In Western markets like the US and Europe, startups often prioritise fast scaling because customers are ready to pay for innovative products. But in Southeast Asia, things work differently. Founders can’t simply assume that their market will pay, even when there’s interest in the product. We’ve seen many startups in these countries present enormous market sizes, only to realise later that a large portion of the market isn’t ready to convert into paying customers.

For example, in Indonesia, startups need to carefully assess how much their target customers are actually willing to spend. It’s a diverse market with both high-income urban populations and lower-income rural areas, meaning the ability to pay varies greatly. In Vietnam, the story is similar, where consumer behaviours and preferences can differ widely between regions, making it critical for startups to understand local nuances before scaling too quickly.

Why profitability comes first in Southeast Asia’s largest markets

While growth is always the goal, startups in Vietnam and Indonesia must focus on profitability from the start. In Indonesia, particularly, many founders discover that while users are willing to try out a product or service, converting them into paying customers is a different challenge.

A great example is e-commerce, where the competition is fierce, and profitability margins can be razor-thin. The challenge isn’t just attracting customers but converting them into paying users who return frequently. Startups must invest in building trust with their customers, which often takes time and localised approaches.

Also Read: Challenges of AI development in Vietnam: Funding, talent and ethics

Similarly, in Vietnam, where many startups are targeting sectors like fintech and edutech, we’ve seen incredible enthusiasm from founders, but many still struggle to present a clear path to profitability. We’ve spoken with some companies with impressive growth stories, but when asked about long-term monetisation, the answers were vague. It wasn’t enough to have thousands of users—they needed to prove they could convert free users into paying subscribers by offering something valuable that couldn’t be found elsewhere.

Gen AI: Expanding opportunities

Generative AI (Gen AI) is opening up new possibilities in Southeast Asia, offering startups a chance to innovate in previously unimaginable ways. In Vietnam’s agricultural sector, for instance, where traditional farming methods are still widely used, AI-driven tools are being employed to help farmers optimise crop yields and reduce waste. This not only boosts productivity but also makes farming more profitable, enabling agritech startups to tap into previously underserved markets.

In Indonesia’s healthcare sector, Gen AI is helping bridge the gap in underserved regions. With limited access to medical professionals, AI-powered diagnostic tools are now assisting doctors in providing remote consultations. Healthtech startups are using AI to expand their reach into rural areas, offering affordable services that were previously inaccessible. But while AI opens doors to larger markets, startups still need to focus on building sustainable business models. AI can help lower costs and drive efficiency, but it won’t automatically turn potential customers into paying ones.

While these innovations are exciting, founders in both Vietnam and Indonesia should remain cautious. Even though Gen AI has the potential to expand the Serviceable Available Market (SAM) by reaching underserved populations, it doesn’t guarantee profitability. Founders still need to keep a close eye on costs and ensure that their products or services provide real, tangible value to paying customers.

Also Read: Report: 46% of Indonesian businesses unprepared for AI-generated fraud despite risk knowledge

The path forward for startups in Vietnam and Indonesia

The key takeaway for founders is that growth and profitability must go hand-in-hand. While the opportunity to scale is immense—especially with the help of technologies like Gen AI—startups need to stay focused on proving their value early on. Building a strong foundation of paying customers, understanding local market dynamics, and using AI to drive efficiency are crucial steps toward sustainable success.

Investors are watching closely, and the startups that thrive in these markets will be the ones that can balance innovation with sound financial strategies. Whether you’re operating in Vietnam’s booming tech sector or navigating the dynamic Indonesian market, a clear path to profitability will always be the cornerstone of long-term success.

This article is co-authored by Karina Sulistyo, Senior Associate, Investments at Capria Ventures.

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