Has there been a technological event as impactful as the coming of the smartphone? We’d wager not. Maybe only Henry Ford’s production line for building cars cheap and fast comes close.
Stakeholders of the old bricks-n-mortar economy may argue otherwise, but the smartphone is king now. It has even upended the entire concept of owning cars. With the likes of Zipcar and Uber, are we looking at future where a majority of people don’t own cars? The answer, for many, is yes.
Zipcar and Uber are at the sharpest crest of a wave of on-demand startups taking over the world. Many of whom are trying to disrupt the status quo across sectors.
Some startups can make sure that you never run out of groceries. Others will send you doctors in a jiffy. And if you are a lazy bum, some will send you cleaners and maids too.
In the US alone, more than 280 companies provide on-demand goods and services across 16 industries today, up from 76 companies operating in just six industries two years ago, according to Crowd Companies, a firm that tracks on-demand platform businesses. And they are attracting more than 22.4 million consumers annually and $57.6 billion in spending in the US alone.
According to accounting firm PricewaterhouseCoopers, five key on-demand economy sectors—travel, car-sharing, finance, staffing, and entertainment—have the potential to increase global revenues from roughly $15 billion today to around $335 billion by 2025.
But what about the Middle East and North Africa (MENA)? You can be sure that with the likes of Uber and Deliveroo already here, it will only be a matter of time that we see a flood of on-demand startups sweeping this 19-country region.
A trickle has already started if you pay attention.
But what is the on-demand model and why does it work? For the answer, you have to look at changes in consumer behavior across the world. What the modern consumer needs is immediate access, at his convenience. That is what the smartphone has changed in him. It has generated this notion of entitlement to fast, simple, and cost-effective experiences.
The final part of the previous sentence is crucial to understanding the primary audience for the on-demand business model. Millennials, the generation of today, do not have it as good as the Baby Boomers and Generation X.
A decade of economic depression has ensured that this generation is nowhere near as prosperous as the previous ones. But their needs, desires, and aspirations are more, if not as much as that of the previous generations.
This has made them re-look at the entire concept of ownership—why own when you can rent, even temporarily? Why spend a dollar for something that you can rent for a dime, and that too instantaneously? Renting is inexpensive and convenient. It is no surprise that much of this generation has no interest in home ownership.
It is precisely this underlying principle that the founders of ChefXChange, an online marketplace that connects foodies to chefs for on-demand culinary experiences, are tapping with laser-like focus. Karl Naïm, CEO & co-founder at ChefXChange, explains to us the simple premise of his business’ offering—it’s cheaper, and it’s an experience.
Once an investment banker, Naïm tells us that he is a casual chef himself, as is his co-founder and former business school classmate Karl Washington.
“I was also an early user of Airbnb in the region. This meant that I always had someone over if not my friends, and I was always cooking up meals and entertaining them,” he says.
It was also a time that Naïm was moving away from his corporate job, and looking at startups intently—as an investor. One such startup that caught this amateur chef’s eye was Kitchensurfing over in the US—a marketplace for chefs.
It was the Airbnb model, but for culinary experiences. Could this model work in the Arab World and its growing cities? Over a Christmas call with Washington, who was in the US at that time, he found the answer.
Starting in late 2013, after a few rounds of business planning, and a term at a top food tech incubator in Spain’s San Sebastian region brought the duo to the current avatar of ChefXChange in 2014—a marketplace where one can book chefs, from home cooks to professionals, for dining experiences in one’s home.
“We have democratized the private chef experience like Airbnb did with the holiday home,” says Naïm. Since the launch, ChefXChange has racked up over 900 chefs who have served almost 4,000 dining experiences in the startup’s launch cities of Dubai, London, and
The startup has grown rapidly. It wasn’t too long ago when Naïm and Washington themselves had signed up as chefs among a handful on the service.
“The math of it just works,” Naïm explains.
“When you compare the cost of eating and drinking out in a city like Dubai and compare that to hiring a great chef to cook for you and your friends at your home, with your beverages, there is a huge saving. Plus, you are getting a special experience.”
The math works better when you consider the economic headwinds flowing across the world. ChefXchange currently operates or has just started operations in the UAE, Bahrain, Lebanon, US, UK, Germany, Greece, France, Italy, Kuwait, Qatar, Spain, Egypt, Jordan, and Turkey—none of these are having the best of economic times.
And that is fine by Naïm. Dubai, for example, has been roiled by the oil price crash but it is also the startup’s best performing city. “It works for us. At the time of a slowdown, people tend to be careful with their discretionary spending. They might cut back on eating out, but the desire for great dining experiences is still there. That is where we come in.”
Desire is a key word here.
