Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Digitouch – Turkey
Prepared by Juliet Bailin, Maya Dadoo Gonzalez, Rhett Morris and George Foster
In January 2008, with a US$ 15,000 bonus check from his last job, Yunus Guvenen launched Digitouch as a digital marketing agency. The company began in a rented office staffed by two recent college graduates. Its mainstay was (and still is) digital ad campaigns, which it launched through two channels, display advertising and search engine marketing. The agency created strategic partnerships with large media agencies to secure clients like Coca-Cola. And in 2009, Digitouch achieved two big milestones: it helped Pegasus Airlines save US$ 1.2 million by lowering its cost per acquisition by 80%; and it obtained US$ 580,000 in seed funding. Meanwhile, Guvenen began building the GelirOrtaklari Affiliate Network, to which he now devotes 70% of his time. GelirOrtaklari – “revenue partners” in Turkish – is Turkey’s first affiliate marketing network. It is comprised of 1) merchants who want to place advertisements with affiliates; 2) affiliates who want to sell ad space; and 3) the backend structure for integrating merchants and affiliates, distributing and tracking ads, and processing affiliate payments. GelirOrtaklari operates on a performance-based revenue share model: the Network receives 5%-30% of each merchant’s gross revenues, and passes on 50-70% of that to affiliates (depending on the industry). GelirOrtaklari’s community now includes more than 30 blue-chip merchants and 300 affiliates.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable, growing company? How did it change over time?
Guvenen: “Back in 2008, I was looking at what I could do and the first thing I identified was that the Internet sector in general would be growing in Turkey. You did not have to be a genius to see that. What I chose, however, in this Internet field was the space of digital advertisement. I saw that expenditure on digital compared to the total amount of advertisement was actually extremely small in Turkey, so I saw this as a space that would really grow. Knowing that the market already existed from an advertisement perspective, I thought it would be a good idea. In hindsight, I think choosing the space of the Internet is still an excellent idea because it is still one of the most wide-open spaces and does not require loads of money. But I think there were probably bigger opportunities such as destructing retail, destructing certain services, etc. I’m not at saying I made the wrong decision, but I think that if I went back, I might have picked something that had a bigger market size (e.g. the textile business was US$ 2 billion, while advertisement was less than US$ 1 billion).
“I did not have much money, and I did not intend to raise money. At that time, there was an affiliate network business. I was reading about it in the UK and the US, and reading about big evaluations. But when I started digging, I saw that many of the components did not exist in Turkey, and building such a network required a medium- to long-term strategy.
“I think I did something pretty smart that I would advise any entrepreneur to do. I thought, how can I make money fast so that I can invest the money I make to make those medium- to long-term strategy businesses? That is when I identified this agency business. An agency business is one of the businesses that you really do not need a lot of money for to start, and if you do it properly, you can be positive quite fast. So, I said, let’s focus on how to make money and then we will focus on the things that we think are much more exit-able. In terms of an agency, you can always exit, but it is not the most sexy to sell. A network business is a lot more interesting from an investor’s perspective.
“I started at an agency making money and after a year and a half I had made enough revenue. I said, okay, now it’s time to start the network business. At that point, I had a friend raising money. He said, let me help you so that you can create a buffer for starting the business. We raised the money and that was my first experience with working with a venture capitalist and angel investors. We did not raise a lot of money – about US$ 650,000-680,000 – but still a sizeable amount, and we started building the network business.
“We still have an agency that does what an agency does, except the creative part, and it is still a good cash generator. At the same time, we have built an ad network that has also grown quite substantially. We started just three years ago. But I realize that this specific type of business is going to take a while to grow further because it is one of those businesses that is very much into an ecosystem. Usually, they require a lot of education, and you get traction quite late. It’s quite similar to the listing business, which needs education and understanding before you get good traction.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Guvenen: “Of course, sales – we are selling a service. One of the things we tried to do is focus on key clients initially. Instead of saying, we are a small company so we are not going to the big guys, we said, we don’t care and we should aim for the big guys. A key account could be a couple of billion dollars, so focusing on that really helped us grow. The second thing was trying to make the proper hires: finding the people who would actually manage the business. That way, everybody can focus on what they are doing.
“I wish I could say that investors accelerated the business, but it really was not strategic, it was equity. It was not like, when they came in, we could fast-forward. We took in seed investors who were quite familiar with the industry, but what happened is that we were remote – far from the Western market – and also, if you are not in the space anymore, you get out of it very fast. If I stopped being in digital marketing today, in a year and a half I probably would be obsolete. It’s very cutting-edge. I think the investors we have had all exited and, honestly, they were not as involved in the digital space anymore. Sometimes it is better to get a strategic partner to bring some knowledge, technology or training that could be a great accelerator. I see a few companies that have done that. I am sure it has its own complexities in terms of shareholder rights, etc., but at the same time, I see that their time to market is faster than ours in certain aspects.
