Entrepreneurs and venture capitalists tend to believe that copy-paste companies are safer bets. In a mutually reinforcing ecosystem, many startups get funded with this mindset. But both investors and entrepreneurs should be wary of falling for the romance of ‘proven products’. At the end of the day, local problems require local solutions. Indonesian problems are so inherently unique that they require an inherently Indonesian solution, not just an Indonesian entrepreneur. After reviewing a myriad of ideas, the idea of the ‘Emic Investor’ emerged. I define the Emic Investor as one that invests in ideas and solutions that are creatively unique to local problems.
When a company ‘goes global’, operations, marketing and partnerships must be executed on a grassroots level. The same is true for technology unicorns, whose core propositions are innovative and disruptive in nature. Local know-how is difficult to obtain, and many global unicorns look to acquisition to expand beyond their core markets rather than starting new branches and satellites in other markets.
With the same local knowledge and network, a small, local startup can trump a global company with deep pockets. In China, Uber was beaten by local competitor Didi Chuxing. Home-grown Ola Cabs had the local network to leverage for rapid scale and expansion, also trumping Uber. In Indonesia, the influx of capital brought forth a wave of copy-paste startups like Didi and Ola. They all entered on the belief that local know-how is an expensive barrier to entry for global players, and most made it a part of their fundraising strategy to highlight the opportunity for an ‘easy’ exit. The Emic Investor analyzes the local risks, threats and opportunities that will make or break a business. An investor who studies an existing theory or conceptual framework and believes it will work in another setting or population is taking an etic approach. The Etic Investor is driven by the confidence that what works in one will work in the other.
When Go-Jek began pitching to funds and strategic investors to realize expansion, investors were likely divided into two camps – those who scoffed at the idea, believing it was too strange to succeed (the etic), and those with the foresight and on-the-ground knowledge to understand that it was not only possible to implement but also could improve the lives of many Indonesian motorcycle taxi (ojek) riders (the emic). There are three observations that corroborate the importance of Emic Investing:
High pivot rates Copy-paste startups will often need to revisit the drawing board soon after securing seed funding. They will need to pivot by structurally changing their product, service or business model. YesBoss was a virtual assistant service before it became B2B service Kata.ai and pivoted within a year from the close of their seed round.
Indonesian startups are particularly prone to pivot between the seed and pre-series A rounds because they have told their seed and angel investors what they want to hear – that their product resembles a certain XYZ product overseas that has achieved illustrious success within three to five years. Many investors are sold on the dream of achieving the same traction in the local market. After some time, the startups realize that the local economy, regulations or infrastructure are unfavorable and pivot to survive.
Few ASEAN success stories Why have there been so few successful cross-border startups in Southeast Asia? Not one startup has been able to replicate its market domination in one ASEAN market to another. Southeast Asia’s largest taxi aggregator Grab is the closest one can get to ASEAN success. It has done well by introducing GrabBike, motorcycle on-demand services, in its more traffic-ridden markets. Even so, Nadiem Makarim, founder and CEO of Go-Jek, claims that his application commands 50% of Indonesia’s ride-hailing market and 95% of the food delivery market. The lack of replicability should be a real concern for any investor looking to fuel cross-border expansion. Scalability is bound by culture and geography. Therefore, investors must devote specialized teams for each market.
Indonesia’s Emic Unicorns The triumph of local startups whose primary value propositions are integrally local validate the importance of being emic. When Go-Jek launched, Indonesia was the number one ojek nation in the world. When Tokopedia was founded, there was nowhere in the world where micro and small and medium enterprises (MSME) thrive the same way as in Indonesia.
According to Finance Minister Sri Mulyani Indrawati, Indonesia’s MSMEs “are the backbone of the Indonesian economy,” accounting for 99% of the total businesses operating in Indonesia and contributing 60.6% to GDP. This was fertile soil for MSME-aggregator Tokopedia, which aided many of these small businesses. Combined with regulatory support for MSMEs digitalization to unlock additional revenue, it was a powerful combination. Both Go-Jek and Tokopedia solved real, Indonesian problems through technology, iterated multiple times to suit local regulations and cultural preferences. In the same way, Traveloka was able to circumvent the Indonesian logistical nightmare through e-ticketing.
It certainly helps that these companies have utilized an emic branding strategy to communicate their value to the consumer. All three of Indonesia’s unicorns (Traveloka, Go-Jek and Tokopedia) blend Bahasa Indonesia words with English to evoke a sense of technological advancement and home-brewed familiarity. It is perplexing that the concepts of emic and etic remain foreign to finance literature. Amongst marketers and anthropologists, to be ‘etic’ means to look from the outside in, whereas to be ‘emic’ means to look as an insider.
Investors participating in a company’s first rounds of funding must don the emic hat. Seed and angel investors have the responsibility of choosing the businesses that will eventually get funded at the Series A stage by encouraging the right business models. The Emic Investor is crucial to minimize pivots between Seed and Series A, saving time and money.
This will be the year of emic startups. Investors should continually study successful overseas products and solutions but cannot stop there. Investors and entrepreneurs must work together to perform ‘product-calibration’ sessions. List every behavior and assumption that drives the successful product abroad, which the founder believes his product mirrored. Subsequently for each point, the following questions must be asked – is the assumption true in Indonesia? Investors need to be astute in differentiating imitation from innovation. Detailed knowledge of taste and preferences allow us to craft a truly unique value proposition for our target market and solve real, meaningful pain points.Report this
Gitta AmeliaGeneral Partner at EverHaüs | Venture Capitalist | Forbes 30 Under 30Published • 2y