Endeavor Malaysia continues Season 2 of the Thought Inspire Series with Richard Eu, Group Chairman of the 143 year-old family business, Eu Yan Sang on the topic of Modernizing An Industry Ahead of Time. Founded in 1879, Richard Eu is credited for modernizing the traditional Chinese medicine (TCM) company founded by his great-grandfather, having served as the General Manager in 1989 and overseeing the company’s development until retiring as Group CEO in 2017. Today, Eu Yan Sang has over 200 retail stores spanning markets such as China, Hong Kong, Macau and Malaysia. In this session, Richard illustrates the complex interplay of preserving family values, managing personal egos, reviving a 100-year-old business using modern management techniques, and meeting the expectations of a modern day corporation.
The family holding structure is very common in Asia with a large portion of SME businesses being family owned. Here, there is an often quoted notion of the three generation curse which down line the business would have been sold off. You are the fourth generation in a 143 year old business, a testament to your family's longevity.
Could you touch on how the Eu family managed to break the curse, Richard?
From tin mining to breaking opium dependency
“I think the three generation curse almost hit us”. Having been a family of tin miners in Gopeng, Malaya, Richard’s great-grandfather started Eu Yan Sang as a form of healthcare for miners. Back then, medical care was scarce in the mining fields and workers had to depend on opium as it was the most common form of medical treatment for pain. With traditional Chinese medicine, Eu Yan Sang presented itself as an alternative to the incumbent opium.
The business later expanded to Singapore, Hong Kong and even China by Richard’s grandfather. Besides bringing herbs for workers, a substantial part of the business back then was remittances back to China as a way to serve the needs of the workers, who did not have access to a formal banking system.
Taxes and family
Richard’s grandfather passed away at the outbreak of the Second World War, in which the family had to regroup coming back from it. The government at the time imposed death duties on large estates, with the maximum rate of income tax at 55%. “So they imposed the highest rate of 55% on the value of the estate based on the day that my grandfather passed away, and added interest on top of that for the years that it had not been paid, which could not have been because of the war. So by the end of the 1940s, my father’s generation was basically presented with a huge tax bill”.
The family had to sell off most of their assets just to pay off the tax bill. Some assets such as shophouses had to be sold at very low prices amongst other assets. To some extent, this led to the decline of the family businesses but they managed to keep some of it. “We had the tin mines with rubber estates, we had a bank and the only thing that was left was Eu Yan Sang. So that’s my starting point, to see what we could do with what the family left us”.
The historical common reason for family structures to disintegrate would be to have squabbles between cousins and family members. In your case, it was because of draconian taxes by the government, but the net result is the same.
So according to history, the Eu family’s holding of the business has been uninterrupted except for one period in the nineties when you and your cousins got together to buy back the shares. Your case is quite unique, can you talk us through that period?
Family factions and succession
Richard’s grandfather had 13 sons that came from different mothers, which created factions in the family. Nevertheless, the state was divided fairly equally amongst them meaning nobody had a major share. Richard remarked that it would be up to the different factions to try and group together, and “that’s why it was the easiest thing to sell everything off rather than to try and cooperate”.
As his uncle wanted to retire at the age of 70, a 40-year old Richard raised his hand to be his successor. “Some uncles got very jealous and organized a sellout. They sold us out to a company called Lum Chang in Singapore”. However, all was not lost – Richard shared that Lum Chang did not want Eu Yan Sang’s business, they only wanted the listed shell of it and that once Lum Chang were ready, they would sell the company back to the Eu family. Lum Chang eventually kept to their promise and sold the company back to Richard and his cousins in Singapore.
Here's a conundrum: if you want to grow far and get big fast, the fastest way is through acquisition. Acquisition requires ammunition in the form of equity capital i.e. selling shares which then dilutes the family structure and a lot of family members would not do.
How do you address this situation and advise the plethora of family structures around Asia today?
A family with business
Besides looking at the intention to grow, Richard’s general advice would be to remind his family that; “we are not a family business, we are a business family. Because the business might change but the family stays”. There may come a time where the business is sold, but you can continue creating businesses with the family that you have.
