The Future of Web Startups – in the Philippines

Here are some of my reactions to Paul Graham’s latest article, The Future of Web Startups. Pardon the lack of a creative title. All quotes below are from the article. Read his article before this post.

It’s so cheap to start web startups that orders of magnitudes more will be started. If the pattern holds true, that should cause dramatic changes.

Money-wise it may be cheaper in the Philippines IF talent is available. The common industry wisdom seems to be, from my point of view: the talent is available but needs to be tapped. At the moment, much of the talent that is available and productive is so because of outsourcing+offshoring. So, the Pinoy talents are put to use building Other People’s Products. But that is not a total loss since the skills picked up there can be used for Genuine Filipino products later on.

In the last batch of startups we funded, we had several founders who said they’d thought of applying before, but weren’t sure and got jobs instead. It was only after hearing reports of friends who’d done it that they decided to try it themselves.

Note “we funded.” There is no Paul Graham/Y Combinator in the Philippines who will fund $50K + (number of founders) x $50K – which is a lot of money in the Philippines. Let’s say the biggest expense is labor, and, software architects/developers are a factor of 5x cheaper in the Philippines. Bring down the figure down to $10K, and still you will be hard pressed to find anyone in the Philippines to put down half a million pesos (or less, at the moment). And if they do, it would be for the entire company, not for Y Combinator’s 6%. Why? No venture capital market for the investors to recoup their money with. And it boils down to the reason that it’s difficult for the Filipino web startup to make huge amounts of revenue, or to to sell to a huge company, either a Google/Yahoo/Microsoft or a more traditional company.

If startups become a cheap commodity, more people will be able to have them, just as more people could have computers once microprocessors made them cheap. And in particular, younger and more technical founders will be able to start startups than could before.

I think more young Filipinos are becoming aware that putting up a startup is a viable option. They just need to find the means. I just don’t know what formal programs are in place in computer science/IT education to help the students get started. (However, the quality of computer science education is another topic altogether.)

It’s true that you can now start a startup anywhere. But you have to do more with a startup than just start it. You have to make it succeed. And that is more likely to happen in a startup hub … This is not a nationalistic idea, incidentally. It’s cities that compete, not countries.

First thing, is it possible to build startup hub in the Philippines? Even if it’s Metro Manila, not all the pieces are in place. The university/industry/capital equation is not complete. Right now folks based in other cities and towns outside Manila or Cebu often have to move to find real tech jobs. On the other hand, one man startups working from their home broadband can put up a startup from anywhere in the Philippines with broadband access – but they won’t get the startup hub benefits.

Second, can Filipinos with startups in the Philippines move to tech hubs? Not quite. Filipinos don’t have mobility to relocate to Silicon Valley for legal and financial reasons. Legal because it is difficult to get a work visa unless you already have a US employer. (Can you work on your startup on a visitor’s visa? I don’t know. And even that is difficult to get for the typical person, “as we all know.” Financial because rent and living expenses in in the US is too expensive for somebody who just saved up startup money from their day job. To make it worse, Silicon Valley is even more expensive than the average US location.

As well as mattering less whether students get degrees, it will also start to matter less where they go to college. In a startup you’re judged by users, and they don’t care where you went to college.

This is a good thing in the Philippine university degree vs US university degree scenario. Filipinos who attended university in the US naturally have a benefit in getting hired in a Big Web Company. However, if joining the Big Web Company is done through acquisition, then the metric is not the degree or where it came from, but performance. That said, I’m still waiting for a Filipino startup to be acquired by a Big Web Company.

The greatest value of universities is not the brand name or perhaps even the classes so much as the people you meet. If it becomes common to start a startup after college, students may start trying to maximize this. Instead of focusing on getting internships at companies they want to work for, they may start to focus on working with other students they want as cofounders.

Filipino universities can already do this. “Cofounders” can be the people you work with for school projects, for instance.

This might seem a depressing scenario for Filipino web startups, but at least some things are happening that can make it easier. I hope this is a starting point for discussion.

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10 Responses

  1. […] situation, which is obviously different from what Andreesen describes? One way would be to look at the future of Web startups in the Philippines. In the original article which I quote, Paul Graham says that there should be a means of fresh […]

  2. Hi Migz:

    Other barriers that come to mind — It’s rare to find that critical combination of business acumen and technical smarts in a single person.

    Not all technical people know (or are interested in learning) how to run a business, much less keep it afloat.

    I’ve lost track of the number of people I’ve met who have great technical minds, but have no clue how to manage something as basic as their credit card debt.

    If I were an investor, I’d be wary of leaving the running of the business to someone who can’t handle money.

    Also, there’s the fact that we live in a “pandesal” culture — you know, that phenomenon where once a pandesal store opens on your street, you’ll soon find half a dozen other pandesal stores on that same street (how else did we end up with auto shops galore on Banawe in Quezon City?).

    It’s just too easy to give into the temptation of replicating someone else’s business model, rather than being innovative and offering something new and valuable.

    And if you’re a me-too web startup with no ability to innovate, you’ll never be #1 in your category. You’ll just be playing catch-up all the time.

    It seems to me that we’re more likely to produce successful mobile-tech startups rather than web startups, simply because the local mobile industry is a thriving, cash-rich business.

