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Sat 30 Mar 2013 11:59 AM

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Building an entrepreneurial ecosystem

Samih Toukan, founder of Maktoob and Al Jabbar Internet Group, sat down with StartUp to talk about the current entrepreneurial environment and what can be done to encourage more people to establish their own start-up businesses

Building an entrepreneurial ecosystem
Toukan is looking forward to a bright future for internet entrepreneurs

When Samih Toukan launched Maktoob in 2000 he helped kick-start the region’s first e-boom.

The Arabic email provider was the first of its kind and gave the Middle East a new sense of belonging online, the importance of which led Yahoo! to acquire the company in 2009 in a deal worth about US$165m.

By that point the company had grown to offer a range of services, including chatting, greeting cards, electronic payments, auctions, a market place, games, a search engine, and more.

The deal was the jewel in the crown of the Middle East’s internet explosion which saw various other high profile deals take place including Thomson Reuters’ US$40m purchase of finance and business website Zawya, and a US$20m cash injection into online clothing marketplace Namshi from JP Morgan Chase and Blakeney Management.

Looking back, Toukan remembers the difficulties he faced as an e-entrepreneur, but also the conviction he had in making the business work.

“It seems a long time ago,” he says. “It was not an easy environment. I think it is much less difficult today, though of course there are still difficulties.

“The internet was really very new. It barely existed – user numbers were very low. People didn’t understand at this point what it was – it wasn’t part of day to day life.

“So it was a big challenge, even among family members. Maktoob was the first Arabic email. It expanded into other things but it started just as email. In 2000 it was before the internet bubble burst. At the time it was difficult to explain the business model, but we saw the long-term, and if the internet was going to spread in the region then the Arabic language was going to be an important factor.

“Financing at the time, however, was non-existent. We had to do it ourselves. We worked really hard and eventually got our first financing, but it was not easy for any start-up or entrepreneur.”

When Toukan parted ways with Maktoob he decided to set up a new company which would not only act as a parent company to various other websites – including those established by Maktoob which were not part of the Yahoo! deal – but also an investor in e-businesses, as well as mentor and advisor.

Al Jabbar Internet Group, based in Dubai Internet City, is now one of the region’s biggest in the sector, and in this new capacity Toukan has noticed some familiar problems.

He tells StartUp that more needs to be done by governments and private companies to help start-ups, small and medium sized enterprises (SMEs) and entrepreneurs to find their feet in the world of business, and create an entrepreneurial ecosystem.

“Financing is still a major issue,” he says. “It’s much better than before but it’s still very difficult. When Maktoob exited there was a lot of excitement for investors. It created hope for entrepreneurs to start their own businesses. Maktoob created a good thing, but that was more than three years ago now.

“There’s a lot of money here but it’s not going in the right direction. Investments need ot go elsewhere – not just real estate or to projects outside the region. The online sector, and entrepreneurship in general, is very important to the Arab world.

“There are lots of ideas here and lots of entrepreneurship, and the more we give them in financing and support, the more we can build an ecosystem.

“I would like to see more investment from private companies and governments towards entrepreneurship.”

In terms of investment, Toukan is prepared to put his money where his mouth is. Jabbar pumped about US$100m into the sector last year alone – half the total investment in the region, according to Toukan’s estimates.

“Last year about US$200m was invested. A lot of that came from venture capitalists in the US and Western Europe. That’s good because there’s interest from outside, but money in the region is not being put into this sector.

“The UAE relative to other Arabic countries is better, but there’s still a long way to shift towards helping entrepreneurs. If we saw a shift of just one percent or five percent of money from oil or real estate, then that’s a huge amount.

“The more financing we have, the more government support, the more businesses and entrepreneurship we will have. Look at the US – a large part of the economy there is from SMEs. Facebook, Yahoo! and the like all grew from people’s garages because they had the right support.

“Entrepreneurship represents a big hope in the region.”

A big part of this big hope  that Toukan mentions is the region’s youth. Research undertaken by Booz & Company in a 2011 study showed that people between the ages of fifteen and 25 made up nearly 42 percent of the GCC’s population – a figure which is rising in what has been described as the region’s ‘youth bulge’.

Toukan says: “We have a lot of youth here and a huge number of them are looking for ideas. Young people don’t want to just be in government jobs. They have ideas. The internet is a great tool that’s breaking borders and they can create products for not just the region but the rest of the world.”

Through Jabbar, Toukan is in regular contact with young people, acting as an incubator, investor and mentor for entrepreneurs who are trying to break into the online market.

But he is quick to stress more needs to be done.

“An education system that helps teach people about entrepreneurship is so, so important. Big companies need to do their part as well and support these people and their start-ups. If all the big private companies help just a small number of start-ups, the ecosystem will really start to develop.

“Mentors and incubators are great for initiative in helping entrepreneurs. It’s really needed because people need to know about start-ups and success stories and to help them succeed themselves.

“I’m not worried about the youth and them not coming up with ideas. I see their ideas on a daily basis. The problem is where money, investment and support is directed. At the moment it’s going in the wrong areas.”

