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Why is Cebu Pacific Such a Horrible Airline?

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We’ve all heard our fair share of Cebu Pacific horror stories. I’ve experienced my own too, from a faulty website to delayed flights. But they weren’t anything that I haven’t encountered at Delta, PAL, or even Singapore Airlines.

That was until the Great Cebu Pacific Christmapocalypse of 2014. While I’m still compiling a lengthy account of that experience (complete with photos + videos of stranded children, crying women, and censorship attempts by security), I couldn’t help but take a deeper look into the company and uncover some interesting facts why it’s such a shitty airline.

I’m no expert in the airline business, but I’d like to believe I know a thing or two about how companies work. In this case, I’m looking at Cebu Pacific with the following context in mind:

  • The airline industry is a tough business. In the US, the average airfare each way is $178 and the airlines would only make 37 cents per passenger trip on average.
  • Cebu Pac is a growing business. 2014 revenues are up 25% year-to-date.
  • The industry is becoming more competitive, with a resurgent PAL, a dominant low-cost competitor in Air Asia, and the desire of foreign airlines to enter the Philippine market.
  • Filipinos are demanding better service, yet are also more docile consumers on average.

This is just the tip of the iceberg. I only spent two hours going through publicly available information in its annual report, quarterly disclosures, and analyst presentations, and I already uncovered lots of reasons why it’s a horribly run airline. I just wrote this today, and this is by no means a definitive analysis.

Place Cebu Pacific under the close, investigative scrutiny of a Patricia Evangelista, Natashya Gutierrez, or Bianca Consunji, and I bet we’ll uncover way more.

Four things stick out:

1. The Board of Directors is stacked with family members and insiders.

No surprise here. This is the Philippines, after all.

For comparison, let’s look at Air Asia’s board of directors, followed by their ages:

  • Datuk Kamarudin bin Meranun (52), Non-Independent Executive Chairman
  • Tan Sri Dr. Tony Fernandes (50), Non-Independent Executive Director and Group Chief Executive Officer
  • Aireen Omar (40), Executive Director and Chief Executive Officer
  • Abdul Aziz bin Abu Bakar (61), Non-Independent Non-Executive Director
  • Fam Lee Ee (53), Independent Non-Executive Director
  • Robert A Milton (53), Independent Non-Executive Director
  • Amit Bhatia, Independent Non-Executive Director
  • Uthaya Kumar A/L K Vivekananda (60), Independent Non-Executive Director

Here’s Cebu Pacific’s Board of Directors:

  • Ricardo J. Romulo (80 yrs old), Chairman
  • John L. Gokongwei, Jr (87)., Director
  • James L. Go (74), Director
  • Lance Y. Gokongwei (47), Director
  • Robina Gokongwei-Pe (52), Director
  • Frederick D. Go (45), Director
  • Jose Buenaventura (79), Director
  • Antonio L. Go (73), Independent Director
  • Wee Khoon Oh (55), Independent Director

Why is this important? Because the board is the highest governing body of a corporation. If customer service is so bad, then either the Board a.) refuses to do something about it (prioritizing fleet expansion instead, for instance), or b.) is incapable of doing so.

Let’s look at the Board one by one.

Ricardo Romulo is the senior partner of law firm Romulo Mabanta. No airline experience.

Gokongwei patriarch John is unlikely to be closely involved in the airline’s operations given his age.

James Go is John’s brother. No airline experience.

John’s son Lance, is CEO of Cebu Pacific. No extensive airline experience before Cebu Pacific. More troubling, Lance also serves as CEO of Robinson’s Land. Oh wait, he is also CEO of Universal Robina.

I’m sure Lance is brilliant. But I am doubly sure airlines, real estate, and food & beverage are incredibly tough businesses on their own. How can he be CEO of all three? The inescapable conclusion is that Lance is Cebu Pacific CEO in name only.

Robina is Lance’s sister. No airline experience.

Frederick Go runs Robinson’s Land as COO. No airline experience. Which begs the question: if we measure Frederick’s and Lance’s performance, do they spend more time in the airline business or in the real estate business?

Jose Buenaventura is a lawyer (and a partner at Romulo Mabanta). No airline experience.

Antonio L. Go is a banker. No airline experience.

The only board director with significant airline experience is Wee Khoon Oh, who used to be with SIA Engineering Co. SIAEC also happens to be the aircraft maintenance contractor of Cebu Pacific. Even so, Wee Khoon’s experience is in aircraft engineering, not customer service or flight operations.

In short, this is a board stacked with lawyers, family members, and insiders. It’s a board designed to preserve control and mitigate risk, rather than to strive for operational excellence and competitiveness.

It’s also a board filled with old people. The average age of the Cebu Pacific Board is 65 (and that is helped by Lance and Frederick. 5 out of 9 Directors – a majority! – are above 73 years old).

The average age of the Air Asia board is 53.

There is a very real possibility that the Cebu Pacific Directors themselves are not aware of the on-the-ground reality because they are unlikely to browse through Facebook, Twitter,  or this blog.

I am sure they are outstanding professionals in their fields. But their skill set does not belong in today’s airline business.

