Hard Truths from Indonesia’s Startup Scene

The Importance of Meritocracy in Business

Discussion on Meritocracy

• The speaker emphasizes the need for greater meritocracy, criticizing the idea that wealth or elite status guarantees success, using the analogy of David Beckham's son not being able to play for Manchester United.

Introduction of Participants

• Jeremy introduces himself as a stand-in host for the Brave Southeast Asia Tech podcast, filling in for Michael who is absent.

Transition to Business Insights

• The conversation shifts towards business topics, with excitement about discussing insights from their previous chat over coffee regarding transitioning from investment to company management.

Challenges in Managing Businesses

Generalist vs. Specialist Perspective

• The speaker reflects on his background as an investor and how he never intended to manage a company day-to-day but had to adapt due to business realities in Indonesia.

Learning Curve in Technology

• He admits a lack of initial knowledge about technology and location intelligence but recognizes its potential impact on revenue growth for businesses.

Understanding Financial Metrics

Importance of Financial Acumen

• The speaker highlights that understanding finance is crucial; numbers must make sense regardless of the narrative presented by startups.

Critique of Startup Models

• He critiques common startup practices where companies pay for revenue without achieving sustainable success, citing examples like Oola's financial losses despite claims of returning funds to investors.

Market Realities in Indonesia

Misconceptions About Market Size

• The speaker argues against the notion that Indonesia can produce unicorn startups due to its large bottom-of-the-pyramid population, which limits consumer spending power.

GDP and Economic Viability

• He points out that while Indonesia has a large population, its GDP per capita remains low (under $5,000), making it challenging for B2C startups to thrive sustainably.

Discrepancies Between Perception and Reality

Critique of Investment Narratives

• The discussion reveals a disconnect between optimistic narratives about Indonesia’s market potential versus actual economic conditions affecting startup viability.

Example from Chipotra

• A personal anecdote illustrates confusion among wealthy entrepreneurs regarding revenue generation compared to more successful companies like Efficiary, suggesting deeper issues within investment strategies and market understanding.

Understanding the Challenges in Indonesia's Startup Ecosystem

The Misconception of Client Metrics

• The speaker emphasizes that having a large number of clients is meaningless if each client incurs costs, highlighting the importance of profitability over mere numbers.

• Many salespeople claim success based on giving away products rather than actual sales, indicating a misunderstanding of what constitutes effective sales strategies.

Economic Realities and Unicorn Potential

• The GDP per capita in Indonesia being under $5,000 raises doubts about the feasibility of achieving unicorn status in B2C sectors.

• The speaker notes that wealth concentration among a small elite limits opportunities for innovative startups led by diverse talent.

Cultural Dynamics and Fear of Questioning

• A small group controls capital in Indonesia, often leading to nepotism and limiting access for talented individuals from less privileged backgrounds.

• There is a culture of reluctance to challenge authority or question established figures within the startup ecosystem, which stifles innovation and critical discourse.

Celebrity Culture Among Venture Capitalists

• VC personalities have gained celebrity status in Jakarta, creating an environment where their opinions go unchallenged despite potential flaws in their reasoning.

• This phenomenon contrasts with more traditional finance sectors where successful individuals remain relatively anonymous and grounded.

Lack of Critical Engagement

• The speaker reflects on how questioning ideas is viewed negatively in Indonesia's startup scene compared to other global contexts where debate is encouraged.

• Young entrepreneurs may hesitate to criticize influential figures due to fear or respect, perpetuating a cycle where flawed ideas are accepted without scrutiny.

Startups in Indonesia: Opportunities and Challenges

The Appeal of Startups

• Many individuals in Indonesia are drawn to startups, perceiving them as easier alternatives to traditional careers in mining or family businesses.

• Influenced by peers who studied at prestigious institutions like Pepperdine, many return with aspirations to start their own ventures, despite lacking the necessary skills or experience.

Misconceptions and Reality

• There is a disconnect between perceived qualifications and actual capabilities; for instance, having an MBA does not equate to being able to run a successful startup.

• The startup ecosystem often consists of a close-knit group of founders and VCs, leading to potential biases and lack of diversity in ideas.

Financial Discrepancies

• Concerns arise regarding inflated revenue claims within the industry; examples include companies claiming revenues that exceed the total market capacity.

