This blog series is on entrepreneurship. Being entrepreneurial is not just for people who aspire to start a business. Entrepreneurship is about daring to be different, daring to be innovative in your approach and setting about to build something new out of just ideas. It can be practiced in your workplace, in setting up a social network or even in politics.
I have the privilege of starting several businesses. My most significant start-up was ASKnLearn. It was started with a 4-man team in 2000 with a modest start-up capital. It survived the dotcom crash, fierce competition from better funded and established competitors, and a weak market condition to become one of the top 2 e-learning companies for schools in Singapore before being sold to a public listed company in 2007. I shall be sharing from these experiences as well as from my observations of other entrepreneurs. It is my hope that by sharing stories on entrepreneurship, we can build a nation that is more enterprising and innovative, something necessary for Singapore to continue to prosper in the 21st century.
I hope this series can be dynamic. Readers that have interesting entrepreneurial stories to share can email me and I can see how I can fit the examples in to better illustrate the points made in this blog. I am happy to also give talks to budding entrepreneurs or students on this topic.
Stages in a start-up
There are 5 typical broad stages a start-up company may go through, as illustrated in the following diagram:
- Idea / business plan stage
- Incubation stage
- Starting stage
- Growth stage
- Mature stage
On the vertical scale, it measures the revenue you receive from the business. On the horizontal scale, it measures the time taken since the start of the venture.
Idea / business plan stage
Ideas can come when you are hit with an inspiration reading something or just thinking, or they may come when you are brainstorming with others, or when you observe something.
In real life, no one would normally pay you for your idea unless you can have it patented and it has great potential. Unfortunately, patents are very expensive to file and a great idea to you may not be convincing for others. Hence, revenue is typically zero in the idea stage.
In 1992, my wife-to-be was teaching and MOE had recommended teachers to do regular item analysis on how students answered each MCQ question in a test, i.e. how many in a class picked which option for each question. There was no IT system to support it. It was by show of hands for each option of every question. This is to facilitate diagnosis of students’ understanding. Obviously it was difficult for any teacher to administer such a diagnosis. This presents a problem for teachers. My belief is that if you want to find a new business idea, look at problems. If you can find an elegant solution to a problem, it could be the start of a good business.
I was then a teaching assistant at the NUS School of Computing. A college classmate was regularly meeting up with me to talk business ideas. We came up with a quick business plan to develop a software to do testing and diagnosis using a database of test questions. We wanted to sell the software to the public. We then hit upon the problem of how to deploy the software. Internet existed then only for use by research and academic institutions in Singapore. After a quick feasibility study, we shelved the idea. So our attempt did not go past the idea stage.
We should not be afraid to come up with ideas, but we should also be practical to explore all possible scenarios to test the practicality of the ideas. It is necessary to do research and even talk to someone you can trust as a mentor and then evaluate with an open mind.
Around January 1996, I met a friend who shared about the Internet ideas the education company he was working with was having. Internet was available to the public in Singapore since 1995. I listened and then shared my 1992 business plan passionately with my friend. I felt the Internet was the piece missing from our earlier plan. He told me to speak to his boss, an entrepreneur. I did, and the entrepreneur offered to fund the business.
So I left my job in the Trade Development Board and started Questcom Technology Pte Ltd with the Kinderworld group. We started an Internet education programme for children while planning the development of the online testing software. Five months into the business, I realised that with just 20,000 Internet users in Singapore, slow access speed and expensive development cost, the project was not going to be feasible. We did secure some revenue for the company engaging students in learning how to use the Internet and marketing programmes around the use of the Internet. The group was facing some financial constraints then and there was a vacancy in business development for its children edutainment business. So we abandoned the plan in its incubation stage and I became the group’s business development director and later the Group General Manager for its core businesses instead. I did not think anymore of my abandoned business plan.
In June 1999, I was still with the Kinderworld group. I had chicken pox and was on 2-week medical leave. While resting at home, I had time to reflect on the dotcom revolution that was just about to take off in Singapore. I suddenly recalled my old plan which I had tried unsuccessfully twice to implement. I felt inspired to restart the idea and called a few friends to share my thoughts.
