Teaching startups how to fish
By Benjamin Cher March 2, 2016
- Accredited startups eligible to bid for government tenders
- The accreditation process is ‘not just a grading exam’
THE adage ‘give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime’ rings true even for startups.
Singapore already has an abundance of grants for startups, but has also been working to ensure there is an avenue for them, via accreditation, to get jobs that can help them sustain themselves.
In July 2014, the Infocomm Development Authority of Singapore (IDA) announced the [email protected] ([email protected]) scheme for startups to undergo technical, financial, and operational evaluation to be able to bid for government tenders.
A year later, the IDA declared that S$20 million (US$14.32 million) in project opportunities had been created for accredited startups.
“The typical industry tool used to be grants and training, but instead of giving away money, we wanted to be more impactful and sustainable,” [email protected] director Edwin Low told Digital News Asia (DNA) in Singapore.
“Only then could we holistically address the challenges across the different growth lifecycles of tech companies,” he added.
That was when IDA took a look at the levers that the Singapore Government had, and one of them was procurement.
Most government contracts have been going to large enterprises because of uncertainty in a startup’s ability to deliver, according to Low.
“There are three challenges a buyer faces with a startup: He doesn’t know if the product works, he doesn’t know if the company can deliver with 10 men versus IBM with thousands, and he doesn’t know if the company is financially sustainable,” he said.
[email protected] was thus formed to provide government buyers with the assurance that the product works, and that the company can deliver and is sustainable.
“Then we went one step further: Could we streamline the procurement process so that they [startups] don’t get stuck in a long, drawn out tender process?” said Low.
Setting the bar high
Startups are often scrappy operations flying by the seat of their pants, in contrast to enterprises and their structured processes and operations.
Although setting the benchmark at the enterprise level could be almost impossible for startups to hit, yet “we wanted to have a certain minimum standard and kept that bar high,” said Low (pic above).
“But we found that some companies had trouble meeting that bar. The process is rigorous, and for companies which had trouble meeting that bar, we would work with them.
“The approach was this: Because we weren’t giving away money, the end goal was that the company [startup] had to receive some value, and the buyer [of its services] would have to receive some value.
“The accreditation assurance process is that when they are good enough, we will accredit them and help them win work,” he added.
Helping companies attain the minimum standard could involve anything from helping them articulate their financial models to refining their operations and practices, according to Low.
“If they are raising funds, we work with them to get their pitch right – it is more nurturing and a continuous process working with the company,” he said.
The first batch of startups was accredited within five months of the scheme – that is, between November 2014 and March 2015.
“Our first graduation batch had eight companies, and the results so far have been very encouraging,” he declared.
The startup perspective
The startups which participated in the accreditation process so far have been positive about it, Low claimed, as the process addressed their shortcomings and was especially useful in their fundraising efforts.
“Most of them found that the process alone was of value to them. It addressed their product issues, making their product stronger, their pitch more focused, and they knew what their UVP (Unique Value Proposition) was,” he said.
IDA’s efforts at helping accredited startups win work have also been effective in “building a pipeline of S$20 million (US$14.1 million), and come March 2016, they would close a total of about S$4 million (US$2.8 million) of those sales.”
“Another encouraging fact is that we found that the startups’ fundraising and growth process were accelerated.
“By March 2016, about S$20 million (US$14.1 million) will be raised either during or just after the accreditation process, plus one of our accredited companies, Deep Identity, got bought out,” he added.
These developments have encouraged the [email protected] team, as the process has won approval not just from prospective buyers but from investors as well.
“Investing in these companies, there is a risk-to-reward ratio, and what we are doing changes the ratio – by the assurance process, by getting the company a little bit more robust in terms of governance, and in how it delivers and manages its finances,” said Low.
“We lower the risk of execution,” he added.
The startups themselves have been giving positive feedback to the [email protected] team, according to Low.
Some said the process helped with fundraising as it prepared them to answer the right questions, while others were able to identify flaws in their code and patch it before meeting customers.
“Some of them didn’t know they had gaps in delivery and operations – by doing it in a structured way, they realised they didn’t have a process,” said Low.
