Uncategorized

UBER & TRIPID Comply with LTFRB Rules for Ride Sharing Apps

In a bid to avoid an all out war with regulators, ride sharing startups Uber and Tripid have decided to simply comply with the new rules released by the Land Transportation Franchising and Regulatory Board (LTFRB).

The main provision of the new ruling requires all ride sharing apps to prominently display the LTFRB hotline in “every single web page or app page” of the services.

“This is so we can protect the consumer,” says LTFRB chief Jhon Mhichael Luddite. “We invited the Uber and Tripid heads to a very private hearing and though I was impressed with these fine gentlemen, I have to protect the welfare of ordinary Filipinos. I assure the public that no cash or Uber credits were exchanged in these private hearings”

 

This is satire. Don't know what that means? Google it.

This is satire. Don’t know what that means? Google it.

 

Other rules require Tripid and Uber to use  “predominantly white and white-ish colors” on all their web pages. “This is because our taxis are white, diba? So as not to confuse the consumer, all these apps must be white too,” Luddite added.

Uber and Tripid representatives have declined to comment on this story.

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AVA, New Products, Philippines, Startups

How to Export Philippine Design

This is part 1 of a 3-part series on how we can grow Philippine design exports. 

Philippine design has a compelling story. How do we share it?

Philippine design has a compelling story. How do we share it?

For the past three years, our company, AVA Online Group, has traversed two worlds: design and technology. I say ‘worlds’ because the people living in them rarely interact with those on the other side.

Put a software developer and a fashion designer in a room together – and I’ve ran several meetings like this – and you’ll see confused looks from the designer when words like APIs, MVPs and javascript are thrown around. The same is true for the developer, courtesy of terms like spec sheets, wovens, knits, or artisanship.

This is, of course, perfectly normal. People default to their comfort zones. But unfortunately, we can no longer be perfectly normal nor confine ourselves to the familiar.

What if merging both worlds holds the key to bringing Philippine design to the world? And what if commerce can bring a revenue model for local tech startups?

What if design and technology spoke to each other? 

We’ll get to this later. By now, you probably have a clue where I’m going: the humble thesis that technology holds the key to exporting Philippine design.

Let’s look at the size of the problem. Any well-informed entrepreneur will observe three things when it comes to our exports.

The first is how small our exports are. This is a crucial point to make because although our domestic economy is growing, no Asian economy has industrialized without a strong export base.

The second is how small our design exports are. This includes categories like apparel, accessories, jewelry, home decor, and furniture. For instance, Philippine exports of apparel and fabric-related are a fraction of those of Vietnam and Indonesia.

The third is that garments are a major export next to electrical components and semi-conductors. Yet, Philippine garment exports have declined by 25%: from $2 billion in 2006 down to $1.5 billion in 2011, driven by smaller orders from big brands and retailers reeling from the global financial crisis (which by the way also fueled the flash sales boom heralded by Gilt and Fab.com).

The good news is that design exports are growing, with furniture (35% vs year ago), fashion accessories (29% VYA) and garments (9% VYA) all making impressive gains in 2013.

So in short, this is a big problem, one that represents an enormous economic opportunity of national importance, and we some momentum on our side.

Kenneth Cobonpue's website is one of the most well-designed sites among local exporters

Kenneth Cobonpue’s website is one of the most well-designed sites among local exporters

The Two Towers

So what’s currently being done? To answer this question, one needs to understand two things that drive the business of local exporters: the trade show and contract manufacturing.

When it comes to trade shows, the first thing that comes to mind is Manila FAME. Twice a year, Philippine design converges at the SMX Convention center for a week-long event to showcase local talent.

The organizers led by CITEM executive director Rosvi Gaetos have done a fantastic job in bringing together designers and manufacturers from all over the country. But admittedly, we’re still a long way from reclaiming the glory years. “Spot sales used to reach as much as $150 million per show until China entered the scene as a major player in the world market,” said an Inquirer report based on remarks from the CITEM director. Last October’s FAME only generated $20m in spot sales.

For decades, Philippine design products have relied on trade shows here and abroad to attract international buyers. The formula is simple. Rent a huge space. Attract exhibitors to set up shop. Ask exhibitors to invest a lot in visual merchandising, sampling and marketing collateral. Hope for the best.

For manufacturers lucky enough to have built a following among international buyers over the decades, getting traction is expected. But unfortunately for most mid-sized and newer companies, local trade show traffic still pales in comparison to those in Singapore, Hong Kong, Paris and Last Vegas. The trade show is a 20th century solution in a 21st century world.

Meanwhile, a vast majority of our garments exports are unbranded. An American brand or retailer comes to the Philippines to source for merchandise several months in advance. The buyer and manufacturer agree on FOB pricing, quantity and delivery terms. The manufacturer produces the goods, ships them out and gets paid, less any defects.

Contract manufacturing is a tough business. You need scale. Scale requires fixed costs, yet orders are not guaranteed every year. You’re dependent on fluctuating material costs. And you’re competing against China, Vietnam, and Indonesia, markets that enjoy some level of government subsidy. Worse, the bulk of the margin accrues to the brand or the retailer. Contract manufacturing is clearly not viable as a long term solution.

But if you go to Manila FAME, you’ll see that there is no reason why our design products can’t compete on the global stage. Philippine design is unique, and we’ve obviously had plenty examples of magazines, celebrities, and TV shows picking up local designers. Yes, it’s still a challenge to manufacture at scale, especially if you’re an independent designer or new label, but by-and-large, the product side is okay.

The problem is the demand-side.  Trade shows obviously fail to reach broader American and European audiences. And if they do, contract manufacturers leave out the Philippine story and our products are marketed as a handbag from Kate Spade or Coach, not Aranaz.

Hence the question is, “How do we generate demand for Philippine design?” 

To significantly grow exports, we can’t rely on business-as-usual. And I’m quite sure fashion designers will need to start working closely with computer engineers. And content marketers. And logistics specialists. And channel development managers. In short, design, technology and business must work together.

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Uncategorized

The Pitch that Made me Unbelievably Rich

AVA Pitch Deck

Fancy pitch deck

What’s this?”, she asked as we pulled up by her driveway after a night out.

The stack of paper was right by the passenger seat.  The cover indicated that it’s a business plan for an e-commerce startup.

Oh, it’s just a run-of-the-mill pitch deck. For the new startup I was telling you about. You know, the Gilt-for-the-Philippines idea,” I replied. “Want to check it out?

It was the first quarter of 2011, and I was building two important things: a startup and a relationship.

A few months after we met, I knew  we had the proverbial “product-market fit”. This MVP was gonna be far from minimum. And I’m not talking about the startup.

She and I:

  • share the same values, anchored around a strong desire to find meaningful work and an intrinsic need to make a difference
  • experienced our fair share of professional and personal struggles
  • enjoy learning so much from each other
  • are very rational in our approach to life, problems, and work,
  • are actually quite weird – weirdness which is often too much for public consumption

So how does one a impress a girl who is highly intelligent, self-aware, analytical and data-driven?

With a pitch deck, of course.

Sure,” she says. “I actually want to see how a business plan looks like.”  It was, after all, very new to her. She’s been in the corporate world for just a few months.

We sat in the dining room. I saw her eyes glow when she saw  the charts, mixed with an instantaneous look of confusion and delight on her face when she realized that the deck wasn’t about the startup.

It was about us. And this is the true story of how I got the woman who eventually became my partner to say yes – using powerpoint slides. (spoiler alert: cheesiness ahead. Get out now)

I started with a broad view of the “market”. She quickly leaned over the desk, looking at each single detail, mentally verifying the implicit claims of which attributes were ‘hers’, ‘his’, and ‘ours’. (Some personal details blotted out for this post, naturally)

Slide03

Of course, it wasn’t just enough to prove there was an intersection. I needed to show that the intersection was optimal.

