Promising outlook

The pillars for Lebanon’s startup success

Lebanon’s entrepreneurial landscape has been maturing in recent years, as witnessed by the emergence of highly motivated youth, the growth of the venture capital industry, and the creation of accelerators and programs to support the development of new companies. Despite these commendable achievements, the country’s startups continue to face numerous challenges.

While Lebanon provides a solid testing ground for startups to appraise the business viability of their products and services, this comes with its own set of challenges: a small-sized market lacking proper infrastructure and one that has long been suffering from a rather infamous ‘brain drain.’

While the path to greatness is never guaranteed, entrepreneurs looking to build success stories should abide by four general tenets. First, founders must build a product or create a service that people need. They should be asking themselves the following question: what problem does this product or service solve? An important characteristic to adopt for the success of a business idea is for it to be focused and simple. The lean startup methodology is a valuable method to build on, especially in a country where access to funding remains limited when compared to markets like that of the US. Rather than building a product that encompasses every possible feature, entrepreneurs should start with the minimum needed for launching and add offerings only after their business gains traction.

Building for export

The second essential pillar for success is building a business model that is exportable, in order to circumvent the small size of the Lebanese market and its limited growth opportunities. Expanding the business in the MENA region or worldwide can sometimes require an in depth understanding of country specific market dynamics. In other words, the go-to-market strategy for Lebanon is very different than that for the United Arab Emirates or Saudi Arabia. In addition to determining the optimal marketing strategy, entrepreneurs will likely need to customize their products to answer country specific needs. For instance, an ecommerce company will need to adapt the product offering to specific markets and understand the preferred payment method in each country, in addition to other criteria such as regulations, shipping methods and customs across markets.

Third, hiring and retaining the right team is a major challenge for startups in general, and especially ones operating in Lebanon. Startup founders who are in desperate need of quality employees often face difficulties retaining people without the appropriate HR structure in place. As employment at a newly launched company usually entails accepting a salary cut, working longer hours and dealing with intense daily pressure, startups should set up a suitable stock option structure to entice employees to stay on board. However, in Lebanon, such stock option plans are ‘quasi-nonexistent’ and unless team members are offered a share in the potential future upside of the company, retaining valuable talent will prove difficult.

The final critical pillar for startup success is a solid understanding of the company’s financial needs and a strict management of capital. Insufficient operating capital is one of the main reasons startups in Lebanon fail, and is often due to inefficient management of capital. Entrepreneurs must become more financially savvy and understand the ‘ins and outs’ of managing a budget. Most entrepreneurs in Lebanon only start with the fundraising process once they are about to run out of cash, and tend to underestimate the amount of time it takes to raise funds — be it from venture capitalists, banks or other sources. It is crucial that entrepreneurs start raising funds at least six months before they expect to run out of money.

Despite the numerous challenges faced by the country’s startups, the outlook for 2015 is promising. With the central bank of Lebanon’s implementation of Circular 331, up to $400 million is at the disposal of the startup ecosystem. It has stimulated the launch of countless entrepreneurial initiatives in support of those founding companies. Albeit with compelling support, the success of startups in Lebanon boils down to good execution. 

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