Millions of Egyptians are deciding to take an unusual career route, by setting up their own businesses, creating better opportunities for themselves and for the community. This is despite Egypt’s high youth unemployment, which is upward of 30%, and political and security turbulence witnessed over the past four years following the 25 January Revolution. However, these entrepreneurs still face many struggles in terms of exposure, gaining funds and in terms of the legal set up for their projects.
An estimated 3.6 million Egyptians are entrepreneurially active, 1.4 million of whom are nascent entrepreneurs, 2.2 million are owners of new firms, and 1.9 million are owners of established businesses, according to a report issued by the Global Entrepreneurship Monitor in 2013.
A few days before the Economic Summit, which was held in March in Sharm El-Sheikh, a new investment law was issued, reportedly to facilitate the legal process of setting new businesses in Egypt. The law is yet to come into effect, pending review by the upcoming parliament. However, the law has still not addressed small- and medium-sized enterprises (SMEs) in Egypt.
In an interview with Daily News Egypt, Ramez Mohamed, CEO of Flat6Labs, reviewed the current entrepreneurial landscape in Egypt. Flat6Labs is one of the largest start-up accelerators in the MENA region, with three other locations in Beirut, Abu Dhabi and Jeddah, creating at least 400 jobs.
What kind of strategy has Flat6Labs adopted to support start-ups, and in what fields?
Flat6Labs is a start-up accelerator, which is a broader definition than incubators. It invests in early stage projects, by giving them all the support needed for people to launch their businesses. We do not focus on a specific sector, but we focus on innovation. Any ideas of innovation that might solve an existing problem in Egypt or even, on a wider scale, outside Egypt, and from which many people can benefit, we would be very interested to support it and invest in it. We also support ideas that utilise technology, because in 2015, it is hard to separate innovation from technology, so tech is somehow always dominant in the equation. We create a small environment for start-ups in early stages, to turn their ideas into well established companies in the market and be able to attract more investors. The difference between us and other sectors that give support to start-ups, is that we invest in their projects as partners and receive 10% to 15% of the revenues. Projects might also have a social impact, but all they have to be for profit.
How do you organise this?
We organise cycles every six months to select from eight to 10 start-ups in each cycle. All participants receive the same kind of support. At the very beginning of the recruitment phase, we start telling them about entrepreneurship and how to start your business, and what we provide as Flat6Labs. In each cycle, we receive from 400 to 500 applications, or about 1,000 every year, and we choose 100 persons for interview, and then we shortlist them to 20 teams. We train them based on several things, and then we filter them to only 10 teams, which are chosen by the selection committee.
How do you ensure the support you give to start-ups is tailored to their needs?
The vast majority of the programme is common for all start-ups, which is receiving an investment of EGP 100,000 [$15,000], a place to work in for six months free of charge. They could also work in our office and get the support they need, then we have mentors who work with each group. We also provide legal assistance to help them set up their projects through our lawyer. Moreover, we provide training and educational sessions in the field of business and entrepreneurship with our partners at the American University in Cairo; there are about 30 to 40 sessions. After they graduate from the programme, they present their projects at a conference that gathers many investors from Egypt and abroad, to introduce their projects and people in the network and potentially find and link with investors. But we always try to customise the mentors’ expertise to fit in the start-ups’ field of work. For example if we had in any round a project in the energy field, we try to include a mentor from the same field.
Do you think the fact that many young people are starting their own businesses now could actually absorb unemployment rates among them?
Any start-up at large is a company that did not exist five years ago. The growth rate through start-ups is much higher, I believe, than many established companies. Most of the entrepreneurs, whether in Egypt or abroad, were already employed in major companies in mid-careers, or freshly graduated with skills that could qualify them to work in any big company, and others who refused offers by companies. They all chose to launch their own start-ups. So it is not that those people started their own business because they did not find a job. We have many entrepreneurs in Flat6Labs who used to work in Vodafone, Microsoft, and IBM, for example.
