Finance for a new business is almost impossible to secure, which is why Metacom founder Réan van Niekerk went the bootstrapping route when he launched his communications business in 2002. The technology architect and serial entrepreneur had to sell a stately house in Constantia and move to a much more modest home to fulfil his dream of providing machine-to-machine and business-to-business communication services for the South African market.
“It was my sincere interest in making people and machines talk seamlessly to one-another in an interconnected world that helped me get the business off the ground,” he says. “There’s very little venture capital available and financial institutions won’t even talk to you if you can’t show a few years of actual cash flow. I started the business alone, with my money, and grew it slowly at a controlled, regulated pace that was enabled by bigger and bigger deals.”
Van Niekerk secured his first big customer 18 months after starting Metacom. He had brought in a number of small contracts over that time, but the first major deal was a specialised communication system designed for Eskom. Today that system is installed across South Africa and enables the monitoring, control and supply of electricity distribution throughout the country. It’s been so successful that Namibia’s national power utility Nampower also signed with Metacom to install the system last year, enabling a level of visibility and control that would be impossible otherwise.
Although Metacom was originally built on cell-based communication, today the company integrates all forms of communication into a single cloud. Customers have direct high speed access to its cloud and from there they can communicate with any of their locations anywhere in the world, utilising Metacom’s VPN, through any device, irrespective of how it connects to the VPN.
“What sets us apart from competitors is that we do our own product development and engineering,” says Van Niekerk. “That means the IT belongs to us and we are able to adapt it according to the needs of very specific business, financial and industrial niche markets, which make up the bulk of our clients. Even when there is competition, we can sit across the table with our clients and say to them that we are the organisation and engineers behind our products, and that we are directly responsible for the operation and functionality of each solution. There are no third parties to deal with. That gives clients a high level of confidence in our systems.”
Metacom focuses the bulk of its efforts on existing clients. They buy products and pay a monthly fee for the use of the communication infrastructure and the services offered on top of that. It’s this regular annuity-based
revenue that has enabled the business to grow every month for the past eight years, says Van Niekerk. “Recurring income has been critical to our growth. Economic slumps can hit entrepreneurial business hard, but we have managed to escape the effects of the recession.
Our revenue goes straight back into the business, with an additional amount going into product development and engineering to ensure we are always ready for the future.”
One of the challenges of the local market is that although it’s small, customers expect first-world solutions and products. Van Niekerk says this requires entrepreneurs to think very cleverly and smartly when they take solutions to market. They have to do more with less.
The company achieved its 30% year-on-year growth target in 2011 and looks set to do it again this year on the back of new products and services. Van Niekerk is also planning to expand Metacom’s footprint in Africa where it currently operates in 10 countries.
He attributes much of the company’s success to extremely careful financial planning and meticulous execution, as well as the ability to adapt to external factors. “Entrepreneurs are known for having the ability to fly by the seat of their pants,” he says. “This is an important skill, but it’s equally important to plan to perfection and then execute according to the plan. That way you are always able to measure and monitor progress.”
As the business has grown, people have become Metacom’s most important asset.
“Being an entrepreneur is incredibly hard work. You are on your own, so you must have enormous belief in your own capabilities and those of your team. It’s crucial that you employ extremely selectively and build an environment in which people can work and thrive. We made a few mistakes when we had to get people on board very quickly. For the past three years we have had an HR manager who has fine-tuned our recruitment process. It includes psychometric testing, and multiple interviews to enable us to properly assess the character and personality of every prospective employee.”
Slow and steady does it
A predictable, growing revenue stream creates loyal customers and helps sell products and services for Metacom.
In today’s climate, technology businesses are always looking for ways to create a continuously growing revenue and profit stream, also known as annuity revenue, while creating loyal and engaged customers.
Annuity revenue is a predictable stream of revenue and profits derived from a wide variety of sources. They are a part of the company backlog, are generated from an increase in customer satisfaction and loyalty, and in many cases they differentiate one company’s products and services from the pack.
Here’s how discrete product revenue compares with annuity revenue:
Discrete product or service – a stand-alone sale to either new or repeat customers and unlikely to be repeated for a number of years.
Annuity revenue – a predictable revenue stream from new or existing customers who buy products and services associated with new or previously purchased products. Many times this term is used in conjunction with value added services.
Annuity sales have a number of significant advantages:
1. Some annuity services can be included with the initial purchase:
- Solution selling makes the overall sale easier.
- Financing may make the sale possible.
- Value added services can become a competitive lockout differentiator.
2. Lower selling costs, since the prospect is already your customer, or will soon become one. There is therefore no need to begin establishing a relationship.
3. Your total revenue stream will be more predictable or consistent.
4. Your customer relationships move to a higher level and your business therefore enjoys the benefits of increased recommendations, repeat purchases and higher margins.
Player: Réan van Niekerk
Contact: +27 (0)21 531 9900