I can end this blog post on this point. But let’s go on.

2. Senior management is no longer the right team for the job.

The role of the Board of Director’s is to be the overall governing body of a corporation by setting strategy, selecting senior management, and deciding on things like acquisitions, capital raising, and management remuneration. Operations is the responsibility of the senior management team, which reports to the board.

If the main issues are a.) delayed and cancelled flights; and b.) poor customer experience (in terms of ground staff operations, check-ins, gate crews, refunds and rebookings), then we should be looking for managers who are in charge of operations and customer service.

We’ve established Lance is CEO in name only. Who’s really in charge at Cebu Pacific?

That would be Garry Kingshott, Chief Executive Adviser. We all know the “Adviser” title is a smokescreen in Philippine business given that public utilities cannot have foreigner CEOs. But with Lance’s multiple roles, it’s reasonable to believe that Garry is calling the shots.

Judging by his LinkedIn profile, Garry is a sales & marketing guy. Cebu Pacific’s focus on growing ancillary revenue (revenue from baggage fees, rebooking fees, etc – which by the way is worth P6 billion) is likely his strategy, given his past experience at Jet Lit India.  He seems to be more preoccupied with international expansion rather than getting down and dirty with local flight operations.

Who runs ground operations? Let’s look at the Cebu Pacific Annual Report.

Capt. Jim Sydiongco? Nah, he’s responsible for flight operations, pilot training, and safety. With a growing fleet and a pilot shortage, his main focus (rightly so) is for the planes to stay in the air. (Remember the Davao crash landing last year?). Rosita Menchaca? Nope. She runs in-flight services.

The most likely candidate is Michael Shau, Vice President of Ground Operations. But this year, he was moved to run the TigerAir division. And even if he is in charge of customer experience, Michael was also running cargo & fuel, catering, facilities, and procurement! He looks stretched.

In fact, looking at Cebu Pacific’s organizational chart, it’s impossible to see who’s in charge of ground operations and customer experience. There’s Benito Cosep, who runs integrated operations control (including flight dispatch and fleet control), and Rosario Santos who runs quality assurance, but they seem too far down the organizational chart to have significant power to influence outcomes.

Contrast this to Air Asia’s senior management featured in their annual report. They have a tough looking guy named Patrick Fennel heading the operations control centre. There’s a head of guest services – Francis Loh, who’s the single accountable person for customer service. Then there’s Terri Chin, group head of quality and assurance. All three seem like they have considerable power.

In Air Asia, there is one person in charge of finance in senior management: Andrew Littledale, the CFO.

In Cebu Pacific’s senior management, there are three: Jaime Cabangis (CFO), Jeanette Yu (VP Treasury), and Robin Cui (Comptroller).

Strategic priorities are allocated with resources, people, and power. Guess where Cebu Pacific’s priorities lie?

The lack of accountability culture at Cebu Pacific is in full force at the front lines. Ground staff were completely afraid to offer explanations for fear that might say the wrong thing.

“CEB personnel did not explain the long lines, saying they were not authorized by their management to give statements to the press,” says an Inquirer report. I saw this myself. When I asked one supervisor at  counter C27 to explain to the 150+ cancelled passengers what our next steps are, he resisted, saying that it wasn’t his job to process cancellations. After 2 minutes arguing, he agreed to send one of his lackeys to speak on his behalf.

3. Investments in human capital have severely lagged passenger growth.

A frequent complaint heard last December 24 and 25 was that Cebu Pacific was severely undermanned. There were not enough people at the check-in counter. My boarding gate didn’t have an agent for two whole hours. And when I finally was given a hotel room, the guy who coordinated the transfer and hotel booking told me there were only three of them that night who handled thousands of irate rebooked customers.

Contrary to what they want you to believe in the press, this wasn’t just a one-time incident over a busy holiday. It’s a structural problem.

The proof, again, is in the annual report. But you need to dig deep into the notes section.

Cebu Pacific’s Revenue Passenger Kilometer (RPK) grew 12.1% in 2013. RPK is the number of paying passengers on an airline multiplied by the distance traveled. If an airline were a factory, RPK is the measure of an airline’s production output.

Yet, despite the growth, note 21 in the annual report indicates that staff cost only grew 2% in 2013 (P339.7 million in 2013 vs P332.9 million in 2012). Output grew 6x faster than the growth in staffing. No wonder the ground crew felt swamped.

Now, under note 20, the accounts “Flying Operations” and “Aircraft and Traffic Servicing” both contain sub-accounts called “Others”. In the note, “Others” is said to pertain to “staff expenses incurred by the Group such as basic pay, employee training cost, and allowance“. It doesn’t exactly say if staffing cost is the ONLY item under that account. There could be others.

But let’s give them the benefit of the doubt and assume that that it’s all staffing costs. Note 20 + note 21 then implies that total people costs amounted to P921.9 million.  This is equivalent to 2.2% of Cebu Pacific’s 2013 revenues of P 41 billion.

