In the past year, I was lucky enough to work on several Investment funds and programs to develop private sector businesses and startups across the Middle East with founders from 10 Arab states. A journey that no business education nor any book can prepare you for, and while it’s true that a startup in Dubai would face different challenges than a Startup in Baghdad, there were many similarities across the journey. Below are some of my takeaways from launching and growing businesses in our region.
It’s always the right time to start a business
The pros of launching a startup or investing in one “if done correctly” outweigh the cons in an Emerging Market (EM), such as the Middle East; despite their volatility, the highest ROI can be found in the fastest-growing EM. Whether you’re an investor or an entrepreneur, there are many reasons to invest in Emerging Markets, and it’s getting easier with time.
One interesting aspect of the region is brand loyalty. The Middle Eastern consumer is unapologetically loyal to brands that deliver, that was one of the first consumer behavior traits I came across in my family, where my dad insisted that the whole family go to the same barbershop for decades, up until the 2003 Iraq war when our barber’s shop was destroyed, and he had to flee the country, only then did my dad accept to find a new barber. This might seem irrelevant, but it helps us see the local consumer subculture. It’s very common for families to own several products from the same brand for decades, so if your company can meet the needs of Arab consumers, you’ll have some of the highest Customer Lifetime Value (CLV) and lowest Churn Rate in your business. That’s why being late to enter the Middle East market would make it very difficult to capture a significant market share in most consumer markets.
The two Middle Easts
Startups find themselves in a PR and marketing conundrum from day one, not realizing that there’s not one—but two completely different markets. The stereotypical bureaucratic nightmare of registration and taxation and B2B relations with state-run corporates that are still discussing whether or not they should upgrade to Windows 95, and the second market, which is a young Millennial population and small businesses that have the opposite business culture of the former market. Stakeholders here have different needs and expectations from startups. While this phenomenon is observed globally, it’s amplified in the Middle East, where more than half the population is under the age of 25. You have one generation who grew up with limited access to information and media in a state-run economy, and the other grew up in an internet era with a different business mindset, values, and culture.
Startups need to be aware of how to tackle the two groups in relation to their business model, brand. Marketing managers also need to be mindful of how to position their brand identity in a way that reflects their customer’s culture and values. And hopefully, one day, we’ll see government officials in the same room as a startup founder with a dozens of stickers on their laptops.
No Startup is an Island.
“Don’t worry about failure; you only have to be right once.” –Drew Houston, Dropbox Co-Founder, and CEO
Unfortunately, the Middle East does not have well-developed markets where any startup can come and implement its solution and grow immediately. Sometimes, we need to ask for help and occasionally work alongside our competitors to overcome a mutual threat or to pursue a mutual interest. I was fascinated with the concept of Game Theory when I first learned about it, the notion of planning your next ten moves strategically and predicting the response from all stakeholders, including competitors, customers, regulators, and even some local armed militias in your country.
‘No Man is an Island’ and nor are startups. If you are a baggage tracking startup that wishes to work in an airport, you might find yourself working with airline corporations, security agencies, border control police, and construction companies to build the airport (AKA the market), and that’s where organizational specialization comes in handy, working together for a common cause. That’s how most post-conflict economies manage to rise from the ashes, and that’s the only way we can do the same.
Hey Siri, give me directions to Startup Beach
“I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. 26 times I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life and that is why I succeed.” –Michael Jordan, NBA Legendary Basketball MVP
The average millionaire will file for bankruptcy 3.5 times in their lifetime, and 90% of all startups fail. These are not the risks of doing business, but it’s the path to it. If you want to go from your house to the beach of “Successful Startups” you have to drive through the valley of failure, and then take a detour to the town of self-doubt, and then eventually merge into the highway of not knowing what you’re doing, (right next to the running out of money Mall), and then you’ll probably find yourself stopping at the lack of motivation gas station. Everybody has to go through that gas station, but make sure you don’t spend a lot of time there. And even though the Maps App says that the journey will take a few months, they’re not calculating the construction on the road and the couple of flat tires you’ll probably have on the way. Some people will probably leave their car in the middle of the road, but you’ll pick up some interesting individuals on the way there. It’s crucial to understand that the journey might take a few years and that you should embrace the difficulties since they’ll make you a better Entrepreneur.
Nice Startup, it would be a shame if something happened to it
One of the unspoken rules of business in the Middle East is having to account for the elephant in the room, and that is the many criminal and shady organizations that have monopolies on several markets in each country. I faced this issue more times than I’d like to admit with some of the startups I advised for, shakedowns of small businesses, bribery, forcing to report earnings to local militias. Startups find themselves having to face these challenges and more early on in their journey; initially, I thought this is only a problem in politically unstable countries, such as Iraq and Syria. However, the more I traveled, the more I witnessed this issue, even in countries that are democratically-led and politically stable.
