Insights from Indonesia’s Startup Ecosystem
Last weekend I was invited to speak at 021 Disrupt Wired, Pakistan’s annual startup and technology conference. Normally held offline, I was thrilled to be able to join in this year’s online format (one of the few upsides of 2020 has been the chance to join so many more conferences and gatherings).
I asked the organizers what topic would be most interesting for their audience to hear about. Startup leadership and team building? Women empowerment? Early-stage investing trends? To my surprise, they asked me to share my learnings from working with startups in Indonesia, and tips for startups hoping to grow there! It was the first time somebody from an ecosystem outside of Southeast Asia had asked me to speak on the topic. For the last three years I’d dedicated my professional life to building the ecosystem in Indonesia, with a stubborn conviction that this was the opportunity everybody else was missing. It seemed that effort was finally starting to pay off.
For those of you who may not yet be convinced, or are looking to learn more, I’ve summarized the key takeaways from my presentation below.
Takeaway 1: Indonesia’s market is HUGE, and diverse
Indonesia has a population of 270 million people, making it the 4th most populous country in the world after China, India and the USA. With a GDP per capita of $4,136, the country just this year moved from a low-middle to upper-middle income economy, according to the World Bank. This puts it in the same category as other emerging economic powerhouses including China, and Brazil, just to name a few. It is also home to six of Southeast Asia’s Unicorns (the most in the region) and, importantly, all these Unicorns hit their $1 billion valuation without needing to expand to other markets.
The growing economic power of Indonesia is hard to ignore, and this is usually what attracts businesses, investors and startups to the country. But there is another defining characteristic that makes Indonesia unique: it’s diversity. Indonesia is the world’s largest archipelago with over 17,000 islands, of which 11,000 (roughly) remain uninhabited. Across these islands live over 633 ethnic groups who speak more than 700 languages in addition the country’s national language, Bahasa Indonesia. To put that in perspective, India recognizes only 22 “scheduled languages”.
In fact, this diversity was engrained in Indonesia’s foundations by the country’s first President, Soekarno. He formulated Pancasila, which would become the country’s state philosophy, to recognize and protect the pluralism of Indonesia. This is why today you can wish your friend Eid Mubarak on the island of Java, then board a plane for Bali to celebrate Galungan. The country’s diversity is a beautiful, if sometimes challenging part of its DNA, and any business would be wise to pay close attention to the people’s beliefs, habits and culture when looking to make an impact.
Takeaway 2: Indonesians love to connect and be connected
While yes, Indonesia is highly diverse, there are a few things Indonesians have in common. One of the most important that I’ve seen is the desire to connect, and be part of a community. Indonesia is most certainly a high-context country, where relationships matter, and your value in society is often defined by the people you know and can influence. For those of us used to operating in a meritocracy this is probably one of the most challenging cultural differences to adopt. But it’s nearly impossible to get anything done if you don’t have the right people on your side (conversely, if you’re on their wrong side, well…good luck).
The improvements in internet connectivity across the country have been a boon for Indonesians’ love of everything social (more on this when I talk about the impact of COVID-19, below). Current estimates put internet penetration at 65%, or 175.4 million internet users. That’s a growth of 17% from 2019. This improvement in connectivity has empowered more Indonesians to expand their social horizons online. There are currently 340 million mobile connections across the country. That’s 124% of the population! That means more and more Indonesians carry multiple phones which allow them to manage multiple social accounts, oftentimes related to a business or side hustle. It’s perfectly normal, I’ve found, for young Indonesians to start a new business with nothing but their phone and a Gen Z-friendly product.
Imagine if you will, over 200 million mobile-first, internet savvy, connected, social, upper-middle income Indonesians with disposable income, hungry for ways to make impactful and meaningful connections online.
Which brings me to my last point in this section. Indonesia is a young population, with the productive population expected to peak at 70% of the total by 2035. So imagine if you will, over 200 million mobile-first, internet savvy, connected, social, upper-middle income Indonesians with disposable income, hungry for ways to make impactful and meaningful connections online. That gives you an idea of the opportunity Indonesia is sitting on.
Takeaway 3: COVID-19 has accelerated Indonesia’s online growth
COVID-19. No talk these days would be complete without mentioning these “extraordinary”, “unprecedented” or “strange” times. Mine was no exception. And while this year has truly been heartbreaking and economically devastating (Indonesia itself is going through its first recession in 22 years) it has also been a catalyst for all things digital. For investors and technology entrepreneurs, it seems there is indeed a silver lining.
According to the latest e-Conomy SEA report by Google, Bain & Temasek, Indonesians have been moving into the online space even faster to cope with the effects of this pandemic (Jakarta has been in a never-ending “transition” period of social restrictions, PSBB, for months now). 37% of all digital consumers in Indonesia this year were new. And of those, the vast majority, 93%, see this shift to digital as permanent.
This is fantastic news for e-Commerce players who already dominate online spending at 72%. With a whole new market of people looking to meet their purchasing needs online, that share is poised to grow. You can already see young people tapping into this opportunity by launching their Instagram/WhatsApp/Line businesses from home. But it won’t stop there. The pandemic has accelerated the need for SMEs (“UMKM” in Bahasa Indonesia), who operate traditionally offline businesses, to come online to survive. Startups like Wahyoo and Warung Pintar have raised considerable sums of money to digitize their customers’ businesses, whether they be road-side food stalls, corner stores, or otherwise. The Unicorns are getting into the game as well, with initiatives such as Gojek’s Melaju Bersama, and Bukalapak’s Mitra Bukalapak. Finally, the final and most troublesome part of this whole puzzle, logistics. There is no shortage of logistics challenges across the island nation, which will almost certainly become more pronounced as demand for delivery services increases.
