Friday, July 31, 2015

Hard truths about entrepreneurship !

A careful reader of my books will realise that I get very self-conscious when writing about entrepreneurship and starting businesses. The reason is obvious - since I do not have start-up experience, I feel unqualified to advice business people.

My confidence has grown of late. I dare say that if I every publish a fourth book, I should be able to speak quite authoritatively about running businesses.  Law school has made be used to the idea of reading research journals and my previous engineering and finance studies has always allowed me to be very comfortable dealing with statistics. 

I want to follow up with my previous article on entrepreneurship to dispel a lot of folk wisdom which was thrown my way when the last article on entrepreneurship was published. My materials are drawn from a working paper from the National Bureau of Economic Research by Ross Levine and Yona Rubinstein entitled Smart and Illicit : Who becomes an Entrepreneur and do they earn more ?

Here are some bitter truths :

a) Before we even start, what kind of entrepreneurship are we really talking about ?

There are actually two kinds of entrepreneurs. Entrepreneurs who incorporate private limited companies and limited liability partnerships (LLPs)  are very different from entrepreneurs who run sole proprietorships and partnerships. Let's call the former type A and the latter, type B entrepreneurs.

Type A and type B entrepreneurs have very different income characteristics and tap into different skills when conducting every day businesses so they should not be discussed the same way. 

The government is clearly trying to get more young  people to become type A entrepreneurs because only type A's were found to be Schumpeterian in character - they can disrupt and overturn economies, make millions for investors and can potentially create thousands of jobs in the future.

b) Type A entrepreneurs have strong analytical and knowledge-based skills.

The kind of entrepreneurs behind the Facebooks and Googles are generally geeks who also can lead. They are streetwise intellectuals, not the Boh Tak Cheks that the obsolete baby boomer uncles admire. 

Type A entrepreneur's primary skill set involved non-routine analytical skills and non-routine direction, control and planning skills. While these skills are non-routine, they require a certain amount of book smarts and can be cultivated in a strong liberal arts program - being street-wise is important but no longer enough. A higher-order intelligence is required such that a person who drops of of secondary school is unlikely to have (but a Harvard dropout would).  

Type B entrepreneurs mainly employ non-routine manual work in their daily lives. The ability to hack and rig equipment, make minor repairs and drive trucks is more important for Type B businesses.

c) Type A entrepreneurs are way ahead of Type B when it comes to financial remuneration.

Do not read further if you have a weak heart.

Type As make a lot more money per hour than Type Bs. 

Type A's typically will be paid more when they return to employee status. Type B's typically take a pay-cut to jump into business and generally earn more by working longer hours. 

I see this finding as particularly important for policy makers, if Type As can get a higher pay when they exit from running businesses, more undergrads can be encouraged to build start-ups as there exists a viable exit strategy when they get older and wish to start a family. 

Type A entrepreneurs even make more than their life-long employed peers when they go back to salaried sector !

( Which is great news for the wonderful folks of Block 71 ! )

d) Type As are predominantly white males who have privileged backgrounds.

While this does not directly apply to Singapore. I have said before that only privileged families can sustain this form of risk taking from their children.  

Particularly interesting is that this idea is what you readers resist the most. 

Singaporeans have a romantic notion that the scoundrel who drops out and starts a businesses is the ultimate winner in life, that might work in the 80s but not anymore. Baby boomers talk about the lack of hunger in generation Y when brow beating them even though they know that Gen Y is more highly educated and tech-savvy. 

Some scoundrels do win, but most scoundrels don't.

Innovation and creativity requires a few more years of schooling. In the future, advanced statistics will be employed in basic marketing and citizens are getting more educated and skeptical. A smooth tongue and confident swagger will no longer be enough to start a business empire. People will google to compare prices. 

There is also less arbitrage opportunities in real estate so don't expect to the next Li Kashing by buying property.

e) Successful Type As entrepreneurs are 'illicit' !

It is not "hunger" but "naughtiness" that makes a good entrepreneur.

