Navigating the bumpy road for startups

The decade starting from 2010 and ending with 2019 saw the emergence of the growth-through-startup model. The idea originated from Joseph Schumpeter, in 1942—that economies and societies are changed by waves of "creative destruction", with new ideas and innovation changing the way we live. And this was the key idea at the heart of the growth-through-startup model: create an ecosystem in the business world that encourages innovative startups, and when they succeed and grow, they will be employing people and securing investments, leading to economic growth. And to a large extent, this model has been successful in Bangladesh.     

Today, nearly everyone uses services that are offered by a few companies that came to play through this startup boost—money transfer, ride sharing, food delivery, e-ticketing. But it has not been a completely rosy picture; there have been countless stories of failures as well. Now that Bangladesh is approaching graduation from the UN's Least Developed Country (LDC) bracket, the country's startups and small enterprises are facing a critical juncture. Strategies and policies made at this point will have long-term repercussions for the future of individual businesses and the economy.

The first and most pressing challenge for startups in the coming future is to scale up and ensure a steady revenue stream. Some companies, such as bKash, Shohoz and Pathao, have managed a steady stream to some extent, but many other startups need to follow. One unique aspect of the startups in Bangladesh has been the fact that their products/services address a structural problem in the market. For example, in the case of bKash, money transfer was a major issue before they came up with their elegant solution. The good thing with innovations aimed at solving a problem facing the majority is that the startup does not need to create the demand. But then, there are quite a lot of startups whose solutions are catered for a niche market, or for whom the gap in the market solution has been filled up by many other similar startups. These startups need to plan on scaling up—connecting to markets to ensure a steady stream of cash.

Scaling up can be done through serving larger customer segments, business-to-business contracts, enhancing the product or service to get out of single niches, improving product quality and reaching out to the international market. The last option is a very important issue to consider for many startups. Since Bangladesh is on its way to graduate from the LDC bracket, it would not be wise to expect international market quotas, in which case it is very important to enhance the product/service to serve international markets.

With scaling up comes the issue of structuring an organisation. Startups are famous for their multi-role positions, undefined work structure and ad-hoc challenges. In fact, by definition, this is the type of work that anyone who works for a startup should expect, especially in its nascent stages. And the daily operations are also very ad-hoc at the inception phase. But when an organisation scales up, it scales up in revenue and in employee numbers as well. This is where the need to have structured job roles, standard operating procedures, and routine activities becomes crucial. It might sound very easy but experience shows that this has been one major problem faced by many startups in Bangladesh. The reason is simple.

When starting off, the nature of daily tasks is very uncertain, and the founders, along with their team, end up working beyond their roles and their expertise. So when new employees are taken in with clear job roles, it sometimes creates a conflict in the organisational culture, and conversations like "come on, we have done more than this" become commonplace. In fact, a lot of times the organisation's leadership fails to see the value in structure. But when scaling up, this lack of structure will lead to mishandling clients and projects. As such, with the aim of scaling up and securing a steady stream of revenue, the startups need to plan for structure within an organisation and having clearly defined roles.

Another crucial issue is innovation, which will also impact the other two issues already discussed. In the initial stages of a startup, innovation mostly comes through understanding a gap in the market and developing a product or service to serve the gap. The initial success of any startup relies on this gap identification. But after the first set of products or services, the startup needs to enhance its offering to the market. And this is done through incremental innovation. And incremental innovation at times can be quite difficult and costly. This is because the problem—the gap in the market—has been catered for. And at times, the need could be overly catered for. At that point, the company needs to invest in R&D, which is costly and requires dedicated resources—something that needs to come from the second issue discussed in the section above: structure. And this is where the government institutions can help as well.

Supporting industry-academia alliances, R&D clusters and tax-breaks are some of the policy incentives that can help startups to invest in innovation. More importantly, the institutions in place need to work on intellectual property protection rights and proper enforcement. If the innovation can be copied easily and replicated, and protection not enforced, firms will have lesser incentive to innovate, leading to stunted growth and lower competitive power in the international market.

Finally, many global startups have proved that small businesses can accelerate their growth and leapfrog the established large corporations by leveraging data and technology. The pattern of these organisations has been to use a new technology to address a market gap, and then enhance the product offering with insights from data. Quite a few startups in Bangladesh have made proper use of the new technologies and smartphone revolution, but now they have to invest in data-driven insights and decision making. In fact, proper insights from data can give the startups an edge in both scaling up and innovation.

Decisions, policies and strategies made at any critical juncture determines the long-term success of a venture. Therefore, the points and issues highlighted above require further examination and deeper introspection for the future of the startups. If proper steps are taken and are supported by the authorities and institutions involved, today's startups might go a long way in establishing their foothold in the international market.

Khan Muhammad Saqiful Alam is a PhD Researcher, National University of Singapore, and Analytics Adviser at Intelligent Machines.