DEVELOPING ENTREPRENEURIAL ECOSYSTEM IN PALESTINE
6 Ways of Creating an Innovation / Start-up Eco-System in Palestine By Laith Kassis
There has to be an eco-system for technology innovation where the Palestinian government, the international and local corporate world, academia and the donor community all play a complimentary role anchoring around the Palestinian technology entrepreneur. I will attempt to list 6 ways in creating an entrepreneurial society as means to transition our national economy towards science and technology based on knowledge and entrepreneurial competitiveness.
1- Support from the Palestinian Authority
The economic success stories in the US, Europe and even Japan share something in common. In nearly all the cases, the governments were not just early investors in technology R&D, but most importantly these governments were the customers.
Most capitalist overlook the premise that true Small and Medium Enterprise (SME) development does not just come from providing “start-up” capital; yet, the success of stories of the Silicon Valley, particularly in the early days, have far more to do with the governments being early buyers rather than early investors. Even today, examine how the government (even local governments) in the US, Europe and Japan are willing to subsidize clean energy technology and to pay over market rates for domestic production and adoption of these new clean energy technologies.
An important fundamental for financing technology start-up companies. Each dollar invested in seed and early stages is a dollar spent. The same dollar in the form of revenue during these critical stages of the life of the technology start-up company serves as the basis for debt financing at 3-4 times its value and equity financing at 6-10 times that value. Early revenue also assists start-ups to get out of the valley of death financial cycle.
So what can our Palestinian government do today?
- The Palestinian Authority can channel some of the foreign aid towards the financing of seed and early stages technology start-up companies and new spin-offs. Several ways can be envisaged: in the current environment, the government might want to endow special funds from the Reform and Development Plan.
- The government can initiate tax and purchasing policies that give preferences to purchasing and become early adopters of new technology or technical improvements made by local SME innovators. For example, information technology solutions for document management and archiving systems, taxation, department of motor vehicles and the like are required and mandatory by law and regulators, which also assist in diffusing technology in the society: government, industry and civil life.
- Furthermore, the government can and should play a role in attracting high-tech technology multinationals and international corporations to invest in Palestine and developing a growth strategy. A long term vision to promote innovation starting with an immediate capitalisation of employing the IT graduates to support such multinational companies growth in the Arab Gulf region.
- Develop partnership with academic, private sector and civil society representative. Such strategies include the sponsorship of technology funds, incubation programs, technology-park that houses a cluster of outsourcing houses, application development centers and to launch an ICT strategic alliance program with regional and international counterparts. This will spur further innovation and more markets for these innovations.
- Finally, going forward, at the policy level, the financing gap for new start-ups needs to be addressed. Establishment of venture capital funds, venture capital regulations, including seed and early stages investment as part of the Company Law and the Intellectual Property Rights for Technology to attract Foreign Direct Investment are all essential ingredients to drive the investment and intended growth of the ICT sector.
2- Institutionalize Technology Entrepreneurship Education at Universities
Perhaps no other role is as critical in the innovation eco-system as that of the academia.
As of now, much of the academic programs at Palestinian universities are geared towards graduating youth that are psyched and eager to join the market as paid white collar professionals and not as professional entrepreneurs. The foundation for such entrepreneurship education is that entrepreneurship is a management process and not a personal or individual characteristic and trait. As a process, it can be taught at the academic institutions to increase the likelihood of entrepreneurs to succeed in their entrepreneurial start-up careers – if they wish to do so.
Furthermore, the business plan (better yet the business model generation) tool have both become the best metaphor for entrepreneurial education, which differs from the classical “corporate management” business courses that are taught in business disciplines and classes. In this respect, the academic institutions need to take into account that early entrepreneurial activities have its own unique attributes, whereby entrepreneurial education focuses more on the process of defining the business idea and on opportunity recognition; developing a successful business model that can be scalable, the process of building the prototype, getting the first customer shipment out and on learning how to go from a prototype to a truly scalable product tied to the back office operations accordingly.
Even the human resource management at start-up stages differs from HR management in the “corporate” world. In a technology start-up the entrepreneur need to learn how to assemble the start-up team and the methods of compensating and recruiting a complete team where financing is limited rather than managing an existing workforce of professionals.
Likewise, the financing topic for technology entrepreneurs also differ from those at later corporate stages, whereby gathering scare financial resources, raising institutional seed money, trading equity ownership with wealth over time are the main dynamic elements during the life cycle of the high-growth entrepreneurial venture and the start-up company. Every technology entrepreneur need to be equipped with such fundamentals and know-how on these topics to increase their success.
Part of the entrepreneurs’ mission is to be able to acquire resources (people, technology rights, and money) for the benefit of the start-up venture. Most of the current programs at universities teaching entrepreneurship is mostly as a form of SME management or catering for family business to learn how to operate their existing small businesses. However, true technology entrepreneurship is all about educating individuals about future big companies that for sure tend to start up small. It is about knowing the stages of the start-up company in its life cycle as it grows to join the corporate world. It is about creating new products and new markets and to bring technology solutions to compelling market needs.
