• Less frequency of acquisitions for tech companies in Asia due to technology arbitrage and pricing: First of all, most owners of Asian companies or conglomerates are thrifty and less expansive in their acquisitions. Our environment is less sophisticated as compared to what you see in Silicon Valley. If you see the acquisitions of Gowalla and Friendfeed which are examples of acqhire, the rationale is to hire talent on Facebook. They will put a price on the founders and then pay the rest with the stocks of the parent company. That’s also the reason why Twitter rejected the bid from Facebook four years ago, because the amount for payout was too low, based on rumors at that point of time.
• Asian companies only buy one talent and not an entire team of players: To an Asian owner, it’s too expensive to buy a team. Just buy the top guy and it’s enough. Unfortunately, if we examine the acqhire cases in Silicon Valley, it’s pure acquisition of teams of engineers. Probably, one case stood out, was the acquisition of Ngmoco by Gree, and the sole reason was the founder who was a former employee of EA. The cost to buy a team will be less appealing to Asian owners who feel that it’s too expensive, and the technology arbitrage argument kicks in.
• Your investors does not know how to sell: Most venture capitalists in Asia are not sophisticated enough to sell their portfolio of companies to potential acquirers. So, do you think that they are smart enough to structure a acqhire deal with the companies? Another argument is that in the web-tech space, the big four companies (Google, Facebook, Apple & Amazon) together with Microsoft are all located in the US, and hence it’s difficult for Asian investors to get them to acquire. While we see more Chinese & Japanese companies extending their reach to Southeast Asia, the investors are rarely involved in structuring these acquisitions. Usually in Asia, the entrepreneurs do the work most of the time. Time and time again, it’s easier to remind most readers that most venture capitalists in Asia are a bunch of bankers who have no operations experience and that’s why they cannot structure deals in the way how the US guys does it.

In conclusion, it is not difficult to fathom why acqhires are ridiculously difficult to execute for Asian companies in simple words: price, arbitrage and sophistication.

Related posts:

1. Thinking about Expansion out of Singapore to Asia & US

Asia Tech Teams and their Cultural Nunances

Probably, if you have the time to speak to various founders of a technology start-up in Asia, you will hear this common feedback from them about their teams, be it outsourcing through a vendor or programming house or building internally:

• They over-promise and they cannot deliver: This is common but there are two sides to the comment. The first is from the perspective of the business owners. They want to get the product out quickly but the problem is that they under-estimated the amount of scope required to build the product, and usually they introduce scope creep to the product without confining the scope of the product properly. The problem lies in the business owners’ lack of familiarity on the technology aspect. To cure that problem, the business owner should do three things: (a) talk to friends who are product managers or CTOs to get some realistic gauge of the product that they are building, (b) read books on project management, agile software development and get some thinking from web design blogs, for example, Smashing Magazine, to learn some best practices about web design and (c) reducing the scope of the product to three features of the prototype and stick to it.

  The second perspective is from the technology people who are often either too honest or too ready to get business. The “too honest” group will get fed up with the business people for full of scope creep, and the “too ready to get business” group will end up taking the project without realizing that hell has just begun.

• They can build the feature but the product is imperfect: Sometimes, the management team dictates how the product is built and to the credit of the technology team, they build it. However, the product can work for the test case but failed for the other cases. How can that happen? The problem is that there is no planning on the technology team to provide adequate unit testing or even instructions to the layman how they can use the product.
• They cannot imagine beyond the technical scope of the product: In harsher words, I often hear my western counterparts or fellow Asians educated either in the US or Europe saying, “They can’t think.” I do agree with the “they can’t think” given the Asian hierarchal culture nuance of “obeying your elders”. However, as product owners and managers, we should encourage to work out how the product works and then put questions to the issues which they might be facing before they start coding. The missing link between the engineers and the business people is the social practice on how the feature is delivered. To mitigate that risk, the engineers should code the feature with an internal discussion on brainstorming the problems which might arise from usage and let the business people test and offer feedback. The tech team should look at several examples of how the same feature is delivered through other web services or mobile

It is important to note that all project managers or business owners should know that they should add a 2x to 5x to the number of days which the whole software development project take. So, if your programming house tells you that they take 100 days to finish the project, be prepared that it will be 200-500 days. The best programming house will finish it within 150-200 and the rest follows. Most outsourced programmers and freelancers will give up the project if they exceed 300 days. So, here’s a rule of thumb. Why does this happen? In a project that you outsourced to a vendor, you have to pay half the money upfront first and then the rest upon completion of the project. In some cases, the payment is split due to the completion of milestones. It’s a problem of economics when the vendor or freelancer takes half the payment and then runs away by the time when they realize that it’s too much work and it’s never going to end because of scope creep. What happens in the end, both loses. The business owners have to salvage the situation and look for another vendor, ending up paying twice the amount. The vendors walked out burnt too with their teams not paid properly and all hell broke loose.

