This article is written by Zishuang Cheng, and originally posted here. Republished on TheLowDown with the author’s permission.
While looking to more mature ecosystems like the US and China for ideas that can be transferred to South-East Asia, entrepreneurs should bear in mind that the region has some unique challenges that aren’t present elsewhere. The classic fragmented argument still rings true, so does the fact that income levels are a fraction of more developed markets. This is also reflected in the development of the infrastructure, which is why the Pinduoduo clones in SEA have a harder time getting off the ground, as there is no WeChat pay, or WeChat mini apps that the users can easily plug into, nor is there efficient last mile delivery, but whoever can solve these problems will easily be a unicorn.
Navigating The Idea Maze in SouthEast Asia will require a different analysis as a lot of the models that have worked in the US and China will not necessarily work in South-East Asia because of the different market conditions.
I’ve decided to expand on Lennysan’s Twitter Thread and tweak it for the region
The following are some Mental Models that you can use to start generating the idea to work on:
- Solving an unmet need, thesis from first principles thinking
- Cloning successful models from other markets
- Disrupting stodgy old industries
- Unbundling by focusing on a segment of a large company, we are seeing fintech companies do this to banks
- Disintermediation
- Digitise existing behaviour
After you’ve generated your idea, you’ll need to go deeper and evaluate the idea
- The Market
- Why Now?
- Distribution
- Team
- Moat
- Business Model
Finally, in your goal to get to product market fit, you’ll need to look for:
- High Retention Rates
- High MoM and YoY growth rate
- Willingness to pay
- Organic Growth
- Short Sales Cycles
- The feeling that you’ve hit it 🙂
In this part, we’ll focus on Mental Models
Exploring Further
Mental Models
Looking for your idea…
Solving An Unmet Need
Notable Case: Elon Musk
Operating from first principles to solve an unmet need would be the classic business school and startup guru route to starting a company. This can come in the form of an underserved market segment, a gap in the market or even a category that never really existed.
“Well, I do think there’s a good framework for thinking. It is physics. You know, the sort of first principles reasoning. Generally I think there are — what I mean by that is, boil things down to their fundamental truths and reason up from there, as opposed to reasoning by analogy.
Through most of our life, we get through life by reasoning by analogy, which essentially means copying what other people do with slight variations.”
-Elon Musk
What you should do:
Start from the problem of the customer and work backwards to find a solution to solve that problem. This process usually starts by talking to 10-15 customers at least, and once you’ve identified a common problem, you can start defining more clearly what the problem is before you head out to solve it
Cloning successful models from other markets
Notable Case: Rocket Internet
While this might be despised amongst certain groups because it ‘lacks originality’ I personally have no issues with this.
“First mover isn’t what’s important — it’s the last mover. Like Microsoft was the last operating system, and Google was the last search engine.”
-Peter Thiel
What you should do:
If you’re operating in South East Asia, there are certain conditions that simply will not allow you to copy and paste a working model in the US / China. There are some that apply very broadly, like infrastructure, user habits, income levels and regulatory environment.
What Grab did well when they were looking to build an Uber for South-East Asia was localise certain elements like allowing cash payments as opposed to only credit card payments and what this wave of Pinduoduo clones are going to have to do is to figure out a way to solve the problem that unlike China that has an established channel and payment mechanism in Wechat, most countries in Southeast Asia are still used to paying cash, and don’t even have the logistics networks to ensure timely delivery!
While deploying this model de-risks the entrepreneur, if one doesn’t analyse the market thoroughly and at least run multiple thought experiments, one can end up wasting a lot of time and money
Disrupting old stodgy industries
Notable Case: Circles.life
Generally speaking, companies are able to abuse customers or simply not innovate, yet bring in good cash flow because they are in markets with high barriers to entry. This is usually either high startup cost or regulations.
“Formula for startup success: Find large highly fragmented industry w low NPS; vertically integrate a solution to simplify value product.”
-Keith Rabois
What you should do:
This won’t be applicable for most entrepreneurs because you either need the ability to raise a ton of money out of nothing, or be an insider such that people will trust that you can execute on the plan. The other scenario would be that there is a shift in technology or regulations that allows a new player to enter. For the former, look at how Elon Musk re-thought launching rockets into space that dramatically lowered the cost and for the latter, a change in regulations allowed a lot of MVNOs to enter the market to compete with MNOs in the telco industry.
In the event you go down this path, identify players in large markets where the customer satisfaction is low. If you can enter the space with a proposition for the customer that is better (which is usually a low bar), you will be able to take market share from the incumbent(s).
Unbundling
Notable Case: Atome
This happens when you take a large player that’s fallen asleep at the wheel, and build a company that’s hyper focused on serving a segment to compete with one of the departments in that company. That happened to media 20 years ago when the internet essentially brought the cost of distribution down to zero, and is happening now, as a wave of Fintech firms (~2021) are picking at banks.
