Entrepreneurs, Entrepreneurship, Founders, Philippines, Startups, Uncategorized

The Honest Guide to Startup Fundraising in the Philippines , Part 1 of 2

“At some point, everything’s gonna go south on you. And you say to yourself, ‘This is it. This is how I end.’ Now you can either accept that or you can get to work. That’s all it is.

You just begin. You do the math. You solve one problem. Then you solve the next. And if you solve enough problems, you get to come home.” – The Martian

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“Just close it down,” said my Dad, in no uncertain terms.

In the first quarter of 2015, my startup was dead in the water. We only had 3 months left of cash in the bank.

My father knew how to cut his losses. A serial entrepreneur, he’s tried many businesses over the years. And he wasn’t afraid to pull the plug when things weren’t going as planned.

Some context is in order. In the 2nd half of 2012, I raised a seed round of a few hundred thousand dollars. The objective was to grow a Gilt-style flash sales site. At that point, the startup was doing seven-digit revenues with profitable unit economics. It took about 6 months – fundraising in the Philippines is like our internet speed, slow AF – but it was easy to do. Valuation math is a breeze when you can divide percentages in your head.

But I made the mistake of listening to early advice to be lean, raise less now, and go for a bigger round in a year or two. I knew empirically that e-commerce – especially in infrastructure-void Philippines – needed immense scale. And scale required capital upfront.

That’s the first lesson of fundraising: never listen to advice that asks you to raise less than what you need. You know your business best, and investors have an incentive to doll out this advice – to cut your valuation, conserve their checkbook, etc.

Armed with our little funds, we adapted to the ruthless Darwinism of the free market: focusing on Metro Manila, building a brand, targeting the premium segment of the market that wasn’t price-sensitive (credit cards were 80% of our transactions, a rare outcome in this country), and hired 20 people. As a result, we grew gross revenue 6x in 2013.

Then the world changed. The flash sales model soon fizzled out as inventory ran dry. Though we had enough funds to cover overhead and customer acquisition, running lean meant we didn’t have enough to invest in inventory, R&D, logistics, and warehousing.

Merchandise revenue, which I forecasted to double in 2014, contracted by 10%. Normally, this wouldn’t be a disaster. But in e-commerce, growth is everything.

By the time 2015 hit, we had to move out of our office because we couldn’t afford the rent. I slashed my salary by 60% to make sure our employees made 100% of theirs. The COO I hired to help professionalize the business turned out to be a poor fit. Our CTO, who’s been with us from the start, had left. Morale sank.

I can’t say I wasn’t tempted to abandon the sinking ship. I had lots of other startup ideas. There’s been standing job invitations from a telco and a private equity firm, not to mention the constant inbound recruiting emails from Rocket Internet and Uber. I said no to all of them.

And as impossible as this situation sounds, it’s actually nothing out of the ordinary. 80% of startups fail within 3 years.

It was one of our customers that helped us out of the slump. It turns out that Kim Jones, before she became the huge brand ambassador she is today, was a customer. She loved our products, and one conversation led to another. In the middle of 2015, we launched her private label collection.

Remember that story about Airbnb’s founders selling cereal to make ends meet? Well, we did something similar too. It turns out our team was one of the few in town who actually had experience in building an end-to-end e-commerce platform from scratch. IT dev shops only knew the tech. Ad agencies only knew the marketing. We did everything. Our business experience allowed us to charge a premium. So a small side project for a brand turned into a multi-million deal that essentially saved the company. We were the cereal.

The rest of 2015 turned out to be a tumultuous year. There was acquisition talk with a prospective buyer, but we couldn’t agree on the price. A huge foreign e-commerce company offered a term sheet to lead a series-A, but freaked out when they faced massive foreign ownership restrictions in mass media and retail. The founder wanted to take his private jet and fly here to Manila, but was advised by his security team not to. Besides, that pretty young starlet he was dating kept him busy. Then, our original investor invested in the competition instead. Another local angel wanted to invest, but I no longer wanted to take capital if it was in small amounts.

All this was a distraction: each had no meaningful contribution to the goal of building a business.

As we entered 2016, there was only one move left to make: make the venture cash-flow positive. It was time to take our destiny into our own hands.

We launched another site, cut non-performing staff, and built an enterprise business doing digital strategy, e-commerce, and content, with local and international partners. By the end of 2016, our business turned cash flow positive after 2 consecutive years of steady growth. By 2017, we had more cash in the bank than when we started.

Meanwhile, it was a bloodbath in the local e-commerce market, as several local sites collapsed, among them well-funded international players. Only the biggest, most-capitalized foreign players, or well-run local sites remained.

