Tech start-ups: A head start?

A quirky invite wound its way into several thousand email inboxes across cyberspace early in 2015. It came from Patari, a desi music streaming website that claims to host “the biggest collection of Pakistani music ever assembled in one place”. Patari is one of the scores of information technology start-ups that have appeared in Pakistan in recent years.

Start-ups are ventures with unconventional business models, often characterised by their ability to grow faster than bacteria. Like Patari, they start small and dream big, with a workforce not bigger than 12 people and often relying on social media and the internet as marketing tools. Whether they make it big in the long run is a question worth pondering over. As far as Patari is concerned, it seems to have successfully established its presence; within just five days after its beta launch, it had already processed 600 requests for membership with thousands of applicants in queue.

But Patari’s journey has not been entirely smooth. Soon after its launch, EMI Pakistan, a music recording and distribution company, accused Patari of breaching copyright by uploading EMI-recorded songs without permission. If the two sides do not reach an agreement over the accusations, Patari will not be able to feature almost 70 per cent of Pakistan’s total music repertoire which EMI owns under contracts with hundreds of Pakistani artists, including legends such as Nusrat Fateh Ali Khan, Noor Jehan, Mehdi Hassan, Farida Khanum and Alamgir.

Tech start-ups elsewhere too have faced similar problems. In the first half of 2015, an American music streaming service, Grooveshark, was forced to shut down. A tech start-up created by three undergraduate students at the University of Florida in 2006, Grooveshark lost a copyright infringement lawsuit filed by major recording companies and could not recover from the financial shock. Khalid Bajwa, chief executive officer of Patari, says facing the copyright infringement accusations has been a good learning experience for his start-up due to what he describes as a “grind… one that took a lot of time and persuasion” to resolve the problem with EMI. Patari, according to him, has since made significant progress in ensuring that it does not attract similar accusations in the future.

Other start-ups making waves in Pakistan are delivery services, Delivery ChaCha perhaps being the most visible among them. It promises to “deliver anything”— from groceries to movie tickets and from meals and birthday cakes to pets. To get an idea of what bumps Delivery ChaCha has faced in a market flooded with delivery boys and riders, the Herald spoke to its chief executive officer Nashit Iqbal.

According to Iqbal, the recruitment of riders was the first and one of the most significant challenges. “The riders are required to be completely reliable, honest and especially polite with customers.” This, of course, is understandable. Karachi, where Delivery ChaCha operates, is riddled with crime. A business venture aiming at delivering goods at the doorsteps of its customers will only risk losing business and credibility if its staff are found to be involved in criminal activities. Iqbal is also keen on reducing the time between the placing of an order and the delivery which means that his employees need to be efficient in navigating the city, its badly laid out streets and its chaotic traffic.

Support for businesses such as Patari and Delivery ChaCha exists in the form of incubators — the first pit stop in the life cycle of a start-up. Incubators provide start-ups with an environment that helps them during their nascence. Ahmed Khan, entrepreneur-in-residence at The Foundation, an incubator run by the Center for Entrepreneurship at the Lahore University of Management Sciences, explains that incubators provide training to those looking to initiate start-ups in order to equip them with the basics: knowledge about administration, team management, finances and marketing. “They are provided an office space which encourages interaction and innovation. They are provided access to mentors in specific domains as well as in general business disciplines,” he explains. The incubators, he adds, also help start-ups find potential investors.

The Foundation is not the only start-up incubator in Pakistan. Patari, for instance, was incubated at Plan 9, which is run by the Punjab government in Lahore. Patari’s Bajwa describes Plan 9 as a cradle. “In addition to providing a monthly stipend and offering an awesome workplace, the incubator assisted us tremendously in sorting out operational and legal issues besides providing us a network of support,” he says.

Start-ups, however, generally do not get a warm response from local investors. “Local investors are very traditional and are wary of technology,” says Khan of The Foundation. The start-ups also operate – or rather, attempt to operate – within Pakistan’s volatile business landscape. “They are small and can pivot easily if the wind changes,” says Khan.

Because of their vulnerability to the ups and downs in the market, start-ups receive minimal support from investors abroad. Khan cites the lack of support from foreign investors as a major obstacle in the growth of Pakistani start-ups.

But being small can work to their advantage as well: they can be responsive to market and consumer feedback more quickly and more efficiently than difficult-to-change bigger companies.

Start-ups also do not start making profits quickly. How, then, can they inspire confidence among investors? There is no single answer to the question. Different start-ups have tried different approaches to address it. Patari, for instance, intends to attract money through audio advertisements which it will play between tracks. It will also start premium subscriptions, offering its customers the ability – by paying a monthly fee – to save songs offline and/or listen to them without advertisements.Khan believes the start-ups need to focus on achieving scale (a point where costs decrease and production increases) before thinking of making profit. “Once they have achieved scale, they can worry about profitability.” Pandora, a music streaming service based in the United States, was launched in 2000, but it started making profit only in 2011, after it had reached out to millions of registered users who now number more than 250 million.

Can nascent Pakistani start-ups dream of entering the global market? Considering that they are a new trend in Pakistan, it is rather early for them to be able to compete with start-ups based elsewhere. But Khan is of the opinion that the start-up success rate in Pakistan is higher – despite a seemingly unfavourable business environment and lack of investors – than the international rate, which hovers around 30 per cent. That may be a sign that they can survive international competition at a similarly stronger rate.

However, before being able to cash in on this strength, Pakistani start-ups need to learn skills for addressing their teething problems efficiently and effectively. If they fail to do so, these problems run the risk of becoming too monstrous to take on. That will only spell doom for the start-ups.