Image by Nico Orillano

#StartupPH is Becoming Magical

Is #StartupPH for real? Let’s go back in time to find out.

By Kahlil Corazo

It is actually happening. And it feels magical.

Two of my buddies recently announced their seed funding, just weeks apart. They got money from professional investors who are as dedicated to their work as my buddies are to theirs. Just a few years ago, our only source of capital were rich uncles and folks who were as clueless in startup investing as we used to be in raising capital.

Last year, I bought a shirt from guys doing a local version of Teespring. Recently, they got so much orders, they needed an emergency loan. They posted this in the Startup PH Facebook group. In less than an hour they got their money.

I joined the first Startup Weekend in my city 3 years ago. I remember thinking, “wow, I’m not alone after all.” Now, there are so many events for startups that I had to invent a rule for myself: I like being with my #StartupPH friends, but I need to earn each hour with them with 10 hours with customers. I feel fortunate to actually be complaining about this.

But is this thing for real? Could we possibly be wasting the most productive years of our lives on nothing but a fad? Are we just hyping up the plain old process of starting a business?

Surprisingly, I found answers in a hobby so devoid of coolness, I always hesitate in talking about it.

Some years ago, I geeked-out on Philippine history and culture. I never thought those dense academic tomes would someday be useful in this entrepreneurial journey, and would give me a greater appreciation for our nascent startup community.

The best way to appreciate your local startup community is not to compare it to Silicon Valley, but to compare it with real alternatives — the existing and dominant paradigms in local entrepreneurial community and culture. Let’s look at two: the immigrant Chinese entrepreneurial community and rent-seeking politicians.

Your Lolo Chinoy’s Excellent Adventures

China has been exporting entrepreneurs across Asia for centuries. Today’s Taipans are just the latest in a long line of young men who left their hamlets and took charge of their lives and fortunes.

For academics, the golden age of Chinese-Filipino entrepreneurship was the great era of transition between the end of the Spanish Empire in the Philippines (1898) and the Second World War (1941).

The immigrant Chinese entrepreneurial community is an interesting prototype for #StartupPH because it thrived in a very similar environment, and its keys to success are mirrored by Brad Feld’s ingredients to building a startup ecosystem.

Let’s put ourselves in the shoes of a Chinese entrepreneur from the golden age to see this in action:

You are a teenage boy in Southern China in the early part of the 20th century, the sunset of Qing, the last imperial dynasty of China, and beginnings of the Republic of China. Like your contemporary, the future Chairman Mao, you are a bright kid who does not simply accept the world as it is handed to you.

Your family is not wealthy, and you experience some of the frustrations and indignities of poverty. But the Chinese have long memories, and you were reared with stories of entrepreneurial ancestors who built business empires through hard work, audacity and a bit of luck.

Rumors of entrepreneurial glory reach you from Las Islas Filipinas, where generations of your countrymen built fortunes with the Galleon trade. A new colonial master has taken over. Old entrepreneurial lores have taught you that new empires mean new business opportunities.

You reach your 19th birthday and you simply could not stand it any longer. You have to take charge of your future. You face your first entrepreneurial filter — how does a kid get to the Philippines without any money? What seems insurmountable to your peers is just one more of a series of problems that eventually surrender to your tenacity. With each step, you become more and more the man who gets shit done, and you slowly drift away from your town mates who love to talk about making the leap but never do so.

You reach the shores of the Philippines. When the popular media of the future tell your story, they will observe with great drama that the only thing you had was the shirt on your back. They will fail to see that you have everything you need: you have a profound certainty that entrepreneurship will be your life’s work. You have an entrepreneurial community that will be your guide and support in this adventure into the unknown. The same community will be your source of that key ingredient to fast growth: capital.

Following an age-old tradition, you start off by working as an apprentice to a successful Chinese entrepreneur from the previous generation. You liberally give favors, help fellow businessmen, and gain trust from the people of your adopted city. Cash is king, but entrepreneurial reputation (xinyong) is emperor.

