The army cook who went on to build a $2 billion company
AppsFlyer CEO Oren Kaniel talks about how he, his wife, and his best friend founded a major tech brand from his living room
After burning through savings and after his uncle’s investment, eventually the investors started arriving. In 2020, nine years after founding AppsFlyer, which provides marketers and app developers with marketing measurement software, the company Kaniel founded reached a valuation of $2 billion. Everything needed existed in Kaniel when he was a boy, but at every step of the way he re-discovered that he’s “from fu*king Kiryat Motzkin and doesn’t know anyone” and was forced to fight obstacles that simply didn’t exist for many of the tech founders who currently lead billion dollar companies.
A Boy Who Trades Stock, Writes Code and Works at a Computer Shop
“I’m a mix of everything— Austria, Bulgaria, Latvia, and Kuwait,” Kaniel (45) tells Calcalist. “My mother was a junior high math teacher, which perfectly suits her character. My father is a mechanical engineer who worked like a laborer. I used to wake up in the morning and he’d already be at work, when he was working on a project, he was never at home. He started off as an employee at an oil distillery and later on started his own small company. I also always had a job, like gardening for example. I’d take the most overgrown and wild yards and fix them up. I’d put up signs reading ‘Is Your Garden Calling Out to be Saved?’”
An early sense for marketing and business.
“As a child, aged 13-15, I invested in the stock market. There was a group of three of us who did it. We opened a bank account with our birth certificate because we were too young to have an ID card, and when school was out for the day, we’d rush to a pay phone to call the bank, or simply run to the bank where there was a trading terminal. I also hooked up my home computer to figures that were only available to the banks. We bought the most speculative assets, like oil discoveries, and I managed to make a profit. It provided me with a nice little allowance, until the market started crashing.”
Where did you get the money to invest?
“ I worked at a computer store from the time I was 13. I assembled and took apart computers in the lab, but I preferred to work with people. I gave my business card to anyone who bought a computer and they’d call me. I’d bike over to people’s homes to teach them, make disks with games on them, write programs for them. We had a computer at home since 1981, so I knew my way around them. When I was 15, I saw that people needed a program to help with sports gambling — the program would use statistics to fill in the details that required knowledge about sports for people who didn’t know anything about it. It was too ambitious for me to code, but I found a genius kid from my brother’s class who could do it. He told me ‘give me a week’ and asked for 90 shekels. I gave him two weeks and 150 shekels and then sold the program to someone else for 900 shekels. The power of writing code really turned me on —- until the army came in and cut it short.”
Accepted to Flight School, Suitable for Computer Units, But Relegated to the Kitchen.“The army was where I first discovered nepotism, when I found out I didn’t have connections to hook me up with a good position, that I didn’t know anyone, or even know someone who knows someone. So even though I had the suitable background for the top tech units, I ended up being stationed as a cook.”
How did that happen?
“I was called up for flight school examinations. I passed them, but said ‘I don’t want to be a pilot, I want to work with computers at Mamram’ (the IDF’s Center of Computing and Information Systems). I figured the army would say that if this guy is crazy enough to say no to flight school, let’s at least take him to Mamram. But they chose to make me a cook. I’d like to know why. Today, as a manager, I always strive to give people assignments that they are passionate about because I know it works wonders. People’s passion is a resource, especially for creative positions.”
So did you suffer in the kitchen?
“It was a very frustrating experience, because I was full of passion, but had ended up in this large organization that didn’t listen or take advantage of its people’s passions. But I am also thankful for it, because my service ended up being amazing. I learned how to cook and worked with people from all sorts of backgrounds, I got into a fistfight with the supervising cook, but later became great friends with him. I’d call up my mother and ask her how to make stir fry, I’d bring soy sauce to the base from home. People would ask me ‘how come you don’t make breaded cutlets?’ and I’d say stir fry is healthier. In the meantime I also computerised the base, as my own initiative. The army has transformed and developed since then, but still — it has to make sure to include people from all backgrounds in its technological units. It is an essential tool to erase socioeconomic disparity.”
