THE “HOW-TO” HANDBOOK FOR BUILDING COMPANIES WWW.ENTREPRENEURMAG.CO.ZA INTERNATIONAL EXPANSION zero to R120 million APRIL 2018 MILLIONAIRE MINDSET Chasing money won’t make you rich, this will Mike Wright launched Striata from his garage, with no savings or funding Today Striata operates in the USA, UK, Australia & the Far East from its base in Cape Town Could you survive 150 rejections? What you can learn from the start-up that did BAIN & CO 5 questions to tell if you’re ready to scale LAUNCH A DIGITAL MARKETING CAMPAIGN FOR FREE WORK SMARTER WAYS TO DO MORE IN LESS TIME INSIDE THE BILLION-RAND PRIVATE EDUCATION INDUSTRY R200 million in funding APR 2018 — ISSUE 145 How SPARK Schools founder Stacey Brewer’s low-fee model is up-ending private tuition R35,90 (INCL. R49,80 (INCL. VAT) VAT) 15 SCHOOLS IN 5 YEARS OUTSIDE IN N$49,80 RSA: NAMIBIA R31,49 APRIL 2018 CONTENTS 32 Why startups like Uber stumble when they scale “If I hear the words ‘because this is how we’ve always done it’ or ‘that’s how it works’, I immediately know I have to change it. Too much is done simply because it’s always been done like that. If you want to change an industry, you need to find completely new solutions to the same problems.” — Stacey Brewer, co-founder, SPARK Schools 21 Did you know that 85% of the time, barriers to growth are not funding, the economy or even superior competitors? Instead, top growth organisations say that their biggest barriers are internal, specifically, the founder’s ability to scale. Here are the five questions you need to be asking yourself if you want to overcome your internal roadblocks and build your organisation. ON THE COVER 46 GROWTH AT A MILE A MINUTE 11 32 53 60 21 9 Mike Wright launched Striata from his garage in Kensington. He was 30 years old, had no savings, and had left an MD’s position to pursue his dreams. Today, Striata is an international business with offices in the US, UK, Asia and South Africa. Some of the company’s growth plans have worked extremely well, others have failed to gain traction. These are Mike’s lessons in growth, and the do’s and don’ts of international expansion. THE DISRUPTOR Stacey Brewer has secured R200 million in investment funding for two key reasons: Her business, SPARK Schools, is focused on achieving systemic change in a sector that desperately needs it, and second, because she’s a disruptor and an innovator. Her focus is finding new solutions for old problems, and she’s receiving a lot of support on her journey. A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 1 CONTENTS APRIL 2018 HOW TO DO BIG THINGS Great journeys don’t happen overnight, great goals aren’t accomplished in a day. Local leadership and personal development coach Erik Kruger unpacks why you need to align everything in your life in the direction of your vision to achieve big things. SMARTS 9 How smart people work less and get more done 11 6 ways to develop a millionaire mindset 16 Investment funds that offer a 100% reduction in taxable income SCALE 25 Why the education sector is a massive business opportunity 27 Top interview advice 30 Creating a community around your brand 35 Building businesses of value 36 Why uninsured employees are bad for business 41 Closing more deals 13 WINNING THROUGH MARKETING Digital marketing maverick Dylan Kohlstädt unpacks how start-ups can maximise their marketing spend through savvy and cost-effective digital campaigns. “If you don’t research, you make assumptions. The more time you spend on this process, the cheaper and more effective your marketing will be.” 53 LAUNCH 56 59 60 61 62 Learning from failure Start with the end in mind Bouncing back from rejection Where start-up founders go wrong Ask Al BUSINESS SHOWCASE 42 43 44 45 ACDC Parity Sage Travelit IN EVERY ISSUE 4 Contact Us 6 First Word 52 Digital Subs 2 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 38 SURVIVING GROWTH Scaling a business from 100 to 200 employees is never easy. Taking a business from ten employees to 50 is near impossible. Advisory strategist Hasnayn Ebrahim unpacks what separates ordinary businesses from the exceptional. PUBLISHING CREDITS READ BY • • • • • Visionaries Innovators Disruptors Employers Wealth Builders FACT: SOUTH AFRICA’S NO.1 READ BUSINESS MAGAZINE AMPS 2015 B www.entrepreneurmag.co.za EDITORIAL PUBLISHER Andrew Honey DIRECTOR: PRINT & DIGITAL Nicole Honey MANAGING EDITOR: EMSA Nadine Todd COPY EDITOR Lesley Lambert WRITERS Nadine Todd, Diana Albertyn, Nicole Crampton CLIENT ADMINISTRATOR: Diana Albertyn WEBMASTER & TRAFFIC CO-ORDINATOR Chelsea Gillespie CONTENT MARKETING MANAGER & ONLINE EDITOR Catherine Bristow CONTENT EDITOR Pritesh Ruthun BUSINESS WRITER & CLIENT LIAISON Nicole Crampton ART CREATIVE DIRECTOR Saveer Sugreem SENIOR ART DIRECTOR Dineo Mokgoasi PHOTOGRAPHERS Devin Lester, Jodie Mamela, Mike Turner, Sarah Schäfer ADVERTISING BUSINESS SOLUTIONS MANAGER Nadine Todd SENIOR MEDIA SOLUTIONS CONSULTANT Jann Becker MEDIA SOLUTIONS CONSULTANTS JHB: Clarise Sha, Nivesh Singh CAPE TOWN: Samantha Peel MEDIA SOLUTIONS ASSISTANT Seipati Modise GROUP MANAGERS MARKETING, CIRCULATION & COMMUNITIES Dean Harty ADMINISTRATION BOOK KEEPER Genevieve Reynard EXECUTIVE PA Verna Lombard GENERAL OPERATIONS CO-ORDINATOR Yvonne Botha RECRUITMENT AND SPECIAL PROJECTS Janine Lombard DIRECTORS MANAGING Andrew Honey DIGITAL & PRINT Nicole Honey ENTREPRENEUR MEDIA INC. 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SMARTS 6 Ways to Develop a Millionaire Mindset, By Nick Unsworth, 19 January 2018 * How Smart People Work Less and Get More Done, By Travis Bradberry, Entrepreneur, 4 April 2017 BUSINESS UNUSUAL 4 Ways Sleeping Naked Makes You Healthier and Wealthier, By Travis Bradberry, Entrepreneur, 17 July 2017 FIRST WORD better — it can even make you worse. Extensive research in a wide range of fields shows that many people not only fail to improve, they frequently don’t even get any better than where they were when they started. The concept of deliberate practice is quite specific. It isn’t work or play, and it certainly isn’t ‘practice frequently’. Push yourself beyond your comfort zone IN A FAMOUS STUDY of chess players, Nobel Prize winner Herbert Simon and William Chase proposed ‘the ten year rule’, based on their observation that chess players only reached the top ranks after at least a decade of intensive study. Subsequent research in a wide range of fields has substantiated this rule, from maths and science to musical composition, swimming, tennis and literature — no one, not even the most ‘talented’ performers, became great without at least ten years of very hard preparation. Malcolm Gladwell brought this idea to the world of business, entrepreneurship and personal development in his 2008 bestseller, Outliers, when he said that ‘ten thousand hours is the magic number of greatness.’ Since then, the 10 000 Hour Rule has become the foundation of the idea that we need to work hard to achieve our goals and become experts in our fields. 6 IT’S NOT JUST ABOUT PUTTING IN THE TIME Like many ideas, both the 10 Year Rule and the 10 000 Hour Rule have become oversimplified, so much so that many psychologists debunk the theories that practice is enough. Gladwell agrees. His 10 000 Hour Rule was never intended to focus only on putting in the time. In fact, the key to becoming a master in your field is what’s known as deliberate practice. Geoff Colvin, author of Talent is Overrated, has found that true greatness comes less from an innate talent, genetics, intelligence or even luck, and has much more to do with deliberate hard work and practice. We see evidence of this everywhere. There are many people who have played sports, musical instruments, worked in a specific job for years, and yet they’re still just ordinary people, with ordinary performances. Which means just putting in the hours doesn’t always make you E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 PUSHING YOURSELF FURTHER When we see great performers, it strikes us that they’ve practised for so long, and done it so many times, they can do it automatically. What they’ve actually achieved is the ability to avoid doing it automatically. Great performers never allow themselves to reach the automatic, arrested development stage in their chosen field. The essence of practice, which is constantly trying to do the things you can’t do comfortably, makes automatic behaviour impossible. Ultimately, your performance needs to be conscious and controlled, not automatic. Consider great leaders and entrepreneurs who never stop learning, reading and pushing themselves. They understand that deliberate practice is: » Designed specifically to improve performance » Repeated a lot » Requires continuous feedback » Highly demanding mentally » Not much fun. Deliberate practice is hard work. It takes a lot of discipline. But the rewards are as great. Consider these words from Geoff Colvin: “If it seems a bit depressing that the most important thing you can do to improve performance is no fun, take consolation in this fact: It must be so. If the activities that lead to greatness were easy and fun, then everyone would do them and they would not distinguish the best from the rest. The reality that deliberate practice is hard can even be seen as good news. It means that most people won’t do it. So, your willingness to do it will distinguish you all the more.” THE CRITICAL ROLE OF A COACH A key element of success is having someone who holds you accountable for your goals and monitors your progress, picking up things you won’t see. A coach will also know the theory of each activity and understand how performance can be improved in that area. Great performers isolate aspects of what they do and focus on improving them. This requires focus, and it’s easy to get side-tracked. Many successful entrepreneurs have this in common — they have worked with a mentor or coach. Deliberate practice requires immediate feedback from a coach or mentor and systematic ways to separate your opinions from your results so that you can focus on what generates good outcomes. This is easier said than done. The good news is that you are not alone. If you’re truly serious about becoming the expert in your field, find someone who will keep you on point. And then start putting in the time — deliberately, of course. Entrepreneur continues to be South Africa’s top-read business magazine because of you, our loyal readers. Thank you. We hope you enjoy reading this issue as much as we have enjoyed putting it together. Nadine Todd, Managing Editor SMARTS IDEAS FOR MAKING WISER USE OF YOUR TIME & ATTENTION WORK LESS & GET MORE DONE How you work is far more important than how much you work. BY TRAVIS BRADBERRY A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 9 SMARTS PRODUCTIVITY SOME PEOPLE have an uncanny ability to get things done. They keep their nights and weekends sacred and still get more done than people who work ten or 20 hours more per week than they do. A new study from Stanford University shows that they are on to something. The study found that productivity per hour declines sharply when the workweek exceeds 50 hours, and productivity drops off so much after 55 hours that there’s no point in working any more. That’s right, people who work as much as 70 hours (or more) per week actually get the same amount done as people who work 55 hours. Smart people know the importance of shifting gears on the weekend to relaxing and rejuvenating activities. They use their weekends to create a better week ahead. This is easier said than done, so here’s some help. The following are some things that you can do to find balance on the weekend and come into work at 110% on Monday morning. 1 DISCONNECT Disconnecting is the most important weekend strategy, because if you can’t find a way to remove yourself electronically from your work, then you’ve never really left. Making yourself available 24/7 exposes you to a constant barrage of stressors that prevent you from refocusing and recharging. If taking the entire weekend off handling work emails and calls isn’t realistic, try designating specific times on Saturday and Sunday for checking emails and responding to voicemails. For example, check your messages on Saturday afternoon while your kids are getting a haircut and on Sunday evenings after dinner. This will alleviate stress without sacrificing availability. 2 MINIMISE CHORES Chores have a funny habit of completely taking over your weekends. When this happens, you lose the opportunity to relax and reflect. What’s worse is that a lot of chores feel like work, and if you spend all weekend doing them, you just put in a seven-day workweek. To keep this from happening, you need to schedule your chores like you would anything else during the week, and if you don’t complete them during the allotted time, you move on and finish them the following weekend. 10 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 3 EXERCISE No time to exercise during the week? You have 48 hours every weekend to make it happen. Getting your body moving for as little as ten minutes releases GABA, a soothing neurotransmitter that reduces stress. Exercise is also a great way to come up with new ideas. Innovators and other successful people know that being outdoors often sparks creativity. I know that a lot of my best ideas come to me while I’m surfing. While you’re out in the ocean, the combination of invigorating activity and beautiful scenery creates the perfect environment for an influx of creativity. Whether you’re running, cycling or gardening, exercise leads to endorphin-fueled introspection. The key is to find a physical activity that does this for you and then to make it an important part of your weekend routine. 4 REFLECT Weekly reflection is a powerful tool for improvement. Use the weekend to contemplate the larger forces that are shaping your industry, your organisation and your job. Without the distractions of Monday to Friday busy work, you should be able to see things in a whole new light. Use this insight to alter your approach to the coming week, improving your efficiency and efficacy. 5 PURSUE A PASSION You might be surprised by what happens when you pursue something you’re passionate about on weekends. Indulging your passions is a great way to escape stress and open your mind to new ways of thinking. Things like playing music, reading, writing, painting or even playing soccer with your kids can help stimulate different modes of thought that can reap huge dividends over the coming week. 6 SPEND QUALITY TIME WITH FAMILY Spending quality time with your family on the weekend is essential if you want to recharge and relax. Weekdays are so hectic that the entire week can fly by with little quality family time. Don’t let this bleed into your weekends. Take your kids to the park, take your spouse to his or her favourite restaurant and visit your parents. You’ll be glad you did. 7 SCHEDULE MICRO-ADVENTURES Buy tickets to a concert or play, or get reservations for that cool new hotel that just opened downtown. Instead of running on a treadmill, plan a hike. Try something you haven’t done before or perhaps something you haven’t done in a long time. Studies show that anticipating something good to come is a significant part of what makes the activity pleasurable. Knowing that you have something interesting planned for Saturday will not only be fun come Saturday, but it will significantly improve your mood throughout the week. 8 WAKE UP AT THE SAME TIME It’s tempting to sleep in on the weekend to catch up on your sleep. Though it feels good temporarily, having an inconsistent wake-up time disturbs your circadian rhythm. Your body cycles through an elaborate series of sleep phases in order for you to wake up rested and refreshed. One of these phases involves preparing your mind to be awake and alert, which is why people often wake up just before their alarm clock goes off (the brain is trained and ready). When you sleep past your regular wake-up time, you end up feeling groggy and tired. This isn’t just disruptive to your day off, it also makes you less productive on Monday because your brain isn’t ready to wake up at your regular time. If you need to catch up on sleep, just go to bed earlier. 9 DESIGNATE MORNINGS AS ME TIME It can be difficult to get time to yourself on the weekends, especially if you have family. Finding a way to engage in an activity you’re passionate about first thing in the morning can pay massive dividends in happiness and cleanliness of mind. It’s also a great way to perfect your circadian rhythm by forcing yourself to wake up at the same time you do on weekdays. Your mind achieves peak performance two-to-four hours after you wake up, so engage in something mental while your mind is at its peak. 10 PREPARE FOR THE UPCOMING WEEK The weekend is a great time to spend a few moments planning your upcoming week. As little as 30 minutes of planning can yield significant gains in productivity and reduced stress. The week feels a lot more manageable when you go into it with a plan. EM © Entrepreneur Media Inc. All rights reserved. TRAVIS BRADBERRY is the awardwinning co-author of the best-selling book, Emotional Intelligence 2.0, and the co-founder of TalentSmart — a consultancy that serves more than 75% of Fortune 500 companies and is a leading provider of emotional intelligence tests and training. PSYCHOLOGY OF SUCCESS SMARTS 6 WAYS TO DEVELOP A MILLIONAIRE MINDSET Chasing money has remarkably little to do with getting rich. BY NICK UNSWORTH S o, you want to become a millionaire entrepreneur? You’re not alone. Many dream of leaving their job and becoming their own boss, enjoying the various millionaire lifestyles we watch on TV. But there’s a difference between those who dream of becoming millionaires and those who do. And it begins and ends with mindset. If you don’t develop that mindset, you will continue to spin your wheels, working just as hard, but never going anywhere. Developing a millionaire mindset requires you to stretch your thinking. Start by developing the following six attributes. 1. HAVE VISION If you aspire to be a millionaire at some point in your life, or you aspire to have a sevenfigure business, you’ve got to get really clear on why you want it. Throughout my 20s, making money was my ‘why.’ A number of business successes and failures taught me that it’s not about the money, but about what the money can do for you. Why do you want to be a millionaire? You must be really clear on your ‘why,’ so that when times get tough, or you don’t want to wake up at 4 am or make another cold call, you are pulled to do it anyway. What impact do you want to have? What is the positive impact of achieving your sevenfigure goal, and even more compelling, what's the negative impact of not achieving it? When we make our vision and our ‘why’ about others, there's an exponential increase in the inspired action that we'll take to achieve it. Some of the greatest entrepreneurs in the world have very big missions. They know exactly where they’re going and why they’re going there. They are clear on the impact and the legacy they’re building. What is your impact? And what kind of legacy do you want to build? The more you connect to your impact, the more willing you’ll be to do the uncomfortable things that lead to rapid growth. In addition, millionaire business owners have a ‘now’ mentality. Rather than putting things off, they do what is necessary now, no matter how scary or impossible it feels. Knowing why you’re doing what you’re doing and being a ‘now’ kind of person will push you to get what you want. 2. LOVE WHAT YOU DO When you love what you do, it doesn't feel like work. And, when you love what you do, money will inevitably flow to and through you. Even if, at the moment, you’re working in a career or job you don’t love, simply shifting the way you think about it can shift your entire mindset. Rather than bemoan your job, think of it as your banker that’s supporting you as you work to where you want to be. Speak life into your present situation and shift your way of being so that you cherish your job for providing you with the means to pursue the work you love. A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 11 SMARTS PSYCHOLOGY OF SUCCESS 3. BE SOLUTION-FOCUSED Be very clear on the problem your business solves. In addition, being solution-focused means that you see solutions where others see problems, despite your circumstance. So, when the going gets tough and most people pack it up and go home, the millionaire mind knows that there's always a solution, and that, no matter how big the problem or challenge, it’s a blessing in disguise. Even failure reaps benefits that will serve you in the future. By focusing on solutions rather than problems, you maintain a positive mindset and are not rattled by circumstances beyond your control that may derail others. The bigger you grow as an entrepreneur, the greater the pressure, the responsibility and the problems. Millionaires are excited by their challenges because they know that abundance lies on the other side. Further, people who see solutions attract others who seek solutions. First and foremost, get a coach. My life was impacted more by having a coach than by anything else I’ve ever done in business or in life, in general. Secondly, be coachable. Often what happens when you seek wise counsel is that you put up a wall between you and the feedback you’re receiving. Know that a coach sees your business and life from an outside perspective that you cannot. Trust that your coach has wisdom and a full picture perspective that you just don’t have. The more primed you are to hear and assimilate feedback, the faster and farther your business will grow. 6. FLIP YOUR THINKING FROM DOING TO BEING People, especially entrepreneurs, are constantly doing in order to have stuff — a new car, house, clients or whatever it is that will make them feel significant and good about themselves. They believe that once they become millionaires, they will truly be significant and have done something If you truly want to have a million dollars, you must first be and think like a millionaire. By doing so, you will attract the necessary resources to you. 4. CONTINUALLY HONE YOUR LEADERSHIP SKILLS Focusing on your leadership skills is going to dramatically shift and change everything in your life and business. Grab the book The 21 Irrefutable Laws of Leadership by John C. Maxwell and internalise it. The more you grow your leadership skills, the more you’re going to attract other like-minded leaders into your business. One of my favourite irrefutable laws of leadership, the law of the lid, teaches that you are the lid on your container. In other words, you are the one who limits the growth of your business. By enhancing your leadership skills, you will blow the lid off your business. worthwhile. But that’s backwards. If you truly want to have a million dollars, you must first be and think like a millionaire. By doing so, you will attract the necessary resources to you. It’s not about doing something in order to have something or in order to be someone. You must be someone first; someone who has what she needs in order to take the inspired action. To become a millionaire, you must be a millionaire who thinks like a millionaire, who has what a millionaire has, in order to take the inspired action that a millionaire takes. EM © Entrepreneur Media Inc. All rights reserved. 5. BE GROWTH-ORIENTED Millionaire business owners endlessly pursue personal growth and development. 