There is no greater authority on Startups in Pakistan than Mr. Yusuf Hussain, CEO Of Ignite. His are the machinations that are leading the startup industry to both widespread recognition and a plethora of success stories. We were fortunate enough to get an hour of his extremely valuable time to talk about the startup landscape as it is shaping up in Pakistan.
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A transcript of our conversation is as-below.
SM: Thank you so much for doing this interview with us. Could you help us elaborate to conceptually understand the difference between an entrepreneur and a startup and also please talk about incubators.
Y.H.: Sure, let’s start with what is an entrepreneur? So an entrepreneur basically runs a new business. What constitutes “new” varies; is it 10 years or is it 5 years, is it a revenue of 10 million dollars? Let’s just say it’s a new business, that’s an entrepreneur.
Now, a new business can be of 2 fundamentals type, one is a traditional business such as a restaurant, a regular IT services company, a gym or a web development company; or it can be innovative. Meaning doing something new and risky like an entirely new business model, a new technology, perhaps even developing a new market. So the dynamics of the two kinds of businesses are very different.
For example, the first one, maybe a lifestyle business, possibly run on credit, tries to get to profit as quick as possible. While a startup may take up on equity investment and may take several years to turn a profit because it’s developing a new product for the market. So these are the two differences and I think associated with this is the concept of innovation.
Secondly, what is innovation? Innovation is the transformation of an idea or an invention into a product or service that impacts society. So let’s say a light bulb is an invention but if you don’t have electricity transmission lines, it’s not impacting society, so it is not an innovation it is just an invention. So when James watt discovered to power steam, that was an invention, but when actual factories and locomotives were run on steam power, it deeply impacted the trade and factory production. That became innovation, because it was impacting the society, and that is what is called the first industrial revolution, it was a fundamental revolution.
Similarly the discovery of electricity, the second industrial revolution, and third IT and then we’ll come to fourth industrial revolution. But, to understand “what is the importance of innovation” Yuval Noah Harari writes that in 1775, 80% of global GNP was from Asia; Mughals, Ottomans and kings,; so ship building textile, mining, peace under these empires, trade, and yet, in a 100 years they were enslaved and colonized by Europeans. What happened? [Harari] says, 1 word, ‘innovation’! The steam engine, earlier than that, The Guttenberg press and also the first company which took the private sector investment for waging a war East India Trading Company. So, this is a tradition of how innovation happens.
When transfer of information happens or something bunches together, Klaus Schwab at the world economic forum coined the term of these four industrial revolutions. What we see is that in the last thirty years or so, startups are the motifs of innovations. Not the government RND, not academic RND, not large corporations, its startups who bring all this research from all these areas. That’s why the five most valuable corporations – most of the time – in the world are five startups which we all know Apple, Google/Alphabet, Facebook, Microsoft, and Amazon. Rather than the situation 15 years ago when it was Exxon Mobil or Citibank or General Electric.
Now this ecosystem evolved with Silicon Valley from quite a while back it took many decades, but the USA and the other countries like China, India and Israel are trying to accelerate the creation of startups because they have become the engine of growth and employment creation and that is why the concept of incubator came up. The first one was back in 1965 . Incubators are experiments to create or accelerate startups. Now 90% of the incubators have failed, so when we formed our National Incubation Center, we studied all the reasons behind failures and successes. Why did 18 incubators funded by the government of Israel fail? We learned some lessons from those.
incubators need to be run by people who help build great companies. Or helped, or invested in or who mentor great companies, rather than by employees. That’s what, by the grace of God, we were able to achieve in all five of our incubators. We got one of leading entrepreneurs and investors available in Pakistan. Weather it was Zuhair Khaliq who founded a billion dollar company (Mobilink) or Parvez Abbasi who founded a billion dollar company (Mobile Zone). Raees Khan who is the founder/CEO of LMKR, or Faisal Sherjan whose been an angel investor behind some good successes in Pakistan or Murtaza Zaidi. We really have a stellar cast.
