Entrepreneurs, Entrepreneurship, Founders, Philippines, Startups, Uncategorized

The Honest Guide to Startup Fundraising in the Philippines , Part 1 of 2

“At some point, everything’s gonna go south on you. And you say to yourself, ‘This is it. This is how I end.’  Now you can either accept that or you can get to work. That’s all it is.

You just begin. You do the math. You solve one problem. Then you solve the next. And if you solve enough problems, you get to come home.” – The Martian

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“Just close it down,” said my Dad, in no uncertain terms.

In the first quarter of 2015, my startup was dead in the water. We only had 3 months left of cash in the bank.

My father knew how to cut his losses. A serial entrepreneur, he’s tried many businesses over the years. And he wasn’t afraid to pull the plug when things weren’t going as planned.

Some context is in order. In the 2nd half of 2012, I raised a seed round of a few hundred thousand dollars. The objective was to grow a Gilt-style flash sales site. At that point, the startup was doing seven-digit revenues with profitable unit economics. It took about 6 months – fundraising in the Philippines is like our internet speed, slow AF – but it was easy to do. Valuation math is a breeze when you can divide percentages in your head.

But I made the mistake of listening to early advice to be lean, raise less now, and go for a bigger round in a year or two. I knew empirically that e-commerce – especially in infrastructure-void Philippines – needed immense scale. And scale required capital upfront.

That’s the first lesson of fundraising: never listen to advice that asks you to raise less than what you need. You know your business best, and investors have an incentive to doll out this advice – to cut your valuation, conserve their checkbook, etc.

Armed with our little funds, we adapted to the ruthless Darwinism of the free market: focusing on Metro Manila, building a brand, targeting the premium segment of the market that wasn’t price-sensitive (credit cards were 80% of our transactions, a rare outcome in this country), and hired 20 people. As a result, we grew gross revenue 6x in 2013.

Then the world changed. The flash sales model soon fizzled out as inventory ran dry. Though we had enough funds to cover overhead and customer acquisition, running lean meant we didn’t have enough to invest in inventory, R&D, logistics, and warehousing.

Merchandise revenue, which I forecasted to double in 2014, contracted by 10%. Normally, this wouldn’t be a disaster. But in e-commerce, growth is everything.

By the time 2015 hit, we had to move out of our office because we couldn’t afford the rent. I slashed my salary by 60% to make sure our employees made 100% of theirs. The COO I hired to help professionalize the business turned out to be a poor fit. Our CTO, who’s been with us from the start, had left. Morale sank.

I can’t say I wasn’t tempted to abandon the sinking ship. I had lots of other startup ideas. There’s been standing job invitations from a telco and a private equity firm, not to mention the constant inbound recruiting emails from Rocket Internet and Uber. I said no to all of them.

And as impossible as this situation sounds, it’s actually nothing out of the ordinary. 80% of startups fail within 3 years.

It was one of our customers that helped us out of the slump. It turns out that Kim Jones, before she became the huge brand ambassador she is today, was a customer. She loved our products, and one conversation led to another. In the middle of 2015, we launched her private label collection.

Remember that story about Airbnb’s founders selling cereal to make ends meet? Well, we did something similar too. It turns out our team was one of the few in town who actually had experience in building an end-to-end e-commerce platform from scratch. IT dev shops only knew the tech. Ad agencies only knew the marketing. We did everything. Our business experience allowed us to charge a premium. So a small side project for a brand turned into a multi-million deal that essentially saved the company. We were the cereal.

The rest of 2015 turned out to be a tumultuous year. There was acquisition talk with a prospective buyer, but we couldn’t agree on the price. A huge foreign e-commerce company offered a term sheet to lead a series-A, but freaked out when they faced massive foreign ownership restrictions in mass media and retail. The founder wanted to take his private jet and fly here to Manila, but was advised by his security team not to. Besides, that pretty young starlet he was dating kept him busy. Then, our original investor invested in the competition instead. Another local angel wanted to invest, but I no longer wanted to take capital if it was in small amounts.

All this was a distraction: each had no meaningful contribution to the goal of building a business.

As we entered 2016, there was only one move left to make: make the venture cash-flow positive. It was time to take our destiny into our own hands.

