Here’s a story you may recognize.
Ten years ago, two young Jordanian entrepreneurs founded an internet services company to foster an online community through which Arabic speakers could access and generate content. At the time, Arabic-speaking Internet users were only in the thousands and there were no regional venture capital (VC) funds. Undeterred, the entrepreneurs continued to experiment with different business models in the Web 2.0 space until they found one that worked. With some financial support from their families, the entrepreneurs were able to set up an office in Amman, launch their business and become pioneers in developing content for the world’s 320 million Arabic speakers.
If you identified the company as Maktoob, you’d be correct, and know that the story’s climax is last year’s $164 million acquisition by Yahoo!, marking the first major deal of its kind in the Middle East.
But, you’d also be right if you answered Jeeran.
Sharing an origin and path similar to Maktoob, Jeeran is an ad-funded online community that incorporates blogs, videos and photo sharing. With more than 6 million unique visitors per month, Jeeran is one of the most popular blogging services in the Arab world.
The example demonstrates that in the Web 2.0 space in Jordan alone, there are many promising tech start-ups: Arabic animated content, technology and multimedia design firm Think Arabia has created an educational animated short to introduce Google’s products to Arab-speaking Internet users. There is online recruitment company Akhtaboot and social media management and advertising firm Modern Media.
Among these tech start-ups, is there the next Maktoob? Quite possibly. Regarding Jeeran, Think Arabia and Akhtaboot, investors are likely to be thinking of them as the Facebook, Cartoon Network and Monster.com of the Middle East. These are tested business models transplanted in nascent and growing markets.
The more interesting question may be: Who will be the Yahoo! for the next Maktoob? Investors from outside the region will likely rush in, but the entrepreneurial ecosystem has evolved since Maktoob and Jeeran launched. Jordanian VC fund IV Holdings has invested in Jeeran. Dubai-based Abraaj Capital has bought the rights to a Think Arabia cartoon series on entrepreneurship. A prominent Middle Eastern entrepreneur has already invested in Modern Media and Akhtaboot.
With increasing regional investment and mentorship, the vernacular for rising stars in the Middle East is shifting from “the next Google” to “the next Maktoob.” According to Aramex chief executive officer Fadi Ghandour, “there is the potential for more ‘Maktoobs’ throughout the region right now. The challenge is supporting them, because several markets are more than emerging — they’re ready to explode. ”
Elevating entrepreneurship that generates the greatest impact
Small to medium-sized enterprises (SMEs) are prevalent throughout the Middle East. In April this year, the United Nations Economic and Social Commission for Western Asia (UN-ESCWA) Executive Secretary Bader al-Dafa reported that SMEs account for over 90 percent of businesses in the Middle East. Dafa added that SMEs build national economies through the job opportunities created for young people, the reduction of unemployment rates and increases in GDP.
If SMEs are a considerable driver of job and wealth creation in the region, it’s essential to support them. However, given that SMEs are such a large percentage of all businesses in the region, it seems only practical to identify and support the entrepreneurs who have highest potential and impact.
Endeavor is the global organization that pioneered the concept of “High-Impact Entrepreneurship" in emerging markets. The nonprofit identifies and supports entrepreneurs with the greatest potential for creating jobs, prosperity and a culture of innovation and investment. For 13 years, Endeavor has selected and supported 539 ‘high-impact’ entrepreneurs from 349 companies that have generated more than 130,000 jobs and $3.5 billion in annual revenues.
In its four years of operation in the Middle East, North Africa and South Asia (MENASA), Endeavor’s portfolio of high-impact entrepreneurs has grown rapidly (see chart). As of October, Endeavor was helping 41 companies that generate more than $163 million in annual revenues and provide 3,842 jobs across the MENASA.
“When Endeavor launched in 1997 with offices in Chile and Argentina, the landscape in Latin America looked similar in many ways to the Middle East today. I’ve been knocking down the doors of Silicon Valley VCs to let them know that the time for the region is now,” says Endeavor co-founder and CEO Linda Rottenberg.
Within the MENASA portfolio, there are companies that have grown into large enterprises and have become role models to aspiring and fellow entrepreneurs. For example, Pharmacy 1, the leading drug store chain in the Middle East, or Airties, the first company to introduce MESH networking technology suited for emerging markets.
However, as Endeavor has witnessed in Latin America, many more entrepreneurs can thrive given an integrated and international ecosystem of entrepreneurs, investors and mentors.
Argentina to Egypt: a comparison of emerging market entrepreneurs
Egyptian entrepreneurs Ahmed Metwally and Mostafa Hafez head Nasr City-based Timeline Interactive, which develops video games that can be purchased and downloaded online. In 2009, Timeline released CellFactor, the first downloadable video game to use sophisticated 3D visuals and game play physics in five languages and for $10.
