It's not rocket science, it's just good business [financeME]
(financeME Via Acquire Media NewsEdge) Michael Lahyani is one happy man. And at this point, he has every right to be. His company, propertyfinder Group, which began as propertyfinder.ae and has expanded to Qatar and Egypt, with eyes on the KSA and Africa, has experienced huge growth since its inception, continuing to grow even in today's tumultuous real estate climate. His portal, which showcases and organises available real estate for easy perusal, has helped bring the real estate sales market in the region away from more archaic methods of listing and into the 21st century. In the first iteration of the Dubai SME100, his enterprise was named the third best SME in the country, and with even more growth this year, he has high hopes to stay near the top, as his firm has grown to 70 employees and has gained investment from experts in the field. As it grows both organically and through acquisition, including acquiring Lebanese site realestate.com.lb in July, propertyfinder Group seems to have a bright future ahead of it. I sat down with Michael in Dubai over coffee to discuss his thoughts on the real estate world, the story of how he put it all together, including how the 2008 crash was, for him, a blessing in disguise.
fME: How has the internet changed real estate?
It's two sided-in the way people are searching, and the way real estate brokers and developers are selling. People are a lot more informed when they go and buy a house and they've been searching on the internet than with old school ways.
There was an interesting study that came out in the U.S. showing that a real estate buyer that comes through an internet channel visits an average of four homes before they purchase a home. A real estate buyer that comes from traditional media, meaning print or just going to a real estate agency, will visit an average of 12 homes before they buy one. So a real estate buyer that comes through the internet gets access to all of the floor plans, he's done his research, he knows which neighborhood he wants to live in, he knows exactly what he wants-so by the time he gets to the real estate agent, he doesn't ask all these basic questions to the agent. So the conversion for the agent is important, because instead of having to do 10 to 15 visits to sell a home, they do just a couple of visits and boom, the transaction happens. So it made the industry a lot more efficient, with a lot less wasting of time for agents to educate buyers on how one is attractive, or which one is best suited for families, etc. So in that sense it has changed a lot.
From a buyer perspective, you can now go to one place and find everything you need rather than have to go through a bunch of different types of media-newspaper, magazines. So, as in any industry, the internet has made it more efficient and easier to use.
fME: So why did you see a need for propertyfinder here?
For exactly those reasons! It was all based on paper before we arrived, and it was not classified-it was just a supplement in a newspaper where people would have to flick through 150 pages in order to find whatever they wanted to find because each real estate agent had one page or two pages, and they would dump all of their inventory on those one or two pages, so if you were looking for a one bedroom in Dubai Marina, you would have to flick through 150 pages to find a one bedroom and to read about the one bedrooms that were advertised. Whereas now you go on propertyfinder type Dubai Marina, one bedroom, search, and there you go. You can sort it by price, location, etc.
To be honest, it was not rocket science. When you come from the west, and you arrive in a region where you see people searching for real estate flipping through newspapers, you just add one and one and you know that internet is going to come to that region, internet penetration is going to grow, and there's going to be a pretty obvious opportunity to grab that marketplace. So, that's what I decided to do.
fME: So how'd you make it happen?
First I had to move out here and start from scratch. Internet penetration was not great back in 2005, so you had to start in print, in order to capture the audience and to understand the market. We were able to do this successfully because we did a better print product than the newspaper was able to do because we classified it in print. In a sense, this is one step closer to the internet. In 2007, two years after our founding, we felt that the market was now ready for an online property portal, and we decided to kill the print and move everything online. But that wasn't easy-we still had to push and educate the industry. A lot of times, it was a matter of hand-holding-we'd have to to tell them how to upload the properties, how to put their properties online, to put pictures online, put good descriptions, that was the big challenge. And initially, a real estate agent would not put any pictures and would just put one line of description, or even two words: "sea view." And so we had to explain to him, well, it's not going to cost you more money if you put 10 pictures and if you put 300 words instead of two words, so give more to your audience. It is about them getting committed to spending time and to realise that the time they are spending in putting quality listing online is going to bring the right return.
fME: Do you mind talking about it from a financial side? What was the initial investment?
The initial investment was under half a million dollars. It was me and a friend of mine who decided to start it. I had money on the side from a previous business, a print business that I had done back in Switzerland, and we burned through that money over about two years. And then, in 2007 we were approached by a subsidiary of [Rupert Murdoch's] News Corp out of Australia called REA group. They came in and bought 51 per cent of the business, and injected a little over $2 million into the business. We worked with REA group from 2007 to 2009, and then in 2009, when the crisis hit the region, the Aussies and News Corp got cold feet about the whole region, and I saw an opportunity to buy my shares back. So I bought my shares back from them, and now own most of the business. From there, we kept it tight for a couple of years on our own, and then in 2011 the business started being profitable. Now we've just closed another round of financing where we raised for a very small minority of the total shares we raised $2 million, and that's going to help our regional expansion.
fME: Where did that come from?
Our lead investor is Danny Farha who was the co-founder of Bayt.com and is now running BECO Capital. From there, we had a couple of selected investors in Asia. We have the founder and CEO of iProperty, which is the largest property portal in Asia, a German named Patrick Grove, and a Turkish investor Evren Ucok, who cofounded Trendyol-the biggest e-commerce of Turkey. I've got two American guys involved in Silicon Valley. It's all personal money from these guys.
fME: Have they provided you with anything besides capital?