12 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 NICK UNSWORTH is CEO of Life On Fire, a business coaching company located in San Diego, California. WHY YOU SHOULD DEFINE YOUR FEARS INSTEAD OF YOUR GOALS JERZY “Easy choices, hard life. SAYS Hard choices, easy life.” — Jerzy Gregorek, four-time world champion in Olympic weightlifting, political refugee, published poet “We suffer more often in SENECA SAYS imagination than in reality.” — Seneca the Younger, a famous Stoic writer and ancient Roman philospher TIM SAYS “The hard choices — what we most fear doing, asking, saying — these are very often exactly what we most need to do. And the biggest challenges and problems we face will never be solved with comfortable conversations, whether it's in your own head or with other people. “I can trace all of my biggest wins and all of my biggest disasters averted back to doing fear-setting at least once a quarter. It's not a panacea. You'll find that some of your fears are very wellfounded. “But you shouldn’t conclude that without first putting them under a microscope. And it doesn’t make all the hard times, the hard choices, easy, but it can make a lot of them easier.” — Tim Ferriss, best-selling author of the 4 Day Work Week To find out more about Tim Ferriss’s three-page fear setting exercise, and the back story of how this exercise put him on the path to writing his first book, watch the full Ted Talk here. GOALS SMARTS become bolder because you become more confident. Soon you find yourself taking bigger and bigger decisions and actions. But they were born from the thousands of small decisions and actions that you took before. BETTER YOU HOW TO DO BIG THINGS The secret to achieving impossible dreams is accretion — slowly and steadily working towards your goals. BY ERIK KRUGER I n 2005, four Navy Seals were sent on a mission to extract a high value target. Unfortunately, the mission didn’t go according to plan, leaving the Seals to fight for their lives. Three of them were killed in action. The other was shot, fell off a cliff, and in the process shattered his back and legs. He also bit off half of his tongue, and endured multiple gunshot wounds. Yet, despite the fact that he couldn’t walk, he managed to crawl 11 kms to a nearby village and to safety. When he was asked how he did it he said that he took a stone in his hand, stretched his arm out in front of him and drew a line in the sand. All he wanted to do was get across that line. As soon as he managed to drag his feet across the line, he drew a new one. In fact, he kept drawing lines and crossing them for 11 kms. That is how he did the impossible. One line in the sand at a time. THE PARADOX Motivational speakers love telling us to take big actions; to think and act big. Although I can appreciate the sentiment, and sometimes it’s apt, I think that it often has a counterproductive effect. It scares people. It implies that there is also the possibility for massive failure. But it's not just about the actual failure of a project or business. It’s the internal dialogue that goes with it. The inner voice that starts telling you that you aren’t good enough. That you shouldn’t even try. I’m sure you can relate. We all have a judger inside us that rears its head when we are trying to do meaningful things. That criticises every move and decision. The judger has a great ability to prevent us from taking any action at all. Let alone massive action. When you realise that accretion is about the accumulation of all the things that you do and all the decisions that you make, you start to see the importance of aligning everything in your life in the direction of your goals. THE WAY It’s for this reason that I always encourage entrepreneurs to simply focus on the line in front of them. Keep in mind the direction you want to move in, and the goal you would like to achieve, and then start by crossing that first small line. And when you’ve done that, cross the second. As you continue, you pick up momentum. Your actions ACCRETION I talk about this principle often. Accretion is the accumulation of all of your compounding efforts, small wins, abilities, knowledge, and experiences. Over time this process accumulates and perpetuates what you feed into it. When you realise that accretion is about the accumulation of all the things that you do and all the decisions that you make, you start to see the importance of aligning everything in your life in the direction of your goals. The reason I am writing to you today is because of the body of work that I have accumulated through the writing of my daily email. An email that has gone out more than 580 times. Every day without missing a beat. It’s my line in the sand that I cross every day. And the result of it has not simply been an accumulation of 580 emails. It has been a successful business, the opportunity to become a coach, to speak on stages with well-known businessmen, and write this column for Entrepreneur magazine. Remember that consistency breeds success. I’d much rather bet on the guy who consistently executes well than the guy who hits a homerun every now and then. Draw a line in the sand. Cross it. Then tomorrow, do it again. EM ERIK KRUGER is a leadership and personal development coach. His daily email on being better in business and life goes out to 17 000 people. @EricKruger | www.erikkruger.com | www.bettermanblueprint.com A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 13 ADVERTORIAL Q&A True success starts with how much you’re willing to do to achieve it. If you’re hungry to learn and develop, the business world is your oyster. BY NADINE TODD Q Why is it important for entrepreneurs to focus on personal development and education, even after they are no longer a start-up? Research in South Africa has revealed that 80% of SMEs fail within the first two years of starting a business. So, if an entrepreneur makes it beyond this stage, it’s worth investing time, money and effort to make sure that they succeed by seeking entrepreneurial education, training and development to improve their business offerings. New competitors are constantly entering the market and established entrepreneurs should make sure that they maintain their competitive advantage by educating themselves in areas such as the most current trends in their industries, changes in the market, offering more and better innovative products and services, staying close to their target Q Many start-ups conduct thorough research, and then don’t continue to focus on development as the business grows. Often, the reason for this is lack of time. What advice would you offer entrepreneurs in this regard? Time is a problem for all entrepreneurs; there is never enough of it. It’s a matter of how effectively you use your time and how you plan the activities 14 market to determine the most effective marketing strategies and providing a stronger value proposition. For established entrepreneurs, there is also the risk of growing too fast or not being able to manage their growth. These entrepreneurs should then educate themselves on the most effective growth strategies suited for their business. Personal development is crucial, as entrepreneurs progress through the entrepreneurial process because they learn as they go. An example is when established entrepreneurs conduct a personality profile to determine how to cognitively adapt to their current entrepreneurial environment. Weaknesses or areas of improvement, such as poor financial planning for example, are highlighted and entrepreneurs can then work on these areas. that should happen within a specific time period. A big problem with entrepreneurs is also a lack of delegation, as they want to be involved in every area of the business. Entrepreneurs need to determine which activities can be delegated to an employee or partner and focus on the core skills that they are competent in and which help the business to grow. E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Professor Melodi Botha is an associate professor and researcher at the Department of Business Management in the Faculty of Economic and Management Sciences at the University of Pretoria. She is the Programme Lead for the MPhil degree in Entrepreneurship. Her research focuses on training, educating and supporting entrepreneurs at different stages of preparing, starting and managing a business. Q What skills should entrepreneurs be developing while they are starting and then managing a business? We recently conducted research on the skills that entrepreneurs need as they progress through the various stages of the entrepreneurial process. We identified two sets of skills, namely functional competencies and enterprising competencies. Q Are there any tips and tricks you can offer to people who want to study, but still need the time to run their businesses? Studying or learning should be a life-long journey that should not necessarily have an expiry date. I am talking about gaining life skills and developing entrepreneurial abilities through everyday learning. Most professional qualifications require continued professional education and I see no reason why entrepreneurs should not adopt the same approach. Therefore, my first tip would be to plan to study. It should be part of a daily routine to study or learn more about an area where weaknesses arise. Many universities offer short courses such as three-day programmes in different speciality areas, which PHOTO: SUPPLIED The power of lifelong learning The findings further revealed that established entrepreneurs viewed functional competencies such as marketing, financial, operational, legal, human resource, networking, technical, communication and planning skills as important skills to have during the established stage. Both startup and established entrepreneurs viewed enterprising competencies such as creativity, innovation, role model interpretation, opportunity recognition, risk taking, need for achievement and the ability to gather and control resources as important during both stages. More specifically, financial and legal skills should receive more attention when starting a business. In a similar study, we found that potential entrepreneurs should focus on opportunity recognition, opportunity assessment and creative problem solving during the potential entrepreneur stage. At the same time, start-up entrepreneurs should focus on opportunity recognition, building networks and resilience, while established entrepreneurs should focus on risk management/mitigation, building and using networks as well as resilience. you can attend and not be away from your business for too long. In early stages of formal tertiary education, my advice would be to focus on your studies first and thereafter focus on the business. This does not mean that you don’t have to start planning and acquiring resources while still studying. For example, our second year students, studying towards a BCom in Entrepreneurship, prepare their own feasibility studies and compile business plans as part of the curricula. Q What startling facts and figures has your research revealed that many entrepreneurs don’t realise? In a recent study we determined that many potential entrepreneurs (students) show a strong entrepreneurial intention to start a business in future but rarely go over into action and the rate of actual startups, in South Africa, remains low. This is also the case for entrepreneurship education graduates. However, prior entrepreneurial exposure, such as having entrepreneurial parents or entrepreneurial role models during the course of their studies, increased the start-up rate. Another interesting study we conducted on women entrepreneurs revealed that women are in desperate need of entrepreneurial training and education. The Women Entrepreneurship Programme (WEP) at the University of Pretoria measured 180 women who completed the programme. These women were measured on their skills level before the programme, directly after the programme, six months after the programme and ten years after the programme took place. They were measured on eight different levels and the WEP proved to be effective in not only transferring entrepreneurial and business skills to women, but also improving their business performance indicators (turnover, employees, sales and profit). Some of the women (35%) started multiple businesses six months after they attended the WEP. Ten years after the programme, the results of the study confirmed that these women’s businesses made a significant difference in their communities and the economy of South Africa as a whole. EM SMARTS INVESTMENTS Invest and save 100% of your tax payable to SARS Q&A Section 12J funds were created in response to the South African Government offering tax incentives for private investors to support funds that support SME growth in South Africa. Three experts unpack the benefits of investing in 12J funds — particularly for high net worth individuals. BY NADINE TODD AND NICOLE CRAMPTON THE EXPERTS Clive Butkow is the former Chief Operating Officer (COO) of Accenture South Africa. He has 28 years’ management consulting experience. During his tenure at Accenture, he played numerous leadership roles, including MD of Accenture’s Technology business, as well as MD of Accenture’s Resources business. He is currently the CEO of Kalon Venture Partners, a disruptive digital technology Venture Capital Fund (VCC). He sits on various boards of the VCC’s underlying companies, and is chairman of one of the companies. He also sits on the board of a large privately held ICT company. Kalon Venture Partners focuses on investing in disruptive digital technologies. Visit: www.kalonvp.com 16 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Neill Hobbs is a Chartered Accountant CA(SA), Registered Auditor and Senior Business Rescue Practitioner. For the last 14 years, Neill has been a partner of Hobbs Sinclair, where his skills have been utilised in building an accounting practice specialising in tax structures. Four years ago, Neill became a Business Rescue Practitioner and has taken on many successful appointments to date, which involved saving hundreds of jobs and INVESTMENTS Q What is a 12J Fund? Clive Butkow: In 2009, the South African Government implemented a tax incentive for investors in enterprises through a Venture Capital Company (VCC) regime known as Section 12J. These funds were set up to help early stage companies raise venture capital to stimulate economic growth and job creation. Section 12J was based on the Venture Capital Trusts (VCT) in the UK, which enable high net worth Individuals to save tax and rather invest in a VCT, which will then invest in start-ups. Individuals, trusts and companies can all invest in a Section 12J company and receive the respective tax deduction. Neill Hobbs: The South African Revenue Services (SARS) has written Section 12J into the Tax Act, which offers taxpayers a 100% reduction in their taxable income in the year of investment for the amount they invest by way of a subscription for shares in a Section 12J VCC. The VCC then invests into small and mediumsized enterprises (SMEs) with the added intention of creating jobs and securing employment. The VCC must be approved by both SARS and the Financial Services Board. Q Why is it tax deductible? Gidon Novick: The legislation provides for a tax deduction providing the fund complies with returning the companies to profitability. His high level strategic management was a key driver that led to their success. Neill is passionate about SMEs and has an interest in the South African Tax Act. He is a director and co-founder of Anuva Investments, a Section 12J VCC that has been operating since 2015. Anuva’s internal rate of return, excluding the tax break, was 26% at the end of February 2017, meaning that R1 million invested in February 2015 would have grown to R1,59 million in February last year. Visit: www.anuvainvestments.co.za the requirements of the Act. The intent of the incentive is to stimulate certain critical areas of the South African economy (such as tourism and hospitality) through SME growth in the sector. Neill: Section 12J advocates investment into SMEs and junior mining exploration to act as a catalyst for a positive shift in the economy. We know that SMEs are a significant source of employment in the economy and provide a plethora of job opportunities and income security for households. This ultimately creates a positive iterative loop in the economy. Q How do the tax deductions work? Clive: The total amount invested can be deducted from the taxpayers’ taxable income. This results in a taxpayer (who is paying tax at the marginal rate of 45%), saving 45% of their investment by reducing their taxable income. For example, a taxpayer who has a taxable income of R1 million and would normally pay R450 000 to SARS will rather pay the R1 million to the Section 12J company and pay zero tax. The caveat is that the taxpayer needs to hold their shares for five years in the relevant Section 12J fund, or SARS will recoup their tax saving. The tax is deductible to incentivise taxpayers to rather invest in a Section 12J company and promote SMARTS the growth of the South African economy than pay tax on their taxable income. Q This seems like a double benefit to investors? Is that correct and why? Clive: There’s definitely a double benefit, as the taxpayer receives a once off deduction from SARS in the year they invest in the Section 12J company, as well as an added benefit based on the performance of the Section 12J company. Some companies are set up to invest their capital in higher risk ventures with others in lower risk ventures. The returns to investors range from 15% to 38% based on the nature of the fund and their investment strategy. Gidon: The benefit to investors would be in the form of their tax deduction but importantly also their investment returns. Investors need to fully understand the nature of the investments the fund is making, the risks involved and their ability to cash out after the five-year minimum term, in other words, the liquidity of the investment. Neill: Individual investors will get an immediate tax saving, up to 45% of the amount invested, in addition to any dividends and long-term capital growth. A Section 12J VCC provides selfinterest value to the taxpayer in the tax saving and growth in investment, but in a broader sense, marries business value Gidon Novack is a socially-minded entrepreneur who has created innovative, high growth opportunities within large businesses and built new businesses from inception. He served as Joint-CEO of Comair from 2006 to 2011, and as CEO of Discovery’s world-leading wellness programme (with a turnover of R2 billion) from 2012 to 2015. Since 2015 he has spearheaded Lucid Ventures, a registered 12J operator with a focus on property-backed hospitality investments. There is a strong global trend towards apartment style hotel accommodation, and Lucid invests in small units in new residential developments in high-demand urban areas and operates a hospitality business in those units. Visit: lucidventures.co.za A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 17 SMARTS INVESTMENTS with societal value through the boost in the SME space. Q What are the pros and cons of a 12J fund versus more traditional investment portfolios? Neill: The benefit for a deduction in respect of a retirement annuity contribution is limited to R350 000 in a year, whereas the contribution and benefit of an investment into a Section 12J VCC is not capped and can be 100% of taxable income. Many SMEs require capital and management support. With the support from the VCC team, stakeholder integration and interaction takes place on the factory floor, rather than just Q What is the amount you can invest into a 12J fund? Neill: CIPC requires that if a VCC does not have a prospectus, then the minimum amount that can be invested is R1 million. The intention with this is to make sure that any general person from the public, who might not understand the investment they are investing into, does not invest more than is appropriate for them. Clive: Our recommendation at Kalon Venture Partners is that an investor should not invest more than 7,5% to 10% of their net wealth into a Section 12J due to the higher risk profile of a venture capital investment. Section 12J is particularly attractive to high income earners. It’s also attractive to those taxpayers who have made a capital gain, which will be subject to capital gains tax. in the boardroom. The investor management team walks the walk with the SME. A VCC investment should be viewed as a long-term investment. The proceeds on the sale of the VCC shares will be subject to full tax recoupment if the shares in the VCC are sold within five years from the date of investment. If the shares are held for a period exceeding five years, the sales proceeds from the sale of the shares will only be subject to capital gains tax, albeit from a zero base. Clive: A major pro for investors is the upfront tax advantage where there is no limit to the investment that you can make, unlike an RA, which is limited to a percentage of taxable income and capped. A second pro is the fact that investors can now diversify their portfolio with 12J investments and not only invest in the traditional capital markets. 18 Q Is there a ‘right’ time to invest in a 12J fund with regards to tax exemptions? Clive: There is no right time to invest, however with the current rand strength we see this as a vital time to diversify one’s portfolio. The most effective time to raise capital is at the tax year end on 28 February. An alternate time of the year that capital is raised is during the provisional tax season in August or September each year. Gidon: An investor should only consider a 12J if they have the taxable income and don’t need access to the funds they have invested for at least five years. Investments must be made before the tax year-end (ie 28 February) to qualify for the deduction in that year. Neill: Section 12J is particularly attractive to high income earners. It’s also attractive to those taxpayers who have made a capital gain, which will E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Q What questions should investors who are interested in investing in a 12J fund be asking? Clive: The most important question is of the experience and reputation within the management team. Money follows management in the venture capital asset class. The management team needs to have experience in the investment strategy of their Section 12J fund. At Kalon Venture Partners we only invest in disruptive digital technologies where the CEO and the board have significant experience in buying, building and selling technology companies. The CEO was the exCOO of Accenture South Africa and prior to that led Accenture’s technology business. Another important consideration is how the Section 12J company creates liquidity for their investors as it’s important for the investor to understand how and when the Section 12J company will pay dividends of the profits and surpluses on the sale of assets. Lastly, investors must understand the governance and investment disciplines, systems and processes when making investments. Gidon: What is the risk/return profile of the underlying investments? Who are the fund managers and what is their track record? What are the assets that underpin the investments? How will this fund make an impact on the South African economy and job creation? How will I get my money out after five years? Neill: Confirm SARS and FSB approval. What is the VCC’s investment strategy? The VCC’s industry focus? What is the fund’s launch date? Track record? Capital raised? Targeted return? Number of investments made in qualifying companies? Annual financial statements published? Basis for valuing the underlying investment and the VCC’s dividend policy and history? Fee structure? Minimum investment? be subject to capital gains tax. For example, an individual who realises a capital gain of R5 million in the 2018 tax year, will only have to invest the inclusion amount of 40% (R2 million) into a VCC to avoid capital gains tax completely in the 2018 tax year. A VCC investment is the only recognised manner in which a corporate employee, who is subject to PAYE on their salary, can receive a refund of PAYE deducted by the employer. Although there is no provision for a directive for the reduction of the PAYE amount, an employee who earns R2 million per annum, and makes a R2 million VCC investment, could receive a full refund of PAYE on the submission of their annual tax return. The sunset clause is currently 30 June 2021. This means that funds invested before that date must remain in for the five-year period, but any funds invested into a 12J fund after that date will not enjoy the current tax benefits. This date could be re-assessed and extended. EM ADVERTORIAL PLAYER: Kate Holahan FRANCHISE: Sorbet POSITION: Franchisee — Sorbet and Sorbet Man Benmore ESTABLISHED: 2015 VISIT: www. sorbet.co.za Sorbet franchisee Kate Holahan went from corporate employee in 2015 to owning two franchise locations in just over two years. By September 2017, she had launched a new location, acquired new clients and was learning something new every day. It took a few learning curves and partnering with the right bank to lead her to successfully running her Sorbet and Sorbet Man stores at Benmore Shopping Centre in Sandton. BY DIANA ALBERTYN Q&A Q Q Q PHOTO: DEVIN LESTER What were you doing before becoming a Sorbet franchisee? I was in the marketing department of a corporate IT company. The long hours and the pressure made me realise I needed a lifestyle change. What drew you to franchising? It was purely because of the backing you receive. Franchising offers better support systems than going into entrepreneurship on your own. Everything is structured and ready for you to run. Why did you choose to invest in Sorbet? I had been a Sorbet guest for a couple of years and admired the company’s culture and service. I knew it would be an amazing brand to be a part of. What have some of the challenges of operating a Sorbet outlet been? I’ve encountered minimal challenges on the salon side, but Sorbet Man has been a little more challenging. Since opening the male-focused grooming bar I’ve had to deal with different client personalities, but I’m lucky enough to still have the team working for me that I started with when I opened my doors for the first time three years ago. Q Why is it important for a franchisee like yourself to have a good banking partner? As a franchisee in a specialised field you need a bank that knows your business intimately so they are attentive and pre-emptive to your needs. Q FOLLOWING YOUR DREAMS? NAILED IT! Q and hygiene checks. From the Sorbet Man side I’m getting a lot of support because I’m new to the concept. Sorbet helps me source staff and run marketing initiatives, although we’re allowed some flexibility with localised promotions, provided they don’t clash with the brand’s overall marketing calendar. Q Why did you decide on a second location so soon after launching your first? It was always the plan to open a couple of stores. The centre from which I operate complements both the target markets for the men’s and women’s salons, so it was an inevitable and lucrative venture. Also, as an entrepreneur, the earnings are not the same as a corporate job, so being a multi-unit franchisee is a great way to meet my financial needs. How has Nedbank supported you in your journey since launching the business, to successfully running and growing it to its current size? When I started my business I was with a different bank, then I changed banks for the second time before opening my Sorbet Man store, which I set up through Nedbank, on the advice of Sorbet’s head office. Unlike the previous two banks, Nedbank customised its solutions to suit me without any qualms and I ended up moving all my banking for both outlets to them. Q How often do you communicate with head office and what support are you offered? I meet with my area manager bi-weekly for quality control A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 19 SCALE ACTIONABLE ‘HOW-TO’ INSIGHTS FOR COMPETITIVE ADVANTAGE ADAPTING AT THE SPEED OF SCALE SPARK Schools is a disruptive educational business model that has garnered so much investor interest, its founder, Stacey Brewer, has secured R200 million in funding. Here’s how she’s turning a traditional, entrenched industry on its head to solve real problems and bring about systemic change. PHOTO: DEVIN LESTER BY NADINE TODD A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 21 SCALE DISRUPTIVE MINDSET I n 2012, Stacey Brewer raised R4,5 million in her first round of funding. It gave her an 18-month runway to