- Company: Nyalu Communications
- Player: Ephraim Mashisani
- Launched: 2009
- Turnover: R50 million
- Contact: +27 (0)11 402 8546
- VISIT: nyalu.co.za
Nyalu Communications is a marketing and communications company that has expanded its printing capabilities to incorporate outdoor advertising, PR and promotions, branding and design, print advertising, brochures and any other kind of printed supporting material for campaigns.
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The print industry is deceptive; from the outside it looks like an easy, low barrier to entry industry, but the reality is that it is highly technical, extremely cash intensive, the equipment costs hundreds of thousands, sometimes millions of rands, and there are just a handful of big players who are well established.
All of this makes it a difficult industry to break into. It’s also highly commoditised, and very price dependent. This means price (and the lowest price) is a common but poor differentiator, and difficult to build a sustainable business on.
Despite all of these challenges, Ephraim Mashisani has built a thriving company using very smart tactics that centre on monitoring every single cent, and knowing his industry – competitors included – inside out. Having launched in 2009 as a part-time, bootstrapped company, he’s had to be specific and smart every step of the way. This is how he’s done it.
As a BEE level 1 company do you go straight for big tenders?
No, we don’t participate in all tenders, we select the ones we can have an upper hand on because the processes are difficult and time consuming.
What we do find is that we supply to companies that have secured tenders but don’t have the expertise or facilities to fulfil their obligations – that’s where we come in. But we do have some contracts with government departments and some corporates.
Historically, we’ve found corporate very difficult to break into because they’re not held to the same procurement processes as the public sector – a corporate can easily say they’re happy with their supplier, but the public sector is dictated to by the PFMA, meaning they need to mix up their suppliers from time to time or face an audit query. That’s where you get your chance to pitch for business and prove yourself.
Nyalu Communications is incorporating more and more functions rather than going niche. What is the rationale?
Growth has been a fine balancing act of deciding which functions to outsource to small businesses and which to bring in-house. It all depends how the numbers work out and how reliable my supplier is.
Growth relies on having control of production and I learnt some hard lessons to that effect as an SME: I’d take information from my supplier at face value and take it to client, only to be caught between a rock and a hard place.
The supplier would run over deadline and say, ‘You’re welcome to take your business elsewhere,’ knowing I’d go to the back of the queue if I did. Whatever decision I made I’d still have to go to client with a story about why their delivery would be late.
Another problem with outsourcing to multiple suppliers is that consistency may be compromised – one supplier’s purple may be different to another’s.
So coming back to Nyalu and its growth, equipment is purchased, functionalities added on, or smaller businesses purchased so that we become a one-stop-shop with as much control as possible. As a recent example, I purchased a litho printing company (Xanadu Printing & Graphics) because I realised I was spending in excess of R1 million per month just to outsource magazine print work.
I already had 51% shares in the company to secure priority, but realised 100% ownership would bring in more revenue, work towards our one-stop-shop goal, and ensure quality and consistency across different printing systems.
As part of our growth strategy I also recently purchased CMT Machinery for custom-made corporate wear, bags and protective wear after I realised I was spending R200 000 a month outsourcing this work.
How do you avoid value leakage with increased functionalities?
I’ve made sure that I’m qualified in my roles and responsibilities. Where I don’t know things, I hire the best people in those fields.
The danger with embracing all things is that not having the right people will result in more damage than good to the company’s reputation. Here’s an example of how I avoid that: Car branding is very specialised and outside my expertise and you can’t just get anyone to do it, but it’s part of our offering, so I’ve taken on a company that specialises in car branding and I send them on regular training to ensure they’re up to speed with new techniques and materials.
But when I bring in a new division or buy a new company, there’s the inevitable uptake period to recuperate that initial investment. To weigh up the decision I check how much I spend in the particular field, and if I spend more than enough, I research the costs of buying these machines and bringing on the expertise.
I then have the option to continue outsourcing (provided they’re cheaper and reliable), to buy equipment and recruit employees from the field, or to purchase an existing small business. Whichever decision I go with, it’s always with long-term growth in mind.
Outsourcing can be cheaper, so how do you justify the higher price of bringing things in-house and what you can realistically charge?
Obviously you have to know your competition and how much they’re charging, but my pricing always hinges on quality. There are competitor prices I can’t compete with, but it shows in the quality of the final product. We did a job where we were asked to compete with a well-known competitor who I know uses a Chinese model machine that costs around R300 000 and his inks cost next to nothing, whereas my machine is a latex printer that costs around R3 million and three litres of ink cost R5 000. But it’s clear which is which.
I don’t get into price wars. When giving a quote we always offer a sample made at our own expense which inevitably forces the competition to do the same. When clients say our prices are too high for them, the minute they get the mock-ups in their hands and they know what we’re charging them for, they know who to give their business to. Yes, our prices are a little higher, but they’re informed by what’s involved.
