Lecturer at STIE YPUP Makassar, Head of the Fundamental Research Team TA 2026.
This article is part of research on strengthening the startup and MSME ecosystem in the Mamminasata Corridor, supported by the Ministry of Higher Education, Science, and Technology.
Keywords: Digital Economy, Innovation, Regulation, Startups
WIN Media, Opinion – Startups are the engine of digital economic growth, but ironically, regulations that should protect them often become their biggest obstacle. Amid Indonesia’s rapidly growing digital economy, a startup failure rate of 90 percent in the first three years is an alarm that cannot be ignored. This article examines how overlapping and burdensome regulations have stifled innovation, and offers solutions to create a balance between MSME protection and startup survival.
How many startups die not because their products are bad, but because of bureaucracy and overly heavy regulations? This question is intriguing amid the euphoria of Indonesia’s rapidly growing digital economy, but unfortunately, it is not accompanied by an encouraging survival rate.
Data shows that around 90 percent of startups fail in their first three years of operation (Startup Genome, 2025), and in the Mamminasata Corridor, 60 percent of startups cannot survive past three years. On the other hand, Minister of Communication and Digital Affairs Meutya Hafid mentioned that startups in Indonesia have contributed around 100,000 formal jobs.
This fact confirms that startups are the engine of growth for the digital economy. However, without regulations that favor their survival, this great potential will continue to be eroded by early failure.
Burdening Regulations
Burdening regulations are one of the main obstacles. Early-stage startups do not have the capacity to meet all complex licensing requirements. The obligation to have a Business Identification Number (NIB) before accessing e-commerce incentives, for example, often becomes a significant initial hurdle for startups. Energy and resources that should be used for innovation and product development are drained by bureaucratic matters.
Regulatory uncertainty also creates serious problems. Startups operate amid rapid rule changes, what is legal today may be illegal tomorrow. As a result, innovation becomes defensive: new features are withheld, experiments stop before reaching the market, and investors are reluctant to invest capital.
Regulations that do not differentiate between business stages worsen the situation. Early-stage startups and mature startups face the same compliance burden, even though their needs and capacities are very different. This one-size-fits-all approach actually kills startups that are still in the growth phase.
Regulatory Innovation
The good news is that Indonesia has begun to move in the right direction. The Financial Services Authority (OJK), through POJK Number 3 of 2024 on the Implementation of Financial Sector Technology Innovation, has implemented a regulatory sandbox as a facility to test and develop innovative financial technologies. As of the end of July 2026, seven fintech innovations have been declared to have passed the trial, and OJK has served at least 343 consultation requests from prospective participants.
A regulatory sandbox is a testing ground for businesses to test products, services, technology, and digital-based business models in a supervised environment without being immediately subject to the full regulatory burden. The sandbox principle needs to be expanded to sectors beyond finance. The Ministry of Communication and Digital Affairs (Komdigi) plans to simplify startup licensing through a similar model, a step that deserves appreciation.
A gradual approach or graduated regulation is also being accommodated in Government Regulation Number 28 of 2025 on the Implementation of Risk-Based Business Licensing. This regulation classifies business activities based on risk level and regulates obligations gradually, from the establishment stage to full operation. This approach aligns with the needs of startups: light regulatory burden at the beginning, then increasing as the business grows and its capacity expands.
Protecting MSMEs Without Killing Startups
Protecting MSMEs in the digital realm is inevitable. Minister of MSME Regulation Number 3 of 2026 on the Protection and Enhancement of Competitiveness of Micro and Small Enterprises in Electronic System Trading regulates partnership relationships between digital platforms and MSME actors. This regulation requires e-commerce platforms to provide cost transparency and offer a minimum 50 percent service fee discount to verified micro and small entrepreneurs selling domestic products.
However, MSME protection regulations must not become an excessive burden for startups that are also still struggling to survive. A balance must be maintained: digital platforms (including startups) are required to provide fair treatment, without having to bear a burdensome regulatory load from the first day of operation.
Incentives for startups that have an impact on MSMEs are a more elegant solution. Startups that partner with and empower MSMEs should receive fiscal incentives, licensing ease, and access to financing, not additional burdens. This aligns with Presidential Regulation Number 38 of 2026 on National Entrepreneurship Development, which sets the National Entrepreneurship Roadmap through 2045. This Presidential Regulation serves as a strategic foundation for a more integrated, collaborative, and sustainable entrepreneurial ecosystem.
The Garuda Spark Innovation Hub (GSIH), expanded to 10 cities including Makassar, becomes a relevant strategic infrastructure. GSIH is not just a coworking space, but a platform to connect local potential to global networks. The presence of GSIH in Makassar opens opportunities for local startups to connect with a broader innovation network. GSIH can become a meeting place for regulators, startups, and MSMEs to formulate participatory regulations based on real needs.
Towards Adaptive Regulation
Closing this article, we invite readers not only to reflect on the urgency of adaptive regulation, but also to encourage concrete implementative steps from all stakeholders. Regulations that are too heavy and rigid kill startup innovation, while regulations that are absent or weak actually harm MSMEs and consumers.
It is time for us to adopt a new approach: gradual regulation, expansion of regulatory sandboxes, and cross-sector harmonization that has so far been running separately. The government needs to listen to the voices of startups and MSMEs in formulating regulations, not merely as policy objects, but as equal partners.
Regulations must become guides, not barriers; providing direction without shackling innovation. Good regulations are those that make startups grow, MSMEs protected, and innovation continue to flow. Now is the time to ask: have our regulations today answered the needs of startups and MSMEs, or have they simply added to their long list of problems?