Softline: Ivan Epstein

Softline: Ivan Epstein

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I had always dreamed of starting a business that would enable me to earn a good living and gain financial independence, and allow me to build something that was tangible.

At 26, I was about to go into accounting, when I stopped, took stock, and realised that I wanted my own business. I did not come from a wealthy family. My dad owned a small import business and I had been exposed to the ups and downs he went through. I think that’s what drove me to succeed. When you grow up with limited resources, it makes you want to be able to afford the things that come with money. After school I did an accounting degree. Because I had limited resources I studied part-time through Unisa and was employed as an articled clerk at Pricewaterhouse. I completed the degree, but I did not write the board exams. I was not comfortable in accounting. I’m not saying I was too clever, but I looked around me and realised that I could never fit into that type of controlled and structured environment. It was too restrictive for a young, ambitious guy.

I knew even then that you don’t start a venture unless you are absolutely sure it will consume you. That is the only way to come close to any guarantee of success. And Softline has consumed me. From the start, I have been 120% committed to the business. People say that I am all about work, work, work, and it’s true, although I’ve probably become better at balance over the years. In the beginning I worked six days a week at the office and took my job home on Sundays. That’s a big sacrifice to make, but it’s been worth it. It’s quite hectic to be an insecure overachiever like I was then, but there were definitely some advantages to that too – I just never stopped. That’s what it’s like to be an entrepreneur who is truly consumed by the business. When you work for someone else, you have the opportunity to switch off, no matter how hard you may have to work; when it’s your business, there’s no chance of doing that. But it gave me a lot of fulfilment.

I was too driven to let anything stop me and I knew that I was creating something amazing. If you have a good business idea, get it off the ground, build your reputation, and grow your business by creating a satisfied client base. If your idea is so brilliant, the best thing you can do is invest in it yourself. That’s exactly what Allan Osrin and I did. He was my mate from school and varsity and today he’s the MD of Sage Software Australia and HandiSoft Software Australia. We had no set agenda, but we had a vision – we wanted to build a global company. Allan and I had grown up together. We came from similar homes and were great friends. Because we’d had to make do without a lot of things, we were equally driven to make something of our lives and we had many similar motivators. One of them was the fact that we wanted to make money. Back then, we didn’t have any lofty ideas about giving back to the community; we just wanted to see cash. That was why we agreed to build a business together, and then someone suggested that we go into software support because it was becoming quite popular.

We took a gamble and went to the bank. It was 1988, and the maximum they were prepared to loan us was the princely sum of R5 000, only because we had degrees. We certainly weren’t in a unique situation. Some 90% of entrepreneurs around the world struggle to get funding. There was no thinking about things too deeply; we had to go ahead and work with what we had. We were extremely careful about what we did with that small bit of money because we had to make it work for us, or fail. And failure was just not an option. That’s why it’s vital to have a vision and big ideas. We positioned the company for growth from the start. If you want to be the greatest company, you have to start acting the part from day one. I believe that nothing is impossible if you don’t know your limits. There was no great business plan.

Quite frankly, I did not believe in creating a five-year plan. But we were always chasing the same dream and we were always on the same page. We approached each challenge together as it arose. Because we knew each other so well, it was easy to communicate and to talk informally about problems and opportunities, especially as we were so determined to make the business work. We would discuss our course of action every day, make the strategy changes or adjustments needed to take the company forward, and re-adjust the business model along the way. Although we had no written document, our discussions provided us with a living, breathing roadmap for the business that guided our every move as we went from start-up to an established company. It’s essential to remember how important it is to revisit and re-evaluate your plan – whether it’s on paper or in your head – because that’s what enables you to execute it.

Early successes

There was a computer distribution company which distributed an accounting package called TAS. They sold a lot of product, but there were few people around to set it up and where there is mystery, there is margin. So we went to them and said, “We know about accounting. You sell the product and bring us in to install it.” We had to work really hard to extract leads out of them, often promising clients that we would do the job for nothing and that they could pay us if they were happy with the outcome. You have no idea how important it is to be convincing. You need to find that one guy who will let you do the work, just so you can get the next one. Eventually, that company became convinced that we were doing a really good job, and we became contracted as their support outlet and installation and training organisation. But from our point of view the business was always vulnerable as we were entirely dependent on them. We had nothing that we ourselves could sell.

Six months after we started the business, Allan and I liked what we were doing and seeing. Sure, we were stressed out and working too hard, but it’s easy to work long hours when you are young. And you have to do that in the early years if you want to make a go of it. That was when we knew it was time to develop something ourselves – a solution that we owned and controlled. We employed a developer and eventually we got a product written for us that we branded Brilliant Accounting (and which later became Pastel). It was an entry-level, off-the-shelf solution that sold for around R1 000, and it complemented the more high-end installations we were doing. We took it to the few stores that had started opening. This was the time of the emergence of the computer retailer – they sold computers, printers and some software, including ours.

