What free licensing could mean for Dubai startups?

A freemium business licensing model will bring in AED 52 Billion (US$ 14 billion) in economic value from innovation startups alone. (Image via Pexels)

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A ‘free business license’ and other subsidized costs would be great to have for a startup, and it’s not as far-fetched as you may think.  

According to the Global Innovation Index 2017, UAE ranks 35th globally, yet this number can improve significantly if few decisions were put into act.

Free business licenses, which could be overseen by the Dubai Department of Economic Development and the Government of Dubai, are inevitable to stimulate the growth of innovation. The intensity of speed and change in today’s business environment is at its highest levels ever. It is driven by crucial game changers like blockchain, cryptocurrency, Artificial intelligence, data analytics, Internet of Things, and robotics.

These drivers are costly in the sense of initial startup, development, and market deployment. Rapid business model methods like the Lean Business Model and the design thinking approach have dominated innovation hubs built on one key factor, which is: Failing fast, succeed quickly. The speed of development is getting faster, therefore a smart government and innovation policies must be aligned in order to create an easier licensing regime.

Change in spend of prototyping cycles: from ideas to initial production

Period

Prototyping duration

Avg. drop in cost from prior period (in percentage points)

1990 – 2000:

18-24 months

5

2000 – 2010:

12-18 months

10

2010 – 2020:

6-12 months

35

2020 onwards

6 months and less

50

In fact, many technologies nowadays are obsolete or irrelevant by the time they have reached the end of the R&D cycle. To make this even more challenging, costs are reducing globally mostly due to transformative technologies like cloud computing, SaaS, collaboration platforms and crowdsourcing tools.

Though, they are all virtual, where does the disruption lie in making innovation work?

It is in analog business costs. That’s right, analog as in licensing, labor, real estate, and other substantial startup and operational costs.

Prototyping cycle costs: costs per phase and startup product/service

 

Prototyping

Pre-production

Go-To-market

Software

$50-75K

$10-20K

$100-250K

Hardware

$80-100K

$40-60K

$200-500K

Software + Hardware

$75-125K

$50-80K

$150-500K


[Disclaimer: These costs are adjusted to Dubai based startups and drawn from the writer’s own experience in working with several hardware startups.]  


In the case of Dubai, the lack of available hardware components, access to machinery for prototyping, and most importantly talent, are hidden costs. These drive startups to either go somewhere else and prototype there, or have them import everything, which is costly, and time-consuming.   

For software-based startups, this is a talent-heavy equation that also leads to two outcomes. First, going elsewhere, staying there and then coming back, or second, outright importing the talent. Again, importing is challenging from a cost perspective, and startups won’t have access to enabling support networks which makes it even more costly.

Why is this imperative for the time being?

A blend of speed, intensity, and cost are critical in getting innovative solutions to market. Dubai’s unique position as a global hub, the Emirate’s visionary outlook, and its inspiring leadership, all contribute to making it a breeding ground for transformative innovation.  

When it comes to the ease of doing business, the World Bank Group ranks Dubai in the 51st place. There is a direct correlation between ease of starting a business and innovation. The faster and less costly that process is, the quicker startups can ultimately succeed.

That said, the cost is the actual barriers right now. Free business licenses will allow risk-taking entrepreneurs to set up, tech talent to follow, and homegrown examples to flourish and scale-out from Dubai globally. Now is the time to take action, and nourish entrepreneurship by creating an ideal environment to put their magic to work.   

How the model can potentially work

No free lunch that’s for sure, but off-loading costs, later on, allows startups to innovate then pay back big. The potential economic value for Dubai will be AED 52 billion (US$ 14 billion) and beyond. This model is the best bet right now. With a decline in business license renewals (high cost, lack of demand, government fees going up, and VAT introduced), and a growing number of static licenses (no renewals), the writing is on the wall.

The model is a free-to-premium charge model on business licenses and other essential startup costs over a period of five years. These costs would be broken down into three phases. The startup phase, where initial prototyping, pre-production, and initial go-to-market happens. The scaling phase would be early customer adoption by creating awareness and generating initial revenue.  Finally, the growth stage in preparing to scale, enhancing the offering, and applying more aggressive marketing strategies.   

Fee coverage areas:

  1. Free business license.

  2. Free labor fees (such as labor visas).

  3. Subsidies for office rent & utilities (government owned prosperities).

  4. Accelerated access to funding.

Fee structure and timing:

  • 1-2 year: Free

  • 3-4 year: 25-50 percent of total fees

  • 5 year: 50-75 percent of total fees

Revenue and benefits to the government:

  1. A surge in business licensing of more sustainable companies.

  2. More jobs, more labor fees, and consumer spending.

  3. Stable, and growth-oriented tenants to occupy underutilized capacity.

  4. Low-cost access to innovative solutions to critical government challenges.

  5. Grow domestic and foreign investment plus motivate private funds to invest.

Reality is that a startup takes between three to five years to break even and experience profitability. Within that time, the more cash they can preserve the better chances they have of surviving and attracting more investment. Enabling their capital structure pays off in the long run. They will consume more, create more jobs and create new innovations spurring more startup companies.    

No endeavor is without challenges

Timing is critical, and doing this now is imperative. Waiting means granting others the move. What is important to understand is that digital capabilities dominate growth. Since they are digital capabilities, physical location starts to fade away in importance, and emerging pockets of talent like Ukraine, Taiwan, Chile, Ireland, Scotland, and many others have proved this.

Key challenges:

  1. Qualifying companies that would best suit this program

This approach means getting the right companies, without setting such high filter criteria so anyone can get started after all.  

  1. Support for the startup ecosystem

This means having the right intermediaries like, lawyers, accountants, accelerators, funds, and consultants focused on nourishing startups.

  1. Government innovation integration

This means efficiently using top national challenges as stimulants to get the best innovators incentives to tackle significant problems.

Talent and resources flock to where they can openly and comfortably collaborate, co-create, and grow. Removing the cost barrier will enable Dubai’s innovation capabilities to flourish. The cost barrier not only allows for innovation, but attract venture capital and angel investment to follow quickly. Reality is eight to 10 percent of a VCs portfolio will succeed, which means that many failures will be faced prior to achieving a single success, unless the VC is lucky.  

Lower costs enable more aggressive risk-taking in R&D intensive companies to take place speeding-up the process. This will eventually result in several more new startups, more jobs, and guess what more government revenue.

Flattening the business licensing system

The most significant barrier to the actual costs is the licensing operations itself. That would entail further automation, more distribution points to process a business license like Tas’Heel, simplified access, and administration for business owners. Flattening the system can be achieved by:

  1. No industry-based classifications just a straightforward operating license.

  2. Permits to be issued by authorized bodies for specific business activities independently.

  3. Flat fee structure for business licensing only.

  4. Unified identification linking other systems (API style approach).

Implementing a free to premium business model needs to be in full action before the end of 2018. The sooner this model is adopted, the higher growth will be mainly in the short-to-medium term. Talent, tech, and ideas follow where ecosystems enable them, and this is where Dubai needs to reinforce its position today. Dubai’s position as an East-West corridor for business will only enhance its ability to capitalize on this new approach.

Within the next 24 months, the speed of innovation is going to accelerate at an unprecedented rate. The world as a whole is speeding up, and Dubai is in a perfect position to take advantage of this.

With a conservative value-add of AED 20,000 ($5,400) per month per startup spread across spend, consumption, and investment, Dubai stands to yield much higher economic benefits. This doesn’t include, a spillover effect where Dubai startups can tap into regional and international growth that can quickly grow by five folds in economic value.  

 

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