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.

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/

19/2018 – Learning from pioneer entrepreneurs in the history of M’sia

Back in the good old days of carefree living as a student in University Malaya, I remembered that I hardly studied except for the last two months before the final exams. The only problem was that our final exams were always conducted in the months of February and March, which run smacked into our Chinese New Year celebrations.

So for three years, the outstation Chinese students would make a mad dash home for the New Year family reunion dinner and they would then crawl back into the libraries a few days later to prepare for the exams. There were not many choices of local universities at that time (probably five if you exclude ITM) and there were no private universities except for TAR College (not a university then).

If you come from a rich family, you will be studying in the UK or Australia. For the less affluent families, it is either getting a place in the local universities or you will be applying to the local banks for a clerical job after completing your form six exams.

Immediately after my final exams in March 1983, I started applying for jobs with companies that I have had contacts with from my time in Aiesec club. Within two weeks, I had three offers and I chose Mulpha Trading – selling building materials because they offered me a princely sum of RM1,000 basic salary plus RM200 car allowance.

There were no holiday trips before graduation because I just simply could not afford to do so. In fact, I had to work immediately so that I could contribute towards my family’s expenditure. Nowadays, the young graduates including my children take multiple holidays before graduation and then take gap months “chilling out” before they apply for a job.

Anyway I lasted just three months selling cement and steel and through the introduction of my cousin brother, I joined IGB Construction. Within two years, I was moved to IGB Food Systems (Swensen’s Ice Cream) and then to IGB Maintenance (cleaning services). IGB office was in Plaza Pekeliling at that time. I then left to start my first trading company partnering Ang Guan Seng of Petaling Gardens Bhd in 1985.

Ipoh Garden at that time was building a conglomerate of companies. From Ipmuda Trading (building materials) to the merger of IGB Construction with Jurutama and Mudajaya into IJM Construction, the Tan & Tan brothers together with Datuk Yap Lim Sen were making big plans to expand locally, Singapore and in Australia.

Ipmuda Trading and IJM Construction were eventually listed. The other companies from their group that was listed included Wah Seong Corp Bhd and Goldis Bhd. The Tan brothers, the elder Tan Kim Yeow and Datuk Tan Chin Nam have built many businesses and their companies have contributed tremendously towards the socio-economic development of Malaysia for the last six decades.

While building the massive Mid Valley megamall project, Kim Yeow passed away in 1997 and Chin Nam had to struggle through the deep recession of 1997-1998 to ensure that the first phase of Mid Valley Mall could be completed. In his memoirs, Chin Nam sold many businesses at that time to raise money so that his dream project could eventually be launched in 1999. Those were tough years for Mid Valley megamall, launched in the depth of recession but his vision was proven correct as Mid Valley is one of the most successful megamall in Malaysia today. The Garden Mall was completed and launched in 2007, some eight years later.

Datuk Tan Chin Nam passed away on Sunday at the age of 93. Together with his brother, Robert Kuok, Ang Toon Chew and some friends, they will always be remembered as the pioneer entrepreneurs in the history of Malaya and Malaysia. They were the risk takers with great vision and most of all decent human beings of upright integrity. A handshake and a promise was all that was needed then.

Not many people know the history of Petaling Garden Bhd (now a PNB company). A group of Chinese businessman led by Ang Toon Chiew pooled together RM1mil in 1959 and bought thousands of acres in Petaling Jaya to develop townships in Section 5, 6 and 17. The original shareholders were Ang Toon Chew, Robert Kuok, Kim Yeow, Chin Nam, Ho Yeow Khoon and Low Boon Chian.

The Ang family started many manufacturing companies, Malayan Pharmaceutical, Malayan Feedmill, Malaysia Plastic etc and were original shareholders of Robert Kuok’s Federal Flour Mills and Malayan Sugar. Robert Kuok became the sugar king and was asked by Tun Dr Ismail, Deputy Prime Minister then to start a shipping company which became MISC. Robert Kuok built the Shangrila Hotel chain, which is now a famous brand name worldwide.

Together with other pioneer entrepreneurs like Lim Goh Tong, Lee Loy Seng, Loh Boon Siew etc Malaysian Chinese entrepreneurs like Chin Nam have been the architects of economic development in post-war Malaya and Malaysia. Their contribution towards the building of a prosperous Malaysia should be appreciated and acknowledged and certainly not to be denied in our history.

To the young entrepreneurs, there are many lessons to be learnt from these pioneer entrepreneurs. Integrity, courage, perseverance, visionary, risk taking, humility etc. And if you genuinely put all your efforts towards the economic development of our beloved country, Malaysia will be unbeatable.

My own entrepreneurial journey pales in comparison. I am still in awe of his achievements.

Chess well Uncle Chin Nam. Win another Melbourne Cup.

Published: https://www.thestar.com.my/business/business-news/2018/10/24/learning-from-pioneer-entrepreneurs-in-the-history-of-msia/

18/2018 – Welcome all, to the land of the brave

Just last month, both my sons quit their jobs from very good companies that they were working with since they graduated. Both of them were planning to work in fin tech and financial startups. Even though I felt that they should acquire a few more years of working experience, I had to consent to their request.

I explained to my wife that I had started my entrepreneur journey before my 25th birthday and if they are brave enough to venture out at this early age, I simply have to support them in their journey. So our family funds co invest into their set ups.

