Debunking myths about entrepreneurs

Business Times - 07 Jul 2009

SME INC

COMMENTARY

Don't be obsessed about raising capital, forget about first-mover advantage; instead, find a niche market and focus on customers

By KAREN CHO

SUCCESSFUL entrepreneurs are a rare breed because they face so many obstacles. And one fundamental flaw in the system makes it even harder for entrepreneurs to realise their dreams.

According to Joe Tabet, managing partner of Melcion, Chassagne & Cie, a group of international senior business advisers dedicated to helping entrepreneurs, many highly motivated entrepreneurs would have trouble working with institutional investors - which is counter-intuitive because these investors are usually seen as primary financiers.

Entrepreneurs have the hunger for creating businesses, but also a strong need to be flexible and in control of their destiny. This naturally generates tension with investors who need predictability and accountability, which often creates problems.

'Most investors do not realise that there is a disconnect between investors and entrepreneurs,' says Mr Tabet.

'They end up fighting with entrepreneurs, saying they are impossible to manage, which results in destroying value for every one. We believe there is a philosophical and cultural mismatch to start with.'

Mr Tabet, who is also the author of Hors Piste! - a book that debunks many myths about being an entrepreneur - was speaking to INSEAD Knowledge on the sidelines of the Global Entrepreneurship Forum held recently at INSEAD's Europe campus in Fontainebleau, just outside Paris.

Among other things, Mr Tabet thinks that entrepreneurs should not be obsessed with raising capital from prospective venture capitalists (VCs). Rather, his advice is to avoid over-funding the company from the start, because it's a recipe for disaster.

According to a Harvard study on the Inc 500 (fast-growing companies ranked by Inc. magazine), less than 5 per cent have raised VC funding, and 67 per cent have less than US$50,000 in capital. Entrepreneurs should look for financing in a much broader sense, tapping into other sources such as clients or suppliers, before giving away any equity.

'From the entrepreneur's perspective, the VC model looks more like gambling, and the chance of the individual entrepreneur making money once they enter the VC game is probably as low as winning the lottery,' said Mr Tabet.

'We have observed that many entrepreneurs are kicked out of their own company in the year following a major investment round. All this makes the individual entrepreneur's chances of success in this game quite tiny. In many cases, it's pretty much like Russian roulette - entrepreneurs often get 'killed' by investors because of this mismatch.'

Another myth that Mr Tabet debunks is first-mover advantage. Citing e-Bay and Google as examples of companies that were not the first to move in their space, he says that they were still able to achieve phenomenal success despite not being 'new' as such.

He also gives kudos to Swatch, which he says was not that innovative from a pure product perspective - it just tweaked the formula and made wearing watches made of colourful plastic very hip.

'I like the notion of small giants - companies that identify a niche market and secure their place in their eco-system, pretty much like the Blue Ocean strategy concept,' he said. 'You don't want to be where everyone else is.'

Mr Tabet's advice is to find a niche market and focus on customers. 'I think the more you understand your customer and your eco-system, the more likely you will succeed as a new company.

'If you have the right people with the right mindset, who are smart enough and open-minded to adapt to market needs, you come up with solutions that are faster to generate revenue. This is how entrepreneurial companies gain an advantage over larger firms.'

In fact, Mr Tabet says that his firm has noticed a correlation between companies that do not have VC funding and higher levels of creativity. 'They struggle, but they end up finding better, more robust and sustainable solutions than funded companies,' he said.

'In my opinion, the real competitive advantage that entrepreneurs have to secure their success is to focus on what money cannot buy. Whatever money can buy is a commodity.'

While he is not against entrepreneurs teaming up with external investors, he says it is important that both sides understand their own strengths and weaknesses - and anticipate conflict.

VCs, for example, are very good at investing in innovation and fast-growing companies. What they need to realise is that they are not always on the same side as the entrepreneur.

