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The Middle East’s entrepreneurial promise

The Middle East seems to the casual observer to always be in crisis, and even more so in recent months (and years) in places such as Egypt and Syria, with numerous other countries grappling with spillover effects or domestic crises all their own.

Despite this, Christopher M. Schroeder argues, the seeds of entrepreneurialism have already been planted, are already bearing fruit, and while nothing is certain, the energy, youth and technological advantages that mark the region’s entrepreneurs cannot be ignored.

I recently sat down with him in Washington, D.C., to discuss his book, “Startup Rising: The Entrepreneurial Revolution Remaking the Middle East,” and how this American tech executive and investor came to be so interested in the efforts of those half a world away. He also recently discussed his book on “Charlie Rose” — video here.

Schoeder’s background is in Internet companies of various types, whether running, advising or investing in them, and he also served in the State Department during the George H.W. Bush administration. So it’s not unbelievable that he would be interested in technology and entrepreneurialism overseas. But the book was not a planned endeavor — it formed out of travel to several countries and talking with people. In fact, the idea for the book was a bit of a surprise. As he told me:

It was particularly interesting, and ironic and maybe more tragic in my case, because I’ve traveled all over the world, I’ve run three Internet technology companies, I’ve outsourced software to Latin America, to Estonia, to Israel, to India, and I’ve been throughout Asia in the earlier days of Asia. And the idea that software was changing societies from bottom up perspectives, top down, should have been no surprise to me at all. And yet I could not get it into my mind that [Hosni] Mubarak’s Egypt was building an ecosystem of startups.

Yet, even under the 30-year emergency state of Hosni Mubarak, entrepreneurs were creating.

Caught by surprise

Around 2009 or 2010, Schroeder recalled, two fellow members of the Young Presidents Organization —Fadi Ghandour of Aramex and Arif Naqvi of The Abraaj Group — began mentioning the Arab world in terms of entrepreneurial ecosystems. They persuaded Schroeder to attend an event in Dubai celebrating entrepreneurs.

He attended not as part of his day-to-day job, not aware that such ecosystems could be thriving in that region, not prepared to write anything, much less a book. Yet, Schroeder says his life in many ways can be divided into “before that event and after that event, because I was unprepared to see 2,400 young people from North Africa to Yemen, with a waiting list of 2,000 people — no one wanted to talk about Israel, no one cared about [President] Obama’s Cairo speech, all they wanted to talk about was building stuff.”

This “stuff” was not rudimentary; on the whole, it was impressive and up to world standards. “I extended my trip and I went to Amman and Cairo, and it was the same thing, over and over again,” Schroeder told me. “And, apropos of nothing, I can’t tell you why I did this … on the plane ride back I wrote an op-ed about what I saw” for The Washington Post.

Schroeder says he had never heard as much feedback from anything else he had written, and it was of two kinds: Americans who were incredulous and “hundreds” of people from the region he had visited, thanking him for highlighting entrepreneurialism instead of “terrorism and violence and everything else.” The op-ed was followed by further visits to the region and additional writing, and that collection of work eventually led to the book.

“When we have a world of 5 billion smartphones … what does that mean” for business?

Technological advances and opportunities underwrite the optimism Schroeder has for the region and others that face significant obstacles. Technology is not an automatic equalizer, but access to it can be, at its best, a multiplier of the efforts of bright, ambitious and young populations in the Middle East.

The initial visit and follow-ups helped Schroeder realize that “because software is available everywhere, now that people have capacity to build companies and other things cheaply, that people see the way everyone else lives, societies are going to be changing — not only politically, culturally, but in business.”

In Egypt alone, there’s the potential for 50% smartphone penetration in the next couple of years — 50% of the population with a fully functional, Web-enabled computers at their fingertips. What will innovation and problem-solving look like, Schroeder asks, when the developing world is fully equipped to tackle those issues with the help of technology, “at scale, from the bottom up”?

For American investors and businesses, the question to ask is, “How are you thinking about a world of 5 billion smartphones?” Broadly, there is a tremendous opportunity to benefit:  Increased attention to entrepreneurialism in emerging markets is a signal of growing middle classes, which means more consumers, more potential customers and, hopefully, greater political and economic stability.