focus on launching her low-fee private school model, SPARK Schools. This was followed by R28 million from an international fund, the Pearson Group’s Affordable Learning Fund. The business’s most recent round of funding was a Series B round that raised R150 million in 2016, taking SPARK’s overall funding to R200 million. “We’ve committed to having 20 schools by 2019, which will enable us to educate 12 000 children,” says Stacey. “Our investors still expect a 10X return, but it’s ‘patient’ capital, designed to support impactful business models. Educational companies are highly valued. They provide a good annuity income, but investors also love what we do because we’re focused on achieving systemic change, and funds are looking for that. More and more, funding mandates are focused on the greater good. “This is still a business though. One school is not a business — you can’t scale it, and so there’s no growth opportunity. If you can build a network of schools however, you can benefit from economies of scale.” Here’s how Stacey and her team are turning the traditional education model on its head, and in so doing, are providing value for children, parents and their funders alike. IF THAT’S HOW IT’S ALWAYS BEEN DONE, IT’S TIME TO DO THINGS DIFFERENTLY As a low-cost private school, SPARK aims to make a quality private school education accessible to parents who cannot afford traditional private school fees. What Stacey and her team soon learnt however, is that everyone is looking for quality, irrespective of social and economic status. “When we started, we thought our price would be a huge selling 22 KEY INSIGHTS Don’t do what’s always been done Following an accepted industry or business practice will only help you achieve more of the same. If you really want to radically improve your business, a sector or the lives of your customers, you need to question everything. Start with the problem If you can’t clearly define your problem, you’ll never come up with a solution that suits your target market. What’s your AQ, or adaptability quotient? Forget IQ and EQ — businesses that are looking to scale need to be highly adaptable. point. We soon realised it actually switched people off. There was an assumption that you get what you pay for, and that low fees mean a poor-quality education,” says Stacey. “South Africa is very aspirational, and people want the best for their children. “We needed to reposition what we were doing and focus on the fact that our schools have a modern, aspirational look and feel, and that we deliver a quality education. Once we had driven those points home, we could discuss price. Now that we’re becoming known and our kids are our ambassadors, this is a different story, but it was very important when we launched. “Parents vote with their feet — just being cheap isn’t enough. We’ve received the investment we have because we’ve developed a model that’s both affordable and can compete internationally.” A full year’s tuition at SPARK for 2018 is R21 000. How do you provide a quality educational experience at a fraction of the traditional price? To start with, you need to embrace a disruptive mindset. Stacey says ‘no’ to doing anything the traditional way, as this will immediately drive up the school’s price point, and the E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 business will lose its ‘why’. So, what’s the solution? “You need to embrace your constraints. It takes a special person to be involved in our team. We need individuals with a high level of accountability, and who can focus on being lean and agile. But it’s amazing what we come up with when we’re forced to think out the box. Raising our fees is the easy answer, and once you go that route it doesn’t stop. Instead, we need to be excited by the opportunity to come up with solutions given the constraints we’re faced with. “If I hear the words ‘because this is how we’ve always done it’ or ‘that’s how it works’, I immediately know I have to change it. Too much is done simply because it’s always been done that way. If you want to change an industry, you need to find completely new solutions to the same problems.” THE BIG IDEA Let’s take a step back to how the idea for SPARK Schools originated. Stacey was studying an MBA in Entrepreneurship at GIBS (the Gordon Institute of Business Science). During her economics lectures she discovered that although a high percentage of South Africa’s budget is allocated to education, South Africa still ranks amongst the worst education systems in the world. “I wanted to understand what was going wrong, and to research what the solution could be,” she says. Stacey wasn’t planning on launching a new and disruptive education model, but she did need a theme for her thesis, and she wanted to address a real problem. “I believe that all entrepreneurs should be advancing the human race. We need to question what we’re doing to change society. What problem are you solving? How are you making the world a better place? How are you making it more sustainable? “This view meant I gravitated towards one of the biggest problems I believe we face as our country. One of my professors agreed. She liked the thesis topic, and advised me to start networking in that space. I needed to get on the map and speak to other like-minded people who were interested in education.” Stacey took her professor’s advice, and started networking. “This was how I met our first angel investor, David Gibb, who was on sabbatical after resigning from his position as head of research at STANLIB. At the time I had no plans to start this business, which meant funding wasn’t even a thought, but I found a very supportive mentor who is very passionate about business and education. “Dave and I had incredible discussions around the problem, and what the solution needed to take into account. I still had no concrete ideas of actually launching a school, but I was on a path that clearly showed we needed to create something completely new. Tweaking the current model wouldn’t be enough. “The MBA and my thesis also forced me to take a deep dive into my research. I’m not sure startups always do this, and certainly not to the level I took it. But it’s been a very important success factor for us. The research I PHOTO: SUPPLIED DISRUPTIVE MINDSET conducted while completing my thesis has allowed us to position ourselves very well within our market. More importantly, it helped us get from ‘what?’ to ‘how?’” Thanks to Dave and Stacey’s own tenacity, she was also developing a strong network in the educational space. “Dave introduced me to the blended learning model in the US. He then offered to fund a trip overseas so that we could evaluate if the tech the blended learning model is based on would be feasible in South Africa.” It was at this stage that Stacey asked Ryan Harrison, a tech-savvy friend from university, to join her on the trip. “I understood the educational landscape, but not the tech — I asked Ryan to join me so that he could evaluate whether or not it suited our local conditions.” Stacey and Ryan returned to South Africa, and she knew this wasn’t just an idea or a thesis anymore. “I knew I was going to open a school. Ryan was also excited by the concept and wanted to join me. Our trip introduced us to Rocketship Public Schools, who have pioneered blended learning in the US. They were very open to us, and shared everything they’re doing. This feeds back to purpose — they want to change education and solve a real need, and they’re supportive of anyone who shares that passion. Two of their staff came and joined us when we launched, and one is still with us today.” THE LESSON: Stacey didn’t start out thinking she wanted to launch a business and trying to figure out what that would be. Instead, she found something she was passionate about — something she knew was broken and needed real, innovative solutions to fix. That passion led her down a path where she learnt as much as possible about the topic, met other passionate people with ideas and solutions to share, and finally developed a model that would help her solve a societal need and drive systemic change. MATCHING PROBLEMS WITH SOLUTIONS Once Stacey and her co-founder Ryan had their big idea, they needed to launch. A school (or more specifically a network of schools) requires capital. You can’t bootstrap a school. This is one more reason why you need an idea that will drive real change (and returns) — something investors are increasingly looking for. “David Gibb gave us some seed funding and bridged the gap to find formal investment, and GIBS introduced us to a network of angel investors. This was how we raised our first round of funding of R4,5 million to launch our first school.” Interestingly, raising funding PLAYER: Stacey Brewer CO-FOUNDER: Ryan Harrison COMPANY: SPARK Schools NO OF SCHOOLS IN NETWORK: 15 2019 GOAL: ± 12 000 students and 20 schools EST: 2013 VISIT: www. sparkschools. co.za The basic premise of all innovation and disruption is starting with the problem. If you can clearly define the problem, the solution will often start to present itself. SCALE isn’t just about pitching your business to investors — it’s also a dialogue between the entrepreneurs and their investors. At the end of the day, it’s in everyone’s best interests for the business to do well. “At that stage, we were looking at buying or building a school,” says Stacey. “Our investors disagreed. Their advice was that we prove the model instead of focusing on property. We needed to focus all of our attention on the problem at hand. What makes education expensive?” The basic premise of all innovation and disruption is starting with the problem. If you can clearly define the problem, the solution will often start to present itself. In the case of education, particularly providing lowincome earners quality but affordable education, the problem is cost. “Infrastructure and salaries are the two biggest costs. To bring down fees, you need fewer teachers and smaller spaces. You also need to achieve both while improving quality. That’s the benchmark. Once we knew that, we just needed to figure out how to do it.” An added element was the investment component. Funders are interested in businesses that can scale. As we’ve already mentioned, one school is not a business. But a network of schools is. Once you have a network, you can leverage economies of scale, which is when investors start seeing their returns. “Once we were introduced to the blended learning model, we realised it was exactly what we were looking for. The traditional model doesn’t support low fee solutions. We needed a different solution. I did not want to rely on donor funding. “NGOs become too dependent on donors and end up struggling over time. They’re also constantly needing to raise cash. I want SPARK to live far beyond me. If we built it properly from the beginning, with decent A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 23 SCALE DISRUPTIVE MINDSET margins and a sustainable price point, we knew we’d get investors on board — particularly because so many funds are now interested in creating systemic change as well. “We quickly realised blended learning was the solution we were looking for. It’s a model that drives cost efficiencies by focusing on the utilisation of assets. It’s also data rich, which drives quality. Most importantly, it can be scaled. “At first, we were fast followers, now we’re evolving into leaders in this space. Our delivery of quality at our price point is one of the best in the world. We never, ever throw cash at a problem. Instead, we rethink and redo the system — that’s where we know we’ll find the solutions we need.” THE LESSON: Start with the right problem and you will find a solution. If you aren’t clear on the problem though, you’ll be working around it, either following existing solutions or making assumptions about what people need. You need to dig into the detail. The problems that really need solving are often complex, so learn to interrogate things from every angle. FORGET IQ AND EQ, WHAT YOU NEED IS AQ Stacey is a firm believer that the success of SPARK is rooted in her team’s AQ, or Adaptability Quotient. “We’ve gathered a team of smart thinkers who are able to adapt quickly to new challenges, based on the ingrained idea that the old solutions won’t work. The problem is that you’re unlikely to be adaptable if you don’t also have passion. “The name for our schools comes from William Yates, who said that education is not the filling of a pail, but the lighting of a fire. It’s about igniting passion, and we needed that same passion to really start solving our education crisis. We want to spark a change across the country. “I bring passion, and my team has passion and common purpose — when you have these ingredients, you figure things out,” says Stacey. “When you’re constrained, both in terms of cash and human capital, you need to be smart. We call it ‘frugal’ innovation. If you don’t throw people or cash at a problem, you really find solutions. You can also seldom cut back costings once they are there. I love a constrained environment — I see it as an opportunity. “We had one major advantage: We didn’t have an education background, which meant we questioned everything. More importantly, it means we’re not precious about anything. We’re willing to try new things to see if they work, and if they achieve LISTEN TO THE PODCAST Matt Brown chats to Stacey Brewer about taking a business from MBA thesis to R200 million funding. 24 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 our objectives. I’ve learnt that too often, people don’t even know why they do things — they just do them because that’s the way it’s always been done. “Infrastructure and salaries are the two highest costs we need to solve. We’ve combined two blended learning models to address this. The first is lab rotation. From Grade R, our students are in and out of learning labs. Our teachers introduce a concept in the classroom, and then the students rotate to a learning lab, where they practically work through problems related to the concept on computers. Data is gathered during these sessions and addressed. Our teachers see multiple students based on this rotation. The learning labs are run by facilitators, not teachers. At full capacity it’s a highly operational schedule, and our students are always in small, flexible groups of four to six children. Our staff cover multiple classes and are experts within specific areas.” THE LESSON: What skills and attributes does your organisation need most? This may change as you start scaling, but in order to know who you need in which positions, you need to understand your organisation. To listen to the podcast, go to www.mattbrownmedia.co.za or find the Matt Brown Show on iTunes or Stitcher. The Matt Brown Show is a podcast with a listenership in over 100 countries and is designed to empower entrepreneurs around the world through information sharing. SCALE FAST, BUT LEARN FASTER You’d think that finding a model that solves the cost versus output problem South Africa’s education system currently faces would have been Stacey’s biggest challenge. It wasn’t. “Our biggest challenge has been scale. We’ve doubled our network of staff and kids every year since we launched our first school in 2013. In 2017 we had 4 000 students and 450 staff. This year we are educating 7 000 kids with a staff of over 700. “We understood 4 000 kids, but towards the end of last year we needed to seriously consider what 7 000 kids would look like. You have to think about it before you get there. What does 20 000 kids look like? You’re going from a village to a city. There are changes, and you need processes and systems to cope. “I personally need to grow faster than the organisation. I need to reinvent myself and my role every six months and stay ahead of everyone else. It’s imperative that leaders of organisations are selfaware and willing to improve themselves. “I have mentors and coaches. I’ve built a network of people that I can reach out to when I have questions or challenges. I love feedback, and I’m always asking ‘what’s next?’ What does the company need from me? Today I’m less operational and more focused on strategy. What are we doing? How do we start leading our industry? Are we engaging other stakeholders? “These aren’t only local questions. What are people doing and thinking globally? We can’t solve this by ourselves. We need other people to open schools, to offer more choice for families. OPPORTUNITY People vote with their feet, and that’s good for business. I’m all for competition. The people who benefit from healthy competition in this sector are the families and their children, because it puts the power in the family’s hands in terms of choice and accountability. The problem is also so big, there’s room for multiple players.” A big part of Stacey and SPARK’s success is the team she’s built around her. This frees her up to focus on strategy, but it also gives the business a growth foundation. “Hiring the right people for their specific roles has been essential for us. You need to understand your organisation and its needs to get this right. At head office, we need two different types of people: Those who can build and improve schools, and those who can focus on operations and structure. “Scale is tough on people. Things break when you’re scaling, and you want them to break quickly so that you can fix them. If you’re too slow you’ll actually miss stuff, but it takes a very specific type of person who can operate at that pace.” THE LESSON: Organisations that are in scale-up mode are changing quickly. Does your team have the tools and skills they need to handle that change? Do you support them? Does everyone understand why changes need to happen quickly so that you can solve problems sooner rather than later? To learn more about the opportunities in this sector, read on SCALE Education: The growing investment opportunity The education sector continues to show remarkable growth and opportunity as the private sector fulfils the increasing need for quality education in South Africa. BY NICOLE CRAMPTON “THE EDUCATION SECTOR is interesting as it’s one of the few sectors in South Africa showing very strong fundamental growth, almost independent of general economic growth,” says Rory Ord, head of unlisted investments at 27four Investment Managers. “Education is highly demanded across all sectors of South African society, and this ties into a global trend of increasingly educated populations.” Rory Ord, head of unlisted investments at 27four Investment Managers. Demand creates an opportunity for the private sector There are two major themes in education that make it interesting from an investment perspective. “First, it’s clear that government cannot meet the demand for the different levels of education required by South Africans, and neither can it meet the standards required on a very large scale,” says Rory. He adds that beyond the top performing government schools and universities, the population using these services want better education and many are willing and able to pay for it. This has created an opportunity for the private sector, which has experienced huge growth in private schools, to the benefit BIG DEALS IN THE EDUCATION SPACE IN 2017 GetSmarter SOLD FOR R1,4 BILLION 2U, a Nasdaq-listed technology education business acquired Cape Town start-up GetSmarter for R1,4 billion. GetSmarter was founded by brothers Sam and Rob Paddock. The education business focuses on developing online short courses in partnership with higher education institutions, including Cambridge University, Harvard University, the Massachusetts Institute of Technology and the Universities of Cape Town, Witwatersrand and Stellenbosch (Business School). Both companies focus on delivering “highquality, high-touch digital higher education from world-class colleges and universities,” said 2U in a statement. Milpark Business School SOLD FOR R320 MILLION Milpark Business School was sold to Stadio, in partnership with Brimstone, for R320 million. Brimstone will pay R96 million for a 30% stake, and Stadio will pay R224 million for a 70% stake in Milpark Business School. Stadio, which falls under the Curro umbrella, says this acquisition is just the beginning; it intends to acquire several additional programmes, including degrees, higher certificated and diplomas. Mancosa UNDISCLOSED Yusuf Karadia sold Mancosa to UK private equity firm Actis, two decades after he launched the distance learning school to teach South Africans business skills. Mancosa is now a part of Actis’s expanding African higher education portfolio. Since 2014, it has spent R3.65 billion investing in educational institutes across the continent. A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 25 SCALE OPPORTUNITY of companies like Curro and ADvTECH. “Both companies have grown strongly in recent years, with Curro achieving higher percentage growth off a lower base. Curro has been highly valued by investors who have been willing to pay for the expected growth. ADvTECH is a bit more mature as a business, but has still delivered growth of 20%+, and on a much lower earnings multiple. Private education is still a small percentage of the whole, so expect more growth, but it does take time to deliver this growth in large numbers,” advises Rory. The investment opportunity of education technology “The second theme,” Rory says, “is how technology can increase the penetration of quality education. In essence, the way education is delivered has not changed with the advent of technology, but there are many areas where change is possible. “The best example of this in South Africa is GetSmarter, which partners with global brand universities to provide high quality online short courses. Founded in Cape Town, this business was acquired by 2U, a US based company doing similar things in 2017, for R1,4 billion. “Technology also promises more focused learning by tracking the progress of each student and adapting to make sure no child is left behind. We expect plenty of disruption and change in this part of the market.” What’s next for education? In the unlisted space, Milpark Business School was bought out by private equity buyers several years ago and has recently been purchased by Stadio, Curro’s tertiary education spinout and Brimstone Investment Company. A third theme is consolidation. Scale is important in education and established players with 26 capital are likely to continue purchasing smaller players to achieve this. premises, high teacher turnover and late or non-payment of school fees. WHAT THE EDUCATION SECTOR LOOKS LIKE TODAY High income schools ADvTECH, a listed private education provider, reported a 22% rise in revenue to R2 billion for the first half of 2017. Operating profits grew by 28% to R344 million, while earnings climbed 6% to 38,6 cents per share, and a dividend of 15 cents per share was declared. ADvTECH’s schools division comprises 90 schools across 47 campuses under the following brands: Abbots College, ADvTECH Academies, Centurus Colleges, Crawford Schools, Junior Colleges, Maravest Group and Trinityhouse. There are also challenges in this sector: “The difficult economic climate and unsettled socio-political environment had a more significant effect on enrolment numbers than had been anticipated. We have seen a consistent rise in the number of families emigrating and this trend had a negative effect on enrolled numbers as we lose students in grades where it is difficult to replace,” says ADvTECH. “In addition, we have seen an increase in withdrawals and exclusions as a result of financial pressures. Therefore, while actual new enrolments have been in line with expectations, net student numbers have been adversely affected by these two negative influences.” These factors, along with costs of investments in greenfield projects and school expansions, are constraining profits. The education sector is divided into three separate investment and business opportunities, namely: High income schools, low income schools and franchises. Before investing in any of these sectors you’ll need to understand them. Low income schools Low-fee or independent schools are growing at a rapid rate in South Africa. In its 2015 report, Low-Fee Private Schools: International Experience and South African Realities, the Centre for Development and Enterprise (CDE), reports that low-fee private schools that charge annual school fees of less than R12 000, are educating an estimated 250 000 learners. The schools fill in the education gap left by insufficient or dysfunctional public schools in disadvantaged communities. “The private education sector is not well researched or understood,” says Jane Hofmeyr, policy and advocacy director at the CDE. “But there is considerable potential with new players, local and international, coming into the market, looking for opportunities in South Africa and Africa.” The growth in the independent school industry emanates from for-profit and not-for-profit chains of private schools at all fee levels. The main source of income for low-fee independent schools is school fees, government subsidies and donations. Investors in this sector face a number of challenges. A convoluted regulatory environment can impede the establishment of new schools. You’ll also face high compliance costs, and more accountability with severe sanctions for noncompliance. Further challenges are acquiring affordable E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Franchising opportunities Education franchises continue to grow and spread across South Africa, fulfilling parent’s needs to invest in their children’s early learning and critical skills development through enjoyable, educational programmes. EM CURRENT OPPORTUNITIES IN THE MARKET A+ Students » Investment: R700 000 to R900 000 » Contact: +27 (0)11 958 2910 www.aplusstudents.co.za Creative Minds » Investment: R200 000 to R300 000 » Contact: +27 (0)82 785 7763/ +27 (0)21 939 6344 www.minds.co.za Innovatus FET College » Investment: R700 000 to R1 million » Contact: +27 (0)32 541 0045/6 innovatus.co.za Kip McGrath » Investment: R100 000 to R200 000 » Contact: +27 (0)31 903 5352 www.kipmcgrath.co.za/ franchise-opportunities Kumon Education South Africa » Investment: R50 000 to R100 000 » Contact: 0800 002 775 www.kumon.co.za MiniChess South Africa » Minimum investment: R55 000 » Contact: +27 (0)12 347 6464 www.minichess.co.za Sherpa Kids » Minimum investment: R150 000 » Contact: +27 (0)11 792 4679/ +27 (0)82 853 6479 www.sherpakids.co.za/ franchise-opportunity Young Entrepreneurs » Investment: R350 000 » Contact: +27 (0)87 287 4038/ +27 (0)82 442 6267 www.younge.co.za INTERVIEW INSIGHTS SCALE Million Rand Questions ILLUSTRATION: BENEDETTO CRISTOFANI Don’t waste your time asking job candidates to name their greatest weaknesses (yes, everyone will say they’re a perfectionist). Instead, try these four tips from seven entrepreneurs who offer up their best strategies. BY NADINE TODD 1. INTERVIEW FOR GROWTH Building and maintaining a sustainable business is having the right infrastructure to do so, and that takes people — great people. The problem is that while you’re on your growth path, you can’t necessarily afford the best and most experienced in the market, so the trick becomes hiring people who you can see will grow with the position — you’re not hiring for now, you’re hiring for where you want to be. When we interview, we look for hungry people. We want to know where they see themselves five years from now. — Steven Kark, Paycorp 2. LOOK FOR ACCOUNTABILITY One of our favourite interview questions is ‘Tell me about when you missed a deadline.’ It’s an immediate red flag if they say they never have; either they’re lying or they’re not accountable. We’re looking for an answer that says they had an issue, what that issue was, that they recognised it, and how they found a solution — solution and accountability are key. We also believe technology makes the whole process easier, particularly if you are stretched for time. Spend time designing questions and then get someone else to ask them. Video each interview, watch the interviews in your own time, and then select the top candidates for face-to-face interviews. — Elvira Riccardi and Donna Silver, Afrizan 3. DIG INTO THEIR CURRENT ENVIRONMENT We can’t compete with corporates on benefits, so we offer something even more valuable: Time and flexibility. There is a caveat though: Don’t employ someone whose benefits were better than you can offer. We interviewed someone who was a perfect candidate, except she was coming from a large corporate that offered an on-site masseuse for free, amongst other things. As much as we loved her, we knew we wouldn’t hold on to her. She was used to an office environment that we could never offer. You need to be hiring people who are stepping up; not the other way around. We always dig into what their current office environment is like. — Renay and Russell Tandy, Ngage 4. MAKE THEM SWEAT For years we had issues around high staff turnover. We realised that the problem started in the interview process. We were hiring the wrong people who didn’t suit our culture, and they would quickly burn out, or challenge our expectations. We realised that 80% of the success of a hire is culture. Natie Kirsh used to recommend going for a drive. He said that if you sit in the passenger seat and just chat, asking any questions that come to mind, the candidate will soon reveal themselves in the simplest ways. You’ll see the person, and you can make a judgement call on whether they suit the requirements of the position and the company. We also love the questioning method of four-year olds. Whatever the answer to a specific question is, follow it with a ‘why’. At the beginning it’s not even about the answer. Candidates will always arrive at an interview with certain rehearsed answers. If you keep asking why, eventually they have to start giving you completely unrehearsed, unplanned answers, and that’s when you’ll get a real sense of who they are. — Ran Neu-Ner and Gil Oved, The Creative Counsel EM A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 27 ADVERTORIAL “I don’t believe it’s possible to successfully run a business like ours without a solution like this.” 28 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 ADVERTORIAL MOVING FORWARD Successful businesses need to find ways to improve their margins while still delivering excellent and efficient customer service. VDM’s CEO, Deon van der Merwe, explains why this wouldn’t be possible in his business without TomTom Telematics’ solutions. BY NADINE TODD W PHOTO: SARAH SCHÄFER hen TomTom Telematics entered the South African market in 2010, the local team took a deep dive into the different industry verticals they were servicing. The more they got to know their customers, the more they realised a different solution was needed to address local conditions, and a subscription model was introduced whereby customers didn’t need to invest a large capital outlay into TomTom Telematics’ technology, but would receive the tech and software, including installation, at no extra cost, in exchange for a monthly subscription fee. This model gives SMEs affordable access to TomTom Telematics’ solutions, but it’s had another benefit as well: As TomTom Telematics introduces new innovations, existing customers can benefit — without the costs associated with replacing all of their existing technology themselves. AN INDISPENSABLE TOOL For a transport and logistics business like VDM Group, which has more than 160 vehicles on the road, this means they have access to incredible new offerings, without needing to replace their TomTom units themselves. “TomTom plays a critical role in our business,” says Deon van der Merwe, CEO of VDM Group. “It’s an indispensable tool in ensuring quality customer feedback and the management of KPIs for all supply chain stakeholders. “Earlier this year, TomTom Telematics launched their New WEBFLEET product. We were very satisfied with what we had, and yet they still approached us and offered to replace all our existing units with new tablets, and they’re covering the installation costs,” explains Deon. “New WEBFLEET is the result of TomTom innovating their product based on customer feedback from around the world, and the local team wanted to ensure we had access to the additional functionality and innovations that had been introduced.” According to Deon, the new TomTom PRO 8275 units seamlessly integrate VDM’s fleet scheduling software with information they extract from TomTom, including individual vehicles’ standing time and arrival notifications. “The software from TomTom is open API, which means that all our various applications can communicate and interact with each other,” he explains. “From a productivity perspective, we no longer need to manually capture any trip information. In addition, we have every conceivable piece of data available that will assist us to run a leaner, more cost-effective fleet, enabling us to ensure that we are delivering on all our KPIs — particularly with regards to meeting our customers’ needs.” VDM is a large transport business, but Deon believes the benefits for SMEs are as great, if not more so. “Many SMEs don’t have the back-office support that we do. The ability to capture and use this information without a team of admin specialists at your disposal is a huge competitive advantage for smaller businesses,” he says. THE COMPETITIVE EDGE VDM offers a specialised logistics service that creates custom-made options for clients. In order to ensure the most optimal and cost-effective solutions, while still ensuring top quality delivery, they need to consider special and complex individual customer requirements, from the point of origin to the point of destination, before finalising a customerspecific solution. “We take into account a host of factors, including inventory carrying costs, volume requirements, product specific factors and route to market,” explains Deon. “Road transport significantly impacts total supply chain costs, and if not managed properly, can have a severe impact on the sustainability of any particular channel. We try and manage this risk by continuously improving our service through innovative logistical solutions, the use of advanced technology, vertical integration and a team of passionate and talented experts. “This focus has helped us to develop a market offering that includes dedicated and completely flexible intermodal solutions, which is a big differentiator for us. TomTom Telematics plays a key role in our total productivity, helping us measure the performance of road transport across our supply chain.” Deon believes that what you don’t measure you won’t know. “TomTom provides updated fleet statistics that allow us to constantly benchmark our fleet against pre-defined route surveys and, in so doing, enables massive savings in fuel and total turnaround time. Communicating via the WEBFLEET platform also helps us save time and creates a formal trail of correspondence with our drivers. I don’t believe it’s possible to successfully run a business like ours without a solution like this.” About TomTom Telematics TomTom Telematics is a business unit of TomTom dedicated to fleet management, vehicle telematics and connected car services. WEBFLEET is a Software-as-a-Service solution, used by small to large businesses to improve vehicle performance, save fuel, support drivers and increase overall fleet efficiency. TomTom Telematics is one of the world’s leading telematics solution providers with more than 785 000 subscriptions worldwide, servicing drivers in more than 60 countries. Visit telematics.tomtom.com/tellmemore and follow us on Twitter @TomTomWEBFLEET A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 29 SCALE MARKETING BRAND BUILDING How to build a community around your brand There’s a way to build your market without spending a fortune on advertising and marketing — and it’s called community building. Here’s why this should be the cornerstone of your growth strategy. BY GREG TINKLER IN THEIR FIRST three years of business, social media management tool Hootsuite grew from zero to three million users. It’s an impressive feat for any company, but what’s even more notable is that they did so with virtually no advertising or marketing budget. Instead, they grew through community building. A team of 18 staff members and 100 influencers grew the company in a grassroots manner — all thanks to community engagement, according to their CEO Ryan Holmes. Below are five steps that you can use to grow your brand or company using community building as a key strategic tactic. 1 Define what your brand is and what it stands for Before you can build a community around your brand, you have to know what that 30 brand is. Do you have a mission statement? Do you know exactly who your target audience and community is? Do you have the content ready and armed to engage this community each and every day? Here’s a classic example: The colour pink doesn’t try to make itself greener, hoping to appeal to everybody who loves both. Pink is pink, and you either like it or you don’t. There are no apologies and no justifications. So, what’s your ‘pink’? What do you stand for that nobody else does? What type of people do you want in your community and, more importantly, who don’t you want to include? Move on to the next step only after you’ve answered these questions. E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 OFFER VALUE AND EXCLUSIVITY The best brands offer their communities: » Boundaries » Emotional safety » Belonging » Personal investment » Insider status 2 Find the right way to connect to your community Once you’ve identified what your brand stands for and who you are wanting to target, the next step is the ‘where’ and the ‘how’. That means choosing the right platform based on the following: » Size of your audience » How your audience prefers to engage » The features you need » Your technical skill level » Your budget. When you’re first starting out, think small and simple. A basic forum might be enough for your website, or my favourite, utilising Facebook groups if your users access it via mobile devices. Remember, Facebook organic reach is dying at a rapid pace, so groups will be the ideal way to interact directly with your customers. Use these test forums to see how your community members interact. As their numbers and engagement grow, you’ll be better equipped to choose the right platform down the road. 3 Make community membership valuable and exclusive There are five factors that make joining a community valuable for customers: 1. Boundaries 2. Emotional safety 3. A sense of belonging and identification 4. Personal investment 5. A common symbol system. Your community members need to feel safe sharing with others in your group. They need to feel that they’re accepted and that they’ve ‘earned’ their spot in the community. They also need to be able to understand the group’s social norms and how to communicate like an ‘insider’. How can you build these factors into your community? Possible strategies include: » Clearly defining and enforcing moderation standards » Limiting membership to a select group who have achieved certain status (perhaps, by buying a product or opting into a challenge or course from you) » Encouraging the development of inside jokes and memes » Giving top users benefits — even if it’s just icons for use in their posts that denote their status, or free products, discounts, invites to secret events and so on. In other words, make it exclusive. 4 Get the community talking to each other Every community will go through an ‘awkward phase’ where conversations feel a little forced and people aren't initiating conversations on their own. It will pass. Keep building your community one person at a time, and it will eventually begin to flow naturally. Don’t be discouraged by lack of engagement or feedback — If you have customers within the community, they are seeing your content and taking it in, they just need a little time to come out of their shell. The key? Keep providing value. 5 Give more than you get Lastly, why would your users remain part of your community if they aren’t getting any value out of it? Invest whatever resources you have into creating a stellar community experience. Provide helpful resources. Answer questions. Offer whatever support you have to in order to delight your community members. Your efforts will come back to you in the form of engaged followers, future purchases, and possible referrals. EM GREG TINKLER is a leading expert in brand building. He is the founder of The Cre8tive Group, a boutique marketing agency focusing on the health, wellness and beauty sectors and co-founder of the newly formed influencer marketing agency GossBoxx. www.gregtinkler.biz SCALE STUMBLING BLOCKS WHY START-UPS LIKE UBER STUMBLE WHEN THEY SCALE High-growth companies will more often than not stumble and fall because of internal factors. Here’s what you should be paying attention to in your organisation if you have ambitions to scale. BY CHRIS ZOOK AND JAMES ALLEN 32 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 STUMBLING BLOCKS THE NEWS last year that Uber’s CEO was stepping down was probably not a surprise to those who had been following the company in the headlines. In our work over many years, we have learnt enough to know that you have to be on the inside of any company to have the full picture of what went wrong and how. But we do know from our research that rapidly growing companies — especially unicorns like Uber — face a high risk of stumbling. As a business term, ‘unicorn’ was coined to describe a rarity: In 2011 there were just 28 early-stage companies, still privately owned, with investment valuations of $1 billion or more. Today there are more than 200 unicorns, with a total value estimated by CB Insights at almost $700 billion. Uber is one of them: Its valuation rose to a record-setting $68 billion just seven years after its founding, despite reporting losses of more than $700 million in the first quarter of 2017. But when we tracked those 28 unicorns (along with 11 similar companies with valuations of $600 million or more) over the period from 2011 to the present, we found that 33% failed to grow at all and another 28% grew less than expected. Nearly two in three died or stumbled. Unicorns and near-unicorns actually are much more prone to self-induced internal breakdowns than they are vulnerable to adverse events in the marketplace. And they’re not alone. One of the hardest acts in business is scaling a business rapidly and profitably. Bain’s research concludes that of all new businesses registered in the US, only about one in 500 will reach a size of $100 million — and a mere one in 17 000 will attain $500 million in size and also sustain a decade of profitable growth. WHY INTERNAL THREATS ARE REAL More often, they trip over themselves. Research for our book, The Founder’s Mentality found that 85% of the time, the barriers to growth cited by executives at rapidly growing companies are internal — as opposed to, say, external threats such as unreceptive customers, a misread business opportunity or the moves of a dangerous competitor. The title of the book celebrates the internal energy and sense of insurgency that propels rapidly growing companies, but the book also warns of four predictable internal growth barriers that all too often trip up these companies during their pursuit of scale. One of these is what we called the unscalable founder. We believe the founder’s mentality is a strategic asset. Nurtured correctly, it can help a company achieve scale insurgency — a company with the benefits of both size and agility. But many individual founders aren’t scalable. Individual founders can become a barrier to growth if they are unable to let go of the details and micromanage, fail to build a cohesive team around them, or allow hubris to get in their way. We found that 37% of executives at growing companies describe the unscalable founder as a major barrier to their success. Scaling a business requires enormous determination — it’s like catching lightning in a bottle. Typically, founders discover a repeatable model of success that is extraordinary and are rewarded for ignoring distractions and focusing ruthlessly on that single insurgent mission and the repeatable model that delivers it. But over time the market changes and the company needs to change its model. The same founder who was rewarded for SCALE ignoring distractions previously is often the last person to adapt. The skills that help founders get their company to take off are often the opposite of those needed to sustain new growth. Founders focus on speed, ignore good process and relish breaking the rules of the industry they are trying to disrupt. They cut corners, ignore detractors, and avoid naysayers. Their Herculean efforts are responsible for the firm’s creation, but also its chaos. Once the company reaches cruising altitude, its leaders need to listen more to competing voices and invest more time in emerging stakeholders. Founders are also often responsible for driving their teams to stretch and accomplish far more than ever seemed possible, sometimes at enormous personal sacrifice. Yet this can make it impossible for them to replace or supplement these foundational team members with new professionals who can take the organisation to the next level. The founder remains too loyal to the original team. Founders who both create and successfully scale their company are like lightning striking twice — the miracle of creation and the miracle of sustainable growth in the same person. That is rare. INTERNAL BREAKDOWNS IN ACTION The other three barriers described in our book underscore the challenge. Some 55% of executives cite the problem of revenue growing faster than talent: The company grows so quickly that it has trouble attracting the quality and amount of talent that it needs. And as growth creates complexity, complexity becomes a silent killer of growth: 22% of executives cite a lack of accountability as the company expands and the rules become A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 33 SCALE STUMBLING BLOCKS unclear. At its worst, this can breed a toxic culture. Perhaps most perplexing, 25% of executives cite loss of the voices at the front line as the growing company becomes preoccupied with internal matters, numbing it to customer feedback that can improve the business model or to the concerns of frontline employees. In our study of unicorns, we took a closer look at ten that stumbled the hardest, companies like Groupon, Zenefits, Jawbone, GoPro, and Zynga — a group that experienced a peak-to-trough valuation decline of about 75% on average. We concluded that about half encountered major external market challenges that clearly contributed to the decline; we found that these external factors always impeded the progress of the company in combination with a well-documented internal breakdown. For instance, GoPro discovered that to really fulfil its growth potential it was going to have to not just become a manufacturer of small camera devices — a difficult business to defend against the large consumer electronics companies like Sony — but also create an ecosystem of services (uploading to the Cloud) and products (drones with cameras) that would differentiate it in the future. This is what founder Nick Woodman described as becoming a sort of ‘mini Apple’, a much harder strategy to successfully execute. That challenge was reflected in a near 50% revenue shortfall in 2016 from what analysts had expected, ultimately triggering a decline in the company’s valuation down to $1 billion from its onetime high of $12 billion. In contrast to the moderate frequency of external breakdowns, literally every one of the fallen unicorns we studied encountered 34 Only 15% of the time did these leaders feel that the primary threat to achieving their plans was external (a superior competitor, a new business model, government regulation, market shifts or saturation). The majority were internal factors — factors they should be able to control. WIN THIS Win a copy of Chris Zook and James Allen’s new book, The Founders Mentality, published by Harvard Business Review Press. Email editorial@ entrepreneurmag. co.za to enter E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 well-documented internal issues that contributed to or actually caused the stumble. Consider Zenefits, a provider of efficient online employee benefits services for small and medium-size companies. In early 2015 Zenefits announced that its revenues were going to increase by a factor of ten that year, to $100 million, causing investors to flood it with money at a valuation of over $4 billion. The core idea for the company had been well proven, the market was certainly large and untapped, and Zenefits was clearly in the lead. Yet according to the company itself, Zenefits stumbled because it wasn’t prepared internally for scaling up. When its valuation collapsed by 55%, and its CEO-founder was replaced, the new CEO wrote an email to staff noting, “It is no secret that Zenefits grew too fast, stretching both our culture and our controls.’’ For instance, the company’s ‘frat-like’ culture became too dysfunctional to run a tight operation in a highly regulated industry, and some of the measures taken to certify new employees in health insurance law became severely compromised. ASSESSING YOUR ABILITY TO SCALE If these are the rock stars of business — surrounded by the best investors, boards and advisers — what about the rest? To dig deeper into the challenges facing high-growth companies, we held more than 25 workshops across the world, assembling a group we called the Founder’s Mentality 100: Companies that attained early success and scale, and showed further promise and desire to grow by five or even ten times over the coming years. When we surveyed executives in these private discussion sessions, we found a consistent story: Only 15% of the time did these leaders feel that the primary threat to achieving their plans was external (a superior competitor, a new business model, government regulation, market shifts or saturation). The majority were internal factors — factors they should be able to control. When monitoring our health, doctors use a set of proven questions and tests. With so many company growth stories coming undone because of internal causes that their leaders could have controlled, what is the equivalent protocol to diagnose growing companies? We suggest asking these five questions to assess the general health of a business and its ability to grow to large scale: 1. Is your founder scaling the team at a pace to address the opportunities and challenges of a scale insurgent? 2. Do we have a talent plan to match our growth plan? If not, how do we close the gap? 3. Is the voice of the customer and the front line as strong as it used to be? How do we know? 4. Is our insurgent mission, so inspirational in the early days, still strong, or is it getting diluted? 