Even when competing against inferior quality, we don’t overcharge. In fact we cap our margin at 30% and most jobs fall into 15% to 20% because we work on volumes. We’re more expensive than some, but more competitive than when middlemen are involved.
You’ve made a profit on every single project since you started. How have you achieved this?
I’m exceptionally careful about tracking costs and touch points to complete a project. Every single quote and invoice comes through me before it goes to client and because I’ve been in the industry so long I can pick up errors or anomalies at a glance. I also always have the invoice from the supplier at hand when checking as it prevents mistakes.
But from an internal perspective, you have to consider the time and labour that goes into a job and what it’s costing you. It’s the little things like the time taken for folding and bagging a T-shirt that adds up as you need to buy the plastic bag and pay for the labour.
We had an instance where a client brought in his own T-shirts, wanted them branded, put in plastic bags and then in nice branded boxes (which are expensive, around R5 to R6 each). He then told us we were being unfair to charge for the boxes! By working out every touch point of a project I’m able to determine what it’s costing the company and factor in a 15% to 20% margin.
Even if I’m doing a job for free as a favour, I’ll let them know how much it would have cost – from designing to printing, packaging and finishing – and that goes into our books.
Like a lot of young businesses, I battled to get finance from banks, so most purchases were made in cash. I’d identify a machine, save for it and then buy it a year down the line.
There’d then be a lag time of up to nine months before I had enough capital again to fund big projects that would pay for the machine. Fortunately, we now appeal to banks and it’s easier to access finance. So we finance our purchases and retain our capital to put the machine to work immediately or have it earning interest elsewhere.
It’s critical we have strong working capital as often orders come in on a Monday with a Friday deadline. We’d miss the deadline if we had to apply for finance, especially because some clients can’t even pay a deposit for their jobs.
For example, a client can give us an order for R5 million without a deposit and then we still have to wait another 60 or 90 days after delivery for payment. This is another reason why we finance the big machines and keep working capital at hand.
With such a long wait for payment, how do you manage your cash flow and ensure payment?
It’s so important to chase and check. Very few clients are ever on the ball and pay on time. We’ve hired a person whose sole responsibility is to chase clients from the 15th of each month by following up on invoices, sending statements, and getting verbal confirmation that they’re on track for payment.
This helps the business because we get a better understanding of our financial status for the month, which then determines whether we must source money elsewhere for salaries and suppliers. We then look to our creditor’s book to see who owes and collect enough money to cover all the costs of the month.
How do you decide who your clients will be, especially if they’re late payers or default entirely?
We don’t want those kinds of clients as it costs us time and money to keep chasing them for payment, so we’re managing our existing debtor’s book and have implemented a policy of putting all new clients through a vetting process with a credit controller company called Credit Guarantee.
They vet new clients on our behalf, determine the client’s credit limit and insure it. If a client defaults, at least we’re covered and it becomes Credit Guarantee’s problem.
How this tactic also helps is that if Credit Guarantee covers a client for R100 000, we then only do jobs up to R100 000 for that client. If their order is larger, we request the excess in cash up-front.
As your company grows how do you manage staff to maintain production quality?
With unskilled labour, you can get those who don’t care that they’re not sticking a label on a bottle straight, so to ensure the quality of all our jobs we’ve got a tiered system of leadership.
My operations manager oversees everything and reports directly to me – she’s very experienced and acts as my eyes when I’m not around. She has a team of production managers who manage their departments. We meet with them daily to look at workloads, challenges and outputs. Every production manager also has a team leader who serves as quality controller, checking quality and quantity.
Once the quality and quantity check is done at a departmental level, it gets sent to dispatch. Here we have a dispatch manager who’s very strict and stubborn as a result of past lessons with clients who would question why their delivery of 50 T-shirts actually amounted to 45. So this dispatch manager literally counts everything going in and going out.
It doesn’t matter if it’s 5 000 water bottles – he’ll count them until he’s satisfied and then records it in Pastel. He then gets the client to sign. This brings all the departments together and ensures the final order is correct. I believe that quality checks and quantity checks go hand in hand. Leakage of 15 shirts per 1 000 doesn’t sound like much but it adds up.
How do you find the time to plan for growth in your company?
All industries operate in cycles, and printing is no exception. But instead of scrambling for business when times are slow, I take that opportunity to think strategically about what operations I can bring in-house.
I always like to be challenged, to tell you the truth. In quiet times I’m able to identify where we have gaps in our offering. The minute you sit and relax, you get used to the situation and things become normal to you.
How do you market your new purchases to drum up business that will pay for it?
Whenever we buy a new piece of machinery, whether it’s bigger, faster or completely new, we send out emails to clients to show off our new acquisition and what it can do. We then invite them to come over and take a look at it. It’s fascinating how that alone drums up excitement and turns into business.
What does the future hold for Nyalu’s growth?
We’re in a great position now that we’ve developed a sound reputation, have the expertise and capital to take on big projects, and are established enough and able to leverage our BEE status to target the sector.