My Zawya Story: Global Financial Crisis

This post is part of the My Zawya Story series.

The global financial crisis that broke in the latter half of 2008 was painful. At Saffar we had concluded negotiations on a partial exit of Zawya at a fantastic IRR but the crisis put an end to that transaction. The bad news continued as the crisis decimated Zawya’s core client group, financial services, and impacted revenue in multiple ways including a big decline in online advertising. We built the company and reached dizzying heights of success, where we about to now ride it all the way down again?

Although there is no suspense now at that time the previous question was on everyone’s mind at Zawya. Companies in general seemed to react in one of two ways: assume business as usual and that the crash was temporary or, increasingly as time went on, massively reduce operations cutting costs as much as possible. Zawya’s strategy was hotly debated by the board and we concluded unanimously that neither of the previous alternatives made sense.

Leadership comes in many forms. The proactive leader who makes the final decision, boldly pushing through deadlocks is the more famous type and in my role as Chairman I had done that many times. In this crisis, though, I took a different tack. Everyone was had a different but persuasive argument. What was missing was a crystal ball to see what the future held. In the face of an extremely opaque future the solution once again was to develop a dynamic strategy that took advantage of information as it became available.

The first step was to develop a containment plan before we needed to deploy it. This predominantly involved employee headcount, as at this point we had about 140 employees. The employees of Zawya made a decision: in case of cash flow pressure rather than reduce headcount, the employees would take proportional deferments and cuts to their paychecks. I have never been so proud of a company uniting in this way. These cuts also did not hit all at the same time, there was a rolling wave of cuts starting with senior management and applying to middle management and then lower layers only as needed.

The containment plan was far more complex than the above, including cuts in many different areas and having pre-agreed triggers involving moving averages of sales, cash positions and working capital movements as well as scenario based plans. Once we had the corporate equivalent of a parachute in place, we turned our attention to revenue.

Although at first blush the loss of financial services clients seemed daunting, deeper analysis clarified that there where other market forces at work. For example, smaller regional competitors to Zawya might not have the deep pockets or institutional investor support to survive, freeing up their clients for Zawya to pick up. As for the more expensive international competitors, Bloomberg and Reuters, the feedback from our clients was that they were under pressure to cut one of the two internationals which had extremely similar offerings to each other but to keep Zawya which was much cheaper and provided a comprehensive yet complimentary offering.

The last bit of insight was purely magical. Data indicated that user behaviour was exhibiting a sharp increase in usage of the Zawya products for our remaining clients. We hypothesised that in a crisis information became more valuable. Hard work by our sales teams confirmed this. After reviewing all the data and the various forecast scenarios there was only one logical conclusion as to what Zawya should do: increase prices. Paradoxical as it may seem, once the board put aside knee jerk reactions and took a rational look at the data, there was no escaping that we needed to raise prices. We did exactly that in January 2009 and the number of clients increased!

There is no doubt that it would have been difficult for the board of Zawya to make such a decision if the contingency plans were not already developed and ready to be deployed if necessary. The combination of contingency plans and fact based decision making helped the board avoid being reactionary and instead allowed it to massively increase market share in both relative terms as well as absolute terms in the middle of a worldwide financial crisis.

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