About the episode
0:22 Yinglan’s intro of Steven;
1:23 Steven’s story behind Super;
3:00 Opportunity for e-commerce in Indonesia’s rural economy;
5:19 Unique pain points for e-commerce in of Indonesia’s rural economy;
6:56 Reselling/agent-centric model of Super;
8:12 What sets social commerce (and Super) apart from traditional retailers and distributors;
10:52 Overcoming challenges of logistics and payments in rural areas;
13:27 Impact of COVID19 on Super;
16:04 Steven’s take on growing Super in the short-term and long-term;
19:36 Steven’s recommended books for seed, Series A, and post-Series founders;
Yinglan: I wanted you to talk about and start off by how you became a founder and the story behind Super, which is the very exciting social commerce platform for Indonesians who live in the second and third-tier cities.
Steven: First of all, thank you for your time Yinglan and Paulo. It has been a great opportunity to tell the story of Super. So let me begin with how we came up with the idea. So the conviction to build Super started when I was a kid. I grew up in a family business, which was a retail business and market leader for tier-two and tier-three cities. And when I was a kid, my dad often brought me to go all across the cities in Indonesia, and I found out there is one big problem and then there is one big opportunity.
The biggest problem this country has is the inefficiencies in the supply chain. So you can always find goods that are actually more expensive than in the capital city, ranging from 20% to 300% more expensive. Second is the biggest opportunity. I saw that if we can empower people who live in the tier-two and tier-three cities in rural Indonesia, they can actually become an economic horsepower of Indonesia.
Therefore when I went to the US and graduated from grad school, I promised myself to go back to my home country to basically contribute to the economic and quality distributions for Indonesia. So that’s how Super was born.
Yinglan: For our listeners who aren’t familiar with ecommerce in Indonesia, Steven you can talk a little bit about the market. What is ecommerce like in the country? What is the potential you saw in second and third-tier cities in the rural economy?
Steven: I’ll try to slice my answer into two parts. The first part is actually the market opportunity for social commerce itself. So if you see the economic instrument of Indonesia that 60% of our GDP is driven by private consumption. And if you look deeper into Indonesia’s demographic that 30 million people live in Jakarta, so most people live outside of Jakarta. And if you see today that the propensity of the middle class is immense, and they account for the majority of the total population of Indonesia, which gives us a total addressable market of 200 billion-plus. So this is basically how we see the market opportunity, the things that we tap for Super.
Before we started we also tried to identify how the business model will look like. Of course, there is the first generation of commerce in business models like Taobao that has been happening in China and India. Social commerce is also thriving in those countries, mainly in the tier-two cities going to rural, in other models, more like O2O. But we think that Super never copy-and-pastes the business model that I see from India and China because we think that we need to have our own model. So we’re kind of the hybrid of what’s happening in India and China.
Second, why is the opportunity still massive and still untappable for those people? Because look at it this way. If you see the data for the past ten years, a billion dollars has been pouring for the first generation of commerce, for ecommerce juggernauts in Indonesia. And you see that they can only capture 4% of the total Indonesian retail market. It tells you something that the Indonesian’s offline market is going to be subtle for a while, in this way, we see that the offline market is a very massive market that we need to tap with technology in a more unique way that’s why we think social commerce has a big potential to crack ecommerce tier-two cities, tier-three cities, and rural Indonesia.
Yinglan: Talk a little bit about key pain points you are solving for customers in these rural areas. How is this pain point different from urban cities?
Steven: When you go to tier-two, tier-three cities and rural right there are two visible problems that actually probably everyone already feels. First, access to roads is quite unique. There is a road that cannot be passed by a truck, or there is a road that can be passed by a truck but there is a welcome sign that is only one and a half meters, so the trucks cannot pass by. So there are limitations for the supply chain to get there. It results in a surge in price. That’s number one.
Second, because the supply chain in Indonesia is not as well-regulated as in the first world countries, it can possibly give a surge in price because of these inefficiencies in the supply chain.
Imagine if you are a young mom in a tier-two, tier-three cities, and rural, and you have ten bucks in your hand. With this kind of complexity, probably you can only buy one cup or two cups of milk for your kid. But at Super we are trying to tell the world, “Hey, this is the more efficient way!” and we think that if we are coming up with solutions, everyone will start following these solutions. Those moms who have ten bucks in their hand now can actually buy more milk for their kids, or even save their money to educate their kids to go to college someday.
Yinglan: I understand your model is a very interesting one. It’s agent-centric for reselling. I’d love to understand what your experience has been like working with your agents, and how do you identify the right agents to work with?
Steven: We are very fortunate and we have a very unique set of the team. Starting with the co-founding team we are all Indonesians. Three of us used to study in the US, and we grew up in tier-two cities. We speak the local language. Therefore it gives us an advantage, I would say, to speak with locals to build our marketing field.
So our marketing field team basically consists of villagers, so we directly hire people from the villagers to be able to tell us to identify which organizations we can go after to find these community leaders that we man are basically people who have 50 to a hundred network across their WhatsApp group or social media, and then they’re known in society. Because social capital is quite important here for Indonesians, so once you gain trust from other people, it is easier actually for you to sell to other people. And other agents consist of typical housewives, who are community leaders. Some of them are mom-and-pop owners.