5. Do people still feel an owner’s mindset that drives accountability and immediate problem solving? If you are part of an organisation with bold growth ambitions, make sure you are asking these five questions early and often. CHRIS ZOOK is a partner in Bain & Company’s Boston office and has been a co-head of the firm’s global strategy practice for twenty years. JAMES ALLEN is a partner in Bain & Company’s London office and a co-head of the firm’s global strategy practice. Zook & Allen are co-authors of The Founder’s Mentality: How to Overcome the Predictable Crises of Growth. SUCCESSFUL BOARDS good idea it was going to require guidance and critique to support its success. The discussion got to the point where I turned to the shareholder-manager and asked, “What questions are we actually allowed to ask?” It was in a slightly heated tone, I will admit. There were a few moments of silence while the room took stock. The point was made and management relaxed a bit. We then worked through the issues as a team. The entrepreneur still refers to that discussion and the fact that if he is not prepared to hear the board, then what is the point of having a board. If you are not prepared to hear challenging statements and answer difficult questions, then do not have a board in the first place. IN THE BOARDROOM WORKING TOGETHER TO BUILD BUSINESSES OF VALUE If you want to drive growth in your organisation, you need to listen to your board at critical junctions. BY CARL BATES IN SPEAKING with shareholdermanagers about creating a board of directors, at some point the most critical question of all raises its head. “At the end of the day, will you actually listen to them?” Having a board of directors is a great driver of profitability and performance as we have traversed in previous articles. However, if you are not prepared to listen to them you will not receive the value from having them there. LISTENING AT CRITICAL MOMENTS It can be very easy to respond to this challenging question by saying, “Of course I would listen to them.” In practice, it can be a much harder reality. More specifically, it can be one thing listening to your board when you like what they have to say, and another thing entirely when you disagree or do not like what you are having to hear. When your board is challenging you, making you feel uncomfortable or suggesting you are going down the wrong path, this is the time to sit up and take notice. Being the shareholdermanager and the entrepreneur means having to take a step back and take account of what others are saying. It can be an interesting change. I am sure that on your entrepreneurial journey you, as have I, have occupied that comfort zone of “what I say goes.” In the SCALE boardroom though, the last thing you want your non-executive directors to do is to turn-off because of the way you respond. DO NOT AVOID THE TOUGH DISCUSSIONS As a non-executive director, I am not one who avoids the tough discussions. In a board meeting I once chaired, the board felt that whatever we asked or said about a particular issue we were told we did not know the context or management explained how much work had already been done. It was as though the entrepreneur had decided what was happening and did not want the board to get in the way. The project in question was at an early stage and while it was a IT TAKES TWO TO TANGO If you are not getting this sort of level of challenge and debate, it may not only be your fault as the entrepreneur. It may not be because you have shut down conversations or stopped lines of questioning you have not liked. It could be because you do not have directors who are naturally challenging enough. If you have a board of directors, including independent nonexecutive directors, my question for you is, “When was your last tough discussion?” If this is a difficult question to answer then you should ask yourself, “Has my board turned off the tough discussions because of how I respond?” or “Do I need to find non-executives who are really willing and able to challenge me?” Building a high-performance board is a journey, not a destination. It is critical that you have the right people around the table to tango with you. EM CARL BATES is a global entrepreneur and the founder of Sirdar Global Group, which helps SMEs to achieve extreme business success. His latest book Traversing the Avalanche, is a practical guide to the implementation of effective corporate governance for SME growth. @CarlBates www.sirdargroup.com A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 35 SCALE HUMAN RESOURCES 5 THINGS YOU HAVE TO KNOW WHY UNINSURED EMPLOYEES ARE BAD FOR BUSINESS Often businesses assume that their employees will take the necessary steps to insure themselves, but in reality, many people don’t. By covering your employees you’re not just insuring their financial futures if something happens, you’re covering your business too. BY ANTHONY MILLER HEALTHY YOU, HEALTHY BUSINESS Why getting healthy is imperative if you want to be a high-impact entrepreneur. ENTREPRENEURSHIP is not for sissies. It involves dreams and risks. Cash flow is crucial and often thin on the ground, as owners juggle the challenges of overheads and growth. An entrepreneur or SME owner cannot fall back on the financial cushioning that is characteristic of much larger corporate businesses. That said, as an entrepreneur have you ever thought what would happen if one of your staff members were suddenly unable to provide for their families due to death or disability? Would their family be left destitute? Would you as a business owner feel obliged to contribute to cover funeral costs and offer support to the family concerned? If so, you should be considering a group life policy as the financial and emotional strain on the business can be significant. Group cover is generally far cheaper than retail cover. In many cases, employees can even cancel their individual cover and, in so doing, save a significant amount of money. Recognising both the need and the opportunity, our business, Simply Financial Services, recently introduced an online Group Cover product. These are our top five questions asked by business owners when considering employee benefits. Health is a far more powerful determinant of an individual’s happiness than his or her income. Self-described ‘healthy’ people were 20% happier on average, while ‘unhealthy’ people were 8.25% less happy. The direction of causality appears to move in both directions; healthier people are happier and happier people are more likely to care for their health. DID YOU KNOW? — Economic Determinants of Happiness Study, 2010 US Census 36 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 HUMAN RESOURCES 1 Why is group life cover better for my employees than their retail alternatives? Group life insurance holds numerous benefits for individuals. First, since the employer pays the premium, persistency is typically better and dependants are more consistently protected. Second, the cost of group cover is often far lower (for equivalent cover) than the individual could get directly. Third, better cover may be provided for people with impaired health. And finally, waiting periods are often waived or shortened. We’re convinced that good value group cover is a net positive investment for a company. 2 Is group life cover affordable? Group life cover starts at very affordable levels. Meaningful cover can be obtained from about R49 per employee per month. Also, there are ways to structure the payment of premiums in such a way that it becomes part of your employees’ total remuneration package. You may for example want to structure it so that the employee makes a contribution, which is matched by the business. Affordability is obviously important to SME owners and entrepreneurs. Costs need to be weighed against benefits both in terms of increased loyalty and job satisfaction from employees, and the potential cost to the business if a key member of staff is disabled or dies. 3 What does group life cover typically include? Cover varies a lot from provider to provider and ranges from very simple funeral policies to very complex death and disability cover. Cover can be a multiple of annual salary or a fixed amount of cover for both life and disability, and a fixed amount of cover for family funerals. You should look out for the following when selecting your product: » Benefits. What’s included in the cover? What benefits does it include? In our view, you should look for a product that provides good value protection products (eg. life, disability, family funeral). This caters for as wide a range of scenarios as possible. Be careful you don’t end up with a bundle of value added services (eg. free airtime) and very little life or disability cover. » Free cover limits. Is there a guaranteed amount of cover (the ‘free cover limit’), up to which your employees are covered for death and disability from both natural and accidental causes (full cover), irrespective of employee numbers? » Waiting period. How long would you have to wait, from when you take out the policy, before your employees get full cover, rather than just accidental-only cover? » Pricing. How does the price compare with your alternatives — both group and retail — and how are Eating unhealthily is linked with a 66% increased risk of loss of productivity, while rare exercise is linked with a 50% increased risk of low productivity. — Population Health Management Journal Q What’s hidden in the fine print? It’s really important to check the fine print, to ensure there are no nasty surprises when there’s a claim. Many providers have complex policy rules and documents, and SMEs only discover the details when it’s too late. A good barometer is to look at how simple and transparent the sign-up process is, and how user-friendly the policy documents are. premiums likely to change over time? 4 What provider should I choose? Make sure your insurance provider has a reliable track record, and is underwritten by a recognised insurance provider. There are a lot of fly-by-night players out there and you need to ensure that the policy you are buying has the backing of established and well-recognised market players. You need to be confident that your insurer can be trusted to pay when it comes to claim time. 5 How do I go about buying and administering the policy? Traditionally, brokers have sold group life policies and provided admin support to their clients. MAKE EXERCISE A PRIORITY: A healthy body will help cultivate a healthy mind. According to the CDC (Centre for Disease Control in the US), 80% of adults don’t get the recommended amount of exercise. The Physical Activity Guidelines for Americans say that adults should get 2.5 hours a week or more of moderate- SCALE Since quite a lot of work is involved and commissions are limited, brokers have not typically been available to SMEs. As such, there is a long tail of SMEs who don’t have group life cover and their employees are at risk. Fortunately, there are now options available that allow SMEs to do it themselves online and for brokers to serve SMEs cost-effectively. You need to decide whether you want the peace of mind of working through a broker or the speed, control and convenience of doing it yourself online. In conclusion, we believe group life insurance offers much value and peace of mind for SMEs. While many South Africans have funeral cover, very few have life or disability cover. As an SME owner or manager, you can show you care by taking a policy for your employees. Not only will you probably save money relative to an equivalent retail product, you’ll be amazed at how much your employees will appreciate your care and generosity. And you’ll be able to sleep easy, knowing their families will be taken care of if they die or become disabled. EM ANTHONY MILLER is CEO of insurtech business, Simply Financial Services. The business aims to secure the financial futures for South Africa’s mass market by selling easy-to-understand, affordable life insurance products. www.simply.co.za intensity aerobic activity and two strength training sessions per week. FOR THE ENTREPRENEUR: Even if you’re crazy busy, find ten minutes here and there. It will help with alleviate stress and get those endorphins pumped up to take on business challenges. Your company will thank you for it. A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 37 SCALE GROWTH CHALLENGES Scaling a business from 100 to 200 employees is never easy. Taking a business from ten employees to 50 is near impossible. Why? Having the correct growth strategy is important, but executing it while exponentially growing your staff and adding complexity to your organisation is what separates the exceptional from the ordinary. Management consultant Hasnayn Ebrahim shares his secrets for high-level growth. BY NADINE TODD A s start-ups, most SMEs run instinctively, rather than strategically. It’s a critical element of their success. The ability of founders and their teams to see opportunities and pursue them gives SMEs the agility to take shape and grow. But this also means that the business is responding to stimuli in the economy and through networks, rather than shaping its own strategy. Every successful SME reaches a point where a more 38 systematised approach to business must be implemented, or the company will stumble at the growth phase. In other words, the ability to scale requires a strategy. This is hardly a ground-breaking revelation. Where many businesses fail however, is in the execution of that strategy. “Strategy is only as good as a management team’s capacity to execute it,” confirms Hasnayn Ebrahim, Executive Director at Africa International Advisors (AIA), and an ex-consultant at a top-tier international firm. E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 “Strategy alone is fantasy. You need to capacitate your organisation to be able to implement and achieve your strategy. Unless you do that, you will always be a victim of circumstance, instead of riding the wave of opportunity. “Execution begins with your people, from employees right through to management and your executive level. Businesses succeed and fail with their people.” Here are the five rules of strategic growth, based on Hasnayn’s years of experience in management consulting, and building AIA and its subsidiaries. PLAYER: Hasnayn Ebrahim POSITION: Executive Director COMPANY: Africa International Advisors (AIA) and Strategi.exe ABOUT: An advisory practice that focuses on end-to-end strategy in the multinational, public sector and mid to large corporate space. AIA’s offering is integrated with its human capital and training offerings, and a new software division, Strategi. exe VISIT: www. africaia.com; strategiexe.com PHOTO: DEVIN LESTER SURVIVING GROWTH GROWTH CHALLENGES your gaps? What do you need to do to fill, close and enhance those gaps?” KEY INSIGHTS Play in a space where there’s no competition All business owners want to be in space where there’s no competition. Sometimes, the way to achieve this is to take three different ideas or capabilities, and bring them together in a unique way that benefits your customers. Be willing to change As the founder of your organisation, your role remains critical in the growth phase of your business. But in order to continue to lead effectively, you need to be willing to change. This is how you’ll still be able to spot opportunities as they arrive, and make the hard decisions required to align your organisation to growth. Could you handle 100% year on year growth? It sounds like a dream, but what would you do if your workload and turnover suddenly doubled? Would your customers still receive the service levels they are accustomed to? Would you be able to deliver on all those additional orders? Scale is impossible without the right structures and processes in place. 1 SCALE Understand yourself and your core competencies What sets you apart from the competition? How will you compete in the market? How big is the market? Unless there are clearly defined opportunities to pursue in a highly competitive industry, what is your ability to scale? “Not every business is geared to scale,” explains Hasnayn, “which is why you need to begin with these questions. In many cases, a business is actually better off not scaling, at least in its current form. Either the market won’t support them, or short-term contracts that require capacity can actually hurt the business in the long run, when the project is over and you’ve got more staff and higher overheads than your customer base can support. “Growth must be rooted. You can’t lose sight of your present reality. That doesn’t mean your aim shouldn’t be to scale — it just means you need to be very strategic about where your opportunities lie, and how to pursue them.” Have you critically and strategically evaluated your market? Is there room for growth in your present market? “It’s important to understand your core when you’re answering this question,” says Hasnayn. “Your core isn’t necessarily a product. It could be your customers. Who are they, and what else do they need, that you could deliver? What is adjacent to your core that you can pivot to? “As AIA, we developed a consulting solution for clients in the public sector, and then realised they lacked the capacity to deliver our solutions. This led to a training division for us. Between 2006 and 2011, 5 000 mid- to senior-level managers went through our five-day training and consulting programmes. “Our software division began in the same way. We realised our clients were trying to execute sophisticated strategies with outdated performance management solutions, and so we developed a product to help them. It’s created annuity income for us, and it delivers on a need for our clients. “The subsequent acquisition of a training company has also allowed us to integrate our system with a learning platform, extending our solutions even further, but still within our core competencies and market.” So, where do you begin? “If there is a market, you need to determine how you can compete,” says Hasnayn. “What are the specific market opportunities, and what is your unique value proposition and competitive advantage? “We all want to play in a space where there’s no competition. That might take three different ideas, and bringing them together is what gives you your advantage. You need to understand the market, your competitors and the best way to compete based on the resources available to you — what do you have? Where are 2 Be prepared to grow As the founder of your organisation, you need to be the first person to grow. The first gap to fill is yours. This could be through business and executive courses, through a coach, a mentor or joining an entrepreneurial organisation — whatever it takes to grow and develop yourself for the good of your organisation. “Founders have such a vital role to play in the success of organisations,” says Hasnayn. “The best performing companies globally are founder-led. Just consider Amazon, Facebook, Google and Tesla, or locally, Discovery. In each case the founder plays a critical role. But an organisation is also not a single individual. It’s a group of people who have banded together. Sustainable growth is achieved when all parties are nurtured and grow. “You have to ensure you get the right people for the right jobs, keep them by your side and capacitate them — and then as their leader you need to grow, evolve, change and adapt as well — if you don’t, you’ll miss opportunities too. Your most important role is to cultivate a willingness to change, which will allow you to see opportunities as they arise, and to be able to make the hard decisions that will be required to change your organisation and align it for growth.” 3 Evaluate and capacitate your people What do you need to do to achieve your vision? What resources do you need, and how should they be deployed? These are key questions to ask, but understand that you cannot execute even the best strategy without your people. They are the drivers of your organisation. Success comes down to the right staff, in the right positions, adding the right value. A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 39 SCALE GROWTH CHALLENGES “Is your early staff right for growth? You need to look at this objectively from the view of the organisation. Know yourself — critically understand the strengths and weaknesses of yourself and your staff,” says Hasnayn. “Where are the opportunities to close gaps through training and capacity building? Not all gaps can be resolved, but many can be. If you’re completely transparent about the process, your team will trust you, and everyone will work towards the same goal: The growth of the organisation. “It’s important to evaluate and understand who is the best fit for each role though. For example, engineers are excellent product developers, but that doesn’t mean they can take what they’ve built to market, or manage teams. If you have an upfront conversation about what the organisation needs, individuals can determine whether they’d like to work at closing specific gaps or not. You can’t have those conversations if you don’t understand your skills base and competencies though.” In Hasnayn’s experience, transparency throughout the process of scaling an organisation is key. “If you don’t understand what you need, or you’re unwilling to communicate effectively with your staff, whatever change you’re aiming for is more than likely going to fail,” he warns. “Be as transparent as possible, and give internal staff the opportunity to develop — but understand that marketing and sales is a fundamentally different skill set to tech consulting. If the inclination and willingness is there to adapt and grow, support it. New skills can be learnt, as long as a particular threshold is passed in terms of natural ability. But if an employee is resistant to change, or doesn’t believe the changes are right for them, respect that as well. It is possible to part ways on good terms if the right conversations have been held at the right times. It starts with clear and transparent communication though, and a willingness to invest in your employees. “Remember, the DNA and 40 culture of your organisation are a key factor of your success. As you scale and need to add employees, your culture is effectively under threat. Upskilling people who are part of the fabric of your SME is a good way to ensure the longevity of your culture, rather than simply replacing everyone with more experienced or skilled staff, who don’t necessarily suit the culture you’ve created.” “When you 4 really start to scale, you often experience 100% year-onyear growth. Your turnover is doubling, your staff complement is doubling or even tripling — if you don’t have systems in place to manage this growth, you will stumble and fall.” E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Put the right processes and structures in place “When you really start to scale, you often experience 100% yearon-year growth. Your turnover is doubling, your staff complement is doubling or even tripling — if you don’t have systems in place to manage this growth, you will stumble and fall,” says Hasnayn. “You cannot not have structures in an organisation expecting to scale. You need to recognise this and invest in it. There are a number of tools that can assist you to be more organised and structured, and most importantly, to assist you in managing the new complexities that are being added to your organisation on a daily basis. “Our central view is that you have to ensure you transition from a purely instinctive entity to a more holistic organisation that has a degree of structure. Too much structure is also bad — both can prevent you from growing — but you do need a foundation of structure and processes to handle the changing nature of your business. “The problem is that there is always significant resistance to change at first, which is why it’s so important to communicate the reasons why you are doing something. If you don’t, you’ll quickly create a disconnect between your executives and the rest of your staff. You need to manage and bridge those gaps or destroy value.” 5 Gather momentum The success of your strategy lies in one key area: Your ability to deliver on it. If your organisation can’t gather momentum in this regard, you’re doomed to fail. “Remember, you formulated your strategy for a specific reason,” says Hasnayn. “Either you wanted to grow, or your market was under threat. You considered all your options and formulated a strategy. The problem is in the follow-through. We’ve seen it on numerous occasions — an organisation formulates a plan, and the moment something happens, they’re forced back into their comfort zone and the strategy is forgotten. Maintaining momentum is therefore critical. “There’s often a lot of talk around strategy — ‘this is what we’re going to do, this is how and this is why.’ If you don’t translate that strategy into tangible measures though, and put a mechanism in place to track them, it remains just talk. This creates an expectation within your organisation that you’re good at talking, but not following through on real change, and you lose the key executors of your strategy — your staff. “To counter this, you need a performance management framework that is aligned to your strategy. You should have a monthly process that tracks how you’re doing against it. Have you developed your new product? Have you entered your new market? You need to align your strategy and action, and then communicate these results regularly. That’s how you close the strategy execution gap. “The beauty of it is that once people are part of the momentum they will keep it up. There will always be initial resistance to change — that’s why it’s so important to track and measure what you’re doing. Tangible results engage employees. They become a part of the process and the wins — and then they become your strategy’s champions. And that’s when real success and scale is achieved.” EM SALES SUCCESS SCALE address the customer’s needs and perspectives. Businesses will frequently offer positive reviews and testimonials of their products to convince these potential customers that they offer the solution to their needs. Offering a persuasive sales pitch is only half of the solution: Make sure that the customer feels that you are concerned with what they want. 3 COACH’S CORNER SEALING THE DEAL If you want to close more sales, you need to understand the three phases of the customer buying cycle. BY PIETER SCHOLTZ A COMMON misconception is that business transactions are simple affairs: Customers express interest in something, they buy, and then they leave. This is a vast oversimplification of what is at work. Business majors and entrepreneurs have spent decades plotting out and exploiting every step of a customer’s buying process to better attract and retain clients. There are three sequential steps that customers take when they show an interest in purchasing something. Each phase reflects a different stage of their mentality, meaning that the ideal strategy to exploit each phase will differ. These three phases are awareness, interest, and purchase. Awareness is the phase where they first become aware of the product or service that you are offering. Interest reflects the period where they show that they might want to buy your product — a customer that enquires about specific details relating to what you sell would be a good example. Targeted sales pitches are usually made in this phase. Lastly, purchase is the period where they make their final evaluation and the decision to purchase from you. Understanding how to address the needs of each phase will go a long way towards boosting your sales and securing long-term business from your customers. 