Entrepreneurs, on the other hand, are very good at starting up businesses. But they are quite bad at mastering the capitalistic game. Mr Tabet says there is one part of their life cycle they do not manage well: 'Very few entrepreneurs manage their own personal exit and anticipate it. Those who don't do it, unfortunately in most cases, will see it happen to them without them being in control any more.'

Karen Cho is an INSEAD Knowledge staff writer. This article first appeared in INSEAD
Knowledge's website (http://knowledge.insead.edu) in June

Business of conquering minds

Business Times - 07 Jul 2009

SME INC

After selling 22 pre-school franchises, MindChamps is now looking at M&A to produce qualified teachers, reports CHEN HUIFEN

THE broader economy may be in the doldrums, but that has not stopped the pre-school sector from flourishing. Just ask David Chiem, founder, chairman and group CEO of education services provider MindChamps Holdings. His company sold 22 franchises for its pre-school - even before it had a school to show.

At a price of $65,000 - not including set-up costs like rental and teachers' salaries that each franchisee has to fork out - the feat is not to be sneezed at. 'Even though we didn't have a model, we had an incredible curriculum,' says Mr Chiem. 'And with the branding we already have, I think people trusted us.'

Mr Chiem is no stranger to overcoming long odds. Listening to his story, you cannot help but marvel at his life experiences, which could be the plot for an inspirational drama.

At the age of nine, he fled Vietnam with his family when the country was being overtaken by the communists. Through sheer luck, the boat they were in evaded a pirate attack because of a passing Singapore container ship, whose staff later gave the refugees so much chicken rice they had leftovers when they landed in Malaysia.

'This is why Singapore always has a special place in my heart,' says Mr Chiem.

The family ended up in Australia. And even though Mr Chiem could not speak a word of English at first, he topped his class in six months. Later, in senior high school, he graduated top of his cohort in English, art and maths.

The turning point in his life came at the age of 13, when his sister heard an audition call over the radio. 'It said, 'Looking for 13- or 14-year-old Asian boy, must be able to swim',' says Mr Chiem. 'Back then, I couldn't swim. But when my sister heard it on the radio, she said, 'Why not you?'

'She said it as a joke but when I went to bed that night, that line was in my head - 'Why not me?' I just kept on asking that question. I thought if it isn't, that's OK. I'll just give it my best shot. If I don't give it my best shot, I won't know.'

So he learned to swim - and became the first Asian to get a leading part in an Australian TV series, called Butterfly Island. But that was only the beginning of his story. The experience taught him the power of having a positive and open mind.

'I just thought that to live a life without realising the full potential is one of the saddest things to do,' he says. 'For me, the question of why not me is a powerful question. What I realised was, the quality of the questions you ask yourself at a non-conscious level play a critical role. Just that one question led me to believe and pursue my dreams.'

Mr Chiem was so enthusiastic about the TV role that he called the casting director regularly to ask whether a decision had been taken.

'I'd make sure I had a 20-cent coin and as soon as the school bell rang, I'd run to the nearest public phone and call to ask if they had made their decision,' says Mr Chiem. 'They'd say, 'No, not yet, call back on Friday'. And on Friday, I'd ring them up on the dot and they'd say, 'Call back on Monday'.

'So every time they said to call, I called. Frank, the director said that by the time he heard that story, the decision was made - 'You and this other boy are just as good as each other, but if your mind is that strong on wanting to make it happen, it's yours'.'

This notion was to become one of the fundamental elements for MindChamps, a training institute that thrives on teaching students what it calls the 'champion mindset'. Incorporating neuroscience research done by academic and author Allan Snyder of the University of Sydney, MindChamps espouses 'how to learn' rather than 'what to learn'.

The company roped in experienced educators and theatre practitioners to come up with programmes that engage students and help them focus. As Mr Chiem points out, the cinema world has always engaged the non-conscious mind to communicate. One of MindChamps' notions is to leverage on that art to deliver its programmes. 'So content is not the issue,' explains Mr Chiem, who studied acting at the prestigious Theatre Nepean in New South Wales. 'We have to upgrade the software of how to engage students' minds to teach the content, so the content becomes a part of them, not drilled by rote so much that they hate it.

