Building A Multimillion Rand Event Business

Building A Multimillion Rand Event Business

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Design Indaba

Ravi Naidoo turned the Design Indaba into the world’s top design conference generating R115 million in sales

Designing a Winning Business Model to Showcase SA Talents

An academic at heart, Ravi Naidoo, spent his youth engrossed in his studies. He completed a degree in medicine at UCT and was reading for his masters in the early 1990s – a time when change was in the air and South Africa was on the brink of a socio-economic revolution.

There was something big happening and Naidoo wanted to be part of it. In addition to his love for learning, he has always had a fetish for all things creative. Even as a serious undergrad med student, he had completed several arts courses and was a seasoned speech and drama enthusiast.

“I wanted to do something new and challenging,” Naidoo recalls. “So I wrote a wacky, irreverent letter to a whole lot of ad agencies.” He won’t be too specific about the content, but it had something to do with not wanting to spend the rest of his life nailed to a stool in a dingy lab. He received two replies. One agency wanted him to do a graduate degree in advertising. The other, Young & Rubicam, had just launched a pharmaceutical division and was only too keen to welcome him on board.

That’s how he got into advertising. Within six months he was an account director. But come 1993, Naidoo was ready for another challenge and he convinced his wife to enrol with him to do an MBA. They were the only two people of colour in the class, and as usual Naidoo excelled and was named MBA student of the year.

It was eight months into the programme that he launched Interactive Africa, the company that was to become best known for the Design Indaba, an internationally recognised conference and showcase of design talent that attracts around 40 000 people today from all the creative industries – graphic design, advertising, film, music, fashion, industrial design, architecture, craft, visual art, new media, publishing, radio, television and performance art.

How it all started

Interactive Africa started life as a marketing project management company. “I had found the ad industry a trifle too formulaic, and I was convinced that we needed other models and platforms to help marketers help clients beyond the ‘picture, logo, promise’ advertising formula. Instead, we focus on creativity, media leverage and business strategy, all governed by a measurable process.”

One of his first successes under the Interactive Africa banner was the creation of the Vodaworld magazine in 1994. Today, Interactive Africa is Vodacom’s longest-serving marketing agency. More recently, the company was instrumental in getting South Africa’s 2010 World Cup bid off the ground.

But it’s the Design Indaba, a brand that Naidoo created from scratch, that he is most proud of, and rightly so. This annual event was launched at the Mount Nelson in 1995 and attended by just 200 delegates. At the time, Naidoo was driven by the conviction that the South African economy had to become less dependent on raw commodities and start to leverage value-added products. It was a reality that Naidoo set out to change.

“We had great skills sets in this country at that time, but what we needed was to look at things afresh. I was coming at the problem from a strategic point of view – by 1994 our economy was moribund, and we were merely selling commodities without producing anything of real value. “As the world’s top gold producer, for example, the country has not been known for its jewellery design. Yet, when a gold ingot is turned into beautiful jewellery, the value goes up enormously. My goal was to work towards creating a society that places greater value on design and innovation.”

That first Design Indaba delivered way beyond Naidoo’s expectations. “I hadn’t realised just how starved people were for creativity and inspiration,” he says. “Not only had we been isolated from the rest of the world, but we had also become insular and narrow-minded as a result.”

One of the highlights of that first event was a presentation given by the creative directors behind the Atlanta Olympic Games bid. They gave the delegates some deep insight into what it takes to package a city. People were blown away and those working on Cape Town’s 2004 Olympic bid got a nice little wake-up call. They realised they had to up the tempo and increase their workload.

A post-conference survey showed that 92% of delegates had responded positively and wanted Naidoo to do it again. “I was a bit of an accidental entrepreneur,” he laughs. “I had a permanent staff of two at the time so I made a pledge to the design community to make the Design Indaba a biennial event. I really had no idea that it would become such a money spinner at the time.”

Subsequent events were held in 1997 (attendances doubled), 1999 (attendances went up by 70%) and 2001 (attendances doubled again), with the Design Indaba outgrowing its venue every time. From taking over the entire V&A Waterfront, it moved to Artscape and then to the Cape Town International Convention Centre after it opened in 2003.

