In ecosystems where MBAs and investment professionals dominate patent holders and PhDs in management teams and the innovation in Chief Innovation Officer does not necessarily mean tech innovation but more so revenue generation, the “rules” of startup scaling will inevitably be different

And perhaps even importing scaling lessons from ecosystems with a deeper tech foundation can be detrimental

Whether this is the “right” way to develop a venture ecosystem is another discussion entirely, but such is the reality for an ecosystem like Indonesia

After catching up with some of our Indonesia founders over the past week, I’ve found some common sentiments and distilled these discussions on innovation in Indonesia into three of the most common buckets of companies that have emerged over the years and how reality has diverged from expectations and the typical startup narratives:

(1) Marketplaces/platforms are not enough

Born out of models like Uber, Alibaba, Tencent, and Airbnb, companies have sought to replicate these globally scaled platforms. But the challenge even with the scale of a market like Indonesia has been the tension between acquisition costs and the buying power of end consumers, which have often resulted in price squeezes for these platforms.

Unable to scale on thin margins, platforms have had to be more creative in taking greater ownership of their value chain, in some cases leveraging the distribution they already created.

Expectation: Scale into a disruptive superapp across multiple products and services

Reality: Scale across value chain, venturing closer to customers (through private label / 1P or offline retail strategies) or closer to suppliers (taking over manufacturing, again via private label strategies or prioritizing industry partnerships)

See our conversations with Tentang Anak and SuperApp:

That said these business model innovations like going from online to offline or 3P to 1P are not quick fix solutions to the challenges of platform scale, and also come with their own challenges (e.g., more direct competition with industry incumbents)

(2) Fintech companies need to bulk up on data, not products

A lot of fintech’s momentum in Indonesia (and other Southeast Asia markets as well) has been built on the belief that banks are too slow or risk averse to leverage the digital economy opportunity.

But the reality is that the lines have increasingly blurred between fintechs and banks over the years through acquisitions and production launches. Then you have non fintechs also building their own fintech businesses or products, thickening the competition.

And fintechs that remained platforms for payments or financing have also found themselves struggling with the combination of a high Gini coefficient and oftentimes legally unprotected lending / financial practices.

Because of this, fintechs have had to build or buy — not new financial products — but more so stronger backend infrastructure (processing infrastructure for payments or credit bureau for lending) to mitigate the risks of competition and socio-economics around financial services.

Expectation: Rebundling into digital banks from payments or financing products

Reality: Becoming a data or fintech enabler company on top of customer-facing product OR acquiring / partnering with a bank

See our conversation with AwanTunai and Fazz

(3) Indonesia is not enough for a venture scale SaaS play

The recent AI boom has made it clearer than ever that the SaaS play for Indonesia cannot be limited to a single market, nor can SMEs be the target segment for software if scaling is the goal.

As accessible as AI has become, finding the right use case that customers are willing to pay for is the challenge in Indonesia.

It may be the case that a more practical way to scale is to build a world class product from Indonesia that enterprise customers are willing to pay for, and then leverage this initial product market fit to explore expansion globally.

Again, this is no panacea, and the competition is tougher, but it widens the opportunities for the business to grow and explore potentially even more lucrative use cases on top of the company’s core technology.

Already we see companies like Eezee or WIZ.AI (Singapore companies) sell their services in Indonesia, making it even clearer that the competitive landscape is not insular.

Expectation: Sell to SMEs (backbone of Indonesia’s economy) and catalyze digital transformation of the country

Reality: Sell to enterprise and in tier-1 markets, leveraging development cost arbitrage and localization advantages of software (if the software is not tied to a business in the previous two buckets).