The Big Read: COVID-19 decimated their promising business, but some entrepreneurs aren’t afraid to try again
Although every crisis has its fair share of businesses going bust — even as it throws up new opportunities — the impact of the pandemic-induced economic downturn has been unusually severe, say business leaders and experts.
SINGAPORE: It was supposed to be the year of expansion for Mr Sean Tan’s pet hotel business. Since its inception in 2016, his business had been growing steadily and investors were keen to pump in money for another pet hotel in 2020.
But not only were his expansion plans thrown in disarray when the COVID-19 pandemic hit early last year, the 33-year-old founder of Nord Pets also had to fold his business.
His business model was reliant on people leaving their pets under his hotel’s care while they travelled overseas. Hence, the closure of international borders around the world, as governments scrambled to curb the spread of the coronavirus, meant that his only source of revenue dried up very quickly.
“At the end of 2019, we were all geared up to expand in 2020. Suddenly this thing happened. The emotional experience was quite tough,” Mr Tan told said.
Nascent companies like Mr Tan’s were not the only ones badly hit. Italian restaurant Modesto’s served its last meal in July last year after operating for 23 years.
As its two restaurants were located in hotels in Orchard Road and served breakfast for tourists, the decimation of global travel meant that he lost a huge segment of his customers, said owner Ashok Melwani.
Dine-in customers were also not enough to cover the losses as limitations in group size and the new norm of social distancing also did not fit in with his business model, which tended to cater to large family gatherings.
The closure of the Causeway between Singapore and Malaysia, as well as an anticipation that the Government would continue to impose quotas on foreign workers gave him further impetus to put up the shutters.
“So many customers said, ‘Oh how can you close. Please change your mind.’ They cried in the restaurant, so I also cried with them,” said the 62-year-old businessman who has now retired.
The reversal of fortunes for businesses is a familiar tale around the island ever since COVID-19 swept through Singapore and the rest of the world, like a juggernaut, upending lives and businesses.
Last week, founder Dennis Tay of homegrown retailer Naiise cited COVID-19 as the reason for his decision to liquidate the company and file for personal bankruptcy, although there have also been complaints of Naiise defaulting on vendors’ payments in the past five years.
But even companies which had been making healthy profits before COVID-19 struck have not been able to survive its onslaught. Many are smaller-sized companies, which typically do not have the cash reserves which large companies do that could help cushion the impact or facilitate the shifting of their business models.
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Mr Vince Foo, founder of sneaker shop The Sole Brother, said he was making profits of between 45 and 55 per cent of the sneakers’ retail price before the outbreak.
That turned into a 23 per cent loss even after the phased reopening of the economy in June last year, following the lifting of the two-month circuit breaker which impeded the spread of the virus but also brought Singapore to a standstill.
Then there is retailer We The People, which sold crowdfunded products. Its founder Nison said its revenue dived from S$200,000 per month before the downturn to about S$60,000.
‘A BULLDOZING EFFECT’ ON BUSINESSES
Although every crisis has its fair share of businesses going bust — even as it throws up new opportunities — the impact of the pandemic-induced economic downturn has been unusually severe, say business leaders and experts.
“The COVID-19 pandemic has a bulldozing effect than just a normal churn (in businesses),” said Associate Professor Lawrence Loh, director of the Centre for Governance, Institutions and Organisations at the National University of Singapore (NUS) Business School.
While the shuttering of some companies here is not unexpected, there were some viable ones that unfortunately had to bite the dust as well.
Mr Kurt Wee, president of the Association of Small and Medium Enterprises (Asme), said that there are many factors behind a business owner’s decision to shut down.
“Sometimes it is not the fault of the business owner, it is the economic situation that forces them to do it,” he said.
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Part of the challenge this time is the fact that the pandemic has lasted much longer than what many businesses are normally used to in a crisis, said Assoc Prof Loh.
Past crises, such as the severe acute respiratory syndrome (Sars) in 2003, may have been equally unexpected, but they came and went within a few months.
More than a year on since this pandemic started, there are still uncertainties, the latest being the efficacy of the vaccination programme, Prof Loh pointed out. Many countries are banking on COVID-19 vaccines to restore some semblance of normalcy and revive their economies.
As a result, some businesses, which had continued to press on and ride out the storm in past crises, may be more risk-averse and conservative under the current conditions.
“In the past, maybe they still can hope for the best. Now, they just want to prevent the worst,” Prof Loh said.
