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.

Category: On Your Own

3/2020 – Time to prepare cash flow reserves

Almost every month I would hear a few cases of friends and a friend’s friends being diagnosed with cancer, mostly advanced fourth stage cases.

Discovery at our age is normally advanced, comes as a shock and requires immediate treatment.

Just two days ago, I was having a chat with my oncologist while in hospital to be fed intravenously my second course of a targeted therapy which has gotten more expensive compared to some six years back.

The regular chemo drugs which has been around for the last 20 years are not too expensive but if you can afford the newer targeted and immunotherapy drugs, go for it as they are less damaging to your normal cells, more effective and causes more tolerable side effects.

My oncologist was very frank with me. Cancer treatment can be very expensive and it could drain your savings if you do not have extensive insurance coverage or a strong cash flow.

I would recommend to the young working adults to buy life insurance with high coverage on critical illness.

Forget about investment linked products and go for plain life insurance plans with a high rider coverage on critical illness to reduce your insurance premiums.

Your savings could be used for your children’s education instead of being spent to prolong your life. Cash flow planning is essential not only for businesses but for personal family matters.

Looking after old parents, having a roof over the head, educating children and planning for the unexpected medical expenses.

Like all businesses, having sufficient cash flow for day-to-day operations is just not enough for the long-term survival of the company as businesses go through cycles of boom and bust.

Saving for a rainy day means increasing your cash reserves during the boom time so that you can ride through the down cycle and the unexpected crisis like the current Covid-19 saga which is still being played out without a solution in sight.

Many industries have been affected by the lockdown in China. From non-delivery of critical parts to manufacturers, to closure of restaurants and shops, complete shutdown of tourism-related businesses from airlines to hotels to travel agencies, the list is endless as once confidence waned, business and consumer consumption drops off the cliff thus affecting the whole economy of a country. This crisis could be over in three months time but by then it would be five to six months into our 2020 business budgets and I would say most businesses would miss their budget forecast by a big margin, some more than others.

Many small businesses will not survive if there is insufficient cash flow to weather the storm.

Companies with heavy borrowings and big wage bills will suffer massively and will require more borrowings or cash injection by shareholders.

Airlines with heavy exposure to China routes will suffer the most.

With heavy borrowings due to high capital expenditure, cash flow from forward selling has trickled down and if full refunds were made for all the cancellations, I wonder how long their cash reserve will last.

Having experienced SARS in 2003, Cathay Pacific was the first airline to react in terms of preserving cash flow.

By asking their 27,000 employees to take a three-week unpaid leave, it could effectively reduce their cash outflow by HK$400mil to HK$500mil in the next two months.

Together with lower fuel cost, the damage to their cash flow reserves might not be as bad.

If the situation does not improved, they will start a lay-off exercise.

In Malaysia, a few industries have called for help from the government.

Hotels, travel agencies have asked for immediate reduction in water and electricity tariffs, banks to help out by stretching loan repayments.

The Finance Ministry (MoF) has had meetings with the affected parties and said that it is monitoring the situation and will make a decision by end-March.

Unexpected crisis requires immediate decision-making. China imposed a lockdown on Wuhan to prevent the virus from spreading. Chinese New Year holidays extended for one to two more weeks. Hong Kong closed schools until March 15. Singapore has taken dramatic steps.

But no government has taken steps to alleviate the cash flows of the small and medium enterprises and the affected businesses. It is during such crisis that Malaysia Incorporated must band together to help each other survive this crisis.

We need immediate decisions both by the government and the private sector to help reduce cash outflows and ensure survival for all businesses.

The MoF must act immediately and not wait 45 more days.

Decisions should not be incubated or it might be too little and too late in saving our economy.

From the government side, a reduction in contribution to the Employees Provident Fund would be a big relief to the companies and put more cash into employees’ pockets.

This has been done before and nothing new.

Our utility companies should support the affected industries by reducing the tariffs for water and electricity. Banks should be more supportive by letting borrowers pay interest only and where possible extend temporary cash line to their affected customers.

Malls should help out with reduction of rental for their tenants for a certain period of time if footfall to their malls trickle down dramatically.

