What The Middle East Startup Ecosystem Can Learn From Other Emerging Markets
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I must say that 2018 started with big waves in the ocean (be it red or blue), and it resonates in the Middle East one way or another. In the first week of January, Didi Chuxing, the giant Chinese ride-sharing company, acquired the Brazilian 99Taxis, which enabled Brazil to champion its first unicorn in the country. I repeat- the very first billion-dollar company. Didi’s current valuation of US$56 billion surpassed Uber’s, since its valuation decreased to US$48 billion as per Softbank’s deal. As a result, Uber is no longer the most valuable startup in the world.
Amazed by such a big accomplishment of Didi for its great work, and Uber for its public reality check -at the end of the day, it’s Uber, right?- I have decided to narrow my vision from the world to the region, and I can’t help but recall the acquisition of Souq.com by Amazon, in 2017. Although not a unicorn acquisition, it had a tremendous impact on the ecosystem. However, there is one difference- recurrent successful stories.
An ecosystem is made of stories, one after another. One more daring than the other. One bigger, crazier, more inspiring than the other. And because of that, it is my duty to introduce you to the other potential unicorns in Brazil, namely the fintech company that is making history in the country, Nubank, and the leader in mobile marketplaces, Movile. They have everything on track to hit the billion-dollar mark. And, in the region, we are yet to build a pipeline of potential billion-dollar tech companies.
At this stage, you must be comparing the size of Brazil and China to justify the statement above. If you think that less than a handful of potential unicorns is a good result, I need to tell you that Brazil has a lot to learn in order to build a consistent flow of home-grown unicorns. And Didi is just one example out of the other 89 unicorns in the Chinese market. China definitely has its population size as a key factor to achieving higher numbers in many metrics, therefore, people relate to it as the only reason for success. If this logic made sense, however, it would apply to countries of more than one billion inhabitants, so India would also have such performance, which is not the case, as they have “only” 13 unicorns.
China cracked the code. Literally. The government efforts to support careers in engineering, math and science have led to close to 4.7 million new professionals in 2016, according to the World Economic Forum, which represents 40% of all bachelor’s degrees. It has professionals who are capable and agile to build technologically sophisticated companies, even the smaller ones, and aligned with a strategic plan for international expansion, they represent the “New China”.
Based on these current events, and in addition to my support for over a decade to startup ecosystems and entrepreneurs with management practices and access to funding, I would like to share with you several lessons I’ve learned so far:
What can investors learn?
Collaboration with investors in other geographies strengthens the performance of the local ecosystem, therefore, supports local startups’ growth. This is because a diversified investment portfolio, not only in sectors but also geographies, facilitates returns non-existent before. Those can be reallocated in local portfolio companies, in the local ecosystem, and thus more can be done for the local community.
Furthermore, it adds value beyond capital by providing strategic connections and local support for international expansion of portfolio companies. People often discuss whether investors in a particular region really add value to their portfolio companies. What we can agree on is that any exchange of best practices with other investors, coming from similar markets, is always beneficial. Investors need to develop their knowledge as entrepreneurs do too. The world is not small- it is getting closer. And investors need to be prepared to:
- Play the global game while still having local impact.
- Play the local game that resonates globally.
What can entrepreneurs learn?
Countless startups are used to poor management in the region. Entrepreneurs fail in managing their teams, not establishing established and lacking the commitment to KPIs. That could be mitigated by establishing a strong culture, values, and management practices. That is how 99Taxis got there. That is how unicorns become unicorns. Aiming to grow fast, but at the expense of a good product/service, which consequently doesn’t sustain its growth, generates mismanagement of cash flows, laying off great talent, excuses to investors, and a business that is flatlining. If entrepreneurs and senior management considered subjects, such as people, organizational culture, team work, as very relevant from day one, more companies could be on track to becoming unicorns in the near future.
I personally believe that the Middle East has a lot more to learn from emerging markets than from mature markets. As an example, Brazil has initiated its entrepreneurial ecosystem a few years earlier and due to the openness of its entrepreneurs and investors to learning and improving, they are more likely to know how to apply lessons learned in their own reality.
There are more than 220 unicorns in the world. Whoever builds and funds startups in the Middle East can learn more about Movile, Nubank, 99Taxis, Xiaomi, Flipkart, Snapdeal, Grabtaxi, Ele.me and more, instead of limiting the knowledge to Facebook, Uber and Airbnb. As a proud Brazilian, I’m confident that, by next month, there will be plenty of unicorns on the streets of Brazil. During Carnival, everyone is securing their billion-dollar costumes to celebrate.
This article includes insights from Marcelo Nakagawa, a Professor of Innovation and Entrepreneurship in Brazil.