But if you look at Air Asia, which did RM 5.11 billion in revenue in 2013, staff costs were RM 610.9 million, or 12% of revenues! Now, even the higher wage levels in Malaysia vs the Philippines wouldn’t be able to entirely account why Air Asia spends 6x more on people than Cebu Pacific.

The whole “we didn’t anticipate the Christmas surge” reason doesn’t fly. This is an airline that obviously tracks RPK, and thus would have month-on-month information on passenger volume.

4. Finally, there are the rumors that Cebu Pacific is being window-dressed for a sale. Nope, not the “piso-fare” kind of sale, but a divestiture of the company to a strategic buyer. After all, the Gokongweis might be starting to realize that it is hard pressed to compete in an open skies environment across Southeast Asia, and would thus be willing to consolidate rather than compete. The group showed its willingness to do something similar in the Sun Cellular sale to PLDT.

Basically, a push for a sale encourages Cebu Pacific to prop up its bottom-line to maximize its market capitalization (and a larger return to the group if a sale occurs). And because profits tanked in 2013 (net income declined 86% from P3.6 billion in 2012 to P512 million in 2013), there is a strong reason for the company to scrimp on expenses in 2014.

In summary, it’s really hard to say what’s going on. All of the above is based on publicly available data. If you know something, get in touch.

My theory: Cebu Pacific is run by a Board that is designed to retain control of the Company rather than to embrace outsiders with the expertise and experience to run a growing low cost airline in a challenging competitive environment. This may have been an adequate Board 10 years ago, but not today. Its senior management is poorly structured, and there is no accountability for key passenger requirements, namely for excellent customer service. It’s underinvesting in human capital. While it’s also pursuing international expansion, management is also considering a sale of the company, and is thus incentivized to prop up the bottom line at the expense of making the investments that lead to operational excellence.

Stay tuned for my next post on how Cebu Pacific stole Christmas Eve.

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My 1st Lesson in Valuation: How I Exchanged 5 Pesos for a 20 Peso Bill.

When I was five, my mom would give me spare change every now and then. I guess she wanted me to learn about numbers and money. It started with 50 centavo coins. Then 1 peso coins. Then 2 peso coins.

One day, she gave me a 5 peso bill. Remember those? They were green and had Emilio Aguinaldo on them.

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I was a proud kindergarten student. I actually own 5 pesos! I was ecstatic.

Until my seat mate in school showed me her 20 peso bill.

banknote 20 philippine peso obverse

WTF. Though I was five, I understood the relative value of her piece of paper compared to mine.

Yet, she gave my 5 peso bill a second look.

My 5 peso bill was crisp. It still had that new glow. It was smooth, tucked neatly in my kiddie wallet. In contrast, her 20 peso bill was crumpled. It looked like a few hundred hands had passed through it.

My piece of paper was green. As we were talking, it became clear that she adored green more than orange. She didn’t want the five pesos. She wanted the green, shining, shimmering, splendid piece of paper that was labelled five pesos and had Emilio Aguinaldo’s face on it.

So I did what any sensible five year old would when faced with that opportunity.

Gusto, palitan nalang tayo?” (Would you like to exchange?)

She agreed.

So she got her clean, crisp, green five peso bill. I got my fifteen pesos profit. In five minutes. That translated to an annual return of 31,536,000 %.

Will put on ridiculous fashion for cash.

Me at 5. Will put on ridiculous fashion for cash.

That was probably the best deal I’ll ever do in my lifetime.

That was also my first lesson in dealmaking: that value, like beauty, lies in the eye of the beholder. She believed that the five peso bill was more valuable to her.

(Maybe she had other twenty peso bills and that this twenty pesos was worth less than a new green one to add to her collection. Who knows.).

——–

Today, startups and investors make a similar trade. An investor provides cash in exchange for a percentage of a company that both believe will be worth way more in the future.

Even though an investor is giving you the 20 peso bill in exchange for shares that may not be worth much today (but may be worth A LOT in the future), he must also see the green, shining, shimmering, splendid piece of paper with Emilio Aguinaldo’s face.

Because the odds of the startup succeeding (on a *holy shit* scale) are so mathematically improbable that he must see beyond the numbers and make a decision not based on calculation, but on belief.

That belief is based on you: the entrepreneur. You’re the shiny five peso bill. And in the earliest stages of a startup, that belief comes from a strong sense of self worth.

Last year, I met a team of five talented software engineers from a prominent university. They were working on a startup.  They seemed pretty solid, articulate and thoughtful. One had a master’s degree. All had work experience. It was one of the rare concentrations of engineering talent in the local startup scene; I’d hire them if had a chance.

When asked how much they valued themselves, they said something around the range of a million pesos.

We don’t feel we have what it takes to ask for a higher amount. People might think we’re arrogant.

It’s that experience and talking to countless other startup founders that made me realize that the biggest barrier facing Filipino entrepreneurs is self-worth.

And some unscrupulous investors know this. That’s why we hear stories of so-called “angels” asking for 50-70% of a venture at the seed stage.

So, on self-worth: yes, your investor is giving you cash. But you, the entrepreneur, are  also offering something that is arguably of greater value: the time, energy, blood, sweat, tears and anguish founders face.