1 Awareness This is the incipient phase of a customer’s awareness of who you are and what you are all about. This phase of the customer buying cycle is where customers make their first assessment of you. This phase is important because it’s where you can craft your message to appeal to the desired market segment. Another important tool that is commonly used during this phase is Search Engine Optimisation (SEO). This refers to the practice of tailoring your website to the demographic that you wish to target. Businesses will commonly insert relevant keywords into their indexed pages with the intention of leading searching customers to their website. 2 Interest This phase of the customer buying cycle is when customers express interest in buying from you. The awareness phase is where you grab their attention, and this phase is where you have a chance to build upon it. Customers are typically noncommittal during this phase; they are usually conducting additional research and/or shopping around. Targeting buyers during this phase means that you need to give your potential customer a compelling reason to purchase from you instead of your competitors. The responsibility here is two-fold: First, you need to market yourself as the solution to the customer’s unique problem. Second, you need to Purchase This phase of the customer buying cycle includes not only the actual purchase of the product or service itself, but also the final evaluation. During this phase they might still be reviewing their options, however, the difference is that they have shown a distinct desire to purchase the product or service in question. This gives you an opportunity to give the customer a more comprehensive overview of what it is that they wish to purchase, and it is also the appropriate time to upsell additional products or features. Car dealerships are especially fond of this point in the cycle. Once the customer sits down and begins negotiating the price of their future vehicle, the sales team moves in and does everything they can to get that person to buy the car. Whether they slash the price, throw in extra bonuses or offer them rebates, they will do whatever it takes to turn that expressed interest into an actual sale. This is where you want the sales team to take over: The amount of persuasiveness and personal magnetism they exhibit is every bit as important as their receptiveness and concern for the customer’s needs. EM PIETER SCHOLTZ is a leading business and executive coach and South African Master Licensee for global franchise company, ActionCOACH. He specialises in high-level personal and business growth. @BusCoachSA www.actioncoach.co.za A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 41 BUSINESS SHOWCASE OVERVIEW PLUGGED INTO BUSINESS EXCELLENCE THE POWER OF EXPERIENCE As a serial entrepreneur, Andries knew that his previous experience as a franchisee would come in handy when ensuring business success. “I’ve always been an entrepreneur,” he says. “My father ran a men’s outfitter shop while I was growing up and that led me away from the path of formal employment.” Tsholo’s entrepreneurial background also drew her to the franchise. “I have always been interested in construction and I realised that we can’t all be contractors. So, I decided to look at a field that supplies into that industry. I did my research and realised the electrical field was an option,” she says. 42 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Electrical Retail Franchise Established 2007 Footprint 29 Stores Nationwide INVESTMENT Set-up Costs Large Store R4 740 000 (excl. VAT) (Incl. R2 000 000 initial stock) Mini Store R3 180 000 (excl. VAT) (Incl. R1 200 000 initial stock) Above: Puseletso Ndzilili and Tsholo Wesi Below: Seriska and Andries Mulder BY DIANA ALBERTYN ACDC Express has a vision to be the preferred electrical retailer. Its franchise network aims to be the best solutions-driven electrical retailer, focused on customer service and convenience to ensure that customers’ electrical needs are satisfied. DIY enthusiasts, contractors and large corporates are all catered for in the product range of over 75 000 individual items available at ACDC Express stores. It is this variety, extensive choice and customer experience that led Andries and his wife Seriska to invest in the flagship ACDC Express franchise in 2008. “My wife had a mining supply company and I was a fuel retailer when we decided to become ACDC Express’ first franchisee,” says Andries, who relocated with Seriska from Phalaborwa to Nelspruit to launch their new venture. “Seriska’s company was successful and we wanted to branch out into the electrical industry. ACDC Express stood out for us in this regard.” ACDC Express Nature of Franchise Initial Franchise Fee R150 000 (excl. VAT) MANAGEMENT FEES Gross monthly income (Rands excl. VAT) Percentage of gross income payable R0 R1 999 999.99 4% R2 000 000 upwards 3% Marketing Fees R85 000 or 5% of Gross Sales per annum, whichever is the greater HOT SPOTS Bloemfontein, Durban South, Upington, Vereeniging, Tokai, Mossel Bay CONTACT DETAILS SPARKING INTEREST Tsholo, who runs her franchise alongside her business partner Puseletso, has been a business owner for over a decade and still runs her events management company alongside her ACDC Express store. She couldn’t pass up the opportunity to capitalise on the high demand for an alternative electrical supplier in the Northern Cape when she set up her 100% black women-owned franchise in May 2017. “A franchise enables a small business to compete with big businesses, due to the pool of support from the franchisor and network of other franchisees,” she says. “Banks are more willing to finance franchisees, because the market has been tested. The effort to start the business is less due to the support provided by the franchisor.” SEEING THE LIGHT An ACDC Express franchise has a number of draw cards for prospective business owners. For Tsholo, it was the personalised ‘supermarket’ experience, whereby customers are able to browse the store at their own leisure. For Andries, it has been the opportunity to provide greater input to the franchisor and fellow franchisees to expand the footprint of ACDC Express. Contact Person Mario Mahlangu Email email@example.com Website www.acdcexpress.com Contact Number +27 (0)10 202 3360 “We helped determine the changes that were invested into future franchises and watched their implementation right before our eyes,” says Andries. “The franchisor is always prepared to listen to our suggestions.” LEADING THE WAY Tsholo and Andries both believe that the support of ACDC Express is more than sufficient, as the franchisor sets up the business, provides continuous support and training, and offers ongoing advice to its franchisees. This combination of a hands-on franchisor as well as franchisees who are driven and hardworking ensures the success of the business. PHOTOS: SUPPLIED As the global pioneer in electrical franchising, ACDC Express is built for success, according to its franchisees, Tsholo Wesi and Puseletso Ndizilili in Kimberley and Andries and Seriska Mulder in Nelspruit. Both are running thriving businesses. Company BUSINESS SHOWCASE GOING GLOBAL WITH GLASS Seventy-four years ago Consol was just manufacturing glass in a single plant. Today it has firmly established itself in three other African territories and continues to spread the word: The best things come in glass. BY DIANA ALBERTYN Q&A PHOTO: DEVIN LESTER WHAT STARTED as a single glass plant supplying the beer and beverage industries has evolved into the company that supplies 80% of South Africa’s glass containers. “We’re using South Africa as a springboard to get into the rest of Africa, starting with acquiring a glass-making business in Kenya, and another in Nigeria,” says Johan du Plessis, Senior Executive: Information Systems and Technology at Consol Glass. “We’re also in the process of building a new factory in Ethiopia.” Q What is Consol’s business ethos? The Consol Vision is to be the supplier and pack of choice across Africa — while continuing to retain its status as the industry leader in the South African market. To achieve this requires a particular approach and as a business Consol is clear and unyielding on its operational parameters, and excellence is at the heart of this position. A spirit of innovation and collaboration and working side by side with customers to create a product that adds quality to life, underpins the Consol approach to doing business. Determined to always exceed customer expectations in beauty, function and quality is an attitude that’s engrained in the company and ensures Consol retains its leadership position. Q How have you developed a product that the market responds to? We’ve tapped into an existing market with an established product. Our client base ranges from bigger home industry and craft beer and craft gin, to collaborations with brand owners. We work closely with major partners during the concept and design process to accomplish distinctive features like embossing or debossing and colour, to differentiate their product. Our customers use glass to premiumise their product. Known as trailblazers, in 2017 alone, Consol launched 56 new product innovations. This progress and innovation is also why every year, Consol products are recognised in the IPSA Gold Pack Awards. Consol is also committed to responding to the needs of niche markets and smaller clients, such as the microbreweries industry, for whom the company regularly creates turn-key glass packaging solutions. We also co-brand with other companies, like we recently did with Crosse & Blackwell mayonnaise. Q What inspired the Consol Shop? Consol is often perceived as a ‘vessel brand’, when in fact it’s a versatile, recognisable part of the consumer’s everyday lifestyle — providing solutions for storage, serving, décor and more. Consol responded to the call for greater access to its products and opened its first shop in 2004. Today Consol has three retail outlets: Woodmead (JHB), Stellenbosch (CT) and Cornubia (KZN) — all modern, industrial chic stores. The Consol Shops give consumers and small businesses access to glass packaging in any quantity — single items or bulk purchases. The shops are also the perfect setting in which to illustrate how best to put glass to good use and the concepts are plentiful and creative. WHY CHOOSE SAGE X3 POWERED BY PARITY? » Time is money in Consol’s world and Parity enabled Consol to deploy a full retail solution in three months, accommodating Consol’s functional requirements and a customised user interface to Consol’s corporate image. » Real-time tracking of business processes and key business KPIs, with the system accessible from anywhere. » The Sage X3 and NextPOS system has brought agility to our retail business, we can costeffectively deploy more branches in a short space of time. » Customer service levels were improved with a system that can work seamlessly off-line when required. » Staff efficiencies improved through system processes, for example, the ease of use of price updates in the shop environment. without reinventing the wheel. It’s a new-age type of software where the user interface can be operated from anywhere using its state-of-the-art browser. Sage X3 is flexible and easily configurable, so our retail-specific backend could be built. It’s not as lengthy as your typical ERP process, the cost of training is lower and owning and operating it is simpler. We converted our Cornubia store to Sage X3 after its amazing success at our Woodmead and Stellenbosch locations. Q What role has Sage and Parity played in your business success? Sage X3’s cost-effective and standard format not only helps us with mining, but using it for our retail section made us realise we could create more of these stores A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 43 BUSINESS SHOWCASE MANAGING THE VAT TRANSITION » The VAT Act stipulates that the time of supply will be either when an invoice is issued or when payment is received — whichever happens first. For example, if you invoice for a sale on 31 March but are only paid on 30 April, the VAT rate of 14% will apply. If you receive payment on or after 1 April but have not yet invoiced for the sale, then VAT should be charged at 15%. SILVER LININGS FOR SMALLER BUSINESSES IN BUDGET 2018 H igher VAT, fuel levies and import duties on luxury goods will crimp consumer spending, which could be bad news for SMEs, but we are pleased that the Finance Minister has raised his GDP growth projections and proposed interventions to help grow South African SMEs. Government is taking steps to restore fiscal credibility, rein in spending, and hold off another credit ratings downgrade, such as: SME growth, reviewed competition policy and improved market access The hopes and concerns of entrepreneurs and SMEs were extensively covered, including how low market access and high barriers to entry are constraining the growth of the country’s SMEs. While government will take action against anti-competitive behaviour that harms these businesses, big businesses should also play a constructive role in nurturing the growth of SMEs through mentoring and partnership. An increase in SME funding The Departments of Small Businesses and Science & Technology and the National Treasury developing a R2,1 billion fund to benefit SMEs during the early start-up phase is good news, but it’s important that the 44 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Pieter Bensch is Executive Vice President, Africa & Middle East at Sage funding is spent efficiently and productively. We’d like to hear more details about how government will choose to allocate this money. A shift in public procurement participation Government using public procurement to support Black Economic Empowerment, industrialisation and development of SMEs see its billions of rand in procurement spend used to empower SME owners — we look forward to more details about how government will increase participation of small and micro businesses in procurement opportunities. It’s also critical that government follows through on its promise to pay small businesses within 30 days of invoicing. Cash flow is a major challenge for small businesses and few of them can afford to wait three to six months for payment on a big project. The rise in the VAT rate The VAT hike will take some money out of people’s pockets, but will probably have less impact on business confidence than higher corporate taxes, and less impact on consumer spending than further personal tax increases. SMEs will need to ensure their systems are ready to cater for the new VAT rate, but this » The VAT Act states that displayed pricing and adverts must include VAT (unless the product is zerorated). You have until 31 May to complete this work. Until then, you can display a notice at the till point, stating that prices do not include VAT at the new rate and will be adjusted at the tills. But why delay and risk confusing your customers? » The next VAT201 return you submit to SARS will be more complicated because you will need to calculate input and output tax at different rates, not to mention the apportionment rate that will need to be calculated for contracts and services taking place before and after 1 April. If you’re using manual processes, you might need to consult an accountant to make sure you’re not over or under reporting VAT on your reconciliations. should not be too much of a challenge for those with automated accounting systems. By international standards, VAT in South Africa is still relatively low — we can just hope that this increase is not followed by another in the next year or two. PHOTO: SUPPLIED As expected, the Finance Minister and Treasury have proposed some tough measures to address South Africa’s tax collection shortfall, growing budget deficit, and new spending priorities in the 2018 Budget Speech. BY PIETER BENSCH » Cloud-based, automated accounting solutions, like Sage One, were VAT-ready on 1 April. Businesses using these solutions don’t have to worry about staying on top of the different VAT rates because the system will automatically generate the correct VAT invoice, quote and debit or credit note. BUSINESS SHOWCASE ahead from the manager/traveller.” Mobility is about convenience, accessibility and real-time information for the traveller. The Travelit solution provides a fully backed up 24/7 call centre to support travellers. Wayne Muirhead, Travelit’s Chief Sales Officer DID YOU KNOW? Travelit can save you 30% on your complete travel bill. We provide a complete endto-end travel management solution in partnership with Tourvest Travel Services. Online travel Management at its best Business travel made easier, more cost-effective and tailored to your needs with Travelit. BY DIANA ALBERTYN PHOTO: SUPPLIED TRAVELIT, in partnership with Tourvest Travel Services focuses on the SME, public sector and the corporate market, which means it has specific niche solutions suitable for each one of these sectors. To deliver a complete end-to-end travel solution to these sectors, it’s essential to provide services to procurement, HR, finance, IT, travel arrangers, authorisers and the executive management team. “Our technology enables us to configure and implement the solution based on the client’s exact requirements, to deliver on travel policy compliance, finance and authorisation controls, and process efficiencies every business is looking for within the African market,” says Travelit’s Chief Sales Officer Wayne Muirhead. He delves into the ultimate online travel solution’s simple yet powerful implementation for businesses of all sizes. The travel challenge for SMEs The South African and African marketplace consists of a number of challenges, the largest concern being cost savings. With Travelit, the traveller can select their requirements based on a large range of options across multiple suppliers, whilst adhering to the company’s travel policy. When faced with issues such as where to stay, the best airline to choose, choosing a car to rent, and transfer decisions, the Travelit client is provided with every available supplier to choose from, on one single platform. Another challenge within the industry is information and communication to the traveller on the move. Travelit’s mobile app is designed to provide instant communication to the traveller and support the company’s duty of care programme. In addition to supporting the company’s travel programme, Travelit provides an expense management solution, as part of its offering. Authorisation, pricing, transparency and finance are also priority on the list of concerns for many business owners, says Wayne. “It is extremely challenging to book your trip directly on a website, which has many limitations,” he notes. “The travel arranger is required to jump from website to website, prices are constantly changing and they’re further frustrated by getting the go The simple and powerful solution Travelit is the leading online travel solution within the African market place, with over 900 corporate travel clients, and over 30 Government Departments. What makes the solution truly outstanding is that there is no onsite implementation required. Users gain access to the Travelit solution, which uses the latest cloud technology. This significantly reduces costs and implementation timelines. Large clients can be set up within a matter of weeks, and smaller clients can be trading within a day. “Payment within travel has traditionally been cumbersome and costly. Travelit has worked closely with leading players in the financial services sector to deliver modern virtual credit card technology to our customers and our suppliers.” In a nutshell, the virtual credit card solution eliminates credit card fraud, dramatically improves credit card reconciliation and provides immediate payment to the supplier for their services. Travelit’s 375 000 users are supported nationwide by over ten leading travel management companies. These users experience all the efficiencies and benefits of the technology, along with personalised service from a qualified travel consultant. They travel in the comfort of knowing they can always talk to a person who will have access to all their online bookings. Travelit simplifies the entire process, across flights, cars, accommodation, transfers and parking. Access to the solution is quick and easy, online or via the Travelit mobile app. All this technology has been developed in partnership with global travel technology giants. “Travellers also receive discounted prices based on our aggregated buying power, including individually negotiated corporate deals and web rates,” says Wayne. “Travelit is a full end-to-end travel and expense management solution, who can provide a tailored and unique travel solution to meet your exact business requirements.” A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 45 COVER STORY MIKE WRIGHT GROWTH AT A MILE A MINUTE Mike Wright launched Striata in 1999 from his converted garage in Kensington, Johannesburg. He was 30 years old, had limited capital, and had resigned from his job as MD of a leading web design firm to follow his dreams. To get started, he rescheduled his bond and provisional tax payments, and started working on his big idea. Today, half of Striata’s R120 million+ turnover comes from international business. It hasn’t all been easy. Offices in the US and the UK are soaring, while the company’s foray into Australia and the Far East has been far more challenging. These are his lessons in high-level growth, and the do’s and don’ts of international expansion. By Nadine Todd I Photography by Devin Lester 46 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 COVER STORY PLAYER: Mike Wright COMPANY: Striata EST: 1999 TURNOVER: In excess of $10 million (+-R120 million) VISIT: striata.com A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 47 COVER STORY MIKE WRIGHT S TRIATA is a R120 million+ business that operates across South Africa, the Americas, Europe from a base in the UK, and Asia. Launched in South Africa in 1999, founder Mike Wright reached a point where the only way he could grow the business further was to go offshore. Expansion in the US has been extremely successful, and Mike moved to the UK with his family to spearhead European growth. The business’s efforts in Australia have been less successful however, and a second office has since opened in Hong Kong to service Asia Pacific. Here are Striata’s lessons on international expansion — what worked for them, what hasn’t worked, and how to approach new territories to guide your business’s success. LEARNING FROM THE GROUND UP Mike Wright’s first piece of advice to any entrepreneur looking at international expansion is not to rely on statistics. “In my view, statistics don’t work for the individual,” he explains. “You can be successful and be doing the opposite of what the statistics say should work, or you can do exactly what the stats applaud and still be struggling. “If you’re thinking of expanding beyond your borders, hopefully you are already successful in your own market. We reached a level of success and maturity in South Africa that led us down this path. Along the way we’ve learnt that when you enter new markets that aren’t in the business landscape you know and understand, all bets are off. Past achievements don’t guarantee future success. “You need to look at your business, what you offer, your differentiators, strengths and weaknesses, and use those to determine your go-to-market strategy, based on intensive research into the markets you’re entering. You need to know how and why people do business, and who they do it with, in all the territories you’re looking at.” In each of the three territories they entered (Australia, the UK and the US), Striata sent pioneers — people they knew, who had worked with them or knew them, and who understood who and what the brand stood for — to spearhead the new international offices. “There’s a fundamental choice you have to make when you launch a division in a new territory: Employ a local with an entrenched network, or send someone that you know shares your values and company culture,” says Mike. The most obvious way to tap 48 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 into an established network is to find a local partner, or purchase a local business. The downside to this strategy is culture. “The bedrock of a successful business is a shared company culture, but fundamentally you can’t change people. If you go the acquisition route, you need to be absolutely sure you have cultural alignment, and too often it’s only once you’re in business together that you realise you don’t.” Striata opted for door number two: Supporting individuals from within the organisation to spearhead international growth and build networks on the ground. “Building a network takes time. You need to attend conferences and networking events and make meaningful connections. We saw this in action in the US. Our pioneer was very good at growing his community and leveraging contacts. The US is a large, mature market, and no one cares where you’re from as long as you deliver. We had a product to sell, not just a concept, and a track record. The right person, market, timing and opportunity aligned for us, and our launch and subsequent growth were successful. We didn’t gain traction overnight, but there was a market for our services, which is the biggest hurdle.” The strategy worked well in the US and the UK — but not that well in Australia. “We learnt the hard way that the Australian business market is built on long-standing relationships, and it’s a difficult market to break into as an expat.” As a result, Striata invested more in the market that was