Not only should Type A's be smart and come from privileged backgrounds, they need to have this attitude that rules simply do not apply to them. Many successful businessmen used marijuana when they were younger. Facebook was first written as an app to rate women on campus. 

Thus, a good entrepreneur will know that he is suited to run a business. He has fairly good results in school but should be naughty and be quite a handful in class. Sometimes this can even lead to criminal behaviour.  

In summary, research clearly shows that the folk wisdom from our well-meaning Boomer generation uncles on successful businessmen is wrong. There is no evidence that hunger drives innovation, otherwise Silicon Valley would be in Africa.

The government needs to target that special category of Singaporeans who come from wealthy families who are smart but have demonstrated a history of illicit behaviour to build the Facebooks and Googles of tomorrow. 

This reinforces my proposal of locating an Entrepreneurship centre at Barker Road. 

Tuesday, July 28, 2015

Treat hawker centres as incubators, not soup kitchens !

I had a reputation in the past for being hyper-frugal when I was single. When me and my missus had a date 9 years ago was to look for foodcourt food which comes in huge portions and split a portion between the two of us. Shami Banana Leaf Restaurant at Northpoint in the good old days sells a $7 dollar chicken briyani which made an adequate dinner for a dating couple. In one move, we cut dating costs and had great food along the way.

So I was mildly irritated by the recent exchange between a new age hawker and Vivian Balakrishnan even though I knew that both come from the position that they want to do good for Singapore.

Particularly upsetting to me is that the authorities was willing to go to extremes to set pricing caps on food. The disagreement was over whether fishball noodles even made sense if you cap its cost at $2.70.

Generally speaking, intervention from the government will only do ill for everyone else because business people know how to price their products to maximise revenues. A business can compromise on hygiene, the amount of fish meat, or the portions to create a negative experience for anyone who eat in hawker centres. Poorer folks who live on $2.70 fishball noodles may even develop cancer at a later stage in life because the government cannot regulate everything.

[ To understand why I hate the price cap, think about how much the government hates minimum wages ]

Even worse, where is the freedom for hawkers to innovate ? Do we categorise  a plate of pasta accompanied by a medallion of fish in balsamic vinegar as a fishball noodle as well and cap the offering to $2.70 ? Should we allow civil servants to even create these food taxonomies ?

A better model would be to charge rent as a proportion of hawker sales and reduce the marginal rent as sales increase. eg. First $5,000 revenues results in 20% rental fee, subsequent sales is charged 10% rent. Every year, managers can decide not to renew the stalls with redundant food categories which underperform to maximise food diversity. This aligns the taxpayer/government with the hawker and gives the hawker the ability to manage determine the product and pricing to maximise revenues. If consumers overpay, there is certainty that a fair amount will always be returned to tax-payers.

[ As an added point, having point of sale terminals an allowing EZ-Link cards can give data scientists some insight into food habits of Singaporeans. If you want a Smart City, start here. ]

I think NTUC Foodfare is pandering to voter populism when Singaporeans actually just want a better way to preserve our food culture. The concept the government wants to adopt is that hawker centres are soup kitchens where lower income groups can have access to cheap food. What I absolutely hate the idea that the providers of the welfare are not taxpayers but the hawkers themselves, one of the hardest working people in Singapore and national treasures in their own right.

 [ Can you picture this ludicrous image of senior Administrative officers being paid millions making the decision that hawkers like Douglas Ng is to subsidise for the food for lower income groups ? ]

The approach to hawker centres needs to change.

Hawker centres should be treated like incubators, not soup kitchens.

Managers of hawker stalls are not obligated to create cheap food for citizens. Like Blk 71, a hawker centre's foremost responsibility  is to incubate hawkers like Douglas Ng so that he can evolve into a Damian D'Silva or a Justin Quek in the future. Hawker centres are preservers of Singapore's food culture and a magnet for tourist dollars.  Rents should not be cheap but comes as a form of profit sharing between tax payer and hawker so that the younger generation can invent the cuisine of tomorrow.

