The emerging startups in Pakistan attracted huge investment in recent years but a majority of these ventures are struggling for talented human resources to scale up their businesses to the next level.
According to a study released by Invest2Innovate, respondents including a 57 percent share of entrepreneurs, cited the lack of both suitable top managers and an adequately trained/educated workforce as a major obstacle for their businesses.
These apprehensions were even more pronounced among entrepreneur support organizations (ESOs) and investors as 90-94 percent of them respectively viewed the availability of top managers as a major obstacle for startups. Similarly, the availability of qualified technical talent (such as software engineers and data scientists) also constitutes a prominent issue expressed by both ESOs and investors.
Startups built upon innovative ideas not only need workers from traditional fields but they need workforces equipped with high-tech and emerging fields of knowledge to grow their businesses on a sustainable basis.
Entrepreneurs, investors, and ESOs interviewed said that startups lack several key attributes such as critical thinking abilities, product-oriented experience, and cross-functional flexibility compared to their counterparts in other regional ecosystems. Founders, in particular, cited that these skills were necessary for technical team members to eventually assume strategic managerial positions, thereby forming an internal pipeline for management talent as well.
A lack of product managers, for instance, was consistently highlighted by several founders as a bottleneck in the growth of their startups and added that this issue was compounded by a misalignment in the respective roles of project managers and product managers.
Quality of Workforce
The quality of graduates from the IT sector also remains a question. Pakistan has an estimated 350,000 people associated with the IT sector with 20,000-25,000 people graduating every year, creating a pipeline to meet the needs of the fast-growing startup space. However, concerns about the quality of this talent pose a challenge for startups.
According to the United Nations Conference on Trade and Development’s (UNCTAD) Technology and Innovation Report, Pakistan ranks 146th out of 158 countries for digital skills, thus lagging in terms of the average years of schooling completed and the extent of high-skill employment that would impact the pace of digital upskilling nationally.
Similarly, Coursera’s Global Skills report put the country’s readiness score at 50 percent in technology and just 29 percent in data science (out of 108 reporting countries), suggesting that there is a lot of room for improvement with respect to developing specialist skills in the domain of technology (i.e. creating and scaling computational systems) and data sciences (deriving analyses and utilizing data in a value-additive manner) respectively.
Startups Salary Packages Are Comparatively Higher
The Pakistani startup ecosystem’s perceived talent crunch has fuelled a fight for resources among startups and tech companies. As a result, salaries within the industry have risen considerably, as 73 percent of the companies (out of a respondent pool of 175) in Pakistan Software House Association’s (P@SHA) Salary Survey reported giving increments higher than the previous years. Out of the responding companies, 50 percent cited the lack of experienced resources in the market as the primary reason for this increase in salaries. According to the report, “Increments were quite regular in July 2020.”
However, they have been significantly higher in July 2021 to make up for unstable market conditions leading to higher average salaries to ensure retention and to enhance employee satisfaction.” The influx of foreign funding for startups was mentioned in the study as one of the elements resulting in notably higher salary increments.
A reputed local investor commented on the role of freelancing in compounding the talent and remuneration gap that is seemingly widening within the ecosystem. He noted, “Within the past two years, there was a rising trend in freelancing among professionals as a result of the increase in remote work during the pandemic. This, along with the level of funding startups have started to raise, has put upward pressure on salary floors for roles across the board.
Recommendations
Bridging the existing skill gaps in human capital and addressing them more aggressively will define the competitiveness of the Pakistani startup ecosystem in the future.
There are measures that the government, education institutions, technology corporations, and existing startups can take to support this growth. Key players (including bigger technology companies and existing startups) can address the talent gap present in the ecosystem by proactively identifying skill requirements.
As a short-term solution, startups in need of product management talent can allocate learning and development budgets that go towards upskilling their existing managers through these formal certifications. Similarly, ‘education for execution’ strategies can also prove helpful in retaining other senior-level personnel in the longer run, as equipping managers with concrete knowledge to solve and address real issues in their daily work can go a long way in retaining them.
Establishing even a small-scale student-run investment fund within higher educational institutions would be ambitious, but initiatives like these would help support organizations within business schools to simulate elements of the entrepreneurship journey and the investment raising process early on to improve founder readiness among young graduates.
Besides a shortage of talented human resources, the local startup ecosystem is being led by founders with degrees from foreign universities.
The study shows that founding teams in which at least one founder had an international degree accounted for 53 percent ($300 million across 80 deals) of the total amount raised from 2015 to 2021. Founding teams with all international degrees accounted for 22.7 percent ($128 million across 50 deals) of the total amount raised while only 15.7 percent (i.e. $89 million across 89 deals) of the total amount raised from 2015 to 2021 was attributed to teams with all locally educated founders.
Additionally, an international degree significantly increased the likelihood of raising a larger round as evidenced by respective average ticket sizes. According to Invest2Innovate’s data, founding teams with one or all internationally educated members are also more likely to have a foreign investor lead the round compared to teams with all founders educated from local institutions.
What IT companies want is to hire trained person. What they should do is to hire a trainable person.
This happens when university students or very fresh graduates step in to businesses. They have the idea but they don’t have concrete experience to execute.