Last year, I wrote a piece about 10 things that the startup community in Vietnam needs to save the startup scene and since that time, the ecosystem has changed considerably. Mentors have come out of the woodwork, startups are more serious, investors are more careful, and even some previously smaller startups have risen to a mid-sized level. New battles are also being pitched in areas from ecommerce to mobile to booking services. In other words, Vietnam’s ecosystem is showing signs of maturity.
At the same time, we’ve been growing our Vietnam editorial team. We’ve been sifting through events, emails, and coffee chats through a whole new generation of startups. And although the ecosystem has seen some new robustness, there’s still some serious problems with Vietnamese startups that founders, employees, and leaders in Vietnam’s ecosystem will need to address before Vietnam can really get to the next level.
What does the next level mean?
Currently, Vietnam’s ecosystem is dominated by the shadow of VNG, whose valuation in some cases is rumored to be as high as $1 billion. This is followed slowly by two other giants: Vat Gia and VC Corp, who both hover around the $100 million valuation level. Behind them are a handful of startups that range in valuation from $10 to $30 million like Tiki.vn, Appota, mWork, Topica, Hotdeal, Vietnamworks, and others. But below them is a host of startups that are struggling to even crack the $1 million ceiling. Getting to the next level means getting to where VNG is. Can Vietnamese startups do it?
As I’ve talked to investors, founders, and young startups, I’ve noticed some themes that many of these young startups embody. I think Vietnamese startups today, although more mature and vibrant than ever before, are still naive. When I ask a startup why they’ve entered into ecommerce, and their response is “because it’s a trend these days,” I know there’s something wrong. When I meet a new startup that has a product they’ve worked on for six months, but has no idea of how to make money, I worry. As Le Hong Minh, CEO of VNG, is oft to say, “getting to understand exactly why you are an entrepreneur and who you are in the midst of that are very hard and profound questions. They are not easy to answer.” Clearly, young Vietnamese startups need more depth.
So, for your reading pleasure, I’ve condensed all the criticisms and insights I’ve heard over the last few years concerning what Vietnamese startups need to take seriously. Many of these things will impact all startups, some will only impact a few.
Of course, Vietnam’s new wave of startup founders are young (many only recently graduating from university). But that has a retroactive effect on the startup output. In one metric, it was determined that the most successful startups are started by people around the average age of 28.5 years old. That means that it takes a few years in the corporate world before you have the experience, mettle, and tactical mind to build a successful startup. This lack of experience affects everything. Younger folks, although energetic and spirited, will not be able to see their blind spots and will likely not be able to see their own startup from a broader view. And the most important aspect of experience is failure. Founders that have failed know better how to deal with failure. If they’re good, they know when not to give up. The younger you are, the easier it is to give up too soon.
Relationships are the tip often not written about but softly spoken of behind closed doors and amongst colleagues. But this is one of the number one thing that startups needs, and especially what young startups lack.
Vietnam is a minefield. It’s not clear how the legal system might punish you, and it’s not clear where you may do wrong. A relationship with the right person, be it political or business, may be the difference between survival or bankruptcy. If your relationship consists of professional business people who have successful businesses before in Vietnam, you can be sure that they will be able to guide you through moves that make sense for Vietnam. It’s even better than having an MBA. A relationship can make or break your business. Some of Vietnam’s top startups have been able to make it because of relationships. Never underestimate it, and cultivate your relationships carefully and thoughtfully. Relationships will help you get funding, help you navigate legal issues and policy, will help you make deals, and get partnerships. Relationships will protect you.
3. Understanding exits and what investors really want
The majority of startups that I meet want funding. The ones that do outsourcing, client work, and have passive income, don’t need investors as much. But if you’re a startup that wants to be really big (with a multi-million dollar valuation), you’re going to need investment. And if you want an investor to invest in you to get to that level, you’re going to need to understand what it takes to exit and what an investor wants. When you’re building your product, it needs to make sense in the larger market. You need to know which existing companies need you and where you fit vitally in the market. Without this, you’re never going to get the funding, and one of the keys to this is…
4. Making sure you have a big market
I see two types of startups in Vietnam lately. One is the startup with a market so small that no investor will ever want to invest in them. And the other type of startup wants to hit the entire global market, planning to take on the likes of Facebook, Google, and others. In the former case, the market is so small that investors don’t care and the customer base isn’t large enough to be a significant player. With the latter, there’s no path to marketing or finding a core population of users. If you’re playing for the global track, you need a really strong team that has a global mindset with design sense, a great product, business, and a five-star team. And that kind of thing is profoundly rare in Vietnam.