The real challenge is …

The best way to deal with the scope creep is to be really honest about what you want and what you can’t have. Draw up a list of 20 things you want on your site, then systematically eliminate and prioritize which ones come first. Then in the end, focus on the 3-5 things on the list that really matter to the business. If something can be added without hassle, you can get the software engineer to add them later. Life is never perfect, and half the time, you are trying to constrain resources to deliver the highest amount of impact. Business people should learn that the perfect product should have lesser features but works in a seamless way without hassle. The best way to explain this to them, “You can create a feature of buy and add an e-commerce element to your platform, but what’s the point if your payment page keeps getting errors because you don’t spend money to perfect the experience of users buying the stuff from your site?”

Related posts:

1. Building & Managing Technology Teams in Asia 1: The Tech Conundrum
2. Building a (Mobile-Web) Start-up: the 2011 way

Why Companies outsource and the cost effective reasoning does not work

In a typical start-up particularly one in the mobile-web technology space, should you build your own technology team or outsource your technology building to someone else? If the technology you seek to build exists, it is likely that an Asian business owner will pay a programmer to clone it. Why is it cheaper to clone? On a macro-economical scale, the Asian business owner is trying to perform a technology arbitrage where he or she clone something and execute the same business at a lower costs. You will hear about the thousand Groupon clones in China, or the AirBnB clones in Southeast Asia or Middle East funded by a few group of people.

The common thinking among people with business but no technology background (particularly those with MBAs) is to outsource. Of course, if you are Asian (or even American), you will typically hear everyone telling you to outsource the job to Indian programmers. In fact, the common case studies most people will cite are the multi-national corporations from Microsoft to Nokia claiming success in outsourcing their operations to India. Unfortunately, when you start talking to start-up owners even if they are trying to clone a Silicon Valley start-up, you will start to hear the following about Indian programmers: (a) they are lazy and very hard to manage if you are far away, (b) they don’t seem to understand your instructions because they seriously cannot communicate and (c) they don’t get what you want to do correct and worse, they made a mess out of it. This is not intended to insult or dissuade you against using or hiring Indian programmers. The same problem spread across most Asian programmers. Very few and good Asian programmers exist but chances are, the lure of a giant salary from an investment bank or a multi-national company will draw them away.

One must be wondering why most Asian companies (even for start-ups) have consistently perpetuated the myth that outsourcing is good for building web and mobile technologies. Cost effectiveness is often cited as the main reason. If you are outsourcing specific operations which are mechanical, the reasoning is correct. However, some people with business backgrounds (particularly MBAs who were former consultants and investment bankers) tried to map the same reasoning into building their start-ups. The eventual result is that most of them crash and burn because they did not have a proper technology team or worse, not even a technologically inclined co-founder. The same goes for middle to large businesses in Asia. Why is that so? Why are these people did not want to invest more resources in building proper technology teams in Asia and wasted money later to repair large scale IT infrastructure or technology failures?

(Credit: SydesJokes.com)

The Intangible Cost of Technical Debt

“Shipping first time code is like going into debt. A little debt speeds development so long as it is paid back promptly with a rewrite… The danger occurs when the debt is not repaid. Every minute spent on not-quite-right code counts as interest on that debt. Entire engineering organizations can be brought to a stand-still under the debt load of an unconsolidated implementation, object-oriented or otherwise.”
- Ward Cunningham

The management from any start-up or company often justifies their outsourcing of technology based on the argument of cost effectiveness. It’s a very one dimensional argument and we can’t really fault them because their intention is to take the product (a website or a mobile application) to market at the shortest time possible. What they end up discover later, is that the solution that they are building is not entirely what they have intended or some failure in the IT infrastructure which they did not foresee like database crashes or security breaches.

What business theory did not teach them is the problem of technical debt in building a web or mobile technology. When a business owners builds a website by outsourcing it to a freelancer or a programming house, they often rely on them to pick the correct technology to implement the solution. What they don’t realize is that the business model for freelancers and programming houses is that they need to make a profit by working in several projects at the same time. For a start, both your business objectives do not align, because you have no awareness of your technology and you are being held hostage if problems happened by the vendor. Since we know that if the team you are outsourcing to is not focused, it results in three things: (a) lack of focus and hence poor code written to build the features on your site, (b) selecting the wrong database infrastructure or frameworks which may not align with your business objectives and (c) drop their hands off the project if you are not paying them enough and ended up you wasting more financial resources to repair the problems you have. So, when you outsource your technology building, you have actually incurred more technical debt with a higher interest as compared to those who start off by spending more money in building their own technology teams but reducing the interest rate of technical debt. The problem will come back to bite you in the future.

Precisely, the cost effectiveness argument fail because in the longer term perspective, the technical debt that was incurred in building cheap will come back to bite the business owner. In most cases, it will trigger a rewrite of the code, which the business owner is reluctant or have no choice to pay or they have to give up on the entire technology platform.

