How to build a company that will last forever

Scale is important for startups to put them on the radar of strategic acquirers, which are a more likely route to an exit in MENA than listing on public markets.

But MENA is not a single market so regionalizing your business is a difficult and expensive achievement, although we’ve seen some notable names do it such as Careem, Souq.com and Anghami.

To achieve scale, and attract those strategic acquirers, you need sustainable growth rather than quick wins.

These are the elements that I believe are necessary for a company to get there, and if you don’t end up exiting you’ll have built a solid enterprise that will last forever.

1. Use the right growth metrics
Growth in product use and adoption is key to a startup’s valuation. Regardless of the vertical you’re in, your key performance metrics should always capture that as valuations for technology startups are more correlated to revenue/usage growth than any other financial metric. To put this in perspective, at Talabat a modest week for transaction growth was 7 percent week-on-week, and acquired for a more than 20x revenue multiple, versus market comparables of 10x at that time.

2. Show your regional scale through product adoption
Showing strong evidence of widespread product use and adoption at scale is the only evidence of your position as a regional startup, but it’s much harder to show high growth rates when your revenue/usage are large (when you hit about $5 million per five million users). Product/market fit at scale is how strategic investors gauge a company’s growth prospects.

3. Pick the right investors
To achieve long-term sustainable growth, access to smart capital through multiple rounds of financing is critical. Instead of spending half of your time trying to fundraise, resilient financial backing lets you focus on the business. The best regional example I can think of is Souq.com, whose institutional investors have supported the company’s growth through its different stages.

4. Understand unit economics
Understanding your costing structure and properly allocating your total costs on per transaction basis must be accurately captured in your unit economics. As you reach your Series A and B funding rounds, understanding your unit economics is important in order to have a sense of what your margins could look like when your business matures. Due to different business environments Talabat was operating in, we used separate unit economics for each country we operated in. Such reports gave a better understanding of how much incremental growth directly affected Talabat’s bottom line.

5. Have a large market
Strategic acquirers invest in companies that have a large market. A large market means that the company could reasonably become a large enterprise even without extremely high penetration of that market. At Talabat, the food ordering market size was at least 10 times our daily transactions, even after operating for 10 years when we were growing at over 7 percent week-on-week.

6. Know the competition
When you’re disrupting an industry, competing products should never be ignored. Understanding your market structure and how your startup fits into the broader market is key to building your ‘unfair advantage’ over direct and indirect competition.

7. One vision, multiple products
Strategic investors want companies that aren’t built around one product. It’s important for founders to look beyond the product they’re currently offering, to build a community of products. That’s why market-leading companies such as Facebook start with one core product and end with multiple products that ultimately serve the single core vision.

8. Be community leaders
Strategic investors want to invest in companies with leadership teams that are branded well in the ecosystem they operate in. Beyond the founders, your C-Suite executive team have to be known names in their field, to build the trust of strategic investors when they do reference checks.

9. Hire the right sales and marketing people
Strategic investors will want to see you’ve hired a proven head of product and marketing, and sales. That person/persons is important as you seek to address consumer needs as you scale, and help you develop new features and products in the long-run.

10. Doing good for the community
Make sure you give back to your community. Mentoring entrepreneurs, supporting coding schools and engineering departments at local universities, as well as startup initiatives and many other activities are important. Strategic investors understand the value of a community leader. It’s not a quantitative metric, but a brand value that the community appreciates.

11. Keep your accounts clean
Most startups are deeply involved around the product and often forget that finance is core to ensuring long-term sustainability. Maintaining healthy accounting books and producing financials in a timely manner will prepare you for the fiscal rigour required by strategic investors.

12. Provide the right work environment
It may seem more administration work to build a code of conduct, employee handbook and operational procedures, but is important to create the right environment in your workplace. Communicating the founders’ values and expectations to employees affects the startup’s ability to execute on its plans. During Talabat’s first five years, we always tried writing our playbooks ourselves, which tended to be brief. As we grew, proper policies and procedures were developed to ensure we had the same operational efficiency as when we were a six-member team, and provided new hires with the appropriate context for doing the job. We had a weekly breakfast where everyone from the business could attend which was a chance to embrace the company’s values and vision.

13. Don’t take legal shortcuts
Startups in our part of the world often take shortcuts in complying with the local laws, which is not attractive for strategic investors. An example we see regionally is that business licensing and jurisdiction regulations are often ignored: your startup can be registered in a free-zone that only allows you to do business in that jurisdiction, but your revenue actually comes from other jurisdictions. Taking legal short-cuts might save you some money in the short-run but as you achieve regional scale this will come at a cost to your company’s valuation at the time of acquisition.

14. Responsible governance
Assemble a board from your investors that challenges your vision and governs your practice, and attract experts who could technically and operationally help you improve the business. This strategy paid off well for Talabat at the time of exiting as a member of the board played an important role in negotiating with the acquirers.