This time round, we went further. A few friends and relatives decided to invest in the business. We planned to develop the software but we came across a news report that the Ngee Ann Polytechnic had developed a series of web-based quiz and homework systems. We approached the Polytechnic to license their software to us on a joint venture basis but were twice rejected by it. We persisted and secured some high profile advisors and more investment commitment. Finally, the polytechnic made me commit to raising extra monies should the company run out of funds within 2 years of operations. I agreed and the venture was finalised. ASKnLearn officially began operations on 2 January 2000.
With the software from the Polytechnic, we could commence business immediately by deploying the existing solution to a few schools already on pilot use of the software with the Polytechnic.
So in a typical incubation stage, you could test out your ideas with some prototype products or a parallel product on the target market. I did this twice, first in 1996 by running Internet education services for children to understand the market, and then again in 1999 with the software we secured from the polytechnic. Both times in the incubation stage, we sold services to the clients at a discounted rate to secure their adoption and more importantly to better understand the market. In the first case, we abandoned the project after concluding the market was not ready and our resources were insufficient. In the second case, we pressed on after the incubation.
Michael Dell started his business form the dorminatory of the University of Texas at Austin upgrading computers. He discovered there was a potential in bypassing the middleman and from his computer projects, started Dell Computer Corporation. His years in Austin were the incubation period for Dell.
The starting up stage is when the company officially commences business with its intended product. Being relatively new, most companies at this stage may find business to be slow in coming. In a competitive environment, many would struggle to gain customers. During the dotcom days, many start-ups flushed with huge investments made reckless expansion, gaining customers but often by giving free products.
We had our share of aggressive competitors who had equity investments ranging from S$5 million to S$14 million competing with us with free e-learning systems for the schools. We had raised just a few hundred thousand dollars from friends and relatives when the NASDAQ dotcom crash came in April 2000. Half of the amount we raised was used to acquire an enrichment company which we thought would give us immediate reach to schools. It turned out that an enrichment business was too different from an IT service, even though the client organisation may be the same. The decision makers were different people even if they were from the same organisation.
Our difficulty in this stage was getting clients in the face of free software readily available to the schools. MOE was mid-way through its first ICT Masterplan (1997-2002). The major purchases had already been made before we entered the market. MOE had no interest in what a start-up like ours could offer and contracts were already tendered out. Our first three clients came from the schools who were partners of Ngee Ann Polytechnic in using the software. Getting the fourth customer proved difficult. We made a conscious decision not to go the dotcom way to offer free software as we felt we would not know if our customers were genuine. We wanted them to use the software and give us feedback so we can improve the system. Interestingly, a school principal told us that he did not want to use our competitors’ free software because he felt there was more commitment on both sides once they paid for the services. That strengthened our conviction to take the path of not offering our services free just to boost up usage numbers to play the dotcom game.
IDA had then just initiated the Fast Track@School broadband programme where they co-funded selected schools up to $75,000 each to develop innovative broadband content and systems. We were hungry for projects. After some hard persuasion, a couple of the Fast Track schools decided to let us develop some of their content. Content development was not in our original business plan. Eager for contracts, we took these up even though our development cost was going to be higher than our contracted sum as we wanted to co-brand with these schools and to reuse the content. We had no clue how to do design course materials and build multimedia content. We decided to just take on the projects and figure it out along the way.
Fast Track@School turned out to be the break we needed. We learnt quickly and did reasonably good science and mathematics multimedia simulations even though it was difficult as it required good mathematics foundation for our programmers. Customers referred us to a few more schools, all top schools in Singapore. It happened that IDA picked only our client schools to be showcased at the first Fast Track@School conference. That cemented our reputation as a builder of sophisticated education content.
Even so, our expenses were high as we were in development mode, far higher than our revenues. Our modest paid-up capital was fast being depleted. With the dotcom crash, investment looked impossible to secure despite trying hard. Eight months into our operations, we had just enough cash for the next month of operations. My wife and I had signed a commitment to the shareholders to raise more investment if the company ran out of funds within the first 2 years. It looked like we had to sell our only house to raise the capital.
Miraculously, someone came to our office upon the recommendation of another. After listening to our business plan, he immediately committed to invest $120,000 in 4 equal installments over the next 4 months. Our operating deficit then happened to be $30,000 a month! Four months later, we received another $500,000 investment from a public listed firm, followed by a further $520,000 a couple of months after that from another investor, despite the tough investment climate in late 2000/early 2001. Our cashflow situation was solved, for the time being.
