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Leveraging Indonesia Technopreneur: What does it take to be the next

Silicon Valley?
Aulia Suhubdy and Teuku Riefky
Faculty of Economics University of Indonesia

Abstract
Booming trend on Indonesia technology startups has simplified our ordinary life.
Ranging from e-commerce, connecting people, to selling fresh organic vegetables,
Indonesia startups use technology to its very edge. Yet the industry has not yet reached its
saturated point, Indonesia startups are facing rigorous competitions and challenges within
the market yet blessed with growing technology market potential. The challenges are
petrifying, startups only have two options; to grow fast and win the market or die slow.
Startups experiencing hyper-growth are usually the one who stay tough and achieve
sustained growth time to time in its line of business. Winning the market by achieving
sustainable growth takes two perspectives to be overlook; external and internal factors of
the business. This paper proposed winning strategies for Indonesia technology startups to
thrive in multiple products and services. External perspective is done by overlooking
Indonesia macroeconomic factors, demographic potentials, and also competitive analysis of
the industry. Achieving hyper initial growth would be best addressed by focusing on
service sectors and diversification in line of businesses. Startups would also benefit the
whole society by avoiding creative destruction. Withstanding the external perspective,
internal perspective would foster hyper-growth by application of immediate strong IT
leadership, securing seed funding, and investing in high-growth opportunities and germs of
new franchise that will grow far into to the future. By following the external internal
perspectives, Indonesia technopreneurs would be able to thrive and strive in their diverse
line of business by achieving sustained growth. Thus, leveraging technopreneur will create
employment and economic growth for Indonesia.

Keywords : startups, strategies, external, internal.

1. Introduction
Long ago George Orwell drew a world of digitalization in his infamous magnum opus,
1984. Back in the year when he first published 1984, not only that Orwell took the society
to the very edge, but Orwell also pictured how technology changed life at the time. Once
published, nobody had ever imagined the world would ever be ruled mostly through
technology. The book, then, claimed to be one of the best books of the 20th century. Today,
more than 100 years later since its first appearance, technology became quintessential to
our daily activity to the degree we have never seen before. To take it to the extreme,
humans today could not live without technology.

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As per today when every part of our life is digitalized, the Indonesian community denied
taking no action towards the massive growth of technology, one of which is by the
emergence of startups. Our ordinary ride to campus or ordering food transformed to be
simpler by just tapping at our smartphone devices. Everything is 24/7 connected to
anywhere and anyone in the world. The emergence of Go-jek, FoodPanda, Traveloka, and
Lazada revolved our usual hustle into one click and go.

According to the Ministry of Communications and Information Technology


(Kemenkominfo), 95% of businesses in Indonesia are startups in the field of information
and communication technology. Indonesia has a huge ambition in developing the digital
economy, even the Ministry of Communications and Information Technology
(Kemenkominfo) aims to create one thousand startups in 2020. This ambitious plan needs
to be realized by recognizing the potential economic value brought by startups and the
appropriate way to boost the startups performance, one of the way is by leveraging the
technopreneur.

As aforementioned above, startups plays major role in shaping the digitalization. However
questions remain in the heart of the rising of Indonesian startups, what does it takes to
actually win the targeted market? Becoming a tech entrepreneur or technopreneur, one
needs an idea that sells, a solid business concept and, for sure, an internet connection. On
paper, it doesn't need a lot of money to start and an expectation of fame and fortune doesn't
go amiss. But not everyone is Mark Zuckerberg and Indonesia has yet to be the next Silicon
Valley.

This paper will bring you to the logic of how to boost Indonesian technopreneurship to
leverage the country’s position in the global market through the maximization of
macroeconomic and the industry potential. Otherwise, we also stress on looking inward to
what these technopreneurs need to emphasize in growing their business through IT
leadership, strong seeds funding, and smart investment. These perspectives will then create
a stronger tech entrepreneur throughout Indonesia.

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2. Literature Review
Startups as means for economic growth
Indonesia is an archipelago with a growing economy. However, Indonesia still focuses as
an academic country. Based on data from the World Bank, Indonesia is on the order of 10
based on data from the World Bank in 2014.
Figure 1. Gross Domestic Product 2013, PPP. (Source: World Bank 2014)

However, when seen from the opportunity, Indonesia has a fairly high growth rate
compared to other developed and developing countries.