There was immense joy in finding a win in a no-win situation. You will never have an experience as meaningful and gratifying as facing the brink of the abyss and coming out alive, middle finger raised to the air.

And when word quietly got around that we were one of the few profitable ventures in town, we started getting inbound emails from random investors, including some who had rejected us before. Some clients offered to invest. I politely declined all of them.

This story is relevant because in a recent survey, 94% of PH startups see themselves raising funding in the next three years. Most will fail.

They’ll all go through the same journey we did, more or less. The excitement of a small group of friends wanting to conquer the world. The euphoria of winning a pitching competition and attracting media attention. Launching product. Getting your first few customers. And the brutal counterpunch of reality. Just another day in startup land.

The startup scene in the Philippines is like masturbation – lots of fantasizing, ego-stroking, and wish fulfillment, but not much real action going on.

Founders will read Techcrunch and Tech-in-Asia, join pitching competitions, attend conferences, and regale at the stories and startup advice of this month’s speaker – who by the way is either a government buffoon or is someone who has never built a business with his/her own capital before.

All this only increases the gap between wishful thinking and reality.

The stark reality is that if one looks at a map of Southeast Asia, you’ll see that the Philippines sits apart. It has the smallest venture capital market (in # of deals and value). It’s overlooked by the much bigger regional funds in favor of Singapore and Indonesia. There are very few really good angels, and a lot of predatory ones.

There’s been a number of initiatives over the years to change that, but none have really worked, thanks to the combination of a protectionist Constitution, our underdeveloped capital markets, and the complex regulatory environment (all topics worthy of exploration in a separate article). Just look at our foreign investment metrics as proof. Even Vietnam is eating our lunch.

Thus, scarcity drives the local startup game. And that’s the big point of this post if you’ve made it this far: because the game is stacked against founders, to raise startup funding in the Philippines, you have to make investors believe you don’t need the funding.

And the most empirical way to demonstrate this is to build a cash-flow positive venture. That’s all there is to it. Don’t repeat our mistake in delaying cash-flow positive status to after your 2nd or 3rd funding round.

Because of the smaller early stage funding market relative to Singapore or Indonesia, I would argue that new local Filipino founders should:

1. Have a bias for picking ideas that can be funded by customers, rather than investors

2. Draw a solid plan to get to cash-flow positive ideally in the first year. Maybe two years – max.

3. Have a low enough cost base that can be funded by 1-2 clients if you’re B2B, or 100 customers if you’re B2C. Forget about it if you’re advertising-dependent (Facebook & Google have won).

4. If you do need to raise funding, treat it as a last resort, and give yourself a hard deadline, say, 6 months.

5. Start with regional investors rather than local ones.

6. Incorporate in Singapore, Hong Kong, or Delaware. Create a local operating subsidiary only if necessary.

This certainly narrows the space for the kind of startups the Philippines can build. But it’s not impossible. An enterprise-focused SaaS product with a strong consulting arm can certainly be cash flow positive within a year. Or a direct-to-consumer online store with only 100 monthly customers but PHP 5,000 ATV and low overhead can certainly be profitable.

“That all sounds good, Oliver,” you might say, “but aren’t startups all about growth? What about those ideas that need massive growth and scale to be profitable?”

Sure, I’m not discounting the possibility of success for such models. But the Philippines is not the place to start capital-intensive startups. You’ll need to be based in Singapore or Jakarta to access the capital needed to fund hyper growth, and simply have the Philippines as another portfolio country.

Which brings us now to an honest discussion about access to capital.

If you’re just starting out or if you’re cash-flow negative, you then need to figure out where you are in the local Startup Game.

The Game is defined by this 2×2 matrix. This matrix applies if you:

1. Want to do or are currently doing a startup

2. Have a reasonable amount of self-awareness

3. Have objective metrics on the viability of your product

Note that this matrix describes your starting point, not your end-state. It helps define your initial moves, not your destiny.

On the X-axis is your product. Does it have product-market fit, based on objective metrics – users, revenue, margins, retention, net promoter scores, etc?

Now, the Y-axis will likely sound controversial, but it’s the honest truth. On the Y-axis is a famous name: your family name, your school’s, or a previous company affiliation.

It doesn’t mean that raising is an impossibility, but your product will just have to be way better compared to someone in say, Singapore. When I was raising our first round, I got a lot of advice to mention my school or the fact that we won the Asia Pacific leg of the Harvard New Venture Competition – never mind that neither was a factor in our odds of success! But people are herd animals, and you would be wise to take advantage of this gap in human psychology.

