5 Egyptian Startup Failures Every Entrepreneur Can Learn From
They invented, they invested, and they failed. Internationally, research estimates that 9 out of 10 startups fall flat. As Egypt’s political turbulence poses plenty of challenges, we look into five different startup stories and the powerful lessons they leave behind.
On a cold winter evening in 2010, Ibrahim Mahgoub closed the office door for the last time. Defeated, the entrepreneur and his three partners had to shut down the event management company they had founded, having failed at organising their first show.
Four years later, Mahgoub leads tens of panels on entrepreneurship as a trainer for Injaz Egypt and Startup School, a company he founded in 2013 to help young entrepreneurs avoid the traps he fell into himself. “The main mistake most entrepreneurs make is confusing hypothesis for facts,” he says. "As entrepreneurs it is our job to set a hypothesis, use it as a starting point of testing, and pivot accordingly. The more pivots you make, the more likely you’re going to succeed.”
Like Maghgoub, many Egyptian entrepreneurs have gone through the bumps and bruises of a nascent startup scene that joins an international trend where only one out of 10 succeed. But what can startup failures teach about the Egyptian market?
Mahgoub’s startup, an event management company dedicated to organising gigs and events, set off with the ambitious project of organising a massive folk concert, investing all their resources for the kickoff event. “We didn't even sell 10% of the tickets we had expected, so we had to cancel the event and closed down a year later,” he says.
Analysing in retrospect, Mahgoub says he fell into what he calls the 'big launch trap.' “We invested all our money in a business model that we hadn’t even invented: we had no idea why people would buy this service, and it was an industry neither I nor my colleagues had experience in. It was our first encounter with event management.”
Today, Mahgoub is at the helm of the Startup School, which trains entrepreneurs to develop prototypes, find a product market fit, and approach incubators and accelerators. “We are specifically focusing on idea-phase entrepreneurship, because that’s where most startups usually fail: in developing a working product,” he explains.
“Failing is inevitable, because good ideas don’t come naturally. Ideas go through a series of testing and modifications to be working ideas. But it is not a negative stage; it depends on how people deal with it.”
Fusing Egyptian culture with fashion trends, Hedma set off positioning a brand with a unique product. But after its first season, it had to close down. “We had a unique product which was our main strength, but the Egyptian market is dominated by already established brands, which leaves little room for startups to share a bit of the market unless they are well backed up by a detailed plan and a sufficient budget,” says co-founder Karim Medhat Kamal.
“Besides, different is not always best. Some of our designs were too different and would have they needed a catalogue for them to be understood. We did not do enough research to get feedback on the designs,” he points out.
Added to the lack of funding and market research, the main mistake, the entrepreneur admits, was the part-time nature of the founders' dedication to the company. “I got sucked up in graduation and my other startup, Lumina Productions, while my other partners are Engineering and Medical students, which meant time was not on our side,” he explains.
Egyptian fashion startup Hedma.
The entrepreneur visualises the launch of another brand in the horizon, based on a strategy the team designed based on the lessons learnt. “We are only waiting for the right time to launch; so I don’t consider it as much a failure as a necessary evil in order to learn how the tough Egyptian market functions,” he says.
An e-commerce platform for designer products such as jewellery, apparel, and home accessories, Cirqy launched bringing an innovative idea to the Egyptian market. Supported by the country’s leading startup accelerator Flat6Labs, the company kicked off with a good buzz and fruitful results, adapting the Etsy model to the Middle East.
However, the challenges brought on by a niche market, the lack of on follow-on funding, and seller sustainability added up to challenges already existing in the e-commerce industry and led the company to a halt after 18 months. Decision on spending was also an important factor, startup’s co-founder Kareem El-Shaffei says. “We had all that it takes to build a solid financial model, seamless business operations and a creative marketing plan; but our decision making on spending sucked. Between a funky office we didn’t need, paying 25% of our capital on an overqualified developer and skipping entirely the concept of an MVP [Minimum Viable Product], our cash burn rate was shooting through the roof. This was when our inexperience shone,” he writes in a recent article.
“The most important part of admitting failure and embracing it is fully admitting your role in it as an individual. Companies blame it on outside factors, but I respect entrepreneurs who recognize their mistakes,” says veteran investor, founder of Flat6Labs and owner of the GrEEK Campus, Ahmed El Alfi.
“Failure is a necessary process. You should always focus on failure because that’s how you learn to be better; people shouldn’t be focusing on it with negative perspective because it is a normal part of the process,” he adds.
A newspaper distribution company launched in January 2011, Jarayed’s promise was that of consistency in Cairo’s residential neighbourhood of Maadi, a context where regular delivery was lacking. Little over a year after its launch, however, the company encountered a cultural barrier and closed down.
To differentiate itself, Jarayed had focused on delivering local, Arab and international newspapers and magazines daily, wrapped in plastic. Clients could therefore specify their preferences through a form each week, instead of only subscribing to only one newspaper.
A delivery concept already existent in Turkey, “the idea was to start a goods delivery company, like local service Mashaweer,” founder Mohammad Naji said in an interview with Wamda. Jarayed’s delivery service was consistently growing, reaching 800 subscribers and commercialising nearly one thousand newspapers daily. The problem began when individual newspaper deliverymen complained that Jarayed was causing a significant dent in their work, leading the company’s main supplier Al Ahram, to breach their agreement and intentionally delay the delivery of some orders, thus costing Jarayed its signature punctuality.
Launched as a community hub for entrepreneurs, freelancers, and student initiatives, Alexandrian startup Pluto was part of an upsurge of co-working spaces that took Egypt by assault in 2014. The platform aimed to provide an effective, innovative and collaborative work environment for entrepreneurs, with private offices for early stage startups to expand. With a diversified their scope, the platform also implemented activities and events with a social scope, aiming at helping both individuals and startups network and grow.
10 months on to their launch, the company launched a crowdfunding campaign on the Lebanese platform Zoomaal, but having reached only 6% of their aim, it closed in 2015. The lack of funding and the difficulty to harmonise their social scope with the financial requirements resulted in a bad fit. “Our successful marketing strategy came from having various partnerships and long term agreements with youth initiatives and identities concerned with entrepreneurship. This helped to brand Pluto as a community hub for entrepreneurs and youth, but we had no financial support from any organizations or investors, thus we relied on self-funding,” co-founder Mohamed Ezz El-din explained in an interview.
“Talking about failure seems to be fashionable in these days,” Ahmed El Alfi points out. “Everybody seems to be looking at failure and its functionality in the Egyptian ecosystem; this is the part of the race where the runners hit the wall and think 'I can’t make it anymore',” he says.
However, the investor considers the entrepreneur scene has never been as good as right now and predicts many startups that kicked off in the pre-revolutionary period will stand out this 2015. “The startup movement is fantastic. In spite of four years of turbulence, we are seeing more participants who are more qualified as founders, as investors, and as mentors. Quite a few of the companies that would have been more mature, if it were not for the political turmoil, are starting to get more traction and are able to focus fully on their business,” El Alfi concludes.
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