Forced to surrender to the expansion of national-scale startups, the remaining players struggle to find its place in the market

As the Indonesian startup ecosystem celebrates the birth of four national-scale unicorns in the year 2017, this period is proven to be a less friendly one for startups based in cities other than Jakarta. While initiatives such as BEKRAF’S BEKUP and Gerakan Nasional 1000 Startup Digital try to encourage local players to continue on developing their products, we soon learn that having good spirits alone is not enough to build the country’s tech industry.

Take an example of the West Borneo city of Pontianak, where DailySocial recently reported about how a local on-demand service had to lose its battle against an on-demand service giant with billions of dollar in its pocket.

There is a great disparity here that has caused startups based outside of Jakarta to go bankrupt. At the other hand, Indonesia is in dire need of the birth of new generation of entrepreneurs to support the nation’s economic growth, especially with the increase of population in productive age. According to data, within the next years, Indonesia’s working population (aged between 15 to 65 years old) will reach 70 per cent of its total population.

Unprepared to compete and educate the market  

 

A similar thing has also happened in Jogjakarta, Solo, and Makassar. According to Fajar Assad, a Makassar-based startup community activist who was also the founder of LeanSkill, there is a decrease in the number of new startups appearing in the biggest city of the country’s eastern region, as compared to last year’s.

“Startups that had been operating for almost or more than two years are all closed down, including LeanSkill, Tiketbusku, and some others,” Assad says.

Assad admits that the shutting down of LeanSkill had a lot to do with his inability to struggle alone, working on product and market development by himself. However, he was not alone in facing this challenge.

The LeanSkill founder said that most startup founders in cities outside of Jakarta started their journey by working on products that have been developed in other cities, particularly Jakarta. This is why the most popular services to come up were on-demand services and marketplaces. The greatest challenge that they are facing is market education; when they first began, generally the customers in their city were not ready to adopt such service.

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Solocon Valley activist Soekma Agus Soelistyo agrees to this opinion. He mentions that the city of Solo has begun to see the appearance of new startups, but they eventually change their business model as they face doubts about the market’s readiness to adopt the services.

“The main challenge in Solo is that we haven’t gotten to see a successful business model being implemented, thus the lack of understanding from the public. Another challenge is the lack of understanding in technological advancement among the society, leading to unmet KPIs,” he explains.

Once the local customers have begun to get comfortable with the services that these startups offer, “disaster” strikes in form of the presence of national-scale startups offering a much better service with incomparable funding support.

Those who have been struggling with the relatively “green” local market decide to call it quits, as they do not feel that they can compete with the unicorn.

Trying to survive by finding its own niche

 

The survivors are those who managed to adapt and secure its own niche in the market. Founded in 2014, SatuLoket is one of those startups.

Based in Jogjakarta under the leadership of founder Akbar Faisal, the startup targets corporate clients in offering its products. This is a sensible decision in ensuring the company’s sustainability, as the B2B sector does have a stronger spending power and higher demand compared to the general public. It also requires lower marketing costs. However, due to an existing transactional mindset, the startup also has a limited potential to scale.

“We are holding on because of the market, [as] in average [clients in] Jogjakarta are from the B2B segment. As long as their business is running smoothly, our position is secure. At the other hand, we have streamlined our team, because we are focussing on the business and building a loyal consumer base. We no longer [launch] new features, promotions, innovation, at least until this year,” Faisal said.

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DokterChat, a new Solo-based medtech startup who had just begun its business in early November, is aiming to seek for a place in the market by not wasting too much money for marketing.

DokterChat founder dr. Yudhistya Ngudi Insan Ksyatria, SpOG, said, “This application aims to help doctors’ work to be more scalable; meaning that doctors will have the opportunity to help those beyond the small scope of their area. We are a low-cost startup, so we have no issues with funding. We do not look for customers with paid marketing, but by giving a value for users. That way we can have an organic, great number of followers that suit our target market.”

Those who are still in good spirit

 

While the decline is strongly felt in regions that have been dabbling in startup ecosystem since two to three years ago, a different beat is felt in emerging areas such as Padang, West Sumatra. According to Hendriko Firman, founder of local incubator Visio Incubator, the hype of building one’s own startup has just begun in the city, particularly among its youths.

Firman said that his incubator programme is currently managing 27 startups with a total of 84 founders. The presence of educational programmes in the tech sector, he believed, is strongly supporting the growth of startups in the region.

But certainly the hype does not guarantee sustainability.

It takes more than just ideas and good spirit

 

This year’s phenomenon has proven that having ideas and the spirit to work on it are not enough. We need to learn from the US and China where some segments of tech business has been narrowed down to just several big companies; a phenomenon we begin to see in Indonesia.

This year, based on data gathered by Amvesindo, Google, and AT Kearney, the majority of startup funding in Indonesia (which reached IDR40 trillion/US$2.9 billion in Q1 2017) is concentrated on unicorn startups.

The hype that has swept several Indonesian cities in the past two to three years was not proven to be sustainable, as cities struggle with challenges, from market readiness, the capability to develop tech, to capital access.

“I think the most crucial needs are: The first is mentorship and facilities, the second is team and collaboration, and the third one is funding,” Assad said.

Without these three factors, it will impossible for regional startup founders to compete with the more mature national startups. We expect to see a startup growth phenomenon that is not centered in the capital city of Jakarta; one that also provides startups in other cities the strong foundation to build a sustainable business.

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The article Tahun 2017 Jadi Saksi Kesulitan Startup Daerah untuk Bertahan was written by Prayogo Ryza, with participation of Amir Karimuddin and Randi Eka Yonida, and first published in DailySocial. English translation and editing by e27.

The post The year 2017 is proven challenging for Indonesian startups based outside of Jakarta appeared first on e27.