Dealing with the “I can’t hire any tech talent” problem

Another common excuse for most business owners is that there are no technical talent available. As a matter of fact, this is a common problem endemic not just in Asia but also in technology clusters such as Silicon Valley and Zhong Guan Cun. According to some, the problem is worse because the better engineers in Silicon Valley will prefer to work in the bigger companies like Facebook and Google rather than with start-ups unless they are on the ascendency. The correct way to phrase this is that there is no software engineer which fits criteria of your choice. In my experience working in a research institute, most researchers usually enter with no relevant software programming skills. The problem is exacerbated in Asia because most software engineers don’t fit basic requirements. Not just software engineers, the same can be said of user interace and user experience designers for web and mobile.

Why is Asia having so much shortage of good engineers? The key reason is that IT programmers are treated like digital coolies, a term which is used for labour workers in trading ports during the 18th and 19th century. There is a lack of incentive for innovation because people do not spent time or provide any incentives to help engineers to upgrade themselves or a feasible and decent career path. As a result, we have a shortage, and the better ones decided that it is better to service clients on a project basis and become freelancers. As a result, due to a mis-alignment of objectives, the problem of technology talent in most Asian countries has grown worse in the past decade.

There are ways to build a technology team in Asia but it requires configuration changes in not just building them from scratch and providing some allowance for error. In the next post, I will discuss a few models on how one can build and manage one with also the correct incentives and objectives. However, it requires some resources and a change in business owners’ attitude in Asia.

Updates

• Sanjay Anandaram (adjunct faculty from INSEAD and also co-founder of Jumpstartup Venture Fund) provided two interesting references: (a) TechCrunch, Should Tech Startups Outsource Product Development? and Serious Changes in the Global Startup Ecosystem where he contributed some thoughts on the issue.
• Patrick Turner (Professor of Entrepreneur from INSEAD business school) wrote this comment to me via email, “Outsourcing to project-based engineers works much better for start-up teams that have a solid full-time CTO on board. This is obviously because that person is able to control for the deficiencies of remote coders in a way in which teams without such a person cannot possibly do”.

Author’s note: This article is written in conjunction to a similar talk I have given in Barcamp Singapore 7 on 10 Sep 2011. The author thanks the audience, particularly several founders from various start-up companies in Southeast Asia for their feedback and lively debate on the topic. The picture used here is credited to LGB06 from Flickr under a creative commons licence. If you want to republish this article, please contact me to seek my permission first.

Related posts:

1. Building and Managing Tech Teams in Asia 2: Cultural Nuances & Scope Creep
2. Building a (Mobile-Web) Start-up: the 2011 way

• Where are the entrepreneurs of a small country?: I have the chance to meet up with some successful entrepreneurs in Singapore and learned a lot from them. One of the common phrases from them is, “Where are the best and brightest Singaporean or entrepreneurs>?” The answer is that they are outside. In fact, in advising a couple of new tech start-ups, I have invoked the following rule for specifically mobile and web start-ups, “You have less than 2 months or 60 days to finish the minimum viable product and get out of Singapore as soon as you can.” Chalkboard went to Kuala Lumpur in the first month after we received our first round of financing. Why is this so? The reason is scale. Singapore lacks the scale and worse, you get clones for already small market. Where do you go next that you might ask? Contrary to perception, Kuala Lumpur is an interesting market and in some sense, the demographic of users resembled to a certain extent like Singapore. If your company specializes in a web-tech solution for the emerging economy, Jakarta (Indonesia) and Manila (Philippines) are probably your best bet. If your appetite is big and massive, China and India are on the list. However, specifically for markets that demand strong localization, you will need to be there. Of course, you can’t jump into the market so quickly. That comes to my next point.
• Expansion is market research + finding the right people on the ground to work with you: You need to work a few things before going into another market. The first is market research. Does your solution solves the needs of another market? You also need to determine the quips and quirks of another market. Once you determine the need and you are likely to spend at least 2 weeks surveying that market, then start setting up meetings with the locals who you might want to work with. Plain execution is what really matters in the end for expansion. Can you move the needle further as far as you can?
• Why US? Why Asia?: Some will say, “We should be in the US.” and others will say, “We should look at Asia.” It really depends on what customers your business are dealing with. Here’s a data point for one to think about. If you want to build a US$100M company, you need to take out at least one of the BRIIC (Brazil, Russia, India, Indonesia & China) markets. So, you need to work out which market is likely to adopt your business solution in the shortest time so that you can build up revenues and distribution. Working in a massive market is not simple and it requires one to think about the set of processes in replicating and scaling quickly to different markets. But you learn more about the complexities of your business solution if you dip your feet into another market.

Okay, my fifteen minutes is up, and I need to get back to work. But the bottom line is: If you are in a small market, test your product with customers and start scaling, and remember you have 60 days from the time you start.

