Startups have been on the rise in the last few years globally and in the country. Starting a business has attracted young people to explore different genres of ventures, and technology has enabled them to explore entrepreneurship in more creative formats. While the draw of owning your business is big, need has also played a role as the Covid 19 pandemic has seen a rise in young people looking to create economic opportunities with the job market becoming narrower and strained in recent days.
The government has realised the importance of startups and small businesses for the economy of the country. In the budget announcement of fiscal year 2021-22 the government has allocated a startup fund of Rs one billion through which startups can take a loan of up to Rs 2.5 million at an interest rate of just 1% against the project as collateral. This is in bid to encourage young entrepreneurs, create jobs and stimulate the economy.
Gradual changes and improvements have been witnessed in the startup environment and newer and more aggressive incubation centres and venture capital investors are joining the game to build and sustain a healthy ecosystem for startups. Development partners and stakeholders are promoting startups and there are many prestigious competitions and recognitions that help build the eco system further. While companies such as Tootle, sastodeal.com and Paradigm TV are some successful startups, it’s also important to note that startups have a high failure rate of almost 80% with most companies closing down within a year of establishment.
In this edition of Business 360, we have asked entrepreneurs about their views on the startup culture in Nepal, the advantages and challenges of owning a startup and sustaining it, what they feel about the government policy towards building startups in the country and what could be done to better facilitate them.
Phobe Barahi & Shourya KC
There is an ample number of advantages that come with owning a startup venture. Firstly, the leadership quality and decision-making skills get developed and enhanced. We’ve actually seen these qualities grow in ourselves which has contributed in boosting our confidence too. Secondly, owning a startup helps people to view you positively as a self-assured individual. You get strong impressions. Above all, you get to create employment opportunities which is the biggest advantage. Moreover, having your own startup provides financial freedom too.
Furthermore, as a green initiative, it is extremely rewarding and a pleasure for us to work towards the Global Goals and make an impact at the grassroots level. We get to promote sustainability through our platform and create a community for people having the common goal of achieving sustainability.
One of the biggest challenges of owning a startup in our Nepali landscape is the misconception of people thinking we keep a high profit margin and that local products are pricey for nothing. But in reality, we put in a lot of effort, perfect everything and ensure everything is on point, which costs time, money and hard work.
We are definitely seeing Nepali customers being supportive towards locally made products. But sometimes we also experience the false assumptions which make it challenging.
Role of government in enabling startups
Another huge challenge is the lack of support from the government. The startup scene in Nepal is booming, however, the government seems to be lacking in terms of policy making for small businesses and providing other subsidies. Government policies for small-scale businesses are a bit confusing as the policies do not directly cater to the small businesses, mostly to e-commerce sites. In our experience too, we have faced challenges regarding government policies in the registration process. We have also realised that the lack of proper government policies for different startups have resulted in most businesses being unregistered. We believe that the government must realise that the Nepali startup industry is ever-growing. And to ensure that these initiatives stay and contribute to the nation’s economy in the long run, the government must bring changes in the policy which includes e-commerce sites, online stores and other digitally running startups. As these initiatives typically do not fall under particular criteria, they need to be put under certain criteria which suits them best. For instance, most online businesses have been registered under the same criteria for small businesses such as grocery stores, clothing stores, but the level of income is not the same for everyone and this is not fair. Hence, the government should prioritise on making a clear plan which includes the dynamic ecosystem of startups.
Arunima Shrestha & Urusha Shrestha
In early 2017, when we started, there were only a very few startup ventures. It was a time when the ‘Startup Culture’ was in the phase of testing waters. The government was new to it and so were the people. This had made that phase really challenging as entrepreneurs struggled to find the right answers to each of their simple questions, be it “Where to register my business?” to “Where do I get a loan for investment?” to even “Where do I get all my supplies from?”.
Today, especially after the Covid 19 lockdown, the startup culture in Nepal has started to boom like never before. There are social media groups and pages solely for the purpose of networking entrepreneurs where you get each of your questions answered within minutes making it even easier for upcoming entrepreneurs and resulting in booming startup businesses.
The market in Nepal is growing every day and is being shaped by a set of characteristics that aids the growth and sustainability of many genuine business or startup ideas. Some of them are:
- Lately, with the growing population, working/busy individuals, changing lifestyles and increased consumerism, the demand of any type of convenience products has augmented with the increasing disposable income of the individuals and their capability to afford goods that are beyond their basic requirement.
- Also, today people are more educated and aware of the products they consume. Similarly, brand and product consciousness is also growing along with literacy rate.
The increased disposable income allows people to spend more comfortably on different products.
- A growing number of consumers have become health conscious and are very particular about the food products they choose. Thus, consumers are hesitant about purchasing unbranded and inferior quality products and are now giving importance to products that meet the quality regulations and detailed labelled packaging with all required product information.
- Because Nepal is a developing nation, there are a lot of gaps in the marketplace to be fulfilled and a true entrepreneur would take each of those gaps as gold mines, dig-in, research about it with their ideas, fill the gaps and reap huge rewards.