The PH Startup Game (1)

If you have a great product and a famous name, go ahead and raise. Do one round and get to cash-flow positive.

If you have a great product, without a famous name, I’d argue not to waste your time fundraising. Instead, you need to get cash-flow positive ASAP. Keep a good SEO strategy for your startup’s name and a healthy LinkedIn presence, and wait for the inbound investor requests to trickle in. You get investors to pitch you rather than the other way around.

If you don’t have a great product, but have a famous name, your next moves will depend on the nature of your famous name. If it’s your school or company, then you might be better off working for Rocket Internet or Uber for 1-2 years to learn the ropes. These guys love brand name degrees. Pick the role wisely. If you want to be an entrepreneur one day, working as a Product Manager at Grab is superior to a sales job at Google.

If it’s a famous family name that you have but not a great product, you can likely syndicate together 1-2 years worth of runway. Manila is full mediocre businesses from children of tycoons and suckers posing as investors.

If you neither have have a great product nor a famous name, you have three options:

1. Learn how to build a great product on your own

2. Get a famous name by joining an awesome founder

3. Or my recommended option – do both of the above. This is best accomplished by working directly under a startup founder or the local GM of a global tech company. For example, the direct reports of guys like Ron Hose, Ravi Agarwal, Jerome Uy, Paul Rivera, Nix Nolledo, Laurence Cua, Ken Lingan, or John Rubio will likely have great careers ahead.

That’s essentially the game. You need to recognize where you are to determine the right moves to make.

If you decide to take the fundraising route, stay tuned for Part 2 of this post, where I’ll talk about some of the tools you’ll need.

E-Commerce, Founders, Government, Philippines, Startups

Who Should Be DICT Secretary? 5 Pegs for your Consideration.

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Aside from an acronym that can be the basis of a whole generation of Facebook memes, one thing that is worth pointing out about the Philippines’ new Department of Information and Communications Technology is that it’s a startup.

And like any startup, the founding team will play a crucial role. The DICT’s founding team needs a secretary, 3 under secretaries, and 4 assistant secretaries.

Who should they be?

Let’s start with the DICT is supposed to do. Section 6 of Republic Act 10844 – the law that created the department – lists the following powers and functions as its mandate:

1. Policy and planning: creating national ICT programs, promote ICT in education along with the DepED, CHED, and TESDA, and optimize all government ICT resources.

2. Public access: creating rules for the establishment of ICT services in underserved areas; provide for free internet access in government offices and public areas.

3. Resource sharing and capacity-building: harmonize and coordinate ICT initiatives across government agencies, develop an integrated government ICT infrastructure, and assist in providing technical expertise to government agencies.

4. Consumer protection and industry development: ensure privacy rights, support investment promotion in ICT, and form international and local partnerships to drive ICT.

These are huge tasks. #3 alone hurts my brain, just thinking of the amount of work involved. The sheer magnitude of bureaucracy, national and local needs, vested interests, fragmented technical resources, and a technology landscape moving at hyper speed make failure intrinsically built into the job.

And this is why we need only the best to be leading the DICT. Though it would be hard to pin down exactly who the best person for the job is, I can wager a bet on who should NOT be even considered.

First, no lawyers. We have enough lawyers in government. If you look at the details of the DICT’s mandate, a huge portion of its success relies on strong collaboration and coordination with a multitude of organizations: telcos, technology providers, service providers, other executive departments, local government units, quasi-judicial agencies, and international bodies.

The DICT secretary will have to balance the competing tensions of a tech environment moving faster than the starship Enterprise traveling at warp 9.9 and the slow, lackadaisical way the average local leader makes decisions. Any entrepreneur who tried to selling to Filipino organizations knows this.

I have a lot of smart lawyer friends. The smartest ones play to their strengths and know what they are not: effective managers at scale. The DICT secretary should essentially be a manager who knows how to get things done through people. His output is the output of other people.

Also: the fine print. The DICT involves the reorganization and merger of existing agencies from the DOTC (which will be subsequently renamed simply as the Department of Transportation). The DICT needs manager who has done post-merger integration work. And as any human resources chief can attest, this is no small feat.

Second, should it be a telco person? I’m torn. Though it may be tempting to think that an alum from any of the two telcos could do the job, I’m leaning that the DICT secretary probably shouldn’t be a telco alum. Providing free internet access in government offices is a tremendous and expensive initiative alone. We wouldn’t want even the slightest perception of a conflict of interest. See the rabid reaction to Mark Villar’s appointment to the DPWH as a case in point.