In the Philippines, there seems to be a stigma on putting a monetary value on oneself. Blame it perhaps on the communitarian culture. Or that story of Jesus kicking out entrepreneurs from a temple. I don’t know. That’s a topic for a separate post.

It’s ironic that the very people who can propel this country forward (founders)  undervalue themselves; yet those who hold it back overvalue themselves (politicians). I digress.

——-

My new prized possession, the 20 peso bill, was kept in a small plastic box inside a drawer in my room. A few weeks later, my mom found it. She was of course surprised.

She’d never given me twenty pesos. She tought I stole it. I explained the “deal”, but it was so hard for her to believe. I remember crying. And so I moved on to selling “more socially acceptable” merchandise. Like ice candy. Or comic books.

——-

If you’d like to learn more about valuation, my education pet project Action Stack is hosting a workshop on How to Value Your Startup on Monday, November 17, 1pm at A_Space Makati.

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The State of the Nation’s Entrepreneurs

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“We’re gonna kill taxis,”  says Geoffrey, my Uber driver for the night. “This service is great. This isn’t even my car. It’s my neighbor’s. Today, I did twenty trips. Uber is a huge company. I read it’s worth billions already. It’s bigger than PLDT,” he added.

——-

When Dado Banatao talks about Filipino startups, you can see the passion in his eyes. Why else would a self-made Silicon Valley entrepreneur and investor spend a weekend coaching young entrepreneurs when he can just sit back and retire? “I’d like to see more Filipino startups succeed. Hopefully in my lifetime.

You can sense the frustration in his voice too – the sense that despite how much energy he devotes to the cause, the government is not giving its fair share of the deal. You can’t have a relationship when only one person is in love.

——-

“We’ll put the Philippines on the startup map. We’re a tiny dot. But it’ll happen in time,”  Earl Valencia said enthusiastically over coffee more than two years ago. I remembered that conversation because this week, that dream proved prescient. Earl, in his role as Ideaspace president, along with various participating organizations, led the way to host Geeks on a Plane – a tour for founders and investors to visit emerging technology hubs – for the first time in Manila.

What do Uber, Dado, and Geeks on a Plane have to do with the state of entrepreneurship in the country? A few things, actually. And we’ll get to that in a bit.

——-

 

Job Growth without Entrepreneurs?

In the meantime, ponder this: how many times has President Aquino mentioned the word “entrepreneurship” in his State of the Nation speeches?

Zero. 

SONA Chart

 

  • While the word “jobs” has been mentioned an average of 11.5 times in the last four SONAs, there is ZERO mention of “entrepreneurs” or “entrepreneurship”.
  • There is no mention of “science” either.
  • “Technology” has only been mentioned twice in the last SONA, and three times in 2012.
  • Granted that the SONA is in Filipino, and there is no direct translation for ‘entrepreneurship’, but that’s a flimsy defense. Besides, the President routinely uses Taglish in his speeches.

The absence of a spotlight on science, technology, and entrepreneurs fails reason. Sure, there are other big problems in infrastructure, defense, corruption, education, and healthcare. But we can’t have a serious discussion on jobs and inclusive growth if we’re not talking about founders, startups, and the overall entrepreneurial eco-system. And though my world is technology startups, this post is meant to cover entrepreneurs in all industries.

A read through of previous SONAs shows a plethora of achievements led by this administration. Congratulations. But touting our investment-grade credit rating is not entrepreneurship. Encouraging private-public partnerships is not entrepreneurship. Boasting that our stock exchange has hit record highs is not entrepreneurship. Pleasing big business is not entrepreneurship. And that’s tragic, because 97% of the companies in this country are micro, small, and medium enterprises. And they likely generate the lion share’s of job creation.

Not convinced that this administration doesn’t have a clue? Here’s another question.

Who is the highest ranking government official to directly engage local startup founders? And I’m not talking about a one-way speech in a huge auditorium. I’m talking about a real, two-way conversation in a safe environment where questions are tough and the answers are equally honest and candid. Sincere engagement.

The answer is United States Secretary of Commerce Penny Pritzker, who recently moderated a panel discussion among local tech and social entrepreneurs in Kickstart Ventures’ Area 55. Her goal: learn about the problems the next generation of entrepreneurs (not the top 40 already established families) and see if there are long term opportunities to collaborate with US counterparts.

Penny Pritzer, Kickstart Ventures, Oliver Segovia, Mark Ruiz

US Commerce Secretary wanted to learn about entrepreneurship in the Philippines. Thanks to Mark Ruiz for the photo.

As far as I know, no cabinet secretary of the Philippine government has engaged Filipino entrepreneurs in a frank and intimate setting like this (correct me if I’m wrong!). None have come in with the simple goals of just listening and genuinely demonstrating that this whole high-growth-tech-startups-thing is new to them and that they don’t know all the answers, but are sincerely willing to learn.

There are tons of other examples. Makati, with all its potential to be an innovation hub, still has to develop its own New York-style digital strategy, despite being the richest city in the Philippines’ with Php 12 billion in annual revenues.

