There’s no doubt that the world is changing rapidly; faster than any era before this.

A decade ago, it was unimaginable to own refrigerators that would be able to inform us when we are running low on groceries, yet now we are in the era of the ‘Internet of Things’.

Every second we see 127 new IoT devices connected to the web and in 2019 there were a total of 26.66 billion active IoT devices. As technology changes, it becomes more affordable and readily available, making it easier for masses with ideas to build a product that can potentially change the world.

Just look at how Airbnb and Uber have revolutionised the hospitality and transport industry. Looking at the pace of change, there is no guarantee that companies with a significant customer base and revenue will make it in this digital era if they continue to remain status quo.

With this constant threat, corporates have been exploring different ways to integrate innovation into the organisation. One successful corporation that has consistently innovated is Samsung.

The South Korean conglomerate first introduced the C-Lab innovation programme in 2012 to nurture in-house ventures and established the Samsung Global Innovation Center to drive innovation globally subsequently. In 2013, the South Korean conglomerate spent US$13.4 billion which is equivalent to 6.5 per cent of its total revenue to find new ways to grow, innovate and improve.

Over the past six years, the tech giant spun off 40 companies and registered 6,469 new patents in the US ranking them as the second-highest patent winner in the US.

Also Read: In brief: eBay launches e-commerce accelerator in Singapore; Circles.Life introduces eSIMs

With such a positive outcome, it’s surprising to see that corporate accelerators that came into existence in 2010 surged to over 120 but dropped to 71 active programmes in 2017.

Let’s take a look at what led to the downfall of most corporate accelerators.

Challenges of Corporate Accelerators:

Misalignment in objective and mindset

One of the most paramount decisions for corporate accelerators is to identify the objective of why the organisation is running the accelerator programme. This would dictate every aspect of the programme, ranging from how it should be conducted, the strategies as well as the type of startups that would be brought in.

Most corporates running an accelerator programme came in with the intention to run a self-sustaining and profitable accelerator. They expect the startups in the programme to function like other business units within the organisation and generate revenue from Day 1. Audits are conducted annually to evaluate the success and performance of a department or programme and they expect to see growth and returns in the reports.

On the other hand, startups need time to validate, prototype and scale before their first taste of success. More often than not, the amount of time startups take to succeed is deemed as too long in corporate terms. For example, Airbnb was conceptualised in 2007, it took two years for them to launch, grow and raise their seed round, and they only became profitable in the second half of 2016 (after nine years!).

An interview with Marc Shedroff, COO of Samsung Global Innovation Centre (GIC) revealed that one key factor that contributed to their success was alignment and communication. They spent a lot of time aligning with the entrepreneurs they work with on what they can expect from GIC which helped to remove distractions and empower both teams to deliver.

Without alignment in objective and timeline, corporates are more likely to write off the potential and success of a startup after 1 run which eventually led to premature termination of the programme.

Also Read: 6 notable accelerators and incubators in Southeast Asia for startups of all sizes

Corporate mentors lacking in startup experience and commitment

Experience is a valuable asset that cannot be bought, yet it is critical to the success of a business. The insight that startups can learn from books is incomparable to learning from a mentor that has walked the path before. In most corporate accelerators, the organisation works with startups that generate solutions for their industry. They would introduce mentors within the organisation that are experts in the industry and would be able to equip the startups in the programme with domain knowledge.

This information would be useful when the teams are trying to validate and build their prototype but it poses a problem when the startups go beyond that stage. While they are experts in their domain, they have limited entrepreneurial experience.

Without going through the trenches themselves, the corporate mentors would only be able to provide theoretical academic knowledge to help the startups.

On top of that, mentors of the corporate accelerators hold a day job within the organisation and are not compensated based on the success of the corporate accelerator. It’s no secret that it takes long hours, numerous of trial and error, multiple iterations before a startup can thrive.

With little incentives, this makes it harder to find mentors with relevant experience and expertise to commit the excessive hours to mentor the startups in the programme.