Also, the NTC will become an attached agency of the DICT. And with the President’s drive to force the local providers to speed up the internet, we’d probably need a DICT secretary who can be tougher, more provocative, and more strong-willed to get things done.

Gerry Ablaza and Polly Nazareno, for instance, are both genuinely nice guys; the former is the ex-CEO of Globe (and currently runs Manila Water) while the latter just retired from Smart. But since both are above 60, I wouldn’t wish on them the grueling grind of working 80-hour weeks to get the DICT established and fully functional. They’ve both had stellar careers and they deserve an easier life. Let’s simply get them as advisory board members.

Which leads me to this part of the negative list – the DICT secretary shouldn’t be a sunset leader in his 60s who thinks this is a just a ceremonial post. At the risk of sounding ageist, we wouldn’t someone who can’t routinely work 15-hour days. There’s gonna be a lot of intense shit going to get this job done that it’s gotta be taken as seriously as a first year associate entering McKinsey or Goldman Sachs does.

But seriously, it should be someone who intuitively understands the innovation economy.

S/he must speak the language of the internet’s infrastructure, platform economics, net neutrality, cloud computing, and big data, among others.

S/he must be student of technology history, and how nations made the leap through technological advancement.

S/he must have spent time in the Valley. Or studied the technology trajectories of Japan, Singapore, Korea, or Taiwan. S/he must have witnessed the dawn of the internet in the Philippines. S/he must know the reasons why the future of the digital economy in the country rests with small businesses, not the big conglomerates. S/he must know who Ada Lovelace is.

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The local fashion industry likes to use the word “peg” as a term to describe a look, style, or palette to imitate. So in a nutshell, here are 5 quick pegs on which kind of leaders we’ll need at the DICT founding team.

The Operator

Think Facebook’s Sheryl Sandberg. This is the uber-manager who is both a captain and soldier, a strategist and tactician, a general and a diplomat. The Operator gets things done not just within a small team, but with a vast array of often conflicting constituents in pursuit of a common mission.

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The Product Visionary

This is the young gun who boldly goes where no one has gone before. That is my 2nd second Star Trek reference in this post, so I’ll just stop right there. But seriously, this is someone like Chris Hughes, who helped create the technology backbone of the Obama campaign (and a Facebook co-founder).

chris-hughes-adweek-2012

The Product Visionary gets digital media and has an intuitive understanding of how users interact with technology to make their lives better. S/he has a design & user experience background, and can for instance, design easier ways to file taxes online, or renew drivers’ licenses, or apply for passports.

The Platform Builder

Think Google CEO Sundar Pichai, who spent a more than decade building platforms such as Maps, Gmail, Chrome, and Android.

SundarPichai129-information week

A Platform Builder running the DICT would bring a step-change in how e-government works. For instance, imagine a one-stop Singapore-style online portal for business registration. Doing so would require integrating the back-ends of various agencies involved in the process, from the SEC, BIR, and DTI to LGUs, PhilHealth and SSS.

The Data Guy

This is the country’s chief data scientist, tying together all the data-related initiatives of the government such as Data.gov.ph, or helping Comelec prevent another data leak. Think someone like DJ Patil, the chief data scientist of the United States. S/he can help predict and counter emerging cyber security threats.

DJ Patil - Gigaom

The Insider

This is the career executive who has spent decades working in tech. S/he started in engineering, then moved up the ranks in management to lead teams with an ever increasing scope and complexity, and eventually becoming responsible for an entire platform.

WNYC-Tantoco-asianjournal

Someone like Minerva Tantoco – the Filipino American CTO of New York City and who spent many years in the technology side of financial services – would be perfect for this. The incoming DICT team should definitely have her on their advisory board.

Bonus: An army of Bertram Gilfoyles. Yeah, the DICT would likely also need an army of guys who can get shit done without caring for the politics-induced BS that comes with the territory. And guys like that won’t work for the kind of guy rumored to be angling for the post.

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What kind of leader should be DICT secretary? Chime in below.

Netflix, Philippines, Startups, Uncategorized

It’s Likely that the Philippines Will Block Netflix Too

Today, the Wall Street Journal reported that Indonesia’s biggest telco has blocked access to Netflix.

State-owned Telkom concluded that Netflix didn’t have a permit to operate in Indonesia. Netflix also apparently contains violent and sexual content objectionable to Indonesian censors. Hey I’d feel violated too watching Francis Underwood do this to Zoe Barnes. Please don’t think of our very own Francis (Escudero) and Heart. Oh wait, now you just did.

Anyway, the big question is could the same thing happen to the Philippines?

