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The theme of this article is to debunk the myth that “Singapore is a small market”. This article originated from the many discussions I have with fellow Singaporeans both here and overseas. Some are entrepreneurs who are currently working and building their companies locally while others are now pursuing their dreams in the US or China. In most of our discussions, one insight that seemed to pop out often is that Singapore is not really a “small market” and you can scale the company up to a certain point where it becomes attractive to go regional and then global. The key message is that if you want to succeed in Singapore, you have to re-imagine and enable a traditional industry with new technology which makes it more efficient, productive & drives revenue.
Is Singapore really a small market? Depends on who say what.
The catalyst to this article is the recent RedMart story, on how they raised their series A investment. The event is well-chronicled and analysed by various pundits in the Southeast Asia entrepreneurial ecosystem. If you start doing your rounds and talk to investors in the form of the non-existent “series A” venture capitalists, you discover their common praise of a good team who has executed and defied conventions about setting up their own logistics to do delivery and their gripe about the company drill down to whether the company can scale across Southeast Asia. A lot about how venture capitalists think like that is probably through their corporate education or big picture thinking that promotes that you should look for something which has economies of scale.
Start thinking critically about what they say and analysing the ground carefully, you realised these venture capitalists are basically drinking their own kool-aid, pardon my French, of course. Here’s what I see why all these venture capitalists failed in making market assessment. I do not disagree with their way of thinking with buzzwords: innovation, competitive advantage, economies of scale, exit strategy of greater than US$30, low operating costs and high profit margins. That’s what we have learned from the great companies out there whether they are in US or Asia.
In fact, the surprising strange view is that no one knows that RedMart is taking on traditional retail players in Singapore which command a S$5.2 billion market for fast moving goods, which 10% market share constitute S$520M which is approximately US$405M. Is US$405M in Singapore market a large number given that Instagram cost US$1B, which is nearly 1.2 times more? RedMart got three things correct: (a) they are building something which solve a problem in Singapore, because my friends in the neighbourhood or those from overseas told me that they have ordered from RedMart – it shows traction and solves a real local need, (b) large market size (S$5.2B) and (c) they present a great exit opportunity if they become a real threat to the existing players. As a comparison, Carrefour left Southeast Asia because they were running at US$100M revenues mainly in Singapore and control less than 2-3% of the market share.
So, why is it that getting three things correct do not give them traction with these non-existent venture capitalists? I have a theory on that. The reason why these people just don’t get it is because they are here to live out their “US venture capitalist” wet dream with the wrong expectations of valuations and exits. Adding the part that most of them having no business operating experience, you start to see why the non-existent series A crunch not happening in Singapore. I meant it of course, a pun.
The true answer to that is that Singapore is a geographically, a small market with a population of 5 million people. However, the private wealth concentration in Singapore is increasing by the day and there are local businesses which are thriving in this market and are able to scale themselves out to the surrounding markets. Yes, Indonesia is a much bigger market and have a growing middle class but they got a problem with their currency (which we witness with the US speculators this week) and a legal system where the goal posts keep shifting. In fact, there are two trends in favour of the Singapore small market for Southeast Asia. Most investors based in Singapore ask the startups from the surrounding Southeast Asia country to register their companies in Singapore because there is a stable legal system and a strong currency. These points will become useful to what I will tackle next: What seems to work in Singapore.
What seem to work in Singapore
A few of us took some time to look at the successful. I have a theory on this which I have validated through my investments during my time as a partner in Thymos Capital. The successful results I have are exactly based on this theory. Here’s my thesis for the big picture: if you want to succeed in the Singapore market, the technology startup has to re-imagine a traditional industry which is ripe for disruption and at the same time, touch the customers aka local Singaporeans immediately.
Let’s go through a list:
a. PropertyGuru – Singaporeans love to speculate or buy property as their fixed assets. Something as simple as a search engine for properties and getting the local agents to advertise works. They raised US$48M from ImmobilienScout24 at a suspected 3X valuation according to the rumor mill and sources I have spoken to.
b. Reebonz – Singaporean women aspires for branded goods and they get a good offer buying from Reebonz, and given the growing private wealth market, they raised US$40M at US$200M valuation from Mediacorp and other investors.
c. SGCarMart – Singaporeans want to buy a car and needs a marketplace to trade away their second hand cars. Guess what, they got acquired by Singapore Press Holdings for a whopping US$48M.
d. Jobs Central – Singaporeans need to find a job to sustain their 5Cs, a jobs portal which was acquired by CareerBuilder at an undisclosed price.
e. TravelMob – Singaporeans love to travel out of the small island, and my sources told me that the acquisition price is about US$15-21M for the company.
f. HungryGoWhere – Singaporeans love food, and needs to search for the best places whether they are in hawker centres or fine dining restaurants. They got acquired for US$9.4M by SingTel.
g. Garena – Singaporeans love playing computer games and they need to compete against each otherin the gaming leagues. They are doing well and guess what, they funded Redmart instead of the venture capitalists.