If you had to look at the on-demand economy, you could divide it up into the three distinct brackets—daily needs, occasional needs, and luxury needs—the latter being the bracket ChefXChange falls in. For such on-demand services, cost is the single biggest determinant, followed by convenience or ease-of-access.
‘Cause it’s easier
For startups like Doha’s on-demand laundry service, WashNow, founded by Ameer K.V. along with co-founders, investors and mentors, Mufeed Ahmed and Rahid Kader, it is convenience that is the primary offering. Having started in 2015, WashNow is Doha’s go-to, on-demand app for laundry. “An Uber for laundry,” Ahmed tells us.
According to Ahmed, Doha is at the right point in time for on-demand services, lagging a little behind like regional tech ecosystem leaders like Dubai, Amman, and Beirut, but with a sizeable, addressable market that can be tapped into by the right team idea with the right idea.
And the founding team, he says, was always very good at the tech side of things. He is not kidding around on that one.
Kader is also the founder of another on-demand startup, eGrab, which is in the online grocery business.
Ahmed heads Qubicle, a web and mobile app development firm, under which he started Evently, an event discovery platform for Doha. He also runs Doha Tweetups with a few others, and is also the Doha ambassador for AngelHack, which claims to be the world’s largest hacker community.
“But technology is only one side of things. The user experience is the most important part of the process. Tech can simplify execution but in the end, what we are setting up is a laundry business.”
To fill that gap, they approached a friend in the industry, who owned a dry cleaning shop in Doha and understood the nuts and bolts of the business from him before they took the app live in August 2015.
“Within half an hour we had our first order.”
But that was the easy part. “When we launched we had no clue…we didn’t have the people to collect the orders…once one of the co-founders went to the customer’s house to pick up laundry,” Ahmed tells us with a laugh.
The firm has now taken charge of the logistics of the business as well, with four vans that are working 12 hours a day in Doha. “Initially, we wanted just to connect the laundries with the people. But we understand the game now. It was not ideal, but it was learning.”
And learning it will be.
The laundry business is a relatively low-margin business, and there is a challenge in getting the customer to pay an incremental value for this app-based convenience.
On top of that, even though it is a tech-based business, there is a high level of human participation, which adds both costs and chances for errors—a burnt dress or shirt can very quickly bite into the day’s margins. And then there are the smaller, unorganized rivals who have long time customers, sometimes consolidated by localities.
Even in the west, the Uber-for-laundry sector has been ravaged a fair bit. The likes of Wash.io (this year) and Prim (two years ago) have gone belly up unable to keep up with the tight commercial pressures.
The best bet for a business like this is to build a sustainable, gradually growing pool of customers. This pool can be constructed by the either outstanding service levels or continued cost effectiveness. The latter approach is the most widely used one—offering discounts, promotions, and early bird rates to stay ahead of the traditional rivals. And that needs money. Moreover, it needs the right kind of money.
“We closed only one round of funding, and I cannot disclose the amount. We have a couple of more options for funding from people outside the tech startup scene, but we are hesitant,” says Ahmed. “We want investors who understand how the industry works and the startup culture.”
Keep it simple, keep it funded
That is also the mantra for ChefXChange and its founders Naïm and Washington. Over a seed round and a pre-Series A round, the startup has raised a total of $1.05 million thus far from a group of ex-colleagues and finance executives.
Naïm tells us that ChefXChange is now looking to raise a Series A round of $1.5 million by the February 2017, and can use that infusion to look for profitability at the late end of 2017.
A fair chunk of the money raised so far has gone into what Naïm calls the most important part of the startup’s growth strategy—educating the market.
“We want to own the online space, from Google all the way to social media. For me, not enough people know or understand our offering and the advantage we offer over eating out and conventional catering,” he says. “Educating and reaching our customer is our priority, and we want to a put a lot of money in that.”
There is a reason Naïm is stressing the word priority here. In early 2016, Kitchensurfing, the startup that inspired ChefXChange, ‘shut down its kitchens.’ This after it had raised almost $20 million in venture capital.
Even though his startup is ‘miles’ away from the on-demand culinary space, Sebastian Stefan, the CEO and co-founder of Dubai-based on-demand freight transport service, LoadMe, says that for him, funds are going to be crucial if the firm’s growth plans are to be realized.
Much like Naïm wants to for ChefXChange, Stefan is also looking to raise a Series A round of $2 million by the end of 2017’s first quarter, to propel his marketplace for transporters and load owners into the next level of expansion.
“A steady capital base is critical for us,” he says. “As a startup, you need to lower the barriers and build that user base starting out. You need more money to advertise and market your product in the beginning.”
