Are You Software Engineer Diasporas who Wants to Go Back Home to Found or Work for an Early Startup?

To start with, I wanna give some background about myself. I went to university in the United States and then worked at Silicon Valley for a few years. After that, I decided to go back home to Indonesia for several reasons, one being to understand the tech/startup landscape in Indonesia. By now, it’s been about 3 years since I came home. There are several things that I wish someone would have told me before I came home as they would have made my journey much easier. And now I am writing this post with the hope of being that “someone” for you. I myself am a software engineer, so the perspective would be from someone who knows how to build a product but don’t know much about how to sell.

There are two routes that are financially “comparable” towards what one would have earned by working as a software engineer in the US. The first is to found a new startup. And the second is to work for an early-stage startup that gives out significant equity. By “comparable” I don’t actually mean the financial number in short term, but more about longer term. Expect that numbers to be at least be 4 years. And for both of these routes, significant understanding about how a startup business works is required, unless you want to learn them in a hard way and waste a lot of opportunity costs along the way. Try to read as much books as you can on the topics, and/or watch as much startup-related lecture videos. Some links I can recommend on top of my heads are: Lean Startup, Traction, YC Startup School, One Million by One Million, Indie Hackers, Product Hunt. Silicon Valley engineers are very accustomed to be placed in a circumstances where they don’t have to worry about anything else except technical work, but this wouldn’t be the case in an early-stage startup. In order to succeed in a startup, one would have to understand business as well. At the very least, to be able to discern good vs. bad business ideas, strategies, and moves.

Let’s talk briefly about the first route, founding a startup. As a software engineer accustomed to work in a US-based large corporate, I had to unlearn several mindset and expectations, and learn the new ones. First off, problems in an early stage startup is typically not about technical depth, but more about technical breath and business-mindedness. As an example, an engineer at Facebook be might working on creating an API service that has really low latency to serve tons of requests per seconds smoothly. While such skill is valuable at Silicon Valley, early-stage startups don’t really have such problems. What’s more valuable would be how to translate business ideas into a prototype very quickly. For example, let say we’re creating a startup that tries to digitize movie-ticketing. While having a fancy and smooth Android/iPhone apps are great, it’s not really important during the initial phase of testing out the idea. It’s much more valuable to come up with simple web application (i.e. a single code-base usable in all platforms) and spend the rest of the time to figure out a marketing feature that can best capture people attention (i.e. promo-code system). Many Silicon Valley software jobs expect their engineers to be perfectionist and have a very high engineering standard, but this mindset isn’t very applicable to early-stage startups. Practicality is much more important than perfectionism in an early stage startup.

The second route is to join an early stage startup that gives out significant equity. Early stage Indonesian startups obviously can’t afford paying Silicon Valley engineer salary. From my observations, Indonesian startup market compensation (without stock option) is about 0.17 to 0.35 times of a typical SV salary. Looking at that numbers, it’s obvious that without equity, the number is just financially too far off from what one would make abroad. So equity is just a must to be financially “comparable.” The typical math for coming up with equity compensation in Indonesia is also significantly different than that of SV’s startups. Indonesian engineers generally don’t like equity, but prefer cash. This behavior, in general, pushes the startup market to generally gives out very little equity. Larger startups typically gives out executives an equity that amounts to 4x monthly salary, per year. While this number makes a lot of sense for bigger startup like Tokopedia whose stock investors are queuing to buy for, this number doesn’t make sense for early stage startups whose valuation often comes only from venture capital’s subjective valuation. For example, a startup might be valued at USD 15 millions at seed funding stage. Suppose an engineer is offered IDR 35 millions (around USD 2.8k) in terms of cash per month + IDR 140 millions (around USD 10k) in terms of equity per year. Doing math using the seed funding valuation from before, the equity comes up to be 0.067%. Sounds a lot larger compared to the number you got at big corporate? Wait up! Let’s calculate the opportunity cost! Let say the engineer makes USD 120k/year in the US, the opportunity cost of working at this startup for four years would amount to be USD 365K. In four years, the engineer’s equity becomes 0.268%, and in order for this to just break even with the opportunity cost of USD 365k, the startup’s valuation has to reach USD 136 Millions in 4 years! How likely is this? I’d say that’s a pretty high bar to achieve. Historical data also says 90% of startups actually failed, so yeah, if you were to join an early stage startups, make sure to do the numbers and check if it is aligned with your goals. In order to get more equity, make sure to bring home enough skills and confidence to be a co-founder instead of just key hires. Also, ask the founders a lot of hard questions about their execution strategies and competence. And don’t forget to ask yourself, what are your personal goals from this startup? Is it to learn how to do marketing/sales? Is it to learn how to build products from scratch? Or is it to make impacts for the society?