“We quickly identified that this is not a very deep market – you cannot do just one thing and make a lot of money in Turkey, so we realized that we needed to operate in different business verticals. That is something that was quite smart, but very difficult to execute. The way I organized it was initially extremely wrong, and we lost a lot of time, money, effort and motivation, but what we tried to do in principle was very smart. Already in the agency, we started to build expert skill sets that accelerated growth on their own. We created different businesses that were quite synergetic but also generated money separately, and when they were added together, they created something very interesting in terms of profit and revenue.
“I had a friend who had founded a company that did not do quite well, but he was a brilliant guy and he had raised money a couple of times. He had a very strong network and asked if I would mind if he invested a little in my company and if he could help me raise more money. He started talking to some people. I went to London to talk to investors and invited one or two to Turkey to meet us, and they liked the valuation and the idea and they just invested in it. I was not going to actively pitch.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Guvenen: “One thing I am quite happy about is that I am good at identifying people who have an intellectual capacity that is bigger than mine, and I tend to become quite close with them. It challenges me to be with people like that. Some people who have become my friends in the past few years are a little older than me and have great success stories. I usually try to get some ideas from what they think and what I could do better. Of course, everyone has his own way of managing and mentoring, and I think that is very normal. But that is how I get my mentorship. I always try to find people who are very smart; they do not even have to be from my business. If I identify someone who I think could be important for me, I will make sure that we start becoming better friends.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges.
Guvenen: “One of the key problems that we see in any market, but much more in Turkey, is talent. Why? Because the culture of venture capitalism and start-ups of growing your company, selling it and merging it is actually very low in terms of perception. I would say that only in the past two or three years have a lot of smart people seen that, in Turkey, you can acquire venture capital and create a start-up that is aiming towards an exit, or a merger or an IPO. It is very hard to attract talent. In the US, smart university graduates see this as great experience. In that sense, it is quite difficult to attract smart people into this game.
“My business is in some sense a difficult one in terms of skill set. Why? Imagine that I was selling shoes online. In Turkey, you can actually find people who have been sourcing shoes for the past 35 years – from China, from India. That knowledge already exists and you have experienced people who know how to do it. But when it comes to the digital ad business, the most experienced person you can find has 8-10 years of experience, maximum. You need to assume that the person was actually able to reinvent himself all the time, because the knowledge he had 10 years ago is different from the knowledge he needs now. The only thing that we are able to rely on is, does this person have the potential, the will or the intelligence to be able to learn the business? Again, it is not like you can find someone who has been in the market and knows this business inside-out.
“Our top problem in the company is human resources. It’s actually my number one problem. We have a full-time internship programme in which our employees get paid. Within the first two-three months, we try to understand if they are good or not for the start-up business, if they can take responsibility and learn. Then we have managerial-level hiring. If it is a sales profile we need, we hire people who have experience in sales, but not from this industry. We think a smart sales person should be able to jump from vertical to vertical. We actually hire based on attitude. If a position requires a lot of team management, we would require someone with Internet experience who can manage a team. We try to help him understand how it works, so we coach him for the first two months in terms of the business, and then in terms of how he can manage better and how we can challenge him regarding the deliverables.
“We also do another type of hiring. When we decide we want to build a new business within the company, we actually seek a business venture. This is a long process – it can take 4-6 months to find the right person. We often try to find someone from abroad who wants to come back to Turkey, and who is from our space. We try to incentivize him with equity options and give him the opportunity to build this new business on his own. My job is to find the guy who will run that business. The guy who runs the business hires his own people, and I am only there to assist.
“There is no incentive for entrepreneurship in this country. I think that they are doing everything so that you do not become an entrepreneur. My company pays so much tax – since day one, I have had the same conditions as Fortune 500 companies in Turkey. There is no incentive for me to become an entrepreneur through the circumstance of this government. I really don’t understand. Look at Germany – there is so much incentive for people who want to build companies. I think Turkey is very bad at that.
“In the younger population, it is definitely changing. We have hired a few people lately who actually are in the top of their classes, in top universities of Turkey. Even four years ago, it was impossible to hire a number two or number seven in the university entry exams in Turkey. They would never come. It has started to change, but these are very rare examples still.
“Just to give you an idea, it could take us four or five months to convince such a person to join the company. At that age, I was not earning that kind of money. I think the market requires a few more exits and success stories. There have been a few e-commerce companies that have shut down in the past few months – that does not help our businesses. We need a few more success stories so that people understand that there are eventually positive outcomes of these ventures.”
Q5: Large companies can play an important role in scaling up early-stage companies with high growth aspirations. This role can include being a customer, supplier, marketing partner, joint venture partner and so on.
(a) Describe the key areas where interaction with larger companies helped promote your growth path.
Guvenen: “I was reading about an American company based in California that is doing a video network business. They sell video ads to many companies, and they are going for an IPO. I was reading their document and I saw that out of US$ 120 million, 25% goes to one single, very big client, which I assume was one of the top accelerators for their growth. Once you have a client that can generate US$ 25-30 million, you can cover many of your operational costs and use the cash for additional growth. I think it depends on the type of business that you do. Some businesses are very platform and, in that sense, maybe the importance and difference between a big or small client may not be that big. But if you are doing a service-oriented business, you spend the same amount of man-hours for a big client and 20 small clients but make a lot less money. So, it depends on the type of business. In our business, we were able to make a profit much faster, and we were able to divert this profit into the other business lines that we had.”