For those aspiring entrepreneurs out there, there are traditional opportunities which you can access. For example, I have not seen anything which disrupts security, finance, insurance, pets and even enterprise apps which can help local property agents, insurance agents and retailers to be more productive. I notice interesting hardware startups such as Protag, Haptix and Pirate3D which somehow make this market interesting because you can prototype something and sell it to the world at great scale through KickStarter. If you want to avoid the Rocket Internet blitzkrieg and seriously, do something successful, do go and dig deep in traditional industries in Singapore and you will soon find a treasure trove of opportunities which you have not seen. If you can figure out the technology enabler behind it, you get scale and revenue at the same time.
Coming back to the point, all the investments which gave me exits or potential exits are technology startups with a traditional edge. What infuriates me is that I have to battle tooth and nail to convince advisory panels and government bureaucrats who only want innovation and not see how we can actually make the startup ecosystem works with real revenue and exits. So, that’s why I have decided to do angel investing on my own, looking for startups which have a traditional bent and needs technology to enable it to scale.
What seems to fail in Singapore is something which we don’t need: another Pinterest, Path or Instagram.
Why making it work in Singapore can scale the startup before Southeast Asia expansion
Yes, Singapore is a small market, but there are two reasons why if you succeed in Singapore, you get two advantages. First, it’s the exchange rate and the Singapore currency provides strong arbitrage against other Southeast Asia markets. You are working with a strong currency, in which if you go to Malaysia, Indonesia, Thailand and Philippines, you can setup quickly with more people and scale. You do know that you can hire the same group of people (other than top management) at one fifth of the cost in Philippines or Indonesia. Besides, you are earning in Singapore dollars and building things cheap in these countries. Make some adjustments to your tested model and you really have scale. So, here’s how I can help those investors who can’t see the potential of Redmart. If RedMart gets to US$50M revenue in Singapore, just S$5M to expand to Indonesia or Philippines and you can crush it with your so-called “economies of scale”. If you want to dispute with me, I will tell you that BreadTalk, Charles and Keith and OSIM, which are successful Singaporean companies that have successfully rolled out a “Southeast Asia + China + Middle East” strategy.
The second benefit for Singapore is that it has a stable legal system and also it is a country which values intellectual property. A lot of young entrepreneurs do not appreciate this as an advantage. I am rooting for the Indonesia market but the legal system keeps changing its goal post and it makes it difficult for businesses to operate there. Using Singapore as a base, is actually not a bad proposition dealing with the surrounding chaos. It’s the same problem I have with China. I know most investors love China as a market, because it is big and homogeneous and has “economies of scale”. Has it occurred to everyone that the winning technology companies are Chinese and not foreign? Not to mention that they have a super competitive “C2C” (copy to China) strategy which will kill your foreign startup outright. Even Rocket Internet got slaughtered in China and have to retreat. Unless you have a brand like LV or Starbucks, it is really hard to get into China as a startup.
Other cases you do not know about
There are exceptional cases why you can be a Singapore startup with great breakthrough technology and succeed. There is a great Singapore story which I know the local guys do not want to talk about or those foreign VCs who moved here won’t want to acknowledge. They like to call it a niche case, but I think that it has serious implications for Singaporeans who want to succeed in technology.
All of you might have heard about Razer. Razer is a successful US company building great game peripherals out there. The truth is that it started with a Singaporean founder by the name of Tan Min Liang who was advised by his investor (a super angel from Singapore & respected in Silicon Valley) that he should incorporate his company as a US company and have his engineering team based in Singapore. That’s what he did and look at the success of Razer today in the US market. If you have a serious breakthrough technology company, you should incorporate in the US and not Singapore because you need “economies of scale” from the US market. The same started with Creative, the Singaporean sound card company who made it big and then get hammered by Apple later. Sometimes, I feel that Creative’s mistake is to move back their headquarters back to Singapore where they should just stayed in the US.
In Summary
Singapore is a geographically small place and hence it has limited market size. The problem is that a lot of investors and aspiring entrepreneurs are trapped into thinking that it is too small to operate a business here. However, you just need to retrofit the market conditions and look to disrupt a traditional industry here with technology as an enabler, you will find yourself plentiful to build on and of course, towards a regional or global company in the future.
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