We launched another site, cut non-performing staff, and built an enterprise business doing digital strategy, e-commerce, and content, with local and international partners. By the end of 2016, our business turned cash flow positive after 2 consecutive years of steady growth. By 2017, we had more cash in the bank than when we started.

Meanwhile, it was a bloodbath in the local e-commerce market, as several local sites collapsed, among them well-funded international players. Only the biggest, most-capitalized foreign players, or well-run local sites remained.

There was immense joy in finding a win in a no-win situation. You will never have an experience as meaningful and gratifying as facing the brink of the abyss and coming out alive, middle finger raised to the air.

And when word quietly got around that we were one of the few profitable ventures in town, we started getting inbound emails from random investors, including some who had rejected us before. Some clients offered to invest. I politely declined all of them.

This story is relevant because in a recent survey, 94% of PH startups see themselves raising funding in the next three years. Most will fail.

They’ll all go through the same journey we did, more or less. The excitement of a small group of friends wanting to conquer the world. The euphoria of winning a pitching competition and attracting media attention. Launching product. Getting your first few customers. And the brutal counterpunch of reality. Just another day in startup land.

The startup scene in the Philippines is like masturbation – lots of fantasizing, ego-stroking, and wish fulfillment, but not much real action going on.

Founders will read Techcrunch and Tech-in-Asia, join pitching competitions, attend conferences, and regale at the stories and startup advice of this month’s speaker – who by the way is either a government buffoon or is someone who has never built a business with his/her own capital before.

All this only increases the gap between wishful thinking and reality.

The stark reality is that if one looks at a map of Southeast Asia, you’ll see that the Philippines sits apart. It has the smallest venture capital market (in # of deals and value). It’s overlooked by the much bigger regional funds in favor of Singapore and Indonesia. There are very few really good angels, and a lot of predatory ones.

There’s been a number of initiatives over the years to change that, but none have really worked, thanks to the combination of a protectionist Constitution, our underdeveloped capital markets, and the complex regulatory environment (all topics worthy of exploration in a separate article). Just look at our foreign investment metrics as proof. Even Vietnam is eating our lunch.

Thus, scarcity drives the local startup game. And that’s the big point of this post if you’ve made it this far: because the game is stacked against founders, to raise startup funding in the Philippines, you have to make investors believe you don’t need the funding.

And the most empirical way to demonstrate this is to build a cash-flow positive venture. That’s all there is to it. Don’t repeat our mistake in delaying cash-flow positive status to after your 2nd or 3rd funding round.

Because of the smaller early stage funding market relative to Singapore or Indonesia, I would argue that new local Filipino founders should:

1. Have a bias for picking ideas that can be funded by customers, rather than investors

2. Draw a solid plan to get to cash-flow positive ideally in the first year. Maybe two years – max.

3. Have a low enough cost base that can be funded by 1-2 clients if you’re B2B, or 100 customers if you’re B2C. Forget about it if you’re advertising-dependent (Facebook & Google have won).

4. If you do need to raise funding, treat it as a last resort, and give yourself a hard deadline, say, 6 months.

5. Start with regional investors rather than local ones.

6. Incorporate in Singapore, Hong Kong, or Delaware. Create a local operating subsidiary only if necessary.

This certainly narrows the space for the kind of startups the Philippines can build. But it’s not impossible. An enterprise-focused SaaS product with a strong consulting arm can certainly be cash flow positive within a year. Or a direct-to-consumer online store with only 100 monthly customers but PHP 5,000 ATV and low overhead can certainly be profitable.

“That all sounds good, Oliver,” you might say, “but aren’t startups all about growth? What about those ideas that need massive growth and scale to be profitable?

Sure, I’m not discounting the possibility of success for such models. But the Philippines is not the place to start capital-intensive startups. You’ll need to be based in Singapore or Jakarta to access the capital needed to fund hyper growth, and simply have the Philippines as another portfolio country.

Which brings us now to an honest discussion about access to capital.

If you’re just starting out or if you’re cash-flow negative, you then need to figure out where you are in the local Startup Game.