'If kids hate learning, we have a problem, because in the 21st century world you've got to keep learning, un-learning and re-learning. Because what you just learned, in two years' time, may be obsolete.'

Although MindChamps was conceptualised in Australia in 1998, the business was started in Singapore in 2002, as Mr Chiem saw Singapore as a more appropriate launchpad to target the Asian market, which places a high emphasis on education. Since then, its specialist school has expanded to Hong Kong, where a wholly owned subsidiary employs 11 staff. In Malaysia, it has a partnership with an international school in Kuala Lumpur, offering specialist programmes.

The decision to enter the pre-school market was driven by a desire to expand the applications of research findings.

'In our research, we realised that for a lot of gaps in primary and secondary years, the roots can be found in pre school,' says Mr Chiem. 'For example, when a kid is at pre-school, they love to learn, but when they go to primary school sometimes they could end up having a negative relationship with learning. If we can build the love of learning and nurture the positive relationship to learning, children will take that love for learning into primary school, and half the battle is won.'

Although MindChamps has sold 22 franchises for its pre-school, revenue from the sales cannot be booked until a franchisee has signed the tenant lease for a target site. By the end of this year, Mr Chiem expects to have 12 pre-schools, including the first outlet that opened at HDB Hub last year and two that were recently opened by franchisees on the East Coast and at Tampines.

So confident is he about the pre-school sector that Mr Chiem expects that business unit to be listed in about five years. But growth in the pre-school market depends on the availability of qualified teachers. So MindChamps plans to take a stake in a teaching academy to offer diploma and graduate diploma programmes in pre-school and early childhood teaching.

'We could do that ourselves but it might take a year to get all the licences,' says Mr Chiem. 'So we're negotiating an M&A now. If the deal goes through, the academy will come under our brand.'

Although the pre-school market remains buoyant, MindChamp's specialist school has been affected by the economic downturn, with student numbers falling some 20 per cent this year.

Fortunately, the company has been preparing for the launch of two new business units. Early this year, it introduced school workshops for teachers and students, aimed at developing life skills such as leadership and team building, creativity and time management. Another new arm, MindSpace, offers after-school care services, including homework and life coaching.

With so many new businesses, MindChamps will be focusing on the Singapore market this year. 'I think next year is the year when we will take the franchise to the region,' he says, adding that the target markets will be Malaysia, Thailand, Indonesia, Vietnam and China.

But he hesitates to forecast if this year will be a profitable one, in lieu of investments being made. 'As a group, I would say in 2010 it will be a total turnaround because of new units like Hong Kong, the pre-school and new franchisees opening,' he says. 'That will be our very strong year. Now, we have no gearing at all.'

Asked about a recent investment exit by Hong Leong Group, Mr Chiem says the parting is due to the two organisations having very different perspectives on education.

'Like in a marriage, when the vision is not aligned, it's best that both parties move forward, and we are very happy that we came to an amicable decision,' he says.

Turnaround artist shares recipe for business success

Business Times - 03 Jul 2009

Boustead CEO draws on his experience as serial entrepreneur

By CHEN HUIFEN

(SINGAPORE) If he had a young child who was a scholar, Boustead Singapore CEO Wong Fong Fui would encourage him or her to join public service or a government linked company (GLC), instead of striking out as an entrepreneur.

'Perhaps, one day, he or she can also be paid as much as $10-20 million per year as salary/bonus without taking any risk,' he told BT in an email interview. 'Why take a chance when you may lose everything (as) an entrepreneur?'

That may sound strange, coming from a serial entrepreneur and a corporate turnaround king. But it hints at the odds that individuals must overcome when they choose the entrepreneur's path.

