The score

I recently had the pleasure of spending a thoroughly eye opening a few days in Jakarta, Indonesia. One of my missions was to do some R&R on Indonesian eCommerce industry. I attended meet ups, met some of the thought leaders and worked on an eCommerce project, which I hope, qualifies me to make a fair observation. In short, to do eCommerce in Indonesia well, a little more than innovation is required.

It doesn’t take you long to realise that you can’t simply plug-n-play the western eCommerce models there. Here are some of the technical reasons why you can’t.

1. Indonesia has a quite fragmented financial system in general, with apparently very little communication and collaboration between the central bank and the major banks
2. It has a population with some complacency using and accepting credit cards, especially online
3. It has a fragmented logistics system with distrusted national postal service making merchandise delivery a general nightmare

You can read pages and pages on these subjects. The Skeptics in Indonesia will tell you that these are enough to push back any wide-spread of eCommerce  a few years, if not for ever.

Online Payment

To have a go at eCommerce in Indonesia, you will need to crack the problem of online payment. Believe me, it’s a mayhem. I will give you an example. Two of the country’s leading banks launched their new eCommerce solution within weeks of each other, and guess what? They are called KlikPay and Clickpay. Doesn’t really promote clarity and confidence in the system. Paypal offers a limited service there without offering Indonesian Rupiah services. Mobile payment has been banned by the Central Bank. I think you are beginning to see the picture.

Klikpay and Clickpay.... very clear.

Demand rules

In my opinion, demand rules, in any business. All of the above obstacles are there, partly because they have not been challenged enough. Innovations are usually a result of demand for change. Having spent some time on ground, I am happy to report that the demand is there. Jakarta, for example, has one of the manic and perpetual traffic jams, all day, every day. The frequent downpour can literally turn high-streets in to knee-deep rivers in matter of minutes, and when it’s not raining the heat is relentless. There is no surprise then, that there are many very large (compared to UK) shopping malls dotted around the major cities. For FMCG and fashion, eCommerce offers all the answers these giant malls offer, perhaps more.

Most of online shoppers currently have to use the bank transfer system to complete the transaction. “Facebook Shops”, “Forum Shops” and other semi-online stores are springing up everywhere with very little automation.

Reinventing eCommerce in Indonesia

I can see why it is very hard to implement eCommerce in Indonesia and it will require a solution that is unique to the country. The shopping habit is different, social make up is complex and technical challenges are huge. When you approach a challenge like this, the local knowledge, local partners and out-side-the-box thinking become critical. The Indonesian eCommerce industry is ready to grow up with long list of major retailers eyeing the space. The stakes are high and the final “shape” still unclear. In this state of confusion, I believe a new type of business model will be born and I am excited to play a part in it.

Recently, I met a young lad trying his luck in start-up business. At first, his idea intrigued me because I couldn’t understand it. So I decided to catch up with him at a later date. What I concluded, even after the follow-up, was that he is months away from finalising his idea, let alone getting invested, which is what he wants. I couldn’t quite tell him that he is nowhere near where he thinks he is.

After a little while, I started to see some of my early years in him. Quite a random idea, but was convinced that he has found the unique idea that addresses one of the biggest challenges, perhaps in his immediate surrounding. So, I decided to correspond with him and give him some advice on some of the key questions he has been stuck on. It made me realise something. Although I try to achieve high efficiency in my work, once in a while, I need to introduce inefficiency. I sometimes need to waste time, even though I am overwhelmed with work.

It’s important for me to waste time once in a while because of 2 reasons. 1) I never know what’s around the corner and hence I don’t know if it is actually a waste of time and 2) even if it is a total waste of time, it confirms my believes and suspicions. So, what this lad did for me was, unexpectedly reminded me of my young days and the actual necessity to spend some time on your idea. Follow it through, seek advice, realign the business plan, seek stimulation and don’t be afraid to make mistakes.

Even though I am not convinced of this lad’s business, I am optimistic about this lad achieving his goals because he is acting like a sponge, ready to make mistakes and learn, some of it from me. So, I recommend to everyone that once in a while, you need to waste time, on purpose. Treat it as a genuine opportunity, with respect, and perhaps it won’t feel like a waste of time.

The Apple Brand

After the extensive coverage of the latest iPhone, I reassessed my options. Instead of going through the usual “X reasons why you should upgrade”, I want to discuss the predetermined preference that makes me stick with iPhone, even though I know that the phone I am likely to buy, the iPhone 4G, is not that much better than iPhone 4, or its other alternatives.

