Few years ago Tech-entrepreneurship became fashionable in the middle-east region. Wave after wave of tech-startups started popping up, it didn’t take long for the investors to realize their possible potential and try to get into the entrepreneurship business through joint ventures and incubators. Thus repeating exactly what happened in silicone valley in 2007-2011, this allows us to predict whats going to happen next since we have an existing model that is being followed at a much faster pace. Currently the first wave of silicone valley start-ups are running out of money and either changing their business model or shutting down altogether.
What happened with silicone valley start-ups is all the investors fault. Trying desperately to get into the tech-startups business as fast as they can good judgement was ignored. Many of the tech start-ups were nothing more than gimmicky mobile apps that had no way of generating the revenue needed to keep it afloat. The success of products such as instagram and pinterest only served to increase that poor judgement. MBAs desperately tried to repeat that model even though they do not get the exact dynamics of the market or how these apps made it; and so several cool/sexy/gimmicky start-up received investments that they would have never received otherwise.
Instagram & Pinterest currently have no revenue streams. Even with their vast user base they are still trying to figure that out.
With tech entrepreneurship being the new “cool” thing to be doing, many talented engineers have been shying away from joining corporate and instead deciding to become the next bey2ollak or circle-tie. This dries up the talent pool since every 2 or 3 talented engineers are grouped up trying to get their gimmicky app off of the ground rather than work in corporate or even for another company on improving their gimmicky app. The expression I came up with to describe this is Talent Pool Fragmentation. Building an investment worthy product that is resilient to competition requires more skill than what you can find in 2 or 3 engineers, and most would be doing unsexy jobs such as tuning, operations or even monitoring; Exactly the kind of jobs people turn down in favor of starting their own thing.
Freemium model which was quite popular with most of the first stage start-ups isn’t cutting it. few days ago I received an email from Chad Keck of PHP Fog, announcing that they are discontinuing their Free side in favor of their premium one.
PHP Fog ditching their Freemium model:We are incredibly sorry for the inconvenience, but as a small business we do not have the resources to provide world-class service on both PHP Fog and AppFog. If there were some way for us to keep PHP Fog running indefinitely, we would do so. Unfortunately, however, there isn’t. It’s time to move on to AppFog.
Currently the main 2 VCs operating in Egypt are Sawari and Flat6Lab, with others – including the government – trying to break into the market. Flat6Labs is the most popular, mostly going for sexy products it has graduated several cycles already most of the companies they backed up aren’t sustainable and its only a matter of time until they run out of money/support/man hours. Sawari ventures on the other hand concentrates on products that include more value than bang, still none of their products has turned out any profits as far as I can tell, the only difference is since they are investing in products that include a certain technical complexity these products can later be incorporated as building blocks for ones that actually turn out profit.
Back to our starting point and the failing silicone valley tech start-ups, I can nominate several startups approaching that point in Egypt but if I’m to guess who is going to go out first I’d bet on Circle-Tie. Lacking a visible revenue stream and with an increasing competition (its quite simple to create a similar such an app), its only a matter of time until the key developers/innovators/managers decide to give up and move on.