The number of dedicated resources and budget that each organisation is willing to invest plays an important role in dictating the fate of the corporate accelerator.

Lack of corporate-startup collaboration

It is estimated that 90 per cent of startups fail. To mitigate this, startups join corporate accelerator programmes to gain access to the corporate’s network, expand their revenue stream as well as for the reputation boost of working with renowned brands in the industry.

Also Read: 6 notable accelerators and incubators in Southeast Asia for startups of all sizes

In return, corporates would be able to leverage on startups creativity, innovative ways of working and new technologies.

While this relationship would often start out positively, having an accelerator programme does not necessarily equate to the collaboration working out automatically. Effective collaboration is often hindered by how corporates are structured, the organisational culture and internal processes. For startups, one of the challenges they see in corporate-startup collaboration is the long cycle times and slow decision-making from the corporate team as multiple departments and layers of approval are involved in any decision made.

The collision in organisational structure and strategy would cause corporate-startup collaboration to start off on the wrong foot which eventually leads to futile effort and frustrations.

While the future of corporate accelerators might seem bleak, not all is lost. There are still corporate accelerators out there that are thriving and generating stellar startups.

Let’s take a look at what has been done right.

Strategy #1: Alignment of short term goals with long term decisions

As mentioned earlier in the article, having a unified goal between the corporates and startups is a critical factor to determine the success of the programme. Taking time out to align the goals of the corporates and startups as well as getting the buy-in on the monetary and timeline from the various business units within the organisation is essential prior to the launch of the programme.

Insights from the business units will help to set the direction of growth and change required by the organisation and will provide greater clarity on the goals, models and strategies that the corporate accelerator should adopt. Looping in the decision-makers on the onset would ensure that key stakeholders in the corporate accelerator are involved and prevent the programme from being a lost cause.

Also Read: Meet the 7 leading startup incubators and accelerators in UAE

With the full support from the business units and understanding that it takes time for corporate accelerators to generate success, this increases the likelihood of the programme taking off.

Besides setting and aligning the goals, regular check-ins with the various stakeholders to evaluate the progress is necessary. The check-ins allow all parties involved to address their hopes, expectations, iron out frustrations and introduce changes when needed to keep the programme moving towards the final goal.

Strategy #2:Creating opportunities for the community

Besides funding, a key draw for startups to join the corporate accelerator programme is the network that corporates bring. To attract high potential startups, corporates should leverage their connections and bring various stakeholders of the ecosystem together.

To support the growth of early-stage tech startups in India, Airtel launched their corporate accelerator programme in 2019. This allows startups in their programmes to gain access to opportunities and distribution networks that they would not usually be able to. At the same time, Airtel can value-add their corporate partners by introducing creativity, providing technology and value-adding to the services they provide.

Through building up the ecosystem, it brings in product adoption and partnerships opportunities which value-adds all the key players of the ecosystem and strengthens the offer of the corporate accelerator.

Learning from the startups that have been through StartupX’s programmes, they would first launch in their home market before scaling to the region. However, they often face challenges trying to navigate through the diverse market, complex policies as well as language barriers.

Tapping on the corporates network when expanding into new grounds would increase their chances of success. For instance, the SAP IoT Accelerator, offers startups their customer base and platforms to their startups, allowing the teams to test their ideas while they expand.

Also Read: Need help building and growing your startup? Here is a list of accelerators in Singapore

At the end of the day, corporate accelerators are not merely a trend. To keep the corporate accelerator model alive, corporates would need to be more proactive and rewrite the rules of the game by focusing on the basic principles of pragmatism, aside from all the hype and buzzwords.

In a market where there are limited high potential startups, only by improving the offers, refocusing their budget and resources would ensure the success and continuity of corporate accelerators.

–

Register for our next webinar: Meet the VC: Vertex Ventures

Editor’s note: e27 aims to foster thought leadership by publishing contributions from the community. Become a thought leader in the community and share your opinions or ideas and earn a byline by submitting a post.

