A year in review

As 2022 ended, I took some time to reflect on how the year went by, learn from the good and bad and highlight the memorable. Given my life for the past few years has been all about Mestrae, there’s been a lot of downs, and bouncing back up (and falling again :) )

I’ll share parts of that journey here —

An engineer by profession, the challenges of product development were within a familiar territory but the business acumen was something I learned ground up – be it hands on experience, pre-accelerator by Stanford, MBA eventually, mentored startups via MIT’s LaunchX as well as consult businesses globally as side gig income. All of these challenges (and the mistakes we made along the way) yielded a steeper learning curve, but it has been a long journey of recovery. I’ll share the details below

1. Our funding issues — Recognizing the problem, Exploring alternative option, Recuperation plan
2. Footwear Manufacturing — The dying footwear industry in Malaysia, Revival plan
3. Rebuilding Mestrae’s Sales — Distribution hub, trade & manufacturing in the US, Expanding Mestrae product line
4. What we need / lack — Funds to recover from debts (and threats), Resources , A strong focus on R&D, Better communication with customers

Let me break this down in detail :

1. Our funding issues

1.1 On recognizing the problem

We faced tremendous hardship when a grant that was awarded to us was not disbursed, despite us fulfilling all the goals set out. We were even recognized as the top 10 startups in the country by the Prime Minister. This was a reimbursement grant by a gov’t agency (Platcom Ventures), where you pay first and claim later. We got into debt to pay first. On top of these debts, the shoemaking industry was falling apart and Covid19 lockdown wiped out over 50% of local industries. Minorities have <5% economic assistance for startups (by the constitution) in Malaysia and we were flushed with several years of instability (4 governments in the last 4 years)

1.2 Why were the funds not disbursed?

We found out later on that they didn’t have the money due to internal overspending, the CEO left, and a lot of corruption stories stemmed out. But leading close to the disbursement phase, they made us go around in circles until we were desperate and dry. I was losing people, we could not continue with manufacturing, and the debtors were after us physically, on social media, social circles. Finally, the grant agency created a new rule (as the contract says they can change the rules as they see fit) and asked me to show a few hundred thousand ringgit overnight in a bank to prove the founder’s vested interest. I couldn’t meet the request and we went into severe debt overnight. I’ve written more about it here.

I wrote to a lot of people seeking visibility and help. From the Prime Ministers to the CEO of PlatCOM, CEO of SME Corp, CEO of AIM, Cradle on bribery , the legal thing Ambiga created when Mahathir came to power, KPDN, MOF, MOSTI, MATRADE, MITI — I even submitted to PAC (Parliament — Public Accounts Committee). I reached out to Cradle but their VP wanted personal stakes. I reached out to the head of MBAN who asked me to move on. I reached out to SME Corp whose policy director said if I do not have the money, forget the business and go home. Someone from MAGIC recommended this guy who does money laundering. Media did not want to write about it as they say entrepreneurs are afraid they will be marginalized further. It was truly insane.

1.3 Exploring Alternative Options :

Private bank loans — I applied to 12 banks. Not approved as fashion-related business is not favored and is considered high-risk among the banks in Malaysia.

Gov’t-backed banks — There is a criterion whereby you cannot take up loans if you have a grant contract, even if it’s a reimbursement grant. 90% of opportunities are for Bumi (majority) only.

Central Bank (Bank Negara) — Loans for minorities were micro or super-large businesses and often fell under the jurisdiction of private banks. I went to Bank Negara twice to request for this to be opened up but was declined.

Raced-based loan for Malaysian Indians — The advertisement for Tekun is RM150k, but when you go in, it’s only for RM 20k (USD 4k) for minorities catered for the micro economy. Also, the shareholding has to be 100% race-based (mine was 92%). Another agency Mitra under the Prime Minister’s department — but this only handles NGOs.

Equity via venture capitals in Malaysia — 80% is for Bumis only, and for non-Bumis the allocation was either for high tech, deep tech, or PE (later stage). I have explored all 30 VCs available in Malaysia.

Equity crowdfunding — is not favored as there is a bulk of upfront payment, startups have to find their investors, and low possibility of hitting the series A stage.

Money lenders — the interest per month was incredibly high up to 40% as it is based on assets and risk of repayment. This is debt suicide.

Asia Development Bank — not approved as the company was too small for a loan they cater for

IFC — Malaysia is considered a rich country and not within their developing country’s financial provision for startups. I partnered up with Maybank for this but was declined.

