In this 8-Part Series, we cover what we call the 8As of ASEANnovation, a heuristic or framework we came up with in 2020 representing what we believe are the key characteristics of founders and companies leading Southeast Asia’s digital economy. Briefly, the 8As are as follows: ASEAN-first, A-Team, Acceleration, Agility, Accumulation, Alpha Wolf, Antifragile, and Assiduous. Our founding managing partner Yinglan Tan dives into each on the podcast.
We update the context of these 8As to 2022 but more importantly focus on actions early-stage founders and investors can take to embrace these characteristics even further. In Part 1, we cover the first A, “ASEAN-First” from the problem-finding perspective.
Can’t do Apples to Apples in Southeast Asia
Earlier this week, Apple announced it was in talks to make Apple Watches and MacBooks in Vietnam, as part of its production diversification from China.
This development represents a shift in direction for global supply chains that has been on the road for quite some time, even prior to the pandemic. The diversification of supply chains into Southeast Asia has largely been a boon for business in the region, especially the manufacturing sector in markets like Vietnam with its geographic proximity to China.
But what does this mean for the venture-backed tech startup landscape in Southeast Asia?
While certainly not the only factor and not the most direct either, the diversification of supply chains into the region is part of a larger shift in the influx of innovation capital and talent into the region (or exodus from other parts of the world). We’ve covered this shift in bits and pieces across Insignia Business Review, most recently in this article.
This means that with more outside talent and capital seeking to play a more involved role in Southeast Asia markets, from manufacturing EV vehicles in Indonesia to laptops in Vietnam, or from setting up family offices in Singapore to starting companies in the Philippines, the competitive landscape will only thicken for local companies.
The implication here for local startups looking to stand out amidst the intensifying competition and the current market headwinds, which at this point of writing still show no sign of abating, is that the value of building moats around solving complex, uniquely ASEAN problems will only go up in the years to come.
Organic, Complex, Local: ASEAN-First Problems
Earlier on in Southeast Asia’s ecosystem, the X for Y model (clone or mutant) in Southeast Asia still managed to thrive to some degree given how nascent the competitive landscape was for some time. But increasingly we have seen innovation come up in the region, not from bringing existing models from other markets to find Southeast Asia pain points, but from models being developed to solve the region’s pain points.
“We see a lot of companies trying to be the X for Y in Southeast Asia…the clones like Alibaba for X or Airbnb for Y have met with moderate success because you can’t really paint Southeast Asia with one brush stroke. It requires a lot of navigation and understanding of what happens in Indonesia, Vietnam, Philippines, specifically culturally, payment systems, language, and way of doing business. So it requires a more ASEAN-first and organic approach.”
This means that from the get-go, startups geared towards organically existing (i.e., there is a captive demand for potential solutions), complex (i.e., multiple players affected, multiple monetization potential, and massive TAM), and perhaps even uniquely ASEAN problems (i.e., requiring on-the-ground understanding that local teams are better positioned to acquire early) are more likely to be able to build competitive moats against larger foreign players. It may come to the point that the latter may even want to invest instead in the former.
Yinglan continues on the podcast referring to the clones-mutants-new species taxonomy, “When I say clones it’s essentially the copycat model, right? You replicate solutions to local problems, [while with] mutants, you have a local problem, [so] you adapt it to Southeast Asia. [But] I think the more interesting companies that we’re seeing are the new species. It is [about] finding an ASEAN-first problem, and then finding solutions around it.”
So the question is, what does this ASEAN-first problem look like?
On the podcast, Yinglan cites the opportunity in Indonesia fisheries that FishLog has unlocked. One part of the problem is that fish is a big source of protein for Indonesians, especially Muslims in the country, tying the opportunity to a nearly non-negotiable need for a sizable part of the market (i.e., livelihoods and diets are dependent on the industry).
The second part is that the fisheries industry is fragmented by geography, producing a lot of longstanding inefficiencies (e.g., things as fundamental as coordination in SKU naming across localities) and costs (e.g., costs of cold storage and waste from lack of access to storage spaces) that make up for a very massive and complex value chain.
This combination does not only make for a space where FishLog could create significant value with high gross margins but importantly set up a long-term competitive moat by being an early mover in the space.
As Yinglan explains on the podcast, “It’s built on top of Indonesia’s specific situation where you have to have an ASEAN-first approach. And the localization challenges offered by the region make it a big moat against a more global well resourced leader. In fact, one of the global leaders looked at the company, they said, “Oh, wow, I can never navigate this country because it’s an archipelago,” and they ended up investing in the company in a later round after that. So it kind of validates our thesis.”
5 Pathways to Find / Unlock Problems
Now that we have a better idea of what these problems look like, where can these problems be found? We list down five ways (not mutually exclusive) that we’ve seen founders find these problems and capitalize on the opportunity these problems presents.
