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The lens that sees its own flaws: Some observations about Bangladesh’s startup ecosystem at the end of 2022

Why everything takes longer to happen is an interesting question to ask. Researchers across fields are now asking these questions about why some of the human progress took so long to happen. Others are focusing on issues like where today’s Einsteins are. People like Professor Tyler Cowen and Stripe Founder Partick Collison have proposed a new discipline of knowledge called Progress Studies that aims to study the causes of civilizational progress.  

Researchers have been studying the phenomenon of innovation and genius clusters for years — why some places turn into hotbeds for innovation, creativity, and similar outbursts of happening and not others. Many governments across the world have dedicated resources to understand the phenomenon of clusters and convert the findings into policies. 

I believe it is possible to achieve certain goals faster if we understand what we want to achieve, the historic precedence for similar achievements, and identify the best routes to get there. 

Bangladesh has apparently been trying to build a vibrant startup ecosystem. Several initiatives on the part of the Government make it clear that it’s a priority. There have also been significant policy commotions around tech and startups. But the progress remains underwhelming. 

It takes time to make anything meaningful happen. Successful startups take ten years to build. But it is also worth reflecting from time to time on whether the strategy I have put together has a realistic chance of helping me achieve the target I have set. 

As we approach the end of 2022, it makes a good time for some reflection. 

I’ve been covering tech and entrepreneurship in Bangladesh for some years now. I founded Future Startup to inspire and educate people and organizations to build and grow enterprises by building a business knowledge platform in the country. While we have come a long over the last few years, we could have done much better. The scene remains grossly underwhelming. 

This article is a set of observations where I try to see where we stand and what we can do to do better in the coming days. 

The epistemic status is mostly tentative. I welcome any criticism, feedback, and addition to this take. More importantly, I think more people in the community should do this exercise of trying to understand what’s going on and where we’re heading. 

I. 

The underwhelming ecosystem. What do I mean by underwhelming? In a few words, things are not happening at the scale and speed they need to — both in quantities and qualities. One common sign of a vibrant ecosystem is that a lot of things are happening all the time. It doesn’t mean being loud, big things can happen quietly. For instance, quantities — more people starting companies across diverse sectors. Qualities — some of these new companies are of excellent quality. You can put many other things here — talents, incubators and accelerators, funding, grants, innovation spaces, and so on. 

I used to be critical about things in the past. Always setting a higher bar for things. But my view has changed. I now think things happening regardless of quality is a good thing. Quantity gives birth to quality. Rarely the other way around. If we have a lot of mediocre things happening, some excellent things will come out of it. Unfortunately, on this metric alone, Dhaka is a far less vibrant ecosystem compared to many other similar places. While I might appear critical in some instances, I believe it’s useful to see ourselves in the mirror from time to time, reflect and accept the fact that we’re out of shape. 

Coming back to the ecosystem, for us to have a vibrant ecosystem we broadly need two things. 

First, a conducive policy environment that supports the growth of the industry. 

A conducive policy environment means we have a well-thought industrial policy of sorts for the entrepreneurship scene. We understand the challenges and opportunities. We have the interventions and programs designed. We have done the research and we have something in writing to guide us.

Second, a community/people who have chutzpah and courage to take the bull by the horn and get things done regardless of the challenges. Early days are challenging anywhere in the world. And early days also offer disproportionate opportunities to anyone who dares. Less competition. More open regulatory environment. Overall greater optimism and enthusiasm. As the ecosystem matures, people and regulatory regimes get less charitable and competition grows. 

In today’s piece, I try to chart an overview of what I mean by an underwhelming startup ecosystem, what is happening, and what the country potentially can do to improve. 

II. 

An out-of-shape overview of Dhaka’s startup scene. Bangladesh simply does not produce enough startups. Startups are a long-tail phenomenon. Like every other area of life, power law dominates the outcomes in startups. Your success is tied to the number of interactions you try. If you keep playing, your chance of winning gets higher. 