The [email protected] scheme brings the bureaucrat and the free-wheeling entrepreneur together, which leads to a different set of challenges: First off, there is the trust needed to open up the intimate parts of the operation.
Low summed it thus: “You are a company and a government body says, ‘Tell me everything.’
“Because we go through source code, payroll, and your sales pipeline. Many startups do not tell this even to their VCs (venture capitalists),” he noted.
An important point was to keep reiterating that the scheme is not a mere pass-or-fail test for startups.
“The next issue was that we didn’t want to be a checklist – in building the team, the challenge was to always to give some value back, and they have to believe that what they do results in some value,” said Low.
“We have to be careful because when we rush to meet time deadlines and KPIs (key performance indicators), we can lapse into the checklist approach,” he added.
Risk management is also key because the IDA is essentially vouching for the accredited startup.
“When we accredit them we are putting our name on it – on one level we can check everything to a gold standard, but startups might not survive that risk-taking process.
“But if we don’t, what if something goes wrong? What if we don’t check hard enough, or do a sloppy job and miss something in the code?
“That is something we are always mindful of. The process needs … to be a scalable and manageable process for these guys to go through, yet has to be rigorous enough so that the value of our accreditation means something,” he added.
Not for everyone
The number of the IDA’s accredited startups might seem small. The [email protected] team screened over 2,000 startups, looking for those providing enterprise services and not commoditised, consumer services.
Low said that only about 10% make it to the shortlist. The next step is to see what kind of differentiation and innovation they bring to the table.
Even after shortlisting, there is still a need to curate startups and gauge their level of readiness, he stressed, which brings the number of shortlisted candidates down from 200 to only about 60 to 70.
And even then, not all are ready. There are still other factors to consider, such as the nature of the business and what stage the company is at. This is where the [email protected] team steps in to engage the startups more fully.
“We try our very best to get as many across the line, but it is a question of whether they are ready to meet the grade,” said Low.
“We don’t push the process, we say: ‘Let me understand your business, your aspirations and what you are trying to do.’
“And then we see whether this programme has any alignment with your goals,” he added.
If there is such a fit, then the [email protected] team will advise the startups on what they would need to work on.
“We do a bit, you do a bit, to move people across the line,” quipped Low.
He claimed that the startups which did not make the grade had little animosity.
“Often, they appreciate why they are not ready. The idea is not to start the actual accreditation process too early because it would be too challenging for young companies, so you curate them accordingly,” he said.
The more mature the startup, the less work there is to do.
“Some of the more mature startups go through the process much more quickly, because when you ask them for something, it’s there.
“We are not being rigorous for the sake of being rigorous, it’s always with the idea of creating value and minimising risks,” said Low.
“The work we do needs to have meaning in the commercial context, it is not just a grading exam,” he added.
Detractors and critics
[email protected] has had its share of detractors and critics. One of the most prominent was a post on Medium by Derrick Ko, which was republished on startup blog Tech in Asia.
While the post brought up good points about product and market fit, Low argued that [email protected] is not the place for startups to discover that.
“Trying to do it [build and product or find a market fit] within government would not be the best way to do it, but our programme is not meant for startups to find product or market fit, it is to scale up your sales and business to the next level,” said Low.
If a startup is still in the concept stage, it would be too early for the scheme, according to Low.
It is not about getting the Singapore Government as a customer either, because this would not be reflective of the overall market and would not help you scale, he acknowledged.
“We are not trying to find startups to build products for government, we were looking for startups … that we can help grow into global champions, using government demand as a catalyst,” he added.
Expanding the scope
Low said that [email protected] was also working to help startups win work not just from government agencies, but enterprises as well.
Meanwhile, the impending merger of the IDA with the Media Development Authority (MDA) to form the Infocomm Media Development Authority of Singapore (IMDA) will also mean that the [email protected] scheme might be extended to media fields as well.
“There is an opportunity to use the tools that IDA has, [email protected] being one of them, in MDA’s space,” said Low.
“This is a discussion that will evolve, but we are definitely trying to see if there are some early synergies that can be reaped from both organisations.
“The idea is not to chop and change, but to reap synergies,” he added.
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