Kevin Vermaak And His (Cape) Epic Adventure

Kevin Vermaak And His (Cape) Epic Adventure

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Today the Cape Epic is the largest and most prestigious mountain biking event in the world and from where Vermaak’s standing, actually taking part in one of the world’s most physically demanding events will be a Sunday cycle in the park compared to the challenge of growing this business.

A tough start

It was 2am on an April morning in 2005. I was lying on the floor in my office, staring into a black hole of debt. Thanks to creative accounting I’d managed to pull off two successful Cape Epics, but the numbers weren’t working, and the gap was getting bigger. I was prepared to mortgage anything to make the business work, but would it be enough? A bridging loan from the IDC had helped keep my head above water, but it hadn’t solved our money problems.

There was a blip from the office PC. An email had come in. To distract myself, I sat down and started reviewing entries for the 2006 race. One of the mails was from the executive assistant to Steve Booysens, Absa’s CEO at the time. He was riding the 2006 race and was enquiring about a mobile home booking.

I saw an opportunity and responded to him personally — Hi Pierre, any chance I can speak to your boss and present for a title sponsorship? I was looking for any personal connection that could get me through the door. I currently had proposals out to eight top- 40 firms, and every one of them had closed the door in my face.

Mountain biking wasn’t yet the ‘new golf’ for corporate South Africa, and the value of the event wasn’t clear to them. But here was a rider who knew about the race, and he had the ear of the CEO. Was my luck finally changing?

Related: 6 Epic Quotes From Absa Cape Epic Founder Kevin Vermaak

 

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Money troubles

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I’d pushed so hard to get the Cape Epic off the ground, and from the outside it looked like an incredible success. In the first year we’d sold out in three days. By the second year that was down to under five hours, and by the third year we had to implement a lottery system to handle the amount of entries we received. Riders loved the race. In a short space of time it had become incredibly popular, both locally and internationally.

The problem was that the numbers weren’t working. I was hiding the truth from everyone: The riders, my staff, my suppliers. No one knew how bad things were. The riders paid their entry fees upfront, nine months before the race. They’d never trust me with their money if they knew I was using it to pay for the previous year’s race. I understood that their perception might be that the race might not take place, even though I would never, ever have let that happen.

I would have moved mountains before I cancelled a race. My staff were leaving other companies to join me, and I couldn’t let them know how risky that move had been; and many of my suppliers had agreed to three-month payment terms so that I had the next year’s entry fees in hand before I needed to pay them.

I felt like I was standing on quicksand, and I had no one to confide in. It was an incredibly lonely time in my life. I’d taken a lot of big risks to get there, but I’d built this amazing platform and I was determined to make it work.

The vision

When I first moved back to Cape Town after eight years in London I had enough saved up to support myself for the next year, and to bootstrap the business until I sold some entries. I had a lot of adventure tours and riding experience from my time in London, and I’d planned the logistics around elaborate mountain biking, climbing and extreme snowboarding trips to the Karakoram and Himalayan mountains.

I knew exactly what I wanted the Cape Epic to look like, which meant I was armed with a PowerPoint presentation highlighting the route and, most importantly, the mix of luxury and extreme physical challenge that riders would experience.

I had some great early wins. I’d reached out to a Munich-based company that organised Europe’s largest mountain bike stage race, the TransAlp, and they entered into a marketing partnership with me. I then created a local company with a similar name so that people thought the Cape Epic’s organiser was international, rather than me alone. With their help, I also managed to secure Adidas International as a sponsor, which was a major coup.

This gave me enough traction to start marketing like mad. I didn’t want to attract only the local mountain biking community. At that stage, MTB as a sport was dominated by festivals and a grungy sub-culture. My time in Europe had shown me that high LSM, A-type personalities loved adventure races and pushing themselves physically.

This was my target market: Corporate execs and business owners who had the time to train, and kept fit and healthy by running marathons and road cycling. I needed to convince them to take on the challenge of an epic mountain bike stage race.

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Off to the races

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I printed fliers and set up a stand at the Argus. To this day, many riders still tell me they first heard about the Cape Epic while I was shoving a flier in their face. I connected with Club100, a road cycling club, and spread the word there as well. For the international crowd, myself, Adidas and the team in Munich managed to get a team of young black cyclists from Khayelitsha to the TransAlp. It got fantastic media coverage, and showed the European market that South Africa was a mountain biking destination.

