What's Wrong (or Right) about Singapore's Entrepreneurial Ecosystem, Part II

I would like to thank the dozen or so of you who sent me emails to share your views on Singapore's entrepreneurial ecosystem (also the five who left comments on my blog). While many of you have (rightly) highlighted the lack of early stage finance (angel investors, early-stage venture capitalists) as a major impediment in Singapore, I would like to highlight another factor that may be just as important, if not more so -- the lack of advanced firms that provide the seed-bed for the development of advanced skills and knowledge, and that are willing to try adopting new, advanced but unproven technology from small start-ups, i.e. serving as lead-users to other start-ups. Indeed, in certain business sectors where such advanced firms were present, Singapore had actually witnessed sizable emergence and growth of start-ups, contrary to the perception that Singapore's entrepreneurial ecosystem has been uniformly weak for start-ups in general.

From the mid-1980s to the late 1990s, Singapore had actually experienced significant start-up growth in one sector -- the supporting industry to the hard-disk drive (HDD) industry. If you examine the number of companies that IPOed in the 1990s, you will find a sizable number came from this sector -- ranging from precision engineering firms like MMI, Brilliant and Seksun to contract manufacturing firms like Natsteel Electronics and JIT (both had since been acquired by others). Others like facility engineering services firms Perdana Consulting had also done well, even though they did not go public. These firms were arguably technology-intensive, and some of them were able to compete globally, although nearly all of them started by serving the major HDD assemblers located in Singapore from the mid-1980s -- Seagate, Conner, Maxtor, Western Digital, etc. Indeed, quite a few of these firms were started by ex-employees of these HDD assemblers, who accumulated deep business or manufacturing process technology domain knowledge of the industry, before coming out to become component suppliers or service providers to the same or related industry. (For those of you who want to know more about this dynamic process of new firm formation in the HDD sector in Singapore in the 1980s and 1990s, you can consult the chapter I wrote on Singapore for a book on the globalization of the data storage industry published by Stanford Business Press in 2000 -- the book actually bears the title "From Silicon Valley to Singapore: Location and Competitive Advantage in the Hard Disk Drive Industry". )

This new firm spawning process is actually not that much different from the ways in which advanced firms in successive high tech industries in Silicon Valley have spawn the subsequent creation of new start-ups through the process fo employees leaving to become entrepreneurs -- whether it is Fairchild in Semiconductor, HP in electronic instrumentation, or Apple in personal computers. The one difference between what happened in Silicon Valley and Singapore's hdd industry is that, while the advanced firms in Silicon Valley were engaged in product innovation, those in Singapore's hdd industry were engaged primarily in manufacturing operations, albeit with some involvement in manufactruing process innovation. The employees in Singapore hdd industry thus learned primarily about manufacturing operations and process innovation, and the start-ups they created naturally drew on what they learned -- hence it is no surprise that their start-ups were concentrated in component production and assembly, process automation and contract assembly services, etc.

It is interesting to note that early stage financing has NOT been a major limiting factor to the creation of many of these hdd-related start-ups -- the main reasons being that there existed a critical mass of people who understood the industry, and the fact that there was a ready market for the products and services of these start-ups, which reduced the perceived risk of investing in such companies. Some of these start-ups were self-funded by the entrepreneurs themsevles and their friends who had accumulated savings as employees in the hdd firms; some of the funding came from former industry senior executives, other investment came from other business executives and professionals in related industries, and later, private equity funds and investment bankers who were familiar with the industry. The key point is that such investment were forthcoming from people who knew the industry, who knew the entrepreneurs, and who could assessed the risk because of their domain knowledge and people knowledge.

Fast forward to the 1990s and 2000's, we can witness a similar burst of Singapore-based start-ups in the offshore and marine services sectors -- with Keppel FELS and Sembawang Corp serving as the advanced firms that have become globally competitive (collectively they controlled more than 2/3 of the world's market for offshore platform construction), many such offshore and marine services firms were spawn, including quite a few that have IPOed in recent year, e.g. KS Energy, Swiber and Ezra. Again, the same process can be discerned -- knowledge gained from the advanced firms emboldened some of their employees and distributors to become entrepreneurs, and the ready market provided by these advanced firms for a wide range of services reduced the risks for such entrepreneurial entries.

