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Business model vs business ‘frame’: Funding & Customer Acquisition Challenges

Funding & Customer Acquisition Remain Challenges

In our research of successful entrepreneurs we find that the term business model does not adequately describe the process of forming a business idea, leveraging on strengths and marshalling of resources - present and future to form a business. With the benefit of hindsight, the model seems very neatly put together and it is often coupled with a corporate vision. The reality is quite different. Typically we have found that entrepreneurs only have a vague sense of what they are trying to put together. They start with a “business frame”, which we define as; “A broadly defined frame that brings together hitherto unconnected capabilities, talents and opportunities, at the right time, to form the foundation of an enterprise’s exponential growth.”

In recent conversations with Malaysian based entrepreneurs

Entrepreneurs are driven by their passion to succeed and put together a value proposition which evolves with time, to eventually form a business frame. They have to make turns, adjustments and recognize opportunities and technologies that were not there at the beginning. Noor Helmi, co-Founder and CEO of IX Telecom, started his company in 2008, after stints at the now defunct local telco, Atlas-One and then AirAsia. He gained valuable experience, the advantage of working at startups – you get a lot of responsibility very early.

Chan Kok Long, co-founder of iPay88 has a similar story. After working at Time Telecom, now Time dotCom, he saw an opportunity to sell prepaid IDD calling cards. With co-founder Lim Kok Hing providing the initial funding they started their venture in 1998 selling IDD cards. The business evolved into the sale of talk-time for celco’s and eventually that went online. Their big break and pivot opportunity came in 2005 when Fujifilm approached Mobile88 (their new company) to use the payment platform so they ditched the airtime business and instead developed further the payment gateway. The refocusing of resources and action-bias, is typical of successful entrepreneurs. Elon Musk, of PayPal, made a similar decision in 2000, to focus on the eBay payment platform and ditch his internet banking business. And as they say, the rest is history.

Another example is from Burhanuddin Md Radzi, Managing Director of Les’ Copaque™, creator of Upin & Ipin, the hugely successful animation franchise. Burhan recognized the potential of serving up local content to audiences when broadcasters felt that only “syndicated foreign content” was good enough to get ratings. His first break came in 2007 when TV9 agreed to buy six 5-min episodes of Upin & Ipin to air in a Ramadan broadcast. The movie launch of Geng: the Adventure Begins, in February 2009 was a huge success taking in a record RM6.3 million at the box-office. Today, Les Copaque is the most successful local studio, employing 180 production staff, all Malaysians of which 90% are fresh graduates. They also have 50 staff handling licensing and merchandising. Not bad for a local success story.

Venture Capital Funding in the US means big dollars!

The US-VC approach to customer acquisition is simple, “pay what you need, but get them quickly” and that requires huge sums of money. PayPal for example, gave incentives to acquire early customers - US$20 credit initially, which was reduced to US$10, then US$5 before it was stopped, but they got 100,000 accounts in the first month!

Local companies sadly don’t have access to large funding sources. Funding is normally measured and often times companies run out of money before the business frame is formed. This means that even local VC-funded companies take a while to build a customer base, what more for the self-funded ones. Fusionex, an AIM-listed company, for example was self-funded by founder and Managing Director, Ivan Teh. They initially struggled to get customers who did not trust the small startup. Fusionex based in Malaysia is now an international organization, with +350 staff and business in the region, US and the United Kingdom.

Entrepreneurship is a driver for job creation, for now at least

IX Telecom, iPay88 and Fusionex had no VC funding and started with hardly any capital but today offer employment to about 500 people, primarily based in Malaysia.

For businesses that target the consumer directly with undifferentiated products, like the now-defunct ring-tone business, or airtime top-ups, consumer-advertising works. However for software applications and specialized services, entrepreneurs in the local environment have a tough time. Local corporates are generally adverse to “buying local” and hence software here companies struggle to get customers and that in-turn hurts the product development cycle. IX Telecom and Fusionex, both found their first customer in Singapore. In the case of IX Telecom, their first customer was Malaysia Telecom-Singapore, who then opened doors for them in Malaysia, something they were not able to do on their own!

We need to support local entrepreneurs by buying their products and services. If we want to build local champions capable of going out into the region, we need to support entrepreneurs in a much more aggressive manner. Else we would have closed the door on local technology entrepreneurs!

++++ The full article, appeared in DNA under the title "Startup slugfest: Business model vs business frame"

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