This article first appeared in The Edge Financial Daily on November 27, 2017

KUALA LUMPUR: A common issue many business owners face is where to look for the seed funds to start or grow their operations. So what’s the best way to do it? There’s no tidy, single answer actually.

From government grants to high-cost loans to “borrowing” from a college fund, The Edge Financial Daily learns how the remaining six of the top 16 nominees of this year’s EY Entrepreneur of the Year 2017 found the capital to strike out on their own and the advice they have for aspiring entrepreneurs.

Interestingly, the issue of corporate governance was also raised, which many said is a priority no matter a

company’s size as it helps ensure a company’s continued growth — though more guidance on compliance would be appreciated.

The Edge is the official media partner for the EY Entrepreneur Of The Year 2017.

Vinesh Sinha
General Manager and Founder of Fathopes Energy Sdn Bhd
Top nominee in the Emerging Entrepreneur category
Vinesh Sinha’s journey to become an entrepreneur started with a backyard project in his teens where he tried converting waste fuel into reusable fuel for his own diesel-fuelled car.

He learnt about biofuel and its uses right before being sent to pursue further studies at the London School of Commerce, the UK. But he was brimming with ideas about what he learnt and the 17-year-old soon found himself dropping out of college and taking RM180,000, the remainder of the money his parents sent for his university education, to invest in a small, old biowaste oil processing plant instead, where he had been volunteering to learn more about biofuel.

“They were upgrading, so I bought their old plant at a big discount. Then, I brought the parts and machinery back to Malaysia and went home myself, all this with my school fees that the university refunded me, without my parents knowing,” said Vinesh, who started his business in 2009.

But being “young and naive”, Vinesh didn’t realise he would need working capital when he came home. On realising no one would give him waste fuel for free, he went around trying to convince suppliers “to buy into my business model and give me 30-, 60-, 90-day credit”, he said.

He got his break when he convinced McDonald’s to let him convert their waste cooking oil into usable biofuel and send the biofuel back to their factory, with a RM300,000-a-month contract with MacFood Services (M) Sdn Bhd, which supplies food to all McDonald’s restaurants in Malaysia.

But another problem cropped up: Vinesh didn’t have the logistics strength to collect the oil himself from each restaurant. McDonald’s also doesn’t allow waste oil to go into their trucks because of food security. So, he installed a carrier in every MacFood truck to carry the waste oil from the outlets to the MacFood factory in Sunway, when the trucks returned after making the food delivery.

“Based on the principle of reverse logistics, and it being a lower carbon footprint solution, McDonald’s bought the idea. But we had to invest in the carriers. It gave them the confidence I have got vested interest, that I have got my skin in the game,” he said.

From there, Vinesh got a viable business model. “[And] once you have got a name like that on board, everybody else sits up and listens,” he said, as the company grew. Last year, FatHopes Energy clocked in a revenue of RM130 million.

Vinesh said he started looking at the issue of succession to ensure the company survives in the long run. Without having the parameters set, he said, companies are never going to be able to further scale its business.

“Governance should not be established to restrict; governance should be implemented to enable people to take calculated risk. To me, governance is a bit more reporting than it is standard procedures,” he added.

Sharala Axryd
Founder and Managing Director of The Center of Applied Data Science Sdn Bhd
Top nominee in the Woman Entrepreneur category
When Sharala Axryd first went into business in 2006 with UlearnTechnology, a telecommunication training company she started, she never considered the issue of funding, as she was relying on her credit cards to cover the company’s initial overheads, which were mainly travelling expenses.

But as the business grew and evolved into The Center of Applied Data Science Sdn Bhd — Asean’s first and only comprehensive data science training institution that integrates learning, networking and internship — she realised the importance of the issue as the lack of funds proved to be a setback for the business.

“Most books I’ve read, it was about using your own money or borrowing from family, and never [about going] to the bank. But when I really needed a big sum ... It hurt my business because I didn’t know how to go about it (getting funding).

“That’s when I realised that for small companies to grow big, you need to have bank guarantees. I was very naive not to realise that,” said Sharala. But to get those guarantees, she had to have credit history.

She related how she learnt the importance of having credit history when she took on a RM2 million project without thinking about how she would need to fund the initial investment of RM700,000. Like the owners of most small companies out there, she was all about getting the project first and figuring out how to deliver it later.

But no bank would give her a loan as she had no credit history. “My business was never on credit. I was proud of that but it ended up hurting me because banks don’t give you money if you don’t have a credit history. It (the project) hit us hard on cash flow,” she said.

She had to renegotiate the terms of payment and convince some key staff to take a pay cut for up to six months, while she herself took a one-year pay cut to complete the project.

Since then, Sharala, whose business has an annual turnover of RM20 million to RM25 million, has shied away from taking on projects that would require huge amounts of investment up front. She also said 50% of new businesses die the first five years due to such cash flow problems.

