How success is elusive for budding entrepreneurs in Iran

Navigating the local business ecosystem is complex and unpredictable

How are start-ups faring in Iran? Is the entrepreneurial spirit in a land once fabled for poetry, wine and exquisite carpets thriving under a Muslim theocracy? 

Fatemeh Jafaralijasbi, a researcher in the school of management at UNSW Business School, is from Tehran and has been studying factors affecting the performance of start-ups in emerging economies. 

Jafaralijasbi estimates the number of officially registered Iranian start-ups to be less than 1000, but adds that there would be many more working to become registered.

“It is hard and time consuming to establish a business in Iran due to inappropriate legal structures and complexities,” Jafaralijasbi says.

According to reports in Iran's non-governmental Financial Tribune, the state-owned ICT Start-up Empowerment and Facilitation Centre (ISEFC) claims registration of 930 newly founded businesses in its database, as well as 550 start-up ideas, and 79 investors using its website to express interest.

And Mahmoud Sheikh Zeinedin, a deputy at the Presidential Office for Science and Technology, announced in February that the annual revenue of knowledge-based companies and start-ups had reached 300 billion rials (about $10 million) in the Iranian financial year that ended in March.

None of these figures are impressive for a population of 81 million, nor for a country that has had an estimated annual GDP of $419 billion – the second largest economy in the Middle East.

'It is hard and time consuming to establish a business in Iran due to inappropriate legal structures and complexities'

FATEMEH JAFARALIJASBI

Lessening oil reliance

But there are official plans. In 2014, the administration of President Hassan Rouhani launched the ISEFC to cultivate and motivate innovative ICT entrepreneurs in Iran. 

The ISEFC has since funded start-up incubators in public universities, notably at the leading Sharif University in Tehran, and recently announced plans to open at least 20 new incubators in the provinces. 

“The government is trying to provide more support and services for incubators or similar companies to promote knowledge-based companies known as start-ups in Iran,” explains Jafaralijasbi.

“More than 60% of government revenues in the annual budget come from oil export and 90% of export in general comes from oil or oil-related products.

“That's why they are trying to promote more entrepreneurs and they are supporting more start-up companies, though I think they are not very successful at it, as you can see from Global Economic Monitor (GEM) reports. Start-ups are not flourishing and the failure rate is very, very high.”

Interestingly, there are more women trying to be entrepreneurs than men in Iran. The GEM website calculates the gender difference at 65%, in favour of females.

“We have so many women that are well-educated and they would like to be entrepreneurs. And on the other side, usually Iranian women have less responsibility to provide financial support – as main income – for their families, so they have more freedom to follow their entrepreneurial dreams," Jafaralijasbi says.

Blocking apps

US-led sanctions are biting online start-ups in a country where two-thirds of the population have a smartphone. And even though Apple is not officially represented in Iran, iPhones claim 11% of the market.

Last year, the online Apple Store removed Iranian apps that facilitated transactions for business, and then it removed a number of popular consumer apps. In March this year, iPhone users in Iran discovered they were blocked from accessing the Apple Store in any capacity.

The more tech-savvy may be able to work around this by using a virtual private network to make it appear they are connecting from outside Iran, but this is cumbersome if you're merely trying to arrange a taxi.

“I can imagine it's going to be a disaster for many start-ups that rely on apps. Suddenly you don't have any connection with your customers, so basically you will fail,” Jafaralijasbi says.

“I believe that the future of an Iranian start-up ecosystem is very complex and unpredictable, due to political upheaval including, but not limited to, sanctions.

“Another reason, I think, is that the way [potential entrepreneurs] are trained is with all the knowledge usually coming from Western countries, which is not applicable in the context of developing countries most of the time. 

“It's a different context and the training system – and incubators and accelerators – should be aligned with the society, and not just copy-pasting a Western version of any start-ups, or business plans, or company.”

'We have so many women that are well-educated and they would like to be entrepreneurs'

FATEMEH JAFARALIJASBI

Failure attribution

Jafaralijasbi has been measuring how entrepreneurs attribute the reasons for success or failure in previous experiences, and how that affects their current performance. 

“The more people blame external reasons for their failure – and their success – the less performance they have. Which means you have to be trained, regardless of the situation you are in, to take responsibility for your actions, your thoughts and whatever decisions you make – [these are] your own decisions,” Jafaralijasbi says.

“Psychologically we should be trained to take responsibility and act based on what is happening around us, to be agile, to be resilient.”

Jafaralijasbi's ongoing study will look at how different cultural values at an individual level could affect an entrepreneur's performance.