Hani W. Naguib
Mentor Journey: This is not Silicon Valley, This is Egypt! (Ecosystem Notes 2019)
My only aim behind my articles is to contribute to the well being of the Egyptian Entrepreneur. That wellbeing is currently, in critical condition! Why? Because there is a mismatch between what is perceived and what is reality! In this article I attempt to make that distinctions (between what is perceived and what is real) clearer! It is a realistic diagnosis with the purpose to heal and enhance to get better results.
We are not in Silicon Valley!
There is a Silicon Valley illusion running around in the ecosystem! We are the Egyptian ecosystem and we have a different entrepreneurial DNA. We need something that better fits us, our needs and most importantly, something that makes better results than what we have now!
Egyptian Entrepreneurship DNA is different
The "Silicon Valley" approach to creating startups has been a successful model. It is undeniable that the approach has been a great motivator for entrepreneurs to create and deliver some of the world's top tech based/enabled startups. The entrepreneurs saw the opportunity, validated their assumptions, created prototypes, secured funding and launched their companies.
The keyword here is "opportunity".
The Silicon Valley entrepreneurs saw an opportunity and managed to utilize the available resources, knowledge and network to launch their businesses and exploit those opportunities. And some of them did change the world too. Think of Facebook, Uber, Google, AirBnB ( one of my most favorite startups and entrepreneurs ) and how they changed the world as we know it today. Most entrepreneurs in Silicon Valley were focused on finding an opportunity to build a business that is appealing to VCs / investors as well as desirable by customers. (The first thing VCs will ask you about is customer stickiness in Silicon Valley).
In Egypt, it is a different story. Most startups are not founded due to just the potential of an opportunity. Most entrepreneurs I met during the past few years are building their startups out of necessity. Entrepreneurship boomed in Egypt post the 2011 revolution because it offered the inspired youth purpose and direction in life. It offered them the hope that they can contribute to the world with their visions and hard work. Creating startups for them was not about exploiting an opportunity but rather to explore their own personal potential. It is not just about the startups (the business) but more about the entrepreneurs (the person).
In a nutshell, Egyptian entrepreneurs are building careers and not businesses.
Many of the Egyptian entrepreneurs are more inclined to creating startups that are appealing to investors than to customers. Why? Because they perceive funding as the most critical hurdle to start their careers and not customer centricity. Funding is a hurdle but it is not THE hurdle! Finding the right talents, the right accounting and lawyering supporting services and dealing with RED TAPE are the main hurdles in starting a venture. Even if you have tons of money!!
The customer comes after/when funding is/if received!
Observed pattern: That is why most startups struggle in delivering customer value, especially in the B2C domain. As a consequence, most of these startups switch to B2B, hoping that corporate business will save them. The thing is, it won't. (just do some basic research and you will see this phenomena is increasingly growing, especially in the past two years).
Our entrepreneurs are not yet ready to create Silicon Valley high growth Startups. What we have so far is mostly tech enabled SMEs (digital SMEs) and the few high growth startups with potential (idea+business model+team) are leaving the country (or being headhunted) to find another ecosystem to grow, learn from and blossom in. (some basic research will also offer you the insight that this is a growing and repeating pattern, especially in the past two years).
Tech Enabled Startups
Another key aspect of Egyptian startups is that they are mostly tech enabled startups and not tech based startups. In other words, most startups in the ecosystem are using the internet and tech tools to enable their sales and marketing activities. I met very few startups that are actually innovating in the tech domain, making them tech based startups.
Innovation is really suffering in this ecosystem, mainly due to the lack of investor appetite to take risks with innovation focused startups. What we have is an increasing number of startups fighting to gain ground in a heavily competitive landscape of delivery, ride sharing and e-commence startups. When there is a lot of startups competing with similar services, all we get is a price war (red ocean) and survival will be directly proportional to how deep their pockets are (or the investor's deep pockets basically). And in this area, the internationally funded companies have the advantage over the locally funded startups.
Local Startups are not innovating (not on the product nor business model levels).
What is an angel investor?
Allow me to highlight this portion of the definition:
"Angel investors provide more favorable terms compared to other lenders, since they usually invest in the entrepreneur starting the business rather than the viability of the business. Angel investors are focused on helping startups take their first steps, rather than the possible profit they may get from the business. Essentially, angel investors are the opposite of venture capitalists."
News Flash, we do not have a lot of angel investors who would fit this definition. Our angel investors are acting like VCs: They are seeking to invest in startups (based on data, market knowledge/experience) and not in entrepreneurs and ideas. It is illogical to ask an idea phase startup for a five year projection. Waste of time!! That is why some really great ideas are dying if not already dead, simply because angel investors are not that angelic with their risk taking and faith in the founders. For innovation/entrepreneurship to thrive in the country (or any other country), angel investors need to have more faith in the next brilliant minds and take that dreaded leap of faith into new and brave ideas. Otherwise our brilliant minds will leave the country and go find support somewhere else or they will stop creating. (And it is already happening).