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A Tale of 2 Opposing Worlds

Within the span of the 10 days, we observed the following:

• The “Nicole Seah” effect: If you traced the emergence of the Facebook page of Nicole Seah, you will be surprised how she gathered a total of 67K within the first 7 days of the campaign, in contrast to George Yeo’s accumulation of Facebook fans up to 20K++ over three years. Upon the 6th day, our Minister Mentor Lee received an external boost from a local blogger and the likes on his Facebook page overtook Nicole Seah, but tapered off at the end of the campaign. In the end, Nicole Seah has gathered a total of 100K++ likes after polling day.
• The social sharing of articles and videos via Facebook and Twitter: Over the 10 days, articles debunking the major urban myths from the property values between the ruling party and opposition to the message “voting is secret” were distributed at a rapid rate. Mr Brown’s “The Stall Next Door” coupled with a few creative works where they made parodies of failed local policies such as housing and costs of living added to the contest. While George Yeo’s video garnered a lot of attention which is in fact a social media success, it did not manage to translate to votes like how social media has been doing for the opposition. It is a bit of irony, but one has to say that of all the politicians in the ruling party, George Yeo is probably the most successful in tapping on social media. Does that mean that social media is just an overhyped tool since it does not help to garner victory for anyone who used it?
• Hearing the voices of many people from Twitter and Facebook: Individual and powerful anecdotes coming from people who come from all walks of life were spread across the Internet. On average, the rate of tweets increased from about 20-30 per hour to about 100 per hour on polling day. Of course, the extent of using social media via the mobile phone has greatly extended the reach and distribution of content all over Singapore. The young were more vocal about their distaste with tactics from the ruling party, but were swayed when the ruling party pivoted in the middle of the campaign with an apology from the Prime Minister.

Comments, Shares and Likes translate to Engagement & Interaction

“You should not talk to or talk at the people, but rather talking with the people, and answer respectfully to their feedback and comments.”- Scott Goodstein, External Online Director in Barack Obama’s Presidential Campaign 2008.

Facebook is probably the most utilized social media tool in GE 2011. What most people do not know is that there are 2.5M Singapore users on Facebook (which constitute almost 50% of the population) coming largely from the demographics of ages between 18-35, which has now become a significant voting bloc as compared to 300K users in GE 2006. Unlike in this election, Facebook enabled a few features which are not present in the last election: Facebook Notes (blogging engine), Facebook Pages for People and Organizations, Shared Links with the social utility functions of comment, like and share. Based on the Metcalfe’s law, the maximum reach of content from users will approximate to the square of number of users that they share is about 6.25M users at most, ignoring the number of degrees of separation.

The way to explain the ruling party’s failure and the opposition party’s success can be summarized in a quote from Randy Komisar from one of the top tier venture capital firms, KPCB during the Stanford Entrepreneur Thought Leader Series. Randy Komisar made a remark on why his firm has totally missed out investing in social media companies (Facebook, Linkedin, Youtube). The reason paraphrase in his words, “I don’t know how to put a value on share and like.” He based his assessment of value on e-commerce sites during the dot boom and bust period when KPCB was investing in these type of companies. He totally ignored social media because he did not understand how to value a share and like button. The real power of social media business is in its ability to virally spread messages in the shortest time possible and hopefully push people towards action in the real world.

Extending that analogy to GE 2011, the ruling party only registers and creates Facebook pages but totally ignore the best practices of engagement and interaction with users because of the way they think of the KPIs. The best part is that they terminate the engagement tools when the heat gets too hot, for example, the party deleted the comments on Vivian Balakrishnan’s facebook page . To justify what I mean, I collected rough data on my own activity feed and I placed a counter on every hour of the day on the content during the GE 2011 for 3 days and also see how much the social shares will go, and realized that 7 in 10 on average are messages coming from people who support the opposition cause, while the remaining from the ruling party.

What are the best practices and lessons that we can learn?

• The quality of the candidate and authenticity of opinions on issues always prevail in a social media campaign: Some say former foreign minister George Yeo’s appeal to the young video has worked to sway voters towards him during the campaign. The video came too late and was unable to change the sentiment of the ground towards voting for the ruling party in Aljunied GRC. One thing is true, for the past five years, George Yeo has been successful with his usage of social media in terms of engaging people with his Facebook Page, but why it did not work. It reminded me of an interview with David Plouffe, the campaign manager for Obama’s Presidential Campaign 2008. David Plouffe made a very important comment on the role of social media in that campaign. Paraphrasing his thoughts, he made the argument that the social media tools (Facebook and Twitter) will not work if candidate Barack Obama has not been a great product who can deliver his ideology, views and policies in a clear, honest and authentic way. If the ruling party has been fair to the opposition wards by not tying estate upgrading to who you vote, the lack of authenticity and fairness will push the sentiments of the ground against you. That’s why the social media campaign of the ruling party failed so badly, because they are unable to engage and be principled in the way they deal with the feedback coming from their critics in the social media platforms. If they continue to ignore social media or dismiss it as being useless because George Yeo did not win even if he used social media, the next general elections campaign will see a similar and even worse outcome than this one in 2011.
• Listening to the sentiments of the ground and know your channels: If one has to think about GE 2011, it has to be the Facebook & Twitter election. It did not just propagate the views of the opposition parties better but also the voters. We see a lot of anecdotes and creative use of video and parodies (from the maid agency to the Chinese song on HDB flats) from the voters. It also clearly showed that these messages were able to propagate much quicker than before, allowing others to understand why the opposition’s message of putting checks in balance was important. In fact, it also helped non-partisan causes as well, particularly in the case of “voting is secret” video.
• Social Media Engagement does not translate to Votes: Although it did not translate to votes, it did help to raise the awareness of the public on several issues. While it is a good tool to revise your message, retool the speeches, answer to the critics and sharing of information, it is not a tool to translate votes. Ultimately, offline engagement such as rally speeches, door to door visits, and walking the ground is what matters in an election, even if the electorate demographics will change to people who are using social media tools such as Facebook and Twitter.

