- Player: Fatima Vawda
- Company: 27four Investment Managers
- Affiliations: On the board of the Association of Savings and Investment South Africa (ASISA), and the reporting working committee of the Financial Sector Charter Council.
- Est: 2007
- Visit: www.27four.com
South Africa has a unique business environment. Broad-Based Black Economic Empowerment (B-BBEE) has created opportunities for small black businesses that many other small and mid-sized businesses around the world don’t have. However, B-BBEE has also added layers of complexity to doing business in South Africa.
Many traditionally white-owned businesses have viewed these changes as stumbling blocks, when in fact, with the right mechanisms and strategic focus, B-BBEE offers opportunities to everyone, black and white alike. The goal is to build and support a rich, diverse economy in which SMEs play a vital role. When the economic foundation of a country is strong and stable, everybody wins.
Fatima Vawda founded 27four Investment Managers in 2007. 27four is an asset management firm that historically only managed money in the listed market, including the JSE, South Africa’s bond markets and global markets.
However, Fatima’s goal when launching the firm was to spearhead change, not only in the asset management space, but the South African economy as a whole. She wanted to be on the ground floor, impacting the transformation of her industry as well as her country.
Fatima’s first focus was on her industry. After 12 years in the asset management industry, Fatima started 27four with no money and no client base — but she knew she’d be a first mover in the market in terms of transformation. Today, 27four employs 60 staff members, including some highly skilled entrepreneurs, and has incubated 32 black asset managers who have since created 600 jobs. Just over a decade ago, black-owned asset management firms didn’t exist. Today they manage R415,5 billion rand of a R4,9 trillion investment and savings industry.
“We still have a long way to go, but we’ve already seen incredible change. The main value proposition I brought to market 11 years ago was that the asset management industry was largely untransformed. The entire industry flowed through white asset management firms. You could count on your fingers the number of black asset management professionals that were actually managing money within those firms, and no independent black asset management firms existed. Through 27four we established a black asset management incubator programme that looks for asset managers who have experience in the market, but who are also entrepreneurial and can run their own firms.”
Through the incubator, 27four places start-up managers, who then become emerging managers, mature managers, and finally graduate and exit the incubator when Fatima’s team feels they can compete with the industry’s incumbents. Once they exit the incubator, they become a part of 27four’s mainstream portfolios. For example, the first company 27four incubated was Mazi Capital, giving them their first R150 million to invest.
“Today, they are a R45 billion asset firm, have won multiple awards and employ more than 50 people. We afford them the same respect as we give to an Old Mutual or Coronation,” says Fatima.
“Many institutional pension fund investors don’t want to have all their eggs in one basket — this gives them diversified exposure. We essentially create a diversified pool for them.”
The incubation programme is helping Fatima realise her vision of a transformed asset management industry, but the next step was helping the economy as a whole grow and prosper, while still supporting B-BBEE codes.
The investment perspective
According to Fatima, there are strict criteria governing the funding of black business growth in South Africa. “It should go towards black-owned and controlled businesses, from start-up enterprises all the way to mid-market companies, to support the growth and development of these enterprises,” she explains.
“Ultimately however, if we look at funding for black business growth, it all comes down to the fact that we need to support enterprises to create more jobs to fuel the economy. If we’re able to create a cycle of positivity, job creation will naturally follow and business confidence will increase. When business confidence increases, economic growth improves, the commercial and industrial sectors pay more taxes to the fiscus, and there’s more money in the kitty to pay for healthcare, education and service delivery. It’s win-win for everyone.”
With this view in mind, 27four has launched a Black Business Growth Fund that offers real opportunities for mid-sized businesses to grow, regardless of the current B-BBEE ownership status of the business pre-funding.
27four’s Black Business Growth Fund has a clear focus on industrialisation and job creation. “The fund’s focus is on mid-market companies looking for capital outside of the formal banking sector. This is typically a private equity-type capital that allows them to expand and to grow. Through our fund, we can support these businesses, while also introducing a BEE shareholding into them.
“Because BEE legislation says that if you are a black private equity enterprise, you can transfer your BEE ownership to the underlying enterprise, as 27four we are able to provide debt and equity solutions to the businesses we invest in, while transferring our BEE ownership to them.
“For example, if we find a fantastic white business that’s innovative but struggling to gain access to market because they don’t have the necessary BEE points, we can assist them. In our experience, most of these businesses want to transform, but find it very difficult to do that as a white owner. We’ve also found that there are thousands of really, really good family-owned businesses that have been successfully operating for many years, but are now suddenly kicked out of the cycle because they don’t have the necessary empowerment credentials. They want those credentials, they’re wanting to transform and create jobs, they’re committed to the South African economy, but the avenues do not exist to allow them to be able to transform.