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To prove that I wasn’t just pulling her leg, I needed to show that my sample size was sufficient to make the conclusion that she is awesome. (Her real name masked with the alias ‘My Dream Chihuahua’).

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Of course, I needed to sell my product attributes to the customer, and made the case that these were attributes she valued. (Looking back, I’m not so sure about the rating on the ‘Needs to Grow Up’ metric, but hey, what the hell.)

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But I needed to be transparent on the downside. Given her three characteristics, there is empirical evidence that I am indeed an asshole.

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I wanted to show that despite the short time we knew each other, quantity was not a driver of the quality of our interactions.

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Like any good pitch deck, this one needed forward looking statements.

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And finally, the customer value proposition + call to action.

Slide11

95% of women would likely give me a confused or disgusted look for pulling this off (“How unromantic!”). After all, the 95% probably prefer roses to R-squared’s. But hey, it worked. And maybe that’s what sets her apart.

So why am I sharing this? Because I’m proud to say that no deal, pitch deck, or investment offering can ever make me as rich as this one did. And I hope you find that one pitch to rule them all too.

Happy Valent…. ah hell, enough with the romance. Back to work. To erase the cheesiness from memory: just read this.

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Entrepreneurship, Founders, Philippines, Startups, Uncategorized

Top 10 People to Meet in the Philippines Startup Scene in 2014

On a Sunday morning in early January, I got a text from Manila Angels‘ Christian Besler. Nope, it wasn’t a drunk message sent at 3am. It was about grabbing coffee at the Pen with two Bay Area executives vacationing in Manila. Both got a hold of Christian via Twitter.

"Dirty Kitty" is a fixture at the parking lot of the Peninsula Hotel, a centrally-located meeting spot for intros and deals

“Dirty Kitty” is a fixture at the parking lot of the Peninsula Hotel, a centrally-located meeting spot for intros and deals

Despite the booming local scene, there’ still a lot information asymmetry between what’s going on-the-ground, and what entrepreneurs and investors from Silicon Valley know. After all, the Philippines really isn’t a mainstay on Techcrunch or Mashable. When I met a partner from Kleiner Perkins, her first question was “What’s going on out there? I’ve never visited, but all the social networking and digital media startups we’ve looked at always gets a ton of traffic from the Philippines.”

The country’s startup scene has generous servings of good news: 7.2% GDP growth, double digit internet + mobile user growth, investment grade ratings, and growing cohort of tech entrepreneurs.

So how do we bridge the gap? In a lunch forum hosted by the Harvard Business School Club, Sheila Lirio Marcelo, the Filipino founder of recently IPOed Care.com (which popped 43% on its first day), mentioned that the key is always through PEOPLE.

The goal is to make Manila a social hub for tech startups in the region – an alternative launchpad into Southeast Asia vs expensive, big brother, and tiny Singapore.

So…. for investors and founders who are likely to first discover the Philippines as a.) tourists, and b.) as relatives (a Filipino spouse or in-law), we’d like you to stay a few days, fall in love with the country, and in the process, also discover the vast potential of its nascent innovation economy.

The goal of this post is to make it easy for you to get seamlessly plugged-in into the local scene. So, on this Sunday afternoon, I sat down for 20 minutes and scribbled the top 10 people you should meet based on:

  • Execution: A track record of getting things done. No talking heads on this list!
  • Immersed in the local community: Understands local dynamics and gives back through their time and resources
  • Well-connected: Has a quality network across different stacks.
  • Accessible: Responsive, and generous with their time

There are players, of course, like ICCP Ventures, but none of them have demonstrated serious interest in high-risk, early-stage startups and preferred to stick with more mature plays. There are a ton of successful entrepreneurs, of course, more than this list can handle, but 99% of them are either focused on brick-and-mortar or may not be as accessible.

So if you’re new to the scene, these are the top 10 people to meet in the Philippines tech scene, in alphabetical order:

1. Amazon Web Services: The ASEAN team led by Anne Salada-Chauffaille and Franco Eisma has been quite active in evangelizing across the technology spectrum, providing not just cloud computing infrastructure but educational events for local conglomerates and seed-funded startups. Check out the next AWSome Day this February.

2. Ayannah: Mikko Perez and Dicky Alikpala. Ayannah is a digital platform play focusing on the unbanked in emerging markets. Mikko and Dicky are the funniest couple-preneur in the country. They’ll probably kill me for saying that. But I’m sure they secretly enjoy it. Times with these guys are never boring. Lose the serious face and prepare for a one-hour meeting to turn into a four-hour laugh fest.

3. Hatchd: Manny Ayala & Nix Nolledo. Hatchd is a startup studio that builds companies “from ideation to operation.” Its portfolio includes Rappler, the leading social news network in the country, and Purple Click, a digital advertising firm. (Disclosure: Hatchd is an investor in my company). Manny is an experienced media and tech executive, while Nix founded Xurpas, a leading mobile content provider. Both are pretty active in Entrepreneurs’ Organization.

4. Ideaspace: Earl Valencia. The incubator of the Metro-Pacific / PLDT Group is led by former Silicon Valley executive Earl Valencia and has invested in a number of small, mostly pre-revenue ventures. Shucks, you just missed the application for the 2014 cohort so stay tuned for the next one.

5. Kickstart Ventures: Minette Navarrete. Structured as a 100% subsidiary of Globe Telecom, Kickstart is a seed capital fund that “enables startups to achieve a faster launch and a better business trajectory through a combination of funding, infrastructure and facilities, mentoring, and market access.” Though launched less than two years ago, Kickstart now has the biggest portfolio (close to 20?) among local startup investors.  Minette and her team are experienced investors, operators and community builders, and are plugged in to the broader Singtel Regional Seed Network. (Disclosure: Kickstart is the lead investor in my company)

6. Manila Angels: Christian Besler & Paul Rivera. Launched just this January, the country’s first angel network now boasts of close to 50 angels and is currently screening its first cohort of 25 pitches. If you’re popping by Kickstart, make sure to check in with Christian (who is also VP Community at Kickstart) and Paul (Co-founder of Y-Combinator backed Kalibrr), whose company is co-located at Kickstart HQ. .

7. New Leaf Ventures: David Bonifacio. NLV regularly hosts Better Business Brunches in the Bonifacio Global City and is positioning itself as a hub for B2B investments and technologies. David is an energetic entrepreneur and storyteller who handles multiple roles for CBTL Holdings – the local franchise owner of the Coffee Bean and Tea Leaf. And no, BGC wasn’t named after him.

8. PhilDev:  Phildev is a foundation of US-based Filipinos who are passionate about creating linkages between local entrepreneurs and the world. Chaired by Tallwood’s Dado Banatao, some of its trustees include Eric Manlunas of Siemer Ventures (who has invested in a few local companies) and Sheila Lirio Marcelo.

9. SGV: Winston Chan. Winnie runs the advisory group for SGV, the country’s largest professional services firm. Winnie’s been key to helping several multinational clients establish BPO operations in the country. There are valuable synergies between tech startups in the BPO space – from US-based companies setting up outsourced operations (TripAdvisor, Amazon, etc) to well-funded startups staffed with local, talented engineers (Bright.com, Lenddo, etc) to startups focusing on BPO clients (Kalibrr).

10. Sulit.com.ph: RJ & Ariane David. The biggest classifieds player is run by the friendly husband+wife team of RJ and Ariane. RJ’s a wonderful supporter and mentor to younger founders throughout the country, and maintains a regular presence in local entrepreneurship and tech conferences. Make sure you’re updated with your gadgets and gaming news for a fun chat.

The good news with these groups? Eight are mainly present in the Makati-Fort Innovation Strip. Ayannah and Sulit.com.ph are pretty close by in the Ortigas district – a quick twenty minute drive from Makati.

Who else should be on this list? Which events should visiting founders look out for? Let me know below.