The number of successful startups in an ecosystem is directly tied to the total number of startups that said ecosystem produces. We all know that math. You invest in 100 companies. 90% of them don’t return anything. In 10%, you kind of recover your investment. 1% brings outsized returns. The same applies to an ecosystem. If you produce 500 startups a year, 90% of them will die or wouldn’t achieve any meaningful success. 9% will do an okay job. And 1% will go huge. 

In my experience, the number of new ventures is alarmingly low in Dhaka. Simply not enough people starting companies. Or at least, not enough people starting companies that come to our radar at least. Unless we can dramatically change this number in the coming years, we’ll not have many successes. Rhetorics are good. Narratives are important. But they don’t change the reality. We need action to change our fate. 

Now how can we dramatically increase the number of people starting companies? I have a few suggestions. 

  1. We need cultural optimism and a habit of seeing upsides in things. There is no shortcut to this though.  
  2. Entrepreneurs should be celebrated and respected. Our local university curriculum should teach about local entrepreneurs and businesses. 
  3. Culturally we should make a habit of taking young people seriously 
  4. Make an effort to turn universities into hubs for venture experiments 
  5. Make failing less costly for everyone
  6. Ensure a supportive ecosystem for every type of idea. Support can be many things. I see a few things as extremely valuable: exposure to ambition, access to mentorship, access to connections, and access to money. 
  7. To that end, the iDEA project grant is one of the best initiatives that happened in the ecosystem. iDEA should make the process easier, and transparent and expand the number of companies it supports. This can be done in many different ways. It can be done by reducing the size of the grant from BDT 10 lakh to 5 lakh and doubling the number of founders iDEA supports. Better allocation of resources — it should reduce the number of competitions it runs and instead, expand the grant program. Also, iDEA can run regrant programs where they provide second-time grants to the ones who made the best use of the first grant and can benefit from a second-time grant. 
  8. Government should work with the private sector and development sector players to launch more similar initiatives where talented young people can access financial support to pursue their ideas. I know that with free money comes the questions of fraud, wastage, and accountability. These things will happen regardless. Generally speaking, some of your money is going to waste anyway. Your approach should be to find ways to reduce waste. That’s if you see the entire thing from a critical perspective. Optimistically, most people are good. More so when you trust them. If you trust in the ability of someone, they often work harder to live upto your expectation. Putting together a simple but effective screening mechanism to separate the wheat from the chaff should reduce the chances of fraud. 
  9. More importantly, to get good at anything, you have to do it for a long enough time. If you run a grant program for a long enough time you will easily get better at identifying genuine candidates. That said, failure is an inherent part of every endeavor. You will have some fraud but that’s what happens everywhere. Unfortunately, while Bangladeshis get a bad rap for being dishonest, it is often because there is a scarcity mindset and skepticism everywhere. Most people get so few opportunities in life and still get blamed for being dishonest. It is an unfortunate situation to be in. As I mentioned before, we need an optimistic outlook if we want to make progress in this. 
  10. Make starting companies less expensive. It’s still expensive to start a company in Bangladesh. Trade license fees can be made nominal. Company incorporation fees can be made nominal. All of these services can be made digital. All these changes are not easy and come with a lot of caveats. My point is that we can take a nuanced approach to these policy regimes and dramatically make them entrepreneurs friendly and less expensive for people without compromising other policy priorities in relevant instances. 
  11. Successful businesses are net positive for societies. I’m not talking about crocked businessmen here. In fact, most businessmen are good and honest and produce net benefits for society. The majority of successful people are nice people at heart. They want to do good. And when that happens it benefits the country and the society. It creates employment, contributes to GDP, and so on. Moreover, you can design more progressive policy interventions to offset inequality. The alternatives are not any better. 
  12. It is good for the government. Lowering fees for many of these services may cause short-term revenue loss for the government but the long-term upsides are infinite. It makes sense for the government to forego the small revenue they receive from companies in the process of registration and should eye the revenue they can get if there are more successful companies. That’s just one example. There are many such areas where the government can make small changes and help accelerate the growth of startups and entrepreneurship. 

III. 

