A different approach

Image: L-R Maciej Żak, Dirlango CEO and Łukasz Wejchery, the company's founder

WBJ Observer sat down with Dirlango founder Łukasz Wejchert and CEO Maciej Żak to discuss how their business philosophy differs from investment funds, How they manage their start-ups and what the future holds for them and the companies they run

Interview by Jacek Ciesnowski

WBJ Observer: You’ve said that you plan on expanding your ad platform Netsprint to foreign markets. The contextual advertising market is dominated by Google. How do you expect to compete if the search engine can simply undercut you by changing a few lines of its algorithm and putting your clients’ sites at the bottom of search results.
Maciej Żak: We have been considering various options for international expansion. However, this year we decided to concentrate our efforts and priorities on the Polish programmatic market, which is experiencing very strong growth.
It is a misconception that we compete directly with Google. We rather develop strong local products, which are complementary to the global advertising ecosystem. Using our portfolio of programmatic products we help publishers to optimize their inventory and income potential and allow advertisers to reach their clients in the most effective ways.

Are you afraid that this start-up bubble will burst soon? That these $1 billion unicorns aren’t worth a fraction of their valuations?
Łukasz Wejchert: I think we are on the brink of a ‘selective’ bubble. Some start-ups have enough substance for huge valuations – but I think many so-called ”Unicorns” will fail to justify their valuations in the long term. In our opinion, different methods of financial engineering boost valuations too quickly, which does not always end with a soft landing. At the end of the day a company must have a business model which can generate enough profit and cash flow to justify its valuation.
Sometimes it’s difficult to evaluate an idea, which very often, is the only thing a start-up has, with products existing only on paper.
MŻ: Unicorns are, to a large extent, valued on future market potential, which is largely based on a set of business assumptions. In my opinion, some companies are pushing their expectations too far, which sometimes results in abstract figures and valuations. We have a different approach with more focus on ‘relatively’ proven business models. It is of course nice to have a large expanding customer base, but the long term viability of our businesses is measured by revenues and positive cash flows.

What do you look at when someone comes to you hoping that you’ll invest in his start-up?
ŁW: Dirlango is not an investment fund. We develop our own products and companies in which we have controlling stakes. MŻ: When acquiring companies the initiative comes from our side – It was never the other way around. We assess the potential of the company by its team, what we can do with the company together going forward, and how it fits into Dirlango’s existing business lines.

What else is important when you consider takeovers? The sector? Most of your companies operate within the marketing business.
ŁW: We have our vision on how the world will look in few years’ time. Based on our market predictions, we position our companies accordingly. We think that data is the oil of the 21st century – hence our strong focus on programmatic, data analysis and wifi intelligence. We are also convinced that most people will be ordering taxi’s using apps in 3-5 years from now – therefore we are rapidly expanding iTaxi here in Poland.
Can you really make money on data when there is such an abundance of data and so much of it is free?
ŁW: It’s not necessarily a matter of the volume of data but rather the practical commercial products one can build using data in a clever way. We work with our clients to find and develop practical business solutions.

Where, in this data-driven picture, is a place for your other company iTaxi?
ŁW: It’s part of Dirlango’s claim ‘tech for simplicity’. By the way, iTaxi is also, to a large extent, built on data and analytics.

How can it compete with a powerhouse such as Uber?
MŻ: We’re working with licensed taxi drivers with a very strong focus on business clients. Secondly, Uber is directed more at people who are not regular taxi users, rather occasional cients.

What if Uber introduces a similar product?
MŻ: It could, but please remember that in many countries Uber is actually banned. Furthermore, Uber recently raised its prices in Poland, which has made it less price-competitive. Will still have to see how Uber can operate in price competitive ‘emerging’ markets in the long term and reach profitability. Sooner or later, investors’ patience might run out.
ŁW: We constantly make innovations around the iTaxi platform. Effectively, we try to tailor the product to the Polish market, and build the best possible local network advantage.

In the HBO show Silicon Valley, one of the investors says that start-ups shouldn’t have any revenue, because “people will ask how much, and it will never be enough. It’s not about how much you earn, it’s about what you’re worth.” I understand that all of your companies have revenues.
ŁW: Yes, we operate our businesses based on fundamental revenue and cash flow assumptions. When launching a business from scratch we set growth targets, customer number goals, etc – but over time we move to more tangible performance indicators.

Do you have a timetable for when your company should start making a profit?
ŁW: We don’t have any dates set in stone, but all of our projects have milestones, which they have to reach within a certain period of time. At these milestones we decide on the future of the projects.
MŻ: Our business culture encourages change. When an idea is not working we push the management team to come up with alternative paths to reach our goal, which ultimately – is being profitable.
ŁW: You can’t invest in a company for too long without producing any revenue.

Which is one of the reasons why so many people are talking about this start-up bubble.
MŻ: You have to remember that ultimately every investor is looking for value and liquidity. There are so many paper tigers these days, with high valuations driven by unrealistic investors, that are unable to launch an IPO. This is a serious problem.

With you being the majority shareholders in your companies is the stock exchange a viable option for financing?
MŻ: It’s one of the options we can take. What differentiates us from investment funds is that we don’t have set timetables for an exit strategy. We have other financing options besides the stock exchange.
ŁW: We’re not on the stock exchange now, but we’ve been there before. The pros and cons of being public are quite well-known to us. The stock exchange has its limits. It demands regular performance. You have to show profits every quarter. Sometimes instead of making a profit we’d rather invest in a project to earn more a few years down the line. That is our DNA. We want to stay flexible.

But are you considering an IPO for one of your companies?
MŻ: Yes, we are. Some of our companies have such potential. Especially Netsprint.

You say that one of your aims is improving life through technology. What other areas would you like to improve?
ŁW: Everything! When we started some 15 years ago we all thought that the whole world would be connected and everything including media, commerce and communication would move online. And it all happened.
In the pre-internet era most industries had high entry barriers including media, telecoms, banking, etc. Everything was sort of monopolized…

Isn’t that the case now? We have one Facebook, one Twitter, one Uber, one Airbnb.
ŁW: It is true that many tech companies are big and strong. But, the tech business environment is ever-changing. Way, way back, IBM was the dominant hardware producer, later, Microsoft stepped in and ‘monopolized’ software. We all thought they would dominate the internet as well. Now we have a full range of companies Facebook, Youtube, Google, Twitter, Spotify that dominate their fields, but every so often someone new pops up and disrupts the ecosystem.
MŻ: Right now we want to entrench ourselves in what we own. We acquired Netsprint a few months ago. I think, in the coming quarter we will have to evaluate the situation do some fine tuning in-house.

It’s hard to function in an ecosystem that’s so unpredictable. That changes so often. Nowadays you can’t imagine a world without Facebook or Twitter, but we’re all sure that our children will be using some completely different services. How can you predict the moment when the shift from old to new will occur?
MŻ: Change is the most exciting factor. Now everyone can innovate and change things, business models and markets. You just can’t be scared, but rather adapt continuously to changes. One day your product can be one thing and the next it can be something else. I think people who operate in stable business environments are reluctant to change.

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