Giant slayers
- johannapoblete
- Aug 1, 2015
- 17 min read
Updated: Jan 26, 2023
How small players are shaking up their industries by thinking smart and moving fast
Giants can be felled by the puny ones, the unlikely heroes, the underdogs. The David and Goliath story is timeless because history is full of examples of the little guy beating the odds to defeat his bigger, stronger opponent. Or is it really beating the odds? In his book David and Goliath: Underdogs, Misfits, and the Art of Battling Giants, author Malcolm Gladwell says that maybe David had the advantage all along. The runt didn’t win despite his size and humble slingshot; David defeated Goliath because he was nimble, and because his weapon was more powerful than it looked.
In other words, underdogs in the business world should recognize their unique advantages against established competitors who have strength, size, and money. It’s how these smaller companies win—by introducing disruptive innovations that redefine the game to their advantage.
Harvard Business School professor Clayton Christensen, author of The Innovator’s Dilemma, says innovators focus on customers overlooked by established firms: They offer products that address a market that previously couldn’t be served, which introduce a “new-market disruption” to the business; or products that simply offer easier, cheaper, or more convenient alternatives that introduce a “low-end disruption.” Sometimes these disruptive innovations move into the mainstream—as when personal computers replaced mainframe and mini computers, or cellular phones became more common than fixed line telephony. “What need is not being met? Where is the customer who is unserved or underserved? Look at those two things—product and market—and how to deliver,” advises Jesus G. Gallegos, Jr., professor of strategic management and innovation at the Asian Institute of Management.
Disruptive innovation is not limited to new technology, says Gallegos. Entrepreneurs can introduce disruptive products by getting to know their market and responding to market needs. Cebu Pacific, for example, made flights available to the budget consumer, heralding a global trend that transformed the way we fly. Sun Cellular bundled web-based services with unlimited text and call credits, eating into the markets of dominant carriers Globe and Smart, eventually getting bought out by the latter. Mang Inasal won Filipino diners with unlimited-rice offers and by aggressively locating in prime fast-food locations; it was so successful that market leader Jollibee decided to have Mang Inasal join the fold rather than to try and beat the upstart.
“The underdogs are the ones on the ground, they’re closer to the customer…They can change minds faster, change strategies faster. They can personalize, they can customize...That’s how they niche,” Gallegos says. There are countless underdogs in Philippine business giving the giants a hell of a good fight. We all can learn from their cleverness, agility, and hard-won lessons.
Build from scratch and make your own rules
Bjorn Pardo, Founder and CEO, Xend Business Solutions Inc.
When Bjorn Pardo started Xend in 2004, his goal was to address the pain points that Filipino merchants were experiencing in the nascent e-commerce segment. An e-tailer himself who specialized in wood exports to cue stick makers in the U.S., Pardo sweated out hours every day at the post office or a local courier service provider, filling out forms and packing shipments. No one was paying attention to web-based traders, so he decided to create a hybrid service combining e-commerce, tech, and logistics solutions.
“We like to do these unheard-of things because nobody is going to even dare do it.” - Bjorn Pardo
Xend made shipping more efficient: forms are provided online, tracking is automated, and free pickup is done door-to-door. Pardo started with one courier, and one coder. He haunted web forums to invite online merchants to try out his service. “We had this killer value proposition: half the price, ten thousand times more convenient,” says Pardo. On average, buyers would spend P1,500 on one purchase, and Xend kept their services low-cost. “We knew that e-commerce would never grow if you had to pay high for shipping.”
Over the years, Pardo has continuously improved his service. Xend switched from phone-in bookings to do-it-yourself online booking and now has a mobile app, cutting down booking and actual shipment processing time from two hours to two minutes, and finally to a couple of seconds of finger-swiping. Instead of having to take several screen-shots of tracking information, Xenders will soon find this info automatically captured for emailing to their buyers, who need only scroll down to see all the data. “Our mentality is do or die...You just have to continue to improve and grow,” says Pardo, who realized that the growth would be in domestic demand, and so he expanded to domestic shipping from international shipping, although they still serve over 230 countries.
Xend was the first to charge by volume rather than by weight, while other companies charged additional fees for packages over one kilogram. Xend is the first and only courier to offer free insurance worth P2,000 for all domestic-bound and $100 for all international-bound packages, with Pardo extending free ad or shipping credits to clients who take issue with deliveries. Their customer-centrism manifests in dedicated officers managing specific accounts. So if the package doesn’t get delivered the next day (Manila) or up to three days (provinces), customers know who’s accountable.