Building revenue streams

Following the 2001 event, Naidoo decided that it was time to make it an annual happening. However, creating an event-based business is not about an annual three-day frolic, Naidoo cautions. “You actually have to build a solid business with strong revenue streams and professional staff, not casual labourers. Don’t think you can earn money in a few days to make that business sustainable for the other 362 days of the year.”

That’s why he introduced additional income channels such as the Design Indaba magazine, a multi-award winning quarterly publication that champions local creativity, features international expertise and investigates how design can create a better world. On diversification, Naidoo points out that you can diversify only when you know exactly what you stand for. In 2004, he launched the Design Indaba Expo, a 100% South African celebration of the country’s best creative talent across all the creative industries.

“The Design Indaba was in its eighth incarnation by then and we had to find a way to really differentiate it – we had to actually spend ahead of where the market was. There was not enough of a critical mass to justify the expo, but that is what turned it into a multi-sectoral event. And rather than just selling space to exhibitors, we curate the expo and we have an independent curatorial board of leading creatives to do this.”

That’s because standards are important, he adds. “We only feature what is home-grown, high-end and exportable. We are not interested in derivatives and mimicry. No knock-offs from Milan.”“While the conference has always been fiercely global, the expo is entirely local. What we have today is a global, best-in-class conference with speakers from around the world, accompanied on the flip side by an exhibition of top local talent.”

Making it all work

One of the great lessons Naidoo learnt along the way is that  in the events business, you have to get out there and campaign, canvas and forge relationships with people and organisations. The design Indaba has thrived because he has never run it like a creative or cultural event; instead it’s managed like a sports event. That means securing robust sponsorship, ensuring accountability and strict auditing processes, and partnering with media organisations all around the world. These are what Naidoo calls the building blocks of success.

“As we grew, we set out to be the best – to become the Cannes of the design world. That’s why we now have around 40 000 people attending. We are intensely competitive.”

He straightforwardly declares the Design Indaba to be better than similar events held in design hot spots like London and San Francisco. It’s a claim borne out by EIBTM, a top global exhibition for the conference, incentives, events, business travel and meetings industry, which in 2005 voted the Design Indaba the best conference in the world. To date, it’s the only African event to be awarded this status.

Naidoo is also aiming to open up another revenue steam through the Design Indaba’s web strategy which includes an e-commerce channel.

“The retail side of the expo has been very successful,” he explains. “In 2009, we had a total of R115 million in sales in three days. Our goal now is to build a design portal that will enable people here and abroad to buy South African artefacts, like Imiso ceramics, online.”

Having built a strong brand, Naidoo and his team are often invited to speak at conferences around the world. He was invited to Singapore to speak about the relationship between design and farming, and paid $50 000 for the favour.

Partners have played a major role in ensuring the sustainability of the event, with Naidoo having big names on board, including Woolworths, Absa, DSTV, Grolsch, Jupiter Drawing Room, Sappi, South African Tourism, Chaywa, and One & Only. It’s also key to remember, Naidoo says, that the Design Indaba is owned by Interactive Africa, itself a big business with clients like Vodacom and FIFA.

Managing Money Matters

Naidoo recalls that in the beginning, he was interested in breaking even, but had to tighten up his infrastructure and his team as the business grew. Financial modelling was vital, and he spent a great deal of time working out what the market could bear from a pricing point of view.

“The Design Indaba is the cheapest creative event in the world, priced at around $500 to $600. Compared to similar events that come in at 2 000 Euros, that’s a compelling offer – you have access to a whole world of design at a rand-based cost. It was important to price the event so that it’s accessible to South Africans.”

When it comes to finance, money is nothing, Naidoo maintains. Leading with passion is what counts. Nonetheless, he had to raise R50 000 to launch the first Design Indaba. He did so through trade exchanges, barters and payments in kind.

Raising money was doubly difficult for Naidoo because his idea was untried and no-one knew who he was. Added to that, he was tackling a market that is known less for its appreciation of culture and design and more for its obsession with politics and sport. “I got the money because I had a big idea, a great concept, a unique proposition.” Call it what you will, the clincher was his ability to articulate his vision clearly. It’s one way in which he has benefitted from his speech and drama classes.

