Impediments to Development of Entrepreneurship in Developing Economies

Countries that have overcome some basic barriers to growth have succeeded dramatically on the world scene. Growth in economies is always directly proportional to the startups and entrepreneurs who make it big. The entrepreneurs, by definition, revitalize an economy. They are at the forefront in jobs creation, intellectual property ownership, industrial output and overall productivity gains for the country. They pay taxes and usually bring in lots of foreign direct investment as well.

In the past 50 years, countries like India, China, South Korea and Malaysia have leap frogged ahead of the fledging and often unstable neighbors to become one of the economic giants. Each one of these countries have many self made billionaires, who many decades ago were struggling entrepreneurs with big dreams. But what made them succeed while equally good entrepreneurs from other countries are still struggling to make their ends meet? Surely, these and other countries still have unemployment, very large rural population, rampant corruption and very high cost of doing business. But what is it that has made them break out of the pack and get ahead.

Here we list some major impediments to entrepreneurship development.

Lack of access to Finance:   

Without money and investment at critical times, any startup will fail. Entrepreneurs need money to grow just like any major enterprise in the world needs money to grow. Usually developing economies have very poor and archaic financial systems that do not work in favor of startups. And banks, they charge interest rate of almost 20% and above which to a startup is impossible to pay off. Thus they never succeed.

Human Capital:  

Having trained man power and a large knowledge workforce is essential for growth for any economy. Usually, developing economies have a very small and poor quality workforce. The education system, particularly, the higher education system is weak and produces very few high quality engineers, doctors and many other professionals. Hence, the startups that they work in never go beyond a startup as they are unable to expand beyond a certain size and complexity.
 

Access to Information and Markets: 

Many startups still lack access to markets to sell their goods and technical information to keep abreast with latest developments around the world. Usually, these fledging economies are closed to the outside world and with little direct access to buyers of their products not only locally but internationally. Therefore, living in isolation, they never really work to their full potential.
 

Political Instability: 

Malaysia, China, India never seem to have any political upheavels. They never seem to go to war with anyone either. Yes, there are border tensions, but nothing that would destabilize their country. On the other hand, many Latin American, African and Asian nations still have military coups, unstable political democratic structures and corrupt and inept leaders. Together, this is a recipe for disaster. These political think tanks with highly polarized and biased military junta are more concerned to make money for themselves than build a better nation. Hence, their policies are usually not beneficial towards fledging entrepreneurs.
 

Short Term Thinking over Long Term Objectives: 

Political instability causes many entrepreneurs to think short term and rarely do they make long term plans. They theory goes, that the country would be turned upside down within the next 5 years, so why make plans beyond two years? Hence, if you dont think long term, you cannot grow. And if you cannot grow, you cannot succeed. And so the startups never get out of this vicious circle and die out.
 

Unstable Currency and High Inflation: Most of these countries have currencies that depreciate in value in double digits annually. The inflation is above 20% annually. So unless the startup is growing faster than the rate of inflation, it will actually be a loss making enterprise. Since, these economies never stabilize, hence, the entrepreneurs are swept away during any major upheaval.

To Raise or not to Raise

To Raise or not to Raise

This is a question that every startup asks itself when it is about to take off. There are enterprises out there that have never needed to raise any money and have done just fine for decades and grew into a respectable enterprise. While others, have raised quite a bit and used it wisely to grow tremendously. Yet others have perished due to lack of financial resources when in times of need or remained a small enterprise for decades as their finances never allowed them to grow to their true potential.

The question remains, To raise cash or not to raise.

Let's look at the landscape of tech companies. Some of the biggest enterprises on the tech scene are those that have had some form of cash infusion at some stage during their growth cycle. Twitter, Facebook, and even Google would not have been what they are today without the money pouring in from Venture Capitalists (VC) and investors. Even the old warriors like Intel, Oracle, Sun Microsystems reached their zenith with timely cash infusions during their growth cycles. Even today's smaller steller startups like Simply Hired (jobs), Zazzle (print), Allvoices (media), Scrybe (office), and others would not have grown to the level they have today had it not been for some serious cash infusion at the right time.

