What does it take to scale a technology company?
“You have to think of the customer. No one cares how the code is done…it is about solving the customer’s problem. Make technology a slave to the customer need,” says Khaled Bichara, cofounder and managing partner of Accelero Capital.
During his talk about the future of the tech industry on day one of RiseUp Summit, Bichara urged startups to find that balance between reaching one or two milestones that can build the momentum of the company while best leveraging the available cash.
“Use technology to make the customer experience better and use pricing to preempt the scale,” he explains.
Bichara has a wealth of experience in the tech industry. He was the cofounder, chairman and CEO of LINKdotNET, the largest private internet service provider in the Middle East. He then went on to serve as CEO of Orascom Telecom Media and Technology, COO of VimpelCom and group executive chairman of Orascom Telecom Holding.
When scaling technology companies, Bichara stresses that in his experience, subscription-based models have worked best.
“If you look at multiples of subscription-based business, they can be 12 times whereas services businesses are around five or six,” he says, adding that in Egypt, this model can be even more successful.
Bichara explained that it’s best to use a kind of installments plan to have clients pay for the service subscription, since it is a more common payment plan here and it saves the minimal cash startups tend to be working with.
Bichara sat down with Business Forward after his talk to discuss how technology can be utilized in different sectors.
Q: You said that tech companies should look at industries that are already vibrant, such as F&B and real estate. How can startups provide solutions in these areas?
Technology is not a goal in itself — it is a tool to reach somewhere else. That’s what Uber did, for example, seeing transportation as a problem and finding a way to provide a solution to customers.
In the market today, namely in real estate, there is high volume and so much more sales that the need for automation is becoming more apparent than ever before. Record management, town management — now compounds have apps for maintenance. People need to understand this vertical better and sell to it.
Same for F&B payment, loyalty management, etc. Today, restaurants send mass text messages even if you go to this restaurant three or four times a month. If they have more intelligence, they will save money and better target customers.
The trick is to combine mastering technology with, more importantly, understanding the vertical you want to play with. Find a cofounder who knows that industry, get a job in that industry, spend enough time to get to know it.
When you talk about the subscription model, in this market, are people willing to pay?
People don’t like to pay subscription, but they don’t like to pay [the full amount] in cash either. If you position the subscription more like an installment, that’s what customers are used to.
If someone wants a POS system for their store, for example, that costs a few thousand Egyptian pounds. If you make them pay per use, then they’d be willing to sign up to that service.
Businesses can afford to pay in installments but not in cash and especially since that segment is underbanked in Egypt so they can’t get a loan.
Do a lot of startups in the tech space end up having to work B2B instead of B2C?
If you look at [Silicon] Valley, there are VCs that only operate in B2B or B2C because the know-how is so different. Here, the industry is so small, so it’s a mix. A lot of VCs in the Valley only invest in B2B because the cycle is different and the knowledge is different, so the VC can add more value.
Businesses need to understand what they are better at: sitting around a table and shaking hands and doing one-to-one deals or social media and TV and mass market B2C business? But we are a very special country — probably the only one where iron and steel companies make television commercials.
The consumer space has a lower barrier to entry. They are different and the problem is, in this market, we mix them maybe because the market is too small. If you don’t know whether you are a consumer or corporate business, you’re probably doomed.
As an investor, when you look at the potential scalability of startups, what are some of the main elements you look for?
If you can’t generate scale before getting my money, you don’t deserve my money.
I understand if there is scale and you need funding to continue scaling, but if you can’t generate basic scale, then we are not interested. Maybe those are more angel [investors] and others who do that.
We are interested in business models that are semi-proven, where there is already momentum.