There’s an essential, intangible something in start-ups — an energy, a soul. Company founders sense its presence. So do early employees and customers. It inspires people to contribute their talent, money, and enthusiasm and fosters a sense of deep connection and mutual purpose. As long as this spirit persists, engagement is high and start-ups remain agile and innovative, spurring growth. But when it vanishes, ventures can falter, and everyone perceives the loss — something special is gone. (Gulati, 2019)
In this article I hope to consider some “personal” reflections and key observations from my experience with Chouf’s Park Innovation, Berytech and other Lebanese incubators, hoping that they serve as important reminders for me and others who are interested in creating a startup and pursuing the entrepreneurial path in Lebanon.
My aim for this entrepreneurial startup ecosystem with Park Innovation in particular is to highlight the need to create a system that inspires collaboration and disruption rather than the search for startup heroes. This also applies to similar sub-communities of the Lebanese startup ecosystem where my motivation to specifically argue about Park Innovation’s practices stems from the sentimental value the Chouf region holds to my heart. This is where I’m from, where I was born, grew up, went to school, and lived most of my life.
I come to this as a marathoner, that has been training for a few years, who enjoys the long run of a venture. A mountain native who loves risk, altitude, and thrives under uncertainty. An organic and vegan farmer who values the quality of the slow cruelty-free food culture. As someone who has experience with entrepreneurship building both successful and unsuccessful ventures for 10 years.
Entrepreneurship is a marathon, a mountain climb, not a sprint; it’s the nourishment of your soil over years; it’s the building of trust and support networks around your biosphere; it takes patience, persistence, and perseverance, to which in order to succeed, to truly build great companies, before starting, one must see a commitment to a 10-year life horizon.
During the past decade, startups and scaleups have gained a lot of attention as a tool for promoting innovation and job creation. And now after the COVID-19 pandemic, and the economic-political collapse of the Lebanese government, digital startups became the major lifeline opportunity for the independent Lebanese talents. But startups remain fragile and often fail to survive during their first years due to unfavorable business environments, lack of proper financial support, and insufficient managerial skills of the founders. We know from research the characteristics and success factors of large, well-established innovation clusters like Silicon Valley, but smaller less developed regions similar to the Lebanese ecosystem remain relatively poorly understood.
Lebanon, with its liberal economy, low corporate taxation, affordable and attractive living lifestyle, has seen the emergence of an increasing number of startup companies. Before the economic collapse, Lebanon used to be a small open service-based economy with tourism, financial, and services industries accounting for the major share of domestic wealth creation. This small Mediterranean country is dominated by small and medium-sized enterprises and its entrepreneurial ecosystem is characterized by the presence of qualified human resources and resilient entrepreneurial spirit. However, systemic conditions, including infrastructure, networks, leadership, finance, and adequate support services are underdeveloped.
1. Focus on early-stage startups
The study of the Lebanese entrepreneurial ecosystem indicates that there is a strong belief within the community that a higher number of startups will benefit the ecosystem, whilst little consideration is given to the quality of those startups. Berytech incubates over 100 startups per year and Park Innovation has similar goals.
The study of quantity versus quality of startups suggests that there is no evidence to confirm that increasing the number of startups will stimulate economic growth (Isenberg, 2014). Instead of focusing on the creation of startups, the economy would gain from targeting resources towards innovative, growth-oriented ventures (Shane, 2009).
My observations suggest that the Lebanese ecosystem is becoming overwhelmed with so-called startups that are actually just small businesses without much growth potential. We have observed, mainly young local entrepreneurs, engaging simultaneously in several entrepreneurial ventures and neglecting those companies during their growth phase. The number of startups in Lebanon is growing each year, yet the value-added of these companies remains usually relatively low; there are many startups in their early stage of development but few make it to the advanced stages of growth. In the words of a local entrepreneur, “… the ecosystem may become oversaturated with startups, programs, accelerators, incubators, and there will be no success stories… eventually, good projects will be missed”. Thus, initiatives and programs supporting the Lebanese ecosystem mainly serve early-stage startups; the ecosystem’s institutions work to motivate and attract an ever-increasing number of new entrepreneurs into the community, yet there is no focus on later-stage ventures and support for a sustainable entrepreneurial community.
