The birth of “sharing economy” gave rise to a series of mighty empires in the market such as Uber, Airbnb, and Grab. Unfortunately, several sharing economy startups around the world had been dead recently, causing heavy losses to both investors and customers. 

A recent example is Wenow, a startup that was once glorious in Vietnam. Wenow filed for bankruptcy on May 11, four years since its launch. It provided subscription plans of fitness and beauty packages for its users in the two largest cities of Vietnam, Hanoi and Ho Chi Minh City.

Wenow may had a chance to become a unicorn in its own right, but its arrogance has led to its demise. 

In 2019, leading Chinese bike-sharing startup Ofo sank into debt, despite having raised the total funding of US$2.2 billion from 2015 to 2018. Even the tech giant Alibaba, with its enormous investment, could not save Ofo from failure.  

Another case study of failure is of leading home cleaning service in North America and Europe, Homejoy, which had also closed due to its weak business performance.

Sadly, those startups had collapsed due to some identical reasons.  

Also Read: These three startups prove that the sharing economy can still be inclusive to its partners

Failure in analysing customer behaviour

Back to Wenow’s story. This Vietnamese startup made a mistake in assessing the diligence of users. Like other sharing economy business, the business model of Wenow extremely depends on user behaviour.

In particular, the core service of Wenow is the fitness app. Called Wefit, it charges customers a fixed subscription cost to use in all of Wefit’s fitness partners.   

Wenow charge users a monthly fee, then pay its partners for each fitness session that users come to the class. Basically, it would have profits when users got lazy and only participate in certain sessions.  

However, Wefit was so naive in believing the integrity of users. Unlike customers in Europe or America, the majority of users in some Asia countries are known to try to exploit the loopholes in the package’s policies for personal gain.

This mistake of Wefit had allowed users to take unlimited turns for each account, which was the same fault of an incumbent in the US, ClassPass.  

Due to the loose rules, users could readily set several virtual bookings, which induce a tremendous amount of payable to its partners. Additionally, Wefit has failed in predicting this fraud behaviour, as several active users were sharing the same account. Whereby, many accounts had booked over 100 sessions each month with three sessions daily.

Also Read: These three startups prove that the sharing economy can still be inclusive to its partners  

Likewise, Netflix, the world’s leading entertainment platform, also made this mistake when entering the Vietnamese market. Netflix allowed a one-month free trial to access its resources.

Since the register for free trials was fast and easy, many people used illegal payment cards to create Netflix accounts then selling them to others with a small fee (only US$1/month compared to US$20/month as the official subscription prices of Netflix). The point is Netflix had not been paid any parts of this amount.   

On the other hand, Ofo was also a victim of theft and vandalism among parts of its users. In 2017-2018, Ofo claimed that it lost around 90 per cent of its bike. Parts of the remaining got severely damaged because of the negligence of users.  

Generally, these companies suffer the mistake made from their own arrogance that they underestimated the cheating actions of customers. They had built the services with weak and loose rules. Definitely, their failure did not absolutely come from users but their internal defects. 

Expensive cost of customer acquisition

The second mistake of Wenow is that it had an enormous amount to burn to attract new customers. Wefit had a successful year in 2017 when its revenue reached US$700,000. Then, it received an investment of US$155,000 from ESP, followed by another from CyberAgent Capital and KBInvest in 2019. 

Accordingly, it spent lots of money to achieve more users’ volume by launching great deals and promotions. At that time, users were only charged approximately US$38 for unlimited booking in one month plus three or four free spa sessions.  

Apart from Wefit, Wenow rapidly extended its network by introducing WeFit Point, WeFit Pago, and WeJoy for beauty care and swimming. The cost of expansion induced an interruption in the company’s financial flow, that it had to pay to more and more partners. 

Also Read: These 9 famous startup failures have a lesson for you

Similarly to several e-commerce apps, Wenow paid high costs to promptly occupy the majority of market share. It eventually broke the financial balance, leading to bankruptcy. 

In Homejoy’s case, its user acquisition strategy includes promotional pricing below the business operation cost. It expected rapid growth in size and network.

Unfortunately, customer loyalty defeated it. Most users cancel the services after ending the promotional offer. Several industry experts believed that the business model of Homejoy was financially unsustainable, bearing huge losses from the expansion period. 

A late response to the failure

From the middle of 2019, Wenow was deep in trouble from the promotional campaigns. Until then, it had just started tightening the regulation in its packages. Instead of allowing unlimited fitness sessions, each account would have a certain point to be subtracted for each successful booking. Additionally, Wenow also cut down the partners’ network for reducing the cost. 

