Archive for category: Blog

Who would have thought that selling food would be scalable and that ‘amazonification’ would have something to do with it!

 

While there’s no specific definition for ‘amazonification’ – you can deduce that it describes the colossal impact that disruptors like Amazon have had on industries and consumer habits. With customer expectations at an all-time high and buying experiences radically transformed, businesses must remain relevant to survive.

 

Add COVID-driven changes to the mix; we truly are living in a ‘survival of the fittest’ era. Everything has become digitized, and the shift towards a delivery-only model has spurred consumers to seek out a virtual, convenient and quick buying journey to purchase essential goods like food and groceries.

 

Thus why cloud kitchens were born.

 

Cloud kitchens are centralized licensed commercial food production facilities ranging from one to dozens of restaurants renting spaces to prepare delivery-optimized menu items. There’s no physical outlet or dine-in option; they only accept delivery requests via apps, calls or online food aggregators.

 

As online food delivery market revenues are expected to reach USD 137,596 million worldwide by 2023¹, the increasingly popular cloud kitchen arena is set to benefit the most. Every restaurant – no matter its size – is trying to ride this trendsetting wave and move to online food delivery services as a means of sustaining operations.

 

If you’re thinking of launching your own food concept, here are four reasons why you should partner with a cloud kitchen:

 

1. Market Opportunity

The ease of getting food delivered at a reasonable price and in record time has led to an increase in online orders, which is eating into the market share of traditional dine-in restaurants and replacing home cooking. Online food delivery revenues are expected to have a compound annual growth rate of 10.39 percent (2021-2025), resulting in a projected market volume of USD 401,391 million by 2025, while the number of users is expected to amount to over 2.6 million by 2025².

 

2. Low Setup Costs

Partnering with a cloud kitchen requires less investment since you don’t need a prime location with high footfall. Also, since there’s no front-of-house, you don’t need fancy interiors and hospitable wait staff to ensure a great guest experience.

 

3. Ease of Experiment

The cloud kitchen business model allows you to experiment with multiple concepts without much spending. You can operate numerous brands from a single kitchen using the same infrastructure and resources.

 

4. Ease of Scaling

Scaling operations is much quicker and simpler when working with a cloud kitchen. Since the investment is significantly less, you can run more brands simultaneously.

 

Now that you have a better idea of the benefits of launching your own food concept, next up are the different cloud kitchen models:

 

1. Independent Cloud Kitchen

This model has emerged as the most common, whereby a virtual restaurant operates without a physical storefront visible to customers, helping small businesses cut down on investment and specialize in a single cuisine. Food provided under this model can only be sold via online delivery apps.

 

2. Multi-Brand Cloud Kitchen

Under this tech-specialized model, a sole mother brand operates through multiple cuisine-specific brands that identify and supply the most ordered dishes in an area with few competitors. Only online food orders are accepted, and delivery is fulfilled through an aggregator or the brand’s delivery staff.

 

3. Hybrid Cloud Kitchen

This model is a partial cloud kitchen that allows customers to visit and see how the food is being prepared. However, these kitchens don’t offer dine-in services; customers can only pick up their orders or request them online.

 

4. Shell Kitchen

With this aggregator-based model, restaurants use a particular delivery agent who owns the kitchen space in which they operate. Multiple restaurants can function under one roof, making it a good option for small food entrepreneurs to launch without a lump-sum investment since an empty kitchen space with basic infrastructure is provided. Additionally, the association with a single popular delivery app helps secure greater visibility, customer reach and brand awareness.

 

5. Fully Stacked Kitchen

This takes the shell kitchen model one step further, whereby the delivery app owner offers brands a fully equipped kitchen; they just need to manage the food preparation while the delivery agent takes care of equipment supplies, order reception and food delivery. This model has a storefront that’s accessible to customers.

 

6. Outsourced Cloud Kitchen

Most of the food preparation process is conducted in a centralized cloud kitchen, whose owner buys and stores raw materials, receives orders, and then pre-prepares dishes in a centralized kitchen. However, a partner restaurant gives the final touch, and the meals are again delivered through the cloud kitchen owner. This model benefits restaurants receiving huge orders regularly as the workload is shared with the cloud kitchen brand.