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Uncategorized

Mayor Binay’s Official Statement

MayorBinayOfficialStatement

Photo from Inquirer.net

Junjun Binay is slumped over his desk. Reading article after article that came out once the Inquirer’s explosive headline hit the internet. His aides surround him, encouraging him to fight, throwing him their “support” (whatever that means). Like most Filipino leadership teams, they are Yes-Men all the way.  Loyalty and harmony are valued over candid opinions and intense debates.  

I’ve met Junjun a few times – in our barangay, and in our Rotary meetings, where he would give his annual State of Makati presentation. He never personally struck me as arrogant. Aloof, perhaps. Tentative at times, maybe. But when asked pointed questions about  public policy, he seems familiar with the challenges facing the city.

Assuming I was in city hall and if I were asked to help respond to this quagmire, here’s what I would do.

“Junjun, we gotta get out there. This is gonna be a bloodbath,” I say.

“But I didn’t do anything wrong,” he replies, his faced mixed with fear, confusion and anger.

“Sir, with all due respect, it doesn’t fucking matter now. Malacanang’s political engine is gonna hang you for this. There are talks that they’re gonna send Mar over. They’re gonna use this to deflect attention from Tacloban. The last thing we need is Mar swinging around his cock in city hall. If he does try that, we gotta make sure public opinion is on our side. And that people will see it as Noynoy firing the opening salvo for 2016.”

He looks surprised. “We have the support of Makati residents.”

“This isn’t about Makati. They’ll blow this into a Binay thing. Your dad will be hanged. Your sisters will be hanged,” I reply.

“Ok, what do we do?”

“You say sorry. You put your face out there. Take Joey Salgado off the game. Stop making Nancy issue statements on your behalf. At this point, you should be doing the talking. And we should be doing it fast. We issue as statement in the next hour.”

“WTF? Why would I do that? It’s like I admitted that I was wrong,” he looks pissed now. But inside, he feels the urgency.

“It doesn’t matter. Everyone already wants to chop your balls off. Your back is against the wall, with the knife near your pants. You’re pleading to their sense of decency. You’re pleading for sympathy. Look, if Clinton got away after that intern fling and came out the bigger man – no pun intended, Jun – then you can too. But you gotta man up.”

“Okay, so what do I say?”

“I’ve written the speech. Here’s what it looks like”:

“Thank you for giving me this chance to speak my mind. I can feel the immense anger directed against me. And I know that what I say right now will unlikely change your mind. But I owe it to everyone to respond.

So I’ll make this quick. I’m only going to say three things:  

The first is that I am deeply sorry. I’m first and foremost sorry to Sirs Vergilio, Dionisio, Jofl, and Elpidio for getting them involved in this. You gentlemen were simply doing your jobs, and you don’t deserve to be caught in the middle of city hall and your village association for a personal mistake I made. It shouldn’t be your agency apologizing. It should be me. 

To my constituents, please accept my deepest apologies. It doesn’t matter whether I explain in detail what exactly happened that night. What matters is the way  my behavior will be judged. And upon deeper self-reflection, I could have definitely handled things better. This is what I should have done: I should have just instructed my convoy to turn back. I shouldn’t have alighted the vehicle and made a fuss about it. Perhaps that added to the agitation of my staff, who understandably just wanted to do their jobs. I should’ve just let it go. My time as your servant is worth more than a protracted spat about a random gate. 

The second is that I understand. I understand how this looks like from your point of view. I understand that despite whatever I say, this will be seen as an example of me abusing my position and throwing my weight around. I understand that just by watching the video, one may conclude that my party harassed and intimidated the village guards. I understand that by bringing in the Makati police and asking the village guards to go to city hall, one may argue that I’ve curtailed their rights for no apparent reason. 

I understand that in light of the insane politics of this country, the intense scrutiny of public officials, the public disillusionment, and the dying trust in government officials, I should have acted with more prudence, more caution, and more reflection. I should have made a stronger effort to be more self-aware on how my actions as a leader will be perceived. 

The third is that this experience taught me how much more I have to learn. This is my first term as mayor. And I admit, gaining experience is still something I work on everyday. I realize that the root cause of my unwise behavior is my own hubris. 

In my genuine desire to project an image of maturity, strength and experience, I end up being overly-aggressive and wanting to unnecessarily prove myself.

I’ve come to conclude that the best way to fight the hubris is to be constantly in touch with reality – with the people on the ground. When I lost my wife, I lost my moral compass. 

So this is what I’m going to do: I’m going to surround myself more often with people from diverse parts of our city. Life in Makati can be a bubble. Makati isn’t Ayala Avenue. Makati isn’t City Hall. Makati is where almost 1 million people work to build a better life. Makati is the saleslady in SM wondering if her 6-month contract will be extended. Makati is the MAPSA traffic enforcer working under the noontime sun. Makati is the customer service specialist who, at 2am, is making sure her client in New York gets her flight tickets on time. Makati is the entrepreneur working out of an incubator in 55 Paseo de Roxas, quietly building innovative products for the world.  

Makati is the shining example of what the rest of the Philippines can be. And I have an immense responsibility to learn from my mistakes and be the best leader that i can be. This is my promise to you. 

Thank you very much.”

———–

The goal is to ensure that Junjun comes out of this a better man. And be perceived by people as the better man. One should also note what this hypothetical response does NOT communicate:

  • It doesn’t disparage the Inquirer report. People are smart enough to know that media distorts as much as politicians do.
  • It doesn’t mention the VP. The message has nothing to do with the family. This was a lapse in personal judgement, and that keeping away the family is what’s best for everyone.
  • It doesn’t seek to antagonize DVA or its residents.

It’s Christmas. People just want to forget about politics and enjoy the break. People are more open to forgive. If Junjun’s communications team were smart, they’d do this. At this point, a disarming, unexpectedly sincere apology – a rarity in this government – may just stem the tide.

I’ve been a jerk to guards before. Sometimes we just get trapped by our own egos. But I’m lucky to have honest friends who cared about me and spoke up about my condescension. Junjun needs honest friends too.

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Uncategorized

The Single Most Terrifying Thing Facing Philippine Startups

Image representing Mark Zuckerberg as depicted...

Billionaire, Rebel, Philanthropist. Also very Lucky. Image via CrunchBase

Technology’s been sold as the great equalizer. Investing in the innovation economy, it’s been argued, helps emerging markets leapfrog the rest, increase GDP and per capita income, and make everyone better off. With technology, we can go from rags to riches.

Certainly, there’s been tons of great news about the Philippine startup scene – a leading seed fund, new cohorts in an incubator, digital media innovation, and bigger funding rounds. More people are interested to become founders. More schools are supporting startups. The future looks bright.

But after reading, Nick Bilton’s Hatching Twitter and Ben Mezrich’s Accidental Billionaires, one starts to make these observations:

Mark Zuckerberg came from a well-off family, went to Exeter, had access to computers at a young age, and even had a software developer as a private tutor  at home. He built a private network between their house and his dad’s dental office. In high school, he built a machine learning music player that Microsoft wanted to buy, which Mark turned down to go to Harvard.

Ev Williams started Twitter when he was already rich. Flushed with cash from Google’s acquisition of his previous startup, Blogger, Ev had the resources to co-found Odea with Noah Glass. Odeo was mostly funded by Ev, and the financial resources along with Ev’s reputation, allowed it to hire talented engineers, which eventually included Jack Dorsey, Twitter’s co-founder. Everyone knows that Twitter was originally a side project, when Odeo’s original product – a podcasting platform – faced competitive pressure from Apple when it placed podcasts in iTunes.

Snapchat’s Evan Spiegel grew up wealthy and privileged. His father is a partner at a prestigious law firm. His mother is the youngest woman to graduate from Harvard Law. They live in a $4.6 million home in LA’s Pacific Palisades. At 17, he pleaded his father to give him a BMW535i.

