On Your Own

The writer is an entrepreneur who hopes to share his experience and insights with readers who want to take that giant leap into business but are not sure if they should.

10/2019 – Can good corporate leaders be good entrepreneurs in startups?

I just got back from London yesterday after 12 days of travelling. Made a dash to Kraków and Warsaw, Poland in between hectic days of meetings in London. London was its usual busy metropolis whereas Kraków and Warsaw are two lovely cities that are very livable and relatively modern by European standards.

After eight years of spectacular growth since 2009, the London property market stalled last year and started its decline, with the high-end segment being the most affected. With Brexit still undecided, foreign buyers have been staying away unless big discounts are given, which will translate into a higher rental yield. Rental yields have been falling since 2010 as the growth in rental rates has been outstripped by a higher growth in capital value gains.

Currently, in central London, rental rates have held steady whereas selling prices have fallen. That is because there is still a shortage in housing accommodations. In Malaysian high-end property market (above RM 500,000) there is an over-supply with low tenancy demands especially from the expatriate community. So the selling price and rental rates are falling in tandem.

It has been proven that property cycles operate in the most simple economic form of demand and supply and yet many developers have been caught out in every cycle. Developers with good location developments and strong financials can afford to hold on and ride out the trough cycle whereas the financially strapped developer have to give away its margins to cover the bank loans.

Property developers in London have more difficult financing conditions compared to Malaysian developers. Build to sell concept means collecting deposits on off-plan sales while under construction, where the deposits are covered by insurance to protect buyer’s interests. No further progress payment is allowed which means developers are funding the development 100% from day one and can only get paid upon completion of the project.

Small developers have to fall back on mezzanine financiers (local ah-longs ) who charge between 10% and 15% per annum. Generally small projects/ refurbishments take between one and three years, relatively quick turnaround time if the developer hopes to make some money.

In comparison Malaysian developers have it easy from a financing perspective, are able to leverage off easy bank loans and progressive payments from confirmed sales helping to pay for construction costs. The trick in Malaysia is to get confirmed sales with approved bank loans. Then it is supposedly smooth sailing to completion if you have 60%-70% pre sold.

In a property downturn cycle, it does not matter which part of the world you are in, the problems facing any developer are the same. Critical cash flows, vanishing customers, banks tightening access to liquidity, suppliers chasing for payments and developers holding on to a supposedly unconvertible valuable asset. You are on your own. Alone and not a friend in sight.

Talking about friends, I was invited by Tomasz B, my classmate from Harvard Business School (HBS) AMP 182 program, 2012 to visit him in Warsaw. Tomasz was a rising star in the Polish banking scene, becoming the CEO of a medium size Polish Bank at the age of 43. After attending the HBS program, he was headhunted to be the CEO of a large French Bank in Poland.

Imagine our surprise when after three years into the job, he sent us a photo of himself in a hoodie working in a co-working space having invested in two fintech projects. He was 50 years old when he left the French Bank one and a half years ago.

Leaving a top corporate job is pretty common for high achievers but to immediately plunge into fintech startups takes guts and conviction.

From giving out loans, he is now searching for funding. Corporate perks vs startups peanut pay and what perks? He is learning to make his own coffee which is good sign of a wannabe entrepreneur.

My wife and I were invited to his home for a Polish dinner cooked by him and his wife, Iza. From red borscht (beetroot) soup with dumplings to veal pate, traditional salads of cabbages, cucumbers, mashed beetroots etc.

It was such an authentic meal, his whole family of children and grandchildren were present and pleasant. Tomasz has got a lovely family who is fully supportive of his new ventures. Another good sign for the wannabe entrepreneur.

Personally I would not recommend my corporate leader friends to leave their current jobs to join startups. Professionally, I would think that the fintech startups would benefit from the vast experience of someone like Tomasz. Insider knowledge on the banking system, disrupting the high margin segments, regulatory maneuvering, so much experience that will help minimize learning curve mistakes and being more focused on the right strategy from the start.

But can good corporate leaders be good entrepreneurs in startups?

Yes if the corporate leader has sufficient savings to invest and work for next to nothing wages for the next 2-3 years.

