Changing the course of Jordan’s startup scene and reinvigorating the country’s entrepreneurial spirit will require an honest assessment of the stubborn challenges that many startups still face.
By Rasha Manna
In mid-2012, my career focus shifted from investment banking to Jordan’s startup scene when I took over leadership of Endeavor, an organization that offers support to entrepreneurs.
Back then many founders were full of enthusiasm and truly believed they were going to hit it big. Pitch events were frequently held and they buzzed with a sense of excitement and new opportunities. The MENA ICT Forum was the regional tech event everyone marked on their calendars and flew into town for. The Maktoob exit was still vivid in everyone’s mind and it was catalyzing much of the startup energy in Jordan and across the region. There was a general consensus that Jordan was paving the way for the regional startup scene.
So when did we lose our edge? Why has the spotlight shifted to other ecosystems in the region? Why has the Jordanian ecosystem stalled—and possibly even regressed—on some fronts?
I haven’t lost faith in Jordan’s entrepreneurship ecosystem. On the contrary, I still believe it has great potential, and for each challenge I lay out here I have also put forward recommendations on how we can get things back on track to give our entrepreneurs and the ecosystem the highest chance of success.
Let’s not get ahead of ourselves
Building an entrepreneurial ecosystem does not happen overnight. There is a natural growth path we must experience before the ecosystem reaches a point of maturity. This may take a couple of decades. The approach in Jordan, at the individual ecosystem support entity level and even on the national level, seems to want to skip the development process and behave like we are already at the point of celebrating big successes. Exits and big success stories are an important component of a healthy ecosystem, but the ecosystem is clutching at straws as to what or whom to report as local successes. We are over-applauding modest achievements and hyping up startups yet to achieve any significant traction.
We are still in the early stages of developing the ecosystem in Jordan as evident by the fact that we only have a handful of venture funds; a limited number of accelerators, incubators and co-working spaces and economic clusters, tech aside, are still not clearly defined or formed. Most importantly, good deals are still hard to come by and capital is not naturally flowing—yet. We are a long way from the ecosystem becoming fully market funded versus publicly funded or subsidized by foreign aid, as it is today.
Jordan needs to develop a clearly defined, broad-based, long-term strategy on how to foster a well-balanced ecosystem. We need to understand and accept that we still have a nascent entrepreneurial ecosystem. We need to allow for the time and effort it takes to ensure all pillars are in place for a balanced and robust ecosystem to grow organically and eventually become self-sustaining. Only when we have a density of investable grade companies will capital begin to flow and a sustainable startup ecosystem can be formed.
We must create and properly fund bottom-up entrepreneur development programs. To catalyze the requisite density of entrepreneurial activity we need to embed an entrepreneurial mindset in our youth, both at K12 and university levels, and across all faculties. This requires developing relevant curricula and engaging the private sector and entrepreneurial community to ensure skills of graduates meet the needs of the entrepreneurial ecosystem. Some of the private sector funding earmarked for supporting the ecosystem should seriously consider backing this type of entrepreneurship development activities at universities.
We are not the next Silicon Valley
While tech is no doubt a priority sector in Jordan, we need not focus all ecosystem-building activity on supporting that one sector. A rigorous analysis is required to determine the sectors that have in fact been able to attract local and foreign investments, create significant number of jobs and generate economic returns.
Take the food sector, for instance. It has attracted quite a bit of regional money over the years, both in food processing as well as in the restaurant business. We are seeing a new trend whereby Jordanian restaurant businesses are franchising across the Gulf region and even internationally. Furthermore, it is a sector that has created significant jobs. It is worth examining the economic contribution of this sector and considering what ecosystem support activities we have in place for new F&B concepts if found to be worthwhile.
We need to develop strategies to identify our own competitive advantages and the most promising industries in Jordan. We should not be looking to recreate the Silicon Valley of the Middle East. Once we have determined four to five priority sectors, we need to ensure our entrepreneurial support activities serve all identified sectors.
We must map all ecosystem support activity. The key is to look at the ecosystem map based on stage of evolution to ensure we are not just helping entrepreneurs set up ventures but that we are also facilitating their long-term sustainability. Despite several attempts over the years to map the ecosystem, I am unaware of a map that is widely accessible or that is up to date. It is critical to promote awareness amongst entrepreneurs of existing resources. Such a tool will also help identify the types of entrepreneurs already served by existing programs and those that remain under-served.
Our definition of an entrepreneur is too narrow
On the one hand, the ecosystem seems to narrowly define who constitutes an entrepreneur, and we have focused efforts largely on those who fit this definition. We seem to visualize entrepreneurs as 20-year-olds in jeans and hoodies running tech ventures. With that, we have essentially ruled out people with actual work experience who might be looking to set up their own business based on experience and understanding of market needs.
On the other hand, the ecosystem draws no clear distinction between business owners and entrepreneurs and regularly conflates the two. The difference is in the nature of the business set up; the level of innovation and the reasons for setting up a business. The former’s goal may be to be their own boss, or to build a life style business with limited ambition for growth and little or no innovation. Entrepreneurs have a higher risk appetite and are trying to solve meaningful market gaps and place great importance on scaling rapidly and dominating regional and global markets.
Focus on innovative entrepreneurs whose ventures have a higher chance of positive spill-over effect on job creation, innovation, productivity growth, and economic contribution.
We’ve focused on the wrong returns
There are a large number of events and activities targeting entrepreneurs and a lot of entities trying to position themselves in this space. However, much of these efforts come up short in terms of quality. The issue is that these entities are not motivated by the kind of returns that would drive quality. Some of the large corporates are after the attention of either the media or the higher powers in Jordan; while others, usually service providers, are chasing donor money. We therefore end up with a lot of mediocre efforts that are more about show than they are about impact.