The point is that, where there exists advanced firms, Singapore has been able to support healthy new firm formation and growth. It is only when entrepreneurs in Singapore try to start new ventures in sectors where Singapore does NOT already have some advanced firms and lead-users as anchors that they encounter difficulty in getting funded. It is NOT that Singapore has no high net-worth angel investors, or that such people are inherently risk adverse. It is because the entrepreneurs are trying to start companies in sectors that the existing angel investors do not understand, do not know the entrepreneurs, and cannot assess the risk competently.

In this sense, entrepreneurs in Singapore who are trying to do what Silicon Valley is best at -- starting new companies that pioneer new product innovation using cutting edge technology and targetting at lead-users -- are doing it in the wrong place. Singapore had produced some successful manufacturing firms because we were a major manufacturing base for some rather advanced manufacturing operations by global MNCs. But because Singapore had NOT been a base for advanced global MNCs to perform their product innovation activities, we had not been able to acquire much advanced know-how in product innovation. Unless and until a szable base of advanced firms and lead-users are carrying out their product innovation activities in Singapore, thereby enabling a sizable number of Singaporean engineers and managers to acquire such advanced know-how to become entrepreneurs and investors, it would continue to be difficult for product-innovation-based entrepreneurial start-ups to get started and funded in Singapore.

I would highlight two implications from the above observation. First, Singapore's entrepreneurial ecosystem is not uniformly weak or backward; there are sectors where Singapore's ecosystem may arguably be better than what can be found even in Silicon Valley. Just as Silicon Valley has a great ecosystem for, say, web 2.0 start-ups now because it already has advanced firms in web 2.0 and hence lots of people, including VCs and angel investors and entrepreneurs, who understand web2.0, Singapore has a great ecosystem for marine services start-ups for the same reasons. The key is to pick the right type of business to start in Singapore -- businesses that best leverage on the strength of Singapore's existing (and emerging) ecosystem. Some of my own recent angel investments have been guided by this perspective (more on this in future blogs...).

Second, entrepreneurial ecosystem is not static, but can evolve over time. In particular, public policy can play an important role in stimulating or accelerating the pace of change in certain directions. Thus, notwithstanding the difficulties in starting product-innovation-based new ventures in Singapore that I highlighted above, specific policy interventions, e.g. public co-funding schemes to reduce risk of angel investors, bringing in experienced mentors that have the relevant industry, business and technology knowledge, and public support scheme for early internationalization and cross-border fund-raising, can help nurture the beginning of some limited successes, which in turn will spawn more start-ups over time, in a virtuous cycle. This is something that my centre (NUS Entrepreneurship Centre) in NUS is trying to do for NUS-related spin-offs; again, more on this in some future blogs...

don't think out of the box... get out of the box!

Hardly a day passes without my hearing someone uttering the exhortation to "think out of the box". I am sure the folks who utter this cliche meant well -- surely it's good for us to become more creative in our thinking -- but I actually think that this exhortation can be counter-productive and in some contexts may in fact be down-right wrong. The problem with this "think-out-of-the-box" metaphor is that it encourages the belief that one can actually solve real world problems by sitting where one is -- one just needs to be able to think in clever and creative ways. While this imagery certainly appeals to our intellect, I believe a more appropriate metaphor for many of us, especially the intellectual type, is not so much to try to think out of the box, but to GET out of the box -- i.e. get out of our comfort zone and actually go down to the ground where the real action is, so that we can experience first-hand what the real problem is like, as opposed to what we IMAGINE it to be.