Mr Wong himself had his fair share of hardships during his entrepreneurial journey. A chemical engineer by training, he started his first company offering engineering services to the oil and gas sectors in the 1970s. With $30,000 pooled between himself and three other partners, he set off for Indonesia, rather than start out in Singapore first 'because there was no market for me'.

'I couldn't afford to stay in a hotel so I rented a room with no aircon and no fan,' he added. 'And every night, I had to negotiate the mosquitoes but that was not a problem since I had plenty of practice as a rubber tapper when I was young.

'The challenge was huge and the door narrow. I knew there was a big market with Pertamina and very little competition. But even then, Pertamina was a huge organisation with over 100,000 staff. I had six months to size up which of those 100,000 staff was the decision maker. This is where EQ is important.'

According to Mr Wong, he made a breakthrough only when he was down to his last few hundred dollars. 'Thereafter, the rest was history and I made my first S$1 million there.'

The man went on to start new firms in trading, property and construction and is also one of the key Singaporean players in the set up of Myanmar Airlines International, subsequently taken over by the state government. He then spent what he calls the 'second half' of his career turning around loss-making listed companies, including Sunshine Allied, QAF, EasyCall and Boustead, thereby earning himself a reputation as the turnaround ace.

At QAF, for instance, he turned its Gardenia business from a $8 million bakery to a $200 million brand with leading market share in Singapore and Malaysia in seven years. More recently, at Boustead, the engineering firm has been posting record revenue and profit, hitting $517 million in revenue in FY2009, from $64 million in 1996 when Mr Wong first joined the firm.

'Although it may sound like I experienced only success, much of what you see was built on failures in some businesses which then gave me the necessary insight and taught me valuable lessons which were applied to my later businesses,' he said.

Among the key ingredients critical for becoming a successful entrepreneur is the possession of a set of skills, said Mr Wong. Because with skills relevant to the business type, one can increase the chances of success, even without money. And if one fails, there's always those skills to fall back on if one chooses to go back to being an employee.

A keynote speaker at next Friday's Bluesky Festival, Mr Wong will be sharing his experiences as an entrepreneur and manager. Although he finds the entrepreneurial spirit in Singapore growing, it is still lagging behind that in Hong Kong and Taiwan.

'If you look at those markets, they differ from Singapore in one key aspect: there are hardly any government-linked companies competing against private sector,' he said. 'This key difference means that for the past few decades, MNCs and GLCs have been tasked with driving the economies in Singapore. The market in Singapore was not as conducive as that of Hong Kong and Taiwan in building entrepreneurial spirit.

'In addition, the most critical factor in the entrepreneurial spirit is risk reward ratio, which is clearly low in comparison with Hong Kong and Taiwan. Who wants to be an entrepreneur if you, as a young and highly qualified graduate, can achieve wealth without taking any risk of your own money by working for the government? The government's policy of paying civil servants well has a negative impact on entrepreneurial spirit.'

He is of the view that Singapore will never be able to reach the same level of entrepreneurial spirit as that of Hong Kong or Taiwan, unless it restructures the reward system for risk takers. 'But then again, is their society better than ours, especially when you take into account the social order and justice, social harmony, etc?' he asked rhetorically.

The BlueSky Festival is an annual event organised by the Action Community for Entrepreneurship (ACE) and supported by SPRING Singapore. It is a platform for entrepreneurs to exchange ideas and share experiences. Mr Wong's speech will focus on building and re-inventing one's business model to tap on growth opportunities. For more information, go to www.blueskyfestival2009.sg.

Drinking to good times and bad

Business Times - 06 Jun 2009

How is Asia Pacific Breweries' new chief executive coping with his move and the downturn? Roland Pirmez shares his views. By Emilyn Yap

ROLAND Pirmez can brew his own beer - he even has a master's degree in brewing to show for it. But these days, the chief executive of Asia Pacific Breweries (APB) barely has time for this pursuit. 'Don't spend time, just drink Tiger,' he says.