Whatever you buy, make sure it has the logo!

As they say, it is the most celebrated brand at the moment. I have been an apple user since 2000 and never considered a non-Apple product as my personal computer of choice. Originally, it was cool to be an Apple user. Nothing about their design was half baked and most times, it was quite awkward to be an Apple user because nobody wrote any decent software for Apple, let alone manufacture any compatible hardware. Could this dedication be the cause for my resistance to change? Most likely. I would like to, however, make an argument that it is more than this irrational behaviour.

Good Change vs Bad Change

As I’d like to call myself an innovator, changes are an important part of my career and personal life. Although it is not always guaranteed, I try to introduce Good Change. For example, I would consider introducing Google Apps to a small business would be a Good Change, if the existing system is a Microsoft Exchange Server and some file servers. On the other hand, a change away from iPhone at the moment, for me, would be a Bad Change. My household and work is all Apple based. I am, however, prepared for the day when I have to move away from Apple as my phone manufacturer of choice.

I used to work for a start-up Enterprise Social Network company, which is mostly about bringing huge changes to enterprises in the way they communicate internally. Most of my colleagues (then and now) preach this Good Change these companies must embrace. The name of the game was Battle Against Resistance to Change.

Resisting Change

What are the common reasons for resisting change? Obviously, measurable effects such as costs (explicit and implied) are important factors. Before smartphones, the choices were simple. Compare some basic parameters such as price, battery life, screen size, camera resolution, supported countries etc and you would happily sign up to a 12mth contract, knowing you can have the latest phone next year. Now, the costs are higher, with longer commitment asked of us. With it, comes a sense of loyalty and importantly, a greater dependancy on our smartphones. It’s the small things like synchronised address books, photo libraries, bookmarks and contacts. You can easily re-configure these to your new phone’s OS, but do we want to?

For now, I am happy resisting changes with respect to my choice of smartphone. The potential advantages gained from having a non-iPhone is quite a bit smaller compared to staying with an iPhone. So, not all Resistance to Change is illogical. When someone asked me recently, “how could you pass judgement on the new Samsung Nexus Prime before seeing it?”, the response was simple. Samsung could come out with a phone with better spec than iPhone 4S in every respect and I still wouldn’t consider the change. Why? Because it is not about the phone. It’s the ecosystem and the seamlessness that saves a few minutes of my life each day that I want. The days of comparing a phone on it’s own is long over.

Supply & Demand

I couldn’t resist writing this short note today as I watched the BBC news coverage on the list of possible outcomes if the highly educated bankers can not figure out how they got to this mess, what the exact current status is and what they are going to do about it. I personally think that events like this is going to make the start-up community thrive. This is why.

The intention was good, but...

We, helped by the exaggerated media coverage and focus on a few nodes on the timeline are led to believe that the reason for the difficulties we are facing are due to one single problem. A good example of this is that, in Japan, the Credit Crunch in 2007/8 is referred to as “Lehman Shock”, as if Lehman Brothers single-handedly brought down the global economy. By the time these large problem manifest themselves in such a visible and catastrophic way, there are more long term and fundamental reasons. As with any business, it is always, I mean always, a question of Supply and Demand. Bankers provided reckless products because there was a demand. No matter how much I detest manufactured low quality pop music, as long as there is a demand, people (including talented people) will continue manufacturing this. We see this phenomena in the start-up industry too. Accelerators continue to churn out “entrepreneurs”, because there is a demand for more entrepreneurs.

Rising Private Equity Amount

The signs are there aplenty to suggest that consumers are genuinely demanding innovation, unique and actually intelligent products. At least, I believe (hope) so. I will admit that not all entrepreneurs will go on to produce things that actually contributes to the progress of humanity but in a way, we need those too. The more competitive their operating environment is, the better their product becomes. Let’s not forget, also, that when the financial markets are in a turmoil, investors tend to pull back and keep their money close to them. That part is not particularly encouraging to start-ups requiring investment. If your profession is Investing, however, it becomes harder to find a good investment ideas. The good news is, they would eventually have to invest, mainly because that is their job.As pointed out by Pitchbook.com Quarterly Report, there was a phenomenal growth in Private Equity deals this year in US. In fact, since 2008, there has been an increase in invested amount every year and this year (Q1 & Q2), we have seen more amount invested in IT Private Equity deals than all of last year.

