When the German e-commerce company Rocket Internet SE bought Kuwait-based Talabat.com this year for $170 million, the deal for the online food delivery platform was reported to be the largest Internet technology transaction in the Arab world to date. Kuwaiti entrepreneur Abdulaziz Al Loughani founded Talabat in 2004. In 2010, he sold the platform to Mohammed Nabil Jaffar, who happened to own a restaurant that was listed on the Talabat platform. From Kuwait, Jaffar quickly expanded Talabat to countries like Bahrain, Oman, Saudi Arabia, Qatar and the UAE. The company says it has placed 10 million orders by more than 500,000 registered users with over 1,700 restaurants across the region.

In an interview with Knowledge at Wharton, Jaffar talks about the challenges he faced as a young entrepreneur — including nearly shuttering his first restaurant — and his experiences during the acquisition. An edited transcript of the conversation appears below.

Knowledge at Wharton: Can you tell us about how your career prepared you for your role at Talabat?

Mohammed Nabil Jaffar: I started my career in corporate banking at Gulf Bank, in Kuwait, from 2004 to 2008. That experience gave me the foundation on how to start and run my own business for the future.

Knowledge at Wharton: How did you end up buying Talabat?

Jaffar: After spending four years in corporate banking, I was ready to kick start my entrepreneurial journey and I started by opening a small delivery restaurant called “The Kitchen.”  It was a difficult challenge in the beginning and my daily sales were very low ranging between KD 30 ($100) to KD 40 ($130), which was way below the daily breakeven level of KD 150 ($500). I then decided to join and list my restaurant on Talabat as a last resort, and I was planning to shut down the restaurant if this last option didn’t pay off.

The impact of joining Talabat was instantaneous. My restaurant’s sales on the first day jumped to KD 420 ($1,400). This then immediately pushed me to pursue and understand the Talabat model further and enter into negotiations for acquiring the company. Thanks to the almighty God, I managed to close the deal and complete the 100% acquisition of the business six months later.
Knowledge at Wharton: You purchased Talabat in 2010 for $3 million and sold it for a reported $170 million. Given that this was the largest Internet technology transaction in the Arab world, to what do you attribute the valuation?

“Our strategy was to get the biggest restaurant chains on board first in order to make the smaller ones follow.”

Jaffar: Valuation is attributed to many factors, such as the rate of growth, potential future growth, brand position, other valuations of similar companies in the same space that have either been acquired or went through an IPO, profits and a few others. We found it much more difficult to value Talabat back in 2009 due to the industry not being as developed as it is today.

Knowledge at Wharton: What was your strategy to take Talabat from a local player to a regional one? How tough was the acceptance of the brand in the other countries?

Jaffar: It was our plan to expand to the other five GCC (Gulf Cooperation Council) countries during our due-diligence to acquire Talabat in 2009. We believed that we could replicate the success that Talabat enjoyed in Kuwait in its neighboring countries. We started our expansion in early 2012 by opening up offices and hiring local teams in each country to run the operation, sales and finance functions. The Kuwait head office supported the other company functions.

We found it very tough in the beginning, just like any other start up company in the GCC, especially since we expanded to all five countries in roughly the same period. It was also very expensive and growth was slow at first.  This made us work even harder to be successful, and failure was simply not an option for us. Growing Internet penetration rates and smart phone usage helped us to break through. We managed to break through and get our brand recognized as one of the largest in the online food delivery space in the GCC.

Knowledge at Wharton: Can you describe the acquisition process? What can and should other entrepreneurs do? What advice can you offer them?

Jaffar: Prior to the acquisition, we were approached by one of the best boutique technology investment firms in the e-business space to discuss a possible merger or acquisition. This approach led to negotiations with potential buyers and then to the acquisition. The entire process went very smoothly, mainly due to the fact that we built a solid company that was growing very fast. Having these attributes will always lead to a clean exit.

My advice to any entrepreneur is to always hire people who are better than you, do everything possible to retain them in your business, lead by example, invest in the best possible systems, which will make your business more efficient, and always be ethical in everything you do. It is also very important to focus on one business at a time.

Knowledge at Wharton: Talabat is said to have more than 1,500 restaurants on its platform, including the likes of KFC, Burger King, etc. Can you describe how this process started and how you grew to this number?

Jaffar: We started by hiring talented and experienced people, who were hungry for success. Our strategy was to get the biggest restaurant chains on board first in order to make the smaller ones follow. This process led to more than 1,700 restaurants in Talabat’s platform.

Knowledge at Wharton: What are the most important milestones in Talabat’s history? What would you say are some key defining moments?

Jaffar: We were one of the first in this space to launch a mobile application, which gave us a big edge at a time of huge consumer shift from web to mobile usage. Our quick expansion in 2012 to the entire GCC area also gave us the first-mover advantage position. Also, a very important milestone was our acquisition of the [Talabat.com] domain in mid 2012. We then rebranded away from the old domain in January 2013.

“My advice to any entrepreneur is to always hire people who are better than you, do everything possible to retain them in your business, lead by example, invest in the best possible systems … and always be ethical in everything you do.”

Knowledge at Wharton: What was the situation in Kuwait and the GCC five years ago?
Jaffar: Five years ago, Internet and smart phone penetration rates were significantly lower than what they are today. Also the food delivery sector has grown tremendously, especially in the last three years.

Knowledge at Wharton: How has the GCC market changed since 2009, when Yahoo bought Maktoob?

Jaffar: Yahoo’s acquisition of Maktoob gave optimism and hope to many young entrepreneurs in the MENA and GCC regions. I was one of those young entrepreneurs. It was a sign that this part of the world had the potential of big exits, just like the USA and Europe. The market now is much more dynamic and filled with more opportunities than in 2009.

Knowledge at Wharton: It seems that in spite of the high adoption rate of technology, smartphones, etc., the e-commerce sector is still not as advanced as some other parts of the world? Why do you think that is?

Jaffar: This is mainly due to the fact that the majority of the wealth and main decision-making in this part of the world is in the older generation’s hands.  The older-generation businessmen do not understand e-businesses in general and prefer to invest in more traditional brick-and-mortar businesses.

Knowledge at Wharton: What was your biggest challenge so far?

Jaffar: One of the biggest challenges is to find people who have the passion, entrepreneurial drive and willingness to learn to go the extra mile every single day. I believe that we also lack talent in the e-business sector in the GCC.  Staff reallocation is also not easy for some nationalities, which makes it difficult to hire talent from abroad.

Knowledge at Wharton: What were the biggest lessons that you learned along the way?

Jaffar: There were many lessons that I learned during the last five years as Talabat CEO. The main three are: Do things right and never cut corners; always invest in people; and never outsource your product development and keep it in-house.