While the Directorate of General Informatics Applications, Heru Bambang Tjahjono, said
that the local startup is expected to contribute one per cent of the country's Gross Domestic
Product (GDP). He argued that the rising number of startup can create two percent of the
total population of Indonesia to become entrepreneurs.

The above data shows that Indonesia has huge potential for economic growth and the actors

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in the respective industries. However, not all sectors of the economy can be relied upon as
an engine for economic growth of a country. There are several sectors which hold vital role
in the economy of a country, as well as in Indonesia. Therefore, it is inevitable that
Indonesia needs to focus on a few sectors that are vital to the communities. Thus, a
thorough industrial analysis needs to be done for each sector in order to know which sector
to tap into.

Figure 2. Real Gross Domestic Product changes (Source: The Economist).

3. The Methodology
What Industry to tap into?
Input-output analysis is used to look at the contribution of each sector to the economy in
Indonesia. The data used in the analysis of input-output is an IO table in 2010 with 17
sectors of the economy.

IO analysis is done to look at the multiplier output and calculate the index relevance of each
sector of the economy in Indonesia. The result of output multipliers can be interpreted as

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the impact of additional final demand in one sector of the output across the economy. While
the index linkage is interpreted as how a sector related to other sectors so that in other
words the linkage index is used to calculate how vital the sector to all economic sectors in
Indonesia.
Table 1. Result of Output Multiplier Calculation.
Top 5: Sector Output Multiplier
1 Procurement of Electricity, Gas 2.597195314
2 Construction 1.936537124
3 Provision of accommodation and Food & Beverages 1.842970344
4 Health Services and Social Activities 1.837462179
5 Manufacturing 1.812864399

The output of the multiplier calculations using IO table of 2010 using 17 sectors, 5 sectors
that have the greatest multiplier output in Indonesia is the procurement of electricity and
gas; construction; provision of accommodation and Food and Beverages; health services
and social activities; and the manufacturing industry. Interpretation of the multiplier output
is as follows: The procurement of electricity and gas’ multiplier output is 2597, this means
any increase of Rp 1 in the final demand of domestic procurement of electricity and gas
will increase Indonesia's economic output amounting to Rp2.597 as well as the
interpretation of the multiplier other output. So when seen from the analysis of output
multiplier using IO tables, Technopreneur should focus on these five sectors. These sectors
have high multiplier that makes the slightest increase in demand will have the greatest
contribution of output compared to other sectors.
Table 2. Linkage Index
Top 5: Sektor Total Linkange

1 Manufacturing 3.869182918

2 Electricity, and Gas 2.908564695

3 Larger retail, reparation, and motorbike 2.096822195

4 Construction 2.022082636

5 Agriculture, Forestry, Maritime 1.978428452

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Extracted from the linkage index calculation using IO table of 2010 using 17 sectors, 5
sectors that have the greatest relevance indexes in Indonesia is the processing industry;
provision of electricity and gas; wholesale and retail trade, repair of cars and motorcycles;
construction; agriculture, forestry, and fisheries. Interpretation of the index number if the
connection is greater linkages a sector index, the sector is increasingly also affect other
sectors of the economy. So when seen from the analysis of output multiplier using tables
IO, Technopreneur should focus on five sectors because these sectors have an index to high
exposure that caused the five sectors are the five sectors most influential in the economy
and takes other sectors so that it can said the five sectors will remain stable and the most
needed in the economy of Indonesia.

4. Explanation
Sillicon Valley, southeast of San Francisco Bay, is home to just three million people—
slightly less than 1 percent of the US population. Yet the Valley, seat of several world-class
universities and numerous cutting-edge enterprises, has become an economic and
innovation powerhouse whose importance is hugely disproportionate to its small physical
size.

External perspectives: Indonesia macroeconomic factor and government initiatives


Policy makers at the regional and municipal levels are closer to the sources of innovation
than those at the national level. To flourish, entrepreneurial activity requires a concentration
of talent, infrastructure, capital, and networks—key success factors of a start-up ecosystem,
as epitomized by Silicon Valley.

The Government has gathered stakeholders to provide mentoring on Technoprenur


Development Program in Indonesia. Indonesia government has already constructed seminar
to boot camp, and operation of the incubator or accelerator. It will be preceded by initiating
the implementation in 50 cities of Indonesia. One of the consideration is the city must have
the telecommunications network readiness, the number of potential youth and the number

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of university or college that can support the development of technoprenur.