Acknowledgements The author thanks Harish Pillay, Adrianna Tan, Daryl Tay and many others for a discussion on the impact of social media for GE 2011.

Related posts:

1. Singapore General Election 2009 Likely?
2. The Economics about Banning Political Films
3. An Afternoon with Scott Goodstein in Ad-Tech Singapore 2009

The best way to do this is to find out how the prices of the HDB flats in Hougang SMC and Aljunied GRC have fluctuated over the past twenty years. This dataset is difficult to collect and requires HDB to provide them. However, it turns out that we can look at the current 1-year resale transacted prices of flats in both areas and answer the question to a large extent. The aim of this HDB e-service is to “assist potential resale flat buyers and sellers in making informed decisions, taking into account the prevailing trends in the HDB resale market” (source: HDB). So, we did the following by looking at 2 sets of data: 3 room flats & 4 room flats from Hougang Ave 5 (under Hougang SMC) and Hougang Ave 8 (under Aljunied GRC) and computed the median prices. All transactions found in the data set are arms-length transactions which means that we exclude resale transactions that may not reflect the full market price, for example, I buy a flat from my parents at a reduced resale flat price. Hence HDB’s data is indicative of the real market prices. Here’s what we found:

From the above table, the resale flat prices did not vary signifcantly. In fact, although flats from Hougang Avenue 5 (under Hougang SMC) were older than those from Hougang Avenue 8 (under Aljunied GRC), they seem to fetch higher resale prices. Do note that the Ministry of National Development control both the demand and supply of public housing in Singapore. We all know that buying a flat is an important decision for most families. Hence it is reasonable for us to assume that a couple will examine all the factors which will affect the value of the flat they intend to buy, for example, accessibility to transport, amenities, the condition of the flat and the living conditions in the neighbourhood. If MM Lee’s assertion is true, very few people will buy flats in Hougang Ave 5 and consequently the resale prices of flats in Hougang Ave 5 should not be above those in Hougang Ave 8 under Aljunied GRC. The data seems to contradict what MM Lee has said about flats in Hougang SMC falling below flats in Aljunied GRC. Perhaps the ruling party can provide the facts and figures as to why they assert that property prices under Aljunied GRC will fall if the opposition party wins on May 7.

Other Interesting articles:
[1] Mr Wang, Property Values and Your Choice of Political Party
[2] Sze-Meng Soon, How Govt and MPs should tackle home affordability
[3] Tay Lay Kuan has extended my analysis http://bit.ly/lJb5PM on Hougang & Aljunied to Potong Pasir SMC & Toa Payoh-Bishan GRC. No evidence in MM Lee’s claims on HDB prices.
[4] You can read this research paper “The political economy of housing prices: Hedonic pricing with regression discontinuity” by Wong Wei Kang and Eddie Sue. Have a conversation with my former colleagues from Singapore Angle and the main results does not differ much from what I have computed.
[5] You can read another post Hougang constituency 4-room flats retain value well by Alex Au aka Yawning Bread that also indicate the prices for 4 room flats.
[6] Chong Kwek Yan & Giam Xingli published this interesting analysis entitled “No evidence that flats in Opposition-held wards are worth less” via Facebook using multiple comparisons tests. If I am still working as an academic (i.e. I practically have very little time because of the focus I put on my own start-up), that will be the same approach that I will have adopted and I will apply clustering theory to look at the data sets as well.

No related posts.

To start off with, there are very few companies in Southeast Asia which are true venture capital firms and they seldom take chances with up and coming start-ups. The reason is simple because most of the people who run these companies are former financiers (people who are investment bankers or works in the private equity firms), and to be even more blunt, none of them are former entrepreneurs, which means that they have no access to talent who you can rely on to scale up the business development, sales, marketing and operations in the future. The reason why venture capital works in the US and China is based on three essential components: (a) market size and revenue (b) talent and (c) number of exits which either goes towards a public offering or an acquisition.