Starting a set up from scratch is not really difficult. You start with a clean sheet of paper, fill in your vision, build a viable business model, get in the right partners and off you go. It is more difficult to buy into an existing business where there are many challenges facing you.

In my last 33 years since I started my journey, my partners and I have bought three businesses. We bought a household rubber glove factory in 1987 when I know next to nothing about manufacturing nor export business. This was before the booming growth of examination rubber gloves in the 90’s due to the AIDS epidemic sweeping the world.

The second business we bought was a smallish cosmetic distribution company with 13 staff back in 1996. Despite having been involved in food and toiletries distribution business since 1985, I had no clue as to what the cosmetic business was all about. Lip and eye liners was as alien to me as centrifuged latex was back in 1987.

Then the currency crisis hit us in 1987-1988 but I stuck to the business as there were no other business to work on. This was the high margin business that I have been looking for and I was determined to succeed.

The third business that we bought was in the year 2000 when we bought over Revlon Malaysia and Revlon Singapore as Revlon had wanted to pull out from direct distribution in these two countries. It was a daunting purchase as we took on a business that had three times as many staff as we had.

The most difficult task was to assimilate local staff who had worked in an MNC environment into a company steeped in Chinaman culture and philosophy. To add to my problems, Singaporean staff did not consider Malaysian owners as favourably when compared to previous MNC American bosses. Some staff left within a short space of time when they realised that they could not fit into a new working culture. But many stayed back and we still have more than 50% of ex Revlon staff who is still working with our company today.

Looking back, the primary concern of the Revlon staff was all about job security followed by owner’s integrity and purpose. It took me a few years to earn their trust and I am glad that those who stayed back formed the backbone of my organisation’s growth over the years.

Besides the good people, I also inherited an MNC management accounting system which instilled financial discipline in my management practices, where most decisions were made based on financial numbers readily available.

I had to cut off suppliers when I thought they were overcharging and after they had refused to renegotiate. The new suppliers brought in then are still with us after so many years. Fair profits shared leads to long term relationships in business.

Many decisions were made, some bad and some good. As an entrepreneur you have to be brave when you venture into the unknown. You need a strong heart and will of steel to go through the trials and tribulations while meeting the expectations of all the stakeholders in your business, from shareholders to staff to suppliers and to customers.

After having experienced the difficult moments of buying into an existing business, I do emphatise with the current Pakatan government. Managing a country is way more complicated than managing a marketing and distribution business.

This motley crew of politicians were unexpectedly brought in to manage the country on an initial five-year contract. What they have inherited from the previous management is a country with many broken dysfunctional parts. I believe their management decisions made over the next five years will become a great case study for management students all over the world.

After facing long delays to be officially installed as the new government of the day, the Pakatan team took over a country where they faced an uncooperative civil service with a staff strength of 1.6 million people. Morale was low. Corruption was high. The Treasury was lacking in financial discipline and worst still, the country had high debts.

Many supplier contracts were considered dubious with high mark ups. Internal security was compromised, independence of the judiciary and rule of law was suspended. Press freedom and free speech was suppressed.

Worst nightmare in any mergers and acquisitions exercise. Buying into a company and realising that it is broken and rotten across the organisation. Like facing a perfect storm.

The new management team headed by an experienced 93-year old CEO took the bulls by the horn and made many brave decisions on finance, security and human resource issues.

The CEO personally negotiated the big infra projects with overseas suppliers. All projects have been suspended, postponed or to be renegotiated. Preservation of cash flow is of utmost priority. International diplomacy is strained but common sense prevails due to good neighbourly relationships.

Meanwhile, the CFO is renegotiating with local suppliers for savings of a few billion ringgit. As the government is the biggest customer in the country, most suppliers will be cut off if they refuse to re negotiate once the project is considered dubious or excessively over charged. Bold steps required if the books have to be balanced. Cut out the leakages and the wastage.

Internal security and constitutional security was quickly restored. Capable Malaysians of all race was quickly roped in to help out due to lack of trust with previous batch of division managers.

On human resource management, many heads of dubious characters were removed whilst those who do not agree with the new working culture resign and left. The rest of the civil service was given short term relief with the announcement of no retrenchment. Was it a guarantee of job security or was it that any right sizing of the civil service will result in high non performing loans due to extremely high personal loan debts?

But there are still many constituents who are unhappy with current management team. Pakatan was swept into power largely by the combination of non Malays and moderate Malays. There is no political will to fulfill some of the promises made on education and religion prior to elections.

On education, current the PH government are not brave enough to have local universities recognise UEC exam results. The Chinese voters who voted them into power will not forget the promises made. The moderate Muslims who wanted a softer, kinder and less intrusive Islam are still waiting in vain for Jakim to be reformed.

The various ministers involved have flip flop in their decision making, lacking clarity and resolve. Some Ministers are still clueless as to what their Ministry should be striving for. To be fair, there are some Ministers who have exceeded our expectations by acting swiftly and boldly.

My good friend, Pat Liew remarked that this is a good opportunity and right timing for the current government to be brave and to act decisively. After all they have more than four years left in their management contract to explain and prove to their stakeholders that they have made the right decisions.

To the flip flop Ministers, do the right things as fortune favours the brave.

In order to achieve anything, you must be brave enough to fail. This nation will remain the land of the free so long as it is the home of the brave.

Published: https://www.thestar.com.my/business/business-news/2018/10/13/welcome-all-to-the-land-of-the-brave/

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