We already have too many smart bureaucrats who sit in their air-conditioned office to dream up clever policies or regulations that unfortunately don't work (or make things worse) in practice because their clever policies have omitted certain realities on the ground (for those of you living in Singapore, you may recall the recent incidence of the Land Transport Authority (LTA) coming up with new regulation on where taxi can stop that was well-intentioned but turned out to be impractical and had to be retracted -- would this has happened if the officers involved have actually gone to the ground themselves?). We already have too many smart business school professors sitting in their ivory towers writing clever papers that have little relevance or impact, because they don't bother to talk to the actual folks in industry (ok, some of my colleagues will kill me for saying this...). And yes, we already have too many smart entrepreneurs writing fancy business plans without first going out to observe or talk to potential customers about what their actual pain points are.

Too many wrong solutions are implemented because people imagine what the problem is, instead of being out there to personally experience and learn what the real problem is. What we need to exhort more is for people to get out to the real world to learn first-hand -- the creative thinking can come later, after you have a better grasp of what the real problem is. I particularly stress this point to young entrepreneurs that I'm advising -- by all means, do your homework to formulate your product strategies and develop your go-to-market plans carefully, but what is more important is to start engaging potential customers and to learn about what their real pain points are as early as you can -- unfortunately, very often this cannot be done effectively without actually launching a product into the market. You will get far more ideas about what to do next, when you have real feedback on a real product, than if you just talk about your product concept on paper -- the quality of the conversation is just not the same. The worst business plans are those that provide fanciful market segmentation analysis, but cannot name actual companies or persons that the entrepreneurs have personally talked with or observed about the specific needs, and how their proposed product are actually addressing such needs.

Don't get me wrong -- I'm not suggesting that we become constrained to the existing reality and become enslaved to working within the mold of conventional wisdom; indeed, a large part of achieving truly radical innovation is to upset the existing order with disruptive ideas, and to do this we do need maverick, out-of-the-box thinking. I do believe, though, that all innovation, to be successful, must solve some actual or latent user needs, and often these needs are not well articulated, so the best way to discover what they are is to be out there and observe how the users grapple with their problems in their natural context. In this regard, I believe we all can become better innovators and entrepreneurs if we learn to become more like anthropologists (one of the ten faces of innovation as identifed by IDEO's Tom Kelley). Afterall, discovering opportunities is at the heart of entrepreneurship, and the best way to discover opportunities is to become more observant about people's needs and desires.

So, if you have been thinking hard trying to discover the next great entrepreneurial opportunity, stop thinking and try getting out of your box first.

What's wrong (or right) about Singapore's entrepreneurial ecosystem ?

Silicon Valley has become the Mecca for would-be high tech entrepreneurs AND government policy makers around the world. A large proportion of entrepreneurs founding companies in Silicon Valley are immigrants coming from outside the US (see e.g. Annalee Saxenian's Silicon Valley's New Immigrant Entrepreneurs, and Angelika Blendstrup's They Made It), and hardly a day passed without some government somewhere in the world declaring that they intend to make their countries/regions to become the next Silicon Valley. There have been many articles and quite a few scholarly books on how the Silicon Valley entrepreneurial ecosystem works ( the three books I most recommend are : The Silicon Valley Edge, Understanding Silicon Valley: The Anatomy of an Entrepreneurial Region, and Regional Advantage: Culture and Competition in Silicon Valley and Route 128 ) , as well as an increasing number of works that seek to compare various Silicon-Valley-wannabe-regions in the world with the real McCoy (see e.g. Building High Tech Clusters: Silicon Valley and Beyond, Cloning Silicon Valley: The Next Generation High Tech Hotspots, Creating Silicon Valley in Europe, The Inside Story of China's High Tech Industry: Making Silicon Valley in Beijing ). I myself have contributed a chapter each on Singapore in two of the latest such books (Making IT: The Rise of Asia in High Tech, edited by Rowen, Hancock & Miller, Stanford U Press 2006, and Growing Industrial Clusters in Asia, edited by Yusuf, Nabeshima and Yamashita, World Bank 2008).