- For any new startup business in Nepal, the initial cash flow takes a generous amount of time.
- In addition, due to low population as compared to other developed nations, Nepal has a very small market to tap into. So, production in mass scale isn’t possible, making it difficult for productivity and thus economies of scale.
- There are no proper systems regarding patent copyright and trademark, so there is less security of one’s business ideas and products.
- New business ideas are copied easily in a very short span of time.
- Obviously, there are a lot of bureaucratic processes that have been cemented for years and years throughout most of the government organisations. Specially during the initial phase, ie, registration of your business, this can be very demotivating.
Every fiscal year, the government declares certain amount as grant, subsidy for loans or there are some policy changes to help leverage the business sector and motivate new businesses. However, such grants are not monitored properly and there is less bargaining power of new startups while preference is given to those with political connections. So, in such a situation it is very difficult for an individual who has just graduated to avail the financing. Such grants do not go to the one in actual need but mostly to those creating false needs. The government is trying to do its part, but there is a loophole in the implementation process.
Role of government in enabling startups
In order to support the startup ecosystem, every year it comes up with numerous good policies and programmes. However, because of the loopholes that exist at the implementation level, those policies do not deliver the desired results. We cannot solely blame the government for that.
Our recommendations to the government would be:
- Ease the process of registration of startups.
- Convenient loan processing from financial institutions.
- Proper monitoring of government grants and subsidies so that it reaches the right people.
- Special tax rate for new startups; Currently, 25% tax for businesses.
- Various subsidies for businesses using locally sourced raw materials and local manpower.
DOCTORS ON CALL NEPAL
Dr Suman Neupane, Dr Suyesh Karki & Dr Mohan Bhattarai
Being a developing country there are many opportunities for innovation, tech-based organisations, online door-to-door services, sustainable fashion and other unique ideas. Nepali students studying abroad are taking a chance to implement the ideas and knowledge at home. This also helps the startups with the first mover advantage. They have untapped market opportunities and a large pool of talent and vast market opportunities which could lead to success.
After more than three years of hard work and dedication we were finally recognised at the NYEF Startup Awards 2021.
There are paramount challenges to be faced as a startup to sustain in the market and to get the recognition:
- Budget constraints
- High staff turnover
- Trust issues for the customers
- Hiring the right people
- Networking is tough
- Knowledge and skill gap
- Lack of good managerial and leadership skills
- Political instability
Role of government in enabling startups
As startups can create an impact on the nation’s growth and economic stability, the government should facilitate startups to motivate and encourage them. Political instability is one of the major challenges to the startups. There is lack of an ecosystem for startups in Nepal and for that to develop the government should be more flexible, financially supportive, and should have strong policies. Government should facilitate startups with tax subsidies and loan facilities without keeping any physical collateral so that even the youths from the middle class are motivated to open a startup. Most importantly, our education system should have real-time practice for interns in well-established organisations so that youths can learn through experience about work culture.
FNCCI and other concerned organisations that have been looking into startups should organise different training programmes and invite business tycoons during such events so that youths who are involved in startups are encouraged and motivated after listening to the stories of struggles those business people had to go through when they first started their business.
All the youths are highly encouraged to grab the opportunity to make their dreams a reality. Networking is the key to success for startups, and most importantly having good mentorship is equally crucial. Persistent hard work and dedication will lead you to success.
Surya B Karki
The attraction of owning or creating a company is romantic for most Nepalis. The culture of starting up and actually establishing a fledgling company is still being worked on. Nepal is a small market and starting anything is costly. The overall startup atmosphere of Nepal is very divided. People who have access to the existing entrepreneurial environment and structures in place are more likely to flourish or not go out of business than the ones who do not have access and also who cannot hustle.
The professionalism among startup employees or workforce is tough to handle in Nepal. Imagine the danger of waking up and not having the very employees that were there yesterday. People are going to say ‘Pay them well’. Well, what is well? Then there is the boss and employee culture that is in a confused state in Nepal. What I mean is, you want to let your employees free to decide, work and get things done at a good pace, but then you are faced with the Nepali culture of arriving late, not meeting deadlines, cutting corners and more. So do you become a traditional boss or do you become strict? People are going to say ‘you should hire the right people’. Well, when everyone is busy starting their own and/or looking for the next big job everyday while working full time, what is right?
Not everything is doomed. There is a fledgling startup culture that is driving lots of changes to how people shop, eat, talk and receive services. Imagine not having esewa, foodmandu, sastodeal and/or tootle. These are Nepali startups with Nepali founders that have persisted patiently despite the difficulties. These have lived through the thick and thin and survived the problems mentioned above. They, I am sure, still have the problems mentioned above, but have figured out ways to hustle and keep pushing.
- You get to employ people.
- You get to push for policy changes if you are new to the game.
- The fact that the Nepali market is mostly unripe in all spaces of product development means you are either the first mover and you can make the most out of it or you get to fail fast.
- There is a growing interest from the government in helping the startup culture of Nepal.
- Unwanted bureaucratic hurdles.
- Current political, financial and market structure is meant for established businesses to succeed and new products to not survive.