I Was a Mover, I Cleaned Carpets, I Didn’t Rush to Start a Company
“After military service I wanted to work with my dad, because I’d done it before joining the army and during my vacations. But he said: ‘You can do things that are more interesting than that and it is most important that you reach the level that whatever you do — you excel at.’ I traveled to the U.S., which was a childhood dream of mine, and ended up staying and working there for a year-and-a-half. I am not afraid of hard work, and I enjoy physical labor, so I was a mover for Moishe’s in New York. After that I cleaned carpets in Los Angeles. That’s where I learned the difference in sales between a single sale, where the identity of the brand doesn’t matter, and a company where the brand means a lot, like AppsFlyer. For us the brand is the most important thing.
“When I was in L.A., my mom wrote to me that once a year the consulate there would offer Israelis the opportunity to take the psychometric test (that’s required to get accepted into Israeli universities) and suggested that I do it. So I did and then registered to study industrial engineering and management at the Technion-Israel Institute of Technology. A year later I transferred to study computer science. Reshef Mann (AppsFlyer’s CTO and co-founder), who I have known since the eighth grade, also studied there. We both worked at Intel as students and after we graduated we traveled to South America together. He is an incredible person, we are different from each other and complement each other, he’s like a life partner. We have the ability to stick together in any situation.”As someone who showed characteristics of an entrepreneur in childhood, weren't you eager to start a company as soon as you finished university? “I often ask people who I interview, and I still try to interview them all myself, ‘why did you rush to launch a company immediately after school?’ I see that people don’t take advantage of the full potential of their current workplace. I gained experience in building and managing a company while I was an employee. I behaved as if I were an entrepreneur, I’d spark and convince the people around me. Nowadays as well, I always have a preference for people who think in that way. I always prefer immigrants too, by the way, immigrants are entrepreneurs in the most personal way possible, they wager their entire lives.”
Founding a Company in the Living Room, With My Wife and My Best FriendAfter the trip to South America, I moved to Tel Aviv, working in small tech companies and studying for my MBA at IDC Herzliya. I took part in an exchange program at Wharton and stayed on in Philadelphia for 18 months. I tried to get a job at Google and Facebook and worked at a local venture capital fund. “In 2010, while in the U.S., I bought my first iPhone, a second hand iPhone 3, and it blew my mind. The day I bought it, I couldn’t fall asleep for the thoughts that flew through my head about what one could do with it. I realized that it would change our lives. I knew that app makers had no way to measure anything and I couldn’t understand how they made decisions without metrics. I don’t come from a marketing background, and with my logical mind of an engineer I thought: someone has to solve this. That’s how the idea for AppsFlyer was born. It seemed to be a cool and difficult technical problem that needed to be solved. The person I was working for, who was looking for companies to invest in used to say: ‘Difficult is good. If it were easy many others would already be doing it.’ Since that time, the idea of ‘difficult being good’ has stuck in my head.
And how did the company grow from there?
“I returned to Israel with my iPhone and Reshef and I started meeting up and thinking about what we could do. We knew for certain that the industry would grow and we wanted to provide a platform to analyze data of application operators, a tool to help them succeed in their market. We came in knowing nothing, but with an ability to listen to clients, comprehend their challenges and offer them solutions.“Since neither Reshef, nor I, knew the first thing about working with clients, my wife Lisa would return from her job in digital marketing everyday, which was also her field of study, and helped us by talking to our clients. Reshef would come over, we’d set up a table and get to work, the three of us. At one stage it became clear that Lisa should leave her job and work with us full time. Today she is our Chief People Officer.” What’s it like working so closely with your wife? “Don’t try it at home,” Kaniel jokes. “At the end of the day she is one of the company’s three co-founders and it works amazingly well. She has a vision and she’s a high-level performer. She keeps us grounded, countering our tendency to remain up in the air. We both work passionately, with a strong connection to the company and share a belief that work should be fun and familial. In the beginning it was pretty intense, even after we left the living room, there were many friction points between her work and mine. Today, we aren’t even in the same social distancing capsule and at home we try to avoid talking about day-to-day operations. If we do talk shop, it’s about the company’s vision and where we strive to reach.”