Many official government delegations from Singapore have visited the Silicon Valley in recent years to learn how it works, and to find elements that they can adopt back home. There has been significant changes in government policies towards improving Singapore's environment for high tech entrepreneurship in recent years, and some of these recent policy changes clearly bear the imprint of what have been learned about Silicon Valley through such visits. Nevertheless, a casual browsing through a number of popular blog sites on Singapore's entrepreneurship scene, like Sg.Entrepreneurs, seem to suggest that many entrepreneurs are not happy with the environment for entrepreneurship in Singapore. Since 2002, a stream of my own NUS students, who spent their one-year internship with high tech start-ups in Silicon Valley under the NUS Overseas College (NOC) program, had come back to Singapore, and many would invariably tell me soon after their return home that they greatly missed SiliconValley, and that they lamented various weaknesses in Singapore's entrepreneurial ecysystem when compared with that of the Silicon Valley.

In this and the next couple of blogs, I would like to focus on how Singapore's entrepreneurial ecosystem can become more vibrant and dynamic. While I do have some points of view (including some contrarian ones, as you will see...), I would like to start by encouraging my readers to contribute their own comments on what specific aspects of Singapore's entrepreneurial ecosystem they found lacking when compared with Silicon Valley (or other high tech hubs in the world), and what they think could be done to improve things, and by whom. I would like to encourage you to go beyond just observing differences between Singapore and Silicon Valley, by probing more into the underlying reasons for such observed weaknesses, as well as to ask more fundamental questions, e.g. what aspects of Silicon Valley (or other high tech regions) should we actually try to emulate ? Might some of the observed differences actually suggest strengths we have that we can build upon to differentiate ourselves from other high tech hubs, rather than just trying to ape what they are good at? I look forward to your contribution and the interesting exchange that can emerge !

Correction on my post on Gabriel Garcia Marquez

I stand corrected -- since my post about the poem by Gabriel Garcia Marquez sent to me by my friend, I have received two emails alerting me that the poem is actually a hoax -- one of them, Readymade, has kindly left a comment on my post. The actual author of the poem was apparently a Mexican.

I take this as a great example of the working of the wisdom of the crowd, and the reason why wikipedia works.

Social networking across generations

To further expand on my last blog about the potential of social networking applications involving the elderly, consider one of the the biggest problems confronting most healthcare systems: the problem of medication compliance, which is particularly acute among elderly patients. Basically, many patients fail to take their medications as prescribed, either out of forgetfulness/laziness, or false sense of recovery (leading to premature termination of medicine taking). Because of non-compliance, many medication prescriptions fail to have their intended effects on the patients. In addition, the efficacy of many drugs cannot be scientifically verified because of the compounding effect of non-compliance.

There are no easy solution to this huge problem, although I have come across a number of interesting innovations trying to deal with it, including one by a Singapore-based start-up called RemindCap. As the name suggests, the company makes a medicine bottle that has a special cap fitted with electronics that can be programmed to beep when it is not opened at the prescribed time interval. While I like this innovation, it is not as creative as another one that came out of Japan: they also put a special cap on the medicine bottle meant for the elderly patients, but instead of just beeping, they add a network connection that links the cap opening to a digital pet belonging to the grandchildren of the patients (many Japanese children play such digital pet rearing games). If the cap is not opened at the prescribed times, the digital pet grows weaker and eventually die. So out of love for their grandchildren, the elderly patients become more diligent in adhering to the medicine taking schedule. I find this example fascinating, because it not only utilize digital technology (as does RemindCap), but also incorporates deep insights of the social bond between the patients and their grandchildren, and taps the power of grandparental love to overcome their own human weakness.

Of course we can see various limitaitons to this particular innovation as a business (e.g. not all elderly patients have grand children who play digital pets, so the addressable market is reduced...), but my basic point is that the internet and digital media have the power to leverage and enrich social relationships, even among people who are not IT-savvy in the literal sense. The issue is not technology; what we need is imagination, empathy for and understanding of human weaknesses, emotions and desires.

