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.

1/2019 – This year looks like a tough year for business and ministers

The year 2019 started off badly with red ink declines across all stock exchanges in the world. Bears charged ahead as investors continued to be spooked by dramatic events happening in the United States, China and Europe.

Economic cycles of boom and bust are a normal occurrence in our last 100 years. Depending on the industry, the boom and bust cycle is dependent on basic economics of demand and supply.

Take our property industry as an example. We have just gone through a property boom which started in 2000 and had uninterrupted growth for 15 years with property values in certain locations growing three to four times. More developers jumped on the bandwagon some 10 years ago and now there is an oversupply of malls, office buildings, shophouses and condominiums.

There is still a huge demand for low-cost housing but there is no supply. Private-sector developers are not keen as this is an unprofitable sector due to high land cost. It is left to the government to provide low-cost houses but there is insufficient supply due to the lack of a clear strategy or understanding of what an affordable low-cost house/apartment should be. Prima apartments costing RM400,000 are way beyond the reach of B40 households.

Politicians only know how to plan in five-year cycles. From one election to the next. All politicians try to meet the short-term demands of their electorate so that the supply of votes is there for them in five years’ time. This current batch of politicians is thinking in two-year cycles since Prime Minister Tun Dr Mahathir Mohamad has indicated that he will step aside in that time frame.

No politician, especially the ministers, had come up with a long-term vision for their ministry. Their only strategy is how to keep their job in the next Cabinet reshuffle. At this moment, Malaysia lacks visionary leaders who care for the country and worst of all, a Cabinet of bickering ministers making a fool of themselves.

If the politicians are not able to produce long-term plans for the country, I believe the rakyat should step in to take part in the discussion on national issues that affect the well-being of the people in the country.

The local education of a child takes about 16 years, 11 years from primary to secondary school, two years in Form 6/ pre-university and another three years in university. The long-term vision of an Education Minister should be focused on an education blueprint to produce the next generation of bright graduates that have critical thinking skills, are multi-lingual, tech-savvy and with good morals within the next 20 years.

Since Malaysia is multi-racial and multi-religious, there have been different demands from its citizens, thus resulting in the supply of multi-ethnic schools of Malay, English, Chinese and Tamil in the last 60 years.

Reforming our education structure and syllabus is thus extremely difficult for our Education Minister, hence the lack of any ideas for the last seven months.

Perhaps, if the minister tries to understand the educational demands of Malaysian parents, he can then proceed to plan on how to supply to their requirements within a national education blueprint.

Looking at the demand side of the equation:

> There is a demand for Islamic education. Religious education too from the growing supply of tahfiz and religious schools.

> There is a demand for multi-racial ‘unity’ schools (like before). Schools for children of B40 parents of all races.

> There is a demand for Chinese schools. Strong focus on Science and Maths. A total of 80,000 non-Chinese parents send their children to Chinese schools

> Failing demand for Tamil primary schools.

> Dr Mahathir demands more English and less religion to be taught in schools.

> Dr Maszlee Malik demands Arabic to be taught as a third language in schools.

> Critical thinking skills to be taught in schools. More sports activities. Not sure about swimming due to a lack of supply of swimming pools. More hours on Science and Maths.

For all practical purposes, Dr Maszlee will need to restructure the physical assets – different schools can be assigned to meet the different demands as mentioned above.

Depending on demands by location, national-type schools can be divided into national-type Islamic schools and national-type unity schools.

> National-type Islamic schools – National Islamic education syllabus focusing on Science and Maths with Ministry-approved religious studies which should be followed by tahfiz and religious schools. The Education Ministry must develop a contemporary national islamic education syllabus that suits the demands of a growing nation. Arabic to be taught as a third language.

> National-type unity schools – Maths and Science to be taught in English. Religious classes if any will be taught after school hours. Tamil schools to be converted to Unity schools. Third language options of Mandarin or Tamil. No separate canteens please.

> Elite/ boarding schools – The minister will have to decide between converting these elite schools to Islamic or unity type schools.

National Chinese-type schools – Maths and Science to be taught in English. Third language options of either Malay literature or English literature.