Of course this goes back to the problem of lower income groups and how hawker centres may cease to be a place they can afford to eat at. I don't think that's a problem as Singaporeans have grudgingly accepted the pricing and poor quality of foodcourt food for many many years.

Maybe some Singaporeans may have to accept that sometimes cooking at home may be the best way forward.

Monday, July 27, 2015

Why being an entrepreneur is risky business for a Singaporean !

An opinion piece has been circulated around in social media lately. The author of this piece asserts that a mindset change is required on entrepreneurship as Singapore would suffer if everyone stops taking risks.

I feel that it is important that I write  a counter-opinion to this article as when it comes to risk aversion, dividends investors are many times more conservative than workers who only want to work for MNCs. This is because the ultimate aim of dividends investing is to work for anyone we want based on work which we find gratifying. In a place like Singapore where work-life balance is largely a myth, the aim of investing is to stop work entirely.

As such, we investors are the bad guys in this narrative.

The first point I would like to argue is that we should not begrudge locals for seeking a lower risk alternative. They are just protecting their own interests. When I was an IDA officer, I noticed that there was a lot of posturing in Block 71 which wanted to lionize risk-taking at the expense of prudent life planning, but some hackers I spoke to admitted of the difficulty of finding a girlfriend or spouse because of the lack of stability with their lives.

I have two studies to back me up on why normal people should avoid starting businesses :

In a study by Korteweg and Srenson of Stanford business school on outcomes for venture capital investors, most high-tech start-ups will either fail or exist in a zombie state. Specifically, 10.3% of venture capital backed companies end up going public, 23.3% get acquired, 23% get liquidated and 43.4% would exist in a zombie state. So there is a 10% chance of succeeding when you build a start-up and after you succeed in VC backing. 40% of these businessmen would neither succeed nor fail and would spend their lives pointlessly cultivating zombie businesses - a more horrible fate than failure if you ask me. 

Which makes us wonder, what are the odds of someone who cannot even get this kind of VC backing ?

The second study is even more depressing. According to Adrian Furnham's New Psychology of Money, a 2012 study by Skandia on UK millionaires showed that 74% of UK millionaires made their wealth through employment with 57% admitting that investments contributed to their fortunes. Only 15% made their money from their own businesses.

Combined together, these two studies are damning to the government's efforts to promote entrepreneurship in Singapore. A reasonable fresh graduate is very likely to be turned off at the idea of starting a business after reading this.

Of course, you did not come to my blog to read an article which reinforces mainstream thinking without offering solutions.

I think that proposing a mindset change is tantamount to intellectual masturbation - chui gong lam par song ! There is too much of this in Law School and the Straits Times.

All the posturing of VCs and macho-capitalists cannot change the fact that Singapore women, being also risk averse, would think twice before marrying a start-up founder. ( Unlike their US counterparts )

My proposed solution is based on the article about why successful businessmen in silicon valley are mostly about white privilege.

If you accept that most successful business have middle and upper class upbringing, then the efforts of the government have been directed at the wrong place.

The government traditionally believes that engineers in local universities will create the enterprises of tomorrow.  That belief and policy intervention is wrong and a waste of taxpayer's money. Study the social economic status of any computer science and engineering cohort and you will find that most of us come from humble families that really need to have stable jobs so that we can uplift our families.

The successful businessmen generally comes from rich families who can bear the risk of kids starting businesses. They come with the contacts and the capital to make these bets succeed. They also want prestige. This is backed by the theories of Gary Beck on human capital. The rich have enough financial capital to make risky bets on human capital possible. Society can incentivise this by giving not money, but prestige and sexy press coverage.

A good policy intervention should be two pronged :

The first policy is to choose scholars and civil servants primarily from the middle income and lower income groups leaving capable members of the upper income groups free to become entrepreneurs. This is not discrimination of the rich as the companies they build will generate more jobs for Singapore than if they were to become a Admin service mandarin.

The second policy which is more controversial is to promote entrepreneurship and build centres of excellence not in universities but in schools where the rich congregate. A entrepreneurship centre is better off being in ACS Barker road campus than in NUS. 