 

Now that you have a clearer understanding of which cloud kitchen model would best suit your food concept, keep in mind that digital marketing is crucial to your success, considering that your restaurant has no footfall or a storefront to attract customers. Make sure to invest in your social media presence and get on food delivery apps for an added push. Remember that the only point of contact between you and your customers is packaging, which can serve as a powerful and creative tool to appeal to more foodies.

 

Given the pace at which the restaurant industry is growing, joining a cloud kitchen is the next big thing. Not only do they make the dream of serving great food a reality, but they also make it accessible by eliminating the challenges of hefty rentals and investments.

 

By: Dina Toukan’s Senior Investment Analyst at ISSF

The Rich Boys Club

Entrepreneurship has always been an exclusive club, and when I joined the investment world – what feels like a few lifetimes ago – my goal was to make this club more inclusive and empower the non-ivy-league camp.

Funnily enough, over 90% of the investments I made have been with those who are quite privileged; i.e. ‘the rich boys club’.

Investors love underdogs, so why is capital chasing the rich?

One would assume that this has to do with education, exposure and founder networks. However, reflecting on this notion, it actually boils down to one thing; rich boys can afford to fail.

To better understand such a socioeconomic dilemma, we first need to look into the commercial value chain and the risk profile, stage by stage, for each stage. We need to understand how investors think.

Working as an investor, I ultimately have one job; managing risks.

Your success rate goes higher as you move up in the value chain.

The success rate of the idea stage falls, at best, between 5% and 7%^*1. Yes, you heard that right; statistically, for every 100 novel ideas out there, only five to seven will see the light. Most institutional investors don’t get involved this stage given the high level of risk. Therefore, this stage is typically developmental and not commercially driven.

Statistically, 77%^*2 of financing for entrepreneurs is sourced by savings and only .05%^*2 of startups raise venture capital funds – the rest are mainly friends and family.

In other words, unless you have a hefty bank account or parents with deep pockets, you are unlikely to get the chance to finance and explore different entrepreneurial ideas because you can’t afford to fail.

Success ratio, however, goes up to between 10% and 30%^*3 after a business venture hits revenue stage, and your chances become much higher for onboarding institutional investors.

So, the one-million-dollar hack is to move to revenue stage as quickly and economically as possible. And, if you happen to solve a problem at scale, investors will run after you.

Promoting Failure

It’s interesting how we live in a world where failure is frowned upon in the venture space, despite the fact that we regularly experience failure as we go about our everyday lives – whether in jobs, projects, relationships, etc.

Many successful entrepreneurs I met have at least tried and failed once. One good friend jokes about how his parents covered the costs of his first three ventures to keep him busy, and he only made it big on his fourth.

Failing obviously makes us better; you won’t get to know all the answers, but you will learn what not to do (even fund managers favor second-time founders as part of their selection criteria).

Besides promoting failure, as ecosystem builders, we also need to improve the statistics so as to allow more investors to step in – the very low 5% to 7% at pre-seed success rate just doesn’t look too great.

So, what can we do?

Venture Building

42%^*4 of startups fail due to lack of market need.

Unlike typical accelerators and incubators, which work with entrepreneurs to develop their business ideas and ventures, a venture builder is a group of wise humans who identify market gaps first, then onboard founders in order to build the product. They also help ventures reach to the sales and revenue stages as soon as possible and prepare them for the next financing round.

Founders at venture studios are paid for their time.

Venture building is on the rise and, unlike most accelerators and incubators, venture builders can be commercially viable, and more private money is being poured into this investment vertical.

I’ll probably elaborate more about venture building and how ecosystem builders can accelerate this vertical in another article. But, for now, if you have a good idea and no wealthy parents; what can you do?

Fail as Quickly and Inexpensively as Possible

• Rule number one; understand the commercial value chain.
• Articulate your idea on paper; your thoughts only matter when they are jotted down.
• Understand that business is more than a product; there are plenty of materials online like Y Combinator^*5 – which have a rich library (enclosed below) – so prepare, prepare, prepare.
• Study your market well; investors only partner with founders who know their market better than them.
• Sell before you make; build a Minimal Mockup Product and go to market as soon as possible. If you are in hardware, build a prototype; if you are in software, build a landing page. By mockup, you only create what allows you to approach customers and then pre-sell to customers to finance product building. If this approach is good enough for Elon Musk^*6 – it’s good enough for you. The idea is to generate revenue and reduce commercial risk as soon as possible.
• Fail as quickly and cheaply as possible; don’t spend more than a few hundred dollars to build your Minimum Mockup Product. If you are unable to pre-sell your product, then it probably has no market fit and is not solving a real problem. If that’s the case, drop and repeat.
• If you are in Jordan, reach out to Oasis500^*7 and Flat6labs^*8 – both incubators cover the idea stage.
• And last, but definitely not least, never give up!

