Startupreneur Business Digital (SABDA)

Vol.1 No. 1 April 2022

P-ISSN:
2962-0260
E-ISSN:
2962-0279

The Role of Business Incubators in Developing Local

Digital Startups in Indonesia
Muhammad Rehan Anwar1, Muhamad Yusup2, Shofiyul Millah3, Suryari Purnama4
1,3 Computer Science, University of Agriculture Faisalabad, Pakistan
2,3Information System, University of Raharja, Indonesia
4Economics and Business, Esa Unggul University, Indonesia

Email: [email protected], [email protected] , [email protected] , [email protected]

Article Info ABSTRACT

DOI:
The development of the internet causes the flow of information
10.33050/sabda.v1i1.69
to move quickly without knowing geographical boundaries.
Article history: Likewise with the development of the digital industry, although
Notifications Author the condition of the digital industry in Indonesia is still in its
06 April 2022 early stages, where infrastructure and ecosystem support is still
very minimal, the optimism of digital industry players in
Final Revised Indonesia is very strong, both from the startup side and from
22 April 2022 investors. Problems arise when both local and foreign investors
want to invest in local digital startups in Indonesia, namely the
Published
unpreparedness of local startups to receive relatively large
29 April 2022 funds for business development. This raises doubts for
investors whether the startup can manage the funds raised and
Keywords: generate future profits for investors. Therefore, an initiative was
born from investors and stakeholders in the digital technology
Inkubator Bisnis
industry to activate business incubators, with the aim of
Digital Startup preparing local startups to be able to develop more optimally.
Industri Kreatif This study uses an interpretivism approach and exploratory
research which aims to find out what activities have been
carried out during the business incubation process and what
are the benefits and added values that support a startup's
business after participating in business incubation activities.
The results of this study reveal a variety of tangible benefits
received by local startups to increase their capacity.

This is an open access article under the CC BY 4.0 license.

Corresponding Author:
Information System, University of Raharja, Indonesia

Email: [email protected]

1. INTRODUCTION
Along with the times, many local startups do not have adequate funding sources, both from
income and from external funding, to continue their operations[1]. This has made
stakeholders in the Indonesian digital industry aware that it takes more than brilliant
business concepts and ideas to bring a start up into a stable company level, and can even

Journal homepage: https://journal.pandawan.id/sabda/ 1

 Startupreneur Business Digital (SABDA) P-ISSN: 2962-0260
Vol. 1 No. 1 April 2022 E-ISSN: 2962-0279

compete in the international, even global arena [2]. To help local startups not wither before
they develop, several digital industry stakeholders such as telecommunications operators and
investors (both individuals and venture capitalists) agreed to work together and build various
incubation and acceleration activities [3]. The hope of this incubation and acceleration activity
is to develop the capacity of local startup founders so that they have the modern business
and management understanding needed to establish and develop a startup [4].
Thus, the Indonesian digital industry ecosystem will be filled with entrepreneurs and
founders who are not only creative in thinking about business ideas, but understand business
execution so that their startups are able to survive the increasingly fierce competition [5]. If
we look further, the development of the digital industry in Indonesia also has a positive impact
on the national economy [6].

Figure 1. Siklus Feedback Loop Lean Startup

The digital industry is one of the sub-sectors of the creative industry which is
increasingly showing significant growth as a contributor to the national economy [7].
Therefore, if the digital industry can develop well and be able to become the basis for
innovation in other industries [8], then the national economy will also experience
extraordinary growth in the end [9].

2. LITERATURE REVIEW

Several previous studies have provided a definition for the incubator business, namely:
● Is a term that describes all organizations that provide access to affordable office space
for startups and provide shared administrative services. (Allen and McCluskey, 1990).
● A place that is used as a shared office with various facilities that seek to provide a
value-added system, strategic additions and business support, with the aim of
facilitating development of a new business. (Hackett and Dilts, 2004).
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● An innovative form of organization aimed at generating value by combining the

entrepreneurial spirit of business startups with sufficient resources available for
business medium to high scale. (Hamdani, 2006).
● A new and popular form of organization created through assistance of economic
development agencies to support and accelerate the development and success of a
business to achieve certain economic goals (Scillitoe and Chakrabarti, 2010)

3. METHOD
This research is an exploratory type of research because it aims to find out what
activities have been carried out during the business incubation process and what benefits
and added values support a startup's business after participating in business incubation
activities [10]. The approach used for this research is interpretivism approach because it
assumes that understanding a social phenomenon can be obtained by studying a text in detail
[11]. The data sources used in this study are top management from business incubators and
startup founders who have graduated from incubation activities as many as 20 people [12].

Figure 2. Research Framework Flow

The data collection process was carried out through interviews and direct
observations in the field. To minimize bias, triangulation of methods was carried out where
the authors compared the two methods used at the time of data collection.

