CHAPTER 12
It takes two

So, here we are in part III of a three‐part book and we are yet to address the three questions we get asked all the time: ‘How do you guys get along?’, ‘Who does what?’ and ‘How did you manage to achieve so much in just 13 years?’

Our first Catch employee, Vijay, who worked with us for 10 years and knows us well, said, ‘This business would not have succeeded with two Gabbys or two Hezis’—and he was right. We have completely different strengths and weaknesses and, as it turns out, these differences have been very complementary.

People often say, ‘If there are two founders and they always think alike, then one of them is not necessary’, so on that count, we've been fortunate as we brought a diverse range of skills and perspectives to the business. While we drive each other mad every single day, the reality is those differences have worked well for us. We instinctively let the other take the lead when necessary. For example, Hezi is not passionate about logistics, while Gabby has never been interested in the workings of IT. Gabby loves traditional marketing. Hezi loves digital marketing. Gabby likes public speaking. Hezi prefers to be behind the scenes.

Building a business is demanding and can be an emotional rollercoaster, so having another person to share the pain and success with can be valuable and comforting. It enabled us to share the good cop/bad cop title on a weekly basis, which was a relief. No‐one wants to be the bad cop all the time. Having two co‐founders also enabled us to get a lot more done. As an entrepreneur, you have to make thousands of decisions every day. As a solo founder, by definition, you'll always be the smartest person in the room. But when you have two people with contrasting opinions debating the merits or otherwise of a decision, you almost always get a better result. A great partner will be invigorated by your strengths and will compensate for your weaknesses at the same time. Can you build a start‐up on your own? Of course, but it's much easier, and more fun, doing it with someone.

Debates are good for business

So how did we resolve our differences? We kept on arguing until one of us gave up or managed to convince the other to go ahead. Sometimes we didn't resolve the argument, but we knew that if we both agreed strongly on a certain topic, we should pursue it with full force.

For example, we both believed that the Catch business should have a marketplace component. We didn't know how the marketplace would end up, or how it would affect our customers or suppliers, but we agreed that we would, at some stage, need to jump in the water and push hard to make that happen.

When Nati Harpaz (more on him later) joined the business in 2016, we pretty much ran it in a group of three, which was quite interesting and refreshing. But that didn't mean that two opinions would always beat a single opinion. It simply meant that there were as many as three strong opinions in the room, which was very welcome. Having said that, there were lots of scenarios where one of us beat the other two by having a fair and intelligent argument. We firmly believed that no one person had all the answers but by putting our heads together and collaborating, we would have a better chance of finding the right one.

We did it once. Can we do it again?

It's not every day you sell a business for nearly one billion dollars. But we had done it and we were thrilled with the result. After the deal was done and the dust had settled, we were left to answer a critical question: What do we do now? For us, the answer was simple. We went back to work. After all, EatNow was only one part of a larger puzzle and we had other parts to deal with.

Thirty of the EatNow team members moved to Sydney to join the operational team of Menulog. This meant the Catch and Scoopon teams working out of the old Adidas building suddenly had a bit more physical space, and one less business to worry about.

Not content to let grass grow under our feet, and buoyed by the buzz that the Menulog sale had created, we reached out to Nick Sims, the mergers and acquisition lead at Goldman Sachs who had facilitated the sale, to look at a similar opportunity for Catch. He and his team were well acquainted with the intricacies of our business, and knew what we had to offer. Most VCs usually have a three‐ to five‐year timeline in which they want to see their investments provide a return. It had been five years since we had taken on investors so, while there was no real pressure by our investors to start looking at some sort of an exit for the group, it was the right sort of timeline for us to look into it.

Our brief to Nick from Goldman Sachs was broad:

Hey Nick, you achieved an unbelievable price for Menulog. We'd now like you to investigate the opportunities that are out there for Catch, and when we say ‘opportunities’ we mean anything and everything: an initial public offering (IPO), a full sale, a part sale, etc. The door is wide open!

Nick and his team went to work, but after a year of conversations with a few parties it became clear that there wasn't enough interest out there for what we had to offer. To say this was ego‐shattering for the founders and team is an understatement. How could no‐one be interested in this award‐winning, market‐leading, innovative, profitable business? Everyone has 20/20 vision in hindsight, but we didn't have it at the time. What the market saw was a complicated web of inter‐related but unconnected businesses.