It is also a verifiable fact that companies need money to grow regardless of their size and financial condition. It is not possible to regularly generate huge amounts of cash and use that reserve to invest back into the company. Surely, some do that, but it is not sustainable nor is it always wise. The extra finances (raised capital) is always good when the economy is shaky and revenues are hard to grow.

Startups usually survive from month to month or quarter to quarter. One bad quarter in a down economy, and you bite the dust. Even in good times, extra cash is always good. Say, the market is demanding your services/product and you need to scale up fast. If you rely on your cash to grow, then the growth will be slow and painful. And a competitor with deep pockets might take advantage of the situation and surpass you.

It is great to remain independent, and it feels great to be your own boss with no one to report to. However, it is hard to remain that way for a very long time. Market changes, economy tumbles, the revenue streams dry up or even a competitor might go for the kill. Either way, independence does not guarantee a long and prosperous life.

Nor does raising funds. But it does reduce the risk of failure and reduces the impact of over zealous competitor, economic turmoils and market fluctuations. And a company that can reduce its risks can definitely survive, grow and become a force to be reckoned with.

So my conclusion is raise funds but do it wisely.

Inside the Google machine

Here is a video I found online at the TED talks. It was shot 5 years ago this Februrary during the annual TED Conference in California. Here Sergey Brin and Larry Page talk about cool new products and services that are being rolled out by the Google Machine.

http://www.ted.com/index.php/talks/sergey_brin_and_larry_page_on_google.html

Services like Adsense and Orkut among others. At the time of the the video being shot, Orkut had only 100,000 users and almost 60% from USA. It also talks about their concept of letting their employees spend 20% of the time building cool new apps including the just released Google News among others.

The video is just five years old, yet it seems like a life time ago. In these preceding years, Google and its products have changed the way we use internet, transact and communicate with each other. It is amazing how the internet world has grown and changed around us these years and how technology is becoming more intertwined in our lives.

Ignore the Nay Sayers

If someone calls your idea “crazy” then you are onto something. If they declare you “insane” then you are moving in the right direction. And if they “write you off” then you are half way there to achieving your goals and successes.

Whether you agree or not, but history shows that almost all great men (and women) were declared “crazy”, “insane” and were “written off” while they were in the midst of their greatest adventure.

Einstein's theory of relativity was not only controversial but was deemed “crazy” at the time of its publishing. Thomas Edison first phonograph was considered an “insane” idea. New York times wrote off Goddard, the father of rocket science, as someone who had an insane idea of going to the moon using some crazy rockets.

The list goes on and on. Steve Jobs defied the naysayers with his “insanely great” products for the past thirty years. Google was advised to let Yahoo acquire them as the search market was already saturated and their product would never take off. Ebay was considered a wacky and unprofitable idea when it was originally launched in 1995.

In my personal life, I have been advised dozens of times that my ideas are unsound and I cannot make money and am crazy to attempt them. But each time, I have ignored the naysayers and then gone ahead and done something that I always wanted. And, by Grace of God, succeeded each time.

In 2001, I was told that it was crazy to expect Pakistanis to use the internet to do recruitment and job search. But we believed that such a market not only existed but will be the only way recruitment will be done in Pakistan. We launched, BrightSpyre, Pakistan's first online Job Search portal. Within two years, we were the first Pakistani company to be profitable from online business and were also the first to register 100,000 unique users online. Today, BrightSpyre has over half a million unique users and receives millions of job applications annually. Our model is copied and replicated by numerous copycat job sites in Pakistan and who owe their existence to BrightSpyre as we created the original market.

In 2004, when we decided to build a rural Tele-health network in Pakistan, we were told once again by all our peers and friends that it will not work and such an idea is outright crazy. Today, under UM Healthcare Trust, we run probably the only sustainable tele-health project in the country. Our services are available at near zero cost to the poor and needy in rural Mardan. Once again, we defied the odds to achieve our goals. I was also recently advised that my healthcare facility will not be successful and no one will ever use it. Today, we treat over 3,000 patients/month in rural Mardan and yes, we are probably the most successful rural clinic in the whole district of Mardan with a population exceeding 1.6 million people. Now, we are planning to take this project national and expand to other districts of the country.