The world is memetic. Due to our cultural tendencies, we’re more so as a society. Our education system and culture have a lot to do with it. First-principle thinking is uncommonly rare. This has many implications. In our case, we don’t see many unique startups. By unique I don’t mean unique in the sense of idea alone. It is hard to find anything under the sun that someone before you has not considered. 

But you can be unique in how you execute. You can approach the same problem in hundred different ways. 

Take, for instance, Edtech. There are several companies but everyone seems to be doing everything. Simply because, in my reading, someone else is approaching edtech the same way. Whereas we could have many distinct edtech companies doing many interesting things. 

I understand these challenges are not linear and I can write whatever I see without acknowledging the real challenges in the market. I recognize that it is always easier said than done. But I would still argue that there is room for doing far better. 

Instead, we have a startup ecosystem with highly homogeneous startups. In most instances, companies tend to follow each other head to toe. You can do a hundred different things in edtech. The same goes for all other verticals. There are other problems in the market as well that can offer excellent opportunities. Unfortunately, serious explorations are hard to come by. 

Then there are also tendencies of bringing ideas that worked in other markets. This is however a two-way road. Founders are incentivized to think alike. Investors also sometimes tend to look for similar companies they see in other markets. While this theory is slowly coming to end, this remains a dominant approach in Dhaka. 

At the same time, as a society, we don’t appreciate it when someone tries something out of the convention. While it is true for all societies. Probably because I swim only in this water, it feels like we are more conservative and less imaginative as a society and don’t appreciate imagination as much. 

This doesn’t negate the fact that we’ve excellent companies across verticals. I can name a long list of companies that are doing excellent work. But it also doesn’t invalidate my claim that equally exciting new ventures are increasingly rare. 

We should encourage more unorthodox thinking. We should back and encourage more ambitious and original projects. We shouldn’t punish people for thinking outside of convention. 

I don’t know how we can do all of these things or how we can dramatically increase the number of companies doing interesting work. But we can start by asking for it more and encouraging people who are trying in practice. 

IV. 

People use many parallels for Bangladesh. Some people say we are similar to India. Others say we are much closer to Indonesia. Albeit there are many significant similarities. But one important distinction between these two markets and Bangladesh that we often overlook is the availability of opportunities for talents to train early.

One thing going for these two markets is that they have excellent educational institutions and their people get opportunities to work for world-class organizations right out of college. You can find all the big consulting firms, tech companies, and other big companies from all over the world in these two markets. Local talents get excellent opportunities to learn and grow in these organizations. This offers excellent early training grounds for ambitious people and better prepares them for entrepreneurial or other journeys.

In turn, it makes finding talents easier for startups. If you want to build a high-growth organization, move fast and break things, you must have high-quality people who can execute on a high level.

Contrary to that, our people get limited opportunities when it comes to getting these experiences in their early years. This is a challenge for startups in Bangladesh, affecting both the qualities of founders and their teams. 

This has other second-order consequences such as access to networks, resources, mentorship, various supports, perception about a market, and capital.

Then there are longer-term challenges. Two aspects of it: education system and brain drain. Our education is broken. It is failing to produce good talents. We have excellent people. No doubt about it. Bangladeshis across the world are doing excellent work. But that is not happening in the country. Science education has been in consistent decline for many years. Access to quality teachers is unevenly distributed. Except for certain schools in major urban hubs in the country, most schools don’t have adequately qualified teachers. 

We hardly see any meaningful change in the education system. Often things are done whimsically without proper empirical evidence. The overall education system needs to improve. Science education should receive greater emphasis and quality education should be accessible across the country. 

The second challenge is brain drain. Young people are increasingly moving abroad. With the rise of remote work, Bangladeshis are increasingly taking remote jobs in multinational companies. These are long-term challenges that need long-term strategic investments. That’s why we should look into these challenges immediately and get to work so that we can see a better talent landscape 10 years from now. 

V. 

Inadequate support structure: At the risk of repeating myself, I’m writing about support again. This time however I want to focus on two resources in particular. One is an unfavorable funding environment. We are amid a global economic downturn. Raising money is difficult for everyone. Second, a lack of structured support for startups. 