The meeting point for these three national syllabi will be in Form 6 where the students can choose to study the subjects of their choice. I still do not understand why UEC is not accepted by local universities as racial politics should not decide our children’s educational rights.

At the end of the day, the choices made by parents for their children will determine which type of school will be in demand and the supply can be adjusted accordingly until an equilibrium of needs is achieved.

It would be interesting to hear from Dr Maszlee on how he intends to meet the demands of the education reforms needed so urgently by this nation. I hope his ardent supporters will supply him with some bright ideas in the next seven months or he will find himself with only one job back in IIUM.

After all, Dr Mahathir has an endless supply of candidates with impaired vision eyeing this coveted ministry. Looks like 2019 will be a demanding year for ministers as well.

Published: https://www.thestar.com.my/business/business-news/2019/01/05/this-year-looks-like-a-tough-year-for-business-and-ministers/

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23/2018 – Taking stock of misses and successes

As the year draw to a close, most businesses start to wind down. Big bosses go on family holidays while small bosses are still fighting hard for last minute sales to make the forecast numbers.

Entrepreneurs take this opportunity to take a breather to reflect on the past 12 months of achievement, the misses and the successes.

Most businesses would have revised their forecast numbers for next year as the business climate has taken a turn of uncertainty, with news of global trade tensions and news of local political tensions.

Every year-end of my business life, I would reflect on my organisational needs for the following year. Do I have the right people to help me manage the new challenges of the new year? Should I reshuffle or bring in new replacements?

Political leaders in Malaysia Baru have the most to think about. Depending on which side of the Parliament you are seated, I would pay a penny or two for their thoughts. A penny for those in opposition who are thinking of hopping over and two pennies for those in power who are thinking of accepting them. Honestly, I don’t give a damn what both sides think.

If I am the Prime Minister, I would be worried about how our economy would fare next year. I would reflect on how my hand-picked ministers have performed over the past seven months. Did I make the right choice? Should I keep the same team or should I only keep the performing ministers and replace the incompetent misfits?

In the business and corporate world, hiring the right person for a specific job is one of the toughest decision a CEO has to make, More so if is a high level job. Hence the normal six month probation for every new hire.

Just like every other CEO’s, I have made good hiring decisions and I have made horrendous decisions over the years. The CV looks pretty good, the interview went well. The real performance unfolds over the next six months. I have made a poor decision. Should I keep this person or should I let him go?

Most times, I have deep regrets for keeping that person when I go against my gut instincts of not keeping that person. Usually it is a mismatch of capabilities with the job at hand.

Sometimes the big company experience person is not able to operate in an entrepreneurial set up. Most of the time, it is a mismatch of attitudes and egos. He/She is a misfit in my organisational set-up.

Tun Dr Mahathir Mohamad made four important cabinet appointments upon his own appointment as the Prime Minister in May 2019. The Home Affairs, Finance, Defence and Education ministers.

Home Affairs and Defence were the most crucial as taking charge of domestic security was needed to calm the political turmoil in the aftermath of an historic election. Finance was equally important as it controls the cash flow for the entire government. To reflect the importance of the education portfolio, Dr Mahathir appointed himself to the job.

Since it has been more than six months, I believe the probation period is over and Dr Mahathir will be reflecting on the performance of these four key Ministers.

On Home Affairs, despite his medical problems, the highly experienced Tan Sri Muhyddin Yassin has shown tremendous guile and skill to take charge of the police force thus ensuring the domestic security. To tackle widespread corruption, he has reformed and empowered MACC to its original independent state.

His handling of nullifying opposition tactics using race and religion shows his experience and deft hands. I would rate him 9/10.

On Defence, Mat Sabu the humble, jovial politician and cook extraordinaire is well liked by his army of new followers. Not much is known of his knowledge on tactical defence manoeuvres but his culinary skills is now well documented and even acknowledged by our noisy neighbours. I would rate him 9/10 for being the most popular politician in the country. No ratings on his performance.

On Finance, minus his (still) opposition style rhetorics, Lim Guan Eng is actually a good and honest accountant. However he needs to understand that an effective Finance Minister extends beyond book keeping and cash flow management duties. As the finance spokesperson of the government, the Finance Minister needs to have finesse in bringing confidence to the business community, calm the financial markets and improve currency strength. I would rate him 8/10.

