“Investments are like a rollercoaster: You need to go full power to climb up”

October 13, 2016

Two-and-a-half years after being appointed CEO of Netafim, the world’s largest irrigation company, Ran Maidan is allowing himself to smile. In this first exclusive interview, he talks about how he convinced the owners from Permira funds to develop the company rather than make cuts, how he connected clients in Ethiopia with Israeli banks, and what helped him be prepared to head the kibbutz industry’s final outpost.

In some ways, Netafim’s CEO Ran Maidan resembles Erez Wigodman, his former boss at Adama (then Makhteshim Agan). The similarity is not only in their ability to turn around their company’s performance after difficult times, but also in their passion for their company and employees. “Just one last slide,” says Maidan, after showing several presentations and videos dealing with Netafim’s innovativeness and efforts to combat the global food crisis. This same scene takes place before our interview at Netafim’s Kibbutz Magal plant, as Maidan presents dozens of slides and videos in which the words “a small kibbutz in Israel… drop after drop, field after field… the world’s largest irrigation company… at the forefront of technology, grow more with less” are interspersed with stirring music pounding in the background.

Netafim is a far more sophisticated company than the one that sold drippers upon its establishment over 50 years ago. Today the company is the global irrigation leader with 4,300 employees (1,000 in Israel) and 17 factories (3 in Israel). Alongside the founding kibbutzim Hatzerim and Magal, which are still shareholders in the company, the majority owner is Europe’s Permira funds. Only 3% of the company’s sales are in Israel; the vast majority of customers, suppliers and sales are beyond Israel’s borders. “On the other hand, we are a very Israeli company,” Maidan explains. “The management and headquarters are in Israel, and we develop all of our unique products here.”

Such organizational pride is easy to understand. Maidan was appointed to his current position in February 2014, and officially started in May that same year on the backdrop of eroded innovation, managerial shake-ups, and a list of missed opportunities. “We are proud of our results over the last two years,” he says. “Sales annually grew by 5-10% and profits by 15%. The improved profits were achieved despite significant investments in new markets like China, which are expected to accelerate the company’s growth and yield fruits only in the future.”

“I built myself up for this position”

This is the first interview that Maidan has granted since becoming CEO. He transmits a type of folky geekiness. Despite his relatively young age (46) as the head of such a large company, he’s had very diverse experience. “It isn’t like one day they turned to me and said, ‘Come and be CEO.’ I built myself up for this position for over 20 years. I served in senior managerial positions: I was VP for Koor Industries at the age of 30, followed by VP for Elisra, and CFO for Makhteshim Agan.

“After 3-4 years as CFO at Makhteshim, I said ‘What now?’ Wigodman, who was CEO, said to me, ‘Ran, pack your suitcase, go with your family to Singapore, and set up Makhteshim Asia Pacific.’ That totally excited me: It was new, virgin territory, Asian markets, and I had the chance to work with Erez. It was like being CEO of Makhteshim Agan Asia Pacific, a position with lots of independence. So I landed with my suitcase in hand. At the time, Makhteshim sold $220-250 million annually with an operating profit of $25 million. During my four years in the position, we conducted a huge amount of business development: We bought a Korean company, and set up companies in Vietnam, Indonesia and Thailand. After four years, we finished with sales of $570 million and an operating profit of $100 million.”

Was the transition from CFO to an entrepreneurial-like position smooth?

“It was an incredible experience. I experienced a truly multinational company, managing personnel from different cultures – Japan, Korea, Australia, India, Indonesia. Each place had a different approach, a different way to motivate personnel. It was fascinating.”

How did the opportunity to become Netafim CEO arise?

“I wanted to return with my children to Israel so they could finish school here. I looked for a job, and received a phone call from the placement office responsible for finding a CEO for Netafim. I really wanted that job more than other offers I had received. It’s a true Zionistic company with room for innovation in agriculture, which is an area that I’m familiar with and connected to.”

Where did you get the confidence to deal with such a high-level position?

“Throughout my career I had appropriate jobs and excellent managers. I learned from each of them. I learned to understand numbers quickly from Meged Somekh, who was a managing partner at Somekh Chaikin and my first boss after the army. I was a low-ranking employee who came to work in the morning and ironed out financial reports until midnight. There I acquired the ability to drill down to every bit and byte.

After that I worked at Koor with Jonathan Kolber, who showed me how to work with multinational companies, what is business charm, and how to lead deals. Then I had the privilege of working for five years at Makhteshim Agan with Wigodman. First as CFO, and then as a regional manager with lots of independence but also lots of mentoring. I learned from him that a manager is also a leader: how to create a vision and harness management, how to crystallize a strategy in a large organization like this, how to get there one step at a time.”