After a few years, you start your own venture. You have wins and you have losses. Your battle scars tell of fundamental truths: solving real pains and creating real value for your customers is what matters in the end. You learn how to lead a team and build an organization. You develop an instinct for your key numbers. You learn to respect competition. You see all the dirty tricks. You experience the best and worst in people. You learn to manage your own psychology. You don’t give up. You improvise, adapt and overcome.

The rest is history — history that you fight all your life to write with your own hands.

If you want to read the actual history, I recommend The Chinese in the Philippine Economy, 1898–1941 by Wong Kwok-Chu. For this post, it is enough to compare and contrast that extremely successful entrepreneurial community with #StartupPH.

Xinyong > Cash

One thing that immediately stands out is the importance of entrepreneurial reputation. There are several interrelated concepts that I keep on encountering when I read about this community: guanxi, xinyong and mianzi. They roughly mean “personal relationships,” “trustworthiness” and “face.” Scholars normally use the pinyin versions of these Chinese words because their English translations do not sufficiently capture their meanings.

This linguistic gap demonstrates the sophistication of Chinese entrepreneurs in viewing their business relationships. The need for this focus on relationships is understandable when we consider the environment they operated in: they built businesses across states whose legal foundations were constantly in flux. Business is built on fulfillment of agreements, on keeping of promises. If the law cannot enforce agreements, then the community’s soft power will.

#StartupPH operates on a more stable albeit inefficient legal environment (you can sue and get sued but it takes years to resolve). Let’s leave the grand redesigns of legal frameworks, technology infrastructure, business culture and entrepreneurial education to guys like Dado Banatao and Phildev. We need a fertile ground for our startups here and now, and our brave young men from China have a tried and tested solution.

In any case, recognition from peers is always a greater motivator than punishment from a government. People create masterpieces for an Academy Award, and people still commit crime despite the death penalty.

I think Xinyong is as applicable now as it was a century ago. And building it is as straightforward now as it was then:

Hackathons, free beer and meetups are just the first steps. Founders are now collaborating (even competitors!) in building their businesses. The trust and reputations developed through these collaborations will become pillars in the granite-strong version of #StartupPH a few years from now.

Classical and Startup Entrepreneurship

Let’s also look the differences between the Chinese business community and #StartupPH, because it leads us to understand the nature of this thing we are dedicating our professional lives to.

Let me highlight four: the Lean Startup, #StartupPH’s openness to diversity, the high rate of failure, and the role of venture capitalists. I think all four stem from the nature of startup entrepreneurship.

Our young men from China were experts in classical entrepreneurship. They executed businesses that are foundational in all civilizations: manufacturing, import/export, distribution and retail. These are all business models with known playbooks. The best way to learn them is to get hands-on experience in a successful business. Writing a business plan normally makes sense for classical entrepreneurship. Even an MBA might make sense.

In contrast, business plans are works of fiction in startup entrepreneurship. By definition, you are creating a business that no one (at least no one in your market) has created before. We only have meta-playbooks — playbooks on how to build a playbook. The most popular meta-playbook so far is Lean Startup.

At the beginning of your startup journey, in all honesty, you have no friggin clue of what you are doing. You only have hunches (which you call “visions” if you think you are Steve Jobs). The game is not (yet) on being best in running a business. The game is learning and iterating as fast as you can to turn those hunches to a repeatable and scalable business model. Only after do you scale your business.

Opportunities for startup entrepreneurship have increased recently because of the rapid changes in society due to technological innovation. In an environment like this, alumni networks, family connections and ethnic membership don’t seem to work as well as they do in other settings — like running a classical business in early 20th century Philippines.

The Philippines elected the first female president in Asia, Corazon Cojuangco Aquino, a descendant of a Chinese entrepreneur from the Spanish era. Our boys from China though were from a different world. They belonged to an exclusive club with heaps of esprit de corps. You had to be male, and you had to be Chinese and proud of it. This sounds offensive to the modern mind. But before we congratulate ourselves for our superiority, we need to understand that they were operating in an alien and occasionally hostile environment, and had to work as a tight-knit platoon.

#StartupPH on the other hand is one of the most open and meritocratic communities I have had the chance to belong to. I don’t think this is simply because we are in a more enlightened century. If your only competitive advantage is a new and better way of creating value — innovation, in other words— then you can’t afford to narrow your horizons.

