“Betting on Entrepreneurs” My talk at the Abu Dhabi Media Summit http://bit.ly/QBA0Gg
“Betting on Entrepreneurs” My talk at the Abu Dhabi Media Summit http://bit.ly/QBA0Gg
May 28, 2012 2:09 pm
Tea with FT Middle East: Fadi Ghandour
By Michael Peel
Weeks before the start of the uprisings that have turned the Arab world upside down, Fadi Ghandour had a memorable chat with another regional business titan, the Egyptian telecommunications magnate, Naguib Sawiris.
During an onstage interview by Mr Ghandour at a November 2010 event in Dubai, Mr Sawiris shocked the audience by saying that his idea of change in the Middle East would be “if everybody sitting here will overturn the governments we have.”
“I said [to myself]: ‘I am not going to go there’,” Mr Ghandour, founder of Aramex, the logistics company, recalls with a laugh. “I am an activist – but as a citizen, not a politician.”
It’s a philosophy that has served Mr Ghandour well during three decades when Aramex grew from nothing to a more than $700m business, becoming along the way the first Arab world company to list on New York’s Nasdaq stock exchange. Now, as he prepares to step down at the end of this year as the company’s chief executive, his mind is focused on the economic side of the political change roiling the region.
“Private enterprise, job creation, youth empowerment are things that I think is what the Arab Spring is all about,” he says in an interview one afternoon in his 23rd floor office, perched above the office parks that are home to Dubai’s media and internet industries. “Yes, political freedom and political expression are important. [But] without economic vibrancy, in any country, democracy becomes an empty promise.”
Mr Ghandour, a 53-year-old Jordanian national, traces his entrepreneurial sense of purpose in part back to his father, Ali. Now 81, Mr Ghandour senior had an extraordinary career that ranged from fleeing Lebanon to Jordan as a political refugee, to helping with the establishment of Royal Jordanian, the national airline. He taught his son “that you have to be on your toes all the time, you have to be alert all the time, maybe some paranoia here and there,” says the wiry and energetic younger Mr Ghandour, who fuels himself with multiple cups of coffee each morning but prefers to avoid it after lunch.
Mr Ghandour was not long graduated from George Washington University when he cofounded Aramex in the early 1980s along with Bill Kingston, a family friend who ran a courier business in the US and spotted a gap in the market in the Middle East. Aramex – Arabian American Express, shortened to be less geographically limiting and to avoid possible anti-Arab prejudice – grew relentlessly towards its Nasdaq listing in 1997, before going private again in 2002 and then relisting on Dubai’s stock market in 2005.
Mr Ghandour sees the whole process of taking the company public as having instilled a discipline essential to any start-up that wants to become a big business.
“We cleaned up the organisation before we went public on Nasdaq,” he recalls. “That was so essential for us for us to become the world class company we are today.”
Mr Ghandour will soon step into the freshly-created job of vice-chairman of Aramex, where he will focus on sustainability, strategy and new investments. The company is expanding through ventures such as Shop & Ship, which uses a network of US and UK post office boxes to pick up deliveries from the many online shopping sites that don’t deliver to the Middle East.
A social media convert from the early days, Mr Ghandour is also hot on maintaining Aramex’s image on the internet. He has a team of about half a dozen people in Dubai and Amman who monitor the web for good, bad and indifferent comments about the company. He says he takes personal charge of, on average, one client query a day.
“Your product reviews are instantaneous and there is a need for instantaneous gratification,” he says, adding that the word-of-mouth said by marketers to affect ten potential customers in the pre-internet era now probably has an impact on thousands. “A client who is in China can say something about your product and someone will hear about you that second in Dubai or Amman and Nairobi. People will monitor how you react – and you had better be prepared for it.”
Another increasingly important strand of Mr Ghandour’s professional life is his backing – both financial and rhetorical – for the next generation of Arab entrepreneurs. Mena Venture Investments, a $40m fund he has set up with Arif Naqfi, the founder of Abraaj Capital, the biggest private equity investor in the Middle East, has already put money into 42 companies.
Mr Ghandour – who says prospective entrepreneurs send him three or four business plans a day – has already scored a hit with his investment in Maktoob, an Arabic language web portal bought by Yahoo of the US in 2009. He sees a “boom” in shopping websites such as Amman-based MarkaVIP, which attracts customers with “flash sales”, or short term discounts.
“Maktoob highlighted that you can build an internet business in the Arab world and sell it and make money out of it,” Mr Ghandour says. “The social media explosion in the Arab world has also made people aware of the internet and the possibilities of the internet. So finance will come, I think.”
While Egypt’s Mr Sawiris continues to play a lively part in his country’s politics – including landing himself in hot water last year after he retweeted a cartoon of Mickey Mouse mocked up with a beard and Minnie Mouse with an Islamic veil – Mr Ghandour has carved out a different role.
He praises the infrastructure available for start-up companies in Jordan and says he believes efforts are being made at political reform, in the face of sporadic protests and changes of government over the past year and a half.
“In today’s world you don’t need to be a politician to make a difference,” Mr Ghandour says. “In fact, it’s the other way around: if you are in politics you are limited in what you are going to be able to do.”
