Starting Up with Nothing Down
Online startups with little investment are leading a global revolution that could give unknown Taiwanese entrepreneurs the chance to sparkle internationally. What can they do to ride this wave?
Starting Up with Nothing DownBy Chao-Yen Lu, David Huang
From CommonWealth Magazine (vol. 464 )
Taiwan's hottest group buying site has powered its way into the international market.
In early December 2010, Groupon Inc., the world's biggest collective buying website, acquired Taiwan-based website Atlaspost.com for a reported US$3 million in a deal that will bring the Taiwanese company into Groupon's global network.
Just six months earlier, Atlaspost had completed its transformation from a social network service into a group buying business. Helped by its 1.2 million-member social network user base, the company generated revenues of NT$10 million within one month, outpacing six or seven competitors to become Taiwan's biggest player in the category. Now, Atlaspost sells 100,000 items per month and its revenues continue to rise.
What many people do not know is that Atlaspost founders and brothers Andy and Jerry Kuo relied on free resources when they started their business in 2007.
The brothers crowded into an 8-square-meter rented room to start their location-based social media site where bloggers shared content with others in their areas. The Google Map tool used by bloggers on the site to identify their locations was free, and the MySQL database system and Apache HTTP server used to store articles and photos were open source software freely available online.
These lean startups are the new trend in the current boom in online entrepreneurship. They have defied the conventional model of finding a large corporate partner to achieve the necessary scale for success and debunked the myths of the need to burn through cash and create gaudy "price-dream ratios." Using small teams and free resources whenever possible, these low-budget startups stress speed in attacking the market. Atlaspost is just one of many examples of small companies that were quick to gain the spotlight.
The recent emergence of so many new entrepreneurs is not surprising, because the resource threshold to start a business has been lowered dramatically.
In the past, starting a business meant a considerable investment in equipment or software, but that is no longer the case in today's environment, where anybody can innovate by standing on the shoulders of giants. Google has to maintain a huge server, but everybody can use Google Map for free, or use Facebook to cultivate fan pages and rally support for their products or services.
Tools offered through cloud computing servers or open source software on the Internet are also becoming increasingly common. The current wave of entrepreneurs who rely on the Internet to offer innovative services is now easily accessing software they could only covet in the past. Technologies that were once impossibly expensive have now become cheap, or even free.
Many small startups see the app market as their paradise. In the past, writing programs for mobile phone systems used by Nokia and Sony-Ericsson was difficult, but software development technologies have now become far more standardized. Startups can market themselves on Facebook, Apple iOS and Google Android platforms using the free SKDs (software development kits) provided by the platform operators.
"The new entrepreneurial wave is surging fast in Taiwan," says Y.K. Chu, a managing director of international venture capital firm WI Harper Group. When Chu and his friends get together, they invariably get around to sharing the most practical and amusing apps in their cell phones.
Five-star Hotels Get in the Act
The design tools these entrepreneurs use may be free, but not so the products and services they conjure up. Another major difference between this era of online entrepreneurs and their predecessors is their emphasis on charging for services even in the enterprise's initial stage.
On New Year's Eve in Taipei, the Sheraton Hotel's pastry chef was unusually busy, trying to cope with a surge in orders for cakes that was double the volume received at the same time the previous year.
The hotel ended up selling more than 100 cakes on the three-day New Year's weekend, but the dramatic rise was not because of a traditional promotion run by the hotel. Instead, it was generated by the restaurant reservation platform "eztable."
Created only 30 months ago, eztable now has annual sales in excess of NT$20 million and nearly 100,000 members.
Searching for a restaurant online and then calling around to ask for information and making a reservation often requires a considerable amount of time and effort. Eztable was established to resolve that common inconvenience. Of the operation's startup team comprising five 20-somethings, only one had an information engineering background.
Whenever eztable members use the site to make a reservation at one of its 300 affiliated restaurants, eztable collects a NT$10 to NT$30 recommendation fee. Restaurants with bigger traffic flows through the site can pay a flat fee of NT$2,000 per month instead of a unit fee.
What's in it for the service's members? There are many restaurant choices that can quickly be narrowed down by location and food category, and the entire process, from identifying a restaurant to making a reservation, can be completed on the one site at no charge to members. This convenience has generated a repeat business rate of 30 percent and indirectly enticed more restaurants to join the club, driving the business's revenues even higher.