Yes if he has the right attitude in terms of starting again at the bottom of the food chain and he is not disappointed when his so-called friends in the corporate world suddenly disappear from his life.

Yes if he has the full support of his family especially the spouse. The entrepreneurial journey is lonely, stressful and problems often brought home. Family support gives you the strength to carry on.

Yes if he starts thinking like an entrepreneur and leaves his corporate gamesmanship behind.

Tomasz and Iza had recommended that my wife and I visit The Salt Mine in Kraków which is a world heritage site. What they did not tell us was that we had to walk down 135 meters or about 400 feet into the mines which was at the sea level of the Baltic Sea. Last year a total of 1.7 million tourists visited this site.

The Salt Mine Company is one of the oldest salt mining companies in the world. It has an amazing construction of 280 km of tunnels and chambers that the biggest chamber was converted into a chapel, some 135 meters below the surface.

While going down the steps and into one of the many tunnels, I was looking for natural light at the end of the tunnel and thinking of the property markets in Kuala Lumpur and London all at the same time. After two hours of walking underground, I was pleased to jump into a two level and two-sided chamber lift (for miners) and it only took 40 seconds to reach the top and into sunlight.

I would recommend that you visit this salt mine just once in your life time. Just like a wannabe developer should experience the trough of a property cycle or a CEO of a bank starting all over again in a fintech startup. Just once ….. in your lifetime.

Published: https://www.thestar.com.my/business/business-news/2019/05/18/can-good-corporate-leaders-be-good-entrepreneurs-in-startups/


9/2019 – In business or politics, opportunities arise out of every crisis

Last Sunday, I dragged my wife to Old Town, Petaling Jaya to buy water containers due to the severe warnings by Public Waterworks Department of a water supply interruption for up to three days.

We managed to grab RM500 worth of containers despite the huge crowd of desperate buyers.

Having instructed my maid to fill up the containers and placed them in all bathrooms, I travelled to Singapore on business matters. The maid was instructed not to do laundry nor do any cooking. My children were asked to have their dinners before they come home and if possible, pack some food for the maid.

While in Singapore, I checked with the maid on the water supply and was surprised to be informed that water was still flowing so I assumed that there was still water in our condo’s water tank. When I got back home, I was surprised that there was a continuous supply of water from the taps so I was relieved that the Waterworks department managed to repair and service the plant efficiently in such a short period.

My current problem is what do I do with all the water stored in all the containers and my bath tub? Somehow I have this nagging feeling in my mind that this might be a conspiracy between the plastic container manufacturers and the Selangor Water Works Department.

In business, out of every crisis, opportunities arise. When Revlon USA wanted to exit Malaysia and Singapore markets after years of mounting losses, I bought Revlon Malaysia and Revlon Singapore on the cheap together with exclusive distribution rights for both countries. When we had a major dispute with another cosmetic agency, we decided to cancel that distribution agreement and launched our own brand.

Back in 2010, when my eldest son went to UK for his A level studies, I bought apartments in London on the cheap due to their property crash in 2008/2009.

Back home in Malaysia now, with the massive oversupply situation, there is an unbelievable opportunity to buy both commercial and residential properties at good locations on the cheap.

Land prices do not go down. Neither will construction costs. In property downturns, only the developer margins go down. Knowing when to buy is easy and a no-brainer. Having the money to buy and hold are the keys to successful investments.

Just like in any other business, solid financial strength allows you to pick up opportunities in any downturn or crisis. Cash flow mantra for entrepreneurs. Save for a rainy day. Save for a opportunity day.

In politics too, when crisis emerges, the opportunity to rise and grab power should be taken up immediately.

Tun Dr Mahathir Mohamad’s becoming Prime Minister again is the perfect example. With a Pakatan Harapan leader in jail, the coalition had to offer Dr Mahathir the opportunity to be Prime Minister despite the fact that Mahathir’s Pribumi party had the fewest number of seats in the coalition.

As the sitting Prime Minister, Dr Mahathir used his powerful position to manoeuvre important Cabinet positions to his party members and with a disproportionate allocation vis a vis the other coalition members. For the voters who had voted in the Pakatan government based on the manifesto promises, most are disappointed that these promises are not kept.

