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ntrepreneur types will tell you that every problem is an opportunity in disguise. If that were true, Pakistan would be the “land of opportunity”. But are they wrong when they say it? Nearly all of Pakistan’s problems can be monetized into successful businesses that make someone money and solve someone’s problems. Yet there is a serious shortage of people who view things that way.
Quaid-e-Azam once wrote to the people of a Muslim village. The people in the village complained how the British Raj had not done enough to improve issues in their village. Jinnah’s response to them was to take ownership of their problems: “to identify their issues, make plans to resolve them, and act on their plans” and not wait for the British government to come help them. It sounds simplistic but really in many cases, it really is as simple as that. Jinnah understood the psyche of our nation well and we, as a whole, haven’t changed much since.
A lot of solutions — I would argue that all of them — begin by a determined individual taking ownership of an issue. Technical challenges, financial constraints, leadership, or even motivational impediments are really direct effects of strong willed people taking ownership of the problem. In my view, there is no shortage of people trying to take ownership. What is required is guidance and reinforcement to these people to stay the course.
I propose what we require are a series of incubation facilities that help develop the entrepreneurial spirit, and then to coach it into sustainable businesses. Incubation is the chosen medium for this around the world. Seoul, Korea has over five hundred incubators alone. Compare that to that three (that I know of) in Lahore. For Pakistan, the idea has simply not kicked in yet. Governments lack the funding and universities lack the infrastructure required to generate ground-breaking innovation and deploy technology in a financially sustainable way.
This article is the first in a two part series to explore the concept of incubators in Pakistan. The first part introduces incubators and deals with considerations needed to establish incubators in Pakistan. The second part details efforts of my partners and myself to develop a practical model for incubation in Pakistan.
Incubators come in various forms with various objectives and degrees of success. Incubators based in property firms try to add value to their offering, non-profits trying to encourage entrepreneurship create jobs and affect social change, universities trying to encourage industry collaboration and monetize research, investor driven incubators look for high returns from the next big idea, and corporations try to expand into new markets or looking to encourage entrepreneurial talent within their enterprise.
- Premises that are accessible on easy terms for a limited amount of time:
- Other physical facilities including conference rooms, restaurants, catering, security, furniture rental, office equipment rental, telephone, library and reference material, vehicle rental, cleaning and maintenance, child care, and overnight accommodation.
- General business services:
- Audio visual equipment, Shipping and receiving, mail services, fax, photocopy, printing, reception and messaging, word processing and clerical and administrative services, access to laboratory and computer equipment.
- Professional services:
- Legal matters, intellectual property, accounting, book keeping, recruitment and staff selection, education and training services, IT and internet services
- Liaising with schools and colleges for training of their people and MBAs
- Management and business strategy service:
- Technology assessment (R&D strategies, competitive positioning, patents and IP protection, technology partnering)
- Business plan development (CSF, Revenue models, Wealth generation strategies, exit strategies)
- Marketing plan (Launches, Alliances and Partnerships, Sales and distribution strategies, PR campaigns)
- Corporate Finance (Capital raising, Mergers and Acquisitions, IPOs). Government and grant loans, equity finance arrangements, debt financing arrangements, business tax, risk management and insurance.
- Networking opportunities: These include interaction with academics, other entrepreneurs, financiers and service professionals
- Guidance according to the phase of development the company is in (creativity, direction, delegation, coordination, and collaboration)
Incubators in a Pakistani contextEdit
For Pakistan, the concept of incubation needs customization before incubators become viable, sustainable units. Incubators in Pakistan need to go beyond acting as investors or financiers assisting in ideas that someone else brings in. Entrepreneurship is generally missing in our society so incubators need to make the job of starting a business easier by having pre-fabricated business templates. These can include strategically appropriate areas to begin, points to investment and supporting in hiring and delivery. This is particularly true in the early stages of the business and more so for first time entrepreneurs.
Unlike western countries, capital in Pakistan is largely private equity. For religious reasons, a significant percentage of the population will not go to banks. This makes networking in the right circles all the more important. If the investment is to be generated within Pakistan, investment also includes a long period of investor education in the technology’s potential. This extremely intensive relationship building can overwhelm entrepreneurs, if left unassisted. Incubators should also focus on business templates that are not capital intensive in the first place.
Incubators need to start businesses with proven models and a proven customer base rather than one where the customer adoption is likely to take years. The appetite for risk is fairly low and ideas like disruptive innovation die in R&D before the investor’s patience runs out. Many new start-ups fail, not because their ideas didnt make sense, but because they run out cash before the target markets accept their ideas. Most product ideas fall under this category where the ideas make sense on paper, and even at times have successful implementations in other parts of world, however these just don’t have an accepted customer base in their target markets yet. Attempts to implement eBay equivalents are just a few such examples.
