Lecture 1 - New Venture Creation

New Venture Creation
An Overview

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The journey to becoming an
entrepreneur is easy.


The path to becoming a successful
one is filled with heartache,
barriers, failure, ridicule, sacrifice
and eventually success – if you
can stick with it.


The problem that we have in
Pakistan is that entrepreneurship
is misunderstood and therefore
ridiculed by everyone around us.


Our parents tell us that we are
wasting our time and education
with something that MIGHT earn
some money


Our friends tell us that we are
wasting our time and starving
ourselves when it would be easier
to just get a job.


Potential clients don’t take us
seriously because we don’t have a
huge financial base to work from,
so we will probably shut our doors
in a few months.


Sadly, all of these things are
partly true, but they make our
lives harder and more stressful
because the approval from our
inner circle isn’t there.


People don’t understand
entrepreneurship, so they don’t
know what to make of it.


But the answer to all these
problems are easy, if you know
how to handle them.


First objective of the course:

To teach you how to explain what you
are doing to those around you in small
manageable pieces so that you can
get their support.


Second objective of this course:

To take your idea and show you
how to determine if it is viable,
feasible and how to make it
successful.


Third objective of the course:

To teach you how to build a
successful business


Entrepreneurship in Pakistan
The Great Wasteland of Business


Entrepreneurship in Pakistan is a
failure from the word go because
of how our culture operates.


In Pakistan, we don’t accept new
things with very much ease.


In Pakistan, we like to follow the
crowd more than go our own way.


In Pakistan, we would rather be
unhappy with our careers than
dare to do something that takes
hard work but makes us happy –
for much less money (in the
beginning)


All of these things make Pakistan
a hard place to be an entrepreneur,
but there are other things that
keep us from succeeding.


Economic
Breakup
-‐
Pakistan

10%

15%

Wealthy

Middle
Class

Poor

75%


Business
Environment
-‐
Pakistan

12%

Business
Owners

Working
Class

88%


Pakistan follow patterns….


For decades there were only 2
choices when it came to career
paths:

Doctor
Engineer


Then the software industry in
India started to grow and people
in Pakistan started opening
software houses.


So Pakistanis had a new career
choice – computer science


Then the banks started to grow
and hire more and more people….


Pakistan had another new career
choice – MBA


But when the economy turned
south, unemployment went up
and people decided to sit at home
and do nothing rather than start
their own businesses.


Why?


There are 3 reasons that stop
people from starting their own
business in Pakistan:


Reason 1:

No support network


Around the world, universities
encourage their students to be
independent and give them the
skills to be free thinkers


With free thinking comes
confidence


So you are more comfortable
taking chances and risk to achieve
more


But for an entrepreneur to
succeed, they must have a
support network


We need people who understand
what we are struggling with to
help guide us through the difficult
times


We don’t have that in Pakistan.


Reason 2:

No financial support


For any venture to succeed, there
needs to be somewhere that
capital can be sourced


In Pakistan, we only have 3 options:

Parents (if they are wealthy)
Banks (if we have collateral)
Sethis (if we are desperate)


Financing Option 1 – Parents

Many of the businesses that are
started in Pakistan are funded by
the family of the entrepreneur.


While that is a great option,
family businesses require lots of
money and many members of the
family involved to make them
successful.


When it’s only one person, the
parents give them money so that
they have something to do – there
are no checks and balances –
therefore, no drive to succeed.


But when your parents aren’t loaded,
what options do you have?


Financing Option 2 – Banks

Some entrepreneurs in Pakistan
get bank loans to start their
ventures.


Bank loans require a number of
things:

Collateral to secure the loan
Proof of Concept
Past Experience


Most entrepreneurs don’t have
the collateral to secure a bank
loan.


Most entrepreneurs need capital
to be able to provide proof of
concept.


Most of your past experience is
either in working for others or
none at all. Entrepreneurs that
have past experience have the
capital they need already.


But do you really want a bank
loan?


Bank loans mean that you must
make payments whether you
have the revenue or not – and
when you miss a couple of
payments, you lose your business


Also, in our banking culture, loans
come with a 22% interest rate


In the rest of the world, banks
have small business loans with
an interest rate between 2 – 10%.


So if you take a bank loan of Rs.
10,000,000 at 22% interest


You must be able to pay back Rs.
100,000 each month otherwise
your business is at risk


And Rs. 100,000 in monthly
revenue is very difficult – if not
impossible for a new business.


Financing Option 3: Sethi

The Sethi is one of the worst
options for startup financing.


The Sethi sees your business as
another investment – like gold and
property – and expects returns
immediately.


As a result, the investment they
make is capitalized an any cost.


That means that you will be
selling products or providing
services cheaper than market
rate so that the Sethi can get their
money back and believe that you
will succeed.


Reason 3:

No credibility


New businesses have no
credibility in the market because
they don’t have the capital to
survive.


Because of this most clients will
not work with your venture or
offer the high value contracts
because they don’t believe you
will be around in a couple of
months.


Additionally, since you don’t have
an existing body of work, you
don’t have anything to convince
the client that you can deliver the
work they are expecting.


So you are stuck working with
small ventures like yours that
have the same capital problems
as you do – which creates a
vicious cycle that is difficult to get
out of.


Third Objective of the Course:

To show you how to get through
these hard times and give you a
support network to share with.


So Where Do We Go?
Getting Around the Problems


In this course, we will teach you
how to build successful
businesses by testing and
working out the best methods to
go to market.


This includes idea generation,
model development, operations
planning, human resources and a
variety of things that will make
your new venture successful.


Our Method of Teaching


Financial
Plan
Growth
Strategy
Pricing Model

Product/
Service
Human Development
Resources
Operations
Planning
Business
Model
Idea Generation
Identification


Next Week’s Lecture:

Idea Identification


Readings for Next Week:

From Paycheck to Paydirt
Can Entrepreneurs Save The World?
How I Did It?
100 Brilliant and Insightful Companies


Lecture 1 - New Venture Creation

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Lecture 1 - New Venture Creation