Above: Ezay Founder and CEO (centre) with EME Investment Analysts Hla Win New (left) and La Woon Yan.
EME-Myanmar has led a six-digit seed round in Ezay, a Yangon-based rural ecommerce startup for rural Myanmar retails outlets, together with one of the most influential startup founders in Myanmar.
Founded in August 2019 by ex-Oway employee, Kyaw Min Swe, Ezay is helping to revolutionise commerce for rural retailers. Ezay provides a mobile platform that connects rural ‘mom and pop’ shops with wholesalers and provides delivery for all goods. Previously retailers would have to visit multiple wholesalers several times throughout the month, with no remuneration for that lost time. From today, retailers can re-stock at the click of a button.
EME’s Investment Director, Hitoshi Ikeya said, “We often hear people talking about ‘digital leapfrog’ in Myanmar but this investment really represents the value that mobile solutions can bring to rural communities across the country. Kyaw Min Swe is a great founder and we’re very excited to support him with his mission”.
Kyaw Min Swe at a recent Ezay retailer townhall event
Q&A with Kyaw Min Swe, Founder and CEO of Ezay
How did you come up with the idea for Ezay?
My sister has a small shop in rural Myanmar and each week her and her husband need to drive to the various warehouses to restock. This is a real burden and it’s common across Myanmar; often the husband will go to the wholesaler but must take time off work to do so. Choice is also limited by the common fact that most people will buy from only one or two wholesalers. I saw an opportunity to address this issue and connect wholesalers and retailers through a mobile platform - providing delivery to make life easier for retailers.
What impact does Ezay create for companies and users?
Retailers love Ezay because for the first-time ever they’re able to buy online for the regular shop stock needs and get the products on delivery the next day - all for the same price they’re currently paying to shop offline and fetch their own goods.
Wholesalers are thrilled to have more frequent orders and have regular collections from a wider-rage of customers. They’re able to think about their promotions through the app and really become more efficient throughout their business.
Why did you select EME as investors?
EME’s directors and staff have been really supportive of my vision and have helped Ezay even before their investment. For an early-stage business like Ezay I think it’s vital to have people behind you that understand your vision and can contribute to making it a success. With EME I felt they were very interested to support Ezay, but also that they trusted me to execute my ideas.
What is your vision for Ezay in the next 5 years? How will Ezay help change rural retail landscape in Myanmar?
Ezay is just getting started. Right now we’re onboarding new retailers all the time and we’re upgrading our platform to make logistics, payments, and commerce faster and easier. We plan to expand rapidly across Myanmar once we’ve proven this model across our key villages. Our expansion will be both in area and also in services: as we develop a closer understanding of the retail supply chain and customer’s preferences we can adapt to serve those needs in new and exciting ways. We’ve got a few ideas of how this could develop. For now we’ll just say that we intend to continue to offer real value to people that others have struggled to serve and create new opportunities for them while doing so.
About Kyaw Min Swe
Kyaw Min Swe is a committed and experienced professional with a proven track record. He was born and raised Nattalin, a township in Tharrawaddy District of Bago. He worked in Dubai and Singapore for five years and came back to work as the COO at Hello Cabs, and later at Oway as the Business Head. He stared Ezay based on his first-hand experience of the problems facing rural retailers and because of a passion to help rural communities embrace the benefits that technology offers.
Above, from left EME's Team: La Woon Yan, Hitoshi Ikea, Hla Win Nwe, Matt Viner, May Phoo Maung Maung, Claire Lim.
On Wednesday, 20th November EME celebrated it’s 1st anniversary and announced two new investments it has made into Myanmar-based and Myanmar-led startups: Natural Farm Fresh and Yangon Broom.
EME invested a six figure amount into Natural Farm Fresh, along with co-investor United Managers Japan Inc. (UMJ). Natural Farm Fresh produces high quality chilli and other dried food products at competitive prices, using locally produced solar dryers to increase yield value and produce products without dangerous aflatoxins. EME’s investment will help Natural Farm Fresh to scale up, develop new products for other markets and start to introduce digital technologies throughout the supply chain.
Founder and CEO of Natural Farm Fresh, Nay Oo said, “This investment is very rewarding, not just because it will help us to grow but because EME really shared our vision to help bring quality products to the Myanmar market, improving health while providing more income to farmers across the country”. EME Director, Hitoshi Ikeya said, “We’re thrilled to make this investment. We’ve been building a great relationship with Ko Nay Oo over the past months, love his vision and have already seen his ability to execute. The chilli market in Myanmar is well over $100m and growing; regionally, the numbers are even higher and together we’re very well placed to take advantage of this huge market potential.”
