Dubai: Brothers Mohammad (M) and Rany (R) Baghdadi started two companies, TechKnowledge and Al Manhal, in Dubai. TechKnowledge is an electronic information provider as an exclusive distributor of the electronic “content and solutions” of over 70 of the world’s leading academic and scientific publishers.
What does Tech Knowledge do?
M: Our business is similar to a distributor or importer of books and journals, but all digital. As a “solution provider” we create electronic libraries, collect electronic material, and provide “customised” information and resources for end users. Our customers are schools, universities, hospitals, oil and gas companies, engineering firms, research centres, and government organisations.
We help doctors keep updated with latest research, procedures, and drug information. When buildings are built, we support in providing current engineering codes and standards. We provide researchers in oil and gas companies with access to the latest chemical and patent databases. When researchers work in Universities we give them access to latest research. When teachers are teaching children how to do their homework online, we provide the authoritative materials.
Your value proposition?
Our objective is to ensure that knowledge intensive organisations are able to build the largest libraries of content with their budgets, and provide access to their students, researchers and practitioners seamlessly. Patrons of our electronic libraries in the Middle
How did the idea arise?
Before Rany and I founded Techknowledge in 2004, I co-founded ebrary, the world’s first academic ebook technology platform company, in Silicon Valley in 1998. We reinvented the business model of annual subscription to a database of ebook content. I was responsible for all sales outside the US through a network of distributors.
I was finding that the usage of all the products in the Middle East was the lowest compared to the rest of the world.
We took it upon ourselves to establish a reliable, transparent, efficient, electronic information service provider, who, realising the long term potential would invest in providing a needs-based consultancy service.
I understand distribution of tangible products. But clarify this for electronic products.
This question informs the strategy of electronic database creation and pricing. If a researcher is looking for a research paper, he can visit a website and buy the research paper. This is like iTunes where I download songs one at a time. This is an expensive proposition. Therefore publishers bundle their offerings and sell access to multiple databases to an institution for all its users. This increases the total amount of money the institutions spend with the publisher (thus increasing the publishers income) while minimising the price for document in the database. This in turn minimises the cost for each user to access and use the information. In addition the databases are regularly updated. There is no threat of obsolescence; the need to acquire books and publications each time a new edition comes out.
Have you made a cost centre into a revenue?
For a University, a library is an investment. For them we ensure that they get the maximum bang for the buck. We are able to track usage and assess the utility of expenditure. This would not have been possible in the old print distribution model that was cost plus.
Are you compensated by publishers?
Yes. Customers see the same price when buying directly from publishers or from us. Our customers spend less by working with us since we consult and advise our customers to invest in only the resources that are needed, and further negotiate on their behalf the lowest possible prices.
Competition in the market?
There used to be many. A shakeout has happened. Our strategy of transparency has impacted prices; forced them downwards. Distributors are not basing their prices on cost plus models targeting high profits. And distributors are forced to provide quality service in order to retain their customers and publishers.
Do you create products for customers by aggregating databases?
We assess the information needs of the institution, identify the available budget and advise on the most valuable combination of resources that provide maximum access for the available budget. We then take a step futher by provider our own customise elibrary portals that maximise discovery and usage of the purchased resources. We then invest heavily in ensuring that we have the right people to train our customers utilise and benefit from the resources they invest in. TechKnowledge doesn’t employ salespersons. We have specialists, people with domain knowledge — librarians, doctors, pharmacists, teachers, and engineers — who have experienced knowledge needs of their sectors.
How did you decide to become an entrepreneur?
An idea was always in my head; what can I bring from the West to the East. I thought about everything from fast food franchises to donuts to trading steel. In graduate school I wrote a business plan for entering the environmental management industry, moved to Beirut, set up an office in 1997.
I was selling solar lighting and industrial laundry waste water recycling treatment solutions that saved energy and consumption of fresh water.
I ran the business for two years until I ran out of money.
I was 27, returned to the US, met these two guys and we decided to start a business to protect copyrights on the internet.
You met 2 unknown guys and decided to start?
This was 1998. E-businesses were picking up speed. They didn’t have a business plan, had done no research, only the business idea. They asked to join them as a co-founder to try to raise capital and start the company. We started the company called ebrary in 1998. I raised our first $1 million (Dh3.67 million). We then wrote the business plan, moved from the house where we were working to an office behind the train tracks, hired some engineers, built a prototype, and started to talk to publishers and customers. Over the course of 6 years, many different business models, various growth and downsizing phases, the internet bubble burst of 2001, and 5 rounds of investment in which we raised an additional $28 million in funding, we finally hit profitability. In 2011 our sales had hit almost $40 million, and we exited the company.
