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Vol 12 Number 1
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COVER STORY: Transplanting the Silicon Valley Experience to Singapore
A rare breed of Singaporean has managed to make it big in Silicon Valley. Besides high-profile Creative Technology, Interwoven Inc is one success story of which many people probably remain unaware. Peng T ONG, founder of the enterprise content-management provider in 1995, led it to a successful listing on NASDAQ four years later. The company value exceeds US$390 million in market capitalisation. Before Interwoven, Ong co-founded Electric Classified Inc, the creators of Match.com.

Answering the call of family, Ong returned to Singapore in 2000. Despite facing a dearth of local expertise in developing commercial software, he set up Encentuate, an enterprise-access security firm. Now headquartered in California, the start-up caters to customers in industries from healthcare, biotechnology, and government to financial services.

A board member of the Infocomm Development Authority of Singapore and the Action Committee for Entrepreneurship, Ong sees an urgent need for the country to create high value-add companies in the fast-moving global market. The founder and chair of Encentuate shares with INNOVATION's Lay Leng TAN his candid views on the challenges entrepreneurs face.

What convinced you of the potential of setting up Encentuate?

Ong: I look for what is ridiculous in the world -- you look at something and think, "This is stupid!" and then only consider the problems that will require some new and deep technology. In the case of Encentuate, ask yourself how many passwords and access codes for log-ins you have. We provide the answer with increased security, more convenience, and fuller tracking. The problem solver needs to have a clear grasp of what kind of technology you can build and why that technology differentiates the product.

What motivated your start-up after the dot.com bust?

Ong: 9/11 happened. I set up a security company in December 2001 because it made sense given the increased focus on all forms of security. Of course I already had the idea before then. I was thinking about building a software company, and the depressed market meant one could hire good people more easily.

What did you do to make products from the technology?
What is their uniqueness?

Ong: I don't just build technology; I build products, and the technology happens to be created as part of the products. We have seven pending patents covering our software. These patents provide greater defensibility against lawsuits.

A single sign-on (SSO), an authentication system, allows users to access multiple data sources via a single point of entry. When users log in to an application, our software remembers the passwords and other related access credentials so they don't have to input them again the next time they access the application. The technology to do this can be highly specialised. But ours is a more generic technology that can perform tasks other than just logging-in. It can get users to information faster, increase the security of the system, audit who gets in and out, and deal with compliance issues. So it becomes a much broader platform -- identity management and access automation at the end point, instead of just SSO.

Therein lies our strength. There are too many security point products today. When companies deploy different point products for different problems, they soon will be running hundreds of security solutions in their IT department.

We encourage our customers to think about their future needs -- stronger authentication, information access workflow, log-in audits, compliance enforcement and auditing, provision management... whole bunch of necessary functions for IT departments. With Encentuate's solution, an IT department can turn on the various functions as they realise the requirements in the future, without having to deploy yet another point product.

How does a new entrant compete in a crowded market?

Ong: The first thing you do when setting up a company is make sure you don't compete head-on with the big guys. Instead, you find a small corner for which customers need a solution and collaborate with the big guys. Of course, you must have some sense that the "small corner" has the potential to be a very significant market in the future.

You also make sure your solution works well and your targeted customers will buy it. When starting up, direct sales works best because it allows you to interact directly with your initial customers. However, direct sales does not scale as efficiently as selling through channels. So you want to piggyback on the big companies and other established resellers. Partners like IBM help us to scale.

How did you source for seed funding?

Ong: I seeded the company myself. Later, I attracted venture capitalists in Silicon Valley to invest. We are still open to future investment.

What challenges did you face and how did your experience help?

Ong: The major challenge is that Singapore does not have much software product development capability. Very few people here have actually built commercial products, so we have to train our engineers from scratch.

I am used to a faster-moving market and ramping up companies (as it was in the dot.com boom). When I began in 2002, the market was very slow so I had to plan for a slower ramp. My background helped because I knew what to do to build a company, but it also hindered because I was used to a faster pace.

What strategies ensure that the company will succeed and grow?

Ong: Raise lots of money. Customers, customers, customers. Culture. People. Innovation. The last two are especially important because they keep software companies competitive.

How do you develop innovative people?

Ong: You find smart people who can work with others. Pay them reasonably, engage their bodies, minds, and spirits, and give them room to grow.

Do you have a future plan or an exit strategy for your company?

Ong: You want to get to the break-even point as soon as possible so you don't have to worry about funds and other related challenges like fund raising. When you build a stand-alone company, all options open up: you can merge with other companies, you can keep ramping, and eventually go public. We'll keep within the domain of our expertise in security because it is a big market.

What prerequisites must an aspiring entrepreneur have?

Ong: Experience. You need to be exposed to the workings of global businesses. At the outset you have to think way beyond Singapore, and to do that, you need experience (someone else's, if not your own). Get a job that gives you a sense of how to build an international company.

What about the likes of Bill Gates and Steve Jobs who started as greenhorns?

Ong: It's not just Gates or Jobs; it's the people with whom they surround themselves. If you don't have the experience, you need to surround yourself with the experienced. You may have vision, but ultimately you need people who will make things happen. There are very few such individuals in Singapore who have had the experience of "making things happen" in the building of a global software company. It is a huge problem if you have no idea how to build a global company, and the people around you don't either. With trial and error, you might get lucky. To be surer, go get the experience. If you have fantastic technology, find someone who has the knowledge to help you market it -- all the great companies, Google, Yahoo!, eBay, etc. have numerous executives with rich global experience as they were starting out, even if their founders didn't.

How successful do you see Singapore in its entrepreneurship push?