Above: Nay Oo, Co-Founder and CEO of Natural Farm Fresh
EME, along with co-investor NestTech VN (a Vietnam-based VC), invested a five figure sum into Yangon Broom, a Myanmar home-services startup. Yangon Broom provides on-demand services to home and businesses across Myanmar’s bustling Yangon. Currently, services include cleaning and ironing, but the company has more verticals to roll out in 2020. Founders Kyi Min Han and Kyaw Min Tun come from backgrounds in recruitment and building maintenance, a winning formula for high-growth businesses that contract hundreds of staff. Co-founder and CEO, Kyi Min Han, said, “The whole team is very excited to have two great investors behind us to help take Yangon Broom to the next level. We’ve built our business around people as we aim to provide safer jobs for women in Myanmar, and these two investors will help us protect that while we grow.”.
EME’s investment philosophy includes providing significant hands-on support post-investment, operating a full-time team who work closely with companies to help them scale. Matt Viner, EME Investment Manager said, “We’re so fortunate in Myanmar to have such passionate founders. Kyi Min Han and Kyaw Min Tun pay close attention to their most valuable assets - their staff - and in turn, they’re building a strong business. We’re looking forward to helping Yangon Broom quickly reach 10X growth in total bookings, bring in new tech with help from NestTech VN and add more services.” Nest Tech founder, Soe Moe Oo added, “Nest Tech is delighted to be investing into Broom. The two Founders truly care about making a difference in people’s lives, especially those amongst the more vulnerable in society. Not only are jobs being created, but a caring community culture is being developed too”.
Above: Yangon Broom's Team including CEO Kyi Min Han and COO Kyaw Min Tun
Earlier this month, EME joined nearly 2,000 leading experts from the marketing industry at Mumbrella 360 Asia - the region’s largest marketing and media conference, held at Singapore’s Marina Bay Sands. At this conference, the industry’s biggest players come together to forge connections, ask pressing questions and share their secrets and strategies to achieving success.
Speakers and panellists were invited from leading global companies such as Unilever, Johnson & Johnson and Prudential; tech giants like IBM and Netflix; media leaders such as CNBC; NBC Universal, BBC and Vice; and up-and-coming companies like Lazada, TikTok and Twitch - all of this in addition to the marketing industry’s biggest firms: Ogilvy, Kantar, Hubspot, UM and Accenture to name a few. As you can imagine, it was an action-packed two days of knowledge sharing and information overload. In this blog, we share some of the things we learnt.
Promotion by Emotion
Several of the keynote speakers emphasised the need for brands to strive to push out emotional content, rather than the typical barrage of rational and functional marketing messages that brands constantly churn out. Why? Because emotional content is more likely to be shared and engaged with, and it is also more likely to be remembered by the consumer brain. Since consumer behaviour is 99.9% driven by the highly emotional subconscious, there’s an emergence in neuro-marketing among companies and agencies, as well as media companies, for getting their messages across. This means marketing with behavioural economics instead of neoclassical economics - instead of using typical functional selling points like “a product is cheaper, bigger and tastes better”, there is now a shift to “a product gives you happiness, makes you feel safe and strengthens your relationships”.
Coke’s “Choose Happiness” is a strikingly obvious use of emotional marketing.
We learnt that while generally an average of 50% of purchases come from word of mouth, 80% of what triggers word of mouth is good brand experiences, not only functional from end to end (everything works, nothing is broken) but also meaningful (not only is nothing broken, it was so easy to use because my needs were anticipated). To take this up another gear: company’s should aim for pleasurable experiences (not only is nothing broken and the platform quite easy to use, the content was hilarious and brightened my day).
Where can customers rank their experiences with your brand?
(For)give Me Another Try
Building close relationships with customers is also a good hedge against future misdemeanours. Customers who have a connection with brands and companies, whether with positive brand associations or great brand experiences are not only more likely to make a purchase or tell a friend (this we knew already), but they are five times more likely to forgive a brand for mistakes made. This is crucial in the world we live in, considering such mundane things like a five-minute response delay or misspelled customer name could result in customer loss in this age of fast-paced and hyper charged customer service (the age of the pampered customer).
Just (keep) do(ing) it
Big brands are becoming all about predictive personalisation. That is, using data-driven content automation to enhance customer experiences and keep people coming back. In our digital age this is as easy as simply relying on users’ behavioural history with the brand’s platforms in order to determine the perfect algorithm for developing content that their users will find interesting, engage with and most importantly lead to sales or conversions. If you’re still unclear what this means - just scroll through Facebook and note that you keep seeing more cat videos ever since you spent a whole day watching cat videos.
