7 February 2018 Issue 21 Feb/Mar

How Turkey’s unstable political situation is affecting Istanbul’s startup scene

In recent years, Turkey has been witness to a failed coup, terror attacks and rising religious conservatism. Courier heads to Istanbul to see what it’s like running a business amid the turbulence.

Two weeks after a deadly terror attack at Atatürk International Airport in June 2016, armed forces within Turkey’s military unsuccessfully attempted to overthrow the country’s president, Recep Tayyip Erdoğan.

In the tumultuous aftermath, an Erdoğan-led political crackdown hit all sectors of Turkish society, with sweeping arrests in government, education and the media. Months later on New Year’s Eve, there was an attack in one of Istanbul’s most prominent nightclubs, claimed by Isis. Amid these events, Turkey’s politics have been transformed by a conservative and religious shift.

Youthful image

It wasn’t supposed to go like this. Over the last decade, Istanbul has projected a modern and youthful image, with its own energetic startup scene. A highly-educated, ambitious and tech-savvy entrepreneurial class was making its mark. Fashion designers, media businesses and a buzzy art scene popped up. Members’ club Soho House even took notice and opened a site in Istanbul in 2015.

That energy has faded. Tourism slowed (2016 saw a 30% decline in visitors, the lowest number for nine years). The LGBT community has left in droves. Nightlife isn’t the free-spirited riot of fun it once was. Foreign investment in the first half of 2016 dropped to £3.6bn – half what it was the previous year.

Business takes a hit

For more than half a millennium, the Grand Bazaar flourished as Istanbul’s beating heart of trade. In 2016, 600 of its 3,600 shops shuttered. The Confederation of Turkish Tradesmen and Craftsmen estimates that roughly 8,000 companies closed that year across the city.

However, for others the show goes on. Kolektif House, a local co-working space, is a testament to that. Since launching in 2014, membership has grown from 740 to 1400 and it has increased its footprint by expanding onto two more floors above. It also plans to open another location in June.

Thinking imaginatively

Enis Hulli, an Istanbul-based venture partner at 500 Startups, the Silicon Valley seed fund organisation, believes the political instability has given birth to a new type of business founder; one that’s forced to think more imaginatively.

‘Creating a product in Istanbul is much cheaper than in San Francisco, Berlin or London,’ he says. ‘Entrepreneurs in Istanbul can sustain [themselves] much longer with lower amounts of capital, giving them a competitive advantage to be best positioned when the right time comes.’

In this city, where the politics have become conservative and the business landscape problematic, resilience and adaptation have become crucial traits.

Courier profiles three businesses which have followed this playbook for success.


Part 1: Protests, tear gas and cheap rent
Istanbul’s music scene has felt the strain of the political crackdowns. Gevrec Music Production has survived and thrived by carving out a niche.

Long before reuniting to form a company, friends Barış Baykan and Sabi Saltiel played together in a high-school band – Baykan on drums, Saltiel on guitar. Throughout the years, music has remained their passion. Baykan went on to work for Babajim Records in Istanbul as a sound engineer, while Saltiel attended Berklee College of Music in Boston and gigged with local bands in California.

The music makers

When contemplating where to set up a business, however, the cost and competitiveness of the US made Saltiel reconsider his homeland.

In Istanbul, he says, ‘there are more windows of opportunity for people like me’. So, in the summer of 2013, the year mass demonstrations engulfed Istanbul following government plans to turn a popular park into a shopping mall, the duo came together to launch their music production house, Gevrec (named after a sesame-covered ring-shaped pastry, a homage to their roots in Izmir). It records and produces albums for Turkish music artists.

Drift to the Asian side

The first order of business was finding a location for their recording studio. The two wanted to avoid the protest chaos in Istanbul’s Beyoğlu neighbourhood, then caught up in the Gezi Park demonstrations. They settled instead on Moda, on the cheaper Asian side of the city’s continental divide.

This didn’t stop them from getting tear gassed. During their first months, they were forced to leave the office early because of toxic smoke drifting in from nearby protests. Yet, while political violence continued on the European side of the city, a demographic shift in Gevrec’s area reaffirmed their choice of home. With artists moving in, Moda has transformed into what Beyoğlu once was: a hub for urban creatives.

Bans and cancellations

Baykan and Saltiel have had a tough time breaking into the music scene. Like many industries in Turkey, music is a tight-knit and local affair. Who you know is often more important than sheer talent, and word-of-mouth reigns supreme.

The political and security situation hasn’t helped Turkey’s music business. In 2013, the increasingly religious government banned alcohol advertising, cutting off a major revenue stream for the industry. Large, sponsor-heavy festivals such as Rock’n Coke have been cancelled ever since.

Risky bets

In a city that’s seen frequent terror attacks, the inability to ensure safety and security at concerts has been blamed for low turnouts and venue closures. The stream of international musicians visiting has dwindled. As a result, an already small industry has shrunk as producers avoid risk and spend money on safe bets like established pop stars.