Bangladesh finds itself in a precarious place when it comes to investment mandates from international VC funds. VCs in the region have a mandate for Southeast Asia and separately for India. Pakistan has been tagged with MENA. Unfortunately, Bangladesh finds itself in a difficult place. This has been changing slowly and then I would say we got unlucky. The moment Dhaka started to materialize some of the global attention it attracts in the form of funding, the global macroeconomic environment turned sour. Now the country will have to wait another few years to see a better time. 

Growth stage funding has been difficult for startups to raise. Series A and onward are relatively rare news these days. I have no clue how we may change this. I plan to have a series of conversations on this in the coming months. 

On the side of structured support, I have written before that we need proper policy guidelines akin to industrial policies for the sector. Having a policy framework prepared based on proper research can help us to identify the challenges, pockets of opportunities, and high stake interventions that can move the ball. While there are sporadic work and high-level rhetoric, there is little policy work. We have to change it if we are to move forward.

We need more accelerator and incubator programs in the country. The existing programs should improve their standard, accommodate more startups, raise the support they provide, reduce potential entry barriers, and make them more accessible to more people. 

Government can work with the private sector, and development sector partners to pull off some of these things. Local VC funds and corporations would make a great contribution to society if they do some meaningful things here. It also makes sense from the pure business perspective. 

Finally, Bangladeshi founders should look outward. The world is a big place. There are accelerator and incubator programs across the world. People should apply to these programs. I have written before that a significant percentage of Bangladeshi startups that have raised investments have gone through one of these regional/international incubator programs. 

I’ve made my point on why I think Dhaka’s startup scene is underwhelming. Now I want to share a couple of ideas that might help change our fate. I don’t have any empirical data to support any of these suggestions. So the epistemic status of these ideas is tentative. I would love to hear if you have any ideas or disagree with any of these ideas. Let’s being. 

The power law. I have written about long tails and power law earlier in the essay. I think the most important thing for us at this stage is to find ways to hack this. We need to find ways to produce more startups and more activities. Since we already discussed this at some length, I’m not going to repeat it.  

Low trust to high trust. We’re a low-trust society. This is not an indictment against the inherent goodness of Bangladeshis. I think we are some of the best people on earth. If you let these many people go with this little regulatory oversight anywhere in the world, chaos might unleash. To that end, we live in a kind of natural savannah and still rarely loot each other. 

At the same time, we’re a low-trust society in the sense that we don’t usually see potential in other human beings in a positive light. Trusting someone we don’t know by either giving them support or getting support from that person is still a tall order for us. This has a lot to do with our history and culture. 

This has various real-life manifestations. One is a lack of general help. People don’t generally help people outside of their network. It has to be the same school. Same village. Same corporation. Same social class, etc. This is true for many other societies as well. In Silicon Valley, people from Stanford and similar backgrounds receive better opportunities. But at the same time, Silicon Valley is a highly meritocratic community where people go out of their way to help each other. To make introductions. To donate. This has been one of the defining traits of these clusters of innovation where people go and find the support they need. Of course, nothing comes easy. Out of hundreds of people who are seeking help, a few might eventually find it. But regardless, the chance of you getting picked up by someone if you’re doing good work is much higher in those places. 

This is not the case in Dhaka. It is quite dynastic like most of the things in Bangladesh. People generally don’t help people who come from outside of their circle. This is not a complaint per se. For me, it has been a very different experience. I have come across wonderful people who have gone out of their way to help in various ways. When I came to Dhaka, I didn’t know anyone or anything. I don’t have any distant relatives in Dhaka. But I have over the years found my tribe whatever small that may be. 

But I routinely see where people don’t get access to opportunities because they don’t come from the same social class. I understand the arguments in favor of this reality. People generally tend to go along with people they know. Investors would prefer to invest in a company where they know the founders or founders come through a mutual connection that the investor values. It makes decision-making easier and reduces risk. But it also limits opportunities for both parties. As an investor, if you only limit yourself within your community, you may lose some big opportunities outside of your small world. 