Join our e27 Telegram group, or like the e27 Facebook page

Image credit: nikko macaspac on Unsplash

The post Why corporate accelerators are dying and what they should do to thrive appeared first on e27.

COVID-19 has affected all aspects of society. With respect to the dimensions of development, what we are experiencing is a paradigm shift in the evolution of humanity. The core aspects of our identities, as well as how we work, learn, and engage with society is advancing.

According to MaGIC’s recent survey: less than three per cent of the startups in Southeast Asia (SEA) think they would survive over 12 months if COVID-19 persists. The current situation is deeply unsettling for the ecosystem, more so for every entrepreneur’s fear of staying afloat. Times are hard when founders are trapped in this uncertain space without access to the necessary resources to help them survive.

Therefore, I would like to shed some light on why virtual accelerators could be a silver-lining for founders who can strategically benefit from it during these unprecedented times. How can they make the most of their virtual experiences, leverage resources, and the community at scale?

Ecosystem players can only provide as much value to startups as they take from them.

Organisations such as Y-Combinator’s startup school, Udemy, and Online University courses have pathed the way of e-learning in the past and provided the educational means for participants to access modules virtually at their convenience.

As for accelerator programmes, traditionally, founders are required to be physically present to take full advantage of the physical benefits of relocation, such as gaining direct market access. Although the duration for accelerators tends to be longer (over three months, HBR), physical involvement in activities and the community element drives the success of the programme and startups’ ability to accelerate.

Also Read: Why corporate accelerators are dying and what they should do to thrive

After experimenting with HyperSpark’s first pre-accelerator turned virtual cohort mid-way, I have to admit, it has been enjoyable and I noticed there has been a significant shift and value-add for taking our programme virtually.

I’ll be highlighting considerations and covering the following areas in which startups can benefit the most from virtual accelerators :

• Value add for the Startups
• Making the most out of your Virtual Accelerator Chapter

Community support

Entrepreneurship is a tough ride, entrepreneurs are required to have a support system in an educational, mental and social state. Even without physical meetups, virtual interactive sessions via classes and live stream conversations can help keep the community engaged.

Having a support system during your entrepreneurial journey can set in motion some hard conversations into the struggles you face collectively, especially during COVID-19 as humans tend to connect deeper when we suffer collectively. The emotional realities are also valid when it comes to relationships between business and consumers.

I strongly encourage the community to stay active by (1) creating a safe space for founders to open up about their struggles and openly talk about what has been helping them stay safe and sane. (2) organising virtual social activities (quiz night, virtual games, etcetera),  peer-to-peer learnings can be an opportunity for founders to practice solidarity.

Larger visibility on demo day

Demo day traditionally will be shared online after the event, and exclusively granted access to VC’s, media and programme partners, it has now given the opportunity for founders to present at a greater scale. Potentially onboarding viewers as their users, partners. Without venue size constraints, we were able to open up the registrations to the ecosystem.

Also Read: Why corporate accelerators are dying and what they should do to thrive

During Hyperspark’s demo day, our registrations hit over 600 sign-ups. Marketing and community outreach played a huge role as the attendance was double the amount of a physical demo day.

Leveraging on the global network

Startups can now easily get connected to a larger network of potential partners, mentors, investors and advisors as the new norm to work from home has bonded society to be more open towards virtual connections. You are no longer limited to physical meetups.

The opportunities are endless, two of our startups had an opportunity to pitch to GGV’s and several VCs via a Facebook live stream session.

In addition, mentors are open to committing to accelerators globally knowing that they are no longer limited to physical presence.

Shared infrastructure

A single place to collaborate, track, and evolve, together regardless of timezone. Entrepreneurs are resourceful, and very much in tune with creating innovative processes. For instance, during HS our teams created a shared excel sheet to add on to their collective resources.

Examples that have been done in the ecosystem include e27’s shared list of resources and Seriously AWEsome list, where some community mechanisms were built to encourage the startup community to build on sharing existing resources collaboratively.