Quite possibly… and in my opinion, very likely. There’s a weird set of interests that are at stake here. ABS-CBN and GMA would obviously want a strategic hedge, no matter how nascent the streaming market is. Bayan Muna and their leftist pals will decry the further encroachment by American capitalists (and do their loudest shouting, ironically, on Facebook). The BIR will want its cut. Congress will grandstand. The telcos will face a dilemma.

How could access to Netflix be blocked in the Philippines?

Here’s how I speculate this might play out.

One, in a rare display of haste, urgency, and cross-agency collaboration, the NTC, SEC, BIR, and MTRCB will band together to invoke Article XVI of the 1987 Constitution, which says:

“The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.”

They will argue that because Netflix broadcasts movies and TV shows, it must be considered mass media. The framers of the Constitution clearly did not imagine the impact of the internet, which the Philippines connected to just 7 years after 1987.

Blockers will also use a strange SEC opinion that argues that any activity that in effect “disseminates information to the general public through the internet” may be considered mass media. This leads to a possible bizarre interpretation of the Constitution that because your Facebook feed disseminates information, this is considered mass media and Facebook should thus be 100% Filipino owned.

Two, Netflix will argue that it is breaking no laws because it neither owns nor manages any local company engaged in mass media. It can say it’s not mass media because it doesn’t need broadcast frequencies to operate. One needs to pay a subscription, unlike free-to-air TV.

It is also possible to argue that the framers of the Constitution intended to protect public opinion and news media from foreign interests and foreign propaganda, and since Netflix is not a news organization dipping its hands in local politics, it should not be considered mass media. I’m no constitutionalist, so I’ll leave it to guys like Oscar Tan to dissect the legalities. Suffice to say that there are enough gray areas to give the blockers legal ammunition.

Three, the BIR will want its cut. It could try to impose the 12% VAT or a 15% final withholding tax. As far as I know, neither Google nor Facebook pays either when they receive programmatic ad revenue. I don’t see anything on my ads receipts that indicate that they do so.

Netflix will do its best to comply until they fully realize the extent of red tape they have to go through to comply with local tax laws. They’ll realize that the BIR is on the losing end of enforcement anyway and will go on business as usual.

Four, some honorable gentlemen in Congress – possibly the same guys that want to give Pia Wurtzbach a tax exemption because they don’t have anything better to do than fantasize that they get a chance of dating her by passing this law – will file a resolution blocking Netflix, similar to what these guys tried with Fox International.

Five, the TV and cable networks will join the fray, in a bizarre alignment of interests with leftists like Bayan Muna. They will naturally argue that Netflix is a long term threat to the domestic entertainment industry and to thousands of jobs. They’ll be on a wait-and-see mode, perhaps licensing some parts of their library but not too much to prop Netflix up. A young guy who gets it like Carlo Katigbak might be willing to play a smarter accommodation strategy. An older guy like Felipe Gozon might want to block them altogether. Or he might not care or be digital savvy enough to realize how big a thing streaming is in the first place.

Six, the telcos will be caught in a dilemma. Admittedly, it’ll be a more complicated tradeoff for the telcos. Each has its own streaming platform. But the lure of higher data revenues would be too enticing.

I’m wishing all this actually happens. No real damage will come out of it in the long term anyway. It’ll bring about the much needed public anger and discourse to push Congress to finally revise our absurd foreign ownership restriction limits. Maybe it’ll open the public realm to candidates like Bam Aquino who actually understand digital. Maybe it’ll push the next president to appoint our first cabinet-level CTO.

Streaming video is here to stay. A growing Filipino middle class with more choices will opt to pay that Php 370 a month. It’s tough to bet against a change of this magnitude. And we’re not even talking about the entry of that other streaming behemoth – Amazon.

So yes, let’s get the ball rolling. Filipino dinosaurs, let’s seek to block Netflix.

Uncategorized

The End of Philippine Fashion. And What We Can Do To Save It.

This is the 2nd part of a 3-part series on our creative industries. Part 1 talked about the inadequacies of the prevalent strategies to grow our $1.5 billion in creative exports. This part talks about how technology can play a role in the competitiveness of our local designers, brands and retailers. It’s related to a broader conversation on the Philippine innovation economy.

“It was H&M, mum.” Photo credits: independent.co.uk

Local brands whisper “H&M is coming” in the same way as the Starks of Winterfell do: they know it will be unstoppable, it will last long, and many will perish.

And then, there’s the Japanese. We all know about Fast Retailing’s very public intention to create the biggest fashion company on the planet by 2020. Japan is our biggest trading partner, so you can count on the Philippines to be a major part of this strategy.

