My Zawya Story: Deciding the Business Model

October 27, 2014 By in Strategy, Strategy Cornerstone Tags: ,

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.

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My Zawya Story: Two Initial Decisions

October 26, 2014 By in Corporate Governance, Strategy Tags: ,

This post is part of the My Zawya Story series.

After the acquisition there were many decisions that had to be made by Ihsan and I, some quite contentious. Two that stand out are the new geographic location for Zawya and control of the finances of the company.

Although I am an Emirati, I founded Saffar in Bahrain, which up until that point had been the dominant financial hub in the GCC. Although Dubai had by that time taken some steps to building itself into a financial hub it was still early days and the terrorist attacks on the US on 11 September 2001 looked to be an extremely negative event for any positive developments in the region.

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A World of Grumpy Old Men

October 26, 2014 By in HR Tags:

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I reached a senior executive level at a relatively young age. This was met with incredulity by many people. Some believed that as an Emirati I must have been appointed to my position due to family connections. Others accepted that I might have a strong education but I had no experience. All felt that I had not ‘earned’ my position. That a certain amount of ‘seasoning’ in the trenches was part of the unwritten code for promotions. It was puzzling.

I asked my friends and colleagues in London and New York what the norms were in these global financial centers. They painted a completely different picture, a culture based on meritocracy and accountability where there is nothing wrong with ‘seasoning’ but firms were happy to back a younger candidate if he exhibited potential. Indeed, these companies felt that creating a fast track system was an important element of their success.

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Long Term Strategy in a Short Term World

October 25, 2014 By in Strategy, Strategy Cornerstone Tags:

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Price earnings ratios (P/E) of some of highest traded stocks in the country are crossing into the 20’s. You don’t need a lot of analysis to realise that there is no way that anyone, especially a professional asset manager, should be invested in such stocks. The dilemma for asset managers is that the reason these stocks have high P/Es is that their prices have appreciated spectacularly in the short term and avoiding them leads to lagging performance by the asset manager relative to the market and his peers, at least in the short term.

In 2005 there was a real estate (RE) boom in the UAE that was clearly unsustainable. If you were a commercial bank it was clear that continuing to lend into the RE sector was not a sound credit decision. The dilemma for the bankers is that avoiding lending to that sector would cause their profits to lag relative to their peers.

These challenges are not restricted to the UAE financial sector but are global in nature and afflict all business sectors. Indeed I believe that the global financial meltdown was driven just as much by conflicting signals as it was by greed.  Continue reading →

Corporate Turnaround: Identifying a Toxic Corporate Culture

October 24, 2014 By in Corporate Turnaround Tags: ,

Fast growing economies, such as those found in frontier and emerging markets, have a symbiotic relationship with fast growing companies. Good company performance drives economic growth which in turn drives business. The flip side of the coin is that economic downturns hit companies hard. Both of these scenarios are fertile ground for the development of a toxic corporate culture. Continue reading →

SMEs: The Ignored Middle Child of Banking?

October 23, 2014 By in SME Tags: , , ,

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In developing various business plans for SME credit I often review why the commercial banks do not lend to this sector proportional to its contribution to GDP. I have written at length about some of my main ideas but I think there are several secondary issues that also play a role. One is the positioning of SME loans on the risk/reward curve relative to the two main alternatives: corporate loans and retail loans.

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My Zawya Story: Acquisition Negotiations

October 23, 2014 By in Private Equity, Negotiation Tags: ,

This post is part of the My Zawya Story series.

In my Origins post I set the stage for the start of discussions between Zawya, led by Ihsan Jawad as CEO, and Saffar, led by myself as CEO, for some form of cooperation. Supporting me in my negotiations were two of the directors of Saffar. Ihsan was supported by one of his co-founders, Husain Makiya.

Zawya needed funding, and Saffar had money to invest. But this was not a pure financial play for Saffar. Saffar had a long term strategy and a data & information company, which it was already building, formed the foundation of this strategy. As such Saffar decided that they must take majority control of the equity if they were to invest. The complicating factor in relation to Zawya was that due to the bursting of the internet dot-com bubble funding was tight and the founders of Zawya were faced with the proposition of having to issue far more equity then they originally planned with the prospect that they would have to relinquish control.

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Extracting Value from Consultants

October 23, 2014 By in Project Management Tags: , 1 Comment

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A standard joke in business is that consultants work by asking existing employees for the solution and then packaging it nicely, rubber stamping it and presenting it as their solution to senior executives. The pervasiveness of this joke in business points to the the deeply held belief that this characterisation of consultants is true. Although the frustrations that businesses have in working with consultants is clear, the implication that consultants cannot add value beyond providing a stamp of external approval is false and quite unfair.

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My Zawya Story: Origins

October 22, 2014 By in Private Equity Tags:

This post is part of the My Zawya Story series.

In the second part of my Zawya story I build on the initial introduction and talk about how I got involved in the information and data business as well as how I identified Zawya as an asset.

In 1999 I invested in an IT services company and the founder invited me to the board of directors. Although this company was showing a positive P/L trajectory, the cash flow from operations was quickly deteriorating. As the board member with the only experience in financial statement analysis I investigated the issue. I traced the cash flow black hole to a pair of financial websites, Saudi Finance and Middle East Markets, that were being developed and maintained by the IT company on behalf of a client. Although the IT company was spending cash on the project, cash from the client had stopped. Continue reading →

Closing the SME Credit Gap

October 21, 2014 By in SME Tags:

In last week’s article this column laid out the case that the current SME credit gap, estimated by the IFC to be at least USD 260 billion in the MENA region, could not be closed using currently available tools and institutions. There is an argument to be made that the potential exists to close the gap as the SME sector’s contribution to the UAE’s GDP is in excess of 50% and its share of total loans is only 4% thus implying that the massive supply-demand imbalance has driven loan pricing to extremely attractive levels relative to risk. It is important to note here that it does not matter what the risk is as long as the return more than compensates for it. Continue reading →