The incubator must have or is a co-working space which is architecturally impactful. The first thing is culture. In our country, and other countries as well I guess, there is a lot of negativity from complainers. So when they come in we want a visual impact thinking differently, and start solving problems instead of complaining about them and they believe in their abilities and their imagination so that’s level 1 that’s very important and even before that there is a level zero outreach, reaching out to get the right kind of applicants, for example in KPK and even in Baluchistan they can outreach to all the universities and in the case for Balochistan, tutoring them on what is innovation entrepreneurship and why they should apply it. On the other hand in Karachi they have already incubators available so it became more of an accelerator. So every NIC has a different character right? So the first thing I talked about was the level one and even before that was a level zero.
The curriculum, how do you build a curriculum? You can access the curriculum online but here not only we give the best world class curriculum but we also got mentors coming in and giving practical examples of Pakistan and people go out and built their own company in the next week or two. So, for example if it is marketing/branding, they will go out and get macro influencers, bloggers, they will go out and implement the strategies and see what their monthly active users rise to. Or, it is Team building those couple of weeks. Then how do you go out and interview people, how do you give them test projects, how do you setup equity option structures to manage yours risks? Only then do you actually understand how to do it, otherwise its in through one ear and out the other. So we talked about reaching out, the co-working space, we talked about curriculum.
is the mentorship, get the best mentors available – particularly vertical mentors.
The coaching, because usually what I’ve seen is that startups drift. They take on too much. You know its so tough to build one business especially if they open multiple fronts. For example, I talk to people and they say, “I work on two startups” or that, “I have a startup with two products.” I try to explain to them that If you had asked Steve Jobs what he did for the first thirty years he would have said I have one startup which is Apple and I have one product is the Computer, right? All the rest of the stuff, the iPod, the iPad, etc. came thirty years letter when it was a six billion dollar company. So if you don’t focus its so tough to do something right.
What coaching does is, and we’ve got an MIS to monitor all these six levels, the feedback on curriculum, the feedback on speakers, the networking sessions and so on. What coaching does is, what is your number one goal of the week of the goal or the month and what is your number one problem of the week or the month . So if your number one goal is to open a new franchise, to hire somebody, to register your company, did you do it or not? Or did you get sidelined by some aware ceremony or you know whatever. So stay focused, don’t get distracted. Then what is your number one problem? You couldn’t hire a coder or couldn’t setup a meeting with a customer and what is incubation management doing to help you. So we monitor that and then the fifth level is the basic services that any startup needs. Be that in marketing, design or legal, you need good people available at a good price. Then level 6 which we are putting together with the help of MIS is the alumni network.
The best incubator in the world YCOM; its founder and CEO Paul Graham says that their number one advantage is their alumni network. That’s why dropbox and AirBnB came out of there. So through MIS we are keeping this network which is already 200+ and increasing by a couple of hundred every year. So imagine that power of networking in one place. So this way the thinking behind incubators.
SM: Could you talk more about the 5 NICs we just discussed? If you could shed some more light on the success stories.
Y.H.: Yeah. First of all, kudos to the NIC team led by Jawad Asfar. Because first of all quite frankly people were saying it would take 6-7 years to role out five but we did it in 1 year and 3 months. We did it with compliance with all PEPRA regulations. So we’re not had any audit objection. Outc wise kudos to the team. Outcome wise it was a question mark. We don’t know what is going to happen because it depends on so many externalities, but very very pleased with the outcomes.
For example probably a rockstar is PakVitae out of NIC Lahore, raised 22 million and 10 million people are going to have clean drinking water for the first time in their lives on a regular basis by 2020 Inshallah. So we have fine traders which is a lady (Sama), one of 8 daughters of a driver, Sama got educated then Sama got a job in a bank, resigned and pursued a dream which was, that daily labourers are unable to save up enough to buy basic things that they might need, like a bicycle or perhaps something even smaller at a smaller scale. She is facilitating them at a rate of either PKR. 50/day or PKR. 500/week.
Now that by itself is not much but this lady generated PKR 1.3 crore of revenue and PKR. 31 lakh of profit because she does bulk buying. And she is now about to accept a turn-sheet of $890,000 from a US based or connected venture capital firm.