The Timing

I think that timing is perfect to be thinking about starting something up. It is not to say that it is easier, but demand for good products is higher and many investors are keen to be part of it. This is why, we at NeuralM are very optimistic about this industry and are very excited to hear about more crazy ideas.

Ambition, not recknlessness

Although no two businesses are alike, the stories of those that are successful and those that aren’t, start to form a common theme. As a part of this series “The Risks of a Start-up”, I want to discuss the issue of unrealistic overhead.

There is no right and wrong, but still some get it very wrong

So, at which point does an ambitious growth plan become a reckless plan? I once knew a start-up that declared itself a bootstrapped company while it kept pouring tens of thousands of dollars each quarter for about 2 years. They have stretched the term “bootstrapping” to the extreme. The only thing that was bootstrapped about that company was their revenue. The CEO was a firm believer that in order to make it big, you have to think big, including the spending.

Start small

Start small because you can always scale up. It is always difficult to scale down the spending and this is even more so for a start-up because you have less to fall back on. I always recommend that start-ups write a business plan as early as possible because it helps them think through the small details of the business. No business plan is complete without cash flow projections. The aforementioned start-up simply committed to substantial fixed cost even before knowing, even vaguely, how much this company was going to make.

The numbers

Even if you are a rock star hacker, numbers have to make sense. Overheads should be a function of revenue. If your current monthly revenue is $1,500, your spending needs to be below that (while you are bootstrapping). Sounds condescending? When you win an award or get very positive feedback from your group of friends, apparently, it is very easy to be convinced that it is ok to hire the best developer and buy the the best equipment based on the assumption that revenue will pick-up substantially, followed by the inevitable investment. If you ever want a reality check, by all means talk to your mentors but please take a long hard look at the numbers. Never give up the dream but in order to keep it alive, don’t put yourself in a situation where you don’t really understand why your overhead is substantially larger than your revenue.

The Perfect Company

We recently interviewed a very interesting company. I was quite excited about this as their pitch was very good. The idea was also interesting and based on the face value of the company, it seemed very investable. I and my partner compared notes after the meeting and this is when I re-visited the question of “what makes a company investable?”

In many ways, the company was perfect. The business model was proven, the technology was simple and the early traction and conversion figures were fantastic. The management team was formed of highly competent people, even including someone from Private Equity background. They had answers to all of our questions.

Is it investable?

My partner was the first to declare that this company is not investable. We both agreed on the problems this company had but I settled with the conclusion that “this company is almost investable”. So, what exactly was wrong with this seemingly perfect company? At the top of the list was, we saw very little passion. There was plenty of talent but it seemed as if the team was gathered as a marriage of convenience. The early numbers were fantastic but none of them seemed to be too bothered about it. Perhaps they are more used to much higher numbers and were playing it cool. The other problems such as potentially high churn rate and competition were all relatively simple problems to address, compared to the lack of passion.

Why Passion?

It may be the case that this company will find the investment they are seeking and I do wish them all the best. We, however, value passionate teams quite highly because in most cases, it is their passion that wins the investors and the customers. It is usually their passion that solves the seemingly impossible problems. Although an over-enthusiastic management team can be a headache, lack of passion for the product they are trying to sell, is a huge risk to the investors. This is why I and my partner continue to seek businesses with passion. You can buy the technology and talent. You can even make a successful business from a borrowed idea. What you must bring to the table, that is your own, is your passion.

The level playing field

Before becoming a start-up consultant, I used to work in the energy industry. To be more specific, I helped large companies with over $100 million energy (or fuel) budget manage their price risks. One of my favourite customers were airlines. Not only because I wanted to become a commercial pilot after graduation but also because they operate in a truly cutting edge field, a fiercely competitive market and with high stakes.

The gorgeous B787

I don’t think there are many industries operating in the similar conditions as the airline industry. The planes, seats, fuel, meals, airports, crew (certification), booking systems etc are all standardised. Even if they want to push the boundaries, it is one of the most strictly regulated industry preventing you from operating the airline in non-standard ways. Thanks to all these rules and standardisation, it is a very safe mode of transport, providing the abilities to millions every year to expand their horizons, conduct businesses and meet friends and families. Unless you live on a remote island, most of us usually have an abundance of airlines, routes and combinations of them, when taking a trip abroad.

