Start-up Business

Kompas/Priyombodo

Visitors get information from an attendant at a start-up booth during the 2019 NextDev Summit at the Jakarta Convention Center in Central Jakarta on Dec. 7, 2019 (7/12/2019).

Start-ups have existed for more or less 10 years in Indonesia. Some have succeeded and some have failed. Advances in information technology (IT) have opened up the possibility of reorganizing economic activities into something new.

The entry and exit of a business unit into the industry is common as part of the process which Schumpeter (1942) called a creative destruction.

New business units will bring new ideas, technology and management so that the industry will experience a revitalization. It will make the companies able to survive amid changes of times. In a more general context, this process is called the change of old production methods to new ones.

Start-ups are associated with Industry 4.0, which is actually a continuation of a process that began with the invention of the steam engine in 1750 (Industry 1.0) and then the use of technology for industry starting in 1870 (Industry 2.0), which ended in mass production using assembly lines such as those established by Henry Ford, which was originally a start-up for car production.

The discovery of semiconductors and industrial automation that led to the development of IT, the invention of the internet and the digitalization of industry was the third wave (Industry 3.0). Industry 4.0 is a consequence of the existence of Industry 3.0, which allows the reorganization of production methods with IT as a platform.

Level of success

Behind the success of many start-ups, there are dozens or even hundreds of others who have failed. This is the phenomenon of the Law of Large Numbers, in which in order to produce a handful of successful companies, it requires a number of other players to become incubators. The success rate of start-ups varies from country to country at around 5 to 10 percent.

KOMPAS/PRIYOMBODO

An attendant shows the GrabKios app on his phone during its launch in Jakarta on Nov. 7. (7/11/2019). GrabKios is a new version of Kudo, which was acquired by Grab in 2017. GrabKios collaborated with the Cooperatives, Small and Medium Enterprises Ministry as well as State Logistics Agency and state-owned lender Bank Mandiri for National Warung Day, aiming to scale up warungs with technology so they can compete with modern convenience stores.

However, the opportunity for start-ups to develop into a unicorn, or even decacorn, like Google, Facebook, Alibaba, Grab and Gojek, often makes many investors willing to "burn money" to a certain extent. The opportunity for failure is increasing amid the global economic slowdown as it reduces the desire of investors to provide capital.

In Indonesia, there are about 150 million internet users. However, the market potential alone is not enough to guarantee success. There are several factors behind the failure of 95 percent of start-ups. There are several characteristics that the founders need to have to succeed. Most importantly, they must never get bored (passion) and must be committed. Second, the willingness to adjust, but it does not mean it is always changing.

Other factors are patience and perseverance, being willing to listen and learn, fostering mentoring relationships with the right parties, as well as the principle of establishing a slim start-up that collects funds as needed, not excessively.

Finally, there is a balance of technical and business knowledge with adequate technical expertise in product development.

Finally, there is a balance of technical and business knowledge with adequate technical expertise in product development. Other important factors are more related to the market and the nature of the business.

Failure often occurs because of an inability to recognize markets, and producing products that are not in demand or are not a priority of the community. Second, they run out of funds because investors have withdrawn due to poor performance and unpromising prospects. Failure also occurs because of not having a good team, losing competition, prices and costs that don\'t fit the market segment, poor product quality, not having a clear business model, not having good marketing and ignoring customers.

The closure of the Qlapa and Shopo start-ups, which specialized in handicrafts, was down to a combination of excessive specialization and low barrier to entry, so the competition was quite tight.

Unlike the dynamic and ever changing modes, crafts have a slower turnover because customers don\'t change their home décor so often. In addition, artisans can enter the market independently through Instagram without having to pass the marketing network created by a start-up.

Macro impact

The macroeconomic impact of start-ups is difficult to track through the gross domestic product (GDP) data released by Statistics Indonesia (BPS). The business sectors that seem to have abundant start-ups include warehousing, postal and courier services that accept orders through online platforms.

Since mid-2015, this sector has grown above the average GDP growth and wholesale and retail trade sectors. In fact, in 2019, the growth of this sector reached 8.28 percent, 9.69 percent and 11.28 percent respectively for the first, second and third quarters.

The most important impact of the mushrooming start-ups is the disruption element, which inspires old players to change themselves.

The most important impact of the mushrooming start-ups is the disruption element, which inspires old players to change themselves. Taxi companies, for example, have the opportunity to work together to reduce the use of fuel in searching for passengers.

The textile and garment industry has also been revitalized by using online marketplaces to market and sell products, influence fashion trends, both online and outside the network through market exposure, including the acquisition of fashion houses.

In some cases, there are start-ups using online marketplaces to introduce themselves as premium products. Once popular, they open up an offline business. This is a smart strategy to save on promotional costs. With such a small success rate, there is no need to impose excessive restrictions on start-ups

KOMPAS/HERU SRI KUMORO

Ari Kuncoro

What must be regulated is business transparency and financial reports so that business risks can be measured fairly by investors. Consumer protection must also be promoted so that the story of Elizabeth Holmes’ health start-up Theranos, which is the subject of an HBO documentary, is not repeated

Ari Kuncoro, Rector University of Indonesia