How I did it? The Ceo of aramex on turning a failed sale into a huge opportunity

The Ceo of aramex on turning a failed sale into a huge opportunity

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March 2011 reprint r1103AhBr.OrGHow I dId ItThe CEO of Aramex On Turning a Failed Sale into a Huge Opportunitythe idea: Fadi Ghandour has built one of the most successful entrepreneurial enterprises to emerge from the Arab world, Aramex International, overcoming rejections, cash-flow crises, and naysayers in every country where he tried to do business. by Fadi GhandourDo Not Copy or PostThis document is authorized for educator review use only by Khaldoon Al-htaybat, King Abdulaziz University until February 2018. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

tHe IdeAphotography: Courtesy of aramexHow I Did It…by Fadi GhandourFadi Ghandour has built one of the most success-ful entrepreneurial en-terprises to emerge from the Arab world, Aramex International, overcom-ing rejections, cash-flow crises, and naysayers in every country where he tried to do business.The CEO of Aramex On Turning a Failed Sale Into a Huge OpportunityIn 1984, two years into building the express delivery company Aramex, I was preparing for the most important meeting I’d ever had. My partner, Bill King-son, and I were hoping to persuade the Seattle-based Airborne Express to buy 50% of Aramex for $100,000.At the time, out of a modest office in Amman, Jordan, we had launched several other small offices in the Middle East, hop-ing to become the first courier company based in that region. Our operations were tiny (we hadn’t yet exceeded $1 million in revenue), I was personally playing a range of roles from chief salesman to occasional delivery guy, and the cash flow was un-comfortably tight. We were what I would describe as a guerrilla setup—a scrappy, hand-to-mouth business. The Middle East was not yet seen as a growth opportunity for global courier com-panies: Skirting civil wars and complex political relationships was an enormous logistical and bureaucratic challenge. In ad-dition, in some countries the business mar-ket wasn’t yet demanding courier services; in others those services were monopolized by companies or the postal authorities. We thought that such an investment from Air-borne, along with the explicit endorsement Fadi Ghandour is the founder and Ceo of aramex Inter-national and was a founding partner of maktoob.com, the world’s largest arab online community.aramex’s Dubai (Jebel ali Free Zone) sorting facility March 2011 harvard Business review 2for artICle reprInts Call 800-988-0886 or 617-783-7500, or vIsIt Hbr.orGCoPyRigHt © 2011 HaRvaRd Business sCHool PuBlisHing CoRPoRation. all RigHts ReseRved.Do Not Copy or PostThis document is authorized for educator review use only by Khaldoon Al-htaybat, King Abdulaziz University until February 2018. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

of one of the world’s most respected logis-tics companies, could seal the future of our start-up. Bill and I did get in to meet with both the CEO and the COO of Airborne Express, but they swiftly turned us down. Airborne was just starting to explore expansion out-side the U.S. and wasn’t ready to invest in a small market like the Middle East, let alone in a start-up. That was a huge disap-pointment to Bill and me. But we left the meeting with a valuable consolation prize: the promise of some business. At that time Airborne was occasionally asked to cou-rier packages to various Arab countries; it would use either a competitor or some small London-based company to deliver in the region. Because the Middle East was such an insignificant part of Airborne’s business, there would be little risk in giv-ing those packages to Aramex. But to us it meant the largest and most important ac-count for a long time. Our pitch had been that we could reliably handle whatever business Airborne acquired in the region—so it wouldn’t have to turn to a competitor. We could be a neutral partner, acting on its behalf. I realized immediately that Airborne’s offer would give us an opportunity to learn from one of the world’s most successful courier companies—and, more crucial, to take advantage of its technology and global reach. Instead of getting a 50% owner, we would get a master class on how to grow our own business. That partnership would make the difference to our survival—and provide us with the rapid learning curve to set our own ambitions high. Nineteen years later, when Airborne was sold to its former archrival, DHL, not only had we learned everything we could from it, but we were ready to be a global leader in our own right.“we Are Airborne express…and Federal express…and…”Business from Airborne gave us enough credibility to knock on other doors. I re-alized that the prime competitors in the logistics and courier business feared one another more than they would fear us. So we sold our services as being provided by safe, neutral hands. We would call clients and say, “We are Airborne Express,” or “We are Emery”—whatever company we were representing. We wore many hats and customized our services to suit whoever gave us business. If you looked back at the global offices of some of the major package-delivery companies in the 1980s and 1990s, you’d find some recurring addresses. Those were actually Aramex offices. After knocking on the door at Federal Express time and time again, we finally gained it as a client in 1987. Aramex thus acquired its single largest account to date, because FedEx had more packages going into the Middle East than all its competi-tors combined, giving us a healthy monthly infusion of cash. But our first serious relationship was to be our most significant. Airborne Express started to build a global alliance of regional courier companies like Aramex in order to offer customers service in every corner of the world without having to run or ac-quire all those operations itself. We were among the first of what would eventually be roughly 40 companies in the alliance—which was called Overseas Express Carriers (OEC)—whose responsibilities included es-tablishing common operating procedures, rates, and quality assurance. Because Air-borne provided its package-tracking tech-nology to all its OEC partners, we had an enormous competitive advantage at a very low cost. (We also acquired e-mail early on, achieving a quantum leap in management efficiency.) Previously Aramex had relied on faxes and telex machines for tracking and tracing; we didn’t have the resources or the expertise to create our own system. Suddenly we were part of a sophisticated global operation. We’d been given access ArAMex proFIts & revenuesSOurce aramexairborne’s offer meant that instead of getting a 50% owner, we would get a master class on how to grow our own business.300200400600500US$ MIllIonS116.5188.7151.6137.5232.5371.3485.7600*533.9566.3fy2001fy2002fy2003fy2004fy2005fy2006fy2007fy2008fy2009fy2010100operAtInG proFItrevenUe6.07.712.915.723.529.739.948.556.160**year-end estImatesHow I dId It3 harvard Business review March 2011Do Not Copy or PostThis document is authorized for educator review use only by Khaldoon Al-htaybat, King Abdulaziz University until February 2018. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

