How to Build a Thriving Entrepreneurial Ecosystem in Developing Countries

 

 

 

Picture an agricultural valley where grape vines and fruit trees flourish. It's a warm climate that doesn't get much rain. I could be describing many places in the Middle East and North Africa (MENA). But I'm not. I'm describing the place we now call Silicon Valley.

Not too many generations ago, Silicon Valley – only known then as the Santa Clara Valley – was a sleepy agricultural area. Today it's undoubtedly the global center of technological entrepreneurism. While generations ago farmers invested $100 for a bag of seed, today venture capitalists invest hundreds of millions of dollars of "seed money" in promising startups.

Like so many MENA areas, before its transformation, incomes in the Santa Clara Valley were low and work was often seasonal. Today, incomes in Silicon Valley are among the highest in the world and unemployment is almost nonexistent.

As I look at impoverished and struggling areas of MENA, I can't help but think that if they had a little of what transformed the Santa Clara Valley into Silicon Valley, many of their problems would be solved and the lives of their people would be improved ten times over.

I have been working with some non-profit business-mentoring communities created to support the development and growth of small and medium enterprises (SMEs) operating in economically challenged MENA countries starting in Palestine and Jordan. They are doing wonderful work, but more can be done to achieve even greater success.

Let me start outlining my prescription for an economic "cure" by first describing one of the biggest symptoms of the disease: Currently, entrepreneurs are running away. Why? Because there is no entrepreneurial "ecosystem" in these places in which they can thrive. Any living creature will migrate to the place that best supports it.

So the question then becomes: How can we create an ecosystem that supports entrepreneurism? The answer to the question ranges far and wide and includes culture, government, laws, policies, education and more.

[1] [HAF2] [HAF3] Policies must be stable and property rights guaranteed

An underlying condition for creating entrepreneurs is ensuring their ability to own what they build and enjoy the benefits it creates. This, of course, involves many areas of government regulation and policies. For example, it is no secret that entrepreneurs will move from high-tax countries to low-tax countries.

In the same way, the speed at which a new business can be started is important. The countries and cities that consistently rank as the best places in the world to start a business always make it fast and easy to get formed. In New Zealand, which is consistently named as the best country to start a business, entrepreneurs can get going in one day.

Above all, startups require stability. Entrepreneurs need to know that what they create today will not be endangered by an arbitrary change in government policy tomorrow – they are taking enough risk already, without adding policy and governing instability to the equation.

Burdensome governmental regulations or corrupt systems also damage the entrepreneurial ecosystem. We see this even in developed countries. I have heard budding European entrepreneurs wonder why they can't recreate what has happened in Silicon Valley. When Silicon Valley became the birthplace of tech industries, there weren't nearly as many regulations for the startups to cope with.

From these facts emerge some requirements of government if leadership truly desires to create a positive entrepreneurial ecosystem:

•        Provide guarantees of property rights,

•        Create long-term policies,

•        Favor startups in tax policy, and

•        Minimize regulations and "red tape," and eliminate corruption.

When these steps are taken, it does much to create a "playing field" upon which entrepreneurial ideas can flourish and compete. However, to create the "players" in this game, more must be done.

Culture must change, education must improve

As structural barriers are removed, or even better – replaced with incentives – the focus moves on the real seats of change: our schools and our families. Teaching the skills and encouraging the attitude of entrepreneurship is critical. There are many dimensions to this and much that can be done.

While all parents desire to see their children financially stable as they become adults, they also need to encourage their children to "build things." They need to see the difference between taking a job and creating a job and understand that creating jobs is what moves society forward.

Educating the public in general could do much to advance entrepreneurship. If developing countries were able to get the message out that becoming self-sufficient through home-grown industry is one of the best ways to end economic misery, I believe conditions would improve quickly.

Furthermore, schools at all levels and especially in higher education need to teach the required skills to be a successful entrepreneur. This falls to business schools but also to engineering schools and other subject areas. One successful way of doing this in other countries is to bring teachers with experience in entrepreneurism onto the faculty. This can also be a tactic for bringing entrepreneurs who have immigrated to other countries back to their homeland so they can transfer their knowledge and see it applied locally.

Universities should also be encouraged to make their facilities available to startups. They often have labs and other technology that would be difficult or impossible to obtain for a MENA startup. As partnerships develop between startups and universities, it is certainly reasonable that the university could be rewarded with some degree of ownership in the new company, or benefit from patents.

Building bridges between higher education and existing small and medium enterprises (SMEs) is also a sound strategy. Schools and their students can help drive the success of SMEs, while they get direct experience in growing a business. Sending interns to large, established businesses can look good on a resume, but often the actual work experience is less than exciting.

It is interesting to note that Silicon Valley and San Francisco continue to be hotbeds of startup activity despite the high costs of property, labor, services and regulation. Why? Because the talent pool there is well educated and tech savvy.

When Forbes put Portland, Oregon in its "Top 10 Best Cities to Start a Business" in the US, it noted that "Web-savviness, plus a high score among best-liked businesses rankings put this city on our map. Portland is in the top 10 among computer software and services. These small enterprises are also highly likely to cultivate websites and Facebook pages."

The educational systems in developing countries can do much to help create these elements of the entrepreneurial ecosystem.

Peer-to-peer support propels startups

Co-working environments are popping up all around the globe. They offer workspace for startups at a reasonable cost and also provide the infrastructure needed to run a business. In these places, entrepreneurs working on different projects work side-by-side. They are able to trade ideas and inspire one another. A more experienced entrepreneur can offer valuable advice to someone just starting out.

It would also be very beneficial to connect MENA entrepreneurs with other similarly minded individuals from around the world. First, many countries have a much deeper background in launching startups. Second, it is often difficult for entrepreneurs from developing nations to get a global vision for what can be accomplished; they tend to set their sights too low.

Finally, other variations of the co-working space are incubators and accelerators where investors use their money, expertise and network of connections to push startups along in exchange for an ownership percentage. These require a strong financial infrastructure, including healthy markets where shares are actively traded. Thus, this brings us to the topic of finances.

Capital must stay at home and be invested

Ultimately, private capital has to be available to invest in startup ventures. This means that capital must be encouraged to "stay at home" and as I said above, there must be established and smoothly functioning markets for the buying and selling of stock. Early stage investors want to be certain that if the startup is a success, they can easily cash in on their investment and realize their gains. Availability of credit also plays a vital role as startups continue to mature.

I have used the term "entrepreneurial ecosystem" to label what I have been trying to describe. Like an ecosystem in nature, the environment required to create and nurture entrepreneurs is complicated and contains many elements. I have briefly outlined many of them here. As the developing MENA countries work to grow their business sectors, it's likely they will encounter more challenges. However, I believe starting with the points I have laid out will get them off to a strong start.

 

 

 

About Hamzeh Al Fuqha:

Hamzeh Al Fuqha is a serial entrepreneur, inventor and angel investor. He founded Next Presentations and co-founded SmartAd. Hamzeh is a frequent speaker at industry seminars and guest lecturer at the American University of Sharjah on entrepreneurship and leadership. He has received several awards and won numerous national public speaking and debating competitions. Hamzeh has trained various public figures and high-level managers on executive communication skills and speech delivery techniques. 

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