Despite the gloom, data from the Department of Statistics showed that the net number of businesses formed last year was actually higher than in 2019.
With about 61,600 businesses set up and about 47,500 shut down in 2019, there were slightly over 14,000 net number of businesses formed.
Singapore recorded its first COVID-19 case on Jan 23 last year. Over the course of a year hard-hit by the unprecedented global crisis, close to 63,500 businesses were formed and 43,300 folded, which means that the net business formation in 2020 stood at over 20,000.
However, many of these businesses are likely to have been propped up by the slew of the Government’s support measures, which will gradually taper off this year.
Retired businessman Dennis Foo, who spent 40 years in the nightlife and live entertainment business, said he has weathered many crises, the most severe of which was when he had to close five of his bars overnight during the 1985 economic downturn — Singapore’s first post-independence recession.
“Despite all the lessons I have learned, I don’t think I can survive COVID-19 crisis (if I were still in business) because essentially my business is dependent upon live entertainment,” he said.
CHALLENGES THAT PROVED INSURMOUNTABLE
At the height of the pandemic last year, the biggest challenge for business owners was to find ways to continue paying their bills despite plummeting revenues.
With physical stores not allowed to open during the circuit breaker, followed by low footfall even after the gradual reopening of the economy, entrepreneurs in the retail sector said they had to turn to e-commerce.
However, even though The Sole Brother’s Mr Foo made the transition and even organised livestreaming sessions to sell his sneakers, he could only sell them at hugely discounted prices that barely allowed him to break even.
Since the distributors and suppliers whom he got his inventory from, had all started to slash their prices after the circuit breaker, he had to follow suit as well.
He also did not have control over his inventory as he wasn’t the licensed distributor who could make decisions on how many sneakers to bring in and the prices to sell them at.
Tying his cash flow to his inventory was the start of his cash crunch, said Mr Foo.
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While wage subsidies through the Government’s Jobs Support Scheme (JSS) had helped him pay his staff and retain them till February this year, and the four months of mandated rental waiver gave him a breather to pivot online, he was not able to get a bank loan to help him tide through his cash flow problems.
He even approached brokers to help him secure loans from offshore banks. But that came with a 3 to 9 per cent commission and required him to be a personal guarantor.
“It made no sense to transfer a business debt to potentially a personal debt. I didn’t consider that option anymore,” he said.
With costs piling up and sales unable to recoup the losses, Mr Foo decided to close his physical store at Marina Square and is now making the transition to a fully online business.
The transition to online sales has also not been smooth for Mr Theodore Khng, director of health and skincare company Theo10.
For one thing, social media marketing is not possible after tech giants Facebook and Google started a policy to ban ads on masks, hand sanitisers and disinfectant wipes to prevent price-gouging.
He also had to grapple with competition from the many other sellers who had jumped on the e-commerce bandwagon because of the pandemic.
To add to his woes, his signature product — which is offered as a cure for hand, foot and mouth disease (HFMD) and had been developed by his company over the last three years — did not achieve the sales he was hoping for as the number of HFMD cases had gone down drastically.
While Mr Khng has not shut down his company, the more than 90 per cent drop in sales has meant that he had to significantly downsize his company.
As his company manufactures its own products in Singapore, it is categorised as a manufacturing firm instead of retail. Hence, he has not been able to receive as much help in the form of wage subsidies through the JSS as other retailers.
“Pivot was the word everyone used last year. For us, we are surviving,” said Mr Khng, 31.
While entrepreneurs accept the need to adapt their business models to the new normal, some say they can only do so by making a huge capital investment, a move they are not inclined to make since the returns are not guaranteed.
Mr Melwani of Modesto’s said the concept of a breakfast buffet, which was what his restaurant specialised in, is no longer viable in the COVID-19 era of social distancing and it would take a lot of capital to change to table service.
While the Government has worked with the banks to provide loan schemes which will see the authorities taking 90 per cent of the risk share of the loans, Mr Melwani said he did not want to put in new funds when there was no clue how long COVID-19 would last.
“If I am 40 plus years old, I don’t mind fighting this fight. I’m 62 … If I go through this loss, when can I earn it back?” he said.
Mr Melwani knew that the writing was on the wall during the circuit breaker and aimed to exit with grace when one of his leases expired in July last year.