—————–

That, in a nutshell, is the state of affairs that our entrepreneurs have to deal with. If  founders could say one thing to the government, it would probably be this:

You don’t have a fucking idea what you’re doing.” 

And yes, we can say that. Because we entrepreneurs don’t have a fucking idea what we’re doing either.

We weren’t born in a culture that celebrates risk-taking, ambition and self-reliance.  We didn’t study in schools where solving real world problems is more valuable than a well-written research paper. And with the world changing as fast as it is, we don’t know where the party will be in 10 years, let alone 5.

But you know what? That’s completely okay. We like it that way. We’re humbled by the uncertainty and ambiguity of the modern world.  We like it that we don’t know everything. Because the insatiable desire to work on tough problems, the fear of the unknown, and the persistent optimism to dream a better future are what keeps us going and prevents us from turning into rent-seeking little shits. 

In a way, we don’t have a choice. Because for the vast majority of market vendors, fishball hawkers, carinderia owners, and sari-sari store proprietors, entrepreneurship is a matter of survival, not making the coolest app. You can squabble all you want on the constitutionality of the DAP or file impeachment complaints against each other. Tomorrow, we’ll still have customers to serve, employees to support, and greedy municipal officials to fend off.

And that’s the point: the nation’s entrepreneurs are increasingly ambivalent to the role of the state. We are getting things done, with or without its help. Because in this part of the world, we see the state as a hindrance, not as an enabler. I hope it were otherwise.

—————–

That’s where Uber – and its equally good cousin Grabtaxi – comes in. Real people on the ground like Geoffrey are starting to see the value of transportation apps like these. You don’t have to be a Bay Area-born techie to recognize its potential to improve the lives of both drivers and riders. It took foreign companies to create a bright spot in local transportation.

Dado – through a partnership of PhilDev Foundation and USAid – is spearheading entrepreneurship education in the country because our public educational system is simply too slow to react and is mired with overpriced classrooms and error-riden history books.

Geeks on a Beach gave us a platform to sell the country – not the GDP / investment grade story – but the real life stories of people on the ground who are tackling big problems with real products. In time, we hope some Geeks will invest. Even better, we hope some of them can found companies that tackle local problems.

The week of July 21st is a testament to entrepreneurs getting things done even without the strong support of the government. All throughout the city, this tiny, fledging startup eco-system was flexing its toddler muscles. Founders, investors, interested-but-not-sure entrepreneurs were gathering in a multitude of events – meeting, chatting, challenging each other, exchanging ideas.

Here’s a quick recap of what went down last week:

  • Geeks on a Planewith an Ideaspace-hosted talk on startup eco-systems and investor speed dating as the main draw.
  • Move-the-Fridge, hosted by Future Now and Kickstart, was a more informal mixer
  • Startup Grind, which featured Dave and Khailee from 500Startups.
  • AngelHack, which had a ton of engineering-focused kids. A truly energizing group to meet.
  • The ASES conference in Ateneo. Initiated completely by students, and with a special focus on social enterprise.
  • PhilDev’s IDEA Workshop in AIM. Very well attended and featured hands-on workshops.
  •  The National Science & Technology Week in SMX. (A rare bright spot! Organized by the DOST).
  • Coming up this week – Startup Weekend Davao.
  • And in August – make sure to stop by Geeks on a Beach, where I’ll also be speaking about local startups.
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Eric Su showing some action to Dave McClure of 500Startups. Thanks to Kickstart’s Pia Bernal for the photo

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AngelHack. Spot the angel in the crowd. PS anyone knows her name?

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Geeks on a Plane Tech Summit in AIM. Thanks to @mathony for the photo.

Not everyone in government is clueless, of course. There are bright spots such as Senator Bam Aquino’s efforts to promote small businesses and youth entrepreneurship. So far, the progress we’ve seen is the law establishing ‘Go Negosyo’ business centers all over the country. We have to yet to see if Sen. Aquino can push for more controversial reforms, such as a Singapore-style co-investment scheme for high growth technology startups, pushing our science & technology spending to more than 0.1% of GDP, and a Chile-style Startup Visa.

So what can you, our beloved government, do now? With only two years left until the next election, we have realistic expectations.

Our only request is simple: stay out of the way. No doctor’s-style shaming from the BIR. No additional taxes imposed on small business. No other burdensome regulatory process to add. Just don’t make things worse.

That, ultimately, is the state of the nation’s entrepreneurs.

We are here.

We are many.

We are not going away.

You make our lives difficult. But that won’t stop us.

You’re all thinking of elections 2016.

We’re thinking of the world in 2046.

We’re willing to talk. And open to listening. We have tons of ideas to share. Once you do get your act straight and recognize our role in inclusive growth, we hope you come to the table (or bar if it’s #raidthefridge) with an open mind and a sincere desire to understand this brave new world.

And to those with a desire to become entrepreneurs, you’re not alone. We’re here to help. Attend an event. Meet people. Work on a prototype on the side. Test it. Get meaningful feedback. You don’t have to leave your jobs (at least not yet!), but grow mastery in your chosen field. And when the time is right, jump in. And then pay it forward to younger entrepreneurs.