However, it seems too late for Wenow to revive the broken financial chain. Users got angry due to sudden changes in the business model, then leaving this startup. Wenow experienced difficulty in finding new users due to an adverse branding image. Hence, its revenue went down dramatically, causing insolvency to suppliers. In the end, this startup got stuck in tremendous debt.  

On the contrary, had Wefit promptly solved the mistakes as ClassPass did, it would have survived, at least for two to three more years. The American fitness startup had fixed the business model in 2016, only one year after the loss, while it took Wefit three years to change.

Currently, ClassPass has started to receive the initial success through becoming a unicorn which worth over US$1 billion.  

In conclusion, the failures mentioned above have killed several excellent business ideas. To thrive in the market, startups should delicately avoid the breakdown of market incumbents in building their own business strategies.

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Register for our next webinar: Fireside chat with Paul Meyers and Jussi Salovaara

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By all accounts, the coronavirus has been an economic disaster. In the past two months, several countries across the world have been put on the brink of an economic collapse, as more people have had to stay home and stay off work in a bid to remain safe from it.

A significant amount of countries have instituted stay-at-home orders, while most countries that aren’t under complete lockdown have, at least, issued partial closures. Businesses have been forced to stay out of operation, and workers have been laid off in their numbers as well.

The debacle of the traditional economic system

All of these have our economies in a bit of a tight spot. While some of the strongest economies have been able to weather the storm and stay solvent, for now, not every economy has been that lucky.

So far, we’ve seen significant shifts in the stock market, where company shares are exchanged between traders. The Financial Times Stock Exchange 100 Index and the Dow Jones Industrial Average have both fallen since the outbreak began on the last day of 2019. Both indexes saw their largest quarterly drops in the first quarter of the year since 1987.

All of these have spooked investors to a significant degree. Investors are now afraid of a possible economic collapse, and while governments have helped, there’s still a lot that needs to be done.

In response to this, several central banks have taken measures to revive the economy and keep things steady while also keeping people home and restricting them from working.

Also Read: Using design sprints to solve COVID-19 business problems

For instance, the UK government slashed interest rates intending to make borrowing cheaper and allow more people to spend money. This, in theory, would help to prop up the economy.

In the US, Congress passed a US$2 trillion coronavirus stimulus package, which was distributed to individuals and businesses to help them stay solvent. While a lot of these helped companies to stabilise and ward off the virus’ effects, for now, analysts have come out to explain that their palliative effects can’t be sustained.

Apart from the economic downturn, there’s also been the fact that the labour market has taken a significant hit. In the US, over 30 million people have sought unemployment benefits in the last two months alone.

While the country has been on a decade of employment expansion, the COVID-19 snagged that run, leading to a record number of people filing for unemployment.

Then, there’s an unprecedented crash in the price of oil. So far, Brent crude oil, the oil price benchmark for Europe and a significant portion of the world, has now dropped to below US$20 – its lowest point in almost two decades.

In the United States, however, the price of the West Texas Intermediate (WTI) oil benchmark turned negative for the first time.

Also Read: Is Bitcoin the safest currency in times of rising global tensions?

All of these have gone to mean one thing; the traditional financial market is on the brink of collapse, and more than ever, investors are looking for a way out.

Bitcoin’s rise in the midst of the storm

This search for a safe haven has been especially interesting. While investors in the past would have gone for alternative assets such as gold, cryptocurrencies have been the go-to choice at this point.

Bitcoin, the top digital asset, dropped in its value along with the traditional stock market at the beginning of the pandemic’s wave. However, it’s been able to rebound and even surge.

On March 11, the World Health Organisation declared the coronavirus a pandemic. On the day, Bitcoin dropped from US$7,940 to a low of US$4,547 on March 13.

The asset continued to trade in that region for a week, never crossing the US$5,500 mark. Fast-forward to May 1, and Bitcoin has already eclipsed the US$7,000 mark. It even crossed US$9,200 on April 30, although it’s now trading at about US$8,970.

The gains have expanded beyond just Bitcoin. All large-cap cryptocurrencies are seeing significant value increases, thus providing cause for investors to make the switch from the traditional to the crypto space.

Examining blockchain’s scalability problem

Investors have noticed this as well and are now turning to the top digital asset in their droves. However, this also presents a significant problem on its own.

Also Read: Why Bitcoin is set to boom in a post-COVID-19 era

An increase in the number of crypto investors means an increase in the number of transactions. Cryptocurrencies run on blockchain technology, and so far, it has had its issues with effective scaling.

