An Entrepreneurial Hub for SMEs in Kuwait

An incubator, in the medical sense, is an enclosed device that you place premature babies in. The apparatus provides a controlled and protective environment where the baby can become stronger and function on its own. This was the simile Surya Rao, CEO of Mefazec, used to simplify what an incubator is in the business world.

As I walked into their co-working space, I immediately noticed the street lamps, benches, and chairs stimulating park; a warm and inviting environment, perfect for young entrepreneurs. This atmosphere continues throughout Mefazec’s practices, giving SMEs a sheltered environment to learn, discover, and be guided through different programs.

And it seems new businesses are popping up everyday in Kuwait. To accommodate this, Mefazec, launched early in 2016, acts as an entrepreneurial hub for small to medium enterprises – SMEs. Providing incubator and accelerator programs, a co-working space, a library of resources, and a meeting and teleconference room, yet this is only the beginning. They also provide training events and workshops involving brainstorming, skill building, and educational talks.

The incubation programs Mefazec offers are designed to take businesses through various stages of development, whether they require legal assistance, financial management or creative marketing. At the end of the incubation period, enterprises can choose to break away and operate independently or can continue with one of Mefazec’s accelerator programs, and go to the next level.

Surya highlighted that the difference between the two processes is that acceleration almost always depends on funding. But that is also an area Mefazec can offer support in; connecting promising businesses with investors who seek opportunity. Although one issue Surya has observed is many investors are much more likely to invest in already stable brands or franchises.

“I’m not surprised that investors seek security,” Surya explained, “this way, investors know exactly what to do because everything, like pricing, is already set, whereas evaluating a start-up as an investment is more volatile.” Investors assess the risk profile, he informed me. They might not understand the area the start-up operates in, or if it will even succeed, but they should invest anyway. I have personally seen many people choose to invest in traditional options like real estate, because they perceive start-ups to be too risky, so having a hub like Mefazec, which can identify the risk profile and help reduce the risks, encourages more people to invest their money in start-up businesses, who are often in more need of money. Yes, it is a higher risk, yet the return on a strong SME investment is also higher.

I also got the opportunity to speak with Mefazec’s Founder Essa Al-Saleh, who created Mefazec because he saw many issues in the business and employment sectors in Kuwait – which he was very critical of, and with the observations he mentioned, rightly so. I don’t feel like Kuwait’s society is ready to invest in SMEs, and Essa agreed, but he hopes Mefazec will help make society ready by building the infrastructure for an entrepreneurial ecosystem.

His concerns stem from seeing many students graduating and the Kuwaiti government, the largest employer in Kuwait, unable to employ them. He believes this results in many graduates having no choice but to start their own businesses, however, he observes this is difficult without an entrepreneurial ecosystem. In addition, he sees the culture of processes as unwelcoming within the public sector and the lack of transparency and organization as problematic.

The corruption and mismanagement by the government is detrimental to SMEs because the government dominates the country. It’s an unjust competition from the governmental agencies as they are both the judge and the jury; they are your competitors and also the regulators, Essa explained.

“Time means nothing to them. They have very deep pockets and almost no one is accountable for their mistakes,” he said. “I think this is the private sectors and SMEs’ nightmare. How can we break through this unfriendly, foggy operation of the government?”

The competition from the government is one of many difficulties start-ups face. Dina Al-Sayer, the Business Development Officer at Mefazec, said a well-known statistic notes that nine out of 10 start-ups fail.
Dina has a bubbly and animated personality but got right down to business when discussing why start-ups fail.

One reason is that they lose momentum, become stuck, and don’t know how to proceed, she told me. Dina believes SMEs are increasing in Kuwait but very slowly, and are of a poor quality, due to the fact that entrepreneurs misconceive how difficult it is to start a company. For a start-up to succeed they have to understand how to operate as a business and Essa believes the only way to achieve this is by conducting research and understanding the market, product, service, and realizing who the competition is. Another important factor is for these start-ups to work with ethical governance.

“You need to be very transparent. Don’t hide your problems. Don’t hide your mistakes,” Essa said. “If you make a mistake, or if you have a problem; spell it out. Otherwise, it will backfire and then you’ll end up paying the price.”

According to Dina, there’s a huge increase in app development in the Gulf and many enterprises are moving in that direction. However, this also comes with its own set of issues because most developers mimic apps that already exist, and localize them to the GCC.

Kuwait doesn’t fare well when it comes to start-ups in the Gulf region, Essa said. He believes we are behind because countries like the U.A.E. are in a better position due to their geographical size and well-established entrepreneurial ecosystem.

Through my research from The Heritage Foundation complied by the Union of Arab Banks, I found that, based on 2014 data, Kuwait statistically falls behind when compared to other Arab countries in fiscal, business, labor, monetary, and investment freedom. One advantage that Essa pinpointed that Kuwait does have is its legal system. He believes it’s structured, transparent, and more systemized than it is in neighboring countries, a social element all can benefit from.

And the good news doesn’t stop there, with entrepreneurial hubs like Mefazec, new business owners and established ones can benefit from the catalogue of support incubators and accelerators like Mefazec offer. By helping start-ups, Essa hopes to benefit the whole economy. He believes SMEs are Kuwait’s future and will contribute sizeable revenue to the economy so next time you’re shopping, eating out, or looking to collaborate with another company, check out the SME community, you might be surprised with just how much Kuwaiti businesses have to offer.

Images: Jamal Abdullah

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