The State And Startups
Ways governments can impact nascent businesses focussing on Pakistan
Recently I’ve seen an increasing amount of startup activity in Pakistan including interest by the government in promoting startups in Pakistan. I am very happy to see that growth in the country where I was raised, and I have a lot of my roots in. And as I see the crowding of many people giving advice I started to think back to what were some things that could be provided by the government that would have been helpful. Admittedly it has been a very long time since I’ve lived in Pakistan and many f the impressions I am carrying may be outdated but if they are I believe there is still a value because there are still impressions Pakistan has to fight.
The Rule Of Law And Predictability
Sadly in answering this question I have to go back to the most basic reason for the existence of government. We need to have law and justice. Because a business is an extremely risky endeavor with a lot of unpredictability. To be able to run it you need to remove external factors. Chief among them is crime and violence. What are people to do when the political party in power tries to extort you, and when they know they can get away with mass murder.
That was an extreme example but there are many less extreme implications. A culture of bribery for getting anything done, whether it is registering a business, or getting your utilities setup. Sudden surprises like this make it hard to navigate the environment for anyone that is not intricately familiar and well-connected. Which you pay for in fewer people taking the risk to build a business and fewer people ready to invest in businesses. This doesn’t include the impact of laws in developed nations like Sarbanes Oxley and FCPA that make bribing in a foreign country a crime in the US. While transforming the entire culture of the bureaucracy will be difficult, the easiest route is to create new organizations with new cultures, strong metrics, and very high levels of accountability that make these processes easier.
I do have to say that I was impressed by the steps being taken to improve accountability. Fingerprint scanners and access to a national database for actions varying from purchasing phone SIMs to opening bank accounts. I even filed a police report there with ease.
Keep Government Promises
The problem is deeper than following the law thought. what happens when you can’t actually trust the laws to protect your private property rights. Sadly this is the saddest part of Pakistan’s history. Pakistan has in the past nationalized their industry, blocked foreign accounts, make drastic internet bans of websites like YouTube. And the drastic actions taken by the government repeatedly have eroded the confidence for the investors that have a choice. And I can share a practical example of this. The highest yield consumer bank accounts that I know of are provided by the Pakistani government to expatriates under the “Roshan Digital” name. I have talked to multiple people about it and everyone is cautious because you never know when the Pakistani government may change their mind. Unfortunately this is a reality for Pakistan and it will take a lot of work in restoring confidence to overcome the past. But in the meantime the government would do well to not repeat the mistakes of the past.
Infrastructure
In the early days of Flux7 we were considering opening a Flux7 office in Pakistan. But with our fully remote model and our complete intention to not manage a physical option our co-founder Aater asked the quite reasonable question. What are we going to do for electricity. At that Pakistan was having nearly 20 hours of daily brownouts (not sure if it can still be called a brown out at that stage). Having to provide UPSes or generators to the staff. Requiring them to maintain multiple internet connections. And there being limited options for internet above 100Mbps. All of these factors made the decision clear that we cannot open an office and start hiring in Pakistan. Even though we had an advantage in understanding the education system there well.
Now things are a lot better. But the government has to make sure Pakistan does not fall behind on infrastructure again. For tech in particular internet and electricity are the lifeblood. But there is more basic infrastructure. Roads, markets, water, sewage that are even more important. Just a quick reminder that while I talk about technology entrepreneurship, that is me speaking from a position of out of touch privilege. And in poorer communities many problems needs to be solved before looking at tech. For a good read on the topic of the economic potential to be unlocked from reaching the poorest people first, check out “Banker To The Poor” by Muhammad Yunus.
Business Infrastructure
This is a more specific point following from the previous points but businesses need their own infrastructure. This starts with processes for incorporating a business, simplicity in the rules of business, financial infrastructure especially for international transactions, tax policies, corporate law. All of these things may seem obvious. But it needs to be repeated for another reason. Any complexities in how business is done hit startups the hardest. Because they have to learn to solve these issues when they are facing the most pressure on the most essential resources, time and money.
To put it into perspective on where Pakistan falls. You can incorporate in the United States in 2 days. In Estonia in a week. In Pakistan 2 months. So that is two months before you can open a bank account, and get your first customer.
