Inverting The Formula: Idealz Co-Founders Jad Toubayly And Easa Al Gurg Are Reinventing Online Shopping Its marketing slogan reads that Idealz is "a stationery and garment online store with a twist," with the twist being its premise of creating three-fold value for the customer, the business itself, and people less fortunate around the world.
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The ubiquitous success of e-commerce retailers worldwide is hardly deniable today, and enough to allow overlooking that the majority of its business models are still beset with bottlenecks in different areas- unless you refuse to turn a blind eye to this, as do the co-founders of Idealz, the latest in a string of promising startup ideas popping up in the UAE. Its marketing slogan reads that Idealz is "a stationery and garment online store with a twist," with the twist being its premise of creating three-fold value for the customer, the business itself, and people less fortunate around the world.
But in realizing this, the numbers need to make sense, as, for Jad Toubayly, co-founder and CEO of Idealz, that is the important bit. "We both love numbers, and are always looking for formulas that work in everyone's favor," he says, referring to Idealz co-founder Easa Al Gurg. "In my background as a credit and derivatives structurer with Deutsche Bank and later J. P. Morgan, whenever we looked at something, we tried to topple the formula on its head, and tried to see it through different lenses. Every good idea out there today started like that. If you look at the unicorns out there today, the founders looked at how the world was, the status quo, and asked what they could do differently. So, in general, we try inverting the formula in everything we look at. In this case, when we looked at the e-commerce or online shopping sector, which has been growing significantly in the region, and specifically in Dubai, its usual business model wasn't very appealing for us. To start with, it is dominated by titans that are very hard to compete with. The way to rise to the top in e-commerce is by doing three specific things better than your competition: carrying more Stock Keeping Units (SKUs), delivering faster, and pricing better. All three of these eat from your margin. They give you higher turnover, but lower margins. We wanted something that had the inverse effect. How can we sell more without compromising margins? This formula usually never happens. We kept twisting and turning it, asking what if the incentive wasn't faster delivery time or better pricing, but a value-add better than both of these. That is how we got to the value-add marketing mechanism that we have today."
Al Gurg, co-founder of Idealz, adds, "Bear in mind that we make, market and sell our own products, we are not a shop of shops, and as such, we are not in competition with traditional e-commerce businesses. We wanted to invest in making our own brand of products that is sold on our own platform. It is something new, something unique. By nature, we are both very specific, detail-oriented, and we usually try to pick holes in the system, endlessly asking "what if.' Eventually, we came up with a concept that is workable because every time I would ask a question, he [Toubayly] would come up with a solution and vice versa. That's how we ended up pulling the whole thing together."
In their quest to create maximum value, Jad Toubayly and Easa Al Gurg have constructed Idealz as a platform that allows its customers (registered members) to purchase an item of clothing or stationery, which also gets them a complimentary ticket into a lucky draw for a luxury prize. For example, one of the campaigns running at the time of writing this article, offers a limited quantity (550) of porto boxes which include two pencils, a ruler, a sharpener and an eraser, for the price of AED525, earning a chance to win a Mercedes CLA250 AMG. Or, in another campaign, if you choose to be one of the 700 buyers of Kiru pencils for AED52.50 each, you might win a collection of tech products. Upon the purchase, the platform member is also given the option to either collect the purchased product, or donate it to Idealz's affiliate charity partner, in which case the company will double their ticket entry into the respective campaign draws. The combination of highly sought-after luxury goods with items essential for those in need is compelling as much as it is intriguing, raising a question of how the two dots were connected- the answer to which sits at the heart of what Idealz is.
"Whenever you walk around in the malls or other public areas you see small charity kiosks that are there depending on peoples' good will or loose change," Toubayly explains. "Naturally, traffic isn't really high. A large subsect of the world, to be completely honest and transparent, has a "me first' mentality. "I need to help myself. I have my own liabilities to take care of. I have this and that.' So, going back to our "toppling the formula on its head' approach that we adopted, the question became, "How can I get the subsect of the market who typically do not do acts of charity to now start and donate?' The answer was quite simple– an incentive. For example, between someone selling charity coupons to support a cause, or us allowing our customers to donate their purchases to charity, but also giving them the chance to win a Mercedes or a Rolex, who do you think will sell more? That is the angle that we took to the charity part of it. We have found that with such incentives, people actually buy more and donate more. The exact formula response that we were looking for. Our products are also curated for this specific formula. We have two verticals -clothing and stationery- since the two global constants in charity are poverty, who will require clothing, and education, who will require stationary. So simply put, you buy, and if you don't want your products and you want to do good, you can donate them to charity. The other thing that we will be looking at in the future is special situations. For example, we can curate products required for areas hit with nature disasters, and launch them on our platform for customers to buy and donate."
