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Entrepreneurs Save the World

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From the Summer 2012 Games People Play issue

By Elmira Bayrasli

LAHORE—Talking over the hum of a power generator, Monis Rahman settles into a plush black chair in a glass-paneled conference room at his offices in Lahore, Pakistan. The midday sun peeks through vertical blinds behind him. Though the power is out yet again, the 40-something tech entrepreneur who runs Naseeb Networks, the job site Rozee.pk, and matchmaking platform Naseeb.com, is unfazed. He’s energized about an upcoming event in his country called TiECon, a conference hosted by the Indus Entrepreneurs Network. “We’re promoting entrepreneurship in a major way,” Rahman says in near-perfect English.

Back in the 1990s, Rahman was working at Intel where his team developed the revolutionary Itanium 64-bit microprocessor chip, the device that acts as a computer’s nervous system, routing information and allowing multitasking. “It was my dream job,” he says.

His family considered it a godsend. Rahman’s father, a UN diplomat, bragged that his son, an engineering graduate of the University of Wisconsin at Madison, had landed a position with a reputable firm. Employment in an established business was the fallback alternative for every Pakistani parent whose son or daughter didn’t make it to the truly coveted medical school.

“But once I got there, I realized that Intel wasn’t enough,” Rahman continues. In Silicon Valley, it never is. Everyone around Rahman was launching an enterprise. It was the late 1990s, when billions were being poured into dotcoms and everyone aspired to found the next Yahoo or Hotmail. Abandoning traditional Pakistani prudence and the safety of corporate life, Rahman quit to try his hand at creating the next big thing.

Today, especially in Pakistan and in scores of other developing countries, he is not alone. Across the globe, people argue that entrepreneurs are the job creators and wealth generators who will pull developed countries out of their economic malaise and developing nations out of poverty. In Brazil, China, India, and Turkey, start-ups have driven astronomical growth.
Over the past several years, Monis Rahman and a host of other entrepreneurs across Asia, Latin America, and the Middle East have said it’s not so simple. In order to launch successful enterprises that create jobs and book revenues, they first need to overcome numerous obstacles before they can attract investment capital and put their countries on a growth trajectory.

These hurdles are wide-ranging. Poor regulatory environments, weak governance, complicated bureaucracies, capital shortages, underdeveloped supplier and customer networks, and corruption make it difficult for struggling entrepreneurs to scale up, let alone survive. To paraphrase Aid Thoughts’ blogger Ranil Dissanayake, what distinguishes techies in Silicon Valley from textile sellers in Pakistan is not their sophistication. There are simply fewer obstacles blocking techies in Silicon Valley from launching and sustaining their business ideas.

Tech entrepreneurs in the developing world, however, are working to break down the barriers themselves. These are not the traditional entrepreneurs of the developing world, setting up mom-and-pop shops as a means of survival. Instead, they are focused on applying Silicon Valley’s best practices—identifying opportunities, sourcing mentors, building trust, and shifting foreign perceptions in their countries to build competitive enterprises that will attract investments. Ultimately, investment spurs progress, and understanding what attracts that investment is the first step toward success. No country understands that better than Turkey.

TURKISH OPPORTUNITY

Istanbul is a confusing warren of streets lined with houses locked together like a stack of Lego blocks. The oldest homes are made of dense and impenetrable concrete that makes each unit a separate, isolated entity. Sound does not carry easily between or within these thick walled units nor do the continuous wavelength signals emitted by wireless routers designed for American drywall. That, Bulent Celebi recognized, was his opportunity.

Though Celebi is an entrepreneur, he’s always impeccably dressed in tailored clothes, looking straight out of the pages of GQ. He founded AirTies, a technology start-up that develops and markets wireless electronic devices for those who operate in specialized environments. His firm is based in Istanbul where the debonair Celebi was born but left as a teen. It’s a place he’d dreamed of returning to despite being happy in his adopted home of San Francisco. In 2004, he launched an enterprise that would unleash Turkish innovation—a perfect route back to the country of his childhood.

