepreneurs from the start-up space but also from multi-national companies such as Amazon, Google, Microsoft, Twitter and Facebook.

The aim of this post is to explain what SOPA and PIPA really means for us and why we are not supportive of such legislation for economic reasons if our Minister of Law decides to propose it as a bill in the very near future. It’s not just a Singapore problem but a Southeast Asia problem if it gets passed thru in Singapore.

To put it simply, here’s what SOPA and PIPA seek to do: the laws will be enacted “to minimize the dissemination of copyrighted material online by targeting sites that promote and enable the sharing of copyright-protected material, like The Pirate Bay.” If the act is enacted, a few steps will be taken to limit access to rogue sites:

(a) bypassing the “notice and takedown” method of copyright infringement on internet services (for example, the Pirate Bay) and require the Internet service providers, or ISPs in short (in Singapore: M1, Starhub and SingTel) to police content uploaded by users or prevent users from uploading copyrighted content,

(b) require ISPs to change their DNS servers and block resolution of domain names of websites that host these illegal content (i.e. movies or TV shows),

(c) require search engines to modify search results to exclude websites of such nature,

(d) order online (including mobile) advertising services (Google AdSense, InMobi) and digital payment services (Paypal, Square) to cease business with websites of such nature.

The reason why most major internet companies oppose to the act is simple. SOPA and PIPA changes the liability rules around copyright infringement. The Digital Millenium Copyright Act of 1998 in which Singapore has signed on a stronger version (during their free trade negotiations with the US) states that companies are protected from charges of “contributory infringement” on content uploaded by users as long as the company follows up with the process of removing the content which infringes copyright when an alert process is signalled.

Here’s how it works in real life: suppose a user of the ISP uploads a video that infringes copyright, the ISP will be alerted by the relevant authorities to remove the content. SOPA changes the former arrangement, and now user-generated content sites like YouTube or Twitter have to worry about copyright due to contributory infringement when a rogue user deliberately uploads content to these user generated content sites.

The burden of reviewing every blog post, tweet and video submission is impossible to manage for any company. This is similar to the situation in China, where video sites such as Tudou have to hire people to monitor content uploads 24-7 to ensure that no sensitive political content is uploaded.

SGE‘s opposition against SOPA/PIPA legislation is not focused on freedom of speech arguments which have been brought forward by many digital advocates. You can read about these elsewhere. Our concern is that such legislation has profound implications to our economy.

First, the legislation breaks the internet architecture and subjects our ISPs to undue stress of monitoring all forms of user-generated content. The current procedure that the ISPs use to remove illegal content is sufficient to protect copyright. However, if SOPA or PIPA legislation is enacted through the Singapore parliament, the ISPs would have to waste resources to monitor internet traffic.

Second, the Singapore government has devoted a lot of resources to nurture in our country the next Facebook and Google or sites that might create great impact like Wikipedia or any user-generated sites similar to YouTube and Twitter. By allowing such a legislation, innovation within the local tech and creative content industry will be reduced. Think of a young, talented pianist applying for a top music school and producing a YouTube performance of a song which is well known. The pianist can get sued for copyright infringement even if the content is being re-mixed.

Last but not least, Singapore is currently the digital hub for most of the large MNCs (Google, Facebook and Microsoft) for the whole Southeast Asia region. All these companies are mostly anti-SOPA, and by enacting such legislation, it may force these companies to relocate their companies’ SEA headquarters somewhere else. That will mean that our economy will slow down and lose the jobs created by these companies.

For all of you who want to help out, please go to the Facebook page of our Law Minister and register your objections in a respectful manner so that we will have not such a legislation knocking our doors. It may be good to check out this post by Xu Si Han who initiated the call to me and the rest of the tech community to step in and declare a resounding no to SOPA/PIPA like legislation.

