Disrupt But Don’t Be Disrupted: Risk-Proof Your Start-Up Model

Posted on 5th June 2018

Advancing technology, widespread connectivity, access to mobile phones and a new generation of consumers have created a fertile ground for the emergence of disruptive technologies in the last decade. Backed by wealthy investors, promising tech companies from the Silicon Valley were excited to prove their mettle by quickly establishing themselves overseas. Asia was a promising prospect; its young, burgeoning middle-class represents a huge market for disruptive technologies to tap.

Founders, driven by optimism and a can-do attitude, probably thought that world domination was in their hands. But now the dust has settled, many have found themselves in a corner as regulators started curtailing their industry and local competition emerged. What did these start-ups – and their teams of bright and energetic employees – miss? Well, risk.

Disruptive technology operators may think they are immune to issues that affect traditional businesses – they are asset light and do not require a local office or infrastructure to operate (thanks to the Internet and cloud) – but disruptive technologies are as susceptible to risks as any other business models.

Cultural risk

Asia comprises over four billion people – with more than half residing in East Asia and Southeast Asia. It is a diverse region with multiple languages and various preferences. If the Chinese are ahead of the curve when it comes to cashless payment, cash is still very much preferred in most Asian markets. Across Southeast Asia alone, many people remain unbanked. Therefore, if you create an application without an option for cash payment, you lose out. One of the reasons why Grab, a ride-hailing app, gained a sizeable market share in Southeast Asia early on is that they accepted cash payments from the beginning, while Uber initially only accepted card.

Moreover, the sheer level of congestion in some Asian cities means that a car may not be the most efficient way of getting from point A to point B. Hence, some riding applications such as Go-Jek and GrabBike have adapted the use of motorcycles for riding services in cities such as Jakarta, taking advantage of the established social norm of using bikes and the fact they’re just more effective in these environments.

Competitive risk

Silicon Valley offers Uber and Airbnb, but Asia has its own unicorns in Go-Jek, Grab and Tujia. The difference? Most founders of local start-ups have lived in the cities they work in and have better understanding of local nuances and preferences. This helps them create apps that hit the ground running. Tujia’s founder, for instance, recognised why Airbnb’s model will not work in the Chinese market: Chinese home owners simply don’t have a culture of strangers renting a spare room (unlike the West, where bed-and-breakfasts and lodgers are common) and tight housing space means it is rare for homeowners to even have a spare room. Hence, Tujia adopted a different approach. Instead of targeting home owners, they help real estate developers, agents and owners manage their properties, which includes cleaning and laundry services.

More competition comes from the incumbents. The taxi industry or telecom providers typically hire a large portion of the community and their big stake in local markets give them a louder voice. Relationships with these incumbents could make or break a rising start-up. For example, Uber was banned in South Korea after struggling with the authorities and local taxi drivers. Had it recognised this risk and taken measures to mitigate it, it could have turned it into an opportunity the way Callbus did. Callbus, a local app that came in after Uber, negotiated with the taxi union and the government to obtain a win-win situation. They compromised on the operating hours and agreed to use the drivers and cars of taxi companies.

Political risk

New technologies come and go, but government regulation is here to stay. Maintaining governing legitimacy is key and recent elections have shed light on how foreign actors can use technologies to influence outcomes. This issue has stirred discussion on fake news laws, especially since elections are coming up for many Asian governments. In Malaysia, prior to its elections, the old ruling party passed a bill on fake news (which may be repealed by the new government), while Indonesia’s newly established cyber and encryption agency will also focus on fake news as the country holds local elections this year.

High-profile data breaches have also made governments cautious of how data is being treated by technology platforms. These issues have spurred governments to introduce laws on data protection. Some are considering introducing drastic measures, such as in Viet Nam, where its draft cybersecurity law requires that the data of Vietnamese users be stored within the country. Technology start-ups must recognise the importance of gaining governmental buy-in and finding a way to build trust as the technology industry faces greater scrutiny.

Conclusion

For start-ups, the lack of resources and time constraints may make it difficult to set aside time for risk assessment and strategy. But if you are in this for the long term, early recognition of risks and prioritisation may be what it takes to achieve your vision. It is easy get caught up in development and end up operating in a silo. To prevent that, start-ups should make a conscious effort to engage stakeholders and get their feedback by holding surveys, talking to third parties or attending seminars that bring different stakeholder groups together in one place.

 

Author: Seha Yatim, Policy Analyst, Access Partnership

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