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Vlad Ayukaev, the CEO of PVG, focuses on creating innovative financial products and services in Indonesia. Vlad and his team have successfully launched several startups and assisted other founders in launching theirs. Given his extensive experience in the venture capital world in Indonesia and abroad, Vlad Ayukaev has shared valuable insights with Beststartup about what entrepreneurs need to know before launching a startup in Indonesia.
Currently, PVG has two main projects: Klikoo, a payment system that serves over 12,000 business clients, and Posy, a mobile cash register that has already connected with more than 50,000 merchants since its launch in 2021.
His words of wisdom can help aspiring entrepreneurs make informed decisions when starting their businesses in the Indonesian market, and he discusses untapped niches with great potential.
The venture capital market in Indonesia and the consequences of COVID-19
When discussing global innovation and high-tech startups, many entrepreneurs immediately think of Silicon Valley. Which is well-known for its strong reputation in attracting young people with the success of FAANG companies and other startups.
In Indonesia, like in Silicon Valley, the majority of startups fail. However, the number of unresolved problems and unoccupied niches in Indonesia is much greater. It can be assumed that the number of qualified startup teams here is one or even two orders of magnitude smaller than in California. Despite this, the number of potential users is comparable, which is why Indonesia is one of the fastest-growing venture regions today.
Currently, there are 13 unicorns in Indonesia, which is a positive sign for the venture ecosystem. Currently, over 52 million people in Indonesia have incomes corresponding to the middle class, and in the near future, approximately 115 million people will join them, which will significantly strengthen Indonesia’s economic development and expand opportunities for opening more companies.
Also, during the pandemic, it became clear that teams could flourish remotely making the workplace digital.
- Companies have recognized the need to build more flexible structures with diversified sales channels.
- The population of the country has become more open to online payments.
- Following government regulations, companies (including PVG) have learned to work remotely or switched to a hybrid option.
The most promising niches in Indonesia
Indonesia’s economy has the potential to increase tenfold. There are many untapped niches in Indonesia that have the potential to create unicorns within the next few years.
FinTech
There are about 64 million MSMEs in Indonesia. This is a lot even by the standards of the EU, which has 23 million SMEs. In 2021, 99.8% of all enterprises in the EU non-financial business sector (NFBS) were SMEs. According to Crunchbase, a total of 16,253 SME startups were active in the EU on December 31, 2021. These EU startups accounted for 12.5% of the world’s SME startups.
Interestingly, two-thirds of the population in Indonesia is underbanked and 40% is unbanked, meaning they aren’t part of the banking system at all. Cash remains the most popular payment method, accounting for 90% of transactions in the B2C market. Therefore, there is tremendous potential for fintech startups that cater to the underbanked and unbanked populations.
By leveraging technology, these startups can provide solutions that are efficient, cost-effective, and accessible to a broader range of businesses.
EdTech
The education sector in Indonesia is a promising niche with a large population of potential students and qualified teachers, and the demand for educational services, such as tutoring and private teaching, is growing. The government is also actively promoting the digitalization of education, for example, IndonesiaX, a collection of online courses from Indonesian universities, is already operating in the country.
One key area of growth in the education sector is programming education. The development of digital specialties, such as programming, has played a significant role in the digitalization of education in Indonesia. The country presents an attractive market for educational services, with a formalized supply and demand that favors startups producing high-quality content and executing effective marketing strategies.
Large companies are expected to offer more sponsorship programs that support the training of potential candidates and their subsequent employment. One example of success in this area is Studio Code, an online programming school for children that have already conducted over 20,000 sessions with students. Startups and investors that offer localized educational services in Indonesia have a great opportunity to achieve unicorn status.
Logistics and Infrastructure
Transport infrastructure is a key unifying factor for any country, and in Indonesia, which is located on thousands of separate islands, it is also a fundamental problem. Entrepreneurs often believe that logistics is the task of the state or very large companies because by logistics they mean ports, highways, and airport fundamental problems. For delivery, at least 3–4 transport agents are used, who will deliver the package by plane, ship, truck, and motorcycle.
There is solid potential for software that can account for the complex chains involved in this niche. A lot can be done through the lens of building distribution and labeling centers and creating the appropriate software for them.
Tips To Get Started Quickly
Collaboration is key in the world of startups. With changing trends, ageism in Indonesia is gradually fading away, and it’s now widely recognized that the younger generation is much better at adapting to rapidly evolving technologies than older people. Despite this, professional investors are still hesitant to invest in inexperienced startups, even if they are the fastest, most flexible, and bravest of their generation.