“When our managers invest in these businesses they prefer to take black equity ownership in them. This gives them the BEE credentials they need and also ensures that we’re committed to their success because we have skin in the game.
“Once our managers have invested in a business they have regular meetings and engagements to ensure all management accounts are up to date, establish what the deal pipeline looks like, and so on. These businesses have first-hand access to a very skilled team and their expertise to ensure the business is strategically heading in the right direction.”
This is a mid-market fund, which means 27four is typically looking for businesses in the R100 million plus turnover range that are looking for growth opportunities. “The type of investors in the Black Business Growth Fund are pension funds. These are investors who want to earn an investment return, but also ensure their return is generated from doing good, contributing towards job creation, industrialisation, environmental and social changes. In addition, many institutional investors have so much money on the JSE, this value proposition provides them with an opportunity for investment returns uncorrelated to the listed market. They’re basically taking some of their allocated funds and putting them towards investments that are uncorrelated with global markets. If there’s a stock market crash, these returns will not be affected by it in the same way as listed returns will be.”
The lesson: Investment teams are always looking for deal pipeline. Throughout the private equity industry, deal makers and transactional people are looking for opportunities, and many of these come from word-of-mouth referrals. “We’re always talking to experts within the field, from SAVCA (the South African Venture Capital Association) to communities associated with SAVCA, business organisations and other experts in our network.” The lesson is simple. If you’re looking for investment, or you know that in the near future you will be, it’s important to start building a network that knows you, your business and what your growth goals are.
“Find people in those spaces to network with. Talk to them and find a fund that suits you. Often, it’s the fund that finds you because you’re having the right conversations with the right people.”
The second key point to consider when it comes to investments is what the investor’s due diligence will entail. “Due diligence is about identifying if this is a sound investment opportunity,” explains Fatima. “At this level we are looking for investment growth, because we need to deliver a return to the investors coming into the fund, and we’re looking for stable, good management in those businesses that will result in growth. This includes good free cash flow, sustainability in terms of their underlying client base and long-term contracts as well as looking at any motes that they may have: What are the barriers to entry in their market, what is their differentiator and so on.”
If you’re looking for investment, or you know that in the near future you will be, it’s important to start building a network that knows you, your business and what your growth goals are.
What A Grade 1 Sticker Business Taught Me About Business
It’s the very fundamentals that are frequently overlooked amid ambition and “blue sky thinking” – yet, these remain the most crucial element of any business.
When I was a kid, my father believed that instead of getting pocket money, my brothers and I should learn how to make money. Stickers were the school craze when I was in Grade 1, and we wanted a collection for ourselves, so Dad said if we wanted to buy the stickers, we needed to make the money. So, logically, we started a sticker trading business. Dad gave us the start-up money and took us through the basics of business.
We had a cash float for purchases, and learnt about cost price, mark-up and selling price – very basic accounting. We kept recycling that money, making extra and using it to buy more stickers. Then we worked out that if we increased the mark-up, we’d make a bigger profit – so why not make the mark-up as big as possible? The obvious happened. Our prices were too high, and we lost customers.
Valuable business lesson learnt, we came back down to a mark-up that other kids were willing to pay for.
More lessons to learn
Then people came to us and asked if they could take a sticker today and pay us tomorrow. We saw no reason not to trust them. Guess what? They didn’t pay us back. We had bad debt on our hands. When we sold out of stickers, we had cash-flow issues and couldn’t buy more stock. Dad was there to help us out, though, so we received another capital injection to get back off the ground. And this time, if we did extend credit, we loaded it for the privilege of “buy now, pay later” – another lesson learnt.
We ran a proper ledger for the business, tracking our inventory, sales and profit. Even if our “bank” account was a piggy bank, we had a clear record of what was going on. When I look back on it, none of what I learnt was irrelevant.
Today, I run a leading financial services company with billions of rand running through our bank accounts. Even though the finances of the business are run on a much larger scale, the principles of business – those basic principles that we learnt trading stickers – still power our company. And when I see entrepreneurial ventures failing, or when friends come to me for advice because their business is struggling, it’s almost always because they haven’t got these basics right.
One of the most important lessons I’ve learnt is that if you don’t fully understand how the money is being made, walk away. Whether you are dealing with stickers or financial services, the business principles should be straightforward: money coming in, money going out, and profitability.
Every day, I look at an Excel statement of my company’s forty bank accounts. Every day, I look at the cashflow, and unusual big-ticket items get a note so I know what’s going on. It’s just like that Grade 1 business, only on a bigger scale.
Once the other kids saw the success of our sticker business, they started to want to get in on the action, so they came to market with their own competing products. At first, we were able to innovate as the competition squeezed our margins and started to impact on our profits. Eventually, the whole situation got completely out of hand and the school banned sticker trading for profit.
