Startup traps to avoid – building for Southeast Asia

This month, Brian Ma to focuses on what made his company still pass on great founders with creative ideas as they evaluate which companies to accept into the accelerator.

By Brian Ma | 2 July 2020

Last month, I wrote about attributes of great founders after speaking to over 200 founders building companies in Southeast Asia. This month, I’m going to focus on what made us still pass on great founders with creative ideas as we were evaluating which companies to accept into the accelerator.

For those that didn’t read Part I: Iterative is an operator-led accelerator modeled after YC. What is lacking right now, is a network of strong operators that have done it before for founders to tap into, so we’re here to build it. While we were launching the community, we had the privilege of talking to over 200 founders in Southeast Asia and eventually selecting 8 companies to receive $150k USD investment each and participate in our Summer 2020 accelerator batch. The companies chosen are here.

Startup Traps

As we’re always trying to get better with our selection criteria, we’ve spent time analyzing the reasons why we still passed on companies even though the founders seemed high potential. This is what we learned from our notes and the hope is that by calling these issues out, founders starting or thinking about starting companies now will be able to avoid some common mistakes. I call these “startup traps” and will focus specifically on ones that are unique to Southeast Asia.

1. Small businesses versus venture businesses

In Southeast Asia, I was surprised by the number of great small and service business owners that wanted to raise money for venture scale businesses. Oftentimes this looked like an already quite successful business with a founder and an ambitious plan to raise $$ to turbo charge growth into a new software product. While very reasonable on the surface, the trap here is there’s a big difference between being “software-enabled” versus being a “tech startup”.

Common examples here include consulting firms that have lots of customers and revenue but are trying to pivot into creating and selling a product instead of services. Examples might include property management companies that want to use software to scale their business, or ad agencies that creating products to automate content. These are all great ideas and very reasonable ‘pivots’, but the leap from being a small tech-enabled entity to a venture business with massive scale and high margins is very big. Oftentimes great small business entrepreneurs struggle to make the transition to venture business because doing the latter means cannibalizing the former.

The solution here is to largely throw everything you’ve learned as a small business out the door and rethink your business as if you’re starting at the very beginning. With this new product you’re going to build, consider why people want it, what distribution channels will be, and how quickly it might grow. Also, if you lost all your previous customers because you’re now working on something fairly new, would you be ok and still excited about doing that? It’s very possible that your pivot or product is good, you just have to be able to tell the difference.

2. Founder-Market or Team-Market Fit

As a startup, you’re already cash-strapped and barely able to keep yourself alive. Hearing “not the right team” from an investor is like a knife in the heart. Unfortunately one of the top reasons why companies fail is simply because it’s the wrong team (cofounders fight, insights were wrong, founders couldn’t navigate, etc.), so having the right team for the problem you’re going after is critical.

There are cases where this is very obvious – for example, an AI company where the founders don’t have AI expertise and are just learning along the way. Sometimes this is fine when there’s a base threshold of AI competence, but if you haven’t built a model before and don’t realize your biggest issues are going to be getting high volume amounts of clean and labeled data, you’re going to be in a world of hurt. Slightly less obvious examples are B2C consumer businesses or marketplaces that don’t have a marketing loving founder. Being competent in marketing versus loving brand, marketing, and storytelling are two very different things. Some problems just require an extreme expertise and if you don’t have it and it is core to your business, you need to fix that.

If you find yourself in this situation, you have two options: (1) find someone that has the extreme expertise and convince them to join forces; (2) change your product or main value prop enough where the specific need is not the core concern. While you are trying to figure out which path to take, it also doesn’t hurt to really try to learn the skill by yourself as well as surround yourself with expert advisors that have that skill, but those actions unfortunately won’t solve your problem quick enough for it to matter. You have to do #1 or #2.

3. Dependencies on grants

This one is pretty region specific. I love the Singapore government because they’re really good at helping companies get off the ground, but it’s also very easy to rely on grant after grant for your prototypes and completely miss the “business side”. When you can’t identify your customers or get them to buy any of your product/services, a day of reckoning will come when grants will dry up, and you’ll need to figure out how to be a real business.

The solution here is just do the same thing every non-grant startup is doing – talk to customers and ask them the questions that really matter: biggest pain point, how your solution solves that, is it 10x better than their alternatives, willingness to pay, etc. Great founders can sell product, the best founders can sell products that don’t even exist yet. If you’re not already building a sales pipeline while you’re developing your product/prototype, you really should be. It’s your best source of feedback that will give you confidence in your ability to close on future revenue.

Other Common Traps

I can probably go on for an entire series of common traps for startups (“Just need $ to hire”, expansion strategies that are too early, hiring to plug holes rather than for the long term, not having clear hypothesis when iterating on product, launching too early or too late, etc.). The startups going through our accelerator right now are already keeping us super busy, but we will try to write more to help with these issues over time. If you’re interested in following us on our journey, please subscribe to our blog here. Just scroll down to the bottom to subscribe.

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About Brian Ma

Brian Ma is a three-time founder turned investor. He’s now Managing Partner at Iterative, which invests in early-stage companies and runs an accelerator focused on Southeast Asia. Iterative’s mission is to fund and build the next unicorns in Southeast Asia. Brian was previously founder at Divvy Homes (backed by a16z, GIC, Caffeinated Capital, and Max Levchin), Weave (YC S14, acquired), and Decide (Series C company, acquired by eBay).

Brian has been trying to convince his wife to move to Singapore so if you have tips on where to live (and most importantly, eat cheap delicious food), you should reach out! Brian is always interested in meeting other startup investors and founders in both Southeast Asia and the US. If you are interested in connecting with Brian, please send your request here. SGN will be happy to make the introduction.

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