Oftentimes, when I have drinks with my friends who do investments beyond S$4M and above, I will hear the following comment from them, “You know why we are not interested to invest in early stage start-ups, there is no exit that are worth more than US$30M (=S$36M) across the whole Southeast Asia.” I did a check on that claim and even Friendster who was bought by MOL (rumoured to be about US$27M from various sources) and Transfer.To which was acquired by Ingenico last year (S$35M). That claim turns out to be true. That’s nothing wrong with what these investors are saying. The central doctrine for them, is that out of 10 investments, 9 will fail and 1 will succeed. If I have a 100M fund (and break it on an average of US$1M per company), I have to invest on 100 companies. It means to get back the return for my stakeholders, I need 5 companies to hit US$100M valuation per company. That’s simplistic but you can understand why investors from Silicon Valley have no interest in Southeast Asia as a whole.

If you look at the start-ups in China, all of them are moving towards either IPO or acquisitions and most of them are hitting above US$50M if they manage to scale in the country. Once investors see more exits above a certain price, their appetite for creating an investment company in the region becomes higher. Although the whole Southeast Asia is currently growing with new venture firms like Neoteny Labs, SingTel Innov8 and East Ventures, the money for early stage start-ups are still few and far between. Unless the Indonesia market booms like how the start-ups in China are, it is very unlikely to see a Sequoia SEA or Benchmark in this region.

So what should you do as an entrepreneur? There are two schools of thinking about this. One school is focus on creating a company with vision and reach there without being sure what the exit looks like. This is what they teach you in entrepreneurship courses for the local schools. Even though I teach a course on that in NTU, as a practitioner, I also teach the other school of thought. The other approach which I am advocating is to start from the exit and work backwards in time to see what kind of company you should build with a set of realistic timelines and milestones (plus a Plan B should everything go south). Unfortunately, to do this, you have to be very experienced and have a good network in the industry to spot what is going to be happen in 3 years time. However, that being said, nobody including myself, can be right about which school of thought is better.

I have an interesting discussion with Professor Turner from INSEAD Business School sometime back, where I advocate that we should teach students in Asia who attend classes on entrepreneurship & private equity to think about exits instead of wasting time on thinking about grandeur visions. Yes, young entrepreneurs can have grandeur vision and goals but if they want to do a Facebook, Twitter and Google, they should pack up their bags and head to Silicon Valley in California or Zhong Guan Cun in Beijing. The reason is simple, the risk appetite is larger and there are people within that ecosystem who can help them to scale. Otherwise, their best case scenario is what happened to TenCube who gets acquired by McAfee (and Darius Cheung is now an investor to Neoteny Labs which is a very good sign of people gaining success and contributing back to the community). What we need is not one Darius, but at least 100 of them (exiting with acquisitions above US$15-US$20M and it means 900 failures) around Southeast Asia to attract investors to come for the early stage companies, and not just Singapore but the region as a whole. Once that happens, we can have entrepreneurs with grandeur vision.

Update:
1. My colleague, Daniel Cerventus, wrote a piece Why Startups should not focus on Exits to illustrate the possibility of abuses in thinking that way.

Author’s Note: Photo Credit: Mark Hillary under Creative Commons

Related posts:

1. Building a (Mobile-Web) Start-up: the 2011 way

Basically, the way I proposed is based on known methodology in product development and it is just a summary of three key principles: (a) Agile: Build a product in the shortest time and most effective way possible, (b) Iterate: Change the product quickly upon getting feedback from users and test until you find the killer feature, (c) Pivot: Upon failing in the fastest manner possible, learn from the lessons of why it did not work, change strategy and develop the product in a different direction.

• Build the prototype with an co-founder with engineering background: The best thing to do is to deconstruct the idea into a few basic features and create a simple site or app to test the market. The best way is to adopt the agile development approach – where you determine the features of the site or app that you want to have and followed by breaking them down into “stories” on how a user will interact with them. Sometimes, it’s easier to produce mockups to get a sense of how the user flow will look like. Some might ask, what programming languages to use for rapid prototyping? My recommendation is to look at open source technologies such as Ruby on Rails, Python-Django or even PHP if you want it quick and dirty. As for mobile platforms – focus on either Apple iOS, Google Android or Windows Phone 7.

  I want to highlight two features which can help start-ups in setting up a rapid prototyping and at the same time, gain users at a quick rate. The first is in the signing up of a user. With an inundation of mobile web services in the world, user fatigue will usually creep with respect to signing ups. Take the Jumo approach, just sign up with Facebook, extract the particulars and provide two fields for the user: password and confirm password, and within seconds, you get one user. If you want your service to be viral, flip the model over and put a Facebook application on top of this, and push wall notifications that the user has just joined your service and make updates on how he or she is using your service. The second is in the amount of fields you want your user to sign up. There is an approach in product development that you should only have 3 or 4 fields at most for a sign up, otherwise, the user will just give up. Once you collect these basic sign up processes, lead the user to your product and the main killer feature that you want them to experience.

