The world’s most successful and innovative tech startups hail from Asia. Tencent, Alibaba, Taiwan Semiconductor and Grab are just a handful of examples.
However, hidden in the shadows thrown by these brilliant successes is a far larger group of Asian tech startups: those that fail.
In my experience, most investment and industry insiders estimate that about nine out of every 10 Asian startups will fail to reach their fifth birthday.
I have the privilege of examining hundreds of fundraising memorandums from Asian startups each year. I also have extensive experience on the board and in the C-suite of successful technology companies such as the Australian unicorn, the REA Group.
Here, let me walk you through the three most common reasons Asian tech startups fail and how founders can avoid them.
Not solving a real problem
Failure to solve a real problem for other people is also known as a “lack of product-market fit.” That is startup jargon for “no one wants to buy what you are trying to sell.” You don’t need an MBA to understand that your business can only succeed when people are willing to pay you real money.
In Asia, too many technology entrepreneurs rely on imported business models or overemphasise the use of technology. It’s natural to look at other markets such as China or the Western World for inspiration.
Unfortunately, when founders bring ideas into emerging Asia, they are tempted to overlook how different local needs can be.
Also, while North America or Europe are advanced in some aspects, that is not always the case. Asian companies are on the cutting edge in social commerce, super-apps and 5G.
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There are also gaps among the various Asian markets themselves. Indonesia, Malaysia, and Thailand have much in common but offer very distinct challenges for any business.
If you hope to import a business model or a technology, do your homework to make sure it can succeed before you tie the success of your entire enterprise to it.
At Juwai IQI, for example, we discovered that there is no common and established platform that enables real estate agents to do their business in Asia’s developing markets.
This kind of enterprise resource planning and customer relationship management software is easy to find in nearby Australia and New Zealand or the US. Still, we decided not to import a solution developed elsewhere.
Instead, we have created a proprietary platform for our more than 21,000 agents. Each of them literally carries an entire real estate office in their mobile phone.
The functionality may not be as deep as in more mature markets, but it is very wide and solves a real problem for our agents. It also makes them more productive as a result, and we can improve the offering over time.
Obsolescence before launch
As risky as it is to import a business model from another place, it can be just as dangerous to adopt one whose time has passed. Although startup founders are supposed to be the most forward-looking of businesspeople, they regularly create online businesses that are already out of date before they even launch.
In most of Asia today, any new business that depends on reaching users via the web —rather than through social media or super-apps — is probably obsolete.
Older technology such as websites, standalone apps or messaging via SMS are still widely used in many Western markets, but life in Asia has moved on.
Today, most consumers are not surfing the web in the same way we did 10 or 20 years ago but are scrolling through social media. They are not downloading apps from every company with which they have a relationship. Instead, they are connecting within the supportive environments of super-apps such as WeChat and Grab.
Social commerce is a combination of social networking and live streaming. It took Alibaba’s Taobao Live just 30 minutes last year to transact US$7.5 billion in sales during pre-sales for Singles Day.
Super-luxury brand Louis Vuitton is famous for controlling its image and every aspect of the consumer’s experience of its brand. Yet, it was the first large luxury brand to cede a measure of control by marketing its wares in the free-for-all of Xiaohongshu, the word-of-mouth community shopping forum also known as Little Red Book.
Very few products cannot be sold via these new channels. Automobiles are significant purchases that consumers have traditionally wanted to experience in person. Yet, even car buyers now start their search on social media.
At Mobil123.com’s virtual car expo in August of 2020, consumers bought cars online from BMW, Honda, Mazda and MG. (Full disclosure, I am Chairman of iCar Asia, Mobil123.com’s parent company.)
If you want your business to succeed, go to the consumers on the platforms where they already spend their time.
Tech startups failing to be sustainable
The next failing that leads many Asian tech startups to crash and burn is a failure to build a sustainable enterprise. Your solution must be profitable —or at least offer the potential of attaining profitability at scale. Otherwise, you are solving a problem but not creating a business.
Even startups losing billions and having no short-term plan for profitability are only viable because of their future potential. Chinese ride-sharing giant Didi lost US$1.6 billion last year. But Didi has already shown that it does solve a problem.
Moreover, consumers are willing to pay for this solution – to the sum of more than US$21 billion last year. Investors know Didi is invests every dollar it can into additional growth, and that will likely pay off in greater profitability later.
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Your business, too, must be sustainable to succeed.
These problems are not unique to Asia. In fact, they are the same challenges that cause so many tech startups to fail all over the world. Asian markets, however, are particularly competitive and fast-moving, and that leaves founders and investors here even less room for error.
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