Meet Startup @TW

The Challenges & Potential For Taiwanese Startups

As the CEO of Founders Space, one of Silicon Valley’s top startup accelerators, I have been to Taiwan a number of times to give lectures and run startup programs. We also work closely with the Taiwanese government, NCTU and other partners helping Taiwanese startups come to Silicon Valley, make connections, raise capital and go to market. During this process, I’ve seen both the challenges startups face and the potential for success.

One of the biggest challenges is that Taiwan is a small island without a large domestic market of its own. Unlike China and the United States, if a startup focuses just on Taiwan, the potential is limited.

I see far too many Taiwanese startups thinking about their domestic market instead of going global. It’s fine to start with the Taiwanese market, but this should be a stepping stone to a much larger vision.

The problem is that too many startup founders in Taiwan feel intimidated by larger markets and would rather play it safe at home.

The irony is that playing it safe by sticking with what you know is not a recipe for success. It’s often harder to start a small business than a large one. Most small businesses fail in the first year, and those that do succeed only gain a modest living and have little overall impact on the economy. For the same level of risk, a startup could just as easily tackle a problem with global potential and wind up with a multibillion-dollar business if they succeed.

To make matters harder, few angel investors and virtually no VCs want to fund small businesses. It’s just too much risk for too little reward. So my challenge when I work with Taiwanese startups is to get them to think BIG. They need to understand that unless they have a truly scalable business with global potential, they are wasting their time and talent.

The second challenge Taiwanese startups face is that even when a startup has a big vision, its business model often isn’t scalable.

A big idea doesn’t always translate into a big business. Many startups have ideas that seem like they will change the world, but their business model is fundamentally flawed.

A good example of this are most startups in the consumer IoT space. They come up with a clever idea, like a smart air purifier, and they even make a splash on Kickstarter or Indiegogo, raising a million dollars or more, but the product doesn’t have a long life.

It just appeals to early adopters, and if it’s successful at all in the broader market, it’s copied by entrepreneurs in China, who sell similar products so cheap that the profit margins evaporate. Even worse, there’s no way to obtain a recurring revenue stream from the customers.

It’s just a one-time sale, and then it’s over. This means there’s no way to lock in customers for the long run and develop an ongoing revenue stream. The result is the startup often dies after a year or so.

Taiwan is excellent at hardware, but the real value of most products, even hardware products, lies in the software. Its only through software that you can deeply monetize, engage and retain users. This is where Taiwan’s Achilles heel lies. It doesn’t have enough creative software designers and developers.

It’s universities still pump out too many hardware and chip engineers. For every hardware and chip engineer, Taiwan needs ten software engineers. The chip business is getting tougher all the time. New chips require a long time to develop, need large upfront capital investments, and the margins are thin, while software is just the opposite. Software can be developed quickly, cost can be just the engineers’ time, and the margins can be high.

In addition to talent and vision, Taiwan has to navigate how to deal with its big brother: the PRC.

This will continue to be a tricky situation and requires thoughtful decisions. But enough with the challenges; let’s focus on the potential.

Taiwan is blessed with one of the best educated populations on the planet. I have never met so many PhDs as when I visited Taiwan, everyone from government officials to startup founders.

Taiwan is also strategically situated between China, Japan and Southeast Asia. This geographical proximity to some of the largest markets in the world makes Taiwan a perfect location from which to launch new global products. Even better, Taiwan shares deep cultural and language ties with China, the biggest market in the world.

Founders Space has set up operations in China, and I can tell you that Taiwanese startups have a much easier time entering the Chinese market than Americans, Europeans, Koreans and Japanese.

I meet many successful Taiwanese entrepreneurs who have scored huge wins in China, like Peter Cheng, who cofounded AdChina, which was purchased by Alibaba, and John Sie, who founded Accupass in Taiwan and Huodongxing in China.

In addition, Taiwan has some of the world’s largest and most successful corporations, including Foxconn, Acer, Compal, ASUS, Taiwan Semiconductor, Quanta Computer and the list goes on. These companies have the potential to create a ecosystem for startups, provide funding, and global support. But they have to look beyond their roots and think in terms of software and new business models.

Taiwan also has deep connections with Japan, due to the fact that it was a Japanese colony before the war, and the United States, which supported it after the war. Unlike European or South American countries, Taiwan is uniquely positioned to access three of the world’s largest markets. This is a huge advantage for Taiwanese entrepreneurs. To make matters even better, Southeast Asia, one of the fastest growing markets in the world, is right on Taiwan’s doorstep.

For all these reasons, I’m optimistic about Taiwan’s future. I think with the right education and support for its startups, it can be one of the leading innovation hubs in the world. The biggest thing Taiwan needs right now is optimism and action. Taiwan must change its mindset to that of David verses Goliath. It’s a small country, like Israel, but it can do anything it sets its mind to.

This is how startups must think, and as a nation, how Taiwan must think and act. The only thing holding Taiwan back from reinventing its economy and changing the world in the process, is Taiwan itself. If Taiwan rises to the challenge, it has the potential to become a leader in global innovation.