• Conversations reveal skepticism about financial viability; there seems to be a significant gap between reported success and actual performance metrics.

Cultural Dynamics

• A culture of avoiding difficult discussions prevails among entrepreneurs; they prefer engaging with supporters rather than critics.

• This avoidance contributes to a cycle where unrealistic narratives about success continue without addressing underlying issues.

The Need for Resetting the Ecosystem

• Despite challenges, there is optimism for innovation in Indonesia's tech landscape; however, it requires resetting expectations and approaches.

• Real innovation is needed rather than just replicating existing models; current funding strategies focus on quick returns instead of sustainable growth.

Future Directions

• Identifying underfunded sectors with potential for scaling could lead to meaningful advancements in technology within Indonesia.

• Recent shifts towards hiring experienced professionals indicate a move away from previous practices that prioritized rapid financial returns over sound business fundamentals.

The Challenges of the Indonesian Startup Ecosystem

Overview of Investment Trends

• The speaker critiques the focus of venture capital (VC) investments in Indonesia, noting that many investors lack genuine business acumen and are often from elite backgrounds rather than tech-savvy individuals.

• There is a stark contrast between the longevity of US tech leaders like Zuckerberg and the quick exits of Indonesian startup founders, indicating a lack of confidence in sustainable growth within the local market.

Cultural Attitudes Towards Business

• The prevailing culture in Indonesia's startup scene is characterized as a "get-rich quick scheme," which undermines long-term innovation and development.

• Many attempts by oligarchs to replicate successful models have failed due to their focus on immediate profits rather than building sustainable businesses.

Potential for Innovation

• The speaker expresses disbelief that Indonesia has not yet developed its own electric vehicle (EV) company, highlighting a gap in innovation despite having necessary resources.

• A comparison is made with Vietnam's VinFast, emphasizing that success stories often stem from individuals with diverse backgrounds who are willing to invest time into building businesses.

Barriers to Deep Tech Development

• The speaker identifies a significant need for deep tech companies in Indonesia but notes that there is an overwhelming desire for rapid success among entrepreneurs.

• Despite having intelligent youth eager to innovate, access to capital remains limited, stifling potential advancements in technology sectors.

Comparison with Global Tech Hubs

• Vietnam's emergence as a global tech player is attributed to early partnerships with major corporations like Intel, which contrasts sharply with Indonesia’s reluctance to attract similar investments.

• The absence of international companies limits local learning opportunities and contributes to stagnation in innovation within Indonesia’s tech landscape.

Governmental Influence and Opportunities

• The reliance on investor financing without solid business foundations leads to inevitable failures when market conditions change; this highlights systemic issues within the ecosystem.

• Government initiatives aimed at fostering AI and other technologies are criticized for lacking real commitment or follow-through despite frequent announcements about new funds or programs.

Frustrations with Local Initiatives

• There appears to be little genuine interest or appetite for deep technological investment among elites who control wealth derived from natural resources.

• Events promoting technology advancements are likened to "confetti," suggesting they serve more as publicity stunts than meaningful efforts toward progress.

Call for Action

• The speaker expresses frustration over wasted opportunities in Indonesia’s potential tech landscape, advocating for more serious investment and commitment towards building robust businesses rather than superficial engagements.

Air Conditioning and Local Content Issues

Frustrations with Local Content Regulations

• The speaker expresses frustration over local content regulations, highlighting that the presence of foreign products (like Japanese air conditioners) is unfairly penalized.

• There’s a humorous acknowledgment that even finding locally manufactured laptops in Singapore is challenging, questioning the logic behind local content requirements.

The Need for Meritocracy

• The speaker advocates for a meritocratic system where opportunities are based on talent rather than family background or wealth.

• They argue that successful individuals in listed securities markets often have years of experience, contrasting this with the startup community's lack of similar standards.

Immigration and Talent Acquisition

Embracing Immigration for Growth

• The speaker emphasizes the importance of accepting skilled immigrants to enhance Indonesia's capabilities, citing examples from America and successful companies led by immigrants.

• They criticize local attitudes against foreigners, suggesting that inviting talented individuals can lead to significant improvements in various sectors.

