They sold PCs and calculators to students and did a few odd jobs in-between. They were just chasing the money, but then Y2K came along and they spotted a massive opportunity: SMEs were being ripped off by IT companies and paying a fortune for technology they did not need.
By targeting this sorely neglected market, Klopper and Van Der Walt grew Netsurit into what is today – South Africa’s largest managed outsourced IT provider for SMEs. There were some big red flags on the way – like R9 million debt to the IDC – but Klopper, MD of the company, says believing in what you do and in what you are selling, providing great value to clients, and helping your people to live their dreams has paid off big time.
It was while I was still at school that I realised I was not the type of guy who respected people just because of their position or status. If I had a teacher I admired, I was a great student. If I didn’t like him, I battled to take instruction. I didn’t really grow up in an entrepreneurial environment, but my drive to work for myself came from that inability to take orders from other people.
After I matriculated in 1992 I took a year out and went to the UK to work for my brother who had set up a fast-food business. I learnt a lot from him about how to treat employees. He worked hard and demanded the same from his team, but he was also fair and he created an environment that was fun for everyone.
I came back in 1994 and enrolled for a Bachelor of Commerce degree at what was then the Rand Afrikaans University (RAU). When I got my student loan I realised I could put it to good use. I threw open house parties for students which were really a blast. I remember one in a huge house on Oxford Road which was a great success.
All the time I was thinking about what I wanted to do. I even considered starting a gardening services business – anything that meant I could work for myself – that was my sole driving force at the time.
In the meantime, I used the money I was making from the parties to sell books and magazines at the Rosebank market, and I also sold clothing and shoes at building suites, basically doing whatever it took to make some money. In 1995, when I started my information systems major I met Rian. He was doing an engineering degree and he and his brother were selling PCs and engineering calculators on campus.
They had a great business going and I wanted in on the opportunity. I convinced him I was a great salesman and I joined them. One day my mother came home and walked into my room when I was counting a big wad of cash. I’d also just applied for an additional two phone lines for the business. She took one look at me and told me it was probably time for me to get my own place.
From part-time job to full-time business
I was 21 years old when I moved into a flat in Randburg and we started running the operation from there. Because the business was so successful, we knew it was time to start formalising it. At the end of 1996 we registered for VAT. This was a turning point – it was obvious by this stage that we were onto something really promising and that there was no way we were going to work for anyone else given how well we were doing.
I was extremely encouraged by the simple fact that we were selling and people were buying from us. By 1997 I had finished my degree, but Rian was still studying so I ended up running the business full-time, now selling PCs and laptops to small businesses too.
In 1998 it became obvious that we needed offices and we moved into our headquarters in Marlboro. That formalised things. Something happens when you get your own premises. The bills also get bigger so you have to start putting systems in place. Rian had finished varsity and joined the business full-time. I think the main reason for our success then was that we were in it together as a team from the beginning.
My talents lay in sales, while Rian was the technology expert. Whatever I sold, he delivered. Also, we went straight from university into the business so we had none of the expectations that come from being in the corporate world.
The Y2K factor
It was the tail end of the 90s and mass hysteria about Y2K was reaching its peak. The threat of this so-called technology Armageddon was widely publicised and technology providers used it to exploit the SME market. We had one client who paid R20 000 more for a solution than the R60 000 it should have cost.
That’s when we saw the opportunity – we could provide managed outsourced services for the SME sector and differentiate ourselves by being honest, ethical and fair. That was how we came up with the name for the business – network support insurance products, Netsurit. By this stage we were supplying hardware and software as well as maintenance services.
We were still billing on an ad hoc basis and one of our clients pointed out to us that we were being short-sighted? He advised us to charge clients a monthly fee and set up service level agreements (SLAs). I thought that was a crazy idea. But then Discovery Health was launched and the business model was amazing.
Adrian Gore developed a system of consumer-centred health plans and people jumped at the chance of having more choice and more control over their healthcare spending. I was really taken with what Discovery was doing and I sent a cheeky letter to the CIO, outlining what a great service we could provide for the company.
He agreed to meet me and we ended up signing a R50 000 per month SLA. It was our biggest deal to date. We also started to apply the Discovery model to our own business. Clients were encouraged to take our advice; we would manage their IT and take all the risk. By this stage our business model was starting to change because we had introduced contracts and SLAs, which meant more annuity revenue.