Electricity and water tariffs should be reduced for the mall operators so that they can help their tenants. Traders should not benefit from shortage of protective gear by raising prices. Neither should trading companies make extraordinary profits from shortage of food supplies.

Businesses must look at various options to reduce cash outflow.

For those badly affected businesses, you can be guided by Cathay Pacific’s strategy and ask for employees to take unpaid leave over the next two to three months. Companies could hold back the increments and pay back the staff when cash flow improves.

Cost control measures like reducing electricity usage and office expenses should be in place.

To the young entrepreneurs, this is probably your first global crisis and I can guarantee you that it will not be your last.

You will find that your sales projection will suddenly turn upside down and you will start looking at a shorter cash flow runway. Are you able to make tough decisions on managing your cash flow? Or will you wait and see like our MoF?

Managing cancer and virus epidemic is all about preparing cash flow reserves for the unexpected occurrence that you never thought will happen to you.

Life is full of surprises, most times pleasant and sometimes not so pleasant.

Published: https://www.thestar.com.my/business/business-news/2020/02/17/time-to-prepare-cash-flow-reserves

2/2020 – Of Komodo dragons and iguanas

It is a calm and cool morning in Bali after three days of continuous rain. Sitting on the terrace facing the swimming pool and the ocean with a cigar in hand, one can easily forget that there is a world full of problems awaiting on the other side.

Maybe seeing the Komodo dragons in Komodo National Park just a few days earlier have made me wonder about civilisation and our existence on earth. Reportedly one of the few surviving creatures from the dinosaur era millions of years ago, Komodo dragons are the biggest lizards in the world. Carnivorous with a venomous bite, they can grow up to three meters in length and can live up to 60 years.

Very much like the humans of yesteryear, the Chinese civilisation which started some 5,000 years ago believes that a full life cycle of a human being is 60 years, as evidenced by the five times 12 years of the Animal Zodiac Year calendar. Between war, famine and the lack of medical care, the Chinese of yesteryear must have statistically worked out that a human being can survive up to 60 years.

Having been born in the Year of The Rat back in 1960, I would have survived my intended full life cycle this year. Being alive any day and month after July will be a bonus to me. I am contented and now live a life without regrets. Life goes on. We just have to keep moving on.

Having spent 35 years of my life in the trading and distribution business, my companies have been sole distributors of many brands from so many different countries. The principals (brand owners) come in all shapes and sizes, from small set-ups to major international companies. Small companies come with small problems and big companies come with much bigger problems.

Like any business relationship, there are ups and downs, good days and bad days, but above all, if both sides approach the relationship with integrity and honesty, most of the problems can be resolved. I have lost many agencies and have also dropped many agencies. There are so many reasons for the termination of a distribution agreement – poor performance from either side, products not being competitive, difference of opinion on how to manage the market, etc.

To the young entrepreneurs who have decided to take on exclusive distributorships, the distribution agreement is the most important document in the relationship. Treat it like a pre-nuptial agreement. It will come in handy during the divorce proceedings. It is all about damage control when a relationship breaks down – the financial and emotional cost.

When our company lost the Revlon agency some six years ago, we had to downsize our operations, as Revlon was contributing to almost 30% of our total revenue in Malaysia, Singapore and Brunei. We had to downsize our Singapore team by half and refocus our efforts on our own brand, Silkygirl.

The emotional side was more difficult to resolve, as when we took over the Revlon companies in Malaysia and Singapore back in 2000, almost all their staff stayed back. In a way, most of the team were still very attached to the brand, as we were the team that was responsible for rebuilding the Revlon brand, growing the business year-on-year for 14 straight years.

The divorce proceedings were deftly handled, as the Americans stick strictly to legal terms as per distribution agreement. The cosmetic counters, merchandising trays and materials and balance stocks were handed over to the new distributor, we were compensated and the Revlon business continued like before.

My partners were flabbergasted as to why we were not compensated for the 14 years of hard work spent on the brand. I had to explain to them that we had made good money from the Revlon agency. We learnt about brand development and brand marketing from an international agency and we successfully built our own brand while still managing Revlon.

No regrets. Life goes on. Let’s move on.

We have a Chinese saying – “In business, if we are able to pick it up, we must be able to put it down”. Think strategically without emotions and you will survive just fine.

