Money-Burning Action by Startups Is Hard to Avoid

Burning money by startups to hoist high valuations through a variety of massive promos is difficult to avoid. It was according to the previous Minister of Trade, Enggartiasto Lukita. Startups usually do the action through the promo, whether it’s a discount or cashback benefits.

“That is a necessity that cannot be avoided. Countries like Indonesia cannot easily say, wait for us to learn first and then other countries have done that,” he said not long ago. According to him, the existence of this money-burning action can be positive too.

In this case, it can add to the positive side of increasing sales demand. In the end, it will support Indonesia’s economic growth. “If the purchasing power of the people and speaking consumer increases, it will help economic growth. That’s a simple formula,” he explained.

He further explained that with the increasing number of users, startups will have greater user data to be able to improve their services. Regarding the startup companies’ burning money, Enggar suggested that they could be used to encourage local products to host their own country.

Startups Could Encourage People to Use Local Products

“We will push (the use of local products), but the most critical stage that must be carried out is how to make our consumers aware of how to use local products and shop on our domestic products. Without that awareness we cannot force or prohibit it all,” he said.

Meanwhile, foreign investment in the country has shown an upward trend. Then, what is interesting to note is the change in the direction of investment targets, especially investors from Japan. Funding from the Land of the Rising Sun began to target startups.

Softbank, for example, channeled capital through Grab. Both of the giant companies dared to release their shares up to trillions of rupiah. Reportedly Softbank and Mitsubishi are more tempted to finance startups because the appeal of the automotive sector lately has faded slightly.

In fact, financing a startup company can be likened to burning money, but investors from this country believe that startups in Indonesia have great potential. Facts show that the country of 265 million people has had five startups at the unicorn level up to now.

The government hopes for both domestic and international investors are so great to develop this country. The government is fully aware that the funds from the State Budget are not enough to make the wheels of economic growth spin fast.

Startups’ Money-Burning Actions Not Always Running Well

On the other hand, money-burning actions by startup companies are not always running smoothly. Several large startups around the world have to experience business downsizing amid the thriving digital economy. Zomato is one of the examples. This restaurant startup aggregator from India did a reduction in employees.

Furthermore, another startup that has an IPO on the New York stock exchange, Uber, also took the same steps. There is also the fall that befell WeWork startups who have the same pattern. It has a very high valuation value but it is not clear when to make a profit.

When it comes to Indonesia, there is Bukalapak. The internal organization of the company was considered as the main reason behind this business strategy. This was conveyed by Bukalapak Chief Strategy Officer, Teddy Oetomo, the layoffs were carried out to less than 100 employees.

Employee reduction is done so that the company’s business can continue and is capable to reach a BEP (Break-Even Point). Bukalapak’s ambition is to become the first unicorn startup to earn a break-even point of investment after repeatedly receiving millions of US dollars in funds from investors.