We maintained our spending discipline. Operating environment was still tough. MOE had no specific budgets for schools to buy e-learning services. Many schools were unconvinced they should use e-learning. Dotcom companies were still offering free software to schools, although these companies were beginning to die off one by one. We increased our customer base but expenses were consistently higher than revenues as we were still building new products while we sold what we had. Growth was slow due to competition and unfavourable market conditions.
For some new businesses, the starting phase could be short if their products caught on with the market. Breadtalk started out the same time as ASKnLearn, but their product caught on almost immediately with the market and they expanded rapidly to be public listed 3 years later. However many new businesses never got out of this phase. Around two thirds of new businesses fail within their first 2 years of operations. Indeed, most of our competitors including the well-funded ones ceased operations within two years.
Our starting phase lasted over 3 years, from 2000-mid 2003. During this phase, we gained reputation slowly along the way. Revenue growth was slow. The industry was not ready. We could not retain talents as we had budget constraints and could not pay market rates for staff. We tried to find out what else schools would pay us for to make up for the slow take-up for e-learning systems and content. We stumbled upon providing IT manpower services as we found schools were outsourcing IT training for students to external companies. It was logistically intensive but we had to go into it to supplement the meager revenue from the software side.
By end 2002, our cash reserves from the 2001 equity injection were nearly depleted. We tried unsuccessfully to raise more capital from existing shareholders. So we had to start a painful series of cost cutting where we trimmed 30% of manpower cost, mostly at managerial level. We closed down the enrichment business that we had initially acquired. These are the sometimes painful realities that an entrepreneur must face up to in order to keep a business afloat.
Ironically, it took a national health disaster to let our business soar. SARS hit Singapore in April 2003, forcing schools to close for 2 weeks. It was a sad period for Singapore, China, Hong Kong and Canada, the countries most affected by SARS.
Opportunity sometimes presents itself in the most unlikely form and in the most unlikely of time. An entrepreneur has to quickly recognise opportunity when it comes. With what schools experienced during SARS, I could now articulate to them why they needed e-learning. In technologically-savvy Singapore, more than half of our schools did not have any solution to provide continued learning when SARS hit. I believe only around 40% of schools were on some form of e-learning in 2003. This was an unacceptable situation to MOE and to the public.
We marketed our solutions more aggressively when schools were reopened. Schools which were previously not keen were now more open to subscribing to e-learning services. E-learning has moved from being a good-to-have item to a necessary item for schools. It took a while longer for MOE to push for all schools to adopt e-learning as a compulsory tool. By 2005, all secondary schools and junior colleges were required to provide online learning, and all primary schools were to achieve this by 2006. With this, MOE also made available more funding sources for schools to acquire IT solutions.
Of the e-learning companies, ASKnLearn expanded most rapidly during that period, recording an average of 50% annual revenue growth between 2003-2007. We won Deloitte’s Asia Pacific Fastest Growing 500 Technology Companies Award twice during that period. The growth was due to a shift in market conditions. Our products were sufficiently mature by then. Many of our competitors had already ceased operations. We were the fastest to seize the shift in market conditions and ramp up our marketing and operations. To cope with the increased demand, we figured that the best people to market our products and handle operations could come from the junior ranks, which were the many IT trainers we had seconded to schools to run our IT training programmes. Our industry and our product mix were unique. We made it into an annual exercise to recruit the most dynamic trainers to the corporate office to become support and marketing executives or to handle IT operations. It turned out to be a winning formula as we provided career advancement and more importantly identified people with the right temperament for the job. We created a simple brand message – “Innovating Education” to capture the diverse things we were doing and often pioneering in the industry. We rallied staff to give them a shared vision. With these measures, we won over new clients.
ASKnLearn’s operation broke-even in 2003 and was profitable thereafter. We took the opportunity to also acquire WizLearn through share swap from the National University of Singapore in 2005 to expand into the junior college, tertiary institution and corporate learning market.
Business is never static. One must be flexible to adjust your plans according to the market situation. More importantly, one must recognise opportunities when they present themselves and to seize these opportunities to make exponential growth. There’s a time to expand and a time to consolidate. By capturing a unique opportunity well, we propelled ourselves into an industry leader position.