Did Wigodman offer you the most significant career opportunity when he asked you to go to Asia?

“Shlomo Yanai also took a chance on me when he let me become CFO for Makhteshim Agan at the age of 36. I’m appreciative and thankful for all the opportunities I received.”

“I believe in daring and in an aggressive structure”

Taking over Netafim was not a simple challenge. Over the last 15 years, the company has frequently changed CEOs: from Erez Meltzer (4.5 years), to Ofer Bloch (3 years), to Igal Aisenberg (4.5 years, the first year together with Eli Shohat). Each time Netafim had to go back and crystallize a new strategy, which only eroded matters further.

“I recognized the problem and the opportunity,” Maidan says. “During the first six months after my arrival, I studied the company. I saw a company that operates in an excellent market, and has excellent assets and high capabilities. But its financial performance in 2010-2013 was not compatible with its market and assets. The board of directors was divided into two. The majority said, ‘Ran, remember what you learned in business school? You need to cut expenses and return to profitability.’ The minority agreed with me. I said, ‘If there’s a good market and a good company, the problem is in management, not in cutting. If I send people home and they don’t have work, what kind of miracle will take place? Whoever is not performing wouldn’t continue working here anyway.

It was clear that whoever didn’t make the grade wouldn’t continue working here.’

“It was a very hard decision with many sleepless nights. It’s like going to an economist and deciding whether to cut or develop the market. We decided to develop the market big time, and the results speak for themselves.”

Did you ask for additional investments from Permira?

“I said, ‘Give me a loan on account. Instead of first profiting and then investing funds the following year, give me the money today. Trust me and you’ll see good results in the first year. I’ll give you a preliminary report each month.’ A new CEO needs to build trust and security, and I’m sure it wasn’t easy for the board of directors to accept this decision.”

What are the first moves you made to prop up the company and return it to profitability?

“When I approached Permira, I laid out the problems in a fully transparent manner, without criticizing previous CEOs or blaming others. I looked at what was good and what needed to be improved, and I put together a plan that didn’t feature cuts and asset realization but rather growth. A plan with a strong vision, yet with concrete and immediate steps.

“I believe in daring and in an aggressive structure, so I changed the organizational structure. I eliminated the VP Marketing, VP Sales and VP Business Development positions, and replaced them with four division heads – India, Asia, Americas and EMEA – and each is a king in his own kingdom, with power, budgets and the responsibility to make decisions. They report directly to me; they give me data before we meet, and by the end of the meeting we make decisions. Everything is done to help the company move quickly. It’s based on the outlook that I’m here to serve their success. The company as a whole has a vision and one goal: to enable mass adoption of the technology. There are no sales or profit goals, but rather the desire to create a revolution in the global agricultural market. If we do it, we’ll also sell. Drip irrigation is a competitive market with hundreds of players, but we are the leading player with 30% of the market, and next is Jain (the Indian company that acquired Naan, a kibbutz irrigation company) with 17%.”

When did you see things move?

“It took a long time. The first year was very difficult. I saw results, but they didn’t translate into financial results. There was a gap between what I and the directors saw. Investments are like a rollercoaster: you need to go full power to climb up. I knew that the change would occur: I saw that we had more customer leads, improvements in manufacturing, motivated managers, and recognition in the field that there was value, but we were still declining, and you say to yourself, ‘When will the change come? Maybe we won’t rise after the decline?’

“At the outset a lot of people said, ‘You made a mistake, you should have cut costs.’ We didn’t generate revenues, we accumulated debts. Some were worried that there wouldn’t be enough money to pay up. It’s a huge responsibility, thousands of salaried employees are counting on me to take them to a safe haven on the shore. You need mental fortitude to know that you didn’t make a mistake. It was the hardest year during my career. It’s like coming to work every morning and pushing a truck that doesn’t budge: you push a little, and it moves back a bit. But with a large vessel, it’s all about momentum. When there’s momentum, it moves well.

“The peak came in Q4 2014. I saw orders, requests and excitement among salespeople, and I knew I was right. But most of the directors were convinced that I had erred. The results appeared only in Q1 2015; since then, we have improved our profitability by 15% per year, and are still maintaining that rate. Our expectations are to continue to grow 10% annually.”