Consequently, the company's mission objective is to transform the lives of different societal groups, either through a donation of hundreds of clothing items to orphans, or by allowing a buyer to win a Mercedes for the price of a stationary item. Since its inception, Idealz has been partnering with Dubai Cares, a part of Mohammed bin Rashid Al Maktoum Global Initiatives, which works towards providing children and young people in developing countries with access to quality education. "We believe that if you do good, you get good," Al Gurg says. "We have partnered up with Dubai Cares and they have supported us a lot, but this is only the beginning. We are also looking at other areas, such as evaluating the possibility of associating with the Mohammed Bin Rashid Global Centre for Endowment Consultancy, which will be integrated into our business model. This is still at the drawing board internally, but it will mean specifying a certain portion of our business to go towards certain causes forever. Whatever formula we come up with will be built into the business forever."
For now, though, since launching the website and the iOS app at the end of last year, the cofounders say it hasn't been hard for their innovative concept to take hold in the UAE market. Idealz claims to have more than 1,500 downloads per day, with the platform declaring a growth of around 30% month-on-month. "We typically say that our buyer would be anyone with a smartphone and a credit card, no age brackets at all- I call them "Uber Users'," Toubayly says, adding that the high acceptance rate is due to the carefully selected combination of products the platform offers. "Our products have a wide price point range- some of our products are priced as low as AED50 to as high as AED1,000. They fall in two main categories, clothing and stationary, and specifically so. In terms of prizes, we have five categories to choose from: cash and gold, jewelry and watches, cars, electronics, and lifestyle. For cash and gold, rewards can go from as low as AED5,000 to, hopefully one day, as high as AED5 million. As of today, our highest cash prize is AED100,000. On the car vertical, we are working with Mercedes, and we go from as low as an A-Class to as high as a G-Class. For other verticals, it's the same."
Idealz's draws occur on the 15th of every month for campaigns closed during the preceding month, which are held in the presence of a Dubai Economy representative. As a legislator trying to keep the pace with new ideas arising in the UAE, the Dubai Economy has been extensively involved in structuring the legalities of the Idealz concept. For Toubayly, the close collaboration with the Dubai Economy on the related legal matters was a sign that their concept was truly innovative. "You know you have innovation when you have no proxies," he explains. "Regionally and internationally, when we look for our proxy, there's nothing to compare to. We also had to fight a lot of resistance- for example, payment gateways didn't know how to assess our risk, it was new to them. Also, we are very highly regulated, and we've been working with the Dubai Economy on how to structure our campaigns in a way that is efficient for them and us. If we do 50 campaigns a month, the amount of administrative work on both sides becomes ridiculous and uneconomical, so we've been working with them to come up with a bespoke solution. And performance-wise, we look at ourselves on a monthly basis and say that our only proxy is our last month."
With a modern-day innovation rush enveloping the globe, startup ecosystems' stakeholders mainly search for it in a neighboring garage or at a never-ending tech hackathon. However, this story is different, and I've intentionally decided to present the people at the helm of Idealz only after explaining the concept in more detail. When we meet at the company's headquarters in Dubai, they are both sparky and down to earth– probably because they see Idealz through the lens of already accomplished businessmen.
Toubayly's banking history includes stints at Ernst & Young, Deutsche Bank, and J.P. Morgan, in addition to a dozen or so of businesses he has built and sold on the side. Similarly, Al Gurg is General Manager at Easa Saleh Al Gurg Commercial and Industrial Group, a family business with more than 650 employees reporting to him. After a decade-long friendship, they were willing to embark on this idea together, but the demands on their time were onerous. Nevertheless, Al Gurg says they worked on the concept daily. "We really had to go out of our way to find the time to sit together, talk, and develop the concept," he says. "It took us six months to put all the pieces together and then we kept on polishing it till what you see we have today. Then, in mid 2016, when we licensed the company, we started putting the team together. We literally went through the whole startup phase on our own, meaning that we even went to buy and fix furniture of our first office on our own. It was about putting all the pieces together. There were too many moving parts. We had to select the right people, set up the infrastructure, the office, apart from building the website and the app itself. Sometimes we would think that we were doing good and then suddenly we would get a big flow of actionable items that we had to take care of. At the same time, we had other projects/businesses, so to be very honest, we managed it because we are very aligned." Toubayly adds,
"We have 15 people now, and we are adding one a month, I'd say. From a technical perspective, we do everything in-house. I have moved on to run this full-time since May 2017. We tried outsourcing some functions which is, I guess, one of the options startups have, because it's cost-effective and saves time when you are building a team, but we didn't like the quality that we would get, so we stopped that and hired full-time toptier talent. I can firmly say that I have a very solid team that I work side by side with. There is a lot of talent out there, but very little right talent, so we hired some from here and some from abroad. We said from the beginning that everything in the build had to be [like that of a] Rolls Royce- only using the best-in-class platforms of technical methodologies."