Instagram’s Kevin Systrom went to a private boarding school before attending Stanford.

Even Bill Gates famously honed his programming skills for years at his private high school and eventually at Harvard, both of which had mainframe computers that most schools in America didn’t have at the time.

By now, you can probably see where I’m going. The founders of global technology companies had built-in, unfair advantages.  They had privileged access. Of course, one cannot discount innate talent, and a bit of rebelliousness. But to deny the role of the genetic lottery, social class, the environment, and a privileged access to financial and technological resources is not a tenable argument. Perhaps up to 80% of success are driven by things we can’t control.

And that’s the most terrifying thing about Philippine startups: no matter how bright the future seems, we will likely remain a laggard as the West continues to build on existing technological advantages. And that’s a tragedy, because I believe the innovation economy – beyond sloganeering on tourism, BPOs, and remittances and along with its prerequisite institutional reform –  is perhaps the single most important driver in improving Filipino lives.

Democratizing access to the ingredients of a scalable tech business – devices, software, cheap internet, computer literacy, coding education – will be biggest driver of this innovation economy. They are the ingredients people need to stir the pot.

There’s evidence to suggest that the access gap is widening. Consider this: America continues to invest in computer education. Harvard’s CS50 is now free for all to take. And so are tons of software development courses on CodeAcademy, Udemy and Coursera. Innovation programs such as General Assembly, Startup Intistutue and Launch have expanded rapidly. Wealthy American entrepreneurs are cycling money back at an unprecedented scale to fund education, internet access, and startups (how about the local tycoons?).

But we can do something. If a homeless man can learn to code and build app, our possibilities are not limited by our existing environmental constraints. What can we do?

First, DepEd can massively require not just computer literacy but basic coding across public schools, starting perhaps at Grade 3. Create a PPP to significantly subsidize the cost of devices, funded perhaps by an ad-driven revenue model. In the collegiate level, it’s time to make technology related courses as popular as business, nursing or HRM.

Second, we can drive knowledge transfer by making it easier for expat founders to establish startups here. Sheila Marcelo is the Filipino founder of Boston-based Care.com, and she had an excellent idea: make foreign entrepreneurs and investors fall in love with the Philippines on a personal level. Start with those with a Philippine connection – someone who has a spouse or relative, a Filipina nanny, or spent time here volunteering. Establish a regular, APEC-like forum that not only invites them to pursue business opportunities here, but also carves significant to allow them to experience the beauty of the Philippines outside the capital.  Let our hospitality take over. We can’t compete with Indonesia with huge macro numbers (population, internet users, etc), but we can compete for hearts and minds.

Third, we can build on existing efforts. The good news is that some people are getting stuff done. La Salle has Animo Labs, and Xavier has XS Next Lab. At our company, we try to close the gap in small ways – with education and continuous learning in mind. For example, one merchandiser attended an introductory class on cloud computing. Kickstart Ventures, meanwhile, regularly hosts workshops on lean startups and innovation. The Amazon Web Services team in Singapore has been very generous in sharing their stuff locally too.

It’s rightly justified to focus on education – create the infrastructure and get out of the way. The rebels will naturally emerge and build amazing products. We’ll have our own local version of  The Hacker Way. Maybe #StartupPH can call it… the PHacker Way. Whoaaaaah. Wait! That sounded really really bad when you say it out loud. But hey, it might just get people excited enough.

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Philippines

I Can Buy You, You, and This Economic Bubble

Actress Anne Curtis

“Bubbly” (Photo credit: Wikipedia)

As Ms Curtis’ hand was making its way through three cheeks last week, Forbes columnist Jesse Colombo succeeded in getting everyone’s attention with a piece on how we’re all smoking mushrooms and are unknowingly fueling the next big bubble.

Bubble forecasters have it easy. Pick a popular topic. Issue a gloomy forecast. Throw in a couple of charts that trend upward (often out of context).  Sit back a few years, watch the market correct (or the bubbles popping), and get to say “I told you so.”  If he’s right, then he can claim street cred for that call. If he’s wrong, he can claim that his timely warnings prevented a bubble. He doesn’t really lose anything either way.

We do: in misinformation and getting lumped together with frothier emerging markets like Singapore or Hong Kong, and thus the foregone foreign direct investment.

So, I feel I have a responsibility to put my views out there. Not just on this so-called bubble, but on a social media-obsessed media culture that incentivizes content like this.

What is a Bubble?

I can “boldly predict” that Facebook’s stock price will come down – and it obviously will at some point. That’s the nature of the market.

Loosely throwing around the word “bubble” is irresponsible. It’s a catchall term – like “sustainable growth”, “competitive advantage” and “efficient markets.”  Rising prices don’t mean we’re in bubble territory.  Rising consumer spending, FDI, government spending, and low interest rates on their own don’t lead to bubbles.

The distinction matters. Bubbles require very different policy responses from regulators. Premature bubble talk misrepresents the economic prospects of the country to foreign investors – something the country desperately needs.

So for the purpose of this note, here’s what I mean when I refer to “bubbles”. Three things characterize one, and here I borrow from the work of Charles Kindleberger:

1. Rapid increases in prices that don’t reflect the intrinsic, fundamental value of an asset. The mismatch between market vs intrinsic values is a crucial point. So let’s repeat that again: in a bubble, prices do not reflect fundamentals. So when a friend claims that an asset seems to be growing more and more expensive, the first question one should ask is, “relative to what?” (ie should you really P10,000.00 for that juice cleanse?)

2. Speculative, short-term investments in assets with unknowable risks. In the run-up to the 2008 global crisis, investors who took on collateralized mortgage obligations (repackaged and re-rated derivatives from pools of questionable mortgages) were speculating because these were securities that were hard to understand.

3. Herd behavior. The dot-com crash saw masses of would-be entrepreneurs and investors mindlessly jumping into the internet bandwagon.

Looking back, I’ve been a victim of all three, so I’ve learned a thing or two. I eagerly jumped the bandwagon of 1990s comic books: multiple X-Men #1 covers, Gen 13 #1, Brigade #1, and Rob Liefeld. All in the hopes that these would be worth gold one day. These weren’t fancy collateralized debt obligations or pre-series A participating preferred stocks, but for a 12-year old in the 90’s, P10,000.00 lost to comic books were a lot. And over the years, I’ve repeatedly dodged (that pretty, popular girl in college who turned out to be… never mind) and fallen prey to speculative manias (the mini-bubble of a Management Engineering degree). The underlying principles are similar: a a huge mismatch between market and intrinsic values, speculation, and stampedes.

Mr Colombo’s main point is that this period of economic expansion is driven by cheap credit, and that’s a bad thing, because this in turn is driving a.) a bubble in real estate prices, and b.) unsustainable, debt-driven consumer spending. There were a number of other arguments (which have been effectively tackled here, and here), so I’ll focus on these two.

It’s almost impossible to predict bubbles using the traditional economic models – these tend to be lagging, not leading indicators. Maybe the Nate Silvers and the Nassim Taleb’s of the world can sift through all the statistical gobbledygook. I’m not smart enough to do this.

I can, however, look at people. As an entrepreneur, I’m lucky not to be stuck in a desk and be in a position to constantly meet people outside my company. My view involves asking three questions about the underlying behavior of our economic models:

First: Are people buying property like crazy? Nope. My basis of comparison is my time in Singapore: when new condos are launched, thousands of buyers flock to showrooms, with many projects selling out in hours. We definitely don’t see that kind of mania here. If this were the case, they we wouldn’t see all those spam texts and pesky real estate salespeople handing out flyers in the malls.

Oh, and look here. The number of license-to-sell permits from the HLURB for high end condos has actually decreased this year. Note that a license-to-sell doesn’t mean an actual sale – this is the permit given to developers to allow them to start selling a housing unit. It’s a measure of upcoming supply. If this were a bubble, this number would be up this year – not down. And as you can notice, the number of licenses are down across the board. (This is actually not good because the country has a housing gap of up to 4 million units. But only 22,270 socialized housing units were licensed from January to July this year.)