Typically a rich scion will move from ACS onto an overseas program, so the government has to catch them earlier in secondary school.

I think that these policy interventions may unlock the mystery of the Mittelstand which is the Singaporean dream of building large specialized tech firms of Germany which are largely family owned.

Let engineers be engineers who can work for these Mittelstands and bring more social mobility to their families.

Therefore, the rich are the best people to bear the risk of start-ups.

This includes the children of successful dividends investors as well.

Sunday, July 19, 2015

Crowdfunding : The next frontier in yield investing.

Thanks to the fact that Moolahsense makes all bids to lend money transparent, some readers should be aware that I started participating in peer-to-peer lending. In fact, for folks who have been following, I was able to lend $1,000 of my own money successfully to Leap Networks at about 8-9% interest rate about a week ago.

The decision to start investing in crowdfunding platform was not a financial one. There are higher yielding investments in the local stock-market like shipping trusts.

Getting into crowdfunding was an academic decision. I was doing a subject called Legal Issues in E-Commerce and wanted to write something which was cutting edge and novel so I chose crowdfunding as my research topic. Doing the research paper forced me to look at legal reforms in the US ( Obama JOBS Act 2012 ) as well as different equity crowdfunding models in the UK ( Crowdcube vs Seedrs ).  An interesting benefit from all this research was that I was able to befriend two lawyers who are familiar with the subject matter so I will trying my luck at getting an internship and perhaps even a training contract with these law firms.

After finding out that fraud is relatively rare in the world of crowdfunding, I decided to punt $1,000 of my own capital into Moolahsense so that I can eat my cooking instead of being an ivory tower academic. So far so good, the interest rate I offered was below the finalised interest rate of the loan.

My personal opinion about crowdfunding is that it will be the next big thing in finance. I think businesses and people in general will find ways to help each other online and cut off the banking middlemen to save business costs. This potentially creates multiple markets which are risker than our stock market institutions but can potentially be more rewarding.

Here is some advise for readers keen to get into crowdfunding :

a) Keep it within 5% of your total net worth.

MAS is still in the process of finalizing how to regulate crowdfunding platforms, so it's a wild wild west out there. You should limit your exposure to 5% of your total portfolio. No one really knows what happens if a borrower defaults even though the platform has a set of steps which they can take to help you recover part of your money.

( In legal parlance, you may not have a recourse in contract against a crowdfunding platform. You may have a recourse in tort but you really don't want to go there. )

b) Bid the minimum amount so that you can diversify your crowdfunding assets.

If the lowest bid possible is $1,000, bid only $1,000. If you have $5,000 capital for crowdfunding, spread it over 5 loans to 5 different parties.

c) Go for companies with less than 5% of default probability.

The great thing about the Moolahsense platform is that they have information on probability of default. That is the chance that you will lose your pants. Bid only for companies with a default percentage below 5%.

d) Have a minimum yield that you would like that you cannot find elsewhere.

For me, I generally bid about 16% interest ( which is actually 8.88% ) after meeting the 3 criteria above. I can find decent investments in SGX for lower yields.

I cannot expect every reader to be the same as I do because I take fairly high risks in the stock-market so you may be willing to loan for 6% or 7%. But please don't offer 4% or less because CPF-SA can give you a better deal.

e) Avoid property crowdfunding.

This is the most controversial advice which may piss off some parties in Singapore.

Stick with peer to peer lending and avoid property crowdfunding for now. Based on my research, I'm not sure whether fractional property ownership will come under MAS regulation for equity crowdfunding in the future and the proposals all seem very much like land-banking to me. For the past 10 years, there has always been a a lot of advertisements on purchasing foreign property. As a natural skeptic, I always wanted to know why the locals in their own country would be uninterested in those homes.

Furthermore, I suspect that many vendors are jumping on the crowdfunding bandwagon by abusing this buzzword when the original aim of crowdfunding was to help businesses raise capital because banks were underserving them.

Finally, REITs have always been the official means to crowd-fund property and all of them pay a decent amount every year.