In politics, crises can be created and out of these crises will emerge new opportunities to consolidate or seize power. It is the same play yesterday, today and tomorrow.

Another conspiracy theory on education – our Education Minister will not be able to reverse the number of hours spent on religious classes in schools due to the objections and roadblocks by the many religious officers and teachers in the education system.

The teaching of Math and Science in English will start in Sarawak probably as a pilot project with no road map in place for the rest of the country. It is either the school system has a massive shortage of English speaking teachers or students are able to cope with English language, or both. Your guess is as good as mine as we have not had any explanation by our dear Minister who I believe is still hanging on as the president of IIUM.

When there is a lack of transparency and clarity from the ministers, we tend to think of conspiracy theories. Either the ministers are strategically as smart as our dear Prime Minister or they are clueless as to what they should do. We will never know. We will remain as clueless as them I guess. The blind leading the deaf and the dumb. Just like the good old days.

Having fallen behind our neighbouring countries on the education and economic fronts, I am personally not optimistic that our present set of political leaders will be able to lead this country out of the mess that we are in.

The opposition parties of Umno and PAS are a worse alternative and if they ever come back in power, Malaysia will slide further back into the Stone Age.

What a pity. Having had the opportunity to replace the previous corrupted government caused mainly by the 1MDB crisis, our new political leaders have not seized the opportunity to create a better Malaysia. Voters will face a decision crisis in three-four years’ time.

In the meantime I have to solve a personal crisis. Water for sale. Anyone?

Published: https://www.thestar.com.my/business/business-news/2019/04/27/in-business-or-politics-opportunities-arise-out-of-every-crisis/

8/2019 – When looking east means China

A trip to watch cherry blossoms in Japan requires precision planning with loads of good luck. The unpredictability as to when the cherry tree will blossom in spring has made planning for the trip much more difficult, as the cherry blossom lasts for only two weeks in a year.

The other unpredictable factor is the weather. When we landed on Sunday night, it was 6ºC. It was the end of the previous week’s temperature of 6ºC to 17ºC. In the last few days, the temperature plunged to 2ºC-8ºC. My daughter told me that the temperature for the following week would be 6ºC-17ºC. Just my luck, as I did not sign up for a winter trip.

With the cold weather, having a bowl of hot ramen is a must and the average cost is about 1,000 yen (RM40) a bowl. So, using the noodle/ramen index, a bowl of noodles in Kyoto costs four times as much as in KL. Rental of property would be six to 10 times more, depending on the city you are in vis-a-vis Kuala Lumpur. Generally, salaries in Japan are three to four times higher than in Malaysia, so I believe middle-class Malaysians (excluding the B40’s) have better purchasing power parity compared with middle-class Japanese.

After getting the samurai bonds guaranteed by the Japanese government, Prime Minister Tun Dr Mahathir Mohamad is encouraging a Look East policy again. He feels that Malaysians should learn about adopting the work ethics and value system of the Japanese. Back in 1982, six months after becoming Prime Minister, Dr Mahathir launched his Look East Policy, an initiative to learn from the experience of Japan in the nation-building of Malaysia. He wanted to send young Malaysians to Japan to pursue undergraduate programmes and train in technical skills/technologies.

Only Volkswagen plus a host of other merged brands sell more. The latest big player is the merged Renault/Nissan/Mitsubishi conglomerate.

But the Japanese have conceded leadership on electronics, household appliances and television sets to Samsung and LG and also to Haier of China. The same goes for the microchip industry, etc. The domestic market has been well protected all these years by numerous trade barriers. Now, Japan’s international image is being upheld by investment visionary Masayoshi Son, the SoftBank CEO who first invested in Alibaba almost 20 years ago. Son has also invested in Uber, Didi and Grab, to name a few of his continuous mega-investments. Now, they have started Alibaba Japan with a 65%:35% JV with alibaba.com. Japan has four million SMEs, almost 10 times the number of SMEs in Malaysia. SMEs account for 25% of the country’s export value and 63% of its import value, but it is an ageing society. Japan’s growth has been driven by local consumption for many years now. Many legacies from its manufacturing past have not been transformed fast enough to counter the growth of South Korea and China. I do not believe Dr Mahathir is making the right call now to Look East-Japan. He should adopt a Look East-China policy. The sale of 49% of Proton to Geely China is bearing fruit now, as it has garnered 25,000 bookings for the X70 SUV within a few months of its launch. This must be the biggest success of Proton in the last 10 years.