Though it’s been difficult for Baykan and Saltiel to carve out a space for themselves, the economic situation has forced them to diversify, moving beyond music production into education and consulting. And whereas others in the industry are betting big on acts which command mammoth social media followings, Gevrec has focused on unknown, raw talent. Staying small and giving the business a personal touch has become its competitive advantage.

Artist diversity

Last year, perhaps as proof the approach works, the team landed a contract to record an album for Sertab Erener, one of Turkey’s most successful female singers. It propelled Gevrec into the mainstream. It’s since recorded an album for alternative singer-songwriter Mabel Matiz, who is openly gay.

This doesn’t exactly mesh with Turkey’s turn towards a more conservative society. For Baykan, the picture is more nuanced. ‘Throughout the history of this country there have been many instances of oppression. Following these periods it’s always the opposite… a forgiving time. We plan to be equipped for it as best as we can.’


Part 2: Immodest growth
Turkish startup Modanisa has been called the ‘Net-a-Porter of the modest fashion industry’. It’s found success by understanding that Muslim fashion goes beyond black burkas.

By the end of 2015, £33bn was spent on ‘modest fashion’ around the globe, making it one of the fastest-growing sectors in retail. Yet, when e-commerce startup Modanisa launched in 2011, co-founders Kerim Türe and Lale Tüzün were told that selling women’s fashion on the internet was foolish and didn’t match the purchasing habits of Turkey’s conservative consumers.

Swimwear and abayas

Thankfully for Modanisa, the early naysayers were wrong. In less than seven years, the company has grown into one of the world’s largest e-commerce sites for Muslim women.

In 2016, it sold more than three million items, from swimwear to abayas (the traditional robe worn by some Muslim women), and shipped to 120 countries. Ten million people now visit the website each month to browse its catalogue of modest clothing.

Conservative expansion 

For Modanisa, success came quickly. Its first order was received just a few days after the website was set up. Three months later Ramadan orders poured in. By month five, Modanisa’s office became too small and it expanded from 50sq meters to 1250sq meters.

Though initially self-funded by the founders, the company’s growth has been fuelled by a series of multimillion-dollar investment rounds, which has led it to open a new depot and two bricks-and-mortar stores.

Global Muslim market

‘The expansive market gap in the retail industry for fashionable clothing tailored for Muslim women remains the driving force,’ explains Türe. ‘Before us there wasn’t even a segment called modest fashion,’ he claims. ‘Producers believed there was no need for it.’

That might have something to do with Turkey’s recent history of secularism.Following the military coup in 1980, the wearing of headscarves, burkas and hijab was banned from all educational and governmental institutes.

That has changed under Erdoğan. In 2007, his conservative Justice and Development Party allowed headscarf-wearing students to attend university for the first time. In 2013, this was extended to Parliament, courtrooms and other public service departments, excluding the military.

Fashion for headscarves

It’s difficult to determine how much of Modanisa’s growth is due to this change in society; critics claim that statistics on the number of women wearing headscarves have been inflated for political gain.

What’s undeniable is that under Erdoğan, attendance at religious schools has risen. The number of students in such schools was five times higher in 2016 than it was in 2012.

‘Our criteria is the market demand,’ Türe says. ‘Modest fashion is growing at this rate because it has been a neglected sector for years. It is beyond politics. So is Modanisa.’


Part 3: An unlikely startup move
In a land famed for its barbers, an American living in the city is running his own venture trimming beards and cutting hair.

 

 

The barber is an iconic figure in Turkish culture and identity. It’s a skill that’s spread around the world as Turkish barbers have set up shop in far-flung cities, everywhere from Helsinki to Hull.

Istanbul is certainly not short of barbershops. Officially, there are more than 5,600 operating in the greater metropolitan area. Unofficially, countless others exist ‘off the books’.

Turkish men typically pledge themselves to a single barber. ‘Barber loyalty is a global thing. But I’ll say here in Turkey, [it] can be a bit more dramatic,’ says Brandon Patton, owner of Frontier Barber in Istanbul’s Bebek neighbourhood. ‘Some guys cite that the guilt they would feel by changing barbers would be too much for them to consider it.’

Patton, an American, arrived in Istanbul in 2010, staying for a year and a half before returning to New York to train as a barber. When he came back to Turkey to open his own place in 2016, he understood the risks of throwing his hat in the ring. Shipping in vintage 1930s New York-style barber chairs, Patton’s approach was to offer more than just a quick shave and cut; he lured in locals intrigued by his Brooklyn-esque ‘barber as lifestyle brand’, where conversations go beyond ‘give me a trim’.

Patton says starting a business as a foreigner and establishing an A.Ş., the Turkish version of a limited liability company, is surprisingly easier than one expects. ‘A little bit of paperwork, capital, and some help from a lawyer was all it took,’ he explains.

Frontier Barber was established just two months after the attempted coup. So far, it hasn’t affected the business. Life in Istanbul goes on as usual. ‘These last two years have obviously been tough politically and naturally that affects the way people go about their daily lives,’ he says. ‘When times get tough, people tend to revert to their comforts and old habits; staying within neighbourhoods they are comfortable with.’

For a barber in Turkey, that’s nothing but good news.