Lastly, this is not just a Singapore problem but a Southeast Asia problem at large. If Singapore passes such a legislation, it’s very likely that everyone around the region (Indonesia, Malaysia, Thailand, Philippines and Brunei) might follow suit. Hence it might make the whole region less viable for the investment that will transform the region to be like China and India.

All in all, SGE does not support SOPA/PIPA.

References:

[1] ChannelNewsAsia, Healthy IP environment contributes to creative economy.
[2] K Shanmugam Sc Facebook Post
[3] Tim O’Reilly: Why I’m fighting SOPA
[4] Joi Ito: Why we need to stop SOPA and PIPA and Ethan Zuckerman, MIT Media Lab opposes SOPA, PIPA.
[5] Cato @ Liberty: SOPA: An Architecture for Censorship.

Image: Andréia

Recently, a lunch treat with a couple of friends brought up an interesting discussion on how much we should pay interns in a start-up. Given the dearth of talent in Singapore as many claimed, one solution is to look for inexperienced and passionate people, and they usually come from the tertiary institutions (universities and polytechnics). The aim of this article is to establish some principles in setting up a reasonable pay scheme for interns in a start-up.

Here’s the story. A few start-ups took part in an internship program and offer positions to various candidates. Each one arbitrarily decided the salary which they would pay an intern. Let’s put a few numbers up first before we continue on. The pay ranged from S$700 to S$1.2K per month and no company actually spoke with each other on how much they were paying.

The average worked out to be about S$900-S$950, based on the range offered by the start-ups. The minimum market rate pay for a polytechnic internship is advised to be about S$400 a month and university undergraduate at about S$550. Just to compare, an investment bank internship (which is possibly the highest-paying one) would cost about S$1.6K per month.

All these benchmarks do help us get a sense of what the right pay is. Of course, in a year’s time, thanks to inflation coupled with demand and supply, the numbers will change. But you can use a discount rate using the time value of money to work out the numbers then.

The best and the brightest who are going for a career in banking, consultancy or a job in any major corporation will never work for a start-up. That’s a very competitive area. So you’ll probably have to rule out that group of people. Because an internship in a bank is so lucrative, a lot of students will apply.

So, if a student comes to you and tells you that he or she plans to work for an investment bank or consultancy firm, you should probably rule this student out from your start-up. It’s nothing personal, but the student will never fit the mold in a start-up. If you drop into the second tier, you are probably going for those who could not get into the banks and just take anything that comes along. The same principle applies and you should not hire them.

So, where do you go from here?

In the end, you are only left with three types of students which will come to the start-up. The first group is self-selected: They are going to start a business later when they graduate and are totally motivated in what they do. I don’t have the whole dataset but when I first surveyed students who I have taught in different universities, most of them either have one parent or relative who are business owners themselves (not necessarily successful). This group has a lower resistance towards risk taking.

The second group consists of people who want to learn but they are not the type who will end up working for a bank because they either don’t have the grades, or sometimes, connections to get their internships.

The third group are just people who figured out that they want to join a bank later in their lives, but want to experience what it’s like to be in a start-up. All three groups have their own risks and benefits.

With the above in mind, here are two methods to determine a pay structure for an intern in a start-up.

1. Apply the principle of consistency on how you pay employees and interns in a start-up.

That’s the principle I have used. When an employee joins a start-up, they don’t get a lot of benefits such as healthcare or perks. Any employee will think in an one year horizon, but their actual period of survival for employment is 9 months. The reason why Silicon Valley can attract a lot of people to start-ups is because of the equity or stock options vested.

So, the employee suck it up in the US and bet that the company will succeed. This does not work in Singapore, because I have not met a single employee who actually believes in that. To deal with the volatility, structure the intern’s pay to be about 15-20 percent above the market value.

However, for the employer, this is very painful because it increases your burn rate drastically. So, why 15-20 percent? The reason is that as an employer, you need to have a consistent set of rules in treating your employees and your interns. There may be situations where the intern is so exceptional that you raise the payment to 50% above the market rate. Before you do that, you must ask yourself, “What would my other employees think if I do that?”