4. RESULTS AND DISCUSSION

The following are the results of the discussion of the data obtained during the author
conducting this research. Risks and Constraints faced by local digital startups. Due to the
high level of innovation, startups are very attached to risks that must be faced during their
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operations. Based on interviews from resource persons, there are four risks that must be
faced by startups, namely:
1. Business model risks. This risk arises when a startup company tries to introduce a
business model that has never existed before [13]. Therefore, the level of acceptance
of potential customers towards the business model cannot be known in the initial
phase and must go through a series of trial-and-error to gain an understanding of
the customer.
2. Calyptra technology risks: University of Surabaya Student Scientific Journal Vol.4
No.1 (2015) ) 12 This risk arises when a startup company uses new technology that
has never been implemented before.
3. Business execution risk This risk arises when a startup company enters the
execution stage, such as marketing products, making sales, etc. The reason for this
risk is that the startup does not have experience executing similar business ideas,
so it cannot benchmark.
4. Market risk This risk arises because the market which is assumed to need the
product/service does not exist.

In addition to the risks above, there are several obstacles that have been clearly felt by local
startup actors in Indonesia, namely:
1. Regulation and protection from the government The information technology industry
in Indonesia can still be said to be very young, especially for internet-based creative
industries that are just emerging 3- last 4 years. Therefore, the government has not
yet fully prepared regulations that can properly regulate the digital creative industry,
one of which is the internet-based creative industry. Let alone talking about
regulations, the government still seems confused, who should be responsible for
protecting the digital creative industry. Apart from regulatory issues, what the
Indonesian government feels is lacking is protection against the entry of foreign
startups that are eyeing the huge Indonesian market. With the support of larger
investors and experience in their home country, foreign startups feel so free to
operate in Indonesia. AZ said that this is quite worrying because local Indonesian
star2watups will not be able to compete to host in their own country if foreign
startups are not given a barrier by the government. For example, the major e-
commerce players in Indonesia are currently dominated by foreign startups, either
by Calyptra: Universitas Surabaya Student Scientific Journal Vol.4 No.1 (2015) 13
opening direct branches in Indonesia or acquiring local startups that already have
traction. good in the eyes of the customer [14].
2. Characteristics of the Indonesian Market for Digital Products As a developing
country, consumers of digital products in Indonesia have unique characteristics and
have the potential to hinder the development of commercial startups in Indonesia.
The characteristic is that most consumers always feel that various digital creative
products are cheap goods, even if they can always be free. They seem less
appreciative of intangible products because they feel that there is no physical form
that costs money to make. This is what some of the startup sources of this research
found.
3. Access to the market Access to the market will determine the survival of a startup
company. No matter how good the products and services produced, if they cannot be
delivered or are affordable by the market, then the startup will not be able to earn
sufficient income to become a sustainable company. This obstacle seems to be an
obstacle that almost all local startups in Indonesia experience [15]. Access to the
market becomes difficult when bootstrapped local startups have to compete with
established companies, even foreign startups that have strong capital support to
compete for market attention. Therefore, support from incubators who already have
access is a major concern for startups who want to participate in the incubation
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program. Platforms are another problem in efforts to distribute digital products in