Also Read: In brief: eBay launches e-commerce accelerator in Singapore; Circles.Life introduces eSIMs

Opportunity for optimising meetings

Physical interaction doesn’t guarantee optimum results, in fact, the pandemic has taught us the true nature of engagement, compassion and collaboration: that people lead to a deeper appreciation on prioritising time.

With online communication, mentors and founders are given a more detailed, personalised feedback session which encourages both parties to optimise their time and articulation of messages more efficiently. Calendly is probably a timesaver once you integrate it into your calendars.

Considerations for making the most out of your virtual accelerator chapter: 

• Align with the relevance of the theme and subject-matter expertise
• Timing and readiness are factors to consider when joining a programme to ensure your plans are aligned with your accelerator’s commitment and timeline.
• Optimise check-in’s (progress reports and concerns/challenges)
• Planning your schedule in advance and integrating platforms/resources that can ease your process is crucial for longevity
• Never skip orientation, because you do miss out, everything begins from the day your cohort begins!
• Facilitate connections among cohort members
• Aim to constantly apply learnings from mentors
• Give & receive feedback (User experience and customer journey are introspections which leads to success)
• Challenge the status quo
• Set expectations for your team and your account manager
• Leverage on the accelerator branding as your edge for Marketing / PR

Surely this list is non-exhaustive and more benefits can be generated as we improve our activities, gather more findings and learnings to add value to our entrepreneurs.

I personally believe the pandemic has become a driving force and fuel for the next wave of innovation. Eventually, the startup ecosystem will come out on the other side of this pandemic with a greater sense of personal empowerment and increased connection to community – all of which will be beneficial for the society in the future.

–

Register for our next webinar: Meet the VC: Vertex Ventures

Editor’s note: e27 aims to foster thought leadership by publishing contributions from the community. Become a thought leader in the community and share your opinions or ideas and earn a byline by submitting a post.

Join our e27 Telegram group, or like the e27 Facebook page

Image credit: Afif Kusuma on Unsplash

The post This is the era of virtual accelerators. Are you ready?  appeared first on e27.

In Asia Pacific, it’s not often that tech companies would establish operations or service areas in provinces. Even more so for tech businesses in the Philippines as the country’s provinces are more focused on agriculture and other traditional industries, such as mining, fishing, and textile-making.

There’s also the perception that some provinces are harder to tap into because many Filipinos there still have a conservative mindset and distrust in technology.

Many local communities are still unfamiliar with technology because there aren’t enough opportunities for them to explore it. This highlights the importance of tech companies serving the provinces and lending their products and services to untapped areas.

One of the few tech companies in the Philippines that has expanded to areas outside Metro Manila is the professional services company Accenture. Aside from its offices in the cities of Manila, Makati, and Quezon, Accenture has a three-story building in Ilocos Norte between Laoag and Batac.

The province’s telecommunications infrastructure, accessibility to the Laoag International Airport, special economic zones, education centres and broad pool of talents was what prompted the company to establish an office in Ilocos Norte. Accenture has also expanded to some of Cebu’s business districts.

Another tech company that’s doing this is on-demand services provider MyKuya. Essentially, the MyKuya app allows users to book a personal assistant —called Kuya or Ate— to help with their errands such as buying groceries, picking up packages, paying bills, and more.

Also Read: Grab launches new card to encourage cashless payments in the Philippines

As part of its mission to provide helpful and meaningful services and create one millions jobs for Filipinos by 2022, MyKuya is launching a franchise program in Metro Manila and different cities in North and South Luzon: Dagupan City in Pangasinan; Subic and Olongapo City in Zambales; Cavite City, Dasmariñas, and General Trias in Cavite; and Lucena City in Quezon.

The company is providing its tech platform to manpower agencies, small businesses, non-profit organisations, and other groups looking to grow their operations and business, as well as maximise the efficiency of their staff. MyKuya has not only improved its customer-centric business but also provided meaningful work to those who need it, which is crucial today since the economic effects of the COVID-19 pandemic led to many Filipinos losing their jobs.