to similar systems from FedEx and Emery, but without permission to use them for our own Middle Eastern customers. Airborne’s system elevated us to a whole new level of service. Nevertheless, building a regional Mid-dle East company in those days was a huge challenge. As I said, wars, invasions, and post office monopolies were often nearly insurmountable barriers to service deliv-ery. Sometimes we had to operate under a freight-forwarding umbrella while we waited for a courier company license, or risk having our operations shut down by local officials. In Egypt that license would cost $80,000 a year—a hefty amount for a start-up. I was kept busy traveling around the region looking for partners that would do a joint venture with us, agree to repre-sent us, or “sponsor” us. Our goal then was simply an office address, a couple of cars, and a phone; we outsourced customs clearance to agents and found other small courier companies to deliver whatever packages we had. The first five years of the company’s life were spent making sure we had an office in each country so that we could perform the services our global cli-ents required. Adding business bit by bitBut by 1994, with relative peace in the re-gion, our business had reached $38 million in revenue and we could see enormous growth potential. Unfortunately, so could some of our biggest customers. Federal Express began cutting back on countries it wanted us to handle and setting up its own operations across the region. By then we already had an established brand and an indigenous customer base in the Middle East. Our strategy was to be cautious and stealthy. We started by focusing on small and midsize companies that were sensitive to cost. Our salespeople targeted clients that would give us direct business worth maybe $200 to $1,000 a month. We found that something as simple as a 10% discount over the competition—with our Airborne-granted ability to offer reliable tracking—was enough to win them over. It was grass-roots sales: a shipment here, a shipment there, slowly building our revenue and number of clients. At the same time, the global logistics in-dustry was consolidating: FedEx and UPS had acquired companies such as Gelco and IML in Europe and Asia; Emery and Puro-lator had merged. FedEx bought Flying Tigers—an all-freight airline. In addition to expanding our presence geographically, we diversified our revenue stream by becom-ing a one-stop shop for freight forwarding; hbr.orgThe Revival of SmartHarvard Business ReviewWords to the Wise16425_HBR_1half.indd 112/3/10 1:16 PMfor artICle reprInts Call 800-988-0886 or 617-783-7500, or vIsIt Hbr.orGDo Not Copy or PostThis document is authorized for educator review use only by Khaldoon Al-htaybat, King Abdulaziz University until February 2018. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

