A new breed of innovators hold the key to unlocking Nepal’s future.
--BY SARTHAK RAJ BARAL
Gagan Pradhan and Anand Gurung founded Himalayan Java Coffee in 1999, a brand that paved the way for the evolution of coffee culture in a country where tea was predominantly the hot beverage of choice.
When Biswas Dhakal introduced eSewa in 2009, it provided Nepalis with a glimpse into the future. Although the technology was already in prevalent use across the world, in Nepal’s context, it was radical.
Foodmandu was launched in 2010 by Manohar Adhikari. As Nepal’s first online food delivery platform, it marked an intrinsic transformation in how customers ordered and consumed food.
Similar is the story of Tootle that entered the scene in 2017 and within two years altered Kathmandu's transportation landscape and led to the creation of 15,000 employment opportunities.
The commonality among the above four companies is that not only did they disrupt their respective sectors but also disrupted the prevailing system through their businesses. The other point of congruence is they represent change in the way business is done in Nepal.
For companies, economies, and countries to survive and eventually thrive, change is not only desirable; it is rather indispensable. Change is the herald of prosperity; innovation is the bane of failure. However, every attempt at innovation is intertwined with the realistic prospect of catastrophic failure; the road to change is littered with the corpses of failures past.
In terms of businesses, the successful implementation of innovation is commonly referred to as disruption. Clayton Christensen, an American academic, coined the term ‘disruptive innovation’ in 1997 and defined disruption as a process whereby a smaller company with fewer resources is able to challenge established incumbent businesses successfully. The principle of disruption has been put into practice centuries before Christensen would eventually define it as a bonafide concept. In a broader sense, anything that successfully challenges and dismantles the existing status quo is tantamount to disruption – everything from the invention of the wheel in 3500 BC, to the Renaissance in the 14th century, to the birth of the internet in 1983 – disruption is a tale as old as time.
In the current climate, disruptive innovation is sprouting at an unprecedented capacity. According to a GEM Global Report, 100 million startups are launched every year; that’s three new businesses every second. Ultimately, a small fraction of them will change the status quo, much like how Apple changed the way we use phones, how Amazon changed the way we purchase products, how Netflix changed the way we consume media, how Uber changed the way we commute, so on and so forth.
Disruption Takes Flight in Nepal
Closer to home, while the vigorous winds of disruptive innovation haven’t entirely swept Nepal into a state of consistent change, slowly but steadily, innovation is finding its way into the rather homogenous business environment. Siddhant Raj Pandey, chairman at Business Oxygen Pvt Ltd, elaborating on the gradual rise of innovation in Nepal, says, “Historically, Nepal has always been an agrarian and a trading nation. The concept of entrepreneurship is a new phenomenon in our history. Industries were given impetus in the 1960s and 1970s but were largely public enterprises. In the 1970s and 1980s, the service and manufacturing sectors started to emerge in the form of the tourism industry, garment and carpet industries in the 1970s and 1980s; the Banking sector in the 1980s and 1990s. Introduction of democracy was a catalyst to the business sector, and we saw the highest GDP rate in Nepal in the mid-90s.”
Narottam Aryal, executive director at King’s College, echoes similar sentiments. “Nepal’s business landscape is highly dominated by trading business. Also, it is owned largely by people from a few ethnic communities. Our businesses, therefore, lacked entrepreneurship and innovation, resulting in homogenous products and services. However, for the last five to seven years, with the rise of innovative startups, the landscape has changed with new startups coming up in various fields,” he says.
Glancing at the past, Bhatbhateni Supermarket (BBSM) was one of Nepal’s most significant forces of disruption. What started with the humblest of beginnings in the form of a single shutter 120 sq. ft. cold store in 1984 has now transformed into a giant that occupies a 1,000,000 sq. ft. sales area across its 15 locations and employs 4,500 full-time employees with daily sales over Rs 55 million. More pertinently, as Nepal’s first chain of hypermarkets with an ‘everything under one roof’ philosophy, BBSM marked a shift in the way Nepalis purchased products. The flame of innovation sparked by BBSM has been continuously fanned by other forces, never more strongly than now. Startups are cropping up at a rapid rate, particularly within the Kathmandu Valley.
