Sunday, February 9, 2014

Why you don't find a lot of Enterprise-focused startups in the Philippines

Building a startup is hard. We all know that already. But building a startup that focuses on the enterprise is very hard. Now if that startup is supposed to deliver a product or service that wants to compete globally, that's a totally different level of difficulty and uncertainty. That's also why most enterprise startups focus on a certain area or region rather than going against the technology giants of the world.

The Philippine is no exception to this case. In this country, technology adoption is driven mainly by the telcos (for both consumer and business) and multinational tech firms (mainly for business). Then you have the system integrators that work with the multinationals and the tech firms. There are also firms that develop enterprise software but only for specific clients, not as products to be released on its own.

There are consequences for this. First, we don't get enough chance to build our own intellectual property. Second, we become too dependent on foreign technology for our companies to become productive, so the bulk of money goes outside the country rather than revolving internally.

There is also a perception that locally made technology is inferior compared to one made in Silicon valley or in Hyderabad. I've encountered this a couple of times not just with individuals but also firms. But before that happens, I go back to the main point of contention, that local enterprise startups are very hard to start and sustain.

Let's compare a startup that builds interactive stuff, be it games, consumer driven websites, and such, to one that builds an enterprise solution, let's say cloud, storage and the like. A typical interactive/game startup will require less capital outlay but rely on a lot of brainpower/IP to come in. An enterprise startup will most likely require at least 10x capital because of the backend equipment, network, datacenter and such. Research and Development would also be a huge factor. Then you have to set the expected Service Level Agreements (SLAs) to your customers. Are you setting up a 24x7 operation? How about on-site? Those are just a few technical questions that you need to consider. How about sales? Marketing? And Training? More questions that need to be answered. Then how will you reach to prospective customers? Do you do cold calls? Exhibits? More budgets needed for that.

That's why enterprise startups tend to partner with local telcos and multinational tech firms to offset some of that cost, be it in marketing or even in development. Imagine a lamprey and that tries to attach itself to a shark. What if the shark finds a way to remove the lamprey? Then the lamprey will have to find another shark to attach with. Or find a smaller fish. If it can't then the lamprey will die. That's how a small enterprise startup would approach the local market.

No wonder you don't see much enterprise startups in the Philippines.