The Game is defined by this 2×2 matrix. This matrix applies if you:

1. Want to do or are currently doing a startup

2. Have a reasonable amount of self-awareness

3. Have objective metrics on the viability of your product

Note that this matrix describes your starting point, not your end-state. It helps define your initial moves, not your destiny.

On the X-axis is your product. Does it have product-market fit, based on objective metrics – users, revenue, margins, retention, net promoter scores, etc?

Now, the Y-axis will likely sound controversial, but it’s the honest truth. On the Y-axis is a famous name: your family name, your school’s, or a previous company affiliation.

It doesn’t mean that raising is an impossibility, but your product will just have to be way better compared to someone in say, Singapore. When I was raising our first round, I got a lot of advice to mention my school or the fact that we won the Asia Pacific leg of the Harvard New Venture Competition – never mind that neither was a factor in our odds of success! But people are herd animals, and you would be wise to take advantage of this gap in human psychology.

The PH Startup Game (1)

If you have a great product and a famous name, go ahead and raise. Do one round and get to cash-flow positive.

If you have a great product, without a famous name, I’d argue not to waste your time fundraising. Instead, you need to get cash-flow positive ASAP. Keep a good SEO strategy for your startup’s name and a healthy LinkedIn presence, and wait for the inbound investor requests to trickle in. You get investors to pitch you rather than the other way around.

If you don’t have a great product, but have a famous name, your next moves will depend on the nature of your famous name. If it’s your school or company, then you might be better off working for Rocket Internet or Uber for 1-2 years to learn the ropes. These guys love brand name degrees. Pick the role wisely. If you want to be an entrepreneur one day, working as a Product Manager at Grab is superior to a sales job at Google.

If it’s a famous family name that you have but not a great product, you can likely syndicate together 1-2 years worth of runway. Manila is full mediocre businesses from children of tycoons and suckers posing as investors.

If you neither have have a great product nor a famous name, you have three options:

1. Learn how to build a great product on your own

2. Get a famous name by joining an awesome founder

3. Or my recommended option – do both of the above. This is best accomplished by working directly under a startup founder or the local GM of a global tech company. For example, the direct reports of guys like Ron Hose, Ravi Agarwal, Jerome Uy, Paul Rivera, Nix Nolledo, Laurence Cua, Ken Lingan, or John Rubio will likely have great careers ahead.

That’s essentially the game. You need to recognize where you are to determine the right moves to make.

If you decide to take the fundraising route, stay tuned for Part 2 of this post, where I’ll talk about some of the tools you’ll need.

 

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E-Commerce, Founders, Government, Philippines, Startups

Who Should Be DICT Secretary? 5 Pegs for your Consideration.

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Aside from an acronym that can be the basis of a whole generation of Facebook memes, one thing that is worth pointing out about the Philippines’ new Department of Information and Communications Technology is that it’s a startup.

And like any startup, the founding team will play a crucial role. The DICT’s founding team needs a secretary, 3 under secretaries, and 4 assistant secretaries.

Who should they be?

Let’s start with the DICT is supposed to do. Section 6 of Republic Act 10844 – the law that created the department – lists the following powers and functions as its mandate:

1. Policy and planning: creating national ICT programs, promote ICT in education along with the DepED, CHED, and TESDA, and optimize all government ICT resources.

2. Public access:  creating rules for the establishment of ICT services in underserved areas; provide for free internet access in government offices and public areas.

3. Resource sharing and capacity-building: harmonize and coordinate ICT initiatives across government agencies, develop an integrated government ICT infrastructure, and assist in providing technical expertise to government agencies.

4. Consumer protection and industry development: ensure privacy rights, support investment promotion in ICT, and form international and local partnerships to drive ICT.

These are huge tasks. #3 alone hurts my brain, just thinking of the amount of work involved. The sheer magnitude of bureaucracy, national and local needs, vested interests, fragmented technical resources, and a technology landscape moving at hyper speed make failure intrinsically built into the job.

And this is why we need only the best to be leading the DICT. Though it would be hard to pin down exactly who the best person for the job is, I can wager a bet on who should NOT be even considered.