Time for nationwide modernisation is now

By encouraging many organisations in the provinces to take advantage of technology to speed up their systems, this could be a way for more Filipinos to explore the digital world and integrate it into their daily lives as well.

It goes without saying that technology has helped improve the lives of many all over the world, so it’s only a matter of time for the rest of the Philippines to shift from traditional to digital systems as well.

One of the reasons why technology is still novel in many regions in the country is because of the lack of enough science and technology professionals there. A report by the Department of Science and Technology showed that many S&T professionals are concentrated in the National Capital Region, Region IV-A (Batangas, Cavite, Laguna, Quezon, and Rizal) and Region III (Aurora, Bataan, Bulacan, Nueva Ecija, Pampanga, Tarlac, and Zambales).

The shortage of STEM professionals is also deeply rooted in the economic and educational standing of the Philippines. The country still faces many issues with its education systems such as the lack of budget, poor quality education, and a high rate of drop out or out-of-school youth. It also goes without saying that the social divide among Filipinos is still prevalent. Though public schools in rural areas are free, some Filipino families still can’t send their children to school for various reasons.

Also Read: News Roundup: Hello Health launches in the Philippines as Hello Doctor

However, this doesn’t mean that progress in the country is impossible. When tech companies start expanding and serving the provinces, like what MyKuya and Accenture are doing, this can spur technological innovation among those in the government and encourage young Filipinos to take up STEM courses as well.

This, in turn, could also encourage the education sector in the country to improve its system and open up more opportunities for people in rural areas to take up STEM subjects.

Aside from this matter on education, tech companies can also reap benefits from expanding to provinces —-Bryce Maddock, CEO of IT service management company TaskUs, can attest to this. He said that expanding outside the metro cities enables businesses in general to experience low attrition, as well as help their employees save on commute time since traffic occurs seldomly in provinces. Companies won’t find much competition in the provinces as well because most are focused on operating in urban areas.

Setting up branches in the provinces also reduces the “brain drain” of Filipino professionals to other nations. Meaning, people won’t have to go abroad because they’ll already find meaningful work in their area.

DBA Global Shared Services, the Philippine arm of Australia-based tech and outsourcing firm DBA Advisory, has also expanded in other provinces due to local talent. The company has more than 200 employees in its offices in Subic, Clark, Bataan, and Tarlac.

When asked why the firm expanded to other provinces in Central Luzon, DBA president, and CEO Darlow Parazo said that Filipinos in those areas are highly skilled in accounting, law, and IT, making them important assets in DBA.

Also Read: Morning News Roundup: Digital payments platform InstaReM launches cash payout option in the Philippines

By bringing jobs to these local talents, the company is able to expand its services and work with various multi-disciplinary and multi-industry professionals.

There’s no other perfect time for tech companies to expand to provinces than today. The Philippines is rich in culture, history, and natural resources, but as the world and technology evolve to address pressing matters, it’s only appropriate for the entire country to keep up.

–

Register for our next webinar: Meet the VC: Vertex Ventures

Editor’s note: e27 aims to foster thought leadership by publishing contributions from the community. Become a thought leader in the community and share your opinions or ideas and earn a byline by submitting a post.

Join our e27 Telegram group, or like the e27 Facebook page

Image credit: Eugenio Pastoral on Unsplash

The post Why it is important for tech companies to expand outside metro cities in the Philippines appeared first on e27.

Compared to other edutech startups in Indonesia, which have been aggressively expanding their business, GREDU has been relatively under-the-radar, despite being founded in 2016. After receiving its Pre-Series A funding back in January from Vertex Ventures, we have started to hear more about the company and what it has to offer.

e27 talks to the four friends behind GREDU to understand how it differs from the rest, and how it represents a shareholder in the education ecosystem that is often overlooked –the parents.