The example above pertains to social networking across generations, but one can easily think of many other forms of scoial links (e.g. imagine teenagers playing in a virtual world game, in which their avatars can only gain strength if their team-mates exercise on a treadmill machine...who knows what this may do to kids' obesity...). I do believe that the potential for using digital technology to connect the elderly and young children is particularly vast and untapped...if you think about it, which demographic groups have got the most amount of leisure time for play and social interaction? The elderly and their grandchildren! Indeed, they have more in common than they have with the middle generation (who are busy working). Sadly, these two generations are increasingly physically separated in most urbanized societies, as nuclear family becomes the norm. I hope a new generation of entrepreneurs will create the imaginative digital tools to help them re-connect with one another...

Reverse Mentoring

We all know that the culture of personal mentoring of new entrepreneurs by experienced investors and entrepreneurs has been a key part of the vibrancy of the Silicon Valley entrepreneurial ecosystem. I am happy to see that this concept is beginning to take root in Singapore as well, with more young entrepreneurs looking for mentors, and an increasing number of experienced entrepreneurs and venture capitalists/angel investors learning to take on this role. Indeed, since about 2 years ago, my own organization (NUS Entrepreneurship Centre) has started to engage a number of mentors to help advise and coach some of our NUS spin-off companies. Besides recruiting a number of experienced investors based in Singapore, I have also engaged a number of "international visiting mentors" who are experienced entrepreneurs based in Silicon Valley, to tap their global business experience.

In a macro-sense, mentoring represents a kind of market process, albeit imperfect, to recycle the tacit knowledge and experience of one generation to another. The more efficient this recyling process, the more productive the entrepreneurial creation process is likely to be, as the new generation learns through their mentors how to avoid many of the mistakes made by the earlier generation. The growing interest in mentoring among the entrepreneurial community in Singapore thus augurs well, even though we are still at a nascent stage and there are still lots of room for improving the mentorship process in Singapore (e.g. while it is a widely accepted practice in Silicon Valley for entrepreneurs to provide stock options to mentors, this is seldom done in Singapore, and many mentor-mentee relationships are fuzzy and lack a disciplined process).

However, the purpose of my blog today is not to dwell on this issue (maybe it can be the subject of another blog...). Instead, I would like to suggest that we should start looking at promoting a different kind of mentoring -- that of reverse mentoring, i.e. mentoring of an older generation by a younger one.

The main aim of reverse mentoring is to overcome a major flip-side of experience -- as the world is constantly changing, often times experience gained at one time period may no longer be applicable to a later time period, and indeed, an over-reliance on past experience can close one's mind to fresh perspectives and prevents one from innovating new approaches. Just as the greenhorn can benefit from coaching by the experienced, the experienced can also benefit from coaching by the young, who often are much more attuned to new developments and new possibilities in the world, particularly new technologies, new social trends and new cultural values.

While the concept of reverse mentoring is not really new -- e.g. Tom Kelley, the founder of the famous design company in Silicon Valley, IDEO, has a good discussion of it in his recent book, The Ten Faces of Innovation -- it has not caught on yet in any significant way, even in Silicon Valley.

My prediction is that reverse mentoring will become a major new phenomenon over the next 10 years: while the full potential of the digital revolution as a transformational force in both the enterprise and consumer market is becoming ripe to be exploited over the next decade, many of the senior managers in my generation who are still occupying position of influence over the key strategic business decisions of their organizations have NOT personally learned and embraced many of the new emerging digital media and technologies themselves. In contrast, the new digital media and technologies -- be it social network, virtual world, re-mix, etc. -- have become second nature to the generation of younsters who are only now entering the labor market. There is thus a great need -- and a great opportunity -- for the reverse transfer of knowledge, whereby the managers & policy makers of my generation can learn from the tech-savvy generation of youngsters -- be they students, employees or entrepreneurs -- the potentials and nuances of the new digital media and technologies, through the same process of personal mentoring, except that it is now the young teaching the old.

