- Company: Masedi Electric-Serve
- Player: Seitebatso Rakgokong
- Established: Officially 2004
- Contact: email@example.com
What’s wrong with this picture: In 2010 a Rustenburg-based electrical installation and maintenance business turns over R3 million, in 2011 R4 million, and in 2012 R14 million. In the space of a year revenue has quadrupled. But then in 2013, revenue drops to R9 million. It must be a disaster, right? Well, no actually.
Here’s the twist in the story you’re probably not expecting. Dig below the surface and what you discover is that the business was actually three times more profitable at R9 million turnover than it was at R14 million.
Seitebatso Rakgokong is the entrepreneur behind the recalibration of Masedi Electric-Serve, and he tells us the lessons he’s learnt about hyper-growth.
Learning curve #1: Reining in the pitches
“In 2004 the bulk of our clients were government departments but we needed private clients to balance out the often late payments from public sector that impacted cash flow.
By focusing on high quality work, we started getting contracts from mines in Rustenburg, landed Royal Bafokeng Administration as an anchor tenant, and grew from there.
Foreseeing the impact of the 2008 recession and concerned for future business, Rakgokong started pitching to anyone and everyone.
“We aggressively submitted tenders. Typically a 30% or 40% conversion is doing well, so we used that conversion ratio for further bids.” It backfired.
“By the time 2012 started, we had 34 projects running at the same time with some being over 300km away. As a small business we were thrilled, but by the second quarter we felt the effects of such growth – cash flow and profitability were the biggest casualties. Ironically, the government’s continued spending during the recession helped the business a lot, but a late payment would put us into crisis mode.”
The lesson: “We had to make a tactical decision about how many contracts we could handle at a time and the size of those contracts. We had to put a cap on distance and refine who we pitched to – it wasn’t revenue at all costs anymore, but aligning clients to our strengths, whether they were good payers, and the potential to get long-term maintenance contracts with them. This means we turn away some business, but it’s for the good of the company.”
Learning curve #2: Bringing in systems to improve profits
“In the busyness of so many projects, we were losing track of profitability as we didn’t have specific financial monitoring to track individual project profitability, just gross and operating profit. Before hyper-growth, we enjoyed a healthy profit margin, but come 2012 that had dropped to 4% and some projects even incurred a loss.”
The lesson: “Keeping track of cost of sales is essential. We went from using spreadsheets to needing a more sophisticated financial management package to provide detail on project-specific costing. In construction, one project tends to subsidise another, but it seriously ate into our profitability. Individual monitoring helped stop that, but it also saw us implementing a project pricing review before starting each project. This was important because in the 90 day interim between a bid being accepted and a project starting, prices might have increased.”
There was another important find in project-specific financial monitoring: “We found supplier pricing wasn’t consistent simply through dealing with different people at the same supplier, so we implemented systems to streamline procurement. On the fleet management side, through fuel and maintenance expenses tracking, we started identifying instances of abuse. By the end of 2012 and into 2013 we really started seeing the results of optimising expenditure.”
The value of mentorship
Seitebatso Rakgokong entered into the 2012 class of Property Point, a Growthpoint enterprise development initiative. Through mentorship, workshops and being supplied with tools for success, he was able to guide his business back to profitability.
He even took his book-keeper along to some of the workshops for immediate system implementation.
“Entrepreneurship is a lonely road. The team at Property Point were very supportive and the overall experience was highly beneficial.” In fact, Masedi-Electric-Serve won first prize for the class of 2012.
- Don’t take on clients simply because it’s work. Manage your capacity to avoid compromising your other projects.
- Refine your bidding process. Look at the quality of the client in terms of longevity, project size, and project requirements aligning with your strengths.
- Monitor project-specific costing. This will prevent too much subsidising that eats into profitability.
- Review your pricing when there’s a long interim period. Have prices between being awarded and commencing a project increased?
- Chase profit, not revenue. Rather go for a R10m project with R2m profit, than a R20m project for R1m profit.