Maraming salamat po.

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Can Kickstarter Do What the Philippine Government Could Not?

This is the third of a three-part series on how to grow our design exports. Part 1 talked about the inadequacies of the prevalent strategies to grow our $1.5 billion in creative exports. Part 2 about how technology can play a role in the competitiveness of our local fashion industry, which will be overwhelmed by intense competition from foreign brands. This part talks about a simple experiment we’re doing at AVA to help break into the US market. A similar version of this post appeared on the Pollenizer blog

“They Just Don’t Get It”

The Aquino administration wants to grow our manufacturing sector. After all, no emerging market made the leap from third world to first without having a solid export-oriented manufacturing base. Unsurprisingly, our exports are paltry compared to our Southeast Asia neighbors.

But our creative exports – products in the fashion, jewelry, home accessories, and furniture categories – are growing double digit each year, after a slump during the global financial crisis. This is driven by a renewed interest from foreign buyers in unique merchandise from this part of the world – a far cry from the cheap knockoffs you see in China.

The problem: our export promotion strategy is still heavily reliant on the trade show model to market our creative exports. For décades, Philippine design products have relied on trade shows like Manila FAME to attract international buyers. For manufacturers lucky enough who have built a following among international buyers over the decades, getting traction is expected. But unfortunately for most mid-sized companies, local trade show traffic still pales in comparison to those in Singapore, Hong Kong, Paris and Last Vegas. Can you see a critical mass of foreign buyers when you go to FAME? The trade show is a 20th century solution in a 21st century world.

Several months back, we offered the organizers of Manila FAME a free workshop on how manufacturers can leverage e-commerce to grow their business. We were also gonna give a free guidebook on the basic platforms (like Etsy and Shopify) to equip them with the right tools. At no cost at all to the government. A junior executive said she’d get back to us. We never heard from her again.

I guess technology isn’t on the priority list of our export-promotion agencies. It’s hard when the very people who claim to want to help local exports “just don’t get it”. I don’t mean to put anyone down here. But that’s the truth. And I suspect it’s an assessment shared by many of our local exporters. If any DTI official gets to read this, please do know that our doors are always open and we will be more than happy to contribute to the local industry.

Doing it Ourselves

So what to do? We decided to reach potential customers in the US via a direct-to-consumer platform that leverages crowd funding, e-commerce and a lean supply chain. Enter Kickstarter.

INABEL KICKSTARTER-FINAL

Kickstarter allows people all over the world to contribute to creative projects. To be eligible to claim the fund, a project must meet its stated funding goal.

In exchange, people who pledge get rewards – often in the form of products that they’ve supported. The method is commonly known as “crowdfunding”, which essentially works by pooling small contributions of thousands of people within an online platform. Kickstarter is the world’s biggest crowdfunding platform, having funded more than $1 billion to date.

The Opportunity

The fashion e-commerce in the United States will be a $88 billion market by 2016. Countries in Southeast Asia stand to benefit a lot. The Philippines alone exports over $1.5 billion of apparel, accessories, and furniture to the U.S. Vietnam, Thailand, and Indonesia export even more. And these exports create local jobs, that in turn, increase local demand for goods and services. Yet, these export industries have remained relatively offline.

Of course, our resources were constrained: we had a small team and we still had the local business to operate. What we have, though, is merchandise. These weren’t just your typical fast-fashion products found in a Zara or H&M. These were unique, handcrafted, artisan-inspired products found nowhere else in the world. These were products with stories. And most of all, they weren’t on Amazon.

So what’s a good “minimum viable product” for an international launch? Whatever we chose, it had to follow 3 criteria: it had to be cheap, gave us distribution, and got us maximum learning for minimal effort.

We had a variety of options, from Etsy and Ebay to Fab and Shopify. We decided to go with launching a campaign on Kickstarter.

Next, we’ve always wanted to work with traditional textiles that not only had a unique product story, but more importantly provided a steady income to the many rural communities in the Philippines. Unfortunately, the local market doesn’t value these textiles, with most consigned to museums or left as ornamental displays in gift shops. Filipino heritage products wasn’t “cool” to the emerging middle class in the same way Prada was cool.

Nonetheless, we made a bet that this would be a story that resonated to the maker movement on Kickstarter. So we set out to work with Al Valenciano, who runs a community of artisan weavers in Ilocos, in the Northern Philippines, and celebrity designer Tweetie de Leon-Gonzalez, whom we’ve had the pleasure of working with last year. We chose the traditional textile called inabel, known for its color, vibrance and versatility. Inabel has been around for centuries.

The Collection: Tradition Meets Modernity

Inabel has a magical quality. In sharp contrast to factory-produced goods, the inabel fabric is handwoven on ancient looms by Filipino women. It takes 2 weeks just to set up a pattern on a loom and a loom can produce only about 2 meters of fabric a day. The process is intricate and time-consuming, the result, breathtakingly beautiful.