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How I Did It: The CEO of Aramex on Turning a Failed Sale into a Huge Opportunity
by Fadi Ghandour
The Idea: Fadi Ghandour has built one of the most successful entrepreneurial enterprises to emerge from the Arab world, Aramex International, overcoming rejections, cash-flow crises, and naysayers in every country where he tried to do business. Read the Executive Summary
In 1984, two years into building the express delivery company Aramex, I was preparing for the most important meeting I’d ever had. My partner, Bill Kingson, and I were hoping to persuade the Seattle-based Airborne Express to buy 50% of Aramex for $100,000.
At the time, out of a modest office in Amman, Jordan, we had launched several other small offices in the Middle East, hoping to become the first courier company based in that region. Our operations were tiny (we hadn’t yet exceeded $1 million in revenue), I was personally playing a range of roles from chief salesman to occasional delivery guy, and the cash flow was uncomfortably tight. We were what I would describe as a guerrilla setup—a scrappy, hand-to-mouth business.
The Middle East was not yet seen as a growth opportunity for global courier companies: Skirting civil wars and complex political relationships was an enormous logistical and bureaucratic challenge. In addition, in some countries the business market wasn’t yet demanding courier services; in others those services were monopolized by companies or the postal authorities. We thought that such an investment from Airborne, along with the explicit endorsement of one of the world’s most respected logistics companies, could seal the future of our start-up.
Bill and I did get in to meet with both the CEO and the COO of Airborne Express, but they swiftly turned us down. Airborne was just starting to explore expansion outside the U.S. and wasn’t ready to invest in a small market like the Middle East, let alone in a start-up. That was a huge disappointment to Bill and me. But we left the meeting with a valuable consolation prize: the promise of some business. At that time Airborne was occasionally asked to courier packages to various Arab countries; it would use either a competitor or some small London-based company to deliver in the region. Because the Middle East was such an insignificant part of Airborne’s business, there would be little risk in giving those packages to Aramex. But to us it meant the largest and most important account for a long time. Our pitch had been that we could reliably handle whatever business Airborne acquired in the region—so it wouldn’t have to turn to a competitor. We could be a neutral partner, acting on its behalf.
I realized immediately that Airborne’s offer would give us an opportunity to learn from one of the world’s most successful courier companies—and, more crucial, to take advantage of its technology and global reach. Instead of getting a 50% owner, we would get a master class on how to grow our own business. That partnership would make the difference to our survival—and provide us with the rapid learning curve to set our own ambitions high. Nineteen years later, when Airborne was sold to its former archrival, DHL, not only had we learned everything we could from it, but we were ready to be a global leader in our own right.
“We Are Airborne Express…and Federal Express…and…”
Business from Airborne gave us enough credibility to knock on other doors. I realized that the prime competitors in the logistics and courier business feared one another more than they would fear us. So we sold our services as being provided by safe, neutral hands. We would call clients and say, “We are Airborne Express,” or “We are Emery”—whatever company we were representing. We wore many hats and customized our services to suit whoever gave us business. If you looked back at the global offices of some of the major package-delivery companies in the 1980s and 1990s, you’d find some recurring addresses. Those were actually Aramex offices.
After knocking on the door at Federal Express time and time again, we finally gained it as a client in 1987. Aramex thus acquired its single largest account to date, because FedEx had more packages going into the Middle East than all its competitors combined, giving us a healthy monthly infusion of cash.
But our first serious relationship was to be our most significant. Airborne Express started to build a global alliance of regional courier companies like Aramex in order to offer customers service in every corner of the world without having to run or acquire all those operations itself. We were among the first of what would eventually be roughly 40 companies in the alliance—which was called Overseas Express Carriers (OEC)—whose responsibilities included establishing common operating procedures, rates, and quality assurance. Because Airborne provided its package-tracking technology to all its OEC partners, we had an enormous competitive advantage at a very low cost. (We also acquired e-mail early on, achieving a quantum leap in management efficiency.) Previously Aramex had relied on faxes and telex machines for tracking and tracing; we didn’t have the resources or the expertise to create our own system. Suddenly we were part of a sophisticated global operation. We’d been given access to similar systems from FedEx and Emery, but without permission to use them for our own Middle Eastern customers. Airborne’s system elevated us to a whole new level of service.
I wrote this a year ago, I think it is worth sharing again
While the global media was racing to cover the biggest story yet about entrepreneurship in the Arab world, while the story itself was hitting the sixth top spot on Twitter, a feat never before achieved by an Arab event, while the regional online community was abuzz with the news, the Arab mainstream media, with a few telling exceptions, was snoozing through it all.
Yahoo!, the global Internet portal and search engine, acquires Maktoob, the largest Arabic portal, in a landmark deal that speaks volumes about Arab entrepreneurship, and our media was just not interested because, well, it was clueless.
So, for these snoozers, here are a few clues about why this acquisition is such a big deal.
It finally puts us Arabs on the global Internet map. It will get people to pay attention to this region’s knowledge-based industry, where there is an impressive number of technology entrepreneurs.
