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Developing a high-tech product in Dubai
- September 2013

Source - gulfnews.com, visit - http://gulfnews.com/business/retail/developing-a-high-tech-product-in-dubai-1.1233290



Hydros Jassem started Fragrance Delivery Technologies (FDT) in Dubai in 2005. Jassem bought the patent from the US and developed a fuel cell based product for ‘precise’ fluid delivery in Dubai. FDT has commercialised a fuel cell based air freshener. Jassem has created businesses since his college days.

 

The story of FDT reflects the challenges of doing product development in Dubai. Jassem talks to Gulf News about the experience:

Knowingly or unknowingly Dubai has an ‘atmosphere’ of entrepreneurship unique to itself. It is impossible to fit Dubai to a ‘universal’ model of entrepreneurship because none exists. Entrepreneurs ‘see’ opportunity and ‘seize’ it.

 

I started my first business in Dubai in 1996, my business partner and I each put in Dh16,000. I sold my Toyota Corolla whereas he landed from India and put in his life savings.

 

With an extended range of over 20 high-intensity fragrances available across Marine, Floral, Citrus, Fruity, Designer & Oriental scents, there is plenty of choice for every location and setting.

 

Where was seed of entrepreneurship in you?

 

My first business was a video library in India which I started when I was eighteen. My sister brought a video player for us in Mysore. We had a video player but no videos to watch. I looked around and saw there were 10-15 families with the same problem.

 

I looked at this as an opportunity to go to Bangalore to visit my friends and bring back videos to watch. After seeing the videos I started lending them to others on a daily basis. And soon this became a business when my Dad and a friend gave me some money to start a shop which we repaid in a few years.

Did it grow?

 

It was huge success and still exists, though I don’t own it anymore. I then started a flower shop which I quickly shut down. I was unable to maintain customer-commitments because of unpredictable supply of flowers. I then started an advertising agency with a friend of mine and later a company to export condoms and disposable syringes from Indian manufacturers.

 

Reaction of the family?

 

My parents were in Dubai. I had not told them about my business adventures. They believed that I was continuing studies. My dad did ‘indirectly’ give me Rs. 40,000 as my first investment for the business, which was a lot less than my college fees.

 

How did it all unwind?

 

When you are young, you don’t think about cash flows. We were at an age where our needs were small and we were seeing a ‘lot’ of money flowing in and out. At that moment you don’t realize the importance of cash flow and make careless mistakes. I had to close down all the businesses when I landed in debt. I came to Dubai to look for a job in 1992, nine years after I started my first business, to repay my debts.

 

What happened in Dubai?

 

I worked in sales for a couple of companies. I finally got an offer to manage a new agency for a distribution company Gulfax – selling Colgate Palmolive branded institutional cleaning products. I didn’t know anything about cleaning products. I learnt the business by going out, cleaning toilets/washrooms, and experiencing the product.

 

WithinIn 2 years we, my wife and I, worked and cleared all our debts.

 

In 1996 the itch to do business restarted. Two things conspired. A college friend of mine was keen to come to Dubai and start a trading business. And on my travels in the region I used to get enquiries about supply of diverse products from Dubai. I was now cautious.

 

The business start-up costs were covered from the start. Our first order was a container of biscuits, chocolates, and diapers from Dubai to Seychelles. The business developed based on the knowledge of timber that my partner possessed. I started meeting timber suppliers in South Africa and US, and tying up supply partnerships. My partner focused on selling.

 

What happened next?

 

The turning point came in 1998 Colgate Palmolive sold the major chunk of institutional products division. I declined an offer to work in Europe, instead established a cleaning products distribution and service company in Mumbai India while working for Gulfax. The Indian company imported all products from the Dubai company. It was a cost-plus model. A time came when this relationship was uncomfortable; I had to spend more time to develop my business. And we separated.

 

Where did air fresheners come from?

 

Technical Concepts, an international company was in hygiene solutions, including air fresheners. After my departure from Gulfax they offered me a job to manage their regional business. I declined, offering them an option of appointing us as the master distributor and to develop the business. We exchanged business plans, won the agency to manage the TC business in the Middle East, Africa and South Asia, and have since grown the business to a leadership position.

 

We understood the business, the economics, the value proposition for a distributor, and so it was easy to set up distribution in the region. Meanwhile, in our Indian company 80 per cent business was coming from air fresheners and 20 per cent effort was going into that.