It is not surprising to hear Mr Pirmez cite Tiger - APB's flagship brew - as his favourite beer as well. The former head of Heineken Russia officially became APB's CEO in October last year. He took over from Koh Poh Tiong, who led APB for 15 years before moving on to helm the food and beverage division at parent company Fraser and Neave (F&N).

Growing up in Belgium has certainly helped Mr Pirmez cultivate a taste for all beers. From white, red, golden to lambic beers, over 450 varieties are available in the country. It is usual to drink beer even as an aperitif, he says. 'I'm a lucky guy. I'm producing a product in line with my culture and I enjoy it.'

But it is with a cup of espresso that Mr Pirmez settles down for the interview in his office at Alexandra Point. Alcohol may be his passion but he still needs caffeine at work. 'I need many espressos. It is well-known in the company that before meetings, I need my espresso or the meetings won't be nice,' he says with a smile.

Mild jokes aside, Mr Pirmez is serious when it comes to business. He joined APB just as one of the most severe economic downturns in Singapore's history was - and still is - unfolding.

So far, the company has held up well, living up to the notion that F&B businesses tend to be recession-resilient. For the second quarter ended March 31, 2009, APB even grew its net profit by 5.8 per cent from a year ago to $46.2 million. Its contribution to F&N is particularly important when the recession has weakened the conglomerate's property arm.

Mr Pirmez acknowledges that the beer industry is not as appealing during boom times. 'People are not drinking more beer. They are buying more cars, more TVs, holidays,' he says. 'But it's clear that when you have a recession, the beer industry is less affected than many other sectors. We start being a little bit more sexy.'

Nevertheless, APB is not completely immune to the downturn. The product of a long-time partnership between F&N and Heineken, APB has brewery operations across 12 Asia-Pacific countries and offers over 40 brands of beer in these markets. From Singapore to Mongolia, from India to New Zealand, the impact of the economic slowdown has been different.

'Globally, people are trending down,' Mr Pirmez observes. What this means is that consumers are switching from high-priced spirits to premium beers; from premium beers to mainstream beers; and from mainstream beers to economy brands. 'In terms of volume, we are less affected,' he says. 'But in terms of value, we are a bit affected.'

New Zealand was one of APB's weakest markets in Q2 2009. Falling consumption, coupled with stiff competition, higher packaging material costs and the falling New Zealand dollar drove profit before interest, taxation and exceptionals down by 78 per cent.

'A recession is not easy. You have to keep margins to continue investing in your brands, to manage cash flow better,' Mr Pirmez says. 'The good news for APB is that this is not the first time it is going through a recession. The management team has been through two or three crises. They have some experience, though it is never easy.'

Apart from the downturn, something else could be keeping Mr Pirmez up at night. 'You know the Blackberry - you can send emails at midnight and you have to answer emails three minutes after midnight. I tried to avoid it,' he says, but global connectivity has clearly won this fight. 'I have my Blackberry - somewhere.'

According to Mr Pirmez, the fast work culture here is one of the few differences between working in APB and Heineken. APB is also smaller, but it has the same professionalism and high standards for its brands, he adds.

So having worked in both Heineken and APB, how does he view the relationship between both companies, and between Heineken and APB's parent F&N? Are market rumours true, that Heineken has been frustrated with a 1931 agreement that allows it to set up breweries in Asia only through APB? Tension was particularly high in 2006, when Heineken went to court against F&N and APB over the right to appoint the chief executive for APB's China operations. The incident even sparked speculation that Heineken might take over APB or F&N.

Mr Pirmez is keen to first keep APB out of the picture. 'There is no relationship between Heineken and APB. APB has two major shareholders, Heineken and F&N. It's a relationship between two shareholders - Heineken and F&N.'

He then downplays talk of hostility among the various parties. 'It is a very, very old joint venture of 78 years,' he says of the agreement, proceeding to draw a sine curve in the air. 'Can you imagine a couple of 78 years, sometimes there are ups and downs.

