Starting A Business In A Tropical Paradise - 6 Lessons From A Successful Zanzibari Entrepreneur
Setting up a business in a tropical island actually takes more than a laptop
Written with Florence Karaba
Sixteen years ago Madiha and Salim Khatib ended a year of travelling with a stop in Zanzibar, a tropical island in the Indian Ocean.
“It took us exactly, I think 10 minutes to decide that we want to stay here,” Khatib explained. The appeal to work and live in a tropical paradise is self-explanatory. But difficulties to access capital and skilled labour as well as dealing with bureaucratic minefields can be off-putting to any aspiring foreign entrepreneur.
Khatib was not deterred. Today he employs 250 people in several hotels, a marketing agency, and a construction company. With revenues of around $4.5 million he has built one of the largest businesses on the Eastern side of the island. Here are six lessons other aspiring entrepreneurs can learn from Khatib:
Lesson #1: The same but with a twist
Tropical islands are not the best destination for revolutionary new business ideas. In an article focusing on the pitfalls of strategy Donald Sull, Rebecca Homkes, and Charles Sull note that out of 80 potential issues, 400 CEOs named executional excellence the number one challenge. Developing a sexy new app while basking in the sun might be tempting, but power cuts and patchy internet access present a real challenge. So does the access to top talent.
Khatib’s first venture was Casa del Mar, a boutique hotel. With tourism as the largest sector in Zanzibar, there are many potential customers and ample talent to hire on the island.
But coming from a family of architects and artists, the couple decided to concentrate on design and finishes at a time when for security purposes it was rather common to have iron bars on windows facing the sea. To realize this vision, they built a construction team from scratch since contractors were not able to work to their specifications.
It’s no coincidence that many bio-tech startups flourish in Boston and fintech is hot in London. Entrepreneurs feed from the dominant industry in their region. That rule also applies in a tropical paradise. Get into the hotel business but do so with flair! Offer something with a new twist that links or serves the existing industry to increase the odds of success.
Lesson #2: Money matters (a lot)
One of the big advantages foreign entrepreneurs have is their comparatively easy access to capital. In Zanzibar—as in most tropical islands—angel investors and venture capitalists are a rare species. Loans come with a 17 percent interest rate but most people don’t get one approved anyway.
The Kathibs’ sold their car and flat back in Israel and were loaned additional money from their family. This provided them with sufficient funding to build their first hotel. All subsequent expansion was financed from their company’s cash flow.
“All of the investment I did was with zero banks,” Khatib states, explaining that his reluctance to rely on banks prompted him to come up with expansion plans that could be realised from their own cash flow.
“A construction company needs much…much…much less investment. You need nothing basically compared to building a hotel.”
So after the first hotel he expanded the construction activities rather than building another hotel. That came later when enough cash was ready.
More than in Europe or the US, access to cash determines what you can do and how fast. Taking money out of your low-interest UK mortgage or selling your car gives you an advantage at the start. Subsequently, keep cash flow in mind. Occasionally, even an opportunistic move—e.g. the import of a container full of olive oil from Palestine in Khatib’s case—makes sense.
Lesson #3: Happy workers, happy life
The COVID pandemic had a big impact on Zanzibar’s economy, as guests dried up. Many hotels were forced to close, others downsized.
Khatib took a different approach. He called a staff meeting in early April and told them how much money was in the coffer.
He revealed:“I said we have two boats here. You can go fishing for free, use the cars. And the fridge is full of fish we bought for the summer - prawns, lobsters, plus other meat and chicken. But I am not able to pay you at the moment … we have nothing to do, no work. We come here, sit for two hours, clean and we go home.”
Staff agreed to use the available resources and wait for their pay after business picked up again.
Such a move was only possible since he has cultivated a 16-year relationship with his workforce. Many have been with the business from the start, while others were recommended by staff. He also went out of his way to find new talent. On a trip to India he visited the offices of his IT supplier and convinced the hard-working programmer who had resolved some of their issues in the past to join his company.
To beef-up the construction team he visits big building sites in Zanzibar city (the capital of Zanzibar) where Chinese contractors are known to train their staff exceptionally well. He approaches the staff and asks: “So how much you get? You're getting 200, I will pay you times four for the quality.” A few days later they join his company.