Passing on to the next generation
“There's no single solution, so every family has a unique situation”, Richard says, as passing down to the second generation from the first is the easiest because there is a very small number of beneficiaries. As the family gets bigger with cousins and second cousins, passing on becomes more difficult, with people putting together certain structures to own their share of the pie. This includes using holding companies and trusts that intend on finding a way to own the assets without having them broken into pieces.
A different approach mentioned by Richard would be the European family model, which includes situations where none of the family works in the business or no one takes any dividends as the business is run. Another model is that in each generation, only one member of the family gets to own the entire business. Here, the owner would have to pay his predecessor from the earnings generated, and then sell it to the next generation.
Eu Yan Sang had been listed in Hong Kong and your last foray was in Singapore's SGX in 1990. Institutionalizing might give liquidity and structure, but it also means the entry of unwanted third parties and hostile takeovers. You have told me that you'll never, ever count another public listing again in the future.
Talk about the whole listing process – what are your pros and cons?
Listing for liquidity
“The listing was actually done in order to provide some kind of liquidity. Liquidity is good if you need it, and if you really do want to sell, it's a way of indicating the market value of the company. But as you know, markets here are not that fantastic”. On selling shares, should someone want to sell their shares as a block, Richard mentioned that it would be much harder as buyers would have orders at a cheaper price. In contrast, having shares that are liquid for trading is a more ideal situation.
Nevertheless, Richard says that share price may not benefit the family if the intention is not to sell. In relation to that, share price can be a bit of an ego trip as it can always be used to measure one’s wealth by the value of the shares they hold. Reflecting on his experience, “if we want to sell, I would say actually for most businesses, a trade sale is better than a listing, as a trade buyer will pay more”. In most cases, trade sales often occur above market price which indicates the value of the company.
During the height of Covid-19, you actually saw a huge spike in demand for your traditional Chinese medicine products – and this is on the back of companies like Pfizer and AstraZeneca making a ton of cash, highest in history by some margin.
With traditional Chinese medicine (TCM) and Western medicine seen as a binary decision by people, why do you think that happened?
Complementary than binary
Eu Yan Sang were in a unique position in Malaysia during the height of Covid-19, in which vaccine supply was inadequate at the beginning and consumers were looking for an alternative to help with effects from contracting Covid. “So at that time, people were looking for our herbs to moderate the effects of Covid, and we did have this particular product which we had created a few years back for SARS. That product became very popular and got sold out straight away. We didn't even market it, it was all viral”.
“We see ourselves as complementary and not alternative.” When Richard first contracted Covid, the doctor advised him to take some Panadol, which he also took some herbs as well. “In western medicine, there was very little that people could take to moderate the effects and symptoms of Covid.” So the moral of the story is take both. You should get vaccinated as vaccination will help all our life as from young, we've been vaccinated”.
Why should a non-family member join your family business? There is always a risk that a family member will get promoted ahead of them despite their best efforts. How would you respond?
Rising within the business
“It depends a lot on the business. It doesn't happen in our company”. Previously, Richard’s grandfather had depended on professional managers to run the various parts of his businesses. With his uncle retiring and no one else able to make the step up, Richard replaced him as managing director, having had experience as an alternative director to his father before. “So I said, look, I'll do it. You don't have to pay me any high salary. I just take whatever is given and let me try and give it a go. And that was how I got into the company”. Ever since then, Richard was the only one from the family in the business, with the rest being non-family professional managers.
In 143 years and across four generations, there must have been some down days. Was there at any point in time you felt that you should fold the cards or close the business down because things were too tough? What were those down days like?
“The phone rang at eight-thirty in the morning. It was a call from the merchant bank: “We have just received a notice of takeover from Lum Chang.” So they had a majority of over 50%. It was the initial shock and what's gonna happen is the uncertainty”. Nevertheless, Richard describes Lum Chang as “very decent people” and that they were clear in what they wanted: not the TCM business, but in the business’ other assets and the company listing. However, the new owners would give the family the first right to buy the shares back once they were ready to sell – the “best thing that happened” throughout the traumatic experience.
