My Current Thoughts on Startups / Businessess

I was just talking to a friend of mine on Facebook summarizing my current thoughts on the state of startup’s / businesses. Added a bit more to add some context to my current thought process:

“Most of the new startups start with business models that have eventual tipping points of success. Where its a zero to one / monopolistic / only one winner takes all approach.

This makes the unit economics sometimes not making too much sense.

I just want to start something simple…that makes good money to solve simple real world problems where I can add value by providing a better customer experience.
For example an agency – its all done before. Proven business model. Things that have been done before and sometimes seem un-sexy is where the money is at.

Its nothing too game changing, I just need to set up and automate enough processes to make it as efficient as possible.

That is a business.

Low Customer Acquisition Cost (CAC), high Lifetime Value (LTV).

Then just spend the time to oil the mechanism – getting better acquisition channels and strategies, better onboarding process, better re-engagement processes to up sell / down sell and cross sell various related solutions that solve the customer’s pain point.

And obviously deliver value.

I think venture backed stuff should deal with more real world issues – like eliminating hunger or something that has no real commercial value but brings up quality of life for those who do not enjoy the same quality of life us.”

 

Startup Notes – Product Fit / Viability

I attended Infinite Venture’s Demo Day yesterday.

A few startup’s were presenting their case and requested for funding.
Without naming names – here are just a few observations and opinions that I have on starting a startup.

Before everything else – it is so vital to identify product fit.

For a moment – just forget growth hacking, forget being the next Uber, forget what they teach you in MBA.

It is so vital to identify:

  1. Is there a market for your startup? If so – quantifying the number (it can be households, users within the industry etc).
  2. Do you have a niche offer – if you are marketing to everyone – chances are nobody will be using it. Let’s take Uber – Uber caters to mid / high end consumers who don’t drive / find driving a hassle / are sick with cabs.
  3. Is the problem worth paying for? Or rather would your customers pay (and how much are they willing to pay to solve the problem?) to have the problem solved.
  4. Is your startup a pain killer or a vitamin? – i.e. Solves an immediate need vs a nice to have

Once you can correctly articulate the above and it seems possible that there would be a market that would gladly pay for the service / product. You would need to ask yourself:

  1. Is this easy to scale? To grow – would I need to incur a higher cost to hire more people? Or can I use technology to automate?
  2. What is the barrier to entry like? – what’s so special about my product / service that is difficult to emulate. If it’s easy to start something – can big corporates just do it and move much faster with more capital?
  3. Can this be grown to other countries within the region? – sure hyperlocal is cool – but from what I observed – most investors are looking for something that is easily to replicate in other countries.
  4. Are margins good enough? If not – what is the tipping point for you to start breaking even / profit.
  5. Is it labor intensive?
  6. What is your acquisition cost per customer and lifetime value per customer?
  7. What is your customer retention strategy like? – and no, discounts isn’t the answer – the product / service must serve a real purpose besides just solely relying on discounts.

 

I met an investor a few months back and he offered me a very good piece of advice. He said (and I am paraphrasing here) – “With new technology, it’s almost unlimited what you can do – the key thing that people are looking at is how do you monetize it – and how sustainable it would be”

Personally – I take another factor into consideration – “Is your product / service actually serving the community and the world at large? Are you actually making a difference in the lives of others?”

 

Because if all your business does is feed people with sugared drinks and junk food – regardless of profits – I personally think you are doing a disservice to the clients that you serve. Would you feed your own child what you peddle on a daily basis?

As Simon Sinek puts it – ““People don’t buy what you do; they buy why you do it. And what you do simply proves what you believe”

In Defense of Rocket Internet

The startup (and startup wannabes) world is divided into three groups.
At least here in Malaysia.

Those who hate Rocket Internet – 70%
Those who tolerate Rocket Internet – 20%
Those who work for Rocket Internet and are not in liberty to say much – 10%

OK – so the percentages may be a bit wayyyy off.

But my point is – there is a lot of Rocket Internet hate.

Some are ex-employees who may have been laid off.
Some are insecure Co-Founders
Others are just arm chair tech hobbyist (yes I use the term hobbyist because they don’t exactly really do much for the industry – kinda like how everyone suddenly becomes Economists when the Ringgit drops another basis point).

Since I have officially left Rocket Internet / foodpanda – so I am writing this as an impartial party who has worked for them for 3 years (which kinda puts me in a better authority to comment about this versus hobbyists).

As much as I disagree on the way some things are run – lack of culture, pro-European management (being yellow wasn’t easy but hey 3 years – go Sidney!), not perfect products (so where did the money go again?) to name a few things.