    Plus we’re a country where there are far more cellphones in active use than computers with internet access.

    Thus, a web startup with no mobile component would have a severely limited local market vs. a mobile startup.

    IMHO, the big telcos are in a good position to become mobile VCs or to be incubators of mobile startups, because they have ample cash and they’re eager to expand their value-added service offerings. Plus they can provide business or management guidance to young firms.

    It would definitely be nice to see Philippine startups succeed in the web and/or mobile space, and add some excitement to our very enterprise-computing-centric IT industry. 😎

    Cheers!

  3. About the rare combination: that’s something I came across writing my career guidance for Pinoy tech graduates. Scott Adams wrote about being good at at two or more things instead of trying to be the best at one.

    I myself am not a money person. Well, I’m not bad at finance, but I would rather focus on the tech 100%. So these posts I make – it’s more like convincing other people to do it! In my product and technology innovation post, I admit that I couldn’t think of an original idea (so far) and am just focusing on the tech right now.

    About the pandesal culture, I admit I’m guilty of that when I say, where are the Pinoy Facebook apps? (among other things) when it might just be a Filipino clone implementation of something foreign.

    About mobile, that’s where I’m working now, but in employee mode. Big telcos as incubators? I’m not sure about that, they aren’t the best in “new ideas” and they often outsource new stuff to other firms.

    Our IT industry as enterprise-computing centric? I wish it were! From my point of view, it seems game/entertainment-obsessed! (Apologies to the game developers).

  4. I think part of the problem is that there isn’t enough encouragement, or rather, the culture does not exist where entrepreneurship and honing one’s business acumen is encourage.

    However I see a growing trend nowadays where entrepreneurship IS picking up in the traditional sectors. This, in turn, will start generating demand and market for technical products, hopefully fulfilling your enterprise-centric dream for the future. 🙂

    This is something I’m going to take up in the near future, and I do have a business-centric “Project X” in mind, which I’ll do with a partner.

  5. Yes, entrepreneurship in general is a good trend. Even tech entrepreneurship has been making some noise lately – and will hopefully become more than that!

    Good luck with Project X!

  6. one of syndeomedia’s overarching goals is to bring together local talent to build online applications that are globally competitive. it’s a tricky proposition, and there’s a lot of trial-and-error involved, but i do think that we’re ever-so-slowly moving towards something that i (or ideally, we) can be proud of. i can’t give a lot of details regarding precisely what we’re putting together, but i am optimistic.

    we don’t have the kind of financial backing that this kind of experimentation would usually require, so we’re building out our ideas on revenue generated from client-work. the consequence is that any targets we have take 4-5 times longer to achieve, simply because we can’t focus exclusively on it. but that’s not entirely a bad thing either all things considered, because Lord knows we need more real-world experience to really get this right, and often times, being forced to work on other people’s projects is the best way to learn.

  7. […] The Future of Web Startups – in The Philippines  […]

  8. Migz, it’s good you started this discussion on pinoy startups. When I met up Malou Mangahas at GMA network (she’s my former boss at Manila Times) early this year, she referred to me as one of the Brown Technopreneurs — as opposed to the Chinoys who had the funds to start up and sustain their own companies. I guess kami nina Minic ito hehe.

    It jolted me to relize that *this* is one major problem I had as a startup techie — lack of capital and lack of access to financing.

    I am virtually nobody in Pinas. I was born from a lower-to-mid middle class family. We had no property to speak of. My father is an OFW and my mother is a seamstress and they were both in debt. Banks and financial insti’s would not lend me money (I had trouble as it was trying to open a company bank account!).

    The Pinoy system is stacked against startups in general. It’s something i’ve tried to wrestel with and continue to struggle with even as I run Digitall Solutions (http://digitalsolutions.ph).

    We have great ideas but we can’t spend time working with them because we are buried with bread-and-butter projects. If we pause to prioritize the R&D, it means paying for salaries without bringing in revenues to sustain us. Classic “isang kahig, isang tuka” or hand-to-mouth existence that we Pinoys are heir to.

  9. When I look back and think about my freakishly high-paying job at a multinational, I go “damn…” but I’m happy to be doing something and building a web startup from the ground up. Even if I have to take a pay cut for a while… probably a long while!

    It’s hard to find like-minded people when you want to develop a web product/service. My dad doesn’t get it. He’s probably thinking… what happened to the thousands of pesos they invested in my economics and accounting degrees??

    It seems to me that Filipino investors would like a more active role in running the company and a larger equity stake. I don’t think that’s going to jive with the independent attitude needed to build a web startup here in the Philippines in the first place.

    Plus, what’s troublesome with incorporating a mobile component is the high costs of leasing those 4-digit access numbers like 2968 etc. Probably can’t expect to derive revenue from that coz the telco and companies like Chikka or Information Gateway get the lion’s share.

    Help! Can you recommend other Pinoy web startups? I’m trying to document the developments at http://www.pinoywebstartup.com (nothing up yet)

  10. Thanks for sharing the challenges, benc and Marie.

    About “Filipino investors would like a more active role in running the company and a larger equity stake” – probably because money is harder to come by in the Philippines? Or because there of the undeveloped VC culture?

    About mobile shortcodes, the operators really don’t want to give them that easily for business reasons.

    About Pinoy Web Startups, let’s get the word out!

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