Indonesia, as stated by one of the sources [16]. At first, the startup considered its
product to be included in two mobile app platforms, namely Google Play and Apple
Store as a paid product. However, when it comes to launching its products, there is
an obstacle that at that time Google Play had not issued a license for Indonesian
developers to publish paid applications, while the Apple Store was able to. In
Calyptra: University of Surabaya Student Scientific Journal Vol.4 No.1 (2015) 14
Indonesia, this is a problem because users of Google's Android operating system are
far more dominant than Apple's iOS operating system. The next problem in terms of
market access is the lack of market access. use of credit cards in Indonesia. In fact,
credit cards are the most efficient payment media for digital products. As a result,
customers are too lazy to buy digital products because they don't have a credit card.
Until now, the number of credit card users in Indonesia has only reached 2% of the
total population of Indonesia. If you count active users, of course that number will
decrease again [17].
4. Funding As with other companies, every startup company definitely needs funds to
support its operational activities. However, the options for startups are more limited
because the risks they face are relatively higher than conventional businesses [18].
Especially for digital startups, the more complicated problem is that startups often
do not have tangible assets that can be used as collateral to apply for conventional
funding, both to banks and other credit institutions [19]. The main aspect that has
high value in digital startups is intangible, namely their business concepts and ideas.
This makes funding options from conventional institutions such as banks relatively
very difficult to obtain. The first option that startups can and usually takes is to use
their own costs to meet their initial operational needs before finding investors [20].
The next option for startups is to look for investors who are specifically invested in
high-risk companies such as startups. It is possible that the business incubator will
also provide funding in the early stages so that the founder can focus more on
developing his ideas and business. Furthermore, this study finds facts about the
different characters of startups that fund independently with those that obtain
funding from external parties (incubators) [21]. The self-funded startup Calyptra:
University of Surabaya Student Scientific Journal Vol.4 No.1 (2015) 15 will tend to
be more careful in every expenditure, but also causes expansion measures to often
have to collide with funding problems . On the other hand, investor-funded startups
have the flexibility to use the funds for startup development more optimally [22].
However, as said by BK, the negative impact is that startups become more aggressive
and tend to dare to take higher risks in using these funds, so that they do not provide
an optimal impact for startups [23].
5. General business understanding In any business field, business understanding is an
absolute must for business people. However, unfortunately, in Indonesia, this is still
felt to be lacking by local business people. In the context of the digital industry [24],
one of the interviewees felt that entrepreneurs in this field still do not have enough
entrepreneurial spirit to build a sustainable business. In the early days of the
proliferation of local startups, it was said that the founders did not understand how
a good business model was for their startup and how to innovate well. At that time,
the founders seemed to be competing to create unique and creative ideas, but had
not thought about the business side and the sustainability of their business in the
future [25]. Their mindset in forming a startup was to be included in various races
to further gain instant publicity and popularity, get funding from investors, but there
was never any continuation. In fact, the business understanding in question is things
like determining and validating customer problems to be solved, talking directly to
customers to get feedback, then starting to make products according to valid ideas
to the transaction process. These things escape the attention of founders who focus
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more on the innovation side, without paying attention to the business side. As a
result, startups will often fail to develop in the middle of the road [26].
6. Building a team with one vision Building a startup company to become an
established company is quite difficult and has high risk. Without the support of the
team and adequate personnel who oversee the startup in its execution process, any
good ideas and concepts will not help [27]. One of the interviewees admitted that one
of the obstacles he encountered was forming a team with one vision with a strong
commitment to jointly develop a startup. In contrast to companies that are mature
and have a clear business model, startups (especially those that are independently
funded) often have various limitations, including in terms of the benefits that can be
offered to potential team members. Not all startups are able to offer high salaries,
while they also have a need for superior human resources in order to be able to
continue to grow and compete [28]. Therefore, the role of the founder in convincing
team members is very important
7. Lack of focus on startup development It must be admitted that very few startups in
Indonesia start out as permanent jobs or full-time jobs. Most startups in Indonesia
start from hobbies or products developed to fulfill the ideals of their founders [29].
By not working on startups as their main job, local startups experience delays in
their development because the founders are not focused on developing further. This
is quite acceptable because it is very rare for startups to be able to achieve revenue
in the early days of their establishment, while it is undeniable that every team
member who works at the startup still has a financial burden that must be met [30].

5. CONCLUSION
From the research that has been done, the authors found several important findings
including the risks and obstacles that must be faced by local Indonesian digital startups, as
well as the benefits of incubation activities for startups. The risks that must be faced include
business model risk, technology risk, execution risk, and market risk. For the obstacles faced,
in general startups will face external and internal obstacles. In connection with the condition
of Indonesia's digital industry which is still developing, some of these external and internal
constraints are also quite unique and rarely found in a country with a mature digital industry,
such as in the United States. To overcome the various obstacles above and minimize the risks
faced by startups, incubation activities can be one of the paths taken by local startups. In
Indonesia, there are several additional benefits provided by several incubators, such as
support for very broad market access (due to collaboration with telecommunication
operators), funding from incubators in the early stage phase, as well as improving the
company's image in the eyes of investors and customers. In addition to the theoretical
implications above, the researcher also suggests several practical recommendations to
stakeholders involved in the Indonesian digital industry. First, the government can play a
more active role by forming a special work unit involving various ministries related to the
creative industry to jointly support the creative industry. Second, the process of educating
the Indonesian people to increase appreciation for creative products. Third, increase the
quality and quantity of business incubators in Indonesia. Lastly, to encourage the role of the
telecommunications industry as a distribution channel for creative products.

ACKNOWLEDGEMENTS
We want to thank to University of Raharja, particularly to Alphabet Incubator, who
has helped complete this research.

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BIOGRAPHIES OF AUTHORS
Muhammad Rehan Anwar Experienced Information Technology
Support Engineer with a proven work history working in the information
technology industry.
Can be contacted at email: [email protected]

Muhamad Yusup, M.Kom is a lecturer in the field of information

systems. Obtained his master's degree from Budi Luhur University in 2014.
He has 52 research studies in the field of Information Systems, Web
Programming, Data Warehouse, E-Commerce published worldwide with
reputations from SINTA to SCOPUS.
Can contacted at email: [email protected]

Shofiyul Millah (Student Member, IEEE) runs an undergraduate

program with the Faculty of Science and Technology at University of Raharja.
She has 10 research studies of the reputation of SINTA and SCOPUS. Areas of
interest are Information Systems, Business Intelligence, Blockchain and
Gamification.
Can be contacted at email : [email protected]

Dr. Dra. SURYARI PURNAMA, MM (Student Member, IEEE) runs

an undergraduate program with the Faculty of Science and Technology at
University of Raharja. She has 34 research studies of the reputation of SINTA
and SCOPUS. Areas of interest are Economic, Management, Operations
Research.
Can be contacted at email : [email protected]

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