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How to own a market as a frontier market entrepreneur

Entrepreneur

October 25, 2013

Reporting from: Vientiane, Laos

For a moment today, I thought I was in New York City.

I was on my way to meet a contact I made in the Laos real estate industry, and I didn’t know exactly where I was going. All I knew was that my destination was about two miles away. Just as in Cambodia, I turned to the only real form of local transportation in Vientiane: the tuk-tuk.

If you haven’t seen a tuk-tuk, it’s basically a motorcycle with a large carriage attached. Better than riding on the back of some guy’s motorcycle, not as good as an air-conditioned 1998 Toyota Crown taxi.

When I showed the first batch of tuk-tuk drivers the address, they told me it was “so far” (the only two English words most tuk-tuk drivers anywhere can speak) and held up three fingers to indicate a fare of 30,000 Lao kip (about US$4).

I could have bargained with them – as I so love to do – but I was in a hurry and they looked pretty cozy sprawled out napping in the back of their tuk-tuks.

So I moved on. I got the same price across the street, and moved on again. As the last tuk-tuk drove by, the police actually helped me flag him down. Not only was I reminded that police outside The Land of the Free are often actually pleasant, I was surprised at what I was in for.

60,000 Lao kip. That’s right: $8 to travel what was now less than two miles. Taxis in Manhattan are cheaper.

As a capitalist, I’m an unflinching believer in the free market. If $8 is what the market will bear for a five-minute drive, then so be it. In this case, I’d call it more of collusion than capitalism.

And considering most tuk-tuk drivers have no clue where they are going and will simply try to dump you off on a street by pointing vaguely in the distance and reciting some word from the address you gave them, I doubt that’s what the market will bear… but who am I to say?

This is actually an friendly debate I’ve had with other travelers before. I believe that overpaying people like tuk-tuk drivers out of sympathy is bad policy. Not for me who tries to grind the last nickel out of them, but for the service provider himself.

As economies in places like Laos rise, more businesses will be started not only by newly-middle class locals, but by expat entrepreneurs like myself. Competition will get stiffer. And the tuk-tuk driver who is used to making money only by gouging tourists and providing weak service won’t make it.

He’ll go broke as better options are available.

I eventually made it to my meeting with the Laos real estate agent about forty-five minutes late. It turns out my new contact is my age and has had a successful career not only renting property to expats but also investing in land herself.

As land prices have risen by amazing multiples over the last few years, people like her have been selling their land for large profits. It’s not unheard of for someone in Laos to buy land and have unsolicited offers for twice that price less than a year later. When the bubble will burst is anyone’s guess.

Ever since I was a teenager, I’ve found the idea of being a land baron in control of huge, unspoiled tracts of land rather romantic. However, when looking at it realistically, I see land as what it is: a non-cash flowing, non-financeable asset that depends on significant capital appreciation for me to have an exit strategy.

While it’s true many locals here in Vientiane are building large villas on their newly-appreciated land – some costing as much as $1.5 million – I really wouldn’t have any interest in learning the ins-and-outs of building policy in Laos.

After talking to my new friend about Laos real estate, I invited her to dinner to discuss some of the other business opportunities she was working on.

And the first thing I mentioned was that someone should start a metered taxi service in Vientiane to compete with the outrageously overpriced tuk-tuks.

Just last weekend, I watched an interview with Sir Richard Branson, founder of the Virgin Group, and heard him tell his story of starting everything from record stores to airlines. Each time, he says, his decision to start a business was based on some simply need he personally felt was ignored in the market.

When he flew on an airline with surly service, he decided to start his own and focus not on the things all of his competitors focused on, but on customer service. As a result, his Virgin airlines are some of the “sexiest”, most beloved in the sky today.

I feel the same kind of opportunities are present in places like Laos. While many people come to Laos on a backpacker circuit, I’m spending my time in Southeast Asia to look for basic business ideas that undeveloped markets haven’t gotten around to yet.

Eventually, as tourism from both China and the west increases here, there will be a metered taxi service. While some have called Laos “the next China”, it’s actually much similar to Thailand twenty years ago.

Roughly twenty years ago, Bangkok didn’t have metered taxis, either. Now they’re ubiquitous.

While I frequently rail against the United States, I do believe you can start a business there. However, a much more developed market means it costs more to enter a market, costs more to do business, and is harder to compete.

Here in Laos, you can hire low-level workers for $100-200 a month and have your pick of any number of easily identifiable businesses. Rather than developing some complex business plan that may or may not work after investing tons of money (and, if it does work, will subject you to huge taxes), you could come to Laos and open a parking lot.

Or a delivery service for products like cosmetics which are as much as 70% less in Thailand, and subject to low import duties.

Or engage in any number of businesses that you could roughly sketch out after observing things for just a few weeks.

Every business I’ve started began with a small amount of money and a basic concept of improving an existing market. I’ve never dumped a million bucks into a company because I was “just sure” it would work. My small investments have brought almost immediate cash-flow and future appreciation.

There will come a day in Laos when tuk-tuk drivers have to actually compete thanks to metered taxis. Imagine the upside of starting the first such company here if you had the proper exit strategy.

At the end of the day, solving simple, everyday problems in simple ways is what entrepreneurship is all about. I just so happen to believe it’s a lot easier not only to get started and do business, but to be successful, in emerging economies.

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