Sink or Swim
Sink or Swim
Sink or Swim
How to stay afloat in tough economic times: Business lessons from the UAE
Richard Dean
R E V I E W S
Truly captivating and enlightening! Richard is able to define the thin line between sound business strategy and corporate greed, leadership in difficult times and ineptitude and above all between those with the courage and discipline to adapt and those drowning in denial and utter incompetence. This book is a must read postmortem of one of the biggest bubbles of all times. Haissam Arabi, CEO, Gulfmena Alternative Investments A practical, common sense guide to surviving and flourishing in the cutthroat world of business seen through the eyes of one of the most astute and well-informed observers of commerce in the United Arab Emirates. The touch is light but the content insightful with a universal rather than domestic-only application. Well done Richard Dean! Deon Vernooy, Senior Executive Officer, Emirates NBD Asset Management Richard tackles head on, and answers, the question we often ask ourselves, particularly since the global financial crisis what is it that makes the difference between those businesses that disappear and those that thrive? Jim Delkousis, Managing Partner Dubai, DLA Piper Middle East LLP Very few people can offer an objective overview of the events that followed the financial crisis and even less are able to articulate it in such a enjoyable and informative manner. Sink or Swim: How to stay afloat in tough economic times is rare in that it was written by a Dubai veteran and drawn from real life experiences and examples across various industries and sectors. This is a must read not only for those wishing to set up shop in Dubai or the UAE, but also offers indispensable lessons to running establishments. Sultan Sooud Al Qassemi, Columnist, The National Sink or Swim is a valuable contribution to our understanding of what has happened to the Dubai dream since October 2008. Richard Dean explains clearly and concisely, with the flair of the media professional, why some businesses survived the financial storm, and some did not. It is also offers seriously useful practical advice for entrepreneurs aiming not to get caught out the next time. A must-read for Dubai business people. Frank Kane, Senior Business Correspondent, The National The most valuable questions an entrepreneur can ask is Who has done this before? Sink or Swim provides insightful stories from entrepreneurs in the
Middle East that we can all learn from. Easy to absorb and packed with learning; a must read for business owners in the region. Hazel Jackson, CEO, biz-ability An enjoyable read, particularly the case studies on companies operating in the UAE. Sink or Swim contains many valuable lessons for people running businesses in this region. Nick Savastano, Associate Director, Invesco Dubai The secret to surviving the economic tsunami is not just what you do when its flooded everywhere but what you did before the waters came rushing in. Richard Dean offers compelling insights into real life experiences and lessons that would serve every business and individual well. This book should have a permanent place on every desk so you do not forget these lessons when the go bigger, go faster bug returns. Sanjay Upal, Chief Financial Officer, Emirates NBD Bank Richard cuts through the management jargon and spreadsheets with his down-to-earth approach to business in the UAE. Sink or Swim is an enjoyable read, and contains many valuable lessons. Ali Khan, Managing Director, Arqaam Capital What Richard identifies in this book is that businesses arent run by business school jargon, but by good people who learn from their experiences good and bad and can show leadership by being calm and controlled in a storm. These basics were applicable 20, 30, 50 years ago and this book proves they are just as relevant now. Edward Roderick, Hon LLD, Co-Chairman, Envestors MENA A much-needed reminder of the common sense rules of business, and how companies should apply them in the UAE and surrounding region. Thoroughly enjoyable reading. Fadi Al Said, Senior Fund Manager, ING Investment Management Middle East Insightful and accurate. Richard Deans personal insights, and the groundzero view offered by his subjects, make for an excellent analysis of what happened in Dubai. Yousef Tuqan Tuqan, CEO, Flip Media
Published by Motivate Publishing Dubai: PO Box 2331, Dubai, UAE Tel: (+971 4) 282 4060; fax: (+971 4) 282 7898 e-mail: books@motivate.ae www.booksarabia.com Office 508, Building No 8, Dubai Media City, Dubai, UAE Tel: (+971 4) 390 3550; fax: (+971 4) 390 4845 Abu Dhabi: PO Box 43072, Abu Dhabi, UAE Tel: (+971 2) 677 2005; fax: (+971 2) 677 0124 London: Acre House, 11/15 William Road, London NW1 3ER e-mail: motivateuk@motivate.ae Directors: General Manager Books: Editors: Senior Designer: Designer: Publishing Coordinator: Obaid Humaid Al Tayer Ian Fairservice Jonathan Griffiths Moushumi Nandy Simona Cassano Cithadel Francisco Charlie Banalo Zelda Pinto