On Education, since the whole country protested on his own self appointment, Dr Mahathir retreated and chose the little-known lecturer from IIUM, Dr Maszlee Malik as the Education Minister.

The nation awaited anxiously for his school reform ideas, maybe a brilliant education blueprint for the next 30 years or even an inkling of his thoughts on education.

After seven months, the nation is aware that he cares deeply about the colours of school shoes and school buses, saving the lives of school children from drowning at sea or swimming pools and opening petrol stations in higher education campuses. Then this bizarre directive to keep religious teachers from Peninsular in Sabah and Sarawak schools.

Along the way, he accepted the position of President of IIUM despite the legal advice of the government and the cabinet that there is a conflict of interest with his current job. He has not resigned yet despite promising to do so.

After seven months, the nation is still clueless as to any plans for reforms to our school syllabus, the teaching of English or any discussions with other stakeholders and educationist groups.

I would rate him 0/10. My learned friends from the dinner last night says I am too kind as they feel that he should get negative marks. In fact they all agree that like Jose Mourinho, Dr Maszlee should be removed from the team and a suitable replacement be brought in before it is too late.

I believe he is more suited to stay in IIUM and if that is where his heart is, let him be happy. He should step down as the Education Minister.

Dr Mahathir mentioned that his Ministers were not getting due support from the civil servants in their ministries. Perhaps some of his Ministers are incapable of performing their duties or they really have no clue as to what their job entails. It takes two hands to clap.

It would really be interesting for Dr Mahathir to conduct a one-on-one interview with the director-general of each Ministry on their assessment of their immediate boss, the minister. I am sure great stories will surface that will help him assess the performance of his 26 Ministers.

In the meantime, Dr Mahathir should wind down a bit, get some rest and spend some time reflecting on his organisational needs for next year. I rate Tun 10/10 master politician and I know he will make the right moves. I will accept whatever he accepts…. warts, frogs and all.

To all Christians, have a reflective, meaningful and Merry Christmas!

Published: https://www.thestar.com.my/business/business-news/2018/12/22/taking-stock-of-misses-and-successes/

22/2018 – An exciting but challenging journey

One for the album: Counters promoting Silkygirl products. The birth of Silkygirl was due to a strategic dispute with Wet ‘n Wild Cosmetics on how the brand should go forward.

THE most difficult part of writing an article is the beginning. The first paragraph is the toughest. My mind is blank. Is this a good idea? Uncertainty sets in. I would light a cigar and let my mind wonder for the next 30 minutes. Brought back to reality by time constraint.

If you have ever started a business of your own, you would be able to identify the following symptoms. Uncertainty and excitement. Uncertain if the idea would work. Rush of adrenaline when you start the business. Full of optimism as the idea has been well thought through. You are ready to take on the world.

When things go well, it is smooth driving. Most times, the journey is littered with pot holes, road diversions and occasional dead ends. Such is the journey for an entrepreneur.

Some entrepreneurs have short journeys. Some have long journeys. For serial entrepreneurs, they take on multiple journeys. Sooner or later, all journeys come to an end.

My journey with Alliance Cosmetics is finally coming to an end as it has been sold to a new owner, Mandom Corporation, Japan. It has been a journey of 22 years. Looking back, the early years were challenging especially the 1998/9 Asian Financial Crisis. Excitement turned into despair. But we recovered.

Then the excitement of taking over Revlon Malaysia and Singapore in 2000. The joy and pride of rescuing Revlon brand from being kicked out of the market by Guardian and Watsons in both countries. And then the despair of losing the agency in 2014 despite the year on year growth performance for 14 continuous years.

Not many people are aware that Alliance Cosmetics have been instrumental in building the dermo cosmetic category in Malaysia via the 20 year old journey of marketing Avene skin care in Malaysia. Nor the fact that the Alliance Cosmetics team is 100% local, born and bred in Malaysia.

And how the local team gain experience and confidence to take on the biggest cosmetic company in the world.

