Oiling the wheels of e-commerce

Amir Shlachet credit: Eyal Izhar

Amir Schlachet left a stellar banking career to co-found Global-e. From the perspective of a $7 billion market cap, he tells "Globes" it was not a classic startup tale.

Early in the previous decade, at age 34, Amir Schlachet was the personal assistant to the CEO of Bank Hapoalim, having previously served as commander of Talpiot, the IDF elite technology unit, and having worked for consulting firm McKinsey.

When Schlachet was selected for Globes' list of "40 Promising Young People", Zion Kenan, then CEO of Hapoalim, said, "I definitely see Amir continuing to advance to senior management positions at the bank." Schlachet, for his part, added, "A management role at the bank is definitely a goal."

11 years later, Schlachet is not a senior manager in a bank, but CEO and co-founder of Israeli e-commerce solutions provider Global-e (Nasdaq: GLBE).

The company recently went public on Nasdaq, raising $431 million at a $3.6 billion valuation. A month later, its market cap is nearly $7 billion. With his stake in the company currently worth about $315 million, Schlachet's decision to leave the direct promotion route at the bank now seems right. But in 2013, when Schlachet and his two partners - Nir Debbi, who serves as marketing director, and operations manager Shahar Tamari - left high flying jobs in favor of co-founding a startup, it may have looked less sensible.

"At the bank, I worked with Nir Debbi, who ran the center for strategic management. We were on the fast-track to senior management positions," Schlachet tells Globes. "We realized we were both at the same point in life where we had to make a decision whether to take the next position offered - which would mean that we would never set up something by ourselves. We thought we should try, before the bars of the corporate golden cage became too thick."

Schlachet and Debbi contemplated fintech, specifically payments, and consulted Tamari - "The man who understands this area more than anyone else in the country," according to Schlachet - who had also worked at Bank Hapoalim, and then at gambling websites company 888.

"It turned out he was at the same point in his career. The three of us weren't classic high-tech entrepreneurs. We had corporate jobs, we were in our forties, with families and kids. It wasn't a case of 'Let’s quit our jobs, eat pizza, drink cola, and look for cool ideas.'"

Nonetheless, they started thinking of ideas and concluded there was an unresolved problem in online commerce payments. "We were looking for a big market. Being former business consultants, we designed business models, and talked to potential customers. We did lots of testing. One day, Nir came in all upset because he was hit with an unexpected $60 fee when he ordered shoes online. We realized there was a real problem here. We talked to online brands and stores, and everyone said, 'Obviously there's a problem, but there's nothing we can do about it.' Everyone also said that if we could find a solution - which seemed like a fantasy back then - they wanted to pilot it. We realized we had come across the right idea."

Never a startup

To understand the logistics sector, they consulted experts in the field, Flying Cargo owners Avi and Danny Reik, who became the company's first investors. "We saw that it couldn't get any better than this: we had an idea, customers who wanted it, partners and investors waiting to invest. It was a matter of making a decision. We shook hands, handed in our resignations the next day, and set out. To this day, we do exactly what we said in the first investor presentations, only bigger, more sophisticated, and with more features, but exactly as we intended."

As befits a McKinsey alumnus, the company's first presentations included extensive analysis of the market opportunity over 10 years. In fact, from the outset, the company was run like a large corporation, and not as a start-up. Schlachet says this is the secret of their success. "From the beginning we operated as a commercial enterprise that had to serve clients and eventually get on its feet. We never took on a deal that didn't make a gross profit. We built marketing, sales, and operations set-ups. By the way, the three of us still sit in the same room we've been in since day one. The first office we rented was pretty big but still, we sat in the same room, even though we had no other employees. Investors who came to visit were surprised, but we told them that the space wasn't so that each of us could have his own office - it was for growing the business. And actually, after a year and a half, we had people almost sitting on top of each other."

Another "secret" of success, he adds, is the people. "The thing we're proudest of is that there's a big group who've been with us from the beginning. Out of our first 25 employees, 80% are still with the company after 8 years."

Did your 10-year plan also include an IPO, or did you decide to seize the opportunity, in light of market conditions?

