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Strong foundations

“To simplify and improve people’s lives, and build an awesome organization that inspires”. This phrase has remained Careem’s virtually unchanged mission statement ever since the company was founded in Dubai by two ex-McKinsey consultants Magnus Olson of Sweden and Mudassir Sheikha of Pakistan, back in 2012.

Careem was founded on top of what I call a “founder cheat code”: two consultants looking for purpose. In the case of Careem, the two founders didn’t have an epiphany on a spiritual retreat to Tibet. Rather, Magnus almost lost his life following an unexpected brain aneurysm and promised himself he would build something impactful if he survived.

Following Magnus’ recovery, the pair started to brainstorm ideas of what they could fix in the region. As recounted by Magnus, Mudassir’s idea of “simplifying the transport of consultants in the Middle East” by building a B2B ride-hailing app didn’t exactly hit the mark of the world-changing mission Magnus had in mind. That was until he spoke to the drivers and realized this could be an opportunity to drastically change their lives. Careem was thus born, a ride-hailing app with a strong purpose surrounding their drivers' economic and social well-being, renamed “captains” to break the regional stigma around the job.

Using the battle-tested ride-hailing model and adapting it to local realities, which we’ll cover later, Careem quickly expanded throughout the entire MENA region, venturing into large, juicy markets such as Egypt and Pakistan as well as more challenging ones such as Palestine and Iraq. Contrary to its often brash ride-hailing competitors, Careem played nice with regulators, pitching them on how Careem’s service could improve transportation in their cities rather than brute-force their way into new markets. This privileged relationship with regional legislators would be key in defeating their main competitor: Uber.

“Careem followed a model that many startups across the Middle East have used: take a tested, successful idea from outside of the region and adapt it to the local context. Souq, which was acquired by Amazon in 2017, used Amazon’s e-commerce model to serve customers across the region. Maktoob, the email startup, was acquired by Yahoo because it served a similar purpose for email users in MENA.” - Fiveone Labs

Hyperlocalism

Careem’s success is strongly rooted in its market-conscious approach to business. Indeed, I don’t consider Careem to be a “copycat” startup, but rather a startup solving relevant and local problems while building off existing business models. For Careem, hyperlocalism is translated in a couple of areas.

First is the approach to women. Indeed, gender relationships are very different in MENA than in the West, even more so in countries such as Saudi Arabia where women were not allowed to drive until 2018. In order to engage female customers, Careem built a couple of key features such as not sharing the customers’ phone number with the “captains” (drivers) but rather operating communications through an in-house call center. For female captains, Careem tweaked its algorithm in order to avoid penalizing them if they refused a trip to a dangerous neighborhood. Careem was also on the frontline to get women in Saudi to become so-called “captinas” once they were allowed to drive. Compared to Uber’s infamous “bro” culture, Careem has tried to build with a female lens from the get-go.

“Careem assessed early on that women passengers would be critical to its success—a fact that might seem surprising, given that the Middle East is often considered oppressive toward women. While the region is conservative, the limitations have created opportunities. Saudi Arabia, for example, is one of the region’s largest markets. Until this summer (2018), however, women were barred from driving. Careem gave them mobility. Today, the vast majority of Careem’s customers in Saudi Arabia—70%—are women.” - Fast Company

One of Careem’s greatest plays when attempting to beat foreign, often better-funded, competitors was to enable cash payments before anyone else. Indeed, while considered blasphemous among Silicon Valley gospel, Careem knew that the region’s high cash usage made it essential for them to accept that mode of payment. Other Careem features built considering the local context include booking in advance, booking for someone else, and a customer call center enabling less tech-savvy customers to still book rides.

Similar to M-Pesa in Kenya, Careem acted as a “market-creating innovation”, a concept author Clayton Christensen outlines in his fantastic book “The Prosperity Paradox”. Being one of the first widespread consumer internet applications in the region, Careem had to build a bunch of features and infrastructure itself in order for it to operate. Two prominent examples include the in-house mapping/localization database, and the in-house payment system that enables cash payments for online transactions. Scaling across the very fragmented MENA region made the challenge even tougher.

“After talent, the second biggest issue is that this region is massively fragmented. If you’re building a technology business, you need to invest in building a technical platform that can scale to doing millions of transactions on a daily basis. That is expensive, and none of the markets in our region are big enough on their own for that level of investment. So, you really need to be a regional platform to justify that scale, to justify that investment. And going and becoming a regional player is still incredibly difficult. From basic things like registering a legal entity, sometimes finding local partners, to setting up offices, to funding, gateways, payment partners, dealing with different regulations in different markets. It really ends up taking a lot of resources and time to make that expansion happen. And it is critical.”- Mudassir Sheikha in an interview for McKinsey

Careem is also known for having built one of the first world-class, in-house engineering teams in the region, with a strong focus on upskilling its employees, setting up R&D sites in Dubai and Berlin while hunting for talent worldwide.