Examples from Other Regions

• The discussion includes how cities like Dubai attract top talent to drive innovation and growth, contrasting it with Indonesia's current stance on immigration.

Challenges in Startups and Venture Capital

Startup Ecosystem Concerns

• There's a critique of the Indonesian startup scene where only one company owned by a foreigner is thriving despite many failures among others without tech backgrounds.

• The speaker notes that easy access to money has led to complacency among entrepreneurs who may not be rational about their business decisions.

Venture Capital Dynamics

• A distinction is made between venture capital (VC) and hedge funds; VC lacks regulation which allows for different hiring practices compared to traditional finance roles.

• The speaker reflects on their surprise at how many people without relevant experience end up running VC firms, indicating a disconnect between qualifications and positions held.

Understanding Product Success Metrics

Importance of Metrics in Product Development

• The speaker emphasizes the significance of metrics in evaluating product success, particularly focusing on customer retention and payback periods.

• They mention a shift towards securing long-term contracts (3 to 5 years) to ensure predictable revenue streams, highlighting the challenges faced in B2B environments.

Client Retention as a Key Indicator

• The speaker identifies client retention as crucial for determining product effectiveness; losing clients indicates potential issues with the product's value.

• They express a proactive approach to understanding churn by directly engaging with lost clients to gather honest feedback about their experiences.

Financial Sustainability Over Valuation

• The discussion shifts to financial priorities, where the speaker stresses the need for profitability over valuation, especially since they have invested personal capital into the business.

• They assert that achieving profitability will naturally lead to increased valuation, emphasizing a focus on sustainable growth rather than speculative investments.

Expanding into New Markets

Strategic Market Entry Considerations

• The speaker shares their strategy of waiting until establishing a solid client base (90 clients in Indonesia) before expanding into other markets like Japan.

• They highlight common pitfalls among startups that offer free products initially but struggle with genuine user engagement and monetization afterward.

Challenges and Opportunities in Japan

• When discussing market entry into Japan, they outline three key elements for success: leveraging local connections, understanding cultural nuances, and having strong partnerships.

• Their unique position is bolstered by partnerships with influential figures in Japan’s finance sector, which aids market penetration efforts.

Navigating Local Business Environments

Building Trust and Reputation

• The speaker reflects on their extensive experience working with Japanese businesses over two decades, noting that relationships are critical but must be backed by proven product quality.

Relocation Decisions Based on Market Dynamics

• They discuss relocating headquarters from Indonesia to Singapore due to better support structures for software sales and operational efficiency.

• Despite initial intentions to remain an Indonesian company, lack of local support led them to seek more favorable conditions elsewhere.

Challenges of Investment in Indonesia

Current Investment Climate

• The speaker expresses frustration about the lack of revenue claims and investment interest in Indonesia, indicating a challenging environment for foreign investors.

• There is a noted reluctance from investors to engage with Indonesia due to recent events, highlighting a "fear factor" that affects perceptions of the country.

Reputation Issues

• The speaker discusses how Indonesia's reputation has deteriorated recently, complicating efforts to attract investments from family offices and other entities.

• Moving the head office to Singapore is seen as a strategic decision to facilitate easier investment opportunities amidst these challenges.

Legal and Political Concerns

• Questions arise regarding whether current prosecutions and lawsuits are politically motivated or genuinely aimed at addressing wrongdoing within the financial sector.

• The speaker reflects on public perception of high-profile arrests, noting mixed opinions on whether they signify genuine reform or political maneuvering.

Financial Irregularities

• There is skepticism about the accountability of those arrested versus others who remain untouched, raising questions about fairness in legal actions against financial misconduct.

• The speaker highlights discrepancies in financial dealings (e.g., Northstar's asset sale), suggesting systemic issues that challenge conventional understanding of business practices.

Future Outlook

• Concerns are raised about the motivations behind risky investments made by individuals involved in scandals; questioning if they were naive or corrupt.

• The hope is expressed that ongoing legal actions are not politically driven but rather focused on real accountability for past wrongdoings.

Advantages of Singapore as an Investment Hub

• Transitioning operations to Singapore is discussed as beneficial due to its established legal framework and trustworthiness among global investors.

• The emphasis on proper accounting practices and legal structures in Singapore enhances investor confidence compared to operating directly out of Indonesia.