(1) “Customer” Experience. The most obvious way we’ve seen founders zero-in on these key pain points to solve is when they actually come from experience. This already puts them in the shoes of potential customers. The challenge is to figure out whether this problem is actually something that exists only because of infrastructure deficiencies or lack of industry maturity in an emerging market, or if it is truly a problem unique to the region. Some pain points, like that of Indonesia’s interbank transfer fees, may be more obviously unique, but not all problems present themselves in this way. The second aspect of this problem that needs to be clarified is also whether this pain point is shared by millions more in the market and not just really, a “personal” problem.
Practical tip: It can be key advantage to hire founders or leadership who were previously customers or have lived in the shoes of customers.
(2) Industry Expertise. Not entirely separate from finding problems from one’s own experience is also finding problems in one’s own industry, regardless if one is directly impacted by it. This often comes from founders who have started or built careers in traditional industries and see the potential fruits of digitalization. Other times, founders may not be native to the industry of interest. But by virtue of studying the industry and surrounding themselves with people who are in the industry, they are able to develop an eye for specific problems and opportunities. The challenge here for this source of problem-finding is that there needs to be a clear bridge between the market opportunity and resulting value proposition for the customers. Sure, digitalization can help the industry, but what kind of digitalization will customers pay for?
Podcast Examples: Check out our conversation with Bayu from FishLog
Practical tip: It can be helpful to list down your closest networks and see how may already be suited to tap into certain industry knowledge or may need to evolve your network to better dive into your industry of interest.
(3) Startup Funding Value Chain. Related to studying industries as a way to find problems is also just plugging into the value chain of startup investors, from angels, incubators, and accelerators, to institutional VCs and growth funds. Investors will often have an idea of where they want to spend their time looking for founders and companies to invest in. Having a broader view of various sectors and the investor POV on these opportunities can help with formulating a venture-backable business model and solution later on, but the challenge here is that investors’s knowledge are largely after-the-fact, and they themselves are following other founders into the future. That said, the value of this method is not in the investors themselves, but the fact that they are connected to many more founders. In fact, that’s precisely how Shipper CEO and co-founder Phil Opamuratawongse, after returning from Silicon Valley, found his place in the company after meeting many founders through Insignia Ventures as an Entrepreneur-in-Residence and finally connecting with Budi.
Podcast Examples: Check out how Phil met Budi or how we invested in Sara Sofyan through Insignia Ventures Academy
Practical tip: It can be valuable to join communities that give broader access and visibility to this value chain. For example, check out Insignia Ventures Academy and as you experience firsthand what it means to be a VC, get to grow your network across Southeast Asia’s vibrant startup funding value chain.
(4) “Been There, Done That”. A sub-category of Industry Expertise is speaking specifically to leaders of venture-backed tech companies that have already achieved market leadership in the space. This often applies best to founders who already have an idea of what to do or are already working on their first product-market fit iteration and brainstorming ways to get to the next level of growth. The idea here is not to copy-paste learnings from these conversations — that defeats the purpose of becoming a “new species” or ASEAN-first company — but instead gaining insights into how one could do things differently or better, as well as the confidence to follow through knowing others before had gone through similar challenges.
Yinglan illustrates this from the perspective of Insignia Ventures’ network of global unicorn founders, “And then for those who already know what they want to do, I think the other thing is our network of global unicorns around the world, which provides a very good role model. If you want to start a FinTech company, for example. You want to talk to someone who has started a $50 billion digital bank globally. I think [after] 30 minutes with the guy, you’re like “Okay, maybe I can do it too. I want to do it. I don’t know how to do it, but okay maybe I can do it too.” To start a cloud kitchen, 30 minutes with someone who who runs the world’s biggest hot pot chain. It’s gonna give you a lot of insights on that. So I think that’s the gist of it.”
One could also consider in this pathway successful serial entrepreneurs who are themselves the founders who had achieved market leadership and are on their second or third venture, as well as the “tech mafia” or leaders who grew under the tutelage or alongside the presence of unicorn founders.
Practical tip: It can be immensely valuable to have connections, investors, partners who can unlock doors to these short but meaningful conversations with leaders from companies that have come before.
(5) Assets (Networks, Physical Assets, Patents, Skill Sets, etc.). It’s not just personal experience that can unlock problem-finding for startups, but also the assets of the founders, ranging from the proprietary networks they have to perhaps even physical assets or even patents if they are researchers who developed new technologies. The key challenge here is figuring out whether the assets one has can actually be useful and effective in finding product-market fit.
Practical tip: Leveraging in-house assets and capabilities effectively, especially when these are core to the business model, can spell the difference in terms of long-term profitability. It’s key to identify which assets are useful or not (given certain biases, easier said than done)
Paulo Joquiño is a writer and content producer for tech companies, and co-author of the book Navigating ASEANnovation. He is currently Editor of Insignia Business Review, the official publication of Insignia Ventures Partners, and senior content strategist for the venture capital firm, where he started right after graduation. As a university student, he took up multiple work opportunities in content and marketing for startups in Asia. These included interning as an associate at G3 Partners, a Seoul-based marketing agency for tech startups, running tech community engagements at coworking space and business community, ASPACE Philippines, and interning at workspace marketplace FlySpaces. He graduated with a BS Management Engineering at Ateneo de Manila University in 2019.