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Thursday, January 3, 2013

Unedited Version - First published on Straits Times 1st Jan 2013

Reflections of a Singaporean Dot Com Entrepreneur

Mr Lim Der Shing, 37 is currently the CEO of JobsCentral Group. He co-founded the company in 2000 during the dot com crash and grew it into one of the largest online career media companies in Singapore. JobsCentral was acquired by CareerBuilder in 2011.   He is happily married with three very energetic boys. This article is written in his personal capacity. 

My cofounder & I started work full time on JobsCentral Group during the dot com crash of 2000. It was a tough time as nobody wanted to fund us and so we had to bootstrap our business. I can still recall our first sale which was for $9 and we actually cashed the cheque when we received it.  We paid ourselves a monthly salary of S$500 for the first 9 months. Fortunately for us in 2001, we pivoted our job portal business and found a good niche in campus recruitment. We executed on that plan and managed to bootstrap our business to cross S$1M in sales by 2004.  We also got other co-founders with complementary skill sets to join us in those very early years. 

In 2005, we made a major decision to expand our business back into the job portal business. Leveraging on our 5 years of campus recruitment experience, we expanded quickly and by end 2010, we were one of the largest locally owned dot com with over 1M jobseekers and 10,000 employers using our services. In 2011, we were acquired by the #1 job portal in the USA – CareerBuilder for the price of a small listed company.
Currently, my team and I still run the regional business as professional management. We all give back to the startup community as angel investors and by sharing our experiences as mentors. I have gathered some key learning experiences in my twelve year journey and I would like to share them below.

Attitude & Mindset
I have lost count of how many times I have obsessed over some minor detail throughout the day.  Whether it is a watching out for competitor advertisements, or vexing over a small feature bug or even just checking the site every 30 minutes to ensure applications are working fine. I have found that being obsessive ensures success. I also found that when I am obsessive over my business, the various short and long term problems and issues are percolating in my mind all day long. Then sometimes, as if by magic, a solution or path will present itself that frequently works well for the business. And this usually happens when I am doing something totally unrelated like jogging or even sleeping.

Besides being obsessive, most successful entrepreneurs I know are street smart, curious, very competitive and take failure in their stride. Of course, being well educated helps too. This is especially important when scaling beyond 100 staff as many business school type principles and work process issues start to become increasingly relevant.  

We frequently read about successful entrepreneurs whose core motivation is to solve a problem or scratch an itch. Most I have met are driven to build an empire and many simply like to win. I once had a dinner with a very wealthy entrepreneur and he let slip that there are about fifty families ahead of him in terms of net worth in Singapore. I laughed at that time, but upon reflection, I realized that he is dead serious. Net worth is how many entrepreneurs keep score even if they will not admit it.

Are there many potential entrepreneurs in Singapore with such traits? I believe so. We are a highly competitive, well educated society and are famous for being willing to work hard. We just need more success stories where entrepreneurs of varying educational and economic backgrounds succeed spectacularly. With these role models in place, a safe and well paid job with a MNC will seem less and less attractive.

Team Selection and Management
My team works well together. We have clearly defined roles and the team is willing to report to one person. Each member of the team is better than me in what they do and frequently, all that is needed from me is to get out of the way. What works is to be totally transparent in terms of how each person is paid and also to be transparent when it comes to the accounts of the company. Every year, we collectively review and agree on our own pay and bonuses. Once the trust is built, then we can all focus on improving the business.
I have found that managing a team of talented owner managers requires me to manage my emotions very well. There have been many incidents where I have to swallow my pride or put aside anger or disappointment in order to make sure that the best decision is made for the business. It gets easier with time but it is still very much a challenge. I believe that is why some entrepreneurs chose to do it alone and just pay professionals to do the key functional jobs. You can always remove a professional manager but it is much harder if that person is also a significant shareholder.

Most startups I see today are a team. I think a team makes the most sense still especially if you intend to raise funds. Investors like to know that there is a team that complements each other and that their money is in the hands of not just one person. New startup teams need to have a clear idea of roles. They should decide who is the leader, how will pay be decided and sign a joint legal agreement called a shareholder’s agreement to spell out these details and contingencies.

Fund Raising
Back in 2000, nobody wanted to fund us. We were a bunch of fresh graduates with no money or experience.  As such, we were forced to grow organically with just $100K funding from savings, family and friends.  We built a habit to always be cash flow positive in all we do and to grow at our own pace. We kept focusing on clients and what they needed. Fortunately for us, it worked out well.
The usual silicon valley model is to raise funds via angel investors. Once the product has traction, the company will raise further funds via Venture Capital firms (VCs).  This model works well if the business is very scalable and can grow revenues rapidly. However, after observing and speaking with many local and regional startups, I feel there are not many that can meet the rapid growth and large market criteria for raising VC funds.  Generally speaking, the final exit has to be at least worth S$25M to justify a Series A round at S$5M valuation. The only exception is unless the exit happens in 1-2 years like the Tencube or Hungrygowhere case.