Finally, there’s the broader conversation on ASEAN 2015. The big step in creating a single market in Southeast Asia will inevitably lead to several new brands from around the region entering the local market. And our local champions are seriously outgunned. I couldn’t find data for fashion, but take banking: BDO is the biggest local bank, but is only #19 in Southeast Asia.

Does the increased competition mean the end of Philippine fashion? What will happen to designers, manufacturers, and retailers when the market is flooded with cheap products and more recognized brands? We’re seeing it happen in real time in Brazil. The competition won’t just come from offline players. Even China’s Alibaba is investing in department stores.

The three segments of the market will be affected in different ways:

Independent designers & small businesses will be hit the worst. Brands who rely on bazaars and consigning in department stores will find it harder to compete. The best designers will have a stable clientele for couture, but will find it difficult to scale with ready-to-wear. The rest will be more inclined to work with the bigger houses than start their own label. Contract manufacturers who rely on wholesale orders will see customers move to Vietnam and Indonesia, who are both employing even more aggressive textile export strategies. Cambodia is fast catching up. Just look at the ever dwindling traffic of foreign buyers in Manila FAME each year and the number of closures in the 2nd floor of Greenbelt 5.

The Sub-Billion Players (those with more P100 million in sales, but less than P1 billion) will find it harder to grow. Brands like Folded & Hung and Gingersnaps will slug it out over retail space. Mall operators will prefer leasing to anchor brands, or allocate the prime space to their own franchises (like SM’s Forever 21 and Uniqlo). Because the sub-billion brands don’t have the scale of the bigger players, they will have a harder time competing on price. They will source cheaper merchandise in China, further deteriorating product quality, which will turn off even more consumers. It’ll be a vicious spiral. There will be some consolidation in this space.

The Billion Peso Club (P1 billion+ in sales) will handle the onslaught, but they know the era of easy growth (by simply opening new stores and slapping celebrities on billboards) is over. For them, the smart bet is to pursue an international presence as fast as possible by bringing their brands abroad or by positioning themselves as local partners for foreign brands. Golden ABC (the parent company of Penshoppe) is implementing an Inditex-like strategy: open overseas stores and build a portfolio of brands. Bench is bringing in foreign brands (Aldo, Pedro, etc) while extending its iconic brand to new categories (skin care, salons, etc). This strategy, of course, makes sense given the small size of the local market and resources controlled by these companies.

Online retail will empower all these players. My humble thesis is that e-commerce holds the key to exporting Philippine design. An online strategy can help our local brands 1) remain competitive locally and 2) pursue breakout opportunities internationally

Vania Romoff launched an online-only collection on AVA.PH

How do we think about this new normal for Philippine fashion?

1. Think Stories, not Stores. The primary unit of analysis in retail used to be the physical store. Today, it’s the customer story. How do we create a seamless brand experience for consumers regardless of the touchpoint – whether it’s in the mall, on laptops, or on mobile phones? For example, Warby Parker started as an online eyewear brand. Last year, it opened its first set of brick-and-mortar showrooms where customers can try out different frames and order on an iPad.

With the ability of the internet to distribute content all over the world, local brands can tap an international market. At AVA, we’ve gotten a few customers from the United States, Germany, Belgium, Australia, Singapore, Malaysia and Japan. And we haven’t even done any marketing in those countries.

Unfortunately, there’s so much misguided thinking in the Philippines. At a recent public forum, the head of one of the biggest malls in the country said that “online is the biggest threat to our business“. This is alarmist and exaggerated drivel. It’s misguided because it creates a false distinction between online and offline. Alarmist because the shopping mall will obviously not go away (US e-commerce is still less than 10% of total retail, but a large majority use online to guide purchase decisions).

It ignores how new retail technology can be integrated in the store. It’s no longer “online vs offline”, but a choice on how to communicate the brand story in both worlds. For instance, brands like Marc Jacobs (who is using social media as a form of in-store currency) and American Eagle (who is piloting iBeacon technology) are showing innovative new ways of embedding retail tech in their traditional offerings.

It’s not just about opening an “online store”, but integrating tech into sensible parts of the retail value chain. Walmart’s latest experiment? Using ad tech to cut waste in its media budget.

Tweetie de Leon and AVA partnered to launch a Kickstarter campaign to save the dying inabel fabric.