His idea was to create WiFi for the rest of the world. It would take off from Dutchman Vic Hayes’s invention, conceived in 1991 for cashier systems—the customers of NCR Corporation and AT&T. With no dial-up or cords, it became a staple in Western households and a windfall for tech companies already basking in the financial promise of the World Wide Web. The Internet was nothing but a growth market. Mass-producing wireless devices that connected electronics to the cloud guaranteed even bigger returns. Trouble was, unlike a personal computer or laptop, they hadn’t figured out that WiFi wasn’t one-size-fits all. 

While a WiFi box, just like radio, streams a standard WiFi signal worldwide, Istanbul proves that cookie cutter WiFi doesn’t work everywhere—a fact that wireless giants Linksys, DLink, and Netgear hadn’t yet caught onto. Focused on the American market, none of these companies were updating their devices or looking to innovate for global markets where, in early 2000, broadband still hadn’t reached a critical mass. As head of the chip company Ubicom, Celebi encouraged these companies to update and adapt their devices for emerging markets, which he was convinced would eventually boom. When the giants ignored his advice, he did it himself. With a thoughtful, low-key approach, he raised $300,000 in seed capital from Valley investors and persuaded a handful of American-trained Turkish engineers to join him. The country was relatively affordable with low labor and operating costs, quality manufacturing, and a pool of educated, young workers. It was also an emerging market that was ideally situated—a short distance from Europe, Russia, Central Asia, North Africa, and the Middle East.

First, Celebi concentrated on Istanbul, where the concrete floors and walls weakened a continuous wireless signal. To solve this problem, he developed a mesh technology that sent out repeated pulses like a beating heart. Electronic devices were able to pick up these pulses without interruption, giving the user a better experience. That became Celebi’s bingo. But AirTies’ success went beyond this simple innovation. From the get-go, Celebi focused on service and customization. That was another area his American competitors had neglected. In mass-producing routers for a largely English-speaking market, Linksys, DLink, and Netgear ignored their foreign consumers, whose living standards and needs differed from those in the United States. In Turkey and the surrounding Balkans and Middle East, with a combined population of 465 million, that was a costly mistake for them but a boon for Celebi. He created routers with manuals and 24-hour customer support in Turkish as well as languages in the surrounding region: Arabic, Bulgarian, Greek, Kazakh, Romanian, and even Russian, which together with Ukrainian adds another 187 million to the market. Today, AirTies dominates the wireless router market in the region, boasting 50 percent of the wireless market share in Turkey alone. It generates millions in revenues and is planning on an initial public offering in the next few years.

CUTTING RED TAPE

Turks have long struggled to afford and integrate the latest technological advances. Landline telephones only became widespread in Anatolia in the mid-1980s, and cable didn’t reach Turkish TVs until the 1990s. But today, even in the remotest parts of Anatolia, Turks are connected to the Internet wirelessly, a connection made possible by a Turk. Even more extraordinary, Turkey was long considered the “sick man of Europe”—a creative and economic laggard, and certainly not an innovator. As political powerbrokers under the Ottoman Empire, they relegated trade, commerce, and business to Armenians, Greeks, and Jews. Turkish entrepreneurship did not emerge in earnest until decades after the establishment of the Turkish Republic in 1923. And no wonder. Turkey, like many places outside the West, is a hard place to be an entrepreneur.

Nepotism, red tape, weak rule of law, and a lack of mentors, networks, and talent dominate Turkish markets, as they do in much of the developing world. So it’s hardly surprising that Celebi had a hard time finding a motivated and professional staff that would take initiative. Then there was the matter of bureaucracy—elaborate bookkeeping to comply with Turkish tax laws and countless slips of paper that required Celebi’s personal authorization. According to Turkish law, AirTies is Celebi’s personal responsibility. There is no limited liability or protection. If it fails, he and his family lose everything.

