With the third Micro-, Small- and Medium-sized Enterprises Day coming up 27 June, entrepreneurs tell Liana Cafolla about what it takes for start-ups to survive the start-up phase in Hong Kong and build a successful business
Illustrations by Roberto Cigna
Two events in January served as a reminder of Hong Kong’s increasingly crowded start-up scene – StartmeupHK, an InvestHK initiative that supports founders of start-ups from abroad to set up or grow in Hong Kong, held a five-day event, and Startup Impact Summit 2019, hosted by WHub, held its annual event at the Hong Kong Convention and Exhibition Centre. Meanwhile, invitations for the RISE conference – a four-day event in July billed as the largest technology conference in Asia – have already started going out.
InvestHK, which also hosts dozens of start-up related events throughout the year, reports that 2,625 new start-ups launched here in 2018, up 18 percent from a year earlier. The new businesses are growing faster too, with recruitment up 51 percent year-on-year, and now totalling 9,548, or around four employees per business.
According to InvestHK, start-ups are attracted by Hong Kong’s strong network of incubators, accelerators and co-working spaces, start-up community, government policies that support innovation, and a multicultural ecosystem. That is in addition to the city’s long reputation as an easy place to do business based on its strategic geographical location, rule of law, minimal bureaucracy for starting a business, low and simple tax regime, and a population with a reputation for entrepreneurship and hard work.
However, not all entrepreneurs agree that Hong Kong is the easiest place to set up a business. Janice Chew, who launched her start-up legal firm JC Legal in the city a year ago, says the costs of doing business in Hong Kong are high for small businesses.
“To be frank, Hong Kong might not offer the best environment for start-ups,” she says. “For instance, if you’re talking about fixed expenses like labour costs, in Hong Kong it’s going to be a lot. And rent – even though there are lots of co-working spaces – how can start-ups pay five or six thousand every month for co-working just to have a desk?”
Costs aside, Chew sees Hong Kong as well-positioned for her internationally focused business. “I chose Hong Kong because it is a city of opportunities,” she says. “Hong Kong is favourably positioned as a bridge between Chinese and overseas markets. Almost half of my clients and associate partners at JC Legal are overseas or run by expatriates based in Hong Kong. This is also why I see great potential in building cross-border networks to support our global practice.”
Jonathan Glover, Founder of burger restaurant The Butchers Club, says that in Hong Kong, rent can make or break a business. “The successes that I’ve had in my businesses have all been based around real estate deals, and the failures that I’ve had in my businesses have also been based around bad real estate deals,” he said at a recent start-up seminar.
Two positive experiences resulted in a speedy recovery of expenses when he found retail spaces at low-cost rents and fitted them out cheaply. In one case, he got back his return on investment in the fit out in just 12 days, in another, when he took over an existing premises from a friend, it took three weeks.
But in another case, he found a major Hong Kong landlord “a nightmare to work with” because of restrictions put on how he could run the business, which made it difficult for him to make money and led him to regret signing the lease. “This is the key to success: Find a space that you can afford and, a landlord that you can work with,” he advises. “Don’t worry so much about the location – you can always drive business to your location.”
Chew, who started the business with two people and now has 12, is planning to build her clientele by offering her clients international networking to other legal firms at cost price. She says that while technologies such as blockchain and artificial intelligence are changing the legal landscape, legal advice is something that can’t be replicated, so she is focusing on building an international legal network for her clients to tap into when they are looking to expand to new markets. “The difference between our firm and other law firms is we never mark up the price of the other country’s lawyers,” she says.
Multinational companies are not looking for small law firms like hers, she says – and she is not looking for them either – start-ups make up a good percentage of her clients, as well as dispute resolution. The appeal of start-ups for her is simple: “I think I know what the start-up is thinking, because I’m one of them – if I’m looking for a service provider, the first thing I’m looking at is the price,” she says, proving that even in a tough city, it’s still possible to find a niche for a business if you think creatively.
Chew’s business in professional and consultancy services is the third most popular category for start-ups in the city, according to InvestHK. Her client, 26-year-old Ankit Suri, Founder of early stage start-up Planto, is in the most active category, FinTech, accounting for 427 start-ups.
Planto is an app that provides millennials with easy-to-use financial information. “We felt that millennials need a better way to manage their finances and to take out all the jargon that exists across the financial world, and get essential, very trusted or data-driven advice that is simple and actionable in nature,” explains Suri.
