- Players: James Pearce and Charles Stretch
- Company: SMSPortal
- Established: 2002
- Turnover: R700 million
- Visit: www.smsportal.co.za
The rise of SMSPortal has been nothing short of astonishing. It had its origins in a garage in the Eastern Cape, where it was launched as a rudimentary SMS gateway aimed at letting students know what was happening in the club scene but quickly evolved from there.
“We realised pretty quickly that the system held potential,” says co-founder James Pearce. “Especially for businesses that were looking for an instant and reliable way of communicating with customers.”
Once co-founders James Pearce and Charles Stretch started focusing on this potential, the business took off. And it took off in rather spectacular fashion.
“When the company started out, it was sending 30 000 messages a month. I remember us saying that if we could get to 500 000 a month, we’d really have it made. Now we send out 150 million a month,” Stretch told Entrepreneur back in 2013. Today, the company sends 400 million messages a month, and it has upped its turnover from R300 million in 2013 to R700 million in 2016.
But while the growth SMSPortal has enjoyed has certainly been rapid and significant, it has also been carefully measured and managed. Cognisant of the dangers associated with growing too quickly, Pearce and Stretch made sure that the company didn’t grow so big so fast that they no longer had a handle on things.
Even when they recognised the massive potential in their idea during the early days of the business, they made the decision to start small.
“In the beginning, we just targeted SMEs in Port Elizabeth,” says Pearce. “Keeping things small early on meant we didn’t need to build a large-scale gateway early on. Also, we could find our feet and test our systems thoroughly before we scaled to a point where any glitch or hiccup would mean disaster.”
A great example of a company that scaled way too quickly was Pets.com — one of the most infamous casualties of the dot-com bubble.
Pets.com — which, as its name suggests, sold pet supplies online — was founded in August 1998. It was quickly identified as one of the hottest tech companies around and attracted very significant venture funding (about $300 million).
For a while, Pets.com was everywhere. It spent a lot of money on marketing, including a spot in the 1999 Macy’s Thanksgiving Day Parade in New York, and an advertisement during the 2000 NFL Super Bowl. (The $1,2 million Super Bowl ad, by the way, was a huge hit. USA Today ranked it as the best ad of the Super Bowl, and the tagline: ‘Because pets can’t drive’ was seen as a brilliant bit of marketing).
In February 2000, Pets.com listed on the Nasdaq. A mere 268 days later, it was liquidated. So what went wrong?
The company had grown too quickly. It had spent millions to capture the market and build brand recognition before it had really established whether its business model actually made sense. When those in charge did stop to take stock, it quickly became apparent that Pets.com was a house of cards built on a shaky foundation of assumptions.
Its marketing budget alone far outstripped the revenue it was generating, and people were not spending the sort of money online that the company had been betting on. Pets.com, for example, was offering free shipping, but customers weren’t spending enough to justify this.
On 6 November 2000, Pets.com announced that it was closing its doors. When it listed in February of the same year, a share in the company had been worth $11. By the time Pets.com decided to liquidate, a share went for $0,19.
As mentioned earlier, SMSPortal’s turnover has gone from R300 million in 2013 to R700 million in 2016, and it handles about 400 million text messages a month (an increase of 300% in three years).
Now, considering the above, it’s perhaps surprising to discover that SMSPortal only employs around 50 people. Sure, the staff complement has increased quite a bit since 2013 — when the company had a mere 20 employees — but 50 is still a very small number for an organisation that is turning over R700 million a year.
One of the chief characteristics of an eminently scalable business is the ability to reduce its marginal cost to virtually zero. Just consider Facebook, Dropbox or Uber. These tech companies could scale quickly because adding a single extra user cost them virtually nothing in terms of money, time and effort.
SMSPortal is another good example of a company that has managed to scale without allowing size and complexity to overwhelm the organisation. Some of this has to do with the nature of the business, sure, but Pearce and Stretch are quick to point out that the right employees are just as crucial when it comes to scaling.
“We spend a lot of time on recruitment,” says Pearce. “We never hire quickly. We spend time looking for the right people and put everyone through rigorous testing.
“We also make sure that there’s culture fit. It’s important that any new individual fits in with the rest of the team.”
“The IT space is a particularly challenging one,” adds Stretch. “There is huge demand for great engineers and software developers, so you’re competing with lots of large companies. Because of this, we put a lot of time and resources into recruiting the best people.”
SMSPortal also takes on interns twice a year. While interns obviously need a lot of supervision, an internship programme is also a great way to identify young people with excellent potential.
“It’s really worked for us in terms of identifying promising talent,” says Stretch. “We’ve hired quite a few people permanently who started out as interns.”
As SMSPortal has grown from 20 to 50 people, the founders have also put senior managers in place who manage the various teams.
“You can’t try to manage 50 people personally,” says Pearce. “You need to put competent managers in place who can take over the day-to-day management of certain key areas so that you can spend your time doing other things. As a company grows, you have to let go of certain responsibilities and trust that the people you’ve employed will be able to do the job. Your aim should be to empower them and not complicate their lives with red tape. Their focus should be on doing business — not dealing with bureaucracy.”
According to Stretch, it comes down to hiring people who can do the job better than you can.
“A business can’t grow very much if you’re only a handful of people. If you want to scale significantly, you need a larger team. The important thing, though, is to hire people who are very competent and highly skilled. We’ve certainly hired people who are better at their specific tasks than we would be. So we know that they can be trusted with making the right decisions. We know that the business wouldn’t be where it is today without them.”
Since SMSPortal was last featured in Entrepreneur, the company’s international operations have increased massively. At the moment, the company delivers messages to roughly 700 networks in 150 countries.
How have Stretch and Pearce managed to establish SMSPortal overseas?
“One of the strategies that has worked best for us has been to grow alongside our clients,” says Pearce. “Many of our clients have ventured into foreign markets, and we have joined them in these endeavours — providing our services to them in these new territories.
“Once we’re operating in a new territory, we can then start building relationships and gain an understanding of how things are done in the region. Eventually, we can start working with foreign clients.
“To an extent, this has been a bit of a ’do or die’ strategy. We realised that if we didn’t grow with our clients and offer them our services in other regions, someone else would jump in and do it. It’s been difficult at times, but we’ve learnt a lot through the process.”
“It all comes down to having great relationships,” says Stretch. “We have very good relationships with Vodacom and MTN, for example, and since these companies are very active in other countries and regions, we have been able to expand because of these relationships. So when going into other regions, it’s worth considering how you can leverage existing relationships to do it. Just going into a new region on your own can be very hard.”
The founders also warn against entering markets that are far away from South Africa and in a different time zone.
“We are especially active in southern Africa, the UK and Australia,” says Pearce. “And there is no doubt that it’s easier to manage operations that are in a similar time zone. So trying to enter a territory on the other side of the world as your first form of international expansion is perhaps not the best idea. You’ll be surprised how much easier it is when the time zone is similar.”
- Don’t let growth overwhelm you. Many successful companies have failed because they grew too quickly.
- Avoid unnecessary complexity. The aim should be to grow as much as possible, without adding too much complexity. The right employees can help you accomplish this.
- Grow with your clients, especially when it comes to venturing beyond South Africa’s borders.
Understand that your ability to scale is linked to the quality of talent that you hire and invest in.