This openness might also stem from the nature of startup failure: it is brutally egalitarian. It does not care about your title, degree, family name, gender and physical appearance.

In fact, we are now seeing crashes of peers who successfully launched a few years ago and had some initial traction. Failures are by nature more likely in startups vs classical businesses. Some of the best and brightest among us will fail and have failed. We are a young community so this challenge is just beginning to take form. If founders don’t get second chances, this is poison for the community. If entrepreneurial reputation can be built not only despite of, but because of how you handle failure, #StartupPH might actually be the real deal.

This high rate of failure is also the reason why we have professional venture capitalists. Business loans are the normal source of capital for classical entrepreneurs, including our pioneers from China. Financing startups with debt makes no sense for both for the lenders and founders; the risks are just too high. Silicon Valley has developed the appropriate type of financing to handle the risks and exploit the outsize returns of startups. After a short-lived spurt in the late 90's, the Silicon Valley model is back in the Philippines. Thankfully, some bright folks are also dedicating years of their professional lives to master this craft.

Not all startups are appropriate for venture funding. Not all untested business models are potential rocketships. These may give great returns for self-funding founders, but not for professional investors.

For better or for worse though, the venture-funded startups are the poster kids of #StartupPH. Their experience of failure and rebound will set the tone for the entire community. When we see founders raise funding, go big but fail to make it — then raise funding again for a new startup — we will have reached a key milestone in the maturity of our ecosystem.

The Superior Race

The entrepreneurial accomplishments of our entrepreneurs from China are impressive, and they eventually filled those lists of richest folks in magazines across Southeast Asia. Does this mean that the Chinese are a superior race, at least from the entrepreneurial perspective?

(Okay, this is an embarrassing question, especially for my generation and younger — just hold on; this has an enlightened conclusion.)

If you have at least dabbled with web or app analytics, you are probably familiar with this faulty line of thinking. This is taking behavior data of a special subset of users, and extrapolating it to a population based on superficial (literally, in this case) pattern-matching.

In 1921, China had a population of around 500M, and there were 55,212 Chinese in the Philippines (this data is from the book I mentioned above). Even if we double this number to account for undocumented immigrants, that’s a whopping 0.02% of the Chinese population. And that number will be reduced significantly if we consider only those who started businesses.

Our brains are hardwired to pattern-match using physical appearances. This is why stereotypes based on constructs of identity (like race and class) are so pervasive. Even though our rational side sees the number above, our primal intuition makes its own conclusions. For us who grew up in a Philippine city, most if not all of our Chinese friends came from entrepreneurial families. Our gut concludes that the Chinese must be inherently entrepreneurial — even though we know we have not seen the diversity of the Chinese people.

If we wish to link entrepreneurship to some sort of marker, we need to look at entrepreneurs all over the world. Even with just one other location, we can already make better conclusions. There is a gem hidden in the appendix the 2014 internet trends report of Mary Meeker. In page 148, you will see a list of top 25 US tech companies and their founders. 60% of these companies were founded by first generation and second generation immigrants. Our boys from China had more in common with the founders of Google, Qualcomm and eBay than to their town mates who never made the first step.

If there is a superior race in entrepreneurship, it is the race of immigrants. I think this is because the act of leaving the land of your birth filters out all but the ballsiest of people. Making money through the old boys network is not normally open to immigrants, so they have no choice but to pave their own path.

What does this mean for those of us who have the misfortune of doing business in the land of our ancestors? Don’t worry, because with enough breadth of vision, all of us will have to be immigrants. Aren’t you fired up with the opportunities now to build businesses across Southeast Asia and the rest of the world? By doing so, we will have to stop relying on home court advantage, and we would need to compete on value — just like immigrant entrepreneurs.

Power vs Value

We all have that friend who attacks Capitalism at every opportunity. During one friendly lunch-time debate, I discovered one reason for their rage. I think I was winning the argument because he brought out his trump card. With passionate and righteous indignation, he asked me if those corrupt politicians all deserve their wealth. Wtf…

My friend should probably be forgiven for equating our job with that of a high-rolling politician. I have even read scholarly books where they are referred to as “political entrepreneurs.” On the surface, they do look like entrepreneurs. They need capital. They take enormous risks. If they win, the returns are huge (or at least proportional to how venal they are).

