Entrepreneurial culture…Sara Malkani
AN enabling environment for young businesses to grow is crucial in any economy. The last decade or so has seen attempts to bring financing and support to startups in Pakistan.
My YouTube algorithm led me to one such attempt to nurture the startup culture in the form of a reality TV show on the Green Entertainment channel — Shark Tank Pakistan. In this show, an international franchise, entrepreneurs pitch their businesses to a group of investors (sharks) in the hope of acquiring investment. Creators and investors in Shark Tank Pakistan say that the show will educate budding entrepreneurs and catalyse innovation.
But I could not see the educational value of the show after I saw a few pitches, which did not set forth clear business plans, but still attracted commitments from investors in several crores of rupees. Perhaps I did not understand the business plans or was mistaken about the minimum level of clarity needed to attract venture capital funds. I knew it was a relatively high-risk investment — but is it really such a leap of faith?
Lured by the algorithm, I decided to view Shark Tank in other countries, including the US and India. When I watched the pitches in these shows, I observed detailed pitches and rigorous investor assessments. I had reason to be baffled by Pakistan’s version.
I doubt that the contrast in the shows is only the consequence of differences in individual producers or investors. The contrast reflects differing levels of maturity, analytical reasoning and value for money in different economies. It sheds light on where we need to improve as a country if we want to build sustainable industries.
Three broad contrasts stand out for me. First is the rigour of pitches. In ST USA and India, successful pitchers clearly describe the nature and value of their product, their revenues and profits, and explain why they think their business is scalable. Unfortunately, the sharks in Pakistan do not expect the pitchers to show up with this level of preparation or understanding of their market. This is a disservice to the entrepreneurs.
For example, YouTube features a startup claiming to sell Turkish coffee in Pakistan get an investment of Rs6 crore (Rs60 million) on a valuation of Rs30 crore on the basis of monthly sales of Rs30 lacs (Rs3m). This, even though the investors on the show said that their coffee does not taste like Turkish coffee but like the whipped milk coffee that one finds in government offices. Why does a misleadingly named product get such a significant investment? At no point are pitchers asked about the price at which they sell their product or their competitors in the market. Other than a goal to open several more outlets in malls, where for some reason the profitability of the product is presumed, no viable business plan is shared. Surely, conveying his information on the show is important if its creators see it as a catalyst for a serious entrepreneurial culture.
Contrast this to a café owners’ pitch in Shark Tank India. The pitchers here had already established multiple outlets and reported revenues of INR 8.5 crore (approximately Rs28 crore). The sharks asked about the economics of each outlet. They compared the sale price of their products with that of competitors. They estimated the total size of the coffee market in India and then assessed the extent to which these pitchers could capture some of the market. Ultimately, each shark chose not to invest because they were sceptical about the business model’s scalability.
Second, the nature and quality of the products in ST Pakistan are very unclear, in contrast to other Shark Tank franchises, where investors focus on the specific features of products and compare it to competitors.
For example, two entrepreneurs pitched an ‘AI-powered’ application to meet the legal needs of lawyers and organisations. They said that their product will save 60-80 per cent of lawyers’ time, but did not explain how. As there was no demonstration of the product or any examples of use cases, as a lawyer I did not understand why I would want to use the app. Most investors, however, seemed to think it was a very good product and one offered a whopping Rs14 crore investment for a 20pc stake. The pitchers said that they charge a subscription fee of $25 to $150 a month (Rs7,000 to Rs42,000 a month) for the service, which for a vast majority of lawyers in Pakistan is very expensive. No assessment was made during the pitch of the size of the market for such legal products and the viability of the price. One of the sharks pointed out quite rightly that there are and will be other AI competitors for legal services, but this did not deter the significant investment.
Finally, the extent of investment in Shark Tank Pakistan is exorbitant. In Shark Tank USA, set in a country with GDP per capita around 60 times that of Pakistan, investments typically range from $200,000 to $300,000. Investments in Shark Tank Pakistan have gone up to $2.9m. For real?
We should not fault the pitchers who come on the show. Not much is expected of them by way of preparation, but the show’s creators give the impression that investors in Pakistan throw away crores at half-baked ideas and questionable products. The show conveys that investors in Pakistan prefer to gamble rather than support viable businesses that promote economic growth and human development.
Young entrepreneurs should be encouraged to spend money wisely, use their minds to innovate solid products and think through business strategies. Shark Tank Pakistan showcases some of the problems with Pakistan’s approach to the economy — poor reasoning and reliance on bombast over substance.
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