Learn about Starting a Tech Company in the Philippines

A fateful pivot

At the height of the dot-com craze in 2000, when Silicon Valley entrepreneurs were variously trying to disrupt the incumbents in toys, groceries, and pet supplies, Dennis Mendiola took his swing at the balikbayan box.

Dennis’s startup, e-Regalo, reimagined the familiar parcel for the online world—Filipinos abroad could now go to his site and buy gifts for loved ones back home without any of the hassle of packing, weighing, and shipping. While e-Regalo had a wide selection, the site specialized in
locally sourced items like lechon and flowers, rather than mass market products like socks or SPAM.

The customer journey on e-Regalo resembled pretty much every other ecommerce site of the time, up until the very last part of the transaction, which was where the trouble began for Mendiola and co-founders, Alexandra Roxas and Chito Bustamante.

Customers browsed through e-Regalo’s merchandise, like normal. They selected their desired items, like normal. They filled in the shipping address, like normal. They paid with their credit card, like normal.

For most dot-com entrepreneurs, the completion of a transaction would be a cause of celebration, but it left Dennis and Chito in a bind. On other sites, the customer and the end user were one and the same (i.e. the person ordering groceries on Webvan would have them delivered to his own home).

On e-Regalo, in contrast, the customer and the end user were two different people, so Dennis and Chito needed to develop a feature that would enable gift-givers to notify recipients that a package was on its way (and while they were at it chat away). They felt this would make e-Regalo a more compelling product for American users, who were used to messengers, like AOL Instant Messenger (AIM).

At the drawing board, brainstorming in the living room of Dennis’s home in Kapitolyo, the first impulse of the two co-founders was to create an internal chat client on e-Regalo, just like AIM. Such a solution would work for gift-givers, who were already online, but not for their friends and relatives in the Philippines, where internet penetration was still less than 1%.

The most popular means of communication in the Philippines at the time was SMS messaging. The co-founders did not even have to look at the numbers. Filipinos walked down the street with their gaze glued to their phones, dangerously oblivious to their surroundings. Couples sat face-to-face at restaurants, texting but not talking. You could count on hearing the pings of incoming messages just about everywhere you went, as reliably as you would the clang of coins at a casino.

Dennis felt these two communities—overseas Filipinos online and Filipinos on mobile in the Philippines—were begging to be connected. If he and Chito could successfully marry the technology of SMS with the internet, the potential seemed huge—they just might be at the proverbial right place, right time.

“We looked at each other and kind of said, ‘Forget the gift-giving site.’ We were onto something,” Chito said.

Dennis and Chito also had a financial impetus to pivot. During these early days, they were bootstrapping—and even dipping into their personal savings, much to the chagrin of Chito’s wife—so they had no other choice. It was either they pivot, or they perish.

Their pride and reputation were also at stake. e-Regalo was doing good enough, but the cofounders had put too much on the line to settle there.

After Dennis had reached out to Chito with his pitch of launching the first Filipino company built around proprietary technology, he quit his lucrative job as a systems engineer at Silicon Valley-based CompuCom, rented out his recently purchased home in San Francisco, and uprooted his wife and newborn child for the Philippines.

The move would be a homecoming for Chito, who had migrated from Manila to California at the age of 11, but his family was not pleased. His siblings openly criticized his choice, citing the rampant corruption and inefficiency in the country, while his parents gave perhaps the most Filipino rebuke of all: silence.

Bustamante understood that the Philippines was not exactly a hotbed for founding tech startups, but he found resolve in Mendiola’s confidence, which he described as infectious.

Dennis, for his part, could be doing almost anything else, and by that point he had. After graduating from the University of Pennsylvania with a dual degree in finance and electrical engineering and earning an MBA at Harvard University, Dennis had stints as a consultant, an investment banker, and a venture capitalist (he had created Next Century Partners with Vince Perez, who later became energy secretary in the cabinet of Gloria Macapagal-Arroyo). For his own set of doubters, Dennis had to prove his startup was better than any of the more traditional paths a brilliant, young person could take.

The data, at least, seemed to be on their side. Short message service was growing at an exponential rate. One month, there were 12 million text messages sent per day; by the next month the figure had more than doubled to 30 million. SMS volume would only increase as mobile phones became cheaper.

