- Player: Loic Potjes
- Position: CEO
- Company: Securitas SA
- Established: 2009
- Visit: securitas-rsa.co.za
As the saying goes, Africa is not for sissies. For any company wishing to do business here, there are unique challenges to contend with. Take, for example, the South African security sector. It is, to put it mildly, very different from the one you’ll find in Europe.
A key reason is the ubiquity of crime in South Africa. In fact, it’s the third-most violent country in the world (Venezuela is first, and South Sudan second).
The prevalence of crime has subsequently resulted in the local security sector becoming a very busy one. There are no less than 9 000 security companies active in the country. Moreover, the average offering consists of low-cost entry-level manpower services, and in the case of some small operators, employees don’t receive the salaries and benefits dictated by law.
So establishing yourself in this difficult industry and turning a profit can be hard. But that is exactly what Securitas decided to do in 2009. The company (large and established in Europe) made the move into South Africa. The transition wasn’t a simple one.
Related: How Do I Start A Security Company?
Here’s what the company learnt about succeeding in an industry where competition is fierce and margins are small.
1. Use acquisitions to jumpstart business
When you’re faced with a plethora of competitors in a given market or industry, getting your foot in the door can be hard. Even with a respected international name and brand behind you, organic growth is often difficult. So, to jumpstart things, Securitas acquired a small but respected security firm, which gave them a solid base to operate from. Suddenly the company had the licences, workforce and assets needed to start doing business on a meaningful scale.
“We quickly realised that we couldn’t simply ‘copy and paste’ what we did in Europe,” says Securitas SA CEO Loic Potjes.
“South Africa is unique, so we needed a unique strategy. When you enter a new market, you have to be willing to listen and learn. We decided that the best way to do this was to acquire a local business that was entrenched in the market.”
When you find yourself playing catch-up in a particular field or industry, a strategic acquisition remains one of the best ways to draw level (and surpass) the competition.
Modern examples are easy to find. Despite having its own instant-messaging app in the form of Messenger, Facebook bought WhatsApp as well, instantly making itself one of the key players in the industry.
Just as videos were becoming ‘a thing’ on the Internet, Google purchased YouTube. Thanks to this, Google largely owns the online video space.
In fact, YouTube is officially the world’s second-biggest search engine — only Google itself is more popular. Most recently, Microsoft decided to stop sitting on the social media side-lines by purchasing LinkedIn for a phenomenal $26 billion. Suddenly, Microsoft is a big social media player.
2. Differentiate yourself
With 9 000 players in the local market, it can be hard to grow your market share when you’re not only a new player, but also positioned at the premium end of things.
Securitas SA’s situation was exacerbated by the fact that the global financial crisis struck just as the company arrived in South Africa. Businesses were looking at areas where they could cut costs, and security expenses seemed as good a place as any. After all, there were plenty of small operations out there willing to undercut the competition.
“Our offering was better than the vast majority of players. Our guards were well trained, and our success rate in preventing incidents was higher,” says Potjes.
“We had the data to prove it. When you’re dealing with a lot of competition, you need to differentiate yourself in a meaningful way. And this doesn’t mean just having a nice brochure that lists all your accolades. You need the cold, hard data that proves you’re worth the price you’re asking for.”
Securitas SA’s strategy worked. By 2011, it had more than 2 000 employees, an impressive list of blue chip clients, and was viewed as one of the top-ten players in the industry.
A product or service is worth what clients are willing to pay for it. If you don’t want to be drawn into a price war, you need to demonstrate your value. And a slick sales pitch is not enough. It’s all about data. Show your value. Prove it.
Why do so many companies use Apple products, despite the fact that they are often far more expensive than other available systems? Because they are user-friendly and great to use. They improve productivity, which makes them worth the extra expense.
3. A service business is hard to scale
As 2011 was drawing to a close, Securitas was in a reasonably good position. But it was finding it increasingly hard to scale. Why? It was facing a problem that many service-based operations have to deal with when trying to expand.
Whenever Securitas grew its client base, there was a corresponding growth in cost and complexity. Because Securitas was using highly-trained guards, the marginal cost associated with every new client contract was substantial.
“We realised that the very nature of the business was constraining growth. The business model was based on low-cost, low-margin, manpower-based services, which couldn’t easily scale,” says Potjes.
There is a reason why modern tech companies are receiving sky-high valuations and massive investment: They are eminently scalable. And why are they so scalable? Because the marginal cost of a tech product or service is practically zero. Just consider a company like Dropbox, Airbnb or Uber.
Signing up an extra user brings with it virtually no cost. The opposite is often true when selling a physical service in a bricks-and-mortar world. The marginal cost is significant, it takes time to implement and it adds complexity to the business.
4. You need to find a scalable business model
To take the business to the next level, Potjes and his team realised that a fundamental shift was needed. Growing Securitas SA incrementally through its existing service offering would take too long. But pivoting a business with thousands of employees would not be easy. So the company relied on a strategy that had worked well early on: Acquisition.
“By 2011, we had realised that we needed to start looking at different products and services. Specifically, we wanted to move away from the traditional manpower-based service offering towards technology-based solutions,” says Potjes.
“We started aggressively pursuing this strategy in 2013, which was why we acquired an excellent South African company called Rentsec that focused on providing offsite monitoring.”
Securitas brought Rentsec into the fold, and radically changed the business. The company started selling security solutions that were based on technology and upskilled specialised manpower — operated largely out of control rooms.
“A number of security functions can easily be replaced by technology,” says Potjes.
“For instance, it’s inefficient to have guards patrol a boundary wall. They can only guard a small section of wall at any given moment. A proactive solution consisting of security cameras with video analytics managed by off-site control room operators can do a much better job.”
The company was overhauled completely. It went from 90% of its bottom line being based on low-cost manpower services to 75% of its bottom line being dependent on highly-differentiated tech services with specialised manpower.
“We managed to quadruple our bottom line. Moreover, we didn’t need to let any of our employees go. In fact, we have 4 000 employees today. And we’ve managed to upskill them and, to a large extent, keep them out of harm’s way,” says Potjes.
Many great businesses in history have hit growth ceilings, and were only able to punch through once they changed their business models substantially. A great example is Starbucks.
The company was founded in 1971, and sold coffee beans and espresso makers. By the late 1980s, there were only 11 Starbucks stores. Then Howard Schultz bought the brand and took the concept of the Italian coffee shop to the US. It now has
24 000 stores worldwide.
Another interesting example is PayPal (originally called Confinity). Initially, the company offered a way to ‘beam’ payments from one PDA (like the Palm Pilot) to another, but these early versions of smartphones went extinct pretty quickly, leaving the company without a platform for its service. But a smart merger with Elon Musk’s online banking company X.com saw it become a hugely successful online payment platform.
- An acquisition can be a great way to play catch-up in a market or industry.
- If you want to play in a saturated market, you need to differentiate your offering. What makes it special?
- Not every business model is scalable. If yours is not, you need to find a way to make it scalable.
- Pivoting is not only for start-ups. Making that leap from medium to large enterprise might also require some pivoting.