 

Abdulaziz B. Al Loughani

aballoughani@gmail.com

twitter: @aballoughani

The Rise of “Community”

5 years ago, there were a number of entrepreneurial initiatives in Kuwait that large sums of money were allocated to but were operating independently of each other. A few governmental programs were servicing funding needs through both debt and equity instruments but nevertheless did not cover other building blocks of the entrepreneurial ecosystem, to name a few here is a list:

  • Kuwait Small Projects Development Company
  • Industrial Bank of Kuwait
  • AlRaeda Enterprises
  • KAMCO

 

Half (approximately) of the allocated funds for these programs were earning interest from deposits and the other half typically funded traditional businesses, with no focus on knowledge based economy. However, the SMEs scene in Kuwait was still quite active relative to the rest of the GCC and a majority of small businesses and startups were funded by private money (friends & family) through traditional funding terms.

 

On the consulting side, there were a lot of boutiques that offered relatively expensive consultations (to the size of businesses being established) and a few were more entrepreneurial friendly in pricing. Here is a list to name a few:

  • AlMubadir
  • Cubical Services
  • Traditional accounting/consulting firms
  • Manpower and Restructuring Program

 

Challenges

Beyond the abovementioned services, entrepreneurs were very much self-dependent (hustlers) and have been struggling with the following key issues:

  • Excessive regulations: It is very challenging to start a business in Kuwait as the licensing requirements and procedures are quite complicated, they take a lot of the entrepreneur’s time to start and maintain rather than focusing on the business 100%.
  • Attracting and maintaining talent is hindered by the strong benefits that the government offers and by the generous labor law rules and regulations with very restrictive immigrant labor permits.
  • Being the largest procurer, Government business penetration is very challenging and is predominantly taken by large corporations and family offices.
  • Access to private finance is limited as most private financial institutions do not view the SME/Venture asset class strategically and the Central Bank’s interest spread cap of 400 basis points is prohibiting high risk taking.
  • Support programs are nascent whether its incubation services, grant schemes, mentoring, business development services, there are a handful of programs with limited capacity.
  • The mindset and culture stand against encouraging modern entrepreneurship. Entrepreneurs are directly encouraged to take a risk-averse mindset and no sense of community exists.

 

Territory marking

With that said, there were a few startups in different industries that were marking Kuwait on the regional map, to name a few in the technology sector: Talabat, Koutbo6, KuwaitNet and many others in different sectors.

 

Infrastructure & market

During those years, government has invested heavily in telecom and internet infrastructure enabling residents and offices to benefit from fiber optic cabling in most areas around Kuwait. As the price of technology access was also witnessing a significant decline, penetration of internet became much more affordable and the bandwidth was only getting better and cheaper. The Apples of the world were causing huge software and hardware disruptions, making the quality and ease of using technology more accessible/useable than ever. The connectivity and efficiency only drove the world to be more connected through brilliant platforms and hardware and everything around the world was only a click away from everyone. Smartphone penetration climbed up the charts and Telecoms focused more on VAS for their customers, as voice calls became a utility.

 

Changes in Local Landscape

Kuwait LandscapeIn the past 5 years, the Lean Startup school of thought became more global and standardized the startup’s lifecycle, early stage funding methods and tools were becoming more visible. As a result of funding gap challenges we had in Talabat.com, my partner and I started setting up a late stage VC practice in 2012 that evolved into a larger project on a national level (the National Fund for SMEs Development), and several institutions started exploring the rising asset class (Venture Capital) where international private funds started flowing into the ecosystem (i.e. Talabat.com) and incubators/co-working spaces started blooming. Individuals (including myself and many others)/family offices/corporates continued to invest in the asset class and the funding gap is much smaller in size than it used to be. Startup competitions (local and international) were happening and developers/designers became more in demand. Despite not having a tax-break policy for non-profit initiatives in Kuwait, non-profit startup initiatives became very popular and the calendar year started filling up with many events in the startup world. Here is an overview of how the local landscape looks like today.

 

Community

If we look at the above table, a super majority of these initiatives are led by entrepreneurs, not government and not corporates (I‘m sure there are more efforts which I missed in the list). These are striving entrepreneurs who are giving us a sense of a real community that is shaping the future of our country’s startup ecosystem. As Brad Feld repeatedly mentions in his “Startup Communities” book, “entrepreneurs always lead the community” and this is exactly what we’re witnessing in Kuwait. There is a new culture of openness and information exchange between entrepreneurs that none of the earlier generations ever witnessed. Mentoring has become more standard and the notion of protecting your idea is gradually becoming obsolete. With more than 60% of the population less than the age of 35, the landscape is only starting to shape right now with much more efforts being geared for the community. There is a very important role for corporates and government to play but ultimately, the community has to continue being led by entrepreneurs who should streamline other stakeholders’ efforts for their benefit.

20 years ago, our flagship startup was Sakhr and we had Talabat conquering the marketplace model for the GCC in the past 10 years… all of that without 10% of the resources currently available for the community. Can you imagine what the next 10 years can produce for the local startup community? IT CAN ONLY GET BETTER!

