My Zawya Story: Deciding the Business Model

This post is part of the My Zawya Story series.

As an investor I have seen many entrepreneurial mistakes and one of the greatest misunderstandings has to be the difference between a market opportunity and a business model. A market opportunity is a gap in demand and supply, in particular a demand for products or services which is not met by current supply. This creates the potential for profit but does not guarantee it. To get from the what, potential profit, to the how, actual profit, requires a business model. I have seen many promising entrepreneurs fail even after identifying lucrative market segments simply because they jumped in without planning how they were going to convert the opportunity into revenue let alone profit.

In terms of Zawya the opportunity was clear: there was a high demand for Middle East data and information with little comprehensive supply. Ihsan and I were on opposite sides of the two main issues: how to source the data and information and how to generate revenue.

In summary, Ihsan felt that the best way to go was to source data from external sources, aggregate them and immediately sell them. I call this the low cost strategy. I felt that it would be better to develop our own data and information thereby creating a valuable asset and allowing us to charge more. I call this the high profit strategy. The low cost strategy makes sense, especially for a cash flow negative start up, as it reduces the funding risk. The high profit strategy of course maximises valuation.

The solution was clear: begin predominantly as an aggregator, but add proprietary content as the company could afford it and evolve more into a value added reseller. The mix between external versus internal sources of data and information was constantly reviewed. The end result was a 160 person research team based out of Beirut developing our own content, along with an exclusive Dow Jones Middle East newswire joint venture driven out of Dubai. Dynamic strategies can quite often be great solutions to competing goals and constraints.

Revenue generation was a similar issue. The Zawya model was originally advertising based, focussed more on number of visitors. The Saffar model was subscription based, focussed more on quality of visitors. This is the classic problem of revenue being decomposed into number of units sold multiplied by price per unit. There is no right or wrong, just what works best.

In the end we deployed a dynamic strategy starting with a free website and subsequently Zawya began to lock an increasing percentage of the site to subscribers only. Although advertising was not abandoned, we targeted subscriptions as the core driver for revenue. Advertising became a substantial contributor to revenue not due to volume but due to top of the market pricing which Zawya could demand given the demographics of its subscribers: key decision makers in business and government.

The bottom line is that dynamic strategies, as opposed to static or constantly changing strategies, are a formidable tool not only for the fast evolving business but mature businesses as well.

Main series page: My Zawya Story.
Previous article in series: Two Initial Decisions.
Next article in series: Negative Cash Flow Lessons.