Existing platform businesses, such as e-commerce, may need to face the hard truth of the need to continuously maintain cost efficiency in their current activities.

Author: Ari Margiono

                                           Courtesy of Press and Media Bureau, Presidential Secretariat/Muchlis Jr.

The year 2022 was a tough one for digital start-ups in Southeast Asia. Many dealt with financial turmoil and laid off workers to survive. The storm is not over, though. Digital start-ups still face an uncertain future.

How do digital start-ups navigate the uncertain years ahead? We may utilize scenario analysis to answer this question.

As the future is uncertain, scholars and practitioners have been using scenario analysis to decipher how it may unfold. Scenarios are essentially stories about plausible futures. Decision-makers often make use of these stories to conduct stress tests of their existing strategies. They are then able to adjust their existing strategies so they will be “future-proof”.

Many successful companies have utilized scenario analysis and embraced scenario thinking in decision-making processes. Scenario analyses are usually started by identifying the major driving forces that may shape the future. These driving factors may determine how the future unfolds.

Let’s see what the driving factors are in the digital start-up environment.

Two major driving factors that are often identified as the most uncertain yet have significant impacts on the survival of digital start-ups are the flow of funds from investment or sales and the technology’s acceptance in the market.

A steady flow of funds – from investors or from sales of services – is important for digital start-ups to sustain their activities, and this is often affected by different factors, such as the economy, political issues, as well as the investment appetite of the investors. Every cofounder wishes to have stability, yet none of them know for sure whether they would be able to secure a long-term flow of funds in the future due to the rapid changes in the technology sector.

Further, technology acceptance represents uncertainties in the ways in which societies accept new technologies in daily life. The proliferation of mobile, social media and platform technologies has been rapid in society. However, the rejection of these technologies is also massive, especially in relation to childhood education.

In contrast, the acceptance of artificial intelligence in everyday life might be slower due to fear among societies about its negative impact, yet the popularity of ChatGPT and DALL-E, among others, may increase the acceptance of this technology among the people.

The combination of these two driving forces allows us to foresee four plausible scenarios that may happen in the future.

One of the scenarios depicts an ideal future that many digital start-ups wish to have: “the heartland”. Many start-ups build growth strategies to ensure that they have a steady flow of funds and rapid market technology acceptance. This is the desired future of all digital start-ups, and many efforts have been made toward the realization of this future.

Yet the future might not always unfold into this direction.

It is the other three scenarios that are worthy of attention. These are conditions where the future may derail expected strategies that start-ups have been developing, and this is why looking at alternative scenarios is essential.

The future may unfold into a situation where the flows of funds are uncertain but societies are accepting technologies. This creates opportunities for digital start-ups to use the critical mass as a potential driver for revenue and focus on cost leadership strategies. Ensuring digital start-ups running efficient operations is essential.

Moreover, the future may also unfold into a condition where flow of funds is intermittent and society is slow to accept technologies. This may present a challenging condition for digital start-ups, and therefore, saving the ideas for the future – i.e. focusing on research and development – may be an optimum strategy.

Further, the future may be characterized by plenty of funds from investors and sales but with markets and societies rather slow in accepting the technology. This requires digital start-ups to educate the market. This condition may be similar to a moment where platform businesses started to emerge in early 2010s.

Investors poured money into new start-ups and subsidized the market so that consumers experienced and accepted the platform technology. Today, the health sector may experience a similar cycle since many investors are interested in entering the health tech business, yet societies are still reluctant to accept the technologies, for example remote surgery, etc.

What would it be like in 2023? It is not the heartland scenario, unfortunately. Many experts seem to argue that the economy is going to face a slowdown and that, therefore, there will be an intermittent flow of funds from the investors or from sales.

Therefore, based on the scenarios, the plausible futures are those where digital start-ups need to have efficient operations or focus on research and save the business for the future. Existing platform businesses, such as e-commerce, may need to face the hard truth of the need to continuously maintain cost efficiency in their current activities.

This year may also not be a good year to introduce new technologies to the market, as the cost may be high.

This article was published in thejakartapost.com on January 7, 2023

Article link:

https://www.thejakartapost.com/paper/2023/01/07/four-scenarios-for-digital-start-ups-to-navigate-uncertain-years-ahead.html