Education
There are two aspects of this. The first is a good education system building the foundation needed. So in technology this would mean good K-12 and then universities with good CS education. I think Pakistan does reasonably well in this. Although there is the realization in the industry in general that coding is a vocational skill and doesn’t require a full CS education which has a lot of theoretical information in it. These vocational institutes need to be given proper consideration. Especially with inequalities in K-12 leaving many people unprepared for a rigorous theoretical education. This is one place where the United States could probably also take heed. Because while the US has an elaborate financial aid and student loans system coding bootcamps don’t qualify.
The second is the more difficult aspect. It is getting real world experience. The thing about experience is that a person with experience does not solve every problem twice as fast. It’s just that there are some hard problems that they can solve 100x as fast. So to really unlock the value of experience you need to build teams with a diverse set of experience levels. This is all well and good but you need the first people with the experience to help mentor the others. And that is one thing we should import if we can. In Open Austin we had a presentation by the founder of 10xEngineers. The were able to create a chip verification company even though chip design is considered a very niche specialty. This did this by first creating direct lines with universities, giving jobs to fresh graduates in exchange for making sure their academic training is customized to their needs. And then put had these people trained and mentored by bringing in experienced verification engineers from the most well-known chip designers of the world. And by importing experience they were able to overcome the deficiencies in local experience.
So Pakistan should put serious thought into how to repatriate Pakistanis that can bring back desired expertise. The Higher Education Commission of Pakistan will already pay university tuition in foreign universities provided the students give collateral to ensure they return. And while there is a lot of value in importing the Academic training, that is still easier to replicate. Experience from real-world problems and professional networks are significantly more valuable.
De-risk The individual
The people taking risks to start businesses are human beings with the kinds of goals that everyone else has. For most people this entails starting a family, financial stability especially in older age, meeting obligations. And as you get older the financial costs of these burdens increase. The entrepreneurs starting businesses do so at great personal risk until the business gets established. And as they do this, they are aging, their life hovers over them like a guillotine. This is probably where the Marxist in me shows but that time is critical and the individual needs as much support as possible.
This is an area that the US does not handle very well. Especially with the high cost of health insurance and limited social benefits. In fact my Co-founder Aater had to moonlight at UT so he could have health insurance for his family. I remember having to buy health insurance from the market place when I didn’t have a salary and I couldn’t apply for any subsidies because I didn’t know what my salary would be.
It is understandable for Pakistan to have an even harder time considering the country is so much poorer. I must applaud the effort by the government to provide health insurance to citizens. But one of the biggest mechanisms for de-risking a family is to have dual income families. If the government can provide legal and structural benefits for having dual income families I believe that will increase the ability to families to take risks. Already there are many women in Pakistan starting businesses on the side to bring revenue to their households. Especially looking into the culture of what roadblocks exist to women working in Pakistan and removing them, like subsidizing employer shuttle buses.
A Culture Of Freedom
A startup is by definition going to go into uncharted territory. It challenges the creativity of its employees. It breaks conventions. It builds something where there isn’t something existing. A startup by definition needs iconoclasts who reject conventional wisdom and think outside the box. But the caveat is that even when you break out of the box of convention there are two lines you need to obey. The hard and clearly defined line of the law. And the line imposed by society. The problem with the latter line is it can be just as damning as the former line but it is significantly less clear where it is drawn.
Someone going on a venture needs to have a good understanding they are safe from both the lines. The first safety is the clarity of the line. And we talked about this in the beginning. But to give you some more examples directly relating to freedom of speech. The Pakistani band Junoon released a song “Ehtesab” meaning accountability. Pretty soon afterwards they got a phone call from their friend in the democratically elected PPP government telling them not to bite the hand that feeds them. Later on the next democratically elected government of PML banned them from having concerts in Pakistan. As a result they started performing in India to be able to survive, kickstarting a period of Pakistani artists defecting to India.
Another example during the same era was the Jang Media Group. After the PML government decided that they did not approve of what the newspaper was publishing they went on a legal witchhunt against the country’s largest newspaper. I still remember the front page ad they took out everyday criticizing the government from blocking their accounts and keeping them from buying paper.
