START-UP incubators are increasingly becoming the hub of entrepreneurship in major cities of Pakistan. Apart from a collaborative working space and subsidised services, they provide networking opportunities with mentors, angel investors and, in a few cases, selected large corporations.

Many incubated start-ups have benefited from the time spent and emerged with angel investment. However, few have managed to pick up serious venture capital or institutional funding. This is because there are important changes required in the ecosystem before more incubated start-ups get larger funding and are able to grow and become unicorns (a start-up with a $1-billion-dollar valuation) that create large-scale jobs and contribute in meaningful and measurable ways towards the nation’s economic growth.

The sad fact is that the best brains of the country leave for greener pastures owing to a lack of sufficient opportunities at home. According to the Higher Education Commi­ssion, Pakistan produces around 450,000 university graduates every year (10,000 in computer science), but our corporate sector and small and medium enterprises can only absorb a very small number of them.

Best and brightest

Incubators can play a key role in this regard if entrepreneurship can be established as a viable alternative to employment. This will truly come to be accepted when you are able to offer success stories that inspire and motivate the entrants, which currently don’t exist in the scale needed.

Incubators can play a key role if entrepreneurship can be established as a viable alternative to employment

The quickest path to creating these success stories is to involve the best and brightest minds. In the Silicon Valley, many Indian and Pakistani entrepreneurs became rich in the 1980s by importing into the US, high achievers (usually gold medallists and position holders) from top universities of the subcontinent and putting them to work creating new products for the emerging PC market.

It is hard to imagine that a gold medallist would let go the offer of a multinational job that is difficult to come by but likely to be open to him at that moment, to take up an entrepreneurship development opportunity in an incubator without some sort of corporate sponsorship and/or suitable stipend.

At least not in these early evolutionary stages of this market when there are few success stories he can point to when he tries to explain his gamble to his parents and other stakeholders. Many of the high-profile international incubators now offer seed financing to selected incubatees.

Experience and skill set

The focus of most incubators to date has been IT-based entrepreneurship. Conventional wisdom says mobile companies should support, favour and invest in apps that increase demand for internet. Many aspiring entrepreneurs are developing internet-based apps for mobile phones and incubators encourage these ventures to experiment with new ideas that have the potential to become the “killer” app.

With a few exceptions, the level of technology innovation generated to date has been limited. Innovation is considered key to overall start-up sector growth as can be assessed from the example of our neighbour, which is at least a decade ahead of us in this endeavour.

A recent McKenzie report indicated that “90% of Indian start-ups fail within the first five years. And the most common reason for failure is lack of innovation — 77% of venture capitalists surveyed believe that Indian start-ups lack new technologies or unique business models”.

Academia-corporate linkages

As the EU Horizon 2020 programme for making Europe more competitive by research and development explains well, meaningful gains in innovation are not possible without strengthening academia and corporate collaboration.

With Google’s investment, P@SHA’s incubator The Nest I/O has the potential to become a growth engine for software companies. Companies support and encourage current and past employees to link up with students and academia to pursue product ideas that the software company can take a stake in if it attains sufficient momentum. But currently this is not happening as much.

Academia needs to step up and become the visible bridge between international research and its application into the Pakistani economy, particularly in developed sectors like defence, pharmacy, telecom, banking and agribusiness.

Exploring non-IT options

Although most of the focus is on IT, Pakistan has a consumer-led economy and so in the near term, start-ups in the FMCG sector have the greatest chance of success. Innovation can be in new business models that are built around the growing middle class. Such business model innovations leverage localised sales and marketing strategies that target our unique demographics and make use of the unemployed youth bulge, appropriately address cultural restrictions on the female gender and/or capitalise on the demand for secondary income.

Finally, programmes focusing on solving huge gaps with private sector-led innovation in essential service verticals like education, healthcare, etc, won’t get the required success unless they seed funding solutions similar to the IT R&D funds and more successfully connect academia with the emerging industry.

The writer is a management consultant

Published in Dawn, The Business and Finance Weekly, April 2nd, 2018