The birth of our own home grown brand Silkygirl was due to a strategic dispute with Wet ‘n Wild Cosmetics on how the brand should go forward. From the despair of a dispute came an opportunity. Again there were great anxieties and uncertainty as we journey into the unknown. I was lucky as I had the full support of my partner as the capex investment in brand, inventory and merchandising was enormous compared to our turnover.

The Alliance Cosmetics story is more than the story about Silkygirl and Tan Thiam Hock. It is the story of the support of partners that an entrepreneur should have. It is about a supporting spouse in business and at home that an entrepreneur like me can appreciate. It is about the customers and suppliers that have supported us and eventually becoming good friends throughout the journey. These friendships have helped my journey less stressful and more enjoyable.

Most of all, this is the story about the people that makes the company for what it is. I will be forever grateful of having the opportunity to work with so many nice and genuine people. It is a story about simple people working for a living, performing to the best of their abilities in whatever role that they have been given.

It is about Wendy who was our 18-year-old sales promoter back in 1996 and now a trade manager and a mother of two. It is about the Revlon admin and finance team headed by Bin Shu that came with the company that forms the backbone of our operations team till today. Shout out to Chin Lay for helping me take on Revlon.

I will never forget the sales team and Sarah, my late secretary that hop over from Wella, engineered by Georgie, my first sales manager. I will always remember Ang, who travelled with me throughout Malaysia setting up our general trade distribution network amidst the many cigarettes smoked in between.

All our packaging designs, merchandising and advertising creatives were done in house. Our in house Studio Manager Heng has been doing graphic work for me since 1985 when she was working for other studios. Our honest and diligent purchasing team headed by Joanna built a network of trust and integrity with our world wide suppliers.

To compete with L’Oréal and Maybelline, we developed a similar world class brand management structure for Silkygirl headed by Theng Theng. We are proud of the fact that many of our former brand team members have now spread out to other companies to be in charge of competitor brands.

Alliance Cosmetics have been managed by a professional team headed by our CEO Chee Eng since 2012. I am glad that the new owners have decided to keep the whole team intact as they move forward.

When she got news of the sale, Suridah texted me, ‘Are you feeling relieved or finally sad?’ Having sold her company before, she knew what I was going through.

It is like giving away your daughter in marriage to a new family. You can only hope that this new family will look after her well.

To the young entrepreneurs, your journey will take you through many roads. Enrich your life with the many new friendships that you will develop over the years. It is much easier to face the challenges in business life with the support of your partners, family, colleagues, suppliers and customers.

Just remember that friendships remain long after your business journey has ended.

While heaving a sigh of relief that my journey has ended well, I am grateful for the many friends that I have had the privilege to know and meet.

I never knew that the ending would be as difficult as the beginning. It is finally sinking in. I am feeling… finally sad.

Published: https://www.thestar.com.my/business/business-news/2018/12/15/an-exciting-but-challenging-journey/

21/2018 – FundMyHome and the risks taken by all players

I do not enjoy discussing business ideas with my eldest son. We always end up in an argument over the dinner table. My wife will roll her eyes while the rest of the family will keep quiet, not knowing what we are arguing about.

I am the big idea guy, always looking at the viability of the business model and I don’t read the fineprint. My son does, so he normally wins the argument. On technicalities, of course.

The only positive derived from our argument is that he now understands the big picture and the technical structure of the business model. I hope he does, as it would be pointless for us to argue over that point.

Our latest discourse was on the topic of FundMyHome, which was announced by saudara Lim Guan Eng in his recent Budget 2019 speech. The big idea is a peer-to-peer lending property platform powered by digital technologies managed by EdgeProperty.com.

Most developers have many unsold properties (huge inventories exacerbated by slow approvals from state governments to release unsold units reserved for bumiputras). The big inventory of properties can cause a major cashflow crunch on highly leveraged property developers, so I would expect them to jump on this bandwagon platform.

Since peer-to-peer lending by the investing public will take some time to mature (approval by the Securities Commission is required), EdgeProperty.com has onboarded CIMB Group and Maybank to invest in a securitised debt instrument, lending against securitised properties. I believe, like future public investors, they are guaranteed a return of 5% per annum over the next five years plus a percentage of the upside when the said property is revalued by an independent valuer.

