Starting up is hard to do - but it's oh so rewarding

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Starting up is hard to do - but it's oh so rewarding











Tuesday, Oct 14, 2014


Melissa Tan


The Straits Times




Tantalising tales of start-up founders here and abroad reaping fortunes by selling up are prompting more people to chuck in their day jobs and try their hand at entrepreneurship.


It is a tough choice to give up a regular pay cheque and then try to turn an idea into a company that can command big money.


The path from instant-noodle dinners to undisclosed windfalls is likely to be riddled with pitfalls for the unwary or plain unlucky, but some do make it, as recent deals attest.


Popular mobile messaging app Whatsapp was sold to Facebook for a staggering US$22 billion (S$28 billion) a few days ago - even higher than the US$19 billion purchase price previously announced.


Closer to home, Singapore start-up Zopim was bought by San Francisco-based Zendesk for about US$30 million earlier this year.


Zopim makes software that allows businesses to chat with customers in real time.


Start-up veterans and experts say there are steps aspiring entrepreneurs can take to grow their company and perhaps even sell it later for a handsome sum. How to grow a start-up


To succeed in the start-up arena, be able to fail quick and fail cheap.


That advice may sound counter-intuitive to some, but start-up veterans say that it is one of the most vital ingredients to developing a successful company.


"Of the many lessons I've learnt, the ability to fail quick and fail cheap is one of the most fundamentally important abilities," says Dr Steven Fang, chairman of the Action Community for Entrepreneurship.


Dr Fang, who founded private cord blood bank Cordlife in 2001, is also a partner at Clearbridge Accelerator, which invests in health-care-related and life science start-ups.


"The ability to try many things and to understand what works and what doesn't is an important part of growth in early start-ups," he says. He adds that a young start-up needs talented people with the knowledge and experience to develop the business and the firm's market.


Start-up founders can hone their know-how by licensing an existing product or by creating a "minimally viable" product that can prove that their business concept works, he says. They also need to establish a solid pool of industry contacts for their target market.


Watch your cash flow


Apart from having a well-connected and reliable team, a young company should also keep a close eye on its finances.


The firm must also make sure it fulfils its orders - an area that is often overlooked, Dr Fang says.


"As start-ups and young companies see their sales grow, they get too absorbed and focused on sales. This often leads to understaffing and underdeveloped internal processes to deliver. I've made these mistakes time and time again, only to scramble and spend more money trying to close such gaps."


Start-ups also need to keep an eye on their profit margins and cash-flow management, says Ms Koh Soo Boon, founder and managing partner of venture capital firm iGlobe Partners.


Mr Lim Chu Chong, head of small and medium enterprise banking at DBS Bank, adds: "Getting their first few paying clients is probably key. It validates the commercial viability of their product. They can also learn from their first few clients about how to gain traction in the market."


Cashing out


But even if an entrepreneur manages the Herculean feat of growing a successful company from scratch, he or she may find it tough to realise gains from their hard work.


"It is the entrepreneurs' goal to cash in on their hard work and sell their start-ups. This is often easier said than done," says Mr Leslie Loh, managing director of venture capital firm Red Dot Ventures.


In industry parlance, selling a start-up is known as an exit. There are two main ways to exit: going for an initial public offering (IPO) or being acquired.


"IPOs happen for very unique companies and opportunities; they are not the norm," Mr Loh says, noting that a more common exit for tech entrepreneurs in South-east Asia is acquisition.


"Large players are on the lookout for the next best acquisition targets. This creates the perfect opportunity for Singapore's entrepreneurs."


If the company cannot be sold on its own, founders "must consider building strategic alliances with companies in a similar space", Mr Loh adds.


This way, the group of similar companies can band together to benefit from economies of scale.


"As a result, the group collectively becomes more attractive as an acquisition target than each start-up on its own."


He notes that start-up alliances are already happening in industries such as consumer electronics and interactive digital media.


Getting an offer from a well-heeled buyer may not necessarily mean it is the right time to sell.


Facebook founder Mark Zuckerberg famously turned down a US$1 billion offer from Yahoo in 2006 to buy the social network, which was at that time all of two years old.


The decision quickly drew brickbats, with some naysayers suggesting that Mr Zuckerberg was too young to know what he was doing.


Yet it turned out to be the right move. Facebook later went public, and its market value went above the US$200 billion level last month.


Experts say that entrepreneurs should evaluate market conditions and growth opportunities when deciding whether it is the right time to exit.


"Start-ups will contemplate the exit question when they reach a point of inflection - either they need to raise another substantial round of venture capital to grow to the next level ... or they are looking at being acquired by a company that already has resources in place," says DBS' Mr Lim.