China can help us rebuild KTM’s national railway line at a fraction of the cost as compared with Japanese or French technology. We can build a fast-train network from Thailand to Johor Baru, assuming that Dr Mahathir still cannot agree to work with Singapore on the JB-Singapore segment. Huawei can help install 5G network in Malaysia ahead of other Asean countries or even earlier than the United States.

On a bilateral exchange arrangement, China will absorb all our palm oil production that Europe threatens not to buy. Alibaba can set up a regional Asean HQ with an R&D team in Malaysia, and fund digital schools to train Malaysians on e-commerce and e-wallets besides its earlier promise of using Malaysia as its launchpad into other Asean countries. Besides the white coffee and Musang King durian, I am sure we can launch authentic Malaysian products in the world’s biggest market, including halal products for their 21 million Muslims. Malaysia has only 18 million Muslims.

On Dr Mahathir’s fear of the rich Chinese moving into Malaysia after buying our high-end condos, this phenomenon has happened in all the major cities of the world. The Chinese have been buying property in Singapore, Australia, the United Kingdom, Canada and the United States. They have been the biggest investors in global property in the last 10 years.

There is no fear of an influx of China nationals into our country. Our immigration department already has a strict anti-China policy in place. We should encourage the Chinese investors instead, as we have a huge surplus of high-end condos that is killing our property developers. A short-term solution to solve a major problem in the property sector.The Look East-China policy can be profitably managed for the next 10 years while we transform our education programme for our national schools. The rise of Japan, South Korea, Singapore and China in the world economy is mainly due to their high-level education system which starts from primary school. Their focus has always been on Maths, Science and Technology, so they have been building a talent pool to sustain their advancement in building their economy.

Just looking east at China is but a short-term solution. As Tun Daim Zainuddin said in his recent speech on the “National Narrative: Malays within the national context” at a local university, excerpts from his speech included that for Malaysia to get the four sectors of politics, economy, culture and religion right, we must first change our education system. Malaysia’s future depends on giving our children the right type of education that will allow them to be confident to face the best in the world. Expose our children to the world, then they will want to excel and they will protect the best of our culture.

Dr Mahathir and Daim are gravely concerned about the declining standards of our national schools which have a 80%-90% Malay student population. Too many religious classes compared with Maths, Science and Technology. Students are thinking emotionally rather than critically. As Malays form 60% of our population, there is a tremendous shortage of a talent pool which has adequate knowledge of Maths, Science, Technology and English.

How are we then as a nation to compete with Singapore, Japan, South Korea and China without a continuous supply of relevant talent? Or are we happy to strike some short-term deals with Japan and China just to tide through difficult economic times?

Short-term economic success for a nation is like a cherry tree blossoming for two weeks in a year. I would prefer to grow the hibiscus that will flower throughout the year. We should predict our own destiny and not rely on unpredictable trade partners, no matter how profitable it may seem

Published: https://www.thestar.com.my/business/business-news/2019/04/06/when-looking-east-means-china/

7/2019 – Right leaders at right time and right place will produce positive results

Just two days ago I had an interesting chat with Daniyar Sarekenov, Ambassador of Kazakstan regarding the topic of leadership. Nursultan Nazarbayev, President of Kazakstan had relinquished his duties as Head of State/President on March 19 before the next presidential election scheduled for 2020.

Nursultan had been President since the fall of the Soviet Union Empire when Kazakstan declared independence in Dec 1991. For 28 years Nursultan ruled in an authoritarian manner, won five presidential elections with massive landslides and his Nur Otan party and affiliates dominating the lower and upper house in Parliament with minimal opposition.

This is reminiscent of the leadership style of Lee Kwan Yew and his PAP party dominating the Singapore Parliament for 30 years after Singapore broke away from Malaysia. In his last address to the nation as the Head of State, Nursultan recallrf how the Soviet empire fell, leaving behind a ruined economy without a political system, GDP fell by half, major shortage of food and essential goods and all major factories stopped operating.