Next, let’s look at real estate prices. Yes, prices have risen. But is there a huge mismatch from its intrinsic value?  One way is to look at rents in relation to property prices, which is how The Economist tracks global property prices. Looking at CBD prices (since this the data Mr Colombo quoted), the average monthly residential rent is P800.00 per sqm vs an average property value of P132,000.00 per sqm. This is an asset yield of 7.3%. Asian property buyers will recognize that this is actually a decent deal. In the peak of Singapore’s housing booms, yields can fall as low as 1-2%. For a so-called economic analyst, it’s annoying how he didn’t take the time to dig into this.

Plus, these properties were purchased by Filipino households who are significantly less leveraged than their US counterparts – so even if property prices “burst”, there will likely be no widespread sell off that can further deflate prices.

Second: Are people maxing out credit cards for conspicuous consumption like, say, handbags and a trip to London? Nope. My basis for comparison: my time in Boston, where it is common to take on additional student debt just to go to that weekend trip to Iceland.

Lets dig deeper into Mr Colombo’s contention that easy credit will make consumers spend beyond their means. If this is the case, then we should see numbers like this: massive credit card growth, increasing credit card balances, and increasing consumer defaults.

What he fails to see is that the Philippines has one of the lowest credit card penetration rates in Asia. So even if the vast majority want to splurge on a Louis Vuitton bag, they simply can’t. The vast majority still pays in cash.

This is data from the BSP showing the balance of credit card loans. Credit card balances grew 10% vs last year – quite reasonable in an emerging market and coming from a small base. If we assume 4 million cardholders, then we have around P39,000 in average card balance per card holder: hardly reminiscent of the US.

The problem with with Mr Colombo’s argument on cheap credit is this – it’s cheap relative to what? After all, short term interest rates are still 4-7%, and long term rates at 7-12%. Debt may be cheap by historical standards, but not by any means too cheap that it makes everyone take on debt.

Oh, and look here. Mr Colombo likes to post charts that trend up, such as this one, which he uses to assert that consumer spending is growing unsustainably. But if you look at closely at the scale (don’t be deceived by the sizes of the bars, look at the numbers) and the time period (from Jan 2008 to the present), you’ll see that consumer spending grew 6% year-on-year in 2013 and 7% the year before. An emerging economy whose consumer spending growing 6-7% a year? Hardly sounds excessive to me.

Third: Are tech companies getting unjustified investments? Companies that play in tech + emerging markets are a good bellwether for observing bubbles, simply because of the perceived high growth opportunities. As an entrepreneur in this space, am I seeing frothy behavior among investors? Absolutely not. Domestic investors still tend to be cautious with valuations. And foreign investors are wary about things like user acquisition, regulation, and logistics.

So, based on purely man-on-the-street, daily observations – no, we’re likely not experiencing an overheating economy.  What will make my answer change? When people rush to scoop new condos a la Singapore showroom launches, when my friends start complaining about credit card debt, and when we see pre-product, idea-stage startups getting $5 million pre-money valuations.

What’s Behind the Scenes? Fear Mongering and Content Marketing

I always love a good debate, but with a bold pronouncement such as Mr Colombo’s, the bigger question to ask is this:  Does one have an incentive to, at best exaggerate the context, or worse – distort the facts? It seems he does. Worryingly, Mr Colombo proclaims to be an investor – without disclosing if any of his investments may benefit from his writing (for instance, shorting an emerging market stock). Mr Colombo is a self-proclaimed bubble watcher – his entire career is dependent on making dire warnings, and his strategy is to attract online traffic via bold proclamations of various sectors that are heating up.

And Mr Colombo is definitely concerned about traffic, as he proudly states in a previous post,I published a report that went viral, and was read over 145,000 times and shared over 6,700 times via social media.” This is part of the worrying side of journalism in the digital age – when writers optimize for views and shares, they under-optimize for quality and integrity. It’ll be great to see him in a local conference (and debate him on stage).

And this leads us back to Ms Curtis. Celebrity culture thrives in manias and herd behavior – popularity snowballs and leads to more fame. Ms Curtis’ bubble might have temporarily popped last week, though she was quick to apologize. In trying to be a celebrity bubble-spotter himself, Mr Colombo may have unknowingly burst his own.

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Philippines

Relief Goons

Janet_Lim-Napoles_mugshot

At Escolta, the restaurant at the ground floor of the Manila Peninsula Hotel, there’s a private dining room in the far side corner, just beside the hotel’s pedestrian entrance by the Makati Avenue side.  It’s 9pm and the restaurant’s patrons are slowly exiting. Inside the private room, five men were assembled, enjoying sips of their Johnny Walker.

“May bagong release. Mga isang-daang milton. Sabi ng mga contact natin sa DOF at NDRRMC,” proclaims the man at the head of the table.

“Pagawan mo na ng dokumenta sa brod natin sa Leyte. Sabihin mo isulat niya na para sa food and medical para sa mga barangay na hawk niya,” says the man to his right, signaling the younger man in front of him who appears to be part of his staff.

“Magkano ang SOP natin, brod?” says the man at the far end.

“Pare naman, dahan dahan tayo rito. Maraming nasalanta eh. Baka magalit. Mainit pa. Lalo na nakadetain pa si ma’am Janet”

“Pero brod, kailangan din talaga eh. Sampung truck ko yung natangin sa bagyo. Sira negosyo natin. Baka mahirap maka pondo para sa 2016.” 

“Sige pare, ibaba nation at SOP from 50% to 30%.  Alam kong kailangan din natin. Thirty million parin yun. Hindi naman siguro mapapansin.” 

“Salamat, brod.” 

 “Pare, okay na ba yung pinsan mo? Natangin daw yung bahay diba?”

“Oo, pare. Sirang-sira. Pero nakatulong daw naman si Mayor. Kaso lang kulang pa rin.” 

“Sige, bigyan mo rin isang milyon. Sabihin mo galing sa ‘kin. Bilisan natin ‘tong operation na ‘to. Bago makilatis ng DOJ.” 

This is a fictional story, of course, a product of my cynical imagination. But it’s not really hard to believe that clandestine conversations like this will take place in the months ahead.

The worst effects of Typhoon Haiyan are yet to come. And these will be man-made disasters rather than natural ones. With the economic loss estimated to be $12 billion – $15 billion, or roughly 5% of GDP, rebuilding will take many years and a substantial amount of public funds disbursed, which we all know will be a seen as a bonanza for a rotten minority.

For the foreseeable future, preventing the hundreds of millions of international aid from falling into the hands of corrupt officials will be a major public interest battle. As of November 16, the Philippines has received over $124 million in aid from the international community, and the UN kicking off a $300 million pledge drive. Once the immediate relief gets into full swing, it’s time to start thinking about the next disaster, and getting the right policies in place to manage the deluge of funding into the system.

If there’s anything that the international aid community  has learned from the Aceh tsunami and Haiti earthquake, it’s that the resulting corruption after a disaster can be more be damaging than the catastrophe itself.

But if Facebook users, civil society and overseas Filipinos can show the same level of engagement and empowerment that they did with this week’s relief efforts, then I’m confident future would-be-Janets would think twice before dipping their hands in the aid jar.

Some possible immediate steps are: 

1. Publicly disclose the flow of funds.  While the government is right in announcing the launch of a website that will track the flow of foreign aid. Granularity will be the name of the game. Although public databases like the FTS can track the global flow of aid, we need tracking on a barangay level – with each barangay council showing in a very transparent way how much funds are coming in, where they’re being spent, and metrics for progress.

