“Product first, money later.” This is one of the many lessons highlighted in the book Facebook Effect. I still believe in that saying, although each startup has to act according to its own situation. But in Asia this tends to be less of a truth. Because the truth is, we don’t have that much opportunity to raise funding and thus little resources to focus solely just on user growth.
Even if user growth is huge, few are paying, with the exception of perhaps gaming and enterprise products. And that makes startups in Asia naturally more inclined to start pondering early where will the real money come from.
Maybe some startups wouldn’t want to face this reality, hoping to enjoy the user growth honeymoon. The recent $1 billion acquisition of Instagram by Facebook makes the future look more colorful than ever for some. It gives many entrepreneurs a good case study on why making money isn’t so urgent. It has been coined as the “Instragram business model” – having million of users with zero revenue.
Several startup founders who I met recently were saying that they are seeing Instagram as its role model. They use it as a means to defend and answer feedback when others question their business model. That’s fine and I understand it is hard to answer questions relating to business models, especially when it comes to photo apps or social network apps. But I do hope that there are indeed plans for them to make money in the future. There should be a clear model.
Some argue that there isn’t any point to think about money when they have so few users. That’s very true and many startups are facing user growth problems. That is why I thought enterprise products following a B2B model would work better in Asia. They acquire customers, not just users.
Startups following the “Instagram business model” have multiple headaches. If a startup takes on this approach, the end goal is perhaps to build and sell the company fast. Or to keep raising money to sustain growth, which is not quite likely to happen in Asia. Now let’s see… How many potential acquirers do we have out there? Not that many really, and this is a common concern among investors and founders in Asia.
Even if there were lots of acquirers, things may not be as rosy as compared to the west. Instagram had a huge user base and there were reports suggesting that Twitter was competing to buy it. That perhaps drove up Instagram’s valuation to a whopping $1 billion.
But with few possibilities for acquisition in Asia, driving up valuation is unlikely. And if you are not in India, Indonesia, or China – countries with lots of potential users – a hockey stick user growth would be really tough. A lot of people see Southeast Asia as one big market. But it really isn’t. It is a region with a great diversity in culture and language. It’s a tough region which requires you to localize for each country. Many services and products we use here originate from the U.S. anyway – think Facebook, Twitter, Google, Instagram, and Apple. So that makes it a challenge for consumer web and mobile products to gain users in Southeast Asia. China, with its love of home-grown web products, is an exception of course.
Asia isn’t Silicon Valley and things that are happening there aren’t likely to happen here in Asia yet. I will be happy for any founders in Asia who have their startups getting acquired even before they have any revenue. But that’s not likely to happen, I think. So another train of thought is to build a company with sustainability. One that makes money and doesn’t have to pressure to be acquired.