Doug Richard rose to fame as an investor or “dragon” on the hit BBC TV program Dragon’s Den, the British equivalent of Shark Tank in the US. He remains the only Dragon to have gone an entire series without making a single investment. Today he focuses much of his time on School For Startups, an organization that provides education programs, events and online support for aspiring entrepreneurs.
Earlier this month Richard appeared in Hong Kong as part of the StartMeUp Hong Kong Venture Forum, an event sponsored by InvestHK, the Hong Kong government’s arm dedicated to promoting entrepreneurship and investment in Hong Kong. I had the opportunity to sit down with Richard and get his take on Hong Kong’s business environment. Here are some highlights from our interview.
Doug Richard: From a macroeconomic point of view, part of the reason I am here is because I see Hong Kong as having the potential to become one of the great next nexus’. However much Silicon Valley would love to pretend it’s the only place startups get started, that’s something that is factually untrue. You have places like London and New York, all which have quite large and fast growing and thriving startup cultures and communities that are throwing off quite a few successes now, at a growth pace that is quite remarkable, and it suggests what I think is inevitable and that is that innovation and entrepreneurship are going to be spread further and further around the world at a very accelerated pace. You combine that general theme with the fact that Hong Kong itself is growing tremendously quickly, as an artifact of its special relationship with the mainland and I think you find this is an intersection that is unique. There is no other place in the world that gives both access to the world’s largest market and still enjoys, at least for the near mid term, commercial rule of law that’s common law based, low taxes, and English as a formal language of contract in business. These help enormously. These are contexts that are not easily ignored and thus you have all the ingredients. Now whether those ingredients spark the fire or not, that’s only speculation. But of course I am here talking at a startup conference, which suggests that there is some indication something is happening.
Steimle: Hong Kong’s startups have to fight with other businesses, like financial institutions, to recruit programmers and other talented individuals. What can be done to supply more of the talent Hong Kong entrepreneurs need to start businesses?
Richard: This is exactly the same challenge London presents. The financial services industry in London is the monster that eats everything alive. It pays better, it rewards more, it costs more, it’s very glittery and thus whether it’s software programmers that are really smart people coming out of the university – they just go into the city and no one ever sees them again. This is largely the same issue that Hong Kong faces, except it does it from a much scarcer resource base. So by way of example, the number of software engineers in Hong Kong is actually quite limited. There is only one solution that you produce more, you have to create more resource, you need to create more people who are graduating with the types of degrees that are useful for startups. You need to encourage more entrepreneurs to internalize, come to Hong Kong. The resources are finite until you change the pathway. It does become self-serving to some degree and this is what London has seen over the past five years, and that is over the past five years as the more successful startups started and exited, you end up with a counter-balancing lure to the city. Hong Kong will need to have those successes if it wants to create their counter-balance. It’s been my experience that things seem very small for a very long time until all of a sudden they accelerate, and prior to the acceleration, everyone thinks it will never happen and once it’s accelerated, everyone says it’s inevitable. So in prospect it looks probably off in the far distance, in fact in hindsight it will look like it happened yesterday.
Steimle: What can different stakeholders in the startup community including the government, investors, and entrepreneurs themselves do to support entrepreneurship in Hong Kong?
Richard: Generally government needs to be benign, and therefore not get in the way too much. In fairness Hong Kong is one of the freest economies in the world, it’s quite laissez faire already, so it doesn’t have an overarching burden of either regulation taxation or difficulty of starting your business. So in that sense it’s quite benign. What it can proactively do – there is essentially two or three things where the government can play a role; one is in education and one is micro-finance. These are two things that have been shown to work elsewhere – so for example, my own social enterprise is a school for startups in the UK, we largely target those areas. And the reason governments find what we do very attractive is we put tools in place to teach people how to start businesses, both to inspire them and teach them, and then run what amounts to social capital programs, i.e. very-very small amounts of money for people at an inception. The only place there is market failure anywhere in the world largely is at inception and that is because historically either you had money at inception or the cost of the business was zero and so you sweat it out. So if you have three programmers sitting in the Valley programming, they’re sweating it out and they’re living off of whatever they can grind together, that’s fine but the fact of the matter is not all entrepreneurial startups enjoy that and therefore somebody can have their daily wage offset for six months or twelve months, that can be instrumental in changing the likelihood of a startup business.
Steimle: Does Hong Kong need more investors to help the startup community?
Richard: It has been my experience you don’t need to worry about investors, you need to worry about creating investment opportunities. Money is hungry for return. Everywhere I have ever been, if the startups are there the investors will come if somebody chooses to convene them, and somebody always chooses to convene them as soon as the startups are there because there is always somebody who wants to be a middleman in this world. There is always somebody ready to create an angel group or start an investors conference or something. Investors get hungry when they see somebody else making money they’re not making.
Steimle: Should entrepreneurs worry about the startup community or just focus on their businesses?
Richard: I think there’s a lot to be said for being dogmatic and narrow-minded when you’re starting your business. It’s a huge effort of resource and will to get a business off the ground. It takes up pretty much all your time and time you probably don’t have. So, asking somebody who is starting a business to also be growing the communities seems to be kind of silly. I think the community grows because the multiple narrow efforts of all the people starting nearby each other. Now there’s value in certain activities. If you’re starting a startup, probably the most valuable thing you can have is a peer group of other people starting businesses to meet with regularly. It’s been shown over and over again that helps. So if you don’t have that peer group of people in startups, start one. You’re not really doing it to benefit the community, I think of that as very educated self-interest, because if you’re the startup CEO it’s a lonely position and it’s good to have other people nearby who are sharing the same issues.