"If it is reaching a plateau of sustainable growth and trajectory, then it might be the time to exit."


The average time taken to grow a company to that stage is six to eight years, he adds.


Personal reasons may also play a huge part in the decision to sell a start-up.


Dr Fang notes: "The specific timing and reasons for a founder to exit is dependent very much on the personal needs of that entrepreneur."


Some entrepreneurs may miss the excitement of the early days of a start-up, he adds.


"These are often difficult and challenging days, but also the most memorable times, with a high level of rapid changes and with the entrepreneur having the most decision-making power."


Some founders may look to exit their firms to start new ones, he says.


Ms Koh adds that start-up founders should not always think about exiting but should focus on growing a sustainable business.


Getting a good price


Founders can follow some general rules of thumb to help their companies obtain a good valuation come selling time, says Dr Fang, One guideline is to know exactly who your peers are, how much they could be worth and how you stack up against them.


Another is to scout for potential buyers right from the start and catch their eye by collaborating with them.


"Create a situation where you are courted by a few parties. The best outcome will be a bidding war between a few interested buyers that could potentially drive up the price," he adds.


Dr Fang suggests that entrepreneurs get professionals such as independent financial advisers or specialist audit firms to value their businesses using accepted methods.


"This is especially so when your buyer is a public listed company that needs to show transparency in the transaction."


Ditching academia for cartoons





Few people would quit a stable job as a tenured professor of computer science to make cartoons for children, but the move was a no-brainer for Dr Wong Kok Cheong, who goes by the name "KC".


Dr Wong, 49, says: "Teaching at a university was more about spreading knowledge to adults, and not so much of changing their vision, opinions or values.


"However, for kids, at such a vulnerable age, it would be about influencing them significantly from a young age.


"Moving into animation, I felt that the influence would be great as well, as we are imparting more than just knowledge but morals and values too."


He left Nanyang Technological University in 2006 to set up Sparky Animation, where he is now chief executive.


Dr Wong invested a "substantial amount as far as a professor is concerned" into the business and says that he still constantly feels the need to pump in more money.


"For a business, it's your baby and due to the urgent need to look after it, you will be investing continuously, more than what you originally planned, as there is a need to see it grow and flourish."


The company started with just 11 people but has grown steadily and now has around 100 employees. Its animated cartoons are viewed across the world, from the United States to the Middle East.


One of them, Dinosaur Train, has been aired in more than 150 countries by well-known broadcasters such as PBS in the US. The show follows the adventures of a young Tyrannosaurus rex.


Dr Wong says the key to growing his company is to remember the importance of delivering a good product.


He also says that he also does not underestimate the amount of time, patience and resources needed for any undertaking.


Three-year slog but 'it was fun'





The self-styled former "chief executive dude" of home-grown start-up Zopim has become one of the local tech sector's great success stories.


Entrepreneur Royston Tay, 32, hit the jackpot when he sold the firm, which lets businesses chat with customers on its website in real time, to American company Zendesk for a sum estimated to be US$30 million (S$38 million).


Mr Tay, now the vice-president and general manager of chat at Zendesk, told The Sunday Times that Zopim struggled to grow for about three years before gaining traction.


He and his co-founders started the company in 2007 while in their final year of undergraduate study at the National University of Singapore.


"Back then, our grand mission was to get all online businesses chatting with customers viewing their websites. It just didn't make sense that people were still picking up phones to complete transactions in this day and age."


It succeeded: Zopim is now the most widely used software for businesses to chat online with their customers, according to most publicly available metrics, Mr Tay says.


But getting there was a slog, he recalls, adding: "Starting up is more about avoiding thousands of potentially fatal missteps."


He says he and his co-founders grew the company by first assembling a talented team "that you would bet your life on".


"Tough times flew by because we had fun working together. Very importantly, all of us grew professionally at the rate that our company required us to."


The second step was to find an idea the team felt was worth pursuing.


Only after that could they build the product, find customers and gain enough traction to secure funding and make a profit.


"We struggled for three years before getting past stage three. So these three simple-sounding steps are by no means simple," Mr Tay notes.


He says that none of Zopim's founders had enough money to invest in the firm, yet they gave up the opportunity of holding a comfortable job to take a gamble on the start-up.


They each drew a stipend of $18,000 over a three-year period, compared with the $100,000 or so that a fresh graduate might be able to make, he notes.


"The biggest benefit must be the fact that I have almost complete control over this investment. Biggest disadvantage? Expect this investment to consume all your waking time and energy. No other investment works you as hard."






This article was first published on Oct 13, 2014.
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