Dennis envisioned a stand-alone messenger that enabled desktop users to instant message their loved ones back home who would receive the IM as a text. Much more radically, the flow of communication would not be one-way, like from a phone to a pager: The mobile users would be able to reply right back via SMS to the IM client.

Dennis called his new messaging company, Chikka.com the race to make Chikka.com’s Text Messenger (CTM)—there were rumblings that other tech giants were taking notice of SMS—they purchased a failing Silicon Valley dot-com for $20,000. The company had a messenger that they felt could be redeveloped into CTM.

While the messenger worked well from one internet connected computer to another, Dennis and Chito found that it was not ideal for crossing over and interacting with a phone via SMS. The solution was tailor-built for the first-world.

“After a week, we knew we shouldn’t have bought it. We kind of threw away money there and that hurt,” Dennis said.

Coding CTM from scratch was also a slog. Just 100 days into its development the cofounders had to scrap the code for a reason that was intimidating as it was inspiring: The back-end would not be able to handle the SMS volume that telcos were already starting to see. If they launched CTM in its current state, the service would almost certainly crash from the demand.

The Philippine Firewall

If redeveloping CTM was not stressful enough, others in the Philippines were catching onto the potential of marrying the internet and SMS. The founders of PinoyMail.com, for example, had launched a product called Web to Text for their subscribers. From a user’s PinoyMail.com account, they could text anyone in the Philippines for only two pesos per text.

While Web to Text may have been the first online-to-SMS product, PinoyMail.com co-founder and CEO Dominick Danao admitted the execution was clunky. To be able to send texts, users had to first go through the trouble of depositing prepaid load into their PinoyMail.com account and topping up every time they ran out of credits.

Web to Text also did not integrate with the telcos, relying instead on MacGyver-like improvisation.

“We really did it in a very low tech way. This is a dirty little secret

that no one knows,” said Dominick. “When you sent a text on the web interface, we get the message from our server, then relay it to a cell phone, which then sends it to you.”

Dennis, in contrast, viewed telco integration as a must. He could not imagine it otherwise—for CTM to be reliable, the service needed to connect with the telco’s SMS centers and be protected by business contracts with them.

Since there was no precedent for these deals, Dennis made one up.

“When Dennis told me the business model—‘Hey dude, we’re going to make it free’—my jaw dropped. ‘How are we going to get paid?’” Chito recalled himself saying, and you could almost see the thought bubble with his wife and newborn child appear over his head, sitting in their front yard with their belongings scattered about, their home boarded up with a foreclosure sign.

“Free from the internet,” Dennis clarified. “But on mobile, people will need load. They will have to pay a charge when they reply to the sender’s message.” Chikka.com and the telco, he explained, would share the revenue from these mobile originating messages.

When Dennis brought this idea to executives at Smart Communications, their reaction was not far from how Chito first responded.

“You want to send a free text, from the internet, through our network?” Dennis said, recalling their response.

“But we generate a reply. That would be charged,” Dennis said, recalling his rebuttal. “Which you would otherwise not have earned had it not been prompted by a message coming from Chikka.com”

The executives must have lit up with the same “aha” moment Dennis himself had months earlier. Yes, there was some risk in letting overseas Filipinos text their loved ones back in the Philippines for free using their network and the web version of CTM. The recipient could chose not to respond. But such instances would probably be the exception.

If you got an international SMS from a friend or a relative, you were bound to reply, if not out of genuine enthusiasm, than out of politeness (it would not feel right to ignore anyone, even an annoying aunt, reaching out to you from across the ocean). Each mobile-originating message would cost the sender 2.50 pesos, and that figure would be multiplied by how many texts they fired off in a typical exchange or conversation.

In any case, Chikka.com offered a true value-added service for mobile subscribers. From this perspective, CTM was an easy sell to Smart, who became the first telco to partner with Chikka.com.

“Smart was open to new ideas, and they saw the value that we were bringing in—here’s a global community outside their network that we are tying into their current subscribers to not only create more revenue, but a different kind of engagement,” Chito said.

After addressing the scalability issue of its back-end wit multi-threaded code, CTM launched in 2001 with Smart. While this integration was a significant coup, CTM would never succeed with only one telco. What good was CTM if online users abroad could only message their loved ones back home who happened to have Smart?

