Raising Money vs Making Money

On July 24, over 300 engaged attendees invested a whole day to be at the second M2 Success Summit.
M2’s biggest event yet, the summit featured 14 speakers from a range of industries, including Blockchain, Gig Economy, Tech, Human Performance, AI, Mental Health, Micro Mobility, Tribes & Communities, Meditation, Health & Wellbeing, Marketing, and Finance.

Interview with Ronnie Tan, Founder & CEO of Creditworks, by Andre Rowell.

ANDRE ROWELL: What is your background?

We were the first company in New Zealand to have comprehensive credit reporting for commercial businesses. As a company, if you wanted to borrow money, the banks would do a check on you and if you have no bad debt or no bad information, then they would approve it. Basically, no news is good news. The system at the time was very much an ambulance at the bottom of the cliff.

I’ve got a business that was about managing other people’s money of about $600 million per annum and I saw that my success is based on how we can assess credit risks, particularly in the building industry at the time.

The first business I started was in 1998 and the second business I launched was in 2003. When I launched it, Auckland had a bad debt in construction of $150 million. Mainzeal was one of the biggest collapses. I talked to a lot of people and said, ‘We need to share information because then we can make the same decisions, we don’t have to be the ambulance at the bottom of the cliff. We can see trends, we can see behaviour, we can see all those kinds of things.’ Back then, it was foreign to a lot of people because they thought, ‘How dare you ask me to share my information with you?’

Basically it was a disruptor, it was a change, it was a complete behavioural change in the way we do things. We started off with about 225,000 data records. We had about $250 million worth of debt exposure. Today, we host about 2.1 billion, we’re on track to grow again, and we host about 3.1 million data records.

We, in terms of a New Zealand company, there’s about 600,000 active companies in New Zealand, of which about 300 don’t trade. They are either a shell company, or corner dairies, or taxi drivers with companies, so they don’t really transact a lot. We’ve got information on close to 80% of companies that trade. We’ve got the largest share of the information. We broadly cover about 16 sectors. Some of the sectors, we have about 95% of market share of information.

So the stuff of AI, the stuff of behaviour, data and things like that. Our next challenge is how do we share that behaviour with our customers so that they can have preemptive knowledge of what the market is doing?

We are working on the next phase right now, which is very exciting for us as a company and AI is something that we are talking about as well, because we are in the fintech sector, so fintech is something that is changing. If you’re an analyst in the bank, there is all this stuff coming out now, like a robot CFO, or a robot advisor, all those things are pretty much machine learning. You just plug in some numbers and it’ll spit out everything and it’s quite scary.

What is the benefit of having transparency in credit reporting?

We are trying to make the industry a safer place to trade. Out of the 600,000 companies, only 2%, probably less, provide a set of financials to The Companies Office. If you are trying to provide credit risks of credit to somebody who is borrowing money from you, how do you assess risk when they don’t provide you with financial information? What we did is we tried to create a view of the companies behaviour in terms of spend, in terms of payment behaviour, in terms of security, cross-pollination, how the directors are behaving with other companies; all of those things in a singular view.

As a result now, when people come and look at the information, they can make informed decisions and as a result, losses have reduced. You don’t like to see people going into business, selling things and then losing money because people don’t pay them. It’s sad because people work hard, provide all those things and people don’t pay them. It’s bad news.

With your access to the data that you got, what’s your insight into the New Zealand economy?

There are a lot of headwinds coming. If you look at all the economic indicators, interest rates are going to come down. I just came back from Singapore, and a friend of mine talked to me about investing in an app and I asked what the contribution from the government would be. He said, in Singapore if you are local and it’s your first company, for every dollar you invest, the government will contribute 60 cents. That’s huge. If we have that kind of environment here in New Zealand, I’m sure there would be more entrepreneurs coming through.

When I was in Singapore, I was in a cafe and I met this VP of a company. He happened to be in the tech space and I asked him what the valuation was and he said AI companies are being traded for 15-30 times their revenue. I don’t know how accountants value those companies. If you look at the old accounting methods, companies values are based on multiples of earnings, etc.

These companies are making losses. Uber is making losses. They made a $1 billion loss and the company is worth $80 billion – how does that work?

You look at Beyond Meats. I was looking at their share price this afternoon and when they came out, they said they weren’t going to make money. Their share price was floated at around $25. It’s sitting at $195 today after three weeks. It’s insane.

If you look at Netflix, the subscription is going to drop – what is that going to do? The whole thing is just crazy.

I talk to investment bankers and they say that everybody is chasing data. Everybody is chasing customer data. And that’s what’s driving the value.

There’s a company in Malaysia who are a freight business. If you want to deliver something from point A to point B, it’ll cost you the equivalent of NZD$1.20. How are they going to make money? You can’t. They’re not going to make money because what they are trying to do is chase the data. They’re getting the data. They’re buying the data. The more sales they do, the more losses they’re going to have. But eventually they’re going to introduce other products on to the platform, using the data they have. In other words, they’re driving these losses deliberately to chase data.