A Great Product, Happy Customers, and No Investors
So the three of you worked for six months without any investors?“Yes, we plowed through most of the investors in the country and couldn’t raise any money. So we decided that as long as we have software that people really need, we could accumulate clients that see its value and enjoy using it and things would take off from there. After all, if you have no clients that are willing to pay, why take money from investors? Our perception was that no one would say to us ‘wow, what a brilliant presentation, here, take our money,’ but if we had clients who are pleased with the software and for whom it solves a difficult pain point, investors would recognize it, one would come aboard and others would follow. “But even then, they weren’t quick to come aboard. We had half a million dollars to get us started and I made a ‘survival chart’ showing how much money we had spent and how much is left in the bank—basically how long we had left to live. Eventually we saw that we only had two months left because even when you raise some money and continue to work and add more clients, time passes and you need to raise more. In the end one of our initial investors, Modi Rosen from Magma Venture Partners, said: ‘take a million dollars as an advance on the next round to keep you going.’ Suddenly we could breathe. That kept us going until 2014 when we raised money from Pitango.” What did you take from that period when you were running the company with the sand running out of the hourglass?
“I regret not raising more capital in the relatively early stages, which prevented us from progressing faster. We already had two competitors that had raised far more money, but they don’t exist anymore.
“On the other hand, there was a formative moment in the very early days. I was at a meeting with Google Analytics for Mobile and was deliberating internally about whether I should ask a question I had in mind: how do businesses know where their customers, the people who download their apps, come from? I was afraid to ask, because it was Google after all, which has an army of programmers who could probably do it in a second, but at the end of the meeting I went ahead and asked it. The man I was meeting with admitted that they don’t know where the users come from, and I said: ‘wonderful, that’s exactly what my startup does!’ After the meeting one of the attendees came up to me and said he’d like to try out our tool. He tried it out, and found a bug, and offered to try and fix it. After that he joined the team and has been with us ever since, in a senior leadership role within our R&D department. It all happened because I dared to ask that question in the meeting. If you dare to share your dream, you’ll be able to connect with like-minded people.”
$2 Billion is Just 1% of the PotentialFast forward to the future: AppsFlyer’s software makes it possible for marketing people to know precisely where their apps users come from, with an emphasis on profitable users (those who arrive from Google searches, social media posts, text messages etc..) and what motivates them, “because without that the marketing work is ‘spray and pray.’ As a marketer, you have no way of knowing whether what you're doing is good or not, it’s like submitting an exam without receiving the results and corrections. With our software, you get data that reveals what value you obtained from any action you take.” AppsFlyer services companies like eBay, Nike, Playtika, Macy’s, NBC, and many more, 12,000 companies in total, with $200 million in sales in 2020. AppsFlyer employs 1,000 people, 600 of them in Israel, and the rest in the U.S., Europe, APAC and South America. The team is set to grow by a third in 2021. The company has raised a total of $300 million to date, with its latest round of $210 million at the start of 2020 led by General Atlantic, at a $2 billion valuation, “which represents only one percent of our potential,” says Kaniel. $2 billion represents only one percent? “Yes. At one of our board meetings I wrote that we had realized only 5% of our potential and a few meetings later I corrected it to 1%. ‘What happened?’ I was asked. ‘Are you going backwards?’ I replied, ‘No, my vision for the future has grown.’ When we got started, our dream was to survive for another quarter, or another year, but if you can’t envision your company developing and growing, it is the beginning of the end.”
To what extent did Covid-19 impact you?“On one hand, all the off-line companies hit the breaks at once, so we are working with them, giving them time to integrate our other tools in order to create contact points with clients. Tourism companies, for example, experienced an 80% drop in activity. On the other hand, we have clients that have exploded since the start of the pandemic: gaming companies, streaming companies, ecommerce companies. With them we work much harder, have to accomplish more and all of it while working from home with kids getting in the way. It is not easy and we didn’t lay off any employees or cut back on salaries.” What will AppsFlyer look like in five years? “I envision a company that is worth tens of billions of dollars. I won’t be upset if it's $5 billion-$15 billion as long as I know that I did the best I could to bring value to my customers. My investors have already made their money and stand to make a lot more. We are also recruiting the type of people we couldn’t dream of a few years ago. While in the past, we brought in the cheapest employees we could, nowadays we draw in the best engineers in the country.” And for the most part they service customers in the U.S. and China. Why do you remain in Israel? “The technology for the most part is manufactured here, and that’s why for the moment, we live here. If 99% of the business was in China, I’d move there, but if the need ever arises to relocate anywhere, it will probably be to the U.S. In the meantime, U.S.-China tensions are working in our favor. Israel has good relations with both superpowers, which allows us to remain neutral, like Switzerland.”