The big question was how do you develop a business model that convinces people in the entrepreneurial space, who like to maintain control over everything, to hand their IT over to you. We placed a huge focus on fairness: if the SLA was R10 000 per month, and actual servicing of the account came in at R9 000, a total of R12 000 would be accrued in a year. We would keep R4 000 and refund the client R8 000. The SLA became a major differentiator for Netsurit.
Our response and resolution times were soon the best in the industry.
One step forward, ten steps back
By 2000 the business was solid and we had built a great team. Some of the guys we knew from varsity had heard what we were doing and they wanted in on the business. We had created a great vibe and people who work in this sector were talking about it. One friend who had been a real hooligan at varsity was so determined to become part of the team that he used to come to work during the day and then waiter at night to supplement his meagre income.
We had a fair sized team by this stage, around 20 people, as well as a steady amount of annuity income. We had also started an Internet service provider (ISP) to leverage the growing demand for ADSL. But then something really terrible happened which almost destroyed the business.
We needed money to fund further growth so we applied to the Industrial Development Corporation (IDC) and got R3 million. We were lucky to get finance from different sources, R600 000 from The World Bank, as well as some additional funding from the Umsobomvu Youth Fund — almost unheard of for entrepreneurs.
We had the most comprehensive business plan imaginable, and although we were so young, the business had been trading for several years and had a strong track record.
When the IDC loaned us the money, the interest rate was 18% and that was the amount reflected on the invoices. But we got it wrong. They wanted an internal rate of return (IRR) of 20%. IRR is the rate of growth a project is expected to generate. We did not realise that with the IRR on top of the interest rate, we had to pay almost 30% interest, or three times the loan amount, making it R9 million.
The IDC gave us a one year payment holiday, but when that came to an end we had to start paying back R140 000 a month. It hit us like a ton of bricks. We had to retrench staff and with all the turmoil, we were not hitting the targets we had set. The business was saved for two reasons: the IDC accepted annuity revenue from our ISP; secondly, the market changed, interest rates started dropping from 2003 to 2006, and the demand for ADSL was booming. We sold the ISP to MWeb and used the money to settle our debt.
It was a harrowing experience. At the height of the crisis we had to negotiate salaries because the cash flow was hit so badly. Employees always got their money, but they often had to wait for it. It says a lot about their loyalty that we managed to get through the whole debacle.
This episode taught me a huge lesson about paying attention to detail and ensuring that you check contracts and agreements extremely carefully. No-one had done anything wrong or questionable; we just hadn’t been thorough enough in our understanding of the deal
Turning the focus inwards
By this stage, I felt like I’d been in a war. A reality check was called for. We had survived, but it was time to look at our business model and to find ways to increase our efficiencies, bring down costs and prepare the business for expansion.
I decided to apply ITIL (Information Technology Infrastructure Library) which is the most widely accepted approach to IT service management in the world. Unfortunately, we chose the wrong ticketing systems, the wrong monitoring and alert systems, and a managed server application that would see 30 PCs on a network when there were 50.
So there we were adopting best practices, while profitability, client care and efficiencies all dropped. But I was determined to implement the best practices approach no matter what. I could see the mathematics of the model even though we were not getting it to work properly.
The problem was that we were using generic applications for a specific line of business. We had to change our systems. I had also employed some very senior people from the corporate IT world and they just did not fit in, so we got rid of them too.
The shift from large enterprises to the mid-market space requires a certain level of resilience they simply did not have. So we basically got rid of the wrong apps and the wrong people and refocused the business internally.
In hindsight, I realise that you need to be cautious about the types of systems you implement – you have to ensure that they are absolutely in line with your strategy and your business imperatives. At the time, we were paving the way for many of the values we live by today: constant growth through leaning, ethics, integrity and prudence, quality drive service, client obsession, innovation, having fun, open communication, and client and staff loyalty.
With a group of 20, we rolled out the balanced scorecard. This gave us a new approach to strategic management, allowing us to align business activities to our vision and strategy, improve internal and external communications, and monitor Netsurit’s performance against strategic goals.