Contributing Editor:
Steve Williams
Motivate Publishing 2010 Cover by Alessandro Zanchetta Text & Illustrations Richard Dean 2010
All rights reserved. No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means) without the written permission of the copyright holders. Application for the copyright holders written permission to reproduce any part of this publication should be addressed to the publishers. In accordance with the International Copyright Act 1956 and the UAE Federal Law No. (7) of 2002, Concerning Copyrights and Neighbouring Rights, any person acting in contravention of this will be liable to criminal prosecution and civil claims for damages. ISBN: 978 1 86063 291 4 British Library Cataloguing-in-Publication Data. A catalogue record for this book is available from the British Library. Printed and bound in the UAE by Emirates Printing Press, Dubai
C O N T E N T S
Foreword Introduction Section One True Stories 1. Better Homes 2. Mahendra Patel, GEAP 3. Mishal Kanoo, Kanoo Group 4. Momentum Creative Communications 5. HSBC 6. Mike Revson Section Two Number Crunching
7 9 13 14 31 46 56 62 69 79
Section Three Give your business a half-hour health check 91 Acknowledgements Appendices Appendix 1 UAE Growth and Oil Price Appendix 2 The strong, sustainable business M.O.D.E.L. 100 103 104 108
F O R E W O R D
Is there really any logic to survival in an economic downturn? Perhaps theres an economic equivalent to Darwins theory of Natural Selection, where the strongest companies share similar genes and a common approach to business. This magic formula, you might say, is what gives them the advantage and the potential to ride the ebbs and flows of the market, while weaker rivals are dragged under, having fought bravely but found to be lacking the right stuff. The recipe for business success is often seen as formulaic: a good idea mixed with a generous dollop of demand and a healthy serving of cash. But all of these essentials are hugely variable and can be influenced or obliterated by market swings. As such, business owners and managers are constantly seeking answers to the following questions: How can I recession-proof my business? How do I make sure that if the world trips up again, my company doesnt become an also ran? Passion and determination are vital businesses cant survive without them. But neither can a business rely on just passion and determination to get them through the tough times. Indeed, too much passion and determination can be harmful. In a country like the UAE that cultivated perennial optimism, entrepreneurs and business leaders alike caught the go bigger, go faster bug. A stampede of enthusiasm drew people to live, work and invest. Much of this was positive, but the excesses caused some of the problems that we saw come home to roost during the dark
days of the credit crunch. Many of the most vocal cheerleaders during the boom were the first to fail when the music stopped. Of course, many companies survived and are now in pole position to benefit from the inevitable economic upturn. We have much to learn from them. Did the survivors see or sense what at the time was unthinkable that the rally was unsustainable and take evasive action? Or was their endurance built on the sound, sensible fundamentals by which they ran their business, allowing them to benefit from the upside whilst keeping a healthy cushion for rainy days? Richard talks to some of the most determined and focused leaders in town to unlock the secrets of survival, and find out how their businesses made it through the tough times. In the wake of countless failed businesses that were riding the global wave of prosperity, Richards no-nonsense, investigative journalism gets to the bottom of how some of Dubais best businesses shone under pressure. I could see early into the crisis, not long after Wall Street behemoth Bear Stearns had crumpled under its huge debt burden and Lehman Brothers was threatening to follow suit, that Richard was taking an overly-keen interest in the what makes the difference between success and failure debate. As the economic climate persisted, the cathartic need for a look at how things might have been done differently in businesses became an irresistible topic for Richards first venture into authoring. Sink or Swim is a book that takes a look at global failure through the eyes of successful people and companies in the UAE. It combines personal testimonies with empirical evidence, giving us all a view of how to sow the seeds of enduring evolution, just in case the unthinkable happens again.