Go your own way
Lastly, we learnt that we should be wary of “best practices” because it’s those disruptors who break the mold of best practices that truly find success. Startups and early stage companies especially are most likely to pattern growth strategies based on existing companies, which could be a crucial mistake[c1] . From a VC firm’s keynote we learnt the key steps for bootstrapped growth: identifying the brand’s purpose, building brand assets, identifying platforms, developing powerful stories, growing advocacy and loyal customers and of course, tracking. This is a good guiding light to follow, since doing too much in the short-term could be harmful for long-term growth if these short-term activities are not linked to long-term strategies.
All in all, it was great to link up with the region’s very best marketing professionals, and we can’t wait to take back everything we’ve learnt and apply them towards the growth of EME’s fast-growing portfolio companies. Do you agree with what we’ve shared? Have anything to add? Drop us a line at email@example.com.
Myanmar – land of the digital leapfrog! More phones than people! It’s all true, but stating that something is, is not the same as stating what it means. Does it mean that digital infrastructure is changing millions of lives every day? Yes, we’d say so. Does it mean rapid adoption of mobile applications by a great proportion of Myanmar’s 50-60M population? No, not really. Is there a range of startups successfully taking advantage of digital leapfrog Myanmar? There’s less of a “range” and more of a “few”. This post tries to lift the fog on Myanmar’s leapfrog headline and uncover some truths to success in this now famously digitising economy.
Let’s start with some basics from a macroeconomic perspective. Myanmar has the lowest income per capita of any SEA country. When incomes rise, people have a greater ability to consume. To begin with, most of this consumption is taken up with better food – meat and sugar consumption increases. But until incomes rise beyond around USD 3.5K (Indonesia today), people don’t tend to spend much more on non-essentials. At around USD 5K (China in 2010/11), things have changed significantly: people buy pets, vehicles and other luxuries. Myanmar is at USD 1.5K on average. That means the average person is giving one thing up to get another. Evidencing this point, one study of rural solar home systems (in Sub Saharan Africa) found people who bought the systems would then consume less meat and sugar.
This leads us to two observations: 1) let us think more about 10-20M then 50-60M people if we’re selling even a low-price product, because a lot of people just can’t afford new things. 2) If people are going to sacrifice nutrition to buy your product, it’s going to have to more value than a balanced diet. That’s some real value we’re talking about – in the example above, people with a solar lantern have clean light inside the home and avoid smoke and fuel costs and danger of fire. Even Candy Crush can’t compete with that. Unless selling to the very low income, people may not need to give up sustenance for your product but the concept remains: all decisions include giving up the next best option (opportunity cost) so you have to deliver tremendous value to have people choose your product / service. Indeed, the Irrawaddy recently stated that minimum wage earners spend 85% of their income on rent.
The next issue is best expressed in plain terms: if someone with limited education or need for an electronic device suddenly has one, they’re going to receive less immediate benefit from it than your average urban college kid because they simply won’t appreciate how to maximise its utility. People often talk about “customer education” – upskilling the customer to use your product. The conversation goes like this: “OK, it’s a good idea, but will people use it?”, “Yes, we just need to make sure we do a lot of customer education.”. That’s fine in principle, but education in general has huge free rider issues, as any garment factory owner can attest to. Example: If factory A provides training at a cost of $10 per person per month, factory B could hire the person for $5 per month more salary after they have been trained Factory A. In other words, customer education is expensive and there’s little guarantee you’ll see a return on your investment (you could teach customers to use your ride hailing app, but then they’re better equipped to use all ride hailing apps).
How then, do you create a product for the mass market that people will use? Let’s consider Bagan innovation Technology (BiT) (not an EME portfolio company). BiT have around 14M users of their Burmese language keyboard. They got into the market early with a solution that everyone needed. They also have a bookstore. To drive people to the bookstore, they leveraged monks and monasteries – places and people of education. Finally, they have a fortune-telling app that is growing exponentially – BiT tapped into something people are already spending money on and made it cheaper and more efficient. In summary, to reach millions you have to offer something useful, better than the alternative and that people find true value in. The key is “people”: unless you fully understand your customer, you can’t know what they will value.
A final point on reaching scale in Myanmar. In fact, in Southeast Asia because this isn’t unique to Myanmar. There is a lot of reason to consider offline and online approaches to reach or maintain customers. Tech has leapfrogged, but trust is catching up and offline approaches are easier to trust in (see a person, touch a product, go somewhere to get service, etc.) Just look at Shop.com.mm with their agent model or bricks and mortar shop, or BiT who initially reached customers through monks. The same is happening in Indonesia with Bukalapak agents or Storeking in India. People often don’t want to consider the expense of being offline and there’s little hype around opening shops (versus launching apps) but in markets where trust is limited and exposure to technology is still new, there’s a good reason to go beyond Facebook marketing to scale. That reason is: unless you innovate in how you reach and maintain customers not just your product, you’re unlikely to succeed in this economy.
