Dealing with Exponential Change

Everybody wants their business to grow exponentially, but not many people truly understand it. Even if we do, it is not an easy task to master it. Here is what we learned in the ten-minute session presented by the Managing Partner of 500 Startups at Slush Singapore recently. 

Before we dive into it, here is how a typical exponential growth curve looks like.


As Khailee pointed out, it may be easy for us to understand this graph intellectually, but it is extremely difficult to deal with it in reality. Here are three reasons why:

First, it is hard to tell whether you are building a company with exponential growth because at the start of an exponential growth trend, things usually look slow and flat.

Second, particularly in Southeast Asia, many people have been conditioned from birth to operate in a very linear world. We have been exposed to an education system that takes a linear progression and favours tales such as the story of the tortoise and the hare, where slow and steady strategy is highly praised. However, Khailee strongly advised us to rethink that strategy:

“This is the internet! You are not racing against a sleeping rabbit. There are thousand of rabbits working 24/7. You cannot use the tortoise strategy. That is what we have been conditioned to do.”

Third, it is very hard to predict how big things are going to get before they start to kick off, especially in this exponential age. Khailee gave an example that in 2001, amongst the top five publicly traded companies in the world by market capitalisation, there was only one tech company (Microsoft). The rest were General Electric, Exxon Mobile, Citi and Walmart. However, in 2016, the five largest companies are all tech. It is no longer the era of finance, oil and gas, and others. This is a trend not many people could have predicted.

Khailee admitted that he had made this mistake himself:

“When I first started investing in Southeast Asia on behalf of 500 Startups, things look kind of slow. Slush wasn’t here. Almost as if nothing existed. There aren’t a lot of tech and VC conferences. Things look kind of flat.”

Khailee thought that a fund size of US$10 million would be sufficient to invest in this region, but he was wrong. “Very quickly, I had to raise more money because the market is filled with good startups. It was a mess! I was very fortunate that I got in early for Grab, Carousell and a few others. They are so many companies worth investing in.”

He also stressed that Southeast Asian Governments and VCs alike had vastly underestimated what was going on in the region.

“Google and Temasek put together a report in May 2016, stating that SEA internet ecosystem could be worth US$200 billion by 2025 but it requires US$50 billion VC money to make it happen. Right now, SEA is (lacking) in terms of how much VC money is going around.”

“In the percentage of GDP, it is 3.4 times less than China and it is 5.4 times less than India and 10 times less than the US. If Southeast Asia doesn’t put enough money into VCs and into the startup scene, other people will!”

“Guess what? It is already happening. In the past two years, most of the VC money are coming from Japan, a lot of them may come from Singaporean funds, but what about Malaysia, Thailand, Indonesia, and the Philippines? (If this persists), the biggest companies in SEA could very well not owned by the country that produces them, because they underestimated the exponential nature we are dealing with.”

So, how do we deal? 

Khailee started of with “Governance”. Governments have to “own” their own future.

“I am Malaysian. Anthony Tan and Hui Ling, both of the founders of Grab are Malaysians. They started off in Malaysia. They started of as MyTeksi. And very quickly they raise a lot of Singaporean capital, and then Chinese capital and then they headquarter here in Singapore, and hailed as a Singaporean startup.”

Khailee presented this example to emphasise that governments must act swiftly so that they don’t lose talents and opportunities presented by the rapidly growing startup community.

Next, he addressed the venture capitalists. “We have been chasing the wrong dream, myself included. We got really excited about chasing traction in terms of user growth. And we are willing to put money down for your startups to buy more user growth. If we could look deeper into it, where are all the user growths coming from? Is it coming from repeat purchases? Is it coming from retention? Is it coming from organic growth? Or are we just paying for this growth?… Paying more money to create exponential growth that do not deserve to exist in the first place. That is the first thing we are going to ask ourselves.”

“I am confessing right now that retention is the new traction. We want to see repeat purchases, repeat buys, returned visitors…”

As for the founders, Khailee’s advice was to look deeper into your growth trend (even when it is linear and flat) – look into the groups of customers who actually return and make repeat purchases. Because that is what is working. Once identified, double the effort in that area to “blow that up”.

“Next, when it starts working, what do you do?” Khailee probed. He said that for most founders, when things start working, they would add more features and more stuffs into their services. However, this is a very dangerous things to do. “You could almost kill the fact that you are having an exponential growth by adding things you don’t need,” Khailee said.

In fact, according to Khailee, once things are moving, founders should try to remove as much barriers as possible for customers to access or use their products or services.

Khailee’s last advice to the founders: “When you are not seeing exponential growth, you got to run some experiments to see what is going on. You got to spend some money at some point. However, a lot of founders blame their own team, blame the market, blame the people, etc. But one thing less often do the founder blame is their own execution speed… You must get the team to get used to doing things in shorter time frame. If your execution speed is so fast that you can actually be forcing your own exponential growth, making it exponential from within.”

Closing Notes

“500 Startups itself have done over 1,700 investment in 50 countries in the past six years. We are the most active investors in early-stage (startups). We are forcing exponential growth over here. We want to take ourselves on. In SEA, we got 120 companies in 24 months.”

“In the next 10 years, I want to bring more people into the age of creation. I want more people from around the world to create companies and be part of these exponential growth and own their own future.

“We (500 Startups) want to build layers upon layers by being the largest seed capital provider. Don’t wait for the market. Let’s make the market. We can make this happen.”


Image credit: www.slush.com

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