Bal Krishna Joshi, a co-founder of Thamel.com, Nepal’s first e-commerce platform and the president of Machnet Technologies Inc, offers a contrarian yet well-reasoned view. “When we began e-commerce in Nepal through thamel.com in 2001, we were ready, but the customers were not. Today, I see the opposite to be true – businesses are not ready or fully capable.” Joshi, however, goes on to say that it is undoubtedly an excellent time to be involved in the startup scene.
Consistency – The Life Blood of Disruption
Any disruption is successful not only based on innovation but also based on consistency. There are multiple examples of would-be disruptors that faded with a whimper, primarily owing to their inability to be sustainable in their efforts to disrupt the market. The key, therefore, is not merely disruption, but sustainable disruption.
Companies across the world that are touted as disruptors have acquired that status because they have been able to upend the status quo and do so consistently. Amazon is a prime example. Following their meteoric rise, the company has continuously displayed a dedication to disrupt.
Few other organisations embody the spirit of continuous and audacious disruption as Amazon. Initially starting as a disruptor for booksellers and publishers, Amazon graduated to serve as a disruptive force to tech giants such as Sony, Apple, and Samsung. Now, having firmly established themselves as one of the foremost companies in the world, Amazon still endeavours to disrupt. In 2016, Amazon sounded the clarion call to disrupt the traditional brick-and-mortar based grocery stores.
In the Nepali context, this spirit of consistent disruption has yet to find a champion. This can be accounted for by the fact that disruption, as a concept, is at a relatively nascent stage in Nepal and the many disruptors that have emerged over the last two decades require more time to establish themselves as flag bearers of consistent disruption. Pandey, commenting on the sustainability of business in Nepal, says, “The sustainability factor of these businesses has always been in doubt. Successive governments have not been able to provide a healthy environment for businesses to thrive in Nepal, and neither has the private sector been able to operate their businesses prudently. There is a herd mentality when it comes to running businesses. Unhealthy competition has been the bane of the industry. Sectoral diversification has always been limited, and the proper ecosystem that an economy requires for businesses to thrive has been lacking.
At the same time, efforts of certain organisations are worthy of merit, one of them being eSsewa, the E-payment gateway that served as a harbinger of genuine metamorphosis in the country’s financial landscape. Since its inception in 2009, eSewa has played a significant role in driving Nepal’s E-commerce industry, marking a paradigm shift in how consumers conduct transactions. eSewa has transformed from a startup to the largest taxpayer in the IT sector. It currently has over seven million customers and 52,000 outlets across the country. Further, eSewa’s success paved the way for other e-payment platforms such as Khalti, IME Pay and PrabhuPay.
Disruption Dynamics in Nepal
At this stage, it is essential to demarcate the line bisecting a startup and a disruptor. The case of Netflix and Blockbuster Video should serve as a potent example. Blockbuster was the pre-eminent chain of video rental stores in the USA in the 1990s and early 2000s. Netflix, which emerged in 1997, functioned on a different model – mailing cassettes and CDs to its subscribers, Netflix didn’t have a brick and mortar store. Blockbuster couldn’t come to terms with the pressure from Netflix and other outside forces, eventually filing for bankruptcy in 2010.
In this particular instance, Netflix served as a disruptor to Blockbuster as it compelled the latter to change its business model and established a new model of its own, which Blockbuster refused to do. However, had Netflix been a brick and mortar rental store in the vein of Blockbuster, it would not have been a disruptor, but merely another startup.
Aryal expands on the principle. “While startups, by virtue of their definition, are supposed to be innovative and scale driven, not all startups can shake the existing game of the industry completely; only a few can. Hence, the basic difference is the extent to which it shakes the existing rules of the game in the industry.”
In Nepal’s context, a parallel example could be the rise of e-commerce websites such as Sastodeal and the Alibaba-backed Daraz that have disrupted the activities of traditional retail stores across the valley. Although the impact isn’t as seismic à la Netflix Vs Blockbuster, it’s an adequate analogue. Another example in the Nepali context are ride-sharing apps such as Tootle and Sarathi that have come into vogue; upending the well-oiled machinery of traditional taxi services in the valley. Aside from those names, there’s a cabal of companies that have sought to introduce innovative processes and models in their respective sectors.
Pandey further emphasises the inherent dichotomy between disruptors and startups. “A startup can be a disruptor, but it normally takes time. A disruptive innovation creates new markets; a startup is expected to fulfil the gap of unmet demand to be successful. A successful startup could be a disruptor, but that is not necessarily the case vice versa.”