 

In two years. our focus shifted to entirely to air fresheners. Our Indian company now has a distribution network of over 50 distributors. Four years ago we also started a very successful service company that provides the hygiene products for the washrooms in India with 16 branches and 200 employees

 

How much capital did you put in your business?

 

Not much. It was an agency business. It required capital only for travelling.

 

The leap from indenting to manufacturing?

 

The EMEA MD of Technical Concepts approached markets differently. The traditional logic says – build market, get volumes, and set up manufacturing. TC senses the market potential and begins with manufacturing even if the current market volumes are low. I never agreed with them but in hindsight it was the best decision. I was then responsible for setting up manufacturing facilities for their products in India, South Africa and Saudi Arabia.

 

Why do you think it makes sense?

 

For e.g.: South Africa is a big far away market. To get goods it takes 6 weeks. The Rand is a very volatile currency. An importer is unable to predict his costs and this jeopardizes the entire business. The distributor, as a provider of hygiene services, enters into annual price contracts with customers for a fixed price where he installs an air freshener unit and supplies refill air freshener cartridges every month for 12 months.

 

When the product price goes up because of Rand fluctuation, he substitutes the imported cartridge with a cheaper local poor quality product. Local manufacturing enables predictable pricing, speeds up time to market, and upgrades market. Manufacturing is challenging but not complicated with a good strategic plan. It requires engaging a reliable contract manufacturer, developing an agreement, sharing the formulae, and monitoring quality.

 

The more experience I got in manufacturing I realised its potential, and understood how it impacted competition. I also sensed the size of the hygiene and air freshener industry. The business was akin to a razor and blade business model. Once a fragrance dispenser is installed, 12-month cartridge replenishment follows.

 

Around this time I realized the market worldwide was looking for greener products that were not the routine ‘aerosol refills with propellants’. Customers were willing to pay a premium for a continuous fragrancing system over a metered spray system that gave a fragrance only for a few minutes after it sprayed.

 

I came across a technology that was being used in the pharmaceutical industry using pure oxygen to deliver drugs to humans and animals. I spoke to the scientist who had the patents and came to an arrangement that he would develop a product for air fresheners.

 

Did you want to put up a factory?

 

No. My original idea was not to establish a factory. Once the fuel cell based oxygen generator was ready we could have contract manufacturing in Taiwan to assemble the dispenser. The economics looked good. We wanted to license the technology and develop a new products and market it worldwide and could share the Royalty with the technology developer who manufactured the generator. This is how it started. I thought I didn’t need much money when I started.

 

And then?

 

Suddenly the technology developer changed his approach. He wanted to sell the technology and, not work on Royalty. He promised to transfer the portion of the IP that we could use to develop products for our application and markets.

 

My first reaction was a no. I just couldn’t afford the investment.

 

You now carried the entire risk?

 

I thought that - ‘We can make the generator and we can contract manufacture the rest of the parts.’

 

And then reality hits you when you start. To buy and own technology one needs capital. To raise capital one needs a 100 per cent ownership company with share certificates. Such a company has to be in the Free zone. In the Free zone, the smallest place you get is 600 sq m. One doesn’t need such large spaces at the early stage of business development.

 

As a startup you want to do the components in the most economic location. I wanted to do the tooling in Taiwan, plastic component manufacturing in India, and assembly in Dubai. We discovered that this was not a good economic idea, time-wise and control-wise, in the product development phase. This forced me to establish the manufacturing in Dubai. I was here; I could take quick decisions, adapt, manage, and get it right.

 

At which stage did you have the confidence that the investment was going to work?

 

After two years and investing $4m I wasn’t sure what was going to happen. This was the most uncertain period in my last 15-20 years.

 

I had ‘put’ money in the scientist. He had given proof of concept that the idea will work. I had sent an engineer to get trained. He came back, worked with us for over a year, declared that he could not make it work, added that he can’t solve the problem, and quit.

 

Till then I believed that if there was specialized expertise in the team, I should not get involved. I, therefore, did not go for training, even though others cautioned me. In hindsight I should have. A part of me still tells me that it is not the right way to work. The entrepreneur in me tells me that it is good to ‘know’ everything. But what may be a good way to start a business may not be the way to run a business.

 

When the engineer quit you were still developing the product. You say that you wish you had gone and engaged in product development.

 

No. My first choice would have been to get a better person. Even the second engineer didn’t work out. So I picked up the pieces, went and learnt the technology from the scientist myself. In retrospect, I realize it was the best thing to have happened, since I got that technical information transferred in a proper manner.