We have another lady who is designing a new jet engine that eliminates chemtrails; those white line shaped clouds which cause up to 20% of global warming who also got funding of $200,000 and now is setting up a lab. Then in Karachi we have a gentleman, as you know Pakistan is becoming dry, a desert. Now 80%-90% of water is spent of irrigation. Now this gentleman has come up a product AquaAgro which used AI and IoT to reduce water consumption by 50%. How does he do that? Because normally for many crops it differs. But for certain crops, farmers just open the flood gates, let’s say twice a week. But he, through his IoT sensors, monitors the moisture, it goes into the cloud and his AI Algorithm tells them when to open the gates. Now let’s say they do it once every 8-10 days. Now they’re saving water and increasing yield by upto 30% because excess water strips away fertilizer and it strips away pesticides. Similarly we have some exciting other companies such as Bykea helping them get financing as well and they are I think now hiring more than a couple of motorcycle drivers for commutes and deliveries. We have Sakoon which is another very strong company for home provision of carpenters and plumbers. It turns out some of these are just huge. For example thumbtack in the US Amazon Capital invested $100 Million in them. If you look at home dry cleaning, in India the market is estimated to be $7 Bn So these look apparently small and simple but if you can execute on them these are huge opportunities.
In Quetta we have smart helmet. They use IoT and AI to detect poisonous gas and biorhythms of miners and take other environment constraints into account and and guide miners to safety. Because it’s really painful, thousands of miners die every year. I actually appeared on Television and I talked about this and the Balochistan Chief Minister saw the program (Zara Hut Kay) and he tweeted immediately and Gul Khan responded and the Secretary Industries came in. Now twenty of these helmets are under testing. The government has to make it mandatory otherwise the mining companies don’t pay much.
In Peshawar some exciting companies; we’ve got Aprus, the gentleman is the son of a Technician at Lady Redding Hospital and he developed an Electromagnetic surgery instrument which did what other German and American instruments do, but better. Now he’s using AI to modulate the amount of current because people get burned. This is used to remove tumors, or lesions or open up blocked blood vessels.Its already performed over 10,000 surgeries in 82 clinics.
Another company there which is an E-Commerce company called Bera doing Peshawari Chappal, they just got evaluated through a funding from Islamabad at $1,000,000. This is out of Peshawar. And that is even more heart warming.
Then in Islamabad you’ve already talked to Pervez Abbasi so Mochart or Tonline or Agrolab, exciting companies coming. So one feels very happy that these things have come about. Still there are many skeptics. There are people who say it cant be done, they say Pakistan should not be innovating and lets do just IT services. I’d love to support IT services absolutely but we have to be positive and believe in our abilities. In fact Paul Romer won the Nobel Prize in economics last year for his work on the importance of innovation in developing countries. He said only those countries lift themselves out of poverty who remove self imposed limitations and old ways of thinking and old habits. So still there are these naysayers to battle but you know I think innovation community is battling them and Inshallah they’ll win.
SM: So, what kind of psychology goes into creating such a person. Do they suddenly have realization or is it something genetic. What do you think, in your experience?
Y.H.: Well I think if we talk about human psychology in general, those people who are kind of in my mind in sync with their inner voice they rise to the top of their profession whether they are lawyers or in the army or whatever. We see other people changing profession trying to find what is it, what environment what people what calling matches them. So I think generally the high achievers whether its in sports or professions or entrepreneurship are those people who have enough self-knowledge where they are in sync with their inner voice, once you do that it just multiplies your energy many times and increases your motivation. You abandon fears or you overcome the naysayers and you achieve things in life.
SM: Wonderful. How do you define the criteria for a startup that will be incubated and qualifies for a startup. How do you define their success? Is there a bunch of criteria or is there an amount of money that they’ve raised?
Y.H.: First of all there are many different definitional startups. Pakistan Export Board has a definition. There are certain things such as revenue levels or so and so forth. Ill define a framework to you, within a framework people have flexibility. We are not know-it-alls.
All the intelligence and innovation comes from the environment. The incubator mangers have flexibility within our general criteria selecting startups. But generally it has to be a person with a track record and a person with an idea and maybe the idea has had some traction. Whether in terms of product development if it is very compelling or it terms of customers. Generally these are the things.