First, no lawyers. We have enough lawyers in government. If you look at the details of the DICT’s mandate, a huge portion of its success relies on strong collaboration and coordination with a multitude of organizations: telcos, technology providers, service providers, other executive departments, local government units, quasi-judicial agencies, and international bodies.

The DICT secretary will have to balance the competing tensions of a tech environment moving faster than the starship Enterprise traveling at warp 9.9 and the slow, lackadaisical way the average local leader makes decisions. Any entrepreneur who tried to selling to Filipino organizations knows this.

I have a lot of smart lawyer friends. The smartest ones play to their strengths and know what they are not: effective managers at scale. The DICT secretary should essentially be a manager who knows how to get things done through people. His output is the output of other people.

Also: the fine print. The DICT involves the reorganization and merger of existing agencies from the DOTC (which will be subsequently renamed simply as the Department of Transportation). The DICT needs manager who has done post-merger integration work. And as any human resources chief can attest, this is no small feat.

Second, should it be a telco person? I’m torn. Though it may be tempting to think that an alum from any of the two telcos could do the job, I’m leaning that the DICT secretary probably shouldn’t be a telco alum. Providing free internet access in government offices is a tremendous and expensive initiative alone. We wouldn’t want even the slightest perception of a conflict of interest. See the rabid reaction to Mark Villar’s appointment to the DPWH as a case in point.

Also, the NTC will become an attached agency of the DICT. And with the President’s drive to force the local providers to speed up the internet, we’d probably need a DICT secretary who can be tougher, more provocative, and more strong-willed to get things done.

Gerry Ablaza and Polly Nazareno, for instance, are both genuinely nice guys; the former is the ex-CEO of Globe (and currently runs Manila Water) while the latter just retired from Smart. But since both are above 60, I wouldn’t wish on them the grueling grind of working 80-hour weeks to get the DICT established and fully functional. They’ve both had stellar careers and they deserve an easier life. Let’s simply get them as advisory board members.

Which leads me to this part of the negative list – the DICT secretary shouldn’t be a sunset leader in his 60s who thinks this is a just a ceremonial post. At the risk of sounding ageist, we wouldn’t someone who can’t routinely work 15-hour days. There’s gonna be a lot of intense shit going to get this job done that it’s gotta be taken as seriously as a first year associate entering McKinsey or Goldman Sachs does.

But seriously, it should be someone who intuitively understands the innovation economy.

S/he must speak the language of the internet’s infrastructure, platform economics, net neutrality, cloud computing, and big data, among others.

S/he must be student of technology history, and how nations made the leap through technological advancement.

S/he must have spent time in the Valley. Or studied the technology trajectories of Japan, Singapore, Korea, or Taiwan. S/he must have witnessed the dawn of the internet in the Philippines. S/he must know the reasons why the future of the digital economy in the country rests with small businesses, not the big conglomerates. S/he must know who Ada Lovelace is.

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The local fashion industry likes to use the word “peg” as a term to describe a look, style, or palette to imitate. So in a nutshell, here are 5 quick pegs on which kind of leaders we’ll need at the DICT founding team.

The Operator

Think Facebook’s Sheryl Sandberg. This is the uber-manager who is both a captain and soldier, a strategist and tactician, a general and a diplomat. The Operator gets things done not just within a small team, but with a vast array of often conflicting constituents in pursuit of a common mission.

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The Product Visionary

This is the young gun who boldly goes where no one has gone before. That is my 2nd second Star Trek reference in this post, so I’ll just stop right there. But seriously, this is someone like Chris Hughes, who helped create the technology backbone of the Obama campaign (and a Facebook co-founder).

chris-hughes-adweek-2012

The Product Visionary gets digital media and has an intuitive understanding of how users interact with technology to make their lives better. S/he has a design & user experience background, and can for instance, design easier ways to file taxes online, or renew drivers’ licenses, or apply for passports.

The Platform Builder

Think Google CEO Sundar Pichai, who spent a more than decade building platforms such as Maps, Gmail, Chrome, and Android.

SundarPichai129-information week

A Platform Builder running the DICT would bring a step-change in how e-government works. For instance, imagine a one-stop Singapore-style online portal for business registration. Doing so would require integrating the back-ends of various agencies involved in the process, from the SEC, BIR, and DTI to LGUs, PhilHealth and SSS.