“You need to have persuasive powers to get people to buy into your idea. You need to know how to package and present your plan. Everything we do has style and a compelling narrative attached to it.” The conference turned a profit from the word go. In that first year, turnover was referred to in terms of hundreds and thousands; today it’s at around R20 million. When the expo was launched in 2004, Naidoo took a big risk and spent a lot of money to start it. It was a move that began to pay off only two years down the line. At first, he struggled to find 80 exhibitors when he knew that he needed 200 to break even. Today there are more than 300. He notes that early bird offers are the lifeblood of a young events company and that’s what has enabled the expo to grow alongside the conference.

How the Design Indaba become a worldwide success?

Naidoo attributes the prestige of the event – reputation being a key factor in his industry – to maintaining global competitiveness and aiming extremely high. There is simply nothing like it in the world – 60 creative leaders in one room over three days and around 300 exhibitors of local merchandise across a range of industry sectors in a top quality venue.

“One of the key differentiators is the fact that while industry sectors generally are siloed, we have done away with the traditional lines between things like design and biology, design and agriculture.” He also warns against the cut-and-paste approach applied by many events companies. “When we look for speakers, we do not deal with speakers’ bureaus, nor do we choose MCs from the celebrity circuit. We want uniqueness, not the same messages that are trotted out at every function.”

The toughest challenge for Naidoo has been the relationship with local, provincial and national government. Where private companies have supported the Design Indaba and invested in growing it into what it is today, the Government has done the opposite.  “Government does not do multi-term agreements, so what goes one year does not apply to the next, despite what the Design Indaba contributes to the Western Cape’s GDP. This confounds planning. We can only do so much to promote the event; it would be gratifying to have support form the public sector that goes beyond cutting ribbons for an event that has won awards.” Harsh words, but the challenge is a very real one: the Arts and Culture ministry dropped the Design Indaba ahead of the World Cup, favouring a once-off event over a perennial attraction.

What’s next?

Having successfully leveraged the success of the Design Indaba for other areas of growth, Naidoo is proud of having built a prodigious global network which Interactive Africa is able to tap into for many other client projects. “We can talk to industry professionals in most cities around the world; we are not solely reliant on Cape Town’s talent. It really is an unfair advantage. We are very trend aware and in touch with what is happening.” He plans to use that knowledge to kick-start the web business and take the Design Indaba beyond the borders of this country.

Who is it for?

  • 65% of the Design Indaba board are practitioners in creative fields
  • 35% are people who commission creative work
  • 20% of people who attend are overseas visitors
  • 60% are from Gauteng

Design Indaba Milestones

1995: The Design Indaba is launched and 200 delegates attend

1997: Second Design Indaba event is held and the number of participants doubles

2001: Design Indaba becomes an annual event

  • Design Indaba magazine is voted
  • best new design magazine in the world in New York

2004: Design Indaba moves to the Cape Town International Convention Centre to accommodate participants

2005: Design Indaba voted best conference in the world by EIBTM

2007: Design Indaba wins Loerie gold award in the live events category


Case-Study

ABSA Cape Epic

Kevin Vermaak built the Absa Cape Epic into the race of choice for mountain bikers globally

How a Cape-Based Cycling Race Became a Global Epic
Written by Greg Fisher

The majority of theories and models on entrepreneurship and new venture creation focus on business opportunities orientated around day-to-day operations – such as a retail business that trades on an ongoing basis, a manufacturing entity that continuously produces output, or a service organisation that is always available to clients. Yet many new business opportunities are linked to events – either once-off events (such as a music concert or a trade convention) or regular events with significant amounts of time between each edition of the event (such as an annual sports event or a biannual exhibition). Under such circumstances the focus areas for successfully creating a new business are subtly different from those of an ongoing business operation. I call this concept event-based entrepreneurship. In this article I unpack some of the critical elements of event-based entrepreneurship by examining the intriguing case study of the Absa Cape Epic, an annual mountain bike race in the Western Cape.

Absa Cape Epic: The Learning

The business development process behind the race provides key insight into some of the most critical elements in the creation of a sustainable and profitable event-based business. Such elements include the following:

1. Funding. The development of the race as a business was largely self-funded (i.e. bootstrapped). Aside from a bridging loan from the IDC that was granted three years after launching the venture, Vermaak and his team developed this enterprise with true global reach using only internally generated funds supplemented by limited personal funds.

