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SMALL BUSINESS
FIVE AMERICANS SHARE THEIR SUCCESS STORIES
BY RASHAD MAHMOOD
When Egypt advocates discuss investment opportunities for Americans they usually talk about luxury hotels and oil refineries, not cupcakes and hamburgers.
However, some enterprising individuals from the US have recognized grassroots opportunities and are building their dream businesses from the ground up. And the challenges are many: Egypt ranked 106th out of 183 economies in the World Bank’s 2010 Doing Business index.
Despite numerous, often unclear regulations and the difficulties of hiring and training staff, among other obstacles, these American entrepreneurs persevere. With strong economic growth, even through the financial crisis, and an expanding middle class that can afford cars and eating out more often, Egypt, American entrepreneurs say, has a lot of potential for growing a small business.
For American classics like hamburgers and pancakes, Lucille’s in Maadi is one of Egypt’s most well-known venues. Lucille Crooks was living in Egypt, without a job, taking business classes part-time. For an assignment she wrote a sample business plan for an American restaurant in Cairo. Convinced that it would work, she and an Egyptian partner opened a successful restaurant in 1995, but after a fallout with her partner she was kicked out of the business. In response, she opened Lucille’s in 1996, which has been going strong ever since.
Running a successful business in Egypt isn’t easy, and Crooks says there are always new challenges. Despite a government oriented toward helping the private sector grow, Crooks says, many areas need improvement. Her biggest complaint is the many different licenses required for operating a business. “Although I have a business license to operate inside, I need a license for every single thing after that as well,” she says. “There are many categories of restaurant licenses. Do you have tables? Do you have chairs? Are they outside? Are you a coffee shop? Are you a café? Are you a full restaurant? Are you registered with the Ministry of Tourism?” All require different licenses.
These days she’s trying to get a license to play music at the restaurant. “I’m not allowed to have a television” she says, “and I have to have a license for where the music comes from. Now they have categorized that. Is it Internet, is it your Orbit box, is it a cassette player, is it a real stereo and DJ, is somebody operating that?” To further complicate matters, different types of licensing are done at different offices. For Lucille’s, business licenses come from the municipality office in Maadi, while music licenses are dealt with in downtown Cairo. Crooks is thankful that her restaurant’s general manager and part owner, Essam Mabrouk, helps handle most of these licensing issues. She wryly observes that general managers of restaurants need to be licensed as well.
The owners of Sugar ’n Spice, a recently opened bakery/café in Zamalek, have also had licensing issues. “There is just no way to find out what all the requirements are for a business,” says Farida Stino, who is of American and Egyptian heritage and returned to Cairo four years ago. Stephanie Hooper, the other co-founder of the bakery, notes that “licensing is expensive, very tedious; you have to know someone.”
The business started several years ago, with Hooper selling baked goods she made at home. When the management of Café Greco wanted to sell her wares, she enlisted her close friend Stino to handle the business end and Sugar ’n Spice was born. As Hooper and Stino say: “Chocolate chip cookies brought us together.” Besides Café Greco, other clients include Diwan and Ciao Bella. As their business grew, they decided to start a storefront of their own and they now have 17 employees.
They initially attempted to open a storefront they rented in Mohandiseen, but were unable to get a license and decided to find an already-licensed property. “We had to move,” Stino says. “They give you the runaround, even though we were willing to do whatever it took: the legal paperwork, pay whatever was required.” This lack of flexibility is a big barrier to starting a business, as location is a vital component of success. “It was very difficult to find a place that was licensed. Pretty much, this was the only place in Zamalek that we found with the license we needed.” To make matters worse, when they tried to close their Mohandiseen location, the government said they had to officially close their business even though they were just moving an existing business to Zamalek. The paperwork on the closing is ongoing, despite having already opened their new location.
SEEgypt’s Susan Torgersen says that for her Maadi travel agency complying with government and international requirements is a large amount of work. Torgersen has lived in Cairo since the early 1990s, when her husband’s job brought them to Egypt. She began by helping friends with their travel arrangements, which led to the start of SEEgypt in 1996. According to Torgersen, the Ministry of Tourism requires monthly reports on the nationalities of all clients; tourism police require reports on the destination of all her tour groups; and every month she files a report to the Tax Authority documenting hotel stays the agency arranges. She says some companies pay extra to avoid some of the inconveniences, but “we don’t do that. We’d rather follow the rules.”
