Why foreign startups are hitting it big in the Philippines

I have been writing about challenges of local startups in the Philippines. Just to clarify, when I say “local” startups, I refer to startups where the founders are from the Philippines, are products of the Philippine education system, and predominantly lived in the Philippines. When I say “foreign” startups, I refer to startups with founders that are obviously not from the Philippines. Even filipinos raised or studied abroad, I consider “foreign” founders. Let’s start.

First, let’s get this out of the way. The next Silicon Valley? Hell no.

Philippines is rising really fast. With the fastest growing economy, and growth in Asia’s startup scene, the Philippines is making a run for it. So is it the “next silicon valley” like what some people say? Honestly, we are far from it. In my opinion, Philippines is great for starting a startup. But to claim that we are the next silicon valley, that’s a pretty big claim with absolutely no real basis. We have one of the worst internet infrastructure in the world and we are the next silicon valley? C’mon. We are extremely excited if we can get 20 Mbps in our business accounts. In Canada, the residential accounts have a minimum speed of 50 Mbps. Let’s not even talk about what we have in the office.

On top of that, the laws, government, infrastructure, and mentality is all against us to make us be the “next silicon valley”. Let’s get real.

However, this does not mean we cannot be a great place to launch a startup. We are a perfect place to launch a startup. Let's see why…

“More bang for your buck” at Asia’s thrift shop.

Huge difference in salaries. Huge difference also in skill level. Be warned.

Just look at the trend on the BPO industry. Every large call center company is now in the Philippines. These corporate giants obviously see something, you just need to open your eyes to see it. What they see is huge…I mean HUGE, cost savings. From the foreign exchange you’re already 47x the US dollar. On top of that, local salaries are considerably lower here in the Philippines. Let’s take an example, our junior developers in Vancouver, Canada. I have hired new grads with NO experience and we start them at $48,000 per year. Plus all the benefits. That is about $4,000 per month or P180,000. The junior developers here with NO experience depending on the area is probably P5,000 to P7,000. Based on payscale, the lowest is P60,000 per year which is P5,000 per month in Cebu. Manila has it at P120,000 per year which is P10,000 per month. Mind-boggling difference.

I know this comparison is on entry level developers but its easier to get some context on the salary if we do the comparison at the most basic level. But anyways, my point is that there is a huge difference in terms of cost per developer. A word of caution though, remember what I have been saying about competency levels. New grads in the Philippines need a minimum of 6 months of hand-holding before they can actually be utilized. It is not the same as the level of abilities you would get from a new grad in North America. In Vancouver, new grads hit the ground running. In the Philippines, new grads would face plant unless you spend the time to really nurture them and teach them.

Obviously, your not going to hire a new grad for your startup. Let’s put it this way, for the exchange rate, you can hire someone with seniority and years of professional experience. There’s the value. There’s the bang for your buck.

Everything is relatively cheap. Just dont buy a car, house, computers, branded clothing, or imported stuff.

Cost of living is low especially if you have the foreign exchange on your side. When my partners of my Canadian company came to see what I was getting myself into in the Philippines, their first reaction was, everything is so cheap. That was because they were thinking of the foreign exchange. Of course it is cheaper when your making dollars. duh!! But if you were making pesos, it is actually now pretty damn expensive.

Well, your not going to buy a car or a house, so let's skip that. Just know that it is bloody expensive. Let's talk about hardware. That's right, computers and equipment. The price is deceivingly cheap. If you were someone not particularly familiar with the hardware specs, you would think it's a good deal. But if you were a tech geek, you realize your buying an i3 or entry level dual core for almost $1000 USD. WTF right? Did I just go back in time to the early 2000’s? They are selling pentiums for like $700 USD here. Crazy.

My advice is that if you are bringing your team here, bring your hardware with you. On the bright side, if you did buy your equipment here or are already in the process of shipping them over here and realizing that was a mistake, beer is crazy cheap!!! You can drown your sorrows with some San Miguel Light beer for almost nothing. Its like $1–2 USD at a bar/restaurant or 50 cents USD at 7–11.

But where would be a good place to set up an office? What other expenses do I need to be aware of?….Tada…coworking spaces to the rescue.