  I don’t recommend outsourcing your first alpha product development to a vendor which is common in Asian countries and trust me on that, I have bad experiences on that front, no matter how good the engineering team claimed to be. In fact, assembling the engineering team might be slower but it builds good foundation. Get your hands dirty and build a product from scratch. It will also help you in understanding how the programming structure that underlies your product can align with the business objectives you want for your idea. Try to build a tech team in your own house as early as you can. This is the most important lesson for me.

• Test the prototype in the marketplace: The key lesson here is to take the prototype to market and let the market decide the feasibility of your idea. Move quickly into the market, and remove the “my product must be perfect before going out” mindset. A product with 70% completion with robust features can help you to determine how the users are interacting with your app.

  One important rule that most start-ups do not really do is to set up hypotheses to test the product feasibility with customers. Make a list of hypotheses, for example, “Which feature do you like or hate most?”, “What will you like to see in future versions of the software?”, “Will you pay for this service with $x dollars or cents?”, “Does this service really solve the pain point you are having?” and many more. The important thing here is honesty, do your product really nail the pain point or just your own wet dream that you think that they need it?

• Collect data and feedback from the users and customers: I do know that some people exercise the principle but not to the fullest extent. Having N=1 to N=10 datapoints are useless. You need as many as about 100 data points to at least get a good statistical feel if the product does have traction. Collect case studies on how different users will interact with the product and what they want. Use the scientific method to create hypotheses and ask questions, “Do feature X resolve the pain point of the user?”, “What are the common uses of your platform?” and etc. You can always make sure that you have served your target demographic group. What are interesting data points? Here’s probably a few that I think will suffice before you go to an investor for money:
  • Does the service really resolve the pain point up to a certain degree and what are the issues which you can’t resolve?
  • Does the service gives the users satisfaction?
  • What are the top 3 features that they love and hate? That’s useful for the next product iteration.
  • Will the customers pay for the service and most important, how much you can get them to pay?
  • What is the cheapest means or methods to increase distribution of your product to your customers?
• Iterate the product in a few cycles to see if there is traction: The start-up phase is the best time where you can iterate a product many times until you find the killer feature. Once you find that, just totally put all your resources onto that feature and crush the market, because in the mobile-web space, nothing is forever. Some guy from somewhere will steal your feature, and your only chance is to make sure that you quickly take advantage and earn the largest market share. What is important about iterating the product? Listening to customers feedback and discern which ones are really important and which ones are totally crap. For example, the reliable customer will explain to you what his or her pain point really is and wished for something you can actually build it to work. The person with crap feedback will keep harping on why it does not work but ask for blue sky technologies that it is out of your realm to make it or in some sense, have an illogical user experience flow.
• Quality is worth paying for – Design, User Experience & Good Video: Well, some things are worth paying for and it’s better to go straight to the source, hire the best people and then get it done. For example, if you want to go to the US market from Asia, hire a designer, user experience engineer, copywriter and a good video maker from US. So far, my experience with them is great as compared to the vendors I worked with. The major distinction is on one thing, is their way to communicate effectively and giving you exactly in quality – what you need and what you want. I find that totally lacking in all Asian vendors on this. For such things, I have totally sworn off Asian ones. The best way to know how to pay for quality is to look at how prominent start-ups in US are scaling up with the correct set of marketing tools and design principles. That’s where the real difference is. Less is more in this game and totally work on one thing. The others can come later.

  Here is a good example from a US vendor who conveyed our value proposition very well:
  

  
  
• Focus on that killer feature once you determine the market traction and paying customers: Well, we live in Asia, and so to get money, we need to demonstrate market traction, i.e. a lot of people want to use it and two, signs of monetization, i.e. customers are willing to pay for it. That’s the most important part, and if you can show those two data points, you are on the way to something interesting.

So, what if you fail? The answer is that it does not matter. The key is that you fail fast and move on. Life in a start-up is meant to be hard, and I don’t think people have talked about how tough and harsh the environment really looks like.

Author’s note: This post is prepared ahead that I gave today in the Rotary Club of Tanglin in the Police Mess on 25 April 2011. The slides are shared above here. Another thing is that this post has taken bits and pieces over a few weekends for me to construct.

