Sat. Jul 11th, 2020

Innovation in a time of market fever6 min read

February 2020 editorial and going beyond the blue ocean strategy for tech startups

In their classic book published in 2004, INSEAD professors Chan Kim & Renée Mauborgne coined the term “blue ocean strategy” to describe the creation of new markets and demand by innovating value offerings to capture hitherto untapped customers. They essentially changed what it meant to “capture the market,” offering a scenario where it didn’t involve a bloody battle with competitors.

Technology creating a sea of blue oceans

As the Internet and mobile devices enabled companies to innovate business models, improve the distribution of products and services, and upgrade user experience, such blue ocean environments became more commonplace and cheaper to execute. Looking at the apps on our phone we can see that many blue oceans have been created over the period since smartphones became widely adopted.

The most successful technology companies we know today tapped into the blue ocean mindset to go beyond what their original market or industry could offer in terms of growth. Netflix left behind their DVD rental beginnings and became a global content platform by turning to streaming and mobile; Alibaba leveraged on the demands and size of their ecommerce user base to eventually capture banks and other financial institutions via Ant Financial.

With the successes of such companies, the blue ocean approach to growth has become the norm of tech startups today. The cycle of reinvention and the search for the nonobvious has made it possible for new waves of business models to come in, from pure online platforms to tech enablers and O2O platforms. We’ve also seen how user experience transformed from desktop-first to mobile-first and now streaming-first. It also helped that capital came to boost the pace with which such new markets were being created and populated with companies.

The fragility of blue oceans

As the past decade came to a close however, we’ve also seen how fragile these technology-enabled blue oceans are when left exposed to nature’s elements — the public markets and the wider, VUCA world we live in. It’s not enough to seize new growth, especially if it turns out to be costly in the long run. The consequences of unbridled growth are magnified by the rate with which it happens when powered by technology and outside capital.

As a terrible new disease greeted the world in the new decade, fear flushed out the public markets, which over the past year had already grown more wary of the fruits of the technology market’s private money. Private investors, already on a flight to more secure business models, have more to consider as economies reel against the shockwaves of an (impending) pandemic. As the virus shows no signs of abating in the weeks to come, tech companies are either being put to the ultimate stress test (eg online productivity tools) or scrambling to find ways to keep the ball rolling (eg hardware).

The oceans of capital (and even customers) are drying up from the market fever, and the key question for tech startups now is how to continue innovating and opening new areas for growth as the startup boom deflates and markets enter correction territory. While this brutal environment will not last forever, two things are equally clear: (1) such conditions have a nonzero chance of occurring again and (2) there are ways to deal with and prepare for such conditions. The ideas outlined below are not meant to be implemented in times of ailing markets, but considerations when growing or starting up to weatherproof the business.

(1) Consistently storing water. One can’t depend on the natural flow of water or rainfall all the time for capital or users. The business model needs to be developed in such a way that churn is reduced to the minimum and value can be extracted even from rainfall (users or capital) that came in several cycles ago. This means building up user stickiness and reducing cash burn, which usually comes from over-hiring and unnecessary customer acquisition costs.

— Minh Hoang takes a look at the plant-based meat / alternative protein vertical and how two of the leading players Beyond and Impossible went from the labs to Wall Street by being cost-effective with their marketing and customer acquisition strategies. Read more >>

— DealstreetAsia reports jobs slashed and slower hiring among tech giants in Indonesia, which seem to be part of a larger effort to match ambitions for growth with the expectations of attaining profitability as these tech giants stay private longer. This reflects the larger trend of layoffs across Silicon Valley and China over the past few months.

(2) Engineering constant water supply. This can be done in multiple ways: the B2B model and its hardy monthly recurring revenue metric, the technology to facilitate connections regardless of seasonality (eg robots for delivery or cloud for productivity and communication), and aligning resource allocation with the market.

— TONIK, the first digital-only bank in Southeast Asia, recently announced closing a $6M round. As fintechs extend their capabilities into more use cases (eg wealth management, SME finance, property), some players like TONIK see more long-term inclusion and sustainability by digitalising the banking infrastructure from scratch. Read more >>

— I had the pleasure of interviewing seasoned Vietnam entrepreneur Phuoc Tran, currently founder and CEO of VRED, a platform bringing financial services to the vastly untapped rural economy of the country. He emphasizes the importance of following the market and having the flexibility to sense when to switch gears. Read more >>

— TechinAsia reports B2B ecommerce facing a revival.

(3) Bringing the blue ocean “indoors”. This is several levels of complexity above the previous two ideas, and it takes quite some time to come to this point. One can think of this as a setting up a greenhouse, where external resources are hardly needed to run the ecosystem of flora and fauna enclosed within. From a technology platform’s perspective, the demand side drives engagement and interactions to the extent that it keeps the supply side running and able to continue providing what the demand side, well, demands.

— “Earshare is the new mindshare.” a16z’s Connie Chan outlined audio as one of the four trends in consumer tech to look at, citing the blue ocean opportunity for marketing as podcasts and other audio-first content gain a larger audience. There’s also an entire ecosystem of creators and listeners that could be created in the same way that Youtube opened up the video universe. Recently we announced our investment in Waves, one of the pioneering audio platforms and localized content libraries in Southeast Asia, ahead of their app launch in Vietnam. Read more >>

— The Grab and Go-Jek rivalry turned a new chapter in the last week as reports emerged of supposed merger talks. Regardless of how it turns out, it’s undeniable that the long-standing “superapp” rivalry has laid the groundwork for startups to develop the ecosystem model around other verticals beyond ride hailing and motorbikes. We’ve covered this ecosystem approach on Insignia Business Review, with Southeast Asia’s automobile industry and Indonesia’s trucking sector. Read more >>

While all of these are easier said than done, and require careful planning and a driven organization, the bottomline is for tech startups to chart paths to becoming self-sustaining and adaptable businesses, even from the early days of finding product-market fit and raising seed rounds.

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