“Our irrigation management system is more complex than the Iron Dome”

Today’s dripper looks like a small chip with at least seven patents. But Netafim sells a far more comprehensive service to growers. “Field sensors check moisture, as well as the plant’s growth, size and color. All this data goes to the cloud, together with data from external sources such as satellite images, weather forecasts. This enables us to optimize things and give the grower the right irrigation schedule. It’s delivered directly to his mobile phone, where he can operate the entire system. There’s incredible technology out there that’s changing agriculture and increasing yields significantly. The company that developed the software, mPrest, also developed software for the Iron Dome, and they said this project was more complex. They said, ‘You killed us, there are so many variables’.”

The scope of solutions for the “new” Netafim is tangible when reviewing its irrigation project with the government-owned Ethiopian Sugar Corporation. The $200 million deal includes pumping and conveying water over an enormous 70,000-dunam area with challenging topography, and includes a technologically advanced subsurface drip irrigation (SDI) solution for sugarcane.

“We’ve carried out larger projects in area, but not one that includes that much logistics,” Maidan says enthusiastically. “The project is located in a remote area, 600km from Addis Ababa. There’s nothing there, there are no water sources. We need to raise the water to a height of 200 meters, and then convey it across 62km. It’s like building a national water carrier. To make the project profitable, we need to plan things very meticulously and ensure water and pumping energy efficiency. It’s a crazy technological challenge.

“And that’s nothing compared to the complex financing arrangement. I may control the technology, but when it comes to financing, I have to persuade a third party to join me in this journey, and that’s where things get tough. Sugarcane production involves multi-year projects, and you must let the customer pay back its loan only after revenues start. So we exposed the customer to international banks. We went to Bank Hapoalim, which led the project, and to Israel Discount Bank and Mizrahi-Tefahot Bank who joined in, and said, ‘Netafim is conducting a project in Ethiopia. Give our customer, not us, 10-year financing.’ The Ethiopian customer received a 10-year loan from Israeli banks”.

Is this an example of the new Netafim?

“Part of our strategy is to provide a comprehensive solution to our customer. I have people who create financial solutions for customers. I want to put everything together for the customer, to tell him, ‘You sign right here, and in another two years you’ll have a project that pays for itself.’ The Israeli banks trust us. It’s a win-win for them, for us, and for the customer. The customer is able to forego local financing at a high interest rate, and gets a lower international rate. At $200 million over 10 years, every 2% in interest is worth $4 million annually. In 10 years that’s $40 million. If you can lower the interest rate by 1% compared to a local bank that’s a significant reduction.”

Netafim took off thanks to the patents of Rafi Mehoudar, who’s still receiving royalties today. Do you think that’s justified?

“When Netafim started, he came with a revolutionary idea and business model that suited the company at the time. It’s not such great wisdom to say in retrospect, ‘He’s getting too much.’

“It reminds me of the joke of a person who has a bone stuck in his throat and runs to the dentist saying, ‘Take what you want, just get the bone out.’ When the dentist succeeds, the patient suddenly says, ‘That’s too expensive!’ Mehoudar took a risk, recruited a team, and worked very hard. It’s not a gimmick, it’s a patent. Give him credit.”

“Permira gives me freedom, and is satisfied with the results”

Netafim is the country’s largest kibbutz industry. Since it’s a private company, it doesn’t publish results, but according to sector estimates, 2015 revenues were about $850-900 million. Netafim is 26th in Dun & Bradstreet’s list of Israel’s largest manufacturing companies. The company’s ownership is made up of Permira (61%), Kibbutz Hatzerim (33%), and Kibbutz Magal (6%).

“Netafim has outstanding shareholders,” Maidan says. “Of the nine directors, four are from Hatzerim and Magal, which represents the past, and five are from Permira, which brings forward-thinking management, daring, investment capabilities, global know-how, and international contacts. For example, when I looked for a manager for China they helped me a lot.”

The problem is that Permira is identified as a fund that is interested in selling, not developing, the company. Perhaps that was one of the reasons for your difficulties in the first year.

“Permira is not a typical private equity fund; it’s a growth fund. Typical funds buy a company in crisis, improve it, fire personnel, and sell it after 3-4 years to add money to the coffers. Permira’s strategy is different; they buy leading companies, improve and develop them, and then sell them. Its horizon for holding a company is longer, 5-10 years. The results speak for themselves. They bought the company, and now we’re investing millions annually in Crop Management Technology (CMT). When they’re ready to sell, they will offer a company with a future, not a past. We’re talking about outstanding and experienced investors who let management work. Obviously they have shareholders and demands.”

“Does that make it more difficult for you as a CEO? Would you prefer a different ownership structure?