15-20 years ago, the statistic is that 55% of bank exposure is to enterprises, and 15% is to mortgages. Today, roles are reversed. 55% is to mortgages and 15% is to enterprise, because banks are not lending money to enterprises.

If you go to a bank to borrow money, the first thing they are going to say is ‘What have you got as equity?’ They want your house, your cat, your dog, they want everything. They want to know the colour of your underwear and what you had for breakfast. Now if you give that, and if your business grows, there is no cash flow lending, because cash flow lending is something that people don’t do. But fortunately today, there are a lot of pair-to-pair lenders that have come that are starting to lend money on cash flow. But the caveat for that is the interest rate they charge is quite significant.

Coming back from Singapore, it is one place, if you’ve got a business that has the potential to go global in IT, there is a lot of cash in that. A lot of people who are in property are moving out of property and investing money in AI and future technology. They don’t care if it’s not making money because that is the future.

You have an insight over all of these industries, where do you feel the smart money is going?

I think tech is the way to go. If you look at New Zealand as the football of the South Pacific, we sell a lot of our agri stuff off shore. But in China, they now have a two child policy instead of one child. If you are a certain age and you don’t have a child and you’re married, they are now going to fine you. Beforehand, if you had more than one child, you had to pay tax on it, so the roles have reversed.

We laugh at all this stuff, but the funny thing is that China now has the largest middle class group of people in the world, at 306 million people. With that kind of number, all these young entrepreneurs that have all of a sudden seen all this money, which they never did before, instead of getting married and having kids, now want to see the world and travel. They are happy to pay the fine, even if they are married. Child birth rate in China is slowing down, people are having kids at a later stage in their life. Guess what we sell to China? Milk powder. If they are not buying from us, what are we going to do?

There is a phenomenon happening in China, whereby, back five years ago, if you wanted to buy milk powder, you bought an offshore milk brand because it’s trusted. But now, it’s changed. People in China would now rather buy domestic-made products. If you are exporting to China, you’ve got to be very careful. Those are the kind of changes that are happening around the world and with all these trade wars going on, who knows what’s going to happen?

So there’s no longer the same sort of equity there once was in the New Zealand brand?

No, it’s changed. We’ve just exported our ice cream to China and we are now doing some collaboration on marketing and have done some social media; it’s very, very slick. There’s an ice cream show coming next month and our brand will be represented there. It’s incredible.

I just saw an article from McKinsey and Co, which said that about 30 years ago, China’s domestic consumption is a representation of GDP’s 15%. Today it is 60%, so that means local consumption has grown tremendously. They are not relying on export anymore to supplement income domestically.

We, as a country who export a lot, need to recognise those things and work closely with a local partner to get our products in there and penetrate the local market and be a national brand.

How do we make sure we have that value in there if it’s not going to come from the New Zealand brand?

You’ve got to engage and communicate with people. After today’s event, I’m so pleased to see we are engaged technologically internationally. I think it’s pleasing to see a small country like ours of only 5 million people, punching above our weight internationally. There are a lot of guys doing amazing stuff which we don’t celebrate as a country and that’s just wrong.

From a migrant perspective, do you sense that that is something that is holding us back?

Without a doubt. I come from Malaysia, from a small island called Penang. Coming to New Zealand as a migrant 31 years ago, I just can’t believe the ‘she’ll be right’ attitude. We don’t celebrate success.

When my colleague and I went to Macau for a conference, a tour guide took us up to this hill and told us that was where the celebrities lived. Except they weren’t your typical celebrities, these were business people. There’s a police hut on every corner of the street because these people are very influential. I asked why they celebrated all these people. They said ‘These are the people that invest in our society and create jobs for us. They gave us an opportunity.’

If we celebrated business, like we celebrate the All Blacks, this country will never see the end of success.

What’s the best piece of advice you’ve been given?

This old boss of mine gave me two pieces of advice. One is: never assume. The other one is: don’t be desperate. A desperate man gets nothing, a confident man gets everything. So always be confident, no matter what the circumstances are. Always go in with an open mind and even if you don’t know, listen and learn.


Q&A

Dominic Bowden: You talk about the New Zealand story changing and maybe not for the best. How do we turn that back around and make us back into that incredible brand that we used to be?

It requires contribution from all stakeholders; the government, the council, the union, everyone involved. You can’t just do it on your own. It’s got to be a change in terms of mindset, in terms of policy-setting. Otherwise we’ll continue just doing to same.

Are you optimistic that this is possible?

Absolutely, anything is possible. I always go back to China. Today, they have the largest telecommunication company in the world. How did they come from nothing to being the biggest in the world in that sector? You’ve got to take your hat off to them as they have done something that we haven’t.

The reason I started an ice cream business was because one of the goals that we had as a team, is that there are not a lot of national brands that have traded offshore. If you look at Germany for example, you’ve got Mercedes-Benz, Porsche, Adidas, Puma, all those brands. If you go offshore, what is one brand that you recognise that is made in New Zealand? The All Blacks, Zespri; there aren’t a lot.

For me, if each and everyone of us as a business people have got the ability and the dream to make our brand an international brand across the globe, then it’s going to lift the living standards of all Kiwis at some point in time. Let’s work together to achieve that goal.