2. Time to pass the Freedom of Information bill. Local officials will of course use multiple layers of legalese to prevent 100% transparency on disbursements. That’s why it’s time to prioritize the FOI bill, as it allows citizens to accelerate requests for government records. This, combined with technologies to speed up transparency (Think of Google’s People Finder, but instead, use it as an open data platform showing a network map of corruption risk areas) will maximize its impact.

3. Make any crime related to the theft of Yolanda relief funds punishable by death. Tough one to pass into law – but a crime of this kind is essentially treason of the worst kind.

4. Enact whistleblower mechanisms on a barangay level. Think of a easy-to-use whistleblower hotline (via text, a board at the barangay hall, or phone) that can empower citizens with an immediate feedback loop to report instances of local corruption. This means also expanding the definition of corruption beyond fraudulent financial practices, such as cronyism, nepotism, and the using one’s control of resources in exchange for sexual favors, as we’ve seen in various embassies in the Middle East. Seeing a widely-shared Pinterest board for Epal practices like politicians’ names on food packs would be welcome.

5. Celebrate the success stories. When Mayor Arquillano of San Francisco, Cebu, evacuated an entire island prior to the storm, he ended up saving 1,000 lives. When all the island’s houses were discovered to have been destroyed, it became evident that years of disaster preparedness and adoption of best practices can indeed substantially stem the loss of life.

There are longer-term fixes, of course, such as rethinking the division of labor between the NDRRMC and local governments, expanding disaster insurance coverage, and accelerating housing finance for low-cost, typhoon-resistant housing, but these require navigating through immense legal and political quagmires. In the meantime, the above can be immediate fixes.

As for me, we’re trying to contribute as best we can. I help run AVA, an e-commerce website for design brands. Though no single company can make a dent on a number this large, all of our efforts combined can make a difference. To this end, AVA will be highlighting homegrown brands and social enterprises this Christmas. Homegrown and social enterprise brands will also play a more active role in our merchandising strategy next year. Your support for their products helps grow local businesses, sustains raw material suppliers, and creates new jobs. As a result, every peso you spend in supporting these jobs has a multiplier effect on the local economy.

I’ve also been having a number of conversations with friends in the startup community. A common problem we face as entrepreneurs is building the skill set and capabilities of the local tech industry in areas such as product management, agile development, lean startups, growth hacking, and performance analytics. One of these areas is using technology for disaster preparedness in the short term, and prevention in the long term. Hence, one our passion projects is in education – helping improve local talent by matching them with proven entrepreneurs and experts who have actually built businesses.  If you’re interested to learn more about our efforts, feel free to reach me here.

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Entrepreneurship, Philippines, Startups

Can the Philippines be the Silicon Valley of Social Enterprise?

Browse through Vogue and you might notice these colorful clutches.

Thoughtfully-designed and beautifully-handcrafted, they marry form and function. The brand itself has grown a loyal following the past several years. It’s worked with some of the most established designers. And its story has garnered wide appeal across different segments – adored by celebrities, supported by moms, trusted by twenty-somethings, and studied by policymakers. That’s an incredibly hard thing to do in the finicky world of fashion.

This might sound like a label straight out of the fashion houses of Milan or Paris, but these clutches come from a humble social enterprise based out of San Juan in the Philippines.

Rags2Riches-2-MaineManalansan-Vogue-10Jul13-PR_b

 (Photo credit:  R2R and Maine Manalansan)

Rags2Riches is just one of the many social enterprises scaling up all over the country. It’s a great example of what the Philippines can offer the world. The Maia clutch, designed by Rajo Laurel, has been a consistent bestseller and it’s now making waves abroad, thanks to a partnership with the retail chain Anthropologie. Co-founded by Reese Fernandez-Ruiz, R2R works with artisans from poor communities to produce wonderfully designed products and improve their livelihood.

Fashion presents a fascinating opportunity for local social enterprises to reach a global market – we have lots of talented designers, a cluster of manufacturing zones in Manila and Cebu, underserved artisan communities, amazing brand managers, and a growing cohort of e-commerce entrepreneurs. There are thousands of social entrepreneurs like Reese, and now is their time.

Business for the Next Billion

The bigger story is that the Philippines has been incubating social enterprises long before the word became fashionable.

CARD is a pioneer in micro finance. Hapinoy has been creating innovative supply chain solutions to the quintessential feature of Filipino retail – the sari-sari store. Sari has been developing interesting point-of-sale technology for this space too. Gawad Kalinga, a leader in the space, launched the GK Enchanted Farm with an interesting go-to-market model that links producers and consumers of agricultural products. A seminal moment came last year when Jim Ayala became the first social entrepreneur to win the prestigious Ernst & Young Entrepreneur of the Year award for his work to deliver solar powered products to marginalized communities.

These are ventures with the dual objective of addressing a social problem and becoming financial sustainable – not tasteless propaganda-in-the-guise-of-charity we’ve come to expect from most big corporations and local politicians. And the space has now reached a tipping point.

If this generation of entrepreneurs sees social enterprise as a rewarding career path, impact investing scales locally, linkages with international institutions increase, and enlightened leaders get into government,  then there’s no reason the Philippines can’t be known as the Silicon Valley of social enterprise.

We have the raw ingredients: hard-to-solve social problems that require the convergence of skills from the private and public sector, a passionate post-Marcos generation of founders tired of institutional corruption and rent-seeking capitalists, and early pioneers who have proven the model in various sectors, and supporters in government.

What defines Silicon Valley is a hard-to-replicate mix of universities, companies, government support, and maybe even good weather. But what ties the eco-system together is the incredible willingness of people to come together and collaborate. I believe we can create that mix for social enterprises in the Philippines today, and in 10-15 years, see a vibrant industry of social enterprises making as large an impact as huge infrastructure projects to the economy. We need more PEOPLE, diving into well-defined PROBLEMS, and sensible POLICIES from universities and the public sector. And this kind of PPP can arguably make a bigger impact than this administration’s long delayed programs of the same acronym.

There’s value in being recognized as a mecca for social enterprises. It allows the country to attract even more talent from around the world, not only because the Philippines has immense social problems, but because this can be a testing ground for solutions that scale across the developing world. It helps attract the much needed capital to scale up these enterprises. It increases overall career satisfaction and fulfillment, something we’re starting to see becoming a real problem in the high-turnover BPO industry. And as people have seen in the growth of innovation clusters, these effects are self-reinforcing and create a virtuous cycle.

So how can we the scale social enterprise sector? I have four suggestions, most of which will be admittedly hard to pull off:

Teach Business History. It’s a shameful tragedy that our business and economic history is not a widely shared narrative among students. I took up business in university, and not a single class tackled in detail how the Coco Levy Fund single-handedly raped a whole industry, how the Binondo Central Bank prospered, or how government-protected concessions given to cronies and relatives suppressed competition in the guise of economic nationalism (allow Walmart and Amazon to compete in the Philippines, and I can guarantee SM will be obliterated). After World War 2, there were generally only two ways to create vast amounts of wealth for one’s self: collude with the government or avoid it. Collude in order to get a government-protected extractive monopoly, or go underground to avoid taxes and state appropriation.

If the story of Philippine business is widely told, what won’t be remembered are stories of entrepreneurship-against-all-odds (though there are many), but how the wealth of a few was generated from monopolistic rent-seeking companies that extracted from the many.  Business history affect us until today – and the numbers show it. The top 40 families control up to 76% of GDP.  When I read the about the story of Philippine capitalism, I can’t help but feel anger and a profound sense of social injustice. And I guarantee that when more people read about these stories, the less attractive that nice-sounding job in Large Company Inc. will sound and the more compelling social entrepreneurship will be.

English: Manuel V. Pangilinan Center at the At...