Yinglan: For the listeners who aren’t familiar, what’s the differentiation of your platform from traditional retailers and distributors, and how are you more effective in the rural areas?
Steven: Look at it this way right, in the next five to ten years, we would like to become IndoFood, in the more technical angle, in a more efficient way. If you know IndoFood has like three chains. IndoFood is the white labelling product that they have, IndoGrocer is the main distributor that they have, and Indomaret is the retail that they have. We also have that ecosystem. We have SuperFood as the white labelling stuff that we have, and then we have the SuperCenter and then we have SuperAgen. SuperAgen is actually like the IndoMart of their community.
This is the thing that makes the distinction right. Instead of buying one by one, we do group buying. We have minimum group buying of 200 bucks and 50 bucks, and the way this agent purchases can be different from one to another. For 200 bucks we deliver the goods to their place if it’s below 200 bucks and it has to be at least 50 bucks they have to pick it up from the SuperCenter.
Basically, SuperCenter is a place or a property that we partner with. It can be mom-and-pop’s, it can become someone who owns a house, where we store the goods over there. So imagine it’s like an Amazon Hub Plus. Why do they have to pick up the goods from there? Because it makes sense economically compared to us delivering the goods below or equal to 50 bucks up to 200 bucks.
And the greatest distinction has always been — if you ever heard of this Alfamart and Indomaret, they require a franchising fee for these villagers, mostly Alfamart because Indomaret they usually run by themselves but let’s say Alfamart right. Let’s say they recruit some villagers, there is an upfront fee of the franchisee that can consist of hundreds of millions of IDR. And aside from that, they should still maintain their store, they should still buy the goods first, they don’t know what the demand looks like, so there’s a potential for a backstop. What we do as an agent or as a villager, if you are a community leader and you are joining us, you don’t need an upfront fee, you just have to install our app, and you can aggregate all of the demand, you order all the goods based on the demand. And there is no maintaining the franchise store fee. Therefore it will be more friendly for you to operate this.
Yinglan: Logistics and I guess payments are key challenges for your platform and rural areas have also been a challenging domain. What has been the approach — what has been your learning from this so far?
Steven: So there are two things I want to address. First is the supply chain, second is more on the payments. For the supply chain part, we’re not actually “social commerce social commerce” only. The biggest asset of Super is actually the supply chain. So look at us as social commerce with a backbone of the supply chain. So before we come into the area, usually we calculate the economics as detailed as possible. We have one core warehouse. What does it mean? It’s a warehouse that is as big as 2500 sq meters, and we locate it near the village that we cover. And then we connect directly from the manufacturers, and we have that ability to do so, because all of the connections that we have to be connected to them we have had since the early days, therefore we get the best price. The good thing is once they know us, and then we can be able to order for [the buck], they will provide the delivery cost for free. So it means that 80 to 90% of that delivery distance is being covered by the manufacturers. So the formula always has to be 80% and up, therefore we only have to only cover the rest of the 20%. And then within this Super warehouse, which is the core warehouse, it’s usually near the village, as I’ve spoken before, that the 200 bucks basket at least and up we can deliver directly to the agents, or if it’s below, usually we have several Super Centers in the village. Right now we have around 250 across East Java. That’s what we call a hub, where we fit this hub therefore there’s more basket of the agents that can come and pick up the goods.
Second about the payments. When we started, the composition was 90% COD and 10% bank transfer because of the nature of Indonesian community, they have lack of back penetration and sense of the importance of having a bank account, so we adapted to that. So at first, we cope with 90% of COD and 10% of bank transfer but lately, the numbers have been improving, we’re more likely 50-50. And then we start educating the more incumbent agents to transact online compared to using cash and doing COD.
Yinglan: Now let’s turn to the immediate present. How has COVID19 affected your business and operations?
Steven: Sure let me address three things about the main difference. So the first thing, of course, is the operations. We are a business that needs operations to run. We are enforcing a working shift. For example, some of the engineers are the ones that are not required to be always in the office to code. Usually, the CTO has some weekly meetings, and then they let everyone work from home. But there are certain divisions that should be there, like administrative tasks and so on.
Second, the aggregate business itself is actually growing much faster these days because people are staying at home. I think they prefer to let somebody purchase products for them, and then they don’t want to go outside to go to the mall, here and there. One of the few options that they could buy is through our platform or through our agents.
And the third is there are some challenges in the logistics and supply chain because the way that we run we have some areas that we cover with our own logistics and there are the certain areas that we cover by working with third parties. In the beginning of COVID, the third-party price is surging crazily, because the government is using them too, to basically supply all of the hospitals with the help to tackle COVID19. But lately, the price is getting more rational, so therefore when we are growing, we try to make sure that we are sticking to one vision that every single transaction we make we try to be always profitable.
And if it’s like good growth, but the supply chain cost is too high, sometimes we prefer to delay it and focus on the growth that we call healthy growth. We think that growing step by step is better compared to burning it very fast because [you] don’t have the fundamentals to be resilient against this pandemic or any crisis in the future. So that’s the thing we keep from the day one, we use the money very carefully, we grow very carefully but we also maintain good growth, and we still abide by the vision we set in the beginning.