Imagine the user experience: You download and install the web version of CTM and send your first message without a hitch—you get a reply seconds later from across the world. Your next message, this time to another relative, fails to go through. Only later do you learn of the fine print: CTM works with Smart, but not with Globe, which sounds as arbitrary a distinction to you—you just wanted to connect with your friends and family, after all—as being told the service is compatible with blue phones but not with green phones.

To Dennis, CTM users should not have to stop and think which
carrier their cousin had anymore than they should have to know the color
of his phone.

CTM should just work, plain and simple, for everyone. To be exact, CTM needed to be interoperable with both Smart and Globe, but such was unheard of at the time. It was unknown then for any value-added services provider to be working with both Smart and Globe. The business rule was you partnered with only one. It could not be broken.

This was a predicament for Chikka. To Dennis and team, Chikka would live or die with interoperability between telco carriers. It was intrinsic to the business model. It was supported by the theory of the so-called network effect.

Dennis called on high school classmate, Junie Agcaoili, who had worked as a headhunter in Indonesia, to help him find people with diskarte, a Filipinism that loosely means the skill to navigate “situations”; also a certain “resourcefulness.”

Junie accepted the offer. Dennis’s brilliance was clear to him, even in high school.

“When our classmates were working out a physics problem with pen and paper, Dennis would just stare into the ceiling and solve it,” Junie said.

Dennis called what Junie had to do in recruitment the biggest challenge facing Chikka in its earliest days.

“Most of the guys we wanted could work anywhere else, so they weren’t going to easily jump ship to a startup where things were unsure,” he said. “They probably thought: Who the hell are these Chikka.com guys?”

Dennis knew that Chikka.com’s recruiting woes could be solved through, appropriately enough, the right messaging. “We had to come up with a credible story our recruits would believe in, and it was not enough to tell them that they would make a lot of money—they could get that overseas. We had to throw them a noble challenge that’s never been done before,” he said.

Junie, whose other expertise was public relations, refined this idea. To Chikka.com’s initial recruits, he pitched Chikka as a pioneer. They were going to build the world’s first mobile instant messenger to cross over-the-air and terminate to mobile and back. Going forward, Chikka. com would be the first real Philippine company to invest in proprietary technology, all validated by global patents, just like Yahoo! or Google. The subtext was powerful: Why be an employee when you can join us and be an inventor?

Even though Chikka gave equity to key employees who signed on, they still had to pay them at globally competitive rates, as they had to be recruited away from the tech giants that had Philippine presence, like IBM, or kept from moving to markets with much higher compensation, like Singapore.

Despite these allowances, these early employees had the world at their feet. “It took a leap of faith, ultimately,” Junie said of their joining Chikka.com.

Just Chikka

To sign with CTM, and looking further into the future, even other telcos from around the world, Chikka.com needed a successful deployment with Smart. As early as its beta release, Chikka.com was seeing substantial downloads of CTM from their website.

“We amazed them with how simple PC-to-mobile text messaging can be,” Dennis said of CTM’s appeal. “Like IM’ing from a phone, like texting from a PC, however people want to look at it. It was highly intuitive and second-nature to both an IM and a mobile user.”

If the experience across platforms felt the same, it’s because Dennis took pains to make it so. Nearly all desktop instant messengers of the time, for example, had presence detection—you could see which of your friends were online and which were not. He made this feature work on both sides of CTM, even on mobile phones.

CTM clearly touched a nerve in connecting overseas Filipinos who always had regular internet access with Filipinos back home who didn’t have regular internet access but always had their phones. Even with very little in the way of marketing, adoption and usage of CTM quickly soared. The rapid growth was due in large part to its nature as a messenger.

“If I send a message from CTM, I don’t only send one to a single person—I send to many on my buddy list,” Dennis said. “It’s free.”

The value proposition for mobile Filipinos was also high. A single international SMS message usually cost 10 to 15 pesos, a premium of over 400% to 600% over the 2.5 pesos that it cost to send over CTM.

With a successful use case in Chikka.com’s back pocket, Dennis and Chito pitched the executives at Globe for integration with CTM. Unlike their first presentation to Smart, the co-founders no longer had to explain the logic of their business model.

“Globe was more eager to sign with Chikka.com because Smart had already seen success on the platform,” Chito said. “We also drove home the idea that the ‘network effect’ ultimately made sense for business, all stakeholders. It was about what was good for the people.”