You may think it’s a trivial matter but it has implications on your team. Using a consistent principle to determine the pay of an intern and an employee will not cause any form of morale loss within the the company.

2. Take 70% of the top rate to match the big companies and offer the student more opportunities to experience what a company is like.

I have seen this done in UK start-ups, except that the top limit can be very high. If you are a company in the Series A stage, you may be able to do that. A company in seed stage or in bootstrapping mode might not. You do need to be clear what you are offering to the student. It’s not about pay but the experience and enjoyment of doing what you like.

In the end, how you determine the intern’s salary really depends on how you think about the quality of graduates here. One more interesting scenario for all start-up founders out there: What if you bring an intern from a top university such as Stanford, Cambridge or Waterloo? The rate is usually S$2K including housing per month.

This amount is used as a benchmark by one of the founders I know to price interns from NUS, NTU and SMU: He cuts the price in half (excluding housing), because in his opinion, the interns are not as good as what he has seen out there in Silicon Valley. However, he has made exceptions and increase the pay to the same rate when the intern demonstrates the same kind of competence as compared with the top talent out there.

Author’s Note: The author thanks Laurence Putra Franslay and Sharon Lourdes Paul for the discussion on the topic. :)

Image: Sean MacEntee

If you can't smile after signing a deal, chances are that you've been screwed over. Photo: Candie_N

Here’s a situation which some entrepreneurs would go through. They decide to take in an investor or join an incubator program. In front of them, an investor asks for “x” % of equity. The entrepreneurs then speak to different people in the community to get some advice. The opinions will be diverse. They turn to US tech blogs, which give them a totally different picture. All this adds up to a lot of frustration.

Any entrepreneur has to deal with this potential scenario and negotiate in good faith with investors. To help you, here’s a checklist of things to do before getting an investment deal.

Sit down with your co-founders to decide the value of your company.

A lot of entrepreneurs are stuck with this problem. They evade the question subconsciously because it’s one of the hardest questions for any entrepreneur to answer. How do you assign a valuation to your company? Nobody, including you and your co-founders, can decide that value so you need to have an honest and no-feelings-hurt type of discussion with your co-founders.

If you don’t have that value in your mind, don’t sign anything because chances are, no matter what you are going to do, you will regret it.

Here’s how you can do some math for you and your team: First, read and understand how dilution affects you and your startup. Then work out all the scenarios that are associated with rounds of funding that your company will need in order to be sustainable. It is an indicator to have an estimate on how much your ownership of the company (together with your co-founders) will be diluted at the end point before exit.

Yes, a lot of you want to build empires but reality is a bitch. What it comes down to is that you need to assign a value. This article teaches you how investors thinks of their shareholding differently from you and the market capitalization will help you work out the value of your company. Note that you have to do this calculation if you want money from others. Don’t expect others to calculate your valuation for you. If you can’t even do this, you should not be asking for money.

Work out a percentage equity for the investor where you will a) close the deal, b) accept the deal without feeling that you are suckered or c) walk away from the deal

Never walk into a negotiation with one value for your company and only one set amount of equity you’re willing to give away. Let’s do some math here: Say, you get $50K from an investor for 10% of your company. According to your investor, the value of your company is $500K.

For you and your co-founders, you want to give only 5%, i.e you think the company is worth $1M. Now, it is likely that both the investors and you are going to meet halfway (and halfway is not 7.5%). The halfway point is when both your co-founders, your investors, and you are happy.

A potential major roadblock would be that one of the stakeholders in the negotiations feel that they have been short-changed and it is inevitable that there will be tension and conflict in a few months when things go south. To minimize that, make a spreadsheet with a range of equity you are willing to concede to the investor to one decimal point, starting from 5 to 10% (on the x-axis) and associate the valuation of the company. Then carve out & highlight three regions: (a) the region you close the deal and you are happy, (b) the midway point where your team and you don’t feel suckered, and (c) the region that you will walk away.

