Rico Wessels and Christopher de Bod are not your typical entrepreneurs. For one thing, they didn’t dream of starting their own business.
When they finally did launch their company, PHAT Brand Activation in 2008, they went from an idle discussion about starting something of their own instead of building other people’s businesses, to resigning, to start-up in two weeks flat. They also broke all the rules doing it.
Every business book, coach and expert will give you the same start-up advice: Have a business plan, develop a clear strategy, have a structure in place, do market research, and have some cash in the bank. Wessels and de Bod had none of the above.
What they did have were complementary skills sets, contacts, and the fact that they were going into the business together.
Key entrepreneurial partnerships automatically raise the chances of success, and in Wessels and de Bod’s case, this was a vital ingredient in their business’s eventual growth – de Bod brought in the business (and in the early days they would take any business that came their way) and Wessels made sure they delivered.
Their early days were haphazard and organic. They entered the events industry because they knew it took the same amount of work to put on a R100 000 event as it did a R1 million event.
They also knew you could ask for upfront deposits, which meant they could do business without cash in the bank, and since they only had R3 000 start-up capital and enough saved up to pay two months’ worth of bills, this was a deciding factor.
So, putting out the word to everyone they knew, the partners made it known they were open for business, and they would do any event, no matter how big or small. Bar mitzvahs, weddings and corporate functions were the order of the day.
They soon realised an important fact: They hated weddings, largely because mothers of the bride are evil, but they loved corporate events. As they managed to get cash in the bank, they were able to become more and more selective about the work they chose, until eventually their sole focus was corporate clients.
Today, they run a R100 million business with a laser focus. But the ride hasn’t been without its bumps in the road – and lessons to be learnt.
“I promise clients the world, Rico makes sure I’m not a liar.”
As partnerships go, de Bod and Wessels have very different skills sets and personality traits. Wessels’ background is in advertising agencies. His forté is project management and execution.
Give him a brief and he’ll get the job done, to spec, within budget. He’s all about the deliverables. De Bod is more people-orientated. His background is in call centres and client services.
He’s finely tuned to client needs, and is able to determine what a company needs, not what a client thinks they actually want. Together it’s proved to be a winning combination, with de Bod able to discern the best course of action for each client (and then promising them the world) and Wessels making those promises happen.
But it’s not just about the partners complementing each other’s skills set.
“We both started at the bottom of a corporate structure and worked our way up,” says Wessels. It’s an important point.
Neither is afraid of hard work and learning new things, but more importantly, they also learnt business from the inside out.
“We didn’t realise it at the time, because neither of us was specifically trying to learn as much as possible about business to prepare ourselves to become entrepreneurs, but if you’re naturally ambitious, inquisitive and want to do the best you can in every role you’re in, you learn a lot about business along the way,” he adds.
“My corporate career prepared me to understand business strategy, finance, profitable accounts and how to streamline processes. Christopher’s career taught him about people and the importance of customer service and he also developed a talent for translating those needs into actionable deliverables for the project management teams.
“It’s one thing to get client feedback. It’s another matter entirely translating that feedback into useable data for the company. These would be invaluable skills once we launched PHAT.”
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“Cash is your lifeblood. Without it, you’ll never grow.”
These skills attracted early clients and ensured the duo could deliver on their promises. Jobs well done led to word-of-mouth referrals and bigger projects, but it wasn’t until cash flow stabilised that the business could really start growing and taking shape.
“Even though we’d started with nothing, we quickly learnt that our most valuable asset was cash in the bank. Healthy cash flow allowed us to start choosing our clients and which jobs we wanted to do, but more importantly, it meant we could start branching out from events,”says de Bod.
With a keen eye for identifying gaps in the needs of their clients, he soon realised that brand promotions was a marketing area that they would be good at – they had the necessary skills and backgrounds to pull promotional activations off, and more importantly, they now had the upfront cash.
“At first, we wanted to outsource this function,” admits Wessels. “Promotions require a lot of contract workers, most of whom tend to be university students and highly unreliable. It’s an area we didn’t want to be in. But we could see a client need, and we soon realised two things.
“First, if we were simply the middle men we’d be adding management fees onto management fees, pricing ourselves out of the market. More importantly though, if we outsourced our activations department, we wouldn’t be able to control our service delivery, and it might actually end up hurting us. What’s the point of growth to the detriment of your brand?”