In March 2002, Chikka.com officially connected to Globe Telecom. While the launch was done with little fanfare, its significance to the success of Chikka.com could not be underestimated. With instant messages terminating to Globe phones, CTM would now be commercially deployed with the two mobile carriers responsible for over 20% of the world’s text messaging volume (that was how much the Philippines led in terms of SMS adoption at the time).

The interoperability between Chikka.com and the two largest telcos in the country created a network effect akin to the original telephone’s.

“Our growth quadrupled, almost overnight,” Chito said. “This was the inflection point Chikka.com had been waiting for to happen.”

Chikka’s revenues and number of users skyrocketed, outlining the hockey-stick graph that all entrepreneurs dream of one day witnessing. But as in the case of e-Regalo, good enough was never good enough.

“You will understand the general mood as Dennis really liked to quote Intel’s Andrew Grove—‘Only the paranoid survive.’—and this is why Chikka.com’s product development process was invariably described as ‘frenzied’,” Junie explained.

Dennis and Chito searched high and low for a way to accelerate their growth. At the time, Chito had been an avid shopper on Amazon.com. The ecommerce site had a system that saved a customer’s shipping and billing information so that they could check-out at the push of a finger.

“I used to curse that thing,” Chito said of Amazon’s 1-Click. “It was so easy to buy.”

But what was bad for Chito’s disposable income was good for Chikka.com’s user base. They translated Amazon.com’s one-click purchasing into one-click sending on CTM. The one-click sending did away with any appearance of a registration process.

CTM adopted a person’s phone number as their main identifier—which is a method that they patented and the likes of Viber and WhatsApp still use today—so that a user could simply input their number and then send a message. There was no friction. It marked a huge leap over the alphanumeric usernames common to most messengers of the time that necessitated a cumbersome back-and-forth registration process.

CTM’s version two (or v.2), which employees referred to as “upak,” which meant “going for it” in street lingo, reduced friction even further—it allowed you to text anyone’s mobile as long as you knew their number, and even if they were not registered CTM users.

“If I received a CTM message unsolicitedly—okay, okay, spam—I became aware of the Chikka.com service. This encouraged me to download the app, as I, too, wanted to send free messages, ” recounted Dennis.

With growth came growing pains. Chikka.com had international patents to file, servers to buy, and more employees to hire. Dennis needed to raise capital for the company’s mounting expenses in a business climate that was less than friendly. “There was an atmosphere of cynicism in the
community about investing in dot-coms,” he said.

To distance themselves from the startups that were imploding by the dozen in Silicon Valley, the co-founders dropped the “dot-com” from their name and entered meetings with venture capitalists as plain “Chikka.” It was a subtle change in name yet significant—there was a stigma to “dot-coms” but Chikka had proven success with a solid revenue model from mobile SMS use.

Dennis and Chito backed up their grand ambitions with staggering numbers about the SMS space in general and CTM in particular. These metrics indicated that the Philippines was at the beginning of a groundswell and that investors could come along for the ride.

Too many investors wanted in. If Chikka took them all on, the round would be over-subscribed. Dennis and Chito found themselves in the unique position of having to vet potential investors for the strategic value they could bring beyond money.

In the end, Chito and Dennis raised around a million dollars, which was a large amount for the time. This sum was collected from a variety of stakeholders, including some friends and family, AJOnet, which was a listed company in the Philippines, and Dennis’s own Next Century Partners.

As Chikka rose in popularity over the next two years, the company became a media darling as one of the handful of local Philippine startups to experience mass adoption. When Chito was featured on the cover of a local tech magazine, it gave him a means of rapprochement with his still disapproving parents.

“As soon as they dropped some copies off at the office, I wrapped one up, stuck it in an envelope, and sent it to my mom in the United States,” Chito said, his voice ringing with the same excitement he must have felt then, waiting to unveil himself as Chito the cover man. To Chito, the coverage was symbolic of what Chikka was trying to.

Just as the magazine had put him on the cover, he wanted to put the Philippines on the tech map. “And the fact that it made my mom not worry about me anymore was well worth it,” Chito said.