Local angel investors also need to understand that investing in a startup at an early stages is risky but it is nothing like investing in a startup that will create an SME. Insisting on investing in the same kind of (assumed) lower risk business models (e-commerce, ride sharing, delivery apps), actually is not securing their investments. This low hanging fruit investment approach will create an ecosystem made out of a terrible deep pockets competition and as such it will render the assumed safe investment as risky as investing in moon shot ideas, simply because angel investors can never out invest VC backed startup who are working in the same field.
Angel investors are the gatekeepers of innovation and the creators of future heroes and leaders of tomorrow. They just do not know it yet!
Accelerators, lots of Accelerators!
In order for the Egyptian ecosystem to strive, it is really important for all stakeholders to become more entrepreneur centric and cater for the development of the right mindset for entrepreneurship.
For example, in an ecosystem of mostly idea phase startups, we mostly have accelerators and not incubators! A three to four months acceleration program is not that beneficial to idea phase startups for the following reasons:
It is not enough time for the entrepreneurs to develop the needed entrepreneurial learning curve (resilient mindset and business knowledge). Entrepreneurship mindset growth must be based on an experience and should be guided by serious and attentive mentorship. You can not tell an entrepreneur about resilience if he/she never had to muster his/her willpower to continue the path in hard times, he/she will never understand it or get on a real level.
Idea phase startups are simply nothing more than abstract business models ( an abstract thesis or assumed concept of value creation) that require time and effort to take shape and be ready to growth. Incubation programs will offer entrepreneurs and their idea business models the time and nurture required to investigate the potential of the business model and how to run it.
DEMO DAY: at the end of the The acceleration program, idea phase startups must pitch to potential investors. Those investors come with expectations of ready to go business models (business models ≠ revenue model by the way). But this is far from what they usually witness on these stages. The idea phase startups are then mostly discounted from the attending investors as not ready or pure unrealistic fantasy. That is usually disappointing to the entrepreneurs who were led to believe that they were ready by the mostly young and inexperienced acceleration program staff.
Funding As Judgement Tool
Receiving funding is celebrated more than a startup that creates growth or builds a great performing team. Have we not learned anything from the UBER story??? Funding is not in any way an assessment of how good a startup is. At best, it shows that is a good bet. There are many different aspects to that including business model potential (really not talking on revenue model here!!) value proposition - customer fit, the validation work behind both and the conditions and potential of the market they are being launched into. (also the team is put into consideration, but apparently you have to be a Harvard graduate to impress stakeholders, other wise....)
Egosystem Vs Ecosystem: All hail the EGOSYSTEM!
In order to induce a healthy pipeline of startups, we must realize that yes startups can fail but entrepreneurs can not be allowed to feel defeated. They either win or learn. Once they have rested, they can restart their entrepreneurial journeys. It is our duty to nurture entrepreneurs with knowledge and empathy, in order for them to figure out the right formula of success. The right formula from their own perspective not ours.
Empowering the entrepreneurs is much more important that being the big shot mentor or consultant or investor with the absolutely 100% all the time correct opinion!! We need to empower our entrepreneurs, the ecosystem is all about them and not about us, the support providers and the so called GURUS. Even Albert Einstein got somethings wrong!! Now tell me that there are people in our ecosystem that are smarter than Albert Einstein!
Please give the EGO a bit of a rest, instead offer empathy, respect and ambitious imagination. When an entrepreneur tells you about his/her idea, don't look at what is wrong with it, try and think about its potential and help the entrepreneur think better and see it. If you are on a judging panel, don't make the entrepreneur feel like an idiot on stage just because you want to show everyone that you are the smartest person in the room. Go work for ENRON if you want to feel smart and special! Evaluate the idea based on business potential and that is all. If it does not have a potential or if the entrepreneur did not make the work to prove it, then thank you for your effort and good bye. No need to make them feel small or retarded.
One Last Note
One last note on the ecosystem; funding is an important factor of success of startups, but it is also the main decider of which type of startups that will see the light. The lack of diversification of funding in different types of startups, will force this ecosystem to become stagnant and the innovators will eventually give up or leave the country ( that is already happening). Investors should take more risks in our entrepreneur's validated ideas and ambitious spirits with their funding and try new things. I guess that was and still the main reason behind the success of Silicon Valley as an ecosystem (and another reason why we are different than those guys in Palo Alto) : investors' willingness to take risks behind new and bold innovative ideas.
Remember Egyptian Entrepreneur = Egyptian Future! If this ecosystem is failing and you want to do something about it, at least share this article and let us start the conversation! After all, two brains are better than one and three are better than two : )