I think Rocket Internet has done quite a bit of good that goes un-noticed.

But They Are F**king Clones!

For those not in the know, Rocket Internet brings e-commerce ideas that works in Europe / Western World to Asia (except China and Japan) or to countries with minimal competition to be the “market leader” (since nobody is there or the competition is weak).

Some label them as a “clone factory”

But really – what else is new except for Tesla and Google?

Newsflash – isn’t Facebook actually MySpace and Friendster 2.0
Too far? What about GrabTaxi? Taxi hailing apps aren’t all that new.

But just because it’s local – it’s hailed as a local champion.
This is what the Malays call “Jaguh Kampung” (Villageside Hero).

Heck – don’t go far – look at the so called “tech websites” that we have – are they even original?

No.

And I truly believe that Rocket Internet looks at speed and execution (hmm sounds familiar?) – do a Minimum Viable Product (MVP) with minimal cost (EUR vs MYR!) and push the “Co-Founders” / local team to make it successful. If it fails – wrap it up (remember Office Fab, Price Panda, Easy Taxi?) – else pump in huge marketing budget until it becomes the go-to product / service online.

So They Think With All The Cash They Have – They Can Bully The Small Players?

Another argument stems from Rocket having a huge war chest of money to push local / true-blue startups.

Well – have you ever heard of capitalism?

The market rewards the best products and services.
And if one comes with a mentality that money can buy anything – then one should not even be in the startup space.

Because – isn’t that what a startup is all about?

Operating a business in near extreme conditions and going where no corporate has ever (or will ever) go?

That being said – there are multiple Rocket startups that have failed in the battle with local startups.
The answer to this is really execution and coming up with better products / services.

Money buys awareness – but does not buy quality and in most cases agility.
Most Rocket startups have central product teams – with a long list of JIRA tickets.
Where else local startups are small and agile – thus being able to do really cool growth hacking strategies that would fit the local landscape.

In fact – Rocket Internet is doing local startups a favor because awareness and behaviour hacking is very expensive.

3 years ago – nobody would have thought of ordering bubble tea online or buying clothes online.

In fact – they would have said we were crazy to even attempt this.
Awareness will definitely lead to an increase in search volume and SEO if done right – will ensure that you are on the 1st page of Google alongside a Rocket venture.

People are always game to try new things.
Novelty activates endorphines in the brain – so in this regard I think Rocket is actually doing a huge favor.
And c’mon honestly – Rocket’s products aren’t the best – just look around – so I really don’t get why people are getting their panties wrapped up in this.

Why So Many White People?

Racist jokes aside.

Most ventures you will see a lot of expats sitting in the management positions.
You also hear horror stories of these expats not understanding the local market, etc. etc.

To be fair – there is some merit to the argument.
But looking at the greater picture – Rocket provides employment and on ground training to many locals (myself included).

Most of the more entrepreneural ones have gone ahead and started ventures of their own.

The rest?

I have always believed that human potential / assets are like shares.
There is a market value (what you are being paid at the moment) versus a par value (what you are worth based on your experience).

The trick is really to shuffle the deck to your favor.

Learn what you need to learn to increase your par value.
So that when it’s time to “sell” (i.e. move) – you have a much higher par value compared to your peers.

I have seen so many who have been paid really good money in Rocket finding it hard to leave because nobody else in the market is willing to even match the person’s pay – simply because there is a gap between asking price and the par value.

In fact – if you are really entrepreneural – you should capitalize on the situation and be the most valuable employee / entrepreneur employee.
Rocket really celebrates people willing to do more, learn more, and add more value.

I always believe – the individual is in control of his / her career. Not circumstances or the company.

If They Are So Perfect – Why Move On?

Well – I did not mention they were perfect by any stretch of imagination.

Even when they might be ruthless – they are not evil.
And it’s purely business at the end of the day.

I have always believed employees of the future to be “Mercenary Agents”.
Loyalty lasts as far as there is an opportunity to grow and fertile ground to experiment, express yourself and have fun.

And if there is one big thing that Rocket lacks – it’s a right culture.

I hope to inculcate that culture of growth, fun and positivity in my next venture.
If you are already spending 70% – 80% of your time in your job – its best spent doing fun things with people you don’t mind getting stuck in an airplane.

Which – if we were stuck in an airplane and you are going to spend that time bitching about Rocket (and how unfair the world is – well newsflash – nobody said it was going to be fair) – then that person sure isn’t you.