Unlike other startup stories, Toubayly and Al Gurg agreed from the outset to keep this business a closed book for outside investors. Nevertheless, they did seek validation from a third party, which brings us to one of the world's most sought-after investors, Dr. Finian Tan, founder and Chairman of Singapore-based Vickers Venture Partners, which recently raised Southeast Asia's largest non-government linked VC fund of US$ 230 million (Fund V). Its Fund IV is considered the world's best performing fund as per data by research firm Preqin. Nearly an hour into our conversation, I'm no longer surprised that Toubayly and Al Gurg boast neither about their own credentials nor of the people who have supported them.
"There is this common misconception that if you are a startup, then you are always out raising money from investors at every level of your growth," Toubayly says. "When you set up a company where you need to continuously raise money from the market, you spend a lot of time trying to make it pretty for the investors, and not for the market. We were fortunate and privileged to fund it by ourselves, so we took the decision from the beginning to control everything- the fate of the business, how we hire, how we fire, and so on, and we didn't want anyone interfering with that. Our focus from the beginning was on making sure we build the best product for the customer and not the best business for the investor. In the case of Dr. Finian Tan and Vickers Venture Partners, we did a share sale and not a capital raise, something not very common at all in the VC world. He loved the chemistry between me and Easa, and is a true believer in what we are building."
Dr. Tan is best known for being the first investor in Baidu, often referred to as China's Google, back in 2000. While heading DFJ ePlanet Asia, he bought 25% of the Chinese search engine, which was a relatively overlooked company at the time, for $7.5 million. Since this initial investment, Baidu has become China's most popular website, ranking fourth globally with a market cap topping $87 billion. Al Gurg says that the Baidu story is a testament to the type of foresight that Dr. Tan has, including his approach to being focused on the scrupulous curation of potential investees to ensure that they are the right fit, as Toubayly explains and adds, "He doesn't go around investing in startups and then seeing which one will work. They do a lot more than that. One of the conditions that they have before they decide to invest in a startup is that you must travel with them and you must sleep in their homes. They want to see you at night, they want to see how you talk to your wife, how you treat pets, and so on. They want to see all of this because their number one criteria is the human. They need to know that you are a good human being. Everything else comes after that. So, it's a lot more than just making money. In doing so, they have managed to maintain a success rate a lot higher than the average VC."
The Idealz co-founders have been supported by Dr. Tan, founder and Chairman of Singapore-based Vickers Venture Partners, who is best known for being the first investor in Baidu, often referred to as China's Google, back in 2000.Source: Idealz.
With one of their backers being a proven home-run hitter, we start analyzing the strength of other startup ideas currently gaining momentum in the UAE, and how sizzling the Idealz cofounders find the city's startup scene. "We see that there is this drive in the region to become the Silicon Valley of the GCC, and I think they've done wonders to try to get it closer to that, but it's still relatively premature as an ecosystem," Toubayly says. "I also think that the investors here, who have traditionally invested in brick-and-mortar or industrial and non-tech related businesses, have now opened their eyes to this sector, and are investing heavily in it. That can create a bubble if done wrong, because they need to know how to value these ventures. A lot of times, valuation in startups is in the eyes of the beholder. It makes no money, just costs. You go around and say, "I'm worth $1 million or $1 billion, but based on what?' In the West, they have a 325 million addressable market with sizeable consumer spending habits and a mature startup ecosystem, whereas here we have a 55 million addressable market, and that's the entire GCC. So, you cannot compare the two and apply identical valuation methodologies or growth prospects. We still need more time to get it right. I think they are off the needle a bit in terms of valuations, industries, and some models that are capable of making money."
Al Gurg agrees and adds, "Time and experience will teach people. That's the only way. We are relatively new as a market compared to what other developed markets have. For example, we talk about the dot-com bubble in 2000, but that was 18 years ago. Where was the tech industry here at that time? So, it's a new market. I would say that when compared to other countries in the Arab world, we are quite advanced. The government is doing really everything it can to support this ecosystem, and I think it's just a matter of time to have different experiences from different businesses, to get the right regulations in place, and so on."
What lies ahead for Idealz is growing in the UAE before launching its product in Saudi Arabia and Lebanon, followed by a select few countries in North Africa and the subcontinent. At present, the co-founders explain, the concept is an emerging market product, but with the brand becoming strong enough in the future, venturing into more developed markets is not off the table. Once again, it is because its numbers make sense, as Toubayly concludes, "This is a model that has the merits and the capabilities to make a profitable enterprise. We are not built for a trade sale, an IPO, or quick scaling to reach a maximum level and then see whether unit economics will make sense. Our unit economics make sense today. I don't need to wait to have a critical mass to see whether I can squeeze profit out of my enterprise or hope that a unicorn will buy me. We are not in that business."