"Our model included an IPO within 8-10 years, so we more or less hit the mark. It was important for us to reach EBITDA profitability and positive cash flow - which already happened in late 2019. We've taken the company to the point where it can stand on its own. Now we need to figure out how to accelerate. We're a very efficient company - a strange bird - because for most growth companies, selling and marketing represent the biggest expense, 60%-70% or more of revenue. With us, it's under 8% and we've grown by 80%-100% - which amazes investors. As we see it, it's the value we bring to our customers that in turn drives our affiliates, like DHL, to market us to their customers, and has Facebook referring their customers to us, because they've understood that, with our help, they can make a profit on international sales advertising.

"Anyway, once we got to the point where we were ready to go public, we realized this was the right point at which to go for continued growth, and to use the money to accelerate business development, get into new areas, and maybe make acquisitions, which we haven't done to date."

The aims, he says, are to expand their offering, for example, additional website localization features, creating additional marketing channels, and geographical expansion to the Asia-Pacific region.

Covid accelerated the trend

The IPO took place in mid-May at a price of $25 per share. "It happened to be a horrible day to enter the market, because NASDAQ was in a sharp decline," says Schlachet. Still, the share rose 2% on the first day of trading, and since then has shot up by nearly 90%.

"This is healthy behavior for the stock, and we're satisfied but you can't get too excited about a short period of a few weeks," he says.

Due to Covid-19 restrictions, the road show prior to the IPO was held online.

"My dad did a physical road show many years ago [his father David Schlachet was CEO of medical device company Syneron, -- SHW], and I remember that. So, how hard can it be for me to sit for 10 hours on a Zoom call. It's better than spending two and a half weeks on planes," he says. "It's pretty amazing that you can float a company on Nasdaq valued at over $3 billion without meeting face-to-face with investors or 90% of the team."

Covid-19 may have prevented you from doing a regular road show, but it has given a serious boost to online commerce around the world. Your 2020 revenue soared by 107% to $136 million.

"The coronavirus didn't create a new trend in our sector. The move to online and direct-to-consumer was already in play a decade before. But, it did press the fast forward button and compress a few years of growth into a six-month period. These trends existed and will continue to exist. We do take into account that when the economy opens up again, there will be some return to buying in 'offline' stores, but it's likely that most of what Covid-19 did is here to stay. I can't imagine a brand manager saying 'Covid-19's over, let's stop investing in e-commerce and put all our budget into reopening stores.' It doesn't make sense."

Barriers to entry

Brexit is another event affecting Global-e. "In terms of cross-border e-commerce it's an event like the coronavirus, a dramatic change in the market. Selling from England to France is like selling from the US to Kazakhstan. There are factors like taxes, currency, borders. There are British brands that have stopped selling to European countries and vice versa, because they couldn't cope with the complexity. "

Dealing with all this is a dedicated team, headed by the company's legal counsel, which focuses on regulation and international taxation. Global-e promises its customers that it takes on the taxation and currency risks. "We sell them peace of mind," is how Schlachet defines it. "This level of complexity provides us with a competitive advantage. We have set barriers to entry arising from the knowledge we've accrued."

Still, who are your competitors?

"The biggest type is the 'do it yourself-ers' - brands that localize to some extent for some of their markets. We estimate that 90% of the market is still unaddressed. We've managed to dominate the European market. We started in Europe because the market was untouched while in the US we had direct competitors, and we thought that in any case the bar in Europe was set higher, so that moving from there to the US would be easier, and happily we were right.

"In the US, our competitors are BorderFree (an Israeli-American company) and eShopWorld. A logistics company acquired BorderFree, which wasn't so good for it, and eShopWorld works mainly with American brands, with a 'heavy' project for each customer, and they too were bought by a logistics company. Occasionally we lose deals to them, which is good because it keeps us on our toes. There is a third competitor, an American start-up that's doing good work, but they're where we were three to four years ago.

"The e-commerce market is quite unique. Usually, you have a market that's huge but saturated and isn't growing, or you have a market that's growing very fast but is small. But the e-commerce market is on the one hand huge, and on the other hand it's growing by 20% a year. That leaves a margin of error, because there's a following wind from the market, and there's no need to assume that we'll take the entire market to believe that we'll be successful."

Published by Globes, Israel business news - en.globes.co.il - on June 17, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

Amir Shlachet credit: Eyal Izhar
Amir Shlachet credit: Eyal Izhar
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