Inabel is intimately connected to the people who create them. The tradition of weaving is passed down from one generation to another along with the stories that emerge from the fabric’s patterns. The fabric itself is an expression of the culture, identity and history of the ancient Filipinos, often depicting the harvest cycle and symbols of prosperity. The fabric is present in all the key moments of a person’s life, often presented as a gift during birth, a marriage, and death.

Today, there are less than 10 inabel master weavers alive. Within a generation, the inabel tradition may vanish – unless we do something about it. To keep the craft alive, we needed a more sustainable path-to-market for this amazing fabric. 

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

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

Tweetie designed a wonderful collection of modern products such as iPad cases, weekender bags and accessory kits fashioned out of inabel. We traveled to Ilocos, shot a video, and told our story. As far as we know, it’s the first time a traditional Filipino textile has been featured on Kickstarter.

  • Artisan design. Tweetie loves to describe these products as “anti-fast fashion”. We wanted to create modern products that are infused with our identity as a people. We chose travel as a theme because the modernity of travel, combined with the heritage of inabel make for a fascinating contrast.
  • Form and function. We’ve given tremendous thought to the details, from selecting the right cotton blends to choosing the inabel pattern to use. We’ve optimized for multiple uses. For instance, the dopp kit can also double as a shoe bag, while the iPad case has a retractable leather strap to instantly turn it into a clutch bag.
  • Timeless craftsmanship. It takes 2 weeks just to set up a pattern on a loom and a loom can produce only about 2 meters of fabric a day. The process is intricate and time-consuming, the result, breathtakingly beautiful.
  • No excessive retail markups. Because we’re bypassing layers of middlemen and going direct-to-consumer via e-commerce, you can get these products at a price way below the usual retail price in a New York department store.

The result: products that fit the present, while reminding us of the past.

This is as live a customer development story as it can get. AVA’s Kickstarter campaign has raised close to 90% of our funding goal with over 10 days to go. With your help, we can make it.

If you have a minute or two, we welcome you to be part of the campaign to bring Filipino products to a global stage. When you pledge, you’re sure to get an inabel product of your choice (my personal favorite is the iPad case). And as always, please share with friends abroad to help keep the tradition of inabel alive for generations to come.

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The End of Philippine Fashion. And What We Can Do To Save It.

This is the 2nd part of a 3-part series on our creative industries. Part 1 talked about the inadequacies of the prevalent strategies to grow our $1.5 billion in creative exports. This part talks about how technology can play a role in the competitiveness of our local designers, brands and retailers. It’s related to a broader conversation on the Philippine innovation economy.

"It was H&M, mum." Photo credits: independent.co.uk

“It was H&M, mum.” Photo credits: independent.co.uk

Local brands whisper “H&M is coming” in the same way as the Starks of Winterfell do: they know it will be unstoppable, it will last long, and many will perish.

And then, there’s the Japanese. We all know about Fast Retailing’s very public intention to create the biggest fashion company on the planet by 2020. Japan is our biggest trading partner, so you can count on the Philippines to be a major part of this strategy.

Finally, there’s the broader conversation on ASEAN 2015. The big step in creating a single market in Southeast Asia will inevitably lead to several new brands from around the region entering the local market. And our local champions are seriously outgunned. I couldn’t find data for fashion, but take banking: BDO is the biggest local bank, but is only #19 in Southeast Asia.

Does the increased competition mean the end of Philippine fashion? What will happen to designers, manufacturers, and retailers when the market is flooded with cheap products and more recognized brands? We’re seeing it happen in real time in Brazil. The competition won’t just come from offline players. Even China’s Alibaba is investing in department stores.

The three segments of the market will be affected in different ways:

Independent designers & small businesses will be hit the worst. Brands who rely on bazaars and consigning in department stores will find it harder to compete. The best designers will have a stable clientele for couture, but will find it difficult to scale with ready-to-wear. The rest will be more inclined to work with the bigger houses than start their own label. Contract manufacturers who rely on wholesale orders will see customers move to Vietnam and Indonesia, who are both employing even more aggressive textile export strategies. Cambodia is fast catching up. Just look at the ever dwindling traffic of foreign buyers in Manila FAME each year and the number of closures in the 2nd floor of Greenbelt 5.

The Sub-Billion Players (those with more P100 million in sales, but less than P1 billion) will find it harder to grow. Brands like Folded & Hung and Gingersnaps will slug it out over retail space. Mall operators will prefer leasing to anchor brands, or allocate the prime space to their own franchises (like SM’s Forever 21 and Uniqlo). Because the sub-billion brands don’t have the scale of the bigger players, they will have a harder time competing on price. They will source cheaper merchandise in China, further deteriorating product quality, which will turn off even more consumers. It’ll be a vicious spiral. There will be some consolidation in this space.

The Billion Peso Club (P1 billion+ in sales) will handle the onslaught, but they know the era of easy growth (by simply opening new stores and slapping celebrities on billboards) is over. For them, the smart bet is to pursue an international presence as fast as possible by bringing their brands abroad or by positioning themselves as local partners for foreign brands. Golden ABC (the parent company of Penshoppe) is implementing an Inditex-like strategy: open overseas stores and build a portfolio of brands. Bench is bringing in foreign brands (Aldo, Pedro, etc) while extending its iconic brand to new categories (skin care, salons, etc). This strategy, of course, makes sense given the small size of the local market and resources controlled by these companies.