Decide on the ROI you are setting for your investor

If your investors ask for more equity, the checklist that you want to have is what they can do for you. What are acceptable ROIs? First rule of thumb: do not give anything away if there is no money transaction i.e. if your investor values silly things like introducing you to big corporations as equity exchange, tell him or her to fly kite.

There must be money transaction and the next steps in how he or she will help you. A key difference between Singapore and US is the following: some investors in the US provide real value like setting up your next round of funding, helping you to scale the company with proper hires and closing deals with other companies. In Singapore, as very few investors are entrepreneurs in their past lives, you might be dealing with many investors who are previously bankers, i.e. they are totally clueless and bring no value.

Here’s a takeaway that summarizes what this article is all about: Negotiate in good faith, know your value and close a deal with investors that makes your whole team of founders happy. People will always come and offer you something. If what they offer doesn’t mean anything to you, just walk away.

In a future article, I will address what early-stage investors should look out for in deciding whether to fund a startup.

This post is republished from my blog.

My Course Slides:

Why do you write a business plan?

“Writing a business plan forces you into disciplined thinking if you do an intellectually honest job. An idea may sound great in your own mind, but when you put down the details and numbers, it may fall apart.”- Eugene Kleiner, venture capitalist

There are two universal truths to a good business plan:

1) The first version of your business plan will be totally different from the n-th version which you end up having.

Be dynamic and be ready to adapt to changes and to how your investors, clients and collaborators view your business plan.

2) The business plan must hold true to the original ideals and principles of the founders, but what changes are the details of how it is implemented.

Dogma is the root of all evil for business ideas. The changes may frustrate you but they are for your own good. If you respond respectfully and with some thinking to the critical and helpful comments from industry folks, you can refine your plan to a form preferred by an investor.

Sometimes, experts can make mistakes, but you have to remember that they are right 90% of the time. The real difference-maker for you as an entrepreneur is to see that remaining 10% which they cannot fathom. Even when your business eventually starts with version X of your business plan, expect to make changes as your company engages the market.

Elements of a business plan

• Executive Summary: The overview and summary of the business plan. It must be short and never exceed more than 2 pages.

• Problem and Opportunity: The first thing that you need to frame is the problem that your business is trying to solve. Once you have done that, demonstrate why your problem has a business case by exploring the dollars and cents behind that industry. For example, a bottle of mineral water is a solution for the problem of thirst in human beings. You can then explain the market opportunity based on the consumption of water and how many bottles of water are required to deal with the problem of thirst. Do not try to define the problem based on your solution. That usually requires a change in behaviour and not many companies succeed in creating a brand or product for a solution that is yet to find a problem.

• Technology/Product/Business Idea: Every market opportunity has a background that needs to be explained. For example, you can cite that governments may be planning to put a significant amount of their GDP to boost the prospects of that industry. Highlight key features of your product/service/technology and compare against competitors in the market. Note that this is not a research report on a product. The product or prototype must work so that you can explain how the features solve the business case of the problem.

• Management Team and Advisory Board: Who is on the team? Who are the advisors or grey hair behind the team? A good team is made up of individuals who have complementary skills and clearly defined roles and responsibilities. In the business plan, the CVs of the team members (usually 3/4 of a page) are placed in the appendices. Some say this part is the easiest to write. In my opinion, it is toughest to do so not because you don’t have the information, but rather how you frame your team’s skill set to convince investors that they are the right people for the job.

• Markets: This is the part where you explain how your company meets the needs of the customers. It also provides a market segmentation analysis of your target industry. You must convince the investor about your plan to approach the market. For example, you may want to target women between 18 to 30 for a particular type of utility clubbing wear you have in mind. The key to understanding markets is to get a grasp of the actual numbers of how much that industry has grown and what the CAGR rate is (refer to slide 15).

