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Singapore - Relay Foundation

Singapore

Singapore

Land of Plenty?

Overall Trends:

No matter what you do there are a few things that hit you the first time you leave the airport in Singapore. The first is the gap between how small you know it is versus how it looks. Singapore is really small in terms of population (5 million only) and yet the entire place is larger than life. Marry the resort culture of Vegas with the finance of Wall Street and put it all in a city geographically not much larger than the greater LA area. As we’ve seen in the past, small areas like this lend themselves to a few things, and none of them are scaling to massively large organizations.

As such, we get the Boulder Effect that I mentioned earlier, where you go to Singapore to start your company and test a few assumptions and then scale it regionally. So why even bother to go to Singapore? Well, starting a company is insanely easy here. There are many organizations that exist exclusively to help you at the early stage, including many from government and private sector, and the market reflects this. And let’s not even mention how simple it is to legally register a company. The downside to all of this support on the early stage is that once you get past a certain stage; well…keep reading to the Finance section.

The second thing you notice is construction. It’s everywhere; the city seems to be reinventing itself endlessly. Like Dubai, Hong Kong, Zurich and many of the other finance centers of the world with small populations, almost everything being built is top of class. Now, not everything is the Bay Sands Resort and Casino, but there’s quite a bit of fanciness going on. What does that mean to you? It means there’s a market here for premium goods and a strong propensity to buy, if you can make the sale. If you can’t make the sale, there are ways that you can latch on to other groups that can and find a way to add value there such as e-commerce (which is also growing). A great narrative will do you very well here, as will a revenue-focused business model (instead of trying to get 1 million followers or something like a new Facebook for Dogs or something).

The last thing you’re going to notice while walking through the streets is that everyone understands the above two points and is strongly incentivized to make a sale. The competition is fierce almost anywhere you go in terms of service and cost, and haggling is not really an issue. What matters is making the sale. This can, and often does, lead to a race to the bottom in terms of prices and quality (like the famous, block-long Satay markets that give you about two pounds of beef, lamb, and chicken for less than, and sometimes way less than, $15). What you then find is a split in the market between premium goods, dirt-cheap goods, and, from what I saw…very little in between.

This reflects the type of economy that Singapore has built and is common of finance centers with small populations. A good many of the people in the country are focused on finance and there is a high pay that goes with it. When it comes to providing the other things that are necessary to keep the country going, then, you need either to get those non-finance focused groups a relatively greater income than a standard market would indicate (because the financiers are driving up the cost of living by not buying cheaper goods and then making cheaper goods more expensive to bring into the country due to a lack of scale for the providers) or keep costs lower on the essentials than you otherwise would have in an open market with a price ceiling. Singapore has taken the first approach, paying a bit more to workers through government programming.

The split economy, we were told, with wealth managers and biotech companies on one side and the glut of SMEs (aided by the Workface Income Supplement) on the other, has fewer demands in terms of products and services (because pricing is focused on either end of the spectrum) directly to consumers.

In terms of firms, because the industry focus on finance and biotech (paired with a small number of players), the opportunities to sell are very specific and allow ewer entry-points for vendors. Bringing it all together for you super-fast-to-scale entrepreneurs, Singapore can help any company get going, but you have to be very specific to the local market if you want to stay there. For startups that don’t address Singapore’s key industries, you might be better off finding another country to move to after the traction kicks in.

Which leads me to my next general point. The small size of the economy, the centralization of wealth, and the focus of the market on specific industries to a staggering degree, the country doesn’t admit (in terms of government postings or social finance organizations) that many serious, wide-scale social issues that a social entrepreneur could address. The two that everyone do end up running to are education and unemployment, specifically youth unemployment. To combat these two points the government has been incredibly active, one of the most active, in the classic tech startup sector. They facilitate partnerships with universities, banks, and even provide financing to college graduates with defensible IP if this is their first startup after school. Think of it like an engaged, outcome driven unemployment. I like it, because you only offer it to groups who have the drive to get through the solid application process. And now they’re getting involved with social startups! BOOYAH.

For governments, if you make the process stringent enough you are going to be making money on the long run when it comes to paying out unemployment benefits because starting any companies means more capital moving around and more taxes. And, if the company fails, you have a group of young people who have learned what it means to build a dream from scratch and then get up and dust themselves off after the big bang.

The other big supporter, and this is something you will see consistently across the Asia-Pacific region, is a massive amount of involvement and support from large private enterprise to get things moving. They provide money, mentors, services, and more. There are wins for doing this; they get the first option to buy the company, they get a product for cheap doing this, or they can use this to hire groups that don’t win their competition and save money on hiring costs. All in all, it just makes sensefor standard tech. When it comes to non-tech ventures, private industry is taking more of a ‘grantor’ relationship. Social tech just makes them look at you funny. Figuring out how for profit social entrepreneurs can tap into these existing services will be the biggest win in Singapore and the region overall.