- Not finding the hustlers to work together to make an idea successful.
- Retailers do not own up to their responsibilities. You want to make your product successful, you will need to work on your own. The current market structure is only meant for retailers/outlets to take product margins and not own up to their responsibility when taking the margin. Imagine having to check on a chiller where your product is placed and you have to constantly check if it is on or not.
- Get ready to not be paid on time despite your product doing well.
Role of government in enabling startups
Government and its policies are confused. Policies say one thing, but the interpretation is another and implementation is as per their liking. For example, there is a startup funding available without collateral which is a great idea. But there are very few (maybe even zero) startups that have had the chance to utilise that. The policy implementation mechanism is non-existent.
Imagine a startup borrowing from banks at 9% or 10%. That is what you get in Nepal from the banks. You make 50 lakhs worth of sales in a good year. In straight mathematics, the bank takes 10% of that. Now add Covid 19 or another pandemic where the government and its structures do not consider supporting startups because they are not major industry houses. Then the startup will definitely go down.
Starting a company and keeping up with the insane paperwork requirements is tedious, tiring and frustrating. Do startup founders and teams focus on proving their idea or do they focus on getting their paperwork done. Oh also, the paperwork anyone wants to get done will take months.
- Make it easy for startups to just get going and work on their idea. Cut red tape
- Banks should be cognisant of the fact that startups are startups. Borrowing should be made easy and friendly. Maybe even have a startup department to encourage funding, evaluation and support. These departments should work with the government and Nepali finance regulations to make policies startup friendly
- Trust startups in the fact that they will survive and make the necessary payments.
- Implement policies that reward startups that are doing well so that they are encouraged to keep performing.
- Not everybody has collateral, address this with strict policies that allow non-collateral startup funding and also ensure that startup founders are held accountable if needed.
- Startups and companies should work together to introduce reference checks and strictly make it mandatory for new hires to receive clearance and background checks. This way, employees or hirers jumping to the next big thing will think twice.
To start, the business structure is very flexible, whereby people can craft their own innovative ways to conduct various business processes. Almost everyone can learn new things easily nowadays with the help of the internet and implement those ideas to their own businesses which can help them sustain. The most exciting thing about running a startup is that you can implement whatever you take in, whatever you learn, easily and without long discussions.
Talking about the platform, Nepal as a whole is supportive to local businesses and startup businesses. Nepal has a very close link, geographically, to two huge industrially saturated countries ie. India and China, which means importing and exporting can be beneficial and relatively cheaper. The average cost of labour is also less in Nepal, which means small businesses can start with minimal capital and employ many skilled people without exploiting their needs.
Running a successful startup can be challenging, especially when it is completely bootstrapped from the bottom. A lot of startups and businesses have entered and exited the market in a short period of time due to many variables that turned against them. In the context of Nepal, we personally think that the factors that affect businesses, change and fluctuate very frequently. But regardless of all these facts, to be realistic, these huge policy changes have little to no influence on small scale home grown businesses because such businesses are busy cutting costs and finding new customers. Certainly, there are startups that start from a bigger scale and have better recognition in terms of success but after a certain scale, they cannot be titled a startup business.
The resources available in the market to start a new business with new ideas are very rare and scarce in Nepal. Most of the customers and people in Nepal are a little laid back on new concepts and innovations. Innovation in Nepal comes with a price, a huge price of either being approved by the consumers or not.
Role of government in enabling startups
The government has also been playing a crucial role in supporting the startup culture by separating a portion of the fiscal budget in developing and building entrepreneurship in Nepal. At this current pace and support, startups will surely be able to represent Nepal internationally.
Advantages & Challenges
The startup culture in Nepal has become a fashion. What is happening in recent days is that some youths think of ideas which are very common in the market and wish to earn millions of rupees through those ideas. It has also become a trend where a lot of people think that money is everything. Also, we have all been misguided about the proper professionalism culture which is must. Anybody setting up a startup needs to follow the ethical startup discipline to first sustain and then grow.
I believe research is one of the core areas that has been neglected by newcomers. Also, funding is lacking for them. The other aspect that people need to keep in mind is one might fail initially. Not all ideas will click immediately. There will be many hurdles that one will have to come across before one can become successful. The sustainability process has been missing among the youths and they are risking their careers.
Owning a startup is still a challenge whereby one needs to constantly work on the sustainability part. Competing in a small market like Nepal and having to deal with government policies are really tiresome. It is not that the government has not tried to help businesses. It has tried to support new businesses and the startup culture but where we are lacking is in the implementation of the policies.
The startup culture at present looks glamorous but one has to be aware that it is not only about the innovations and starting the business. One has to deal with many challenges along the way like how an established business does. I would advise those who are just starting out to not have very high expectations. Initially, one needs to be able to sustain and prove themselves and then only should they think of bigger things.
Role of government in enabling startups
The only expectation that I have from the business fraternity or even the government is support, encouragement and recognition of small business owners. Everybody concerned should realise that people like us have chosen not to travel abroad for employment but stay back and do something in the country itself. We want to develop the business scenario of Nepal and also contribute to the