Suri’s own negative experiences and frustrations as a bank customer had convinced him the sector needed alternatives. He saw an opening for a jargon-free personal banking service that understood millennials and was geared to their needs. He launched his own business with two partners in November 2017, after working for a year in HSBC’s retail management team to gain hands-on experience of banking and another year at FinTech company MoneyHero, where he learned how a personal finance start-up works.
Planto’s first investor pitch drew no money and negative comments. “That sort of motivated me even further,” he says. “We realized very quickly that we don’t need a lot of expertise in order to build a good product because we are all engineers and we have a product background. So that’s what we did – we built a good product and gave it out to about 200 users.”
In the meantime, recognizing that he and his fellow founders didn’t have all the skills needed for the business, he also gathered a team of advisors and mentors in the sector.
“We did what we could do best, i.e. engineer the product, talk to consumers – and advisors and mentors would help us navigate strategy, help us with their expertise such as financial planning, regulatory requirements, legal requirements,” he says. “We initially onboarded senior marketers, a senior financial planner, a senior portfolio manager and a serial entrepreneur because all of them could contribute some skill sets we didn’t have to executing the vision.”
He also got support and introductions through iDendron, an incubator and entrepreneurship hub of the University of Hong Kong, where Suri graduated in 2013. iDendron provided office space, a student population willing to test the product, and a measure of credibility. “FinTech is hard because there are so many scams out there,” he says. “So having to attach yourself to iDendron helped us convince people we were real.”
“Find a space that you can afford and, a landlord that you can work with.”
He says iDendron and other private and public support available in Hong Kong are important to help start-ups get going. “There is lots of help around here to get started for sure. Accelerators who fund people and ambitious founders, government grants (Cyberport, Hong Kong Science Park) who give you ‘X’ amount of money to make a prototype, and it helps that this place has the highest number of ultra high net worth individuals per capita anywhere in the world, which means angel investment can be pretty accessible if you get into the right networks,” he says.
That kind of support encourages start-ups to feel that anything is possible, he adds. “Any entrepreneur in Hong Kong is taught here to dream big – government grants encourage overseas expansion, investors almost mandate it. The society around here wants you to dream big.”
For others, Hong Kong was simply an appropriate choice for a particular business idea. Jason Zheng, who set up HelloToby in 2016 – an online portal where small service providers can showcase their offerings and where members of the public can find specialist freelancers in multiple areas – says he and his two fellow founders saw that Hong Kong was underserved in this area compared to Mainland China and decided to seize the opportunity. “It’s not like we chose Hong Kong – we all just lived here,” he says.
Three years in, he can identify Hong Kong’s advantages. “It has a mature financial system with the infrastructure in place, and setting up a business is very easy and very cheap,” he says. He points to government support such as Cyberport and Hong Kong Science Park, which his team found very useful for networking. “It’s a place to gather and meet others,” he says of Cyberport.
HelloToby had an angel investor from day one and has grown from a team of six people, including Zheng, to 28, but it has had its share of hiccups along the way. From his previous experience in another start-up, he knew that online marketing options such as Google ads that are usually used by start-ups are not easy to use, so he focused on making the service simple, actionable and cost-effective for users. Business grew smoothly at first, but when growth plateaued after the first year, the team decided to experiment with a new customer experience, but it didn’t work out. “It cost us six months, which is a long time for a start-up,” he says. In the aftermath, they spent time examining what had gone wrong and making changes. Now Zheng says the business is growing more healthily.
For new start-ups, he says it is very important to build momentum in the early stages. The business should focus on setting achievable priorities to keep motivation flowing, especially in a small team where it’s not possible to do everything at once. “Make sure your first steps are actionable and set and stick to a fixed timetable,” he advises.
For those who are contemplating dipping their toes into start-up waters, hands-on experience is the best guide, he says. “If you’re not sure whether to start a business, it’s best to experience it,” he says, suggesting that interning, or taking on a part time role, even if it’s unpaid, in an early-stage start-up can provide insight and understanding to what is involved and whether you have the grit and drive that it takes to succeed.
Cementing the growth of start-ups is an ecosystem that supports and promotes start-up culture, such as the numerous shared and co-working spaces that have sprouted up around the city, many of which are start-ups themselves. One such company is theDesk, co-founded by Thomas Hui. Hui says one of the toughest lessons he has learned has been how to handle the stress of running his own business.
After launching his first site in Sai Wan two and a half years ago, he decided last year to expand to two new sites in Causeway Bay, an expansion that caused him a lot of financial stress. “I didn’t secure enough money for these two sites. I didn’t know whether I could compete with international players,” he explains. His friends warned him not to do it, advising him to stay small.