From a handful of signups, Xend now has 160,000 individual merchants registered, and an additional 200 patrons signing up every day. Xend’s 200-strong couriers accomplish 3,000 pickups a day. (In five years, small accounts have gone from one pickup per day to an average of three pickups every day.) Xend has also partnered with 7-Eleven, where clients may opt to drop off their parcels. Xend is currently working with several local couriers, including LBC and 2GO, to better expand their services from Metro Manila to the provincial areas, where most of their clients’ recipients are located. “We have a mini-2GO and a mini-LBC hub right here in our office, so things gets processed faster...There’s a lot more collaboration.”
Originally, Xend exploited traditional logistics companies’ unfamiliarity with e-commerce, as big players thought that that niche market was negligible. They were wrong: internet penetration is up, and besides the small online merchants, Xend now serves corporate accounts such as Unilab, and brick-and-mortar shops delving into e-tail, such as Toy Kingdom and Bench. “Where the big players and I overlap is the corporate accounts that are trying to get into e-commerce right now. But e-commerce and tech has to be in your DNA. We allow our systems to integrate well with any system and we are open to customizing anything that we need to do to boost e-commerce,” Pardo says.
Nonetheless, Xend has not lost sight of its core market: the small online merchant whom they started—and have grown—with. “We are not reliant on a few corporate entities. We are serving hundreds of thousands of people, and it will continue to grow,” says Pardo.
Create superior products and raise havoc
Eduardo Jose Soriano, President and COO, Hacienda Macalauan Inc.
Agriculturalist Eduardo Soriano likes things complicated. In the early 1990s, he bought four hectares of idle land from his family’s corporation, establishing a dairy farm that would eventually be called Hacienda Macalauan, Inc. “Very few people have the desire to do [dairy farming]. You work 365 days a year, there is no Sunday, there is no Christmas. You’ve got to milk the cows twice a day, and you have to keep track of all those records. It’s a pain-in-the-butt job,” he says baldly. But he likes it well enough to have expanded the hacienda to its present 30 hectares, inclusive of a dairy processing plant, and modern barns sheltering a herd of 600 dairy cows.
Along the way, Soriano has managed to butt heads with the National Dairy Association (NDA), and the Department of Agriculture—generally because he decries the lack of support given to the local farming community. “I’m not liked by them, I’m too vocal,” he admits.
It seems that he only seeks approval from his growing customer base, as consumers discover Hacienda Macalauan’s Pure & Best premium-quality milk, fresh cheeses, creams, and live yogurt products. Soriano competes directly with the multinationals that, according to the NDA, supply 99 percent of the country’s total dairy requirements. Hacienda Macalauan’s advantage is flexibility—a quicker reaction time to newer market trends, compared to the multinationals who take direction from global headquarters—and of course, the benefits of wholly local sourcing and lower pricing. For example, though Greek yogurt was deemed a fad by other local players, Soriano dove right in, offering 200g tubs sold for P150, along with 90g single-serve cups in a variety of flavors. Imported versions are significantly more expensive, and rarely offer anything beyond plain variants. “I’m making a killing,” says Soriano. “I can get into these higher segments where there are really no local players in the market. I’m competing against the multinationals, whether it be Fage or Total or Chobani, and obviously come out with a discount to that. I’m able to get myself a good niche.”
“Nobody else wants to be in it, and therefore it’s the perfect niche for me.” - Eduardo Soriano
The success of the entire yogurt line forced Nestlé to build a new plant and come out with their own live yogurt, Soriano claims. “Before, [Nestlé yogurt] was dead as a doornail,” he quips.
Soriano has been known to take the fight over labeling to the multinationals when it comes to milk, protesting the indiscriminate use of the “fresh milk” label on imported products, though they are usually reconstituted milk. Reconstituted milk is cheaper, as it is produced (at least partly) from powder rather than raw milk.
But while Soriano offers Pure & Fresh as a high-end fresh milk, he’s also beating the multinationals at their own game by offering reconstituted milk under the newer 3 Cows brand. “I can now buy the same quality of milk powder at the same price as Nestlé, and therefore I should be able to make as good a product as them,” says Soriano. Clients could always choose between the “real” milk or its cheaper variant.
Since 2010, Hacienda Macalauan sales grew at an average of 40 percent, only slowing down last year to around 25 percent. Soriano’s pushed the price so that they’re slightly below import, to minimize vulnerability to the imports slashing prices or offering buy-one-take-one. They’ve trimmed their lineup of peripheral products and limited their presence to 50 supermarkets, among them Rustan’s, Shopwise, SM, Landmark, Gaisano, and Makati Supermarket. Then there are the promotions: Sampling on a payday can increase sales for the next week by at least 50 percent, and opening the farm to school field trips introduces their products to young children. “I don’t do any more advertising because there’s nothing to place. I’m sold out,” he adds.