That’s why Sharala thinks one of the biggest and toughest lessons an entrepreneur should learn is financial management. “And if I were to write a book, I would write about something along the lines of ‘Take a RM5,000 loan, then you could show credit that you have been a good [borrower],” she quipped.

Besides that, she acknowledged that compliance with good corporate governance practices for small and medium enterprises (SMEs) has been increasingly talked about as a way to help them grow their business and attract talent. “But guidance is important. You can’t treat SMEs like how you treat big multinational corporations,” she added.

Christina Ng
Founder and CEO of Christy Ng Sdn Bhd
Top nominee in the Women Entrepreneur category
Founded just eight short years ago, Christy Ng Sdn Bhd had already passed the RM1 million revenue mark in 2015, while its founder, Christina Ng, has been touted as Malaysia’s next Jimmy Choo.

Selling some 1,000 pairs of shoes a month, with top-line growth doubling year-on-year since its inception, Ng said she first started the business using money saved from part-time waitressing jobs and the RM10,000 prize money she got from winning the fifth season of the Nescafe Kickstart competition.

She kept overhead low by selling her shoes online via a humble blog shop called Shoe Heaven, which she operated from her mother’s living room. From that small but ambitious beginning, Ng leveraged on the support of various organisations and government agencies to expand her business.

Ng said the business, which graduated to a full-fledged online store about three years later — ChristyNg.com — did not take any borrowings when it first started. “Now, we do have credit lines from banks, but we mostly rely on reinvestment of profits [for growth],” Ng said.

Now, the company also has three retail outlets under its belt, besides two dedicated department store counters for its brand of products.

Ng said she went on to use funds secured from competitions — such as the RM250,000 she won from the Alliance Bank SME BizSmart challenge in 2013 to fund the company’s 3D Shoe Design Engine, which allows her customers to create their dream shoes with over one million possible design combinations.

The company has also obtained the CIP500 commercialisation grant via the Cradle Investment Programme, which is run by Cradle Fund Sdn Bhd, a finance ministry subsidiary.

“There are actually many government-led initiatives that are funding options for small and medium enterprises (SMEs); they just have to go look for them,” advised Ng, a biotechnology graduate who quit a full-time job after two years with Swiss pharmaceutical company Novartis to chase her shoe design dreams.

But as her company grows, Ng said she struggles to understand corporate tax structures and administrative rules. Though she believes in the importance of corporate governance and prioritises compliance, she said founders of most SMEs only have each other to rely on for help in understanding the required or best practices.

“It’s like the blind leading the blind,” she said, adding that fast-growing companies are often unaware of different regulations that may govern them based on their size.

As such, Ng hopes there would be more support from the government to provide coaching and financial education to SME owners, especially when there are new taxes and laws introduced.

“The government should understand that we never studied to be entrepreneurs,” said Ng. She also hoped the government would provide start-ups some form of tax relief, especially if they have yet to secure a steady income stream.

Adrian Ng
Co-Founder and Group CEO of Mega Fortris (M) Sdn Bhd
Top nominee in the Master Entrepreneur category
The 1997 Asian Financial Crisis was a blow to companies both big and small, but it did not deter the then-fledgling Mega Fortris Sdn Bhd. Founded by Adrian Ng and his brother Nick just a year before the crisis escalated, the brothers forged ahead with the business despite the tight financial conditions.

“At the time, there wasn’t much potential in other businesses, so we went in and started trading [in security seals],” said Adrian. Prior to that, he spent three years with a company in a similar industry, which was where he built his contact base by becoming good friends with clients and suppliers.

“There were so many requests for me to continue in the business that I thought, ‘hmm, maybe it’s a good business to go into’,” Adrian shared how the idea for the business came to him.

However, the brothers struggled to come up with the initial capital for the business, and had to pay a high-cost minimal borrowings, like depositing RM100,000 with a local bank just to secure a RM30,000 loan.

“It was very, very tough. But looking back, I think that was a good training ground for us. If we had more money to start [with], things might have been very different,” Adrian said, adding that the lack of funds in the beginning forced the group to be very prudent in managing its accounts.

This prudence led the group to adopt the practice of not borrowing to expand, but to rely on reinvestment of profits instead to fund further capital expenditure. This, coupled with the founders’ business savviness, catapulted the group into the international market of the design and manufacturing of high-quality security seals, which it now supplies to about 80 countries, and is among the top five security solution manufacturers in the world.

Although 95% of the group’s revenue currently comes from overseas, primarily Europe and the US, Adrian admitted that it was not easy convincing their customers to allow for the words “Made in Malaysia” to be placed on their seals.

“Most of these companies are Western players and have been around for hundreds of years. To be able to put Malaysia on the radar — that is part of the satisfaction I get from doing this,” Adrian said.