Founded in 2005, Timeline has already gained globally recognized partners and clients. The company is the first and only video game studio in the Middle East certified by Microsoft and Sony to develop games for Xbox360 and PS3. Timeline is creating a gaming ecosystem in Egypt by training engineers and cultivating demand for high-end games.
Metwally and Hafez also position themselves more broadly within the entrepreneurial ecosystem in Egypt. They understand that few investors and entrepreneurs in the Middle East take the initiative to become part of such a new movement. On another continent and in the same year Timeline launched, Mariano Suáraz Battán and Patricio Jutard founded Three Melons in Argentina’s nascent video game industry. After raising financing, the duo created their first game connected to advertisers, called an “advergame.” The launch of the company’s Indiana Jones LEGO game drew more than 10 million users worldwide, and more than 800,000 people every day play Bola, the studio’s first social game, on Facebook and Orkut.
Fellow Argentine and serial entrepreneur Wences Casares mentored Three Melons since its inception, and Battán and Jutard were able to raise $600,000 from Santander Bank. Jeff Brody of Silicon Valley-based Redpoint Ventures provided strategic advice to Three Melons during its acquisition by Silicon Valley social gaming firm Playdom. In July 2010, Disney acquired Playdom for $763 million.
Both Timeline Interactive and Three Melons started out with under a million in annual revenues, navigated the forefront of a regional market, developed a landmark product and won global recognition. The difference is that Mariano and Patricio benefited from a rapidly-developing ecosystem: the global and local network of investors, mentors and fellow entrepreneurs that catapulted Three Melons to the next level.
The catalyst of an established network composed of global and local investors, mentors and entrepreneurs, separates a country of high-impact companies and one of high-potential companies. Take Colombian based fitness center Bodytech and Turkish gym B-Fit or mobile phone software solutions providers ComperanTime of Brazil and Javna of Jordan, and the trend continues.
In these cases, the Latin American companies generate more impact — in annual revenues and jobs — than their Middle Eastern counterparts. Seasoned entrepreneurs like Fadi Ghandour and Maroun Chammas are set to change this. Charles el-Hage, former senior partner (now retired) at Booz & Company, says: “Entrepreneurs in the Middle East are not only creating innovative, high-growth, globally-competitive enterprises, they are assuring future generations of young entrepreneurs in the region that they can be next.”
“How soon?” not “What if?”
In Young World Rising, author Robert Salkowitz says the most important business story of the next decade is the convergence of three powerful trends: demographics, technology and entrepreneurship. The Economist addresses the union of these elements in a recent article on the rise of young entrepreneurs in emerging markets. In terms of trends, the much lower median age in many of these countries in 2020 is only the start (see chart above). Younger entrepreneurs are leading the internet technology revolution and have the uncanny ability to identify and shape new markets. They exchange seniority and security for risk and returns, and having succeeded with the trade-off, create a middle-class segment that has the wherewithal to also embrace risk. People in this group either have benefited from or are inspired to become entrepreneurs.
The article spotlights companies from Argentina to Ghana and concludes: “The next Facebook is increasingly likely to be founded in India or Indonesia rather than middle-aged America or doddery old Europe.” The article’s conclusion is provocative, but not as much as its omission: nowhere is a company or entrepreneur from the Middle East mentioned.
In the Middle East, technology, unemployment and innovation will start to expedite the development of the entrepreneurial ecosystem. It will happen by necessity, if not by design.
People under the age of 30 account for 70 percent of the Middle East’s population and this demographic is the primary driver of Internet penetration rates, which reached 28 percent in the region in 2009. There is urgency as this demographic faces one of the highest unemployment rates in the world. According to King Abdullah II of Jordan, the region will need to create over 200 million jobs by 2020.
Where established employers fail to provide them, many entrepreneurial young people will take matters into their own hands; in June 2009, Qatar-based nonprofit Silatech reported that 26 percent of Arab youth are planning to open a new business in the next year, in comparison to 4 percent of youth in the United States.
With such a hunger for entrepreneurship, many aspiring and current entrepreneurs from the Middle East will participate in Global Entrepreneurship Week (GEW) in the region and the “Celebration of Entrepreneurship” conference in Dubai this month. Last year, 5.4 million participants attended GEW events in Endeavor-hosted countries. In the first quarter of 2011, Endeavor Lebanon will launch and, within the year, will support a portfolio of Middle Eastern entrepreneurs.
Who knows — one of them may be the next Maktoob.