Aurora Magazine

Promoting excellence in advertising

Published in Mar-Apr 2014

Startup spring

A review of 'Startup Rising' by Christopher M. Schroeder

Startup Rising: The Entrepreneurial Revolution Remaking the Middle East, by internet entrepreneur and venture investor Christopher M. Schroeder is a candid and at times personalised account of the changing face of the Middle East albeit in business, not politics.

He goes from having a rather two-dimensional view of the region to seeing the opportunities in even the very troubled areas. He starts appropriately enough with an engaging account, his meeting with a young female Saudi university student who pitches an idea for a luxury leather device for smartphones and tablets with an in-built charging device. Feigning polite interest he is thrown off guard at discovering that the girl already had orders and a business plan.

This pretty much sets the tone for the book. It captures the zest and drive of an information hungry generation eager to embrace technology and all the opportunities it brings. That together with a healthy disdain for the word ‘stability’ makes for a potent combination.

But the euphoria of the Arab Spring and its subsequent autumn shows that change will be slow in coming.

At a talk at the AmericanUniversity of Beirut, Schroeder reveals that none of the students planned to pursue a career in Lebanon. ‘Wasta’ or bias for a particular person or group had left a legacy of corruption. The wealth is confined to rich sheikhs, dictators and their cronies. Unlike Pakistan or the West, the Middle East is neither an industrialised economy nor an agricultural one. And despite great wealth, wasta has helped among other things create the highest unemployment rate in the region. As an Egyptian entrepreneur puts it, “I hate the word stability. All my life the regime used that word to scare and keep us quiet.”

With such a claustrophobic environment you would wonder what led Schroeder to believe there was an entrepreneurial revolution in the making.

Arif Naqvi, the founder of Abraaj Capital, tells Schroeder that “the direction of the Middle East will be determined by whether the regimes in the region realise that 21st-century developments should not be met by a 19th-century mindset – that political reform will be matched by the unquestioned economic reforms and opening up processes of the past few years.”

Some enterprising individuals, such as Mohammad Al Ajlouni, a line producer and ‘fixer’ who truly understands the Urdu word jugaar, protected themselves against waste and jealous rivals by becoming indispensable to international clients like the BBC and ABC. And by hiring the son of a minister as a partner. But even so the road to setting up a TV station proved challenging. As he discovered, despite his safeguards there was no security. It all depends on who you know and how well they can protect you. The competition employs deadly tactics to run your business into the ground. His story is probably one of the more interesting. And makes you realise that doing business in Pakistan is a piece of cake in comparison.

The beauty of the internet is that it recognises no wasta. That is what Samih Toukan and Hussam Khoury, founders of Maktoob.com, the first Arabic internet portal in 2000 (later bought by Yahoo in 2008 for $175 billion) say. They say it is better today. From a time when people confused ‘internet service’ with secret service, this is a sector that has come a long way. When the site was launched there were 100,000 users; by 2003 there were over a million.

Despite having a much lower internet penetration than the developed world, the Middle East is one of the fastest growing internet areas, with almost 100% mobile penetration. The stats Schroeder presents are awe-inspiring. According to a study by Google, 83% use the internet daily. 78% prefer the internet to TV. More than 44% spend more time online than with their friends.

And with the growing aversion to the state and its version of stability, over 40% want to start their own businesses.

Schroeder divides the current crop of startups into three categories. Improvisers, who adopt models already in use and localise them. Problem solvers, who see local challenges and make a business out of solving them. Global players, who create unique companies with a global impact.

There are impressive improviser examples cited such as AlTibbi the Arabic version of WebMD. Or Arab Matrimony. Souq.com started off as an auction site and is now a full-fledged e-commerce enterprise. Like Pakistan most of e-commerce is dependant on cash on delivery and there are some region specific challenges – such as avoiding delivery to Saudi homes when the husband is at work. Souq.com boasts eight million shoppers every month and a whopping 500 employees – making e-commerce a viable reality.

To encourage similar enterprises, Hassan Mikail and Aramex (a logistics success story out of Jordan) have launched a startup incubator called eHOUSE which focuses on online retail companies.

There are other fascinating stories. Like Hind Hobeika’s Butterfleye, a heart rate monitor for swimmers which is now a global product.

Or Ziad Sankari’s CardioDiagnostics, which has designed a vest for heart patients to monitor their cardio health. Both Lebanese, their innovations were born out of a personal need but had a universal appeal.

Schroeder raises an important question. That while Japan, Finland and Korea became leaders in home entertainment appliances, there is no equivalent in software innovation. The US still monopolises that industry. Will the Middle East take over is a question that only time can answer.

People like Ahmed Zahran can help create that space. The 32-year-old head of Karm Solar in Egypt spent five years at Shell before starting his alternative energy company. By some estimates one square kilometre of land in the Middle East has the power to yield energy equivalent to 1.5 barrels of oil. Yet this is an untapped area of investment. Zahran blames the ‘the absence of imagination’ which he feels is a legacy of the Mubarak regime. When he tried to convert farmers to the idea he discovered a deep suspicion to anything that was unrelated to the government. And a lack of competency when it comes to actual installation. What this could mean for agriculture alone is incredible. Companies like Karm Solar could take Egypt’s agricultural land from a mere eight percent to 25%.

Apart from solar power, the other area for startup innovation was social media. Yasmin Elayat realised the potential of social media after the Tahrir Square protests. Her site 18daysinegypt.com pulled together the shared experiences of the protestors into a unified narrative.

Despite the growth of the ecosystem and the celebratory stories and the obvious potential, investment is limited. The great wealth of Saudi Arabia and the GCC is invested in multinational countries not local startups. This conservatism is best illustrated by a government official’s comment: “The good news is that we have the money. The bad news is that it is in our pockets.”

Ironically the talent (and drive) seems to be concentrated in Egypt and Lebanon with a few Jordanian and Syrian exceptions.

Cairo-based Sawari Ventures launched Flat6labs, a startup accelerator in 2011. Every three months, seven startup concepts are selected for investment. At the end of a three-month period these seven are introduced to independent investors. Giving precocious young entrepreneurs not only a chance to pitch their ideas but also to prove their worth.

What is troubling apart from the apathy of the powers that be in the Middle East is the ballooning workforce looking for jobs that are not there. And the fact that women, despite being the better educated half of the population, are severely under-represented in the employment stats. Classrooms are stretched to accommodate too many students. Mechanical rote learning is still in place. And there is a complete lack of accountability. None of which bodes well for entrepreneurship.

Those women who have broken through (like the young woman who changed Schroeder’s perspective) have launched successful businesses and internet startups like Arabia Weddings, SuperMama and Zaytouneh. This is a region where men are still intimidated by women and tend to underestimate them. Religion too has become an opportunity. With shari’ah compliant investing advice, Quran/prayer apps and The 99 – a comic about Islamic superheroes.

Whether these enthusiastic young entrepreneurs will succeed in changing the tide of their countries and do what the Arab Spring failed to do, remains to be seen. The book is engaging and informative, although one wishes more time had been devoted to female entrepreneurs breaking through.

Schroeder begins and ends the book with Arif Naqvi who ironically isn’t Arab at all, but a Karachi-born Pakistani. “The Arab youth, all youth, will not let it be any other way; the genie is out of the bottle.” And that sounds like a very good thing indeed.

Startup Rising: The Entrepreneurial Revolution Remaking the Middle East

By Christopher M. Schroeder Palgrave Macmillan 205pp. PKR 2,750 Available at Liberty Books.

S. Hyder works for an advertising agency in Pakistan.