Hui managed to make the expansion a success and recently opened a fourth location, in Admiralty. His advice to those contemplating launching a business is to build a team of people you trust and with whom you can share the burden of the challenges facing you.
“If you’re not sure whether to start a business, it’s best to experience it.”
He also advises founders to accept that uncertainty is normal and treat it as a learning opportunity. “When you face stress, firstly you need to assume that uncertainty is good for you,” he says. “Try to dance with risk. Every day you need to assume that you are ignorant, that you need to learn.”
Retaining a learning mindset is something food and coaching entrepreneur Lori Granito relates to. She says one of the most common mistakes she sees by new business owners is inadequate financial preparation and totting up the real costs of running a business, including the small things, “like having to pay somebody to take away your rubbish every day,” says Granito, who has also given four TEDx talks and is a board member of The Women Entrepreneurs Network.
Another common mistake, she says, is taking failures personally rather than seeing it as a learning experience. It’s important to see failure as part of the journey, advises Granito. “The biggest thing for me was understanding that failure is not permanent,” she says. “We all are going to make mistakes. As an entrepreneur, it is part and parcel of being in business and you have got to learn to pick yourself up, dust yourself off and get back on the course.”
Start-up ecosystem and government support
Start-ups, and the ecosystem that surrounds them, are increasingly making their presence felt in Hong Kong. Start-up events typically feature new business owners talking about their ideas and plans for the business, successful owners sharing advice and tales of hard-won successes, investors discussing what they look for in a start-up before deciding whether to commit funds, and those looking for inspiring success stories as they debate whether they have what it takes to build a start-up themselves.
StartmeupHK, an InvestHK initiative, and Startup Impact Summit 2019, hosted by WHub, were both held in January. On a smaller scale, Garage Academy holds regular events aimed at start-ups, Startup Grind hosts local events in 125 countries, including Hong Kong, featuring entrepreneurs and investors, and “Born to be the Boss” – organized by JEM Group, the publishers behind the book of the same name which told the success stories of six Hong Kong entrepreneurs – hosted its inaugural start-up conference in November with the aim of boosting enterprise in Hong Kong.
In addition to the growing number of start-up forums and seminars, Hong Kong’s start-up ecosystem – and tech companies in particular – will get a boost from three measures in the city’s 2019/20 budget announced on 27 February. The government has been offering one-off tax reduction relief since 2007/08, to reduce the burden of taxpayers, in particular the taxpayers of the lower income groups. For the year 2018/19, profits tax, salaries tax and tax under personal assessment for the year will all get a one-off cut of 75 percent up to a ceiling of HK$20,000. Business registration taxes will be waived for 2019/20, and HK$5.5 billion is being set aside to develop Cyberport 5 to enable it to accommodate more technology companies and start-ups.
From start-up to heavyweight
Twenty-two years ago, Hong Kong lifestyle brand G.O.D. was a start-up, founded by Douglas Young and his father, both of whom were architects. The younger Young left Hong Kong for boarding school in the United Kingdom at age 13 and didn’t return until he was 30.
Back in Hong Kong, he felt like a hybrid of both cultures. He saw Hong Kong’s everyday designs and traditional emblems as worthy of being celebrated and shared. His ultimate goal is to bring a part of Chinese culture and fashion to the world, as a valid cultural style, he says, in a similar way as jeans reflect American culture. “I get inspired by our history,” he says.
Today, flush with success with about a dozen outlets around the city and partnerships with Starbucks under his belt, Young recalls the early days and countering the pessimism that his plan met with. “When we first started, people told us, ‘you can’t do a brand that’s about Hong Kong either, because Hong Kong people like foreign stuff,’ he says. “So if you start a brand in Hong Kong, you’ve got to find an Italian name, or a French name. Because if they find out it’s made in China, they won’t buy it.”
That negative feedback just made him more determined to do it, he says. Now, looking back after more than two decades in business and having experienced being both a small business and then a big one, Young says his advice to would-be entrepreneurs is to bear in mind that running a big company is not always the best experience.
His happiest times were when the company was small and growing because he enjoyed the experience of having a dream and turning it into reality. “It’s actually good to be small sometimes,” he says. “It’s not all about growth. To be able to say you really enjoy the work, is already a huge, huge, privilege.”
Hong Kong is ranked the 28th best place globally for start-ups, according to the Startup Ecosystem Rankings 2019 report by StartupBlink, a start-up research centre. The findings were based on three factors:(i) Quantity: the number of registered start-ups, (ii) Quality: the overall impact of start-ups and (iii) Business environment: how easy or difficult it is to do business in a given location based on technological infrastructure and bureaucracy.