This emphasis on cultural specificities, as well as its treatment of drivers (health insurance, internship opportunities for children), made it extremely difficult for Uber to compete with Careem when they entered the region around 2013. A large component of ride-hailing is trust: indeed, you are essentially putting your life in the hands of a complete stranger. The closeness and credibility Careem had developed and nurtured throughout the region made it impossible for Uber to win, and led the global behemoth to take a drastic decision.

The acquisition

This isn’t the first time Uber was manhandled in a foreign market. In China, Uber ultimately left and sold its operations to local competitor Didi. In Russia, Uber had to admit it couldn’t win and ended up forming a joint venture with local competitor Yandex. In Indonesia, Uber sold its operations to local competitor Grab.

In MENA, Uber decided to take a different approach. Led by new CEO Dara Khosrowshahi who took over his infamous predecessor Travis Kalanick, Uber leadership was determined to not let the MENA region slip away. In 2019, Uber announced the acquisition of Careem for $3.1B, making it the region’s largest startup exit by a factor of 5.

Careem’s leadership was initially hesitant about the deal, due to the obvious cultural differences between the two companies. However, Khosrowshahi managed to convince them by enabling Careem to retain its brand, team, and identity as part of the deal.

“At first, the Uber option did not make much sense to us,” Sheikha said. “Yet over many talks with Dara, we developed a stronger relationship with him and his team — it felt different. It was clear they had a deeper appreciation of the platform opportunity in markets like the Middle East and had realized that capturing the opportunity would most likely require a focused local operator.”

So rather than following the well-worn route of Silicon Valley companies wresting control of a company from its local founders, Khosrowshahi chose not to mess with the elements that had created Careem’s success — the local knowledge and experience of its team.” - Venture Beat

The impact of the deal

In an interview, Sheikha says that part of the reason why he took the deal was more than just business-oriented. Indeed, he knew that an exit of this scale would effectively bring the MENAP (P stands for Pakistan) startup ecosystem into another dimension, for two main reasons.

The first is the social proof that a startup in MENA can achieve a massive exit. Although the Sooq and Maktoob deals were impactful in their own way, a multi-billion dollar exit is a whole different ballgame. The exit filled Careem’s LPs’ pockets and enabled them to reinvest more boldly. It also led foreign investors to look at the region with more interest. Lastly, it convinced some local investors (there isn’t a lack of money in MENA) that the venture capital asset class was a promising one. All in all, the Careem exit led to a generation-altering mindset switch about the region: startups in the region can 100x your investment. Come invest.

The exit’s second large impact is the creation of the “Careem mafia”. The acquisition itself triggered an exodus of hundreds of Careem employees, cashing out their stock options to go start something of their own or using their newfound wealth to angel invest. According to a report by The National, Careem’s exit led to 75 employees receiving more than $1 million and 200 others receiving at least $270,000. These large exits are absolutely fundamental in kickstarting startup ecosystems.

“Most importantly, this liquidity event will generate wealth to many Careem employees like the region has never seen before. Not only will the founders get huge infusion of funds, but the generous stock option plan of the company means there will be tens if not hundreds of people who will either get millions or hundreds of thousands in paychecks. This matters, because that is what entrepreneurship is all about – creating value and generating new wealth away from the traditional wealth generation in the region from inheritance or family businesses. This is completely new and unprecedented in its scope.” - Fadi Ghandour, founder of Aramex and Managing Partner Wamda Capital

Plans for the future

It has been more than three years since the acquisition and Careem is still charting its own, singular path led by Magnus and Mudassir. The company has set its sights on developing the region’s super app, leaning on its large existing customer database to do so. The super app’s vision is still centered around captains, the rationale being that new services on the platform give captains more income streams. Careem is also betting on the fact that its 48 million users trust Careem with paying online through Careem to speed up adoption of new services. One of the verticals Careem is quickly trying to dominate is grocery delivery, which is embryonic yet fast-growing in the region. In the UAE for example, the online delivery market grew by 50% in 2021, yet only 7.8% of the country’s annual $1.6B grocery purchases have been made online.

“Having already built the infrastructure, it is relatively easy for Careem to add more businesses. We’ll build some verticals ourselves but having created the framework and functions such as built-in mapping capabilities, we would like to see third-party developers, including traditional retailers, building on our platform. It would be good to harness innovation from many different sources.” - Baber Shaikh, VP engineering @Careem

Conclusion

Careem has been the most influential company in the development of the MENAP startup ecosystem. Its success, built on local particularities and a quest for purpose, reconcile both the fact that one can build a multi-billion dollar business in the region while drastically changing the lives of the people you serve. The infrastructure, both physical and mental, Careem built in terms of the region’s approach to digital consumer services will serve every startup that comes after them.

Many would’ve wished for Careem to stay a private, independently-owned business. And to be honest, maybe that’s what the founders wanted deep down as well. However, the exit to Uber bought a wealth of opportunities for Careem and for the region, while pushing the company even closer to its initial goal: to simplify and improve people’s lives and build an awesome organization that inspires.

The Realistic Optimist provides weekly, in-depth analyses of some of the hottest stories in our now-globalized startup world. Subscribe below to receive it directly to your inbox and don’t hesitate to share it with your colleagues :)