The Best Ways to Start and Develop Startups in Indonesia (from the Eyes of Foreigners)

Vlad Ayukaev, CEO of PVG (Smart Venture Group), company startupbuilders based in Jakarta, came to Indonesia more than 2 years ago with the idea of ​​establishing a new financial technology or fintech product for the largest market in Southeast Asia.

Since then, Vlad and his team have successfully launched several services and helped other startups to realize their ideas. form a useful community for business founders, partners in the fintech field, as well as venture investors and companies in Indonesia.

Currently PVG is running 2 main projects. The first project is the Klikoo payment system, which connects more than 12.000 business clients in one platform. The second is the Posy online cashier application, which since its launch in the fourth quarter of 2021 has been used by more than 5000 entrepreneurs.

With vast experience in venture business in Indonesia and abroad, Vlad shares his experience in this article with DailySocial about what you need to know before setting up a startup company in Indonesia and what to consider to build the trust of potential investors.

Don't walk alone

10-15 years ago in Indonesia there was a certain age criteria that did not allow young specialists to develop quickly in their profession. Now the trend is changing and age discrimination is gradually disappearing. Everyone understands that the younger generation is much more adaptable to technology and increasingly complex living conditions than the older ones.

However, professional investors are still hesitant to invest in inexperienced startups, even though their founders are agile, flexible, and the bravest of their generation. In such situations the presence of another founder, co-founder, or more experienced consultant can help - the presence of people who believe in the project idea and decide to work side by side with a young partner affects success in pitching a startup company.

If there is a co-founder or consultant, it means that the founder has managed to sell his product or idea to at least one person. But if there is only 1 founder, then there are only 2 explanations for it, either he is a genius or an overconfident person.

People who join any venture structure know the unique advantages of a startup.

Don't be afraid to share information about your bad experience

The stamp of success has circulated on venture market for years. The founders share their experiences on social media about their endless achievements, about increased investment, about partnerships with big companies. This pattern is then replicated in presentations, conferences, and on various occasions its developers' demos. This situation creates a trap created by the founder himself, especially when it comes to discussing poor work results or failures.

In reality, the project founder is the most valuable person to the venture ecosystem. He clearly understands all the mistakes that have been made and knows from his own experience how to solve them.

In Russian, there is one very good proverb that I am happy to share with my readers DailySocial:

"One person who gets hit is equal to two people who have never been hit." (experienced people are twice as good as inexperienced people).

Therefore, in my opinion, it is worthwhile to choose founders who have failed several of their projects, who lost their team and investment, who went through all kinds of stressful situations and were able to get out of them.

My advice: “don't be shy about telling your team, potential investors, and coworkers about your failures.”

KISS - Keep it simple, stupid

So that startups in Indonesia have the potential to grow, there is no need to impose extra obligations on businesses in the form of loans, large offices, and permanent employees with large salaries. I suggest remembering one of the main principles of professional divers - Keep It Simple, Stupid - KISS.

The KISS principle correctly assumes that the work system becomes very good if it is made simple, not complicated. For example, the process of establishing a company in Indonesia is very easy, but the process of closing a company is much more difficult and can take several months to a year or more.

Why do this if it is still not clear that there will be a business opportunity. Likewise with the office. Actually, we can work from home or from a coworking space. Luckily now everyone is used to this way of working and there is a good infrastructure in place.

Instead of hiring people for permanent positions, employers can make temporary contracts, using consultants or agency firms. Vlad suggests trying to find an affiliate scheme with no upfront payments, it's better if you can work with a profit-sharing system.

In general, if it manages to follow the KISS rules, a startup can actually protect itself from a lot of non-essential problems, reducing negative costs and extending its operations.

Unfortunately, many young entrepreneurs don't know or understand this, and they often spend too much time solving unimportant or even self-made problems, rather than focusing on sales and product development.

Focus on building a strong team

Certainly an important component for the development of any company is its team. Based on my experience in Indonesia, there are many employees who are not ready to take on more responsibilities. They seek to reduce the scope of their responsibilities.

We live in a highly socialized country, where very many decisions are made by groups or groups of people, by entire teams, where experience is often more important than competence. This can be applied to simple sectors of the economy, but building a modern and technological company based on these principles is very difficult, and most importantly, expensive.

Plus, we can also see many applicants, even in Jakarta, who don't fully understand the specifics of how a startup works. Sometimes we have to be good at many things and be able to make decisions quickly.

At PVG, we try to avoid this pitfall by selecting employees carefully during the screening and interview phases.

First of all, we are looking for young professional who have not been pampered by the corporate structure or who have worked in a fast-paced environment.

The second important note is strong technician presence in founding team. It is highly recommended to partner with a technical maintenance service (system maintenance) or technical developer.

A common problem is when most companies employ outside technical specialists, and he is only looking for his personal financial gain. This can be a ticking time bomb in the project. Sets an example that he can choose the wrong architecture that is only convenient for him over scalability and business goals. A small example, he can choose the wrong system application for the company by only prioritizing convenience and not for the benefit of the company. Moreover, the technical team often encounters recruitment problems.