working. From 2005 to 2008, US growth was a top priority. “We hired more people, attended conferences and ensured we had a good product with exceptional back-up support and account management. Not every decision will be a win — even when you’re accustomed to getting things right. Sometimes you have to cut your losses and focus on what is working.” PULLING TOGETHER THE THREADS OF SUCCESS According to Mike, Striata’s South African success was based on a simple formula: To successfully run (and grow) a business, you need to keep moving forward — hire the next person, make the next contact, add new partners where applicable, run a good business with a great team that’s focused on execution. You also need a good product, back-up support and account management. “The minimum level of all these parts working together allows you to service your customer. The maximum level creates a TOP TIP FINDING YOUR DIFFERENTIATOR Ask yourself these three questions: What do we do that’s unique? What do we have that no one else has? And if they do, how do we do the next thing? Then determine whether you’re selling innovation or execution. “Amazon is all about execution,” explains Mike. “They just do it better — more scale, greater efficiencies. They weren’t the only online book store, ecommerce website or cloud service provider. The secret is that you don’t always need to be first. First mover advantage is good, but better wins.” Here’s the challenge — when your model is built on execution, you need to own the market. That’s how you create efficiencies and economies of scale. Innovation is what sets you apart. It gives you something no one else has and therefore you do things that others can’t do. This is a unique, real differentiator. Striata looks to straddle both execution and innovation. “We understand that some parts of our business have become commoditised by necessity. These need to be incredibly efficient. But you can’t take your eye off the ball — you need to keep innovating, because someone else might become more efficient.” Mike also likes the adage, ‘Where there’s mystery, there’s margin’. “The moment someone susses you out, there’s no longer a mystery, and your margin goes down. It’s too easy in this day and age to figure out what everyone else is doing, replicate it and then do it more efficiently. “This is why you need to understand your business from two angles: What sets us apart, and what makes us efficient. At scale, you need the second especially — you need to do lots, at volume. What sets you apart are the things that no-one else can do, and that’s where your margin lies.” MIKE WRIGHT “If you’re thinking of expanding beyond your borders, hopefully you are already successful in your own market. We reached a level of success and maturity in South Africa that led us down this path. Along the way we’ve learnt that when you enter new markets that aren’t in the business landscape you know and understand, all bets are off. Past achievements don’t guarantee future success.” customer who loves you and gives you more business,” says Mike. “There isn’t one secret to success. You need to get lots of little (and big) things right. A minimum level of service requires repeatability, a focus on service, references, and a good product. The problem is that when you think most of them are ticked, you end up finding one you ignored.” For Striata, that has not been people. The company’s senior team are all veterans of the business. “A business becomes easy to run — and infinitely more scalable, especially across multiple territories — when your core management team has been with you for a long time. We value our team, offer the right rewards, create wealth for them and give them a career path. This has given us the foundation of a phenomenal business.” However, before you can get your people, systems, processes and service right, you need to start with a product and a business model. “When I launched Striata I knew I wanted a business based on annuity income. I’d been MD of VWV Interactive, a web design company, and in my 18 months there I’d learnt that when your business is built around projects, you’re either snowed under with work, or scrambling for your next project. I did not want to pursue that business model.” Prior to VWV, Mike was employed as an accountant at Coopers & Lybrand (prePwC), where he was part of their Computer Assurance Services. This was the beginning of computer auditing. “The Internet had come along, and we needed a website. I straddled tech and marketing, so this became my project. Next, we developed eTaxman, a form that calculated your tax return online. It went viral before the term viral even existed. I was on TV, at conferences and on the radio talking about eTaxman. Coopers was at the top of the game and experts in the ‘Internet’.” The exposure brought VWV knocking. A team of brilliant young designers, they decided they needed more structure in the business. Being 28 and tech savvy meant Mike qualified for the position. “They were the best in the business in terms of creative design, but they needed to build a business around those capabilities as the market shifted to eCommerce,” he says. “It was a fantastic 18 months, but I realised I needed more — I wanted to build something of my own.” At the time, Mike was at the forefront of what corporates could do with tech, and how the Internet was changing the way companies did business and interacted with their customers. “I was looking for a gap, and concentrating on where there were — and weren’t — already players in the market.” Paying attention led the young entrepreneur to a key question: Who was handling corporate focused emails? “Corporate South Africa caught on to email quickly — it was an excellent way for companies to communicate with customers and constantly tell them what they were doing, and how they were building a better online experience. The problem was that a corporate exchange server can’t handle 100 000 messages in a queue, particularly when that bulk message could delay the CEO’s very important email. We needed to provide a service that could deliver personalised bulk emails.” With his idea in hand, Mike’s first move was to ‘take a loan from the taxman’ by delaying his provisional tax payments. “I spoke to SARS, acknowledging the debt, and they charged me interest. I wouldn’t COVER STORY recommend this avenue to everyone. You have to be extremely disciplined to pay it off as agreed, and the interest was high, but it worked for me.” He also reached out to his network, and secured some corporate funding. It was enough to hire a techie who understood email. “We bought a license for ‘list-serving’ software that allowed for personalisation, and entered the market with our solution.” Since pre-launch, Mike has consistently asked himself these two questions: What do we do/sell? Is there a market for that? “The secret to any business success is being able to take an idea or concept, put it together, connect the dots and get someone else to pay for it. Then you need to ensure you can repeat what you’ve just done, and that you have access to the resources you’ll need to do so. Build it, sell it more than once, and then iterate. That’s where you create value.” THE FOUNDATIONS OF GROWTH There’s a second set of questions Mike asks himself, and these are the foundations for growth: Where are my constraints? What’s stopping me from getting to the next level? “Within our first year, it became clear that not being able to make changes to the licensed software was constraining us. We needed to be more flexible. If you have your own code, you’re in control. 90% of competing software solutions do the same thing. It’s the 10% that gets you the job — you need that 10% to be exceptional, and you need to own it.” In Mike’s own words, to create the complex and ground-breaking products that Striata is built upon, you need a ‘serious’ rocket scientist. Luckily, Mike knew where to find one — he just needed to wait out the one year non-solicitation he’d agreed on when he left VWV. The second it was over, he approached Nic Ramage to join the business. “Start-ups generally can’t afford the top experts in their field, even with VC backing, so you need to get creative,” says Mike. “Nic was up for the challenge, but he also came on as a partner and shareholder. If you really want to attract top talent, you need to give them the right incentives.” From year two Striata started making money. Mike says, “It may be ‘old school’ but whether you have funding or not — or perhaps even more importantly if you do — I believe you must pay your own way by becoming profitable as quickly as possible.” Trained as an accountant, and growing up with a parent in the financial services sector, Mike admits he’s no gunslinger. His approach to business is conservative, and he hates A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 49 COVER STORY MIKE WRIGHT unnecessary risks. But he’s also very focused on growth. “You need to do the work, bill your clients, pay salaries and then put what’s left into R&D. As our development team grew we needed to fund this from normal operations. Perhaps this constrained our growth, but we built a stable base, which worked in our favour when we started focusing on international expansion.” Striata has chosen to stay focused and niche. “We’ve built up domain experience. It’s tough to be a mile wide and a mile deep — you have to choose between being a generalist or a specialist. We’ve chosen specialist. But, this doesn’t mean we haven’t added new solutions to our overall offering. “We recently introduced a secure document storage solution in the Cloud — like a document vault. Online archiving and storage is the second leg of our product set. Our differentiator has always been security. All documents we send or store (such as bank statements invoices and insurance policies), are encrypted and password protected. “We’ve learnt to listen to our customers. That’s how we grew from emails to encrypted documents. Then we realised they needed a way to store documents, so we built a solution for that. We’re also clear on the fact that we do message delivery — not only email. Our model is being ready for the next mode of communication. We need to have solutions before our customers ask for them. “Our value proposition is to enable communication as an efficient customer service and an engaging customer experience. There’s more interaction between companies and customers than ever before. The actual protocol might change (email, SMS, WhatsApp), but our product is communication. We can go deep within this niche area of expertise.” Striata’s plan was simple: Develop the secure attachment market in South Africa, until it become a de facto standard. By focusing on a need and creating the right products to address it, while adding functionality customers could benefit from, this is exactly what happened. “The first time we offered an encryption service was for Diners Club statements. Their parent company, Standard Bank, also liked the idea and issued an RFP.” And this is where Striata moved up a level — its competitors were IBM, who were going to 50 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 build a similar solution, but hadn’t yet, and an international company, ACI, who had no track record in South Africa. “We were ahead of the curve, and this secured us the Standard Bank project. We were local and we sold the hell out of our software and capabilities.” Today, Striata counts a number of South Africa’s top banks as clients. INTERNATIONAL EXPANSION From 2004, Mike aggressively sought growth avenues. His five-year-old business was established, and servicing much of corporate South Africa. “There are two ways to grow: Add a product to sell to your current clients, or look at new geographies. We did both.” There are a few major points that work in Striata’s favour. “Our currency gives us a margin that international competitors can’t match.” That said, many other international tech companies, including Amazon, have set up development hubs in Cape Town to take advantage of local skills and the exchange rate. Second, South Africa operates in the same time zone as the UK and Europe, so tech support is only a phone call or email away. “When we started looking overseas, we were a relatively young software company that had a software as a service (SaaS) offering. We knew we had the capability to sell anywhere and everywhere, and we had a cost advantage based on the rand exchange rate. We had the ideal business model for international expansion, we just needed to gain traction.” By 2008 Striata — and Mike in particular — reached a crossroads. The US was growing, the Australian business was struggling, and the UK presented a fantastic opportunity, yet many deals just didn’t close. “I realised I could make a difference in the UK market. South Africa had a strong, established team. I wasn’t needed there anymore to continue ENTREPRENEURIAL DNA IN ACTION Mike Wright didn’t discover he was an entrepreneur at heart when he turned 30. He had entrepreneurial DNA from a young age. He studied accounting because he knew it would be good for business, and he spent a few years in the corporate world learning as much about business, marketing, sales and profit making as he could. Then, when he was ready, he took the plunge. Grade 2: Mike sells silkworms to earn pocket money. He has a little silkworm factory, and all of his mother’s friends are compelled to buy a shoebox full of mulberry leaves and tiny silkworms. Grade 8: Knowing he will go into business one day, Mike chooses accounting as a subject. First year at Varsity: With his partner and best friend, Mike launches a business selling ‘Class of….’ silkscreened t-shirts to matric classes. This business runs profitably for six years. the day-to-day operations of the business.” Mike has spent the past nine years in the UK, and travels between all of Striata’s operating territories. “We’ve got a good base, but we’re just getting started. Communication is shifting so quickly; we have to stay on our toes to ensure we’re the ones spearheading new solutions and growing our markets.” EM SALES LEADERSHIP CONVENTION 2018 SAVE THE DATE 21-22 AUG 2018 SANDTON CONVENTION CENTRE JOHANNESBURG DIGITAL SUBSCRIPTION 12 X 2017 ISSUES FREE EBOOK FREE Subscribe digitally today, for only R119.99. That’s only R9.99 per copy PLUS Receive a free How to Start, Manage or Grow your business eBook worth R249 PLUS You also get all 12 of the 2017 Entrepreneur Magazine issues, Free! TOTAL VALUE R488,98 now only R119,99 Download the Magzter App from Google Play and iStore. Or view it on your PC or Mac Go to www.entrepeneurmag.co.za and Magazines in the menu to subscribe LAUNCH EXPERT ADVICE, YOUNG ENTREPRENEURS, INSPIRATIONAL PROFILES & IDEAS CENTRE WINNING THROUGH MARKETING Digital marketing maverick Dylan Kohlstädt unpacks how start-ups can maximise their marketing spend, get noticed and reach customers through savvy and cost-effective digital campaigns. Q&A PHOTOS: SARAH SCHÄFER VENUE: FOLK CAFÉ ON BREE STREET BY NADINE TODD A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 53 LAUNCH START-UP MARKETING Q How can start-ups go about using social media, networking and word-of-mouth to grow their businesses? You have to be active on social media, that’s a given, but the only way to cut through the content marketing clutter is to produce content that moves the needle, and the only way to do that is to really immerse yourself in your customer segments. Ideally, it’s video-based, and ideally, your customers are creating the content for you. Social media is digital word-of-mouth — so if you’re doing it well, customers will become your sales reps, and refer friends to you. Make it as easy as possible for customers to buy from you (usability testing), and for them to refer you. Q How can start-ups access their beachhead markets through digital marketing campaigns? It’s important to be very clear on who your customer is and what your niche is before embarking on a digital campaign. The more niche your market, and the more defined your product, the more success you’ll have and the cheaper your marketing becomes. I encourage start-ups to complete detailed market analysis covering: » Who is your customer? Include market size, description, demographics. » What need drives them? What is the gap? Q Why is it easier to market your business than before? Digital marketing is cheap, and you can set it up and manage it yourself. It also means that you can segment your markets like never before, and reach micro targeted segments with just a few rands. Facebook ads are super cheap, as long as you’re not chasing ‘likes’. You might actually get a few sales from them. Just remember, there’s a lot of rubbish you’ll have to trawl through first. Q On the other hand, why is it also harder with such overcrowded markets? Everyone has competitors, because all it takes is a website and a few bucks and you’ve got a business. Niching is critical. You have to understand your market. You have to be unique. You have to appeal to them, and their needs and emotions. You have to understand their needs really well. Marketing plays a critical role in brand building — without the research involved in marketing your business, you might not understand your target audience well enough, and your product or service might not hit the mark as a result. Similarly, without a clear brand, you’re going to be lost in the sea of competitors out there. 54 PLAYER: Dylan Kohlstädt COMPANY: Shift One Marketing VISIT: www.shiftone.co.za » What are their emotions? What emotions cause them to make decisions and how can you appeal to these emotions, bearing in mind that emotions make people buy, while logic makes them think. » Which product is right for them? Which product meets their needs? » What is your message to them? How are you going to package all of what you know about them to create messaging that is compelling? » What channels are they on? Where are you going to find them? This is critical as you need to target channels that they’re using, and not only the ones you’re comfortable with using. E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 ON FUNDING Q Start-ups often think they need funding to launch. When is this not actually the case and why? In a services industry, you can get away with bootstrapping. With tech companies, you’ll need to rely on sweat equity (which generally means partnering with a developer and giving them shares in the business) if you can’t afford to pay them. You might just get stuck with someone that isn’t that great at development, but at least they are working on your project for free. If you do go the bootstrapping route, you need to keep your costs low. You definitely don’t want offices. Instead, run your small team through collaborative online platforms like Trello, Slack or Asana. Don’t be in a hurry to get funding — it comes with a whole new set of trouble and it might kill your business. Instead, loan what you can from the 3Fs (friends, fools and family), or even a bank loan if you can get one. At least you retain ownership of the business. Q Why is cash flow more important than funding in many cases? Funding isn’t the panacea that start-ups think it is. There are many alternatives to finding an investor, including overdrafts and loans from friends. Cash flow is critical for the day-to-day running of your business. Funding might only pay out in a year’s time, based on performance, and in that time you might run out of cash. » What content do they need? This will inform your content marketing strategies. If you don’t do research, you make assumptions. The more time you spend on this process, the cheaper and more effective your marketing will be. It will also help you avoid one of the most common mistakes start-ups make when it comes to establishing who their target market is — you want to be niche, not broad. Nearly all markets are accessible via digital marketing, and if they are not digital, then SMS and radio. The more information you have about your customers, and the more niched you are in segmenting them, the better your results. Q How can a start-up figure out who their real target market is? Any tips? There are many forms of research out there, but the ones I personally advocate are: Usability testing: Get six to 12 customers to use your website and products. This gives you endless insights into who they are and what drives them, as well as the correct wording to use throughout your communication with them. Dipstick research: We go to customers, wherever they are, and talk to them, find out who influences them, find out what drives them, find out their feeling about your product and your competitors. Content research: Once you’ve identified the voices in the community, reach out to them to get content, establish them as influencers to the community, and create content that is appealing to the market, because it comes from the market. Q What should start-ups avoid doing? Many companies avoid the channels they are not comfortable with. Many agencies produce content that appeals to the account management team, and not to customers. Don’t make big production TV ads or sign up an agency that just wants to win awards — rather create YouTube content that your customers will respond to. EM LESSONS LEARNT YOU CAN’T ‘FAIL BETTER’ IF YOU DON’T REFLECT ON WHAT YOU LEARNT Failing better means trying and trying again, but with a difference. BY LEAH WEISS 56 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 PHOTO: CAPTURER LE MOMENT ON UNSPLASH LAUNCH LESSONS LEARNT “Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.” — Worstward Ho, Samuel Beckett AT SOME POINT in recent history, this bleak and somewhat obscure line from existentialist playwright Samuel Beckett became the motto of the new entrepreneurialism. It isn’t clear if it was business mogul Richard Branson, self-help author Tim Ferriss, tennis pro Stanislas Wawrinka (who has ‘Fail Better’ tattooed on his arm), or someone else who first adopted the term, but somewhere along the line the business crowd embraced it. Perhaps because ‘failure’ sounds grander than ‘mistake’. Perhaps because so many start-ups that failed out of the gate went on to become household names. In any event, this Beckett prose piece became a popular catchphrase, first in the tech world and now in just about every sector. People have always made mistakes and sometimes tried to learn from them, but the entrepreneurial embrace of the ‘fail better’ philosophy suddenly put defeat on a pedestal, making it a cause for celebration. Heroes who failed on the way to success An abundance of anecdotes and examples was found to affirm this ethos: Winston Churchill failed the sixth grade. Ben Franklin’s inventions didn’t always work. Early in her career as a television reporter, Oprah Winfrey was fired. History is full of persevering heroes who failed on the way to success. In a recent article he posted to LinkedIn, Microsoft co-founder Paul Allen wrote that Microsoft might not exist if he and Bill Gates hadn’t failed with their first company (a traffic data analysing project called, naturally, Traf-OData). “While Traf-O-Data was technically a business failure,” Allen wrote, “the understanding of microprocessors we absorbed was crucial to our future success. And the emulator I wrote to programme it gave us a huge head start over anyone else writing code at the time. If it hadn’t been for our Traf-OData venture, and if it hadn’t been for all that time spent on UW computers, you could argue that Microsoft might not have happened. I hope the lesson is that there are few true dead ends in computer science. Sometimes taking a step in one direction positions you to push ahead in another one.” ‘Fail better’ captured the spirit of the start-up business culture As ‘fail better’ achieved meme status in Silicon Valley, where it captured the spirit of the aggressive optimism and disruptive thinking beloved by start-up business culture, the irony of the expression’s original and famously pessimistic coiner, Samuel Beckett, was lost on most. In the backlash, however, some non-literary critics dismissed ‘fail better’ as wishful, or even reckless, thinking. Mindfulness acknowledges both these points of view. From a Buddhist perspective, ‘failing better’ means acknowledging human imperfection and accepting that failure is part of the learning process — if we give people room to learn. Failing better means trying and trying again, but with a difference. Reflection makes the difference, and not just in Silicon Valley. Harvard Business School professor Francesca Gino has researched the role of reflection in the workplace and found that it is worth the time not only in the wisdom it generates but also in the productivity that emerges. One of her studies, which she conducted at the IT firm Wipro in Bangalore, India, examined how providing structure for reflection and for sharing about work impacted follow-up on various tasks. The researchers studied several groups of employees in their initial weeks of training for a particular customer account and divided them into three groups: the control group, the reflection group and the sharing group. LAUNCH group performed 25% better on the test than the control group, about the same increase as for the reflection group. In addition, the participants who had been put in the reflection group (rather than the practice group) “improved their likelihood of being in the top-rated category of all trainees by 19,1%.” The same researchers also studied whether people appreciate the power of reflection, and they learnt that when given the choice, 210 out of 256 participants opted to get more experience and only 18% chose to have reflection time. Reflection is clearly valuable but it isn’t necessarily valued. Just like pausing before we jump into something (which is what we do when we set our intentions), pausing after we have jumped into something takes only a moment, but has a profound impact. We pause Physical, emotional and mental learning all depend on non-judgemental pauses for realistic self-appraisal, re-mindfulness of our intentions and rededication to our purpose. Reflection and sharing enhance lessons learnt from failure In the reflection group, on the sixth to the sixteenth days of training, workers spent the last 15 minutes of each day writing and reflecting on the lessons they had learnt that day. Participants in the sharing group did the same, but spent an additional five minutes explaining their notes to a fellow trainee. Those in the control group just kept working at the end of the day and did not receive additional training. Over the course of one month, workers in both the reflection and sharing groups performed significantly better than those in the control group. On average, the reflection group increased its performance on the final training test by 22,8% compared to the control group. The sharing not to slow down, necessarily, but to reperceive our thoughts, emotions and context with fresh perspective. Practice makes perfect, perhaps, but in practice we also see how far from perfect we are. Similarly, when we try to be more compassionate, toward others or ourselves, we also notice how we’re not; and when we care about suffering in the workplace, we realise that we often don’t know how to make things better. It’s like the physical assessment you have with a trainer when you first join a gym, testing your body to see where it is weak, as part of the process of building strength. Physical, emotional and mental learning all depend on non-judgemental pauses for realistic self-appraisal, remindfulness of our intentions A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 57 LAUNCH THE FINE PRINT and rededication to our purpose. Sometimes what we see in these moments isn’t what we’d hoped for. But, instead of viewing our failures as evidence that we suck at our jobs or that we are worthless as people, we can choose to approach them as evidence that we are engaging, that we are working at it and that we will get there. Acceptance of failure is a necessary part of innovation With all the talk of embracing failure, there is less talk in corporate culture of reflection, but that’s just what Severin Schwan, CEO of biotech giant Roche, touched on in a 2014 interview with Reuters entitled For Roche’s CEO, Celebrating Failure Is the Key to Success. In the piece, he emphasises the need to foster acceptance of failure as a necessary part of innovation. “We need a culture where people take risks, because if you don’t take risks, you won’t have breakthrough innovation,” he said. But, he also went on to suggest that it’s important for managers to praise people for the nine times they fail, not just the one time they succeed. Schwan even takes his direct reports out to lunch to celebrate their failures. Rituals like this offer an opportunity for reflection. The person who encouraged me to attend my first-ever meditation retreat, a mentor I had known since childhood, told me that transitions were the times of the day to pay the most attention to, for example, when you are moving from morning to afternoon, from one project to another, or from work to home. She told me not to think of the cushion part of meditation as the main event but, instead, to notice the thoughts and habits that come up when we’re not meditating. When we pay attention to the transitions, the spaces in between become their own instruction. EM © Entrepreneur Media Inc. All rights reserved. 