“Having that clear compass helped me make that decision … to stay the course (until the lease expired). I was thinking, ‘Six months from now, what does success look like?’ It was to pay staff and suppliers, and we served good food to the very last day,” he said.
Mr Melwani’s situation was similar to the one faced by Ms Sandra Sim, the founder of Cantonese restaurant and bar Sum Yi Tai.
While business did pick up after Singapore exited from the circuit breaker, she was still experiencing a drop in sales of about 40 to 50 per cent.
Given that her restaurant was located in the central business district, business continued to suffer as many were still working from home.
Uncertain as to whether the situation would improve in the next few months and to avoid getting themselves into huge debts, she and her partner decided to shut their restaurant in November last year.
The 42-year-old entrepreneur noted that restaurants typically plan to have enough cash flow to weather storms for about six months.
“Nobody plans two years of cash flow as a buffer. Nobody knows this crisis is so big and so long,” she added.
Getting a loan to sustain business was also out of the question for her.
“What if there is another lockdown?... There are no tourists coming in also … We cannot be sure if we put in another few hundred thousand dollars, (then) things will be okay ... There is no projection because we don’t know what's going to happen,” she said.
One common thread in interviews with these entrepreneurs was the challenges they faced in negotiating rental rebates with their landlords.
While they were able to enjoy four months of rent waivers mandated by the Government, Ms Sim said the landlords started charging them the same rent again, a cost that she found hard to cover.
Mr Chan from We The People said that landlords still required them to pay rent despite their shops having to close during the circuit breaker.
“That period, there was a lack of sympathy from the landlords. It was a ‘not-so-nice’ experience.”
Mr Chan said he even worked at a fruit stall in a supermarket during the circuit breaker to help pay for his workers’ salary and ease his cash flow.
However, he still could not afford to run his two stores in Singapore, and closed one in June last year and the other five months later. His other stores in Malaysia, South Korea and the United States also shut through the course of 2020.
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Mr Tan of Nord Pet Hotel said there was a chance he could have bought more time to save his hotel, and think of other ways to earn revenue through other pet-related services, if rental relief had come earlier. He made the decision to shut in April last year with his hotel operating for another two months after that.
Amid the tough business environment, the unequal playing field between landlords and tenants in the retail leasing space garnered much public attention last year.
Tenants have long complained that the field has been tilted to the advantage of landlords, with many unwilling to offer discounts even though the pandemic has left many retail businesses, including food-and-beverage outlets, struggling to survive.
Last month, the Government announced that it will be introducing fair tenancy laws involving the leasing of retail premises. This code of conduct will be based on a set of guidelines put forth by a committee made up of landlords, tenants, government representatives and industry experts.
While no one could have foreseen the extent of the economic damage that COVID-19 would wreak on Singapore, some entrepreneurs say the pandemic has offered them lessons that could be used as they adjust their business models or plan for their next business ventures.
Mr Khng, for one, regretted not focusing on his online business earlier and learning how to market his products better on e-commerce sites.
Having to bite the bullet and lower his prices as he worked out other sources of revenue — such as being an original equipment manufacturer for other resellers or having pharmacies and hospitals distribute his products — was also another lesson learned, he said.
As for Ms Sim, she realised that location is not as important as she had once thought, and that people would be willing to travel for good food. She used to pay high rents as she was always looking for prime locations with high footfall.
Also, instead of just having a kitty that could last six months, Ms Sim said she would consider planning for cash reserves that could last longer.
Other entrepreneurs are now also more mindful of how they manage their finances, compared to pre-pandemic days when some were more inclined to spend money to boost their inventory.
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Mr Chan, who is working at a venture capital firm now, said that he would be more services- than product-oriented and be more online-centric for any other business he sets up in the future.
Mr Foo of The Sole Brother said he realised he should have stopped bringing in new inventory and not have his cash all locked up in new sneakers that could not be sold during the circuit breaker, and eventually had to be sold at discounted prices.
Cash flow management was an aspect which he did not monitor closely as he thought that as long as he had new products in his store, there would be customers.
He also said he made the mistake of not conserving capital and exiting earlier, unlike veteran entrepreneurs.
Instead, he chose to soldier on and ended up burning six years of his retained earnings and his personal savings.
“For me, typical Singaporean Chinese, male, chauvinistic. Because of my ego, I struggle, struggle, struggle,” said Mr Foo.
“When asked why he decided to throw in the towel eventually, he said: “There is nothing for me to burn anymore. If I continue to burn, it would be my property. If I burn, where are my wife and family going to be sheltered? I cannot do that.”
