Lifting of sanctions will help Iran’s entrepreneurs, but changing military service is key

Tehran

A lot has been made of Iran’s fledgling startup community recently, and how the easing of western-imposed sanctions could herald an explosion in tech activity. That may be true, but some of the country’s young professionals say an overhaul of Iran’s tight military service laws may be just as important.

Right now, all men over the age of 18 are required to complete up to two years in the armed forces. That, alongside the fallout of numerous harsh regimes, has caused a massive brain drain to western nations.

It is this drain, says Saman Sadeghian, co-founder and COB at Iranian Modern Business, which is hampering local startups the most. “The startup scene is growing and young people have ideas in mind, but then they have to go to the military, and that kills ideas,” says Sadeghian, who started his business remotely from London. “The gap between studies and the military kills their passion. The community is really active to find some exceptions for people to run their own businesses.”

Helming that community is the Iran Entrepreneurship Association (IEA), which has for the past two years lobbied the government to ease military service laws, and keep entrepreneurs’ dreams alive. Some progress has already been made: a select few will be allowed to complete the service in their own startups. That was a “really important step,” says COO Pouya Kondori.

Masoud Tabatabaei is CEO and co-founder of Buyex.ir. His first company, web solution firm Honopardaz, was founded 12 years ago but had to close for around three years due to military service. “The military service has always been an issue for entrepreneurs in Iran,” he says. “Often people become migrants from Iran before they are 18, to avoid service.

“When you’re a graduate you have the passion to take that risk,” he adds. “But when you become older it becomes harder to take that risk, so you become an employee, and it’s hard to begin that startup process.”

That aside, Iran is beginning to flourish as a tech market. Digikala, an Amazon facsimile, is reportedly worth $300 million, hogging over 85% of the country’s e-commerce industry. Takhfifan, a deals site, eSam, an eBay cover, and classifieds site Sheypoor, have all begun to command attention.

Investors are still thin on the ground, however. Locals are reluctant to pay for anything they feel is intangible, says Tabatabaei, and the media still hasn’t managed to alert Iranians to the potential of tech despite events like Slush Tehran and Startup Iran.

There is one notable exception in the form of Rocket Internet, the high-profile, copycat specialist from Berlin. The group partnered with telco MTN Group to launch Middle East Internet Holding (MEIH) in December 2013, and has already spawned an Iranian Amazon (Bamilo), Uber (Taxi Yaab) and eBay (Mozando).

“Accelerators and VCs are starting to form,” says Sadeghian. “The problem until four or five years ago, was that there were lots of young people who knew how to use the Internet, but they didn’t have any money.” Education remains strong, he adds. And it shouldn’t take much to tap into a population over half of whom are aged under 30. There are 15 million Facebook users in Iran, and almost as many Internet users – 46 million – as half the entire Middle East.

3G and 4G have recently entered the market, and (from unofficial figures) 35% of Iranian mobile phone owners now have smartphones. Total mobile penetration is anything from 90% to 136%. The country also has a 125% bank card penetration. Sadeghian has begun to see a lot more mobile conversions for his business. “These are really positive signs,” he says.

The easing of sanctions should also help. On July 14 members of the P5+1 (the five permanent members of the UN Security Council – France, Britain, the U.S., Russia and China – and Germany) and the European Union, signed the Joint Comprehensive Plan of Action) with Iran, which eased economic sanctions in return for the elimination of enriched uranium, that many fear could be used to create nuclear warheads.

Many in Washington and far beyond have criticized the Iran deal, and their fears are not altogether unfounded. Iran continues to buy technology and weapons illicitly, according to intelligence agencies. Its use of Nokia surveillance solutions to monitor, then detain and torture protesters during the 2009 Green Movement protests, was widely condemned.

However the increased cooperation between Iran and the west will lead to a more mature market, says Tabatabaei: “If the sanctions go away, it will be a much bigger place – investors will come, entrepreneurs will come. That has two effects. Money is there, but when the likes of Amazon come to Iran, they could kill local companies.

“We hope we can get the positive side, but the competition it will become will be hard for Iranian companies. I think they will survive though.”

It will certainly create a wealth of options within Iran. Right now payments are very limited. Neither SWIFT, Paypal nor any major western credit card operates in Iran. “Now the government seems positive about entrepreneurship, which is good,” says Tabatabaei.

“Right now we are sending emails to customers. Mailchimp, the biggest email marketing service, is not operating in Iran. After the sanctions lift they will come to Iran, and that will help us grow.” Other firms, adds Tabatabaei, have baulked at investing in Persian-language services because of the controls.

It should also allow ISPs to provide faster connectivity in Iran, which even the government has admitted is poor. Hassan Rouhani, the president of Iran since 2013, has made numerous overtures towards a more connected, digital future for Iran’s youth. Thus far, however, little concrete progress has been made. Rouhani has reportedly pushed for looser restrictions on web censorship, a move stymied by the country’s conservative religious leadership.

Education, too, must be updated to give Iranians the tools they need to succeed in tech. Sadeghian concedes that he has a hard time finding talent domestically. “Talented people coming to educate locals will create a pool of talent who have international-level experience,” he says.

The IEA is also working to update Iran’s education system, via a project called CodeKadeh. “The goal of this campaign is to teach 5th and 6th grade students some basic definitions of programming and its logic,” says Kondori.

“Because we believe that young students have a very huge potential in learning programming languages, and in four or five years we will need lots of technicals in different types of startups,” he adds. “So if we teach them startup culture and programming logic in early years, they would work better in the near future.”

“In general the market is expanding,” says Sadeghian. “But locals have to see theirs as serious businesses, get good funding, be really active and do more market research. The risks will increase. That’s a good thing and a bad thing.

“Iran is one of the largest markets that hasn’t been tapped,” he says. “We have a young, educated population and I think the demand is there for people to optimize the businesses they have. All the pieces of the puzzle are here – we just need to complete it.”

  • http://sojoob.com Stella

    A very interesting review. Online business is going to be a trend for a better future for anyone.

  • Alireza Jozi

    Great Article.

    As you mentioned there are challenges and obstacles that Iranian entrepreneurs face including the mandatory military service.. Despite all these challenges the startup scene has grown tremendously in the past years and I think 2016 will be the golden age for Iranian startup as the infrastructure is there and the sanctions are being lifted. Here is also an overview of Iran’s startup ecosystem in 2015: http://techrasa.com/2016/01/06/state-play-irans-startup-ecosystem-2015/