Other grants — I scouted every single grant that was provided in Malaysia. There are over 60 grant agencies and 150 startup programs, but only 25% of these grants were publicly available, and out of that, minorities are limited by classification and stages. I’ve written more here

International investments — this requires the business to be fairly stable before proceeding.

MyCreative loan (gov’t backed) — Required to generate $1M in revenue within 1 year of launch — new businesses take at least 2–3 years. These absurd criteria, I learnt later on, were only applicable for minorities.

They did however sponsor $1k for a global fashion business event we organised.

Matrade — A lot of startups including me did not get the grants disbursed (similar “pay and claim” method), or received a small portion of the promised amount. In a subsequent conversation, I listed a few footwear trade facilitation between MY and US such as FDRA but they asked me to leave the country instead.

Mida — This was weird. Someone asked me to fill up the grant form and told me not to worry if I don’t comply, as the “grant consultants” will make it work by taking a cut. I was at the point of letting go of manufacturing. Legal bluff is not my forte.

Other Politicians / Leaders — Emailed Tan Sri Zeti (Former Governor of Central Bank) & Lim Guan Eng (Former Finance Minister) but no response.

Emailed Hannah Yeoh (Former MP of Subang where Mestrae’s office was), her assistant called back almost immediately and but it was out of their jurisdiction (State vs. Federal)

State level — Fashion fund was available in a competition form, but only for Muslimah/Modest fashion.

State (Municipal) — Race based funds max RM5k ($1k) for micro loans — You have to attend a seminar, fill in several paperwork and interviews for it, and I was still not qualified because they rightfully recognized Mestrae as a non-micro business.

Factoring – I reached out to CIMB but the requirement is to have RM 10M annual turnover and has to be a government- linked business.

(There’s a lot more, I’ll keep adding on when I have more time).

1.4 The recuperation plan

Given we went into severe debt overnight, what came next were a lot of threats, attacks, and legal repercussions. We had to let go of our manufacturing (I was yelled at by the owner in the middle of the street), numerous court orders in paying creditors, multiple daily threats that can shut you down, and some very pissed off friends. I can’t blame any of them, they trusted us and we trusted a legal gov’t grant.

The immediate step taken is to generate revenue by boosting sales. We took up pre-orders, we got on Kickstarter, and almost reached 200% of the target. We got in the funds, then the court orders came to pay up. We managed to secure some raw materials despite rising shoemaker problems (which were ruined by the floods a few months later). Then the Covid-19 lockdown happened….

After this, the challenge was too heavy…I took up MBA during the lockdown. I started mentoring a lot of startups via MIT’s LaunchX as you learn when you teach, and working with young passionate entreprenuers was inspiring. I knew we needed side income. I started consulting multiple businesses globally.

We have recovered half the debts within 2 years, which would be a price of a house in Malaysia that on average takes 20–30 years to repay. We are rebuilding but the supply chain is costly and messy right now, and we are working on building up the income stream. To work on the side and rebuild Mestrae is crazy but doable. But the added daily debt threats and trying to revive an entire dying shoemaking industry is beyond challenging…

2. Footwear Manufacturing

2.1 The dying footwear manufacturing in Malaysia

When I first explored the shoe-making industry in Malaysia, they were not available on google search or via the footwear manufacturer association. They would be in deep suburbs or rural, mostly extending their homes as part of manufacturing. They don’t speak English. If there were any tech, it was dot matrix printers. They do not trust anyone out of their ethnic community. As the only brown skin girl in the industry, they refused to speak to me. I used to buy KFC and stay up with them till late working on the shoes in their little manufacturing places for 6 months before they opened up. I was charged 70% more than other designers and was told to pay cash upfront as there was no trust.

Malaysia used to be the top 5 exporters in the world in the 90s. Top 3 to the US before Covid-19. Now we are at #46 (China is #1 and Vietnam is #2). We barely have suppliers for shoe lasts, mold makers, seamstresses, and fabrics, let alone shoemakers for a variety of heels and shoes (different shoemakers have their own expertise)

2.2 Why is this industry dying ?

a. Shoemakers are not digitally attuned to running a business.

More than 50% of SMEs in Malaysia do not have an internet presence. Some still use a middleman to exchange funds for the import and export of raw materials.

b. Finance assistance is not suitable.