So Celebi hedged his bets, gambling on the Anatolian Tigers, once sleepy cities in the Turkish interior. These boom towns became roaring economic powerhouses, filled with entrepreneurs who built fortunes largely from textile and furniture manufacturing following the country’s economic liberalization in 1980. As Vali Nasr notes in his book Forces of Fortune, “Economic power shifted to small- and medium-sized businesses and the Anatolian heartland overshadowed Istanbul as an engine of growth.” Hoping to finally secure a coveted spot in the European Union, Turkey’s rulers slashed the country’s bureaucracy and relaxed the rules to make it easier for Turks to register businesses, acquire licenses, build trade, and move capital freely in and out of the country. It has become a model for all developing countries eager to unleash their economic power.

Red tape was replaced by lucrative deals. Turkish cotton traders engaged directly with the likes of Levis and Tommy Hilfiger. Anatolian furniture manufacturers signed deals with European conglomerates. Investment poured in, and a middle class was born. The Anatolian Tigers had taken entrepreneurship beyond an option of last resort. In a virtuous circle, it is the presence of this middle class that has allowed Celebi to push entrepreneurship further. 

Today, AirTies’ routers can be found even in the most remote parts of Turkey. It is an innovation that has helped catapult the nation into its position as the world’s 17th largest economy—higher than all but six of the 27 actual EU nations that have kept Turkey waiting at the door for 49 years. Indeed, Turkey is where Monis Rahman wants Pakistan to be, but Rahman still has a steep road ahead.

BUILDING TRUST

Pakistan is often called a failed state. Over the past several years a series of natural disasters and an on-going war in neighboring Afghanistan have plagued the South Asian country of 187 million. It has become increasingly unstable and prone to violence. In 2010 alone, there were over 3,300 violent incidents, killing or injuring more than 20,000 people, according to the Pak Institute for Peace Studies. Rahman and other Pakistani entrepreneurs are working to end a perception of unpredictability, which Rahman says stands in the way of many entrepreneurs in his country. They are trying to build on the success enjoyed by brands like The Body Shop and Pizza Hut, which teem with eager clients. “The main issue that we’re seeing [in Pakistan] is we’ve got this huge perception challenge globally, and it is interfering with investments that are needed to fuel growth.” Threats have suffocated the country’s potential. Rahman believes that with a computer savvy demographic, Pakistan could flourish in the IT and outsourcing sectors, but he says, “Many investors and businesses don’t want to be linked in any way to what’s happening here.”

That is certainly what Rahman found when he set out to raise seed capital for Naseeb.com, Pakistan’s first matchmaking site. It was 2000, and social networking was just taking off. Enthusiasm for SixDegrees, Friendster, and MySpace, the first social networking experiments, showed that there was an appetite for cyber connection. From a small room in his parents’ house in Lahore, Rahman launched Naseeb.com in 2001. The space was so tight that when one of the eight staff had to use the bathroom, everyone had to rise to make way. Yet with only $150,000 in hand and expectations to succeed, Rahman didn’t want to waste the equity investments he had raised before leaving Silicon Valley.

Nor did Rahman want to squander his connections. He recognized that mentors and networks were critical to the life of any start-up. These are important factors that are scarce in Pakistan. While there are established business families, there is no tradition of exchanging ideas or opening doors for others. There is no trust. Pakistani businesses operate in fear that ideas and trade secrets will be stolen. With weak courts, there is little recourse, but Rahman was lucky. Unlike most Pakistani entrepreneurs, he knew he could find support in the Bay Area, where he had spent years as an engineer at Intel as well as a start-up entrepreneur.

Rahman sought advice about his social networking idea from anyone and everyone within a 10-mile radius of Route 101, which cuts through Silicon Valley. A few days before he left Palo Alto for Pakistan, he approached Reid Hoffman. Rahman knew about the LinkedIn founder’s first start-up try with SocialNet, an online dating service. Hoffman understood what Rahman wanted to do in Pakistan, and he wanted to help. “Entrepreneurship is key to how societies adapt in the future. Entrepreneurs pioneer the organizations that are the future economic fabric, providing jobs, and sustaining communities,” Hoffman says. He believes Rahman is precisely the kind of businessman who can help Pakistan. “Monis is a strong entrepreneur, with the key characteristics of intelligence, fast-learning, and perseverance.”