Potential buyers will only need to pay a 20% downpayment for a completed property of their choice, move into the house/apartment and stay/rent out for the next five years without having to pay any mortgage instalments or associated interests. All good so far for property buyers.

My argument with my son was about what happen when the five years is up. An independent valuer will then assess a new valuation on the property. Assuming the buyer had signed for the property at RM400,000 five years ago and it is now assessed at RM500,000, the buyer will now have to refinance the balance property price of RM416,000 (earlier downpayment was RM80,000 plus share of upside RM4,000).

The first 20% of new valuation (RM80,000) upside goes to the developer. The balance 5% upside (RM20,000) is shared by investors (RM16,000) and house buyer (RM4,000). Before we comment on who is on the losing side, we should examine the risks taken by all the players onboard the platform.

Developers practically discounts 20% net present value on the property sold as they have to pay the investors a 5% coupon for five years on the balance 80% financing. Developers will only enjoy the upside if the new valuation after five years exceed current selling price. Their risk is if the valuation remains the same or goes below current pricing, they will end up with no upside. In the meantime, they have discounted 20% on the sale of their property. How long will the current property glut depress the market, nobody knows.

Investors will have a secured 5% per annum coupon for five years assuming the developers are able to pay according to schedule. Or to be safe, investors can ask the developers to pay them 20% upfront which, at net present value, is almost equivalent to 5% per annum for five years. The risk for the investors is when the buyer refuse to refinance after five years for whatever reasons and the investors are now stuck with a property which they have to sell off at whatever price. It will be a percentage game for the investors.

For the house buyer, assuming he had bought the property at RM400,000, he would have made a downpayment of RM80,000. Again, assuming an alternative mortgage loan from banks carries an interest cost of 5% per annum, he would have saved RM16,000 a year on a RM320,000 loan or RM80,000 over five years. Not to mention savings on rental of alternative accommodations.

Different scenarios carry different risks for house buyers.

If property valuation exceeds 20%, then he will be asked to buy the same property at a higher price five years later. If he is unable to refinance with a new loan, his property will be sold and he carries the risk of losing his RM80,000 deposit or part of it, depending on the final sale price. He will only enjoy a five-year free accommodation.

If property valuation is exactly at 20% above the original price, then the developer gets the upside, the investor gets nothing and the house buyer gets to enjoy free accommodation for five years.

If property valuation exceeds not more than 20%, the developer enjoys whatever the upside, the investor gets nothing and the house buyer gets to enjoy some mortgage finance savings and free accommodation for five years.

If the property valuation is similar or below the original sales price, the developer gets nothing, the investor gets nothing and the house buyer gets to save RM80,000 in mortgage interests, five years of free accommodation and become an owner of an overpriced property.

This platform brings together developers, investors and buyers all on a promise of a shared common interest with different risks for different players. From a zero-sum game, it will finally be dependent on a game of chance, the final valuation of the property after five years.

So bring out your crystal ball, let the developers beware, the investors beware and the house buyers beware. Your guess is as good as mine.

My StarBiz editor asked me whether I will invest as an investor when the Securities Commission approves the peer-to-peer lending platform for public investors. Tough question, as my son now manages family investment.

This might lead to another argument with him, so I have to be more prepared this time by reading the fineprint when the scheme is launched. Based on mathematical probabilities, I am due to win one argument soon. Better late than never.

Published: https://www.thestar.com.my/business/business-news/2018/11/10/fundmyhome-and-the-risks-taken-by-all-players

20/2018 – Does the size of business matter?

One of the most intriguing question that have often been asked of entrepreneurs – does size matter? I am of course referring to the size of the business.

All entrepreneurs will dream of growing their business from small to big and from big to huge. Aspirational dreams motivates the entrepreneur until reality strikes.