And so their focus on getting cash in the bank began to really pay off. “Activations are tricky because you need to pay your contractors long before the client pays you,” explains Wessels.
“Many clients take up to 60 and even 90 days to pay you, and your single biggest expense is your promoters (or activators). Without a healthy cash flow you won’t be able to honour your agreement with them.
“Reliable, trustworthy activators are hard to find, and we’ve developed our brand around the fact that they’re ‘living’ media, which means they can intelligently interact with consumers, answering their brand questions and discussing the products they’re promoting.
“This takes training, which is an additional investment. You want to keep your activators happy, and to do that you can’t take weeks or even months to pay them.”
As the business has grown, so too has PHAT’s client base and the size of the activations they’re responsible for. None of this would have been possible without keeping a keen eye on cash flow. “So many businesses are unable to scale because they don’t have a healthy bank balance,” says Wessels. “It doesn’t matter what your balance sheet says. If you don’t have cash in the bank, you’ll never grow.”
“We lost a lot of good people before we realised they were the backbone of business.”
Growth brings with it new challenges though. Sure, you can now take on bigger jobs and hire more people, but it’s also easy to get so caught up in doing the work that you forget how important systems, structures and above all people are to the business’s success.
“Our first round of hiring activators had gone well,” says Wessels. “Chris and I personally chose 500 CVs, shortlisted those to first 300, and then 120, and then with client input we settled on 80. Most of that first group was with us for four years, and many went on to be hired by our clients, and some have even joined our core staff.
“But we also got things wrong. We were running like a sweatshop. We worked 18-hour days and we expected our team to do the same. We had a job to do, and both of us are hardwired to work hard and get the job done to the best of our abilities.
“The problem was that we didn’t have the systems in place to support the workload we had undertaken, and we expected a lot from our employees without giving them any autonomy or seniority.”
The result? It took Wessels three days to pay 400 activators (a task he did himself), which is just one indication of how poor the business’s overall systems and back-end were.
“We lost a lot of good people in our early years. And then one day we realised the secret. If we wanted to be a big business, we needed to act like a big business, and that started with a proper back-end, putting systems in place, and appointing account directors who had full control over their accounts.”
In a large corporate or agency environment this is obvious, but as a small business trying to save costs, it’s often forgotten. It requires an investment in what is seen as a non-revenue generating area, and it can’t work unless the business owners take a step back from the day-to-day functioning of the company.
“Two things happened simultaneously for us,” says Wessels. “We realised who we actually were as a company, and we put systems in place to support that.” This sounds so simple and obvious, but it’s easy for companies to get waylaid by the who, what and how of business.
In PHAT’s case, they are a brand activation agency that focuses on living media and variable media (or activations and events).
But the reality is that this is what they sell to clients. What they actually are is a massive employer of contract staff who activate or promote a brand and its products. The ‘how’ is then how well they manage people – they need to be trained, booked and managed. They’re the face of a brand, and they’re also an excellent collection point of data for the client.
Understanding all these things makes PHAT very good at what it does, but it also requires systems to operate smoothly. These systems encompass everything from ensuring activators are paid on time, and keeping their training and knowledge up-to-date, to supporting the company’s core full-time staff who look after client accounts and the activators.
“We can track our sudden massive growth curve to two things: We put systems in place, and we established a PHAT exco that gave our account directors and executives autonomy but held them responsible for their accounts. It was a complete game changer in our business,” says Wessels.
“We reward teams that excel, but let non-performers go.”
The systems took a three-day job down to 15 minutes. They also promoted a strong back-end, which is the backbone of any business. Sales and account executives bring in revenue, but they’re hobbled if they have no admin and HR support. The change in company morale and productivity was almost immediately discernable. But that was just the first step. PHAT’s real secret growth weapon is its exco structure.
“Our PHAT exco serves two key purposes,” explains Wessels. “It frees up myself and Chris to focus on high-level client service and strategy sessions, and it allows us to work on our own internal strategies. That’s obvious. What’s important to understand is that none of this works without real autonomy on behalf of your account directors, and with responsibility comes accountability.
“Our system is highly transparent and straight forward,” explains Wessels.
