Taiwan needs to develop its own brand of startup ecosystem

Jonathan Woods is a professional educator with years of experience in learning and development consulting to top-tier companies. He is currently the program manager for Core & Corner and is the co-founder of EnglishVids.

Taiwan should not look to replicate other startup centers but focus its energy on strengths it can leverage on.

There’s been an appreciable change in the interest in Taiwan’s startup landscape over the past few years, and there are real reasons for optimism about the potential of the island. 500 Startups has invested in Taiwan-based companies Cubie, a free mobile messaging app, and PicCollage, a picture collage app. Each has multiple millions of users. Local fund TMI has seeded seven teams, and ever-active Yushan Ventures has invested in six Taiwan startups. CyberAgent Ventures Taiwan has funded a couple of companies and is actively meeting and connecting with startups and entrepreneurs based in Taiwan. The ecosystem is further enriched with crowdfunding platforms, demo days, hackathons, founders groups, incubators, and angels. It is starting to dawn on investors that Taiwan is a corner of the world from which companies of regional and global significance can emerge, but with a lower cost of talent and technology.

Recently, however, a feeling of indeterminate pessimism has affected the younger segment in Taiwan. There is a realization that the country’s old advantage, derived from the cost-down high-tech manufacturing prowess that brought affluence to the island country has been eroded by nearby neighbors China and Korea, and that there is a pressing need to transition toward an as-of-yet undetermined source of prosperity.

This pessimistic sentiment has lately been symbolized by the ‘22K’ phenomenon – NT$22,000 ( around US$740) – referring to the monthly salary new graduates need to swallow in a country where the salary has stayed flat or decreased over the last fourteen years. While the 22K buzzword elicits a sigh of resignation wherever it is mentioned here, at the same time, there is a subtle breeze of excitement and curiosity among students and young professionals about the seemingly abundant entrepreneurial opportunities availed by software, aroused by the highly visible disruptive companies emerging from the United States. Recently, there has been discussion of whether Taiwan is even capable of nurturing a global startup. Some ask whether the country is too small to do so. Others feel that while it may be too small to be a market, it’s fully capable of producing a global hit.

For those entrepreneurially inclined in Taiwan, it can be argued that there’s been no better time to take up the call of entrepreneurship, as the 22K reality has virtually obliterated the opportunity cost of taking the risk. True though this may be, and as genetically encoded as entrepreneurship is in the Taiwanese, this path still diverges from convention, and won’t find its full expression without some catalyst.

Don’t Look to Replicate Other Startup Centers

There has been interest in expediting the development of Taiwan as a successful startup hub. Academics, businesspeople, and government officials meet to discuss how Taiwan can do this. While there has been a temptation to try to replicate the software success of startup hubs like Silicon Valley or Berlin, it’s a recipe for mediocrity. Silicon Valley developed organically over decades, and can’t be replicated according to a five-year plan. In fact, there’s no need to imitate, especially when unique and valuable resources are already in Taiwan’s own backyard.

John Fan, the founder of PicCollage, asserts: “In terms of strengths there are still some. There is extremely strong engineering talent in Taiwan.” Add to this local expertise a formidable array of world-class hardware producers on the island, and Taiwan has the basic elements of its own brand of startup advantage.

Co-founder of early stage investment firm Yushan Ventures, Volker Heistermann, who has done as much as anyone to educate, evangelize, and fund software entrepreneurship in Taiwan, feels that trying to reinvent or copy other countries’ successes here is the incorrect path to take: “I do not believe that Taiwan is well-positioned to build a sustainable software industry at this time. Historically, Taiwan’s strength is in hardware, and therefore the emerging connected devices, hardware, and 3D printing sectors are what Taiwan should focus on. Right now, it’s not a software island, despite a great pool of highly talented software engineers.” HTC, Mediatek, TSMC, Acer, and Asus are all here. A path of more likely success is not to reinvent California here, but to partner with these behemoths and utilize the resources, experience, distribution, and global alliances already in existence.

Adjust Your Aim

While this hardware expertise and pool of latent talent exist in Taiwan, there are some significant elements still required before Taiwan’s ecosystem fills in and becomes a truly fertile ground for startup success.

First, Taiwanese startups need to adjust their aim. Jamie Lin of AppWorks Ventures, a startup incubator founded in 2009, based in Taipei and focused on Chinese internet and mobile phone applications, recently said at an American Institute in Taiwan meeting that Taiwan needs to stop focusing on China, and stop chasing South Korea. That’s old thinking. Those races are done, and Taiwan needs to focus its energy on strengths it can leverage.

Heistermann agrees: “China is not the answer for Taiwan. Taiwanese software startup companies do not have a competitive advantage in China.”

Equally mistaken is for entrepreneurs to take too narrow a view, building only for the Taiwan market. The aim needs to be bigger, Southeast Asia or global.

Missing Ingredients – Business People, Investment, and a Big Exit

While developer and engineering talent is inexpensive and ubiquitous, the country lacks business development talent with international alliances. “We don’t have the PayPal ‘Mafia’ or the Twitter ‘Mafia’. All of these companies that started in the last five to ten years in the Valley that went public or almost went public, and now the first 500 people are starting to leave and start new companies. They have the understanding of how to build a startup. Taiwan doesn’t have that, and the people that are close to it are leaving Taiwan for China or Silicon Valley.” Heistermann says. “I believe in Taiwan with 22 million people here. There are talented developers, but the startup ecosystem suffers from a lack of business talent.”

With the low cost of technical skill on the island, it may be tempting for offshore Taiwanese entrepreneurs to set up shop here while doing their business development elsewhere, a situation that may have superficial appeal, but ultimately does little to develop a prolific scene. Heistermann points out that an important question arises: “Are we setting Taiwan up as a sweatshop for the rest of the world and setting up these R&D centers, or are we getting some talent back here and setting up companies, and have the locals learn from it? It will take years, and then once the exit occurs, then we’ll have them execute and do it. That’s the way Taiwan will be successful in software.” Those Taiwanese who have gone abroad to find success need to be enticed back to build here and teach others.

At this time, local investor money remains on the sidelines. The traditional mindset rooted in the OEM/ODM business model persists and isn’t familiar or comfortable with evaluating software companies. There is a lot of money here to be sure, but the floodgates are closed until a major success materializes. “The mentality in Taiwan won’t change until there has been a significant exit,” Heistermann added. To illustrate this reluctance to invest, there have been successes on the island, like Cubie Messenger which was not able to raise money here despite the fact that it had millions of downloads and was deemed worthy to participate in the 500 Startups Accelerator.

So this is the scene. Does Taiwan end up using its considerable talent for homegrown successes or does it become a development shop for the rest of the world? Can it seize the opportunity that lay in front of it? Will local investors come off the sidelines and into play? Can Taiwan entice seasoned company builders from Taiwan who’ve found success elsewhere to return, set up businesses, and deliver knockout, homegrown, globally relevant companies while providing a world-class education in company building to local entrepreneurs at the same time? Will the next ten years witness Taiwan’s own version of the PayPal or Twitter Mafia?

It’s a fascinating time to be on the ground in Taiwan. If you’re here now, you’re on the ground floor with the evangelists of the country, flanked by the established titans of hardware. Taiwan’s waiting for a couple of ingredients and a catalyst – an exit – to congeal the disparate elements of the ecosystem and unleash a waterfall of entrepreneurial drive, embedded almost at the genetic level, to become one of the most exciting corners of entrepreneurship in Southeast Asia.

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