There is No Glamour in an Asia Startup

Having spent the past 18 months building a company in Hong Kong I can testify that it is f**king hard. In the beginning, ignorance is bliss. You allow your sexy PowerPoint slides to seduce you into believing your big idea is flawless. Your projections are up and to the right and you feel invincible. You sleep great at night and have the energy and ego to believe you will change the world. 

Its not until you quit your job, realize you have no health insurance, absorb the fact that VCs don’t respond to your emails and that you only have $2,000 left in the bank when reality sets in. You have been totally unaware of how misguided and flawed your plan really is. You are not sleeping quite so well…but you are resilient. You put your head down and execute. There is nothing glamorous about losing track of day & night, writing code, structuring a company, lawyers, tax law or fundraising. But you persevere.

To this point, I could be describing the challenging journey of any startup entrepreneur from Palo Alto to Beijing. Here is where things get much harder for the startup in Asia.

First, the startup ecosystem is young and trying to find its footing. There is minimal structure that keeps entrepreneurs, investors, professional services and higher education in sync. Silicon Valley is the output of the perfect storm that has has brought these pillars together as the foundation of a nurturing home for anyone with true entrepreneurial spirit and drive. This structure also plays an important role in vetting the good ideas from the bad and that valuable screen is amiss in Asia.  Hotbeds of startup activity like Jakarta, Singapore, Hong Kong and Beijing are getting better but we are still years away from dissipating the friction that gets in the way of great ideas turning into real products and companies.

The second challenge in Asia is the deep rooted cultural aversion to risk. The average Asian parents did not invest so much money and effort in their children’s education for them to turn down a prestigious and well paying job. Priority number one is saving enough money to buy a home because only then is marriage and having children viable. There are no 0% down payments in this part of the world. Today, its a 50% deposit so there goes your bootstrapping. The longer we wait the harder it becomes to start a company. There is also shame in failure. I have said before that in the US, people wear failure on their sleeve like a badge of honor. It says “I had the guts to try and here I am…stronger and smarter from the experience”.  In Asia, our family and society view failure as the simple converse to success. Japan’s startup scene has suffered tremendously from the simple fact that individuals are not given room to fail. And to fail and try again…well that is just plain stupid. The VCs are not much better and absolutely gravitate to proven and scalable models. I think Sarah Lacy captured it beautifully in this TechCrunch post.

The third challenge in Asia is that nobody wants to work for a startup. Startups are not cool and very few people care about equity as a currency. Once you are able to look outside the enthusiasm of the founding team, you will see that the fourth employee wants security, market pay and medical benefits. Until you can look and act like a real company you will surely struggle to find talent. There is absolutely no shortage of young and talented engineers in Asia but they are protected behind the fortress of the big companies they work for. Instead of developing an amazingly ubiquitous HTML 5 application, they are more likely fiddling around with Pascal in the basement that houses their company’s legacy technology. They are certainly not all starting companies or clamering to join yours.

I have absolutely no doubt that Asia will rise to the occasion. It will be the very same entrepreneurs that are struggling with these challenges today that will solve the problem for tomorrow’s Asian entrepreneurs.

From One Entrepreneur to Another

 
5123806be4b0cbd2cf2dff75.jpeg

“We are going to change the world”. If ever there was a cliche at a technology start-up pitch, this has to be it.  Having gone through the roller coaster ride of raising investment, I learned an important lesson. Anyone that asks you how you are going to build a $1 billion dollar business and how you are going to "change the world" needs a wake up call. It is astonishing how many VCs continue to view investments through this lens. Furthermore, it is amazing how entrepreneurs are forced to pander to it. Sure, I understand the traditional VC investing model and that they will make five to ten investments a year and hope that one delivers big. The rest are simply collateral damage that could not scale fast enough to satisfy the VC with a huge exit.  Those that deliver big are few and far between and you probably won’t be one of them. But don’t let that stop you from building a great product and business because you can. Don’t waste your precious time and energy trying to back fill a story that shows 100 million customers with your totally creative way to drive revenue (that deep down you know is nonsense). Instead, focus on these four clear objectives and frame your business plan around this. First, build a great founding and operating team. Second, build an amazing product that delivers what it says on the box with early customer feedback to prove it.  Simply, make your customers happy. Third, set your sights to break-even and not a day beyond. Finally, ensure you are building a scalable business model and product from day one. If you achieve these objectives you will be in a great position to build a profitable growth business.  Remember, it will take one customer at a time to determine your success.

Investment funds like Dave McClure’s 500startups get it. The reality is that a successful exits for most ambitious and innovative companies will come in seven or eight digits and not the ten we find in $1,000,000,000. I assure you, if your product is so big and so groundbreaking, then you are not knocking on doors for investment. It will be other way around. Since no VCs are knocking on your door, don’t waste another minute of your time reaching for the moon. Instead, build your product and prove your customers want it. Do everything in your power to delight them with brilliant design and engineering. Change your customer’s world and the rest will follow. If you do that, you will find the right investors with a realistic world view. You probably won’t change the world, but like the great Steve Jobs said, try to make a dent in it.  Good luck, I am pulling for you.

For the latest Silicon Valley posts please follow me on Twitter here