Apart from Indonesia, the global demand for developer or IT technicians is also high. Therefore talented technician candidates usually set their requirements high and prefer big unicorns or foreign companies that can pay more.

If we start without a technical co-founder, then we have to expect high salary demands for employees, expensive recruiters, and a very slow hiring process. We will not have the network for recruitment that is usually on the team system maintenance. Systemless network, we must also implement a special motivation system for hired employees.

We must understand the target market and establish communication with clients

In Indonesia the marketing method is slightly different from Europe or the United States. Compared to Western countries, Indonesia has traffic which is relatively cheap but the conversion is expensive.

Content is easy to consume here. Average user time in front of the screen or screen time in Indonesia is much higher than in Europe and America. However, Indonesians are very selective when it comes to shopping, so with the available click and view conversions, buying conversions in the marketplace are expensive.

In my opinion, when launching a B2C (and even B2B) product in Indonesia, it is important to convince clients of two things: that they need the product, and that they will be satisfied with the product. Such a sale may be called a "double" sale.

In addition to the need, it is also necessary to create a sense of benefit in the customer and offer promotions. This also affects user loyalty which must be maintained. There is also no universal method by which to measure it. Each segment has its own economy, sales process and certain conversion rates. To understand all of this, we need to start a startup as quickly as possible, communicate with clients, and run manual sales, especially in B2B.

To underscore all of the information above, I'd like to give you three of the most useful suggestions for new venture founders:

1. Build a business according to the KISS rules (keep it simple, stupid) so as not to experience unnecessary difficulties and protect ourselves from problems that may arise.
2. Initiate communication with the client or user as quickly as possible. To understand why and under what conditions they are willing to buy our products. Besides, why don't they buy it.
3. Don't run your own business. Duplicate teams and hire technicians to become co-founders.

How to set up a startup in Indonesia from a foreigner's point of view

Benefits of setting up a business in Indonesia for foreigners Indonesia is the largest market in Southeast Asia. Its population reaches 270 million people, and the country's economy has grown at about 5% per year for two decades. This offers great opportunities for business development, including businesses with foreign capital.

The size and capacity of the market which is calculated by considering the number of potential users is one of the main measuring values ​​for analysis and decision making in starting a business in a particular country. From this point of view, Indonesia has the top indicator.

Another important point is the availability of funds from potential users. The main driver of economic development in Indonesia, as has happened in other capitalist countries, is the middle class economy. The Middle Class's annual consumption has grown by 12% annually for two decades.

According to World Bank estimates, by 2030 this group of people in Indonesia will increase from 52 million to 118 million people. This means that a third of the country's population will have a more settled economic condition and will be able to buy other necessities such as houses, cars, gadgets, and pay for subscriptions to digital services or online education.

The doubling of the middle class is a good sign of the rapid growth of digital businesses (and not only that).

There are many promising business opportunities in Indonesia, such as Edtech, Fintech, HRtech, Medtech, E-commerce and logistics transportation. Over the past few years, Indonesia has had many unicorn startups. For example, OVO startups in the e-payment sector are estimated to reach US$2,9 billion. Fintech startup Xendit joins unicorn in September 2021 for an estimated US$1 billion after securing an investment of US$150 million. Or, for example, J&T Express, which provides parcel delivery services by car, has become a US$20 billion unicorn.

In general, the "spirit of entrepreneurship" is very developed in Indonesia. Partnerships and reputations are valued more here than in other countries and are the main advantages of this market. Local investors and entrepreneurs are open to new experiences and technologies, especially from foreign partners.

In my opinion, having the right local partner in Indonesia can provide convenience and a wider reach than, for example, in European countries. If foreigners can convey their business ideas to locals clearly, understand how Indonesians work and want to make people's lives better in this country — they will surely appreciate it here.

Types of companies in Indonesia and their differences

For foreigners who want to start a startup in Indonesia, I will tell you about the specifications of setting up a business for foreign entrepreneurs.

There are two types of businesses in Indonesia: for residents and for foreigners. LLC (Limited liability company) in Indonesia is called PT (Limited Liability Company). To set up a company with PT level, the minimum authorized capital required is IDR 50 million or around US$ 3.500. This is a PT with shareholders. In many cases, PTs provide broad policies, but there is one important limitation – the capital must be local.

If a company has foreign capital, then the name of the PT will be listed as PMA (Foreign Investment), which means it is funded by an outside party, for example PT PMA. For such companies (foreign-participated companies), the minimum threshold for authorized capital is IDR 10 billion or around US$700.000.

The next type is KPPA (Foreign Company Representative Office). Such a company may function as an observer, coordinator or liaison representing the interests of the parent company which is a company outside Indonesia. If the company can accept cross-border payments, this type of company will be very comfortable to run by foreign entrepreneurs.

The existence of multiple differentials for companies with foreign capital aims to help protect local entrepreneurs from excessive competition as well as small investors. The Indonesian government is interested in attracting middle and upper level players.

- This guest writing is the result of collaboration between DailySocial and Smart Venture Group (PVG). PVG works with many people who share a very important goal for the entire Indonesian economy - digitization and accelerating the growth of MSMEs.