Over the past few years, Vietnam has been getting its foot in the door to global tech and VC landscape, with rapidly rising smartphone and internet penetration rates, economic growth opportunities coming in from the US and Northeast Asia, and a growing pool of returnee and battle-tested entrepreneurs. While foreign players have largely been accelerating its digital transformation with infrastructure, know-how, and capital, local entrepreneurs are taking the spotlight as they digitally enable markets closer to home and to their roots.
One such entrepreneur, VRED co-founder and CEO Phuoc Tran, recounts the Vietnam startup ecosystem’s evolution. With his wide range of experience as an operator from ride-hailing and food delivery to ecommerce and fintech, he shares hard-won lessons and pivotal “aha” moments throughout his career.
Three Waves of Vietnam
IBR: Let’s start by talking about the Vietnam startup landscape. How has it evolved since it began?
Phuoc: There are three waves of startups in Vietnam. The first one was in 2004, when IDG ventures and a lot of the early stage investors started out. Most companies were focused exclusively on online activities, like forums and games. The second wave started in 2013, when a lot of the online companies began to go into the offline sphere. This is when your ecommerce, ride-hailing, and logistics services came in, the likes of Grab, EasyTaxi, Lazada, Zalora, Carmudi, and Foodpanda.
During this wave I came back to Vietnam after twelve years of studying and working in the US. Back then a lot of people didn’t have a lot of experience in offline operations. When you do ecommerce, you need to know how to do logistics, warehousing, COD, returns and cancellations.
The learning curve made it a very challenging environment for us. After about two years, people got wiser and more experienced and started to branch out. You have ex-Lazada or ex-Zalora employees starting their own companies or joining a local startup.
This is the third wave, where there are more local entrepreneurs with real operational experience and funding. And now you see that a lot of the rising startups in Vietnam are quite sizeable and indigenous, like Foody, Sendo, and Tiki.
I joined EasyTaxi during the second wave, learned firsthand about operations, and then I left and co-founded an indigenous startup Ahamove, which was majority Vietnamese backing from Seedcom, the local fund behind GHN. After that I went on my own entrepreneurial pursuit which is VRED. That’s how my journey coincides with the development of the startup landscape in Vietnam.
The “Aha”-move Moment
IBR: From this macro perspective I’d like to learn more about your experiences as a founder, starting with Ahamove, as it was a pivotal step not just in your career but also in a landscape dominated by foreign startups. It also seems that you picked up a lot from that experience as a startup operator. What was the transition like?
Phuoc: Logistics is one of the biggest challenges for Vietnamese companies. The first approach was motorbike delivery within urban areas, where GHN did very well. Now Seedcom also wanted to get into the heavily fragmented truck industry, which they estimated to be $9B. There was great market potential, and the idea was that just like EasyTaxi or Uber, instead of building your own fleet of vehicles, you could leverage on existing truck drivers for logistics needs.
At that time, EasyTaxi had just shut down, so I co-founded Ahamove and started looking for companies in the region I could learn from. There were two companies that stood out: GoGoVan and Lalamove (then EasyVan). I flew to Singapore to talk to their truck drivers, learn about their apps, and then I went back to Vietnam to try out what they did. We recruited these small trucks in the suburbs, 20 to 30 km away from the city and see if there were opportunities.
After eight months, there was no improvement in metrics. We spent a lot of money building the app. We were only getting 30 orders daily, which was very demotivating for us. We didn’t know what we were doing, and we were expecting to get shut down.
Then somewhere along the way, we started out a pilot for motorbike deliveries. There were a lot of companies in the space already like GHN and VNPost, but not as much in food delivery. We called up Foodpanda, and asked if they would be willing to partner. Through a trial partnership, we found out just how difficult it was; we were only getting eight orders a day on average. Perhaps it was a slow week, but at the same time Foodpanda Vietnam shut down 2 months later.
The team began to rethink the pivot, but we pushed through recruiting motorbike drivers to do food delivery. To our surprise, it took off and we hit 90 orders a day. However, truck driver numbers were not going up, and the bike segment remained small in scope and volume. We concluded that without massive funding or a pivot we could not grow with both bikes and trucks. So we shut down the truck segment and focused everything on motorbikes. Almost a year later, we hit 40K orders a day.*
We realized that our earlier failure was not necessarily because we were bad at what we did, as we still had the same team and mostly the same app; we were just tackling the wrong market. You have to move with the market.