Last month, after eztable began offering a new cake-ordering service, the Sheraton Hotel bucked convention and conceived a chocolate cake tailored for eztable to try to attract new customers from the site's young customer base, which averages just over 30 years of age.
One of the perks of this new service is that members do not have to worry about buying a cake when they go out to dinner. Eztable will deliver the special chocolate cake directly to the restaurant where its members are dining, enhancing the convenience of the dining experience.
Understanding the Consumer
"Today's entrepreneurs are themselves frequent Internet users, and because they are closer than ever to the consumer, they really understand their needs," says Evan Chang, the director of the media lab at advertising agency Media Palette (Taiwan). This group of new faces is based in Taiwan and has a clear grasp of the market's needs, but because they are located on the borderless Internet and also offer low-price services toward which customers easily gravitate, internationalizing their businesses has become easier than it used to be.
App company Nexdoor Inc. is just one example.
In the 10 years after graduating from National Taiwan University's Department of Information Management, Nexdoor Inc. CEO and co-founder Happy Lee created a number of websites that burned through millions of Taiwan dollars without tasting success. When the iPhone hit the market in 2009, Lee went online to download the App Store's free SDK, and in collaboration with the company's other founder and CTO Sean Lee, took only two weeks to create an app that integrated Taiwan's major radio stations. In its first month, the app, called "Taiwan Radio," was downloaded 15,000 times, but it only cost an annual fee of US$99 to post it in the store. Happy Lee decided then to create an app production company and called it Nexdoor.
Last year, Nexdoor's 30 employees created 50 apps that generated more than 1 million downloads. For some free apps that were downloaded more than 200,000 times, half of the customers were from overseas.
"I never thought it would be so easy to penetrate the international market from Taiwan," says Happy Lee excitedly.
Moving into the Asian Elite
Although it remains unclear how far these products and services can extend their reach, this group of entrepreneurs and their innovative services have gradually become important partners for large corporations.
Richtor Inc., which was named one of the top 100 companies in Asia by Silicon Valley venture capital bible Red Herring, typifies this group. Four or five major banks, including ChinaTrust Commercial Bank and Entie Commercial Bank Ltd., have approached Richtor about cooperative ventures.
"I once received calls from two banks in the same day. At first, I thought the banks were calling to offer loans, but it turns out they wanted to ask if we were willing to work with them," says Richtor marketing director Peiyi Shen.
Richtor was founded by two people with media backgrounds, Shen and Tai Chi-chuan, along with Chuang Hui-ting, the former founding webmaster of PTT, Taiwan's biggest BBS, to give online authors a platform on which they could freely sell content. Now, 10,000 members use their credit cards or PayPal to obtain "Richi" currency to purchase digital content. Richtor collects a 2.5 percent commission on every exchange or stored value transaction.
During the process, Richtor discovered that there was a huge demand for virtual currency transactions, and it decided to extend points exchanges to points programs found outside cyberspace. In the future, credit card or retail points will be able to be exchanged on the Richtor website, turning the company into a kind of virtual central bank. Even before the service has been launched, a bank looking to expand the usage of its credit cards inquired about a possible hook-up after seeing a media report about the company's plans.
"We did not insist on being big from the beginning. We wanted to feel our way and take action based on the needs members had," Tai says.
Closely following their customers' needs and pursuing solid rather than meteoric growth are other distinguishing trademarks of this new generation of online entrepreneurs.
Of course, if these small operations are to survive outside of Taiwan's small market, they will need to make it through several tests and challenges.
"The volume that the Internet requires far exceeds what you need for hardware. The scale of the market has to be at least 10 times bigger. If the hardware industry needs a market size of 100 to survive, then the Internet industry needs 1,000 or even 10,000 to be viable," says Stan Shih, the founder of Acer Inc. and one of the leading members of Taiwan's first wave of high-tech entrepreneurs.
The long odds for success mean that only through innovation will there be opportunity in this burgeoning market. But Taiwan's new wave of entrepreneurs is ready to attempt to carve out their niche.
Translated from the Chinese by Luke Sabatier