Early struggle pays off for KarenSoft By LEE CHUI YU, The Edge Malaysia, Monday, October 14, 2002

The Edge Malaysia, Monday, October 14, 2002

For a guy who didn't go to university, soon-to-be-listed KarenSoft Technology Bhd's chief executive Chee Chong Hwa has come a long way. He became an accountant, and then, an entrepreneur. "I didn't go to university; I didn't want to," Chee says with a booming laugh, recounting the beginning of his career. Instead, he did an articleship and became a member of the Malaysian Institute of Certified Public Accountants and later the Malaysian Institute of Accountants (MIA). He started off with a mid-sized accounting firm in Penang, and left when there "was nothing more I could attain". According to Chee, the transformation from accountant to information technology (IT) guy was by accident.

Chee came up with a prototype programme in June 1989, which solved many audit problems he encountered at work. A "small-town boy" by admission, Chee has studiously avoided working in Kuala Lumpur. He even quit a job "because they wanted to promote me and transfer me to KL. I was there before [in KL] for about a year, and didn't even have the time to go to Genting [Highlands]", he recalls.

The decision to strike out on his own came in 1987 when Chee was given the opportunity to buy out an accounting practice. The deal, he says, gave him "the courage to quit" although he had never thought of himself as an entrepreneur. But when the deal fell through, he decided to continue on his own and started CH Chee and Associates in February 1988. "A lot of people called me and said, 'Are you mad? Why are you throwing away your career particularly in the middle of a recession?'," he recounts.

This, it turned out, was a blessing in disguise.CH Chee and Associates was a lean operation with no secretary and a borrowed personal computer (PC). "Three months later, the PC died," he says. But watching the technician poring over the manual to find a solution for his PC motivated Chee to learn more about computers. The copyright laws of 1988, the high cost of basic accounting software and the lack of customer support pushed Chee to find accounting solutions for his company, thereby marking his first steps into IT. "We were doing a lot of book-keeping work and we computerised it for our clients," he explains. But this became a problem as licensed software was expensive and support hard to find. He decided to take matters in his own hands. " I went to town to a bookshop and bought every single book available on Clippar [the leading programming tool for DOS based PCs at the time]". This, it turned out, was the beginning of his beautiful relationship with enterprise resource planning (ERP) software.

After many months of working a "seven-day week" during which he "slept less than six hours a day", Chee finally came up with a prototype programme in June 1989, which solved quite a few audit problems that he had encountered at work. A Taiwanese company liked his product and by Sept 1989, the KarenSoft Fixed Asset Register was delivered, costing the consumer RM5,000. It wasn't long before KarenSoft's intellectual property was strong enough to stand on its own, and in August 1991, CHH Software Solution was established to own the product. CHH Software was later re-named KarenSoft Solutions, which will become one of two major subsidiaries of the listed company. "We put in about RM200,000 over a period of time to develop product... [but] in the early day we didn't market the product aggressively" he explains. "Our main activity was accounting, and [the software] was the cream."

KarenSoft, which will be listed on the Kuala Lumpur Stock change's Mesdaq Board, grew but not without a struggle. "We had no money, no proper budget. We had zero budget for advertising, and at that time the product was sold word of mouth," Chee says. But soon it became the "cream" that was bringing in the moolah, and the company was able to make profits to the tune of RM400,000 on a turnover of RM500,000. "That was how we bought these offices [in which KarenSoft Tech resides]," he quips. "In the early days, we didn't have much overheads; we were sharing premises with my accounting firm." More solutions were added to the KarenSoft suite of products and soon it was able to call itself an ERP solutions provider.

The year 1997 turned out to be a watershed year for the company, but not because of the economic crisis. "We were cash-rich in early 1997, I was even thinking of buying a yacht," recalls Chee. "I was reading an article on Mesdaq, and based on the criteria mentioned, 1 thought, 'Hey! That's us'." That inspired him to list his company but it also became the year he "started becoming poor". While at that time KarenSoft was too small for a Mesdaq listing - compared with the expected market capitalisation of RM40 million, the company was only worth about RM6 million - it didn't dampen Chee's determination to list. "All the money I had, I put it into the company. All the property I had, I re-mortgaged, " he says. In addition, he looked for financial help outside. He found an angel investor who put in RMI.2 million at the end of 1998, and by 1999, the company started growing in a big way. MSC Ventures put in further financing to the amount of RM2.3 million in 2000. According to Chee, both the angel investor and MSC Ventures will become substantial shareholders in KarenSoft Technology when it lists. MSC will hold less than 10 per cent, while Chee will have a stake of slightly less than 50 per cent.

Chee says that a listing on Mesdaq was necessary as the company "needs the money". Mesdaq was the chosen board because KarenSoft is "a small company in the technology sector, [which] will be lost on the Second Board". The raised funds, which should go a long way with this frugally run company KarenSoft's office has no receptionist, and Chee is still without a secretary and drives around in a less-than-new Peugeot - will be used to expand KarenSoft's business.

KarenSoft's ERP2 product today is designed for both the industrial and commercial sector. This includes solutions for sales distribution, materials requirements planning, logistics management, planning and production, financial accounting and fixed assets, human resources information and customer relationship management (CRM). In short, almost everything a company needs electronically to manage its people, products and finances. At present, its main custom is to the manufacturing sector (80 per cent) and to customers concentrated in the middle tier of the market. This means big-medium, non-small-medium industry (SMI) companies willing to pay around RM500,000 for ERM software. It pits itself against foreign ERP companies like Exact, Baan, IFS and Interbiz and away from the marketplace of the higher-end players like SAP, Oracle and Peoplesoft. His segment is populated mainly by foreign-based players, but it is a growing segment with decent margins. "Tier 2 customers are willing to pay... [we decided on this segment because] everywhere we went, there were no players in Tier-2,"

Chee explains. Bigger players like SAP and Oracle, which make obviously bigger margins than KarenSoft, do not see the latter as a threat, making life a little easier for the local ERP player. Industry observers estimate that the ERP market in Malaysia is worth about RM270 million, and this is expected to grow an a compounded annual growth rate of 9.4 per cent from last year to 2005.

KarenSoft's competitive edge is that it is "just as good as the rest but more affordable", Chee says. And plans are to expand its market base to China soon. "It will be our first venture overseas," he adds. "The upside is very clear because in China every province is like a country." Still, the company is playing it cautious because "it is a dangerous place to be in". The strategy for now would be to "follow the customer in", and to get a base going by setting up a KarenSoft Institute of Technology where users, trainers and partners can be trained to use the software. Already a RosettaNet solutions partner, it is also bundling its software as a solutions partner with IBM. The company hopes to ride on its reputation of giving good backup service, a feature that its original clients still appreciate. KarenSoft has just attained MSC status. KarenSoft Technology has been making gross margins of more than 80 per cent for the last three years, but made a net loss of RM531,000 last financial year. It reported a net profit of RM633,000 for the first six months of financial year 2002. Expectations are for the company's prospectus to hit the streets near the end of this month. By LEE CHUI YU