Over a barbeque lunch of Pakistani chicken tikka, Hoffman and Rahman discussed how to make Naseeb.com thrive. Sitting in Rahman’s patio, the two entrepreneurs talked back and forth about back-end developers, user engagement, and “pivoting,” the choice term for start-ups that have to shift direction and focus. In the middle of it, Hoffman asked if Rahman had found his starting capital yet. “I told him I didn’t have the time,” Rahman says.

Ried Hoffman paused and then took out his phone. Confused, Rahman sat still. “Joe? It’s Reid. Listen, I’m with Monis Rahman who’s starting a SocialNet in Pakistan. I’m going in on it. I think you should too,” Hoffman said. Reid Hoffman had Joe Krause on the line—founder of Excite.com. Hoffman then dialed Mark Pincus, who was working on Zynga. Each of the three put up a $25,000 equity stake. Rahman was stunned. 

“Neither had seen any plans or PowerPoints on Naseeb.com,” Rahman says. That  “I’m going in” pledge by Hoffman gave Naseeb.com’s founder pause. Granted, $25,000 was not a large sum of money. Still, such trust was unheard of in Pakistan. And he was determined to prove that their investment was not pure altruism. Rahman didn’t want this $75,000 equity stake to be a write-off for these Silicon Valley insiders. He wanted to show that a state-of-the-art technology company could thrive in his country.

SHIFTING PERCEPTIONS

Pakistan, like many developing nations, is hardly starved for capital. Pakistani banks and businesses as well as foreign companies such as Honda, Motorola, Microsoft, Cisco, Oracle, IBM, and Coca-Cola generate profits. But these profits do not circulate within the country. Migrant remittances, which totaled $10 billion last year, sustain millions of Pakistanis. Remittances are used to cover day-to-day expenses. It’s cash flow into the Pakistan economy, but nothing more. It’s not funding used as leverage to create new enterprises and, most importantly, jobs. Banks balk at extending credit to start-ups, even when contracts guarantee return. That is what happened to Shakir Husain, CEO and founder of the technology outsourcer Creative Chaos, when he requested a $100,000 loan to expand his business.

“Put together collateral for $100,000, and we’ll give you this loan,” he was told. When the entrepreneur replied that he had a $1 million contract from a client based in the United States, he was still refused. “Had I been a textile company where I could produce a letter from my client there would have been no problem. Being a software company, they didn’t know how to collateralize that risk,” he says. He eventually self-financed—the worst of all alternatives, because if his venture fails, he is personally ruined. Entrepreneurial growth is not possible if the larger community doesn’t share the consequences. This is what makes venture capital so critical.

Venture capital is not just a financial transaction. It is, as its name suggests, venturing into an agreement to help an entrepreneur build a business. Accompanying the investment from a venture capitalist or angel investor is a network of mentors who can provide technical expertise and know-how. They are ambassadors of innovation, representing and connecting entrepreneurs to the global market. In Pakistan, and much of the developing world, these ambassadors simply don’t exist—at least not yet.

By mid-2005, Naseeb.com had grown to the point that Rahman had to expand his team. For that, he needed the best talent, so he put ads in the major papers. But he felt that was the wrong way to reach the people who spent all their time on computers. “I built a site to post my own vacancies,” he explains.

It got so much traction that he turned it into a paid site, Rozee.pk, with a client list of 3,200 employers and over 100 million job postings. Today it’s Rahman’s core business, but he says, “It’s more than just a service. I’m not just building a product. I’m trying to make peoples’ lives better.”

With Rozee.pk such a phenomenal success, in 2007 Rahman decided to travel to Silicon Valley in search of growth capital. He secured meetings with nine venture capital firms, yet none wanted to hear about his company. By then, they all understood the Internet and had seen the potential for a jobs portal. What they didn’t understand was how an Internet business could thrive in Pakistan. “The sell I had to make wasn’t about Rozee,” he says. The sell was Pakistan. Few returned Rahman’s calls.

