Technology

5 Questions with... Zev Siegl

Mr Siegl says a big lesson he learnt from the first decade of Starbucks was: Do not run out of cash! Being undercapitalised can be fatal.
Mr Siegl says a big lesson he learnt from the first decade of Starbucks was: Do not run out of cash! Being undercapitalised can be fatal.PHOTO: ZEV SIEGL

Starbucks Coffee co-founder Zev Siegl has seen it all. He has co-founded five start-ups, seen one of them grow into a global behemoth, and now has come full circle, travelling the world to mentor start-ups and MBA candidates and give talks on entrepreneurship. He recently spoke to Yasmine Yahya about what he sees as the main challenges and opportunities for start-ups in South-east Asia.

Q Do you find it hard to believe that Starbucks was once a start-up?

A Yes, I do! When my partners and I were researching whether the gourmet coffee trade was something we should seriously consider, I had no idea that I would be ordering espresso at a Starbucks in Singapore and Kuwait.

Q Tell us more about your work with start-ups. What do you see as common challenges and stumbling blocks that start-ups face, here and around the world?

A Two of the new-venture clients I mentored extensively last year secured angel funding recently. Their need for funding made it mandatory to think of everything savvy investors might expect.

It's exactly the same in South- east Asia and all over the world. And it was no different when my partners and I started Starbucks.

In South-east Asia and everywhere else I go, there are three common start-up problem areas: the business concept, the financial forecast and the team. That's not just my opinion. That is what angel investors focus on.

With a flawed business concept, an entrepreneur could survive long enough to find it necessary to close down a business that has been funded. It happens all the time.

I recognise that it isn't possible to predict the future with total accuracy, but it is possible to do adequate research, to realistically assess direct and indirect competitors' capabilities and to explain how the marketing plan is actually to be implemented and by whom. These things are all part of a well thought-out business concept.

As for the second issue, financial forecasting - every new venture has one. But was their forecast researched well? Many research and development and operational expenses can be researched in order to reduce the total-guess factor.

But there's another question. Is the Excel document free of basic errors? There's nothing worse than having a potential investor show you where you made a mistake in your financial forecast!

And one big lesson I learnt from the first decade of Starbucks was: Do not run out of cash! Being undercapitalised can be fatal.

Updating your cash forecast every week is the best way to know if you will run out of money.

Q What do start-ups often have wrong in their financial forecasts?

A The number of months required to reach the break-even point. The average cost of customer acquisition. The actual expense for the original programming and the cost of the follow-up tweaks. The impact and timing of taxes, fees and licences.

Q Why is "the team" on your list of three problem areas?

A For a good reason. Entrepreneurs tend to put friends/family they know and trust on the management team. Potential investors want the best possible people on the team. Trusted friends and family are not always the best available people. Investors are right on this one. Smart entrepreneurs know that. A mentor with relevant experience should be on the team too.

Q How does South-east Asia differ from other regions you've visited?

A. The cost of doing a start-up is lower in South-east Asia than in Europe or North America. The marketplace for many types of products and services is enormous and still welcoming, especially if your product or service is accessed via cellphone. The cost of labour is lower. And there's a really dynamic new- venture community.

I'm open minded about the type of business I mentor: service, manufacturing, retail, food service.

The new ventures that excite me are the ones that seem to be right from the start; the ones that have a good idea, the right team and a credible forecast. It's even more exciting if they appear to have the ability to secure the funding they need.

A version of this article appeared in the print edition of The Straits Times on January 31, 2017, with the headline '5 Questions with... Zev Siegl'. Print Edition | Subscribe