Ong: Singapore is one of the easiest places to start a company. The problem does not arise from the infrastructure, hardware, rules, or regulations, but in the cultural and experience base of the population. In 2000, Israel with a population of 6 million had 144 companies listed on NASDAQ. Singapore had a population of 4 million with 7 companies listed. If you study this issue, you will realise that Singapore is not the exception, Israel is. What is so distinctive about Israel that allows it to do this?

Asians all over the world generally are entrepreneurial and experience success in business. So are immigrants. How did Singapore manage to train that entrepreneurial drive out of its Asian immigrant population? I think the answer lies partly in regimentation. Singapore originally needed it, and we emulated the Japanese closely. The regimentation allowed us to produce very high quality goods and services, making us one of the fastest growing countries in the history of our planet in terms of gross domestic product (GDP) per capita. Our GDP goes up because we have managed to attract investments into higher and higher end activities -- but we lose jobs in manufacturing simply because we are not the cheapest place for production. The more successful we are, the more lower-end jobs we will lose.

We don't have sufficient numbers of accomplished people in post-industrial, high-margin businesses. I think Singaporeans are, at the heart, entrepreneurial; so if cultural roadblocks open up, it will happen. The trick is to realise you have to change, and then change.

We should also get more entrepreneurs to be based in Singapore to stimulate the entrepreneurial attitudes in our people. Education helps the mindset to be pro-entrepreneurial, but it takes role models and experienced hands as well. Silicon Valley's success derives from immigrants. One-third of its founders are Asians even though only 3-5% of the US population have Asian origins.

If you have a child that will be looking for his or her first job in 15 years' time, and if you are fortunate enough to have a child who wants to shake up the world, will he or she be able to shake up the world from Singapore? I hope in 15 years, there will be lots of areas in which you could answer "yes." It is a Catch-22 situation: if you don't have the opportunities here, the world-class professionals will not congregate here; if the world-class communities are not here, there will not be opportunities available. A not-very-pleasant future scenario is if our youths who want to live the easy life stay, but those who want to make a difference in the world have to go elsewhere to realise their dreams.

What measures can the government and industry adopt to spur entrepreneurship further?

Ong: Singaporeans interested in building a significant software company should go to Silicon Valley, even though they may eventually end up in China or India. A growing trend in the Valley is for companies to push their operations, other than sales and marketing, into Asia. China and India offer a greater pool of engineering talent and lower cost in creating intellectual property (IP), software, and technologies than most other places in the world. Singapore has to leverage its legal and physical infrastructure to be in the running as an alternative. We actually do have sufficient advantages to be worth consideration as a centre for software development -- Encentuate, for one, is doing product engineering in Singapore -- but we have not sufficiently marketed Singapore to the Valley.

I am trying to get the Infocomm Development Authority of Singapore to convince some of these Silicon Valley companies to locate their engineering in Singapore. During the last four to five years after the dot.com bust, the Valley has been pushing their engineering centres into India, China, and Eastern Europe. Now Estonia is the software hub of the world thanks to Skype. We need that here.

I worry that Singapore does not understand how fast the high-tech, high-IP world moves. Government incentives make it attractive to do business here but that is not the whole story. Grants that require a lot of internal administration and reporting push resource allocation in start-ups in incorrect ways for growing long-term businesses. But short-term grants do help initially to bootstrap businesses. We should cut the red tape currently required for grants. Maybe 5% more applicants will cheat, but the nation will reap more returns in the end. We have to lose the kiasu (scared-to-lose) attitude.

Some government officials understand and share my perspective, which is a good sign. But we could do with a greater sense of urgency and act faster. One problem in our lack of focus on future wealth-creation businesses might be structural. The Ministry of Trade and Industry serves as the primary economic agency now (with a focus on the traditional manufacturing and services sectors), but if you look at the next generation of wealth creation -- IP, software, media, design -- these sectors actually lie with the Ministry of Information, Communication and the Arts (MICA), more traditionally a regulatory and social agency. A good sign is that MICA has recently been on a mission to promote the nonmanufacturing, high-margins businesses.

The easiest way to measure wealth creation is gross margin. When we took a sample group of top Singapore IT companies, their average gross margin was around 25% -- in sharp contrast to a group of top US firms' (including Yahoo! and Microsoft) of around 75%. People pay a lot more for IP.

Software, music, video, and so on are high gross-margin products. A S$15 CD probably costs only 50 cents to make. Biotech has a high margin only if you're making drugs or medical equipment, but profits for pure manufacturing are lower. Chip-design companies are no longer hardware companies because the margins are much higher if you're just selling the raw IP of the designs.

If we don't increase the number of high gross-margin businesses, we are going to end up sidelined economically because we will not have something compelling to offer the world. It will become a negative spiral. If we do it right, 15 years from now, our kids will be able to "shake up the world" from Singapore.

A further reason for the focus on the wealth-creation businesses is that companies are much less "sticky" than people. When I talk to multinational corporation managers and ask them why they are in Singapore, I get lots of good economic reasons... which is great for Singapore. But when I talk to Singaporean business people, the answers are less economically-based -- "I live here" is a typical answer. As companies leave Singapore because economic reasons to be here change, it becomes clearer we need to have more businesses that are anchored in Singapore because "I live here."

My definition of success for Singapore is not merely whether we can provide a reasonable living wage -- for the majority of us, we have or soon will pass that stage. We have to look further up the Maslovian hierarchy. We have to be sufficiently central on the world stage so that our people, living in Singapore, have the opportunity to be movers and shakers.

If you have talent, you can go anywhere. If Singapore does not provide a place that is attractive enough for global players (including our own global players), we will be less relevant before too long. But I am hopeful. The energy our nation has shown in overcoming obstacles in the last 40 years in building a place for doing business can be channelled to building a place for creating high-value businesses.

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