While a good idea is necessary, good execution is 100 times more important. As software engineers, our work is very easy to measure. We work with deadlines to build products that can be used and tested. It’s easy to say that we as an engineer delivers or doesn’t deliver. On the other hand, business execution is not as easy to measure. When trying to create a startup or find one to work for, be very rigorous to make sure your co-founder/business guy really understands what they are doing. Ask them execution strategy from the higher-level all the way up to the micro-level. For example, ask them the bigger picture of the plans to sell the product. After that, be critical and scrutinize the marketing-and-sales strategy for each of the plans. I learned that certain businesses depend heavily on connections (i.e. knowing who big the people in the industry are) and heavily domain-specific (i.e. an expert in retail business might have no idea how to do e-commerce marketing, although both might be selling the same product). While having a good product is important, sales-and-marketing are really the heart of a startup business. No matter how great the product is, it means nothing if nobody uses it. So yeah, marketing-and-sales strategy should really be planned out before the product is ready. Don’t buy it when a business guy says: “we’ll figure it out once the product is built”, cos you might end up wasting your time. Instead, ask them to come up with marketing strategy and execution plans before you even start coding. After that, ask them to do market validation without even having a product built. For example, try selling to a potential customers using only a design mock-up. Read more wisdom like this on the book Lean Startup.

The other thing to understand is Venture Capital (VC) funding. Nowadays, so many medias in Indonesia make a hype about VC-funded startup companies that so many people are trying to do the same without really understanding it. In order to create a successful startup, however, it is important to understand how a VC works. Contrary to the more conservatives financing institutions such as banks, VCs invest in a much more high-risk high-return profile. This means they’d generally invest only in ideas that can possibly give out really high-return on success. How high is high? Have you heard about the term unicorn? Yes, USD 1 billion is typically their target. How about the chance of failures? The higher the return, the higher would the risk also be, right? VCs are well aware of that, and in fact, that’s why they’re doing lots and lots of investments to amortize the risk. Somebody once put it in a really good way: “VCs are like throwing 100 coins to 100 different buckets, with the expectation that the return from only 1–2 successful buckets would make up for the rest.” Just like how some people prefer to invest in riskier stocks to get more return compared to more conservative mutual funds, VCs are of high-risk profile. So what are the risks? The obvious one would be the money the VCs spend, the less obvious one would be the founders’ time, money (in terms of opportunity cost), and mental energy. The less obvious risks are often overlooked because many people consider VC funding as their ideas being validated. In reality, market is the one that validates an idea, not VCs!

Does that mean VCs should be avoided? No, not at all. VCs are a really good vehicle to help startup succeed. However, founders should only raise VC funding if their goals are mutually compatible with those of the funding VCs. For example, VCs really love to see growth. Their expectation is that the businesses they fund should try to reach a certain size. Their philosophy is “go big or go home”. Is it aligned with the founders’ goals, though? For example, VCs might not be happy to see a company stops trying to grow and turn profitable (i.e. stop re-investing all the profits for growth) at merely a few millions of dollars of yearly revenue. On the other hand, that same size of a company might already be making enough profit from the founders’ perspective. (i.e. the goal is to get USD 10k of passive income monthly) When I first came back, I was under the impression that if a startup is VC-funded, it must be a good startup. Later on, I learned that there are actually a lot more funding available in Indonesia than the number of startups out here. And because of that, there are actually a lot of, in my honest opinions, unqualified startups that get funded. When finding a startup to work for, be super critical about their funding. Ask a lot of questions about their goals. What’s their current revenue like, what’s their target, etc.

Throughout these 3 years back home, my biggest struggle has been to find the right business partner to work with. If I were to turn back time, before I went home I’d have definitely tried to get more hands-on experience by working for a startup. From there, I’d keep working a full-time job until I found an idea and a right business partner to work with.