“For me it’s very easy, since my finance background greatly helps me communicate with them. I speak their language, and understand exactly what they want. They give me complete freedom to operate, and are very satisfied with the results. They tell me, ‘Come on, go ahead. The faster you accelerate, the better.’ The company is very profitable and makes money, since we don’t have an investment budget issue. There’s enough money, and all the banks and financial bodies are lining up to give us more, because it’s a real company; it produces, sells, makes money. It’s not a business made from air.”

“My family and job are important to me. All the rest I sacrifice”

How far are we from a scenario in which Chinese owners buy Permira, and turn Netafim into a Chinese firm like Tnuva and local off-the-shelf insurance companies?

“When Permira arrived, people asked whether the firm would stay Israeli. Netafim stayed Israeli because it’s worth it; no one is doing us a favor. Our Magal factory maintains the company’s highest per capita productivity by a large margin. We produce here at lower costs than anywhere else in the world, and we’re producing at a rate twice as fast as two years ago.”

We once thought that Israeli ownership would ensure that industries would stay. Why are we destroying industry here and selling off everything to foreign hands?

“You have to distinguish between two types of sales. In one, a conglomerate comes and moves you out; a leading Israeli company that sells billions of dollars and is acquired by a giant global company operating in the same field. That turns you into a department, the department is cut, production is cut, and only R&D remains, and eventually that also breaks apart. In the second type of sale, however, whoever buys you, for example a German or an American, invests in the company and nothing changes. In fact, the opposite occurs. Look at Iscar. It was acquired by Warren Buffet, and since then it’s only grown.

“I think that if someone buys Netafim it will be due to its large assets. There’s no one to merge with because it’s the biggest company.”

And what about Naan, also a kibbutz irrigation company that was acquired by India’s Jain in 2012 and became NaanDanJain? Did Jain leave something tangible in Israel, or did it kill what remained here?

“It left very little here. This is a classic example of a $500 million company acquiring a $50 million company.”

Is this bad news for Israeli industry?

“Very bad. Israel needs to develop more companies like Netafim, and it can be done. Good managers can develop them and bring out our strengths.”

Why doesn’t it happen more often here? Is it because it’s a game of giants where there’s no chance to wrestle with them from the outset? Does the state do enough?

“I think that Israel’s business environment is good, or at least okay, for work. I’m not taking part in the crying or whining. Still, I would be happy to see the government invest more in education, primarily in technology. We can’t beat China by banging hammers more quickly, but we can with the technology you see here. People like Ahbed Masrawa, our Product Manager, who invents 20 patents in a year. I can take a person like that and nurture him, but someone has to get him to me after he’s excelled at the Technion. I need the government to help in infrastructure in order to connect to the periphery. I live in Shoham, and its takes me three hours to get to our factory at Kibbutz Yiftach. To get to Hatzerim takes only one hour on Road 6. If the government worries about these things it will help.

“But those who need more encouragement from the state are the smaller manufacturers. We’re okay, we’re profitable, but smaller companies that want to grow and go beyond our borders need governmental support. I can invest our profits in new markets, but if I were CEO of a $50 million company, it would be very hard to grow; the cash flow isn’t large enough to enter China. It needs help in foreign trade risk insurance, in customer credit insurance, in grants, in encouraging scientists. It’s a pity that more new manufacturers from Israel aren’t developing.”

Do you run into problems as a company from Israel?

“No, because we don’t sell to countries or governments but to large distributors. I don’t sell as much as I can in Saudi Arabia, and things are tough in Egypt where we sell less, but I don’t want to complain. If our Israeli identity leads to difficulties, the strength of our brand, our intuitive solutions and our quality compensates for it. We are very proud to be an Israeli company.”

What about tax considerations?

“We don’t have tax shelters in Ireland or elsewhere. We pay tax in Israel, and we don’t have a problem with it. The tax rate in Israel is reasonable.”

You’re abroad half the time. Isn’t that exhausting?

“If you don’t know how to sleep well on planes, don’t take this job. I fly for short periods of times efficiently. I fly at night and work when I step on the plane, and then sleep on the return leg later that day. I don’t even return with the flight crew, since they get to rest before heading back. I’m always at home for the weekend. Without the support I get at home I wouldn’t be able to do this.”

Isn’t it hard to not be able to see your children grow?

I try to compensate for it in other ways, particularly to be more present when I am around. I won’t go out to pubs at night with friends, for example, and I won’t travel on ski holidays with friends, unless it’s with the family. My family and my job are important to me. All the rest I sacrifice.”

First published in Calcalist online magazine, September 14, 2016.

Site by NGSoft.
Remember my preferences