- Player: Tshego Sefolo
- Company: Zico
- Position: MD
- Established: 2002
- What they do: Private equity investments
- Contact: +27 (0)11 217 3300;
- Visit: zico.co.za
There is no doubt that times are tough. The global economy might not be as deep in the doldrums as it was in the late 2000s, but we’re far from a position where growing a business is plain sailing.
In fact, the South African economy is contracting at the moment, which is creating a real threat of recession.
But it isn’t all bad news. Growing a business, even when the economy is struggling, isn’t impossible. It requires some hard work and very clever thinking, but it can be done.
Tshego Sefolo is the MD of Zico, an investment and private equity firm that identifies well-established companies on an upward trajectory, and provides growth capital to get these entities to the next level.
So Sefolo has a keen eye for the traits and tactics that separate burgeoning businesses from those that plateau or go under when an economic storm hits. Here are his rules for growing your business during tough times.
Provide great value
What do you do when customers start obsessing over cost-cutting and doing less with more? You could drop your prices, of course, but this is hardly a good strategy for growing one’s business. Instead, you should be exploring ways of providing your clients better value.
“What entices a customer to come back to you repeatedly? It’s about ‘stickiness’. It means that you’re providing something that they’re not getting anywhere else — and it usually has to do with more than the product or service you provide,” says Sefolo.
When the economy turns against you, you need to work particularly hard to prove your worth to customers. You don’t want to be just another supplier; this makes the relationship far too transactional.
You want to become a trusted advisor to your clients. They need to depend on you for more than just a product or service – they need to rely on your advice.
If the market shrinks, you need to come up with clever ways of attracting new customers. You also need to look out for opportunities that haven’t been properly explored yet.
“You need to establish centres of excellence within your organisation and allow them to think creatively,” says Sefolo.
“Companies such as Apple and Google have done a wonderful job of this. They established centres of excellence that managed to identify new and untapped markets. ‘Business as usual’ isn’t good enough in a difficult economy.”
Abandon a plan if it isn’t working
Creativity and a certain amount of bravery in exploring unchartered waters is important when trying to grow, but you also need to be willing to turn the ship around and head back to port if things aren’t working out.
“We often find that companies bend over backwards to attract or retain customers, sometimes to the point where margins are virtually non-existent. That doesn’t make sense. Growing your business usually means growing your client base, but it shouldn’t happen at the expense of your profit margin,” says Sefolo.
So how do you know that the time has come to abandon a strategy?
“You need to put a very definite ROI deadline on an opportunity, especially when the market is struggling,” says Sefolo. “The deadline will depend on the nature of the deal, but you need to be very firm in your ROI target. If it can’t be met, walk away. Importantly, the deadline doesn’t need to be in the short term, but it does need to be fixed.”
Assemble a great crew
“One of the key things Zico looks out for in a company is a great management team. Of course, you want a great MD or CEO, but you also want someone who surrounds themself with the right people.
“Founders of start-ups often struggle to delegate important responsibilities when a business really starts to grow. They need to have the courage to employ the right people, and then allow them to do their jobs. Growing a company while micro-managing every aspect of it is impossible,” says Sefolo.
A solid management team is always important, but it becomes absolutely crucial during an economic downturn. Anyone can pilot a ship over placid waters. When a storm hits, you need a very experienced hand at the tiller.
A booming economy can hide a lot of underlying problems within a company. When the economic tide recedes, though, these issues reveal themselves.
“When the ship starts to sink, you lose your best people first, so you need to value your employees if you want to grow,” says Sefolo.
When a storm looms it might be tempting to toss a few crew members overboard, but you’ll notice their absence down the line. Don’t sacrifice employees for a small bump in the bottom line.
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Take a long-term view
True to the age-old saying, some dark clouds really do have a silver lining and tough times bring with them great opportunities, but you often need to adopt a long-term view in order to benefit from them.
“Take our current electricity situation as an example. It brings with it great business opportunities. You need only look at the number of companies providing generators to realise this,” says Sefolo.
“However, you also take a long-term view. Some opportunities will only pay off down the line, so you need the patience (and liquidity) to sit back and wait. Others might offer a great short-term ROI, but you have to ask yourself if they’re truly great opportunities. They shouldn’t let you lose focus and scupper your long-term growth plans.”
Liquidity is vital when times are tough. “Unsurprisingly, the businesses with decent capital reserves are the ones that generally perform best during economic downturns,” says Sefolo.
“This is important to remember when trying to build your company. If your growth plans are going to seriously impact your liquidity, you have to question the timing of your strategy.”
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Many companies also gear too aggressively, leaving no margin for error. If something goes wrong, they find themselves over-leveraged. Growth is good, but should never be reckless.
You need to be measured and strategic in your growth, especially when the economy isn’t in the healthiest of states. If you don’t keep a close eye on your destination, you’ll find yourself out at sea.