'If I remember, two or three years ago, there was some tension between Heineken and F&N, but it has passed. The past is the past. Today there is no tension, there is a good relationship between the two shareholders.'

The former Heineken executive is no stranger to APB. Before his six-year stint in Heineken Russia, he was general manager at Thai Asia Pacific Brewery for four years. He believes APB hired him partly because of that experience.

'I had a lot of contact with Singapore, I had the opportunity to know the competitors, the management team. When I came back here it was not a new adventure,' he says.

Mr Pirmez's life does read like one big adventure so far. He has spent more than 20 years working in the beer industries of Africa, Thailand, Russia and now Singapore. His first overseas stint with a Belgium group Unibra in the Democratic Republic of the Congo (formerly known as Zaire) even coincided with the outbreak of civil wars.

'Somebody tried to kill me and my family - they didn't succeed,' he deadpans. He was married with three children when the conflicts occurred, and he now has five. 'I won't say it was a good experience but it was a learning experience. After this kind of experience, you look differently at your life. There is more sense of your priorities.'

But somehow, fleeing the region was not on top of Mr Pirmez's mind. In fact, he moved on to Angola to join Unibra's competitor Heineken as managing director. 'I don't know why,' he says of his decision then. 'Everybody who has worked in Africa loves Africa... It's amazing. The people talking badly about Africa, they've never worked in Africa.'

Mr Pirmez has come a long way for someone who grew up in a small quiet village. Surrounded by forests, it was almost 'natural' for him to develop an interest in agriculture, particularly in beer brewing, he says.

No more bad brews?

So what makes a good beer? 'Today, because of the sophistication of technology, because of the sustainable quality of the raw materials, you don't have bad quality beer. It does not exist anymore.

'What makes the difference between a good beer and a great beer is the patience that you put in. And I don't think that there are bad beers but there are different beers. That depends on the culture, the market, and many things.' Western markets in general have a larger variety of beers packaged innovatively, Mr Pirmez says. 'In Western Europe, beer is more for your own consumption - you enjoy your beer alone watching TV, so there is more choice in taste and packaging. That is the main difference.'

In Asia, however, it is the service that counts. 'When you drink beer in Asia, the brand experience is not only about the beer itself and the packaging - it's the full package. Asia is a beautiful place. There are amazing, charming ladies serving you with smiles, there is amazing food. In Asia, the way to drink is outside. The packaging is less important than in the Western world.'

Under Mr Koh's stewardship, APB went on a regionalisation drive and eventually grew its footprint in Asia. So far, Mr Pirmez has no plans to alter this path. 'When you have a newcomer, I don't think that you change your strategy like this. It's not good for a company, especially for a successful company.'

But not every market in the region has been rewarding - China, South Asia and Mongolia yielded operating losses in Q2 2009. While every serious corporate player wants to be in China, the operating environment there is also tough. 'We are a small player in China. Our strategy is to continue to develop as a small player.

'China is one of the main sources of growth in the region, so that's the good news,' Mr Pirmez says. 'The bad news is that it is a very competitive market, very, very competitive... All of the competitors are working with very, very low margins. I don't know a lot of foreign companies winning against China with margins.'

Nevertheless, other markets in the region have done well. Singapore, Papua New Guinea and Indochina enjoyed double-digit growth in profit before interest, taxation and exceptionals in the same period. Regional growth will remain on APB's cards, but the company will have to focus on its existing business because of the economic downturn, says Mr Pirmez.

'Definitely the short-term challenge for many companies is to get through the crisis and we will be very busy. After that you can start dreaming again of growth opportunities,' he says. 'The good news is, if you see the Asian market, it is one of the main sources of growth for businesses in the world. There are still a lot of opportunities. When you go through the timetable of what there is to do, you can stay for 15 years.'

Looks like Mr Pirmez will be busy brewing plans in the region for some time to come.

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