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Sink r $wim?

How to stay afloat in tough economic times: Business lessons from the UAE

Richard Dean

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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: 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: 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


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


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.

Steve Williams CEO, Gulf Finance


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 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.


Sink or Swim

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.

Build better companies

This book has one simple aim: understand the difference between the good companies and the bad. The weak from the strong. Those that sink from those that swim. Why do we care? Because understanding these factors will help people working in Dubai and the region build better companies in the future, by learning and heeding the lessons of the past. Understanding these lessons was no easy task. I couldnt have done it alone, so I teamed up with the bankers at Gulf Finance and research analysts at Insight Discovery to produce this book. We approached our task in three ways hence the book being in three sections. In the first section, True Stories, we look inside some of Dubais successful companies and business leaders, to find out what makes them different. This is where my experience as a journalist with the Financial Times, Reuters and The Economist came in handy. I kept digging away during hours of interviews until I found the killer apps within their business models and practices that helped them negotiate not just the most recent slump, but also previous local downturns. Its easy to forget that 2008 wasnt the first time Dubai hit an economic wall. Remember the oil price crash of 1986? The Iraqi invasion of Kuwait in 1990? The oil price crash of 1998? I could go on. Heres my point: the people and companies profiled in this book have been around the block enough times to have weathered several business cycles. Theyve seen the highs and the lows, and while times have sometimes been tough, theyve built solid companies on strong foundations that have been able to navigate the storms.



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.

Richard Dean Dubai May 2010



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

True Stories: Better Homes


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.

Starting a real estate company in 1986: you must be mad

Linda Mahoney founded Better Homes in Dubai in 1986, working from her living room until she could afford to rent a small garage in a villa. On the surface, the timing was awful: the region was reeling from the Kuwaiti stock market crash, while oil languished below $10 a barrel. Hard work and low costs helped launch the company, and many of the lessons learned in the early days helped Better Homes survive and thrive when the credit crunch hit two decades later. It was exactly the same as now in that youd go out, and five or six people had lost their job, she recalls. When somebody asked me what I was doing, and I said I was starting a real estate company, well they did think I was a little bit mad. I was in need, and not to be deterred. It took a while, but demand did pick up, and after a couple of good years, things were much improved. By the early 1990s, Better Homes agreed to take whats called a head lease on an apartment block on Sheikh Zayed Road. (A head lease is when a broker agrees to rent an entire building at a discount, hoping to make a profit by renting apartments out at a premium one-by-one.) In a booming market, its a golden ticket not only does the broker take a commission, but also makes a margin on the rent. It was a nobrainer, says Linda. Then Saddam Hussein invaded Kuwait. It was August 2, 1990. She remembers the panic that hit Dubai. 45 billion apparently left the country it doesnt matter what the number is, but companies like Pepsi-Cola just moved all of their people out of the country. So everyone felt the downturn.


Sink or Swim

Leave the deep end for strong swimmers

Linda had made a mistake, though not a fatal one the apartment block deal wasnt big enough to sink the company. Still, a crucial lesson had been learned: be conservative, manage risk and always look at the potential downside. Shed already seen the dangers of head leases in her last job before launching Better Homes: one previous employer fled the country after getting in too deep. The experience of the 1990 Gulf War drove the message home. Its a very dangerous thing if you dont have the cashflow or the resources of bank facilities to back you up. Ive seen it and its very scary. I was never in that position because I come from a very conservative background. So far, so good. By the end of the 1990s, hard work and a conservative approach to business had given Better Homes a solid foundation: a great team of employees and multiple services lines, according to Linda. But the challenge with this very handson approach meant that it lacked the processes, direction and systems to grow beyond being a small business. Several companies were in the running to lead Dubais property market; it was Better Homes next move that gave it the edge to surge ahead of the competition. When I look at the companies that have folded and gone out of business, not only in the UAE but also in the UK, the ones that have gone out of business are the ones that expanded on credit.
Ryan Mahoney, managing director, Better Homes

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

True Stories: Better Homes


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.

What makes us different? Actually, nothing

Ryan Mahoney joined in 2000. Son of the founder, with a degree in art, a bit of experience as an interior designer, and a track record as a wild child teenager. Not very promising. Then something clicked, and Better Homes would never be the same. Linda looks back on meetings around that time, when the penny finally dropped. It was still a family business to all intents and purposes. One of the things Ryan used to ask back then: how are we different? What do we do differently from any other agency? What do we provide and offer and can say we are better than anyone else? When we sat down and asked that question, we said actually, nothing. Because the only way to differentiate yourself is that you might be lucky enough to have a few crackerjack agents that were the best in town, but that is the only differentiation. We really couldnt provide the service that was different from what any other agency could do. From 1986 until 2000 we were doing the same thing. All we were doing was working hard, but not really standing out. Ryan takes up the story. It was just basically working harder. That was the strategy. You work harder. My mother is an incredibly hard worker. For four or five years when I was growing up, she never took a holiday. She never left the country, never took a weekend. She was so committed, she defeated her competition through sweat and hard work. My point is that you can work harder than everyone else, but you cant grow that way. His conclusion at the time: We have had to build tangible differences that make a difference. When the customer receives a service from Better Homes, the customer should point to three or four things that the competition simply cannot deliver.


Sink or Swim

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.

System and process: The building blocks of profit

Ryan became obsessed with the system and process behind Better Homes. As soon as I came in, I was instantly interested in the whole process of real estate, and all of the systems that drive real estate. If you had asked me when I was 16 if I wanted to be in real estate, I would have said no way. I studied art and never conceived of being interested in business, but I didnt realize that business is arguably the most creative of all art forms. It was a real creative process. He focused on four key areas: Inventory Customers Transactions Marketing When Ryan joined, Better Homes was managing its property stock through a haphazard blend of faxes, a white board and agents jealously guarding the most lucrative units so colleagues