2. Build Omni-Channel Capability. Omni-channel retail is an infrastructure decision. And thus requires completely new thinking on organization design, marketing, logistics and inventory management. Another fashion brand was hesitant to launch its own online store because management didn’t want to “divert part of the marketing budget from print and outdoor“. And that’s the problem: an e-commerce strategy isn’t a marketing mix decision, but a business unit-level decision that requires its own set of resources.

When I met the chairman of another retailer, his first question was, “can going online be profitable in the first year?”. (Dear Mr Chairman: Please do not ask Jeff Bezos this question). Yes, if you’re thinking of “going online” as simply putting up a website. It would obviously not be if you view it as an infrastructure decision.

The good news is that the technology is getting cheaper. I can build a shopping app that costs way less than a billboard on EDSA or a print campaign in Preview. Getting educated about e-commerce is free (it’s called Google). The payments and delivery network have been built and getting better each year. And with companies like Rocket Internet and Naspers operating in the country, talent is more widely available.

Brands without a clear e-commerce strategy aren’t being cautious, they’re being lazy.

3. Leverage on Platforms. Think of a platform as a business that empowers other businesses. The iPhone, for instance, is a platform. Apple provides the centralized eco-system, while independent app developers around the world provide the content. Global marketplaces like Etsy and retailers like AHAlife have allowed independent producers from around the world to access consumers far beyond their home country. Etsy for instance did $1.35 billion of gross sales last year. On Amazon, up to 1/3 of products are sold by third party merchants who host their products on Amazon’s distribution centers. Crowdfunding platforms like Kickstarter allow designers to generate pre-orders even before their products hit the market.

With these platforms, Filipino producers can immediately access a global market on day one. The bazaar in Rockwell only gives you a spike during Christmas? No problem. A presence in Etsy helps expand your footprint. What to customize the look of your store, but don’t have the budget? There’s Shopify for that.

4. Slow Down Fast Fashion. Fashion’s deep, dark secret is that sweatshop labor all over the world subsidizes the thirst for fast fashion in the developed world. Sites like Maiyet, Uncommon Goods, and Everlane are all signals of consumers’ desire for a different way of thinking about fashion. The tragedy in Bangladesh helped cast a wider spotlight on this sorry state of affairs. People are now looking beyond the rack and seeing how their purchases are collectively affecting a global supply chain. Brands are looking for authenticity to break through the cynicism. This is good news for our creative industries. We can’t compete with China on price, but we can certainly compete on design and an authentic brand story that explores our rich cultural heritage, our traditional textiles and materials, and our local craftsmanship.

In my next post, I’ll share what we’re doing at AVA to help create a bridge between our local products and the global market.

Entrepreneurship, Founders, Philippines, Startups, Uncategorized

Top 10 People to Meet in the Philippines Startup Scene in 2014

On a Sunday morning in early January, I got a text from Manila Angels‘ Christian Besler. Nope, it wasn’t a drunk message sent at 3am. It was about grabbing coffee at the Pen with two Bay Area executives vacationing in Manila. Both got a hold of Christian via Twitter.

“Dirty Kitty” is a fixture at the parking lot of the Peninsula Hotel, a centrally-located meeting spot for intros and deals

Despite the booming local scene, there’ still a lot information asymmetry between what’s going on-the-ground, and what entrepreneurs and investors from Silicon Valley know. After all, the Philippines really isn’t a mainstay on Techcrunch or Mashable. When I met a partner from Kleiner Perkins, her first question was “What’s going on out there? I’ve never visited, but all the social networking and digital media startups we’ve looked at always gets a ton of traffic from the Philippines.”

The country’s startup scene has generous servings of good news: 7.2% GDP growth, double digit internet + mobile user growth, investment grade ratings, and growing cohort of tech entrepreneurs.

So how do we bridge the gap? In a lunch forum hosted by the Harvard Business School Club, Sheila Lirio Marcelo, the Filipino founder of recently IPOed Care.com (which popped 43% on its first day), mentioned that the key is always through PEOPLE.

The goal is to make Manila a social hub for tech startups in the region – an alternative launchpad into Southeast Asia vs expensive, big brother, and tiny Singapore.

So…. for investors and founders who are likely to first discover the Philippines as a.) tourists, and b.) as relatives (a Filipino spouse or in-law), we’d like you to stay a few days, fall in love with the country, and in the process, also discover the vast potential of its nascent innovation economy.

The goal of this post is to make it easy for you to get seamlessly plugged-in into the local scene. So, on this Sunday afternoon, I sat down for 20 minutes and scribbled the top 10 people you should meet based on:

Execution: A track record of getting things done. No talking heads on this list!
Immersed in the local community: Understands local dynamics and gives back through their time and resources
Well-connected: Has a quality network across different stacks.
Accessible: Responsive, and generous with their time

There are players, of course, like ICCP Ventures, but none of them have demonstrated serious interest in high-risk, early-stage startups and preferred to stick with more mature plays. There are a ton of successful entrepreneurs, of course, more than this list can handle, but 99% of them are either focused on brick-and-mortar or may not be as accessible.