Twelve months, six investments, three new hires. Since launching in October 2018, EME has had a stellar year, if we do say so ourselves. We’re not getting ahead of ourselves yet though. As we see it, we’ve set a high bar for ourselves for 2020 and beyond. When we meet startups we often ask what they’ve learnt in their short-lived experience trading as a company. There are no magic answers to this question, rather it’s a way to see how founders reflect, adapt and strategise. This post focuses on our reflections after twelve months investing in early-stage companies in Myanmar.
1. Relationships Matter
Strong relationships are formed over time and through good and bad times. When things are good, relationships tend to be easier. When things are challenging, relationships can either grow or suffer. We see that this comes down to trust. As investors, we ask ourselves “is this a founder / team we can trust to overcome challenges?” and startups should be looking to EME asking, “can I trust this investor to back me when things don’t go to plan?”. Great companies become great often by pivoting many times (Slack started life as a video game). Pivoting means admitting the first plan isn’t the right one and pursuing a new direction and for that there needs to be a lot of trust among both investee and investor. It’s hard to explain when the occasions arise where trust is deepened, all we can say is you’ll likely know when they arise. In these times, we try to be cognisant about the decisions we make today and how they affect the trusting relationship that we’ll need in the years to come.
2. Support is Crucial
Early stage companies in any market need mentors and advisers to succeed. In a frontier market such as Myanmar, this is even more true. In our experience, supporting entrepreneurs is about helping them to achieve their vision. This could involve a range of things, from analysis and strategy to direct support in sales and marketing. Most importantly, it’s about working with, not against, the entrepreneurs and their team. When we make an equity investment, we’re literally buying our way to becoming a part of the company and this comes with a lot of responsibility. Our investors have trusted us to find and help scale the companies of tomorrow, and the only way we’ll help great entrepreneurs create amazing companies is by letting them do what they do best. As investors, we don’t want to change or lead the strategy of our portfolio companies, we want to encourage them to push further, take risks and do those things that will redefine markets in Myanmar. To do that, we’re constantly looking inward about our support, its effectiveness and how we improve.
3. Research is Priceless
Being inside the market is crucial to investment decision making. This is true anywhere but again more so in markets that lack data, infrastructure and are going through economic transitions – like Myanmar. Our investment analysts live and breathe the market we invest in and they’ll write a full in-depth research report about each startup we present to our investment committee. This report is the output of weeks of intensive research, not just desk-based but being out in the market interviewing, testing, ordering, etc. It’s a lot of work, but it’s integral to our approach and has helped us identify truly unique companies. And it’s not just research into companies, but sectors too – EME is sector agnostic, but by researching individual sectors, we deepen our understanding of the companies within them. We’ve summarised this internally as “working with intellectual integrity”: to listen, question, test and think without bias.
4. First Impressions Last
The fabled elevator pitch. Those few minutes you have to impress/sell to someone before the meeting is over and they’re gone, perhaps never to call you back or to become your next customer / investor. Most founders are probably tired of hearing about how to deliver the perfect elevator pitch and we’re certainly not going to try that. What we have seen though, is that first impressions are stickier than gum on your shoe on a hot day. This works both ways: make a great first impression and there can be a lot of flexibility afterwards but, make a bad one and you may not bring it back. Pro-tips for anyone meeting us for the first time: read our blog. People are nothing if not easily flattered and seeing you’ve read our blog will show us you care (and that you do your research). We’re also big fans of the “four Hs” (happy, helpful, humble, hungry) and tend to get on well with people who encompass these elements.
5. Questions and Candidness Count
Since EME’s inception, we’ve considered it our responsibility to ask challenging questions and give candid, constructive feedback to startups we meet. Whether it’s a very first meeting or a board meeting after we invest, we’ll share our honest thoughts and recommendations. Mostly, the response to this approach is overwhelmingly positive – hopefully some of you reading this can attest to that. Of course, on occasion it backfires. On this note there are three things we have considered: 1) we’re not always right and don’t intend to give that impression, we just say as we see it; 2) we’ve met 150+ startups, so we’re a pretty good barometer of who’s doing what and what’s working / not working (we invite you to pick our brains anytime!); 3) to make an omelette you’ve got to break a few eggs – we’ll continue with the tough questions, to find those who have inspiring answers. Ultimately, we value sincerity and we’ll always be sincere with our questions and feedback. We’ve learnt it’s not always easy, but still believe it is always the best approach.
We’ve focused here on lessons in our investment approach, more than internal operations. That probably doesn’t do credit to the amazing EME team, which is therefore the final point to this post: being good at anything means building an amazing, inspiring, committed team. I’m honoured to work with my colleagues here at EME and we love seeing entrepreneurs and founders who put their team first.
To meet the full team and our portfolio companies, check your inbox for your invitation to our one-year birthday party this 20th November. If you don’t have an invitation, drop us a line and we’ll see what we can do – firstname.lastname@example.org.