The Data Guy

This is the country’s chief data scientist, tying together all the data-related initiatives of the government such as Data.gov.ph,  or helping Comelec prevent another data leak. Think someone like DJ Patil, the chief data scientist of the United States.  S/he can help predict and counter emerging cyber security threats.

DJ Patil - Gigaom

The Insider

This is the career executive who has spent decades working in tech. S/he started in engineering, then moved up the ranks in management to lead teams with an ever increasing scope and complexity, and eventually becoming responsible for an entire platform.

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Someone like Minerva Tantoco – the Filipino American CTO of New York City and who spent many years in the technology side of financial services – would be perfect for this. The incoming DICT team should definitely have her on their advisory board.

Bonus: An army of Bertram GilfoylesYeah, the DICT would likely also need an army of guys who can get shit done without caring for the politics-induced BS that comes with the territory. And guys like that won’t work for the kind of guy rumored to be angling for the post.

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What kind of leader should be DICT secretary? Chime in below.

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Entrepreneurs, Entrepreneurship, Founders, Philippines, Startups, Uncategorized

How the Next Philippine President Can Win the Entrepreneur Vote

Mar is probably the most business-friendly of the bunch, though he is no entrepreneur. Jojo will find it hard to claim to be an entrepreneur because it runs counter to the narrative that he didn't get rich off Makati. I don't believe Grace had any business experience at all. Photo credit: Rappler.com

Mar is probably the most business-friendly of the bunch, though he is no entrepreneur. Jojo will find it hard to claim to be an entrepreneur because it runs counter to the narrative that he didn’t get rich off Makati. I don’t believe Grace had any business experience at all. Photo credit: Rappler.com

When Johannes Guttenberg invented a printing press based on movable type, it set off a chain reaction of events with profound consequences across the world. For the first time in human history, books could be printed in large quantities, versus being copied by hand. It was bound to unlock the sum of human knowledge to the masses of people still reeling from the Black Death and living under a system of feudalism and serfdom.

This was in 1445.

By the 1460s, the printing press could be found in France and Italy. In 1476, William Caxton established one in London. It was soon in Spain. Books were printed. People started reading. Writing blossomed. Thoughts were reproduced.  The media was born. Ruling a country would never be the same.

The Guttenberg Press

The Guttenberg Press

It was a different story in the Ottoman Empire. In 1485, Bayezid II ordered a decree forbidding Muslims from printing stuff.

“What the fuck is this machine?” he must have muttered to his aides. “No way will I have these pieces of paper circulating all over the empire.”

Unlike Emperor Palpatine who so graciously embraced technology of planetary scale to annihilate his enemies (albeit failing to solve the fly-by-the-trench problem), Bayezid II viewed the new technology with fear and distrust.

The geopolitics of it all was understandable. There were revolts all over the empire. A few years later, Bayezid would tussle with Ferdinand of Aragon and Isabelle of Castille for kicking Muslims out of Spain as part of the Inquisition. Any tech out of Europe was to be seen with suspicion and distrust.

It was only in 1727 that the printing press was allowed in the Ottoman Empire. Ibrahim Müteferrika was granted a royal decree allowing him to have a press.  Still, its use had a lot of restrictions.  Müteferrika needed the approval of a panel of Muslim and legal experts before publishing anything.

I'd look pissed too if I had to ask for CBCP permission for this blog.

I’d look pissed too if I had to ask for CBCP permission for this blog.

It’s like asking the local parish priest, Fr. Joey, for his approval before posting a Facebook status update. You had to enter the confession box, phone in hand, supplicating to Fr. Joey. He may say no. He may say yes. He may ask for a hug. Maybe a little more than a hug. It sounds ridiculous but that was in effect what Müteferrika faced.

The effects were damning. Müteferrika only got to print 17 books. And by 1800, only 2% of the Ottman Empire were literate, versus 60% of adult males in England.

The rest, of course, was history. Great Britain would lead the Industrial Revolution and Europe would soon follow. After a long period of decline, the Ottoman Empire fell after the First World War.