The pro riders already knew this because they used South Africa as a training destination, but they didn’t see our country as a race destination, and I needed to attract the amateur tour riders as well. The Western Cape was an ideal destination — our time zone is the same as Europe’s, our weather’s great and the scenery is spectacular.

My marketing drive worked. I filled the 550 inaugural spots in three days once entries opened, and at R7 800 per team that meant I had just over R2 million in the bank. Once I sold the entries, I secured the three main suppliers I needed to make this work: Spier Wine Estate in Stellenbosch, where the race would end, Imperial Logistics, whose trucks and teams would move the race village each day, and Mediclinic, the vital EMTs at the event.

Things were going great, except for two small problems. First, I needed 700 tents, and I had no idea where to find them. Second, I’d pitched the entire event on the idea of a deluxe experience. The riding would be tough, but the race village would be the lap of luxury. Now that I’d sold the tickets, I was realising that my numbers didn’t work. To provide that level of comfort, I’d actually be paying the riders to compete.

Making a dream a reality

That’s the thing about a vision that consumes you though. You’ll find a way to make it work. When I first came up with the idea of the Cape Epic, I was 30 and it was a way to spend a really cool year and create something special while I figured out what I wanted to do next.

That lasted for about three months, and then I started looking at the event like a real business — the potential to do something great and leave a legacy. I wanted to create the largest, most prestigious mountain bike stage race in the world. I accepted that this meant bumps in the road, and losing money upfront for a game-changing event down the line. If that meant ploughing money into the business now for rewards later, so be it.

To make ends meet, I came up with the idea of convincing my key suppliers to let me pay them in June, three months after the first event. I knew if the race delivered, that I’d be able to sell out again, which would mean cash to pay my suppliers. I was using the following year’s race to pay for this year’s race, and it worked — for two years. I’d increased entry numbers, but the problem with more riders is that they also come with more costs. The gap was getting bigger and without a large sponsor, I was struggling to see my way out.

Which is how I found myself on the floor of my office at 2am in the morning, looking into an abyss of debt.

I needed a blue-chip sponsor to make this work. I’d said no to a lot of smaller brands, as well as normal cycling brands. I understood that there was an opportunity cost to just taking any money that came my way.

I needed a company with a R100 million marketing budget that wanted to engage with high LSM execs and business owners, and so that’s what I’d been holding out for. The problem was that no one was biting, and I was running out of time and options. And then Pierre’s email arrived, and I had my foot in the door.

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Attracting a sponsor

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Getting Absa on board wasn’t initially a game changer. It was the Corporate and Business Banking division, and it signed just five weeks before the third event. But it did introduce the bank to what I was trying to do, and laid the groundwork for a major sponsorship with Absa Group down the line, which would be the game-changer that helped the event become what it is today.

At the end of the day, Absa saw the value in the event because a few crucial individuals recognised that some of their key private clients, who were high net worth individuals, participated in the Epic. The realisation gave them insight into the kind of event I had created, who I was targeting, and who they would be engaging with through their association with the Cape Epic.

It wasn’t by chance that the people at the race were the people Absa wanted to engage with. From the beginning this had been my target market. We’d already implemented the lottery system for the third event, which meant I could also show them the calibre of people entering and how oversubscribed it was.

One of the draws for title sponsors going forward was that they would also have a number of fixed entries to the event. Nowadays, Absa virtually has its own registration office, with banking clients from around the world applying for their coveted reserved spots in the race. You can’t place a value on the engagement this gives them with their private clients for months before the race even takes place.

But back to 2006 and the third race. Getting Absa on board was a major win, but it didn’t immediately solve all of my money problems. Our third year ended up being our biggest loss. A title sponsor meant glitzy press events, PR agencies, and sponsorship agencies, all of which come with a price tag.

In fact, five events in a row made a loss. By 2008, our turnover was R22 million, but our accumulated losses amounted to R8,5 million. We even extended our bridging loan from the IDC to R5 million to ensure we had sufficient cash flow to stage the event.

But I knew we were playing a long game. We were in debt, but all lines were going in the right direction. Plus, by this stage we were so far in, the only way to get out was to make this work.

Hitting rock bottom and rising again

The fifth event in 2008 was my absolute low point. I’d spent the whole year trying to find ways to reduce our budget; it was time to start making a profit. From the outside, everything looked amazing. There were eight of us working full time on planning the race, 1 200 cyclists and we were massively oversubscribed. All of us, sponsors included, were turning people away.