But this is just the law aspect. There is also the cultural aspect. And in Pakistan saying the wrong thing can easily get you killed by a mob. The most recent high profile example of that is the lynching in Sialkot two months ago. You are living your life and one day somebody does not like something about you. They are able to whip a crowd into a frenzy and get you killed. How daring can you be in such a society.
While I’m talking about what the government can do. It should eliminate laws that suppress ideas allowing a free place for the exchange of ideas and make sure to create an example of any individuals involved in these violent acts to make sure others aren’t discouraged from expressing their ideas.
Employee Rights
What more Marxism? Yes. And while I can talk to you about Westrum and Teal organization, psychological safety, or about how we’ve known since Alexis de Tocqueville that a sense of ownership of work creates more productivity and better outcomes. I actually want to talk about something more fundamental than that.
Most of our hiring is in the US and India. And while in the US you interview someone, both of you decide you’re a match, they give their two week notice and they join you. India works very differently. In India, people are contractually obligated to stay with their employer for a period often as long as 3 months. So you need to hire somebody. Great. Hopefully you were able to predict your need 3 months ago. Anyway, you extend an offer and think you’re done. Well actually you’re not. Since your candidate will give their notice at their job. Now they don’t actually care about their soon to be ex-employer so they just twiddle their thumbs at work. And in between coffee breaks for the next quarter start looking for more offers. Many of them will get them, and then try to play against each other. And that’s the best case scenario. You see the scenario that happens in almost 50% of the cases is the candidate no-shows. Even in cases where a recruiter has been working with them and in touch with them for the entire duration, we’ve had candidates ghost in the last week. So not only did you need to predict your demand a quarter in advance, there’s only a 50% chance you’ll actually get them so you may need to extend two offers and hope exactly one of them ghosts you. Talk about adding unpredictably to the system.
In the US you would never be legally able to do this. Most likely the courts would consider such an employment arrangement as indentured servitude. And so while there is a customary 2-week notice you can quit at any time and expect to be paid till that moment. From an employer’s perspective, it may feel like it hurts at the moment but a well-run organization needs to be able to deal with anyone being hit with a bus. So a 2-week notice is all the time in the world. And usually with mutual consent people in very senior positions work with the employer to come up with a good transition timeline. The key here is working with your employer. This can only be done willingly. And no contract no matter how iron-clad can force a person to perform at a certain level.
If Pakistan is able to create an environment where offer to joining time is reduced to weeks it will eliminate the biggest pain point I’ve witnessed of hiring in India. And to do that you need to protect the rights of employees. Look I’m not all communist here though. I strongly believe the right to quit easily should also come with the right to fire easily. Instead of having strict restrictions on letting people go, governments should step in to create a strong safety net to help people find their place. Because as I shared in my articles “Getting Fired” many times that is for the better. And instead of locking both parties in a hostile relationship, we should create an environment that allows both employers and employees to find the right match for each other.
What About Government Funding?
This is a really good question and perhaps where the capitalist in me shows up. I strongly believe a centralized power cannot consistently make the right decision. Yes, strategic initiatives and overarching trends can be identified. But the only people with the ability to make the right decision is those most affected by the decision. And so the only real test of “is a business good?” is if it can get customers willing to pay for their products. Because no proposal, no grant application, no idea, can make up for the ability to execute coordinating the different parts of the engine that we call a business.
Is government funding needed? I really don’t know if it can be made to work. I’m skeptical of the ability of a committee without any stake to make the right decision. I am sure fixing some of the structural issues I talked about will create an environment allowing for more investment. Creating incentives for incubators, especially incubators in universities like Project Alchemy at Illinois can be a very practical way. Because it makes sure the structures exist for sponsoring entrepreneurship without having to bet on specific winners and losers. Which is something you don’t want a centralized authority to do. Especially if the authority is an institution with a long history of corruption like the government of Pakistan.
Having said all of this the economics of the world make Pakistan a very attractive target for investment right now. It is a populous country with a larger fraction of their population speaking in English. It has strong trade ties and relationship with China the other economic power. It has global economics working in its favor, because it is a poor country right now. People that I went to school with are all over the world in influential places. I believe there is still a lot of risk in terms of how well the challenges it faces can be handled. But I think the ingredients for success are present in such abundance that I think betting on Pakistan right now is a good bet.