Steimle: What have you seen done in the UK for startups that you think Hong Kong could also do?
Richard: There are two things that the government did that are highly transferrable. The first is the government created this tax relief called the Seed Enterprise Investment scheme. It’s interesting given the fact that the British government rarely takes the position of being the most aggressive government in the world for tax relief. The fact that they’ve done it anywhere is kind of remarkable, but the way the scheme works is if you invest money as an angel or individual into a startup business, a business that is less than a year old to be precise, you get a tax kickback of 50% of your money regardless of your income level. This is a huge discount on risk and it has had enormous impact, partly just because it’s attractive, but it also focuses the attention of people with a bit of money on the fact that there’s an alternative asset category to invest in. You can see it visibly having shaped the investment community and startup community.
The second is the Startup Loans programme which provides a pool of capital to create low cost social loans in small amounts (under £10,000) to help startups at inception. The nuance of this programme is that it works best in conjunction with a combination of formal teaching, active support and peer to peer communities. School for Startups has built the Launcher Programme which combines all of these into one seamless journey and in doing so we have become the largest provider of startup loans in the world.
It’s something other governments can learn, that tax policy can actually be a policy for gaining attention as much as investment, and so to the degree that the Hong Kong government wants people focusing on the startup community, given the fact there’s a huge financial services community here already with lots of quite well-off people working in it. Bridging the two of them is a very valuable activity and this kind of incentive program could do that.
Steimle: If someone wanted to do something like School For Startups in Hong Kong, how could they go about it?
Richard: One is they can call us up, because we’re interested in expanding and partnering in other places in the world, and we always partner by the way, that’s part of the lesson you’ll learn is – trying to run an educational institution, you cannot do it solely online. Even though we are hugely leveraged by our online work there is a face to face element of teaching that we have not found a way to get around yet, which creates certain limits on scalability because you have to have a face to face engagement, you need to have a campus where you are teaching other people. Having said that, there is better and worse curricula in this world, some people get better professors some people get worse professors, some people learn a lot some people learn a little, sometimes a textbook is good sometimes it’s not so good. We have spent the last six years trying to make ours good and so I think there is a sharing of curricula opportunity that’s enormous. Starting next year we will be a higher education institution, we will be offering master’s degrees, and undergraduate degrees, and further education qualifications up and down. We’re doing it not because we think an entrepreneur needs a degree, but because the degrees permit us to fit into the structure of the world and people can then say “Oh, that’s a credible activity.”
Steimle: What unique aspects of Hong Kong should the startup community and its stakeholders focus on?
Richard: There are certain things about the Valley that are unique to the Valley, that do not translate well elsewhere. Much of the Valley is built around web based businesses. That’s not the only kind of innovation that happens and I think it’s very narrow-minded for people to think that all innovation happens in the Valley. If you look at med-tech or biotech, these are all areas of technology advantage that are creating huge wealth, none of which is centered in the Valley. I live in Cambridge in England, and if you look at medical technology, it out-guns almost anywhere else in the world. Look at Israel and the kinds of areas and specialties they have there, look at North San Diego County for biotech. What makes Hong Kong special is a combination of the obvious things – Hong Kong sits at a moment in time on the edge of the greatest area of economic growth in the world. A rising tide is a big deal. If you’re sitting in Hong Kong you are sitting next to and have market access to China. Now how you leverage that access is the great unknown, but I am confident it’s a lot more likely to happen if you’re here than somewhere else. It became obvious to me that if I wanted to grow stuff in Europe I had to be in Europe. If I wanted to grow stuff somewhere in Africa I had to be in Africa. So we opened our first African program, we opened it in Nigeria and it grew uncommonly quickly, but you have to take the jump, you just can’t do it from the distance and I think if people wanted to take advantage of the growth in the Asian market then they need to be in the center of the Asian market. If you compare Shanghai to Hong Kong to Singapore, Hong Kong tends to win out just because it’s in the center. It has all the advantages Singapore has without the geographic disadvantage. Everything is closer to Hong Kong.
Richard: What makes you think that’s just Hong Kong parents?
Steimle: Very true!
Richard: You’re asking a question that I get asked in every country in the world, so I don’t know that Hong Kong gets to be unique on that one. Middle class parents want their children to have professional jobs. This has been true for a long time and remains true today. Things that people should be aware of are that first, that only a few professionals do extraordinarily well, most professionals do fine but the distribution curve such that it’s no humanly possible for everyone to be above average. Second, a profession is not suitable for everyone. There are people for whom being their own boss and starting their own business is a better course of action. To say to your son or daughter that the only thing you should do is be a professional is to consign a lot of people into jobs and careers that ultimately will leave them unfulfilled and unhappy and it’s been my experience that people who are unfulfilled and unhappy tend not to rise to the top of their career. If somebody is not suited to be an accountant, a lawyer, a doctor or an investment banker then forcing them into that box will either cause a revolution or an unfortunate evolution in their lives.
Steimle: Some people ask why being so dependent on the financial sector is a problem. It’s done well for Hong Kong, why focus on startups?
Richard: Well the fact is that Hong Kong does change. Hong Kong has changed from low cost manufacturing to financial services over a period of just 20 years. Hong Kong is representative of breath-taking change. Hong Kong hasn’t ever banked on the same thing and I think Hong Kong has to ask itself what’s next. There is nothing at the top of the heap. Hong Kong is a fantastic financial center. The question is how does Hong Kong maintain that growth. The fact is, almost all economic growth comes from innovation and young company growth. So if Hong Kong wants to maintain robust growth it’s going to have to create young companies and those young companies is where most of its growth will appear. That’s just an economic fact.