If the market doesn’t agree with you, you need to change, because no matter how much funding and effort you put in, you could be two years in with single-digit metrics, and that’s not a place you want to be in.
*both GHN and Ahamove were incorporated under Scommerce, which received $100M in funding from Temasek in 2019
The Vietnam Exodus
IBR: There’s definitely a lot to be said for picking the right market. What did you see in the market that made you decide to move from Ahamove to starting up VRED?
Phuoc: People are moving from offline to online and from unbanked to banked. With this new economic growth and more startups, I know for sure that people are going to use more online platforms and get into financial products. If we can play a role in that and facilitate this transition, we can bring a lot of value to people.
There are different ways to do it. For us we’ve leveraged on the small sellers and their distribution network. Regardless of the approach, I believe that this is the transition that Vietnam will go through. It’s going to fundamentally change our country. We have to be flexible and cognizant to anticipate and work with these changes.
Big Shifts with Small Sellers
IBR: Let’s dig deeper into the nuances underlying these changes. There’s this huge shift that you’re trying to ride along from offline to online, unbanked to banked, and being able to ride that shift successfully requires a depth of understanding of the offline environment. What are the key nuances and challenges of the offline environment in Vietnam?
Phuoc: The way to understand these nuances is to look at the local behaviors. Vietnamese mostly shop from small sellers, who either have a local shop right on the street or sell through Facebook. It’s convenient and simple for people to walk into their local shop or buy something from their friends. Convenience stores and supermarkets are nowhere near in terms of the penetration of this distribution network. Even for ecommerce, it would still be costly to compete. A lot of companies burn money getting to the end consumer with subsidies and free shipping.
That’s why at VRED we decided to leverage on existing behavior and infrastructure and create an O2O sales agent model with small sellers. We know that they are already buying from small sellers. If we can work with them, not only will we be distributing products more effectively but also reducing cost. Initially we started out with these digital products to help small sellers, and then we began to think about more functional products and addressing the unbanked challenge.
The biggest element in this challenge is access. First of all, most people don’t have access to bank accounts or even physical banks. To address that, we equipped all 500K active agents with VRED mobile apps through which their consumers can access financial products. Now we have access to over 20 different commercial banks and finance companies so people can register to get a bank account.
The next key element of this challenge is the lack of data. Banks cannot lend to people with no financial data and records, but at the same time we realized we have data on small sellers like sales and inventory. With the data we could build a financial risk model and credit score that can help them get loans, and we know these small sellers borrow money more frequently compared to end consumers.
The long-term plan is to address the unbanked challenge on a cost-effective and fundamental level, tapping into the small sellers network in Vietnam, and then solving the challenges relevant to Vietnam, like the lack of access and data.
The Vietnam Exodus II
IBR: What is interesting about what you explained is that with all these challenges, the solution is already there, and it’s about giving these small sellers the digital tools to unlock opportunities for data to support financial services. With all of this growth happening in Vietnam, what’s next for the tech landscape in the country?
Phuoc: Vietnam’s future is unfolding around us, in countries like China and Indonesia. We look at them and can see a future where every small business will have a tool, an app that helps them sell things, source products, manage inventory, and process payments. It’s a very convenient way for them to increase productivity, sales, and income, all of which can be compiled to this comprehensive set of data.
The goal is for them to have digital footprints, so that they exist in the eyes of the financial institutions. Financial institutions can see if they are credit worthy and lend to them at good interest rates. The unbanked don’t even have a foot in the door, and are unable to access financial services, like investments, loans, etc. Helping the unbanked get a foot in the door is a very meaningful and fundamental move for the country, and we hope to play a role in that area in the future.
IBR: I really appreciate how you described it as a foot in the door, as it also syncs with this third wave of Vietnam startups being led by local Vietnamese entrepreneurs who are getting their foot in the door and establishing a presence, not just in Vietnam, but regionally as well.