The company also supplies milk to institutional clients, such as McDonald’s, J.Co, and Uncle Tetsu’s Japanese Cheesecake. Hacienda Macalauan supplies San Miguel with the yogurt as the base for their yogurt ice cream, and occasionally provides ice cream mixes to Amici. Many hotels buy sour cream, buttermilk, or cheeses from Hacienda Macalauan. Cupcakes by Sonja also buys sour cream from them. Soriano is looking forward to offering mascarpone cheese for use in tiramisu and other desserts. “I’m sure I can steal that from importation, because it has even bigger margins,” he says. Though he considers the cheeses merely a “stopgap” for the milk offerings, demand is high; he once tried phasing out the cheeses, but customers bought them even after prices were doubled.
Soriano is always on the lookout for product innovations. What’s exciting him now is the other part of the hacienda: 2,000 hectares of coconuts, and a coconut processing plant, from which he’ll create integrated coconut products, including three types of virgin coconut oil (VCO) and two types of high-protein, low-gluten flours.
Cold-pressed or centrifuge-extracted VCO fetches premium price and also has a profitable byproduct in coconut skim milk. He’s contemplating producing non-dairy cream, made from dessicated coconut, and utilizing shell castoffs and a 10-ton broiler for steam-processing and powering refrigeration in the rest of the plant. In the pipeline is a turbine to help produce 1.2 megawatts of power.
“There are plenty of niches if you look hard enough for them,” says the veteran entrepreneur. “I’m 60, I have to find something to do and build up my retirement, which means playing with my farm and the products that I crank out,” Soriano says. While dairy makes up “95 percent of the business,” he adds mischievously, “the five percent is for enjoying life and disturbing the marketplace.”
Fearlessly look to the far horizons
Leandro Leviste, President, Solar Philippines
At 21 years old, Leandro Leviste has already figured out he didn’t want to follow family tradition and enter politics. “There are only three occasions where young people can reach the pinnacle: sports, show business, and business,” he says. The Yale graduate chose entrepreneurship because he felt it would do the most good, and Solar Philippines seemed the ideal setup in a country plagued by inefficient power generation. “The Philippines is the most attractive solar market in the world; there’s nowhere else where electricity rates are this high,” says Leviste.
In a sunrise industry, his youth isn’t a handicap. “If we were getting into the construction business, there are so many incumbent players, we would not be able to compete. Why go for a one-year-old company with no track record run by a 21-or 22-year-old?” says Leviste, who took inspiration from maverick ’trep Elon Musk who chairs SolarCity, which fully finances solar panel projects, selling power to the client over 25 years instead of the system upfront.
An excess in global supply had caused solar panel costs to plummet between 2010 and 2013. It created an opening for Leviste to launch his integrated solar power installation, financing, and development company. The growth potential was massive, considering only four megawatts of solar power were installed in the entire Philippines, recalls Leviste. “There was not a single megawatt-sized rooftop project, and yet no good reason why there was none.”
He made a bold move by brokering his first rooftop project (producing about 700 kilowatts) at the Central Mall in Biñan, Laguna, financed through a P40-million term loan from the Bank of the Philippine Islands. “Malls are strategic because of the foot traffic—that’s natural advertising. And the load profile of a mall also suits the hours of production of a solar panel,” says Leviste. Citymall Roxas followed suit (650 kw); and then came their first projects capable of producing over one megawatt: SM North EDSA (1.5 MW), and Robinsons Land Corporation (1.2 MW). All of the mall rooftop projects are able to augment power supply by 30 to 40 percent, which translates to savings. Any excess power can also be sold back to the national grid. In fact, SM North EDSA is designed to export all of its power to the grid.
“Have conviction that you know something that no one else does.” - Leandro Leviste
Solar Philippines currently offers a pay-what-you-save arrangement, where clients can avail of up to a 25-year contract at a lower power rate (for substantial savings), or a 10-year contract at a higher rate (for faster amortization). “Ten years, you’re paying us what you’re saving [on power], at zero upfront costs. And after 10 years, you have this hundred million-peso investment for free. Twenty years later, free electricity. The economics will only become more attractive as the years go by,” says Leviste.