Gone are the days when most of my distribution arrangements were based on friendships and relationships. At 60 years of age, I am considered a dinosaur in this disruptive business world. The principals have changed too.

It is much more difficult for me to understand these young export managers who are impatient, with short-term visions and below-par field experience. And there is this elusive issue of integrity and honesty.

Now, at the tail end of my life cycle, I have much difficulty in staying relevant to the new ways of doing business. Either the young ones do not understand me or have labeled me as an irrelevant Komodo dragon.

Nevermind…life goes on and I have to keep moving along. Maybe I will just do business with my old friends, where a handshake will do and the distribution agreement is locked away until termination day arrives and we try to make some small money together. Just for old time’s sake.

To the young entrepreneurs, every time you sign an exclusive distribution agreement, you have made a vow to do your best for the brand, to treat the brand like your own and to love the brand while you are still in the relationship. Until death do you part.

If the principal agrees with you, all is good. If not, get your divorce papers ready and stop your relationship sooner than later. Like all marriages, why continue suffering? Sort it out and move on.

Life is too short…only a five-by-12 cycle. My next stop will be Galápagos Islands where Charles Darwin based his theory of evolution on his observations of the endemic species on the islands.

Komodo dragons and iguanas…always good to be at the top of the food chain. Life goes on.

1/2020 – The education dilemma

Happy New Year and welcome to the new decade of hope and aspirations. Hopefully all of you have been well rested through the holiday season and recharged to face the new decade with optimism and a smile on your face.

I am well rested, thank you. In fact I spent most of my time on the couch binging through many movies and Streaming series. My absolute favourite has to be the eight-episode The Mandalorian, with the cute 50-year-old baby Yoda and the Ugnaught farmer, Kuiil who will close his speech with a “I have spoken” finale.

The main star of the show, the Mandalorian, a bounty hunter who lives by the Mandalorian code of life and it is summed up in one simple phrase “This is the way”.

We are only 11 days into 2020 and what a start! Our Education Minister resigned, India authorities asking their importers to boycott buying palm oil from Malaysia, the United States assassinating an general in Baghdad. Ukraine jetliner crashing after taking off from Tehran airport etc.

And just yesterday we receive a notice from the Prime Minister’s Department that our dear Prime Minister will be acting Education Minister in the interim until a suitable candidate can be found.

Going back in time, let me refresh your memory that after the Pakatan Harapan win, our dear PM appointed himself as the Education Minister but it was quickly rejected by the Pakatan coalition and the rakyat. So he gave us Maszlee Malik instead… as the Education Minister.

Perhaps it is an opportune time to remind our new Education Minister that education of our young should be above and beyond politics and religion. We need to prepare our young to be equipped with the necessary and relevant knowledge with international linguistic skill sets.

But our education system at the primary and secondary schools is polarised and broken. Polarised by language and religion, perpetuated and enhanced by politicians and religious leaders.

The education is broken at its core as the final product, our grown-up children is not properly equipped to survive the expectations of the new economy, fast paced and higher level of intelligence.

After three decades of continuous decline in education standards, what can our new Education Minister do?

In what ways can he provide solutions with the varied demands of parents, some of whom want religion to be taught in schools, some of whom want to continue sending their children to vernacular schools etc.

Like in business, transformation of a broken system will take time. More so in an education system where we have to consider all available resources at our disposal. It is impossible to make a major seismic shift which will totally dislocate the system and render it dysfunctional.

Like in business, maybe we should look into the demands of our customers, the parents, on their needs for the type of education for their children. We should take politicians and the government out of the decision-making process and instead provide the choices to the consumers/parents. The parents demand and the Education Ministry supplies.

Perhaps we should conduct a national referendum on educational needs among the parents before the ministry comes out with a blueprint for our education transformation. We need to understand the demand side of the equation before we can plan the supply side or there will be a mismatch of expectations.

Like any business plan, we always look at the available resources or assets that we have before we can make a new strategic plan.