One of the great privilege of being an academic professor in a university like NUS is the opportunity to learn from the continuous flow of bright students who hail from the new digital generation. Indeed, the free, open-enquiry academic environment of a university provides a wonderful context for reverse mentoring to be practiced -- provided that the professors come with the open-mind to learn, reverse mentoring can naturally occur. In contrast, in business corporate and government departmental settings where relationships are more hierarchical, reverse mentoring goes against the grain of the organizational authority pyramid, and will usually not occur unless there is explicit recognition by senior management that learning from the new generation need to be an integral part of their organizational culture, and that specific formal mechanisms are put in place within the organization to facilitate it.

As Tom Kelley pointed out, reverse mentoring should be an integral part of a truly innovative culture. To those of you who are like me, I encourage you to consider having one or more reverse mentors for yourself, to help you refresh your mind to the changes in the world. To underline my own commitment to this idea, I have started the process of recruiting a number of my NUS students to serve as reverse mentor in digital media/technologies for me and my management team at my organization (NUS Entrepreneurship Centre). (Incidentally, I have started my blog with my 14-year old daughter as my reverse mentor.)

To those of you from the digital generation, I encourage you to consider the entrepreneurial opportunities of creating new reverse-mentoring businesses for the baby-boomer generation. With reference to my previous blog, I believe that those of you who can innovate ways to get the elderly and soon-to-be-elderly to embrace more effectively the new digital technologies -- in their own idiosyncratic ways -- will be well positioned to exploit the much larger opportunities of the globally exploding elderly and soon-to-be-elderly market.

Follow the Big Waves, but Think Contrarian

We are now in the midst of the Web 2.0 craze, and every other entrepreneur I meet these days is trying to start a new Social networking site. Never mind that even the most talked about ones -- Facebook, Youtube, Second Life, Twitter -- have not turned profitable yet.

I do believe that Web2.0 and Social Networking will become big, indeed much, much bigger than what we can even imagine today. But I very much agree with the advice offered by Peter Thiel, the ex-CEO of Paypal and currently founder and president of Clarium Capital Management (which was the early investor in Facebook), when he spoke at the recent TIECON 2008 that I was fortunate to be able to attend. His advice -- yes, follow the big waves, but think contrarian: meaning, don't do what everyone is thinking of doing, or can easily think of doing. Just as anyone could think of starting a pet dog food portal in the Web 1.0 days, most of the social networking sites I get pitched these days have the same feel -- it's too obvious, so even if it works, there'll be many others around the world who have, or will have, started the same thing.

My own contrarian thinking is that, while everyone sees the young and tech savvy generation as the natural targets for Web2.0 -- after all, most people my generation are considered lost cause as we "just don't get it" -- some of the most significant value creation will be found in applying the power of social networking to the elderly generation today. I think it is a fallacy that, just because many of the people in that generation (and I'm trending towards that soon...) are IT illiterate, they won't be able to benefit from the social networking power of the internet.

One example from Japan that I like very much is the thermo-flask maker who adds an internet connection to the flask. The old parent living alone in their rural home in Japan start their day pouring hot water from the flask to make tea. If for some reason the flask is not activated, the flask is programmed to send an alert to their son working in Tokyo, who can then call back to find out if there is anything unusual. We are obviously not even scratching the full power of social networking and user-generated content in this case, but you get the idea.

My contrarian bet is on the start-up that exploits the intersection of the two exploding sets -- social networking and aging population -- while others are mostly looking at the young and cool. Send me your business plan if you have one sitting in this sweet spot!

In arriving at this contrarian bet I'm connecting two different dots -- the fact that I'm part of the aging population myself, becoming increasingly aware of the challenges I will face soon as an elderly, and the fact that my involvement in NUS Entrepreneurship Centre and in angel investing keep me constantly exposed to new web2.0 ideas; in particular, the NUS Overseas College (NOC) students that I come into contact with often keep me abreast with the latest developments in Web2.0 from Silicon Valley, China as well as right here in Singapore. One such group of NOC returnee students in Singapore, who called themselves the E27, is now running an incubator for interactive digital media (IDM) for my centre (Garag3). I would encourage you to visit their E27 website to find out the latest happenings in the web2.0 community in Singapore.