 

Source1: https://www.wipo.int/edocs/mdocs/innovation/en/wipo_ifia_kul_96/wipo_ifia_kul_96_1.doc

Source 2: https://www.fundera.com/resources/startup-funding-statistics

Source: 3: https://www.entrepreneur.com/article/288769

Source 4: https://www.cbinsights.com/research/startup-failure-post-mortem/?utm_campaign=cbi-social&utm_content=173297792&utm_medium=social&utm_source=linkedin&hss_channel=lcp-1140722

Source 5: https://www.ycombinator.com/library?categories=Becoming%20a%20Founder

Source 6: https://www.forbes.com/sites/jlim/2016/05/25/sell-before-you-make-it/?sh=82fc08b52d82

Source 7: https://oasis500.com/en/

Source 8: https://flat6labs.com/Location/jordan/

Spray and Pray No More!

During 2020, global venture capital (VC) funding reached USD 326 billion, with the MENA piece of the pie standing at only USD 1 billion^*1 – a starkly low figure. Our region can definitely do better!

Using the 0.06%^*2 VC to GDP ratio of the USA, there is an up to USD 18 billion^*3 growth opportunity in MENA VC funding. To illustrate the spending power of MENA, Arabs annually spend between USD 200 billion and USD 1 trillion^*4 on charity, but only USD 1 billion are allocated to the VC asset class – meaning that we are merely scratching the surface of untapped possibilities.

The focus on the VC asset class in MENA is relatively new. Over 80% of current fund managers did not exist 10 years ago. Even most MENA funds of funds (FOF) – the driving force behind VC today – only emerged during the past five years.

Governments across MENA have recognized entrepreneurship as a catalyst for economic growth and job creation. Accordingly, they are diverting their attention towards FOFs, which are responsible for investing and lining up more fund managers across different stages of the entrepreneurial value chain. More importantly, family offices – the main investment force in MENA – are stepping into the game as the region witnesses a significant rise in exits, i.e. sale of shares. With more than 61^*5 exits since the beginning of 2018, the VC asset class is even more attractive now.

How do we capture this opportunity and unlock larger funding?

1. Empower and allocate sustainable funding for FOFs, and create a pull factor in the form of inspiring success stories. Since FOFs enjoy a bird’s eye view, they can better identify and bridge gaps across the VC value chain.
2. Attract more angel investors and family offices into the VC space by offering blended financing structures, which attract commercial capital towards a VC asset class by presenting higher returns and reducing the risks of private investors.
3. Build and train the next wave of fund managers and angel investors, and instill a disciplined approach to investing – no spray and pray! Introducing micro pilot funds with simple legal structures allows fund managers to build track records while fundraising.
4. Articulate a sustainable strategy for entrepreneurship and deal flow as part of a national economic outlook, while entrusting the private sector to manage and lead investments. Creating deal flow must be a national priority.

Source 1: Maginntt

Source 2: USD136b/ USD21.4T= 0.06%

In 2019, the United States deployed USD136.5 billion in US-based companies, surpassing the USD130 billion-mark for the second consecutive year, according to the PitchBook-NVCA Venture Monitor: https://pitchbook.com/media/press-releases/us-venture-capital-investment-surpasses-130-billion-in-2019-for-second-consecutive-year#:~:text=14%2C%202020%20%2D%2D%20By%20the,in%20the%20entrepreneurial%20ecosystem%20jointly

GDP United States 2019: https://tradingeconomics.com/united-states/gdp

Source: 3: USD3T@.06% = USD18b https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=ZQ

Source 4: https://www.investopedia.com/terms/z/zakat.asp

Source 5: https://www.arzanvc.com/61-exits/

Jordan’s longstanding focus on human capital development has become renowned the world over. From boasting one of the highest ratios of engineering graduates to population globally, to having similarly impressive numbers in medicine and ICT, it comes as no surprise that the Kingdom has been riding the waves of a highly educated and skilled workforce.