Digitalisation is about mindset

The GREDU platform seeks to answer ongoing problems often found in conventional school settings, where schools are in need of a platform to connect and facilitate students better.

While existing edutech startups are more focussed on enabling students to learn remotely through content and platform, GREDU aims to take it further by working with every stakeholder in the education system.

“Pre-pandemic, the challenge lies in converting conventional, outdated mindset about how learnings should be conducted –and whether digitalisation is really necessary. Especially in local schools and parents, where they viewed online migration as more troublesome than helpful, and that the conventional is the best way. The pandemic forced them outside of their comfort zone as physical teaching becomes impossible,” explains Ricky Putra, Chief Creative & Operation of GREDU.

“But to fully embrace the online learning environment really takes time. In fact, because it’s all coming at a fast rate to these conventional parents, they tend to use all available online resources thinking that they should,” Arya Budi Nugraha, Chief Onboarding & Growth of GREDU, adds.

Also Read: Riding the tailwind: How COVID-19 accelerated the growth of edutech startups in Singapore

So it becomes their mission to declutter the mess caused by overload in information about edutech options in Indonesia.

“We want customers to be able to use GREDU as one platform, one solution for all stakeholders,” Nugraha adds.

The history of GREDU

Back in 2016, GREDU co-founders were working in different tech companies before they finally decided to take this side project more seriously.

“At that time, we were all still working on our own projects and in other tech companies. I was with Grab, Arya was with gojek, Ricky was having his own digital agency, and Kiki (Mohammad Rizky Anies, CEO of GREDU) was also developing his own startup,” Mohammad Fachri, Chief Technology Officer of GREDU, recalls.

“We wanted to be involved in the country’s education system, seeing how it still needed a lot of work to do. So we began with a research to the parents, students, and teachers to find out what they need, what is missing from the education system,” Fachri adds.

It took them a whole year of visiting schools before they could finally conclude that schools in Indonesia are in need of a convenient, all-purpose platform.

“What’s missing was the collaboration ecosystem that allows every shareholder to operate … with a common goal to further the education for the students,” Fachri continues.

Right now, the two-way conversation that GREDU envisioned at the start of the company has even grown to be a three-way conversation, as Nugraha emphasises.

Also Read: These Indonesian edutech startups are helping students cope and thrive during the COVID-19 crisis

“We have multiple stakeholders represented in GREDU, that’s how multiple-way communication can happen,” he concludes.

The GREDU platform is available for each stakeholder in the form of a mobile app and a web app.

To start using GREDU, interested schools can fill an online form available on the website. The GREDU team will get in touch with the school, follow up with training on how to use the software. After that, the school, teachers, students, and parents can start using the apps designated for them.

Apart from aiming to cater to all stakeholders, GREDU also aims to bring “the whole school” online, from its library to school counselling services.

“What we aim is to have all activities normally conducted in physical school to be available digitally. In this hard time, where students won’t see their teachers or schools, the sense of normalcy can be achieved in the digital ecosystem provided by GREDU. They don’t lose their school at all,” Fachri stresses.

What comes next

Taking a part in the big migration from physical to online learning due to COVID-19 pandemic, Nugraha says that GREDU experienced a 25 per cent increase in usage after releasing their services for free in March.

“Now, what we see is the need to refocus … to address the buying power of the schools we targeted, also of the parents. The demand is there because online learning is the way to go now, but the purchasing power is yet to catch up,” Nugraha says.

Also Read: Thai edutech startups Conicle, Vonder receive funding from Stormbreaker Venture

GREDU expects to achieve that by adjusting to post-pandemic purchase power and educating the market on its platform’s capabilities. It can potentially fulfil their initial goal of having 600 schools on board, including less-fortunate schools in small cities.

“So far, we’re already active in 85 schools across the country, with 249 schools in the activation stage … With COVID-19 in the picture, it takes longer than expected, but we strive ahead,” says Nugraha.

