Sunday, August 6, 2017

Stories of the underdogs II

The internet as we know today started in the late 1980s. By mid 1990s, it had already had a revolutionary impact on culture, commerce, and technology. Around that time Vietnam had its first commercial internet connection. The tipping point was 2004 when internet usage grew by 200% and gave 10% of the population access to the highway of information. A young population, and a network of locally connected game centers, the first profound impact of the internet in Vietnam was the gaming industry. There were some competitions and when the dust settled, two dominating players emerged: Singapore-based Garena and homegrown VNG. When Garena came to Vietnam in 2010, the press described the event as the doom of VNG, that the little Vietnamese startup would soon be devoured. And there was foundation to that, Garena was led by a Stanford MBA graduate, with a seed fund of $2M and operated at 5 different countries before entering Vietnam. On the other hand, VNG founder was originally a bank officer by day and ran his game center in an alley at night. The startup got $80k seed fund and was non-existential outside of the country. Seven years later, both are still around and extremely successful being the first two SEA startups worth more than $1B. There is a little twist to that though. VNG is still virtually non-existential outside of Vietnam. It manages to get on the same tier with Garena with only one market, while the later has 8. Within Vietnam, Garena is solely known as a game publisher, VNG has transformed into an Internet Giant whose products touch every Vietnamese internet users.

The story of VNG is inspiring, against all odds, and exactly the kind of folk tales you suppose to hear in the world of startups. Most startups suffer from inexperience, understaffed, under financed, and overloaded. Of course, once in a while, there are exceptions, like Color, a photo-based social network led by veteran Vietnamese American founders with $41M initial funding. But for the majority of startups, those 4 horsemen of entrepreneurship continue to chase them till exit. Yet despite being disadvantaged, startups succeeded and disrupted markets from time to time. Again, except if you were Color, the startup was a flop and sold to Apple at $7M. So what if we have read the startup stories wrong. That is, what if instead of succeeding despite of all the challenges, great startups succeed exactly because of the challenges they face?

To listen at these stories differently, first we need to redefine what is an advantage. The same qualities that make big companies appear to be fearsome are often the source of great weakness. For example,
when it comes to technology startups, being big isn't exactly an advantage. While a bigger developer team in theory can produce software faster, they are also significantly harder to manage, might suffer from low productivity because of communicating and bureaucracy overhead, and more expensive to keep. Instagram was acquired for a billion dollar with a team of 13. Whatsapp has 50 engineers for 900 million users. With the power of software, hardware, and automation, size is more a liability than an advantage.

On another point, it's tartarus for a company to expand its core competencies to other areas. Once its core competencies are formed, much of the company resources is spent on extending the scope of features so the product is applicable to more use cases, refining development process, and organizational structure to sustain all those activities. Innovations are still cultivated, usually in form of specialization of teams. which results in a stream of smaller, continuous improvement over an existing product or service. That also makes disruptive innovation, like creating products or services that did not exist before, harder. Google for example is an extremely successful company, yet despite its size and the number of projects, much of Google revenue surrounds its core competencies as a search engine. Most of the projects whose role is to ensure Google's relevancy in the next decade such as Android, self-driving car, or AI, are from acquisition and not in-house.

While big corporates focus on regional and global scale, Vietnam startups, even the successful ones, think and act local. This in turn results in products solving very specific problems existing only in the country, and virtually unheard of for anyone else. As a game distributor, Garena did and still aces VNG in every perspectives. They are well-tuned towards international partnership, multi-nation online game operation, and game tournament hosting. What left for VNG were games that are much less popular and operate in only one country. And it was meant to be that way. VNG resources were spent on another problem of Vietnam in the late 2000s. Back then, to run a game center, you needed to be some sort of computer/game enthusiast because the hardware constantly ran outdated, latest games kept popping up, and your computer needed to be protected against these children who were too eager to try whatever tricks they found on the internet. But that wouldn't scale when game center became a business and investment. So VNG came up with this business development team that would consult small business owners with new location, hardware and software setups, and on top of that, install a home grown management software that not only protected the computers against threats, updated with latest games, but also enabled a VNG membership country-wide. So all of sudden, credit player accommodated in one center, can be used in another, as long as the other place also installed VNG management software. The software spread like wildfire and so did VNG presence in every corner of the country.

The trend in Vietnamese startup in recent years can be summed up as following:
  • Solve local problems
  • Avoid direct confrontation with bigger players
  • Disproportionately abundant in Entertainment and Lifestyle segment, due to the size of it
  • Much fewer B2B effort even among each other, which sometimes unintentionally leads to fewer strategic partnership enhancing value proposition and creating win-win situation
In other words, many startups here find guerrilla tactic fits them right. But then, if such can be formulated, why aren't we seeing more successful startups from Vietnam? Because guerrilla tactic is hard, to the point of desperation. Niche local problems aren't always obvious, they more often lurk in a corner, hiding in plain sight. Finding them is like shooting arrow to a bullseye you cannot see. Sometime, the bullseye doesn't even exist. And you have to go on like that days after days, with marginal profit, investors and employees show doubt, sometimes very expressively, none of the effort seems worth it. You only turn to guerrilla tactic when nothing else seems to work. Even startups succeed in this tactic, drop it as soon as they can. Right when VNG revenue from game distribution was stable, they started looking for extension in conventional market, like social network, media streaming, and messaging, all of which eventually replace game distribution as VNG's cash cow.

Doing startup is one of the many ways to gain perspectives of the world. A great one. Much of what we consider valuable in our world arise out of these kinds of challenges, because the act of facing overwhelming odds produces greatness and beauty. But just as important, the nature of these challenges might not be what they appear to be, giants have weakness, and underdogs over and over accomplish the unexpected with right preparation.

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