Business cycles show growth and decline of any industry. During the growth phase, you need more people and more investment. When your business becomes stagnant and goes flat, you start to reign in the costs by right-sizing your organization in terms of investment and people. When your business decline in size/ revenue, you will stop investing, preserve cash flow and down-size your organization. #businessstrategy1.01

My last 30 years have been spent searching for answers to multiple choice questions. When I get a new distribution agency, should I hire first and hope the additional revenue will flow in? Or should I wait and look for visibility of success before I commit more resources. Which part of the organization chart will crack if we grow very fast? These are happy problems for any entrepreneurs.

A few years ago, we lost a major agency and we had to restructure, down-sizing rather then right sizing and it was a painful exercise. We offered early retirement packages to staff who wanted to leave and some staff opted for part time work as they wanted to spend more time with their growing kids. We had to reshuffle our sales and marketing team, move people around and double task some jobs.

The size of organisation determines the flexibility to change and to adapt. Smaller companies tend to be more nimble and quick in response. Big companies plan their needs for the foreseeable future and tend to be more structured and less flexible. Most GLCs who are local champions operates like a government department. Most GLCs who have to compete in the international markets face major headwinds eg Malaysian Airlines.

How many companies actually plan for incoming disruption? Traditional media companies like print and TV have seen disruption signals some 10 years ago and yet many failed to down-size until forced to do so. Businesses involved in sunset industries should milk the business for what its worth and reinvest the profits for the future and the planning starts now.

In view of the e commerce efforts of Alibaba/Lazada to bring in manufactured goods from China, has our supply chain of importers, distributors and retailers started planning for this disruption? What size of business will be taken over by the disruptors? Should they pivot now? If yes, how do you pivot? What is the right size after the pivot?

The biggest organisation that we have in this country is the government of Malaysia. The combined staff strength of federal and state civil service is approximately 1.6 million and this number exclude GLC’s, GLIC’s and contract workers. Assuming a total workforce of 16 million, one in 10 works for the government.

To ensure the security of the country, we have about 350,000 soldiers and policemen, 100,000 people in health service and 500,000 teachers. These are essential services for the benefit of the people. That leaves us with 650,000 civil servants to manage the country and provide other services through the various Ministries.

We have one of the highest ratio of civil servants to population in the world. If you add in the pension cost into the emoluments paid, our salary bills for the civil service runs close to a hundred billion ringgit a year. It is our biggest operating expenditure in our national budget.

Despite the bloated size of the civil servants, the new Pakatan Harapan government has decided not to down-size the organisation due to many reasons. I would speculate that even a 10% down-sizing would create 160,000 jobless people that are unemployable by the private sector.

The civil servants have also racked up a high debt of personal loans that has alarmed our Central Bank. A retrenchment exercise will cause such a massive non-performing portfolio for MBSB and Bank Rakyat and hopefully not cause a domino effect on our financial system.

If you are the Prime Minister of Malaysia, how are you going to right size this bloated organisation? If you are not able to do it now, what should your plans be in the next five years?

Some actions have been taken to reduce the opex. Previous frivolous hiring of highly paid contract workers have been discontinued with savings of billions.

Leakages in procurement are slowly but surely reduced by responsible Ministers. These are the low lying fruits. Further efforts are needed.

On calls to reduce the RM800mil budget of Jakim, the Minister recently revealed that half of the opex was for paying salaries of over 30,000 religious teachers. So the Ministry is considering to reduce the opex by half just by transferring the teachers out of Jakim to another department or Ministry. Brilliant strategy indeed.

With the Education Ministry already employing 500,000 teachers, adding 30,000 is just another number and all they have to do is just request for an additional RM400mil to the Education budget. Or perhaps IIUM might set up a national religious school just to keep the teachers employed.

The Government of Malaysia must have a five-year plan to right size the civil service. The first step is to stop employment. Reallocate the people resources from redundant jobs to areas where there are shortages. The MACC and the Attorney General Chamber certainly need more manpower resource now. Just an example of a happy problem and solution.

Each Ministry and state government must conduct a study for internal manpower requirements for the next five years and identify the right size set up needed to deliver exemplary services to the people. Gone are the days when securing a job with the government is liken to having a wooden bowl.

Trust me. It is better to right size now then to down-size later.

Published: https://www.thestar.com.my/business/business-news/2018/10/27/does-the-size-of-business-matter/

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