Start-up Business Model to Change

KOMPAS/PRIYOMBODO

Online ojek (motorcycle taxi) drivers wait for passengers outside Karet Railway Station in Central Jakarta on Sept. 3, 2019 (3/9/2019).

Challenges are ahead in the creation and development of Indonesian start-ups, as investors are beginning to be wary of putting their money into these small businesses following a handful of troublesome funding cases emerging worldwide.

JAKARTA, KOMPAS — Indonesian start-ups may no longer be able to rely on the old way of spending huge sums of money to attract new customers. The business model is expected to either change or at least be adjusted in line with the changing mindsets among investors wishing for better business projections.

Start-up CEOs interviewed by Kompas from last week up to Sunday (19/1/2020) agreed that there had been big changes in investors’ mindset. If previously significant valuation growth, reflected in customer growth rate, had been the main target, nowadays investors prefer better business projections. This will reduce the prevalence of “burning money” methods commonly used by start-ups to acquire and maintain customers.

GoJek co-CEO Andre Soelistyo said that changes in the start-up industry were positive as this would level the playing field for all players.

“In a situation where we no longer have the unlimited freedom to burn money, the player with the best and most innovative services, execution, strategy and organization will win,” he said.

Bukalapak president Fajrin Rasyid said his company had transformed from an e-commerce company into a commerce tech company. Last year, Bukalapak decided to become a company that grows healthily, encouraged by high-quality services available in the Bukalapak application that makes it beloved by customers.

KOMPAS/PRIYOMBODO

Notices showing online payment systems are displayed at a food outlet at a shopping mall in Kebayoran Lama, South Jakarta, on June 8, 2019 (8/6/2019).

Start-ups began to emerge in Indonesia in 2007 and funding began to boom in 2010. Data from the Indonesia Digital Creative Industry Society said the country had 172 start-ups established in 2007-2012 and 604 start-ups established in 2013-2018.

Funding boom began in 2014 when Tokopedia attained an investment of US$100 million. As of last year, Indonesia had 2,218 start-ups with published funding of $2.8 billion.

Healthier

A number of start-ups in Indonesia have begun to change their strategies to strengthen their business. This is based on several cases of United States start-ups, such as Uber’s failed initial public offering (IPO) and WeWork’s cancelled IPO due to lack of market interest.

Today, investors prefer to find start-ups with healthier development roadmaps. Antonny Liem of venture capital company GDP Venture said the company was always prudent in investing and facilitating business development.

“Our focus in seeing start-ups has always been on their founders and business potentials rather than their potential valuation. Therefore, since the beginning we have always preferred to invest on companies with a realistic business model that can gain business foundations to help their operations moving forward,” he explained.

Digital signature service provider PrivyID CEO Marshall Pribadi said changes in investors’ mindset were highly palpable. Two years ago, when he met with local and international investors to seek funding, he was always asked about valuation growth prospects as reflected in customer growth rate.

“It used to be that no investors would look at us if we could not grow by, say, 3,000 percent in a certain amount of time. Some suggested that we just burn money. However, we were not tempted. We’d rather go slow and get customers our own way. Today, they begin to look at us and are chasing us,” Marshall said.

Most funding is used to acquire new clients due to the high competition in acquisition.

A Creative Economy Agency survey shows that 39 percent of problems at start-ups are linked to capital. Next is human resource, facilities, regulation and other issues. This highlights start-ups’ dependency on funding. Most funding is used to acquire new clients due to the high competition in acquisition.

Dailysocial.id CEO Rama Mamuaya agreed that investors were changing their mindset. Venture capital companies are also changing course. Based on projections on what will happen in the next 10 years, the high-growth business model will change. He said a new balance would be sought as investors were becoming more prudent.

Big corporations with venture funding in start-ups will begin to reorganize their portfolios. They will make preventive moves as they see problems in start-up businesses. Since late last year, they have begun to adjust or even change their strategies. Several companies sell their stocks and let go of start-ups as part of their move to reorganize their portfolios.

“This year, we will have an economic slowdown. Even if Indonesia will not be too affected, indicators show changes in customers’ habit that will affect purchases or uses of start-up products. Last year, people might spend Rp 1 million [$73.23] to shop online but, this year, they may spend less,” Rama said.

(MED/MAR)