Entrepreneurs are not gamblers, believes Phillip Phan, management professor and vice dean, Carey Business School, Johns Hopkins University. Instead, entrepreneurs know when to take risks, whether to try again, or cut their losses and move on. Phan is also Tommie Goh visiting professor of entrepreneurship and business at the Lee Kong Chian School of Business, Singapore Management University (SMU).  He delivered a lecture at SMU recently about the essence of entrepreneurship, how to identify entrepreneurial opportunities, and the role of governments in supporting entrepreneurs.  

According to Phan, anyone has the potential to develop ideas. However, an entrepreneurial-minded person will go one step further to evaluate whether there is an economic opportunity in that idea.

“An entrepreneur knows he or she has to risk something in the process to determine if there is a market for that particular idea, be it for a product or a service,” he said. “But an entrepreneur is not a gambler. At the preliminary stage, the goal of an entrepreneur is not to bet the whole farm or risk everything on the idea. The goal should be to limit losses and maximise the human and financial capital utilisation so that the entrepreneur can recover quickly to fine-tune the idea or work on a new one.”

Adopting such a staggered approach to investment gives the entrepreneur the option to decide whether it is feasible to put in more money to bring an idea to fruition. “It creates time to find out if the idea has market value,” Phan explained.

“There are always opportunities for people who are entrepreneurial minded whatever the state of the economy. In my travels, I see entrepreneurial abilities at work in all kinds of economies, from emerging to developing and developed countries,” he said.

The Savvy Entrepreneur

Outlining the profile of a savvy entrepreneur, Phan said that such a person is able to work with short planning horizons and make judgment calls even where information is incomplete. A true entrepreneur realises the advantages of learning faster and reducing the cost of errors, and has a knack for making quick decisions on market positioning, market entry and market exit.

Entrepreneurial ideas are also context and time specific. “An idea for a product or service may have value in one market or may be valid for a period of time, but may not be in demand in another country or in another time frame. The goal of any entrepreneur is not to be first in the market, but to be in the market to create future options for himself or herself,” he said.

According to Phan, entrepreneurs have to deal with two main uncertainties, market and product acceptance. These translate into three possible options. The first is the ‘position option’ whereby the entrepreneur has to discover new markets for an existing product. The second is the ‘scouting option’ involving the development of new products for an existing market. The third is the ‘stepping stone option’ which requires investments for developing new product as well as markets, a more challenging proposition for entrepreneurs.  

“The bottom line for an entrepreneur is not to be a giant killer,” cautioned Phan. “Do not get involved in a product or service that puts you in competition with well established and big industry players. They have deep pockets.”

He recommended that entrepreneurs set milestones and hard targets such as financial hurdles to be overcome, operational goals, strategic milestones and capital expenditure limits. “You must have a game plan, but do break it into small chunks to reduce the risk for each stage. A good example can be seen in Taiwanese manufacturers who started by making low value and low cost computer components. They now account for 95% of motherboards globally.”

Using the analogy of an archer, Phan described a good entrepreneur as someone who has many arrows in his quiver, not just a single arrow, to increase his chances of hitting the target.

Government Support

On the question of governments and their role in fostering entrepreneurship,

Phan quoted data on the success rate of new businesses. “Most product introductions fail and most business plans raise no money,” he pointed out. “Eight or nine in ten projects funded by venture capital companies do not achieve targeted returns on investment.” Thus government assistance, in effect, subsidises risk taking by entrepreneurs, by providing the supportive institutional environment that is necessary to foster entrepreneurship in a country, he said.

Phan also observed that while the possibility of government subsidies does not figure in the plans of a committed entrepreneur, to some extent a subsidy could help undecided entrepreneurs move forward. On the other hand, entrepreneurs who learn faster from their failures are less likely to need subsidies compared with slower learners who may use more subsidies as they take several cracks at getting entrepreneurship right, he said. 

The bottom line, stressed Phan, is for entrepreneurs to give themselves sufficient time and opportunities to succeed. He cited the story of the Starbucks founder who showed his business plan to some 300 potential investors before he was able to raise the funding he needed. “Nobody understands why people will pay $5 for a cup of coffee, and I probably wouldn’t invest if I were approached,” Phan commented.

Comments from Panelists

Phan’s lecture was followed by a panel discussion on the pros and cons of government support for entrepreneurs. The panelists were Kim Faulkner, director and CEO of Activate and a board member of Spring Singapore; Gay Chee Cheong, board director of Hyflux Limited; Ong Peng Tsin, chairman, InfoComm Investment Pte Ltd; and Roland Ng, president and group CEO of Tat Hong Holdings Limited. The panel was chaired by finance professor Annie Koh, executive education dean at SMU.

 Tat Hong president and group CEO Roland Ng described his company’s 40-year history in Singapore. Since its establishment in the 1970s, Tat Hong had grown from a business dealing in used earth moving machinery to become the world’s no. 1 owner of a fleet of crawling cranes. “I don’t look at government programmes. To me, economic or financial crises actually offer the best opportunities to prepare for an upturn,” Ng said.

Gay Chee Cheong, board director of Hyflux Limited, compared entrepreneurs to musicians. “Many people take up piano lessons, but most will not advance to make a career of it and only the really passionate and gifted will make it to the top,” he said. “In my other business in the early nineties, we invested and made a loss in China for three years. We smelled the opportunity and built up our business through passion, adopting the mindset that we were are in it for the long haul. Hyflux is another example. The company stands out because does it better than the rest in the business of developing specialised filters,” he said.

Regarding the various support programmes offered by the government in Singapore, Gay commented that more information and simplified paperwork was  always advantageous for entrepreneurs.

Director and CEO of Activate, Kim Faulkner (previously chairman of Interbrand in southeast Asia and China), commented that resourcefulness is one hallmark of an entrepreneur “who looks for a window when a door is closed”. On the need for government programmes, he said, “For instance, when I was with the Action Community for Entrepreneurship, there were three issues highlighted. One was that businesses had to achieve a certain degree of success before government bodies are open to them. The other was the bureaucracy in government processes and systems as well as access to finance for small and medium enterprises. But all these have been subsequently addressed.”

Phan’s view was that, eventually, it is up to governments to decide on the balance needed in terms of providing the right environment to foster entrepreneurship, and in determining where and when to draw the line in their support for entrepreneurs. Overall, flexibility was key for entrepreneurs “building companies that last a long time, because skills and knowledge can be applied to capitalise on different opportunities,” he said.