MENA startups: Why we need more zebras

They are marvelling at the stories of the likes of ride hailing app Careem, the provider of tech-enabled mass transit solutions Swvl, and cloud kitchen and tech powered restaurant service provider Kitopi.

This thirst to become a unicorn among MENA region entrepreneurs does not differ from that of any other around the world. Becoming a unicorn reflects the ambitious growth aspirations of startups and their quest to become globally competitive players in the startup ecosystem.

Six key drivers

Six main drivers summarise this ambition, and this World Economic Forum report tells a lot about them. The first is validation and prestige. Reaching the unicorn level demonstrates that the startup has achieved significant growth and garnered substantial investor interest. Second, is access to capital: Being a unicorn can attract more investment from venture capitalists, institutional investors, and even sovereign wealth funds.

These investors often seek out high-growth startups with the potential for large returns on their investments. Third comes scaling and market dominance: Unicorn startups typically operate in high-growth sectors and have the potential to disrupt existing industries. Achieving unicorn status often goes hand in hand with rapid scaling and market dominance.

A fourth driver is the power to attract talent as many potential employees are often drawn to companies with a track record of success and strong growth prospects. Unicorns are also capable of offering competitive salaries, stock options, and other perks to attract and retain the best talent in the industry. Fifth comes recognition as these startups often receive extensive media coverage and global recognition, and they are under investors’ radars.

And last, unicorn status increases a startup’s attractiveness to potential acquirers and can provide more favourable terms in the event of an acquisition or initial public offering (IPO). Many startup founders and investors aim to achieve unicorn status as a stepping stone towards a successful exit strategy, whether through acquisition by a larger company or by going public.

A rare breed

Startup unicorns are a rare breed, as of January 2024, there were little over 1200 in the world. A report by Saudi venture capital fund STV finds that in 2030, the MENA region is anticipated to have 45 unicorns. These startups are often characterised by rapid growth and disruptive innovation, capturing the imagination of investors and industry observers alike. They defy conventional norms, leveraging ground-breaking technologies and business models to carve out dominant positions in their respective markets.

With their meteoric rise, startup unicorns not only attract substantial funding but also serve as beacons of inspiration for aspiring entrepreneurs worldwide. However, their journey is not without challenges, as they navigate through intense competition, valuation challenges, regulatory hurdles, and the pressure to sustain their valuation and scale operations profitably. Despite the risks, startup unicorns symbolise the limitless potential and dynamism of the startup ecosystem, shaping industries and reshaping the way we live and work.

Zebras are real

Within this dizzying ecosystem, Zebras emerge as somewhat more ‘authentic’ alternatives. Startup zebras represent a contrasting approach to the entrepreneurial landscape compared to their unicorn counterparts. Unlike unicorns, which prioritise rapid growth and sky-high valuations, zebras focus on sustainability, profitability, and social impact.

These companies aim to build resilient businesses that prioritise long-term value creation over short-term gains. They also prioritise solving real-world problems and creating meaningful solutions that benefit society as a whole. While zebras may not capture headlines with billion-dollar valuations, they play a crucial role in fostering a more balanced and inclusive startup ecosystem.

Unlike the ‘heroic’ and ‘supernatural’ characteristics of unicorns, zebras are a refreshing, more real alternative to the hyper-growth mindset often associated with unicorns and demonstrate that success in entrepreneurship can be measured in more than just monetary terms.

In the frenzied pursuit of the next unicorn, it’s easy to overlook the value of the zebra. Zebras, with their slow and steady approach, embody resilience and sustainability. While the allure of rapid growth may be intoxicating, it often comes with substantial risks, as evidenced by the cautionary tales of WeWork for workspace solutions and Veev.

The aftermath of COVID-19 has prompted a shift in investor sentiment, with more emphasis placed on safer investments and profitability. It’s crucial to acknowledge that true wealth creation can stem from both growth and profitability. Companies must navigate the delicate balance between expansion and financial stability.

While initial focus may rightly lie in proving product-market fit and scaling, the ultimate goal should always be to maximise shareholder value. Striking this equilibrium ensures not only the survival but the thriving of businesses in the long run.

The challenges persist

Even though zebras seem to be less risky than unicorns, they still may encounter difficulties in securing funding, as many investors in the region are often drawn to high-growth potential and flashy valuations. This can make it challenging for zebras to attract the necessary capital to scale their operations. The MENA region presents unique market dynamics and regulatory environments that may pose challenges for zebras too.

Navigating complex legal frameworks, bureaucratic processes, and market fragmentation can hinder the growth and expansion of zebra startups. Building a diverse and skilled workforce can also be challenging for zebras, especially in highly competitive sectors. Unlike unicorns, which often benefit from extensive support networks and resources, zebras may face a lack of ecosystem support. This includes limited access to mentorship, networking opportunities, and specialised support services tailored to their unique needs.

The cultural perception of entrepreneurship in the MENA region may prioritise traditional business models and high-growth aspirations over sustainable and socially responsible approaches. Overcoming these perceptions and educating stakeholders about the value of zebra startups can be a significant challenge. Infrastructure limitations and technological gaps in certain areas of the MENA region may hinder the growth of zebra startups, particularly those reliant on advanced technology or digital infrastructure.

Despite these challenges, zebras still have the opportunity to leverage their focus on sustainability, profitability, and social impact to differentiate themselves in the market and build resilient businesses that contribute positively to society. Collaborative efforts between stakeholders, including governments, investors, and support organisations, can help address these challenges and create a more conducive environment for zebra startups to thrive.

What’s better for the MENA

Whether it’s better to be a unicorn or a zebra depends on various factors, including market dynamics, investor preferences, and the goals of the startup. Historically, the MENA region has seen a surge in unicorns, particularly in sectors like e-commerce, fintech, and technology-driven industries. Unicorns often attract significant attention and funding, which can be advantageous for scaling rapidly and expanding across different markets.

However, the focus on hyper-growth and massive valuations may not always align with the socio-economic realities and long-term sustainability goals of the region. In the MENA region, whether a startup aims to be a unicorn or a zebra depends entirely on the context, market dynamics, and the founders’ values and goals. Each model carries its own set of pros and cons, so the crucial decision lies in selecting the strategy that best fits the startup’s vision, market potential, and growth path.