Touted as the next Silicon Valley, Southeast Asia is positioning itself at the forefront of innovation. With a market size of approximately 650 million people— larger than North America and Europe combined—the region boasts tremendous growth potential. The World Economic Forum refers to the region as the “world’s economic dark horse,” highlighting its young population and impressive GDP growth.

However, this vast market also brings heightened competition and challenges. Since the final quarter of 2021, startup fundraising in Southeast Asia has been on a downward trend, making the region particularly vulnerable to market corrections. In 2023, private funding reached a six-year low, primarily due to a high capital costs and complications throughout the funding lifecycle. As a result, companies must now present visible exit pathways, realistic entry valuations, and clear paths to profitability to attract investment.

In this increasingly competitive environment, startups need to rise to the challenge, turning disadvantages into advantages. As the region continues to evolve, startups must actively assess and adapt their strategies to not only survive but thrive in this dynamic market. While this is no small feat, specific examples can serve as inspiration.

In collaboration with the Singapore Economic Development Board (EDB) and the US-Asean Business Council, Deloitte Center for the Edge Southeast Asia sought to uncover these gems in the second edition of its “Edges of Southeast Asia” publication. More importantly, this publication highlights approaches that startups can adopt to drive their growth.

Unlocking new opportunities with the power of imagination

Innovation is about finding creative ideas for reinvention.

For companies, this means identifying new ways to refresh or pivot existing products, services, or business models that better meet market demands, address emerging challenges, and capitalize on new trends. In the startup ecosystem, conversation spirals around technology, business innovation, and how to stay ahead of disruption. However, it is equally essential to consider how these new ideas can meaningfully impact the communities around us.

Often, startups develop novel solutions but struggle to connect with those that would benefit most from their offerings. To bridge this gap, it’s crucial to map available resources against the needs of their target communities.

A compelling example is GrowSari, a B2B platform in the Philippines that connects suppliers, service providers, and sarisaris (mom-and-pop stores). The country’s 1.3 million sarisaris accounted for 41% of national FMCG sales in 2022, and over 90% of its micro, small, and medium enterprises (MSMEs). However, each store purchases an average of only around PHP 500 (around USD 8.6) of inventory, limiting their bargaining power with distributors.

By consolidating a suite of products and services, GrowSari acts as a central node that connects suppliers, service providers, and sarisari stores. It distributes cost savings to these stores by purchasing products in bulk and offering them at a lower cost. With access to almost 1,000 products from 85 FMCG brands and free doorstep delivery, sarisari store owners have managed to double their earnings with GrowSari.

GrowSari’s financial services arm also provides support to MSMEs with working capital loans, cash management, remittances, and similar products—which they would otherwise have difficulty securing. By focusing on underserved market segments, leveraging technology to create an ecosystem that benefits all stakeholders from suppliers to end customers, GrowSari fosters deeper connections with its target audience while driving sustainable growth.

By matching startups’ fresh ideas with society’s needs, an ecosystem where startups and beneficiaries can connect and serve a purpose emerges. Startups can also leverage data analytics and customer insights to fine-tune their offerings, enhance their market position, and foster deeper engagement with their consumers.

When these companies expand their influence, they fuel innovation, spurring competitors to capture untapped market segments and sharpen their competitive edge.

Experimenting and keeping a pulse on technological frontiers

Next, to foster a culture of innovation, startups should leverage their agility and deep understanding of their niche by engaging in direct experimentation and exploring the frontiers of technology. Encouraging hands-on experimentation among employees allows them to tangibly explore new ideas, breaking down barriers to creativity and fostering a mindset of curiosity.

A notable example is eFishery, started by Gibran Huzaifah who was inspired by the potential of the aquaculture industry. With firsthand experience as a catfish farmer, he learned that high feeding costs, improper feeding practices, and a poor grasp of feeding time were leading to meager profits. His experimentation journey started with creating a device that ensures optimal feed amounts and timing, which is said to increase feed efficiency by up to 30%. Farmers’ income has also increased by up to 45%.

This process involved much trial and error. Huzaifah had to travel to fish farms to provide customer service in case of errors, convince farmers of the device’s advantages, and even train farmers on internet basics to deploy the technology. It took about 97 days for eFishery to get its first customer and nine months to get its first ten customers. Today, eFishery has since become the first unicorn in the industry with a USD 1.4 billion valuation, having secured USD 200 million in Series D funding in 2023.

eFishery’s example shows the value of continuous on-the-ground experimentation and improvement, with an unwavering focus on a central mission to address the challenges faced by end users—Indonesian fish farmers, in its case.