Being an international player also means the company takes corporate governance very seriously as complying with different standards across different countries requires proper planning and diligence.

“We need to make sure the things we do can withstand scrutiny. If the company is rotten inside, it will never be sustainable,” Adrian said.

His stance on corporate governance is in line with the three pillars he believes are important for any entrepreneur: honesty, integrity, and humility. These are the principles that have helped him propel Mega Fortris to become a company with an annual turnover of RM140 million.

Noor Mohd Helmi Nong Hadzmi
Group CEO and Co-Founder of Ix Telecom Sdn Bhd
Top nominee in the Technology Entrepreneur category
Being an entrepreneur was a childhood dream for Noor Mohd Helmi Nong Hadzmi, but he spent the first six years of his career working for two other start-ups before striking out on his own.

The group chief executive officer and co-founder of IX Telecom Sdn Bhd said his experience as an employee taught him how the successful company was constructed from the ground up.

For example, Helmi was hired as part of AirAsia Bhd’s first batch in the network and communication team when Tan Sri Tony Fernandes bought it in 2001. This, he said, was the defining phase that gave him the confidence to start his own business.

With an initial capital of RM30,000 pooled from their savings, Helmi and some college friends from Multimedia University mustered up the courage to quit their respective jobs and establish IX Telecom.

“We have always been self-funded, even until now. We don’t come from rich families, so we try to be creative with managing our cash flow,” he said.

According to Helmi, this funding strategy taught him and his co-founders how to start a business from scratch. Helmi said that was what worked for them as they all had engineering backgrounds and treated the company as a trial-and-error project.

However, Helmi admitted that every mistake they made cost them a lot as they were using their own funds as capital. Even so, the team was willing to bear the losses for the sake of learning the ropes themselves.

“If we founded another company today, we believe we can definitely do it faster than we did with IX Telecom, now that we know which mistakes to avoid,” he joked.

IX Telecom is a “one-stop shop” offering ICT and telecommunication solutions for network service providers across 200 different countries. Helmi said the company adopted a virtual network operator model, which did not require a lot of capital to invest in physical infrastructure like traditional telcos.

Currently, the group has a total of 40 staff with presence in five countries, including Indonesia, Singapore, Hong Kong and the US.

“The good thing about a small company is that you can manage your people easily. There’s no bureaucracy here; I can remember all the names of my staff,” Helmi said.

Despite the relatively modest structure, corporate governance has been of utmost importance to Helmi from the get-go.

“We never cut corners in carrying out our processes. In order for us to become a global company supporting the big guys, the standard procedures that we have in the company have to be tip-top. So, even though we are a small company, we still treat it like a big company in terms of governance,” he added.

GH Tan
Managing Director of Alliance Contract Manufacturing Sdn Bhd
Top nominee in the Technology Entrepreneur category
GH Tan started Alliance Contract Manufacturing Sdn Bhd (ACM) in 1998, which specialises in the provision of turnkey manufacturing services for original equipment manufacturers by partnering Singapore-listed MMI Holdings Ltd. Tan held 20% of the business, while MMI had the remaining 80%.

“I was MD (managing director) of a company in Penang that MMI was looking to acquire, but felt it was too expensive. After the Penang company was sold to a US company instead, MMI and I inked a joint-venture agreement to set up ACM,” said Tan.

He dipped into his own savings to come up with RM100,000 for the company’s working capital, while MMI contributed RM400,000 to give ACM a total of RM500,000. The company’s strong business proposition soon saw it turn a profit in its second year of business, said Tan.

“After the initial period of doing cold calls and convincing our customers of our capability to deliver on our projects, they gave us their support. We became profitable in the second year of our operations after we secured a few manufacturing contracts from customers,” Tan said.

Soon after, Tan acquired another 25% of the company via performance incentives. Then in 2015, he secured a loan facility from the bank for up to RM75 million to buy out the remaining 55% stake in ACM from MMI.

His experience in business also taught him that corporate governance is one of the cornerstones of a successful business, more so if a company intends to grow. “Corporate governance rules are one of the most important considerations for a company, be it a start-up or a large business,” Tan shared.

He said putting in place firm corporate governance rules will help with transparency surrounding the handling of the company’s affairs and funds. This also helps if the company wants to go for a listing or merger or attract new investors.

“Good corporate governance values must be instilled from the beginning in order to ensure the creation of a professional team of employees that prioritises integrity,” he added.

He added that company culture is very important and that the management must prioritise a good working culture in order for the business to see significant and sustainable growth.

“If you do not have professional management and a proper corporate governance structure in place, you cannot grow your business,” Tan added.

He also said that businesses should not only aim to make profits, but should be a channel for social change as well, stressing the importance of partaking in corporate social responsibility (CSR) initiatives.

“I believe dedicating resources and time to CSR initiatives is also very important because we need to contribute to a positive social change as much as possible,” Tan said.