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Priming start-ups for success in 2020

Published in Nov-Dec 2019

Jawwad Jafri, CEO, JVentures highlights some of the key mistakes that are the underlying causes of start-up failure

In a country as chaotic as Pakistan, running a business is a challenge. It takes courage, optimism and at least some form of madness to think about building a start-up, and many people who follow Pakistan’s start-up ecosystem complain that far too many start-ups are failing and no unicorns are coming out of Pakistan. Although this is partially true, it is a sign of a strengthening ecosystem rather than a weakening one, as every successful start-up country has many more failures than successes. Despite these challenges, start-ups are changing the lives of consumers in Pakistan.

ELIMINATING THE NEED FOR PERSONAL TRANSPORT: The emergence of 4G and the entry of ride-hailing services like Careem and Uber has meant that an increasing number of people have been able to ditch their cars to commute to work. A contributing factor to the slowdown in automobile sales is the proposition that owning a car is not as attractive as it used to be. Youngsters especially, are making the call of whether they need to own a car. Yet, even with the entry of Uber and Careem, a large sector of society found these options unaffordable. Enter Bykea with their rock-bottom bike hailing services. Now Airlift and Swvl are taking ride sharing to a completely different audience by allowing consumers to pre-book a shared bus experience at an affordable price point.

CHANGING THE SHOPPING EXPERIENCE: Credit for making online shopping a no-brainer goes to Daraz. Although there are other players like HomeShopping and Symbios, Daraz changed the online shopping experience in Pakistan for good and customers are ready to embrace it.

BUYING AND SELLING PROPERTY: has changed the way people buy property. It has become the first point of contact for people looking to buy or sell and is one of the top funded Pakistani start-ups.

BUYING AND SELLING A VEHICLE: People are turning to forums such as PakWheels. They search the classified options and select the vehicle they want. CarFirst, a new entrant, is taking the pain out of selling a car by providing a quote in under 45 minutes.

BUYING INSURANCE: has changed the way people buy insurance by creating awareness about the need for insurance and allowing users to compare and buy a policy in a matter of minutes, without having to deal with insurance agents.

OPENING A BANK ACCOUNT: Financial institutions are waking up too slowly to the fact that they are becoming obsolete. Sim Sim offers an app-based process to open a bank account within a few minutes, without the need to visit a bank.

ORDERING GROCERIES: Grocery shopping is still a family shopping experience. However, for time stressed consumers, Mandi Express provides a reliable online grocery experience and there is every likelihood this segment will grow.

FINDING A DOCTOR: Finding a reliable doctor is a time consuming process, especially for nonurban consumers. Two players are disrupting this market. Oladoc allows users to search and compare doctors across every specialisation and book appointments online. Sehat Kahani uses video conferencing to connect doctors in urban areas with patients in small towns and villages.

Here are some of the key mistakes that are the underlying causes of start-up failure.

CULTURE: Peter Drucker said: “Culture eats strategy for breakfast.” However, culture eats a lot more than strategy; it eats talent, hopes and dreams. The biggest obstacles to the success of a start-up are the expectations of family and friends. Most start-ups are made up of young graduates. At first everyone is happy; the founders have something of their own; their parents because they are not wasting their time, and their friends are impressed. Fast forward 12 months and the founders are struggling to make money, the parents are forcing them to “just get a job” and their friends are not so impressed. This is the test. Do the founders give up or do what needs to be done?

SOLUTION: Know that in the beginning, your biggest support will not be your family or friends. Surround yourself with other start-up founders and help each other overcome difficulties. Make the start-up community your primary circle of influence.

CHASING INVESTORS: In Pakistan, start-up valuation and funding is at a nascent stage. Yet the survival strategy for many start-ups is raising money. This shifts the focus from generating revenue to generating impact stories for investors. The result is a business desperate for money. Imagine, being an investor and knowing that the business you are about to invest in will fail without your money. This gives you two choices. One, keep your money for businesses that have the right revenue model. Two, make a high risk investment with the promise of high return by taking over the decision-making. In either case, you lose control of your start-up dream.

SOLUTION: Build a self-sustaining business before looking for investors. Let money chase you rather than the other way around.

TEAM: Success depends on the team you put together. A challenge among young teams is the lack of diversity in their founders. A tech team will build a great product without having any idea who their customers are. A business team will not realise that their tech stack will be obsolete in a couple of years. Most of all, teams do not have anyone to guide them in financial decisions. Another team failure is the involvement of family members. This comes at a cost when the start-up begins to grow and the responsibilities pile up. Usually family members take equity against the work they perform, but as the responsibilities pile up, you are stuck with a non-performing member with an equity stake that is impossible to get rid of due to family ties.

SOLUTION: Choose a team your start-up needs, not one that is easily available. Do not give equity unless it is absolutely essential.

CASH FLOW: For young entrepreneurs, a cool start-up may mean a hip office with gadgets. Yet, investing in fixed assets often causes cash flow issues. The client selection process also impacts cash flows. Every new client is not a blessing. Usually, start-ups equate revenue with cash flow. What they fail to realise is that a client who pays $1000/month regularly is more valuable than a client who pays $15,000 at the end of the year for the same service after multiple reminders. Many are intimidated by working with large clients and are afraid to negotiate terms resulting in a situation which may appear healthy on the books when the reality is otherwise.

SOLUTION: Do not invest in creating a ‘cool’ office. Invest in improving your product/service and decline clients who do not make financial sense.

INCUBATORS: Incubators in Pakistan are contested entities. There are supporters and detractors. Having been part of the Nest I/O team, I would classify incubators as a great experience. I have had great feedback from start-ups graduating from NIC, Plan9 and others. However, they can only help if the start-ups want to help themselves. Many use incubators as a free co-working space to avoid office rents and those that fail to be shortlisted end up giving up on their ideas.

SOLUTION: An incubator is a lifetime opportunity, exposing you to local and international experts. Use incubators for networking, finding a support group and connecting with investors. Building a successful start-up in 2020 will depend on your ability to look inwards rather than outwards. A start-up mentality needs to be inculcated; there are huge opportunities in agriculture, arts, engineering and medicine. The recent entry of VC money means that the world is waking up to the potential in Pakistan. In many ways, we are not prepared for this but the beauty of Pakistan is that we often surprise the world.

Jawwad Jafri is CEO, JVentures.