How to be rich?

[greypiggi]

No golden advice . Everyone is different. My experience is that sticking at it and plugging hard is required but there is a limit. I usually advice 2 years. If running for more than 2 years and u still cannot see a route to becoming profitable... Should seriously consider giving up.

And in this 2 years, one should be selling hard, listening to clients and tweaking or changing your business until you see a clear positive signal from market and hence route to becoming profitable.

Hope this helps!

Originally Posted by greypiggi

No golden advice . Everyone is different. My experience is that sticking at it and plugging hard is required but there is a limit. I usually advice 2 years. If running for more than 2 years and u still cannot see a route to becoming profitable... Should seriously consider giving up.

And in this 2 years, one should be selling hard, listening to clients and tweaking or changing your business until you see a clear positive signal from market and hence route to becoming profitable.

Hope this helps!

If after 2 years, it's only _barely_ profitable 吃不饱，饿不死 what's your advice then?

[greypiggi]

Are you able to see a clear path to sustained and good profitability? If so then go on and execute the plan to get you there. If after 2 years, you are unable to see such a path and you find yourself putting in crazy effort just to break even without a scaling up in sight... then perhaps u need to make a drastic change in your business and life .u really need to sit back adn think it through.. no one can give you the answer and everyone's expereince is different....

Originally Posted by greypiggi

Are you able to see a clear path to sustained and good profitability? If so then go on and execute the plan to get you there. If after 2 years, you are unable to see such a path and you find yourself putting in crazy effort just to break even without a scaling up in sight... then perhaps u need to make a drastic change in your business and life .u really need to sit back adn think it through.. no one can give you the answer and everyone's expereince is different....

Hi greypiggi,

Your advice are truly invaluable.

What would be you advice on hiring staff and entering into partnerships?

I also have a basic question on pte ltd. I understand that the majority shareholder always has the ultimate say in everything. So what are the ways to protect the other shareholders? For example, how do they prevent the majority owner from self-declaring a high director fee for himself?

[greypiggi]

Glad to be of help!

Hiring staff - Slow to hire and quick to fire. When hiring always evaluate carefully and do background reference checks. At least 2 rounds of interview. Reason? We want to minimize selecting wrong person and having them leave or firing them after 2-3 mths. That is a total waste of time.

Once hired, set clear and measurable realistic goals for staff. Go all out to help them succeed. Give tools, mentorship, budget etc. Treat as you would want to be treated. High standards but fair is the best approach.

Finding working partners - Be even slower. Bring them in for your future business and not just current need. And bring in people whose skill sets complement yours. Also, if possible make them put some skin in the game. Meaning ask them to put in some capital so that they too have something of their own at stake.

How to prevent majority shareholder from unethical behaviour. No easy way. You can protect via shareholder agreements before investing. But there are still many ways they can oppress u. The best method i know is to actually add value to them and the business. Then they will also think of you positively and will not begrudge your fair share. If you are a passive investor, then better protect as hell with shareholder agreements and use convertible loan arrangements and preference share arrangements to extract some min coupon back. Last of all, don't bet the farm for passive investments.... there is such a thing called stock market which at least has a ready market for your stake at all times...

Originally Posted by greypiggi

If you are a passive investor, then better protect as hell with shareholder agreements and use convertible loan arrangements and preference share arrangements to extract some min coupon back. Last of all, don't bet the farm for passive investments.... there is such a thing called stock market which at least has a ready market for your stake at all times...

Covertible loans and preference shares work in theory, but in practice you would be laughed out of the room if you approach some small time businessman or entreprenuer with this kind of arrangement.

For the convertible loan approach to work, you have to accept a coupon substantially less than what a business can get from a SME loan from guys like Hong Leong, otherwise major shareholder will tell you to get lost. With the persistent low spreads in Singapore, you will ultimately end up with yields like 2%-3% which honestly speaking is as good as nothing in protecting capital, might as well go all in as common stock.

Preferential shares is just an open invitation to the major shareholder to try accounting tricks to whip saw yearly profits. The only recourse is to go for a cummulative arrangement which is unlikely to fly with a major shareholder. Again the dividend yields will have to be quite low in light of the very low interest rates from debt capital. The biggest draw of preferential shares is priority during liquidation, but for most start ups in the event of insolvency, creditors will be lucky to get something back, much less a prefered shareholder.