We built our reputation slowly, through good work, solid installations, and holding the client’s hand throughout the process. I remember sitting next to clients, one-on-one, teaching them to use the system. We’d bill them as soon as it was up. There was no 30-day invoicing – we had to collect the cash then and there, because we were bootstrapping the business. Within two years, Brilliant became the number two accounting product in the country. We set up branches in Cape Town, Durban and Bloemfontein. None of us were great technologists by any means, but we built the business through marketing. I can’t tell you what a kick it still gives me to see the brand we grew on billboards around the country. Then my brother-in-law Steven Cohen (today the MD of Softline Pastel) joined the business as our third partner in 1990. He’s an accountant who also has a great love for software. He really became the architect and glue behind our solutions. He was always looking at features and functionality, and we always believed that he would build a great product. We had such faith in each other; we did not do anything like a SWOT analysis or any of those other analyses that the business schools recommend.

In my experience, entrepreneurship is natural. People can learn the principles of entrepreneurship, but I think it’s very hard to train someone to be an entrepreneur. To really understand how it works, you have to do it yourself. It’s OK to have a mentor, but I think the most important thing you can do is trust your own gut. That’s what we did. Sometimes we got it wrong, but mostly we were right. I don’t read business books that tell you how to succeed because I don’t think they have any value for me, although many people find them motivational. I enjoy reading the biographies of successful people from around the world. That’s what I find inspirational.
I believe business is one part strategy, nine parts execution. We simply ran the business together on the basis of trust. Whatever we made or lost, we split three ways. There was rarely any jealousy or resentment of any kind. It’s one of the reasons why I cannot emphasise enough how important it is to choose the right partners. It would have been a lot more difficult had we not done so.

Allan handled sales – he was really good at that – he could convince a client to buy just about anything. I was constantly the one marketing the company. My vision for the business has always been five steps ahead of where it actually is at any moment in time. I always keep a close watch on what competitors are doing and I read about what is happening in my own industry and in the broader technological, economic and social environment. It’s critical to observe the world around you and to let those observations inform your goals for the future. You should always continue to build on your vision, but don’t forget that vision without execution is hallucination.

Some good fortune in the mix

Then we had a windfall: VAT was introduced in South Africa in 1991 to replace GST and every one of our clients had to buy our new system. That gave us some capital inflow and enabled us to finance the business going forward. The power of the upgrade has always been a big factor for Softline – when you have thousands of users who have to be upgraded, you automatically have access to cash flows.

At the same time, awareness of the computer was growing, and that worked in our favour too. Those were the formative years of computing. When we started the business, big corporates had huge mainframe systems and their software was developed in-house by their own engineers. For smaller businesses, technology then was mostly about hardware, DOS and word processing. The move from manual to automated accounts was largely by word of mouth – customers would tell their friends that they had bought a computer for their business to run their accounts and they would go, “wow, maybe I must do that too.” The client base just grew and grew. It was a fantastic combination of people and personalities, because we all drove and inspired one another in different ways. I used to be careful about phoning Steven on the weekend because I knew that once I got him going on the business, there was no way he would be able to switch off again. On one occasion during the change to VAT Steven stayed at our office right through the night to make sure the software was bug-free. That’s what you do when you are consumed by the business; there were a number of occasions where we worked through the night.

Together, we aspired to build a great, global company. We were doing extremely well in South Africa and we believed that our solutions could travel. Local technology development in general has been very successful and South African developers have a good reputation overseas. But even more important than that was the drive to build something global. We started with Australia because of the language, and because it was a place in which Allan was particularly keen on setting up a business. We found someone in Australia to sell our products there, but it was a failure as he was not committed and we did not really know how to set up the venture properly. But the important thing is that we always had a vision that we would do something huge. That’s vital – if you can’t see it from the start, there’s no way you’ll get it going. We had lots of ups and downs, and many tough times, but that dream helped us to keep it all together. The fact that we started as a team and we are all still here today as good friends who have built a hugely successful accounting and payroll solutions business is amazing.

We subsequently learnt that the best way to infiltrate an overseas market is to buy existing businesses which already have an established client base. We wanted to be sure, though, that we were able to do something different and better to improve the companies we bought. One of the first businesses we eventually acquired in Australia had a 35% market share. In addition, we were able to develop the next version of its software product far more cost-effectively from our South African research and development resources. The Australian market has turned out to be very good for us, but we made sure that we filled our management teams with Australians, as they understand the mentality and the business ethics of that country. The culture in Australia is very different from ours. It’s a far more regulated society which I find quite controlled, but Allan loves it.

Listing on the JSE

When we listed the company in 1997, I was 34. The technology boom was in full swing and companies everywhere were clamouring for IT stocks. It was a technology gold rush. As Softline’s customer base grew, so too did the industry we were creating in the country.  I knew that to achieve real growth and global reach, we had to start buying other companies. To do that, we had to list so that we could get some cash into the business.