One who did was from Draper Fisher Jurvetson, a major Silicon Valley venture capital firm. “These were the best funds to help us because they had experience in emerging areas of the world,” he says. The aggressive term sheets they presented suggested otherwise. Rahman bombarded them with data and charts on the robustness of Pakistan’s Internet market and the health of his enterprise until they finally agreed.

Even when they did, the deal took a long time to close. They wanted one of the big four accounting firms to audit Naseeb Networks. It was a process that, anywhere else would have taken a month, but took three and a half in Pakistan. The auditing team had only dealt with “brick and mortar” businesses, not a digital start-up where there aren’t fixed assets and where the legal liabilities are still underdeveloped. They were the months in 2007 when Pakistan was, as Rahman describes, “turning upside down.” The constitution was suspended. Bomb blasts were going off everywhere. Prime Minister Benazir Bhutto was assassinated. Pakistan was all over CNN. It was no surprise that Rahman received an e-mail from one of the two funds saying that the partners were “reconsidering.”

“I got on the phone,” says Rahman. He explained to a room full of experienced VCs why they should move forward with their investment. “I went through the numbers and growth curves.” He told them that in the last three months he’d seen “historic high growth.” Sensing that was not enough, he sat down to type a note. It started off with “Top 10 reasons why you should invest in Pakistan.” Rahman says it is the most important memo he’s ever written.

Venture capital is about start-ups not countries, Rahman began, although the market where the start-up launches is an important factor. “If you really calculate the risk [of a country] it’s a rounding error compared to the inherent risk of a start-up in the first place,” Rahman wrote. Venture capital has always been anchored in taking a risk on an individual and an idea where the probability for success, as Rahman pointed out, is “super, super low.”

Risk is exactly what Pakistan needs to encourage in order to jumpstart investment and the flow of capital. It is what will give early-stage start-ups the incentive to move into the formal sector where they are licensed, regulated, and paying taxes. It is what will also strengthen and expand industries, making Pakistani ventures globally competitive. Right now, there is no recognized Pakistani brand on the world market.

Most importantly, venture capital will help reduce extremism and violence. Invested hands are busy hands. But first, Pakistan’s government must lead the way by providing guarantees on financial transactions, cutting bureaucratic red tape, and adopting policies that encourage entrepreneurship. Pakistan’s ranking on the most recent World Bank’s “Doing Business” report makes it clear that this is imperative. Out of 183 countries, Pakistan ranks 105th on the ease of doing business. That’s down from 2011 when the country was 95th.

Pakistan’s elites and business community have a role too. They must show confidence in their own country by laying down the initial capital investments through a pooled fund or individual angel investments. Pakistan’s own citizens are the only ones who can signal to foreign investors that the country is a place where money can be made. And while the Monis Rahmans of the world are working to break down entrepreneurial barriers, they must also be vigilant in building networks and mentorship opportunities in their place. Just as Reid Hoffman played a critical role in building Naseeb Networks, Rahman must extend a hand to other Pakistani entrepreneurs with struggling start-ups.

Other developing nations that are trying to establish a start-up culture should also follow these steps. At the same time, the billions pouring in via aid must be phased out. It’s the wrong kind of money that inhibits development. Instead, it should be replaced with a Pakistani venture fund that can be backed by investors around the world. There are already several firms in Pakistan, such as BMA Capital, that could administer the fund. The Overseas Private Investment Corporation, a U.S. government agency, has already provided precedent and a model. The institution provides investors with financing, political risk insurance, and support for private equity investment funds. In 2010, it approved $455 million in financing to set up five private equity funds to invest in the Middle East. In unleashing the potential of developing countries, this investment-based model will be the key to cultivating successful entrepreneurs and helping countries like Pakistan break the cycle of dysfunction and poverty.

*****

*****

Elmira Bayrasli is a contributor to Forbes. She is writing a book on the obstacles to global entrepreneurship.

 

[Illustration: Carolyn Tubekis]

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