Sri Lankan start-ups: Are we on the right track?

The Sri Lanka Association of Software and Service Companies (SLASSCOM) has released a report on Sri Lankan start-ups titled ‘Sri Lanka Start-up Report 2019’. There are a few interesting observations in the report which are worth analysing.

Are they surviving?

Out of the companies surveyed, only 8% has been in operation for over five years, while 36% has been in operation for less than a year. This would either imply that an influx of start-ups has taken place over the last 12 months, or more likely, very few survive more than five years.

In addition, only 29% of the companies surveyed, report an annual revenue of over Rs. 10 million, while 40% report a revenue of less than Rs. 1 million. This implies that there is a serious challenge for the start-ups to be converted to commercially viable ventures.

Therefore it is important to figure out why the start-ups may fail and find solutions so that start-ups do succeed in becoming financially viable business ventures.

The need for maturity 

In terms of the age, 33% of founders were between 25 and 29, 24% were between 30 and 34, and 26% were between 35 and 39. Only 14% were above the age of 40. 

When authors of the article titled ‘Research: The Average Age of a Successful Start-up Founder Is 45’ published in Harvard Business Review analysed the top 1% of the highest growth start-ups in the US, it was identified that approximately 30% of the founders were between 40 and 49 years old and the average age was 45. 

The contradiction in terms of the above two statistics may indicate that in Sri Lanka, while the more likely to succeed and mature individuals are more reluctant to venture in to start-ups, less mature and more enthusiastic youngsters dive into start-ups, possibly being less aware of the risks. 

The need for technical expertise

The key factor for start-ups to succeed has been identified as the ‘technical skills and expertise’. This underlines the need for a large pool of technically-qualified individuals. Although a welcoming finding is that 73% of the founders (of the survey) have a bachelor’s degree or above, as we know, the annual output of graduates is grossly insufficient. 

Where the encouragement should be

According to the report, out of the companies surveyed, 40% of the founders have come from a Computer Science background. As this clearly shows that it is the stream that is most likely to turn out entrepreneurs, it is the stream where capacity (annual intake) should be increased most.

While 56% of the companies earned the entirety of revenue within Sri Lanka, another 14% earned 60-80% of their revenue within Sri Lanka. Only 5% earned the entirety of revenue from outside Sri Lanka. 

What Sri Lanka really needs to grow is its foreign currency earnings. Therefore encouragement and guidance should be directed to produce start-ups that attempt to generate revenues more from overseas.

The other reasons for failure

The key factors for failures include: insufficient market research – coming up with products/services where there is no market, lack of commitment to succeed and lack of experience. 

A critical point to note here is that the product/service should be developed to solve a problem in the market, rather than just an idea of the developer/promoter. The tendency could be for the promoter to pursue an idea he/she is passionate about, without due regard for the availability of a market for such a product or service.

As mentioned earlier, a founder with real world business experience would have more resilience in the face of challenges faced during initial stages. 

Government action needed

As for the challenges, the single biggest challenge as per the surveyed companies is the ‘Government support’. 

The Government support could be in multiple forms. As mentioned above, a critical factor is to increase the intake of undergraduates significantly and that too in sectors (such as Computer Science) which is likely to turn out more entrepreneurs. 

The study courses should also be formulated to properly guide the students. On one hand, they should be properly guided that it is important to gauge and evaluate the potential market prior to developing a product/service. They should also be given guidance with regard to the risks of start-ups and the need to have some level of maturity and sound technical competence. 

Another key support required would be to find potential external markets for the local developers. As individuals would not have the capacity to undertake this, the Government initiatives, including collaborations with large private sector entities could tackle this challenge in a meaningful manner.

Report would be in vain, if action not taken

While the findings of this report are quite useful, it would be in vain if the needed action is not taken promptly to address the concerns.

(The writers could be contacted via [email protected].)