So if you’re new to the scene, these are the top 10 people to meet in the Philippines tech scene, in alphabetical order:

1. Amazon Web Services: The ASEAN team led by Anne Salada-Chauffaille and Franco Eisma has been quite active in evangelizing across the technology spectrum, providing not just cloud computing infrastructure but educational events for local conglomerates and seed-funded startups. Check out the next AWSome Day this February.

2. Ayannah: Mikko Perez and Dicky Alikpala. Ayannah is a digital platform play focusing on the unbanked in emerging markets. Mikko and Dicky are the funniest couple-preneur in the country. They’ll probably kill me for saying that. But I’m sure they secretly enjoy it. Times with these guys are never boring. Lose the serious face and prepare for a one-hour meeting to turn into a four-hour laugh fest.

3. Hatchd: Manny Ayala & Nix Nolledo. Hatchd is a startup studio that builds companies “from ideation to operation.” Its portfolio includes Rappler, the leading social news network in the country, and Purple Click, a digital advertising firm. (Disclosure: Hatchd is an investor in my company). Manny is an experienced media and tech executive, while Nix founded Xurpas, a leading mobile content provider. Both are pretty active in Entrepreneurs’ Organization.

4. Ideaspace: Earl Valencia. The incubator of the Metro-Pacific / PLDT Group is led by former Silicon Valley executive Earl Valencia and has invested in a number of small, mostly pre-revenue ventures. Shucks, you just missed the application for the 2014 cohort so stay tuned for the next one.

5. Kickstart Ventures: Minette Navarrete. Structured as a 100% subsidiary of Globe Telecom, Kickstart is a seed capital fund that “enables startups to achieve a faster launch and a better business trajectory through a combination of funding, infrastructure and facilities, mentoring, and market access.” Though launched less than two years ago, Kickstart now has the biggest portfolio (close to 20?) among local startup investors. Minette and her team are experienced investors, operators and community builders, and are plugged in to the broader Singtel Regional Seed Network. (Disclosure: Kickstart is the lead investor in my company)

6. Manila Angels: Christian Besler & Paul Rivera. Launched just this January, the country’s first angel network now boasts of close to 50 angels and is currently screening its first cohort of 25 pitches. If you’re popping by Kickstart, make sure to check in with Christian (who is also VP Community at Kickstart) and Paul (Co-founder of Y-Combinator backed Kalibrr), whose company is co-located at Kickstart HQ. .

7. New Leaf Ventures: David Bonifacio. NLV regularly hosts Better Business Brunches in the Bonifacio Global City and is positioning itself as a hub for B2B investments and technologies. David is an energetic entrepreneur and storyteller who handles multiple roles for CBTL Holdings – the local franchise owner of the Coffee Bean and Tea Leaf. And no, BGC wasn’t named after him.

8. PhilDev: Phildev is a foundation of US-based Filipinos who are passionate about creating linkages between local entrepreneurs and the world. Chaired by Tallwood’s Dado Banatao, some of its trustees include Eric Manlunas of Siemer Ventures (who has invested in a few local companies) and Sheila Lirio Marcelo.

9. SGV: Winston Chan. Winnie runs the advisory group for SGV, the country’s largest professional services firm. Winnie’s been key to helping several multinational clients establish BPO operations in the country. There are valuable synergies between tech startups in the BPO space – from US-based companies setting up outsourced operations (TripAdvisor, Amazon, etc) to well-funded startups staffed with local, talented engineers (Bright.com, Lenddo, etc) to startups focusing on BPO clients (Kalibrr).

10. Sulit.com.ph: RJ & Ariane David. The biggest classifieds player is run by the friendly husband+wife team of RJ and Ariane. RJ’s a wonderful supporter and mentor to younger founders throughout the country, and maintains a regular presence in local entrepreneurship and tech conferences. Make sure you’re updated with your gadgets and gaming news for a fun chat.

The good news with these groups? Eight are mainly present in the Makati-Fort Innovation Strip. Ayannah and Sulit.com.ph are pretty close by in the Ortigas district – a quick twenty minute drive from Makati.

Who else should be on this list? Which events should visiting founders look out for? Let me know below.

HACK THE DIASPORA

By Oliver Segovia

Tag Archives: Philippines