In such a situation, having a more experienced co-founder or advisor can be invaluable. The presence of another person who believes in the idea and is willing to work alongside a young partner can significantly increase the chances of success when pitching to investors. If a co-founder or advisor is on board, the founder has already gained the support of at least one investor for their future product.
Having a person join the venture structure can bring unique advantages to the startup, including increased expertise, experience, and networks. By working together, founders can combine their strengths and overcome their weaknesses, creating a more robust and sustainable business.
Don’t be afraid to talk about failures
The cult of success has been reigning in the venture capital market for many years. Founders talk on social networks about their endless achievements, their fundraising rounds, and their partnerships with large corporations. It appears that this culture of success leads to self-censorship around discussing everyday work outcomes and even mistakes.
A founder who possesses the ability to recognize and rectify their past mistakes is highly valuable to the venture ecosystem. I would personally place my bets on a founder who has experienced multiple project failures, witnessed the exhaustion of both resources and people and navigated through various stressful situations, ultimately emerging victorious. Founders must be transparent and forthcoming about their past blunders, sharing them with their team, potential investors, and peers without hesitation.
Keep it simple
It is highly recommended to follow the KISS principle, which stands for ‘Keep It Super Simple’. This principle recognizes that systems work best when they are kept simple rather than made complicated. For example, the process of opening a company in Indonesia is straightforward, but closing it can be difficult and time-consuming. Therefore, it is advisable to avoid setting up a company until it is clear whether there is a viable business idea.
Similarly, having an office space can be expensive, and startups can work from home or shared coworking spaces at the beginning. Instead of hiring full-time employees, startups can use freelancers, agencies, and part-time employees. It is also worth exploring affiliate schemes that do not require an upfront payment, but rather offer a profit share.
By adhering to the KISS rule, startups can avoid unnecessary problems, reduce expenses, and increase their runway. Unfortunately, many young entrepreneurs may not be aware of or may not understand this principle. Consequently, they may waste valuable time addressing unnecessary or invented problems instead of focusing on product development and sales.
Build a strong team
Indonesia is a very collective country, where a huge number of decisions are made collectively by the whole team and where experience is often more important than competencies. This can work in simple sectors of the economy, but building technological and modern companies on this principle is very difficult and, most importantly, expensive. Plus, we see that many applicants, even in Jakarta, do not fully understand the specifics of working in a startup, where sometimes it is necessary to be a jack of all trades and make decisions quickly. At PVG, we try to avoid this trap by carefully selecting employees during the screening and interview phases. First of all, we are looking for young professionals who have already worked in a fast-paced environment.
The second important note is the presence of a strong engineer in the founding team. It is desirable to have a CTO or a technical developer as a partner. The main issue with teams composed entirely of humanities professionals is that they often hire a technical specialist from outside who only has a personal financial interest in the project.
This can set a time bomb in the future of the project and such teams often experience recruitment problems. Now in Indonesia and in general around the world, there is a very hot developer market where the ball is ruled by candidates who prefer to choose big unicorns or foreign companies with higher salaries. If you start without a technical co-founder, then you can immediately prepare for inflated salaries from employees, expensive recruiters, and a very slow search. You simply won’t have the network for hiring that any CTO or even a lead usually has, and the candidates you find will have to be additionally motivated.
Audience Research is your saving grace
Unlike the West, Indonesia has relatively cheap traffic but expensive conversions. The average screen time in Indonesia is much higher than in Europe or the United States. However, Indonesians are very selective in spending money, so with click-and-view conversions available, conversion to pay is expensive in our market.
I think when launching a B2C (and even B2B) product in Indonesia, you will need a “double sale”, in addition to the need itself, it is also necessary to create a sense of benefit by offering a promotional campaign. This is also reflected in the loyalty of users, which must be constantly maintained.
At the same time, there is no universal rule or benchmark. Each unique segment of the Indonesian market will have its own individual conversion rates and sales funnel. To master this knowledge as quickly as possible, you need to start a startup with communication with customers and manual sales, especially in B2B.
As a recap of what is written above, I can give three main tips for aspiring entrepreneurs:
The first is to build a business according to the KISS (keep it super simple) rule to protect yourself from possible problems.
Second, start doing customer research and talk to your ideal customers as soon as possible to understand why and under what conditions they are willing to buy your product. And why don’t they buy it?
Third — don’t go it alone, double down on your team and recruit the tech guy to be your co-founder.
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