• Business Strategy and Route to Market: This section is the most important part of the business plan. You need to work out the business model for your company, the strategy to enter the market, the pricing model for your product and service and how you plan to engineer the different channels into a successful corporation. You also need to clarify your sales and branding, logistics operations and distribution channels. Investors genuinely want to know how you plan to scale, and the best way to think of this is to ask the question: “How do I drive down the cost of customer acquisition to near zero?”.

• Operations Plan aka Timeline and Milestones: You need to create a realistic timeline of usually about three years. It should detail how you plan to take the initial investment and finally cross the valley of death into a positive revenue company. In the real world, if you are fundraising for different stages, your next round of financing is tied to the milestones you achieved. Suppose you are a mobile web company currently raising US$5M and you have built up 5 million users, then you need to also tell your investors that you will be raising US$20M in the next round. You should also state how many users you plan to procure and the percentage of users that will generate revenue, using the US$5M you will get.

• Risks, Barriers to Entry, and Competition: You cannot convince your investor unless they know who you are pitting your startup against. You need solutions that will help to minimize these risks and mitigate against the barriers to entry. This is the part of the business plan which requires truthfulness: What is your plan to prepare against all the problems which will crop up down the line?

• Financials: In this section, through the use of a financial forecast, calculate both the pre and post-money valuation of your company. You do not need these numbers until you have reached the last two rounds of negotiations with the investors. Usually, what you forecast greatly differs from reality.

• Exit Strategy: What will be the company status within a three-year horizon? Do you need additional fundraising to enter the next stage, or are you simply looking to be acquired by another company? If your growth trajectory is really awesome, you might be able to take the company to an Initial Public Offering (IPO).

Do you really need a business plan in real-life fundraising?

The answer varies. In fact, what entrepreneurs usually do in reality is to build a presentation deck of about 50-100 slideswith the elements required in the business plan. Then, the entrepreneur would trim it down to about 20 slides for an introduction deck (without mentions of financials and valuation), 30-50 slides for an investor-ready deck (with some mention of financials). It varies from investor to investor.

You will probably hear some entrepreneur claiming that they did not need to write a business plan or a presentation deck to get investors. That is probably true, because if you are profitable and on a super growth trajectory, you will do less work to get funding.

I have this conjecture for mobile-web start-ups that the amount of money you raised is inversely proportional to the amount of content in a business plan. The reason is that in the modern day tech startup scene, investors don’t look at your overbloated powerpoint presentations or documents, but rather a prototype and some analytics about the number of users, user behaviour and what takeaways you’ve learnt in order to turn it into a profitable business.

“Startups don’t get killed by competitors, but by their own incompetence”

- Paul Graham in TC Disrupt 2011

After seeing over the years how up and coming entrepreneurs often drag on with a startup that is going nowhere, I realize that failure is not an option they want to think about.

Of course, if you are passionate about an idea and set about making your passion a business, having thoughts about “what if I fail” is a bad idea and definitely something investors don’t want. You’d be expected to put your heart and soul in the startup because it’s not about the founders but also the employees who work with you to build the idea into a sustainable enterprise.

What I think Singapore entrepreneurs don’t have is the ability to pivot quickly to something else when they are reaching nowhere. That’s what people mean by failing fast.

Being involved with startups as an early stage investor in the past and a full-time entrepreneur now, people often ask me, “How’s your company going?” I will reply that we are busy with some recent happenings in the company and focused on our tasks. When they start associating the word ‘success’ with my company, my instant reply is: “We’re not that there yet. We can only do our best and everything is 50-50.”

What I mean is that all start-ups are inherently volatile. Perhaps, experience has taught me to be self-aware and focused on the journey rather than worry about success and failure. It is better to have a good fight than to think about what happens after that. If you fail, you probably have all the time to reflect. Spectacular failures can happen to anyone, and if you want recent examples, check out Color, the US$41M funded startup.