 

Did the scientist make a prototype and prove it?

 

Science was known. He adapted it for a particular use and was being used in the pharmaceutical industry. The challenge was to convert into an air freshener at a low cost. He has made and shown to us that the prototype works. Our job in Dubai was to use the prototype and establish a manufacturing line for mass production. So that it produces the right quality at a cost economic product.

 

When we started I did not know what product development involved. I thought it just involved replication. How difficult could that be? I didn’t know that I would be working on multiple fronts - R&D, timely production, and product quality, sales, marketing. I now know how difficult it is to get a new technology product launched.

 

Now we have developed the product. It is working and has been accepted by the market. Now we have to scale up.

 

Today we are selling our product in 12 countries worldwide including the Middle East, South Africa, Australia, China, and India and are getting ready to launch our products in the USA and Europe. Our product was shortlisted for innovation award at the ISSA show in Amsterdam and the ISSA show in Chicago.

 

How much money have you put into business?

 

8 million dollars. I never thought I would invest more than a million dollars.

 

I had no experience in running a large business, putting proper cash flow projections, and seeing and assessing risks. I had set up so many small businesses and gone through my share of successes and failures that I thought I could do it. A friend of mine looked at my business and remarked, ‘It is a great technology but do you know how much risk is involved in this?’ This remark made us rework our approach. I had never looked at it from the risk point of view. The second phase of the product started from that one statement.

 

Would you care to explain?

 

I will be technical. The oxygen generator is a part of the refill. It has over 13 different components and each component has to be 0.001 mm accurate. If one component is defective, the refill wouldn’t work. Only when the oxygen generator is activated, the refill will get used. This implied that you could never guarantee the working of the refill until it works. One can’t test a refill and stop the oxygen generator. This is when I shifted gears. We had to guarantee every dispenser and every refill. We separated everything we were doing into modules and reduced risk.

 

What were the challenges of manufacturing in Dubai?

 

We do manufacturing and assembly. The challenge is sourcing components and sub-assemblies. We can’t go to local companies with designs and drawings and ask them to make things for us. So we end up going to – India, Taiwan, China, US and Europe. We face a similar situation for supply of components. If I need a standard tube I may not get it off-the-shelf. It is easier to call Mumbai and get it shipped by air or order it from the USA and get it couriered. Also when we go overseas Dubai is known as a trading centre not as a manufacturing hub. It takes time to establish credibility with suppliers of manufactured components.

 

Customer challenges?

 

Product performance was key to acceptance. I was in distribution so I knew that customers were looking for better products.

 

Did you also change the pricing model?

 

Yes. With time the model flipped. In our earlier concept, the oxygen generator was integral to the refill. Then, because of the risks involved, we put the fuel cell and the oxygen generator in the dispenser. Now the dispenser became a one-time cost and the refill at an affordable recurring cost.

 

Was the approach accidental?

 

It was not deliberate. I had expected the modified concept to come after we had exploited the market on the new fuel cell oxygen generator idea. When the original idea was not going to work, we had to immediately bring the alternative idea to the fore. I would tell every entrepreneur to have a plan A, plan B, plan C, and a plan D. If one doesn’t work, be ready with an alternative plan..

 

Has your trading network helped?

 

Relationships help in opening doors and fast tracking product evaluation, not selling. Sometimes relationships are a problem when people ask for sweet-heart deals.

 

What's your most important worry?

 

Cash flow and capital. I don’t want to discount the product to get volumes. Now I have orders and need capital. I can now sit with investors and promise them a return. It is now a question of pricing the shares, not the product. Two years ago the risk was whether the product would work and if the market would accept our product.. That is no longer the issue. I am not going to lose the $8m investment.

 

Today the product is accepted, and orders are flowing in. We need the capital to keep pace with our growth – the challenge is finding working capital financing. Banks fund companies which have sales for 3 years, and a good balance sheet. The sales cannot be sustained without a good working capital funding…so it is a Catch 22 situation.

 

However, we are confident that we have a great product, a great team, and the great attitude. We are confident to raise the capital shortly.

 

After all, the exhilaration of running a business is meeting the challenges, and rising over it…that is the entrepreneur’s elixir!

 

How have you changed as a person?

 

I have learnt a lot more than what I knew before. I do regret not having complete my studies. A lot of things I am learning now, I may have learnt earlier.

 

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