Does that mean social impact in this region is going to be more efficiency-focused (rather than hands-on) and tech-based as the space develops and the market for startups starts to reflect the services provided to them? Maybe, but if that’s what’s open in terms of funding and support, and if you have a government that has expressed openly the willingness to provide social services (minimizing the need for social startups for some markets), the impact entrepreneur here will win if they can make those government and private service-providers more efficient. And the government will be just fine working with a for-profit who is helping them provide a social good because it just makes sense. Plus, you know, they do it all the time. Singapore’s government in terms of startup collaboration is pretty spectacular.

Today, though, most people are taking my advice and using Singapore as an easy jumping pad before taking their impact venture to a larger scale. Groups like World Toilet Organization and others have gotten going in Singapore and then expanded regionally/globally because that’s what the economy leads to. It’s an outwards facing economy and that factor has affected the social entrepreneurs coming from it.

That’s the smile of someone who rocks an Impact Investor Exchange. And a guy who needs to shave.

Finance and Social: Trust us they’re linked really hard here.

Key Handoff: Ease can create hardship.

Here’s an interesting line of thinking. So up until this point I was singing the graces of a government and environment that provides many services and now I’m going to tell you they are doing the same for money (especially money, just look at this list). Now, when you provide more money relative to what the market would otherwise logically demand, whether by government mandate or an investor who just wants to ‘kickstart’ a startup space, and that money has to be given out by a certain time (like most government funds require) more often than not you are going help to companies that don’t really deserve it. They might be too far away from a solid business model, the team may not know what’s going on, or they might just not have the knack for it. Whatever the reason may be, when you have lots of supply and a call to expend that supply, you’re creating a seller’s market and going to end up giving some of that supply at a price or to people you probably wouldn’t if competition had been stronger.

This is bad (most of the time).

In Singapore, the barriers to entry for starting a company are very, very low. You can start one in less than 20 minutes online. You can then get access to massive capital with relative ease provided you are young. It’s like the UK (and that is what we call foreshadowing, ladies and gentlemen). As a consequence – wait for it – you get a space that sets up companies to be completely caught off-guard at the point you stop helping them, and then they have a greater chance to fail. There can be such as thing as having too many services, and this kills startups. Having easy money at the beginning removes the incentive to find revenue. Getting all the legal points taken care of for you without you being part of the process can lead to confusion down the line. Having everything provided does help the great ones take off way faster, this is true, but it hurts the good, middle, and low-skilled startups if you aren’t incredibly careful with the way you provide them.

I am not saying that providing services to startups is a bad idea. I am saying that a network is valuable, and services are valuable and many things about the process are great. But if you look at startups as legal companies and not collectives of individuals, having too many service providers disperses the responsibility throughout the early stage of the company. When the time comes where responsibility is centralized once again (because the consequences of failure fall on the entrepreneurs and not the service providers), problems can arise. You can end up with a team that can create a product but not a company because they never learned all the secondary but essential duties of running a company. This might be good for pure tech companies, who are looking for a quick flip, but for social ventures that look to continue on without being bought this model of support can cause a lot of pain.

This is a rather radical thought and I can appreciate that. In the end, what dictates if harm occurs is if you have the ability to take continue the initial promised level of support and ease through to and past the scaling stage or not. If you are able to ensure that much support through the entire process, then ok, that’s amazing. Otherwise you create a gap in understanding and skillset for the startup. Teams that were expecting it always to be as easy are going to be caught off guard when all of the help and money magically disappears, and they often won’t know why they’re failing. They’re going to have a greater chance of stumbling because the services pretty much turned them into researchers and not entrepreneurs. For an exception to this rule I recommend looking at Y Combinator, the pre-eminent tech accelerator in the world. They are pretty much immune to this critique because they provide funding from day one, buyout options, and a massive network aimed at getting their companies to sell. But not many organizations, even entire countries can pull that off. And again, the question stands as to whether or not this can be replicated for social entrepreneurs.

As a perfect example, let’s look at the Impact Investor Exchange. They work in Singapore as a stock exchange exclusively servicing social companies. This is awesome, and so are they. But now the issue of Mission Creep comes up (where you end up doing more than you said you would and watering down your brand and stretch your company too thin). IIX facilitates investment and financing for social companies that come to it; they play matchmaker for impact investors. Here’s the problem, when so much money is easy to find early, the number of companies that come to IIX investment ready for late-stage capital is quite small and IIX needs to spend a disproportionate amount of time and energy preparing those companies to take on capital. They end up doing things (of top quality, of course) other than getting money into the space and that hurts everyone. If the government could shift some of the easy funding a little bit more towards mentoring and developing grantee companies, that could make situations like this less likely.

