By Tamara Pupic
Morrad Irsane and Sherene Lee, co-founders of Melltoo, share their views on the GCC entrepreneurship ecosystem
Morrad Irsane and Sherene Lee, the husband and wife duo behind Melltoo, a peer-to-peer marketplace for secondhand items with escrow payment and door-to-door delivery, offer revealing insights into the need for thinking agilely when building a digital business in the region.
The Melltoo app was launched in 2014 as a mobile classifieds platform that incorporated standard social features. Adopting a user-first approach, the co-founders developed an in-app chat to allow users to communicate and conclude deals directly, but not before their privacy was guaranteed and the safety of their contact details ensured.
However, the young business lacked a system to prevent the often poor item delivery transaction between clients, leading to their frustrating experiences. The co-founders acted quickly, admitting that the app actually was not an improvement significant enough to ensure smooth sale and purchase of goods between regular people.
“We started out with an idea that was a moderate improvement over current alternatives,” says Lee. “It turned out that a moderate improvement was not enough to get people to change their habits and switch from what they used to do to something new. As a start-up, we must not only solve a problem, but solve an important problem in a way that represents a 10x improvement over current alternatives.
“The real problem with peer-to-peer buying and selling is trust.
“In October last year, we launched Melltoo Pay&Ship SECURE, which puts trust back into the marketplace with Melltoo acting as the middleman. Buyers pay Melltoo, we pick up and deliver the item, and release payment to sellers once the transaction is completed.
“Since then, things have really started taking off. We have built something that people genuinely love. I am constantly surprised by how engaged and involved our users are.”
The Melltoo app has had more than 600,000 downloads, recording more than 100,000 monthly active users who spend on average 12 minutes per day in-app. The co-founders claim that the app has facilitated over $1 million worth of transactions in the first half of 2016 alone.
Lee explains that raising funds proved to be another obstacle to the growth of their business due to regional investors preferring to invest in real estate and F&B outlets rather than tech start-ups.
However, with the decline of investment returns in traditional industries due to F&B outlets saturating the market and real estate supply exceeding demand, she adds, investors have started diversifying their portfolios.
“Traditional investors, such as private equity, sovereign wealth funds and corporates, have started investing in start-ups. However, these investors come with baggage and are looking for start-ups that have revenue and a clear path to profitability.
“I do not mean this as criticism because market realities are different here than elsewhere and investors have to act accordingly.
“Unlike Silicon Valley start-ups, we cannot pursue a “grow at all costs” strategy if we expect to raise money in the region. Regional start-ups should be careful that their growth is sustainable or at least takes them to sustainability. Even if seed stage investors are willing to fund growth without revenue, they know that there is a limited capital at later stages for a start-up with no revenue.
“When we first started, we were not focused on profitability so there were some painful and costly mistakes along the way. However, we quickly understood the funding landscape and we are now on a path to profitability.”
Melltoo has raised $790,000 in funding to date from Middle East Venture Partners, Dubai Silicon Oasis, and Raed Ventures, among others, the co-founders state in an email. They are currently raising a bridge to Series A round, which is expected to take them to cashflow breakeven by April 2017.
Irsane echoes his wife’s concerns about the the risk-averse attitude of local investors, advising start-up founders to develop their monetisation strategies quickly. “In the UAE, there is an ecosystem of start-ups and start-ups that make money off other start-ups,” he says. “There is a growing number of investors, but only a handful are actually part of the ecosystem. By this, I mean that most investors do not actually participate in the ecosystem, they do not engage with the start-ups and it is questionable how much they engage with one another.
“Investors and start-ups are separate camps like oil and water. This lack of dialog actually stunts the growth of our ecosystem. Start-ups don’t know what investors want and investors don’t have a way to evaluate start-ups beyond decks and spreadsheets.
“An ecosystem is built on networks and relationships and the lack thereof results in distrust and fewer deals being made. Debates between start-ups and investors at conferences don’t help. Start-ups in the UAE learn more about investors from TechCrunch than from investors themselves. That is not a good thing since local investors have different considerations for start-ups given market realities.
“Investors are rational players just as start-ups are, but if neither camp understands the other, our ecosystem will never progress.”
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So this is basically Ebay however Melltoo acts as a middleman by buying the product that the seller wants then selling it to the potential buyer after adding a margin on the item & delivery. The issue I can see is Melltoo is now the seller of the used goods and if they are to add any trust supposedly offers some sort of limited guarantee? 1. How do they avoid massive returns issues from disgruntled buyers? 2. Without monitoring every chat how do they avoid buyers and sellers cutting out Melltoo and arranging the deal, pick up etc on the handy chat app? I can't see how this will scale up without lots of support staff or lots of unanswered complaints.
Part of scaling up is to manage the community and user expectations. We've found that user confusion is what results in the most customer support needs. To continue scaling properly, we are focused on continued onboarding as part of the user experience and providing accurate information to the user at each step of the user lifecycle.
As an example, logistics is a key part of Melltoo's business and users ping customer support frequently to track their packages. By providing accurate tracking information in-app, we can reduce the number of customer service calls by a half. These are thing that we can solve with technology that allows a company like Melltoo to scale.
Thanks for the insightful analysis. You are right, the trust issue is solved by Melltoo providing a guarantee to both parties.
Our return rate is in the 1-2% range, which is much lower than traditional retail. The fact that there is a return policy deters sellers from selling items that are subpar. Since they know that their stuff can get returned (and payment refunded to buyers), there's no room for scammers. In-app chat also ensures that buyers are able to clarify any doubts before buying, so buyers know what they are going to get.
Disintermediation is something that takes place in every peer2peer marketplace, there is no way to eliminate it. Rather than police users, we focus on making the customer experience top-notch such that people have no incentive to take the transaction off-app. Ultimately, since people find value in what we do and trust Melltoo, so they continue to transact through the app.
Hi Sharene thanks for the answers. Hopefully your returns stay low however longer term trends may revert to a more typical mean of 4 - 5% in line with similar routes to market. I'm interested in what happens to returned goods how does the buyer get the rejected goods back to you and do you then courier it back to the seller? Who pays for the courier charges? Can the buyer return the item only on specific grounds, i.e. The item isn't as described or broken.
Yep, we send it back to the seller. We have a very specific and well-defined return policy. A buyer can only return something if there is clearly a situation where the seller misrepresented somethng.
You can read more about our policies here: http://uae.melltoo.com/guide-to-melltoo/
@Fentoni good questions business models that rely on performing much better than established and more experienced players are always doubtful. Of course if they work they are game changers.
Pushing things back in the channel is always very expensive. Let see if they can scale things.
@Sharene, thanks for taking the time to answer FentoniÂ´s questions, I think this is a first in AB. Even though I share Fenton's concerns I wish you good luck.
Btw: Disintermediation, great word, I'm adding that to my lexicon. Just goes to show, every day is a school day.
@Fentoni all returns are checked carefully and depending on who is at fault the return charges will apply. At melltoo we are very serious in building the best trusted marketplace in the region, respecting both "buyers and sellers" ( which is not the case in current local classified where sellers is their main focus and buyer is left at the mercy of potential scammer and I have personally been victim of those scam, hence we have build melltoo). In order to stay on top of the game if a user does more than 3 returns in a month unjustified, his account will be blocked. That is how we are able to keep our return ratio low...
@Telcoguy thanks for your comments . We hope to see you soon on melltoo ! It is time to shake things up in the region and move to the 21th century of doing classified :)
@Telcoguy Thanks for the well wishes. Startups are constantly innovating as all good companies should. Business models evolve as well. What we care about is building a product that customers love and that alone is the key to a monopolistic business model.