Welcome to the Real World

As funds start to evaporate in the current economic climate, the environment for entrepreneurs is beginning to resemble the real world again. Malaysian entrepreneurs have had the luxury of being spoilt by various funds and grants, lavishness that entrepreneurs in most other countries do not enjoy. At the tail end of the Ninth Malaysia Plan, most of the “free money” has run dry and is unlikely to be topped-up until next year, when the Tenth Malaysia Plan commences. Some of us suspect that when the tap does flow again next year, the rules of the game will be significantly different. It is an open secret that many of the grants have been abused in the past, so changes to the system should not be unexpected. The government must act to plug the holes and reduce “leakages” (Malaysians are so polite!) so that genuine and deserving projects are approved.

Over the last two months, I have met many entrepreneurs who are now stuck with their proposals in their hands, unable to secure funding to take their projects forward. Seed funding is still available but the amounts disbursed are relatively small and are more appropriate for small teams of individuals who want to take their first plunge into the realm of entrepreneurship. Malaysia has never had an angel network to speak of and attempts by an international angel network to setup a chapter in Malaysia failed last year. Our culture and eco-system is vastly different to that in developed nations, making the expectations of potential local angel investors humorously unrealistic. While they accept that they will be “sleeping partners” in the venture, many of them insist that their “pillow talk” be adhered to. Their gentle murmurings soon amplify into piercing voices as money not only talks, it shouts. Behaviour depicted in William Shakespeare’s novel “The Merchant of Venice” bubbles to the surface, with the Shylocks demanding their pound of flesh.

Of course the option of borrowing money from banks or selling equity to Venture Capitalists is still there. Easier said than done, however both sides play the blame game for their lack of engagement – banks and the VCs blame entrepreneurs for not understanding their business or projects well enough to produce realistic and viable business plans while entrepreneurs point the finger at the funders for not seeing the picture and vision that the entrepreneurs can perceive in the eye of their minds. This is an age old argument that has become the hallmark of how different images manifest to both parties, although both are staring at the same crystal ball. Let’s not even complicate the matter with instances where banks insist on collateral or VCs, who because of their charter, are only allowed to fund companies that have matured to a certain level or are active in a specific sector only.

Even if you meet all the criteria, you have to compete against other companies who have also met the criteria. If your application happens to be evaluated at a time when there are other stronger cases, you may not be successful even though you have a perfectly viable business proposition. The problem of course, is that you have no way of determining who or what you are up against. Recall the story of a lion chasing two men. The issue is not about out-running the lion but instead, out-running the other person. As long as one man outruns the other, he escapes becoming the lion’s lunch. If you don’t want to end up as lunch, you must “outrun” other companies whose applications may also be sitting on the VC’s table.

This is where creativity and innovation come into the picture. The standard MBA-type business proposition is no longer enough. While it is absolutely necessary that you prepare your proposition so that it includes all the information that the funder is looking for, but in these economic times, this alone is not sufficient to give you the competitive edge. You have to do more and inject creativity and innovation into all aspects of your proposition. It is not enough to have an innovative product or service alone – innovation must be apparent throughout the value chain. It has to be built into your in sales and marketing process, in the business model, in the choice of strategic partners and alliances, as well as in post-sales support and service.

We all know that at the end of the day, the bottom line is that money is needed to make more money. Entrepreneurs have to quickly adjust to the new reality that there may be limited grants available from now on. They have to stop complaining about the situation and start planning for life in the altered landscape. They have to mature quickly and come to terms with the present reality. After all, one cannot get ahead by continuously looking in the rear-view mirror. To secure non-grant funding, new skills have to be learnt; new rules have to be mastered. This season, Mental Protein will focus on the new skills and rules that entrepreneurs need to acquire to do precisely this.

Slowly but surely, we are being dragged into a world where free money is scarce and entrepreneurs have to really buck up to secure bank or VC funding. As Malaysia prepares its New Economic Model, we have to be ready to play the liberalisation and globalisation game. We can become the hunter or the hunted, the choice is entirely ours.

Welcome to the real world.

This article first appeared in “The Edge Malaysia” 22 March’10

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