In terms of raising capital up to S$600K, there are many options nowadays thanks to the plethora of co-funding schemes from MDA, SPRING, ACE and NRF. A good skilled team with a viable business model should be able to find funding up to this level. What is missing is the Series A round from S$1M to S$5M.  However, I feel this is a consequence of our market rather than something that the government should step in to help on. Entrepreneurs should use their angel round and grow to justify their next round. Very often, it will mean they have expanded into an overseas market and/or are breakeven or profitable in Singapore already. In both cases, they will need to show a clear path and vision to grow to an eight digit valuation to justify a VC round.  We do not want to waste taxpayers money and end up funding many S$1M to S$5M rounds which cannot scale to the required exit size.

Overseas Expansion
We are a conservative bunch of entrepreneurs. We take only calculated risks.  So we did not expand overseas until 2009 when we were clearly profitable in Singapore with sufficient management resources. We have since expanded into Indonesia this year and will enter more ASEAN markets. Many entrepreneurs expand far more quickly and it depends on many factors like whether they are first movers, expected capital investment, market readiness, management team depth etc.
The current situation is that many startups feel a need to go global from day one. They believe that having a regional story is of utmost importance. To some extent this is true especially if the startup is trying to raise money. However, it would be best to have at least firmed up their home market processes and basic business model first.  This ensures that the business does not end up failing on both home and foreign markets.

Mergers & Acquisitions
We had a grand total of 4 possible buyers during the five year period from 2003 to 2008. What I found out is that the valuations offered by Asian firms are really quite poor compared to western suitors. We were offered valuations that ranged from 5 to 10 times PE even though we were growing at 40% per year. The attitude I found that works best is to not plan for an acquisition. Before we were cold called by our current shareholder, we already decided to just hunker down and build the best possible business. Since we were already profitable, there was little pressure to sell or raise more capital.  This also helped us much when negotiating since we staying happily private was always an option for us.

Today, while there is definitely more activity in terms of M&A in the region, entrepreneurs should always remember to look for clients first before looking for buyers. We need more highly profitable local outfits and/or highly scalable regional/global outfits. Both will then be sought after by different type of global buyers. The exits will be eight, nine or even ten digits. And the founders who exit can then become role models and investors for other startups. 

Contribution to Singapore
I feel strongly that entrepreneurship needs to be nurtured and considered as a career path for all Singaporeans. We want both top students and school dropouts to start up.  By deciding to start a business, my team has generated a hundred new good paying, high productivity jobs for Singapore. We help thousands of employers cut costs by improving their recruitment process and we are now helping spur the digital startup community via our angel investments and mentoring.  Imagine if there are thousands more such stories in all industries doing the same!

The various schemes by ACE, SPRING, MDA and NRF are all on the right track. We need to help locally owned SMEs as much as possible. While most of us may never make the same revenue numbers like an MNC can, some of us will do well and the long term rewards will be substantial. I strongly believe that a Singaporean owned company will stay in Singapore through thick and thin in a way that a MNC will never do. SMEs may expand overseas and sell overseas but the profits will be repatriated and spent via their Singaporean shareholders.  

Mentors & Government Help
I have been fortunate to have met and interacted with many entrepreneurs through the course of the past 12 years. It really is true that not only do we need to meet the right person, ask the right questions but also we must be at the right stage of development and frame of mind to benefit. I have learned the most when speaking to fellow entrepreneurs who run similar sized or larger companies. Talking to professional managers helps when I have a specific functional problem. For instance, during our acquisition process, I consulted accountants and lawyers. They were useful in so far when I was discussing specific points of law or financial terminology. But the best learning points I got were with fellow businessmen who have bought and sold companies and who were able to share from personal experience. 

With respect to the many government grants and funding which are offered to digital startups. I would advice new entrepreneurs to go for them but go with the mindset that even if you fail to obtain a grant, you still have a good plan to succeed. In fact, if we look at recent eight and nine digit exits/investments like PropertyGuru, Reebonz, Beeconomic, JobsCentral, and Hungrygowhere, none of us have taken any form of government funding.  Entrepreneurs should always start with ourselves and blame ourselves if anything goes wrong. I cannot stress this enough. Only when we see ourselves as the root of all our business problems, then can we act to overcome them.

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