Being an entrepreneur is hard at the best of times, but it is particularly difficult in Asia. On a recent trip to San Francisco, three major problems particular to Asia stood out to me:
1. Fear of failure
The Asian culture puts a high premium on failure and the associated loss of reputation or “face”. In contrast, the industry in Silicon Valley understands that failure is an important step on the way to success. Consider, for example, that American icons such as Henry Ford, Walt Disney and Thomas Jefferson were all bankrupt at some stage.
Consequently there are very few “second time” entrepreneurs, able to put into practice what they learnt the first time around. This contributes to the difficulty in finding funding, since investors will view projects for first-timers as more risky. Indeed, many investors in the US will only consider entrepreneurs with a failure or two behind them.
It is key, then, for Asian entrepreneurs to get advice from those experienced in developing early stage companies and fund raising for them. Unfortunately this presents a Catch-22, since first-timers are unlikely to recognise the value this brings or their own short-comings which necessitate such help in the first place.
2. Access to Funding
This leads us to the next problem – access to funding. Unlike the US, the market in Asia is far less transparent, with high net-worth individuals (i.e. potential Angel investors) keeping a much lower profile and tending to be more risk adverse (at least outside of the casinos!). Wealthier countries in Asia, such as Singapore, do attempt to put in place some support for this process, but the pool is far less diverse than in the US and Europe. If a US entrepreneur has an idea for a wifi-enabled chocolate tea-pot with RFID but can’t find funding in Silicon Valley, he or she can go to New York, Boston and Chicago, each having a different character and investment focus, before then looking for well publicised Angel groups in smaller cities.
In comparison, if an entrepreneur in Singapore gets turned down by an investor, not only is it difficult to find another before cash runs out, but the tight network means that any other investors will already be aware of the rejection – the herd mentality will kick in making approaches to other investors more challenging.
It is important, then, to have a strong network into the potential investor pool and to manage the communication with this community very strictly. The story cannot change too dramatically between investors and it must make sense the first time. Many entrepreneurs are obsessed, naturally enough, with their product or innovation and are unable to articulate the consumer benefits in a way that the investment community wants to hear. A poor first impression can damage not only that relationship but, because of the size of the community, the chances of getting funding from anyone at all.
3. Limited Market Size
The US has a population of 300 million and a GDP of $14 trillion. That means that an entrepreneur can sell to 300 million wealthy, homogeneous consumers before having to worry about international expansion, import/export, overseas distribution partners, varying legal requirements, multiple languages, different power sockets, cultural market differences and so on.
Singapore has just 4 million people, so an entrepreneur must acquire a far higher share of the potential market before even breaking even. Larger countries, such as China, India and Indonesia, may have larger populations but the average wealth is far less and lack of developed infrastructure often makes marketing and distribution expensive, in turn driving down profitability.
A well developed go-to-market strategy is vital, as is a financial analysis to see if the target market really is going to be profitable quickly enough. Depending upon the product or service, it may very well make sense for a start-up to target the US or Europe before developing their domestic market. In this case, connections to investment and distribution partners in these regions is clearly essential.
In summary then, developing a start-up in Asia is challenging, and the entrepreneur should acknowledge this and accept a risk premium (i.e. accept a risk-adjusted price) when seeking funding. However, with the right advice and support it is possible to succeed, though the journey is unlikely to be as straight-forwards as that of their US and European counterparts.
Maroon Thinking 