Another thing Toukan believes needs to be readdressed is the culture surrounding failure. He believes that the mindset of the Middle East needs  to allow for success to be part of a longer process and that failure should be instead viewed as experience.

“Eventually the money will come, but society has to change and allow people to have failures. We learn from them, and it helps us when we start another product or another company. Failure is something you learn from. We should be teaching that in homes and schools.

“We should support people who try and fail, and not condemn them. In the west they like people who have start-ups and fail because they have experience and can learn from it. That’s something that has to happen here.

“The chances of success the second or third time goes up in multiples. We have to teach young people to see it as experience not failure.

Toukan also advises young people, as well as those outside the ‘youth’ bracket not to be afraid to take the step into start-ups, and urges friends and family to give much-needed support.

“A barrier to creating a culture of entrepreneurship is that a lot of young people have fear of losing secure jobs and starting something on their own. My advice would be that if you have an idea and are passionate about it then you have to remove the fear and just start it. Learn as you go.

“Our culture is very much about family and friends but too often they are not supportive of people when they are following their passion. Our culture is about having very secure jobs but we need to support people to go out and create their own projects and companies.”

An offshoot of this potential change in appreciation of entrepreneurship would be the creation of jobs.

Saudi Arabia’s National Commercial Bank (NCB) compiled a study in 2012 which revealed that unemployment of native GCC citizens aged fifteen to nineteen is 27.3 percent, while for the age bracket for 20-24 the figure is 28 percent, and unemployment among 25-29 year olds is 14.3 percent.

Another 2012 study, this time by Gulf Investment Corporation (GIC) reported rates of overall unemployment among native citizens exceeded 10.5 percent in Saudi Arabia, fourteen percent in the UAE, eight percent in Oman and Bahrain, six percent in Kuwait, and three percent in Qatar.

Toukan says: “People don’t realise that SMEs contribute so much. Even in the west they are a major part of economies. I see that as a solution. You can’t employ all people in the army and government. People need to create companies. Then if each company employs five, ten or 20 people, there is a huge benefit to society.

“To solve unemployment in the Arab world you would need to create 22,000 jobs every day. The solution is to create that environment of SMEs and other entrepreneurs. This is one of the reasons there are so many problems. Obviously politics and other reasons are major factors, but the jobs environment needs to change.”

Part of this solution, according to Toukan, could be to bring skilled managers in from other countries in order to train a local workforce.

“When we started out, programmers and peopl like this didn’t really exist here.

But that’s a good thing about Dubai – you can tap into resources from around the world. In our companies we have something like 20 different nationalities. When we started the gaming company there were no people with the necessary skills in the country, so we went to China. Now the guy we hired has trained a complete team who can pass on their skills too. I believe in cultural exchanges like that.

“Some people say that when you bring somebody from elsewhere that you’re taking away an available job. But I don’t see it like that. You’re not taking a job, you’re helping to create more jobs.

“At Maktoob we had to train so many people. Over the time we had the company there were about 600 or 700 jobs. A lot of the people in those jobs had to be trained from scratch, but they became very knowledgeable. I tried to do a graph of it once, and as a direct result of Maktoob there were fifteen other start-ups that came about.

“It’s really contagious, and it creates more and more jobs. That was part of our strategy – to help people start their own businesses and build the sector even more.”

When Maktoob was in need of early investment, Fadi Ghandour, CEO of Aramex, backed the company with vital seed money. Toukan mentions Ghandour when looking ahead to how companies can help build entrepreneurialism.

“There’s a term that was coined by Fadi Ghandour called ‘corporate entrepreneurship responsibility,” he says. “If all companies started funds, then it would help so much.

“We need more players in the market. I met a few companies from Egypt but the problem there isn’t that the ideas aren’t good, or that the people aren’t talented. The problem is that people aren’t willing to invest. So these good companies might go out of business because nobody is supporting them.”

Referring to the Arab Spring, he adds that events across the Middle East have provided the internet sector with more pros than cons, and that investors need to act on this.

“In Egypt in one year more than 2.5m people went online. People understand it much more now, whether it’s Facebook, Twitter, or anything else.

“People are using the technology, so on the other side people need to come on board to finance and mentor the businesses. If people have been in the business for 20 years or so, then they can help. That’s what we’re trying to do with Jabbar. We support entrepreneurs and use our experience to help them. If they say they are starting up in Saudi Arabia, for example, we can say ‘ok, do this, and don’t do this’. It’s all part of the ecosystem we spoke about. But we need more leaders.”

These issues aside, Toukan feels very positive about the future, especially when looking close to home at the companies associated with Jabbar. While shying away from specific names or figures, he says there are “a couple within the group who will be exiting soon,” and claims that the deals will be “as big, if not bigger than Maktoob”.

Indeed, was recently acquired by US investment firm Tiger Global Management for an undisclosed fee.

Toukan adds that “the the market needs this – it will give a push to entrepreneurs”, and reveals that Jabbar is “ready for investment in opportunities – not just e-commerce”.

What’s certain is that Toukan is a big believer and supporter of entrepreneurship, and with his track record, who is to be against him nurturing some of the next generation’s biggest internet stars?