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In the book Why Nations Fail (from where the example above was lifted), the printing press was a critical juncture in history. The printing press was technological innovation that, along with other technologies, would form the backbone of literacy, knowledge, and education that gave rise to the Industrial Revolution.

The way that nations respond to technological innovations are shaped by their political and economic institutions. England, France, and a young colony in the Americas embraced technology. Others, like the Ottoman Empire, blocked it.

We’re at that critical juncture today. Today, the Philippine Republic is the Ottoman Empire. The printing press is the Internet. The Industrial Revolution is the legion of empowering technologies that the Internet enables, from e-commerce and social media, to artificial intelligence and data science. And it’s the way our political and economic institutions are structured that hinders their adoption.

ActionStack.org


Entrepreneurs, engineers, and students at Action Stack’s Data Means Business workshop. The deluge of data is giving rise to new technologies that can form the backbone of a new industry in the Philippines.

Perhaps that’s the legacy of the Aquino administration: remarkable progress in our macroeconomic growth (GDP, credit ratings, fiscal & monetary policy), but without significant institutional reforms of a critical scale to ensure that technological innovation happens across the economy.

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We’ve been at this critical juncture before. Twice actually. The first was when the Americans took over and we had the chance for a Great Reset in our political economy (that didn’t happen as I’ll explain later). The technologies of that time were electricity, the automobile, aviation, industrial machinery, and more.

The second was more recent, during the EDSA Revolution, when we had the chance to do a wholesale revamp on how we as a country pursued free enterprise. It was only in the early 2000’s that the BPO industry picked up steam. What we should takeaway from the BPOs is not that it is on track to bring the economy $25 billion in annual revenues, but the fact that it could’ve happen sooner in the early 1990s. In tech, the 10-year head start matters. Look at India. While we were getting our act together in the 90s, India was already rapidly surpassing us in information technology, building upon their strengths built since the 1970s. Today, the CEOs of Google, Microsoft, and soon SoftBank trace their origins to India.

The pace of technological change will only accelerate, and it’s not just about playing catch up in a linear rate of growth anymore. That’s why you have initiatives like the DOST’s 256k Internet plan being the laughing stock of the local tech community. When we have neighbors like Singapore planning for 2030 (led by a Prime Minister that knows how to code), it’s not fun that we’re planning for the world of 1998.

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Sure, we allow free enterprise on paper. Article 12 of our Constitution demands it.  Our media celebrates it. Our leaders extol it. But underneath the surface, there exists a wide gap between rhetoric and reality.

There are several facts to support this, and i won’t rehash them in detail for they are widely known:

1. Our Internet speeds are the slowest in the region.

2. Our ease of doing business is horribly messed up. We rank 165th in the world in starting a company. It’s easier to start a business in Afghanistan and Mongolia than in the Philippines. This World Bank Report is actually remarkably optimistic. For instance, it says it takes 3 days to register a corporation with the SEC. Anybody who’s gone through that process will attest that this is impossible.

3. Even if you’re successful in registering a business, getting electricity, acquiring property, getting a construction permit, accessing credit, paying taxes, getting import / export permits, and paying taxes are all messed up.

4. The complexity of complying with the law means you are bound to fail, and that creates opportunities for corruption. Every now and then, you’re victimized by petty low level corruption, from the local fire department requiring you to buy a fire extinguisher from a preferred supplier, to the immense syndicate at the BIR.

5. Our infrastructure remains substandard. We rank 8th out of 10 ASEAN economies in infrastructure.  Laos and Cambodia did better in that list.

7. You’re faced with cultural dogma that celebrates being rich, but looks down on getting rich – because of our a) disdain for failure, and b.) distaste for young people who display ambition and intelligence.

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Why are the stuff above happening?

One big reason is that our political institutions aren’t set up to unleash the power of free enterprise, and by extension technological innovation. Why?

To answer this question, we have to briefly detour back to the end of the Filipino-American War.

In 1902, the United States slowly began to devolve power to their little brown brothers. But there was a catch. Only members of recognized families – the principalia – could be nominated to stand election in the Philippine Assembly, the lower legislative house established by the US Congress’ Philippine Organic Act of 1902.