(b) Describe the challenges and potential problems that larger companies may have played in limiting the growth path of your company.
Guvenen: “I think a challenge is that their expectations might be higher. When it is a big client, they have very specific ways of working and you need to adapt to that. Also, the service level they are expecting is quite high.”
Q6: Your revenue growth to date has been focused predominantly on the domestic market. What are the main reasons for this focus?
Guvenen: “We actually looked at a few opportunities internationally. What we are doing is very service-oriented. The technology is important, but it is not a platform-based business in which you have customer service and people use it. It requires a lot of manpower and relations and so forth. The Western world has already done this type of business and has done very well. So, going into the West was difficult. We started looking into the Middle East and spent two weeks in Dubai to understand the opportunity. The opportunity exists, but to execute is very different because if you are not selling a product, you have to have offices in every country. We realized it would be very costly for us to do so, and very risky. Even going to Indonesia was easier than to a place that was only two or three hours away. In the end, we did not want to lose focus of the domestic market. The domestic market is still a big one, and if one day we want to be a regional player, we could merge with a company in a different country and consolidate the revenues. That would be much smarter for the type of business we are doing than trying to build the business on our own in different countries.
“We currently work only in Turkey. The business that we are building is what we call an ad exchange model and buyers could be from anywhere in the world. You would end up working on a global scale, although it is from Turkey. Because the mindset is closed to stockbroking, in which you broker inventory, it could be from anywhere in the world. And it is a new business that has been growing fast in the past year. In that sense, we could potentially start that specific business globally, unlike the others.”
Q7: What would you view as the greatest challenges in growing a sizable revenue presence in markets beyond your own domestic country or region? In deciding when and where to seek growth in international markets, what characteristics of a country’s ecosystem would be most important in attracting you to invest significant resources in that non-domestic country or region?
Guvenen: “First of all, you have to look at the market size to understand the ecosystem – how competitive are they, how knowledgeable. Then, understand if it is rational and if acquiring a company can help you do the business or if you can do it on your own. You have to identify the right talent and the talent that is available. I would prioritize the size of the market, the potential of that market, and then I would look into the people I would hire. The right people have relationships, so if it is a relationship-driven business, you also get these relationships. If you give them a roadmap and they are smart enough, they will do it on their own. Because you cannot know the right answer from day one, you can only hire the right people who can take those ideas and adapt them to those countries.
“There are some countries that build entrepreneurs. Like Israel – look at this incredible country. Seven million people. A friend was telling me that there are scores of billion-dollar companies out of Israel. These interesting companies actually have over 1 billion-dollar evaluation and are operating globally out of Israel. I think it shows that the government of Israel has a system to develop them. Entrepreneurs start thinking globally from day one, and the legal infrastructure is built for that. I think the US is also very good, especially from a venture capital and legal perspective, and regarding people’s understanding. People know what a start-up is, and they know the potential outcomes of a start-up: great success, failure, IPO. These are not new concepts for people in the US.
“I hear Germany is trying to help entrepreneurs to accelerate their growth. I heard of a great incentive programme of low interest loans with delayed payment schemes.
“I think it is important to have cultural and societal support from an HR perspective.
“Regarding financing, I think we are going to try to accelerate with investors and within the company. We are going to try to accelerate some business and start burning cash. To have less risk, we will probably seek another round, but in this round I am going to try to get someone strategic on board. I am not looking for equity this time.”
Q8: Building a company that aims to have sustainable high growth inevitably will have both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in your entrepreneurial journey.
Guvenen: “It is hard for me to say, because my character is an interesting one. Many people would judge what I do as extraordinary, but honestly, I am the type of person who beats himself up. I might have had high moments, but I don’t perceive them as high moments. I can tell you a lot of low moments. I focus more on what I did wrong than what I do right, and that is something I need to correct. I need to have a more balanced approach. I have learned several things. One is that if you are going to build several businesses in parallel, you need to create organizations with laser focus on each business. Given the mistakes I have made, I have spent my professional time and the team’s time in different businesses and we lost money and time. I think it was for years. It took me 2.5 to 3 years to understand that.
“In the past six or seven months, I have become a lot more exciting because I started really working on parts of my personality that I did not know were powerful. People used to say that I have charisma and the personality of a leader, but honestly, I was not using those traits. I was too much involved in operations. When I realized that I am a good coach and not great at operations, I started becoming better and my team was getting even better. They wanted to see me like that, not swamped in operations. They wanted me to be the person who inspires them to become better managers. Since I changed my motivation, I started to become happier because I understood that is what I am good at.
“What I have done is focus on what I am good at and make it excellent, make it the best. If you start with your weaknesses and make them better, it probably will not work out for the best. Try to find people who make up for your weaknesses and accentuate what you are good at. A good friend and successful businessman told me this. When I started becoming a leader – a coach, a mentor, a support and not a top-down guy – it made me a lot happier and made the company grow again.”