Wanted: An Ambeth Ocampo for Philippine Business History. Enemies from Local Elite Guaranteed. (Photo credit: Wikipedia)

Include Social Enterprises in the Investment Priorities Plan. The DTI each year lists priority sectors that can qualify for a cocktail of government benefits in order to boost investments. Though traditional industries such as housing and agriculture are included, it’s perhaps time to recognize the social enterprise sector by explicitly extending benefits such as tax breaks and investment grants. Of course, any business can stake a claim to be working for the social good, so a measurement & verification mechanism will be needed in the same way impact investors use various metrics to measure the impact of a social enterprise.

Redo our Social Contract. Has there been a single Filipino tycoon who’s signed the Giving Pledge, the effort led by Bill Gates and Warren Buffet that encourages the world’s billionaires to commit half their wealth to charity? I honestly can’t think of any. So correct me if I’m wrong. I really wish I’m wrong. Because if I’m not, it would be really sad.

The country’s top richest 50 families have a combined wealth of $66 billion. That’s more than a fourth of GDP. Imagine half of this wealth donated to various charitable trusts, endowments, social venture funds, and the like. That’s $33 billion in resources. If you assume that 3% can be drawn down each year, that’s close to $1 billion that can be reinvested back into the economy. For this happen, we need to celebrate real giving and not the superficial ones. The local press seems to joyfully celebrate the donation of $7 million for a school building, but that really is a drop in the bucket and will barely make a dent in the pocket. It also means making it comfortable for tycoons to spread their wealth without fear of appropriation. Most importantly, it takes believing Warren Buffett’s philosophy of rejecting intergenerational wealth – a truly hard thing to do in this country.

Make it Less Risky to Be a Social Entrepreneur. If we can design programs that help social entrepreneurs forget about the downside so they can focus on the upside, then we’ve come a long way.  For instance, policymakers can offer state-sponsored schemes that provide healthcare and education plans to social entrepreneurs. Companies can create secondment programs for executives who want to try out a social enterprise for a year. Education helps aspiring founders to be prepared. The good news is that there is a wealth of accessible knowledge on social enterprises from all over the world.  And I hate to rant about Ateneo again, but if it can channel as much resources to a large-scale fund similar to the University of Michigan’s Social Venture Fund, then we won’t be just winning basketball games, but also the war against poverty.

Today on the Stanford Social Innovation Review...

Stanford is a pioneer in social innovation. How much did we spend on the Blue Eagles again? (Photo credit: techsoupglobal)

Our ASEAN neighbors have come a long way in establishing great brand names for themselves. Singapore is the region’s finance and entertainment hub. Thailand is known for its tourism. Vietnam and Indonesia are fast-growing manufacturing countries. If our generation of entrepreneurs can build this country as the Silicon Valley of social enterprise, then we would have made a great leap forward from the sordid past of Philippine business.

What else can we do? I’ll be happy to hear your thoughts.

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Uncategorized

A Vision for the Philippines’ Innovation Economy, & a 4-Point Plan to Achieve It (and why it does NOT include Venture Capital)

There’s an area that cuts through Makati City in the Philippines that is home to the densest concentration of emerging startups and financiers in the country.

This corridor starts at the west end of Ayala Avenue. As you head east, you’ll have easy access to parts of Legazpi Village (where the offices of Hatchd, A-Solutions, Spiralytics, Lazada, GrabTaxi, and Bridge are located) and Salcedo Village (AVA, Lenddo, LevelUp’s 1st office, TasteCentral, Pormada, and a ton of BPO companies).

Once you hit the middle of Ayala, you’ll be near the daily deal giants (MetroDeal, CashCashPinoy), Signal Data, and PLDT’s Ideaspace incubator. BPI – who is quietly building a mobile payments infrastructure with Google – is worth a mention. Of course, Tower One is just around the corner, where Jaime & Fernando Zobel are hatching innovations at Ayala Corp – such as low cost private schools.

Make your way to Buendia and you’ll hit the new Google office in the Zuellig building, and eventually Kickstart Ventures at 55 Paseo (with 15 portfolio companies, including Kalibrr – the first Filipino startup in YCombinator. Kickstart’s #raidthefridge events could be a startup in itself). Detour to Jupiter and you’ll be at the old The Spa building – now home to Rocket Internet’s Zalora. Run up the flyover to the Fort and you can visit 500 Startups-backed Payroll Hero.

Economists call this a cluster. There is empirical value to being in close proximity to each other – attracting and growing talent, accessing capital and early customers, and building a shared culture. And I daresay that the future of the Philippine innovation economy (no disrespect to our neighbors in Ortigas and QC – you are doing awesome stuff) will be centered around Makati City.

We’re still at Day Zero, though. With the Philippines ranking 90 in the Global Innovation Index (lower than Uganda or Mongolia!), what is the future of the Innovation Economy?

I can’t forecast the future better than you can – but I can postulate on what it should NOT be. It’s not about ‘replicating Silicon Valley’. It’s sexy to hear, but this is lazy thinking and reductionist logic. A truly Filipino innovation economy doesn’t need enormous government spending. And surprisingly, it has nothing to do with companies either. The main locus of analysis should be on PEOPLE.

Let me briefly touch upon these competing logics.

One thesis calls for massive amounts of government spending around research universities. Bring the bling and founders will sing, is how the logic goes. But as we’ve seen from the below-expectations performance of Skolkovo in Russia, Singapore’s Biopolis, and Malaysia’s Cyberjaya, this won’t cut it.

Does the private sector have the answer? Probably not. In the 1970s, New Jersey got Frederick Terman – known as the Father of Silicon Valley – to catalyze the state’s innovation economy. The plan was to build an innovation engine like Terman did at Stanford, backed by local companies. But RCA would not work with Bell Labs and so forth. Competitors didn’t want to collaborate.

Silicon Valley can’t be copied. Full stop. Many have tried and came up short. It took a unique combination of the people around Stanford – simultaneously competing and collaborating – with copious job hopping, information exchange, and an unbelievable tolerance for failure. The rise of the Valley is a Black Swan event.

If top-down government spending doesn’t work, and companies can’t be relied on, what can we do to jump start the innovation economy? Note that I don’t necessarily confine this piece to technology-driven solutions, as we’ve seen the ability of seemingly low-tech solutions (call centers, social enterprises like GK, etc) to contribute to the local economy.

We may never be a Silicon Valley, but what the Philippines does have is a unique set of problems that other emerging markets share: extreme poverty, high inequality, rapid urbanization, institutional voids, poor infrastructure and education gaps. These problems can give birth to innovative solutions with cross-country applications. That will be our own brand of innovation. And you know what? Problems like these excite the smartest people around the world.

So if there is one thing that can tie together our work, it can be this vision:

An innovation economy that focuses on scaling solutions across emerging markets. 

We are a microcosm of emerging markets. And with our English fluency, know-how, and huge overseas population, there’s no reason why local solutions can’t scale to solve emerging market problems. If GCash was the inspiration for M-Pesa, it can’t be too farfetched to imagine how a flood-information app can help Bangladesh, how Kalibrr can also empower India’s BPO industry, or how Hapinoy can help retail supply chain logistics in Myanmar. How can we do this?

This is my humble thesis: focus on a 4-point plan that puts People, Integration, Market Access, and Process at the focal point. Yes, you saw that right – that list does NOT include venture capital. And yes, the acronym of this plan is PIMP. Let me share a broad overview.

PEOPLE
Entrepreneurship is in our blood. Despite the oligopolistic economy, it’s worth reminding ourselves that everyone who settled these islands – from the Sultanates of the Middle Ages to the European colonists are entrepreneurs. Rizal’s dabbling in ophthalmology, writing, teaching, history, architecture, and woodcarving make him probably one of the first serial entrepreneurs. The Katipunan was essentially a startup – its purpose was to solve a huge problem, it attracted top talent & investors, and it went viral in a relatively short time. We lost a lot of ground to rent seeking monopolists and politicians through the decades, but this doesn’t change our history nor our appreciation for it.