Recently, our newly elected President, Dr Tony Tan, made an interesting point in a forum that if he has to come up with an idea to engage youth, he will want to find a way to allow them to taste failure. He illustrated his point with the Silicon Valley culture where instead of giving up, entrepreneurs often go back to the drawing board when they fail.

He’s spot on about the problem of entrepreneurship in Singapore. I don’t have any idea how to induce students to experience failure, because to do so is to expect someone to take risks and suffer the consequences if something does not work out.

More interesting views:

• What if the Secret to Success Is Failure? Paul Tough from the New York Times discussed how failures actually help students to cope with challenges in life. His article is the reason why I wrote down these thoughts.
• Face to Face 2: Presidential Forum video Part 2. Check out the question in the video where the candidates were asked for one good idea to engage young Singaporeans. Dr Tony Tan’s suggestion about getting youths to embrace failure is spot on.

Image: Tinou Bao

I will also provide some interesting case studies, for example, the Aravind Eye Centre for social entrepreneurship. This series is based on the “MPS 812: Entrepreneurship” course I have been teaching in the School of Physical & Mathematical Sciences, Nanyang Technological University. This post is republished from my blog.

Author’s Preface: I will include elements of a previous course which I have taught in Nanyang Technopreneurship Centre as well as some advice which I used to dispense via my role as an entrepreneur-in-residence for INSEAD Business School. I have refined the presentation slides and notes after teaching that course for four semesters over the past two years. Note that the content I have done up for this course is under Creative Commons – No Commercial, Share-alike and Attribution.

One important thing that I want to stress even though I have worked as an academic in the past: Entrepreneurship is a contact sport, and it’s easier to teach as a practitioner because you encounter a lot of challenges and issues from starting a company to managing, maintaining, growing and exiting from the company. My original intention is to change the course name to “Technology & Business” (and it’s not possible) as I am not a fan of teaching entrepreneurship but more of providing a toolkit for the students to use whether they are advancing their career or starting their own businesses. Do bookmark this post as I will update it from time to time.

My Course Slides:

Talking Points

• Course objective: My aim is not to teach anyone to become entrepreneurs. The success rate of any start-up from an investor’s viewpoint is 1 out of 10 based on anecdotal evidence, which means that 9 other start-up ventures will fail. So trying to convert you to become an entrepreneur is not the wise thing to do. The important thing I want to dispense through the course is to help you understand and learn the process of building startups and companies. The business plan assignment will provide you some basic understanding on various aspects of a business: Marketing, business strategy, financials and intellectual property (specifically for technology companies). The best takeaway is that you should learn to make all the mistakes about something as fast as possible. Simply put: Learn to fail fast.

• What defines an entrepreneur?: Different people have different perspectives of what an entrepreneur should be. In some cases, they are defined by the success of their businesses, and in other cases, they are defined by how their products or services have added value to everybody’s lives. Entrepreneurs also accept the inherent risks of their enterprise and are accountable for their success or failure. Unfortunately, some people do call themselves “entrepreneurs” but are totally off the mark, for example, companies who use Ponzi and pyramid marketing schemes to cheat consumers or lend money illegally (loan sharks) do not add any real value.

• Window of Opportunity and First Mover is not an advantage: While most investors like to emphasize on the first mover advantage of technology companies, note that many successful technology companies are not first movers. For example, Google was preceded in the search business by AltaVista and Inktomi (which was acquired by Yahoo! for US$20M instead of buying google for US$1M). Similarly, Facebook was not the first in the business of social networking. Before Facebook, there was Friendster (which was acquired by MOL Malaysia) and MySpace (which was acquired by News Corp). What made these businesses successful was that they learnt from the first mover’s failures and innovated to deliver greater value.

Videos

Video 1: Michael Pritchard’s LifeSaver in TED 2009

Lessons learnt from this video:

• Articulation of the problem and opportunity: The speaker discussed the problem of clean drinking water and used examples of a developing and developed country to illustrate that there was no good solution when a calamity struck. He also described how existing solutions have not achieved what they were meant to do.

