Demographica Appeared In Entrepreneur 5 Years Ago. Today The Business Model Looks...

Demographica Appeared In Entrepreneur 5 Years Ago. Today The Business Model Looks Very Different. Here’s Why

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Demographica

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Demographica is almost exactly ten years old now. It first appeared in the pages of Entrepreneur five years ago in 2011, when the company was riding a wave of success.

Most of its success was coming from its SA Consumer Initiative (SACI) — an opt-in database of 3,5 million users that it offered to clients looking to engage in direct marketing. Some of its clients included Shoe City, Telesure, Nissan, HP, Look & Listen, Marmite and the AA.

Fast forward to 2016, however, and the company looks very, very different. It is larger and more successful than ever, but nothing remains of the once-central SACI database.

Today, the company focuses on business-to-business (B2B) advertising and niche market advertising. It also fulfils a far more strategic role for clients, no longer simply selling a database, but playing a central role in the creation of marketing strategies.

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Of course, things could have ended very differently. For every successful company like Demographica that manages to reinvent itself, there are countless others that showed tremendous promise for a brief while, but then went under. So how did Demographica succeed?

1It wasn’t afraid to pivot

Just about every start-up pivots in its first year or two. As Steve Blank, the godfather of the lean start-up movement has said: “No business plan survives first contact with customers.”

In fact, there are plenty of examples of successful start-ups that ended up being something completely different from what was initially intended. Twitter started out as a podcast directory. Pinterest was a shopping app. Android (now part of Google) wanted to create a range of smart cameras.

Pivoting in the first few years of a business is nothing special. It happens all the time. But what about more established businesses? The fact of the matter is, just about every successful business needs to pivot at some stage.

No product remains relevant for decades. And when an entire industry is disrupted, massive change is needed within a company in order to survive. Just consider Apple. If it had stuck to creating desktop computers it would probably have disappeared ages ago. Most of its money now comes from smartphones. Similarly, Google wouldn’t be nearly the behemoth it is today if it had just focused on its search engine.

Look at companies that have been around half a century or more, and you find that many started life doing something very different. For more than a decade, Starbucks simply sold coffee beans and espresso machines. Nokia (a company again in need of a pivot) started life in 1865 as a Finnish paper mill. From 1910 to 1935, Suzuki produced weaving looms.

The companies that survive long-term are the ones that can see massive disruption heading down the pipeline, and manage to react quickly and efficiently to this existential threat. Not long after speaking to Entrepreneur in 2011, Demographica founder Warren Moss realised that the company would need to change the nature of its business fundamentally.

“Things like the Consumer Protection Act and the Protection of Personal Information Act were coming into being, so I realised that a database service like ours would come under threat. If we wanted to keep going, we would have to change the business,” says Moss.

The direction that Demographica had to take was quite obvious. “We weren’t simply sending out emails. We were constantly solving problems for clients. Our clients were asking us for help, and we were starting to build a reputation as a business that could provide advice and insight on a strategic level. We realise this was an area we could focus on, and so we started to turn into more of an agency, with a focus on direct marketing.”

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2It found a niche

Warren Moss

There are plenty of advertising and marketing agencies out there, so establishing itself in this arena wasn’t easy. Luckily, though, Moss had spotted a niche that he believed was being under-serviced.

“In order to grow and dominate an industry, you need to either be very disruptive, or own a niche. The tipping point for Demographica came when it managed to carve out a significant niche for itself,” says Moss. “Since doing that, the company has grown 200%.”

This niche was B2B marketing. “None of the large agencies bothered with B2B marketing,” says Moss. “They all focused on the consumer side of things. So we decided to become the leader in the B2B space.”

Moss visited the United States and Europe and found a very healthy and established B2B marketing industry that didn’t really exist in South Africa.

“I visited all these large and established B2B agencies overseas. B2B was a large industry,” says Moss.