I wish when I came here 4 years ago, there were already coworking spaces. But none existed. I got a small shared office like Regus offices that has everything set up for a fee. We were there for almost 3 years before we moved to a bigger office. But now, there’s coworking spaces popping out everywhere. Heck, I opened one up in General Santos City. Hub88 Coworking Space is the first one in Mindanao. The locals still have a hard time to understand the concept but for foreigners its as important as a place to sleep.

Coworking spaces are vital to a startup not only on the cost perspective but the community. Being surrounded by like-minded people is so important. As a startup, we are diving into the unknown. With ideas full of uncertainty, rejection and understanding from the rest of the people around you, especially here in the Philippines where they still have a vague understanding what is a startup, the older mindset, regardless of age, is quick to harshly criticize and put down your idea. Being around a startup community is also a support system to remind you that you are not crazy. This is especially prevalent here in the Philippines.

Coworking spaces offer good internet speeds (I’m not going to say great, we are talking about the Philippines, the worst internet speeds in the South East Asia), air conditioning, and an ideal location near restaurants, bars, malls, etc.

Coworking spaces basically allows a young startup to “get up and go”, to “hit the ground running”. Remember back in the 70’s when companies were being founded in garages? Coworking spaces are like a more modern, artistic, techie younger brother of garages. Great ideas and companies are coming out of coworking spaces around the world.

But how about the communication barrier? It might be harder for my startup guys to communicate with everyone there.

Communication barrier? Non-existent. This is Philippines, not Indonesia. English is an official language here. That is the biggest advantage of the Philippines, the Filipino's ability to communicate in English. We have become a BPO (Business Process Outsourcing) or Call Center powerhouse in the global scale. Where we lack in our technical skills, we make up in our communication skills (and apparently singing, except me. I have the technical skills and absolutely no singing skills what-so-ever).

So, communication is a non-issue.

But how about all the corruption and bad things I hear about the Philippines?

Well, what can I say about that? It's a complete gong show here. But that is similar to other Southeast Asian countries. Every place has problem areas. Stay away and avoid those areas and you will be fine. Just remember that you are “no longer in Kansas, Dorothy”. Learn and adapt.

How about testing our product? Philippines is a totally different market.

Yes, it's true. The Filipino market is a totally different beast. But that really depends on your test plan and obviously, your targeting strategy. If you are doing something that targets social (which most apps do nowadays), know that a) the Philippines and Indonesia are the two largest user base on Facebook and b) mobile adaption is higher in the Philippines and Indonesia.

These two factors coupled with a high level of proficiency in English makes a pretty good testbed for mobile first applications.

So, basically what you are saying is that…..

…startups can really stretch their dollars here and therefore get a longer runway to get their product to the market.

My advice is that, take advantage of the foreign exchange. You are getting 47 to 1 on the dollar. That is a huge advantage.

If you have a seasoned product development team, then its more cost effective to ship them here for a temporary timeframe. Depends on your startup and direction, you might be lucky to find some local resources to join the team. Whether you work out of a coworking space or get a small office, the cost will be cheaper than running it out of North America or Europe.

Don’t expect to come here and have someone here come up with the product idea. Do your homework bring some technical talent if you want to launch quickly. If you have time, you can always try to find talent here but I can pretty much tell you, if you want it done right and with best practices, you need to bring talent with you who can train local resources. If you do not do this, you will eat up your runway trying to get someone with real world experience to lead your product development efforts.

Expect cultural challenges but then that is a “given” already. You are in a different country. One plus is that if you are lucky to find someone that is very good technically and you treat them well, you will get the most loyal employees ever. Filipinos are known to be hard working and loyal.

Take advantage of the fact that there is a pretty good testbed for your startup. Nothing is perfect but with a little work, you can have quick validations and initiate pivots quickly.

In terms of government support, times have changed and newcomers are super lucky. New startup programs have been passed to really help startups. When I first came here 4 years ago, startups was a new frontier. Now it is maturing and that makes it easier.

Oh, one last thing. If you are going to be flying a lot like myself, be warned. The airlines suck and the NAIA airport in Manila is one of the worst airports in the world. Customer service is non-existent. Do not expect the same service back home. You will just be disappointed and frustrated. Other than that, its great here for a startup. :)

Till next time….keep grindin’