Basically, the middle way is either a niche but big market, like mobile games and content in the case of Appota or desktop published games in the case of VNG. As Paul Graham often makes the point, you need to find a small market that can easily convert into a big market.
But behind all of this, you still need a core business model that can scale and grow along with the cash you hope to spend on your big market.
5. An awesome business model
At the end of the day, you have to make money to feed your family and yourself. That’s why an excellent business model is essential to success in Vietnam. Some of the business models I’ve seen lately project very small revenues. If you’re only going to make $1 million a year to feed your team, and you’re only going to stay there, that’s cool. But it’s likely just a lifestyle business. It’s not really a startup. Startups are built to grow huge and fast. They’re built to create massive value and enter new markets with innovative new business models that Wall Street has never seen before. Google is a great example of this. Who would have thought that placing small relevant ads near what people are looking for would become such a massive cash cow? Are startups in Vietnam able to come up with clever models like this?
On the topic of copying, Vietnamese startups (and Asian startups in general) are scared of being copied. And although the climate in the ecosystem is changing (it seems startups are becoming more open), the reason for fear of copying is still there. People misunderstand the value of execution. It’s the people that can out-execute that win, not the ones who can copy. And interestingly enough, it’s the out-executors that can copy better than anyone else. They know how to synthesize the best from their competitors and make them a part of their core business. But behind every successful copy, or in this case, steal, there’s an excellent executor. More often than not, a startup will fail because of its own inability to execute than its protection from being copied. As Do Tuan Anh, CEO of Appota says, “one cup of beer is equal to ten ideas.”
7. A dark story with passive income
Behind almost every successful startup, especially with ones leaning towards the domestic market, there’s a dark story. Many of the most successful startups in Vietnam have some hidden reason for how they made their money in the early days. It could be from cloning games, it could be from spamming tech, it could be from gambling technology, it could be from viruses, it could be from third-party app stores, it could be from anything. This early period, where the startups are hustling and finding every possible way to make money on the edge of legality and technology, is essential to creating a forward thinking and clever Vietnamese entrepreneur. If you want to be able to navigate the minefield that is Vietnam, you’ve got to get your feet wet. And the truth is, this is the first chunk of passive income that these entrepreneurs make. It allows them the freedom to work on even bigger visions.
8. Deeply understanding the customer
The story of Vietnam’s 5giay.vn comes to mind when talking about understanding customers. The founder initially started 5giay to create a forum so that he could sell his computer screen. After successfully selling it, his friends asked him if they could post their goods, too. Thus, a site was born. Phuong never set out to make a business. He just knew what he needed and he stumbled into a business that others also needed: selling their used stuff. Startups these days are not so close to customers. They’re closer to their technology. It’s essential today for young startups to get out of their offices and go talk to customers and potential clients and just listen to what people’s needs are. That’s where the real business begins.
9. Design sense
When people talk about design, usually they talk about how things look. But those in the design profession know that design isn’t just about how things look. As Steve Jobs said “Design is not just what it looks like and feels like. Design is how it works.” When you look at the horrible payments market in Vietnam, you will immediately know what I’m talking about. Every single payment platform is ridiculously complicated to use even for a tech blogger who has to play with new technologies every day. There are just too many steps. As Dieter Rams says “Good design is as little design as possible.” Indeed, we’re seeing a new movement of great visual designs from Vietnam: Triip.me, Not A Basement Studio, Tappy, and even Flappy Bird. But the entire ecosystem is going to need to take design much more seriously, and for it to become a deeper part of every product.