Several blockchain platforms are still dealing with issues such as 51 per cent attacks, a lack of speed, and block size limitations, meaning that while the technology has been revolutionary, it still has its limits.

Take Bitcoin, the ideal choice, for example. The asset processes 4.6 transactions per second, while a platform like payment processor VISA processes over 1,700 transactions.

A research paper from Deloitte Insights explained that blockchain-based systems have an inherent lack of speed with them. For individuals and organisations that would focus on high-efficiency transactions and legacy processing systems, this is a significant problem.

We saw what that was like in 2017 and 2018 when the Bitcoin network became incredibly slow. The Ethereum network saw the same thing, after the popular Cryptokitties game congested it.

It’s gotten so bad that the usual solutions – either reducing the hash complexity or increasing the size of transaction blocks – are no longer enough. With each solution, the scaling ability reaches a limit before we can get the number of transactions needed to compete with platforms such as MasterCard and VISA.

Also Read: How gamification is increasing productivity during COVID-19

So far, there are a lot of solutions that have tried to help with this. One of the most popular is the Libonomy Blockchain– a fifth-generation blockchain platform that provides both optimal scaling and interoperability with other blockchains to allow users to write their smart contracts and create their decentralised applications.

The platform regulates blockchain scalability through the use of artificial intelligence. It analyses nodes and informs blockchain users when any one of them isn’t working as it should.

It moves forward by providing security through a self-attacking protocol that constantly runs attacks on it in a bid to search for vulnerabilities.

Through a self-learning algorithm, artificial intelligence, and unique testing systems, developers have been able to find an impressive means of allowing the blockchain to work more efficiently.

Platforms such as Libonomy provide hope of a better future for the blockchain space, vis-a-vis scalability. In a world where more people are looking to get into crypto, there’s a need to solve this problem as fast as possible.

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Inspired by the success of cash-back firms such as Rakuten in the West, ex-Zalora employees Joel Leong and Henry Chan decided to introduce a similar model and fill the market gap in Southeast Asia in 2014.

Their risk for the new model paid off. Today, ShopBack is a successful venture with a presence in countries, including Vietnam, Singapore, Malaysia, Indonesia, the Philippines, Thailand, Taiwan, and Australia.

In a nutshell, ShopBack helps consumers make smarter purchase decisions for items across categories, such as travel bookings, fashion, health and beauty, groceries, and food delivery.

ShopBack recently also entered South Korea by acquiring cash-back platform Ebates amid the COVID-19 turmoil.

With many startups struggling to find the right footing between survival and growth amid the spread of the COVID-19, e27 sat down with ShopBack’s Co-founder Joel Leong for tips on how small and medium enterprises (SMEs) and founders can cope better during the crisis.

Also Read: Afternoon News Roundup: ShopBack acquires Korean rebates platform Ebates

Below are his three golden rules for survival:

1. Be cash conservative

Leong believes that entrepreneurs must be prepared to fight out the uncertainty of the pandemic by being more cash conservative. With the crisis gaining more momentum, one thing is for sure: people are becoming more cash conscious.

As the situation continues to remain dynamic, all costs need to be continuously assessed. Most companies are beginning to see the inefficiencies that they did not notice before COVID-19.

It would be necessary for survival if founders can think about how they can optimise their costs well enough so that the return on investment (ROI) is improved.

“There’s no point on crying over spilt milk,” he said. “It is what it is, and we are unable to control it. However, cost is one-factor that can be controlled. Each company must think about how it can conserve its resources well enough to ride out this wave.”

Leong’s ideas shoot right out of a book on stoicism, which talks about how external influences are usually outside of one’s control but how one responds to it is very much within the control.

“Changes in the market are inevitable, but how we adapt to it can be changed,” he said with optimism.

Also Read: Afternoon News Roundup: Shopback raises US$75M led by Temasek to expand in Asia

2. Don’t give up on growth

One way ShopBack continues to save on costs while still managing to grow, is by listening more intently to customers and identifying key market trends. This helps them determine new revenue streams.

If the market is stagnating at one end, it is also gaining momentum on the other. If travel is stagnating, online shopping is booming.

To recognise where the shifts are happening and maintaining an eagle eye on customer habits is key to growth.

He throws in the example of the SARS pandemic (2002-2004), which compelled many companies to innovate and digitise, while even helping some of them to gain more customers.

“Travel is one sector that has been enormously affected by the lockdown and also one of our key revenue streams. The question we ask ourselves during this scenario is: if people are not spending on travel, what else are they spending on?”

