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About Cadana

Canada, headquartered in New York City, revolutionizes how workers access their earned wages by offering on-demand digital payment solutions. During its pre-seed round, the startup secured funding from notable investors such as 500 Startups and Better Tomorrow Ventures. Cadana provides financial solutions tailored to small and medium-scale enterprises (SMEs) operating in developing regions. Our team was commissioned to conduct user research aimed at understanding the dynamics of the local Pakistani market and assessing the potential for Cadana's services within this context.

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Context

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Small and medium enterprises (SMEs) are pivotal drivers of global economies, serving as the cornerstone for industrial advancement. They form the backbone of burgeoning emerging markets, with SMEs constituting a staggering 99 percent of Pakistan's over 3.2 million business enterprises and contributing 35 percent to value addition. With an estimated potential surpassing their current $86 billion share towards GDP, Pakistan's SMEs hold significant promise for enhanced economic contribution. Additionally, SMEs have historically contributed 30 percent to GDP, 25 percent to exports, and have been responsible for 78 percent of industrial employment, underscoring their vital role in the country's economic development.

Research Questions

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The research aimed to grasp the challenges, aspirations, objectives, and behaviors of both business owners and employees operating within the Small and Medium-scale Enterprises (SMEs) sector in Pakistan, an area that is often overlooked. It was segmented into four primary components: targeting our ideal user, examining the hurdles they encounter, identifying operational issues, and scrutinizing growth-related challenges.

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Goal

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Our goal was to engage with the local market, comprising small and medium enterprises such as cloth shops, repair centers, and computer repair shops, to document the challenges hindering their growth and profitability. This endeavor was undertaken with the dual purpose of generating income and alleviating poverty. Given Cadana's focus on addressing local digital financial challenges, streamlining payroll processes, and providing basic fintech solutions, our research was directly aligned with understanding the prevailing issues faced by individuals within the market.

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Secondary Research

Our preliminary research unveiled significant insights into the landscape of SMEs in Pakistan, revealing that they comprise approximately 90% of all ventures in the country. Furthermore, SMEs employ approximately 80% of the non-rural workforce and contribute up to 40% to the annual GDP, with their share in Pakistan's exports estimated at around 30%. Moreover, SMEs play a substantial role in job creation, contributing over 65% of total employment in high-income countries and fostering economic stability and growth.

The presence of SMEs is crucial for efficient resource utilization and drives economic growth worldwide, particularly during economic downturns. However, the SME sector faces various challenges, including limited access to capital, high-interest loans, inadequate infrastructure, technological constraints, and limited trade and investment opportunities. The rising prominence of the service sector, as highlighted by Jabeen (2014), underscores the shifting dynamics within the economy.

Research indicates that SMEs significantly contribute to economic growth, employment generation, social cohesion, and overall development. Entities like SMEDA play a vital role in formulating policies and supporting SMEs through training and education for entrepreneurs, as Hyder & Lussier (2016) noted. Additionally, the agriculture sector remains a cornerstone of the rural economy, contributing 18.9% to the GDP and employing 42.3% of the workforce.

Recognizing the importance of SMEs, the government of Pakistan has established bodies like SMEDA to promote their growth and development. These initiatives aim to leverage the potential of SMEs in driving technological innovation, economic renewal, and social progress. Moving forward, evaluating the impact of SMEs on economic growth and understanding their relative effects will be crucial for effective management and future development strategies.

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Hypothesis

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Based on our research findings, we identified four primary areas where our target users encounter challenges:

• Human Resource Management
  • Business owners need help managing employees across multiple stores.
  • Difficulty in finding competent employees impacts business performance in the international market.
    

• Financial Management
  • Lack of trust in government banking, payment regulatory systems, and financial applications persists.
  • Payroll management for more than 5-8 employees proves challenging.
  • Securing business financing and obtaining loans is a challenge.

• Bookkeeping
  • Users spend a significant amount of time managing credits and updating records, diverting attention from more productive tasks.
  • Keeping track of multiple loan/credit payments without automation poses challenges.
  • Manual records are susceptible to loss and damage, requiring more robust solutions.

• Technology
  • Users lack access to actionable analytics/insights about their business.
  • Limited resources and expertise hinder the operation of digital outlets.