At that point, Catch was operating two main businesses:

  1. a ‘product’ division:
    • Catchoftheday
    • Mumgo
    • Grocery Run
  2. a ‘services’ division (Scoopon), which had three arms:
    • product
    • services
    • travel.

At first glance, it's easy to understand why our business was confusing to the market. We had products, services and travel all under one roof. What potential acquirer would be interested in such a mish‐mash? We couldn't think of a single potential suiter that had the in‐house skills or the background to handle this mixed business. We knew we had a great business, but to the outsider peering in, we looked unfocused. At one stage, Myer expressed an interest in our e‐commerce offering, but with the Scoopon and travel businesses included in the package, that deal went nowhere. In retrospect, we certainly made it difficult for anyone to show a real interest in us. The diversity of businesses in the group wasn't the only issue. We had three other major detractions that made us unattractive. We had:

  • no competitive point of difference. Our travel arm, offered through Scoopon, was struggling to compete against market leaders such as Luxury Escapes. Everyone wants to back a winner and at that time, it was Luxury Escapes. We had to face the reality that our travel offering was not up to scratch and had no real point of difference.
  • no growth. Our product business (excluding Scoopon) had grown somewhat, but not materially for three years. For example, we'd gone from revenue of $196 million in FY2013, to $201 million in FY2014 to $218 million for FY2015, and FY2016 wasn't tracking any higher. When investors look at acquiring a company, they want to see a hockey‐stick graph, not a flat‐line graph. Why would anyone invest in a company that isn't growing?
  • no idea. To be honest, we felt like complete idiots for not noticing these deficits before engaging Goldman Sachs. We wasted a full year of our life trying to sell the business and missed many other opportunities along the way because of it.

What went wrong?

We had to take a good look at ourselves and reflect on how our vision had become so blinkered that we couldn't see the blind spots that were hampering our progress. We prided ourselves on being astute entrepreneurs with a flair for spotting the next trend, and yet here we were, unaware of how we were being seen by the market.

A major part of the problem was that we, the owners, had, for all intents and purposes, ‘checked out’ of the business.

As hands‐on business owners, we had been involved in every major decision for more than a decade, and while we would have liked that involvement to continue, the reality was we had a management team at the helm and we had to let them get on with the job of managing the business as best they could.

In addition, having Goldman Sachs shop the business around meant that any potential buyer needed to know that Gabby and Hezi would not be part of the business moving forward. To ensure the ‘optics’ of that were consistent, we deliberately avoided attending key meetings and being part of the decision‐making process. Every M&A (mergers and acquisition) adviser will tell you that when you're up for sale, the entire management team should lay low, keep an even keel and not make any bombastic moves. As co‐founders, this advice was monumentally hard for us to follow. It's in our DNA to build, innovate and grow—we'd been doing it every day for 10 years—so to resist that urge and be content to do absolutely nothing, to not get involved and to stay mute, went against everything we stood for.

But alas, that is what we did. In effect, we took our hands off the steering wheel because we had to and, as you'll discover, we paid the price.

Here's a summary of what we believe we achieved in the year of 2016.

2016 Achievements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

More 2016 Achievements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The financial year of 2016 will forever be remembered as Our Year of Nothing Achieved.

Unintended consequences

If we weren't actively involved in the day‐to‐day decision making of the business, you might be asking, what were we doing? Well, we weren't altogether idle.

In this self‐enforced downtime, we discovered some home truths, one of them being that for every action (or inaction) there is an opposite reaction. It was abundantly clear that by us stepping out of the business for almost an entire year, we had created a reaction—and not a good one. The critical factor that had made Catch so disruptive and agile was our culture. And now, with us absent from the detail of running the business, that culture was suffering. Innovation had all but ceased, the once party‐like atmosphere had disappeared, and the buzz that infused the place had long gone. Morale was at an all‐time low and it showed up where it counted the most. The bottom line.

Note

  1. *   This figure changes daily. Every time we look, it's going up.
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