In 2006, when we launched our international office in United States, we were told, no Pakistani company has ever been successful abroad without seeking investment and partners. We defied the odds and today, as a Pakistani startup we have customers in four continents with thousands of recruiters worldwide using our system to find the best talent.

All this time, I am told that there are no successful startups which do not have some source of financing. I remind them that none of my enterprises ever raised funds. We generated our revenues from our own products and services. We are profitable without the need to raise funds.

So my advice to all entrepreneurs out there. Never say Never. Do not listen to nay sayers. Believe in yourself and in your idea and just do it. The rest will be history.

Startup Insider Islamabad Session

What a wonderful gathering at LMKR for the inaugural Startup Insider, Islamabad Session. At a conservative estimate, I would say at least 100 people showed up at the event including half of them students. Not bad for an event that was only marketed via blogs and email lists. The attendees included successful and budding entrepreneurs running great organizations, there were bloggers and journalists covering the event and professionals not just from the IT sector, but also from the Telecom, Media and Development sector.

The panel included successful entrepreneurs from BrightSpyre (Cogilent Solutions), Scrybe, Trevorsoft (Bentley Systems), Voxel among others. What surprised me the most was the fact that most of the companies on the panel had secured funding through some Venture Capital Fund. In fact, barring one or two, most of them were funded from the Silicon Valley. And quite a few of them were working on cutting edge technologies and beyond.

We had great case studies from the audience as well. We even heard from an enterprising student who had written a highly popular application on Facebook which today has almost a million users. He successfully negotiated and sold it off to another company in the valley from his dorm room in Pakistan! He is now busy launching yet another application on Facebook and already has offers from potential buyers, again from the valley. He asked a simple question from the panel. How can he now secure a bigger place (than his current dorm room) to build these applications in a more professional environment with a bigger team.

Another surprise from the audience was a budding young engineer who had written a wonderful application on the open source platform and had posted it to Sourceforge. And his application was not only being downloaded heavily but people were paying him money to enhance/customize it for them. Hence, he was running a successful one man shop right out of his home in Rawalpindi. And for payment processing, he was using Amaana, another enterprising application coming out of Lahore, which is Pakistan's answer to Paypal.

Osama Hashmi (Green & White) and Owais Ashraf (Bentley Systems) managed and moderated the whole event quite brilliantly. Thank you LMKR (Atif Khan) for hosting this event and treating us to wonderful coffee/tea and appetizers.

It was really pleasing to see active participation of the students as well. It showed that some of them will probably take up entrepreneurship as a career and will forgo the urge to work for another company. Just one observation. The folks on the panel be requested to provide a detailed personal background (education, work experience and why they chose entrepreneurship over employment) and what is so great about their company. This will further enhance the experience of listening to these success stories and understanding where they are all coming from. Startup Insider Sessions will be held once a month in Karachi, Lahore and Islamabad.

Please check Green & White blogsite for the event details and do attend them if you are in the area.

Starting Out

When entrepreneurs start out, they usually like to do it with in small teams. Usually, a fews guys and gals will get together to do something really interesting and innovative that will change the way things are done.

It is easy to start out with a bunch of friends, but it is quite difficult to last the distance. Especially, when the going gets tough. Here are some basic traits to look for when starting out.

Sharing the same passion:
You and your friends might be excited about a brilliant new idea. But not everyone will be able to believe in it with the same passion as you do. It is imperative that your friends and you are following the same dream, the same vision and have the same passion. Otherwise, sooner or later there will be trouble. In my personal experiences of starting up businesses, I have found on many occasions the startup teams move apart after a few months as they do not share the same passion and have different ideas of how to go about their business. This experience was also confirmed by other budding entrepreneurs.

If the partners do not share the same passion, vision and goals, there is every likely hood that the organization will move apart. Or for worse, will crash even before taking off. This must be cleared up and should be revisited on a regular basis. Visions and goals do change as the market dynamics change. But what ever the case, always discuss and get on the same page and be as inspired as everyone on the team.

