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Raise the Bar Podcast: An Interview with Joanna Hotung

by DIANA DORAHY|15 October 2020

Recently, we had the absolute pleasure of speaking with Joanna Hotung, the founder of Kids’ Gallery in Hong Kong. Joanna has some wonderful advice about building strong foundations, what to look for an investor and the art of growing at your own pace.

 

How did you come up with the idea of Kids’ Gallery? 

There were many values that we really appreciated in the local school system in Hong Kong, discipline and respect for others but there were also many things that were lacking. The most important thing for me was the creativity side and that helped me see a gap in the market for what is now called edutainment. And that’s how Kids’ Gallery started. It was one room, myself, two teachers and one admin person.

 

How closely did the first two years of Kids’ Gallery match your business plan?

Not closely at all, I have to say. I had actually completely underestimated my expenses but fortunately, I had also underestimated my revenue. This whole area of children’s co-curricular education was still new to Hong Kong and I was lucky to be first to market there. Initially, we just taught arts and crafts and visual arts and then we added drama, and musical theater, singing, and dance. As demand grew, we added a whole range of communication arts including public speaking and debating. And now, 24 years later, some of my original students have their own babies so I’m onto the next generation now, which is very exciting.

 

Can you tell us how you started in terms of funding the business?

In the very beginning, I bootstrapped. It was 1996 and at the time I decided I needed a million dollars Hong Kong to start the business. My husband and I put up 60% and a good friend of ours agreed to put in the other 40%. I did have a business plan and had mapped out the first year but it wasn’t very accurate. Fortunately, I was able to grow organically and over the years was careful to maintain caution. For example, I didn’t open new classes until I had a waiting list. Eventually, I began expanding to other locations but it was all very organic. There were times when I felt that I wasn’t moving fast enough or I’d meet people who said I should move into China. I actually had a couple of investors approach me too but I also feared losing that sense of quality and standards were very important to us and still are.

 

What was the first big hurdle?
SARS in 2003. We were hit very hard and forced to close for about four months and I was so glad at the time that I hadn’t actually overextended. We’d built a solid foundation and because of that we were able to survive. But I also had to make some really tough decisions around getting rid of people about cutting costs and even closing down one centre in order to save another one.

 

How valuable was it to have a partner? 

In the beginning, I definitely felt like I needed someone to share the risk with me. And then later, as I became more experienced, I realized that I did better on my own. But then again, there’s value in doing a friends and family round where you find that early seed money from somebody you trust, who trusts you and with whom you can have an honest conversation and say, actually, I think I want to do this on my own now.

 

Recently, you actually decided it was time for a partner again, can you tell us a little bit about your decision to start this journey towards a partial exit?

About five years ago, I was facing a big birthday and my children were grown up and I thought to myself, I really need to decide on my exit strategy. One of the things that all the business books tell you is that you should always have your exit in mind and I didn’t have one. I also knew that I wanted to scale. I felt like I’d created something that had a very strong foundation and a lot of potential to grow and I probably couldn’t do it on my own. So, I started talking to potential investors, potential buyers about where it could go into the future. In the end, it took me five years before I found the right partner to sell to. I spoke to a private family office, I spoke to a huge mainland property developer, to a smaller local, similar educational provider. Each one was a very different potential partner with different agendas and future goals.

 

So, how did you go about picking an investor partner? 

It was really interesting because I’d spent 20 years running my own business without ever having to pitch to anyone. So I learned so much about how to pitch, what to say and what not to say. I learned a lot about due diligence and all of the practicalities around that. And I think most importantly, I learned who would be the best partner for the company in terms of a shared philosophy. Someone who complimented the strengths we already had in the group with their own strengths. Of course, there’s a dollar value, that’s very important but it went beyond that. There were also extra values that I was trying to achieve for the group so that I would feel comfortable working with whoever took it into the future. Today, I’m a minority shareholder and CEO and I’m very happy about that, because I love what I do. But I also feel that now there’s even more potential for us to grow and develop. We have access to a lot more capital, expertise, networks and contacts.

 

So what’s the next big business goal for the KG Group?

Within Hong Kong, there’s still, I believe, a lot of scope for growth. But we also are moving into Macau and we’ve already signed a lease on a new space. And we’re also  looking at good locations in the Greater Bay Area in southern China. And most recently, we’re now online as well so we’re looking to build a greater digital platform. Unfortunately, a lot of the new lease agreements were signed before we even knew about COVID-19 so the timing has been a little bit challenging but the potential is there and I’m really excited.

 

Can you tell us a little bit about that, that process of going through investors? 

I think, for me, personally, the change that the greatest change that occurred for me in that process was in the beginning, I felt very much like someone who was trying to impress a potential investor. And as I progressed through the journey of talking to different people, I realized that actually, I have something of value and that I don’t need to impress them, what I need to do is actually show them what is here. And for me, that was a real psychological change because I hadn’t had to pitch before. But it takes confidence, it takes practice and as you go through that path, you actually become pretty good at it. And you realize that you’ve got something to sell and something other people actually want to buy.

 

How has business changed with an investor?

Just because you have shareholders on board, you’re still going to work just as hard and as effectively as you’ve always done. You’re actually creating value for yourself and for them but you’re not actually worrying about them or what they think. That was quite a turning point for me and I think it’s quite a female thing to worry about. How am I performing to my shareholders, rather than how is the company performing? So that was a very important shift in my mindset. And that gave me even more confidence to actually ask for more and not be in such a rush to sort of hurry things along or get decisions made.

 

How did you balance running your business and fundraising at the same time as well as looking for that exit partner?

I came close to signing with one of them even though there was a little voice telling me this is not the right partner. But I did come close to signing because, frankly, the money was good and I was exhausted but luckily, I didn’t actually go through with it. And I’m so glad I didn’t because it would have just been the wrong match for both sides. But I think it’s persistence, it’s these old fashioned values of persistence, dedication, and really just continuing to do what you do well, but the difficult thing is that while you’re looking for a partner, you’re having to maintain the numbers. And that’s really difficult because the market goes up and down. And after I started showing numbers to potential partners, I realized you have got to show a trajectory, you’ve got to show a growth pattern, you’ve got to show why there may have been a small dip over a certain situation. And that’s where the stress comes in when you shift from being an owner of a business to working towards getting new shareholders.

 

And what impact are you most proud of?

What I’m most proud of is when adults come back to me now. And they say hi, Joanna, do you remember me? And I look at them and I’m not sure who they are? Then they tell me, oh, I’m so and so and I was in your Kids’ Gallery class when I was four, or six or eight and now I’m a doctor or a dentist or a lawyer or an artist or performer. They remember their experience at Kids’ Gallery and they tell me that it really helped them along the way. I really feel that as the world becomes more competitive, more challenging for young people, these are skills that really, if we help our children to develop them when they’re young, then they will stand them in good stead for the future.

 

Any last bits of advice for current female founders who are trying to figure out what to do next to scale their businesses?

It’s easy to be dazzled and distracted by all the stories of enormous successes, and feel that your own company, which is plodding along, and seems to be taking an awful long time to build is therefore not as much value as that fast growing company. I think that’s a mistake. I think what’s important is to believe in the company that you are creating and success will come eventually. I’m also a great believer in strong foundations, I think a lot of companies are built quickly but then at the first sign of trouble, they crumble because there really wasn’t a strong foundation there. So I would say, build something strong and durable, that is going to last for a long time.Stay true to your mission. Stay true to what you’re trying to achieve and judge it on that alone.

Thanks so much to Joanna Hotung for all that invaluable advice. If you want to hear the full episode, go to our Raise the Bar Podcast, episode 3.