Entrepreneurship classes will need to teach us of a new culture that we are no so used to, which is entrepreneurial success is enhanced by a competent team. Start-ups’ success largely rely on team work and synergy.
3- Engage the Successful Entrepreneurs and High Networth Individuals (HNI)
It pleases me to note the presence of the successful entrepreneurs and HNI (business owners, lawyers, accountants, consultants, bankers, etc) in our society. The foundation of the innovation eco-system is found in the HNI. However, a national incentive program need to transition these individuals to contribute mentoring (talent / body of knowledge), money and minutes (time) back to their society. Ideally, a healthy entrepreneurial eco-system will have all manner of technical and business mentoring manifest itself and would be available on varied options of incentive basis such as equity sharing or consultancy if it volunteering is not pragmatic. An example of some of the initiatives that can also be taken by these individuals is to:
- Take an active role to become guest speakers at universities in promoting entrepreneurship and sharing their success stories.
- These individuals can also become angel investors themselves as they can also be a catalyst to link local SME with the corporate world and holders of large pools of capital, which they themselves are part of.
- Last but not least, the HNI can share their business experiences and management know-how in the form of mentorship, advisory and being part of the Board of Directors for the start-up company.
I realize that the above requires a change in the society culture to impact the innovation eco-system – a culture that should be based on one’s awareness in advancing and uplifting other individuals and not to be constrained by social or monopolistic business boundaries or even the taboo of fear of failure or the disrespect of the intellectual property of others. We need to pay it forward in this regard!
4- Developing Entrepreneurial Students
Students themselves can support their faculty and start being pro-active in developing initiatives and graduate projects that has entrepreneurial zeal. They can also organize for entrepreneurship programs on their own campuses such as assisting and committing to business plan (or business model) and innovation contests on campus, form technology entrepreneurship clubs and other similar activities that can nurture leadership and presentation skills by these students. Such skills are indeed fool proof recipes to advancing the career of students.
5- Engaging the Corporate World
It is said that in certain pockets of the U.S., the eco-system has shifted from an inefficient corporate R&D model to a corporate merger and acquisition (M&A) model. In short, only those technologies that made it into the hands of substantial venture equity and private equity investors had a chance at commercialization and, of those, only a small fraction could survive long enough to become target for M&A by large corporations or land an Initial Public Offering (IPO). In the absence of a serious R&D model in Palestine, the path of engaging the corporate world in the entrepreneurial eco-system is the most feasible one to also integrate start-ups in different value chains of industry.
As such, some of the innovation is moving out of the corporate world as it is being lead by technology entrepreneurs. Nevertheless, most of these early start-up companies find themselves back into the corporate world in less than a decade. These are the “gorilla” high-growth companies such as Google. Hence, I have learned that the financial success of CISCO and many other multinationals has been dependent on acquiring new innovative lead by technology entrepreneurs in lieu of developing new innovation internally.
What did work in the U.S. and what can we learn from that to making buying innovative technology start-up companies experience in Palestine a similar success with the cooperation of our private corporate sector?
6- Engaging Development Agencies and Organizations
Job creation and poverty alleviation in Palestine is best dealt with by enabling people to create economic value. Value is created by imagination and innovation which is implemented and translated into goods and services that are sold in a competitive (not monopolistic) markets.
Sheltering new businesses in a dynamic environment such as a networked, competent and resourced business incubator / accelerator in the very early days puts us one step closer to ensuring the survival of a young business which can develop new products and services.
Supporting the technology entrepreneurial process, helping individuals or companies with business ideas that have high growth and the potential to generate employment and contribute to the competitiveness of the local economy becomes a public good. This is indeed a leadership role for development agencies whom have been involved in economic development.
The challenge remains is to have specialized windows within financial institutions that are willing to take a little more risk when it comes to financing new start-up businesses. One completely understands why the traditional commercial banks shy away from financing business ventures that have not proven themselves yet. This is why specialized teams which can understand the potential of a product offered by a young innovative start-up and them understanding the markets are also needed, to be willing to take the calculated risk to finance these entities. A good product, good entrepreneurial management, good market access traction are important elements, but an important ingredient of success is the start-up accessing financial resources to be able accomplish its goals.
True entrepreneurial innovation will be drawn from not competition but from cooperation. Efforts on collaborating on small and large scale challenges and common interest projects should be the norm. If we are not ready to upscale our participation as a society in the innovation eco-system, a working entrepreneurial model for start-up innovation will only take us longer to achieve.
Individual breakthroughs coming out from incubators may come every once in a while; however, it is about developing a successful working high-growth start-up innovation eco-system model that can spur and scale more sustainable commercialised innovation. Take ownership of your role in this value chain.