For an ecosystem to be successful, large established organizations should get involved. This means forming various types of partnerships between startups and corporates, with a focus on goals such as economic development, investment in new opportunities, development of future client base, product acquisition, and supply chain development.
What I have observed in the entrepreneurship ecosystem in Jordan is the tendency to “grade on a curve.” We go overboard in celebrating a startup just because it is better than other local startups. The problem is neither customers nor the global market will lend the same consideration. The risk of over-applauding modest achievements raises risk of complacency amongst entrepreneurs. The economic cost of that is less ambition, less innovation, lower contribution to economic growth, and more difficulty in attracting foreign investors.
Entrepreneurs need to be pressured to think bigger, to be more ambitious and deliver on targets. And if their current startup does not pan out to be viable, we need to encourage them to shut down and launch another. Both succeeding as an entrepreneur and innovation are the result of an iterative learning process. We need to change the culture from shaming failure, to accepting it and seeing it as a necessary part of the process.
Too little cooperation, too much duplication
Despite the small size of the market and how connected it is, there is little effort to collaborate. It is commendable that corporates in Jordan are getting involved in supporting entrepreneurs. However, because some are more interested in receiving recognition for it, they are less open to real collaboration. Furthermore, since self-branding is a key objective, they try to do it in-house rather than utilize specialized entities or fund existing initiatives. All too common are entities elbowing others out of the way and getting territorial about the entrepreneurs they support or fund to maximize recognition for their efforts. Ecosystems that operate with a “me-first” attitude are setting themselves up for failure.
Provide a platform to enhance collaboration, transparency and access to resources. Only with a clear strategy, a dedicated resource to drive implementation, and the right incentives scheme can an ecosystem start taking shape. Increasing collaboration between stakeholders is critical to ecosystem momentum.
Mentorship only goes so far
Mentorship is an excellent way to accelerate entrepreneur development but it is not the only element needed to support entrepreneurs scale their business. Many initiatives in Jordan focus mainly on offering mentorship. However, startups need more than advice and guidance. They also need professionals that can execute certain aspects of the work at times. There is a current gap in the market in this area.
Building up professional services that specifically target the unique needs of startups and are appropriately priced is essential. Corporates keen to support entrepreneurs need to consider allocating funds or setting up initiatives, possibly utilizing their own staff or service providers, to offer such support to startups.
The same faces crop up again and again
There are a handful of people that are appointed on numerous boards and committees of organizations or initiatives supporting ecosystem development. As a result, we see many initiatives addressing the same group of entrepreneurs, using the same methodology. Additionally, these regular “go-to-people” are spread so thin they end up not giving sufficient time to initiatives they are spearheading.
For the benefit of the ecosystem’s well-being and sustainability we need diverse representation. This will allow more varied views, perspectives and approaches to ecosystem development.
Regulatory and legislative roadblocks
Limitations in Jordan’s legal and regulatory environment act as a hindrance to business growth. Inconsistency in implementation of laws creates an environment of uncertainty. In addition, laws and regulations need to be developed to foster ecosystem activity, including bankruptcy laws and venture industry laws, as well as to address the new innovation startups, for example in how they relate to 3D printing, cryptocurrencies, and use of drones.
The government’s role is less about direct intervention and more about ensuring clear and transparent ecosystem friendly policies and regulations are in place and consistently implemented to galvanize a streamlined business environment. The legislative environment needs to be agile in addressing innovative business models. Incumbents who are threatened by startup activity should not be allowed to block such legislative development.
The quantity and quality of funding is lacking
While new Jordanian funds recently announced will partially address the funding gap that exists, it is not just quantity of funding that hinders ecosystem development. There are several challenges relating to funding quality. The nature of VC is a higher risk form of funding, yet local VCs act more like PE firms with the length and rigor of their due diligence process. This places unnecessary strain on entrepreneurs in terms of effort and time. Investors today are definitely more aware, but for the longest time we saw investors abusing the funding shortage and leveraging their bargaining power to the detriment of the long-term survival of the startup. Thirdly, VCs themselves are under pressure from their Limited Partners (LPs) and struggle with their own fundraising woes. As a result, at times, we have seen investors place pressure on entrepreneurs and divert them from their core business to generate short-term cash flows rather than focus on long-term value creation.
In terms of debt financing, the Jordanian banking sector remains overly conservative. Despite the Central Bank efforts and loan guarantee programs, all the talk about supporting SMEs has yet to translate into significant change in SME lending levels.
Capital availability to support each stage of development, from seed to early to growth stages is critically needed. A strong and supportive community of VCs, business angels, seed investors, and other forms of financing should be available and accessible.
Creating an enabling environment for the effective development of a viable venture capital industry is key. This includes designing a clear regulatory framework that will provide the incentives for LPs to invest in local funds, and for the funds to invest in local startups. Also needed are training programs to expand the capacity of the local investor pool and enable research activities to increase data available to and about the industry.
The recommendations presented are just a few starting points for matters that need to be addressed to transform Jordan into a robust economic ecosystem that can lure talent, foster innovation, drive economic growth, and attract foreign investments.
Congruently, it is essential that we do a better job communicating ecosystem progress. We need to define key metrics; measure them periodically and strive to have them improve year over year. This will foster both entrepreneur and investor confidence. These metrics will change as the ecosystem matures. If we rely on reporting investments raised and jobs created in the formative stages of the ecosystem development, we would be setting ourselves up for failure in the long-term.
We cannot run the risk of being shortsighted in the way we approach building the ecosystem. Education of entrepreneurs takes time, as does building a rich pipeline of investable grade companies and implementing a conducive regulatory environment. The ecosystem development process cannot be rushed. It not only takes time, but it takes intention, perseverance, collaboration, and commitment.