That the success rate of startups is very low worldwide is known to everyone. The following article gives with some lessons to be learnt in the Vietnamese context.

Startups in Vietnam, like their counterpart elsewhere, have to go a very long way to success

In Vietnam, “startup” has been one of the most sought-after key words on Google this past year. In fact, promotion of startups is a national policy, which has been assigned to the authorities of different levels, from central to local agencies. By April last year, the number of startups in Vietnam had amounted to upward of 18,000, according to the HCMC Computer Association (HCA). Vu Anh Tuan, HCA general secretary and vice chairman of the management board of the startup ecosystem of HCMC, says the city is now accommodating around 30 incubators and 10 organizations in charge of startup promotion.

However, statistics from startup support agencies in Vietnam show that up to 80% of startups in the country have existed for less than two years and only 3% of the total can be considered real success stories.

US$1 million monthly sales may mean nothing

Le Thanh Nhan, now director of Lecon Seafoods, used to be a bright star on the sky of startups in Vietnam.

In 2006, he started his business by establishing a seafood trading company which was in no time awarded the first export contract signed with a Russian customer. This contract soon led to many other deals.

Nhan’s business expanded exponentially. The 2006-2010 period was his company’s heyday when its average monthly sales reached US$1 million grossing from deals inked with a host of foreign partners and supermarkets in many countries.

But the business situation began to turn sour in 2011. Aside from harsher competition on the market, the most underlying problem related to internal financial messes. Absorbed by business operations, Nhan spent little time reading financial reports, unaware that the company was being in serious troubles regarding bad debts and losses.

In 2014, the worst thing finally came. Nhan’s company went bankrupt and he had to burden tons of debts. “I’m totally disappointed and frustrated because I could not pay my personnel,” Nhan recalls. “I became permanently nervous. I even thought of suicide.”

Yet his fate had not been sealed. Nhan tried his best to get back the balance by resorting to sports and zen practices to regain the normal life.

One year later, in 2015, Nhan started all over again. His new company, Lecon Seafoods, came into existence. Lecon later received big amounts of investment. Currently, on its customer list are multiple hotels and restaurants.

The failure of a startup valued at more than US$1 million

The following story of Nguyen Ngoc Tai is similar to Nhan’s in one way or another although there are also differences.

Tai is now CEO of MCG Influencer, a media and event firm which has offices in Vietnam and Singapore. But last year, at 27, Tai and his two friends set up a business to develop online technology in the business of distribution and sale. Four months into its launch, Tai’s startup became a phenomenon and was evaluated by a group of entrepreneurs from Malaysia and Vietnam at more than US$1 million.

However, Tai’s startup rose to fame at the expense of the disagreement among the three founding members. Misunderstanding emerged about their roles, obligations and responsibilities. Conflicts became bigger and bigger.

Tai argues that from the very start, the three founding members didn’t go into details about their commitments. That was why their customers failed to have their common voice, leading to a situation in which each negotiated separately with customers. When one of the founders decided to break away, the startup itself also came down silently. All the three went their own way.

Lessons to be drawn

Nhan says he can learn several painful lessons from the story of his first startup. First, he largely ignored principles of financial management in his corporate leadership. “As far as I’m concerned, many business proprietors don’t know how to read a financial report,” he says. “That’s a fundamental mistake. An enterprise may be profitable nominally, but it may not have enough money for insurance or the payroll.”

According to Nhan, financial reports tell company leaders where its stocks are, how much it is liable to banks and so on and so forth. “Negative money flow or bad debts may soon be a prelude to bankruptcy,” he says.

Secondly, many startup founders don’t receive salaries. If so, how could they manage their life? “Although it is your company, you can’t use the money to buy cars or pay for your meals,” he says. “Cash may be still in the report, but in reality it has been used up.”

The third lesson involves the practice of using short-term benefit for long-term plans. For example, Nhat says, using capital from investors or bank loans to build offices which are long-term assets. As soon as the money flow doesn’t go smoothly, a business may run into trouble.

Meanwhile, Tai attributes his startup’s sad ending to the breakup of the founding members. To avoid committing that mistake again, Tai says it needs to take some concrete steps during the process. First, it is necessary to list clearly responsibilities of every member and the time associated with those responsibilities. Accompanying with them are benefits and the time in which the benefits last.

In addition, Tai adds, agreements must be in written documents. Agreements, be they big or small, in meetings have to be recorded in meeting minutes.

In case founding members may work or may not work for the startup, those who do the job must be paid in line with their responsibilities. Tai also insists on the need to have monthly and quarterly reports together with written commitments recorded in minutes.

SGT