Related posts:

1. Building & Managing Technology Teams in Asia 1: The Tech Conundrum
2. Why Exits are Important (as a metric for Start-ups)
3. Building and Managing Tech Teams in Asia 2: Cultural Nuances & Scope Creep

A couple of things which I like to elaborate as we did not manage to steer the conversation during the class if you have heard the slidecast:

• Online vs Offline engagement: One of the lessons which I wanted to steer the students to think is the issue of how to merge the online and offline worlds in terms of user engagement, discovery and interaction. We discovered that the success of social media tools did not come from the platforms trying to gain users by online invites. Instead, their approach also utilized an offline strategy. RenRen (formerly Xiaonei), the facebook clone in China, adopted a direct marketing approach by offering offline incentives such as free food and drinks to draw classes from universities and schools to sign up to the social network. In a similar social media marketing conference which I spoke as a panelist recently to brand-marketers & small-medium enterprises, I explained a similar approach used by the Right Spin (a PR company) who created the HTC flash mob event in Raffles Place. Basically, they got a group of people who burst into dancing that caught the public perplexed and at the same time, uploading tweets, photos and videos into various social media platforms that spread the word around quickly.
• Facebook has beaten CyWorld for the South Korea in early 2010: A new datapoint emerged in the beginning of Jan 2010. Facebook, in a very stealth way, has just displaced CyWorld to be the top social network in South Korea. This is probably the first crack in the East Asian bloc where a foreign social network has successfully toppled the incumbent. What is the reason? One probable reason is that a lot of Korean users are playing social games or tapping 3rd party applications on an open platform which CyWorld has not deployed out yet. I probably wanted to pose the question: is the beginning of a domino effect that may hit Japan soon given Mixi and Gree are in dead heat for the 1st place?
• Can the micro-transactions model work in Western based social networks?: We know that Facebook is now on the verge to deploy a beta-tested version of micro-transactions in the platform. The question as posed in the discussion by one of the students during my talk: does reverse engineering of an idea from the East will work in the West? I probably think so, given that Silicon Valley have been holding a lot of conferences of virtual goods and currency and talking about these models which are successful in the Far East. In fact, with the help of the mobile smartphones like the iPhone and Nexus One, it may be the beginning of an era where Western social networks may successfully monetize in their own homeground.

Related posts:

1. Building Online Communities & Social Networks: Strategies, Tools and Trends in Chinese
2. The Importance of Being Social – A Talk on Online Social Networks
3. Top 3 Social Networks in China after QQ

In the light of Google’s action to take on the Chinese government, we see that the shares of Baidu have gone up and also a lot of chatter in the Chinese blogosphere that Google’s retreat is motivated by the loss of her former CEO, Lee Kai-Fu and dwindling market share in the Chinese search market share. While it is easy to chastise Google who have given up some of her principles to set up in China four years ago, we should also applaud that Google has the audacity to try to work within the system and for the first time, standing on their principles. Yet, business is still business. What does Google’s retreat from China really tell us?

The first is the difficulty of foreign internet companies making a headway in China. As one of the well-known Chinese web entrepreneurs once commented to me in a confident manner, there is no chance that any of the US Internet based services from Facebook to Twitter to dominate the Chinese market. There are two supporting reasons to his claim. The first is that the multi-national companies do not want to localize their operations and prefer to replicate their model in China than adapting to it. The second is that the Chinese local Internet companies will put more than 100% to take on the giants from US. Looking at Microsoft, Google, Yahoo!, eBay and MySpace, it does not look favorable for them to enter the Chinese market at all, but to let the Chinese market replicate their stuff. While the era of cloning is over, the real competition is now between US and China in making innovations for the web-tech space. Is it a question of culture and context that made it difficult for these Western companies to enter the market? Is it nationlism that emerged victorious in seeing how Google being battered by Baidu in the Chinese market?

That comes to my second point. It concerns the whole optimism about the rise of China as a superpower and many including myself sees Zhong Guan Cun as the only viable alternative to Silicon Valley. While the Chinese government maintains a very heavy handed approach against activists and making it tough for foreign companies to enter into this emerging market, we also see that the culture of openness and freedom of speech are challenging China once again.

Can the Great Firewall of China stands the test of time? I have a friend of mine living in China once touted China as a rising dragon and see the financial crisis happening in US as the signs of decline for the western power. I countered with a historical argument that the optimism with China may not turn out what we hope to be. I will give one comparison. In the early 1970s and 1980s, we see Japan as a counter rising superpower that seek to end the dominance of US with their success starting from cloning the US companies in the automobile industry and then moving into innovation and creativity that might allow them to leapfrog the Americans. But what do we see in the end? Japan failed to catch up with US for different reasons. Japan failed because the traits of creativity and innovation clashed with a hierarchical business culture. What these rising powers failed to see, is the way how the US bounced back from failures, starting from a recession in the 80s and headed into the roaring 90s with the creation of the Internet. While creative destruction happens so often in US, their democratic culture works hand in hand with the innovation and creativity culture, while the values of the Chinese culture counter that. Probably a disruptive technology in the US is in the making and before we know it, the Chinese move backwards again like the way how Japan did in the 1980s.

My opinion is that Google has lost on the business aspect in China but won a moral victory albeit the type of hand that they are given. So, the Google vs China creates a clash of values between two civilizations. Who will dominate in the end and come out swinging? We should leave this discussion to a decade later and see where we are then.

Related Links:
[1] George Codula, Google likely to retreat from China.
[2] China YouRen, What is going in with Google (2): consequences.

Related posts:

1. Top 3 Social Networks in China after QQ
2. 3 Reasons Why Google is launching the Chrome OS