2. Sponsorship. The business focuses on a very niche, secondary sport, which seven years earlier had enjoyed only limited spectator or sponsor interest in South Africa. Yet through the Absa Cape Epic, Vermaak has elevated the prestige, professionalism and competition of the sport to the point where it now has television appeal across the globe and has blue chip companies vying to be associated with the race.

3. Business Model. In developing the Cape Epic as a business, Vermaak realised that there are multiple potentially profitable revenue streams associated with a single popular event. He has effectively exploited many of these additional revenue streams in a way that benefits all stakeholders and enables the business to turn a profit from the R30 million in revenue it generates from a single race.

In unpacking the intricacies of building an event-based business, I will discuss each of these elements in detail in the context of the Absa Cape Epic.

Funding

Many prospective entrepreneurs believe that funding is the most significant barrier to starting a new business in South Africa. They spend huge amounts of time and effort trying to convince financiers to invest in their business and enable them to launch a new product or service. Sadly, many fail to realise that it is highly unlikely that any financier will provide capital for a business that is not yet operational. Thus, much of their early passion and energy is focused on something that yields very low returns – trying to raise money. Vermaak went about things very differently. He focused primarily on just getting the first race off the ground and in so doing tackled issues with the philosophy of “how can I make this happen” instead of asking “how much money will I need to raise to make this happen”.

This meant that instead of putting a PowerPoint presentation together to persuade banks and venture capitalists to fund his idea, he put a presentation together to go out to sports marketing firms and sponsors with whom he could partner to sell his race on a global platform. Instead of engineering the business plan to make the returns of the venture look attractive he engineered the marketing material to make the actual race look attractive to mountain bikers across the world.

In June 2003, he opened entries for the inaugural race at a cost of R7 800 per team and the 275-team slots were taken up and paid for in just three days. With that uptake in entries he quickly had about R2 million in the bank that he could use to deliver the first event. Although R2 million seems like a large sum of money to deliver a mountain bike race, because of the quality, logistics and length of the event it was not enough to cover his costs for the first race. Vermaak worked incredibly hard to persuade suppliers to extend payment terms – a tough thing to negotiate for a company with no track record. “These were highly stressful times,” he recalls, yet his tenacity and persuasive skills resulted in a number of suppliers agreeing that he could settle his debts 90 days after invoice.

This meant that if the entries for the following year’s race could be opened up within three months of the 2004 race, then Vermaak could use entry fees for the 2005 race to cover the deficit from the 2004 race. The difference in timing between collecting revenue and paying expenses enabled Vermaak to creatively build the business off a very low capital base. By 2006, two highly successful editions of the Cape Epic had been staged and Vermaak and his team now had the credibility and track record to approach the IDC for a bridging loan. Because of the good work they were doing to expose South Africa on a global stage, the IDC agreed to give them a bridging loan at preferential rates. That same year Absa agreed to come on as a title sponsor of the event. The title sponsorship deal helped reduce the deficit between income and cost on each race yet it still took another two years of hard work for the company to finally break-even and make a profit.

Key lessons: funding an event-based business

  • Be patient – building a profitable event based business takes time. You may not make any profit on the first few events but if you learn through the process and deliver a good experience for customers, over time you can start to generate a profit.
  • Get operational – do whatever you can to get the business off the ground. It is much easier to get loan funding once you are generating cash flows.
  • Use timing of cash flow creatively – speed up revenue collection and slow down payments to suppliers.

Sponsorship

Sponsorship is a critical element of the Absa Cape Epic’s business model. Vermaak concedes that “the business of sport is built around sponsorship” and he has set out to create “the Formula 1 version of mountain bike racing”. He cannot rely on rider entry fees to cover the costs of the race; he and his team therefore need to create an event that is highly attractive for big companies to be associated with. From the outset, Vermaak set himself the goal of attracting a title sponsor with global recognition and a minimum of R100 million in marketing budget. His intuition told him that the race had to be associated with “big blue chip brands” for it to be a long-term success. Initially he spread his net far and wide, doing presentations to whoever would listen. He was thrilled when his marketing partners secured Adidas International as a sponsor for the very first event. As he has built this business, Vermaak’s secret to success for securing sponsorships was Gary Player’s mantra, “the harder you work the luckier you get” – he just kept plugging away until he got a positive response.