Tech Knowledge was based on my ebrary experience.
How did you start?
M: We went to Starbucks…
R: And wrote a business plan. We then used my brother’s contacts in the industry to raise some “smart money”, and establish partnerships with some publishers. I then took a small office 10X10 in Knowledge Village, and started calling and visiting Universities.
Anything interesting?
R: He told me that I could work for other publishers. Since he was my brother, he couldn’t give me representation until I had credibility with other respected publishers.
M: Credibility is an important issue in the US. Rany had to show track record. I could then add ebrary to the business.
How did you create a product value proposition presentation?
R: When I first visited AUD I didn’t have business card. I met the librarian and pitched electronic databases. She listened to me and said, “Young man. This is all very well. But come to me when you have a business card.”
How challenging was the original selling and pricing?
R: In 2004 libraries were starting to become digital. We came into the market when there was a major shift happening in the market. Our efforts focused on helping them understand the value proposition.
This required education.
The truth is that they taught me a lot too. It was not a straight forward supply-side approach, “This is how it happens in the west.” A simple question, “What are you doing in the electronic world?” would elicit information on the demands of the region.
This is complex B2B selling. How long does this take?
R: First deal for 15,000 e-books with AUD took about 6 months. Value of contract $3,500.
Did it become more predictable?
M: There are hiccups but the growth strategy is simple. We start with simple offerings of basic information needs to make a “trusted connection” with an organisation. The connection is like a pipe. After the pipe is laid it is easier to send more sophisticated information and other associated products/service through the pipe.
R: We have found that senior executives who have studied or worked in the US have experienced access to research and information on their terminals without going to a library. When we are able to offer the same access here in the Middle East they are surprised and become supporters of the idea.
Are the companies sticky?
R: After professionals start using information as part of their professional life, then they cannot imagine life without information anymore.
When did recruitment begin?
R: In 2005 hired our first chemist. In the first year we were just 3 people. We become 5–6 people by 2007, and 12 people by 2008. Today we have almost 60 employees in offices in Dubai, Riyadh, Jordan, Cairo, Ankara and Istanbul. Recruitment of sector specific staff is always a challenge. As a start-up it is difficult to recruit from the oil and gas business where remunerations are high. Only thing we sell is our open culture of a start-up. I have found that people are attracted to it.
M: Initially they find it daunting. First impressions count. In early days, and the recruitment was being done in a loosely furnished windowless dark office, potential employees can wonder about the stability of the company and the employment.
Is the Tech Knowledge business self-sustaining?
M: We have been profitable since year 3.
Every year we say this is the year to pull out dividends, but every year we find new opportunities make the decision to reinvest for growth.
We have over 1,500 customers, 6 offices over 50 employees across the region. We manage subscriptions for over 1500 library customers around the region.
Challenges as you grew?
M: Managing cash flow. We have never taken on any debt to fund our growth so cash management was always a high priority.
Having done 3 businesses, does it become easier?
M: No it doesn’t become less tense or easier because you end up focusing on new things. Things still worry me, take all my attention, but I may have learnt to manage stress better.
How did the idea for Al Manhal come up?
We were educating our customers that the same print library budget could purchase nearly 100 times more electronic than hard copy titles.
We discovered one segment of consumers slightly uncomfortable. Arabic students going to a library were not finding any electronic material in Arabic. This triggered the need to create an e-publishing company in Arabic. We established Al Manhal in 2009.
We raised seed capital of $3 million. We didn’t have to struggle with customer acquisition. We went from 0 to 10 customers immediately and staff strength of 50.
Al Manhal is about product development — digitisation of Arabic content?
Its social value proposition is also real — it is helping students learn in Arabic removing the disadvantage of not knowing English, and it is giving regional publishers a new lease of life, an opportunity of earning an income beyond printed books by digitising the content.
For new academic books it is easy. It can be done by creating publishing e-tools like Amazon. For older materials it is more like scanning, rewriting, and indexing to enable search.
Was it easier starting Al Manhal?
I had imagined that I had done it once in ebrary, I could do it again. I am an Arab-American. I have grown in an Arab household and spent time in the Middle East. Even I had a culture shock; I couldn’t imagine how different it would be setting up a company. A part of Al Manhal development operations are in Jordan. We have multi-cultural team in Dubai — Indian, Pakistani, Philippino, Russian and Arabs. In Jordan all are Arabs with a similar work ethic. Once I had crossed the setting up phase I encountered the a widespread lack of respect for copyright laws. I tried to push the envelope and received a push back from the industry.
People were suggesting that I digitize without formal agreements with copyright holders.
An unforeseen legal minefield?