What appears to be quite a simple question, which is actually quite profound – what do you think is the biggest challenge of modern life?
Issues affecting the future generation
“I look at my children and see what stresses them out. I think everyone faces the same thing. How do you raise your children? How do you have a family? How do you define what your life should be? And there are all these big issues”. For Richard, some of these issues may not be relevant to him at his age, however it will be relevant for his children and their descendants, such as issues on climate change and sustainability. “They are worried about this because they know that this is their future. If they don't do something about it now, then they don't have a future”.
On the subject of children, there may be the issue of lethargy in terms of motivation, as the family has made money a long time ago, in contrast to when your great-grandfather came over from China with nothing and started the empire that it is today. Four generations later, the kitty is full of money. How do you keep the motivation alive?
Purpose over survival
“The motivation has to be different. You cannot tell your children, “Oh, if you don't work properly, you're gonna starve”, and that's a lie. So how do you motivate the next generation? The way I see it is that the motivation is no longer about survival. The motivation now is purpose. You've got to instill the purpose in the next generation – why are we here; why are we doing this; if we have all this money, what are we going to do with it?”.
Instilling this purpose is the responsibility of the parent. Instead of allowing the next generation to splurge the money in the bank, Richard‘s view for motivation is to continue the legacy that his ancestors had given them – which is to help people. He remarks, “The greatest compliment I would get is when someone comes up to tell me to say that “Your products and services help me”, be it to get over Covid or a simple cough.
To make sure that Eu Yan Sang lasts another 143 years and beyond, how do you digitize, modernize as well as ensure the brand stands the test of time?
Adapting to changes
“It goes back to your purpose. The forms will change. The products have changed. What we sell today is very different to what we saw a hundred years ago, but the intent has to be there. We are still there to help people deal with their health needs or whatever it might be”. Customer needs will change, and that “you can't do just the same thing over and over again and expect people to follow you. I think you have to follow them”.
Building a meaningful brand
The brand would also have to adapt to changing times to stay relevant. Building and adapting the brand is a long term effort and is not just about advertising and marketing. “The ultimate aim is a brand. What does a brand mean? It means top of mind awareness. So, what have you done to make people think of you in your category? What are the attributes that make people think of that?” It is about creating a customer base that advocates for your business which in turn, brings in more customers.
Do you have your top three business principles, which you can impart to entrepreneurs?
Reciprocity, Integrity and Care
The golden rule is that you have to behave the right way to the person you do business with. You expect that they also treat you in the same manner. This reciprocity is very important”. Nevertheless, Richard remarks that “you don't have to do business with everybody. You do business with people that can respond to you in the like manner. There's business opportunities every day everywhere and you can't grab them all right?” Richard was reminded of his mentor, in which he advised to “just do business with people that you trust. When you do, you will have less problems. It’s useful advice, but not everyone is going to follow that, unfortunately”.
Next, Richard emphasized the need to have integrity, “integrity is extremely important. Our business will not survive if people don't trust us, and we have to live up to the trust.” Having the family name on the line and over a hundred years of heritage, integrity is a value that needs to be instilled in the next generation. Thirdly, one should always care about the customers. “It is not about yourself. If you treat your customers, then they will always be there, and that is your business.”
Coming from a multi-generational family business, what advice do you have when dealing and communicating with the generation above you?
Being clear with your objectives
“The situation is different for each family. In our case, what we did was when we did the buyout, we made a point that the older generation was not going to be involved at all”. In doing so, the buyout was done with his four cousins, with their own money, through a leveraged method and without any interference from the older generation. They were able to achieve this through a unique situation, with Richard sharing “my father was a banker and happened to be the non-executive chairman of the company at that time. But, he knew nothing about running the business – so again, quite a unique situation. Because of that, we were able to just leave them out of it, as they couldn't really add much value in terms of running the business”.
Nowadays, most companies are built for an exit. What would be your advice to build a legacy that can be passed on? What would be the fundamental elements to build companies like this?
