The Sweet Spot of Talabat’s Business

Hamad Mufleh has an interesting (as always) take on the Talabat acquisition and where it can lead us. The original post can be found here, but if you’re too lazy just read on.

PS: Context matters. The F bombs he is referencing were out of sheer surprise, not anger 🙂

 

The Sweet Spot Of Talabat’s Business

Talabat is the first tech unicorn of Kuwait, and it could be the last.

Mijbel broke the news in the Startupq8 whatsapp group..

“Guys, we got our 1st +100m startup.”

The reactions have all contained versions of the F-word. And rightly so. Talabat has managed to unseat Maktoob with a ~$170 million price tag and take over the title of Middle East’s Biggest Acquisition in tech. The hard work that put Talabat and, consequently, Kuwait on the map shouldn’t be understated or dismissed as money laundering.

Just a few days ago, a friend of mine asked me to look him in the eye as he told me to give up on tech startups in Kuwait. “Ma yamshi 3endena,” he said. I have to admit that I believed him for a second. My faith is renewed.. but I have to say this: I don’t think there’ll be another Talabat-size acquisition in the next 5–10 years coming from Kuwait. Well, maybe the game developer Lumba Inc. can pull it off. Maybe the guys at Nabdh will. But it’s incredibly hard to match that 9 figure. The reason has nothing to do with the lack of talent or hard work — although Kuwait generally has to make up a bit on that front.

Talabat was and continues to be in a sweet spot. Between Moh’d Jaafar’s purchase of Talabat in 2010 for USD ~$3 million and the sale at ~$170 million, the market had matured significantly. But why has it been so good for Talabat especially?


Well, here’s my best explanation..

Talabat offers value at the very base of Maslow’s pyramid — food!

Maslow’s hierarchy of needs

Startups at every level on Maslow’s pyramid have been valued/acquired with greater valuations (e.g. whatsapp, instagram). But the catch is this: the closer you are to the base, the higher your average customer lifetime value, and consequently, you’ll need fewer of them to achieve the high valuation. In the case of Talabat, they offered a service to an essential and frequent need. That commanded a decent CLTV.

Why does that matter? For a Kuwait-based startup, you have to operate knowing that your target market (Kuwait, or GCC) is a fraction of, say, the US where we usually see those high valuations. In a realistic best case scenario, you can take on all of the Middle East — but most of the Middle East is unbanked. In fact, the population size of those who have bank accounts and live on more than $5/day are estimated to be only 45 millionfor all of the MENA region, including the Gulf. With smaller markets, transaction frequency matters.

Talabat is piggybacking on the growth of four overlapping macro factors..

  1. growth in household income levels & purchasing power,
  2. growth & innovation in the restaurant industry,
  3. changing consumer habits towards lazy on-demand meals, instead of home cooked. My mom knows this one too well.
  4. growth in mobile penetration and usage. The shift from desktop to mobile upended the entire tech industry, but not Talabat, which positioned itself well to serve the always-on mobile customers.

All without the operational headache of running a restaurant chain

Several entrepeneurs have started amazing food concepts and are doing remarkably well. PICK is one of my favorite examples. But the sheer challenges that surround the operations — expanding physical locations and kitchen to mention two — can wear down any energetic, focused and hard working entrepreneur. This is not to understate the challenges that Talabat faced, but to emphasize that scaling a technology-based business that exists largely online can be done relatively faster, especially in a country that ranks low in the business friendliness index (and dropping every year).

It managed to convince businesses and customers to pay a small fee on every transaction

I asked friends to help come up with alternative startup ideas that fit all these criteria combined: a scalable tech, a sizable market, a transaction-based revenue model, and a frequent need. We failed.

Talabat is the first tech unicorn of Kuwait. And it could very well be our last. That being said, there’s still hope for the rest of us at the 6–8 figure level. Cheer up amigos!

Leave a comment

3 Comments

  1. Salam,
    Nice article. I wanted to give a different point of view:

    1- Global Valuation:
    This acquisition comes as part of the global war between HelloFood (Rocket Internet) and JustEat. Rocket has acquired a number of delivery companies world-wide right before Talabat. Global valuation is always higher than local ones (just compare 2010’s price of $3m to today’s $170m. I know the company has grown, but also part of it the acquiring entity).
    How was the valuation per customer? I would be very interested to know this.

    2- The “Obvious Hard Thing” of scalable operations:
    One of the fastest growing startups in London is Deliveroo, also a food delivery startup. Many others tried this obvious field, and they failed. This company was founded by an ex-Hedgefund manager, but his anal attention to detail is what made the company succeed.

    Delivery requires very high quality operations. This is very hard in our part of the world because getting visas for workers is hard, and also managing low-paid workers is hard. And you have to do both things right to do it.

    Startups that can solve the “obvious hard thing” will be acquired and succeed in the next few years.

    3- Hungry Customers are Sticky 🙂
    In all analysis of food ordering apps I’ve read, the percentage of repeat customers is extremely high. This is why it really makes sense to value those customers highly.

    —————-
    Can Kuwait do this again?
    I’m extremely proud and happy to see such acquisition in our Arab world. And I’m sure Kuwait can do this again and again. You guys have the $6b fund 🙂 We’re waiting to see the results.

    Reply
  2. mijbel

     /  February 12, 2015

    Thanks for taking the time to comment.

    Yes. Talabat benefited from being a regional leader in food delivery, something Rocket coveted Although the acquisiton cost per custome isn’t disclosed, the platform is processing approximately 20,000 orders per day according to an interview in today’s Al Jarida newspaper.

    While Hamad is being (valiantly) pessimistic about the odds of a repeat, it’s definitely repeatable if this deal attracts more international interest in the region. The coming months will help answer this question.

    Reply
  3. Talabat is not in the delivery business. They are simply taking orders and passing them on to the restaurants.

    The restaurants are the ones that deliver. Talabat simply:

    1. Provides a central catalog of menu items.
    2. Provides online payment (including credit cards); for restaurants – but this is an opt-in as restaurants can choose to accept cash on delivery.
    3. Provides and interface (online) for restaurants to view their pending orders.

    It does not deliver the food or is otherwise involved in the delivery/production pipeline.

    Given this, the valuation is even more eye-watering.

    Reply

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