Shoemakers are old and artisan businesses are not the same as Micro or small businesses in terms of consumers, production, or steady revenue stream. However, funding platforms do not recognize these differences, and they automatically do not qualify for any help.

c. Dysfunctional footwear association

Perhaps once upon a time the footwear manufacturing agencies made a significant impact, but they no longer do. They generate ¼ million revenue per year but still do not have a basic active shoemakers list and I’m not sure what’s more important than that.

d. Language

The communication is normally in Mandarin, or locality-specific (Hokkien if you are in Penang, Johor, Klang), and Cantonese if you are in KL or Ipoh. As we grew as a global business I met more customers and vendors worldwide, I understood better the importance of learning a language. I’m picking up Mandarin and hopefully Spanish next.

e. Racism

Happens everywhere. One never gets used to it no matter how frequent it is. Removing racism from the constitution (so that racism is no longer legal in Malaysia) would be a start.

2. 3 Footwear Industry Revival Plan

How can we make this better? I’m working on direct vendor access through a digital marketplace while figuring out how to integrate Web5 for its ease of currency exchange and privacy. Beyond tech, the challenge is on user adoption, and building the international sales activity (buyers and sellers). If we did not have debt threats and a lack of resources, this is something we can turn around quickly.

What’s the alternative? If Malaysia’s footwear industry goes under, we have to look for other shoemakers (handmade shoes) — We have to start exploring Bangladesh, Vietnam, the Philippines, and South America for it, but this also requires funds.

3. Rebuilding Mestrae’s Sales

3.1 A distribution hub, trade & manufacturing in the US

People we speak to from the US have been very helpful from the get-go, and most of our sales come from the US. We love how New York pushes the fashion industry and has started communication with the economic state dev. We have a lot of planning to do, sales target to meet and funds to raise, but it makes a lot of sense to move the distribution hub there for the following reasons :

• Reduces logistics cost for US and Canada D2C by 70%.
• Increase the speed of exchanges and delivery, and improves sales overall
• Reduces logistics cost to Europe D2C by 50%.
• More options for fashion and tech-related investors, retailers
• More opportunities to expand climate-friendly fashion, and wearable tech in terms of manufacturing-friendly environment, expertise, and funding.

We will be moving the distribution hub but we hope to retain the main manufacturing in Malaysia (if the footwear industry survives)

3.2 Expanding the Mestrae product line

The challenge with Mestrae’s interchangeable heels is obtaining customized raw parts. Regular heels/shoes have been around for centuries hence these raw parts are easily obtained off the shelf. This helps fill up the time gap manufacturing has and continuously generates income. We have to be fluid with change while we keep an eye on the goal.

We are also looking into expanding climate-friendly (nature-based vegan line) manufacturing in New York, as it is inviting and supportive of our progressive growth. This also requires funds, effort, and planning. Should we make this work, I would like to use this opportunity to explore local manufacturers in America and shoemaking expertise from South America. Ideally, my goal would also be to increase the climate-friendly supply chain for fashion designers as there is a huge necessity here. Tonnes of wasted clothes that end up landfills in 3rd world countries is not a cool thing.

4. Moving forward — what do we need / lack

4.1 Funds to get past debts (and threats)

For Mestrae to break even on all past debts and rebuild comfortably with 12 mths runway, we need to sell 3000 pairs of shoes ($300k). It’s doable but we still need funds for samples, resources, etc (pre-marketing).

• For comparison purposes, our competitors raise millions of dollars but have a quarter of our tech and a fraction of our designs and market size. We made it this far with $100k.
• For wage comparison, the basic wage is $5.5k per year and senior management averages $55k per year (avg $24k per year). Hence earning side incomes is a slower means of recuperation.

4.2 Customers and Social Media

This is ultimately the most important thing but we have disappointed customers with a long delay — This is devastating and an absolute embarrassment for us. I can’t wait to turn things around and have happy customers again.

We slowed down on social media only because we are exhausted. We also missed out on a lot of security back-end issues on emails and the website due to lack of resources.

4.3 R&D

We need to upgrade tech to be continually be better for customers and manufacturing & supply friendly, as well as look into 3D print tech for some hard-to-obtain parts.

4.3 Resources

We need production management, sales, marketing, engineering, and designers. And this is just a start.

Reflecting on how the year went by, it took me a while to process all of this. I think I was mostly burnt out. I’m used to racism and sexism but not at this level of being marginalized. And it definitely took some time to be able to talk about it openly and to look at things objectively. I’m very much looking forward to 2023

If you want to help us out, you can tweet to the Prime Minister @anwaribrahim or the Minister of Economy @rafiziramli and ask them to disburse the funds that we were legally promised. That would be a great help. Even if we don’t get it, we are still going to work extra hard to make this work