Egypt is a developing country and has lots of needs to tackle. In what ways do you think the emergence of start-ups in Egypt could fulfil those needs?
The SMEs in any economy worldwide has a huge contribution in its GDP. Any successful country believes in empowering those SMEs to support its economy. So definitely, if we provided better opportunities for SMEs in Egypt, whether by giving them better funds or better exposure, this will eventually be in the interest of our economy and our nation. I do not think this emergence has a strong link with what has been going on for the past four years on the political level, but it is the same demographics. The same people who revolted against the regime in 2011 are the ones who are now revolting against traditional job conditions and aiming to have their own business.
Do you think SMEs in Egypt at their current status are empowered enough to contribute in the country’s GDP?
No, so far, despite the huge number of SMEs, but their volume still does not have an impact. On the other hand, I think there are increasingly many other initiatives which try to provide support for SMEs, whether through governmental funding or other sectors. The private sector plays a significant role as well. Egypt has 90 million inhabitants, so no matter how hard we try now, we still need to try harder, and eventually what we do is just a way to ignite real change.
What kinds of struggles do you usually face in setting up any start-up?
Generally, in Egypt we have bureaucracy in everything, and it is the same for business, and I think there are huge efforts to resolve it, but I do not think this is the worst thing a start-up can face, based on our experience with many of them. The legal phase could be more effective and with less duration, but still this is not the main factor for the success of a start up. The biggest challenge is how to grow, how to make my model succeed. Also, there are not enough for start-ups in Egypt. Many people believe they could apply for a loan, but the amount of legal procedures they need to get this loan is very hard. The investment model is followed worldwide, but is not widespread in Egypt, and we need this kind of support from investors in the private sector who can provide more fund for those start-ups. Many businessmen, instead of investing on the stock market or in real estate, or other traditional sectors, could invest in those start ups, and it could potentially generate more profit for them.
How do you think the work experience of entrepreneurship is better than traditional jobs?
The entrepreneurial field expands your range of skills, especially in terms of leadership and business. For example, if someone comes from a medical background, when he thinks of starting his own business, he will be able to learn about selling his product and growing his business.
How do you view the recent investment law?
I am not very familiar with the investments law, because it targets investors mainly, and this might be the only drawback of it, that it does not highlight the start-ups scene in Egypt. The law does not address early stage companies, and neither does it provide guidelines on how to help them set up or dissolve their projects.
Could you name some successful examples of the start-ups you worked with?
There are many of them. What I recall now is Nafham.com, which is now the largest education platform in the MENA region. It illustrates school curriculums for different stages of education. We also have Tagadod, an energy innovation solutions supplier, which debuted as a graduation project for engineering students. Tagadod turns remaining vegetable/cooking oil into diesel. They now have a small factory in 6th of October City, and export diesel to Jordan and Lebanon.
What are the main things you look for in any start-up?
First of all, the team. It has to be diverse in terms of skills, committed, and with enough acquaintance on what they are about to launch. The potential of an idea, its needs and how innovative it is, are also key elements. Afterwards, we review the market and its potential to grow, whether it’s niche or global.
Finding the right data about an issue to address through a start-up is crucial, yet there is always a conflict in data between official numbers and real ones. How do you deal with that?
We have many start-ups who suffer from this issue, especially in the early stages of the business; we need to know the size of market. It always causes an obstacle in implementing the idea or taking it to a more advanced level. People are usually urged to use numbers from existing sources, which are not all true, or they do their own research. We help them with researching their market size and know how to expand it.
Could you give one piece of advice for a nascent entrepreneur or someone who is thinking of launching his own business?
Based on our own experience with many start-ups, the main thing I would recommend for anyone is to avoid other commitments, whether it’s a full time job or family related issues, if they want to launch their own businesses. When any entrepreneur takes risk and works hard towards his plan, he could successfully reach from point A to B.