And so the Assembly was filled with rich landowners, former encomenderos, already established businessmen. What happens when you give the powerful more power? Well, that’s like asking what would Hydra do if given the ability to combine Zola’s algorithm with precision-guided laser beams from three satellite-linked helicarriers.

That too was perfectly understandable. If you’re an old man with 300 hectares of farm land, very low productivity, four kids to feed (maybe three more from that nice young mistress from the other barrio. She reminded you of that Maria Clara character from that Rizal novel in the 1890s.), peasants who joined the Katipunan a decade ago, and constant fear that remaining guerrillas like Macario Sakay could commandeer your land, you wouldn’t want some other young guy in the other barrio discovering a new way to plant palay and sell more grains than you. You would rent-seek as much as you can to get more cash flow while keeping your expenses and investments (i.e.: new technology) down.

Landed lovers of Maria Clara. Photo credit: PCIJ

Landed lovers of Maria Clara. Photo credit: PCIJ

And so that state of affairs – our extractive economic institutions, preferential Filipino ownership in theory but oligarchic control in practice,  the persistence of political dynasties, the collusion of big business and politics, and our distaste for foreign competition and investment – enshrined itself into the affairs of the State.

Today, these dynamics result in some really weird stuff going on at the grassroots level:

1. Close to 80% of GDP growth being captured by the top 40 families.

2. Science, technology, and entrepreneurship getting almost zero mentions in the President’s State of the Nation Address, despite the rhetoric of jobs and inclusive growth.

3. The US Secretary of Commerce showing more personal interest in technology startups any high official from the Philippines, with the remarkable exception of Senator Bam Aquino.

4.  A Startup Conference where a glaring majority of speakers are not from startups.

The bottom-line is that we have created two worlds of free enterprise.

In the first one, it’s easy to do business because you’re part a big conglomerate. Want to set up a new division because the Investment Committee just approved Php 500 million for a new venture? Sure, just get the legal department to handle the papers. It’ll be back in less than 30 days. We do have a directly line to the SEC, BIR, DTI, SSS, Pag-Ibig, and Makati City Hall.

In the second world, starting a business is a struggle. You’ve worked ten years and have managed to cough up meager savings. Now that you’re ready to set up a business, you have to endure months registering it. That’s not counting the hours you have to stand in line at the SEC, BIR, DTI, the local Municipality, the Barangay Hall, and other agencies to get your permit. That’s not counting the days traveling back and forth in Manila traffic. And even when you get all your documents, that’s not counting the cumulative time it takes to get an internet connection, a construction permit, financing, or other special permits. This doesn’t even count the time spent in your actual business.

The goal of the next president is merge these two worlds, and bring the second one closer to the first.

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There are over 1 million business enterprises in the Philippines. That is at least a million people who are business owners. 99% live in the second world. They’re influential. They have employees. They have customers, suppliers, partners.

They might seem invisible because they’re not the most vocal on social media. Instead of ranting about the productivity drag of traffic and the huge number of government-mandated holidays, they just buckle down and get to work.

This is a large base and there are two ways the presidentiables can win the Entrepreneur Vote.

The first one is to do it the old way. Write some fancy sounding slogans. Hire a “PR expert” to craft the right messaging. Make a jingle. Get celebrity entrepreneur to sing it. Make a music video of the jingle. Air on TV. Post some catchy updates on Facebook. Blame the current administration.

The second is a new way. Simply, it means candidates putting themselves in the shoes of the entrepreneur. And not in a superficial way like visiting Aling Nena’s sari-sari store or manning a Jollibee counter for an hour.

This idea will sound completely ridiculous to the political establishment and their campaign handlers.  It’s brazen and has never been been done. And that’s the point.

This is how it’ll work.

1. Each presidentiable will have 38 days to register a corporation. Why 38? Because that’s the World Bank measure of how long it takes. They have to get as far into the process as they can within that amount of time.

There will be milestones – in the form of 3 public events, live streamed to the public.

2. The first day will be a publicly-held event. During this day, we’ll even make it easy for them. I’ll give each candidate all the forms they need, and Php 5,000.00 each as initial paid-in capital. They have to fill up all the forms themselves in that event – no accountants, no lawyers.  Broadcast this live in front of the people. SEC Articles of Incorporation. By-Laws. BIR Forms. DTI. SSS. Pag-Ibig. City Permit. Barangay Clearance.