The pandemic has accelerated the need for SMEs (“UMKM” in Bahasa Indonesia), who operate traditionally offline businesses, to come online to survive.
In addition to e-Commerce, new sectors are enjoying newfound growth while Indonesians are being asked to stay at home. Digital healthcare, and more specifically telehealth, is certainly seeing an increase in demand. As hospital capacity becomes more and more focused on critical cases, people are turning to virtual care to meet their non-critical and primary care needs. Halodoc has aided in the fight against COVID-19 by partnering with local hospitals to provide rapid tests which can be booked through their application. This support is even more relevant in areas where access to proper healthcare can be a challenge. With the majority of new internet consumers coming from non-metro areas, there is an opportunity to enable access to quality healthcare solutions for those who may be out of reach of well-equipped hospitals.
With the majority of new internet consumers coming from non-metro areas, there is an opportunity to enable access to quality healthcare solutions for those who may be out of reach of well-equipped hospitals.
Education has been a challenge in Indonesia for some time, and certainly children not being able to attend school hasn’t helped. However, because young Indonesians are increasingly connected and internet savvy, new opportunities have opened up to provide alternative methods for Indonesian students to access the quality education they need. Incumbent players in this space include Ruangguru and Zenius, both of whom dispense K-12 educational content via online videos. Earlier this year, both companies announced big partnerships. Zenius partnered with Gojek to provide free lessons through their super app, while Ruangguru partnered with telco provider Telkomsel to provide up to 30GB of free data to access their education platform. Kok Bisa, the biggest educational YouTube channel in Indonesia with 2.44 million subscribers, also jumped on the opportunity to help educators make their own educational videos with Akademi Edukreator, with support from YouTube Learning, the Indonesian Institute of Sciences , Yayasan Semua Murid Semua Guru and the Education and Culture Ministry.
Finally, entertainment & media. Online media was already seeing growth before the pandemic, especially among young people in search of Indonesian content. In 2019 Gojek launched GoPlay to fulfill this need. With alternative forms of entertainment now made impossible (no more malls, travel, movies with friends or grabbing coffee together), the demand for online entertainment has accelerated. Over 40% of users for paid subscriptions to video and music on demand services were new in 2020. With Indonesians spending, on average, 4.7 personal hours online each day, they will be looking for entertaining ways to pass the time, but also better ways to connect with their friends and families, to compensate for the reduced in-person interaction caused by the pandemic.
Tips for entering the market
- Think Local
As you can probably tell by now, Indonesians have no shortage of options for homegrown startups and their preferences definitely give local entrepreneurs the advantage. Just look at how Gojek consistently gets the better of its rival, Grab. It’s important to do your homework, localize your offering, and make sure you are meeting a real need. If you need examples of foreign brands who have had success in Indonesia then just take a look at the latest unicorn, JD.ID, a subsidiary of China e-Commerce behemoth JD. Or a favourite brand of mine for young Asian women, Love, Bonito. They did such a good job of localizing and building a community of followers that until 2019 I was convinced they were an Indonesian company! - Build Your Network
As I mentioned above, in Indonesia, connections matter. A lot. Having the right introductions or relationships can be make or break for new businesses, whether local or foreign. Take the time to earn the trust and favour of those in your industry. It’s often seen as a faux pas to be direct with your ask in an initial meeting, so don’t be surprised if it takes many meetings, coffees and meals together before your first deal is brokered. In the same way, don’t be surprised if you don’t get a yes or no straight away. In my experience, Indonesians have a rather relaxed pace of working and hesitate to commit too early (if ever). So be prepared to invest the time, and don’t get frustrated when sales timelines get drawn out (because trust me, they will). - Plan for Scale
If there’s a downside to launching fast in a market the size of Indonesia, it’s the shortsightedness that doesn’t allow for proper long-term planning. This can become a significant roadblock when you find your business in a position to grow, but haven’t set up the proper technical building blocks at the beginning to allow it to do so. Access to solid technical talent is and continues to be one of the biggest hurdles to Indonesia’s digital growth. Many companies, including Gojek, have had to outsource their development as they grow, or acquire talent shops. Having skilled developers on your team, especially in your early days, can be a significant advantage in creating a positive user experience to draw in more consumers, and can pave the way for scalable growth. This was certainly the case for Indonesian Unicorn Traveloka, whose CEO and Co-Founder Ferry Unardi often credits the early success of the company to their engineering DNA.
Having skilled developers on your team, especially in your early days, can be a significant advantage in creating a positive user experience to draw in more consumers, and paving the way for scalable growth.
In conclusion
Indonesia is a vastly diverse, exciting and rapidly developing market which has been gaining more attention in recent years as the next big emerging market. However, looking at Indonesia as a market alone is not enough; it takes a deep understanding of the challenges facing the market and investment in building truly localized solutions, combined with the right network, to succeed. For those who commit themselves to understanding and imbedding themselves in the country, opportunity awaits.