If he could change anything, Mr Foo said he would have planned better and adjusted his forecast. Knowing that there would be no more tourists coming into Singapore, a segment that formed quite a huge bulk of his customers, he said that he would have done his sums better, cut his losses and exit and not let his ego get the better of him.
Modesto’s Mr Melwani said businesses would have to be far more imaginative in thinking of different scenarios when they plan for contingencies.
He had not expected Singapore’s land border with Malaysia to close, thus affecting his manpower deployment as a few of his employees crossed the Causeway every day to work here.
Mr Wee, the Asme president, said that post-COVID-19, businesses will be more focused on how they can be more sustainable and be in a better position to withstand shocks.
“They are probably thinking about sourcing diversity, diversification of revenue pipes and revenue source and designing a leaner manpower that is just as effective,” he said.
Realising the importance of having enough cash flow — having learnt from his father’s mistakes during Sars — Mr Kelvyn Chee, managing director of apparel retailer Decks, has managed to not only survive the annus horribilis but opened 12 more stores last year.
Business at these stores has been “quite good”, except for the last two months.
Mr Chee said his father’s apparel business could not recoup the losses it incurred during the SARS crisis even after the economy recovered, and had to close down in 2004.
They borrowed heavily from banks and he and his parents became personal guarantors.
When their loan repayments could not be made in time, he recalled the banks chasing after him for the money.
“That time I was only 28 years old. Imagine if the company could not pay off, I would become bankrupt at the age of 29. My mum and dad would also become bankrupt,” said Mr Chee, now 46.
After paying off all debts and starting his own company in 2005, Mr Chee said he rarely took loans from banks. And if he did, he was very strict about not overborrowing so that he would not be overleveraged.
He borrowed an amount equivalent to 5 per cent of his turnover from the bank at the start of the pandemic last year as he saw an opportunity to pivot to selling reusable masks.
Having adequate cash flow also allowed him to plan his inventory and bring in enough products in time for the year-end festive sales last year.
Learning from his SARS experience, Mr Chee was also able to negotiate for lower rents at this crisis, which allowed him to open 12 more stores albeit at shorter leases of one year.
“We learned that every time there is a crisis, there is also opportunity,” he said.
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NEVER SAY DIE
Despite the massive upheaval caused by COVID-19, it’s not all doom and gloom for the entrepreneurs who have incurred massive losses.
Mr Foo, the retired nightlife businessman, said that one silver lining from this pandemic is the establishment of a code of conduct on retail leasing spaces that will eventually be made into law.
“In this way, it may end up with a win-win solution where when tenant operators thrive, so will the landlords,” he said.
Asme’s Mr Wee said while it is a waste for such viable businesses to fail amid the pandemic, it is the reality of doing business. Very often, entrepreneurs would regroup themselves and “regather the spirit of value creation” before embarking on a new venture.
“Within the lifespan of businesses, there are many ups and downs, many small successes and failures. It’s never perfect,” he said.
“We have to be accepting of failures, and not to allow any judgement to cloud that new ideas cannot come because new ideas come all the time.”
Indeed, some entrepreneurs interviewed have found ways to build a business model that works in a pandemic-hit economy.
During the circuit breaker, for example, Ms Sim started trying out a new chicken recipe and is now selling the dish online through deliveries.
After Sum Yi Tai closed, she started her own private dining business that is now fully booked until October.
This business model has allowed her to keep her fixed costs low as she doesn’t have to pay rent and is able to work with a lean staff.
Mr Foo of The Sole Brother is now adapting his online business to be more service-oriented, where he will be conducting workshops and classes on how to customise sneakers.
He is also working with two schools to organise training sessions on how their students can refurbish preloved sneakers.
Despite the adversities that these entrepreneurs have had to endure, one thing is evident in their interviews: Their ingenuity and resilient spirit have not deserted them.
“I always tell young people ‘follow your dreams’ … You can start something small. You never know where you will end up. (When) I started my private dining and soy sauce chicken business, I had no idea it would be so popular too,” said Ms Sim.
Apart from dealing with his business setback, Mr Foo let on that his mum was diagnosed with vertigo, and both his father and wife were afflicted with cancer last year. But he is taking everything in his stride and continues to look forward.
“Don’t give up. As long as I am still alive, there is hope. Once you give up on yourself, no one can help you. My mentality is that,” he said.