In It To Win It: Four Areas Entrepreneurs Need To Address To Ensure The Success Of Their Startups
While it's easy to focus on the financial aspects of a business plan to secure investment, there are other key areas that are often overlooked.
Securing venture capital is an essential catalyst in an entrepreneur's journey. It has a key role to play in the development of successful, sustainable startups that are looking to transform innovative ideas into real-world solutions. But it isn't easy.
In the Middle East, the attitudes of investors are changing when it comes to the startups they wish to support. Venture capitalists (VCs) are no longer playing it safe with later-stage companies where the concept is proven, and momentum already gained. Instead, the appetite is increasing for riskier inception and early-stage investment, as they view this as key to ensuring the most innovative, transformative ideas can develop into flourishing enterprises.
At the same time, regional investors are becoming more sophisticated. They have a keen eye for what pre-requisites de-risk early-stage business, and what is likely to drive value in the long term. Regional corporates and large private companies are increasingly taking risks, with Al Tayyar Travel Group, Wamda Capital, and Majid Al Futtaim Group among those who have supported startups championing the most innovative ideas in recent years.
These factors afford exciting opportunities for new businesses. But while the appetite for investing in startups has never been higher in the Middle East, competition for access to that capital has also skyrocketed. Venture capital firms are inundated with requests for funding. Indeed, they can receive as many as 5,000 startup pitch decks a year, but less than 1% will secure finance. And while it's easy to focus on the financial aspects of a business plan to secure investment, there are other key areas that are often overlooked.
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Entrepreneurs often underestimate or miss altogether the critical elements their investors want to see in a business plan. With the typical startup pitch lasting less than 20 minutes, the window to make an impression is narrow. Short, succinct descriptors may seem obvious, but all too often, decks are too long, too wordy, and investors switch off. If you can't keep an investor interested for three minutes, how will you keep customers engaged? And every statement you make should be backed up by numbers. As many as 54% of pitch decks have no financial projections– yet anyone who has built a successful business will almost certainly be a data-driven individual. There is much that aspiring innovators in the region can learn from the criteria against which programs like the Harvard Business School New Venture Competition assess participating startups. Here, I list four areas that are too often overlooked by entrepreneurs, but have proven as critical success factors for some of the most innovative and successful startups the region has produced:
Early-stage investors bet on teams, not businesses. In fact, 96% of VCs state that the team was the primary driver of success. They want to know that your people can offer a diverse, yet complementary skillset with a range of experiences- so, make this clear in your deck. A good team often comprises a technical and a commercial co-founder where the skillsets balance each other out. They will want to know that between you, you have significant experience with the problem you are looking to solve, and can show unique insight into addressing the pain point. And if you don't, can you demonstrate an understanding of the value in selecting strong advisors, as and when you need them? Advisory boards and mentors are regarded as both a proof-of-concept as well as a sign of humility that the founder might not have all the answers, but is willing to ask for help. Demonstrating that you have also considered what the team build-out plan will look like shows investors that you understand what skills will be required as the business scales, and how you will keep the engine running.
2/ Customer Discovery
Investors need to know that startups are addressing a meaningful pain point within a large and growing market. Many entrepreneurs often have a personal "eureka" moment, and can deliver a passionate, compelling pitch addressing a personal problem. But demonstrating that this obstacle is felt by a large customer population is essential. Rigorous and data-driven customer discovery will give you a firm grasp on whether the market has validated your assumptions. Research on the market size and growth are a must. Bring to life your case by creating customer personas to show the specific pain points in real world situations. If you can demonstrate a large-scale unmet need, with value in addressing your identified barrier– you may be on to a winner.
For the product or your solution to really work, it must be unique, differentiated and defensible, offering significant quality as well as time and cost savings to stand out from the competition. Let's take Careem as an example, a company that continues to thrive thanks to its suite of innovations tailored to the Middle East market. By enabling app users to pay in cash, they reached customers who weren't able or didn't want to pay by credit card. By creating their own geolocation maps, they added more and more landmarks and locations to their platform to accurately transport passengers from A to B. They leveraged their customer base to add more products and solutions to create a super app offering delivery, couriers, shopping, and services. Fundamentally, they were able to show not just a solution to a current problem, but how the solution could be scalable to leverage their platform to enter new markets. The Dubai-based venture has now evolved into a US$1 billion "unicamel"– one of the region's first startup unicorns.
4/ Business Model
Predictably, your business model has to stand up. This doesn't just mean that the financial projections have to be sound. Investors will want to understand your path to commercialization and what will drive pricing power, but they will also interrogate the source of projected value. How do you intend to ensure customer acquisition costs will remain low? What is the lifetime value of a customer? For a B2C business, what is your projected average order value? For B2B, what is the likely customer churn? For businesses that create value for the ecosystem, how much cost saving is being created for your customers and users versus options currently in the market? You might take the route of focusing on attracting a small amount of die-hard loyal customers as that shows a product-market fit that can then be scaled with growth investments and optimization of the commercials.
Adhering to these criteria need not be overwhelming, and thankfully there are a number of resources and initiatives on hand to help. Incubators are a great resource, providing fledgling startups with a competitive set of acceleration support tools to jump start their business. The UAE, for example, is now home to an ever-growing roster of startup incubators, which are helping to drive the pace of economic growth across numerous sectors. Flat6Labs, startAD, in5, and DIFC Fintech Hive, among many others, all help businesses during the early development stages, providing business model advice, resources, contacts and necessary capital. They will allow you to test your business plan and provide access to experienced executives from whom you can gain industry credibility.
Often providing access to industry mentors, incubators will offer guidance on everything from the basics through to fine tuning a model that is ready for investors. Some even hold open pitching events, allowing you to hone your delivery and network with potential funders and partners. Meanwhile, VC activity in the Middle East is booming. Startups and fund managers are attracted to the region, increasing both inbound investment and activity from local sovereign wealth funds. Indeed, it's been reported that in January 2022, startups in the MENA raised a total of $247 million, a 20% increase month-on- month and a staggering 474% year-on-year increase, with KSA, Egypt, and the UAE leading the way in terms of deal count. These are big numbers, and the opportunity is there for the taking. By heeding this checklist, you give yourself the greatest chance of access to a slice of this billion-dollar pie.