B-Talks: Entrepreneurial Success Stories – Jesús Alonso Gallo
In our last B-Talks meeting we connected with Jesús Alonso Gallo, serial entrepreneur with more than 35 years of experience, mentor and professor at EOI, EAE, UCM and the Institute of Positive Thinking. He has created four companies and has sold three of them, two to multinationals: Drosoft to Electronic Arts and Restaurantes.com to the Michelin Group. In his own words, his mission is “to help identify entrepreneurial vocations in those people who feel the call of the jungle”.
In an exciting talk with Luis Cortes, executive at Red Hat and partner at Bcombinator, Jesús tells us some of his experiences, how he came to sell his company to the Michelin Group, partnerships, his sales methods and more.
“Since I was a child, I loved to imagine business,” he admits. Jesús defines himself as a salesman and that’s how he lives it. “I believe that when you like to sell, you never have problems in your professional life, because you know how to convince others,” he says. And he concludes: “Convincing is winning with words”.
Jesús began his path studying journalism, until he realized he wanted something else and abandoned his career to start his first company. His initial venture was Dinamic, where they revolutionized the market with 8-bit video games. The second Dinamic Multimedia, where they created PC Fútbol, a sociological phenomenon in Spain, the third FX Interactive, also dedicated to videogames and finally, and his dream come true, Restaurantes.com.
What has changed in the way entrepreneurship has changed?
“The differences are abysmal,” he says. Before the ecosystem was born, there was no access to financing, it was different. You could start a business with savings or bank financing under conditions that were not beneficial. “Now there is an ecosystem, things have changed,” he accepts.
Beliefs and success
While reliving his time as an entrepreneur, Jesús recounts: “I lived it as if I was blessed”. And he reflects: “I’ve been an atheist all my life and then I had an agnostic stage. When I was an atheist, I used to say: ‘I believe that God does not exist, but I am happy'”. On the other hand, when I was agnostic I thought: ‘I don’t know if God exists or not, but I don’t care, because I’m happy.
Today, he is aware that certain things that have happened in his life are impossible to explain from a purely scientific point of view. “The only thing that explains it to me today is the existence of God”.
The success they were having with Dinamic Multimedia’s PC Fútbol was stupendous. And he paraphrases: “Every time we plant a chickpea in the ground, a plant grows and generates hundreds of chickpeas. That’s what happened to us. Everything we did turned out well and we enjoyed it”.
Jesus remembers working during the day and then spending all night in the warehouse, assembling video games, boxes, the packaging, etc. “What happens to Apple when they launch a new product and people sleep on the street and camp out, we lived it and experienced it first hand,” he explains.
Dedicate yourself to something you know
Gallo advises entrepreneurs to do a basic analysis of what core competencies are needed to launch a venture. “I tell everyone that they have to build things in a territory they know. Because pretending to build a company in an area of knowledge that you have no idea about, that’s a guarantee that you’re going to waste your money and your time.”
At what point do you realize you have something big?
“I could see it very clearly,” he says. At one point the partners of Dinamic Multimedia reached an agreement to sell a majority stake. This was because they had had many difficulties before the success. Therefore, they ceded 70% of the capital to a financial investor. “They had 30% and managed the company, they worked their tails off and paid themselves small salaries”.
At a certain point, the investor who held 70% “got bloodshot eyes” and saw an opportunity. “He made a coup d’état, he wanted to keep 100% of the company, instead of buying it at the right price”. Jesus resigned, the partners had a legal battle, which was later won by the party in the right. With that money, they founded FX Interactive.
Based on the lessons above, what would you change.
“The world is an amazing thing,” he says. And he explains that he resigned out of respect for his partners and came out with “one hand in front and one hand behind.” The partners recognized this and when they created FX Interactive, they put up the part of the equity that he couldn’t so that they would be partners, in five equal parts.
Gallo’s role was to shop around the world for intellectual property and rights and he was in the business of selling them. At one point, due to a health intervention, he returned to the company and noticed that he was not well received and that the communion with his partners was over.
“I sold them my shares and every man for himself,” he says. “What they did to me was what they tried to do to them in the past.” Subsequently, they valued his shares at a 90% discount rate and his shares were worth, at market value, a hell of a lot more. “I didn’t want to get into any legal trouble, or get in trouble. I withdrew my greeting and they went their way and I went mine”.
Consequently, he reflects: “Life is a surprise, because you are with people with whom you understand each other perfectly for mountains of years and one day you get divorced. And this happens with human beings, in couples and with partners”.
Is there any sign or any way to know if something like that is coming
“I think you can find out or you can see it,” he admits. Jesus’ advice is to associate with people you don’t know. That is, you have no emotional ties of friendship or blood. “You partner with a person because professionally they have knowledge that, at the same time, is complementary to yours and is good for a venture.”