I N T R O D U C T I O N
We really shouldnt need a book like this today. The lessons from the Dubai downturn could and should have been learned long before it happened perhaps centuries before. Dubais speculative, property-fuelled boom and bust followed pretty much the same pattern as dozens of other economic bubbles in history. From the Dutch Tulip Mania of 1637 through to the dot.com rally at the turn of the millennium, wed been there before so many times. Lets recap what we already knew about bubbles, long before Dubai real estate became hot property: Dont jump on the bandwagon If you must jump on the bandwagon, whatever you do dont borrow money Dont think this time its different and expect it to last Be prepared for a sudden and painful economic downturn when it finally bursts As I say, these lessons could have been written after the eighteenth century South Sea bubble; the nineteenth century US railroad bubble; the roaring 1920s stock market bubble; and many others. Sadly, so many entrepreneurs and managers in Dubai ignored these seemingly obvious warnings during the frenzied boom years between 2004 and 2008. And their mistakes had serious consequences, as countless companies collapsed when the bubble inevitably burst. Wealthy people lost fortunes, ordinary people lost jobs, and the economy lost much of the momentum that had catapulted Dubai into the premier league of global cities.
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But and heres the kicker so many other companies DID NOT collapse. Many wealthy people are still wealthy, many ordinary people still have jobs and, thanks to them, Dubai has quickly begun regaining that lost momentum.
Introduction
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These people were kind enough to share their stories in considerable detail. They come from a range of backgrounds a local merchant family, a multinational listed company, an entrepreneurial media start-up, an old economy steel-trading conglomerate. Even a real estate broker! I found their stories truly fascinating I hope you do too. In the second section, Number Crunching, we do just that. The team at Insight Discovery conducted a survey of more than 100 people doing business in Dubai to find out their take on the recent downturn. We wanted to know what they believe were the mission critical factors in surviving and sometimes even thriving in a faltering economy. In the third and final section, Business Healthcheck, the Gulf Finance team drew on all their experience working with hundreds of small and medium sized businesses in Dubai. We put together a simple yet powerful tool that we hope will help entrepreneurs and managers build better, stronger, more resilient companies in Dubai. This matters, because as sure as the citys economy will rebound from the recession of 2009, so another slowdown will be waiting round the corner sometime in the future.
S E C T I O N
O N E
True Stories
1. Better Homes
Better Homes is one of the leading real estate brokers in Dubai. Why? It does nothing special its just a real estate broker. So what made it a $100 million market pioneer, while rivals went bust? A confession. I didnt want to meet Ryan Mahoney. In fact, I was quite insistent with the Better Homes PR executive: its Linda Mahoney or nobody. My thinking was that Linda founded the company back in the 1980s, while her son Ryan breezed in after leaving college sometime around the turn of the millennium. Who cares about some spoilt little rich kid whose only qualification for the managing director job is a birth certificate? Give me the organ grinder, not the monkey. Wrong. Completely and utterly wrong, as it turns out. Thankfully, the Better Homes PR machine got the better of me, insisting that its mother and son or nobody. So reluctantly I met Ryan in summer 2009, and in the process shattered not one but two long-held and utterly baseless preconceptions of mine. First, that all nextgeneration family business leaders are simply riding a wave of nepotism. And second, that all estate agents are muppets. Ryan Mahoney and the way he re-engineered a plain vanilla real estate brokerage into an all-conquering market leader is the very essence of this book. Why do some companies sink while others swim? Because a few clever, driven people like Ryan Mahoney build damn good boats. Countless property dealers in
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Dubai folded after the bubble burst in mid-2008. But a handful survived, and save for a couple of months in the eye of the storm, Better Homes has remained profitable throughout. Well look at the reasons why later, but first a bit of history.
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I was never that exposed, I didnt have a huge team, most people were on commission, I had low rent in both my office and my home. Conservatism is a good thing except that its not very innovative. And therefore you are really confined; if you dont take some risks youll never really grow, and fortunately Ryan was able
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to do that. He is a different generation to begin with. He was not interested in taking centre stage, but in focusing on the innovations it would take to grow Better Homes into a more sophisticated company.
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Linda saw the writing on the wall for the old cottage industry model. What Ryan would see is that if we had a really dynamic agent and if someone called with a complaint, we would respond immediately and take care of the problem. But as it got bigger and busier, no matter what she did, the volume surpassed that. If she took care of five, there were 10 others that surpassed her. Why? Because we didnt have the structure, the system and the processes that Ryan felt were needed. And there you have it. The two words that make a difference. Dull, anticlimactic and not at all sexy. SYSTEM and PROCESS. But they have been the killer apps for Better Homes. Sneer if you like but system and process are the reason Better Homes had revenues of almost $100 million in 2008, and was still making healthy profit in the dark days of 2009. You create this one system and it delivers all these fruits, says Ryan. There isnt a day that I dont look at the technology.