This plays out on both ends. In many instances, people who are on the receiving end also don’t know how to ask and get help. This has been true for me on multiple occasions where I could not use the help people wanted to give me because of my lack of experience and understanding. 

I think we need high trust and a highly serendipitous environment where chance encounters happen and lead to meaningful breakthroughs. 

Accessibility and openness. Bangladesh’s startup scene remains highly concentrated within a certain group of people. This is nothing unique to Bangladesh. It is the case in the US. In India and many other places. But there are also places where they are doing a better job by creating opportunities for more people and opening the gate to more people. 

We are just getting started. It makes sense that we’ll start imperfectly. But it is also a good time for us to set the stage right and make an effort to build a more inclusive and open ecosystem. 

We should make active efforts and design policies so that more people can access the opportunities designed for startups. Incubators and accelerator programs and government initiatives to support founders should make it easier for diverse people to access these opportunities. 

We should not build a startup ecosystem with just people from highly educated living in the tri-state areas in Dhaka. It would be such an unfortunate and sorry state if we do that. It would not only be unjust, but it would also equally limit our potential. 

I understand that many people want to argue that it is all about talent and abilities. I agree. Only the people who have abilities and drive will make it in the world of venture building. But it is myopic to the verdict that only people with expensive higher education living in the tri-state areas have the required capabilities. 

Malcolm Gladwell wrote about the role access to opportunities plays in the life of people in his excellent book Outliers. It will be in our interest we learn these lessons and open our world and expand our net so that our progress and development touch more people. 

We can’t decide about talent but we can change who gets access to opportunities and who doesn’t. It harms no one when we open the doors to more people. If only capable ones survive the race, that's perfectly fine when you allow everyone to compete on equal terms. 

More gatherings, and meetups. There are a number of things happening in the space such as events, several young entrepreneurs forums, and groups but I think we need more open events and gatherings and salons and clubs where people can share knowledge, meet each other and build connections. One easily replicable idea from other vibrant ecosystems is this — more gatherings of people. 

When you bring people together, it leads to interesting outcomes. New ventures. New connections. Resources flow more freely. Magic happens. Learning accelerates. 

Great founders are often learning machines. But you need a cultural setting for the learning to take place. To that, the actors in the ecosystem and founders should find ways to build more formal and informal gathering opportunities. 

Optimism. Optimism is an essential quality of entrepreneurs. As a society, we are rather a bit cynical and prefer to see the negative side of others. While this is nothing unique to our society, it appears to be more pervasive in our society than otherwise. 

Cynicism leads to many limiting behaviors. You generally perceive the world as a difficult and unjust place, which the world probably is. But operating with a cynical outlook in an already difficult world does no good to anyone. 

A direct implication of this is a failure to imagine a better world. Imagination is the most critical ingredient of innovation and entrepreneurship. If you see the world from a negative outlook nothing appears possible. You not only doubt and discard your ability to imagine a better future, but you also do the same with the ability of other people. 

Cynicism leads to all kinds of sabotage behaviors. You not only self-sabotage, but you also sabotage other people. Cynicism is also the source of malevolence. You can’t stand the success of others. 

Successful entrepreneurship ecosystems are optimistic to a fault. Silicon Valley is often accused of unbridled enthusiasm and optimism. For being not in touch with reality. Entrepreneurship is precisely that. You imagine a new reality and go after it. Unless you’re some sort of lunatic, you are unlikely to go after some dream that appears impossible to everybody else.  

We need to raise our bar of optimism if we are to create a vibrant entrepreneurship scene in the country. It does not have to be everybody but it is a must for the community that deals with the entrepreneurship ecosystem. We have to learn to encourage weird ideas, impossible-seeming dreams, and visions. 

More early-stage supports. Grants, corporations spending money in the space, incubators and accelerator programs, and more pro-venture policy initiatives — I have written about all these things. I’ll repeat it. 