These are the choices available (up to Form Five) to our parents to send their children to:

  • Sekolah Kebangsaan (SK) – primary, and Sekolah Menengah Kebangsaan (SMK) – secondary.
  • Sekolah Rendah Jenis Kebangsaan (SRJK) – ex-Chinese independent schools which opted for MOE syllabus but still maintain Mandarin as the main lingua franca.
  • Sekolah Jenis Kebangsaan China or Tamil – partially funded by MOE.
  • Chinese Independent schools – privately funded.
  • Sekolah Agama Rakyat (SAR) – Islamic based.
  • Sekolah Pondok.
  • Sekolah Berasrama Penuh – fully residential.

As my learned friend said in our chat group, the government can’t dismantle one type without affecting the other. Over the last six decades, the Barisan Nasional government appease to a myriad of calls from the various communities to have their “own” school and as such, we now have a mish-mash of schools that do not promote multi-racial unity among our youths.

But there is a way. Simplify the menu and leave it to the consumers to decide. Reorganise the supply side to meet the demands. Use available resources, schools, teachers, educational materials as a stop-gap measure.

Plan for the real transformation over the next 30 years to eventually return to a unified system, however it evolves.

A simplified menu that takes into account the needs of the various communities and promoting unity among the various races in the long run.

Template for MOE to manage:

Teaching of Math and Science in English for all schools – note that Maszlee only implemented this instruction from the PM in Sarawak schools

Divide all the schools into two groups:

Vision school – no religious classes (can be offered as after-school extra classes). This group will include SRJK, SJK, Chinese independent school and if there is demand from parents, can convert some SK and SMK. In fact in every town convert one SK or SMK school into a Vision school.

Note: This Vision school is based on Tun Dr Mahathir Mohamad’s idea of promoting unity among the multi-racial youths. Current enrolment by non-Chinese in Chinese schools have reached 18%.

National/Islamic Schools – makes it easier to manage with religious classes supplementing normal syllabus with teaching of Math and Science in English too.

Re-allocate resources, train new teachers according to demand and let this system run based on demand of the parents. We will eventually find our demand and supply equilibrium.

To all the fathers, if you are not sure what is best for your children, please seek advice from your wife as this will be the most important decision that you will have to make for your child’s education.

Just be cautious as just last night, my wife sent me this picture of a lioness growling at a cowering male lion backed against the wall and I can almost hear her shrill voice message – “Darling, can I advise you something?”

I have spoken and this is the way.

Published: https://www.thestar.com.my/business/business-news/2020/01/11/the-education-dilemma

20/2019 – We need trailblazers to transform industries

CGS CEO Koh Mei Lee

Imagine having to pay RM150 for a seat at your local cinema, or even RM120. As it is seldom that you would watch a movie alone, be prepared to fork out RM240 to RM300 for a movie with your loved ones – girlfriends, wives or anyone you consider worthy of spending two intimate hours with at the Aurum Theatre in The Gardens Mall, next to Mid Valley Megamall.

I was lucky to be invited by Golden Screen Cinemas (GSC) to attend the launch of the Aurum Theatre just two days ago. Watching Star Wars: The Rise of Skywalker was the main incentive to attend.

My wife, an ardent fan of the franchise since the first release, Star Wars: A New Hope in 1977, was ecstatic. She was blown away by the movie, especially the nostalgic final scene of the two moons and was greatly impressed by the extreme comfort and ambience of the newly built Aurum Theatre.

She is already planning to book one screening (30 to 42 seats) for family and friends not fully aware of how much it would cost me.

Well, she is the boss and I am just the lowly cashier. By the way, besides the 7+1 screens, there is a proper bar called Jin Gastrobar incorporated in the vicinity of the theatre. The +1 screen is for private bookings and comes with karaoke facilities. My wife can pre-order food and drinks for her party. She can also book all eight screens at a total capacity of 259 seats, but I will have to say no to her.

Just perfect. After the movie, my wife and her friends can sing themselves silly while I will be at the bar drowning my sorrow. After a few drinks, the total bill would seem lighter and I hope that I will remember my PIN number or risk getting a call from the CEO of GSC.

In her welcoming speech, the CEO of GSC, Koh Mei Lee (Mei Koh to her friends), mentioned that Aurum in Latin means gold. This resonates with Golden Screen and has taken over the mantle of the most premium cinema seat from the Gold Class seats (about RM60-RM80 per seat).