58 E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 START WITH A CLOSING MINDSET Legal compliance can often be a foreign language for first-time entrepreneurs. Here are the legal ins and outs you need to know before getting ready to launch. BY SHERISA RAJAH AND PAUL FOUCHE THE FINE PRINT W orking closely with start-ups and entrepreneurs, we have found that there’s a gap between business savvy and understanding the areas that your start-up should be compliant in. It costs substantially less at the stage of incorporation to get your house in order. We call it starting with a closing mindset, rather than needing to rectify crucial areas of your business at a later stage. Here are the five key areas of law that require your immediate compliance prior to trading. 1 Don’t build your house on sandy land It’s critical to ensure that there is a complete separation between your business and your personal assets. This requires that you incorporate the correct type of entity to best serve your end goal. If you are ultimately looking for an investor, or to obtain funding under the banner of black economic empowerment, you need to structure your entity correctly. Have a shareholders' agreement and a memorandum of incorporation in place. If your business has more than one person, have you considered the importance of lock-up provisions, borrowing, and voting rights — to name just a few? 2 Own it Every business, however varied, carries intellectual property. Pause for a moment and think about it — your selling line, your logo, your company name. Your intellectual property must be protected. You must ensure that you retain full ownership of the intellectual property. This is necessary for the operation and success of your business. Two other key and equally important components are confidentiality agreements and proper service agreements. Your strategy, your vision, your business plan — these are confidential. Properly worded service agreements will ensure that key customer and vendor relationships become long lasting. Often entrepreneurs, excited by the opportunity presented, gloss over these terms. 3 Fine-tuning the guitar Have you ever thought about the sound a guitar makes when out of tune — not great! Similarly, once you have built your house and ensured your ownership rights, a few other trigger points become important. » Tax structures and compliance VAT, annual returns and leniencies afforded to start-ups are aspects you should seek professional advice on. » BEE investment Investment and grants offered to historically disadvantaged groups could prove worthwhile. However, your structure should be incorporated with this in mind to make provision for such an investment. » Employment Your time is the most valuable asset, so it makes sense to employ people to assist. Employees have access to your proprietary information. Key employees may be well positioned to compete with you. Comprehensive employment contracts, with retention clauses and non-compete covenants, are critical to ensuring the effective use of your time while the business is assisted by the hands of people you can trust. Maybe the type of work you require can be done by a contractor or an employee for a fixed period. These require specific types of employment contracts. Also, from the day you employ your first employee, you are required to comply with statutory contribution provisions in a number of pieces of legislation. EM SHERISA RAJAH and PAUL FOUCHE are directors at Fasken, a law firm specialising in business law and helping businesses to grow. LAUNCH JOIN THE ECOSYSTEM New platform gives entrepreneurs access to each other, funders, business information and market opportunities – for free. Problem: South Africa’s fragmented entrepreneurship ecosystem Solution: The Venture Central portal, South Africa’s first digital home for entrepreneurs “Educational MATSI SAYS programmes, funders and market access opportunities are highly siloed in nature, forcing entrepreneurs to navigate through complex environments, regulations and islands of content to shape and develop their businesses. “The digital landscape provides a strong foundation for a solution to assist, facilitate and integrate the critical resources required to develop businesses at various stages, including idea, start-up, growth, and accelerate stage and to stimulate economic growth.” — Matsi Modise, MD of SiMODiSA, the founders of Venture Central WHAT YOU GET » A single point of entry for all SME information pertaining to registering, starting and operating a SME » Information and links to important websites and organisations reflected on the South African entrepreneurship ecosystem map » Advice and information on starting and managing a business, business tool templates and sector-specific business information » Links and information to a host of free resources including training and mentorship » A list of working spaces, incubators and accelerators available within your city/town. VISIT: www.venturecentral.co.za A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 59 LAUNCH GETTING PAST ‘NO’ How to Survive 150 Straight Rejections And come away smarter, tougher, and more successful. BY JOE KEOHANE So he moved, failing to understand that investors buy into a team, not just an idea. He promptly lost the funding. No matter, he thought. He’d just get more money. Thus began Sam’s real journey. He started pitching to anyone and everyone, regardless of their ﬁeld of expertise. It went badly. By his count, he was rejected around 150 times 60 in a row over 18 months. Worse, he kept revising his business plan based on their feedback, reducing it to an ever-changing muddle that made it even harder to sell. This beating culminated with a meeting with a VC who, humiliatingly, was a family friend. “He threw my business plan in the trash, right in front of me,” Sam says. “And I just remember thinking, Man, what am I doing?” Entrepreneurs hear a lot of nos. In fact, it’s probably the word they hear more than any other, especially starting out. It can come in torrents. It can get crushing. The key, as Sisakhti learnt, is twofold: To survive it, and to learn from it. And here’s what Sam realised: He needed to stop pitching. Not every business needs funding, nor is every business ready for funding. “I was spending all my time pitching, and I wasn’t spending any time building the business,” he says. So he scaled back. “I went from wanting to create the next Amazon to just saying I wanted to grow a business organically,” he recalls. “I just wanted to pay for a modest, middle-class lifestyle.” Freed from the ceaseless need to fundraise, Sam drew on his natural creativity and resourcefulness. He’d always thought he needed funding to E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 help recruit young designers. But now he started to get creative. He recruited them right out of design school — using student brand ambassadors to get around rules about recruiting on campus. Soon he had a thousand. Then he linked up with London Fashion Week to do a show for emerging designers. He pitched a design competition, and that got him 3 000 more, along with a bunch of press coverage. Now he had inventory, revenue, and exposure. He was feeling good. One night, over dinner, Sam sent a magazine piece to mega-investor Tim Draper, who had rejected him twice already. Fifteen minutes later, Draper responded, saying he wanted to talk. Eureka. “I think the reason he was interested was that I’d shown I was going to do this with or without the money,” Sam says. He even got a little cocky. “I told him that it’s just a matter of time: ‘If I have your money, I’ll get there faster, but if I don’t, I’ll still get there. And then the valuation’s just gonna be that much higher to get in.’” Draper invested $1 million in a ﬁrst round, then came back for a second round. In total, UsTrendy has raised more millions since, grown by 300% annually in its ﬁrst few years, and worked with more than 20 000 designers from more than 100 countries. It has attracted more than two million followers on social media and other digital media channels. Now when Sam reﬂects on all those no’s, he thinks not of rejection — but of how it changed him. How it showed him the way. “It was awesome,” he says. EM © Entrepreneur Media Inc. All rights reserved. ILLUSTRATION: ISRAEL G. VARGAS S am Sisakhti had an idea for an ecommerce company called UsTrendy. It would sell clothing made by talented, unknown fashion designers from around the world — acting as a marketplace for great styles that could not be found anywhere else. It didn’t matter that he had no experience in fashion or building a brand, or that he had just quit his ﬁrst job out of college after only four days. What mattered was that he believed that this idea could be huge. And to get it there, he ﬁgured, he needed to raise money. A lot of money. Initially, it seemed easy. On their very ﬁrst pitch, Sam and his associate landed a $500 000 offer. “Crazy,” he says. But there was a catch: The VC required them to move to Silicon Valley to receive the money. Sam’s right-hand man didn’t want to move. Sam decided he’d just do it himself. START-UP FOUNDERS LAUNCH LEARN TO GROW If you can keep learning along each step of the startup journey, you’ll continue to grow, and your business will be a success, says entrepreneur and author, Matshona Dhliwayo. Q&A BY NADINE TODD PHOTO: JODIE MAMELA Q What is the difference between a ‘learn it all’ entrepreneur, and a ‘know it all’ entrepreneur, and why is it imperative that a start-up strives to be the former? A ‘learn it all’ is one who is driven by the desire to learn and a ‘know it all’ is one who is driven by the desire to prove how much he knows. It’s imperative that you focus on the former because, in life, we are only as successful as what we know. Knowledge is more than power, knowledge is wealth. PLAYER: Matshona Dhliwayo ABOUT: Matshona Dhliwayo is a Zimbabweanborn and Canadian-based philosopher, entrepreneur, and author of books such as The Little Book of Inspiration, 100 Lessons Every Great Man Wants You to Know, and Lalibela's Wise Man. @MatshonaD How can someone go about being a 'learn it all'? First, be humble; humility allows you to learn from others. A humble student is better than a proud scholar. to help you steadfastly execute your objectives. In good times, be cautious; in bad times, be hopeful; and in busy times, be level-headed, never taking your eyes off your goals. Q Q Energy is a great thing, but it needs direction. How can a start-up entrepreneur calm down, focus, and find their direction? You find direction from having well-defined goals in a business plan. You keep a tab on those goals by using a daily planner Why is it important to have direction? A chariot can’t travel in two directions, and when you know where you’re going it’s easier to get there. When you lose direction you lose opportunities, and when you lose opportunities you lose rewards. A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 61 LAUNCH START-UP FOUNDERS Q What are the pitfalls and limitations of ego? Ego is an inflated sense of self and is therefore no different from arrogance. The pitfalls of conceit, which shouldn’t be confused with confidence, are endless. You start thinking you are better than others and the moment you do, this means you can’t learn from them. If you don’t learn you don’t grow, and if you don’t grow, you die. Most experienced entrepreneurs understand the importance of being humble because people buy from people they like, and people don’t like egotistical personalities. Humility opens people up to you, but arrogance drives them away. And the more people an entrepreneur draws the more people he can serve, and the more people he can serve, the more money he can make. daily and emptied of hubris incessantly. The higher you rise with ego, the lower you will also descend in the end because of it. Q Why should you never, ever feel threatened by someone smarter or with more skills than you? In fact, why should you be partnering, hiring or learning from these people? I am never threatened by people who are smarter and better than me because I see them as gifts, and not as competition. I view them as assets, not threats, so I allow them to do what they do best, thereby benefiting from it. It also frees me so I can do what I do best. We can be Jacks of all trades but we can’t be masters of all disciplines. Partnering with people who are cleverer than you elevates you. LAUNCH CO-ORDINATES FINDING A FUNDER What you really need to know to land an investor. BY ALAN KNOTT-CRAIG “We can be Jacks of all trades but we can’t be masters of all disciplines. Partnering with people who are cleverer than you elevates you.” Q That said, a degree of arrogance allows you to push through the hardships. Where is the balance, and how do entrepreneurs find that balance without getting discouraged? Only a few people in history like Julius Caesar and Nebuchadnezzar II rose to great heights with arrogance, but their very egotism destroyed them in the end. I prefer courage, not pride, because it rises from conviction; and also faith, not ego, because it rises from hope. These two have helped the weakest of men and women achieve the greatest feats. An entrepreneur must be filled with courage 62 Q Many entrepreneurs trust the wrong people. Why does this happen, and what is the solution? People are complex creatures. The best of us can’t always predict human behaviour. Entrepreneurs, like everyone else, make mistakes. What they should shy away from are the avoidable ones. My advice: Take time to get to know people. Do your due diligence. Ignorance is your opponent, fear is your enemy, vice is your adversary, virtue is your friend, and wisdom is your helper. EM E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Q How do I find an investor? — Charlie You have 4 options: Angels. Applicable if you only have an idea, and you need cash to make your idea a reality. Usually between R500 000 and R1 million. You need to milk your network: Parents, friends of parents, colleagues, parents’ friends, friends. If you have no network, you need to build a network or use your savings. There is no math to these investments. You get money because they believe in you, not because they seriously expect a return. Early-stage VC. Applicable if you already have a working product with traction, ie: users and/growth, and you need cash to build out. Usually between R1 million and R2,5 million. There are a number of early-stage VC’s in South Africa, just ask around. Knife Capital are amongst the best. Ideally you want an introduction from a trusted party. Failing that, just email them directly. Give a simple pitch. They’re looking for 15X return on investment. Late-stage VC. Applicable if you have a critical mass of users and meaningful revenue, ie: R10 million a ATTRACTING INVESTORS Focus on one customer at a time. Make that customer happy. Move to next customer. Aim for ‘1 000 true fans’, then keep them happy. The rest will come. year, and you need cash to grow. The late-stage VC’s are the likes of 4Di, hard to get access without an introduction from a trusted third party, usually one of your existing investors. They are looking for a 5X return on investment. Private equity. Applicable if you have a cash-generative business that requires capital to either exit a shareholder, or to grow profits exponentially. Looking for 25% IRR. There are also statesponsored sources of capital for entrepreneurs from previously disadvantaged backgrounds, for example the Technology Innovation Agency. This is ‘soft’ money, requiring no equity or personal surety. If you can get it, take it. Investors are looking for return on capital. If I invest R100 in an early stage company, I want to get R1 500 (15x) back within a reasonable period of time, ie. no longer than five years. The key metric is Total Addressable Market (TAM). The size of the market you’re targeting determines the potential size of your business. Assume you target a market with a TAM of R100 million (profit), and you assume you can get 10% of that market by 2020. That means your business will have R10 million of profits in 2020. A private company is valued at a maximum of 7x profit, so your company will be worth R70 million in 2020. If you ask me to invest R1 million today, I need 21% of your company in order to realise a 15x return (R15 million) by 2020. Start with TAM, work from there. Remember, every assumption you make will be questioned. Minimise your assumptions. Maximise the evidence for your assumptions. Q If you are a startup, what’s the most important thing you can do to grow? — Charlie Focus on one customer at a time. Make that customer happy. Move to next customer. Aim for ‘1 000 true fans’, then keep them happy. The rest will come. For consumer products, always make it easy for your customers to share. Friction-free sharing is the easiest marketing tool you can have. Feature-creep is a big risk and can be a big distraction. You need one single value proposition that is enough to get customers. Having fifteen cool features will never compensate for the lack of one killer use case. Q Our staff is growing, more than 20 now. Any tips on management? — Martin Having four or five staff is not hard. You don’t need to be a good manager or leader. You can muddle along. It’s when your team starts growing past the twenty number that management becomes a skill rather than a word. There are hundreds are articles written on the art of management, but Jack Welch (former GE CEO) broke it down to this: People want to know who they report to. People want to know how they’re being measured. People what want to know how they’re doing. That’s it. One boss. Clear KPIs. Regular feedback sessions. E ALAN KNOTT-CRAIG is a successful businessman, bestselling author and social entrepreneur. Named a Young Global Leader by the World Economic Forum in 2009, and now passionate about sharing what he wishes he knew when he started his own business. @alanknottcraig www.bigalmanack.com LAUNCH READ THIS Alan Knott-Craig’s latest book, 13 Rules for being an Entrepreneur is now available. WHAT IT’S ABOUT It’s easy to be an entrepreneur. It’s also easy to fail. What’s hard is being a successful entrepreneur. For an entrepreneur, there is only one important metric of success: Money. But life is not only about making money. It’s about being happy. This book is a collection of tips and wisdom that will help you make money without forgoing happiness. GET IT NOW To download the free eBook or purchase a hard copy, go to www.13rules.co.za. To browse Alan’s other books, visit bigalmanack.com/ books/ ASK AL Do you have a burning start-up question? Email: alan@herotel. com A P R I L 2 0 1 8 E N T R E P R E N E U R M AG .CO. Z A 63 BUSINESS UNUSUAL 4 Ways Sleeping Naked Makes You Healthier and WealthieR What if I told you in just ten seconds a day, you can sleep better, make more money, reduce stress and lose weight? BY TRAVIS BRADBERRY S leeping naked can improve your sleep habits and income earning capacity, while reducing stress and helping you to lose weight. All you have to do is take off your clothes. While there are countless strategies floating around out there to help you improve in these areas, none is as simple — and many are less effective — as stripping down before you go to sleep. Since only 8% of people sleep naked, almost everyone can discover the benefits of sleeping in the buff. This may sound farfetched, but hear me out before you throw those cozy flannel pajamas on. 1 You sleep better naked We’ve always known that quality sleep is good for your brain, but recent research from the University of Rochester demonstrates exactly how so. The study found that when you sleep your brain removes toxic proteins from its neurons that are by-products of neural activity when you’re awake. The catch here is that your brain can only adequately remove these toxic proteins when you have sufficient quality sleep. When you don’t get high quality, deep sleep, the toxic proteins remain in your brain cells, wreaking havoc and ultimately impairing 64 your ability to think. This slows your ability to process information and problem solve, kills your creativity and increases your emotional reactivity. Researchers at the University of Amsterdam found that lowering your skin temperature increases the depth of your sleep and reduces the number of times you wake up at night. Stripping down to your birthday suit is a great way to lower your skin temperature without changing the temperature of the room. 2 Sleeping naked reduces stress We all know that prolonged stress is bad news. It suppresses your immune system and increases your risk of heart disease, depression and obesity, in addition to decreasing your cognitive performance. Stress throws your cortisol levels out of whack. Proper rest helps to restore normal cortisol levels, which improves your stress level, regardless of what’s happening around you. As described in the section above, sleeping naked will help you to get a better night’s sleep. E N T R E P R E N E U R M AG .CO. Z A A P R I L 2 0 1 8 Sleeping naked is healthier Sleeping naked has a slew of health benefits, including helping you to lose weight. A study conducted by the US National Institutes of Health found that keeping yourself cool while you sleep speeds the body’s metabolism because your body creates more brown fat to keep you warm. Brown fat produces heat by burning calories (300 times more heat than any organ in the body), and this boosts your metabolism all day long to help you lose weight. In addition to the metabolic effects of sleeping in the buff, removing your clothes improves blood circulation, which is good for your heart and muscles. The quality sleep you’ll enjoy also increases the release of growth hormone and melatonin, both of which have anti-ageing benefits. 4 Sleeping naked builds confidence Confidence doesn’t just feel good; it’s the pillar of success. It pushes you to try new things, take on challenges and persevere in the face of adversity. A University of Melbourne study found that confident people earn higher wages and get promoted more often than their less confident counterparts. Sleeping naked makes you more comfortable in your own skin. As your comfort with your body increases, so does your self-esteem and confidence. Bringing It All Together The benefits of sleeping naked are many — so many that you owe it to yourself to give it a try. EM © Entrepreneur Media Inc. All rights reserved. TRAVIS BRADBERRY is the award-winning co-author of the bestselling book, Emotional Intelligence 2.0, and the co-founder of TalentSmart — a consultancy that serves more than 75% of Fortune 500 companies and is a leading provider of emotional intelligence tests and training.