Nursultan and his comrades in arms’ first task was to build a market economy, dismantle the communist totalitarian system and ideology, and set about putting in place an economic development plan with the growth of citizen’s welfare at the forefront.

With a population of only 18 million people over a large land mass, Nursultan has managed to create peace and stability within a multi-ethnic (131 ethnicities) and multi religious society of 70% Muslims and 26% Christians. Investments were made to build infrastructure and set up a modern education ecosystem resulting in a top class national university in Astana, the capital of Kazakhstan.

Nursultan now hands over the Presidency to Kassym-Jomart Kemelovich Tokayev, 66, who has held the cabinet positions of Foreign Minister, Deputy Prime Minister, Prime Minister and even having a stint at United Nations as the deputy secretary-general. The leadership succession plan seems to be in place with the right candidate but Nursultan remain as Head of Security Council and his party. Similar to the appointment of Senior Minister Lee Kwan Yew after handing over his reign to Goh Chok Tong.

I mentioned to HE Daniyar Sarekenov that this transition looks orderly but Nursultan should play his role as an advisor and nothing more. His leadership style and ideas have been relevant through the last 28 years but the needs of the country is very different now. He should allow the next generation leaders to emerge, give them responsibilities and let them lead the new transformation programmes.

Singapore government is at the forefront of leadership succession planning. Their next generation of politicians are being groomed and in the civil service for example, their army leaders are only in their 40’s. The older generals and colonels have been phased out while in their 50’s. Our current Malaysian government has the weirdest combination, from a 26-year-old Minister to a 94-year-old Prime Minister. Leadership succession planning is in turmoil with all kinds of

speculation and power play among the motley crew of leaders in the coalition. Tun Dr Mahathir Mohamad’s leadership qualities was suitable for restoring law and order in this country but his economic policies looks outdated and irrelevant to the new economy.

There is no succession planning in place probably due to the fact that they are a new setup and also due to the lack of quality among their members. Some ministers are raw, young and inexperienced whereas some are just plain unintelligent. It will be good if Tun M for instance bring back Tan Sri Rafidah Aziz as a Mentor Minister to the Education Minister. Rafidah’s reputation as a no nonsense leader will be crucial in revamping the Ministry of Education, our national school system and remove the religious bigots who have planted themselves into our national syllabus.

Like any entrepreneur, my biggest headache in managing the company has always been identifying leaders suitable for the job at any given time. In the early years, sales managers must have good relationships with wholesalers, then with the advance of modern trade they need to learn technical skills in negotiation, spreadsheet presentation and logistic planning.

Brand managers only need to understand the 4P’s then 5P’s and 6P’s over the years. Now the e-commerce have thrown them off balance, forget about the P’s and just make sure the influencers and key opinion leaders sell your products.

Do we have the national leaders to take us into Industrial Revolution 4.0? Do we have brave new leaders to lead Malaysians to the path of equal rights for all and off the path of race and religion?

Whether in business or government, placing the right leaders in the right place at the right time will only produce positive results. If you are an old leader, make sure you stay in touch with new trends and new technology shifts. If you are not able to cope, it is best you step back and remain as an advisor and let the younger leaders take over.

That is probably the best advice that an outdated entrepreneur like me can give to outdated leaders out there still plying the trade dishing out outdated ideas to the public. Getting old is a blessing. Being outdated can be pathetic.

Published: https://www.thestar.com.my/business/business-news/2019/03/23/right-leaders-at-right-time-and-right-place-will-produce-positive-results

6/2019 – Good and bad news about airlines hog the headlines

Over the last two weeks, we have had so much news about airlines. They include the crash of the Ethiopian Airlines’ Boeing 737, Cathay Pacific announcing its results on its latest turnaround plan and Prime Minister Tun Dr Mahathir Mohamad’s announcement on the possible closure of Malaysia Airlines Bhd (MAS).

Cathay Pacific has announced its latest financial results for 2018, with the airline making a profit of 2.1% on a sales revenue of HK$111bil. In only its second year of a three-year turnaround plan, it has reversed its losses incurred in 2017. Net profit margins are thin, though, almost like the hypermarket retail business.