To analogise it to a full-service airline, GSC now has the Aurum (First Class), the Gold Class (Business Class), the Premier (the premium economy) and the economy seats.

Mei Koh and her team have taken a major leap of faith by launching Aurum Theatre. As GSC is the market leader and the most profitable cinema operator in the country, the petite Mei Koh has started to reposition GSC for the future.

The possible future scenario would be fewer viewers per screen for a higher average revenue per user. As more screens are added on to an already saturated supply, moviegoers would be spread thinly across the many locations. Improved streaming services would pose a major challenge too.

In 2018, GSC raked in a revenue of RM538mil, contributing a RM63mil net profit to its parent company PPB (Perlis Plantations Bhd). Besides cinemas in Malaysia, GSC has a presence in Vietnam via a 40% joint-venture company. It is also involved in film distribution. Assuming a RM500mil revenue is generated by its cinema chain which has 55,784 seats, a simple calculation will see an average revenue of RM24 per seat per day and that includes food and beverage (F&B), which according to TGV Cinemas, is 50% of its revenue.

Managing cinemas is a tough business. Like the airline business, a high capital expenditure is required and the operating cost of rental, energy and staffing is fixed no matter how many seats are sold throughout the day.

Selling perishable seats is the name of the game. Increase revenue per seat by pushing F&B items and increase advertising revenue on the screens. Most other cinema operators have little or zero profit margins, although they are EBITDA-positive, so the performance of GSC is even more remarkable.

But the road ahead is fraught with an oversupply of new seats. New neighbourhood malls are offering cinema operators almost free rental to set up new screens. This can only dilute a market that is not growing in the number of eyeballs. So, growing revenue per seat would seem to be the logical solution for survival. Reducing non-sellable perishable seats should remain a key strategic consideration for cinema operators.

The setting up of Aurum Theatre in The Gardens Mall does make sense for GSC. Gardens is the premium mall next to Mid Valley Megamall. GSC already has the biggest cinema operations in Mid Valley with 21 screens and 2,763 seats. Perhaps in the future, the configuration will comprise economy, premium economy and business class seats.

To young entrepreneurs, it would be wise to study the actions of the market leaders in your industry. Market leaders are where they are because they are two to three steps ahead of their competitors. Market leaders make brave decisions, calculated moves and make things happen.

They set industry standards for others to follow.

To convert one out of 36 locations to test the viability of offering a first-class cinematic experience at 10 times the normal price is a brave move. Even though there will be fewer perishable seats to sell, it is still a major challenge to find customers willing to pay RM120 to watch a movie. When you have six shows a day with a total of 259 seats running 365 days a year at RM120, then the potential sales is RM68mil a year from Aurum Theatre.

If GSC can achieve 30% sales, then it would be getting a RM20mil contribution from Aurum Theatre next year. This compares with its average RM13mil-RM14mil per annum contribution from each of its 36 locations. The average revenue per seat will go up.

We need trailblazers to transform industries. Don’t just leave it to market leaders to lead the way.

If you need tips on how to trailblaze, go watch Rey Skywalker at the Aurum Theatre. You will feel her full force in the comfort of the most luxurious reclining leather chairs in the galaxy.

“Mei” the force be with GSC to hit golden heights with the Aurum Theatre.

Published: https://www.thestar.com.my/business/business-news/2019/12/24/we-need-trailblazers-to-transform-industries

19/2019 – Building trust and integrity

Chinese male beauty blogger Austin Li Jiaqi

Over dinner on Nov 11, my daughter-in-law from China was eating quietly with her eyes and fingers glued to her new iPhone 11. Elsie was one of the six million shoppers watching a live streaming of Austin Li Jiaqi, a Key Opinion Leader (KOL) and a life streamer on Taobao Live, selling beauty products.

Austin Li also known as “lipstick brother” is hugely popular and trusted among female consumers and he sells a tremendous amount of beauty products in China.

However, the top ranked live streamer on Taobao is Viya who holds the sales record (non 11.11) for a single day – 353 million yuan (RM280mil) on Oct 10,2019. Her followers also known as “Women of Viya” absolutely believe in her as she demonstrates and highlights the quality of the products that she herself has tested on. When the promo offer came on the mobile screen, the women of Viya will click on the buy button and the seamless e-commerce infrastructure of Taobao will deliver the products to the buyers within 24 hours.