Moving forward, Solar Philippines is currently focused on building solar farms that can sell power to the grid, right off the bat. In the pipeline are three solar farms to be completed within the first quarter of 2016, taking advantage of the Department of Energy’s feed-in tariff incentive, which will allow power generators to sell to the grid at a guaranteed rate for 20 years. “There’s a gold rush of investors chasing after this feed-in tariff right now, and we are looking to complete no less than 200 megawatts: 60 MW in Calatagan, 95 MW in Tarlac, 45 MW in Cagayan de Oro,” says Leviste. Their combined output covers half of Luzon’s entire power deficit. Companies developing solar rooftops with Solar Philippines are also partnering up for solar farm development, says Leviste. He admits that the best way for his company to scale up the rooftop business is to focus on the solar farms, which also have a longer-term agreement of 30 years. “Our solar rooftop business will take a lot of equity, and the fastest way for us to raise that capital is to do what is at larger scale, and that’s the solar farms. The fastest way for us to increase the customers for the solar rooftop installations is to build solar farms, which are 50 or 100 times bigger, and then just allocate some panels to our rooftops too,” he points out. That said, Leviste is ensuring that the rooftop projects continue to grow, whether for malls and factories, or for residential homes. “We want to make power as cheap as possible in the Philippines…by installing solar power on rooftops, or by selling them cheap electricity from the grid,” he says.
Leviste forecasts that there will soon be a massive grid defection as more efficient solar panels will combine with energy storage, which translates to not just offsetting noontime load but supplying 24/7 electricity. “Even right now, given present-day battery prices and solar prices, you have a lower-level cost of electricity from solar with batteries, than you would from the P12-P13 per kilowatt hour that you’re paying Meralco,” he points out. Given that demand for batteries will continue, particularly with the influx of e-vehicles into the country, he is seriously looking into the possibility of manufacturing these batteries as a natural extension of the business.
People underestimate solar, Leviste observes, which is why it’s taken so long for the incumbents to move into the segment. He’s proven that large-scale projects are viable, despite the large capital requirements—for example, on a solar farm project, installation cost is at $2 million per megawatt. While others are still studying solar, he’s already getting into the best position he can. “It all begins with your assumption of the market. If you think that solar is a marginal piece of the energy mix, then that would cascade into your business plan being one to maximize profit while you can. Or make money out of the current feed-in tariff subsidy while you can. But if you think that this is the future of energy and can one day supply 100 percent of the Philippines’ power requirement, then you try to build as much overhead and create the most efficient system as you can, because you’ll be building solar farms for the next hundred years,” says Leviste. “Power is a marketplace and whomever can supply it at least cost should prevail.”
Set the standard
Anna Meloto-Wilk and Camille Meloto, Founders, Human Nature
Perhaps one of the biggest social enterprises to date, Human Nature (Gandang Kalikasan Inc.) under the Gawad Kalinga group is distinguished by a dedication to quality that has brought their natural products—personal care items, skincare, and cosmetics—to the mainstream.
And they’ve pushed the rest of the industry to meet their high standards. Since local standards for natural cosmetics are nonexistent, Human Nature has become a member of the U.S.-based Natural Products Association, and has decided to abide by the association’s standards. As a result, other local manufacturers have followed suit, and imports became more mindful of the transparency of their labels. “We did this for the betterment of the people, for people to have an affordable option for safe, natural cosmetics,” says Camille Meloto, creative director, indicating that they’re not just looking at transparency as a means of raising the bar in terms of product standards, but also in terms of ethical standards in doing business. “We realized that if we do it, somehow it will influence other traditional businesses to do the same. And little by little, we’re seeing it happen,” she adds.
“Be clear on what your product and your brand stand for, and then you will be able to hold your own against the big players.” - Anna Meloto-Wilk
Human Nature products are sold on their website and via their branches and dealer network, but also in groceries such as Robinsons Supermarket and Shopwise, and select retail stores such as Rustan’s, Landmark, and Beauty Bar, thus competing side by side with much bigger brands. “We want to make natural brands mainstream so that consumers can have a real alternative to the products that they are currently using. If we maintain a niche, premium positioning, then we can only cater to the rich. That’s not our mission,” says Anna Meloto-Wilk, president.
Their advantage as a small player is being more nimble and quick to innovate, says Anna, while also being more personal. “We can get up close to our customers who are often the sources for our new product ideas…Not having the arsenal of resources that most big brands have makes us more creative and resourceful in making our brand known and endearing our products to our customers,” she adds. “All of the big brands started small. They just had the singularity of purpose and tenacity to withstand all the trials that came their way. It’s the same with small brands. We are the game changers because we bring something new to the industry.”
Change the way the game is played
Benjamin I. Liuson, President and CEO, The Generics Pharmacy
Benjamin I. Liuson saw the opportunity before everyone else did: the majority of the population could not afford branded medicines, and generic medicines were a good alternative. No one, however, was pushing generics. So he created a drugstore, The Generics Pharmacy (TGP), supplying generic medicines to the underserved looking for affordability. It shook the market: TGP started with 20 branches in 2007, retaining only two company-owned stores, with the rest being franchises. “In three years’ time, we surpassed Mercury Drug,” says Liuson. This year, he intends to reach 2,000 branches, further cementing his already massive presence.