“On the other hand, domestic travel within Taiwan is continuing. So, in that case, we can even look at doing more sales in the region.”

Also Read: What you need to know about digital marketing for the new normal

By asking these questions, the company can understand shopping habits better and target the right market.

One way in which the cash-back company walked the talk was by being able to pinpoint the need for companies to gain more visibility for products and realising the changing ways consumers were interacting with brands and content during the lockdown.

It concluded its first all-digital birthday campaign in celebration of ShopBack Australia’s 2nd birthday recently, which generated ten times more in orders for top-performing brands and managed to award users over AU$600,000 in cash-back.

The campaign featured several Australian influencers and included virtual activities such as Pictionary and an online scavenger hunt.

It added fun elements like clues hidden in YouTube videos, Instagram stories, Facebook groups and more with the attempt to grab the attention of its social media savvy customer base.

3. Increase your visibility… but do it right

As more people are bound to stay at home and maintain social distancing with others, a cascade of cancellations and postponements have impacted major gigs, business opportunities and events and wiped some of them off the calendar.

It is crucial to improve marketing at the same time so that products are more visible to consumers.

“A good question to ask would be, how can I become more visible to customers without compromising too much on costs? If you are paying for clicks, what usually happens is that you must pay for clicks even if the order doesn’t go through. You get nothing, yet you still pay for it,” he added.

It is vital to find the right marketing channels which are more performance-based rather than click-based.

ShopBack operates in a similar way where it aids other sellers using its pay-per-sale model. This is especially imperative during a time when brands are taking a closer look at their spending, and opting for channels that are relevant and necessary.

Also Read: Afternoon News Roundup: ShopBack acquires Korean rebates platform Ebates

Leong holds that it is important for founders to have as much control over marketing and up to them to explore various marketing channels that are performance-driven and figure out what works best.

Every dollar should be utilised in the right way, even if it is for marketing. More time must be invested to think about campaigns and to increase visibility without compromising on costs.

Conclusion

Most companies are striving to remain afloat while others are doing everything they can to keep their doors open post-pandemic. In times like this, it is essential to save money while continuing to innovate, depending on the stage of the company.

Be cautious, be innovative and be relevant, is the strategic founder’s new mantra.

“If you are alive, you can still live to fight another day,” said Leong, quoting Irish novelist Oliver Goldsmith.

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Image Credit: ShopBack

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Ruangguru denies receiving US$256M from pre-employment card programme

Indonesian edutech startup Ruangguru has dismissed reports that it had received US$256 million from the government-run Pre-employment Card Programme.

“Ruangguru is in no way receiving US$256 million from the programme. The fund received by the digital partner depends solely on the choices of the participants that are free to choose any training class from eight official partners in the pre-employment card’s digital platform,” the company said in a statement.

“All participants of the programme hold full control in using the fund they receive to choose class or programme available provided by these official partners. There is no payment of any form related to Pre-employment card received by Ruangguru’s Skill Academy as of now,” read the statement.

Also Read: [Updated] Indonesian edutech startup Ruangguru confirms US$150M Series C funding round

It further added that as for the selection process of the service providers for the pre-employment card, Ruangguru has gone through a verification process according to Permenko law Number 3, 2020.

Furthermore, as revealed by Indonesia’s Minister of Finance Sri Mulyani on May 6, 2020, the government did not welcome any tender for the platform because there are no provided goods and services paid to digital companies who are partners, it said.

The purchase is done to content providers varied based on the pre-employment card’s participants’ choice. The tender was only taken place if there is only one partner selected, while pre-employment card programme is open for more than one partner, the statement said.

Ruangguru also noted that its CEO Belva Devara has no relation whatsoever in the selection process of Ruangguru’s Skill Academy as one of the providers for Pre-employment card training.

Fore Coffee denies shutdown rumours

Online coffee chain Fore Coffee has dismissed rumours that it is shutting down due to the COVID-19 pandemic.

In an official statement, the company said it is still open for businesses and continue to provide services to its customers by offering a variety of new menus.

CEO Elisa Suteja said Fore Coffee has carried out several initiatives to adapt to the changing business situations in response to the pandemic, which include optimising offline store services.

Some steps that have been carried out and planned are the temporary closure of several stores during Ramadan, merging some store locations for efficiency, and upgrading internal systems to improve online sales services.

“We will continue to operate as usual. We closed several outlets and in the process of selling assets related to these locations. Information circulating that Fore Coffee closes permanently in all locations is incorrect,” Suteja insisted.