What appealed to me is that it added strategic non-financial performance measures to traditional financial metrics to give us a balanced view of our performance. It gave us the marching orders for the business. By that stage I had read enough to know that a solid foundation would have a huge impact on future growth.
Putting people at the heart of the business pays off
In 2006 and 2007 we expanded aggressively through acquisitive growth and also by diversifying our services offerings. The next year we merged with a company in the Western Cape and established an office there. To do this properly, we made sure we had the right people in place.
When it comes to people and hiring, skills are only part of the requirements. Netsurit is not for everyone – it’s an unusual environment that requires people who are resilient and robust. I look for people who have had five to ten years tenure in a position. I am not interested in job-hoppers. Our company culture also reflects an adherence to some old-fashioned values. We all wear ties and suits to work.
Something that distinguishes the company is the Dreams of the Doers programme. It provides a platform for our employees to nurture and realise their dreams. It’s something that makes working at Netsurit truly special. I was inspired to do this after reading about psychiatrist and holocaust survivor Viktor Frankl’s theory that people are driven by their dreams and their search for meaning.
Added to that, I did a course at MIT, a programme based on Matthew Kelly’s book The Dream Manager: Achieve Results Beyond Your Dreams by Helping Your Employees Fulfil Theirs. Since 2008, each employee who wants to take part creates a dream book which includes all the things they want to achieve. These are narrowed down to ten for each person, and then we put them on our dream wall.
In 2009 we had 70 participants and 700 dreams depicted on our dream wall. This year, 115 people took part. It’s something that I’ve learnt over the years – the power of writing down your goals. This enables you to visualise what you want and to work towards achieving that. We also created a dream management fellowship to help people do something that is really important to them.
We’ve got one employee whose dream was to go on Hajj. We made it happen.
There have been others who wanted to go bungee jumping, and some who wanted to learn more about managing their finances. Health and fitness is important to many of our staff so we built a gym and a canteen that serves really healthy food at a low cost. It has been a truly amazing strategy that has had a huge impact on the business.
In 2008 our turnover was R83 million. It went up to R86 million the following year, in the midst of the recession, and in 2010 we did more than R100 million. I am confident that our quality of service (QOS) is one of the highest in the country. Calls are answered in ten seconds or less. We no longer say to clients “we think we can” – now we know we can. Our efficiencies are running at 100%, up from 50% in 2007. Of the 8 000 tickets we do every month, 200 are audited for quality.
Our people feel autonomous and empowered. We also brought in a consultant to help us work on our unique selling proposition (USP). From closing one out of every six qualified leads, we now close one in three. We don’t spend much on PR and marketing because we get leads from our client base. We also channel our marketing spend into partnerships because that’s what delivers value for us.
Reflections and long-term goals
It’s interesting for me to see how my own work ethics have changed over the years. From being absolutely consumed by the business, I am now able to take leave and know that everything will continue to function without me. That depth of management is one of the most important elements of our success.
Last year Netsurit was ranked as one of the world’s top 100 Managed Service Providers (MSP) by leading blogsite MSPmentor. We received a ranking of 53rd which is the first time ever a South African-based MSP was ranked this high. We’ve achieved things that I honestly never thought were possible.
My wife and I have been together for ten years, married for five. She never saw as many sunrises in her life as when she met me. I would be at the office at 5.00am every day. Now, I lead a more balanced life thanks to a team of eight executives.
I have a strict no meetings policy for Monday mornings so that I can work undisturbed. I apply the principles of David Allen’s Getting Things Done to my life – I think that is the single best productivity management approach.
As a co-founder of the local chapter of Entrepreneurs’ Organisation (EO), I also get the opportunity to network with people, to share what I have learnt and to learn from those I meet from all over the world. My advice to young entrepreneurs is to keep the start-up costs as lean as possible, even if you have money.
Check the cash every day and know that cash flow management will always be your biggest challenge in the early years. I insist on getting a daily email with all the bank balances, and we meet once a week to talk finances, regardless of how well the business is doing. And of course, always read your contracts very, very carefully.
I’m putting all my energy now into acquiring new business, which is where my skills lie.
There is the opportunity locally to create a billion-rand SME technology services company. Globally, there is further opportunity to turn that into a billion-dollar business. We have made many acquisitions and growth will continue to happen. What we need to ensure now is that we grow at the right margins while maintaining quality.