Not all entrepreneurs have encountered difficulties with government bureaucracy. Rene Rangel, a Texan, came to Cairo as a tourist several years ago. He tried some of the Mexican offerings in the city and was disappointed. This sparked the idea of moving to Cairo and opening a restaurant. A few months ago, he opened La Sombra, which serves foods from the border region of Mexico and Texas. He says his current location used to be a Chinese restaurant, so license issues were mostly taken care of. Rangel notes that in general, government officials have been helpful. “Every place I’ve had to go to start any kind of paperwork, people were so friendly. They were very helpful.” Rangel believes Egyptians might identify more easily with him as a Mexican-American. Also, Rangel’s wife is Egyptian and has played an important role in helping him navigate the challenges of setting up the business.
A bigger challenge for him, as well as other businesses, is staffing. He is still looking for a manager, but his main issue is instilling a sense of how important being on time is to his three employees. “When employees are late,” Rangel says, “the business can suffer.” Staffing difficulties are not uncommon. Sugar ’n Spice’s Hooper says scheduling can be an issue since many employees are college students who work part-time. She also observes that a challenge small business owners everywhere face is sudden departures. “With a small staff like ours, when someone leaves with little warning, it can be a big hassle.” Crooks says finding the right people can be difficult. Despite turnover in some of the service positions, Crooks says, many of the core staff that started the restaurant with her are still working there. “If you treat people well, they will want to stay with you,” she says.
For Torgersen, staffing is everything. “You start working from day one when we hire you, and you’re expected to learn on the job.” While overall turnover is low, many new hires quit after discovering how intense and challenging working at the travel agency can be. Apparently one employee quit after learning that part of her job involved making photocopies. “Everyone is expected to do everything here; I still make photocopies myself,” says Torgersen. SEEgypt employs 35 people, many of whom have been with the company since it was founded. Torgersen says that she gets a thrill from watching the families of her staff grow up, knowing that her business has helped make their lives better.
The business owners were open about discussing some of the less transparent challenges of dealing with government. Stino describes one of the company’s first health inspections, saying that one of the inspectors told her: “This kitchen is cleaner than most restaurants we inspect.” Nonetheless, another inspector said he needed to cite something in order to collect the fee, and did, noting that a window looked out on a sewage pipe. Crooks also has issues with paying additional costs associated with running the business. “Inspectors could cause problems if they wanted,” she says. They could take the meat, let it sit on their desk, and then turn it into the lab saying it was a fresh sample.” However, she notes many inspectors return to Lucille’s for the food, presumably because they know it is clean. Despite the protests, business owners are largely sympathetic with the plight of low-paid government workers. “You can change the rules at the top, but you can’t pay someone a salary of LE 200 a month and expect them not to look for extra income,” Crooks says. “At the upper level of government they are trying to facilitate changes, but it’s mostly not trickling down.”
One problem that plagues small businesses in many countries seems to be a non-issue here – taxation. Stino says that since the tax reforms of 2005, the system is “excellent.” As she explains: “Every year, our accountant gives me the amount we owe based on our sales and expenditure. It is very straightforward.” Crooks describes the tax system as easy to deal with and fairly transparent, without the complexities and opportunities for additional fees that impact other dealings with the government.
One recommendation most of these entrepreneurs agree on is the need for a one-stop shop for setting up a small business. “You just don’t know where to go. You get shuffled around from office to office,” says Stino. “There is no one place that can tell you all the requirements for setting up a business.” The complex mix of regulations would be much easier to navigate if everything was based out of one office, rather than having to go to offices scattered across the city, says Crooks.
Crooks’ advice to those looking to start a business in Egypt is this: “Do your homework... Get to know the local business and regulatory environment.” Additionally, she notes, “finding a local partner you trust is essential.” Rangel also believes that a deep knowledge of the city is important for those considering opening a business, saying “I lived here for a year before opening the restaurant, learning Arabic and getting to know the market and the culture.” Hooper and Stino say the key to their success has been slow, steady growth. Since opening their storefront in Zamalek in February, they say, they have rebuffed three franchising inquiries. When the first location has a longer track record of success, they will consider expanding.
While running a business as a foreigner in Egypt isn’t always easy, the experiences of these five Americans show that it can be a satisfying and profitable endeavor.
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