“You need quality product, you need affordable, and you need accessible.” - Benjamin Liuson
Liuson trimmed the fat: TGP doesn’t employ salesmen, doesn’t give out samples, and they don’t take doctors on expensive junkets and ply them with benefits. TGP buys largely from local manufacturers, and pays in cash rather than extended credit. They used the franchising model to quickly grow their reach, establishing presence in highly populated areas, and becoming more visible than their competitors. It didn’t take long for copycat generics drugstores to multiply, but by then, TGP had already become a giant in its own right. And of course, they’ve kept the prices of their generic medicines low, with the savings redounding to the consumers. “Ten years ago, drugstores did not sell—I would say they did not even carry—generics. They did not advertise or promote generics. Today, all drugstores carry, sell, and promote generics because they have no choice. ’Yun ang gusto ng tao,” says Liuson.
Focus on your niche
Elizabeth Ventura, President, Anchor Land Holdings Inc.
Back in the early 2000s, there were no modern condominiums—let alone luxury residences—in Old Manila, with most property developers preferring to build in the newer commercial business districts. What they overlooked was an affluent Filipino-Chinese community who needed to stay close to their businesses and their children’s schools. Anchor Land Holdings Inc. stepped into the breach, completing in 2006 their first luxury condominium project, the 33-storey Lee Tower, which was sold out in nine months.
“We understand the unique needs of this market, and we saw how underserved this market was. Although other companies have always tried to target the Filipino-Chinese community, their offerings have catered to a broader class of people. In contrast, Anchor Land’s offerings are specifically conceptualized for this segment,” says Elizabeth Ventura, Anchor Land president. “We make sure that we listen to our clients and take their feedback into consideration as we design our new developments.”
“We know the market very well.”- Elizabeth Ventura
Apart from adhering to the principles of feng shui in their design and location choices, they also take their market’s lifestyle needs into consideration. Their biggest footprint is in Binondo—where their properties include the 56-storey Anchor Skysuites, the tallest building in any Chinatown worldwide—they are also building warehouses and office spaces in Divisoria and Baclaran, a luxury boutique hotel along Roxas Blvd., and one of the first residential luxury condominiums in Bay City. “As we roll out new projects and complementary services, such as the hotel, we do expect to serve additional markets...but we will not lose sight of our main market, the Filipino-Chinese community. We have no plans as yet to move out of Metro Manila, where we intend to widen and deepen our footprint in the next five years,” says Ventura.
Should You Go For It?
Every small player tends to get slightly anxious at drawing the attention of giants that could crush their enterprise before it has a chance to grow. But you do have several ways to deal.
Keep a low profile
Delaying tactics are also legit for small players who don’t want to clash with the giants too soon, says Jesus G. Gallegos, Jr., professor of strategic management and innovation at the Asian Institute of Management. “They’re growing in certain areas, but they don’t advertise…until they have a good network, good salespeople, good everything, and then they widen it. They start becoming visible when they’re big.”
Grow fast
Gallegos says that Edgar “Injap” Sia II was smart to grow so widespread that Jollibee had no choice but to buy them out. Even then, he managed to bargain from a position of power and retain 30 percent ownership, while also partnering in a new venture with Tony Tan-Caktiong in DoubleDragon Properties Corp. “Mang Inasal it grew too fast by franchising. If they grew smaller, if they’d been conservative, Jollibee would have done something early on. But when you come to be [nearly] 400, larger than McDonald’s, then it’s too late. Sinadya ni Injap to grow fast before competition can react.”
Sell out
Selling out is a viable exit strategy. Of course, letting go of your brand means just that—the buyer Shas discretion. “Cosmos [Bottling Corp.] was already bigger than Pepsi...they had around 30 percent of the market when Coke bought them out,” says Gallegos. After being sold in 2002, Cosmos brands—including Pop Cola, Sarsi, and Sparkle—lost their edge in the market. Cosmos even delisted from the PSE in 2012. Of course, founders also have the option to start anew says Gallegos, noting that an old, distinguished brand such as Arce Dairy is making waves again as a maker of premium-quality ice cream from carabao’s milk. Very few remember them as the founders of Selecta Ice Cream, before the brand was sold to RFM Corporation and Unilever. Incidentally, RFM used to own Cosmos.
Originally published in August 2015 as the cover story of Entrepreneur Philippines.