“Each account director has full financial and managerial control over their department. They’re given a budget to work with and targets to meet. We then have an exco meeting every second week to track those targets and change direction if needed. It keeps us in the loop, it ensures our account executives are keeping their eye on their targets and client delivery because they have to report back to us, and it means we can trouble shoot early.
“If targets aren’t being met, we evaluate why, and develop strategies to keep the account healthy. It’s vital that everybody understands what the deliverables and their duties are. If an account runs at a deficit, the strategy will be revisited and we will then develop the appropriate structural solution.
“Obviously this is done within reason – if a major client suddenly has to pull its budget for example, this isn’t necessarily the team’s fault, and we might move everyone into different positions and teams. We make sure they all know exactly what that pressure is and what they need to achieve.”
According to Wessels, transparency plays a big role in this strategy. “We share financial information with clients which allows us to show the client exactly what the agency makes versus what the client thinks the agency makes. In this way we can come to a mutually beneficial solution.”
However, a strategy that is so dependent on employees who are responsible, driven and accountable relies on getting the right people in. “This is obviously a challenge,” agrees Wessels.
“We like to employ leaders with entrepreneurial spirit, but these skills and responsibilities come at a price. But, we’ve learnt that in the long run it’s a price worth paying. Upfront investment ensures healthier client accounts, it’s that simple.”
However, Wessels does admit that people have left PHAT to start agencies of their own in the past. “If that’s their dream, it’s obviously a loss to us, but we always encourage their ambitions, support them, and give them any advice we might have. That’s the flip side of employing entrepreneurially-minded people, and we understand that. We’re realistic that people – like accounts – move on, and that we just need to make the most of them while they’re with us.”
“If you’re looking for a master/slave relationship, you’ve come to the wrong agency.”
“Many big corporates will treat their service providers like slaves if they let them. That wasn’t us. We wanted partnerships. It’s the best way to ensure your clients get the most from their campaigns because you’re able to offer them real advice, and even tell them when they’re dropping the ball,” says Wessels.
All good partnerships are based on relationships built on trust, and transparency is the foundation of trust.
“If you’re able to have in-depth, honest and up-front conversations about the business, you’ll be in a much better position to advise clients on what they need to do to achieve the results they’re looking for,” says de Bod.
These principles extend to everyone understanding exactly what they’re getting from the partnership as well.
“We are very clear about our fees and what our clients are getting for their money,” says Wessels.
“I’ll present a document that shows our management fee, what it covers, our mark-up and percentage profit. Clients know exactly what our gross profit is, or what figure we’re trying to get to. Based on that, we can then offer them our services according to what they’re willing to spend.
“Ultimately, the profitability of an account defines the size of the structure that will support the account. More profit equals more ‘wow’, including exclusive versus non-exclusive structures and dedicated versus shared teams. We also all agree on the profit margin upfront.
“We understand that unless you value your own services and what you have to offer, you can’t expect your clients to value you. We’re in the business of helping our clients see real return on investment in their marketing strategy, but we’re also here to make a profit. We’re always very clear about it, and our question is always simple and polite: Would you run at a loss?”
PHAT also has client rules. “We won’t mess with the system. Don’t ask for a R1 million event in three days. This ruins our pipeline and affects our other clients. We value the service we give them, and that means we need to stick to our schedules. The only way you’re above that schedule is if you’ve got your own dedicated team.
“First, should we accept the brief it will push back all current work by two to three days. Second, the brief will more than likely not be done to the standard and quality that we normally deliver.
“If you take the two points into consideration, someone will lose out – either the current client or the new client. We follow a simple rule: Never let the money make the decisions.”
“You quickly learn when starting an agency that the more you give in to a client’s whims the less they value your input as a subject matter expert,” agrees de Bod.
“We’ve learnt over the past six years that open cards and total transparency allow clients to understand our reasoning. We’re subject matter experts in our industry, just like our clients are in theirs. They’re paying a fee for a professional service. We never negotiate on our quality and standards, just like a doctor would never negotiate on quality and standard when performing an operation.”
- Players: Rico Wessels and Christopher de Bod
- Company: PHAT Brand Activation
- Est: 2008
- Growth stats:
2010: 32% 2011: 77%
2012: 81% 2013: 176%
- Current turnover: R102 million
- Projected 2014 growth: 80%
- Contact: +27 (0)12 348 5070
- Email: email@example.com
- Visit: www.phat.co.za