• Describing technology simply: While the LifeSaver bottle solution has many features, the speaker only focused on one aspect of the technology: the 15nm pore. He explained it simply, describing how the filter is small enough to stop bacteria and viruses from entering. He could have explained how the entire bottle works but he chose to condense the solution to a simple feature so that the audience could understand him.

• Explain why his solution is better than traditional solutions: The speaker made a comparison with traditional solutions of delivering clean water, for example, people within the disaster area would make long trips to carry jerry cans filled with water from one location to another. He focused on how his solution made people’s lives easier.

• Product Demo and Authority: He was able to do a demo with the solution (as seen in the video). What’s more, he drank the water from the bottle and also passed it to Chris Anderson, the organizer of TED who is a well-known personality and got his endorsement that it’s safe.

• Provide vision on how to implement the idea and exact amount to fund the solution: He gave a plan of how the solution can be scaled and the amount of money required to solve the world’s drinking water problem. The amount was stated as 20 billion for worldwide implementation, but it was very clear to the audience what he was asking for.

Video 2: Thulasiraj Ravilla: How low-cost eye care can be world-class in TEDIndia 2009 – Aravind Eye Care Center

Lessons learnt from this video:

• Aravind Eye Care Hospital was founded in 1976 by Dr Govindappa Venkataswamy. The existing management has laid out a vision of what the Aravind Eye Hospital aspires to become in the future.
• The hospital evolved itself not just as a healthcare service giver but also as a social enterprise that deals with the blindness problem in India. It treated 2.4 million poor Indians over 30 years.
• Interesting Features: Eye Surgery facility that runs 24 hours with doctors focusing on surgery and nurses focusing on pre and post eye care. Free surgeries for the poor and also a top class R&D centre on eye treatment.

What I agree with Willis in his article, is that expansion to US is not a vanity exercise and his urging to entrepreneurs in a small market like Singapore to think about the Asian market in general. I am going to sketch out a few points which one should consider before expanding:

Where are the entrepreneurs of a small country? I have the chance to meet up with some successful entrepreneurs in Singapore and learned a lot from them. One of the common phrases from them is, “Where are the best and brightest Singaporean or entrepreneurs?” The answer is that they are outside. In fact, in advising a couple of new tech start-ups, I have invoked the following rule for specifically mobile and web start-ups, “You have less than 2 months or 60 days to finish the minimum viable product and get out of Singapore as soon as you can.” Chalkboard went to Kuala Lumpur in the first month after we received our first round of financing. Why is this so? The reason is scale. Singapore lacks the scale and worse, you get clones for already small market.

Where do you go next that you might ask? Contrary to perception, Kuala Lumpur is an interesting market and in some sense, the demographic of users resembled to a certain extent like Singapore. If your company specializes in a web-tech solution for the emerging economy, Jakarta (Indonesia) and Manila (Philippines) are probably your best bet. If your appetite is big and massive, China and India are on the list. However, specifically for markets that demand strong localization, you will need to be there. Of course, you can’t jump into the market so quickly. That comes to my next point.

Expansion is market research + finding the right people on the ground to work with you: You need to work a few things before going into another market. The first is market research. Does your solution solves the needs of another market? You also need to determine the quips and quirks of another market. Once you determine the need and you are likely to spend at least 2 weeks surveying that market, then start setting up meetings with the locals who you might want to work with. Plain execution is what really matters in the end for expansion. Can you move the needle further as far as you can?

Why US? Why Asia?: Some will say, “We should be in the US.” and others will say, “We should look at Asia.” It really depends on what customers your business are dealing with. Here’s a data point for one to think about. If you want to build a US$100mil company, you need to take out at least one of the BRIIC (Brazil, Russia, India, Indonesia & China) markets. So, you need to work out which market is likely to adopt your business solution in the shortest time so that you can build up revenues and distribution. Working in a massive market is not simple and it requires one to think about the set of processes in replicating and scaling quickly to different markets. But you learn more about the complexities of your business solution if you dip your feet into another market.