In the 1970s, Jordan was one of the first countries in the world to perform successful open-heart surgery and kidney and liver transplants, and is now regarded as a global player in in-vitro fertilization. That being said, these accomplishments could not have been achieved without extremely talented and competent human resources.

In the 1990s, the Kingdom emerged as a regional leader in technology development, with three patent filings in the United States for AI-related technologies. Jordan was also one of the premier countries to recognize the use of ICT as a means for effectively disseminating knowledge, with multiple progressive Jordanian companies producing computer-based training and educational software in banking and financial services, soft skills and general education. With the proliferation of the internet, this forward-thinking later evolved into e-learning software, which is still being used throughout the Arab World, even spreading to North America and Africa. Backed by a young population, Jordan has demonstrated an impressive ability to detect, enhance and leverage unique technology opportunities throughout the past decades.

This prowess has endured over generations, as evidenced by the up-and-coming Jordanian entrepreneurs catalyzing innovation and consistently coming out on top in regional and global startup competitions. Jordan represents only 3% of the Arab World, yet 6% of its startups, with Jordanian entrepreneurs winning 27% of the awards presented at the 2019 World Economic Forum’s Regional Business Plan Competition. Such feats are true testament that Jordanian innovation is not only alive, but also thriving, whilst reflecting a replenishable human investment opportunity for local, regional and international investors.

Within this context, the Innovative Startups and SMEs Fund (ISSF) – the largest investment fund of its kind in Jordan – was founded to identify, support and harvest innovation opportunities grown out of the local entrepreneurial ecosystem. From the outset, the ISSF has been driven by a mission to facilitate the establishment of funds that invest in local early-stage startups and SMEs; make direct investments in innovative, export-oriented and scalable local startups; and implement initiatives that improve the capabilities of Jordanian entrepreneurs and startup teams through training, capacity building and targeted incubation and acceleration programs.

To this end, the ISSF has closed investments in eight funds during the last two years, including a Chinese venture capital fund and several regional funds. The ISSF has an additional five funds in the pipeline, one of which is UK-based. In the bigger picture, these steadfast efforts ultimately seek to enable promising entrepreneurs to transform their pioneering projects into sustainable companies that generate jobs for Jordanian women and men.

Jordan’s steady attraction of foreign funds indicates faith in the capable local entrepreneurs and in their business ideas and technical competencies. Many entrepreneurs who have secured foreign investment are domiciled abroad, but most of them have and will continue to maintain substantial operations in Jordan, as access to a much-celebrated talent pool is an advantage very few can do without.

The entrepreneurship scene in Jordan has grown over the past decade. We have seen an increase in restaurants, social media and marketing businesses, e-commerce establishments, and homemade products being sold on the internet. Not only have creativity and innovation ascended, but these businesses have created a continuously growing number of jobs for the youth in Jordan.

The limited natural resources and the high unemployment rate have been quite the struggle for the Jordanian youth, especially fresh graduates who are not accepted into jobs that align with their degrees, simply due to their lack of experience. The Jordanian youth, in response, have turned to entrepreneurship as a means of having a job, but they have also created jobs for so many others around them by doing so. This was the turning point for Jordanian citizens in general over the past few years.

However, according to the Department of Statistics (DoS) in Jordan, the total unemployment rate for the year of 2016 was 1.6% higher than in 2000. This number has been increasing year by year, settling on an unfortunate rise of 3.9% from 2016 to 2019, as unemployment reached 19.2% during the second quarter of 2019. It is regrettable to state, that according to the report, a large percentage of the unemployed are youth between 15-24. Though there is an increase in businesses, the lack of experience, training, and entrepreneurship mindset results in the termination of a large percentage of said businesses. A proper solution would be the extended support from authorities and support organizations to maintain, encourage and grow these establishments to provide more jobs for the youth and decrease the unemployment rate.

Taking a glance at TTi’s Entrepreneurship Ecosystem Map of Jordan, it is evident the number of establishments currently running in Jordan, and how it has impacted the Jordanian entrepreneurship ecosystem. Of course, there’s room to grow and lessons to learn when it comes to the development, foundation, and growth of these startups, but the fact is pertinent; these startups are guiding youth towards something great. They are paving the future for the next generations, allowing for further advancements and achievements that will create a better environment for the Jordanian youth.