Another opportunity for innovation lies in directing resources to the fringes of a business to target low-investment, high-growth opportunities. This approach, which leverages technological frontiers, has the potential to reshape and transform entire organizations.

An example of a startup that has achieved this is UrbanMetry, a data analytics company that uses novel indicators to track urban lifestyle patterns and unlock opportunities for real estate investors. Government capacity gaps in Southeast Asia make it difficult to obtain reliable data about the region’s cultural and physical landscapes across different geographies, which is crucial for informed real estate and property investment decisions. Without accurate information, investors struggle to assess risks and allocate resources effectively, which can lead to misaligned products, ultimately stymying investment.

UrbanMetry’s climate risk assessment project in Malaysia, which maps local areas prone to landslides and floods and overlays these with mortgage data, has managed to not only identify potential hazards but also guide future urban planning and disaster mitigation. Not only does this help property developers, governments, and banks in generating comprehensive risk evaluations for properties, it also paves the way for smarter, more resilient cities.

The journeys of eFishery and UrbanMetry underscore the power of embracing experimentation and innovation at the fringes. For startups, this approach creates a first-mover advantage, revealing insights and solutions others have yet to uncover.

Innovating with people and planet at the center

Innovation shouldn’t just be technology-centric—it also needs a human touch.

When developing solutions, startups must consider not only practical needs but also the human aspects of their products or services. This involves addressing specific cultural needs that may be underserved—a consideration especially relevant in a region as diverse as Southeast Asia, with its array of cultures, languages, and religions.

For example, Indonesian fintech provider Hijra has achieved a 99.7% repayment rate on its Shariah-compliant financing, rapidly becoming the largest fintech startup within the Islamic finance market. Hijra’s edge was in recognizing the unmet demand for Shariah-compliant financial services in a region where Islam is the most widely practiced religion. By aligning its offerings with cultural values and religious principles, Hijra not only builds trust within the community but also demonstrates how a human-centric approach can drive significant growth and impact in underserved markets.

Another area for innovation lies in conscious consumerism. 92% of Generation Z and Millennial consumers in Southeast Asia prioritize health, social and environmental attributes in their purchasing decisions. By aligning business practices with these values, startups can tap into demand for socially and environmentally responsible products, fostering deeper consumer loyalty and engagement beyond price and functionality.

Furthermore, sustainable innovation also provides a competitive advantage. An example is A Little Wild, Southeast Asia’s first commercial-scale farm that has used syntropic agroforestry—a form of regenerative agriculture—to transform 10% of a 138-acre oil palm plantation. In these restored plots, carbon capture is twice that of traditional oil palm areas. This is achieved using closed-loop systems for resilience and self-sufficiency that merge indigenous knowledge with scientific rigor, enhancing farming techniques to give degraded land a new lease of life. The farm’s produce appeals in particular to eco-conscious consumers willing to pay a premium for sustainably grown agricultural products.

By rooting themselves in a purposeful mission, startups stand to resonate with a wider audience that shares the same values.

A sea of opportunity for those who find their edge

Beyond traditional innovation hubs like Silicon Valley, Southeast Asia offers many avenues and resources that startups can tap on. But challenges are  plenty too. The sheer diversity in cultures and languages pose a barrier to scaling, as solutions must be tailored to local customs and linguistic requirements.

Additionally, the receptiveness of more traditional companies to new ideas and technologies remains a hurdle. The challenge and opportunity lie in convincing these companies that collaborating with innovative outfits can help them derisk the adoption of new ideas, while helping them stay relevant in a rapidly evolving marketplace.

Ultimately, the unique challenges Southeast Asia presents can also serve as a catalyst for creativity. By drawing from the strategies of the region’s innovators, startups can find inspiration to identify new, green pastures for growth.

About the author: This article was authored by Michelle Khoo, leader of the Deloitte Center for The Edge Southeast Asia. With over a decade of experience in advising business and government leaders on long-term strategies, Khoo is passionate about shaping a more sustainable, fairer, and inclusive future in both physical and digital realms. Her work revolves around artificial intelligence, sustainability, metaverse, disruption, and innovation.