7/2016 – All new ball game for startups

by Tan Thiam Hock

Saturday, 4 June 2016

FOR a semi-retired guy, I have been kept relatively busy with many “startup” issues in the last few months. From my own startups in trading and education to meeting many young startup “founders” to wannabe investors in startups.

As quoted by an exasperated Ham of Marketing Magazine, a startup is just another name for a new company! The word “startup” definitely sounds more “cool” just as Ham is the perfect abbreviated name for the infectiously jovial Harmander Singh. The most celebrated turban advertising man in Malaysia. In fact he is the only turban advertising man in Malaysia I know so I stand corrected.

When I was 24 and a half years old, I started a new company to trade in fast moving consumer goods (FMCG) distributing to wholesalers and retail shops. Fast forward 30 years later, I have a startup trading in FMCG with a young upstart of a manager barely 25 years old distributing via e-commerce websites. Same modus operandi of buying and selling goods, appropriate targeted marketing and promotion efforts but in a totally different distribution channel.

A year ago, there were many issues to ponder on. Most e-commerce sites were not doing well. A host of problems was abound. Logistics and fulfilment problems, high customer acquisition costs and sales were slow to pick up.

On the other hand, launching a mid-price skincare cosmetic range via the traditional personal care stores and pharmacies was a one way suicide trip for a young startup as it was too costly and way too competitive in this distribution channel.

So we decided to go exclusively e-commerce. Keeping overheads to a minimum, a two-girl team outsourced almost everything except a shared tea lady and off they went, with me being a bystander, bemused and bewildered.

A year later, to my surprise, staff strength grew by 50%, sales doubled what I expected and zero operating loss. Breakeven without any burnt rate. I almost went into a break dance except that my body was not willing.

More importantly, the e-commerce site or marketplace as they called it, grew 300%-400% over the same period. They have started to make a small profit.

Looks like a sustainable business if they continue to paddle furiously. The founders did look a bit knackered though when they came to visit me for a chat. But that is another story to be told.

So is Malaysia ready for e-commerce to disrupt the traditional brick and mortar retail business?

In my humble opinion, no. But signs of nibbling market shares are emerging. The young and tech savvy consumers are comfortable shopping online apparels, shoes and skin care because of lower prices, convenience and variety. And shopping trends are changing from year to year compared to previous five to 10-year cycles. It is shifting at an accelerated pace which means traditional businesses have to react accordingly. Those who wait and see will find themselves facing instant extinction as compared to a slow death.

But for young startups, this digital tech revolution presents the best opportunity to get on board the gravy train so long dominated by the traditional incumbents. It is new playing field rather than an uneven playing field.

Digital technology now allows any small startups to reach the consumers directly for a small cost bypassing the brick and mortar distribution channel and the legislative businesses.

But not all big brick and mortar businesses have stood still. Most have found a hybrid model works better than a pure e-commerce or brick and mortar model. Like Apple having an extremely successful online e-commerce business hybrid with innovative store concepts for enhanced consumer experience.

Tesco has started its online store. Smaller chains have cooperated with shopping apps like Happy Fresh etc.

DBS Bank has started in a big way towards digital banking trying to ward off the nimble fintechs snapping at their heels. Rather than just defending, DBS attacked the Indian market with a fully digital bank. Will it survive?

There is a joke in Silicon Valley that out of 10 startups, 11 died. I guess the real statistics should be 9 out of 10 with the one left, barely surviving. It is cruel world for startups. Forever pitching for funds to extend their existence and not knowing when their next cash infusion will come in. Generating real revenue is not as easy as plonking down the numbers on a spreadsheet. But realisation comes a wee bit too late.

The Malaysian startup scene is equally vibrant with many talented and smart young people buzzing around with fresh ideas and solutions for their personal pain points. These mostly ex-investment bankers and ex-consultants (age 25-35) are imbued with the Silicon dreams of building the next Unicorn (valuation of US$1bil).

But the recent shakeup of venture capital investment horizon have changed their perception of easy funding and continued losses as long as you acquire more market share.

They now call themselves cockroaches… hardworking in all environments and hardy survivors under all circumstances. Those who got funding are more careful with their marketing spend, growth rate at any expense and learn to control their lavish expenses of a beautiful office and perks to the staff.

They are now controlling their burn rate, realising the importance of generating real revenue and getting to a breakeven position ASAP.

But like all entrepreneurs, they have to dream of being a unicorn. So they call themselves unicroach. Feet on the ground, head in the clouds approach. Dreaming with a dose of pragmatism.

For old fools like me, there was never an opportunity to dream of being a unicorn. Like a cockroach, it was always about survival of the fittest and the brave. Once you startup, never step down.

Published: http://www.thestar.com.my/business/business-news/2016/06/04/all-new-ball-game-for-startups/

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