Training is an essential part of any organization’s portfolio. With a high turnover of talented people from the country and constantly changing developments in the technology sector, preparing and delivering training is a constant exercise. The key focus training areas for incubators should however be business basics (from the perspective of a technologist). For any one startup this task can be overwhelming, which is why the incubator needs to operate this as a shared function. Within business training, development and support on the sales and marketing side is probably the key missing element. This can take the form of, for example, buying-houses in the textile industry. These buying-houses serve as unified sales units for textile delivery (stitching units). These allow new businesses to focus on smaller functions, expanding overtime across function.
A strong networking component is required. Pakistan remains a country where normative influences are strongest. The incubator needs to provide a forum for entrepreneurs to connect to each other, investors, educators and resources. These can provide essential reinfocement, guidance and vision required to operate successful business models.
Finally, successful models need to focus addressing social psychological gaps with entrepreneurial archetypes. In particular, there is a need to raise levels of self-efficacy and ownership and correct how risk is perceived. This is probably the least understood and most neglected portion of any organization’s implementation strategy. Managing people, their motivations and their emotional is probably the most impotant thing an entreprenuer/manager has to contend with after financing and sales.
As part of our efforts to try and develop a “Do-It-Yourself” incubation center in Pakistan, we’ve set upAllied Incorporated as our first pilot project. We began operations on January 1st, 2010 out of Lahore. Allied Inc. (as we call it) is run as a not-for-profit. Our objective is to inspire, train and facilitate entrepreneurs – both inside Pakistan and abroad (when they want development teams in Pakistan). Through this process, we hope to develop and refine a practical model for encouraging entrepreneurship within organizations, across the industry and in the society at large. In this article, I hope to document and share our model, so the model can be improved and perhaps even replicated in smaller, under-served cities.
We envision a 3-step process for new entrants:
1. Inspire: Inspiration is usually the first step in the transformation into entrepreneurship. It is also the fuel that picks us up on days when things are not going so well. I recall reading the story of Shabeer Bhatia (founder of Hotmail) and how he built a $400M company in less than a year with no prior experience of running a company or even managing a team. This was bigger than the budget of most of the cities in Pakistan and how much good it could do. You don’t need to look too far to see that there is amazing content already available online for this purpose. To name a few examples:
- Stanford and MIT have great entrepreneurial content
- Forums like greenwhite.org are cropping up as online communities to discuss startups
2. Educate: Once an individual decides to start a business, he is usually met with the realization that he doesn’t know how to proceed. For young fresh graduates, the gaps are huge. For experienced individuals, gaps lie in the financial management and sales and marketing side. Our training focus thus is:
#Business Management content with an entrepreneurial focus: This would be content for someone who has several years of technology experience and now wants to move to a technology entrepreneurial role. These include basic finance and sales and marketing skills.
- Technical training content required for a startup: This would be focused on last mile technology content that a typical university grad can take and be ready to work in the industry
Though there are many other things that one feels are lacking in resources available out there, we need to be careful what to adopt into a self-funded incubation model since each of these areas requires a huge effort in collecting content, refining it, and keeping it up to date. Our plan on the training side is to develop an online collaborative knowledge base for the industry. We have solicited content from companies in the local industry that specialize in a certain field and are in the process of consolidating and publishing that content. You can find an alpha version of the knowledge basehere. Once we have enough content collected and organized, the plan is to start the delivery phase where we will start exploring other forms of delivery for this content (e.g. in-person delivery, video link-based off-site delivery for remote locations, etc.)
3. Facilitate: Once an individual feels they are ready to take the plunge and start a business, we aim to provide additional facilities. We want to provide a physical forum where entrepreneurs can be around others bitten by the same bug. This is perhaps the most natural way to provide both guidance on things they are doing wrong, and validation of things they are doing right. At the moment we have a small rented office space which entrepreneurs can choose to work in and pay by the seat. The incubator take on the administrative hassle (e.g. power backup, internet connectivity…) allowing new companies to focus on what they’re trying to do. You can find a detailed list of services provided on our site.
Canned Business template #1 – IT Consulting
Since most of the founding team of Allied Inc. are IT professionals, our first template for businesses has been centered around the IT industry. This, we feel can fairly easily be extended to the engineering sector in general. Most of our participants, so far have been 30-somethings that have significant experience in the outsourcing IT industry and are fairly well aware of the risks they are taking. So far, we haven’t been able to attract fresh graduates with mature ideas but that is something we hope will come as we “templatize” our processes further.
The business model is that of a typical offshore IT outsourcing firm. Target markets are the US and the EU. In particular, we focus on the entrepreneurial sector in these markets due to the ease of access to this sector directly from offshore. The fact that the IT offshoring business is considered a well-known, run of the mill activity is good for us since it provides a lower risk trajectory for tentative entrepreneurs and allows us to focus on the incubation more than the consulting.