Yinglan: This is one question we always ask our CEOs, and especially in light of this situation, we advise our CEOs to take both a short-term and a long-term view, and the analogy I always use is you should put a microscope in one eye and a telescope in the other and look through both without getting a headache. I wanted to ask you what are you looking forward to as a business in the next 12 to 18 months. What have you seen in the social commerce space and how do you extrapolate this and expect the social commerce space in Indonesia to evolve?
Steven: Let me go from a general view then maybe a deeper response for the short-term goal and the long-term goal. Look at it this way right, the social commerce market in Indonesia is quite massive compared to any third-world country. What I believe in the next three to four year or five years there’s going to be four to five kingdoms of social commerce, and we’re going to be one of them. The same thing like the first generation of ecommerce that’s been happening in the first-tier city, there are four kingdoms of the first generation of ecommerce, and we think this is what is going to happen to social commerce. Why? Because the Indonesian market is niched. The discrepancies in social economics affect certain people to behave in certain ways and they have different kinds of demand and this archipelago with the island that varies in kilometres apart also contributes to that thing. So to give a very fun fact, so for the area that we cover, let’s say we go to the east, people will like more spicy food, and you go down to the […], which is not so far away, they usually like sweeter food, and you have to provide them with several different types of SKUs or goods. So this is what I think is going to happen to Indonesia. We love competition; it’s like competing in the World Cup, the glory comes from the greatest competition and then it’s going to make the ecosystem much faster.
Second, for the short-term and long-term goal right. Of course, to be realistic as a CEO, after two to three years that I’ve been running the company, this year has been the year that I’ve seen a lot of uncertainty in the market. So what we do in the short-term goal has always been a calculated growth. As I mentioned before, we prefer healthy growth. It’s not all about growing your GMV or all of your sales at all costs, but now with “wise costs,” as we like to call it. So in every single transaction that we make right now at Super, it needs to be profitable, it needs to be giving us a good gross margin here and there. Therefore we can recycle those gold to actually expand the team. In December we were only 70 people, right now we have 130 people and we still burn the same, or even less. It means the strategy that we executed works well, and it started giving us results.
For some time in the future, of course, Super has several products that we hope and then we are confident are going to work in the long-term. Things like white-labelling, you need to always have some R&D, for I would say, your “Mission Impossible” kind of missions but when it happens it can actually accelerate the growth of your company to the next level. So we always have to balance and juggle these two things in mind. Because in the short-term, as what you said is true, you have to make sure your ship is stabilized for short-term, but it can accelerate going faster and faster, going to a longer range of distance, in this case, in terms of years ahead.
Yinglan: Last question. Tell me a little bit about a book, given that you are a founder of a tech company, that you would recommend to listeners.
Steven: Well it depends on the stage of your startup. When we were small, when we raised seed funding and Insignia is one of our early backers, I used to read Zero to One by Peter Thiel. This book is a great book, why? Because it’s going to enforce you to create the MVP. It gives you some sense that building a product is not like you’re building technology and then you try to find the distribution channel. You need to always go backwards. Meaning you need to understand the users. You need to be able to understand the pain of the users and then you go backwards to build the technology. Therefore you can create a product-market fit. If you do the other way around, it’s harder for you to find product-market fit.
Once you reach product-market fit, I think some of the books like The Lean Startup is good by Eric Ries, the Ben Horowitz book is also good because The Lean Startup is more like you need to be flexible and nimble as a founder to be able to identify and sniff some of the evolutions that have been happening in the market, and take some precaution steps or some business strategy that can guide your ship through to a better level. Because business is changing every day, it’s very fast, right? So as a startup, you have to pivot every day. Pivot is not bad, you have to do it, you have to hear your customers’ pain and feedback here and there, you need to always evolve your product. So don’t be stagnant into one thing. As a CEO you have to be idealistic, that’s good, but you have to be nimble and have to be flexible in order to get there. So that’s how the book is going to portray if you read that book.
Maybe the Ben Horowitz book, that’s more on, when you’re growing right, one of the great obstacles — because this is where we are now, after the Series A, we have a 100 people now and then going to 200, 300 — has always been a growing pain. When you grow, there’s pain. Prior to this, you don’t have a VP, now you have a VP, you have more C-level, you have more people. More people in the group is a challenge in the beginning for you — how do you coach them to basically make them perform at their best? This book is telling you that often the company has some problems and often puts you in a team crisis and it’s always happening every single day, it can be big, it can be small. But there are three steps you can take.
First is damage control. So in any problem that a CEO faces or a company faces, the first thing to do is damage control. You have to bite your tongue and then make sure that the damage that hits your ship is as small as possible, because anyway you’re going to get hit. Second is basically stabilize the ship, so you start to map how to stabilize the ship at least make it stable. The third is actually taking control. Take back control to let the ship go back to the direction where you want it to be.
Those are three great books on how you start a company and how you grow a company. And then it’s been my main motivation day-to-day and seeing all of those quotes and all of those lessons by these people who wrote these books.