But from experience, these exotic instruments seldom appeal to start ups as they are administratively cumbersome and often involve legal complications which nobody has money to hire the lawyers to sort out in the event of a dispute. My personal take is NEVER invest in a start up or small business as a passive shareholder, 99% chance tio makan.

[greypiggi]

Originally Posted by Unregistered

Covertible loans and preference shares work in theory, but in practice you would be laughed out of the room if you approach some small time businessman or entreprenuer with this kind of arrangement.

For the convertible loan approach to work, you have to accept a coupon substantially less than what a business can get from a SME loan from guys like Hong Leong, otherwise major shareholder will tell you to get lost. With the persistent low spreads in Singapore, you will ultimately end up with yields like 2%-3% which honestly speaking is as good as nothing in protecting capital, might as well go all in as common stock.

Preferential shares is just an open invitation to the major shareholder to try accounting tricks to whip saw yearly profits. The only recourse is to go for a cummulative arrangement which is unlikely to fly with a major shareholder. Again the dividend yields will have to be quite low in light of the very low interest rates from debt capital. The biggest draw of preferential shares is priority during liquidation, but for most start ups in the event of insolvency, creditors will be lucky to get something back, much less a prefered shareholder.

But from experience, these exotic instruments seldom appeal to start ups as they are administratively cumbersome and often involve legal complications which nobody has money to hire the lawyers to sort out in the event of a dispute. My personal take is NEVER invest in a start up or small business as a passive shareholder, 99% chance tio makan.

Hmm.. Agree that passive investing in small business is high risk but I would not say 99 tio makan as that is assuming almost all businessmen are unethical.

Also, it is not entirely true that coupons are low and that small businesses feel that convertible loans or preference shares are exotic. Depends on industry. I have invested close to 1m into technology startups and know many startups or series a companies who take investors on with shares/ convertibles coupled with tight shareholder agreements. Investors in other industries should use similar arrangements. Quantum raised ranges from 200k to 1m.

Finally coupons range from 5-8% usually in these deals. You must know that most sme can only borrow 50k to 100k from banks and these require personal guarantees from directors and are usually at 5-8 interest rate now. So considering the personal liability and the almost similar interest rate... Taking from angels make sense from their angle. Safer.

Finally legal fees are about 8-10k to do such agreements. So yes, the value has to be above 200k to be worth the cost. But once u have a template, it gets cheaper and easier for next investment.

But all things said, invest in the founder and the person. Sometimes we belong to the friends family and fools category. And invest small sums u can afford to lose totally as it is very high risk. But there are successes,,, my own passive investors put in 70k and got over 2+m back over the years.

I also have a curious question. It always puzzles me how those tiny SMEs can afford to hire even a handful of staff.

Suppose I hire 10 people and pay each an average of 2k per month. Salary costs alone will take up 20k! That means my gross profit before salary expenses has to be at least 30-40k?

It seems impossible to me to ever reach that stage.

[greypiggi]

Do the math. Of course its possible! For example a software company doing mobile apps or a small creative web design firm. 10 pax costing about 300k per year. Rent about 30k more. Add misc overheads of 1.3 times manpower and we are looking at 420k cost per year.

10 pax. 1 boss, 1 admin/accounts/payroll, 3 sales, 3 programmer, 1 project mgr, 1 designer. Boss double up as sales, admin, marketing all added together.

Each sales staff need to close about 200k project each year, or about 1-2 10-20k project per month. In reality, they probably do 70% of target the rest is closed by boss.

So if can make 500k sales per year, then can have a small 80k profit per annum. how did boss get to 10 pax? Prob the pm and/or the sales mgr is partner and smaller shareholder and they got that first project to get started and hired more organically from there.

The math can also work for f&b etc. It's a slow and long journey. For most such service firms, the key is to scale above 15 pax or above 1m service revenue. From there growth accelerates and usually u have been in it for over 3 years min. My 1st M revenue took 5 years, 2nd million took 2+ more years, 3rd 1 year, 4/5 and much more less than 1 yr. U get the idea.

[greypiggi]

Don't think like an individual. Think like a company. For a company the 30k per mth manpower cost is an investment and not a comsumption...