- The players: Adelaide Potgieter and Solomon Potgieter
- The business: Mad World Group
- Launched: 1999
- Turnover: R60 million
- Contact: madworld.co.za
Maintaining cash flow through growth
Moving from start-up phase and landing big contracts with large corporates has its own challenges, just as all business growth does.
“We used to have this modus operandi that involved doing what we knew, which is advertising, so we didn’t work with third-party suppliers,” explains Solomon.
As a start-up, the brother and sister team hadn’t needed to rely on anyone else delivering on their promises – they were completely in control of their own output. Growth meant working with other businesses though, because they had to outsource services like sound recording and film work, which wasn’t in their wheelhouse.
“We were relying on suppliers to help us deliver to the standards we had set for ourselves. It brought with it an unexpected set of problems,” says Solomon, who found himself sweet-talking and cajoling suppliers if they wanted something done their way or faster.
“It was a fine balance – we needed work done to spec and on time, but upsetting and threatening a supplier is no way to get them on your side either.”
This careful approach was a drain on both time and resources, and Solomon estimates that they were losing up to a quarter of their income on facilitating job specifications with suppliers. “It didn’t help that we didn’t initially take this into account when we were calculating our rates for our clients.”
The cash flow problem
The second issue that emerged was a cash flow problem. “Large clients will always negotiate terms that are suitable for them. Most corporates have payment terms that stretch anywhere between 30 and 90 days.
It’s the cost of doing business. As a business owner, you need to carefully evaluate whether those terms work for you or not. We wanted to work in that sector, and were willing to accept the terms. The problem was that we weren’t in a position to negotiate the same terms with our suppliers.”
It meant a cash flow bottleneck that many growing business owners will be familiar with: Suppliers needed to be paid, but large invoices had not yet been settled.
Debt built up as they waited for payments from their large clients. Suppliers became frustrated and threatened to withdraw their services. Solomon and Adelaide needed to find a solution.
The solution: Doing it in-house
Their first response was one of open and honest communication. “This goes back to our belief that business starts with the heart,” says Solomon, who admits that in those early years they trusted in the heart almost to the detriment of standing up for themselves as business owners and experts in their field.
“We would later learn to be tougher in our negotiations, but we learnt a valuable lesson then: If you really explain what’s going on in your business to your suppliers, they’ll understand and assist you.”
“Transparency is key. At the end of the day, businesses are run by people – we’re all just people.” And people respond to honesty.
Their suppliers agreed to wait for Mad World to be paid before they demanded settlement of their own invoices, but the siblings did not see this as a long-term solution. Instead, in 2004, they decided to address the challenge head-on by adding new services to complement their advertising agency, including a recording studio, film production house and call centre.
“This needs to be done so carefully,” says Solomon. “There’s a basic business principle that says you should always do what you know. You can’t be everything to everyone, so rather be the expert in a particular niche, and outsource the rest. That hadn’t worked for us, but we also couldn’t dilute our expertise by just adding services. They needed to all become our niche, headed up by channel experts.”
In house value-added services
The solution lay not in adding new divisions to handle the functions they wanted to bring in-house, but in setting up separate companies through which they could offer these services to a broader range of clients, while still maintaining control over the quality and speed of output.
The new companies were funded with shareholder loans from the main advertising company to avoid the perception that fees paid to the advertising company were funding the new businesses.
Today the advertising company accounts for just 60% of their overall income. This has helped them to maintain a growth trend, even during lean years since the 2008 global financial crisis.
While some clients are still routed through the advertising agency to their other companies, there are signs of increasing resilience as the newer companies source more income independently. For example, 60% of the events company’s revenue and 40% of the call centre’s income is generated from non-advertising business.
Solomon admits that the challenge of working with big corporates is that they often don’t want their suppliers to diversify and offer them value-added services in-house, because this may increase their own procurement expenses. “It’s made us smarter negotiators,” he says.
“We’ve learnt our value in this industry, and we’re very clear on what we bring to the table. This gives us a stronger footing when we’re negotiating rates.” In fact, Solomon believes business owners should be careful not to accept punitive conditions because they are dependent on a major client.
“That’s not good business. Good business involves give and take. Have confidence in what you bring to the table – and if you don’t, evaluate if the problem is your sense of worth as a business owner, or what you’re offering the client, and then change it.”
As the business grew, Adelaide and Solomon came to recognise the importance of a good financial system – one that deals with income and payment flows and enables effective negotiation of payment terms. This is particularly important when dealing with large clients that could pressure smaller companies into taking on additional work without changing the payment terms.
Solomon adds that it’s also important to be honest with clients about your business’s capacity to carry debt and then negotiate sustainable terms on that basis.