In a developing country, startups can serve as the flagbearers of disruption. Aryal opines that Nepal’s startup environment is showing signs of progress and innovation. “The startup scene here has evolved quite aggressively, particularly in the last five to seven years and primarily in Kathmandu, the city has become a vibrant hub with several startups related activities and events. Hundreds of youths are working on their innovative ideas.”
Aryal also says that several private and developmental organisations are working in this domain, and several educational programmes are now being offered focusing on startups. These courses will empower budding entrepreneurs and provide them with a base from which to expand on their ideas.
Similarly, he says the rise of private equity and venture capital firms, incubators and accelerators to support the startup ecosystem are evident. Aryal however, tinges his optimism with a dose of caution. “We are yet to see whether these budding startups will transcend into sustainable enterprises creating meaningful impact or just be a momentary participant of this ‘entrepreneurship fashion,’ if you will.”
Similarly, Joshi too raises concerns regarding the functioning of startups. “Today, many consumers are millennials. They have grown up with digitisation; their demands and expectations are global, not local. The local startups have not been able to provide global standard engagement and ecosystem. We cannot compare a service like Foodmandu with Bhojdeals, we have to compare it with the service UberEats provides, that is the standard similarly inclined local providers should aspire to, something that they have not been able to deliver as of now.”
Identification and promotion of potential disruptors by accelerators is an essential checkpoint on the road towards sustained innovation. While a multitude of startups are cropping up within the valley, not all of them operate on an even keel. Some are more sustainable than others, some are better researched, and some are more profitable in the long run; there are a plethora of factors that separate the genuinely innovative startups from the also-rans. Further, in a country whose regulatory environment for startups is far from stellar and where lack of specific laws such as Intellectual Property Rights laws makes ideas and innovations vulnerable to theft or replication, it is crucial that genuine innovators be identified early in the piece and provided the backing and the wherewithal to prosper.
Pandey concurs and adds that Business Oxygen has invested in a few companies in the renewal energy sector that have the potential to be disruptors. “The bio- pellet company that we are about to invest in is an environmentally safe alternative to coal.
If done to scale it has the potential to disrupt the import of coal, which will not only help our environment but also save us foreign exchange from imports. Another company we have invested in is involved in setting up rooftop solar solutions to companies. In the West, solar-powered businesses and homes have become huge disruptors to the utility companies. There is a possibility that this could happen in Nepal as well,” he further comments.
Hindrances to Disruption
The famous ‘Black Cab’ drivers of London, United Kingdom, have had a fraught relationship with Uber. They have launched many a protest and brought London’s traffic to a standstill because they believe Uber is robbing them of their livelihood. This phenomenon is not limited to London, taxi drivers and their unions in several countries across the world have also made their displeasure towards Uber apparent. This is the other, slightly tainted side of the disruption coin. While it is beneficial to consumers, whenever there is a ‘disruption,’ it is but natural that there is a party that has been ‘disrupted’ who will no doubt take umbrage with the activities of the disruptor and seek to nullify them. At such a juncture, it is crucial that the requisite laws and regulations protect innovators. London’s black cab drivers have taken Uber to court in an attempt to revoke its licence, but due to the regulations in place, Uber is protected.
In contrast, such robust laws are lacking in Nepal. Aryal is of the opinion that there is a need for the government to change its mind-set. He opines that the world has changed drastically with the rapid development of technology. The way we think has changed; the way we do business has changed; the way we educate our youths has changed; the way we interact has changed. “However, our government has not been able to sense it, feel it, internalise it and respond to it with an open mind and heart. The whole world is being dominated by innovation, and the innovations are largely coming from youths and startups. We are in a new era of technology crossing the industrial era. The success in the era is to be able to create new knowledge and technology, unlike in the industrial era when the success would depend on being able to produce in mass and creating robust process and systems,” Aryal expands.
The government’s role is paramount. Pandey says the government needs to be a facilitator by providing infrastructure for startups. “The platform provided could house incubators and accelerators. It is not the job of the government to intervene but facilitate. Regulations follow innovation, and the government should listen to the entrepreneurs and make changes that are needed to drive innovation,” he adds. Further, Pandey feels the government should not stifle innovation by trying to fit it to outdated regulations as it is seen to be doing. He also states that policymakers and the bureaucracy are not up to date with the changing times and are afraid to make decisions.
