Asian Tech Ecosystems

Indonesia through the eyes of local startups

11 and 12 November were two days of highly intensive activity at the Tech in Asia Jakarta 2015 held at Balai Kartini. From my sources at TIA, it was a whopping 4123 attendees, the largest turnout for a TIA event.

The sheer crowd was a testament to Indonesia’s importance as a major South-East Asian consumer market. 142 of 235 startups hail from the host nation Indonesia at the Bootstrap Alley, the startup exhibition area.

I have read many news sources about the Indonesian market, spoken to many people involved in Indonesian businesses, but my access to the local startup community has been limited, until now.

Intrigued to know Indonesia through the eyes of local startups, I told my investment team to spread out and take different alleys and speak to as many Indonesian startups as possible to learn more about the scene.

At the end of the trip, we compared our notes and came up with some interesting observations. Due to the sensitivities of information being shared here, all names have been removed.

New tech, same old way of business

You would have expected a cultural shift of Indonesians adopting mobile technology as a new way of doing business, but the business scene is still dominated by very powerful and connected people who dictate the speed and direction of the technological adoption.

“These powerful people have many companies under the guise of proxies and the company ownership structure is complex. Information is very scarce on who is the ultimate owner. Many of these companies own approved permits for various projects, which are awarded to them from their connections to the government. You have to work with these companies in order to gain access to a larger slice of the market,” says a startup founder working on an ecommerce platform selling a restricted good.

For my business, I need to do four things to get it moving. Funding my operations is one. Next is to get access to a company which owns a permit to import these restricted goods. In this industry, there are only eight such companies holding permits. I have access to two.”

“Supplies and funding,” I thought to myself. What else can there be? “Next, I have to be on very good terms with the police, to ensure they won’t cause trouble for me. There is no bribing, just ensure we are in communication and having good relations. Next is the mafia, to ensure they also won’t cause trouble for me,” he explains. What a balancing act he has to do. He didn’t mention about whether he needs to pay off the mafia though.

He explains that Indonesia is a place where you have to identify first the right people in power and to connect with them to gain access to a certain market. He claims his market is niche, but I feel that he is hiding the real huge potential of the market. By having two of eight suppliers working with him, he is effectively addressing an estimated 25% market share of this vertical, assuming equal market share per supplier.

Complimentary, not disruptive

Another founder, who reads many articles on US entrepreneurs, says the US founders tend to claim their business model is disruptive and changes the way people work and live.

“But here in Indonesia, remember that the economy is run by many powerful people. If you mention the word disruptive technologies, these people will regard you as a threat and go all out to block you. Rather, always say you are here to compliment their existing businesses and help them earn more money. Never go head-on with the incumbents. You might just get yourself ‘disrupted’,” he gives a shiver for dramatization.

Mobile ecommerce is a huge size available for all

Despite the dominant ecommerce players in Indonesia, the sheer market size makes it available to all, even the small-time businesses. An Indonesian investor who invests in hyper-local startups mentions:

“Take Jakarta for example, there are many hyper-local ecommerce startups serving neighbourhoods. With the population density so high in the cities, many small-time startups are able to tap into these places and build their customer base and grow from there. It is not a nationwide expansion like the large players, but you can earn a decent living serving a small area. And don’t bother to build an ecommerce website. Everyone is on a smartphone. Going mobile is the easiest to start.”

But for B2B businesses, it seems that web is still the way to go. I spoke with another startup that is an Alibaba me-too, focusing on very specific categories like fashion clothing. They connect wholesalers to distributors in Indonesia via their website.

Despite being only in the market for a few months, they have already transacted a good number of B2B deals online. But given that the founder’s family is already in the trade, it might be their own existing orders going online that is creating the traction.

Split-founder personalities

Given space constraints, only 90 or so startups could exhibit on the first day, and the remainder presented on the second day. But it was an irony that the founders on day one came back on day two as founders of another startup!

It is apparent in the Indonesian culture not to dabble in one startup but rather to try as many. “The opportunities are just so many that it would be stupid not to have multiple businesses,” quips a founder.

He himself has four startups, working with various partners across the three cities of Jakarta, Bandung and Surabaya. “We have friends everywhere who have good connections for different businesses. We have our own connections and thus connecting all the dots from various cities to build a business together makes sense.”

When I asked him how he manages his time, he smiles and says, “I wear different hats, just sometimes, I have to put on all hats. It is fun!”

Ending thoughts

As I took off from Soekarno-Hatta airport, I have been left with an impression that Indonesia’s tech startups are still basic in nature and not cutting edge. Founders have shared that the consumer market is still very much in its infancy stages and focused on bread and butter issues.

However, there is no need for disruptive technologies yet as enabling technologies like transportation, ecommerce and communications need to be established first. Having strong existing cultural business norms of working with the bourgeoisie shows that running a big business requires a long-term plan.

Further adding to the complication is the government’s many 87 regulations that prevent effective foreign investments and the creation of startups. But for those who are willing to slog it out, Indonesia’s huge population size is one attraction with its might and potential that entrepreneurs cannot ignore.

This article is the first of the ‘Through local eyes’ Series, where local startups give their take on Asian ecosystems. Written in conjunction with the Tech in Asia Jakarta 2015 event.

This article first appeared on Tech in Asia.