The route to securing Absa as the title sponsor was a little more strategic. Vermaak realised that the title sponsor was likely to be a South African company and he targeted companies with a marketing budget of R100 million or more. He exploited every personal relationship possible to find a way into the executive offices of SA’s blue chip companies – calling on people who had ridden the race, family, friends and long lost acquaintances to get an introduction. In this process, he discovered that the executive assistant to Steve Booysen, then CEO of Absa, was entered into the following year’s race.

Using this as an access point into Absa, one of South Africa’s largest financial services organisations, he went through a series of meetings with the right people, and finally Absa agreed to be the title sponsor. Having a title sponsor has significantly improved the financial viability of the event but for Absa it has also created a unique marketing opportunity. Firstly, the average South African rider spends approximately R40 000 in preparing for and getting to the race, which suggests that the majority of the riders in the race are fairly wealthy and influential. The riders of the race are therefore an attractive captive market for Absa. Secondly, Absa has the opportunity to invite some of its most important clients to ride the race with senior employees. The relationship bonds that are forged with important clients during an eight day mountain bike race are more valuable than a relationship forged over a beer at a rugby game. Over the years, more and more sponsors have expressed an interest in being associated with the Cape Epic but one of the fundamental lessons that Vermaak has learned is that “lots of sponsors is not the answer”. The relationship with each sponsor takes time and effort to nurture and it is thus much more productive to have a few high value sponsors rather than many less significant sponsors.

Key lessons: Sponsorship for an event-based business

  • Know what you want – establish criteria for the type of sponsors that are going to best serve your event and be best served by it in the long-term, then spread your net wide across those companies that meet your criteria.
  • Leverage relationships – use whatever access point you can to get a meeting with the decisionmakers in the companies that you are targeting as potential sponsors.
  • Quality is better than quantity – don’t be tempted to take on too many sponsors. Each sponsorship relationship takes time, effort and energy to nurture and manage.
  • If you take on too many sponsors you may not be able to manage any of them effectively.

The Business Model

The two broad categories of events in the business of sport:

1)     The mass participation event in which the organisers rely primarily on many thousands of relatively small entry fees to generate revenue for the event (e.g. the Comrades Marathon, the Pick ‘n Pay Cape Argus Cycle Tour).

2)     The professional event in which the organisers attract companies to sponsor an event, pay professionals to participate in the event and charge spectators to watch the event (e.g. The Nedbank Golf Challenge, FIFA World Cup).

Kevin Vermaak realised that his concept of the Cape Epic did not fall directly into either of these categories. He wanted to attract the world’s top professional riders to the race but also provide an opportunity for the aspiring amateur mountain biker to participate. He wanted to charge an entry fee for participation but he knew there was a limit to the number of people he could allow to participate (due to limited route access and safety). He therefore needed to create a new business model that would enable him to create a profitable “pro-am” (professional and amateur) sports event. Over the years he has been open to experimenting with a different mix of revenue streams for the business. As early as the second year of the event he realised that there was an opportunity to “introduce extra rider service products – ‘margin sales’ – like pre- and post-event hotel accommodation, accommodation upgrades during the race, mobile homes, hospitality, etc.” Many of the riders travelling to the race were willing to pay for extra services before the race and along the route.

By packaging and selling these extra services Vermaak uncovered an extra revenue stream that is seldom exploited by organisers of similar events. Over the years this offering has grown to include rider DVDs, clothing, massage services and nutrition services, among other things. The ‘margin sales’ revenue stream now constitutes 20% of the company’s revenue (approximately R6 million). The other two primary revenue streams are sponsorships (40%) and entry fees (40%). Because the Cape Epic is shown on so many TV channels across the globe, many people perceive that TV rights should be a significant revenue generator for the business but as Vermaak points out: “Mountian biking is not football, we pay an agency to give our TV products away for free.” He recognises that he needs to increase the profile of the sport of mountain biking significantly to create value for his sponsors and make the business sustainable in the future.

Thus, he invests heavily in getting the race onto TV screens across the globe. Being a first mover and an innovator in an emerging industry is often expensive.

One needs to invest heavily in increasing the legitimacy and profile of the entire sector which opens the door for others to move in and establish their businesses on the back of the hard work of the innovating company. Similar examples are evident in the coffee and airline industries. In the coffee industry, a multitude of premium coffee shops emerged after Starbucks established a market for gourmet take away coffee. In the airline industry, a stream of new low cost carriers popped up after Southwest Airlines worked hard to establish the credibility of low-cost airlines.