I didn’t realise what I was letting myself in for. The listing brought tremendous success to this business. It made Softline what it is today. But with listing comes other hurdles. I think that the JSE should run courses so that companies know what to expect and what will be expected of them. It’s unbelievably hard to move from the private into the public sphere. It’s not solely your company anymore – it has public shareholders and other stakeholders. I recall the time when a Merrill Lynch analyst came to see me; he was asking me about all sorts of facts and figures and I gave him most of what he was looking for, but there were some things I refused to tell him until he pointed out that I had no choice in the matter.

The listing and acquisition strategy worked brilliantly. By 2000, we had bought 35 companies – our policy was generally to buy 100% or nothing – and 60% of our revenues were generated offshore. One of our most successful competitors was a business called Pastel, which we acquired in 1999 for R220 million. It is now hugely profitable and successful under Steven’s leadership. Then in March 2000, the dotcom bubble burst. According to the Los Angeles Times, this wiped out $5 trillion dollars in market value for tech companies.

More than half of the Internet companies created since 1995 were gone by 2004 – and hundreds of thousands of skilled technology workers were out of jobs. Softline’s share price plummeted – even though our profitability kept going up, we were trading well, and the business was growing. We were a great company with great potential and we could not see the benefit of being listed anymore. To give you some indication of the situation we were in, Softline stock had been trading at R12,80 at the height of all the IT hype, but had fallen to between 85 cents and 95 cents by 2003.

The delisting debacle

A management buyout was considered because we felt the market had lost its appetite, and attitudes toward our sector were negative. Two unexpected things happened. First, our shareholders refused to sell their shares back to us. Although we offered a 35% premium to the share price at the time, they were not prepared to accept it because they felt it was not enough, even though the market was not recognising the value of the company. Maybe it’s true that we did not offer a good enough premium, but how was anyone going to measure that? With hindsight, it’s possible that our offer was too opportunistic.

We lacked commercial maturity in the context of the delisting. Second, a hostile takeover bid was launched against Softline by a company based in the Netherlands which was in cahoots with a former employee of ours. They saw the value of the company and that showed that we had become attractive to an international business. To give you an idea of how bad it was, they already owned 15% of Softline and we did not even know it until we learnt of the takeover bid. I had to think about what would be the best thing for Softline. Sage, which supplies business management software to SMEs, just like us, was a much better fit and would also give us global reach. I flew to the UK and met with the CEO of the Sage group. Our businesses were almost identical. They were decent people and had a great management team.

Sage was formed in 1981 and floated on the London Stock Exchange eight years later. They knew all about us and had heard what was going on. They saw value, good products and an equally great management team and so Softline was acquired by Sage in 2003. Although we were unsuccessful at the buyback, we weren’t prepared to give up. We had to make the best of the situation and selling to Sage turned out to be a very positive move for us, something we only fully appreciated later. So we went from being private, to being listed, to being part of a global group. The Sage business model is unique because it could be likened to a federation of companies. It allows individuals to take ownership of the business so that they achieve great results. People need that level of autonomy and independence to thrive – I know I do. But don’t ever believe that selling your company is easy, no matter how much money is involved.

After we closed the deal with Sage I was highly emotional and at first we felt a deep sense of loss. Thankfully, because we had already been listed, it was easier to get used to the idea of being a company that’s part of a worldwide group. Compromises are necessary sometimes in the best interests of the business. Today the Sage group has more than six million customers and 13 400 employees worldwide; it operates in 24 countries including the UK, Europe, North America, South Africa, Australia, India and China. All of our overseas business is under the Sage name, but our South African business continues to operate as Softline because we had already built such a strong brand. The biggest challenge to the group as a whole is how to collaborate better. There is duplication because we are spread so wide. If we manage to get that right, our profits will be even higher.

What the future holds

What drove me in the beginning was the desire to have financial freedom and security. When I started out I wasn’t driven to change the world like some entrepreneurs claim to be, but now that I have achieved some success I like to give back where I can.  I continue to look ahead and to see beyond where the business sits today. Your interest should always lie in the future. That is, after all, where you are going to spend the rest of your life.

Softline recently bought 100% of Netcash, which provides secure, online transaction processing services for SMEs in South Africa. The potential synergies between our two businesses are clear. We both serve SMEs and the addition of Netcash’s transaction services to Softline’s products will enable our customers to have access to a broad service offering under a single banner. In addition to that, we have launched Pastel My Business. It’s an online accounting package built on the software-as-a-service model. We have 2 000 users and we are not making any money on it at the moment, but it’s the future of accounting. When the kids of today go into business, they are not going to buy software in a box, they are going to download it from the Net. We are getting ready to take advantage of the fast-growing Internet user base in this country and we will be ready for SMEs when they turn to cloud computing to manage their businesses.

It’s about continuing to focus on what your customers want, which is something we have done really well. It’s what we did to differentiate Softline from the start – always innovate to create new revenue streams and make more money. It’s important to be a visionary like Richard Branson. As a leader, I’ve learnt that you must have the power to inspire others to believe in the same dream – and that the only limit to your impact is your imagination and commitment. Our experience has also shown that to build an industry as we did, you must enlist the help of trusted partners.

Monique Verduyn
Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.