Anyway, just take note that I got into crowdfunding because I benefit from writing legal research papers which my lecturers find novel and refreshing. It covers areas which still lack solid regulation in Singapore and other parts of the world. My risk of loss is really law and easily less than 0.1% of my portfolio so far.

In the future, if I ever write another book on Personal Finance, Bitcoins and Crowdfunding will definitely be part of it.

Thursday, July 16, 2015

Are you wiser than an ITE student ?

Was attending a wedding last week and was very honoured to have a conversation with an ITE Life-skills lecturer so naturally I became very curious about her work. I wanted to know what would constitute life skills because it would potentially benefit readers of this blog.

I was quite impressed when I was told that ITE employed the DISC personality profile system.
Having a knowing one's personality is quite crucial in the working world because it helps a person decide on a vocation. The ITE lecturer also shared with me that ITE uses personality profiling to detect whether a student problems with self-esteem where more intervention then becomes necessary.

Naturally, having very successfully googled the Maths syllabus for Normal Academic students, I proceeded to find out what life skills really contain but I was quite disappointed to find out that detailed syllabus information was not available on the Internet. 

Instead I found some references to the following :

Personal Effectiveness
Group Effectiveness
Interpersonal Skills
Communication Skills 
Thinking Skills
Information Technology 
Sports and Wellness

The result is humbling. I'm pretty sure that I will fail the Sports and Wellness modules and there were two modules which had to be passed.

Anyway, I am calling out readers of this blog to help me obtain details on ITE Life skills.  I think that if these skills can be generalised, we could create a self-help body of knowledge that is useful to all professionals regardless of educational qualifications and could lead to future blog postings.

Catch you guys this weekend, I will write about highly-anticipated article on Crowdfunding !!!

Wednesday, July 08, 2015

If Budgetbabe can save $100,000, what's your excuse ?

Budgetbabe recently wrote a concise blog article on how easy it is to save $100,000 before age 30.

I thought I wanted to join in the fun, so I asked my FB what's their excuse for not being able to save $100,000 before age 30.

The results were quite predictable, some friend carefully crafted a life situation which was intelligently distinguished from my life situation or some other financial blogger which was well-argued even from a legal perspective.

It's all fine and good, I don't really judge my friends these days. At age 40, a balanced scorecard matters more than accumulated wealth. Hokkiens say Huar Hee Jiu Hor !

In fact, I think I want to provide on this blog a a better excuse than the one's crafted by many friends and well-meaning critics ever since I wrote about taking on the $100,000 challenge about 10 years ago in my first book. If you are my age and did not meet the target, you may have failed, but you may have succeeded in some other area of your life.

Maybe one day, a friend will ask " Chris, I am happy, drink lot's if birdsnest. I look like I am 30 but I am actually 45, what's your excuse ? " to which I can only answer "Exhaustion ? "

So, suppose you are a Gen-Xer like me, some si-geena Millenial comes up to you and says " Hahaha ! I can save $100,000 before I am thirty. what's your excuse uncle?"

For goodness sake, don't say shit like marriage and kids to a Millenial.

Because I have gone through the process myself, I know the critics will use marriage as an excuse until I had gotten married myself, and then use kids as an excuse after I get married but before I had Clio. After I had my kid, critics naturally complained that they have have two kids. Now, I just can't beat them all if they keeping having more kids than me.

( I need to pull up my pants and go to school - not keep making babies at home. )

So don't slam BudgetBabe for being single and childless.

In my opinion, I think the best reason is this....

The hard, bitter truth is $100,000 is chump change for this generation of workers !

It is worth only $63,000 in 1999 dollars when I just started work or $73,000 when was 30 years old if we just assume an inflation rate of 3%.

So good news for Gen-Xers, if you had $73,000 at age 30, you would have met Budgetbabe's challenge and you can now buy yourself a Pet Shop Boys CD as a reward if you are feeling nostalgic.

Anyway, kudos to BudgetBabe for starting this discussion. She's simply awesome for having that willpower to resist all the online marketing companies throw at us these days.

I think it's great that younger financial bloggers are stepping forward to vindicate my $100,000 challenge and meeting their financial targets at a much earlier age.

