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Incubating the Innovative

From Penang's solid manufacturing base emerges a generation of enterprising individuals who recognised the gaps in the industry and sought to fill them.

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Does Penang have the network of support and structures needed to provide a vibrant startup environment? Does it have a dynamic landscape that stimulates innovation and entrepreneurship?

Chan Kee Siak, CEO of Penang homegrown enterprise Exabytes, thinks so. “Penang is one of the most vibrant cities for startups in Malaysia, apart from KL,” he says. "The startup ecosystem was there from a long
time ago, perhaps in a less organised form and lacking a supporting ecosystem. For example, JobStreet, Cari.com.my, Exabytes, PiktoChart, Mobile9 and many more startups, not to mention the electronic and semiconductor-based factory startups, grew out of this ecosystem.

And it is this rich ecosystem that drove Penang to become an entrepreneurial state, as affirmed by Loo Lee Lian, General Manager of InvestPenang. In the past, InvestPenang focused mainly on manufacturing; its portfolio has now grown to include global business service and tech startups. According to Loo, MNCs began coming 45 years ago but about 20 years ago, a new wave of companies, addressing localised procurement and service needs, emerged. “Some entrepreneurs who used to work for MNCs as engineers understood MNC needs, and soon came out on their own to do things better.”

One example is Aemulus Corporation, which designs semiconductor testers for the automatic test equipment market. Established in 2004, the company was listed on Bursa Malaysia on September 15 last year. Ng Sang Beng, Executive Director and CEO, believes that “Penang could still stand as the Silicon Valley of the East, to a certain extent. From the grandfather way of doing business to knowledge transfer from MNC technology-based companies to unicorninspired startups, Penang has a long history of entrepreneurship. The ecosystem can sustain cycle after cycle of entrepreneurship.”

Of Platforms and Mentors

There has been enhancement to the supporting ecosystem, such as the Penang state government’s Accelerator for Creative, Analytics and Technology (@CAT), launched in October 2015 at Wisma Yeap Chor Ee. @CAT aims to help tech startups and entrepreneurs by facilitating “access to mentors, training, shared facilities, coworking space, professional assistance, and other value-added services that will move them onto the fast track of success.”

Chan identifies the supporting platforms that connect entrepreneurs with mentors and like-minded innovators: “From @CAT, initiatives such as the Founder Institute Penang Chapter, and workshops and events were created and supported. With state government support, the Penang Science Councils were founded, with the Penang International Science Fair, the Science Cafe, the Makers Labs, etc. The Makers Lab is especially important in encouraging and building more hardware or Internet of Things-based startups. Now they have better tools, facilities, workshops, labs and a supporting ecosystem to translate their ideas into reality.”

Chan acknowledges reinforcing support coming from the federal level in the form of Khazanah Penang, which set up the Cornerstone coinvestment funding program for preseed, or seed level startups. He also highlights Cradle Fund at @CAT and its CIP150 programme to provide RM150,000 for startups.

From @CAT, initiatives such as the Founder Institute Penang Chapter, and workshops and events were created and supported. With state government support, the Penang Science Councils were founded, with the Penang International Science Fair, the Science Cafe, the Makers Labs, etc.

The ecosystem in Penang includes both the private sector and the community, according to Chan, such as “the Coding Shop House set up by Douglas Khoo; SecondStartUp Accelerator, an IOT-focused accelerator programme for startups; Penang BarCamp; Google Business Group events and gatherings; hackathons; and etc.” The first hackathon in Penang was held in April 2013. In March 2016 Google Developer Groups (GDG) George Town held its fourth DevCamp Penang to “inspire and develop more developers in the region with workshop training and hands-on hackathons.”

Loo mentions that when Joe Sidek, organiser of George Town Festival (GTF), needed an app; she organised a hackathon where 15 teams pitched their ideas. “I’d like to replicate this process for the private sector,” she adds.

Starting a Startup

All startups begin somewhere, and for Chan, his business “started more like a freelance, part-time job. When my business grew and my family and I saw positive results, then only did I decide to tell my family that I needed to quit college (that was toward the end of year one at Penang TAR College) and run my full-time business.”

Only 19 at the time, with only a few months track record in the business and no EPF statements, Chan could not apply for a credit card from the bank – which was necessary if he was to sign up for a reseller package from a US hosting company and pay his bills. Luckily, family support pulled him through: he spoke to his cousin who assigned him a supplementary credit card. Only then was he able to start Exabytes.

It’s also the little things that can affect startups: with his technical background, Chan only knew how to focus and grow the business: “I had zero knowledge of accounting and how to manage financial book-keeping. Like many other SMEs, we outsourced our company’s accounts to a third party who also did our annual audits. We probably glanced through our audited accounts once a year during filing time when we needed to add our signatures to the documents.

“During our eighth year in business, a venture capitalist (VC) almost wanted to invest in us. It was only then that we realised our accounting was faulty and we had to restate our accounts. Also, without paying much attention to our accounts, we had so much wastage here and there and this affected our profitability.”

We need to attract funds and talent. When we have an underemployment figure, it’s hard to get entrepreneurs.

Despite the lack of experience and the teething problems, Chan’s advice for startups is to persevere. “It takes so much encouragement to start a business and it takes even more determination to execute it and make it a success. When a business idea doesn’t work out as expected, it’s okay to pivot the idea and find other ways. From my experience, for a startup or any new business to become successful, it easily takes three focused years.”

More Needed

Loo believes that Penang has a rich pool of talent and a mature workforce with people who have real work experiences. “Our task is to get the private sector in to see what areas our entrepreneurs can work on. We will also get other agencies to converse, and to articulate what they need,” she says. However, Penang is a small island, and reaching critical mass is a challenge. “We need to attract funds and talent. When we have an underemployment figure, it’s hard to get entrepreneurs.”

Chan observes that “right now, the Penang state government is encouraging more startups and creating more programmes. What may be lacking is funding for the Penang entrepreneur. We understand that there are many investors, VCs out there, but these are mainly from outside Penang. This means that Penang may be able to groom entrepreneurs from a very early stage but later on, when they are ready to expand, they will need funding.

“If the state government can set up a Penang state-owned VC fund, co-managed by experienced and reputable VC fund partners, it can be used to invest in potential Penang or Penangbased startups. If the state can incubate a few more JobStreet, ViTrox, Pentamaster, Aemulus, or even Exabytes in the years to come, that would be a more meaningful and significant contribution that also generates substantial returns for reinvestment into the ecosystem.”

Perhaps it is as Loo says: “Penang offers a very well-balanced lifestyle that attracts people. I wish we had more diverse jobs. What we need to do is to take it to the next level – manufacturing is core, but we have to find a new runway.”

Elizabeth Su is a Mason Fellow from Harvard. She believes that one of the best ways to learn is to ask the right questions.
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