“I was tracking the increasing popularity of BNPL worldwide and how it served both consumers and merchant needs. As a consumer myself, I also never understood how credit card late interest charges worked or how much I had to pay when I missed a payment.
At the same time, I knew a buy-now-pay-later version in Asia could really address the needs of underserved and underbanked consumers in emerging markets like Indonesia and Vietnam.”
-David Chen, CEO of Atome
A focused startup that’s adequately resourced with an A grade team will always win against the department of a large company. People often forget that when you compete against a large company like Citibank or Nike, you’re not competing against the whole multi-billion dollar behemoth but the department of that company that may not have all the resources it needs while having to satisfy various stakeholders that may not be in it’s own interest.
What you should do:
Look at companies with large market caps that have failed to keep up with the times, usually a technology shift, and study which function within the company is most suitable for you as the entrepreneur to compete against. This is usually in areas where you can move faster, a lot faster, and be very focused on that target segment while ideally understanding the end user better.
Disintermediation
Notable Case: Onlyfans
One of the oldest tricks in the book, to cut out the middleman to reduce the extra person paid in the value chain. While this person did presumably provide value at one point, hence the role and value extracted by this person in the chain, a shift in technology, or some other circumstance will provide the opportunity to remove this link in the chain and hence the overall cost, and subsequently, savings, passed on to the end consumer.
Recently, we’ve been seeing a wave of DTC companies like Everlane, Warby Parker, Harry’s build brands that are Millennial friendly, and going direct to the consumer. Also, during the pandemic, Onlyfans showed what can be done when you allow creators to connect directly with their fans. (They posted revenues of 2bn in 2020). Because of this, we are seeing a wave of companies in the Creator Economy
“Stokely came up with the idea of OnlyFans when learned about the prevalence of adult entertainers selling unde-the-table services, and they would be using Instagram to post photos and videos that promote themselves. But then Instagram has been cracking down on content that has nudity or are pornographic in nature, and so Stokely had a lightbulb moment.
Why not create a platform that allows these entertainers to conveniently and securely monetize their content? OnlyFans would be like a social media platform with a feed, similar to that of Instagram and Twitter, except that fans are required to pay a monthly subscription to view the content of these entertainers. And if they are willing to pay more, they could unlock paywalls for even more valuable services.”
-Brand Origins
What you should do:
Examine the role that the middleman or the intermediary, like in the case of the 3rd party retail shop for Warby Parker, or in the adult industry, the studio, the creator and the fan, would there still be value if the intermediary is removed? If the answer is yes, and in fact, more value is added, then you might just have a winner in your hands
Digitise existing behaviour
Notable Case: Gojek
Exactly like how it sounds, what you need to do is to target an existing behaviour that was primarily offline, be it calling for a ride, booking a table at a restaurant, or ordering food. At least to a digital native, the user experience of performing the act online is usually vastly superior because of its efficiency, lack of human interaction and ability to track the transaction. As a large segment of South-East Asia is still going online and becoming more mobile-centric, a lot of these opportunities still exist out there
”By 2014, the call-center was handling about 200 drivers and was mostly a manual matching process between riders and drivers. At this point, Gojek raised money from a few investors, including Sequoia Capital.”
What you should do:
There are still a lot of transactions going on in rural parts of SEA that’s offline and cash based, there are also industries where decision making was/is made by people who prefer more manual options. While not everyone of them these are going to be an easy route to success, you can make life easier for yourself by catching them at the right time, (usually when they are forced to because of macro conditions like a pandemic or shift in technology), or there is money to be made for them.
Recap
What you should do:
- First Principles – Start from the problem of the customer and work backwards to find a solution to solve that problem. This process usually starts by talking to 10-15 customers at least, and once you’ve identified a common problem, you can start defining more clearly what the problem is before you head out to solve it
- Cloning – Analyse the differences in market conditions and localise your solution
- Disrupting stodgy old industries – Find large highly fragmented industry w low NPS; vertically integrate a solution to simplify value product.
- Unbundling – Look at companies with large market caps that have failed to keep up with the times, usually a technology shift, and study which function within the company is most suitable for you as the entrepreneur to compete against
- Disintermediation – Examine the role that the middleman or the intermediary, like in the case of the 3rd party retail shop for Warby Parker, or in the adult industry, the studio, the creator and the fan, would there still be value if the intermediary is removed? If the answer is yes, and in fact, more value is added, then you might just have a winner in your hands
- Digitise existing behaviour – Target a behaviour that’s existing offline, preferably one that people are paying for, and bring that behaviour online.
Thanks to Jeng Yang, Hannah, Derek, David & Jeremy for early inputs!
Also, happy to chat with early stage Founders on the above
I have an interest in all things tech but with a particular interest in Social, The Creator Economy, the Metaverse, Fintech, AI and DTC. If you’re working in the space or starting something new, I’d love to chat, my email is [email protected]
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