It’s notoriously difficult to build a highly skilled, loyal workforce in emerging economies. But if you go out of your way to attract top talent both locally and abroad, give them lots of responsibility, offer training and pay substantially above market rate, you are likely to reap the same benefits as Khatib.
Lesson #4: Embrace your inner “Uhtred of Bebbanburg”
Uhtred of Bebbanburg is the protagonist in “The Last Kingdom”, a highly entertaining Netflix series set in early medieval England. Born a Saxon but raised by Vikings he lives between two different worlds. His network ties and the ability to understand both cultures allows him to occupy a unique role, turning impossible situations to his advantage.
Islanders often find it difficult to truly understand foreign customers (remember the barred windows? They make perfect sense for locals concerned about security but less so for foreign tourists in search of an ocean view). This makes it difficult to tap into new opportunities. Foreigners, on the other hand, struggle with staff issues, bureaucratic hurdles, and contractors.
The big opportunity for foreign entrepreneurs stems from having a foothold in different worlds. Khatib studied in Germany and speaks the language. This makes it easy for him to connect with his largest customer group.
For example, his first client for the construction company was a German guest who loved the hotel’s architecture and felt confident that someone who lived in Germany would deliver the quality he promised on time. He also has strong ties to other entrepreneurs in the expat community, e.g. enabling him to build a marketing agency handling the bookings of many foreign owned hotels.
Language is also the starting point to build a reputation with the islanders. As a Palestinian, Khatib speaks Arabic, which is highly respected as the language of the Quran in Zanzibar. He also quickly learnt Swahili and funds local projects.
The danger for foreign entrepreneurs is to see the tropical paradise as a post-colonial hangout. True opportunities come for those who find a role as bridge-builders, the way Khatib did.
Lesson #5: It’s the little things …
By the time you arrive at the restaurant in Fun Beach Hotel—Khatib’s most recent expansion—you have passed one massive pool and look down on two endless pools. The design is a mixture between modernist and traditional Swahili architecture. With the white sands and turquoise ocean beyond, a wow factor is guaranteed. The price per night: roughly $130 for two people per night. Comparable hotels easily charge two or three times as much.
Khatib is obsessed with keeping his customers enthralled—on bookings.com customers rate the hotel at 9.2 out of 10—but he does not let this get in the way of expansion either. Half the hotel was completed while full of guests.
On days when noisy machines were used, guests were told in advance, got free meals, and access to water sport equipment. As this meant that most spent the day at the bottom end of the property, removed from the building noise, everyone was happy.
His eye for detail also made Khatib spot an opportunity for his marketing and booking agency. In busy periods hotels leave considerable revenue on the table as it can be tricky to match customer requests with available rooms.
A couple might look to book five days in a particular hotel but only find two available. Another hotel also managed by Khatib’s agency might be fully booked on those two days but available during the remaining three days. If you take the booking but only tell the guests on arrival—a practice not uncommon—they are unlikely to be amused.
Bookings.com—where most traffic comes from—does not take kindly to such tricks either. The solution: take the booking but call customers immediately (i.e. before they travel) offering them a decent discount in a more exclusive hotel (the group has one with villas that have private pools for example) for the days that do not match the original booking.
The logistics of moving hotels is all taken care of and a bottle of Champagne awaits the guests in the new hotel. This tactic raised the occupancy rate considerably.
Entrepreneurial success—on tropical islands as elsewhere—depends on the details more than the grand idea. Adam Goldberg and Wayne Ting set up CU Community (later Campus Network) a year before Mark Zuckerberg launched Facebook, but failed as they offered something that was too complex, whereas Facebook was simpler and more intuitive.
An eye for detail and a never-ending thirst for improvement will make a big difference as execution is more important than the grand idea.
Lesson #6: Passion matters
It's a bit of a cliche but the passion and persistent of the entrepreneur is probably the single most important ingredient of success. There were numerable obstacles but Khalid's ability to bring others on board, find solutions that work both for the local community and his business stands out.
Some of his experiments did not pay off—for example he tried to breed chicken for the hotel—but he was still ready for the next idea. His newest project is manufacturing bricks out of recycled glass, using his experienced construction team to achieve this. Always persistent, always positive, always encouraging.
So even if you manage to follow the first five lessons, keep in mind: Not everyone can do what Salim Khatib did. He is a maestro among island entrepreneurs.