In addition the companies I was engaging with, publishers as suppliers were having a trading mind-set. They had no interest in perpetual income streams. They wanted all payments upfront.
What did you do?
The model morphed. To convince the suppliers we started ebrary to protect copyright on the net. It was never my intention to be an eBook company. So I took ebrary’s technology, licensed and arabised it.
It took longer and cost more than estimated.
What about the customer side acceptance?
Our buyers the libraries _ required convincing about a new purchase model that was subscription based. It was no longer about buying books. Buyers had to start looking at their customer engagement as a service transaction. They needed a business understanding of what was earlier envisaged as a cost. It was not about “a” book but about “diversity” and “specificity” of content for each customer.
They also needed to be educated to not just opt for the cheapest option.
When was the product ready?
Product was launched in July 2011. We were behind our target of customer acquisition and revenue by nearly 18 months. It took longer than expected for our database platform to full support Arabic. The minimum criterion was to enable full-text searchability of all the documents. External reason was the Arab Spring. Our entire content base was put on hold.
Are you risking your business by focusing on one language — Arabic?
The Arab world has a challenge. English is the preferred language of the young. Courses taught in Arabic have lower enrolment rates. And there is negligible scientific research work appearing in Arabic. There is economic and linguistic stratification happening. The children of well-to-do Arabs learn English and are able to access a richer variety of books and material. The poor who learn in Arabic by default are excluded; they have access to much universe of knowledge. Our intent is to even the playing field.
Competition?
Many competitors have emerged. They are focusing on quantity rather than quality and standards. As I mentioned earlier, it is easy to slap together a bunch of Arabic pdf files and sell them. It is much more difficult to negotiate copyright license agreements, digitise the content, create a full-text searchable platform that adheres to international library standards and integrates with library systems, develop a secure and transparent royalty management system, build a global distribution network to ensure sales and servicing of the content, etc.
Successes?
R: We started with one customer in 2011. In December 2012 Georgetown University in the United States subscribed to Al Manhal. Students in Georgetown University have access to content coming out of the Middle East. Georgetown was our first customer outside the Middle East.
We ended 2012 with over 80 customers in the region. All 50 universities in Saudi subscribed. All universities in Qatar. Most in the UAE, Jordan, Lebanon, Palestine. Many in Iraq, Libya, Tunisia, Yemen, Eygpt, etc. We currently have over 150 university customers across the world. Including such names as Oxford University, Yale University, Duke, Chapel Hill, University of California Berkeley.
Source of material relationships?
M: Over 300 publishers provided us information, books, journals, dissertations, etc. We have tie ups with universities in the region to supply us over 400 academic journals.
Are you profit making?
R: We are still in investment phase.
M: Al Manhal will breakeven in 2015.
You have two products – databases and books?
M: We learned from experiences. In ebrary in hindsight we focused on books too long. Attempting to branch out we were labelled as the “book” guys. At Al Manhal we decided to work on all content types from day 1. We launched eBooks in July 2011 and journals in July 2012. We have since added reference collections, dissertations, intelligence reports, conference proceedings, etc.
Pricing of Al Manhal?
M: We had to discount a little in the beginning to get things moving, but were pretty diligent about it. We need to price adequately in order to pay our Arabic publishers their due royalties.
Can’t you create a B2C model?
M: We are on Amazon, and launching iTunes and Google play.
How have you changed after becoming entrepreneurs?
R: I definitely have more patience. I look at all issues from a fresh point of view. In the first 5 years there was very little personal life. We were doing everything. Then people joined, learned, and started innovating themselves. My work changed. I learned to give people space, enable and then manage them.
M: Each start-up evolved differently. TechKnowledge emerged from an idea. It started with one person. It was more personal. It now has over 50 people. It started from scratch. Al Manhal started differently. It had capital when we started. We sat in board meetings with both investors. We grew from no employees to 30 overnight. We now have more than 60 people. It is more structured. The challenges are different. TechKnowledge’s challenges were how to get people to work together for the benefit of our publishers and customers. Al Manhal’s challenges are how to keep producing more content to meet you publisher and customer expectations, without continuing to increase your overheads. .. So you have to take your entrepreneurial lessons differently, based on context. The challenges differ every time. In terms of overall learning, I am focusing on the fact that as a company or companies grow (with over 100 employees) a manager needs to spend his/her time continuously tracking and managing data according to KPIs, and in turn set or reset direction in order to hit all targets. As opposed to the early days of being an entrepreneur which required you to actually get out there and do the actual work. The thing I miss most is customer interaction and relationships.
What worries you about the business?
R: Cash flow, customers not paying on time in some countries and some customers not honouring contracts.
Manoj Nakra is currently with the Apparel Group and is a mentor to Dubai SME members
