There has been a lot of anxiety amidst the current recession and the downturn in capital markets, causing one to question why startups fail.
The bad news is the change is here to stay, and with it, comes a downswing. However, the good news is that it holds a lot of promise. The massive amount of growth seen in the past year, with 83 Pakistani startups raising approximately $350m is not an anomaly, we have leveled up to the next stage!
If you’re wondering what exactly this means for the future of startups in Pakistan, we’ve got you covered.
The panel discussion on startup scalability and failure at +92Disrupt: LHR Edition comprised of a blend of market experts. This includes Meenah Tariq, Misbah Naqvi, Shehryar Hydri, Abbas Yousufzai, and Abbas Shahid shed some light on the change in the ecosystem as it matures as well as some dos and don’ts!
Execution is Key
The grim reality is that 9 out of 10 startups globally will fail and the odds are probably even worse in terms of survival in an emerging market such as Pakistan, making execution even more difficult.
The game is simple; scale or die.
No medium trajectory exists when it comes to raising VC money in Pakistan, with there being two main rules:
- Scale as fast and as aggressively as possible
- Raise money constantly
Don’t: Sideline the Product Market Fit
A focus on the product market fit is key. Too many founders make the mistake of focusing on numbers rather than the path to profitability. Instead, they should turn their attention to what is going to create eventual value for the market, and when their business will become unit economics positive.
Meenah Tariq – a VC turned entrepreneur – lay the groundwork for the reasons why startups fail, citing the race for customer acquisition as a major factor:
“We sometimes forget about product market fit…because we need to be able to get to our next milestone to get our next funding round in, we put product-market fit on the back burner and focus so much on metrics that are defining market capture for us”.
Do: Structure Rounds
Another way to kill your startup post-fundraising is to raise on terms that almost guarantee you not being able to implement the kind of execution required for the next funding round to occur, that is why it is essential to structure your rounds.
About 70% of startups fail post fundraising after the pre-seed or seed round. However, it is important to remember that we’re still a new ecosystem, all on a learning curve and failure is part of the process.
Who are you Building for?
Focussing on hyper-scaling and investor desires is a slippery slope. It can cause one to lose track of the main aim of monetizing value for the chain of stakeholders.
Hence, Abbas Shahid, VP of growth at Bykea, stressed this as being a key point for the reason many startups were unable to survive the pandemic.
Don’t: Build for Investors
When worrying about where your next round of funding is coming from, it can become easy to build for investors rather than the actual stakeholders. It’s a precarious balance but building with investors in mind is the reason many businesses struggle after the pre-seed round.
Do: Build for the Actual Market
Talk to your critical mass of customers. If you don’t attempt to identify the needs of your customers, you won’t be able to understand what you’re building and who you’re building it for.
In doing so, you will know the right pivots and where to attribute funding, exactly what your stakeholders look like, and will be able to build your product accordingly.
Back to Basics
The last few years have been easy money for Pakistani startups, with international investors recognizing the opportunity that exists in terms of our market.
However, foreign funding is now slowing down in the midst of a global recession, with local investors also feeling the need to be smarter about which business models to back. The current state of the market has caused investors and founders alike to tighten their purse strings and take an evaluative step back.
Don’t: Rely on Money Coming in
Wherein prior to this year it was a founder’s market in terms of attracting capital, with founders finding themselves in a position to demand increased valuations at a pre-seed stage.
Unfortunately, we can no longer depend on foreign funding. Therefore, it is important to turn one’s focus to profitability.
Meenah recommends a turn to the fundamentals and the idea of making things work without having too many resources. This quality of jugaar is one she believes is innate to those running a business in a country like Pakistan.
Do: Function by Proxy of Attribution
Being frugal is necessary given the current economic downturn. If you can’t attribute the money, simply do not spend it. This is a quality that should be embedded within the culture of your business in the day-to-day scaling phase.
What are VCs Looking for?
When evaluating potential investments, the traits VCs tend to look for include:
- Founders that are solving big problems where the market opportunity is huge
- An asymmetric risk profile that reaps phenomenal returns with minimal risks
- The path to profitability
i2i Ventures’ Misbah Naqvi was able to give us an investor’s perspective on what qualities VCs look for in founders:
“…it is important for you to be able to build that conviction on that founder and their ability to execute…Pakistan being a high friction market makes it difficult to build in and so it takes a certain kind of founder that is not just visionary but is also going to be able to execute.”
Startups will Fail But There is a Brightside!
So there you have it, from the key players of the industry itself – it’s not all doom and gloom!
What a power panel! (I may be slightly biased ) At #92Disrupt in Lahore & my partner @MizNaQ my friend & founder of @metric_app @MeenahTariq & friends @sheryhydri @abbas_yousafzai all speaking on what kills startups post funding. pic.twitter.com/ByR8m0RSyJ
— Kalsoom Lakhani (@kalsoom82) June 25, 2022
Markets fluctuate, and changes in global or local trends tend to affect growth. A large number of startups will no doubt struggle and fail but there are lessons to be learned. This does not spell the end of the entire ecosystem, but rather a completely new phase.