Above: John Lim, ARA Asset Management (photo credit: DealStreetAsia)
We packed our bags and headed to clean and pristine Singapore to meet with and hear from leading regional investors and founders at the DealstreetAsia™ PE-VC Summit 2019. Arriving at the conference, we quickly noticed that we were in a very select minority of investors from Myanmar – an indication of the country’s early frontier status. People were curious about Myanmar and excited to hear about our work and our incredible portfolio companies. Over copious coffees and one or two beers, we shared, listened and learnt. This short post summarises some of the key insights from the presentations, conversations and gentle persuasions of the event. Underlying each of the following points are three core values we observed from the summit: know your customers and put them first, work hard and smart, and lastly, find an investor you can build a relationship with.
Lesson 1: Don’t Try to Make Money
One thing we weren’t necessarily expecting to hear at an event where the total assets under management of all parties was over $100bn was “don’t try to make money”. However, founder and CEO of Deskera, Shashank Dixit told a roomful of investors and founders to focus on building great companies that serve customers and let the money follow. We see value in this sentiment: startups need to deliver outstanding value to their customers - with scaleable unit economics - and if they succeed then exponential growth will happen. Once your product or service is too good to be without, you’re set on a course for scale; so long as you scale with the right unit economics, the riches will come. Focussing on making money, on the other hand, isn’t putting your customer first and introduces short-termism that could prevent you from building something great. Indeed, EME’s permanent capital approach (rather than a fund with an exit deadline), means that we can work with entrepreneurs to build great companies and take a long-term view with founders.
Lesson 2: The Importance of Trust
One of our favourite one-on-one on-stage discussions was the interview with John Lim. Son of a schoolteacher, John Lim is the cofounder of ARA Asset Management which has $58 billion in assets under management. Lim spoke about how crucial trust was in long-term business relationships, citing that he had a long-term multi-billion-dollar arrangement based purely on a handshake. This introduces an interesting thought experiment: would you trust your partner to honour the agreement purely on a handshake? Often the answer is “no”, which is why we have contracts and may be fine for short-term transactions. When it comes to investing, though, we want to be able to treat contracts as a formality, understanding that there is an enduring trust between us and those we invest in. This approach forces transparency, accountability and integrity on all parties, which can only be a good thing. Keep this in mind next time you review a term sheet.
Lesson 3: 007, not James Bond
China’s growth has been built in part upon the 996 model: people working diligently from 9am until 9pm, six days a week. This might feel quite gruelling for the employed, but for founders John Lim says they should be following the 007 model. 007, in case you haven’t worked it out yet, is 12am-12am, seven days a week (i.e. 24/7). Of course, even Elon Musk sleeps (a little), but the sentiment is that to build something great, founders must commit and put in the work. In fact, when asked about the secret sauce for founders, Lim offered: there’s no secret sauce for startups or CEOs. They must be passionate, know their stuff, be patient and work hard. He added: “Don’t open a restaurant because you love food. If you want to start a restaurant, work in one, understand the customers, the supply chain and the problems; after a couple of years, only then might you be ready.”
Lesson 4: Vision Without Execution is Hallucination
Southeast Asia is creating more and more unicorns (startups valued >$1bn), but these companies are coming from great execution more than they are fresh innovation. Given that SEA is quickly developing, there is significant scope to take models born in Silicon Valley or elsewhere and transplant them into these markets. Investors and founders at the event agreed: SEA is an execution game. This is as true in Myanmar as anywhere else and perhaps even more so given the country’s only very recent emergence from military rule. In Myanmar, there are plenty of opportunities to disrupt traditional business with nimble ideas from other markets. How to execute? This requires excellent founders who can deliver on their strategies, who can roll up their sleeves and make things happen, who have a drive and determination to ensure dreams become reality. Decisions might happen in the boardroom, but the real work takes place on the ground.
Lesson 5: The days of investing and taking a backseat are over
Investing in startups is becoming increasingly competitive. With a challenging global economy and more funds available for a greater array of startups, investors are reflecting on the role they play. Across many conversations and panels, a theme emerged that simply betting on a founder and walking away, hoping they succeed, is a dying strategy. Founders expect their investors to become partners, not just cheque books. In Myanmar, there is less capital than most markets in SEA but this doesn’t mean founders need to be happy just accepting cash. In fact, EME’s model is based on investing capital and significant time into our portfolio companies – helping them to overcome their challenges and find a pathway to scale.
Agree, disagree or have additional lessons to share? Drop us a line at email@example.com!