I have been in the cosmetic business for over 20 years and I have never seen such phenomenal sales. The “lipstick brother” earn his nickname by live streaming, selling 15,000 lipsticks in five minutes! Just 10 years ago, our industry was saying that online sales of colour cosmetics will be negligible as female consumers have a preference to feel and touch a physical product, even testing the colours on their hands, and this consumer experience will only be available at physical cosmetic counters.

In my time, brand trust with consumers was built over years of multi-million dollar advertising and promotion campaigns and product quality has to be consistent across the board. Nowadays, consumers in China do not trust brand advertising but instead trust the KOLs who recommend brands that they trust.

Viya built her trust with her fans because she will not feature a product unless her team of 200 staff has filtered and rigorously tested the it. Viya supposedly spends four hours a day testing and reviewing her products before approving it to be added to the lineups.

In her live streaming shows, she will not over-promise or make unnecessary claims on the featured products. As each individual reacts differently to a certain product, she is wise enough to be careful with what she says on what the product claims it can do. Trust once broken will take a long time to remedy.

Live streamers work extremely long hours, 300 days of eight hours daily streaming and this business is not for any lazy and pompous celebrities. Prime streaming hours are evening periods after dinner. Many top KOLs in China make in excess of 10 million yuan per annum in commissions. Superstar selling machine Viya must be raking in excess of 100 million yuan per annum in commissions but she has to feed 200 employees. Her last mile contact with her loyal and trusted fans have helped her built a sustainable business model at least until the next superstar comes along.

Trust and integrity are crucial virtues in any relationships whether in business or social communities.In the current media scenario where the millennial eyeballs have moved from traditional media of TV, magazines and newspapers to mobile phones and Internet, brand managers are forced to rethink about their previously proven marketing strategies in brand building. Add the booming e-commerce to the already complicated landscape, their job scope have become more demanding and stressful.

Going back to Marketing 1.01 of 4P’s, brand managers (eg consumer products) of MNC’s have to go through the following thought process:

Place: Distribution strategies. Brick and mortar stores. No problem. Should we engage in e commerce? Yes absolutely. Start now as it might be 30% of my future sales but how? Which marketplace? So fragmented, difficult to build brand equity, might dilute my brand image vs my retail merchandising concept.

Note: Amazon business built on direct selling to consumers based on low prices. Alibaba platform was built for SMEs to trade, brand building through KOLs – diversion from my strategic brand ambassadors. Big headache

Promotion: Worldwide advertising campaign and brand strategies to be adopted. Now include digital campaigns – but local KOLs getting to be more effective. How do we engage them to sync with my brand DNA? Advertising media mix? How much to spend on digital? How effective is it? Big headache.

Price: Retail price maintenance across all distribution channels including e-commerce but e-commerce sales primarily on price discounts – might disrupt retailers who in turn asks for more price off promotions. Long term impact resulting in lower value chain, lower margins and lower profitability. Big headache.

Product: Product mix same for retail and e commerce? Or different products for different distribution channels? Possibly result in inefficient production and higher inventories for the same business. Is e commerce the perfect distribution to clear my discontinued, over stock and near expiry goods? What will my retailers say? How will it affect my brand image and sales in retail outlets? Big headache.

For the SME’s the e-commerce platforms is a godsend innovation that has open up numerous opportunities to compete with the big brands.

Manufacturers and traders can now sell direct to consumers bypassing traditional brick and mortar establishments. SMEs do not have to follow basic 4P marketing protocols and the demands of a structured marketing company.

KOLs have disrupted the structured advertising ambassador protocols and many have gotten into direct business themselves. KOLs are now competing with established celebrities while the celebrities are rebranding themselves as KOLs.The consumer product landscape is getting so complicated that a new kind of brand manager is required. A brand manager that understands future business model, able to navigate through various distribution channels and understands the pricing and margin games. Hopefully a brand manager that is not allergic to paracetamols.As a KOL myself on SMEs and drug treatments, my dosage of advice to the new breed of brand managers – be brave in decision-making, be fast in implementation, take two aspirins every morning and have a glass of wine at the end of the day. Cheers.

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