2. Limited deal flow
Investing extensively with grants and subsidies in the ecosystem will not necessarily lead to expected positive results since one of the most important tasks of policy actors is to provide venture capitalists with substantial and steady deal flows. This is not the case in Lebanon where the limited deal flow and low-quality startups have seriously curtailed the development of venture capital funds. Although a number of initiatives were implemented to support investors’ initiatives, these eventually have become meaningless because of the absence of high-quality innovative startups in the market. Instead, early-stage funding takes center stage within the ecosystem: startup competitions, accelerators, incubators, business angels are offered to the community of entrepreneurs, who in the end, often need to rely on personal savings and support from family and friends to develop their venture.
Having said this, the role of venture capital in entrepreneurial ecosystems can also be overestimated and not all startups will rely on it to succeed. In other words, attracting more venture capital might not be a necessary condition for success. In the specific case of Lebanon, it might be more reasonable at first to activate and engage local resources: build and develop strong innovative ventures through support and proper mentorship, facilitate networking between local investors and entrepreneurs so that they can learn from each other and finally, and most importantly, educate local investors to make more informed decisions and become less risk-averse. In the words of a local entrepreneur and mentor: “There’s too much focus on trying to create investment funds … My point is that money is always there …, but what you really need to do is to put the environment in place that will allow these startups to begin to learn about their journey in the right way”.
3. Lack of understanding and experience
Public and private actors alike create a lot of buzz around the idea of “entrepreneurship” and “startups”, they “import” incentive programs and ready-made solutions seen abroad for immediate implementation in Lebanon and Chouf. These initiatives often fail because they do not sufficiently take into account the nature and needs of entrepreneurs in Chouf. These programs often come with excessive burden during the application process, huge delays during the allocation of funds: “…the procedures for application were very difficult so we didn’t bother to apply. This is not how startups work. Startups need to be flexible, they can’t wait for so long and they need trust”. One of the schemes on offer required a detailed business plan from the applicant and this was viewed by the community as simply absurd:“…startups don’t operate with business plans, you can’t tell a startup to plan 3 years in advance … they really don’t know what they will be doing in six months… this is sending the wrong signal.”
It is to be expected that mentors operating in incubators and accelerators have background experience in private sector entrepreneurship. In Chouf the reality is somewhat different; there are not enough experienced people engaged in the ecosystem, including successful serial or former startup founders, who really understand what entrepreneurship is and are able to validate ideas and provide proper support. When it comes to funding schemes, business competitions, and incubators/accelerators programs, candidate entrepreneurs are evaluated and selected by people who themselves have rarely worked for a startup company. In the words of a local entrepreneur: “…my observation is that people leading the ecosystem have a different agenda, they don’t have entrepreneurial experience, so they can’t evaluate or help… they have never been founders, they don’t know the lessons”.
4. No systemic functions
Lebanon boasts a high rate of entrepreneurs. Lebanese are often characterized as having a strong entrepreneurial spirit but this may have little to do with the existence of entrepreneurial skills. One can reasonably assume that this relative lack of entrepreneurship skills may explain why companies display a low survival rate and why startups often don’t reach later stages of growth.
Experienced entrepreneurs tend to shy away from joining new startup teams, it is not part of the local culture and it is perhaps perceived as a bad time investment. Yet, the Lebanese entrepreneurial ecosystem desperately needs the involvement of experienced entrepreneurs to act as mentors, private investors, and/or co-founders.
My observation leads me to assume that there is no culture of sharing and support; what is described as “give before you get” philosophy (i.e. the existence of non-zero-sum game in the ecosystem), seem to be absent in Lebanon. Instead, the system displays signs of fragmentation, the competition seems to prevail over collaboration, and actors are disconnected from each other. Following an entrepreneur and mentor: “The problem is that the ecosystem is disconnected, people don’t work together, everyone is trying to be a hero”.
5. A superficial approach to entrepreneurship
There are a lot of entrepreneurship competitions (business ideas contests) that motivate would-be entrepreneurs to produce a continuous flow of new ideas. However, there is circumstantial evidence that leads us to believe that such events may have a negative impact on the entrepreneurial ecosystem. Entrepreneurs may overly concentrate on competing for cash rewards and fame, rather than focusing on the development of their business ideas.