Their newest product, that is launched as part of their COVID-19 mitigation strategy, is described as an interactive class where teachers and students can discuss lessons based on particular topics.

The competitive value of Indonesian education system

Mohammad Rizky Anies, CEO of GREDU, further emphasises the need for all edutech companies to band together.

“We view other edutech startups as partners, not competitors. Because, in the end, we serve the same goal to fix the education system in this country,” Anies says.

Anies add, “Unfortunately, many of us still focus on content and content delivery, while there are other elements that need extra attention … such as teaching skills and feedback-based learning. But with tech, we’re optimistic that Indonesia holds the potential to compete at the global stage.”

GREDU envisions how more schools can adopt technology, and to use it evenly among all stakeholders despite economic background.

“We tried to research how schools that are less fortunate … can also use GREDU, as long as they’re under internet coverage. We are moving towards transforming our apps to cover minimum internet quota that can be afforded by students and parents that aren’t in big cities,” Putra adds.

–

Image Credit: GREDU

The post It takes a village to raise a child, so GREDU builds a platform for schools and parents to collaborate appeared first on e27.

Last week, Sorabel joined the list of the startups that have had to shut down as the new coronavirus disease ravaged hundreds of thousands of human lives and businesses around the globe.

The sudden demise of Sorabel, a popular fashion e-commerce platform in Indonesia backed by prominent names in the venture capital industry, shook the tech startup industry in Southeast Asia, with many wondering whether the management failed to see the obvious as COVID-19 spread rapidly.

In an interview with us, Sorabel’s Co-founder and CEO Jeffrey Yuwono said that as the pandemic hit, the company’s cash reserves were already depleted although it had procured several investment offers. But these potential foreign investors were unable to travel to Indonesia to verify the e-commerce startup’s physical operations.

“Thus, COVID-19 struck during the most vulnerable point in our funding strategy and devastated our core customer base,” Yuwono told us. 

Also Read: Could Sorabel have been saved? Co-founder Jeffrey Yuwono speaks out

Shannon Kalayanamitr, Partner (Investor Relations) at Gobi Partners, one of Sorabel’s key investors, also validated this. “The team (Sorabel) planned to fundraise, and as investors we had assisted with the gearing-up, recommending them a financial advisor and then was struck by COVID19 right after term-sheets were issued, thus leading to a revoking of the term sheets.” 

Market data, however, paints a different picture that there had been some miscalculations on the part of Sorabel, which might have led to the current situation.

“Customer acquisition cost (CAC) is a vital metric for every e-commerce business. Unsustainable CAC will ruin the business since e-commerce companies have to constantly spend huge amounts of cash to acquire both new and returning customers,” according to Sergei Filippov.

“We’ve seen a dramatic rise of CAC for e-commerce in Indonesia during the past three years, which forced projects to fine-tune their online advertising strategy,” added Filippov, Managing Partner at Morphosis Capital Partners, an early-stage investor with operations in the US, the EU and Southeast Asia.

Citing a November 2019 interview of Sorabel CEO Yuwono, Filippov said that the fashion e-commerce firm’s business strategy heavily relied on offline presence as a source of traffic for online. In that interview to Asian Nikkei Review, Yuwono had said that the company looked at offline as a relatively cheaper way of acquiring customers and that it was planning to open 15 physical shops by the end of 2020, mostly in small provincial cities in Indonesia.

“We have reasons to believe that there have been significant expenses planned for even bigger offline expansion than was stated,” Filippov reasoned.

As a matter of fact, the strategy and operating cashflows control weren’t strong enough for Sorabel to convince investors. Thus, when the startup ran out of cash, there was simply not enough time for it to pivot the strategy towards a better profit margin.

The missteps

As per some reports, Sorabel achieved break-even in 2018 and was on its way to be profitable. While Yuwono dismissed the break-even reports, he told us that the business was, in fact, going strong until the onset of COVID-19.

