Hey, Dealmaker

Hey, Dealmaker

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For ten years, software distribution company Phoenix Distribution showed what is normally described as ‘pleasing growth’. It signed distribution agreements for one big name software developer and then another. It forayed into the UK – disastrously at first and then with growing success – and moved north into the rest of Africa. And then suddenly, in the past four years, it went into orbit – growing its annual turnover from R40 million to over R300 million. Not bad for a start-up that began with R5 million. Pretty lucky, some might say.

But scratch the surface of Phoenix Distribution’s ‘overnight’ entrepreneurial success story and you’ll quickly discover years of slogging, sleepless nights over cash flow issues, near-wins and even closer near-misses – and an entrepreneur whose only comment about luck is that his portion of it increases in direct positive correlation with the amount of work he’s put in at the end of every day. This is Simon Campbell-Young’s story.

“The idea was sound but the technology wasn’t quite there yet,” says founder Simon Campbell-Young about the birth of Phoenix Distribution in 2000 – the ‘idea’ being to set up an online software distribution business. The Internet now delivers on all the promises it made in 2000, but back then South Africa’s limited broadband coupled with consumers’ lack of comfort about mobile Internet transactions meant Phoenix was playing in a very different space to the one it occupies today.

“We had to change the model pretty quickly, moulding it from being the exclusively online distribution business that we had envisaged to becoming a publisher of software titles,” says Campbell-Young. It was in this arena that the brand found its niche, developing close relationships with both developers and retailers and building a reputation for service excellence.

Phoenix represents almost every major software brand in the world, having been awarded the rights to burn, package, publish and print their products and take them to market. “The model allows software developers to focus on what they are good at while we focus on what we’re good at – which is finding good intellectual property and getting it to the end-customer through various channels,” says Campbell-Young.

Today those channels include mobile and online applications, in line with his first vision for the business. That’s in addition to the channel of 3 000 reseller partners. Campbell-Young has certainly been busy. In recent years Phoenix has expanded beyond retail into the electronic distribution of licensing in the business-to-business enterprise software space. It’s rapidly growing its African operations. And, unsurprisingly, its phenomenal growth in the past four years piqued the interest of a buyer.

In 2011, First Technology Holdings, the largest privately-owned IT company in Africa, purchased a 50,51% stake in the company.

 

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But it hasn’t all been plain sailing. “There have been one or two hiccups along the way. This has been a 13-year ‘overnight’ success story,” says Campbell-Young.

“I lost all of the funding I put into starting the business in my UK venture,” he says of the first major hiccup. “I financed two guys in the UK that I hardly knew, who had a business idea that I hardly understood. To say it took me a while to recover would be an understatement.” Early on when Campbell-Young was just getting to grips with the idea of switching to becoming a publishing business, he saw a gap in the UK market. But it was a market that was far more sophisiticated than the South African market at the time and, critically, he didn’t know enough about the people his money was backing.

“Essentially they thought they could maximise the opportunity in the market so I put a whole lot of money behind them and set them loose, while I concentrated on things in South Africa,” he says. Things might have panned out if the individuals concerned had a similar idea of what constituted a full day’s work – what Campbell-Young describes as ‘making a million calls and seeing a thousand people’. As it happened, they didn’t and Campbell-Young went into ‘rescue mode’, moving to live in the UK and travelling back and forth over a period of five years before the business was stabilised. Which begs the question, why didn’t he throw in the towel and concentrate on what was still a fledgling South African business?

“Because I might have been wrong about the guys, but I was right about the opportunity. We knew we could be successful if we just persevered and put in the hours,” he says. The UK business is maturing rapidly and is expected to be a major contributor to revenue in the future. But the experience taught Campbell-Young a couple of lessons he’s unlikely to forget, and which have informed the company’s move into the rest of Africa.

“Our steps into Africa have been slow and careful,” he says. Africa’s economies might face some serious challenges, but a number of countries are among the world’s most rapidly growing economies. The need for ICT products and services in these growth areas is expanding accordingly.

The opportunities are immense. “Africa’s collective GDP, at $1,6 trillion in 2008, is now roughly equal to Brazil’s or Russia’s, and there is massive potential,” he adds. Telecommunications, banking, and retailing are flourishing. Construction is booming. This has had a knock-on effect, resulting in increased trade across many sectors, but especially in technology. Phoenix has used this potential to create opportunities and to satisfy the unmet demands of African businesses.

“When we embarked on our growth strategy, we initially focused on the South African market. But after repeated requests from African resellers who were purchasing from us, we actively evaluated potential opportunities on the continent. Not only did we have an established base of resellers in many of these countries, but Africa’s strong long-term growth prospects made it a sound business decision to expand our operations into a number of African countries. Now, our Zambian business has grown to the extent that we recently moved into new premises to better serve our customers, and our other African operations are showing steady returns too,” he explains.

It’s taken hard slog and groundwork to get there. Campbell-Young and his team started investigating Africa about two years ago: “We looked at where the gaps were, actively tried to find out who was doing what in each territory, who our competitors were and which brands were present that we represented. We spent a lot of time investigating the playing field, talking to customers, even talking to competitors at trade shows.

“Once we were ready we started setting up a database of customers, and getting to grips with the unique subtleties and nuances of each territory. And only then did we start pushing product into the regions we’d selected.” The move into Africa coincided with the business’s big growth kick.

“I guess our business model and methodology came home to roost – we hit the sweet spot at just the right time in the market,” says Campbell-Young. The company’s hands-on approach to servicing customers has played a fundamental role in its success. “We pride ourselves on the fact that we don’t just shift boxes. We provide all the support resellers need to make sales. They get specific, customised training for the company’s vendor products, end-user and channel partner on-site training and demonstrations, and pre-sales consulting, scoping and advice,” he explains, adding that he understood very early on that if the stock didn’t move off the retailer’s shelves, it would be coming straight back to him.

Being a value-added distributor has earned the company a reputation among retailers and developers alike. “When we picked up the distribution licence for Microsoft it was because customers had specifically requested that they be allowed to deal with us. When developers want to enter the South African IT retail market, our retailers send them to us because they know we’ll do a good job,” Campbell-Young explains. As the business moved into B2B electronic distribution of licensing in 2009, the achievement of his long-term vision must have been gratifying.  But Campbell-Young is frank about the personal journey he’s had to walk to get where he is today.

“There comes a point where you have to stop taking orders on the back of a cigarette box,” he says. “I’m a sales and big-picture strategic guy, not a detail person. But I realised that running a bigger business means needing to pay attention to the right amount of detail in various areas. Part of my journey has been to recognise my strengths, understand my weaknesses and then bring in the right people so that I could focus on what I was good at.”

Looking back, he’s pretty pleased with the way things have turned out. “Sometimes I think I’d like to cut out the mistakes. But then I think again and I realise that for the most part I wouldn’t change too much. I’ve been very happy with the slow burn it’s taken. Even the painful parts have been good.”

Vital Stats

Founder: Simon Campbell-Young

Company: Phoenix Distribution

Launched: 2000

Latest deal: Signing over 50% of the company to First Technology Holdings. The private equity deal will allow Pheonix Distribution to pursue its aggressive growth strategies.

Start-up capital: R5 million

Current turnover: R300 million

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