It is the ultimate success story in a region long used to failure. For our younger generations, it is a wonderful example of how a dream can turn into a brilliant achievement through a combination of boundless creativity and down-to-earth business sense.
For our leaders, it is hopefully a painful reminder of the distance between their priorities and the ambitions of an increasingly wired younger generation (16.5 million of whom are unique visitors of Maktoob’s) eager to move away from a state-driven, oil-dominated future.
For our wealthy Arab investors, it is a wakeup call that true value lies in our youth rather than in real estate, and that talent is closer to home than they could have ever imagined.
For the Arab world, it is proof that money may count for something but, in the final analysis, an education, smarts and determination count for much more, because the two entrepreneurial gentlemen who made Maktoob started out in Jordan – their home and, it just so happens, one of our area’s more resource-poor countries – and, even when their company reached way beyond it, never left.
We should, therefore, celebrate the story of Maktoob, and we should hail its founders, Samih Toukan and Hussam Khoury, for being such tenacious entrepreneurs, at once innovative, patient and practical. But before the acquisition becomes yesterday’s news, as an early investor in Maktoob, as a friend of Samih and Hussam’s and, yes, as an occasional mentor to both, I would like to share with you the lessons learned from this experience.
Lesson 1: It is not about vision; it is about a tedious process of discovery. It is about a unique product at the right time for the right geography. Maktoob started as a consulting company, then changed to become one of the first (if not the first) Arab website developers, and then moved on to inventing Arabic web email. They saw the niche and they went all the way, building everything around that niche.
Lesson 2: Conserve your cash. There is nothing more important for your survival than cash. Cash burn is not something to be proud of, so burn the least amount possible. That means founders should not take salaries as long as the business cannot afford them. Maktoob lived off bread crumbs for the longest time; they kept developing the business until the first venture investor came.
Lesson 3: Don’t fall for the hype. When Maktoob happened, cash burn was the fashion, but Samih and Hussam kept their eyes on the company, did not become seduced by sexy trends and kept building value. None of their much richer competitors survived the dotcom crash. Maktoob flourished.
Lesson 4: Build your team. This is a no brainer, but few entrepreneurs realize that it is always about your team no matter how good you are. Build the team, retain it, reward it with stock and give it freedom to innovate.
Lesson 5: Mentors are important, so listen to them and seek them out all the time. They will always give you a different perspective, challenge you and keep you on your toes. Dig deep into their knowledge: It is priceless.
Lesson 6: Aim for success not exits. Two decades of building a business is a long time. Samih and Hussam knew the exit will come only with a good brand and a viable business.
Lesson 7: Your shareholding percentage does not matter. What matters is building value for your clients, and the rewards will not be too far behind. The value of your business is what you build, and how much you own is relative to that value. It is about how to get to the exit in dollar terms, not the percentage you own; 50 percent of $10 million is half of 10 percent of $100 million.
Lesson 8: Partner with your venture and PE capital investors. Set the terms of reference early on to make sure that they understand your business and leave you alone to run it. Abraaj and Tiger understood that, and Samih and Hussam were left to build value. All equity partners made lots of money because they understood this basic rule.
Lesson 9: Split your responsibilities very clearly and very early on. The combination of Samih and Hussam as a team, as friends and as partners is unique. I don’t know anyone that had the ability to split responsibilities the way they did – and with a smile.
Lesson 10: When exiting or negotiating with someone like Yahoo, keep your eye on the ball, don’t get arrogant and keep someone to run the business in case of a no go. When Samih was on the road Hussam kept the engines greased and running.
The Arab world is buzzing with talk of entrepreneurship and entrepreneurs. I will be writing a series of blog entries on what I think it is going to take to create and build a long lasting entrepreneurial society/culture in the region.
To start with and let me say it as straight as I can, entrepreneurship is not a policy nor is it an overnight sudden revelation and it certainly is not built into anyone’s DNA, country or individual, it is a result of a very deliberate long term set of actions and initiatives that involves every stakeholder in society. From the home, to the school, to government, to the business community, and everything in between – all working in a seamless interactive open system that teaches, nurtures, finances, mentors, inspires and enables eager young and old passionate entrepreneurs who have ideas that they think will change the way things are done in any field including government. Entrepreneurship is not only a state of mind, it is also state of action. It is about doing, experimenting, questioning, failing, struggling, engaging and building. It is about creating value inside the organization and inside society, that value can have social, or monetary impact, it can change the way we work, or the way we produce something, or deliver a public or a private service, and most importantly entrepreneurship is about people. People that have a stake in their society and feel they are invested in it - it gives them the freedom to innovate and create, and they give it its culture and values system. This values ecosystem is one of openness, one that nurtures the free flow of information and knowledge, and is built on trust. Trust of the State in its people, and the people in their State. Trust between governor and the governed, trust between managers and subordinates, and trust between peers.
I obviously have my own opinion on the matter , but I would like to do this in an interactive way, so please share with me your stories and experiences, share examples of what you have gone through to become an entrepreneur, and for sure tell me what you think needs to be done and why.