Define clear cut roles:
In a startup environment, usually everyone does everything. But still, there needs to be some definition of roles and some responsibility assigned to everyone. One of the team members could take over the software development aspects, the other could manage the sales and marketing. A third could be the finance guru on the team. Defining what one will contribute will bring about major productivity gains for your startup. But make sure that the roles are not just on paper and are actually implemented. A good way to have a check is to have regular meetings and see how everyone is doing and contributing.

There will be occasions when one of the members is not contributing enough. It is imperative at the early stage for everyone to be working over 110%. Hence, help the person move ahead and help him/her understand the role. Maybe, try reassigning the person and give him new roles within the organization. See what he/she is good at and make him do that.

If the person still does not improve, it is time to cut him off. Send him on vacation or move him out. A dead and non contributing partner will only slow things down and will cause the organization to slow down as well. His contribution will not be productive for the organization and can also cause other employees to lose focus as well.

Strong Communications:
This cannot be said enough. There are times, when the teams stop communicating completely. They tend not to share their feelings, especially if they have some wood over others. It is imperative that the members communicate and share all issues and problems openly. Keeping everything inside will not help and will only bring about further cynicism.

Strong communications is the foundation for a strong and growing organization. Have regular meetings and sessions and regular exchanges of emails, phone calls etc to be on the same page. The sales team should know what the software team is doing. The software team should know what the management wants and what are the targets and deadlines. And so on and so forth.

Entrepreneurship in Developing Economies

Someone recently asked me at a conference in the Bay Area, as to how has been my experience of entrepreneurship in the US as compared to the developing economies. My answer, which astonished him, was it is far more difficult to succeed in developing economies than in the US.

There are reasons for that and plenty of them, but I list here the three most important. To an extent they are true for all economies; from Bangladesh to Nigeria, from Philippines to Pakistan, from Sri Lanka to Kenya.

Political Instability:

For one, the political instability can play havoc with your plans. Say, if you were in Pakistan, Bangladesh, or even Nigeria, chances are that the political system is heavily dependent upon military and how it reacts to the highly mischievous politicians. Chances are that there will be one political upheaval every five or so years. Enough, to not make business plans and forecasts beyond five years regularly. In fact, I recently, met up with a Chairman of a multinational corporation in Pakistan and asked him precisely about this trend. He said, they used to make a 5 year plans for the country in the past. Now, they are down to 3 as it is difficult to see beyond that.

Government Oversights:

To an extent, if you are running an IT related business, chances are the government will not interfere much. However, that is just the illusion. The governments are slowly becoming aware of what is the all hoopla about this new technology and are becoming a major roadblock in its growth. Take the example of bandwidth. If you are anywhere in Africa, chances are you are paying by the kilobytes that you are using. Yes, not all you can eat, unlimited packages as we see in the US. Even if setting up a software company is cheap, it is too expensive to connect with the outside world on high speed bandwidth.

In Pakistan, the waters are further muddled, with the paranoia built by the government around VoIP. Now, if you are a call center or a software house, and want to use VoIP then you have to first register with the government (Pakistan Software Export Board), and then get a clearance from Pakistan Telecoms Authority (PTA) and this process could take an average of four to six weeks, if not more. And once you do get this clearance, you are still not allowed to do inter office communication using VoIP. You still have to use traditional telephony for that! Imagine that! And yes, they can raid your offices, lock up your staff and do all sorts of government bureaucratic bullying in the name of protecting you against the illegal use of VoIP.

Financing:

Now, this is where it gets really tricky. Numerous surveys conducted by various agencies including World Bank, United Nations has indicated that Financing is one of the major issues in developing countries for SMEs (Small and Medium Enterprises) to survive and grow. The banking systems are also quite archaic in nature and have not really developed since the colonial independence. For example, it is quite difficult for them to finance anything without “physical assets”. Now that is fine, if you are an industrialist, but what if you are an IT company? There are only electronic assets and intellectual property rights. Sadly, such enterprises can secure no funds from any banking institution on these basis. And there are hardly any Venture Capitalists out there either. That leaves the budding entrepreneur with his/her own money or rely on some angel investor.