“It may be better sometimes to walk away than to agree to terms that you know are not going to be sustainable for your business,” he says, adding that unless you have a firm grip on the numbers, you won’t be able to negotiate effectively, and you won’t know if the deal is worth taking, or leaving.
Solomon also suggests that before reaching an agreement with a client, a business should approach its suppliers, discuss the credit terms the client is offering and then negotiate favourable terms with the suppliers as well.
The next phase of growth
With a diversified portfolio of companies and business support from their parents, the business entered a phase of excellent growth. However, it soon became apparent that a board made up entirely of family members led to a degree of complacency.
In 2011, a decision was taken to introduce non-family members to the board. “It immediately affected our board meetings. All of a sudden we had to be more professional and more clear in our thinking and decision-making. We had to move out of the comfort zone that a family business can become.”
Since the addition of new non-family board members, Solomon estimates that the business has grown by about 15%. This he attributes to greater focus, a more effective business model that addresses how best to manage each of the companies and the introduction of digital advertising.
“We’ve also benefited from fresh perspectives, fresh ideas and a challenge to convention,” he says.
Hiring the right staff
As with most growing companies, there are always new obstacles to clear. First on the agenda is actively building their own brand. In the past they’ve worked discreetly behind their corporate clients, but as their business strategy has shifted to expand their portfolio of companies, an effective branding exercise has become a top priority.
“We’re at a critical stage,” says Adelaide. “We have a lot to offer the industry, but to make it work, and to experience the level of growth we’re after, we need to back ourselves in all areas of potential opportunity. That’s our focus.”
The current challenge is recruiting the right staff to take their companies to the next level. People make the business, but finding the perfect talent is a challenge.
Solomon and Adelaide admit that their experience with recruitment agencies has not been ideal. “We’ve noticed things like candidates arriving un-briefed with little or no knowledge of our company, or a lack of proper pre-screening work by recruitment companies, to candidates coming forward who don’t match our company culture and values at all.
“We’ve realised that if we want the best we’re going to have to mould them,” says Solomon. One approach the company adopted was taking on foreign interns. It’s a way for foreign students to get a feel for South Africa and the advertising industry, and it brings fresh ideas and perspectives to the company.
Now that the programme has been running for a few years, Solomon is confident Mad World is ready to build and introduce a robust local programme that will shape raw talent into the company’s ideal employees. “We have many exciting projects taking shape. One we are particularly excited about is aimed at school leavers who want to take a gap year,” he explains.
“We’ll bring them on board, train them, and they can experience first-hand if this is the industry for them before they start studying, and we can keep our finger on the pulse of what talent is out there.” It sounds expensive, but so is hiring the wrong staff. The siblings are taking the long view, and since they still feel like they’re just beginning their entrepreneurial journey, it’ll be worth the wait.
Sixteen years after starting out in an attic above an old warehouse, Adelaide Potgieter and her brother Solomon have grown their advertising agency Mad World to a R60 million a year conglomerate with a diverse group of companies, employing over 100 people.
Along the way they’ve scooped prominent accolades including Best Television Series for Die Nataniël Tafel in last year’s Huisgenoot Tempo Awards.
Today Cape Town-based Mad World has 11 companies under its umbrella, including the advertising agency, a call centre, a set construction and stage setting business, a television, film production and recording studio, a boutique mall, several restaurants and a property company.
The savvy start-up
Solomon Potgieter and Adelaide Potgieter didn’t launch their business off the back of an MBA or other business-related degree. Adelaide started her advertising agency with R1 500 in her pocket and a rickety car to get her around.
Three years of small jobs and struggling to make ends meet changed when Adelaide landed the account of retail group Shoprite Checkers. It was the milestone the company needed to start landing other big clients, and move from start-up phase to growing business.
How she landed the account was a stroke of genius. She captured the attention of the retailer’s chief executive, Whitey Basson by sending him a box with the arm and leg of a mannequin, in the hope that he would take to the symbolism of wanting to go the extra mile.
It worked. But he replied that they’d forgotten the most important part – the heart. The brother and sister team clinched their first large contract, and embraced a truth that had already existed in their company anyway – if you want to succeed, you have to have heart.
Lessons in greatness
- Be firm but fair when negotiating rates – business is business, and each party will target a deal in their best interests. Ensure you’re offering a product or service that your client really needs, that your service delivery is excellent, and that you’re adding value, and then stick to your guns. If you’re confident about your offering, your client will see the value.
- Build client and supplier relationships based on openness and honesty. This will allow you to negotiate payment arrangements during periods when your cash flow is under pressure.
- Put a diverse board in place that ensures the business heads are held accountable for their decisions and goal-setting. It will focus the systems and processes in the business.
- Once you make a growth decision, back yourself; go all in.