29. July 2019
Exploring the challenges faced by the Philippines startup ecosystem
The Philippines ranks as the second-most populous country in Southeast Asia after Indonesia, with current figures set at nearly 109 million, and with 76 million people accessing the internet--that’s 71% of the population--it is an extremely engaged demographic.
In the Philippines, people are spending an average of 10 hours on the internet (any device), the most amount of time across the world. It’s an increase from approximately 9.5 hours from the previous year. This is a rapid rate of growth shows that the country is ripe for startups, especially those who use mobile technology to engage their customers.
So why does the Philippines rank so low in the startup stakes when its nearest statistical neighbour, is doing so well? The Philippines and Indonesia retain strong demographic similarities in that they are both archipelagos with large rural populations. However, Indonesia currently has a number of unicorns and decacorns in its startup stable and the Philippines has not yet been able to birth one.
This concern is so pressing that a recent panel discussion entitled Accelerating to greater Heights: The Philippines Story, was held during Singapore’s Innovfest Unbound conference, to address these issues.
Mind the gaps
The current lack of available external financing is creating a 'post series A' funding void into which many startups are sadly disappearing. While there is an obvious initial need for the founders to bootstrap their vision, this cannot continue indefinitely. At some point, the venture will need greater capital to fulfil its potential, but currently, that almost-insurmountable chasm, is killing ventures that should be viable. Funding is needed to close this gap.
The apparent need to create greater integration between private and public sectors via regulation and support from the Philippines Government has been in hot dispute. In response to these concerns, The Innovative Startup Act was signed in April of this year, focusing on removing visa restrictions for foreign talent wanting to support or develop a venture in the country. The Act also put the onus on its different departments to collaborate more effectively to provide structural support to the sector. In addition, the government has been making increased financing available and creating additional opportunities for 'sandboxing' the various FinTech ventures.
This wider open-door message indicates that the country is ready for external input, and a flow of capital in their direction. Policy changes and increased collaboration between the various government departments have reduced a large amount of ambiguity that previously created problems for that developing ecosystem. Until the internal structure and system have a well-developed and integrated system of its own, a period of structure, stability, and scaffolded safety are what is needed to enable growth of any kind so that the system can hold itself up.
Swimming counter to culture
Issues with cultural norms may appear to be of a lesser order than finance; however, in many ways, these are the more difficult to remedy. In order to be successful in the startup world, you need to be able to blow your own trumpet, shout loudly about your (potential) successes, and create a bit of a stir around your business creation. Exciting this level of interest and putting oneself centre stage is not part of the cultural psyche of the Philippines. It is in fact completely contrary to their social mores.
This coupled with a fear of publicly failing--which, let’s be honest, happens to as many as 90% of startups, according to Neil Patel--creates a situation where startups are simply not getting the necessary exposure, and therefore, the interest and support which they deserve. Discussing failure brings in opportunities to decipher what does and doesn't work, helping all concerned to move forward. Without this opportunity for stark honesty there is no way for even the most determined entrepreneur to get out beyond the initially choppy water and start surfing the bigger waves.
Viewing a startup as a status symbol, not as a real proposition, can create problems for the individual within the ecosystem as well. For the determined startup founder in for the long haul, and with fire in their belly, seeing other startups fail creates a demoralising view. Without an initial test case or success story upon which to found their hopes and dreams, this will continue to be the case.
People need a vanguard to follow, and as Filipinos have yet to provide this particular poster child, people are looking to other countries to find role models. This creates its own problems because emulating and transplanting ideas from a foreign startup, say from a European country, for example, may bring about ideas which are inappropriate to transplant.
Harnessing the brightest and the best
Education and focus on the employment market has traditionally been geared toward the service industry rather than entrepreneurship, which when coupled with fighting dominant cultural issues and norms, feed into the difficult end of the startup ecosystem. In the Philippines, English is the official language, and while it might be assumed that is an advantage because children learn it from such a young age, this does not appear to be the case in the startup arena.
University and high school programmes are developing in line with the development of different sectors. The government wants an Artificial Intelligence Centre of Excellence and is now pulling in the brightest and best data science students to engage with their under and graduate degrees. However, the next issue will be for the country to hang onto its rising stars. ‘Brain drain’ has been a very real problem and where other countries (perhaps most notably China) are seeing the return of their brightest and best, the Philippines is yet to see this happen. To continue to lose well-educated students to foreign shores will not support the development of the startup ecosystem.
There are many potential factors for this situation, and as with every situation, the more factors there are at play the greater, the more unified, and the more constant and consistent the ‘push’ must be to surmount them. It could be argued that chief among these issues is that of available capital; however, recognition and the will to remove psycho-social and cultural barriers to success is equally as important because without the mindset or finance in place there is no possibility of success.
It will be a grand coming of age when the groundswell of these different, changing, aspects conjoin, creating a happy confluence of beneficial factors; when the entrepreneurial spirit with the will to work hard and succeed is able to surmount these debilitating factors. With eyes focused on the horizon and a continued push, it is evident that the turning of the tide is, possibly, about to occur.