Dhaka’s startup scene has come a long way. We now have an active angel investment scene. Bangladeshi startups are now attracting increased attention from international investors. Apparently more people are starting companies. But we need to find ways to accelerate this progress. Here are a few ideas: 

  1. Grant programs/early-stage funding: Financial support in the early stage not only helps a startup to take off the ground, but it is also a vote of confidence that can transform the internal stage of a founder. It can reinforce their self-confidence and ambition and put them on a winning trajectory. 
  2. Incubators and accelerator programs: We’ve several accelerator and incubator programs but we need more. We need to have more high-quality incubator and accelerator programs. 
  3. Local conglomerates should invest in startups: I see companies like PRAN, WALTON,  and Golden Harvest trying new ventures in the tech space. In my reading, while large companies have certain general advantages, their advantages clearly put them in a disadvantaged position when it comes to startups. Companies would do far better investing in startups instead of trying everything themselves. Investing in high-potential startups can be an excellent diversification strategy and hedge against disruptive risks. 

Clusters. Incorporating the idea of the cluster in industrial policies is a widely practiced concept. We should study RMG, pharmaceuticals, and other successful industries in Bangladesh. 

We should study other innovation/entrepreneurship clusters around the world and take lessons from those. We should study the successful founders in Bangladesh such as the founders of Square, Beximco, Akij, Pran, and others, and try to understand what helped them succeed. 

There have been substantial studies on the nature of clusters across the world. It has been found that almost everything happens in clusters. Eric Weiner offers a fascinating look into this phenomenon in his excellent book The Geography of Genius: A Search for the World's Most Creative Places from Ancient Athens to Silicon Valley. He tracks down all the major clusters across history and tries to offer a coherent story and explanation for why clusters happen. 

We have clusters of industries and innovation in today’s world as well. Tech is Silicon Valley. Movies and entertainment in LA. RMG in Bangladesh and so on. 

Studies suggest clusters make it easier for an industry to flourish for various reasons. It helps the concentration of talents, ideas, and resources and ensures the free-flowing of resources and ideas. 

But how do these clusters begin? What causes these clusters to form? 

I think our policymakers should spend time understanding these phenomena and designing policies that can transform sporadic actions into clusters. 

Actors looking to build a vibrant tech startup ecosystem in Bangladesh will be wise to look at the RMG sector in the country. 

Endnote 

We live in an imperfect world. It is hard to find perfect solutions to all our challenges. But entrepreneurship guided by the right policies and ethical orientation is as close as we can come to finding a solution to many of the challenges we face in the world today. 

Bangladesh faces several critical challenges. Rising youth unemployment. Poverty and many other similar malaises. Entrepreneurship can be an effective solution to many of these challenges. 

More businesses mean more employment and economic opportunities for more people. More innovation means solutions for many of the critical social challenges we face today. 

There are caveats attached to all these claims. There are dishonest businessmen who look out for only themselves and do more harm to people and society than good. But that does not negate the fact that most businessmen are good and if we can increase the number of ethical businesses, it can transform the scale of our society. 

We live in a world that is getting increasingly connected. To compete, attract resources, and find our place in a globalized world, we need greater innovation and entrepreneurial drives. To that end, it is high time Bangladesh finds ways to build its innovation and genius clusters. 

Notes 

1. “The lens that sees its own flaws”* is a line I borrowed from Eliezer Yudkowsky. Read his excellent essay here. 

2. Credit: Part of the cover photo was created using DALL-E

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Mohammad Ruhul Kader is a Dhaka-based entrepreneur and writer. He founded Future Startup, a digital publication covering the startup and technology scene in Dhaka with an ambition to transform Bangladesh through entrepreneurship and innovation. He writes about internet business, strategy, technology, and society. He is the author of Rethinking Failure. His writings have been published in almost all major national dailies in Bangladesh including DT, FE, etc. Prior to FS, he worked for a local conglomerate where he helped start a social enterprise. Ruhul is a 2021 winner of Emergent Ventures, a fellowship and grant program from the Mercatus Center at George Mason University. He can be reached at [email protected]

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