If that level of support cannot be provided, part of the service provider’s task should be weaning the startup off their services or the services provided should be limited to binary, contract-based, all or nothing work like registration, setting up the accounting infrastructure, or other points that have little to no maintenance procedures. This makes it easy for the startup to get a win without being caught holding the hot potato and not knowing how to maintain some infrastructure they didn’t build in the first place.

The other pain point is that making money too easy to get is going to tick off anyone who was promised successful companies as a result of said funding. If worse companies are getting the money because it absolutely must go out, by government mandate or not, then the return on that money is going to on average be less. This is going to alienate investors and financiers, making it less likely that they want to get involved in the space in the future and cause more harm than good to the startup ecosystem overall. We see similar situations in Beijing, Uganda, and the UK. People thought adding money to a startup ecosystem was all that was needed to build the next Silicon Valley (not to mention their expectations of how much to provide were wildly off the mark). That’s just wrong. Silicon Valley is Silicon Valley because it is able to stagger and incentivize the services and funding in such a way as to prep companies to succeed, not to hide them from the market. This took half a century.

With all this being said, I’m going to go back on my findings and argue why I think this massive support is not that bad of an idea for Singapore.

Singapore’s big companies, like all big companies, tend to be a bit bureaucratic. They are slow to innovate and adapt. To combat this, they need innovative ideas to be developed for cheap. What better place to look than startups? Startups for large companies are like really cheap R&D. But can they build the relationship with the startup sector to find the right buys and influence the market of entrepreneurs? Yes, you can have conferences and get people having coffee with one another, but that’s arguably shallow. What if the companies that lasted a year in the space from grant funding, after they made all of the relationships with government and the startup ecosystem, failed? Where are the high-quality coders going to go? Most end up not starting another business and instead going into the big-business private sector. There they will be diplomats to the old communities that they loved so much. There they will leverage those relationships for connections between startups and big business.

And if that’s the case, the process of prepping some companies to fail doesn’t seem too bad. However, it should instead be seen as a training program for future private sector employees or secondary education after university, not a startup-building program. In that light, it makes sense and could be responsible for the deeper ties now arising in Singapore between the innovators and the established players. Whether or not this would be the most efficient way of doing that, however, is the leftover question for politicians, private enterprise, and the startup community.

Just another social tech startup. But we shouldn’t say ‘just’. Look them up!

The Legal Leftovers:

Key Handoff: You get a grant! And YOU get a grant! And YOU get a grant!

Singapore is one of the examples of how to do things right when it comes to making sure the law doesn’t hamper startup creation. They have centralized documentation of necessary legal forms, online application for incorporation, and hubs of mentors that can walk you through any sticking points of the process.

As the main takeaway (and this section should be quick after that finance piece!), there is no different legal structure for for-profit social enterprise. The government has done quite a bit to push the practice of social enterprise forward, but in terms of legal benefits there aren’t any. There are NGOs, community organizations, and so on, but there is nothing like the Benefit Corporation or L3C in the States. Of the estimated 170 social enterprises across several industries, they fall more on the legal structure most closely based on the LLC model in the States.

This lack of definition has been amazingly helpful for the space because it means Foundations and other CSR vehicles for the private sector can give grants to for-profits. That’s right, the thing that the US has been trying to figure out with the L3C and Benefit Corporations has been put into practice in Singapore, and it’s amazing. No longer do you need to worry about legal status in getting the money you need to get going. You’re seen as you are, a legal collective of people looking to add value.

Now, there are risks. You can have non-social companies hogging the funds. The government’s preferences can shift day by day and so the support can go to issues that are more ‘topical’. You can even argue that this model offsets other donations by a percentage and so total funding stays relatively constant while the only thing that changes is the distribution of the funds towards business models that are more recognized. These are all solid points, but more research needs to be done before I respond with any assurance. I will say that making the application process rigorous could source out the big guys pretending to be social. I can also say that profit-only companies hogging the funds won’t happen if the social ventures are solid on economic and value-adding grounds. Pretty much, the moment you get rid of the special legal status for social enterprise, you lose the ability to justify below-market-rate successes in the name of impact. You are held to a higher standard to marry the two, both impact and finance, together.

And maybe that’s a good thing. What do you think?

Leading the way on Social Entrepreneurship Research in the region. Which is good, because we have tons of questions.

My best,

Bruce