“So I decided to try and make Demographica the greatest B2B agency in Africa. So, as we grew into a direct marketing company, we also started to move away from B2C, and more towards B2B. It wasn’t always easy. We still get asked to pitch for large consumer campaigns, and it’s tempting because of the money, but you need to be firm. If you want to own a niche, you need to focus. Everything you choose to do has a certain opportunity cost that comes with it. The greatest advice I ever received was to find the one thing I can be the best in the world at and to focus on it. That’s how you become a market leader — not by allowing yourself to lose focus.”

3It has a unique business model

Why had other companies not tried to own the B2B space prior to Demographica? “The margins weren’t big enough,” says Moss. “Agencies could make more money by focusing on B2C.”

Demographica, however, could make money in the B2B space because it had a very different business model.

“We didn’t start out as an agency, so we didn’t really know how things were ‘supposed’ to be done. In a way, our naivety was a benefit. Instead of billing for time, which is what most agencies do, we adopted an outcomes-based model. The client would describe a desired outcome and agree on a price, and it would be our job to make it happen. This meant we could have healthy margins, provided we found an efficient way of reaching the client’s desired outcome,” says Moss.

Moss also made the decision to hire a different kind of employee. When it came to client service personnel, Demographica started hiring high-level professionals, such as lawyers and business people, instead of traditional client service people.

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“We decided to hire the most senior people we could find, and not necessarily the cheapest, or even those with the most client-service experience. We wanted people who could deal with pressure and deadlines, and who were used to dealing with clients at a very high level. We wanted strategic thinkers who could become trusted advisors to clients,” says Moss.

The aim was not to be just another agency, but to operate on a different level — to offer what others couldn’t.

“You never want to compete on price. You want to offer the kind of value that clients can’t find anywhere else, and that they are willing to pay for.”

With this in mind, Demographica goes above and beyond to offer the kind of insights that can’t be found anywhere else. The company is the largest employer of anthropologists in South Africa, for example, and regularly sends these experts out to embed themselves within the target demographic of a client.

“When it comes to B2B, your target audience for a campaign might be financial directors at large corporates. That’s a narrow demographic, which allows you to dig very deep. On the consumer side, you’re dealing with millions of people who are all very different, so you can’t offer the same service,” says Moss.

4It knows how to scale

Demographica
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“Expanding into Africa seems like an obvious next step for us, but every time the discussion comes up, I ask: Have we mopped up everything at home? Have we won all our home games? I don’t think it’s wise to expand and look further until you completely dominate a space. Once you can honestly say that you dominate your home market, you mitigate a lot of risk that comes with growth,” says Moss.

For Demographica, it’s all about managed growth. “Setting big targets is risky,” says Moss. “Entrepreneurs like to go for it. If they see a large target, they’re going to try and achieve it. But explosive growth can be dangerous. I like to set achievable goals.”

So far, the strategy has worked very well for Demographica. It has managed to increase its revenue without adding too much complexity to the business.

“It all comes down to economies of scale,” says Moss. “We operate successfully in the B2B space because of healthy margins, and we achieve these margins because we work efficiently. The growth of our revenue outstrips the growth of our expenses. To me, that’s what managed growth is. In contrast, explosive growth brings with it a lot of complexity. It can be impressive in the short-term, but hard to manage in the long-term.

“Technology has been invaluable within Demographica, and is a great example of how you can increase revenue without necessarily having to add complexity. I’m still involved in a lot of the sales in the business. Once upon a time, I could only manage about 15 deals at any given time, since I couldn’t keep track of any more than that. Now, thanks to CRM software we’ve implemented, I can manage 50 or 60. It shows you how you can leverage technology to scale successfully. Without this software, we’d need more sales people. With it, we can increase our margins even further.”

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Key learnings

  • You’re never too big to pivot. Long-term success demands foresight and agility.
  • Find a niche and own it. Don’t allow yourself to be defocused.
  • Find a business model that works for you. Be creative. Add value, don’t cut price.
  • Don’t scale too quickly. Manage your growth and aim for long-term sustainability.

Do this

To be the best, you have to hire the best. Often the most interesting candidates come from outside your industry and bring unique skills with them.

GG van Rooyen
GG van Rooyen is the deputy editor for Entrepreneur Magazine South Africa. Follow him on Twitter.