This confusion is even more understandable in the Philippines. I never really understood how money is made through power until I acquired the weird habit of reading about Philippine society. The best one I’ve read is An Anarchy of Families.

It turns out that outright stealing is the least elegant model of converting power to money. Rent-seeking, which is essentially using political power to gain business advantages, seems to be the strategy of choice, probably because it could lend a veneer of legality. One example, which is so common it is almost boring, is for an elected official to award government contracts to businesses he (unofficially) owns, with margins that will make a drug lord blush.

Silicon Valley loves reverse-euphemisms (making things sound more badass than they really are) like “hustling,” “obscene profit margins” and “mafias.” It could be misleading to use these cool words in the Philippines, because there are real hustlers, real obscenity and real mafias.

Most of my #StartupPH friends are city kids who grew up inside a bubble of white-collar decency, and would not go anywhere near this dark (but lucrative) underbelly of Philippine business. Understanding the workings of this alternate world however highlights what makes #StartupPH special.

The heart of entrepreneurship isn’t the risk or the money — it is the creation of value. No one is forcing our customers to give us their hard earned cash — we need to create value for them. Something lights up in me every time our company bank account gets topped-up with a payment, and it’s not only because it means we’ll make payroll. Our revenue now is nothing compared to the income of a political “entrepreneur,” but each peso that comes in confirms that we are creating something valuable. We only have one shot at life, and revenue tells us that we are not wasting it.

#StartupPH is a vision of a new entrepreneurial environment — an open and straight-shooting community that collaborates and competes with innovation and wins with the creation of value.

Magic

It is awesome to hear war stories from folks who were in the Philippine startup scene of the late 90's and the early 2000's. From what I gather, VC money from Silicon Valley was overflowing everywhere it could, incubators sprouted up in all sorts of places, and some guys here got to ride the startup roller coaster for a few years. Then the bubble burst, and everyone went back to their normal lives: IT outsourcing, Telco and web hosting. (You guys should really blog more about those days).

I am confident that this time around our foundations are firmly local and independent of the Valley. Many of us have real revenue, solving real problems for real customers. Some have started to scale. A few have raised capital from professional investors. A handful have exited. #StartupPH owes a lot to the ethos of Silicon Valley, but it is as grassroots as text messaging, basketball and adobo.

History is still valuable. The crash of the previous generation shows how quickly all our years of hard work could be blown away. History also shows what firm roots actually mean: investing in the community and earning Xinyong like Chinaman fresh off the boat, and competing on value like an immigrant entrepreneur.

The most important pillar though is probably the startup skills each of us has gained by sheer necessity. We all had to learn how to find product-market fit, acquire customers, hire and fire, and deal with the government. Some had to learn new technologies, new languages, new frameworks. A few will have to become experts in product management, in user experience design and in the specialized economics of SaaS, eCommerce, marketplaces, mobile apps, and whatever hole founders will dig themselves into.

When the hype dies down, when it is no longer cool to be a startup founder, when investor interest in #StartupPH goes through its cyclical dry period — all these superpowers will remain with the community, and the magic will continue to happen.

If you trace the origins of the world’s greatest professional magicians, you would see the same formula: years of dedication to their craft, a team of experts, and a community of magicians helping and competing with each other.


Thanks to John Yu, Arnil Paras and Jeff Siy for reading drafts of this.

This post started as a thank you note for the folks who helped me with a problem: how to setup telephony for an inside sales operations calling Philippine numbers, where VOIP minutes cost 13X vs the US. I posted it in the Startup PH Facebook group, and it magically got solved in two days. That part got edited out, so: thank you Gian de la Rama, Gio Bacareza, Dennis Billano*, Rexes Villa*, Carlo Taguinod* (via Paul Rivera), Kyle Wiltshire, Marck Hengello Villar*, Nitender Rao*, Vince Loremia, Ian Callet and everyone else who pitched in. *Contact these guys if you need vendors or consultants to solve the same problem.