The Challenges of Doing Business in Indonesia

The Law and Corruption

• The speaker emphasizes the straightforwardness of the law, stating "the law is the law," suggesting a desire for clarity and consistency in legal matters.

• A personal anecdote about receiving a large tax bill highlights frustrations with governmental practices, implying corruption when officials offer to reduce taxes for a fee.

• The speaker expresses disappointment over national pride being overshadowed by financial exploitation, criticizing those who prioritize nationalism while neglecting economic realities.

Investor Frustrations

• As an investor, the speaker shares experiences of bureaucratic challenges, including unexpected visa reapplications that seem aimed at extracting more money from foreign investors.

• The constant upheaval in business dealings leads to fatigue and frustration, reflecting broader issues within the Indonesian investment climate.

Future Prospects for Indonesia

• Looking ahead ten years, there is hope that Indonesia will embrace innovation and become wealthier than neighboring countries like Singapore.

• The protectionist mindset among wealthy Indonesians prevents foreign direct investment (FDI), which could significantly benefit the economy.

Comparison with Vietnam

• Vietnam's success attributed to welcoming FDI contrasts sharply with Indonesia's reluctance to engage with international companies.

• The speaker questions why major investors like Elon Musk choose other countries over Indonesia despite its rich resources.

Need for Change

• There is a call for Indonesia to change its perception of foreign businesses as threats rather than partners contributing positively to the economy.

• Emphasizing job creation by foreigners, the speaker argues against viewing them as exploiters but rather as valuable contributors to local economies.

Returnees and Talent Retention

• Concerns are raised about talented Indonesians abroad not returning due to unfavorable working conditions under current management structures in their home country.

• Mention of an influential Indonesian venture capitalist highlights untapped potential within the country that remains unrecognized domestically.

Insights on Hard Work and Passion

The Reality of Leadership and Expertise

• Discussion about a prominent figure who has lived in the US for 30 years, raising questions about her return to lead the sovereign wealth fund. The speaker suggests she may not want to be directed by others.

• Acknowledgment of the intelligence and skill set of Indonesians abroad, countering stereotypes that they lack qualifications without a notable surname.

Life Lessons for Young Adults

• Emphasis on the importance of hard work as articulated by Gary Player: "The harder you work, the luckier you get."

• Personal testimony from the speaker about their relentless work ethic, starting each day at 5 AM and working until late evening, highlighting that passion can outweigh formal education.

Building Respect Through Commitment

• The speaker shares how their dedication to their business earns them respect from staff, noting that all personal finances are invested in the company.

• Reflection on how genuine passion attracts people; colleagues believe in shared goals due to visible commitment.

Navigating Controversy and Fear

• The speaker believes a silent majority agrees with his views but is afraid to voice them due to potential repercussions.

• Mention of a blogger who reached out regarding legal threats; the speaker attributes his ability to avoid lawsuits to perceived readiness to defend himself.

Mental Health and Work-Life Balance

• Inquiry into personal mental and physical fitness routines reveals struggles with maintaining health amidst demanding work hours.

• Admission of neglecting health while traveling frequently for work; acknowledges need for improvement in this area.

Risks and Stress in Business Operations

• The speaker describes living on the edge due to high-stakes decisions in business, indicating that success comes with significant stress.

• Daily challenges include managing cash flow without external funding while dealing with substantial debts owed by clients.

Lifestyle Choices Impacting Success

• Lack of time for leisure activities or media consumption is noted as a barrier; lifestyle choices are influenced by personal circumstances such as separation from family.

Challenges of Being a Founder and Investor

Dual Roles in Business

• The speaker discusses the unique challenges faced when wearing multiple hats as both an investor and a founder, emphasizing that this dual role is relatively rare in Asia.

• As the biggest investor and founder, the speaker experiences heightened stress due to the personal financial stakes involved in their company.

• Unlike many entrepreneurs who draw salaries, the speaker does not receive any income until the company achieves success, highlighting a significant risk associated with entrepreneurship.

• The speaker contrasts their experience with that of other founders who may not have invested their own money, suggesting that true hardship comes from risking one's own hard-earned capital over many years.

• This perspective underscores the emotional and financial burdens carried by founders who are deeply invested in their ventures.