This week, Fore Coffee also launched the Barista Delivery service via its app. “For every delivery order less than 2 kilometers from the nearest Fore Coffee outlet, it will be delivered directly by Barista for added assurance of hygiene,” Suteja added.

Indonesia government to launch US$43B economic recovery stimulus

The Indonesian government is reportedly rolling out an IDR 641.17 trillion (or US$43 billion) economic recovery stimulus, which is bigger than previous allocations, in a bid to mitigate the impact of COVID-19 on micro, small and medium enterprises (MSMEs), as well as state-owned enterprises (SOEs), The Jakarta Post has reported.

The Finance Minister Mulyani Indrawati said the National Economic Recovery programme would include a strengthened social safety net, tax incentives, capital injections into SOEs, and interest rate subsidies for MSMEs, among other measures.

In doing so, the government is to re-revise the 2020 state budget to accommodate the stimulus as it expects the budget deficit to further increase to 6.27 per cent of gross domestic product (GDP).

In addition to that, the government is planning a US$10 million bailout for 12 SOEs including electricity firm PLN, oil company Pertamina, and flag carrier Garuda Indonesia, in a form of cash compensation and working capital investments, to reduce the impact of the virus crisis.

Cybersecurity needs improvement amid the e-commerce platforms breach, says Indonesia Minister

Indonesia’s Communication and Information Minister Johnny G. Plate has raised awareness for digital companies to improve their cybersecurity systems following a recent breach of users’ data on several of Indonesia’s largest e-commerce platforms, The Jakarta Post has reported.

On Friday, the minister revealed that Indonesia’s digital economy was ‘under attack’, in which an immediate action on cybersecurity measures improvement must take place. “I’m asking all companies to maintain their security systems to protect their applications and overall business,” he said.

Also Read: Afternoon News Roundup: Bukalapak denies reports of user data breach

The comments came after the reports of data breach of e-commerce unicorn Tokopedia back surfaced in March. As per reports, personal information of about 90 million users were compromised, and these details were put up for sale on the dark web for US$5,000 by a member of the data-exchange platform Raid Forums.

Plate added the ministry’s action would include expediting the digitisation of Indonesia’s 64 million micro, small and medium enterprises (MSME) to tap into the pandemic’s online boom.

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Picture Credit: Fore Coffe

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Vietnam’s accounting automation startup Bizzi.vn raises seed funding led by 500 Startups

Vietnam-based accounting automation startup Bizzi.vn has raised an undisclosed amount of seed round funding, led by 500 Startups, with participation from unnamed angel investors.

The company is focused on helping accountants automate financial processes like pay bill, approvals, receipt scanning, compliance, and book-keeping using its RPA (robotic process automation) technology.

The startup claims that it can cut the cost and time that businesses spend on daily financial processes by 80 per cent.

Also Read: What can food-agritech startups and SMEs do for business continuity amidst the pandemic?

“This new funding will allow us to accelerate growth toward our vision that every accountant should spend their time advising and crunching the numbers instead of doing manual work,” said Nghia Vu, Co-founder of Bizzi.

Since its launch in Vietnam in late 2019, Bizzi has managed to attract clients from small businesses to large-scale enterprises in various sectors, some of which include DKSH, 3A Nutrition, GS25, among others.

Singapore’s agritech accelerator Grow launches Food Bowl programme

Grow, an agritech accelerator backed by Enterprise Singapore, AgFunder and Dole, has launched a new 12-week startup programme.

Called Singapore Food Bowl, the programme aims to build innovative solutions for challenges, such as yield predictions, food waste reduction and packaging alternatives, according to TechInAsia.

Interested startups may apply until June 7 this year.

Only applicants from the Asia Pacific with a minimum viable product can enter the programme.

Indian food delivery companies Zomato, Swiggy cut staff

Swiggy and Zomato, two of the leading food delivery companies in India, have laid off employees, according to LiveMint.

Swiggy’s Co-founder Sriharsha Majety said in a message to its employees on the company’s blog on Monday that the core food delivery business had been “severely impacted” by the COVID-19 pandemic.

Competitor Zomato is also going through layoffs and is cutting about 13 per cent of its workforce.

“Our business has been severely affected by the COVID lockdowns,” Zomato CEO Deepinder Goyal said in a note to employees, as reported by The Economic Times.

“A large number of restaurants have already shut down permanently, and we know that this is just the tip of the iceberg. I expect the number of restaurants to shrink by 25-40 per cent over the next 6-12 months. What happens, for better or worse, is anybody’s guess,” Deepinder Goyal, CEO of Tomato.

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Image Credit: Kelly Sikkema

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