But that leaves one problem for the folks my generation...

... If you do not have $73,000 when you are 30...

...what's your excuse ?

Sunday, July 05, 2015

Why you should support marriage equality too !

When Heather Chua came into  scene some months ago and crafted a story of how much she despised her classmate for dating an ITE graduate, I had an inkling that this was a troll who was out to seek attention. After some thought, I also would not really want to find out about the truth as to whether this Heather Chua was a real or fake because, if Heather was exposed, members of the natural aristocracy would be relieved to know that one of their own was not an elitist snob. The flip side was that the story of RGS girl who dated an ITE guy would turn out be a myth as well.

That is extremely harmful for the self-esteem of Singaporean men.

Of course, the context now has changed.

In reality, some men do meet the standards of the best women Singapore has to offer. I am very relieved that we now know for sure that billionaires are good enough for the ladies of our natural aristocracy and daughters of a better age.

But that leaves another problem for our society.

It's a problem of marriage equality.

While we celebrate unions between billionaires and RGS alumni, a certain group of Singaporeans are not doing all too well in their own marriages.

Right now, blue collar worker's spouses are unable to obtain a permanent residency in Singapore. Many have to rely on the Long Term Visit Pass to stay in this country and they are unable to find jobs to support their family. In fact, their ability to stay in Singapore becomes even more doubtful when their husbands die.

I think this is a serious problem for Singapore.

Our society discriminates blue collar workers so much as they are not getting marriage equality.

Let me go further to explain the problem :

a) Some blue-collar workers are indeed born into their current circumstances.

Blue-collar workers are born like that.

Not every Singaporean gets access to a family which can nurture them into members of the natural aristocracy. some may be born into single parent families, others may not be natural inclined for academic performance.

We sometimes have to be sympathetic to people who are born into their current circumstances.

b) Children of blue collar workers and foreign brides may be considered people who come from lesser families.

If their mothers are unable to obtain at least permanent residency, the children of such unions can also face discrimination. Perhaps their mothers would have trouble staying in the country but this creates a situation which puts these children into a serious disadvantage in school and society.

c) Blue-collar unions do not threaten the marriage and family of white collar families in Singapore.

Just because the government gives blue collar spouses permanent residency this will not make normal families have more blue-collar children.

Yes, white-collar parents should not fear that their children will turn blue-collar just because government policy has changed !  

But of course, children of white collar parents may choose a blue collar vocation out of personal choice. We should welcome this diversify in our economy and not view as such a bad thing.
Fortunately, the problems faced by blue-collar males is now well documented by publications like the Economist but I am sorry to say that a lot of bigotry still exists in Singapore. I have witnessed at least one well-known Singapore poet who is currently in the UK has taken to social media to claim that blue collar men who take on foreign wives are actually exploiting them.

We should condemn the words of this Singapore poet. But we should also pity him as he sees blue-collar marriages as a threat to his own bigoted and archaic personal view of gender roles and marriage today.

I'd like to share one final thing about the evolution of society.

Society has the capacity to be kind. When the workplace looked like it came out from the set of a series like Mad Men, we reformed it, added maternity leave, child-care benefits and telecommuting so that we can have more workplace diversity and create a more inclusive society for everyone. 

Engineering as a discipline also became softer with less emphasis on equations and programming and more emphasis on communication skills and language.

When Silicon Valley was created to celebrate male qualities of focus, discipline and decisiveness - a safe harbor for men.  It was immediately condemned for not being inclusiveness even when Asian male engineers have been working in Silicon Valley for years without facing discrimination. The accusations conveniently came about when it became profitable to be a software developer.

There are any loud voices, some reasonable, some unreasonable for different categories of minorities in all societies. Some of the fights has even been won in the US Supreme Court.

Why shouldn't we fight for our blue-collared male workers ?

Marriage equality should be upheld in Singapore.

I beseech my reader - support marriage equality !

That is the marriages between blue-collared husbands - foreign wives should be equal to that of marriages between Billionaire-Aristocrats.