Welcome to Chikka country

After integrating CTM with new telco entrant Sun Cellular in 2004, Chikka blanketed 100% of the addressable market and had also diversified its product portfolio beyond just messaging. By the mid-2000s, the company had about 200 employees and about as many value-added services over SMS, such as the peer-to-peer credit loading service Share-a-Load; community chat portal, TextTV, and Twitter precursors, FanZone and StarText.

Each of these platforms had their own thriving communities. Bidshot, for example, was a self-contained marketplace for buyers and sellers—Dennis called it “eBay on mobile.”

“You could bid and ask questions about the product entirely through SMS, and it even let you know if someone bid higher than you and vice versa,” he said. “Everything was being sold through Bidshot."

Chikka was raking in so much revenue across these VAS that if it had a single hour of downtime, the company stood to lose hundreds of thousands of pesos. According to Junie, Chikka’s success made the Philippines a destination for high value-added technology, as opposed to the labor arbitrage of business process outsourcing.

“Chikka made the Philippines a regional hub for mobile-based applications—text-enabled every possible activity—communications, entertainment and information, auctions and commerce, dating and match-making,” he said, noting that Chikka opened the doors for even other content providers, who could now engage with multiple telcos as a matter of course.

With Chikka’s success, it would have been easy for Chito and Dennis to create a pressure cooker kind of environment, but the office was anything but. For Chito even entering the office was special.

“It’s like before you go to a concert or watch a fight, you have that expectation,” he said, gesturing to the pit of his stomach. “And then when you go inside, there are no walls. We had torn them down to be in the mix. I had a tennis ball, and if I needed someone, I would throw it to where they were and say, ‘Come here, come here!’”

Though neither Dennis nor Chito had a background in human resources, they allocated a surprising amount of their capital and Chikka’s earnings toward employee benefits. “Early on, we recognized we had to build a culture that is very different,” Chito said. “I came from Valley where anything can be done.”

As Chikka was still a Filipino company, perks began of course with food. There was merienda almost every day, buffets every Friday, and lechon-filled feasts for every Chikka milestone from new partnerships, nth million users, or nth million revenue generating hits (invariably measured by the number of text messages passing through Chikka’s servers).

The food was not just for show. The co-founders wanted to get rid of any distractions that kept employees from focusing on products, and chief among these were food. In this way, Chito and Dennis’s philosophy on culture-building resembles a Maslow’s hierarchy of needs for the workplace. If you help satiate the basic needs of your employees, such as food, you free them to move toward the highest level goal for any tech company in the world: innovation.

Though some may disagree with their methods, it’s hard to argue with results. Chikka expanded into such countries as Indonesia, Japan, and India, and this globe-trotting attracted attention from the likes of Yahoo! and Google, who sent business development executives—“the guys who buy you,” Dennis said—to their offices in Ortigas.

Dennis and Chito were not interested in an acquisition. “They would have just taken our core technology and gotten rid of everyone else,” Dennis explained.

The implication of any potential acquisition, however exploratory, is that if the startup doesn’t agree to a deal, the larger company will enter the space regardless. The co-founders did not fear competition, even from the tech giants of the era.

When it became clear that Yahoo! was already setting up shop in Manila, Chikka bought a four-sided billboard on C-5’s Ortigas Overpass, a throughway people would inevitably pass any day of the week. The sign read: “Welcome to Chikka country”—a clear message to anyone who dared come in.

By around 2007, Chikka’s shareholders were clamoring for some M&A action.

“The shareholders wanted a liquidity event,” Junie said. “But Dennis considered it a distraction, especially at a time when Chikka’s business was being challenged.”

As the market was becoming saturated with all kinds of VAS offerings for mobile subscribers, government also began enforcing strict regulation limiting the ability of content providers to market their services via text broadcasts.

But rather than ignore the pressure for an exit altogether, Dennis began eyeing the landscape for the right acquirer for Chikka. There happened to be one right in front of them.

“In good faith to his partners and fellow shareholders including employees, Dennis steered the company’s acquisition toward Smart,” Junie said.

At the time, Smart was caught in a classic case of the innovator’s dilemma. With consumers increasingly turning toward casual messaging and voice platforms like Skype, Facebook, and Yahoo! Messenger, Smart’s revenues from voice and text were being challenged. Chikka, who fashioned itself as a virtual telco, would give Smart an immediate innovator in the applications development space.

