Dear Entrepreneurs, Are You Solving A Real Problem?

Experts’ guide on how to make it as a businessman/ businesswoman

 
Low labour costs, a prime location, high mobility and a good talent pool. Combine these and you have a viable birthing ground for start-ups right here in Malaysia.

The nation has seen start-ups such as Grab, iflix, and KFit become household names within a short span of time since their inception, proving we do have what it takes to make it big.

While the start-up scene in Malaysia is booming, it’s also important to note that our growth and impact may not be as wide as we think. The Global Start-up Ecosystem Report 2017 states that, “Only 10% of customers for start-ups in Kuala Lumpur come from outside the country, more than 13% less than the global average.”

Below are more key facts from the same report:

Source: Global Startup Ecosystem Report 2017

To get a better picture, Leaderonomics speak to two experts to gauge how the local start-up industry fares this year and what entrepreneurs should do to grow. And more importantly, sustain their businesses.

Ashran Datuk Ghazi, CEO of MaGIC. Malaysian Global Innovation and Creativity Centre (MaGIC) is an
agency under the Finance Ministry, that supports and enhances the Malaysian start-up ecosystem.

Q: What areas should Malaysian start-ups improve on, if any, when compared to other South East Asian start-ups?
 
 
A: Originality of business ideas is flatlining at a rapid pace, and my concern is that this will eventually dip. There is not much of an issue with local entrepreneurs adapting or scaling ideas from other countries. However, from a nation-building standpoint, there should be the push to ‘catalyse the community’ to ensure our ecosystem is churning fresh ideas that could transform various sectors.

Secondly, there is the one-size-fits-all mindset. Entrepreneurs who seem to duplicate business models from other countries without doing proper market research are becoming more rampant. Rather, they need to be more metrics-driven and rigorous in figuring out whether or not the unit economics or business model for their start-ups actually work for the local market.

Third, not having sound financial knowledge. I find most Malaysian start-ups lack this. They should ensure they are not spending more money to acquire customers than what customers can actually pay for their services or products. Hence, unit economics is vital. A start-up needs to know when to start bootstrapping or to acquire funding.

Finally, there is a lack of a product-market fit. This is why we observed the exit of numerous start-ups. Our products should be a ‘painkiller’ to an existing problem, rather than presenting itself as a ‘vitamin’ or ‘supplement’ whose marketspace can easily be manipulated by competitors. Once a product-market equilibrium has been established, it will be easier to retain existing customers and attract new ones.
 
Q: Which industries in Malaysia have the highest and lowest number of start-ups?
 
A: Tech has the highest numbers with 350 to 650 start-ups. While this industry is thriving, the Smart City concept is not. Globally, the concept is gaining traction and in fact, various Malaysian entities see the potential and value it holds, yet the number of start-ups in this particular vertical are rather small.

There are also quite a number of start-ups in the e-commerce space. This is not surprising because a PwC report in 2016 showed that 48% of Malaysian consumers make online purchases on a monthly basis.

While there are plenty of start-ups that focus on the software scene, the same cannot be said for hardware. This could be attributed to a lack of relevant expertise, equipment, finances or interest.

Prior to the launch of the Social Enterprise Certification and Social Procurement Incentive, social entrepreneurship was at its infancy. Hopefully with recognition, benefits and incentives in place now, entrepreneurs who are keen on making a social or environmental impact will begin emerging.
 
Q: What does the appointment of Jack Ma as Malaysia’s digital economy adviser and development of the Digital Free Trade Zone (DFTZ), mean to local entrepreneurs?
 
A: The DFTZ can facilitate start-ups with the ever-growing global e-commerce activity and internet-based innovation, both of which are crucial when looking at increasing market share beyond Malaysia.

Start-up owners can tap into the upcoming set up of a regional e-commerce and logistics hub as it will provide a grooming platform for them to become innovators. This, in turn, helps create a sustainable digital economy. It must be made clear that to be sustainable, local companies must ensure that their products are both innovative and competitive and have strong differentiation factors for them to compete on a global scale.
 
Q: What should Malaysian start-up founders look out for or focus on this year?
 
A: One, we expect increased corporate involvement with start-ups. Why? The flexibility and mobility of a start-up business is something that corporate bodies lack. Testing a fresh idea is something they can leverage.

Two, as mentioned in a point above, we expect a growth in the social entrepreneurship sector, especially with the introduction of several government initiatives. These initiatives will not only help provide start-ups the accreditation needed, but also influence corporate organisations’ purchase of more sustainable products and services whilst fulfilling their CSR mission.

Anand Krishnan, managing director of Endeavor Malaysia. Endeavor Malaysia selects, mentors and accelerates high-impact entrepreneurs. They work with scaleups, i.e. companies that have already
achieved product-market fit and are looking to grow further.

The challenge I believe, is for entrepreneurs that fall outside the ‘tech start-up’ fold. They struggle a lot more in terms of finding support, especially in the public sector where the support ecosystem is very fragmented. There are so many different government agencies that have separate support initiatives for different verticals, so it can be incredibly daunting for an entrepreneur.
 
Q: What insights can you provide from having met, consulted and guided countless number of high-impact entrepreneurs in Malaysia?
 
A: Entrepreneurs really need to have clarity on what motivates them and what they are really trying to achieve so they are able to launch accordingly. Whether you’re building to last, generate high dividends, or just make sales, this clarity will dictate how a company grows.

Secondly, every time a company doubles in size, it also doubles in complexity. The more conscious entrepreneurs are about the need to evolve – in terms of management teams, internal processes, culture, etc. – the better they will be at coping with growth.

Thirdly, entrepreneurs tend to de-prioritise addressing issues with their co-founders and senior management team. Instead, they focus their energy on day-to-day challenges of the business. Having a group of founders that are honest with each other and who are aligned on their business aspirations is critical, especially as these things evolve over time.

Lastly, the best entrepreneurs understand the need to surround themselves with more experienced people who can act as mentors throughout their entrepreneurial journey.
 
Q: There are a lot of similar ideas in the local start-up scene, and due to intense competition, only the fittest survive. What would you tell entrepreneurs today?
 
A: Firstly, – and I cannot stress this enough – but anyone starting a business should be really honest with themselves about the problem they are solving. The problem ought to be big enough for you to build a meaningful business. This drives a sustainable, long-term business.

Second, have a sounding board outside one’s usual circle that consists of experienced mentors from a variety of backgrounds and perspectives. Ensure that the individual you select is personally invested in you and your business. This is because when one is so caught up with day-to-day operations in a high-growth company, it’s easy to develop a tunnel vision that blinds them to things that truly matter.

Third, ensure the business is based on solid fundamentals – unit economics have to work, and you can’t just go for growth all the time. A common mistake entrepreneurs make is prioritise growth above all else before ensuring that their business fundamentals are solid and this includes answering questions on marketability, cash flow management, marketplace security etc.
 

In a nutshell

A key message that we at Leaderonomics got from these experts is that it’s time for budding entrepreneurs to focus on solving real problems, tap into untapped industries that hold a lot of potential, and not merely replicate other business models without testing a product-market fit. Otherwise, you are competing in a red ocean filled with high competition, and you risk selling an unfeasible product.

Malaysia, or specifically Kuala Lumpur, may not be in the list of the global top 20 start-up ecosystems, but we have the resources and opportunities that serve as enablers to entrepreneurs who want to launch a business.

Entrepreneurs today need to ensure they are well-equipped with basic business know-hows and the relevant bodies – private and public – should educate these entrepreneurs constantly on available growth opportunities.