Online retail will empower all these players. My humble thesis is that e-commerce holds the key to exporting Philippine design. An online strategy can help our local brands 1) remain competitive locally and 2) pursue breakout opportunities internationally

Vania Romoff launched an online-only collection on AVA.PH

Vania Romoff launched an online-only collection on AVA.PH

How do we think about this new normal for Philippine fashion?

1. Think Stories, not Stores. The primary unit of analysis in retail used to be the physical store. Today, it’s the customer story. How do we create a seamless brand experience for consumers regardless of the touchpoint – whether it’s in the mall, on laptops, or on mobile phones?  For example, Warby Parker started as an online eyewear brand. Last year, it opened its first set of brick-and-mortar showrooms where customers can try out different frames and order on an iPad.

With the ability of the internet to distribute content all over the world, local brands can tap an international market. At AVA, we’ve gotten a few customers from the United States, Germany, Belgium, Australia, Singapore, Malaysia and Japan. And we haven’t even done any marketing in those countries.

Unfortunately, there’s so much misguided thinking in the Philippines. At a recent public forum, the head of one of the biggest malls in the country said that “online is the biggest threat to our business“. This is alarmist and exaggerated drivel. It’s misguided because it creates a false distinction between online and offline. Alarmist because the shopping mall will obviously not go away (US e-commerce is still less than 10% of total retail, but a large majority use online to guide purchase decisions).

It ignores how new retail technology can be integrated in the store. It’s no longer “online vs offline”, but a choice on how to communicate the brand story in both worlds.  For instance, brands like Marc Jacobs (who is using social media as a form of in-store currency) and American Eagle (who is piloting iBeacon technology) are showing innovative new ways of embedding retail tech in their traditional offerings.

It’s not just about opening an “online store”, but integrating tech into sensible parts of the retail value chain. Walmart’s latest experiment? Using ad tech to cut waste in its media budget.

Tweetie de Leon and AVA partnered to launch a Kickstarter campaign to save the dying inabel fabric.

Tweetie de Leon and AVA partnered to launch a Kickstarter campaign to save the dying inabel fabric.

2. Build Omni-Channel Capability. Omni-channel retail is an infrastructure decision. And thus requires completely new thinking on organization design, marketing, logistics and inventory management. Another fashion brand was hesitant to launch its own online store because management didn’t want to “divert part of the marketing budget from print and outdoor“. And that’s the problem: an e-commerce strategy isn’t a marketing mix decision, but a business unit-level decision that requires its own set of resources.

When I met the chairman of another retailer, his first question was, “can going online be profitable in the first year?”.  (Dear Mr Chairman: Please do not ask Jeff Bezos this question). Yes, if you’re thinking of “going online” as simply putting up a website. It would obviously not be if you view it as an infrastructure decision.

The good news is that the technology is getting cheaper. I can build a shopping app that costs way less than a billboard on EDSA or a print campaign in Preview. Getting educated about e-commerce is free (it’s called Google). The payments and delivery network have been built and getting better each year. And with companies like Rocket Internet and Naspers operating in the country, talent is more widely available.

Brands without a clear e-commerce strategy aren’t being cautious, they’re being lazy.

3. Leverage on Platforms. Think of a platform as a business that empowers other businesses. The iPhone, for instance, is a platform. Apple provides the centralized eco-system, while independent app developers around the world provide the content. Global marketplaces like Etsy and retailers like AHAlife have allowed independent producers from around the world to access consumers far beyond their home country. Etsy for instance did $1.35 billion of gross sales last year. On Amazon, up to 1/3 of products are sold by third party merchants who host their products on Amazon’s distribution centers. Crowdfunding platforms like Kickstarter allow designers to generate pre-orders even before their products hit the market.

With these platforms, Filipino producers can immediately access a global market on day one. The bazaar in Rockwell only gives you a spike during Christmas? No problem. A presence in Etsy helps expand your footprint. What to customize the look of your store, but don’t have the budget? There’s Shopify for that.

4. Slow Down Fast Fashion. Fashion’s deep, dark secret is that sweatshop labor all over the world subsidizes the thirst for fast fashion in the developed world. Sites like Maiyet, Uncommon Goods, and Everlane are all signals of consumers’ desire for a different way of thinking about fashion. The tragedy in Bangladesh helped cast a wider spotlight on this sorry state of affairs. People are now looking beyond the rack and seeing how their purchases are collectively affecting a global supply chain. Brands are looking for authenticity to break through the cynicism. This is good news for our creative industries. We can’t compete with China on price, but we can certainly compete on design and an authentic brand story that explores our rich cultural heritage, our traditional textiles and materials, and our local craftsmanship.

In my next post, I’ll share what we’re doing at AVA to help create a bridge between our local products and the global market.

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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.

Slide2

 

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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.

Slide04

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’).

Slide05

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.)

Slide06

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

Slide07

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

Slide09

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

Slide10

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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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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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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