shipping by air, sea, and land; and a variety of logistics services across the region. We also focused on making the most of our participation in Airborne’s OEC alliance. We stayed heavily involved in its gover-nance for strategic reasons—we wanted to continue to develop our business relation-ship with Airborne and our alliance col-leagues. We did joint sales calls with them. We pushed Airborne to bring us U.S. busi-ness in the Middle East. We seized every opportunity to learn what clients required and differentiated ourselves by offering customized services. We tried to align our-selves as closely as possible with Airborne; it may have looked to the outside world as if Airborne owned us.By 1996 it did—at least a part of us. A little over a decade after we had offered 50% of our small company for $100,000, Airborne bought 9% for $2 million. It saw Aramex as a potential platform for going global without having to build its own Mid-dle East operations from scratch.the First Good night’s sleepHaving a toehold in the Middle East was good for Airborne’s serious global ambi-tions. For us, the deal was catalytic. Though by that point we had revenue of $52 million, our operating income was only $2.4 million. Worse, as is true for many entrepreneurs, our monthly cash flow was consistently precarious. With that $2 million in the bank, I had the first good night’s sleep in 14 years. Up to that point my life had revolved around daily meetings about accounts pay-able, how much money we had in banks across the world, and how we could scrape and scrimp and pay. We had a somewhat justified reputation for being a late payer. We immediately communicated to all our strategic suppliers that we were ready to better manage our payables with them. Until we got that $2 million, I hadn’t actu-ally been sure we could survive. Suddenly, instead of a hand-to-mouth start-up, we were a start-up that could pay its bills on time—and that already had hefty revenues. It put us in a great place to stabilize and grow the business. After Airborne’s investment, we tried to raise additional capital for expansion, thinking that we could attract regional in-vestors interested in our growth story. But we failed, mostly because they could not understand our non-asset-based business model or grasp that a small company from the region could actually compete with the giants of the industry.In July 1996 Bill said we should go pub-lic on the NASDAQ. My reaction was “You must be kidding!” But in January 1997, af-ter some tough months of preparing to ad-here to SEC requirements, we became the first company from the Arab world ever to go public on the NASDAQ. Our IPO was for only $7 million, but Airborne’s name made a huge difference for us. In all our road shows we would talk about the part-nership, and we could see that it gave U.S. institutional investors confidence in us. All of a sudden regional investors, too, were interested. We followed up with secondary offerings and ultimately raised a total of about $14 million. Though we were still active in Airborne’s alliance, that influx of capital allowed us to ramp up our own growth, and we didn’t waste a minute. We were confident enough to start pushing the boundaries. We began moving into territories outside the Middle East, including India, Sri Lanka, Bangladesh, and Hong Kong. This aggressive expansion was a constant point of disagreement be-tween us and Airborne as we became much more independent and less reliant on OEC partners in our operations.We did fear losing access to Airborne’s tracking system, which had carried us for more than 10 years. So I made building our own system the leading priority for the company. By 2000 we had recruited a good IT team that was busy creating the system internally and with outside vendors. The team got a boost when a senior Airborne employee in Europe, who had considerable global operations experience and intimate knowledge of the technology needed for tracking and tracing systems, decided to resign. That allowed us to recruit him, de-spite Airborne’s discomfort. His job from day one was to focus exclusively on build-ing the system with our technology team in Jordan, which took about two years. our place in the sunIn 2003 our preparedness plan paid off when, as we had long feared, Airborne an-nounced that it was to be acquired by DHL. 19901980200020101982aramex is founded.1984aramex offers airborne express a 50% stake for $100,000; airborne declines.1997 Becomes the first arab company to trade on the nasdaQ1990 saddam hussein invades Kuwait. Western carriers retreat; aramex remains.2002returns to private ownership1996airborne acquires 9% of aramex for $2 million.2005 goes public on the dubai financial market2010 achieves (estimated) global revenue of $600 millionhow aramex grew into a major playerIn march 2004 aramex went from hat-in-hand hopeful to global leader. It was a fantastic feeling.5 harvard Business review March 2011How I dId ItDo Not Copy or PostThis document is authorized for educator review use only by Khaldoon Al-htaybat, King Abdulaziz University until February 2018. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

Harvard Business ReviewFamous FirstWordshbr.orgThe Revival of Smart16425_HBR_2thirds.indd 212/3/10 1:18 PMAirborne gave us nine months’ notice that it would be withdrawing all its support and business from us. By then we had opera-tions or skeleton operations in key markets and were only six months away from hav-ing a fully independent system for package tracking and tracing. Immediately after the announcement about Airborne’s acquisi-tion we called a meeting of the OEC part-ners in London. I stood up and said, “Lis-ten, Airborne is going, but by the time it switches off, Aramex will be able to provide you with a tracking system that will main-tain the alliance.” We were ready to replace or take over every operation that Airborne was going to exit. When Airborne actually switched off its systems, in March 2004, we said, “Thank you very much” and switched ours on. It was almost a nonevent. In that moment Aramex went from hat-in-hand hopeful to global leader. It was a fantastic feeling. We had learned and developed with our part-ners along the way, and now we were ready to lead.In some ways it was a sad end to our relationship with Airborne, but within Aramex we were celebrating. We were truly an entrepreneurial company, and the part-nership had prevented us from realizing our full potential. So we were finally going to take our place in the sun. In January 2002 I had taken the com-pany private again through a leveraged buyout in partnership with the newly formed private equity firm Abraaj Capital. This deal was the first of its kind in the Mid-dle East and set the stage for a booming pri-vate equity industry in the region. In 2005 Abraaj exited the investment through an IPO on the Dubai Financial Market that was dramatically successful: We had wanted to raise $270 million, and we were oversub-scribed by a factor of 64. At year’s end our 2010 global revenue was estimated at $600 million and our op-erating income at $60 million. Our market capitalization is now $900 million. What felt like a big disappointment in 1984 didn’t work out so badly after all. Hbr reprint r1103aHbr.orGDo Not Copy or PostThis document is authorized for educator review use only by Khaldoon Al-htaybat, King Abdulaziz University until February 2018. Copying or posting is an infringement of copyright. [email protected] or 617.783.7860

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