Understanding the Business Models behind Tech Services Agencies in Pakistan

Understanding the Business Models behind Tech Services Agencies in Pakistan

Why are there so many tech services agencies in Pakistan? What’s the deal? Is it really as lucrative as they say? How do you start one? What business models exist? And a lot more questions. I’ll try to give a comprehensive overview of the landscape, so buckle up.

The central idea around tech services agencies and what makes the business viable is Currency arbitrage.

Namely, the poor performance of PKR against other foreign currencies, notably USD, Euro, Riyal, Dirham, etc.

Pakistan is a developing country; therefore, living costs are low, and labor is cheap. In more developed countries, where tech abounds, this is not the case: the cost of living is high, and hence local labor is very expensive.

Thanks to the abysmal track record of the Pakistani government, you can expect this arbitrage opportunity to exist for the foreseeable future (maybe your whole life, who knows).

So, how does one start a tech services agency?

From what I’ve been able to gather, there are two ways:

  1. Fiverr, Upwork, Freelancer, etc. You start small, and when there’s more work than you can handle, you think of starting an agency.
  2. Real-life network. You know somebody super rich (by Pakistani standards) abroad, and they trust you to get the job done, so you set up an agency to serve them and, depending on the contract, scale-out and work for other clients too.

I could name examples of either, but I don’t know who I’ll be pissing off by doing so, so I’ll play on the safer side. In any case, you need to have one of the two to start an agency.

In the first case, your niche and services are determined by the kind of services you’re providing on the freelance platform of your choice. In the second case, it’s determined by your client’s needs.

Once you have some cash flow and are confident about your decision to scale your agency, now’s the big boy part.

The thing is, every business has to either save people’s time or money. Preferably both.

The currency arbitrage thing may lull you into thinking that you can save people’s money straight away, and that’s a valid way to think of it, but it leads you to build a certain kind of agency. And you really have to question whether you want to run that kind of business. Let’s call this Agency A.

If, instead, you prefer to save people’s time and a little bit of their money (but mostly time), then you have a completely different route to take. Call it Agency B.

No matter which agency you build, your competition is always “in-house developers” — people your client could’ve hired on their own, under their own label — and other agencies in the same sphere. So, the value you produce always needs to exceed what an in-house team can provide (and this is not as simple as it sounds) at the baseline level and what other agencies are providing at the higher levels. Though the latter is generally not a huge concern — a client that is ideal for one agency may not be so for another. That is a whole topic I’ll explore in another article.

Let’s break down both modes of agency.

Agency A

This is where you’re playing on pricing. To make this business model viable, you can do two things:

  1. Resource Augmentation: Essentially, lend your developers to clients/companies abroad. Say some company in the US is looking for 10 NodeJS developers, and you have them, so you sign a contract offering ten developers for a duration. Rinse and repeat.
  2. Resource Placement: This one’s a little trickier. You essentially apply to jobs abroad that pay a really good salary, but behind the scenes, you hire some young ones to do the work. One job abroad makes for 4-5 jobs locally. Win-win. Another way to do it is to be more transparent about it and say, “Hey, you’re looking for a developer; you can hire one for cheap in Pakistan. We’ll handle the hiring process,” etc.

It doesn’t matter if you started on some freelancing platform or an “Angel Client.” If you play on pricing, one of these two is where you will settle eventually.

Naturally, in this model, your earnings as a founder depend on how many people you can deploy. Some of the largest agencies in Pakistan use these methods. These approaches require strong outreach and business development to ensure continual growth. Not to mention, they also need to continuously hire, which makes them an important part of the infant economy of Pakistan.

Agency B

This is where you’re trying to build a brand. You are still cheap (I mean, if you weren’t, why wouldn’t they hire somebody locally?), but that’s not your value proposition. This is a long and painful game, but the upside can be huge.

Here you try to win “projects.” You approach recently funded startups or companies looking to recruit talented teams. Still, before they set up everything locally, you give them the brilliant idea of outsourcing their tech development to your agency. You can do fixed pricing, hourly billing, or even equity deals, depending on where your agency is financially and your branding.

This is a simpler extension of the freelance platform economy: instead of winning projects via the platforms, you now go for the big kills. This, too, requires hefty business development but quality over quantity (for nascent agencies, quality can only be achieved via quantity, so there’s no excuse to go easy).

The Long Run

You can mix up these models too. This is, after all, a free-for-all. Whatever gets you off the ground gets you off the ground. No questions asked. However, it’s preferable to stick to one strategy to have a consistent branding and business development approach (and your team doesn’t die trying to catch every fish).

However, if you do some simple calculations, you soon realize that neither of these models really scales to what you can say is “Gangster money.”

You can hit hefty revenues with a huge enough team, but then again, it’s not as deflationary as launching a solid product backed by venture capital and then selling it or generating steady revenue by often doing less than half the work. Every time you have to earn more, you have to put more on the table, and it’s never a one-time cost.

The tipping point where a tech services agency becomes a proper company is when it Productizes its services. It takes a while to reach, working with dozens of clients in the same industry to know what the most common pain points are, what’s the feasibility of a solution, what it would even look like, etc. The sooner you can figure that out and put it out to the market, the sooner you win the game of saving people’s time and money both.

The next time somebody comes to you asking for a fork of a DEX on Ethereum, you say, “Oh, we have a tool for that. Have you tried it? You just have to subscribe for $250 per month and do whatever you want, etc.”

At that point, you reach the happy medium where your product advertises your services, and your services advertise your product — and both achieve one final outcome: saving people’s time and money.

But that often takes a lot more work than most founders can anticipate.

Knowing which ride you want to take to your destination is important. Clearly knowing the business model you want to adopt and sticking to it is essential to optimize your performance, not burnout. Which path you take depends on who you are as a founder and what kind of personal brand you can build and be more comfortable with. If you’re playing somebody else’s game, you’re setting yourself up for failure.

Original post. Reposted with permission.

Co-founder and Business Development Executive at Antematter.io. Writing about tech services agencies, finance, and entrepreneurship.
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