Joshi, commenting on the proliferation of digital startups as compared to physical ones, says, “We don’t see many startups in the physical sphere. In that sense, restaurants and coffee shops are an example. Something like a Himalayan Java is better than most coffee shops in the US, from everything to the ambience to the music. Physical startups are doing it right.” Joshi says that a lot of digital startups in Nepal are lacking that perfectionist attitude, satisfied with being average.
“Take Daraz, for example. If you order an item on Daraz and it comes after three or four days, then what is the point? Similarly, I remember when Avengers: Endgame was released in Nepal, I tried to book tickets on QFX, but nothing was working. Eventually, they stopped the online booking for the movie. The level of commitment and investment made towards a digital startup is lacking when compared to physical startups,” Joshi opines.
Joshi believes that a part of the reason for the sub-standard nature of digital startups is the lack of investment. “Also, if you see, developing infrastructure for a physical startup is easier when compared to establishing a digital infrastructure; engineering costs are high. When you are competing in the digital startup realm, you’re not competing from Kathmandu to Lalitpur; you are competing from Kathmandu to Silicon Valley.”
Further, Joshi says there are inevitable cultural roadblocks as well. “After working for a couple of years and writing a few lines of code, somebody wants a CEO title, and somebody wants a CFO title. Everybody wants a top-level title.”
According to Joshi, there are three critical hindrances for the growth of startups, lack of investment and lack of engineering capacity available to digital startups being two of them. “The most important reason that is halting growth is lack of collaboration. My weakness can be your strength and vice versa, and through a fruitful collaboration, we can balance both out. However, I find our desire for collaboration quite low. The market is ready, but the suppliers, due to a deficiency in certain key areas, have not been able to scale.”
Lack of finance and access to alternative finance routes is yet another stumbling block that a lot of potential disruptors fall prey to. The problem is not only limited to finance. Glancing from a macro level, there is a need for a systemic overhaul to foster an environment conducive to disruptors and innovators. Aryal says that with the proper availability of the quality of education, information, mentoring and funding, every Nepali, irrespective of their parental economic condition, ethnicity, geographical location and financial status has an equal opportunity to be an entrepreneur and become a billionaire. “A proper and functional ecosystem will enable each Nepali youth to aspire to her/his dream. It will democratise the wealth creation process,” he adds.
Apart from tangibles such as infrastructure and finance, another hurdle that needs to be overcome is the social stigma in certain parts of the country attached with attempting to run a startup. In a traditionally conservative society such as Nepal, holding a fixed job is often considered more stable while attempting to run a startup is seen as an endeavour fraught with risk. Parents of young adults are likely to encourage them to seek out employment prospects at a reputable organisation rather than starting from scratch on their own. Many disruptive flames are doused by such staunch conservativeness.
The world is moving in only one direction – forward, and Nepal must follow suit. While it is true that disruption is in its nascent stages in Nepal, a more concerted effort from the involved stakeholders will allow for a more robust and sustainable forward march.
Aryal has a positive outlook. “Things are absolutely in the right direction, although perhaps the pace is slow. I see a bright future. The only thing that we need is for the key actors of the ecosystem - government, education sector, investment companies, media, incubators and accelerators to work together to take it forward,” he says.
Pandey too, shares in the hopeful enthusiasm- “It is evident that there is passion and a growing entrepreneurial spirit in the air. It will take a bit of time to thrive, but I am confident it will happen.”
Joshi, however, offers a contrasting opinion. “I think startup culture is too glamourised, particularly when it comes to digital startups. Maybe I will be blunt enough to say that it is not going in the right direction. I think the startup ecosystem is exaggerated. When a restaurateur opens a restaurant, they don’t make a big deal out of it, which many digital startups do. At the same time, these physical startups are making more money; they are more sustainable and are better funded.”
Joshi adds that we have yet to see a super scalable, super sustainable business model in the digital sphere. “I think the few exceptions are e-payment platforms such as eSewa and Khalti; they are doing good work. Perhaps it’s because they work in digital infrastructure and not in providing digital products. Similarly, there are certainly some interesting projects such as Tootle, but on the whole, I don’t know what is going to happen next,” he pontificates.
The future, as ever, is uncertain. That being said, the seeds for continuous, sustainable change in the form of disruptive startups are being sown. Now, it is a matter of adequately nourishing and supporting them. With adequate backing and guidance, the burgeoning surge of disruptive innovations can flourish, prosper and scale heights hitherto undreamt of in Nepal’s business ecosystem. As they thrive, so will the country and its people.