At our recent Startup Arena event Kuo-Yi Lim, of Monk’s Hill Ventures, said Asian startups have trouble creating open cultures in their startups because of the pervasive top-down Asian culture. He thinks that essentially, open cultures are what startups need to encourage new ideas, accelerate teamwork, and scale. As the adage from Peter Theil, cofounder of Paypal, goes, “Don’t fuck up the culture.” Startups need to create new company cultures that produces individuals and teams that excel much better than other teams. And this is not a simple thing. It’s very subtle. It takes leadership, processes, recruitment, environment, and more. Is it any wonder why Apple, Facebook, and Google have spent so much on their offices? They want to create physical environments that produce great teamwork. Vietnamese companies are also doing this. These guys realize that you cannot innovate without great culture.
Essentially, culture is a set of core values, attitudes, and behaviors that unite a team and can scale. Arguably, it’s one of the most important things that fuse together to create great innovation.
11. Clear direction
In Vietnam, there are essentially three tracks: the domestic market, the regional market, and the global market. Vietnam has seen success mostly in the domestic and global categories. In the domestic market, it’s VNG. In the global market, it’s Flappy Bird. In between, there are emerging successes like Misfit Wearables, Not A Basement Studio, VC Corp, Vat Gia, and more. We have yet to see a significant player at the regional level, although many domestic players are leaning towards competing across Southeast Asia, like Appota. But these three tracks require very different resources, teams, relationships, and direction. In the global track, founders need to get to international conferences, they need to study abroad, they need to cultivate international contacts, they need a team with a global mindset, and build a product that can compete at an international level. In Vietnam, you need strong local relationships and partners, you need an intimate understanding of Vietnamese culture, you need to know how to navigate Vietnam’s volatile market, and you need to understand how to make real money.
And within each track, a startup has to be very clear about what its path is, from month to month and year to year.
12. Market research
In order to have a clear path, you need a deep understanding of your market. You need to be good at math that you can estimate the size, threshold, growth, and range of the market you are targeting. Startups I meet these days always give very dreamy numbers of what they believe their market is and almost always overestimate the size. For example, if I’m targeting the tourism market, I’ll estimate that it’s a trillion dollar market just because that’s what the papers say. But in reality, my market is much smaller because I am only playing in one niche of that market, and I’m only playing in the Vietnamese part of that trillion dollar market. Given the above, my estimates have shrunk exponentially. Startups in Vietnam need to get much more realistic about their numbers.
Although startups need to be more realistic about their numbers, they also need vision. With all due respect, the lifestyle startups of Vietnam, which sit far below the $10 million valuation level, have little vision. We need startups who can dream beyond $100 million valuations. We need startups that dare to dream and plan seriously for a $1 billion valuation. That is the only way that investors will pay attention to Vietnam at all, and that’s the only way that startups can create massive impactful value for Vietnam’s economy and society.
The interesting caveat to this is, if you’re looking for a massive valuation of this scale, you’ll need to create so much value that you’re able to generate profits. It’s therefore not as simple as just being a social enterprise. VNG impacts millions of lives of Vietnamese people while also generating more than enough revenue to pay its team of 2,000 people.
Everybody needs luck. And it has to be said that many of the innovations and companies that we see today had some element of luck to them. The man that created the application dock that all Mac users use today was rejected by Apple recruitment staff, but was picked up by Steve Jobs because he liked it. Almost every startup has a lucky story like this. Like the moment when Bill Gates sold DOS to IBM or Xerox allowed Apple to see its graphical user interface. If you talk to the most successful founders, you’ll always hear them talking about how lucky they feel.
This doesn’t mean you should go out and pray for luck (I’m not superstitious like most Vietnamese people), but it does mean you need to recognize and be prepared it when it comes.
15. Lean startup (or some reliable startup methodology and philosophy)
If you haven’t read Lean Startup by Eric Ries, you probably should. Although not everyone will agree with it, it does present one compelling and successful model of innovation and startup. Every startup needs a methodology to run their business and battle test in the market. Otherwise, it’s like walking in a dark forest without a light. There is no clear formula for doing a startup, and you have to find your own way, but having a philosophy can mean the difference between success and failure. Learn from what other people have done, battle test your ideas, and continue.
