Inspired by her fellow Egyptians’ struggle for political change, Sarah Wali returned to Cairo last year after working in New York’s media industry with an idea to bring citizen journalism to the region with an online platform. "I was determined to change the way people in the Middle East consumed the news," Wali says.
She spoke to her colleagues back in the U.S. on how they had started media companies, and created a plan. She gathered feedback on what Egyptians would be willing to use. Then she pitched her plan for CitJo.com to Mahamad El Tanahy, owner of a software company in Egypt called Bright Creations.
With technical and business experience, and the resources to invest, El Tanahy agreed to become a partner in the venture. The two carried out market research into what their product could serve, and developed a plan. El Tahany lead his design and development team to create the platform. A few months after inception, CitJo.com is now a finalist in a regional startup competition sponsored by Google, called Start with Google.
Much of Wali’s early success is because she so far has been able to leap over some of the regular hurdles facing innovators in the region: A lack of access to capital, having a mentor to help develop a proper business plan, and gaining technical know-how to develop her idea into a product.
Technological ‘leapfrogging’ is allowing developing countries to quickly build up their innovation abilities after years of stunted potential. But the Middle East consistently ranks low in global surveys of innovation, even though the region includes some of the wealthiest countries in the world. Tech startups like CitJo.com are real examples of innovation happening in the region, but it is difficult for them.
"The Middle East is still a challenging place for anyone with an idea to change their industry, or the world around them," Wali says. "The region has been built on traditions passed down from generation to generation, so change is not something the Arab world is particularly good at. While the events of the past year give hope that this would transform our thinking and make innovation accepted and respected, we have yet to see that come to light."
World Is Flat
For venture capitalists like Hussein Kanji, the world is now flat. "It’s interesting that a lot of the innovation in China or even India is financed by U.S.-oriented or U.S.-led venture firms," notes. "For some of us who play in this new world, the old borders don’t work. I’m not sure if we think about one versus the other. We think about chasing returns wherever they are."
Based out of London, Kanji observes efforts in the Middle East to spark innovation with well-funded programs. Much of it falls short, he says, because it needs the return of people like Wali to the region to introduce new ideas and culture, and to provide better-developed talent. "The hopes of convincing people to come over and develop technologies are bankrupt strategies," he says, adding the only way is for the local population to study abroad at institutions such as Stanford and MIT, work at companies like Google, Facebook and Twitter, and then return home.
"It takes a lot of different pieces to build a company," he notes. "You need great technical talent. You need entrepreneurial talent that has the drive and energy to build something big. You need great product talent, a pool that usually has to apprentice at a handful of companies that ‘get it.’ You need great commercial talent that understands the next wave of business models. You need risk capital in the form of venture capitalists that know what to back a couple of years before it becomes mainstream and obvious to everyone. And you need great mentorship talent to coach the next generation of entrepreneurs.
"The tech industry is very much clustered in Silicon Valley for a reason," he adds. "Even in places like New York City, a lot of the guys are Silicon Valley trained and have had formative experiences on the West Coast. Unless India and the Middle East can bridge back to California, I’m not sure if they’ll have talent to build [companies]. We’re going to have to wait and see."
There shouldn’t be an obsession with creating a Silicon Valley in the Middle East, since Silicon Valley was the result of some unique factors, argues Habib Haddad, CEO of WAMDA, which is supported by Dubai-based private equity firm Abraaj Capital and invests in start-up companies.
Instead, Haddad says boosting innovation in the region needs a macro approach. "To me it’s about loosening up the system in general," he says. "Lowering the restrictions and the barriers to innovation, and lowering the costs of innovation. There’s lots of innovation happening — the problem is that they are all dots. How do we connect them and make them into circles? This is where you need the support of the whole ecosystem: The government, private sector, public sector, investors, and education."
Regional approaches to address innovation include Haddad’s WAMDA, which looks for innovative companies to invest in; the Abu Dhabi Media Company and Dubai-based incubator SeedStartup, which models itself after Silicon Valley-based Y Combinator. Innoventures, the company behind the Google-sponsored competition, offers advice, assistance, resources and even funding for innovative projects. And this year, the Higher Colleges of Technology in the UAE and the Wharton School are sponsoring a global innovation tournament in Abu Dhabi.
But Wali agrees with Kanji’s assessment of regional talent. "While we have some of the best engineers and doctors, these highly specialized youth have no training in business communication or management. We saw this in the (Google) competition. There were great contestants that had wonderful ideas. But to take an idea to a viable venture requires business acumen that is just not taught in the public universities in Egypt."