I’m borrowing a lot from Brad Feld‘s work in building startup communities: put the entrepreneur first. The goal: build a pipeline of talented founders – whether they’re pinoy or not. This is a long term goal. We’re talking a generational time frame here: 30 to 40 years long.

  • Bring in entrepreneurs from overseas. Free up immigration and business-formation policies to make it easy for any foreigner to set up shop. I’m seeing leading indicators: three years ago, startup events were mostly attended by locals. Now, up to half of some events are attended by expats. That is a GREAT thing because it spurs innovation, creates competition, and transfers know-how. This uses colonial mentality to our advantage: the more local pinoys see expat founders, the more entrepreneurship gets sexy. (Don’t believe me? Check in with the Younghusbands and local football).
  • Self-select the right entrepreneurs by highlighting the huge problems we face. This sounds counterintuitive, but the best founders are motivated by problems, and this is what this country has. I postulate that the multiplier effect of bringing in one amazing entrepreneur who can build a great company is greater than the impact of bringing in 1,000 tourists from the “It’s More Fun” campaign. And we have the basic macro story: 100 million people, fastest growing GDP in Asia, double digit internet user growth, the biggest English-speaking internet market in East Asia, and the #1 social media market in the world.
  • Create a massive 10-year program to bring overseas Filipino skilled professionals back home. Give preference to those working in the sciences and engineering.
  • Spread access to tech education like crazy. Drastically revamp our computer engineering programs because only 1 out of 10 IT grads are employable. And with cheap tablets on the horizon, increasingly free resources like Coursera and Code Academy, and the generally cheap cost of tertiary education (unlike the US), there’s no reason this can’t happen .
  • Sustain inclusive grassroots events. We’ve got lots of bootcamps, hackathons and Startup Weekends. But where we need to do a better job in is making them more inclusive. For instance, despite being a high-gender equality country, we don’t see a lot of women founders. I meet a lot of talented entrepreneurs in the fashion and retail industries. But they rarely show up in startup events. To them, it’s a different world. It’s time to bridge the divide.
  • Build our management pipeline. I’m starting to see this problem creep up. Entrepreneurs often don’t make great managers. And 4 to 5 years into a startup’s life, having a solid management team that can execute will become a bigger problem. This solution: educate our top managers from the best local companies on the opportunities in the innovation economy and get them seconded to promising startups. We need our Sheryl Sandbergs and Eric Schmidts.
  • Get people to understand the nature of EQUITY. Equity is the biggest wealth creator in a startup but most people don’t ‘get’ that. When I was recruiting a potential founder-CEO for a startup idea last year, we made a generous offer: 70% of the candidate’s salary PLUS a double-digit % stake in the company (at no cost). Nobody took it. I am effing serious. Everyone wanted a premium of at least 20% to their current salary. People need to understand the nature of equity and how to make tradeoffs vs salary and short term perks.
  • Celebrate failure. We have TONS of awards ceremonies recognizing top entrepreneurs. A simple change for next year: make a HUGE failure be a part of the criteria of celebrating our best entrepreneurs.

INTEGRATION (domestically and internationally)

Building our talent pipeline isn’t enough. We need to get our people connected with the rest of the world. William Gibson, who coined the term cyberspace, once said “The future already exists. It just needs to be evenly distributed.” The future is outside the Philippines. We need to bring it here. The success of initiatives such as Hack2Hatchd demonstrates the benefits of integrating with the global startup community. It’s time to scale this up.

  • Establish R&D centers anchored by tech giants. Revise DTI’s mandate in Silicon Valley. Instead of focusing on getting BPO clients, let’s have them focus on getting tech companies to start R&D centers in the Philippines. This is a mobile-obsessed country. Why can’t we have a large scale mobile R&D center here anchored by Facebook? Payments are huge problem here. Why can’t Square set up a research facility? (I believe the answer partly lies in our lack of investor marketing over CNN or CNBC – Indonesia does a remarkable job in this). Ernest Cu of Globe is helping change that and his new partnership with Facebook is a great example.
  • Create massive founders-abroad programs. Imagine hundreds of Filipinos each year spending 3 to 4 months working on products in Palo Alto, New York, Boston, or Singapore. They’ll gain new technical skills. Meet new people. Benchmark their products vs the best startups in the world. Maybe even work for some of the best startups in the world. Learn the tacit rules of engagement. MassChallenge already does this with Israeli startups, with winners of a local competition spending months working out of the MassChallenge facility in Boston. No reason that Filipinos – with our ability to assimilate to new communities abroad – can’t do this.
  • Launch a content marketing campaign to share our story. When I met with a partner from Kleiner Perkins last year, she correctly observed that there was a lot of social media traffic from the Philippines: virtually every top social network from FB, Twitter and Instagram was seeing HUGE traffic growth from pinoys. So she asked some basic questions. What’s going on there? What’s the population of the Philippines? That dawned an insight: we haven’t been particularly great in selling the story. That’s changing. The Philippine Startup Report is a fantastic example. And I’m amazed it took someone like Ron Hose – and not local pinoys – to crystallize how special this story is. Another great example: Singapore Sessions uses a lot of content to evangelize.
  • Get Ateneo, UP and DLSU to WAKE UP. I’m focusing on Ateneo here because it’s the university I’m most familiar with. I love alma mater and I want it to succeed, so I’m calling it out here: the stories of internal squabbles that prevent the science and business schools from collaborating are shameful. There’s been no sustained effort to support tech innovation and Ateneo’s concept of entrepreneurship is setting up food businesses. Rationalize pay. I heard of an absurd rule in Ateneo that professors in the liberal arts need to have same salary grade as science & engineering professors – preventing the school from attracting the best educators. And I bet you that more money is spent on the Blue Eagles and Green Archers than on the Ateneo Innovation Center.

MARKET ACCESS
I believe that the biggest opportunities lie in platform businesses that can fill institutional voids. Think about sectors where there are enormous inefficiencies in providing opportunities for producers and sellers to interact. Market access – and the empowerment it seeds – must be the overriding problem that local entrepreneurs should focus on. Sulit did this by bringing classifieds to everyone, vs paying a hefty price for a newspaper ad. Ayannah does this by creating stronger connections between overseas Filipinos and those back home. Rappler is doing this by helping people access the best news and journalism. AVA empowers design brands who have a hard time finding retail space by helping them sell online.

At this point, I hope it’s becoming clear why spurring venture capital is not a focal point of this 4-point plan. VC investments are a by-product of talent and powerful ideas. 90% of VCs are herd investors – they will dive in only when they see leading indicators of financial returns, and talent is often a leading indicator. Create an ecosystem of alpha leaders and the herd will follow.  Money is like water – it’ll find its way to the best ideas.

PROCESS
This is worth mentioning again because it’s the most common feedback that founders have on company formation. I’m not even talking about foreign ownership restrictions – there are a number of fixes that can be done without changing the constitution:

  • Simplify taxation and reporting burdens.
  • Allow for LLC-type structures to be formed at the SEC
  • Easy entrepreneur visas
  • Consistent implementation and interpretation of labor laws
  • One a one-stop shop for all regulatory approvals for tech startups, regardless of municipality.

Going back to the Makati tech cluster: As with any plan, we need milestones. Here are some sensible ones:

2016: 500 innovation-oriented companies in Makati. Facebook & Twitter establish mobile R&D centers.

2020: 2000 innovation oriented companies in Makati. SSS and insurance companies start allocating large sums of institutional funding to local VCs.

2023 (10 years from now): The first billion dollar IPO from this cohort of companies.

2030: Technology revenues = 20% of Philippine GDP.

2035: A company from this cohort acquiring a dying local conglomerate, in what could possibly be the biggest triumph for this generation of  entrepreneurs.

2034 Elections: A Philippine President from this generation of founders.

It’ll be interesting to see how this story unfolds. What else does this plan need? Happy to hear your thoughts.

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