Dubai start-ups: a look at the emirate’s business climate
After seven years in marketing, Maya Itani had become disillusioned with the corporate world.
In her mind was a fresh start with a business idea she was sure would succeed — a web portal to book classes on pastimes from learning to belly dance to making a Japanese kimono.
But how to make this happen?
Ms Itani, 28, from Lebanon, found her answer at Afkar.me, a business incubator that helps budding entrepreneurs start up their companies.
Building small businesses is key to the future of Dubai, which Forbes magazine this month ranked in the world’s top 10 most influential cities.
The reasons were many: its place as an international aviation centre, the diversity of its population and its rapidly developing infrastructure.
But what placed Dubai ahead of other cities such as Los Angeles, Beijing and Sydney was its good reputation as a place to do business, and its “entrepreneurial ecosystem” — a measure of how friendly the market is towards start-ups.
While excessive red tape can hinder Dubai start-ups, it is increasingly attracting entrepreneurs from all over the world, supported by private and public sectors.
In its most recent report, Dubai SME, the government organisation that supports small and medium enterprises, found that 95 per cent of local businesses fell into this category, employing four out of 10 workers.
The support Ms Itani received from Afkar to set up booking website The Curve has produced results in only a few weeks.
“Already, our business has gone from a start-up that launched a year ago with an idea and very hard with a small team, to having a long-term strategy and approach to the way we’re doing business,” she says.
“Now, we’re setting milestones for years into the future, looking at a much larger scale for the business and having the help of experts in the industry.”
Based in Studio City, Afkar is a business incubator that offers entrepreneurs US$20,000 (Dh73,500) to invest in product development.
In return it takes a share in the profits rather than an equity share in the company, a deal it says allows companies to keep the profits from any future lines they develop. Juan Jose de la Torre, is vice president of digital at Intigral, the company that created Afkar. The money it offers is “real money”, he says.
“There are a lot of incubators, especially in the Middle East, that say ‘We give you money’. But this money is really discount coupons,” Mr de la Torre says.
The Curve began as an idea Ms Itani had with her husband.
“I started to feel like after moving here and being here for years and years, I was focused purely on my own career development rather than my personal development,” she says.
“Maybe if I was living in my own home country I would still maintain the same hobbies that I had, like volleyball or horseback riding.”
The website allows visitors to find and book courses across the UAE, working with third-party companies offering classes ranging from photography to cooking.
“We developed an aggregator, through which you can find a class that suits you based on timing, location and company, and then you can actually book and pay for it online,” Ms Itani says.
“My favourite moment is when you tell someone that you can do something like capoeira, which is a Brazilian martial art, and their eyes light up because it is something that they might not have known existed in the UAE.”
Such stories show that Dubai has proved to be a fast-growing entrepreneurial market, says John Martin St Valery, a founding partner with another incubator, Links Group.
“Over the years, and this is typical of a fast-growing market for new start-ups, we have seen a lot of companies that have performed well, that then have senior staff or mixed senior staff move on and compete in the same sector and set up their own business,” Mr Martin St Valery says.
“That’s particularly in the service sector, where individuals will need to move away from a corporate umbrella, with all the protections they had as an employee, to take the plunge and compete with the for which company they worked originally.”
But establishing a business means added responsibility, he says.
“It’s not just the cost of running your business for the first year or so, it’s the cost of supporting yourself personally as well. That needs to be built into the business plan.”
Such high levels of risk, in part because of a lack of protection in bankruptcy laws, and the cost and administrative hurdles of starting a business in UAE, can make starting a business seem an unattractive.
This is why incubators are increasingly providing entrepreneurs with safety nets, guidance and financial support.
They provide curriculums, analyse strengths and weaknesses, provide logistics such as office space and visas, introduce entrepreneurs to partners with expertise, and give access to a revenue pipeline.
Majed Al Suwaidi, managing director of Dubai Internet City, says free zones play a huge role in helping start-ups.
“Our responsibility as a free zone is to attract, to nurture and to build networks of companies, especially within the ICT industry,” Mr Al Suwaidi says.
“Part of our bigger role in the UAE economy is to develop a bigger knowledge-based economy, so we are responsible for attracting talented and bright brains from around the world to set up companies, or join companies located in Dubai Internet City.”
He speaks enthusiastically of globalisation, and says that while economies in the Gulf have traditionally been importers of technology, local businesses are starting to tackle the needs of the region.
The UAE is particularly lucrative, Mr Al Suwaidi says, because of the rules and regulations it has crafted, “geared towards creating opportunities for entrepreneurs and companies seeking to expand into the Middle East”.
Dubai’s free zones, such as Internet City, give entrepreneurs the infrastructure and transparency needed to operate, he says.
Internet City embodies a “one-stop” approach cultivated 12 years ago by the emirate’s free zone authorities, including DIFC, Media City and Tecom.
To make things easier still, last May, Internet City created in5, a hub for entrepreneurs, investors and entrants.
The free zone organises work permits, visas and licences at subsidised rates, as well as subsidised office space, incubation services, and more.
“This is just to help people start businesses, take big risks with these businesses and, hopefully, grow into the next multimillion dollar company. It’s a good opportunity; you get people that started businesses and, for whatever reason, were unlucky and closed down. Today, they get a second chance to find different partners, to get ideas they can work on and maybe restart — hopefully building a much more lucrative business,” says Mr Al Suwaidi.
He says entering a country as an expatriate investor, entrepreneur or new entrant is “always difficult”. The free zone, he says, aims to become a “go-to place for entrepreneurs”, particularly as a source of information, where people can gain an understanding of the market, build relationships and learn from the mistakes of others.
On the other hand, Mr Martin St Valery says that despite being initially more costly, start-ups often do better in “onshore” locations, rather than free zones. “The key thing we ask any company that is coming to us about licensing in the UAE is ‘where is the audience for your product or service?’ If the audience is just a business in the free zone, or regional or international locations, then the free zone is clearly the right option.
“But I think there’s been a bit of a misconception that even if the audience for your product or service is onshore then because of a cost effective option of being in the free zone, you can operate from the free zone onshore.”
As far as the law is concerned, he says, if you are based in a free zone you have to operate within that free zone, or outside the juristriction of the UAE. “But knowledge-based or service businesses are being lured for good commercial reasons, pricing, etc, to other emirates’ free zones — but then in effect come and work in Dubai. In certain sectors, like legal consulting or recruitment activity, that is being clamped down on.
“From a Links perspective, there needs to be more clarity and the economic department just recently entered into an agreement with the Tecom Free Zones to say that they do have the ability to branch onshore with their activities.”
Part of the Links Group’s service is to advise new entrants on some of the key risks posed to entrepreneurs. “Although it’s not as exciting for entrepreneurs when they’re setting up a business — keeping an eye on the exit strategy is probably the best piece of advice we give. If you’re a foreign company coming in with a local individual who happens to hold the right license for you, what happens if that individual was to die?”
Perhaps another clear measure of the Dubai’s business climate is to look at how companies like the Links Group and Intigral have fared. “We are into our 12th year now. We’ve experienced double-digit growth from a revenue and profit perspective over the last 11 years,” says Mr St Valery.
During the global economic downturn in 2009, the number of business licenses issued in Dubai fell from 15,203 to 11,743 but rose to 16,688 by 2012. Mr St Valery says the company thrived, even during the downturn. “In fact, 2009 and 2010 were probably our highest growth years.”
Published: August 27, 2014 04:00 AM