We frequently hear about startups being sold for many millions and how these deals make instant millionaires of their founders and investors. While it is clear how successful startups can benefit their stakeholders, it is less obvious how these establishments can contribute to Singapore’s economy.
Using examples from my experience building and running a job portal service, I would argue that there is a need for more startups here in Singapore – and that building a larger and stronger startup ecosystem here will benefit Singapore’s economy.
STARTUPS DRIVE INNOVATION
In Singapore, over 20 job portals sprung up between 1999 and 2000. During those years, revenue from recruitment advertisements for incumbent print media players was estimated to be between S$120-150M. By 2015, the total estimated spending on recruitment advertising including print had decreased to S$70M, of which approximately 60% could be attributed to online platforms. This was in spite of Singapore’s GDP growing by more than 300% over the same period.
In this regard, job portals have helped to create massive savings in recruitment advertising for employers. On top of cost efficiencies, job portals have also generated substantial time savings for jobseekers in the application process, and for employers who now use software to screen and manage applicants.
Without job portal startups, the incumbent print media players would likely have taken a longer time to roll out digital platforms to avoid cannibalizing existing products. They would likely have also charged higher prices on their digital offerings to maintain their revenue.
The development of online recruitment portals is a good example of how startups can disrupt industries and change consumer behaviour through new technology. In the process, such efforts also result in great economic efficiencies for the industry.
STARTUPS TODAY, SMES TOMORROW
Many startups will fail. From the pool of more than 20 job portals established in 2000, only 3 to 4 still exist today.
These high failure numbers are a natural feature of a healthy startup ecosystem. The job portal companies which survived are no longer startups, having grown into mid-sized enterprises employing around 50 to 150 staff in Singapore alone, making tens of millions in revenues and paying taxes on their profits.
Hence, by encouraging startups, we are essentially securing a pipeline of potential SMEs to represent ‘Singapore Inc.’ in the future. Moreover, by raising the quality of our startups, we can expect to see larger and stronger SMEs.
Furthermore, some of these high growth startups in disruptive or blue ocean fields will grow past the SME stage very quickly to become smaller-scale multinational corporations (MNCs). Razer and Garena are good examples of such companies that have taken much lesser time to spread their wings overseas.
TESTBED FOR LARGER COMPANIES
Not all startups end up failing or growing into SMEs. A number are also acquired by MNCs or Large Local Enterprises (LLEs) which are interested in the startups’ technologies and know-how or are keen to access their geographical or niche markets.
Many larger organisations find in-house development and innovation challenging, and have turned to acquisition and venture investments as alternative y to create new products or expand their customer base. For example, SPH acquired real-estate listing portal Streetsine a few years ago, as part of their plan to grow their property advertising business. Another example is Zendesk’s acquisition of chat service provider Zopim to boost their chat product offering.. Recently, we also observed the National Research Foundation (NRF) supporting local corporates such as CapitaLand, Wilmar, YCH and DeClout to establish and scale up corporate venture funds to focus on engaging startups.
BUILDING A STRONG ENTREPRENEURIAL WORK ETHIC
The value of a strong entrepreneurial work ethic also cannot be overemphasised. At JobsCentral, we hired more than 300 people over the course of 14 years. I dare say many of our early stage employees learned a lot more with us and became more entrepreneurial than if they had joined a larger organisation. These experiences served many of them well when they went on to work with MNCs and LLEs.
Startups provide an experience for their staff that is more akin to going on an adventure filled with ambiguity. Founders and pioneer employees are required to take on multiple roles and be comfortable with regular change. In general, employees who have been through the startup journey are trained to think on their feet, are comfortable with changes and making decisions, and constantly seek to innovate and improve on their products.
These traits are invaluable to any company. Hence, having a vibrant startup landscape in Singapore will contribute to the pipeline of entrepreneurial and innovative talent who can support the future needs of the economy.
Netting the greatest benefits from a strong startup ecosystem would require us to bear in mind two key considerations, ownership and the respective role of government and the private sector.
OWNERSHIP MATTERS
We want to encourage more local ownership of companies, because locally owned companies are more likely to continue to base high value functions here and returns on capital will be better captured here. This applies especially to startups and entrepreneurs supported by government incentives, which tap on public funds contributed by tax payers.
JobsCentral was 100% owned by Singaporeans, and although costs were higher compared to neighbouring countries, we located our IT and design team here to tap on local expertise. At that time, most of our competitors had only sales and marketing outfits here. Likewise, I have noticed that the majority of the Singaporean-owned enterprises do base strategic and higher-valued operations here. And if an exit happens or if dividends are paid, there is a higher chance of profits and capital gains being retained and spent here since the proceed are paid out to locals.
However, even as we continue to support locally owned companies, we must continue encouraging foreign entrepreneurs to set up base in Singapore. Currently, we simply do not have enough good entrepreneurs and startup employees to build a strong ecosystem on our own, and we have much to gain from remaining open to new entrants and ideas from abroad and we should remain open to new entrants of new ideas and businesses here.
ROLE OF GOVERNMENT AND PRIVATE SECTOR
Startups do not operate in a vacuum and will only thrive with the involvement and support of both the public and private sectors.
First, the Government can help to catalyse developments in sectors like Information and Communications Technology (ICT). This can be through the provision of funding tools, the facilitation of special manpower needs, and encouraging partnerships between startups and MNCs, Government-Linked Companies (GLCs), the Government, and overseas partners.
Second, the Ministry of Education can look into incorporating entrepreneurship as part of the education curriculum, and promote entrepreneurship as a career choice to be on equal footing with other prestigious careers like doctors
Third, government bodies can encourage collaborations with local SMEs by considering contracts with SMEs that provide competitive product and service offerings.
Fourth, the Government can consider taking a light touch on some regulations in specific areas, to allow more room for innovation. The idea of a regulatory sandbox for the Finance Technology (FinTech) sector mooted by Minister Vivian Balakrishnan in May this year is a good start.
Lastly, Government can also influence talent development and the channelling of talent. For instance, the recent move to adjust engineering and ICT payscales within government is a good signal that we value such skillsets. The promotion of STEM careers is another such measure.
I also understand that the government is currently advocating more startups in high value-added and deep technology areas such as ICT and Medical Technology. There are also efforts to encourage more Singaporeans to pursue an entrepreneurial career. Such efforts should continue and be reviewed regularly for them to remain relevant even with economic changes into the future.
For the private sector, established corporations can consider setting up corporate venture funds for investments into startups, organising hackathons to foster ideas and support commercialisation efforts, creating specialised startup procurement models and engaging in partnerships with startups.
Collaboration between larger private-sector players and startups should also be encouraged. Experienced professionals and successful entrepreneurs may also consider providing angel investments and mentorship to startup founders.
HOW DO WE KNOW THIS IS THE RIGHT PATH?
As with anything worth doing, we must define and measure our startup ecosystem. Success is not just about the number (value?) of funding rounds and exits, though those are important metrics. It is also about the diversity and quality of our investor base, the calibre of employees who choose to work in startups, and the number of startups that graduate to become the next SIAs of Singapore, creating jobs and wealth for our country as they grow.
It is my hope that in 10 years’ time, our startup ecosystem will be both robust and sustainable – a core engine of growth for the Singapore economy, with a deep pool of talented founders and employees. I believe our startups will play a critical role in advancing innovation and value–creation, not just in our country, but across the world.