According to McKinsey & Company, a successful start-up policy must fulfill two
requirements: (1) the ability to keep pace with the start-up environment; and (2) the ability
to succeed in a multi-stakeholders environment.

Internal perspectives: Strong IT leadership, seed funding, and smart investment

“If you're an early-stage tech company, and you're not growing fast enough, you're going to
die a slow death.” Quoted from Kara Sprague, a member of McKinsey Growth Tech
Practice. Growth indeed trumps all.

According to research by McKinsey & Company (2014), three pieces of evidence attest to
the inevitable importance of growth. First, growth yields greater returns. High-growth
companies offer a return to shareholders five times greater than medium-growth companies.
Second, growth predicts long-term success. “Supergrowers”—companies whose growth
was greater than 60 percent when they reached $100 million in revenues—were eight times
more likely to reach $1 billion in revenues than those growing less than 20 percent.
Additionally, growth matters more than margin or cost structure. Increases in revenue
growth rates drive twice as much market-capitalization gain as margin improvements for
companies with less than $4 billion in revenues.

Strong IT leadership
According to McKinsey & Company (2015) leaders can use these insights to understand
their growth trajectory and determine whether their current products and strategy are
sufficient to reach their aspiration. Startups needs to transform itself into an agile company
through strong IT leadership which has both strong speed and stability index. In an agile
company there will be these following benefits:
• Both role clarity and operational discipline are highly ranked practices among agile
organizations
• Agile organizations appear to be powerful machines for innovation and learning.

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• Agile companies seem to be strong at motivation.
Figure 3. Index of Organizational Health (OHI). Source: McKinsey & Company.

Seed funding, venture capital, and startups IPO


To secure seed funding for startups, Indonesia plans to establish a dedicated section within
its main stock exchange to host initial public offerings by startups, as Southeast Asia's
largest country pursues its vision of becoming a regional cradle of technology
entrepreneurs. It wants to set up a new trading market - tentatively called the "'technology
board" - at the Indonesia Stock Exchange so founders and investors can more easily take
their companies public.

By introducing startups IPO, the government actually think way out for sources of startups
funding such as Venture Capital. In the United States, the IPO is usually used as way out
for VC to cash out their ownership once the startups is able to self fund the company and
ready to launch to public. Helping investors cash out through IPOs is one of the missing
links in its nascent startup ecosystem. Unlike more mature markets such as China that have
produced tech billionaires, Indonesian exits have come mainly through mergers and
acquisitions.

Investing in high growth opportunities and future charming franchises

Raynor and Panetta (2008) argues that on The Alchemy of Growth in the 1990s, Mehrdad
Baghai and his colleagues from McKinsey & Company taught us to view portfolio

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management as having three time horizons. In their strategic formulation, Horizon 1
corresponds to managing the current fiscal-reporting period, with all its short-term
concerns, Horizon 2 to onboarding the next generation of high-growth opportunities in the
pipeline, and Horizon 3 to incubating the germs of new businesses that will sustain the
franchise far into the future.

Technopreneur in Indonesia needs to look upon the how to invest in the Horizon 3
investment. When it is sustainable growth that we are seeking which will go far across the
time boundary, then a careful planning and thorough research on what new franchises or
industries that will emerge and be the future unicorn is inevitable to any technopreneur.

5. Conclusions
Leveraging Indonesia technopreneur needs clear strategy initiatives by looking into two
perspectives without leaving any factors behind. Looking at the external perspective,
technopreneur needs to emphasize these forthcoming initiatives; first, the technopreneur
needs to tap into 5 key industries with high multiplier to increase the output of the economy
as a whole; second, technopreneur needs to develop businesses around the demographic
potential; third, a thorough study of the industry is inevitable for the success of one startups
in any kind of industry.

On the other hand, startups will be lifted by implementation of great detailed plan on
internal perspectives. Startups in Indonesia grows strongly through an astounding
understanding on strong IT leadership in order to maximized the use of technology and
capital in each startups, securing seeds funding for early stage investment, and also to
invest in future oriented investment to book future diversification.

The aforementioned holistic approach to boost technopreneurship in Indonesia will then be


resulted in sustainable growth in each startups. Withstanding the ever-growing startups, job
creation and economic growth will follow the success story of startups.

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