The Packaging

What is the decision making process when purchasing a ticket on a highly competitive route? The airline, departure time, cost, duration, connection and even the lounge are some of the details that we go through when deciding who to fly with. So, what does the “best product” mean in the airline industry? It is probably the combination of all of these things. Most of us do not care what aircraft you will fly, how many flight hours the pilots have, the cruising altitude, the fuel supplier etc and the industry has learned this point long time ago. The typical customer does not care about these things. Rather, the industry concentrate on the packaging. The things that doesn’t cost a lot of money yet they seem to have a huge impact on the profitability.

Value Proposition

The lesson I take from the Airline Industry is the ability to create value proposition from a seemingly impossible situation. In the aviation industry, through packaging, a few airlines have successfully differentiated themselves from the rest, even if the entire trip experience is technically the same. Through innovation, you can package a dull experience, like a 12hr flight in the economy class, seem sexy. Imagine a situation where British Airways and Virgin Atlantic offered the same price  for the same long haul route. An easy choice isn’t it? So, go on and give the customers what they want, not what you want to give them.

元々海外の生活が長いため、生活や仕事に対する考え方で（日系企業の）上司や同僚には理解出来ない行動をとったりする事は度々あったが、最近更に大きなカルチャーショックを受けているのは、起業に対する姿勢の違いである。なぜ日本では起業に対する姿勢がここまで消極的なのか？国内／外の起業家の成功の比較については別で書く事にするが、起業の理由や、そのプロセスについて今回少し考えてみた。

まず前提として、人間は、欲、野望、夢、使命感等の大きな原動力となる部分は文化や環境にあまり関係せずに備わっているとする。そうなると次に考えるのが、独立しない／出来ない理由だ。考え方によっては先進国と比べて発展途上国の方が起業し易い環境であるかもしれない。国内で起業に失敗した時のリスクは比較的かなり高い様に思える。それは単純に日本人は失敗についての意識がかなり高いからだ。その点発展途上国の起業家は失う物が少い為、想定されるリスクは比較的低くなる。

国内の中小企業の多くが赤字経営をしていると言う。そこには勿論節税目的が有るのだが、それ以外にも「利益を（大量に）上げる」事について抵抗が有るのが日本の文化の一部だとも思う。この発想は「欲を持つ事は良くないこと｣になりかねない。これは個人的な意見だが、ビジネスに携わっている以上、事業家は全員、毎日、自身や他人の欲と付き合っている訳であり、そこには欲がないと言う前置きで活動するとどうしても矛盾が発生する。スタートアップが儲けてどうして悪い？いつも感じる疑問である。

周りには「仕事を辞めたい｣から起業したいと言う起業志望する方が結構いる。これはこれで一つの動機なのだが、こういった方達に欠けているのがパッションだ。一体何がしたいのか？投資家は勿論、客はそういったパッションを求めている。そしてそれを一瞬で見抜く。パッションが有り、アイデアがあり、機動力が有れば最初のハードルは余裕でクリアだ。簡単な例の一つがスポーツ選手だ。チームスポーツだろうが単独スポーツであろうが、ある日、その選手は自分の腕を信じ、一番好きな事を職業として毎日やって行こうと決めた日が有ったはず。これは一種の独立だ。パッションを持って自分の計画を実行し、収入を得られる自信が出来る。これが彼らの｢独立する理由｣だ。分野がテクノロジーだろうが何であろうが、これは変わらないと思う。

The best fisherman

I was in a very strange setting (an enjoyable one nevertheless) recently during a holiday in France, with my family and friends. One afternoon, we took a break from the countryside, the fantastic food and wine and decided to checkout the local fishing pond.

I’ve been to 3 fishing ponds in my life before this one, with varied success each time. What I saw and the comments made by my friend, who has been to many fishing ponds, was a reminder how simple things like fishing can be very contrasting from one country to another, with almost the same result.

Let's go fishin'!

We were based next to a family with 4 kids. They all had their own rods, chairs and a few other essential gears. After a few minutes, it was obvious that they do this often and each time one of the kids catch a fish, the father barks commands at the kid, telling him what to do. This made me smile and reminded me that I was on a peaceful vacation. What was really fascinating, however, was that as far as I could tell, the father caught no fish while I was there and the mom kept on catching these magnificent trout one after the other. I was surprised because of her style of fishing. To me, she seemed like a super-mom. She was looking after the children while sipping wine, making baguette sandwiches and eating them, talking to her neighbor family (not us). Once in a while, she would shoot a glance at her float and her children’s and see if all the floats are still floating. If one of them is missing, she would shout the kid’s name or if it was hers, puts down her glass of wine, calmly walk over to the rod, and picks up her rod calmly. She would simply reel the fish in, remove the hook, re-bait and shoots again. It was almost like part of a shopping trip.