A good financial model is a little bit like magic. You can gaze into the future and compare how decisions you make today affect what happens for years to come. Of course, even the best financial model is only a representative of what could happen. None of us can truly see into the future, try as we might. What makes a “good” financial model? A financial model is just a business tool, so a good one is one that gets the job done. It should be error-free, clear to use and provide results that are easy to interpret. Similarly, you need a different tool for different jobs; the financial modelling requirements of a listed company are going to outweigh those of a young startup.
When we planned this post, we were intending to share a financial model template that we’d found online and provide some usage notes / pro tips. However, it turns out that there is a dearth of appropriate models that are ready to use by reasonably inexperienced people. The models we came across were either overcomplicated or very limited, so we decided to create our own! You can download our subscription model template at the bottom of this post, and below you’ll find some good modelling principles to help you make your own.
Garbage in, garbage out
The first rule when creating projections of any sort is: garbage in, garbage out (GIGO). This simply means that if you make wild or erroneous (or both) assumptions when putting information in, you can only expect to get wild or erroneous results out. If my model says I can take 10% of the total addressable market, but I get the market size wrong, my model will be wrong. This means that the initial research behind your figures is crucial. Research your inputs and check your assumptions as much as possible before entering them into any financial model. You can be sure that investors will ask, “how did you get to this number?”, so be ready to defend your projections.
Top down vs bottom up
Check out our recent post on top-down vs bottom-up approaches to market sizing. With financial modelling, we also want to start at the bottom and work back. For instance, if you simply estimate your sales are growing at 10% month on month, you can quickly miss the underlying details. Your sales are unlikely to grow for no reason. More likely, you have marketing and sales expenses that together help drive sales. At the very least, you need to consider in detail how your HR, marketing and related costs are going to contribute to increased sales. Rather than assume sales grow at 10% and sales staff expense grows at +1 person a year, ask how many sales one salesperson can make in a month then multiply this out to the year, then work up to sales output.
Keep it simple, stupid (KISS) is a design principle that is clear to understand: keep things as simple as possible, so that they’re easier to use. This goes for financial models too: separate your inputs clearly, build your model logically and add notes wherever necessary. Adding usage notes is not only good practice for any spreadsheet design, but it'll help you understand what you've done so far, in case you start to get stuck with your model. If you make a good pitch to an investor, there's every chance they're going to want to see your financial model - so it's good for it to be clean and easy to read.
Use charts effectively
Don’t rely on people to read hundreds of lines of your model. If your model requires complex calculations that’s fine, but these rows shouldn’t be used to present information. In our template, there are “inputs” and “outputs” plus some charts. This is to keep things straightforward (and our outputs are only 100 lines or so). Another approach is to model sales and revenues separately to costs and then to present the outputs of these sheets in a summary sheet. Whichever you do, it’s advisable to add some charts to show what’s going on in the model. If you haven’t seen it yet, check out our quick guide on what makes a good chart.
Build what you need, then stop
Think about building your financial model like building a ladder. You need enough information (rungs) for your purpose. You might even add a few extra rungs, to make it easier to get on and off the ladder at the top. But if you keep adding rungs, you’re going to have a very large ladder that’s cumbersome to move around and doesn’t offer much beyond the much smaller one that suits your need. Financial models can go on and on, but there comes a point where adding more variables isn’t necessarily making your model any more accurate. If the model represents key costs, how you acquire customers and how you generate income and adapts to show different outputs based on your input assumptions, it’s probably all you need to begin with. Remember, the more complex something is, the easier it is for errors to hide. It’s better to have a simple and correct model than a complex and wrong one.
You can download our basic subscription financial model here. Our intention isn’t to provide a one-size-fits-all model (does such a thing exist?) but rather to guide founders on how to go about representing their business model in spreadsheets. The best financial model in the world won’t grow your business, but clearly laying out how your business makes money should help you make better decisions. Good luck!
Above: the EME team (after we escaped)
Last Friday the EME team headed out to Xcape Squad, one of Yangon’s escape room venues (they’re not sponsoring this blog). After we escaped, we reflected on some lessons that also apply to founders and startup teams. For those that aren’t familiar with the escape room format: a small group of people is locked inside a room and must solve several clues to unlock the door all within an hour. The time pressure and limited information forces a need for communication and collaboration, something that startups will appreciate as they face pressure to grow / raise before the money runs out.
Here’s what we learnt:
#1: Map Your Surroundings
Before starting off in the wrong direction, it’s important to understand your surroundings – your market, competition, customers. You might have what feels like a great idea, but until you’ve spent time checking your assumptions, your great idea is unqualified. When we got into the room, we found several long sticks and immediately started seeing where they would fit – but there was a very big clue that we missed for a while because we hadn’t properly assessed our surroundings. Startups sometimes make this same mistake by missing crucial elements that affect the viability of their model. To avoid this, ensure you’re consciously aware of who your company is serving, why it’s serving them and why they would use your service over any other.