Truck on tap
Stefan started LoadMe after a stint in the regional logistics industry, following up on similar jobs in Europe. From the beginning, Stefan says, he saw the challenge with the local logistics industry and its very dysfunctional ways of working.
Trucking and transporting are a notoriously difficult business outside of Europe and the US. For one, there are a few hundred fleet owners from the big guys to the small ones. On top of that, unless you are working with an agent who knows his stuff inside out, getting the right kind of truck for your load can be a slog.
“For the load owner in the region, there is no way to see a transporter based on their fleet type…whether the transporter has reefers or semi-trailers or flat beds. At best, they can search the yellow pages. And call each and every transporter. This is cumbersome, and it could take up to three days to book a load,” says Stefan with some degree of exasperation.
With LoadMe, Stefan claims, that the entire process can be brought down to minutes. At once on the LoadMe website or app, a load owner can see and fix on a transporter and a truck in a location closest to him. “It is instantaneous,” he says.
On top of that, Stefan says that a LoadMe-like solution is also more efficient for the truck owner—and for the environment. “An idle truck loses $70 per day with all its fixed costs. A moving truck makes $90 per day.” According to Stefan, by speeding up the process of acquiring loads, LoadMe can increase that for a truck to $160 for each extra working day.
Also, because LoadMe works on the closest location scenario, it also ensures that fewer trucks are on the roads with empty loads for fewer hours.
“If your load is in Abu Dhabi, and the trucker you use is in Sharjah, he is going to drive more than 200 kilometers to you. Instead, with LoadMe, you are more than likely to find a trucker closer to you, and that is going to keep that Sharjah truck off the roads for a significant period. That is good for the environment,” he stresses.
Stefan launched LoadMe along with CTO Sebastian Morar, and marketing manager Claudia Pacurar back in 2014 with a period of incubation at Dubai-based DP World’s TURN8 accelerator, from where it raised $30,000 to get things rolling, going live in 2015.
In April this year, it raised another $360,000 in a seed round led by Dubai-based early-stage venture capital fund, Prime Ventures. Since then, it has signed up 1,400 transporters representing a combined fleet of 12,000 trucks, 5,500 load owners, and about 800 agents. About 75% of its market is accounted for in the UAE, 25% in Saudi Arabia, and the remaining 5% over the rest of the GCC.
This growth has come fast, Stefan says, because both the load owner and the transporter see value in this marketplace.
“This is a double-sided marketplace. It has to work for both. For freight owners, it takes out all the hassles. For transporters, it means fewer empty trucks, and more leads,” he says. “My audience may not be the most tech-savvy, but once they use it, they never go back to the traditional way.”
As of now, LoadMe works on a simple revenue model—it offers transporters packages for leads, starting from a free package that gives the transporter one listing to a Dhs199 per month package that sends about 50 leads his way.
The conversion rate for transporters going from free to the top-end expert package currently stands at about 11%, he says, adding that this number could rise once he expands the service to Arabic and Urdu.
With its team of 12 full-time employees, LoadMe is also looking at expanding geographically out of its core markets of Saudi Arabia and the UAE, and target markets with similar issues in North Africa. Having navigated a complex market like Saudi Arabia, I ask Stefan what kind of challenges does he expect going forward?
“My only real obstacle is the obstacle I can’t see,” says Stefan with a smile, possibly hinting at MENA’s ever-changing regulatory environment, which has recently put other such on-demand tech startups in a spin.
He does not say more. But he makes a valid point. Even global giants like Uber have seen their business operations being questioned and in some cases, outright blocked (as is reportedly the case with it in Abu Dhabi) by rules and regulations that blindsided them.
Others, like Careem and hourly car rental service UDrive, have had to work within limitations set by regional regulators, Dubai’s Road and Transports Authority in their case. In other markets, like Jordan, taxi drivers have staged protests against both Careem and Uber.
This is not unlike the west—with on-demand startups challenging industry incumbents with new business models and new ways. Only in this region, many of those incumbents tend to be government-owned if not government-connected or deeply entrenched into local ecosystems.
Saleh Al-Khulaifi, a banker, and investor, who has invested in WashNow, says that in the long run, entrepreneurs in the on-demand economy have to be patient. “The on-demand economy could take one or two years to build out.”
In that time, it is expected that governments in the region would come to a middle ground with this new, tech-driven wave of startups.
The reasoning is simple. The one winner with the on-demand economy is the consumer, and that has to eventually matter to governments over all other considerations.
On top of that, the on-demand economy can also help alleviate the problem of youth unemployment in the region—putting young Arabs, who are otherwise excluded from the formal jobs sector, to work.
When that time comes, though, and it is no longer an if, but a question of when, the next big challenge for these startups will be to show scale. And that will be a ride to watch.