I’d tried to find additional revenue streams by leveraging our assets. The idea was that we used what we had to host two additional but shorter and smaller events. It was a terrible idea. We were actually expanding from a place of weakness, which just ended up with a bigger accumulated loss. Our so-called solutions were making things worse.

At the time, my main contact at Absa, Oscar Grobler, the marketing executive at Absa Corporate and Business Bank, knew how bad things actually were, and that I needed someone to talk to. He introduced me to Neville Crosse, the youngest CEO of a JSE listed company in the 1980s and the chairman of Omnia Holdings in 2008. This was a massive shift for me. Neville becoming my mentor made a huge difference in how I viewed my business and managed my stress levels.

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A need for change

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Photo credit: Sam Clark

We spent a few months going over the business, and then in January 2009 we sat down for a massive strategy session. Something needed to change drastically if we were going to make this work, and we needed to figure out what that was.

First, we would cancel all other events. They weren’t helping; if anything they were a drain. We needed to stay focused: We’re the Cape Epic, not an event management company. Next, Neville suggested we simply increase our entry fee by at least 50%.

This had always been a sticking point for me. On the one hand, the level of luxury we offered just wasn’t covered by the entry fee. In a very real way, for five years I’d been paying the way for riders to participate. But, while the entry fee was high enough to align with a premier event, it wasn’t so high that it discouraged participants. The fact that we were oversubscribed and there was so much hype around securing an entry to the Absa Cape Epic was a massive pull for sponsors, which had always been my focus. To monetise this event I needed sponsors, not more riders.

This is where a mentor is so crucial and adds such huge value. Neville forced me to evaluate my own preconceived ideas around entry fees. The following two years we increased the price again. In 2010 we made a profit. By 2012, we were in the black. We’d paid off our debt and were now finally a sustainable, profitable business.

Leveraging the platform

This wasn’t all the result of increased prices though. Don’t get me wrong, it made a big difference, mainly because we weren’t incurring large debts anymore. But the business model had always been about monetising the event, and by 2011 this finally started coming together.

Growth was never going to be about more riders, which is the model for most amateur events around the world. More riders means more costs. We needed a way to leverage what we had without incurring more costs. The Tour de France only has 198 riders. You don’t need to be a huge event by participation numbers to be successful. You need to monetise what you have.

I’d always been aiming to create a strong media product, which is where the pro-am formula came into play. By 2011, this really started to come together and we became a live TV event.

The riders

Amateurs are the bulk of our entries. Out of 600 teams, 95% of these are amateurs. They pay the high price tag to compete, and they’re the target audience of our local sponsors, who get to engage with them for months leading up to the event. The local/international mix means that people from around the world are interested in the Epic as well, making us a mainstream brand.

The 5% pro riders are the ones that attract the media attention and give us massive sporting media value. In Europe, top mountain bikers are household names. For really great TV coverage, I needed these riders participating in my event, which is why I’d chosen March in the first place. It’s before the international world cup circuit begins, we’re in the same time zone, and it’s a great race to condition the pros for the rest of their racing season during the northern hemisphere’s summer.

It was a fine balance: Build an event that is tough, prestigious and sufficiently high profile to draw the pro riders, create amazing visuals that audiences around the world will watch, and then the MTB team sponsors will make sure that their teams are there. The Absa Cape Epic has more viewers than all six World Cup events combined, so it’s pure gold for sponsors trying to associate globally with mountain biking.

It’s taken years to achieve, but everything has come together. It was all about building a strong base though, brick by brick.

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Next level growth

I’ve now reached a point where it’s time to step down. In the early years I played an operational role. I often worked through the night getting everything ready for the event, and then spent time with our sponsors during the race. As our team grew, some amazing people took the reigns, allowing me to step away from various aspects of the business and concentrate on our growth strategies.

My fingerprints are on everything though, and if I want to leave a legacy, if I want this brand to grow beyond me, I need to step away. An amazing CEO, Lynn Naude, who has a phenomenal track record in the South Africa sports and sponsorship industry, has taken over.

I have no plans to sell the business, and will continue to contribute creatively and in matters relating to the brand and event concept, but I’ll no longer be the face of the Absa Cape Epic. Which means that this year, for the first time, I can ride. I can experience the race as a participant. And I can’t wait.

Nadine Todd
Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.