On the flipside, the co-founders were excited with Smart because it represented the only ground they had yet to conquer. “We felt it would be the next natural step for Chikka,” Dennis said. “Now we can learn the inner workings of a large-scale telco.”

Dennis and Chito concluded the negotiations with Smart in 2009. As part of the acquisition, Dennis was retained by Smart as a consultant for its wireless division and the rest of Chikka’s senior management, including Chito and Junie, was kept intact.

Indeed as an independent subsidiary of Smart, Chikka needed all the brainpower it could muster as it addressed threats of smartphone like WhatsApp and Viber. In 2011, value-added service provider Wolfpac, which Smart had acquired in 2003, was folded into Chikka.

When Voyager Innovations was formed to aggregate all the digital businesses of Smart in 2013, Chikka was assimilated into PLDT and Smart’s new “digital unit” where it lives to this day. One of their legacy products is PowerApp, which was inspired by one of Dennis’s trips to his boxing gym.

Mendiola observed three of the trainers sitting shoulder-to-shoulder before a computer connected to the internet via a broadband dongle.

Evidently, each one was assigned a different browser on the same computer—the first had Firefox, the second had Chrome, and the third had Internet Explorer—so that they could all be logged into Facebook at once. Due to the strict time limitations on a dongle, they were dividing the data from a single internet plan in another classic case of user experience versus design.

PowerApp dispensed mobile data in bite-sizes or “sachets” for specific internet uses, such as social networking, messaging, or video, via a smartphone app, making it more affordable for Filipinos on the bottom of the pyramid.

Despite the success of Chikka’s many applications in over a decade that may be described as a golden era of Philippine-based innovation, Chikka’s biggest legacy is arguably in the startup entrepreneurs and tech executives it produced, such as Araneta Group chief digital officer Oliver Ian Atienza (a content developer at Chikka), PurpleClick Philippines CEO Piccina Alvarez (a marketing officer), Google software engineer Dean Michael Berris (a systems architect), or Cartoon Network storyboard artist David Alegre (the head of graphics), and Brainsparks co-founder Artie Lopez (a product developer), who landed at Chikka after his first startup Piyeza.com failed.

Lopez said Chikka left an indelible mark on who he is today. “Learning from Dennis and Chito was priceless. The mentoring from Peter Cauton also taught me the value of giving back, or more accurately, ‘giving first.’ My experiences at Chikka continue to shape how I take care of our startups at Brainsparks, along with those I mentor as a startup coach,” he said.

At least two Chikka alumni have already gone on to an acquisition—Jonas de los Reyes of Socialytics, who was a content development associate there, and Lopez’s own mentor, Peter Cauton of Storm Rewards, who was the director of human resources.

“Being in Chikka really helped in convincing me that hey, not only is it possible to develop a successful startup (especially back in the mid 2000s when the startup ecosystem isn’t what it is now), but it is actually quite possible to build one which scales. That psychological edge can sometimes be all the difference.” wrote Peter in a blog post,5 in which he fondly recalled a company culture where people simply willed things into happening.

Jonas likewise credited his time at Chikka as instrumental to his later success as an entrepreneur.

“I was there during the golden era of mobile content,” he said. “Chikka pioneered a lot of these services, and seeing this first-hand made me realize how important content is. Content development came down to recognize a need and being able to quickly come up with a product that delivers on that.”

Could this be the beginning stages in the formation of a Chikka mafia? After fin-tech platform PayPal had its initial public offering in 2002, many of its early employees and executives have gone to achieve even greater success, earning the group the “PayPal mafia” moniker. Card-carrying members who need no introduction include Peter Thiel, Elon Musk, Reid Hoffman, and Dave McClure.

Chito himself admits that Chikka alumni have a long way to go, but he is thrilled that so many of them are becoming leaders in the local tech ecosystem. When asked what about Chikka may have turned so many of them toward entrepreneurship, he pointed to an almost forget-
table incident during the company’s heyday.

There was a flow chart on the wall, and one of its questions—“Can it be done?”—forked into a “yes” and a “no.”

An engineer nudged Chito during a meeting and gestured toward the flow chart. “That’s wrong,” he said. “Anything is possible.”

To learn more from founders like Chito Bustamante and Dennis Mendiola, please check out the full book, available for purchase here. 

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