Fighting Multiple Problems
One of the challenges Kanji sees is much of the population coming back to launch startups don’t have access to investor capital. "It’s totally fixable, if someone was smart and thoughtful about this and understood how these industries work, probably within the course of five years they could build and nurture a local economy and facilitate the bridge building," Kanji says. "Unfortunately a lot of the policy guys don’t really get it."
Arab governments are coming up with funds, trying to directly invest in entrepreneurship, but usually such funding comes with conditions, Haddad notes. "What they should actually do is work with the private sector," he says.
Policies in the region, he adds, can be changed to allow for more experimentation. For instance, he notes, it is very difficult for regional entrepreneurs to close businesses and start new ones. "Innovation happens outside comfort zones," Haddad says. "The best ecosystems are those that have lines on their boundaries, and help to guide you, but are loose enough to allow things to happen. So it’s about how the policies, the rules and the culture allow you to play outside the system. This is something not institutionalized enough."
Security is another issue for innovators in the Middle East, Wali notes. "You never know what kind of laws are going to negatively impact your company’s operations. Business entrepreneurs can never be sure a process is complete until they have documented, stamped proof.
"With all the legal risks, few are encouraged to venture out on their own to try to develop their own business ventures and ideas," she adds. "A monthly salary, job security and the security of growth are far more valuable to the older generation than following dreams that may or may not profit. It’s hard to find fault with that though since during their lifetime they’ve seen that dreams are unattainable thoughts, while contracts with viable companies are tangible items you can live by."
Even India has the same challenges, Kanji notes. As the country embarks on its broadband and data revolution, Kanji says the level of domestic competition in its market is weak since few people have experience building companies. India suffers from another barrier, corruption. "If you are going to go into India in certain businesses it’s a level playing field. In others there are families who have power and it’s hard to compete with them," says Kanji adding that although technology is a more even playing field, it’s still not level.
Wali, though, says the biggest challenge to innovation in the region is actually personal drive. The bootstrapping, sleep-in-your-office lifestyle of many Silicon Valley startups has little appeal in the Middle East, she says. "I don’t want to call it laziness," she says. "I think it’s more of an appreciation for personal lives and a close tie to family in the culture that keeps people from giving their all to projects and ideas."
She adds that though she is the resident journalist in her company, she’s had to learn accounting, business development, marketing and even a little bit about website development. "I have no problems working until the late hours of the night," she says. "Unfortunately, this is not the case with most workers in Egypt."
Where Opportunities Are
There are other examples of tech entrepreneurs in the Middle East. There’s Khaled Ismail, whose 4G technology company SySDSoft was acquired last March by the Intel Corporation, the first acquisition of its kind for the technology company in the Middle East. Last June, LivingSocial acquired GoNabit.com, a United Arab Emirates based company serving as the Middle East’s orginal group-buying website. Arabnet founder Omar Christidis sees such acquisitions as just the beginning from a prospering ecommerce and technology industry in the Middle East.
Haddad says if local governments adopt an entrepreneurship mindset, then it will be easier to bring out local innovation. "Look at changes that work, and amplify them," he advises as a short-term solution. "Don’t try to start from scratch. WAMDA is not taking a model from the U.S. and applying it. We are the business of finding innovation, supporting it and growing it. At the same time, we’re innovating in how we do that. We cannot rely on existing elements here."
Kanji sees opportunities for startups which are developing online Arabic content. For a long time, he says, Google struggled to find enough Arabic content to index in its search results. "You can’t give people what they are searching for because it doesn’t exist. People type things in Arabic, but there aren’t that many pages that have information because there aren’t enough pages in Arabic." The amount of content available is at much lower fraction than elsewhere in the world, but it’s slowly growing. According to the King Abdulaziz City for Science and Technology, the amount of Arabic content online has increased fourfold from 0.3% in 2008 to 1.2% by the end of 2010.
Companies such as Wali’s startup should consider an incremental plan, Kanji says. "To become a big company one of two things has to happen. You first have to build a product, then you have to either start selling your product into a local market and scale geographically out into other markets, or you have to go global with a service from day one — think Google, Angry Birds, or Skype.
"We’ve seen the first happen in, say, steel and some manufacturing. We haven’t yet seen that in tech. Most people in the Middle East use Google, not a local company that competes. It’s a flatter world in tech, and so the local product has to be as good as the Silicon Valley product, as both are just as accessible."