Meanwhile, back home, AirAsia X Bhd has been incurring losses for five consecutive quarters. AirAsia Group Bhd, however, turned in a profit for its full-year 2018 despite incurring a loss in the last quarter of 2018.

The airline business is notoriously tough, with high capital expenditure (capex) , volatile fuel prices and stiff competition driving down ticket prices. Airline operators need to drive down CASK – cost per available seat km – while at the same time driving up RASK –revenue per available seat km. Operating profit can only be achieved if RASK is higher than CASK. Simple as that.

Low-cost carriers (LCCs) like AirAsia survive because they keep CASK down as low as possible by filling up the seats on every flight ( high load factor). That is only possible by selling the seats at prices low enough to attract more passengers to fill up the seats. Even if RASK equals CASK, the airline would still make a profit from ancillary income, through the sale of food, beverages and baggage space.

While LCCs are set up with lean operational costs, full-service carriers (FSCs) have legacy issues of high operational costs built up over the years. FSCs like MAS, Cathay Pacific and Singapore Airlines have a higher CASK and thus a higher RASK, as they have to sell tickets at a higher price due to the full service provided.

MAS has been fully owned by Khazanah Nasional Bhd since December 2004. To understand what Dr Mahathir as chairman of Khazanah has said about the unknown fate of MAS, one must go back to the day when a series of unfortunate events affecting MAS started.

Back in 1994, Dr Mahathir approved the sale of a controlling stake (29%) in MAS to businessman Tan Sri Tajuddin Ramli (Naluri Bhd) at RM8 a share. MAS was reported to have a cash hoard of RM600mil at that time.

hen the Finance Ministry (MoF) bought back the same stake in February 2001, it was reported that MAS had accumulated RM9.4bil in losses.

Despite the huge losses, MoF still paid Naluri RM8 a share. That was the first major bailout of MAS by the government.

The second period of losses for MAS was from 2001 till June 2014 where the accumulated losses came up to RM8.4bil. During the same period, the government and Khazanah extended an additional RM9bil via Penerbangan Malaysia Bhd (PMB), which took over aircraft assets and liabilities, loans, redeemable convertible preference shares, rights issues, sukuk bonds etc. The total funding came up to RM17.4bil.The third episode was from August 2014 to 2018 when Khazanah announced the MAS recovery plan, where subsequently another RM6bil was spent on the airline and lost. From 1994 to 2018, a total of RM32.8bil had been spent on bailing out MAS over 24 years, or an average loss of RM1.38bil a year.

So, should Khazanah divest MAS from its portfolio of investments? Divestment could mean selling MAS, selling PMB with its assets and liabilities or closing down MAS if there are no buyers and selling off its assets and paying off its liabilities. Both exercises could cost Khazanah a few more billion ringgit. The last option is to launch another turnaround plan, pump in another RM6bil and restore national pride that we have kept our national airline flying again. Looking at the burn rate of RM1.38bil a year, this RM6bil might just last another four years and four months. Then what?

Then, there is the sensitive issue of MAS’ 14,000 employees. I am sure the government will be able to find places for these employees, or Khazanah can find them employment in their many GLCs. Just leave the unions behind.

Khazanah should divest because the airline business is not sexy anymore. High capex, low margins and low-cost competitors all around. Investing further would be like good money going after bad.

What price to pay for national pride? RM1.38bil a year can do wonders for our economy. Bringing in tourists is the job of the Tourism Ministry. There are sufficient airlines with spare seating capacity.

The current management team seems to be clueless as to any other turnaround strategies, missing all the conditions set by Khazanah. Khazanah perhaps has set too high a CASK and RASK target for MAS to reach.

MAS has always been subjected to political interference to the point that no capable manager can operate on their own. Old habits die hard.

Dr Mahathir was in some ways responsible for the sale of MAS shares to Naluri. He was the prime minister at that time. His decision led to the series of bad fortune caused by poor management. So, it is his karma that as the chairman of Khazanah, he now has to decide on closing down our once iconic airline.

I hope his decision will be the first of many that will move the government away from managing businesses, as otherwise, we will continue to hear about billions of excuses for mismanagement for the next 44 years.

Published: https://www.thestar.com.my/business/business-news/2019/03/16/good-and-bad-news-about-airlines-hog-the-headlines/

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