In most cases where an innovating company needs to invest heavily to establish a new industry they will retain the highest market share in the sector but it is often a lot easier for other players to come in and quickly turn a profit, even though they may have lower market share than the early innovator. Kevin Vermaak sees the effect of this in mountain bike stage racing.

A stream of new events has emerged locally and abroad in the wake of the success of the Absa Cape Epic.

Key lessons: building a profitable event-based business

  • Look for alternative revenue streams associated with your core product but don’t over-engineer the additional offerings – recognise where you have the opportunity to package and sell other products or services linked to what you currently do. Don’t feel locked into just one or two revenue streams; look for alternative sources of revenue. As you do this, be careful not to over-engineer your additional offerings such that they take excessive work to deliver. The team behind the Cape Epic is very careful to create ‘standard products’ for their margin sales so that people buy the service that is offered or not at all. They don’t offer customised versions of any of these services as that creates more work than it is worth.
  • Recognise whether you are a leader or a follower in your industry and invest accordingly – evaluate whether your company needs to establish a market and legitimise the industry in which you operate. If so, take a long-term view, seek to be the leader in the industry but recognise that it may take time to get to profitability. If you are entering an established industry, recognise that your market share may be restricted but look for ways to get to profitability quickly.
  • Experiment and learn as you go – in a new industry no-one really knows what the standards are and thus the best way to learn is to experiment. The people behind the Cape Epic have used online auctions and premium charity entries to test price points and they have experimented with route changes and race formats to increase rider appeal and decrease logistical overheads. They are also continually evolving their company structure to make the business more efficient and effective as they grow and learn.

As Kevin Vermaak reflects on his journey of building a world-class event-based business from scratch, he passionately acknowledges the role that mentors and role models have played in influencing his decision-making processes. I have no doubt that his willingness to share aspects of his journey in building the Absa Cape Epic as a viable business will influence other entrepreneurs with aspirations to build world-class event-based businesses and, as such, his own function as a role model should be highlighted.

Absa Cape Epic: The Event

The Cape Epic is a two-person team mountain bike stage race over eight days, covering approximately 800 kilometres through the mountains of the Western Cape. The race is limited to 600 teams (1 200 individuals).  Some 35% of the participants are international riders coming to South Africa from more than 40 countries. Entrants in the 2010 race paid R25 200 per team to enter the race and the lottery for entries into the 2010 race was oversubscribed. The Cape Epic is one of only four bicycle stage races and the only mountain bike race in the world to be classified by the UCI (the International Cycling Federation) as Hors Categorie (beyond classification). The other three stage races with the Hors Categorie classification are the Tour de France, Giro d’Italia and Vuelta Espana. The 2009 edition of the Cape Epic was broadcast in 175 countries, on 205 TV stations attracting 4 300 hours of global TV coverage. This makes the event the most televised mountain bike race of all time.

Absa Cape Epic: The Business

Beyond being a truly world-class cycle race The Cape Epic is a remarkable entrepreneurial story. With the impact that this race has had on global cycling it is hard to believe it is just less than seven years old and was started by a single individual. Kevin Vermaak conceived the idea while lying on the beach in Costa Rica in November 2002. He had travelled from London to Costa Rica to do the La Ruta mountain bike race. “La Ruta was popular for what it was but it was very expensive,” reflects Vermaak, who grew up in the Eastern Cape and attended the University of Cape Town. He knew that South Africa was a much better venue for a world-class mountain bike event. “The terrain, beauty, people, services and facilities in the Western Cape would make it possible to organise a far superior race.” Vermaak went about creating a business plan for his new venture and “three months later I’d packed up eight years in London and was starting a new life in Cape Town,” he remembers. Recognising the need to market the race on a global platform, he first forged a relationship with marketing partners in Munich and then focused on developing the brand, the logo, the ethos and refining the basic concept so that he could begin selling entries for the inaugural race in March 2004.

Over the past six years the race has grown into a global phenomenon and has been referred to as “the Tour de France for mountain bike pros and the best week of the year for recreational riders” by Christoph Sauser, the multiple mountain bike world champion and overall World Cup champion from Switzerland.