Not very stylish

I was watching the others fish too. One thing that distinctly lacked from the scene was the stereotypical fishers’ style. I don’t remember seeing anyone there with one of those fishing vests, rod rests or other fancy gear. A chair and table perhaps. Like the family next to us, they weren’t particularly paying too much attention to the fishing. They were there with their food and drink, cigarettes and friends and were generally there to enjoy the weather, friends and their wine. Once in a while, one of them will catch a fish and calmly put their wine glass down and reel it in.

Getting the job done

In my view, one of the typical characteristics of a French person is, their nature of getting the job done whatever the circumstances and style. So, watching these very relaxed anglers, I thought to myself, let’s just get it done. Yes, I understand that there is an art-form in the “how” part of any process but I, like the French casual anglers, tend to think that the end result is probably more important than the process. So, if you are stuck for ideas how to sell your ideas and the products, I don’t think the customers (the fish) particularly care about things like who you are, where you are and your experience level, so long as the bait is right, the proposal is communicated well to them and you stand out from the crowd.

Web marketing

When you are marketing in a very competitive space and you don’t want to leave the success to luck, let’s think about the package. Is the bait right for the fish and the setting (Marketing and USP)? Are you sure you have hooked the bait correctly, not showing too much of the hook nor letting the fish take the bait without getting caught in the hook (Monetisation and Retention)? Have you chosen the right space and targeted the appropriate fish matching your muscle power (Business Development)? One thing I re-learned also, was that, even with the perfect equipment and set-up, you will always need patience.

Digitalness

This is an area I often discuss with start-ups because the digitalness of the start-ups is frequently misunderstood or even completely missed.

“We believe that our passion will bring success eventually”

“We don’t think that we want to dilute our company too much”

“We are not in it for the money only”

“This product is my baby”

These are the statements I hear often amongst the start-ups. I have no disagreements with these statements specifically, but I want to talk about misalignment of interest and expectation amongst start-ups and the inability to make purely logical decisions on what is supposed to be a logical process.

Is your business in "1" or "0"?

In the world of financial derivatives, there is an instrument called Digital Option (aka Binary Option). It is called that because the payoff characteristics is either “on” or “off”, 1 or 0, it pays or it doesn’t. Options are also instruments whose payment is triggered by an event, such as price of oil reaching a certain level, default on loan payment or any other trigger that can be quantified. So, when I talk about the Digitalness of the start-ups, it is about the necessity of certain “events” that need to take place for the business to become “1”, from “0”.

The Events

So, what are these events that can act as this trigger? Examples of these include;

• Funding
• Advices and Mentors
• Various Expertise
• Collaboration
• Critical Mass
• Economic Climate
• Media Coverage
• Idea/Inspiration
• Team formation

Each of these events (and many others) can make or break a start-up and indeed make “1” from “0”. Many entrepreneurs I talk to have a good idea how and when they are going to make their business to a state of “1”. They seem to be well informed of how others did it and try to follow the proven methods. Regrettably, far too often, I come across a situation where the entrepreneur just does not understand that they may not be in the position to choose which event is their “event”. For example, a founder of a Web 2.0 company I once knew had a fantastic product with fantastic team behind him. He also had a very good idea how he thought he would get funded. Because he waited for the ideal investor to come by for too long, the prime time for the angel investment came and went and he is now forced to revert to bootstrapping, which is extremely difficult once the business has been geared up for VC investment. You would be very lucky to be able to choose the “event” for you. They often choose you.

The business decision

In my view, however wonderful your product is, unless you become “1”, it is no more than an academic exercise. If you once made a conscious decision that you are going to brave this tough world, putting your idea and product out to the world in return for financial reward, it is a business decision. This may not be the case if you are only after recognition and awards, but most entrepreneurs would not say no to financial rewards, which means that almost all entrepreneurs are in it as a business challenge. So, the decision is, do I need to exploit this “event” to turn my business into “1”, then there really should be no reason not to act on that event. Even if it is likely that without an investment from a certain type of VC, the growth of the business will follow a slower path or into a slightly different direction, these outcomes are both “1”. Not getting invested and waiting for the ideal event to occur is an extended period of “0”. The question is, can you afford it?