Growth cannot go on forever based on the same product and same business model. In a large economy like China, when one hits upon a successful business model, it can take a long time to hit maturity. Even so, maturity will come when the market is saturated and competitors play catch-up.
Singapore is a small market. With 50% annual growth from 2003-2007, ASKnLearn was already servicing a third of all schools in Singapore by 2007. We had competitors, the most significant of which was Learning Edvantage (Lead.com), now renamed as Marshall Cavendish Online. It was owned by the largest textbook publisher in Singapore. It was not possible to grow as fast after 2007 without getting into a significant price war with major competitors. We ventured overseas since 2005, making sales to Kuwait, China, Brunei, Vietnam and Indonesia. However, education content and services in the primary-junior college space were subjected to a lot of cultural and political sensitivity. Making significant breakthrough in overseas markets was difficult.
When a company hits the maturity stage with its products, revenue growth will slow and even decline if there’s aggressive competition. Creative Technologies had many years of growth with its sound cards. Once you have many computers already using the sound cards and with competitors building alternatives, Creative’s growth tapered off. Unless the company can find new markets or create new products, it will eventually decline. Creative was right to develop MP3 devices to counter the saturation it was facing in the sound card market, but Apple was just much better in marketing. Even Apple had to constantly come up with new products to continue its success. After the Macintosh, it faced maturity and declined. It was revived by the iPod, then the iPhone and now the iPad. When the iPad market matures, it will need another product. The iCloud perhaps?
History is laden with examples of great companies that have gone into oblivion. Sometimes it is because of competition with cheaper cost producers. Sometimes it is because of changes in technology that leveled the playing field and allowed smaller competitive players to beat the incumbents. For example, Michael Dell took advantage of the then-new web technology to do away the middleman to overtake many incumbents in the computing industry. It grew rapidly but now faced maturity as its model was copied by others. Nokia, the former number one in handphone market is on a decline now. It had overtaken Motorola in the 1990s but is now being overwhelmed by Apple and a host of Korean and Taiwanse brands. The phone is no longer just a calling device. Nokia took too long to recognise that.
In 2007, ASKnLearn received an acquisition offer from India-listed Educomp Solutions Inc. Shareholders were excited to be able to cash out after 7 long years of investment so they could get a decent return on their investments. The Singapore market was getting saturated. Either a new killer product line should be found for the Singapore market or some serious expansion overseas was required. It was facing maturity in the Singapore market. The high growth experienced earlier could not be sustained. It was however in no danger of collapse as it was already well entrenched in its market and customers in this industry were averse to change unless absolutely necessary.
You will notice in the diagram that at the end of each stage, there is a solid line trending upwards as well as a dotted line dropping to zero, with a question mark at the junction. This is because at each stage of the business, either a breakthrough is made or the company may cease, either gradually or suddenly. For different companies and different markets, the duration a company spends in each stage may differ. Life cycles are getting shorter these days with global competition and rapid technology changes. My advice is for entrepreneurs to stay alert all the time. Watch keenly for opportunities constantly. It can come in the form of a major external event, a technology change, demise of a major competitor or even a lucky break with a major customer. Watch for dangers to your own business as well. That can come from a major external event, new technologies obsoleting what you have, entry of some new and aggressive players or loss of a major customer.
A second advice is for budding entrepreneurs not to fall overly in love with your business ideas. I have seen countless people telling me they have a secret winning business idea. I tell them that ideas are cheap. Execution is tough. Some of the best new businesses did not start as original ideas. The founders just executed them much better than everyone else. It is also not true that there will always be a first mover’s advantage. First movers sometimes have a disadvantage to educate and cultivate the market with leser returns. Google was not the first to come up with search engines. Yahoo was one of the earliest and the most successful then. Google bettered the algorithm and made it simple and effective to use. Google is now many times more valuable than Yahoo. Amazon was not the first online book store. They just executed it so well they became the dominant player. There’s nothing wrong in looking at old ideas and exploring how you can make it simpler, better, faster and cheaper. When you do get to execute your business plan, stay flexible. If you love your plan so much that you refuse to change even when the market cannot accept your business model, chances are, you will fail.
Watch this blog for more upcoming articles on entrepreneurship!