When I used to invest and now with a seed fund. One of the primary things is character, can you trust this person? Is this a steadfast person? Is this an open person? Because in the startup world you have to be open, you can’t hold things close to the chest because that’s how you get ideas. Its character then it’s how well is a product thought through. Is there rigor? Not only on the technical side but also on the business side. Is a person aware of the decision points because at the end of the day its an experiment. So we use the same criteria by the way just to jump a little bit onto our Seed fund. By the grace of God we have had some great successes, for example Electro Cure using AI and IoT over one1 and a half years they have saved 90% of electricity theft and line losses in MES Peshawar and MES Rawalpindi. And a Chinese company gave them an offer of $56,000,000 on a profit sharing basis but presented it to the Prime Minister and the Finance Minister and the Finance Minister said “we’ll invest in it” because it is so compelling. The ROI is better than imported smart meters. So now it is being rolled out into discos. Umar Ayub Saab the energy minister received a demonstrations so we are hopeful.
There are several others, these Mera Mavashi out in Miawali, you plugin the symptoms of cattle and diagnosis a disease and tells you symptoms. We’ve got Deal Smash which uses AI to suggest budgets they’ve also raised second ground of funding and there are several others, I mean I could just go on. We’ve got Wonder Tree that uses augmented reality to solve neurological problems like autism etc. installed in 12 hospitals including Agha Khan and Foundation Hospital. It has already helped about 80+ children. There are many others, and just to let you know a United Nations Industry Development Organization (UNIDO) has selected Ignite as the Number One government organization in the world for “Remarkable efforts in Fourth Industrial Revolution in strategy, policy and initiative”, so kudos to the team for doing that.
SM: Mashallah, now that you’ve seen so many companies succeed is there a formula to define how companies succeed?
Y.H.: First of all the difference between a startup and a regular business is that a startup abstracts and for that abstract critical thinking is needed. What do I mean by abstraction? Lets say Chai Khana, great restaurant great food or Bundoo Khan out of Karachi, I don’t know if this really happened or if this is an urban legend but it’s a great example. It was the best grilled food into Karachi and then they opened one in Islamabad and the quality went down a little bit in Karachi since the owner had to focus in Islamabad. They opened something in Abbottabad and Islamabad shut down. Maybe an urban legend but what it says is scaling was very tough. On the other hand McDonald’s has 12,000 restaurants around the world and each one gives you a burger in 4 minutes. Whats the difference? McDonalds was able to abstract what is the SOP for location. Eyeballs, traffic, socio-economic class, how big should it be? How do you source buns versus fish versus lettuce and tomatoes versus ketchup. What are the quality checks, where do you store it? What kind of people do you hire, how do you train them? What about MIS and the finance management system and your inventory management system. What about your franchisee fee and your franchisee partnership. They’re going to abstract it out. That’s one example.
Telenor did it with Easy Paisa, do you send money from point A to point B within a country. They had to abstract and setup these locations where it is profitable for the vendors and is transferring money. What is the security around it? How do you setup a bank around it? The great example of the iPhone, now an iPhone is something that an 8 year Chinese child or a 10 year old Pakistani child or a 40 year old African or American can use. Think about the abstraction that went into that User Interface. Now 86% of the technology in the iPhone was not developed by Apple. Whether it’s the touch screen or the GPRS they got it from the Macadamian government. So what was it that Steve Jobs was able to do?
A) Keep an eye on Research and Development
B) Be able to engineer that R&D into a product that can be sold
Ashar Aziz did the same in FireEye, kept an eye on the technology got it from DAPA architecture a product and sold it. But at the end of the day just like we say man proposes and god proposes. Its in the hands of God, what Ashar Aziz made nobody bought in the beginning for almost 3 to 4 years, and he almost went out of business. Then some cyber attacks occurred in the US and now his company is worth $10 Bn. It’s the go-to company for cyber security. These are I think the core value chain and then you have to leave it to God. Then there are certain human traits. Leadership traits, pulling people together, critical thinking, and perseverance help you make it happen.
End of Transcript
At this point Mr. Yusuf Hussain had already granted us an extra 15 minutes, but we could have gone on for hours and hours. That luxury, however, is not available to one of the busiest people in Pakistan. So we took our leave and hopefully we’ll have the opportunity to talk to him some more.
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