3. Some of these steps can be done electronically. We’ll leave it up to them to figure out which ones by finding it online. We’ll give them laptops. And a few thousand pesos for a portable broadband connection. They can choose which provider they want.

If they want, they can pick a Negosyo Center of their choice to begin the registration process.

4. At the end of that day, we’ll have a panel check who filled up the forms correctly.

You get the drift: the idea is to make each presidentiable feel what every Filipino entrepreneur has to go through. It doesn’t have to be exactly this process below – I leave to that to the media or academics who can probably design a better simulation. But since we’re at it, humor me for a few more minutes.

5. Once they finish the forms, the candidates will have to visit the various government agencies for the next 38 days. They’ll have to file the forms themselves. Go to the SEC and BIR and line up like everyone else. No aides. No assistants.

6. They’ll have to collect the output – such as the SEC Certificate and BIR Form 2303 – themselves. They’ll have to go back to each time on their own.

Their progress will be tracked online in a dedicated website.

7. Once they get the necessary permits, that’s not where it’ll end.

I’ll give each candidate a free TackThis! or Shopify account. In a second public event, they’ll have to use these services to set up an online store from scratch.  They can choose whatever they want to sell online. At the end of the day, we check who was able to sell the most.

Why selling online? Because it’s a great way to truly understand young entrepreneurs who are likely to use the Internet to enable their ventures. Selling online brings all of these skills together – from knowing your target customer, selecting & managing inventory, understanding the cloud, social media, and digital payments.

8. On the third public event,  all the presidentiables will be invited to a public forum to discuss their experience in front of small business owners.  This won’t be a debate format. Instead, we ask each candidate to answer the following:

  • Describe your experience in registering a company.
  • Diagnosis the process of starting the company. What were the bottlenecks? What worked? What didn’t?
  • Recommend the changes and how you would implement them.

The “how” part is going to be crucial one. It’s easy to write into a campaign speech that we need better internet and easier ways of doing business. It’ll be the hard implementation-related questions that will be worth pondering.

For instance, it’s tough to get the SEC to adopt electronic registration because its employees’ cooperative is dependent on selling paper forms. How do you make it easy for businesses while at the same time combatting organizational inertia?

Another is slow internet. Sure, it’s easy to say that we should hold telcos accountable. But how? Do we reclassify internet services as a public utility? Do we liberalize the auctioning of spectrum? Do we staff the NTC leadership with engineers instead of lawyers? How do we make it easier for telcos to build a physical network, with the current plethora of national and local permits?

This isn’t a perfect exercise, of course (you can imagine most trying to game the system, by asking for expedited processing from some agencies, for instance).

This is 100 times better than simply asking the presidentiables how to encourage entrepreneurship and getting the standard answers in response. That’s also the purpose the public forums serves – you can kinda guess who gamed the system based on the level specificity and empathy of their answers.

And neither is all this limited to national candidates when arguably local politics matter way more in welfare of local vendors and sari-sari store owners. The accomplishments of Leni Robredo and Rodrigo Duterte are proof.

When the dust settles, we’ll have a treasure trove of data and insight about each candidate. We’ll know who can win the Entrepreneur Vote.

*****

In the late 1920s, Stalin led the drastic reformation of the Soviet economy. The whole economy was to be planned by the state. Factories and farms were given targets. Prices were controlled. Agriculture was nationalized by the state. That meant no free enterprise. Part of the plan meant killing kulaks: independent, relatively affluent farmers who owned property and businesses and threatened Stalin’s regime. They even had a word for this: dekulakization. Over 6 million were killed or sent to labor camps.

100 years later, young Joseph Stalin could be mistaken for an entrepreneur from Brooklyn

100 years later, young Joseph Stalin could be mistaken for an entrepreneur from Brooklyn

Thankfully, nobody’s getting murdered for opening an eatery in Quezon City. But it’s still death by a thousand cuts. If we want inclusive growth, then it’s high time we elect leaders who appreciate and have gone through the struggles of free enterprise.

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