#2 Don’t Forget Fundamentals
Escape rooms force you to solve clues in order, but before we learnt this, we were flailing around trying to solve several clues at once. Startups should be fast and nimble, able to race ahead. But, even the fastest startup needs some key fundamentals in place and missing these is going to cause severe growing pains later down the line. Yes, we’re talking about clear financial reporting, sales tracking, customer management, staff management, etc. It’s important that there are at least basic and functional systems in place as a foundation to grow upon. Whether its simple spreadsheets or free / freemium software, it’s also important to keep track of what you’re doing. How else are you going to show your achievements? How can you ensure you’re making the right pivot without a clear record of what’s happened so far?
#3 Have a Plan and Embrace Horizontal Structures
When there’s just three of you, it’s a good idea to ensure that anyone with a smart idea can bring it to the fore. This is as true for the escape room as it is for business, and it’s not just limited to three people. In a startup you’ll have a small number of people (at least to begin with) with different skillsets and in different positions. Firstly, everyone should understand what the company is working towards and how to get there. Second, this plan should be changeable if new information is presented – by staff at any level. Sales people know why customers are or aren’t buying, the customer service team knows what customers like or dislike about your products / services, the marketing team knows how to advertise key messages, and so on. While the CEO should be plugged into these things, it’s also the CEO’s role to ensure that all staff have a voice and can contribute to achieving or altering company goals.
#4 Get Advice
To quote one famous sports coach, “In life, you need many more things than talent. Things like good advice and common sense”. We had three opportunities to get help with clues and we used every one. Getting hints to solve clues helped us move faster when we hit a roadblock. This is the role that mentors, advisors and board members (we’ll call them all mentors for now) should play for startups. It’s the founder(s)’ role to find good mentors and “good” is going to be different depending on the startup need or company stage: it could be someone from the industry that brings connections and technical knowhow, or a venture capitalist with ability to help raise additional funding, or simply someone with experience to help bounce ideas off of.
#5 Celebrate Wins, But Keep Going
When we solved a clue, we high-fived and patted ourselves on the back but as we were against the clock, we soon moved on. Startups should do the same. It’s going to be hard to scale your business and all the odds are against you, so celebrate wins even when they’re small. Celebrate big wins too but – and this especially relates to what you might see as big wins – celebrate then keep going. It is not the role of the startup to get comfortable. Comfort is for the slow-moving corporates. If you’ve raised money, it’s time to work double as hard to ensure you deliver to investors and have them re-invest or help you find investment to scale further. There might not be a clock ticking down to zero in your office, but be sure: you are against the clock, if you don’t move fast enough then someone else will.
A couple of weeks ago, we wrote a blog about Metrics that Matter, which among other things warned of using cumulative revenue charts. This got us thinking about other charts and graphs that we’ve seen in pitch decks and presentations. Some have been excellent, while others have been distracting and confusing (two things you don’t want your pitch to be!). Therefore, we decided to share some thoughts and recommendations on the types of charts you should and shouldn’t use.
First, a very quick introduction to data visualisation (i.e. charts, graphs, tables, etc.). We use visual aids to make it easier to show a trend or phenomenon. If you’ve made a super complex chart that takes more than a few seconds to understand, you’ve failed at data visualisation. This is a comforting thing to be aware of: if you struggle to understand a chart, it’s not you, it’s the chart’s design. Let’s add some rules to what makes a good chart:
1. Efficient- this is like “easier”, it should be easy to read and more efficient than the alternative of writing it out (i.e. a table);
2. Meaningful- pick data that means something, just as investors care more about how much revenue you’ve generated rather than the average time of bathroom breaks your employees take;
3. Unambiguous- if it’s not clear what the data is, then it probably needs a label or shouldn’t be there!
Now that we have the rules mapped out, let’s look at some bad charts. What’s wrong with the chart below? For a start, try guessing what the value is for Sagaing in 2003. If that’s not hard enough, try to then compare that to the value of Mandalay in 2010. Now, quickly glance and say which is higher overall, Shan or Kayin. All in all, this graph is impossible to read because the 3D design hides things, colours of series are the same (or very similar) and there’s just too many datapoints. This chart fails all three rules.
Let’s take a look at the chart below for another example of bad charts. We’ll let you decide why this one is bad (if you need a hint, just time yourself while you try to work out what’s going on).
Not all charts will be so terrible that you recognise them as “bad charts” from the beginning. While it’s pretty easy to avoid making charts that look like those above, there’s a long way between not making those and making good charts. We try to keep our blogs to around 500-600 words, so in the next 150, we’ll set some rules to make life even easier when representing data.
A) Don’t use pie charts
Simplest rule is don’t use them. If you must, don’t include more than 4 segments. Never compare a pie chart to another pie chart and never, ever, use 3D pie charts. If you’re not sure, revert to the title of this rule.