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User Groups

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Our strategy aims to broaden our user base by embracing diversity across three key dimensions: company size, business nature, and role designation within organizations. Regarding company size, we categorize entities into five tiers: micro-enterprises (1-3 employees), small-scale (3-10 employees), medium-sized (10-20 employees), and larger entities with 20-50 employees. Regarding the nature of business, we recognize the distinct spheres of services encompassing both B2B and B2C interactions, wholesale operations, retail establishments, and restaurants. Lastly, we delineate roles within these enterprises into employees and business owners, acknowledging the varying perspectives and needs they bring to the table. By catering to this diversified spectrum, we aspire to enhance inclusivity and better address the nuanced requirements of our expanding user community.

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Interview Questions

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In our comprehensive market research initiative, we conducted open-ended interviews across three primary markets, utilizing a structured questionnaire to gather pertinent insights from our user groups. The questionnaire encompassed fundamental inquiries, including the identification of shop names and types and the demographic details of shopkeepers, such as their names, genders, ages, and educational backgrounds. Additionally, we sought detailed information regarding shop locations and operational dynamics, probing into aspects such as average daily customer footfall and the demographic composition of their clientele, including considerations for children, men, and women. We delved into their technological adoption, inquiring about smartphone usage and the utilization of applications to augment business efficacy. Moreover, we explored the presence of computers within their establishments and elucidated the purposes they serve. Personnel management practices were scrutinized, querying about the existence of staff, their education levels, and mechanisms for sales and activity monitoring in the absence of the proprietor. Financial management practices were also examined, covering aspects like expense tracking, earnings calculation, and profit recording. Additionally, we gauged familiarity with e-invoicing and SMS invoicing systems, alongside exploring engagement with mobile money platforms such as Easy Paisa, JazzCash, HBL Connect, Easy Khata, and DigiKhata, including their utilization for both sending and receiving payments. The questionnaire further probed into the adoption of QR code payment methods and the presence of bank accounts for revenue storage. Through this rigorous inquiry, we aimed to gain comprehensive insights into the operational landscape of our target market segments.

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Interview Responses

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In analyzing the responses garnered from our interviews, several noteworthy insights emerged. Across various market segments, particularly within the cloth market, it was observed that Facebook played a pivotal role in augmenting business prospects for shopkeepers. Notably, the predominant customer base in these markets comprised females, with a more balanced gender distribution observed elsewhere. The educational backgrounds of the shopkeepers spanned from matriculation to intermediate levels, with notable instances of individuals holding advanced degrees such as Masters and BBA qualifications. Furthermore, a prevalent trend was the utilization of JazzCash and EasyPaisa accounts among shopkeepers. Despite technological advancements, manual receipt generation remained a common practice, indicating a potential area for digitization improvement. Challenges cited by respondents included the proliferation of branded goods, which diminished the value of local markets, as well as language barriers between shopkeepers and customers. Additionally, concerns were raised regarding the profitability of rental stores and the management of worker salaries, alongside a desire for enhanced customer engagement strategies. These insights underscore the multifaceted dynamics within the market landscape and highlight areas for potential intervention and innovation to address identified challenges.

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Challenges

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Our research encountered significant challenges stemming from apprehensions within the local market environment. Shopkeepers exhibited reluctance and apprehension, often perceiving our inquiries akin to those from financial institutions offering loans or tax authorities enforcing compliance. This inherent distrust impeded data collection efforts, necessitating a strategic reassessment of our approach. Recognizing the importance of established market links, we acknowledged the need to leverage existing relationships, particularly with wholesalers, to foster trust and facilitate seamless data sharing. Moreover, a notable trend indicates that younger shopkeepers are more comfortable and familiar with technological tools.

To mitigate these challenges, proactive measures were implemented. We streamlined our questionnaire, condensing it to accommodate the time constraints busy shopkeepers face attending to their clientele. Despite our efforts to engender trust, the inherent skepticism persisted, even as we presented as university students. This underscored the need to continue refining our approach to foster more incredible rapport and cooperation within the local market landscape.

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Conclusion

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Our engagement with local SMEs yielded invaluable insights into the complexities of their operational environments and the strategic maneuvers they employ to navigate challenges. Through candid exchanges with shopkeepers, we comprehensively understood the deficiencies in the local SME sector. These insights serve as a cornerstone for informing future initiatives to bolster support for SMEs and foster their sustainable growth.

Our partnership with Cadana aimed to analyze the challenges encountered by small, medium, and micro enterprises (SMEs) operating within the Pakistani local market, particularly concerning their expansion and business development. Through this partnership, we sought to gain deeper insights into the hurdles SMEs face in Pakistan, focusing on understanding the intricacies of their growth trajectories and overall business performance within the local economic landscape. By leveraging this research, our objective was to identify critical areas of concern and potential opportunities for improvement to support the sustainable growth and success of SMEs in Pakistan's dynamic business environment.