I had never given much thought to zip-ties, the small plastic fasteners used in packaging, until I visited a zip-tie manufacturer in Tangerang, Indonesia. I didn’t know initially what they were called but recalled that they were used every time I got a food delivery. I was surprised to learn during my visit that the daily demand for these tiny but commonplace fasteners is in the tens of thousands. Beyond food services, the manufacturer — an early client of bababos — produces zip-ties for customers that span multiple industries, including large logistics companies and some financial institutions.
There are millions of similar micro, small, and medium-sized (MSME) manufacturers in Indonesia. Most are family-owned and still quite traditional in how they run their operations but knowledgeable about their industry and skilled at building their product. However, even with the clear demand for their product and solid sales record, the zip-tie manufacturer and other MSME manufacturers continue to face major obstacles when it comes to operating the business.
This is where bababos, our most recent investment in Indonesia, comes in. bababos aims to solve the pain points of these MSME manufacturers. The company streamlines the entire supply chain and provides opportunities for manufacturers to scale up their businesses. Through its digital platform, manufacturers can buy raw materials at competitive prices with flexible payment terms.
bababos is Accion Venture Lab’s fourth portfolio company in Indonesia, and our sixth in Southeast Asia. We are excited about how the company is offering a tailored solution that can help the millions of underserved MSME manufacturers in Indonesia. Read more about why we invested:
Reaching underserved small businesses in a massive and crucial industry
In Indonesia, Accion Venture Lab has invested in platforms in the fast-moving consumer goods (FMCG), agriculture, and gig economy sectors. All are massive and vital industries made up of highly underserved stakeholders – warungs1, toko tanis2, and mitras3. The same is true for bababos. Manufacturing is one of the largest sectors in Indonesia, playing a key role in the country’s social and economic development. But while the sector contributes around 18 percent of Indonesia’s GDP and is an engine of the country’s growth, the industry’s main stakeholder — the small manufacturer — remains highly marginalized. There are over 4.5 million manufacturing enterprises, and more than 97 percent of them are MSMEs. Similar to our other investments, bababos is looking to slowly digitize and streamline this highly traditional and fragmented industry, and in effect provide the SME manufacturers the support they need to grow and sustain their business.
Solving true pain points of small manufacturing businesses
bababos is addressing the biggest issues facing small and medium-sized Indonesian manufacturers, a vital yet highly marginalized group in the middle of the supply chain, through its digital platform.
The first pain point is lack of access to quality, competitively-priced raw materials. These manufacturers operate traditionally and are cash-constrained. Their limited funds and low order quantities force them to buy raw materials at higher prices from local distributors, as they often don’t meet the minimum order quantities set by larger suppliers.
The second pain point is lack of access to financing, which is critical given the 45 to 60-day working capital cycle. These SMEs are normally paid only 30 to 60 days post-delivery of the product, creating a massive gap in their cash flow. Given their remote locations and lack of data and credit history due to being mostly cash-based, small manufacturers are invisible to traditional financial institutions and struggle to access the financing they need to bridge cash flow gaps.
bababos looks to address these pain points through one holistic platform. The company takes orders from their customers for raw materials, aggregates these requests, and then provides suitable payment terms. The solution allows manufacturers to secure the best prices, source directly from larger suppliers, and get access to high-quality inventory. For the MSME manufacturers, this can result in lower inventory costs, better margins and bottom line, and a greater potential to build their business. In addition, bababos’s flexible payment terms allow the MSME manufacturers to manage their cash flows more effectively by almost matching expected payments from customers.
For Chandra W., an animal cage manufacturer, more savings translates into more growth. “Through bababos, our company can get production raw materials at cheaper prices, make the process easier, and get the opportunity to scale up through the funding system,” he says.
As bababos gains more information on its customers, it plans to use that data to underwrite other financial products, such as working capital lines and equipment/capex financing. Its goal is to become the one-stop shop for the needs of small and medium-sized manufacturers, working with them to streamline and improve the entire arc of their business lifecycle.
Cultivating a great company and culture
bababos was launched in August 2022 by Fajar Adiwidodo, Sigit Aryo Tejo, and Hendrik Panca. These three founders have a wealth of experience working at B2B marketplaces (e-Fishery, Warung Pintar), fintech startups (Modalku), and traditional finance companies (CIMB Niaga, Bina Artha Ventura). During both our in-person and online conversations, we were impressed at how the founders and their team were thinking about their B2B platform and their customers. They have been very intentional about how they started and how they are building the team, focusing on culture first. We have seen from over a decade of investing in startups, especially given how quickly markets can turn and challenges can arise, the importance of having a strong, resilient, coachable, and unified team and we feel that the founding team of bababos has those qualities.
So far, the company has had good initial traction and a growing customer base of MSMEs doing business on the platform, but this is definitely just the start. We are looking forward to working with bababos alongside our co-investors East Ventures and Patamar Capital and working with them as they empower underserved MSME manufacturers across the country.
1 Local name for small merchants that serve as neighborhood stores selling groceries and FMCG goods
2 Local name for small businesses located mostly in rural areas that sell inputs to farmers
3 Local name for blue-collar and other gig-economy workers