The two misconceptions U.S. businesses must overcome

The biggest risk facing U.S. businesses, Schroeder says, is having an outdated mindset about the purpose of emerging markets and the abilities and goals of its brightest minds.

In Silicon Valley, Schroeder asked entrepreneurs why they were only present in certain overseas markets when their software was everywhere. The answers were not as cutting-edge as their products.

“For them, emerging markets really boiled down to two kinds of things: ‘Look, if the market cap is big enough, we gotta be there. … And the second thing is, ‘What can I outsource cheaply?'” Schroeder said. “And so I said, OK, all well and good, but now [emerging markets] have the technology, which means there’s going to be innovation. [They’d reply], ‘Well, if they’re innovative, we’ll bring them to Silicon Valley.’ Guess what? A lot of folks want to stay home now, and they have the ability” to do so with their families and real markets nearby.

Emerging markets offer opportunities for local solutions to local problems powered by technology, but that can’t happen without an on-the-ground involvement and a willingness of businesses and investors to go beyond “what do I get out of this?” to ask, “What problems can I help solve?”

The second misconception is looking at the Middle East as if events will unfold as they have elsewhere, as in the question Schroeder is so often asked: “What is the Silicon Valley of the Middle East?” Silicon Valley is a rather unique confluence of geographical and other occurrences; what to look for in the Middle East is several hubs of entrepreneurial spirit and activity formed, potentially, around anywhere where people have broadband-Internet access. This could mean Cairo, Amman, Beirut, Dubai and even Gaza, where there was a recently a “Startup Weekend” event with 250 young people.

A long game for investors and entrepreneurs

While technology and access to it is expected to increase over the next few years, regional political stability, particularly in Syria and Egypt, and the economic and civil society reconstruction needed, will be fragile for much longer. Before the civil war broke out, Schroeder said, there were bright minds seen throughout Syria’s capital of Damascus, illustrating the opportunity that could be had or lost based on political events.

In the short run, there are surely gains for investors to make, and it’s also tempting for entrepreneurs to swing for the fences. But what should an investor be prepared for — in terms of technology, education, politics? How long should an investor look to be in this region?

Uncertainty is the operational answer. Emerging-market investors know that such markets have levels of corruption, violence and other difficulties that must be weighed against the opportunities. That will never change. In the Middle East specifically, Schroeder says, there are three things should be kept in mind:

  1. An awareness of the various military, religious and sectarian tensions.
  2. There is also a battle between the desire of governments and investors to have a command-and-control structure versus the wide-open competition that is bottom-up entrepreneurialism.
  3. The common wisdom of today is often the foolhardiness of tomorrow — people once thought Japan was king and that India and China were problematic at best. Even Mexico has improved as an economic destination in the past five years.

What Schroeder says emerging-market investors should know:

  • “There is only going to be more technology.”
  • “We should be cautious about lumping regions.” Even with regions, nations face wildly different circumstances.
  • The combination of investor experience in emerging regions, technology and young populations may mean progress moves even faster, but one cannot discount the risk of, say, Syria’s conflict spreading throughout the region or those young people leaving.
  • A “sense of courage” is needed by entrepreneurs to “will your way through” inevitable conflict, crises and setbacks.

The case for optimism

Entrepreneurialism in the Middle East region is fragile and nascent, but technology, a youthful population and already present bright minds and ecosystems offer plenty of reason to bet on its success. And the U.S. shouldn’t be asleep on this or assume that this change won’t mean different approaches to business. The mindset can no longer be, “What can you do for me? It’s your market cap for me. It’s your cheap labor for me,” Schroeder says.

Silicon Valley will not cease to be a global hub for innovation, talent and problem-solving, and so companies would be wise not to pivot entirely away. But that doesn’t mean the rest of the world doesn’t offer tremendous opportunities, Schroeder says: “The thing about technology … is there’s a lot more problems to be solved, a lot of them have an application within a limited but still sizable market, and I think that’s going to be the more interesting thing to watch.”