 

 

Abdulaziz B. Al Loughani

@aballoughani

Branding Yourself

Many small things we do in life are often translated into theories to put them in the right scientific context for us to systematically learn. Looking back, I recall a short conversation with Prof. Henry Moon from my Organizational Behavior class at London Business School, on the topic of work ethics and commitment that he summed up in the importance of branding yourself at the beginning of your professional career. As we come closer to the end of The Proteges – Generation 5, I noticed how important Henry’s piece of mind is for anyone at the beginning of their professional career. I realized that there’s more to branding than work ethics and commitment. Here’s how Henry’s small branding comment looks in my head today.

The first 10 years of your professional career are the best 10 years for branding yourself. Many of us get consumed with the workload and the demanding long hours, which is fine as long as its directed to what you’re passionate about; “The only way to do great work is to love what you do.” When you find your passion, you will specialize and focus on a certain domain, which should always be associated with your BRAND. Here are 10 ways of improving your brand in your first 10 branding years:

  1. Maximize your learning curve: The best way to maximize your learning curve is by associating with the best in your industry. Work with the best institutions, best managers, best partners, and if they do not accept you, find a way to get accepted. If you are not offered a job or an opportunity, push yourself to work for free; Find a way to only work with the best. Improve your hard/technical skills by getting better schooling, degrees, certificates, and practice by building your track record. Get the widest exposure and take very deep dives in your domain, know all the secrets of your trade. Have a mentor that listens to you, provides you with the right guidance and more importantly makes you aware of how the industry works.
  2. Work ethic: Having integrity will make you foster relationships with your stakeholders and will insure trust is built in the long run. The commitment to your work coupled with discipline is important to shaping your attitude towards work; Work in an environment full of dedication, fun and a sense of military discipline. You have to feel responsible for every thing you do, you need to feel empowered and accountable otherwise will you not feel the heat. Your work ethic should reflect on your lifestyle, people should be able to tell your work ethic from your attitude towards life.
  3. Feedback: Seek feedback from your peers/partners continuously. Even if it’s not very constructive, take it as an opportunity to learn how to deal with non-sense. When it is constructive, it’s a great opportunity to further develop your skills, to motivate you and perform better. When you’re giving feedback, offer it only to those who are willing to listen, to those who value your input. Act wisely by knowing when to provide feedback, who to provide it to and what to communicate.
  4. Stay positive: Don’t get sucked into any negativity around you and focus on achieving your learning targets. If you complain about your work, go do something different because you’re clearly not enjoying it. Look at the brighter side of things. When others see weaknesses, turn them into opportunities to improve. Be realistic in your approach and act on your positivity. Choose your battles wisely and know your capabilities when deciding on your actions.
  5. Hang out with smarter people: “If you’re the smartest person in the room, you’re in the wrong room.” Always hang out with people who outsmart you, who are better than you in what you do, who broaden your thinking horizon beyond the narrow/focused mindset you’re in. Without consciously realizing it, you’ll find yourself in a competition to outperform yourself; they will push your limits and help you beat them at what you do.
  6. Be approachable: Your attitude matters very much in business and perception is reality. Helping others makes the working environment you’re in a better place, which ultimately benefits you in the long run. Even if you see this theory differently, Brad Feld’s “give before you get” attitude implies that giving back to the community you work/live in should be a normal behavior without any expectations in return. “Adopt a philosophy of helping others without an expectation of what you are going to get back. It’s not altruistic – you do expect to get things in return – but you don’t set up the relationship to be a transactional one.”
  7. Community involvement: Regardless of the industry you’re in, getting involved in your community helps you become aware of how you’re industry is evolving. It helps you gather intelligence, utilizes your idle skills, gives you a sense of belonging, and more importantly aggregates all the different skills of its members to better serve your industry. The community addresses industry challenges and provides solutions, and typically advocates policy/regulatory changes when need. An active community will have a significant role in shaping the industry you’re in.
  8. Publish content: Don’t publish content for the sake of publicity only, instead focus on creating original content within your domain that readers would want to practice and share. Content doesn’t necessarily need to come in the form of articles, but can also include delivering workshops, campaigns and competitions…etc. Do not dilute your brand by producing content in different domains, focus on what you know best and get creative.
  9. The best: You have to aim for being the best at what you do. Equip yourself with all the tools and resources you need to master what you do. Practice does make perfect. People in/out of your domain have to always reference you for a skill-set within your domain because one day, the best opportunity will come and you need to be the best fit and ready for it.
  10. Do not look for monetary reward: “Fortune favors the prepared.” If you spend your first 10 professional years branding yourself, fortune (monetary and non-monetary) will definitely follow. There is no arbitrage in life; earn every bit of success you plan to have because it will never happen by chance.

“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest.” Everything you do should revolve around self-interest, even what I am writing now does.

@aballoughani

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