So the bottom line is: If you are in a small market, test your product with customers and start scaling, and remember you have 60 days from the time you start.

Image: Justin Cozart

This post was first published on Bernard’s blog. We thank him for letting us republish this.

To start off with, there are very few companies in Southeast Asia which are true venture capital firms and they seldom take chances with up and coming start-ups. The reason is simple because most of the people who run these companies are former financiers (people who are investment bankers or works in the private equity firms), and to be even more blunt, none of them are former entrepreneurs, which means that they have no access to talent who you can rely on to scale up the business development, sales, marketing and operations in the future. The reason why venture capital works in the US and China is based on three essential components: (a) market size and revenue (b) talent and (c) number of exits which either goes towards a public offering or an acquisition.

Oftentimes, when I have drinks with my friends who do investments beyond S$4M and above, I will hear the following comment from them, “You know why we are not interested to invest in early stage start-ups, there is no exit that are worth more than US$30M (=S$36M) across the whole Southeast Asia.” I did a check on that claim and even Friendster who was bought by MOL (rumoured to be about US$27M from various sources) and Transfer.To which was acquired by Ingenico last year (S$35M). That claim turns out to be true. That’s nothing wrong with what these investors are saying. The central doctrine for them, is that out of 10 investments, 9 will fail and 1 will succeed. If I have a 100M fund (and break it on an average of US$1M per company), I have to invest on 100 companies. It means to get back the return for my stakeholders, I need 5 companies to hit US$100M valuation per company. That’s simplistic but you can understand why investors from Silicon Valley have no interest in Southeast Asia as a whole.

If you look at the start-ups in China, all of them are moving towards either IPO or acquisitions and most of them are hitting above US$50M if they manage to scale in the country. Once investors see more exits above a certain price, their appetite for creating an investment company in the region becomes higher. Although the whole Southeast Asia is currently growing with new venture firms like Neoteny Labs, SingTel Innov8 and East Ventures, the money for early stage start-ups are still few and far between. Unless the Indonesia market booms like how the start-ups in China are, it is very unlikely to see a Sequoia SEA or Benchmark in this region.

So what should you do as an entrepreneur? There are two schools of thinking about this. One school is focus on creating a company with vision and reach there without being sure what the exit looks like. This is what they teach you in entrepreneurship courses for the local schools. Even though I teach a course on that in NTU, as a practitioner, I also teach the other school of thought. The other approach which I am advocating is to start from the exit and work backwards in time to see what kind of company you should build with a set of realistic timelines and milestones (plus a Plan B should everything go south). Unfortunately, to do this, you have to be very experienced and have a good network in the industry to spot what is going to be happen in 3 years time. However, that being said, nobody including myself, can be right about which school of thought is better.

I have an interesting discussion with Professor Turner from INSEAD Business School sometime back, where I advocate that we should teach students in Asia who attend classes on entrepreneurship & private equity to think about exits instead of wasting time on thinking about grandeur visions. Yes, young entrepreneurs can have grandeur vision and goals but if they want to do a Facebook, Twitter and Google, they should pack up their bags and head to Silicon Valley in California or Zhong Guan Cun in Beijing. The reason is simple, the risk appetite is larger and there are people within that ecosystem who can help them to scale. Otherwise, their best case scenario is what happened to TenCube who gets acquired by McAfee (and Darius Cheung is now an investor to Neoteny Labs which is a very good sign of people gaining success and contributing back to the community). What we need is not one Darius, but at least 100 of them (exiting with acquisitions above US$15-US$20M and it means 900 failures) around Southeast Asia to attract investors to come for the early stage companies, and not just Singapore but the region as a whole. Once that happens, we can have entrepreneurs with grandeur vision.

Originally published here. Image credit: lansakit. The author has made an update recently with which professor he has discussed this issue with. :)