“From the rebrand in February 2019 (Sorabel was earlier known as Sale Stock), our  revenue grew 2.5x by December but it took until the end of Q3 2019 to build that momentum. In Q4, the revenue was growing between 10 per cent and 20 per cent monthly, and the company was generating positive margins after marketing costs,” he shared.

Then what caught it unawares?

“A combination of factors,” explained Filippov. “One, an offline-based customer acquisition business strategy that led to expense bloat and high cash burn rate. This strategy was simply impossible to execute during COVID-19. As of July 27, the situation in Indonesia continued to worsen with a constant rise of daily infections every week. Thus, every offline based CAC strategy will remain extremely risky and impossible to fully execute.”

This coupled with a weak online advertising presence also contributed to this situation. As per a Similarweb data, Sorabel had 5x less social presence than Pomelo Fashion and had a non-existent (0.7%) paid search traffic compared to Pomelo’s 41.4 per cent.

“During COVID-19, many VCs opted for putting more cash into their best-performing startups and cut off those who didn’t have a strong business model and enough cash flow for the next six months,” Filipov shared.

For instance, Openspace Ventures, one of Sorabel key backers, injected more cash into gojek and its video streaming venture. This required a significant amount of money since gojek already was in its F investment round and claimed to receive US$3 billion investments up to date in total.

Similarly, Sorabel — which had raised debt financing from InnoVen Capital in August 2019 — saw its debt ratio situation worsen later in the times of crisis.

All this lead to a precarious position, resulting in Sorabel’s ceasing of operations, said Filippov.

Fashion industry v/s COVID-19 

As expected, the fashion industry took a severe beating during the pandemic. As per a SimilarWeb data, Pomelo’s (another leading fashion e-commerce firm in Indonesia), there was a 40 per cent dip in monthly visits during the February-April period from January numbers and a further 32 per cent dip in the May-June period (580,000 monthly visits) from April’s (850,000 monthly visits).

Also Read: Traveloka confirms US$250M fundraise, admits historic drop in biz activity due to COVID-19

Indeed, Sorabel managed to grow 22 per cent in February-March as opposed to January 2020 numbers, but then it suffered a severe 65 per cent drop in visits in the April-June period, down to 410,000 from 1150,000 visits per month.

According to Kalayanamitr, there are industrial winners and losers in times of a crisis but unfortunately, the fashion industry, similar to travel, is not a beneficiary of the pandemic.

With the global economy suffering, people prioritise spending on necessities and consumer demand falls for everything else. In Yuwono’s view, fashion is not an essential item, particularly when everybody is in lockdown. In fashion, the impact ranged generally between a 50 per cent and 70 per cent drop in revenue (particularly devastating as it occurred during the Ramadan sales season), with only those companies more focused on the upper end of the market spared.

“In my personal view, there was a much lower incentive for consumers to buy fashion goods if they can’t go out to see and be seen, either due to the government directives or fear of infection. Amazon and Shopify have succeeded (immensely) as their core business model isn’t just built on fashion,” according to Saif Farooqui, Mentor at Facebook Accelerator.

How fashion e-commerce can survive

“E-commerce startup should keep a close eye on its operating and growth strategy: monthly cash burn rate and ways to improve the operating cash flow, CAC, inventory turnover rates v/s its most successful competitors and profit margins,” advises Filippov.

Unfortunately, more often than not e-commerce startups rely on the unrealistically bloated lifetime value of the customer (LTV) or diminished CAC to impress investors and sacrifice profit margin to a point of no return.

“My advice will be a reminder of the classic 1985 Home Depot case when the company had US$12 million in monthly cash burn rate with only three weeks of operating cash left. By focusing on improving their operating cash flows (careful inventory management, focus on profit margin increase, etc), Home Depot switched to US$ 4 million per month cash generation rate just a year after. The company is still doing strong and ranked #28 in Fortune’s 500 list,” he concluded.

—

Image Credit: 123rf.com

 

The post Did the growing customer acquisition cost in Indonesia lead to Sorabel shutdown? Experts speak appeared first on e27.