Newsletter #41: Ecosystem as a Service 🌏
13 minutes reading time. Thoughts on startups, growth, and technology 🚀
Welcome to another edition of the Struggle.
The Struggle is a weekly newsletter where I share my thoughts and learnings from running a fast-growing startup in Southeast Asia.
In a continuation of my previous newsletter, these two months I am speaking at several events where I will talk on the topic of what it takes to be successful in fast-growth markets across Southeast Asia.
Last week, I stumbled on a discussion online where someone asked if “ecosystem as a service” is a viable model. The more I thought about it, the more I realized how that resembles what we have been working on in the past year and a half.
We help founders worldwide expand their businesses to some of the most exciting markets on the planet. One of the things we hope to do is to connect entrepreneurs and investors, experts, and others who can help them. To do this, we have been investing in relationships with the region’s most reliable service providers and major ecosystem players.
The case of OYO Rooms
About a year and a half ago, I met the country head of OYO Rooms just when they were entering the Indonesian market. At the time, their team was four to five people strong. When I asked about their plans for Indonesia, I got the following reply:
“In six months we will be 200 people, and by the end of the year, we will reach a minimum of 400.”
At that time, I thought he was exaggerating; after all, recruiting even a small team in a fast-growth market like Indonesia is incredibly difficult. 9 out of 10 companies we work with rank recruitment as their #1 obstacle when entering an emerging market.
Yet, six months later, OYO was growing at such a pace that they exceeded the initial projections.
That experience made me reflect on how we could have been a better resource for such an ambitious business.
Nobody expands its company because they love the struggle of establishing a presence in emerging markets. But every business needs to grow, and emerging markets present an incredible opportunity.
So we mapped the journey of such businesses, from considering new markets all the way to fundraising in emerging economies.
How do companies expand?
In my experience, these are the steps every startup takes when expanding to a new market:
The order may differ, but more or less, any startup would need help with such services.
Run Smart, Not Hard
You need a strategy for approaching the intense demands of expanding a business to an emerging market.
The good news: you can do this, and do it well, even if you’ve never expanded to an emerging market before and even if you feel uncomfortable with it.
We call that phase “market research and validation.”
This step occurs when the foreign business is not convinced that the new market would click with their model. This approach mirrors the lean startup framework but in the context of expansion. Meaning, the foreign business would validate key hypotheses through services like:
Market research - to help them study the competitive landscape and segments of the population.
In-market representation helps them build outsourced sales teams and generate revenue before investing heavily in the new market.
Business matchmaking - to secure meetings with importers, suppliers, strategic partners, customers, wholesale buyers, investors, competitors, or government bodies.
Lead generation - to build a pipeline of verified prospects.
In a post-COVID and increasingly digitalized world, this phase is becoming more common as it de-risks the investment in new opportunities.
Why Incorporate?
Once a business is convinced that they want to proceed with their expansion, there is a range of establishment services that need to take place. Establishment services are primarily about risk reduction for all parties in the company.
Under this approach, foreign businesses invest in compliance, ensuring that their operations will follow all rules and regulations of the new market.
“The primary reasons for selecting a corporate form is for the limited liability and perpetual existence that these organizations can provide because once a company is formed, it is regarded as a separate legal entity from its owners. Sole proprietors and partnerships are usually personally liable for the debts and obligations of their businesses and the businesses cease upon the death or departure of the principals.”
Orrick Legal Guide
Typically this phase will take one to four months, depending on what market you have chosen to expand to. During the establishment process, the founders need to secure the necessary licenses, figure out how to handle foreign ownership restrictions, and secure work permits for the leadership team. Getting minimally compliant with these services can usually be done quickly and efficiently, particularly in light of the benefits.
Every market has a different set of rules, but most emerging markets require you to 1) incorporate, 2) secure business address, and 3) open a bank account; everything else can wait.
In an ideal scenario, you would have been through the market research validation process to establish a market-product fit and only then moved forward to establish your entity and legal presence.
Commercialization Services
By now, you have signs of market-product fit, your entity is registered, and all other corporate services have been handled.
Now it’s time to focus on commercialization, which covers, but it’s not limited to building a team, getting an office, and investing in sales and marketing.
Most foreign businesses start with recruiting a Country Head. This is arguably your most important hire, and as such, you often need to work with local recruiters to identify and attract the most suitable talent.
Once you hire a Country Head, this person would be tasked with two immediate responsibilities 1) hire the rest of the team and 2) secure office space.
Assuming everything goes well, you will start tapping on local marketing agencies, dev houses, and freelancers to accelerate your traction.
Investment Landscape
This phase is a bit tricky.
For some companies, that’s actually the very first step of their international expansion. Investment from local investors provides strategic opportunities for faster growth. But that’s not a small feat as it requires a leap of both reason and faith. Typically, founders who have strong relationships, good growth trajectory in their home market, and international demand indicators can benefit from such an approach.
All other companies need to prove a strong market-product fit before approaching local investors to unlock further growth opportunities.
In Asian markets, relationships are king. As a result, it takes a while to get to know and build rapport with decision-makers in major Venture Capital firms, business angel syndicates, and accelerators.
It is important to note that emerging market-based investors have different requirements than VCs based in developed economies. For example, the following criteria carry more weight in Southeast Asia than in the west:
Healthy unit economics
Traction and velocity
Proven business model
Verticals that have been proven as successful in Southeast Asia, e.g., e-commerce, logistics, fintech, etc.
Plans for quick expansion to other markets in the Southeast Asian region
Ecosystem as a Service
Ecosystem as a service is not as mysterious as it sounds. It is simply facilitating introductions to someone who could potentially help you in doing business in market X.
It’s about building a community and being conscious of our interactions with as many relevant decision-makers as possible. We care about others and do our best to help everyone selflessly, even if we do not see how that is helping our business.
“If you seek to create value for others, others will create value for you. Nothing is more powerful than seeing reciprocity in action.”
Stephanie Hurlburt, Co-founder of Binomial
Getting to know key players in each ecosystem can open doors and help those with less privilege.
In the process of helping hundreds of companies expand to emerging markets, we got better at learning who does business with a high sense of integrity and who does not. We got to know who is effective and who is not. As a result, we have curated a network or people and companies that can help any foreign business to grow.
While it’s true that every company is unique and has different needs, it’s also true that all of them have the same goal: growth.
We have been investing heavily in identifying and working with the best service providers, investors, government bodies, and entrepreneurs across Southeast Asia to develop our ecosystem.
A year later, our network of reliable partners in Indonesia has reached the following scale.
Nurturing the ecosystem well, at its core, is about understanding people and treating them with respect. Our objectives are to:
Connect less privileged founders to opportunities in Asia’s most exciting markets
Digitalize the process to bring more efficiencies, security, and scale