The beginnings of restaurants.com
In one of those epiphanic moments, doing research on the Internet, Jesus came across a website called Restaurantes.com. The beginning had a sign that said “I sell this website and the domain for 150 thousand dollars”. Then, he negotiated with the owner, they reached an agreement and that’s when it all started.
What part of the idea you had at the time VS what it finally ended up being.
“It was very similar. I had done a previous analysis. What I saw was that different operators had been built in the U.S. and other markets, that what they were doing was a marketplace. They were telling restaurants that they were going to give them a solution to send table reservations to their space.” And he says: “they were the great creators of this model, I’m going to do it in Spain”.
How do you get to critical mass?
“One of the most important things you have to do when attacking a market is to do a customer taxonomy study,” he explains.
The exercise is based on separating customers into families or tribes or nature of customers that are common. “The game is to knock on the door of those who will give you a hug when you say ‘hello’, but you won’t visit customers who say no”, he explains.
By doing this segmentation and field testing, you find the positivity rate. That is, the response rate of one versus others.
“I found that if I tried to preach my religion of restaurants.com in ultra-traditional places, when I talked to the interlocutor it was like going back to prehistoric times,” he says.
In this process, Jesús realized that there was a large part of the sector that wanted to live in “the most possible fiscal opacity”. Therefore, digitizing their business was not a good idea for them.
On the other hand, there were modern restaurants, with music, with people with concerns. In addition, some of them had websites and social networks. “I would go to these types of clients and say: “Hey, one little thing, I send you clients and you send me €2 per diner. If I send you a table of two, €4. If there are five, you owe me €10. You don’t have to pay anything, it’s all success. They would dive in head first.
“I dedicated myself to those who wanted to be helped.” Jesús accompanied restaurants that wanted to embrace digitalization, as they knew that social networks were here to stay and that consumers would soon want to start booking online rather than by phone call.
How they reach customers
When he started the project, Jesus had no financial resources. What he did was to create a sales team made up of “warrior women”. “He had saleswomen and they were a whole profile of women who were outside the corporate circuit. They had children in their care and the husband had left for tobacco and had not returned.”
“I got a group of salespeople with that profile and set up a system of commission salespeople”. They were the best saleswomen in the world,” she adds.
The Restaurantes.com solution
“Our value proposition was to increase the restaurant’s occupancy rate”, he says. When they saw the results and their rooms were full, many wanted to do without the help of restaurants.com, but when they realized that without the platform they were not in such high demand, they went back to it.
Subsequently, they began to think about how the product could be made more sophisticated and started making the websites for the restaurants without charging them anything. “Their heads were exploding,” he says.
As a result, when someone thought of not paying, they would cancel the page and leave it with a sign that said “this web page is momentarily unavailable due to non-payment”. Quickly, customers would pay what they owed. “What I saw in that sector is enough to write a book,” he says.
“When I started with the project, I was alone in the analysis of core competencies, there were two that were the most important: the ability to execute commercially and convince thousands of restaurants to pay you to bring customers to them. And the second issue was the technological platform”.
That’s when Antonio Fernández Ruiz, a mathematician by training and an expert in creating intensive technological platforms, came along.
On the other hand, Restaurantes.com merged its business with restalo.com. They did a media for equity with A3 media. They advertised on television, started to grow and opened headquarters in Mexico. Then they bought a company that had a reservation management software and the company started to get bigger.
“We started with no money, I contributed the domain and the design. And his partner, Antonio Fernández Ruiz, contributed the goodwill of a company.
On the other hand, Restalo.com had in its shareholding a venture capital fund, so when the two companies were put together, restaurants.com had a stake.
At a certain point, the fund had a long battle with Restalo. With us they had more or less settled the problem and then they said let’s see if there is anyone interested.
Sale process to Michelin
“We did a sale transaction, led by a private equity fund, which was very interested in liquidating that position and raising their next vehicle,” he says.
Jesús gave the fund some personal cards of Michelin people, “they have to be in this process”. TripAdvisor and other companies were also among the potential buyers.
During the buyer search process, Jesús confesses: “In a post it I wrote: ‘I’m going to sell restaurants.com to Michelin’ and I stuck it on my fridge at home. Then when it happened, I felt things that are curious. Because the probability of that happening, when I made the toast to the sun, was impossible”.
And he finishes: “In the end it was not a cool thing. They were the ones interested in buying and we sold and we were happy and ate partridge”.
The day after…
“In our case, to make it fun, we got an email that went something like this: ‘Hey, you can go pee whenever you want, for everything else, you have to send an email copied to 17 people.'” He adds, “They explained to us that we were no longer a startup, that we were part of the Michelin corporation. I asked for the account and left”.
He is currently a Serial Investor, Professor, Mentor and Lecturer collaborating with various public and private institutions to help new entrepreneurs to achieve their dreams. He collaborates with the Universidad Complutense, Escuela de Organización Industrial (EOI), Grupo Planeta at EAE, with the Master of Entrepreneurship at the Instituto de Pensamiento Positivo, etc.