Diversify is the name of the game
E-commerce pioneer Pawoot Pongvitayapanu shares SME survival tips.
Amid economic uncertainty shrouded by the coronavirus pandemic, agility, digital technology adoption, differentiation and business diversification should be mantras adopted by small and medium-sized enterprises (SMEs) to survive, says e-commerce pioneer and angel investor Pawoot "Pom" Pongvitayapanu.
Competition in the e-commerce segment has spiralled over the past few years, thanks to the entry of e-marketplace giants Lazada, Shopee and JD, which use discounts and price subsidy strategies to encourage consumers to pivot towards online shopping.
"In the past 3-4 years, those internet titans have spent nearly 10 billion baht in investment, which resulted in their business performance remaining unprofitable," said Mr Pawoot, who is also the founder of Tarad.com, a local e-commerce player.
To survive this battle, local e-commerce players may need to pay attention to niche products and services through engagement with vertical industrial players, such as those in fashion, food supplements, cosmetics, sports equipment and luxury watches.
During the pandemic, online shopping will flourish with mass consumer engagement. The trend will impact retail shops, which must gear up to transform themselves, Mr Pawoot said.
SMEs upcountry risk losing customers "if they fail to embrace digital fast, as Chinese products will flood the country", he said.
Mr Pawoot has been an avid investor in startups for nearly a decade and has 26 startups in his portfolio.
"I choose to invest in local startups seen to be the first-movers in the fields with potential for long-term growth," Mr Pawoot said. He gave the example of Builk.com, an e-commerce platform focused on construction materials.
Other businesses in his portfolio include warehouse management, logistics aggregators, digital payment, data analytics, digital marketing and influencers, as well as social media sentiment analytics.
Such startups can synergise with Tarad.com, which could bring the platform's service to a higher level.
Mr Pawoot predicts that more corporate venture capital firms and large corporations will enter the market to compete with local startups. With strong liquidity, they can internally build their own startups, which would be more flexible to iron out ideas for business.
For example, Siam Commercial Bank has rolled out its tech investment arm, called SCB 10X.
"Startups under large corporations will have an edge over local existing startups, since the former do not need much time for fundraising," Mr Pawoot said.
SMEs and startups have different mindsets, he said. SMEs focus on secured capital investment and grow with profit, while startups pay more attention to spending and scaling for growth.
As the pandemic and digital disruption take hold, SMEs need to transform themselves by working fast with technology adoption and coming up with a good business model.
"SMEs should draw half of the startup mindset and turn themselves into cockroach SMEs, which means they are hard to kill," Mr Pawoot said.
Cockroach SMEs are adjustable and agile and ready to change business strategies to survive and overcome crises, he said. Traditional SMEs that fail to embrace digital technology, work slowly or have conservative mindsets are unlikely to survive.
Cockroach SMEs need to have a new mindset and differentiate their products and services, not just follow the market.
"They need to develop products and services that can solve customers' problems, thrive as a first-mover and use digital tools to reach customers," Mr Pawoot said.
SMEs can capitalise on the rise of social commerce, which is simple to use and costs little but is capable of reaching potential customers.
They can present their products through Facebook Live, expand to e-marketplaces and later open their own websites, the latter of which could cost more but also help collect customer data and increase multichannel access by customers.
Mr Pawoot grew up in a Chinese family with a preference to "own things"; but in the new business world, "we can have only shares and let others do business for us by investing in potential businesses".
"If 3-4 invested things fail, you still have 5-6 things that can achieve success," he said. "This mitigates investment risk. Investors and startups can share profits and risks together.
"I have a diverse portfolio, including investment in stocks and cryptocurrency. This is like putting different eggs in different baskets."
SMEs can turn themselves into a startup or an investor, he said. They don't need to make heavy investments, but rather they should try to gauge the risks involved.
"They can choose to invest in a business that could leverage their existing expertise," Mr Pawoot said.
For example, a noodle shop can invest in shares of a noodle factory and then continue to expand to other businesses throughout its supply chain.
According to Mr Pawoot, Tarad.com invests in startups that support turnkey e-commerce services ranging from digital payment, logistics and digital marketing to warehouses and influencer management.
"At Tarad.com, we have 200 employees," he said. "We can allocate staff to handle growth business units with lean business operations."
As the company engages with a variety of businesses, profits or losses are shared among those involved. This is a possible way to keep employees at the firm.
Mr Pawoot stresses the importance of starting a business with passion and doing it immediately without wasting time.
"Every crisis gives us a lesson to learn," he said. "We can learn how to survive and use that experience to overcome the next crisis."