Unfortunately, in certain circumstances, starting your own business could mean risking your safety. This is still a sensitive topic that not many people want to bring up, and civilians are fearful of refusing to cooperate or even to report to local authorities. That’s one of the main reasons why Middle Eastern countries ranked low globally when it comes to the World Bank’s Ease of doing business index.
You raised funds, Mabrook! Is that all you need?
The lack of access to funding is still one of the main challenges startups are facing early-on. Yet, on the other hand, many of the investment funds, VCs, and financial institutions struggle when it comes to finding the right startups to invest in. Both VCs and Startups need to have a comprehensive situational awareness of their industry and market in order to overcome this conundrum. We’re seeing several financial organizations innovating and diversifying their services to not only financial but technical assistants as well. New concepts like VC2.0 and Smart Money are no longer a nice thing to have, but it’s a necessity in the Middle East competitive market.
Startups are also having a difficult time overcoming local hurdles like registration, taxation, lack of data, and corporate relations. That’s where the investors can shine, acting as a fixer to the startups, guiding and connecting them when needed.
There’s no such thing as companies, only people
“It’s hard to beat a person who never gives up.” –Babe Ruth, Baseball Legend
We sometimes forget that there’s no such thing as a company; it’s a human-made concept to describe a group of people coming together to solve a problem. That’s why our approach needs to be Human-Centric, to reflect on the founder’s ability to deliver what they promised. The number one factor in any startup success is the quality of the team behind it. Investors will pick a high-quality team with an okay-ish business model over an under-qualified team with a fantastic business model any day of the week. Because when you work with a capable team, you can help to identify how to improve the business and pivot it as needed to make the likelihood of success even higher.
Understanding what lies ahead of us as entrepreneurs and working towards filling the gaps in our knowledge and skills to better fit our role is an integral element of our business success. Staff development and two-way performance reviews should be embedded in the culture of the startup in order to have a unique team with a unique set of skills that can quickly create, test, and deploy products and services to the market before the competition. Having the right team is so valuable that big companies sometimes acquire startups not for their business but for the team running it (Acquihire).
No Template to rule them all
While the Middle East shared identity and culture can be seen across borders, and sometimes one tribe living in more than one country further increases the social bond between neighboring nations, the business environment in each state has little to do with its neighbors, There is no framework to conduct business across the Middle East through one central hub, so startups find themself caught up in the international trade laws and lengthy procedures if they want to export a product or a service to a neighboring country.
The volatility of business law in each country is very challenging for startups to expand their markets regionally, due to many reasons, such as the short lifespan of government cabinet members who continue to change regulations while trying to balance between encouraging foreign investors to invest locally, and also protecting local small markets and industries. Startups need to learn the rules like a master, so they can break them like an artist. Business lawyers have a considerable role in supporting the founders and investors in this matter. Ironically the more unstable and chaotic a particular country is, the easier it is to get things done (to wing it).
Starting a business is the ultimate act of self-liberation
Arab founders don’t start businesses for financial gains only but to claim their place in the universe. To pursue a goal bigger than themselves, to take back the freedom of determining your self-worth from society back to your own hands. We can see this clearly in Refugee-led startups and migrant entrepreneurs, who sometimes have to leave everything behind and restart both their careers and their personal lives. You see this in both men and women in the Middle East, where we constantly have to communicate our identity and culture (A fun way to see this in practice is to read cover letters from Arab employees and compare it to cover letters of employees from other countries).
Founders are taking control of their lives and careers by launching their ventures, whether it was a pregnant refugee mother who wants to build a better world for her unborn child or a young Iraqi professional who was denied a job that he deserved because the boss gave it to one of his relatives, youth across the region are creating small empires “startups” and taking their personal agency into their own hands. Once we’re aware of this concept, our approach with startups will be much more closer to reality.
Big things have small beginnings
Continuing from the last point, many of us want our startups to change the world and be the talk of the day, but both startups and VCs need to see the value in starting small. Can you service one neighborhood before expanding to the rest of the city? Then the rest of the country/world? There’s a tremendous value in being small and quick before being big and slow. Several factors go into this balance, including whether or not you’re hiring employees with liberals or conservative viewpoints.
You don’t have to quit your full-time job to focus on your business in the first few months, or at least until you have paying-customers. Ask yourself, can my startup idea be validated first by applying it as a small project? And if you are an established startup, should you pivot your business all at once, or can you roll it out in one location first to test the water? That’s where the value of startup hackathons like Startup Weekend comes in; it gives us an environment to test and prototype products and services quickly and rapidly and generate many insights and learnings before spending a tremendous amount of time, effort, and money into it, as the famous Japanese proverb says; Measure Twice, Cut Once.
There are dozens of other challenges faced by startups in the Middle East, and there is no business book that can help us overcome them all, learning by doing seems to be the only type of learning in our industry. Despite all the difficulties, thousands of startups are created every year across the Middle East, and one way or another, they overcome some – if not all the hurdles and generate value to everyone involved. It’s scary, and it will probably take us a few attempts to get it right, but if everything seems under control, we’re just not going fast enough.