16. A real problem
This one’s partly influenced by Vietnam’s education system. When the entire populace is engineered to learn by rote memorization and geared toward national exams, where is there space for critical thinking? Critical thinking is core to identifying problems and executing on them. Luckily, Vietnamese people learn to solve problems by osmosis. But the foundation is still weak. For young startups, this has profound implications. As Paul Graham notes, “by far the most common mistake startups make is to solve problems no one has.” Vietnamese startups need to look critically at what problems they assume they are solving and make sure that they are real. Don’t make a solution and apply it to a problem that doesn’t exist.
17. Undying passion
How much do you really love your problem? How much do you really love your industry? How much do you really love going to work for no pay for weeks and months for an idea you’re not sure will work? How much do you love motivating a team that you barely got together in the last few months? How much do you love innovation? How much do you love risk?
These are questions that time will answer for you as you grow your startup. Startup is hard, it’s one of the hardest things you will ever do. And it’s not like learning an instrument, which can take a few months, a little bit of talent, and a good teacher. It’s going to take years, it’s going to test every fiber of your being. It’s going to be physically taxing. It’s going to be mentally exhausting. You’re going to be emotional. You’re going to want to quit. You’re going to go to the highest highs and the lowest lows.
Are you really ready for it?
18. Partnerships and leveraging other brands
Although Ticketbox.vn, an event ticketing service, is still a young startup that has to prove itself on the market in the long-term, its steady rise of late is due in part to the partnerships that the founder has been able to secure (through relationships). Never underestimate the power of brands. Especially if you are a small startup with no name. Vietnamese people are especially brand sensitive, preferring foreign brands to local brands. If you can secure partnerships where you can piggyback on other brands, a domino effect will ensue. When people go to your website, they’ll see who your partners are. And in the process, you’ll learn much more about what bigger and bigger businesses want and need. Although this is especially true for B2B, it results in profound effects in the B2C market, too. Why do you think the Rocket Internet companies are so eager to develop partnerships with neighboring companies?
19. Innovation + Research and Development
One investor I’ve spoken to recently said one of the biggest problems with Vietnamese startups is that they copy ideas from the Silicon Valley. This copying allows for their ideas to be easily stolen by other startups. Thus, it has bred an entire ecosystem of cheap ideas. Cheap ideas are easy to steal and don’t last without great execution. The problem here is that startups are not spending enough serious time on research and development. They’re not developing technology and ideas that are hard to copy and bring innovative new value to the market.
Finally, one of the most important things a startup needs is great people. As Steve Jobs said, “A small team of A+ players can run circles around a giant team of B and C players.” And to be honest, great people are scarce in Vietnam. Many are too inexperienced to grow a great business and others are just not well educated and professional enough to make a great business happen. Vietnam is crawling with career ladder climbers and people who just want the title of “manager” without the strength and resolve to really make a startup happen. More often than not, a Vietnamese startup will see its “best people” quit. Arguably, finding and keeping the best people is one of the hardest things. But without them, you can’t build anything.
21. Investment (Bonus)
I guess I can’t finish this post without mentioning money. Of course, every startup needs money to thrive, keep its books, pay its staff, and invest in resources. But money is what every early stage ecosystem complains about. The truth is, if your team and ideas are really great, the money will come. Peter Thiel, founder of PayPal and de facto head of the PayPal Mafia, said that “the lower the CEO salary, the more likely it is to succeed.” Thiel believes that a team that is more willing to sacrifice itself for the mission of the company is more able to succeed. So stop fretting about the money and put the company first. That’s the kind of company that goes for the gold. Startups in Vietnam these days are so eager to go to the next event with investors and learn how to entice investors to fund them. But the real problem is not how to get money. The real problem is building a great team, identifying a real problem, and developing a great product.
I got 20 problems but a startup ain’t one
Now, of course, I’m generalizing. That’s how us bloggers can get to a list as huge as 20 items. But like I said, I’ve come to this list over the last year and a half of meeting with young startups and with more mature tech companies that have shared with me their opinions and insights on where the ecosystem is headed. So take it with your own grain of salt.
You cannot excel in just one of these things and expect to succeed, and you also can’t excel in all of these and expect to succeed. Startup is a wild roller coaster whose fate is decided by well-thought-out strategy and nuanced luck. And as bloggers, there’s only so much we can distill. Good luck on your course.Editing by Paul Bischoff