Often, people who are acting as judges for these competitions don’t have suitable expertise and experience, they can’t provide startups with the necessary validation, support, and mentorship opportunities that are so crucial to take the process forward. The end-effect can be detrimental to the system as a whole, as described by the founder of a local incubator:
When competitions become a vehicle for self-promotion, it is not surprising that a culture of collaboration and sharing proves difficult to develop.
The above is not limited to startup competitions, the Lebanon ecosystem appears to be led by a myriad of local support organizations “… there are so many of them (support social impact organizations), there’s just noise” says a local observer, such as incubators, accelerators, non-government organizations (NGOs), and corporations related to these organizations, including their main sponsors, the business service providers. Many events and initiatives tend to promote the organizers and their sponsors, attracting a large number of potential company creators, who in turn make up a pool of potential clients of these incubators, accelerators, and other engaged professional service providers.
Thus, startups increasingly become clients of these well-established corporations whilst there is little evidence of enhanced collaboration within the system.
6. Ignoring the size of the market
Lebanon is a small country where few businesses can grow at this scale. The goal of startups can’t be to make a few thousand dollars a month if that’s the aim; a good business that fulfills a decent need can achieve that. If the startup dreams are any bigger than that, they need to consider regional or international markets.
If they prefer to stay local, they should consider businesses with a high rate of repeat purchases (its the reason why the food business is the most lucrative in Lebanon). Those businesses should stay away from models that limit their customer transactions to one or two transactions (Chehade, 2019).
7- Mistake media attention for success
Media coverage is like a drug. Gives you a false hype for a short while, until startups discover that it did more harm than good. We have watched interviews with tens of Lebanese startups for TV, many of which do not exist anymore. Media outlets are always looking for stories, and they usually care more about that story than the actual product. And in Lebanon, it is very easy to get media attention compared to more competitive markets.
The problem with this is that it gives the entrepreneurs a false sense of success, which often ends up in this person chasing publicity opportunities instead of focusing on building their startup.
In many cases, this publicity is premature, especially when an entrepreneur wastes a media appearance to talk about a product/service that people can’t yet use. Publicity needs to be well studied. Its always advised for entrepreneurs to only appear in the media if their potential customers have the ability to take action (Chehade, 2019).
8. Entrepreneurs and investors are risk-averse
One could assume that one of the drivers of entrepreneurship in Lebanon is the high unemployment rate, especially among youth, meaning that plenty of founders are by necessity entrepreneurs. More importantly, one must distinguish between self-employment and entrepreneurship, as these activities incorporate different degrees of risk and value creation (Isenberg, 2010).
In Lebanon, we have observed that only a small percentage of newly created companies incorporate real innovations and therefore higher risk. Thus, society may perceive entrepreneurship positively when it comes to opening a small family low-risk business, like a coffee shop or a fast-food restaurant. However, when riskier (innovative) business activities are involved, society may not be ready.
The investment culture is not developed in Lebanon, especially when it comes to funding risky ventures. Investors tend to prefer less risky projects like in the real estate business or well-established companies that have reached large volumes of sales. However, the situation is different; surveyed actors indicate that local investors do not actually know how to select startups that are suitable for investment, they do not understand the needs and nature of innovative enterprises. Instead, investors, end-up judging candidates on their potential for a quick financial return.
A local -perhaps frustrated-entrepreneur summarized the situation as follows: “I wouldn’t go and ask for money in Lebanon, I wouldn’t talk to investors in Lebanon, they are not educated in technology, they want to make money in one day, but it does network like that, what they can do, is just selling properties”.
The degree of openness of the system, i.e. its ability to attract highly qualified human resources, is of crucial importance. Searching for specialized skills within the borders of Lebanon requires a smart transformation strategy, but according to stakeholders the initiative’s attempt to address this issue does not look promising as the same methods and models that have harvested failure for the past decade are still being implemented.
As it stands today, the startup sector in Lebanon and Chouf is made up of companies operating mostly in social media, marketing, and e-commerce; other more country-specific opportunities don’t seem to have developed. For instance, one could have expected the fintech sector to be better represented or other activities relevant to Lebanon’s economic structure like tourism, and services. More research would be needed to better identify the links between startups and the local economy. In the same vein, we can conclude the lack of engagement between entrepreneurs and between entrepreneurs and their environment. Going forward, we would need to improve our understanding of the subtle relations between all the stakeholders involved (including R&D providers), to assess how the ecosystem of startup companies in Chouf could engage on a deeper, more sustainable, and meaningful path of development.