Stay open minded
“If you think about an exit, right from the time that you start the business, you're not going to build a long lasting company that you can pass on. But, you become a serial entrepreneur, and that's your business – not the business that you created, but the business of creating businesses. This could be a legacy. So think about what you are actually in it for”. Reflecting on his great-grandfather’s legacy, he would not have thought about making the company last over 140 years.
One should stay open minded and not be too obsessed about trying to create something that will last a long time. “It's better to be open minded and think about starting a business and seeing how it goes. If you receive an offer that's too good to refuse, then you take it and you move on”. Further, an entrepreneur should have a certain degree of self-awareness on their own skill set so as to not get carried away.
There are a lot of direct-to-consumer brands these days, especially online businesses. When is the key point for them to go to retail and what does it take to be a champion in the retail space?
Seek out opportunities strategically
Different businesses will take different approaches. In deciding whether to stay online, move to retail or use a hybrid model, it depends on the business itself and the environment it is in at that point of time. With Covid, retail renting had dropped, opening opportunities for businesses to move to physical retail. However, one should be cautious of paying crazy prices, “we had one store with a fantastic location on Russell Street and paid about HK$600,000 for a 600 square foot store. Sasa came along and offered HK$2.4million for the same space. There was no way we could stay on!” Alternatively, Eu Yan Sang opened a store near Hennessy Road for less than HK$600,000, with a good amount of traffic.
What is your advice for young entrepreneurs to always have a strong heart and mind in a challenging business world?
Go on your journey
“I'm not sure if entrepreneurs are born or they're made. Sometimes you may be an entrepreneur because of necessity, where you have to do something. In my case, I always felt like I would like to be an entrepreneur and do my own business. Prior to joining Eu Yan Sang, Richard worked in other companies in different industries. He mentions that having diversity of experience is helpful in landing the next step in your career. When the time comes, as Richard mentions, “In most cases, people have worked and then they find that there is a business opportunity, whatever it might be. I think within the entrepreneur, and in Endeavor you've got many cases of that happening, the people decide to start a business because they've had some work experience that they want to do something. They feel there is a niche in the market that they can fill that no one else has seen”.
What lesson can you share about your journey to being the person you are here today?
“Everyone has a unique journey. So in my case, I was lucky that my father told me when I was a student that you will never have a chance to work in a family business because the politics were so bad. Forget about working for the family. You have to go and find your own living. So already I had that in mind saying, Okay, I'm not going to be dependent on the family. I've got to do my own thing and so that drove me to work in different fields, and one thing led to another”.
Reminiscing of his journey, it was all connected. Richard first started in a job in merchant banking and gained a good understanding of finance. He then became a stockbroker and had a good understanding of the markets. Following a call from his uncle, Richard helped to facilitate a corporate turnaround in the computer industry which enabled him to manage a company in a very competitive industry. The company was later sold to a retail company, where Richard had a taste of luxury retail and learned how to operate a fashion brand.
“By the time I came to Eu Yan Sang, I was actually able to put all this together. I never knew that it would be connected. If you talk about the defining moment, we had not bought a new shop since the 1930s, because my uncles just didn't know what to do. And I made the decision to buy it the same day. Now, that is our biggest store in Malaysia. Would I have been able to do that if I didn't have the previous experience? I don't think it would've been possible. After that, we started to modernize all the stores and I had to draw on the luxury retail experience on how to design stores and design packaging”.
“I don't think that it was magic, but that was my path. I had learned all these things along the way and was able to put it together and everybody was as good as you can learn from your experiences, the good or bad or whatever is, and then onto the next thing you're doing. You can't just learn it from a book. These are life experiences”.
The content of this article is summarized from our ‘Thought Inspire Series’, a series of six exclusive physical interviews with world-class & established company owners highlighting their entrepreneurship journey organized in collaboration with Google Cloud and CGS-CIMB. The series is aimed to inspire entrepreneurs globally to Innovate rapidly and sustainably. Follow us on our social media pages to get the latest news on upcoming events and key learnings.