ArabNet 2014 Panel Discussion: Developing an Entrepreneurial Ecosystem

As discussed in my previous article, Day 1 of ArabNet 2014: Entrepreneurial Ecosystems, Arabic Typography, Development Tools, and Psychological Web Design, the first day of this year’s ArabNet Beirut conference included a panel discussion that led to a rich dialogue on how to develop an entrepreneurial ecosystem in the MENA region.

I would like to use this opportunity to give my point of view on the topics that came up in this discussion. If you have already read my full summary of the first day of ArabNet 2014, you can just skip ahead to each analysis section.

The need for regulatory development in the MENA region.

Summary:
Many panelists said that the region’s underdeveloped regulatory system was a major barrier to progress.

Necessary changes brought up by panelists included:

• Simplifying and speeding up the process of starting a business
• Simplifying and speeding up the process of getting work visas
• Enabling different stock options, such as preferred shares
• Protecting board members from facing imprisonment if the founder of a company messes up

Comments:
I agree that all of the changes brought up by panelists would help establish a healthy entrepreneurial ecosystem in the region. The pressing need for regulatory development is a topic I have covered in previous posts, particularly Grading the Saudi Entrepreneurial Ecosystem: A Report Card by ICT Veteran Barig Siraj.

That said, I don’t think this is an especially productive topic for entrepreneurs in the region to focus on. If we wait for regulatory changes to be handed down to us, we will remain frozen for a very long time. We need to find ways to work around the underdeveloped regulatory system, such as establishing a headquarters in another region and coming back to set up sales offices in this region. Complaining doesn’t earn money.

The ethics of foreign venture-builders that fund copycat start-ups.

Summary:
This part of the ArabNet panel discussion focused on foreign venture-building organizations that take business models popular in very well-developed regions and fund the creation of copycats in the MENA region, typically by training and launching entrepreneurs under stressful conditions. Rocket Internet was the big example here.

The optimistic side of the discussion focused on:

• The fact that these organizations are training locals
• The inevitability of some of these trained locals filtering into the job market with profitable skills

The other side of the discussion emphasized:

• The lack of originality found in the start-ups these organizations create
• The idea that this high-pressure training is focused on statistical success, not helping each entrepreneur succeed
• Foreign organizations’ lack of patience and familiarity with the region

Comments:
Since this discussion focused so much on Rocket Internet, I have to say that, whether you love them or hate them, you can’t deny that they have helped create more entrepreneurs in this region. I’m glad that people in the discussion acknowledged this.

That said, I’ve heard complaints about Rocket Internet from locals wherever I’ve traveled, from Saudi Arabia to Dubai to Egypt to Lebanon, and even in the organization’s hometown, Berlin. Businesspeople have told me that Rocket Internet has poor business ethics, fires people overnight, closes companies and leaves people jobless in a flash, uses ideas pitched to them without hiring or investing in the entrepreneur who pitched to them, and so on.

But I don’t believe in judging people or organizations until I have personal experience with them. That’s why when Rocket Internet recently contracted me, I met with their people in Jeddah, even though others told me not to. We followed up through phone and e-mail, too.

They wanted me to join a newly-established Saudi venture as a co-founder. Even though the opportunity was very lucrative, I was worried that it would distract me from my ultimate mission: building a billion-dollar Saudi start-up, creating 10 Saudi brands, and developing 100 Saudi entrepreneurs.

In the end, the opportunity didn’t pan out. Maybe they saw that I was moving in a different direction and thought I wouldn’t be right for the job, or maybe when I stopped following up, they thought I wasn’t serious.

Either way, I was relieved that I wouldn’t have to deal with backlash from Saudi entrepreneurs saying that I had joined the dark side of Internet businesses in the MENA region or saying that I had sold my noble mission out.

The truth is that no matter who I work with, my goal for creating an entrepreneurial Saudi Arabia will come first. I hope that this is true for other entrepreneurs in the region as well.

The lack of profitable exit strategies in the region.

Summary:
Several panelists agreed that few entrepreneurs cash out successfully in the MENA region.

The following were cited as areas of the business environment that need to develop in order to facilitate exit strategies:

• A merger and acquisition market within the region
• A true market for ideas
• More companies that are dominant in their niche
• More companies that define their customer base and exit plan from the start
• More companies that appeal to existing big players’ pain points, growth plans, and/or interests
• More companies willing to invest in growing themselves past the $30 million mark

Comments:
As you can see, most of the factors needed to facilitate exit strategies require business owners to have a start-up mindset, which few in this region do. Choosing a niche to dominate, defining a customer base, selecting an exit plan, appealing to big players, and investing in big growth all from the beginning requires the kind of entrepreneurial point of view that most people never even learn about.

In Saudi Arabia, for example, most new entities are opened as microbusinesses, small businesses, or businesses in traditional Saudi fields, such as construction or manufacturing. You can read more about how those types of businesses differ from true start-ups in Why Start-Ups Don’t Get Funding in Saudi Arabia.

This is a problem that will resolve organically once there are more successful start-ups in the region to lure in rich, traditional businessmen to invest outside of traditional fields. Entrepreneurs will take graceful exits when money is being thrown their way. We just need to create successful start-ups and entrepreneurs worth throwing money at.

How to improve accelerators.

Summary:
The Deputy Director of a relatively new accelerator asked for advice on what regional accelerators should do next.

Participants advised this director, and accelerators in general, to focus on the following areas:

• Training people
• Bringing in people who can scale up a business
• Providing accurate metrics to participants and investors
• Providing access to an excellent mentor network of entrepreneurs and angel investors

Comments:
Now that I am running AccMakk, an accelerator program closely tied to Umm Al-Qura University, these issues are on my mind every day.

I believe that AccMakk is following the advice given above, especially in terms of training university students to manage entrepreneurial projects and teaching them the importance of scalability. AccMakk is also striving to link the 40+ separate entrepreneurship programs in Saudi Arabia, thereby giving participants access to the largest network of entrepreneurs and angel investors the kingdom has to offer.

Overall, the ArabNet panelists that participated in this session were excited about improvements in the region’s budding entrepreneurial ecosystem, and so am I. Entrepreneurship in the region is still far from where I believe it should be, but the past four years have brought serious improvements. I believe we will see still more progress in the next few years as the entrepreneurial ecosystem begins to bloom.

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