Compared to a typical consulting firm, ours is different in a few noteworthy ways listed here. Most notable, however, is that we aim to increase the level of ownership in participants. Ownership of tasks, their consequences and thus the individuals destiny in general. Academic research details five factors that influence the perception of ownership in people in an organizational setting (listed in order of importance):
- Financial Payoff
Within Allied we’ve tried to implement these principles using the following policies:
#All policy making is based on a shared vision of fairness. We define fair as values of greatest combined mutual interest.
- All employees have open access to information. This includes details of revenue and expenditure.
- Consultants get paid what the clients pay for them (minus overheads). Since Allied Inc. aims for no profit, this leads to great value for both the employees and their consultants. Details of this here.
- All employees are free to experiment in their free time and are open to solicit other companies and customers for business. If they succeed in bringing in business, they are free to setup their own teams or businesses the way they see fit. This is quite unlike conventional IT units in Pakistan where this attitude is actively discouraged.
- We present no grand plans or strategies for the future. Our growth will come ecologically depending on what the employees of the companies are most excited about. There are no grand plans or long term strategies. We encourage constant experimentation with delivery and sales models, guided by the training options available internally.
[Note: To give credit where it’s due, most of these ideas are derived from Dr. J. s's story of how he started Science Applications International Corporation (SAIC). The company was started in 1969 with total revenue of $250,000. By 1990, they had $1B in revenues, which grew to $8B in 2006. Our operating philosophy derives heavily from the guiding principles of SAIC.]
Challenges (so far…)Edit
*Slow decision making: Given the collaborative and democratized nature of our decision making process, it is slow. We need to spend a lot of time developing consensus and doing due diligence on a lot of issues. This is almost always slower than a ‘saith’ making spot decisions and at times speed of making decisions matters more than making the absolute right choice.
- People issues
- Skepticism: Amazingly, we have had a lot of resistance from people in accepting the idea of a not-for-profit firm. Most of our clients show skepticism on the validity of our claim. More surprisingly perhaps, hiring new talent is even harder. We get the “what are you getting from all this then” question a lot. This is, however, natural since few, if any, references are available for people both here and abroad.
- Behavioral Inertia: Another related issue is the lack of people who are willing to take responsibility. Most of our hires are senior people with 7 or 8 years of experience in the local services industry. During that time, they have been groomed to take as little ownership as possible, and to participate only when absolutely necessary. They have been convinced that doing better will not necessarily lead to better reward. We’ve found that this re-adjustment process takes a while to sink in for most people.
- Strange definition of risk: People in Pakistan have a strange definition of risk. I once interviewed a person who told me that ours was a small setup and it was a big risk for him to join us because he wouldn’t know how long we’d last. I offered to give him a few months advance salary and extended notice periods for termination but he wasn’t very interested. I asked him how much guarantee he had from his current employer and if he knew how well that company was doing internally. I asked him if his current employer had a million dollars in reserve but chose to shut the company down anyways, would he have any control over it. He got the point, but he still didn’t join us!
- Impatience: Being young, full of ideas and having an entrepreneurial flame burning in you is a really bad combination! Many times our level of patience for results is that of a hungry two year old in front of candy. This is, however, a happy problem. We would rather have people too eager for change than those who have given up on it.
- Lack of guidance: One of our major issues is not having a reference business model for incubation and in particular non-profit/cooperative consulting firms. There are few of these out there in the world and even fewer that are openly documented for references. Hence a lot of our learning on incubation is experience-based.
- Making the training unit break-even: One of our key challenges on the training front is monetizing the effort required to build and maintain the training portal initially. Although technology training remains a major hurdle for the growth of the local industry, most companies are not willing to act on it. Our attempts to form an industry-wide fund to develop the training portal have so far met with stalling tactics. This lack of funding has made the training development slow and stuck in a chicken-and-egg situation.
- Avoiding external funding: Since one of our basic objectives was to setup an incubation unit that a small community itself can develop, we adopted a basic policy of no external funding. All the capital expenditure is made by the employees themselves. This has the positive side of increasing the ownership level of people but making inventory management and accounting all the more complex. It also challenges us to create aggressive growth since some of that (especially in the services industry) is heavy on capital investment when growth kicks off.
- Making the companies break-even: Being a small company, the biggest challenge of course is always to make ends meet at the end of the day. With all the energy spent on the incubation and consensus building process, there are days when there is little time for the things that actually bring in money. A lot of this has to do with the fact that we are in early stages and systems and processes are being streamlined. However, our biggest challenge remains stabilizing our sales and delivery units. Only that will enable us to survive long enough to call this a success.
- Creativity and innovation: Understandably our business models are designed to be low risk, predictable stepping stones into entrepreneurship. This, by design, moves away from riskier, highly creative ideas. Our thesis here is that if you have enough free people (financially free and free in thinking) in close proximity, creativity and innovation will occur naturally. While innovation and creativity are not out immediate focus areas, we want to be able to assist people in that to whatever extent possible.