Open Labs Help MSMEs to Increase Business with a "Brand Aggregator" Approach

MSME businesses are often hindered by capital when they want to develop their business further, especially when they enter the realm of business online full of innovation. In Indonesia, according to the Ministry of Trade, there are more than 64 million MSMEs which collectively account for about 61% of Indonesia's GDP.

Of these MSMEs, 14 million have migrated to the platform E-commerce, and as many as 330 million MSMEs are expected to carry out digital transformation in the future. This exciting opportunity made Jeffrey Yuwono who was previously Sorabel Co-founder & CEO, decided to start a startup brand aggregators Open Labs.

Different from brand aggregators other, Open Labs prepared a program to provide funds of Rp1,4 trillion ($100 million) to invest in businesses with great potential to become leading consumer brands. It is claimed that this nominal is the largest among brand aggregators others in Southeast Asia.

Jeffrey was reluctant to reveal in more detail the source of the funds, only saying that it came from one of the companies unicorn e-commerce. Not mentioned either ticket sizes the investment that Open Labs makes per partner. "We have received a lot of interest from investors and we are very grateful for the trust," he explained in a virtual press conference, Thursday (28/10).

Behind this great opportunity, continued Jeffrey, when business online When started, the operational management is usually quite simple. However, along with their increasing growth in terms of volume and scope, the complexity of business operations also increases.

In addition to the need for higher working capital, business people online also face various other challenges, such as how to source scalable product supply, right product range, right price range, brand strategy, how to do good marketing programmatically, how to do customer service efficiently, and how to manage complex supply chains with very specific warehousing, logistics, and distribution requirements.

“Many businessmen online – especially those who are sole founders – do not have sufficient resources and are overwhelmed to overcome these challenges.”

Here, Jeffrey sees Open Labs can play a dual role as brand aggregators. First, with the availability of investment funds, it can meet financing needs. Second, having the right skills to fill gaps or operational problems, while at the same time complementing the skills required by the partner portfolio.

Usually business people online Those in need of funds have several options, including borrowing from a bank. There are times when their business model doesn't match the criteria that VCs or PCs are looking for because VCs usually look for tech startup companies with a disruption model to pursue exponential growth. Meanwhile, PE targets well-established and mature companies. Open Labs funding capital overcomes these limitations for capital by targeting businesses online.

Established MSME criteria

Open Labs stipulates a number of requirements for companies that will receive funding, including: annual turnover above Rp3 billion, business performance that continues to grow, positive profits, and dominate the market in which they are involved. The business model is partnering for a 51% acquisition, of which Open Labs and founder menjadi partners; or acquire 100%, whichever founder selling his business to be able to focus on something else.

As an illustration for the 51% option, the position of the board of commissioners will be filled by founder and Open Labs, the board of directors is only the founder, and the operational team is filled by founder and Open Labs (if founder agree).

“The investment can be in the form of primary, secondary or both. If investment primary, the company will receive the money and issue new shares, while if secondary, the founder will receive the money for the shares sold.”

As for the stages of the process of becoming a partner, it is claimed to be faster. Within one week, partners will get a yes or no answer from Open Labs. Previously, partners had to submit financial data, then the Open Labs team would calculate a valuation which took one week to answer yes or no. Next, the audit process which takes six weeks, and the last two weeks later the signing of the agreement and the transfer of payments.

The Open Labs operational team consists of 60 experts in various aspects of online sales business operational and regulation, such as Branding and marketing, customer service, supply chain, logistics, financial management to compliance with tax and legal regulations. This team will grow to 150 people in the future.

Next plan

Jeffrey said, with the availability of funds of $100 million, it does not mean the company is pursuing quantity for the number of partners it wants to attract. The company still prioritizes the quality of the support provided, considering that every business has a crucial problem that needs to be solved. "Quality is more important because we don't just focus on investment, but also grow the business to make it bigger."

It is not stated how many partners have joined Open Labs. One of them is Emaku, a local spice business. Jeffrey admitted that his party would rather diversify partners, rather than focus on just one vertical. Because looking at it from a broader perspective, he wants the company to provide value. "We are also eyeing businesses engaged in health products, home appliances, fashion, F&B, to men skincare, " he closed.

In the regional arena, there are several business models such as Open Labs. Some of them are hyperfast and Una Brands. However, both of them adopted the model rollup, as US-based Thrasio does.

Strategy rollup is an approach in which several businesses in the same sector are acquired and combined into a single entity. There are variations in this model, for example some acquirers operate the target companies relatively separately and others combine the acquired companies to further realize cost synergies and economies of scale.