And personally, where would you like to end up?“Lisa and I would like to involve ourselves in philanthropy later down the line. In the meantime, our company does initiatives in support of the community: We work with Holocaust survivors, we have education programs with at-risk children, minorities, immigrants, we donate computers, our employees invest time volunteering. It creates incomparable pride and positive energy in the company.”
Selecting an Investor is Like Choosing a Life Partner
Among AppsFlyers investors you can find Salesforce, the largest cloud company in the world, General Atlantic's investment fund, Goldman Sachs’ growth fund, Israeli VC Qumra Capital, DTCP, Pitango, Magma, and more, but Kaniel admitted that it required a lot of experience to make things work with investors.
“Selecting an investor is like choosing a life partner, and once you’ve chosen one, you can’t fire them, say ‘I’m tired of you and I don’t want to see you again,’ or ‘you’re harmful to the company,’” he said. “You choose partners for the journey and investors have a big influence on entrepreneurs. That’s why you have to put a lot of thought into bringing in an investor.”
It sounds like you learned that the hard way
“Things didn’t go well with one of our investors. I appreciate him, he’s a man with a rich record, but it didn’t fit and he’s no longer with us.”In what cases doesn’t it work? “When the investor thinks he’s the operator. When you’re in the cockpit, you make a thousand decisions a day, you can’t have someone suddenly come in, grab the controls and say ‘veer right.’ Where were you all month? You want to be a company employee? Here, grab a seat, we’ll set you up with a workstation. Come to the office every day. You can’t just grab the wheel from me.” So how do you choose the right investor? “You have to speak to other entrepreneurs who have taken their money. It’s indispensable. After that experience, I did that with every investor who came in. I spoke to CEOs who took their money, even with huge investors, without that the investor simply won’t come in. That alone doesn’t guarantee anything, but it usually helps.”
The Children Get Bonuses for Good Behavior
Kaniel met his wife Lisa before he had left for the U.S., at a bar, and during our conversation he repeatedly said how “amazing” she is. “She has an incredible personal story. She immigrated to Israel from Kiev by herself when she was 17 years old, without speaking Hebrew or having grown up among Jews.” They live in the Tel Aviv suburb of Herzliya, in a rented apartment. “I haven't bought a house in order to remain flexible, so I can live anywhere the company needs me to.” They have three children between the ages of two-and-a-half and five, and Kaniel says “the time I spend with them is part of the creativity I require for work and it also constitutes leadership training. I’m not their CEO and I can’t fire them. Whenever I’m with them and use my authority, it feels like I failed.”
So how do you educate them?
“They have a chart with positive actions: waking up promptly, brushing their teeth, dressing themselves, being nice to their siblings etc. for every good action they get a point. They can accumulate up to 10 points a day and every point is worth one shekel. There is also the opportunity to earn a bonus. They can use their points to buy toys. I tell my eldest son: ‘you have X amount of money and it costs 400, what can we do?’ so he suggests that we split half and half. Sometimes when he asks for one thing, I say ‘why didn’t you ask for two?’ I have no idea if it’s good, but I think it is.”One day they’re going to discover that you can afford to buy them everything and they don’t have to split with you.
“Both Lisa and I come from modest homes, Lisa even more than me, and I have been working since childhood. I hope to develop in my children curiosity and passion, that money won’t be the immediate goal and I hope that they too will work from a young age. If they want to work at AppsFlyer, I’ll tell them what my father told me: ‘you can do something far more interesting, just do it in the best way you can.’ And to do that, you have to work the hardest, otherwise somebody else will do it better.”