Yes, for sure! Danny, being the lead investor, is providing a lot of support. Danny, being the CEO of Bayt has opened around 12 offices around the region in a very short period of time, and he's definitely got extensive experience and exposure in these markets. So when we enter into these markets like Egypt or like Saudi Arabia, it definitely helps to have somebody like that on board, and supportive of our expansion.
fME: So it kind of sounds like the crash was a blessing in disguise for you.
The crash was a bit of a blessing, yeah. I wouldn't have been able to acquire my shares back if the crash hadn't happened, because I don't think I would have put in that much money on my own. It was already quite bullish about Dubai to acquire the shares in 2009 just post Lehman Brothers, so the crash was, in that sense, a blessing. In a second way, it was a blessing as well because it accelerated the transfer from marketing dollars going to print to online. Before the crash, a real estate agent would only swear by newspapers, and post crash they couldn't afford those expensive pages in the main newspapers any longer and they had to look for alternatives which were more cost effective, and online was the solution, and we were that solution.
fME: Do you regret selling to News Corp in the first place?
No, not at all. I wouldn't have been here if I hadn't sold to News Corp. First of all, I wouldn't have survived because I was facing fierce competition from the local newspaper who was giving me a hard time because they had their advertisers locked into exclusive agreements, and not allowing real estate agents to advertise elsewhere than on their newspaper. So, I was really facing fierce competition on that end. And if News Corp hadn't come at that time, there's a chance I could have gone bankrupt. I mean I probably would have gone bankrupt to be honest. And then I learned the whole online game with News Corp. They taught me how to generate revenue-the subscription model, the premium products on the website, the technology, the whole ranking on search engines, Supply Chain Management-the whole online world I learned with them. That's what enabled me to be on my own further down the line, because I had gained that experience working with them, so no, it was absolutely crucial to be able to sell to them at that point.
fME: So, how do you see the market now?
The real estate market is, by everybody's account, booming. However, we are an online platform where we don't take a cut of the commissions of the real estate brokers, so are we happy that the real estate market is booming? Yes, definitely we are. But does this translate into direct explosion of our revenues? Not really. We are a subscription-based model where a real estate agent pays a subscription fee to list with us. Now if the market is booming, the real estate brokers are making more transactions, and if they are making more transactions they are making more commissions, and thus are making more money, and if they are making more money they spend more with us. So it's a longer cycle, but it's a much more stable cycle. So, I'm happy to see the market coming back and recovering, and there's a lot of money available right now in the market. Yes, it's a bit scary as well to see how the market is coming back so strongly, nobody wants to see what happened in 2006 and 2007 again. I don't want to see that kind of growth, because that kind of growth is not sustainable. I'm hoping that 2014 is not going to go crazy and we never know what's going to happen, so yeah, I'm happy about this market, but we're also cautious about not creating another bubble.
fME: Any other plans besides Saudi Arabia?
Yeah, there's other plans. We want to get Egypt locked down. We've been there for three months, but it's not a quick win, so it's going to take time. Depending on what's going to happen in the political point of view in the next three days is very detrimental to the stability of the country, and Saudi Arabia is a game changer. If you own Saudi Arabia and you are vertical, your valuation will double what it is if you're just in the UAE. And then we've got our eyes set on some African countries, northern Africa specifically. I'm looking at Morroco, and I'm attracted to Nigeria because of the population numbers and the lack of a leading property portal. I'm hoping to be able to enter that market as well some time soon.
Propertyfinder.ae-the number three SME in Dubai
fME: What are the benefits to being named the number three SME in the UAE in the 2011 version of the Dubai SME100?
What are the benefits? I think the biggest help is credibility from a government entity. When you are in the private sector here and are an entrepreneur, there's always a risk, and now that risk has almost disappeared from an investor point of view. Before, if you talked to investors about the MENA region, and about Dubai, people weren't as confident as they are today, as some in the past were, wrongly, skeptical of the government's support for SMEs. The fact that you have a Government entity that is ranking SMEs telling us that we are the third best SME of our economy, it gave us that kind of guarantee sealed that the Government is supportive of our business and SME business in general here.
It also aided our public relations. After our ranking, a number of publications picked up the story. It's great to be able to say to the public that we are ranked number three of the SMEs in Dubai, and furthermore, it's a nice thing to put in your presentation to investors as well. It's certainly added to our credibility.
Dubai SME has also put together some really great seminars. Beyond that, they are always willing to help, and the team is always happy to meet with us. It's a great initiative, and I hope it continues to gain credibility from an investor perspective, and investors who want to invest in SMEs will look to the Dubai SME100 just as they look to MSCI's index.
We were quite happy to be ranked number three. The biggest criteria for the rankings was on growth of revenues, and the year of the previous rankings we had a 65 per cent growth, which allowed us to secure that high ranking. For the next ranking due out this year, I'm hoping to keep a top position, as we improved even further last year, with an 85 per cent growth in revenue. We've done a better job, but I know there are a lot more applicants as well, so it's going to be a lot more competitive.
If News Corp hadn't come at that time, there's a chance I could have gone bankrupt. I mean I probably would have gone bankrupt to be honest?
If News Corp hadn't come at that time, there's a chance I could have gone bankrupt. I mean I probably would have gone bankrupt to be honest?
In 2007, two years after our founding, we felt that the market was now ready for an online property portal, and we decided to kill the print and move everything online. But that wasn't easy-we still had to push and educate the industry. A lot of times, it was a matter of hand- holding ?
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