B) Order your data
Annual data should typically be presented chronologically, but other data should be presented in a structured way: smaller numbers running to larger numbers, or vice versa – this makes patterns much easier to spot.
C) Forget grid lines, use data labels (and bigger fonts)
Remember, the idea is to make it easier to read a chart than a table. Looking for the biggest column / bar then checking the axis value and running your eyes along to see the column / bar value is a lot of looking around; instead, use well placed, easy to read data labels.
If you want to learn more about good and bad charts, you’re in luck. There are two wonderful resources on the subject we would highly recommend:
We helped Bagan Innovation Technology estimate the Myanmar market size for fortune telling and now we’re sharing how we did that.
It’s a common sight at startup pitch events all over the world (including here in Myanmar): a founder talks about their product and traction and then claims the market size for their product is hundreds of millions (or billions, especially in larger markets). If the entrepreneur can access just a tiny percent of the total market, they can achieve revenues of $2-3m in the next two years, even though revenues today are non-existent. We can’t blame entrepreneurs for this: with a few minutes to impress, they need to use big numbers and we’re always telling entrepreneurs to think big. But things can often fall apart when the entrepreneur is questioned about their assumptions behind the market figures.
Market sizing is the process of estimating the total dollar potential of a market. Simply put, how much money is spent in total in your target market? Example: we estimate that the total amount of money spent on fortune telling services in Myanmar is around $200m. You’ve probably heard about TAM, SAM and maybe SOM. These are Total Addressable Market (TAM), Serviceable Addressable Market (SAM) and Serviceable Obtainable Market (SOM). There’s plenty of definitions for these elsewhere so we’ll skip over them today, just know we’re talking about how to estimate the Total Addressable Market, which is total annual revenues in a market – this is the first number you’ll need before estimating anything else.
Top down or Bottom Up
There are two approaches to estimating market size: top down and bottom up. Top down approaches start with a big number and – you guessed it – work down. If we know the total amount people spend on grocery shopping, we can make some assumptions about how much people spend on particular products (i.e. 5% of their shopping basket is onions, so the market size for onions is 5% of the grocery shopping market). However, in Myanmar good data points can be hard to come by. What we often do, therefore, is look for a comparison country and work back. In our example, we saw that The Economist (a reputable newspaper) claimed the market for fortune telling in South Korea will soon be $3.7bn.
Now, Korea has a similar size population to Myanmar, but incomes are much higher. Therefore, we want to find a way to apply the Korea results to Myanmar. Here’s how we did it: we worked out how much % of their income Koreans adults spent on fortune telling and applied this to Myanmar adults. The result was that people spend around 0.28% of their annual income on fortune telling. In Myanmar, that’s a $168m market.
Bottom up approaches start from the smallest number and work up. If we’re talking about onions, we’d find the price of one onion, then estimate how many onions people bought on average each time they shopped, how many times a year they shop, etc. until we got to the total market value for onions. For fortune telling, we did the same: take the average price for fortune telling in Myanmar, how many times would people go to a fortune teller in a year, and how much of the population uses a fortune teller. This approach gives us a total market of $222m.
Which approach to use?
The simple answer is both. But we like bottom up approaches as it shows you’ve thought about the actual occurrences required to build the market size (rather than abstract numbers without much real-life meaning). Taking the time to go through both approaches helps you triangulate your results. In the top down approach, the only assumption we make is that people in Myanmar spend the same share of wallet on fortune telling as people in Korea, but this is a huge and hard to test assumption. In fact, when we do our bottom up approach, we estimate people spend on average around 10,000 MMK ($6.6) which is closer to 0.5% of income (this highlights the abstract nature of top-down approaches). Also in bottom up, we assume 40% of the population uses fortune telling services - this feels right to us based on our market knowledge and is a number we’d happily defend.
In our case, as the discrepancy between the top down and bottom up approaches was rather small, we decided to take the average: $194m (hence the “around $200m” at the start of this post). Taking the average lets us not be too bullish and allows us to better defend our estimations. However, as you can see the bottom up approach just makes a lot more sense and is easier to understand. In all likelihood, the fortune telling market in Myanmar is more than $200m.
Note: $194m is a huge, huge market for Myanmar. Fortune telling is a fundamental part of culture and something people are already consuming. We would not recommend trying to come up with a number, but instead following these processes to get to a result. Don’t worry, we’ve invested in markets as small as $20m. Yes, large markets are good, but it all depends how much of the market you can take and how fast the market is growing. Our advice is to be honest with yourself (and others) about market size and use this to guide your market strategy.
Stuck on market-sizing? Get in touch with us at firstname.lastname@example.org and let us know where you’re up to. We’d be happy to share some ideas!