While I didn’t become a sticker magnate, the lessons I learnt in Grade 1 remain central to every business I am involved with – get the basics right.
How To Handle A Director Who Always Says No
Diverse opinions on a board is a good thing — but is it boosting your business, or hindering growth and decisions?
Do you have that director on your board who always says ‘no’? Regardless of what the issue is, regardless of the context, who raises it or whether or not it is indeed a good idea, their response is either a simple ‘no’ or an elongated perspective on why they disagree? It can even feel at times that they are actively working against the company and against the board. Although they obviously do not see it that way.
Experienced directors will have multiple war stories related to this subject. Aspiring directors should be aware of how to approach these situations when they arise and how to avoid becoming the subject of such stories.
Develop a culture of trust, candour and professionalism
A board’s conduct must be characterised by trust, respect, candour, professionalism, accountability, diligence and commitment. It is the board’s collective responsibility to build this culture and to engage with one another in a productive and effective way.
Dissent should be welcomed when it is constructive and engaging. The idea of being the ‘devil’s advocate’ for the sake of it however, is not the best way to approach this. Dissent should be based on a real belief that the issue has not been fully debated or creates a real challenge for the company going forward.
If you have a director who genuinely believes a different path is right for the company, hear them out and engage in the discussion. In my experience, this often opens up an issue or changes a detail that when taken as part of the whole, improves the decision-making outcome for the board and the company.
Related: Contributing In The Boardroom
Remove the politics from the boardroom
At the heart of this issue is often politics. Politics between directors, who are also shareholders or executives. Politics between the ‘new guard’ and the ‘old.’ Regardless of the genesis, politics really do not have a place in the boardroom and directors who engage in it should be called out by the chairman or another senior director.
In local government I have heard stories of councillors who always vote ‘no,’ so that whenever something goes wrong, they can say “I told you so,” and show the public why they should be re-elected. But that is indeed politics. The boardroom is a very different space. It is private and discussions should be confidential.
Board rotation, a simple solution
While the removal of an errant director should never just be left to resolve itself, there is a simple solution that can support the easy removal of the most difficult directors. The challenge is that it requires forward planning prior to the appointment of any new director.
Directors should only ever be appointed for a predefined term, with automatic rotation at the end of that term. This does not stop you from reappointing a director for a further period. It is, however, always easier to ask someone to consider a further term than it is to tell them that their time has come and they should resign from the board.
Having a predefined term for a director essentially ensures an automatic resignation period. A simple rotation policy for directors is not just good governance, it is a practical step you can take to provide a way out of a sticky relationship.
Ultimately the board as a whole must address issues that detract from the board fulfilling its function as and when they arise. A rotation policy might provide an effective backstop. A high-performance board is one that will tackle the issue head-on.
Read next: How Diversity Drives Board Performance
The Power Pose: Using Body Language To Lead
Use the way you move and stand and interact with others to become a better entrepreneur and leader.
In 2012, the power pose became a global sensation. A Ted Talk by Amy Cuddy hit a staggering 46 million views and became the second most popular Ted Talk in history. The premise was simple – hold a powerful pose and it will not only affect the way you behave but it will even change your body chemistry. Since the talk, the power pose has met with heavy criticism and been labelled as nothing more than pseudoscience. Fortunately for believers, they were proven right. Amy Cuddy released further research this year and it fundamentally proves that this bold stance works exactly how she said it did back in 2012.
The power pose isn’t something that you’d adopt in a meeting or around the office but the science behind it shows how important it is to pay attention to your body language as it can fundamentally change how you are perceived.
Notice how you are noticed
People spend a lot of time reading one another’s body language and the way a person stands or holds their hands or moves can influence how others see them. It’s very natural to judge someone else’s posture, but what about the way they are judging yours? Few people look at how their body language is affecting the way people engage with them.
So, what are you supposed to do?
Fake it until you make it
Want to know how can you adapt to become a better leader? You can fake it.
The power pose isn’t the only way to change your mood. Research has shown that whether you laugh naturally or put on a smile and make yourself laugh, your body still releases the same levels of serotonin.
Whether you are really laughing or just pretending to laugh doesn’t matter – they both have the same impact on your demeanour.
Change how others see you
Think about the pose that every athlete adopts when they win a race or achieve something that’s been physically taxing. They hold their hands outstretched in the air. Even blind athletes hold the same pose. It’s big, it’s bold and it’s a physical manifestation of success.
Now consider the defensive pose. The tight hunched shoulders or inward curve of the spine. These poses immediately make a person look nervous, afraid and lacking in confidence. Like the porcupine curling in on itself for protection.
The same ideas apply to daily business life. While the power pose and the athlete pose are not necessarily a team activity, ensuring that you hold your body upright and with confidence means that you’re conveying an attitude of strength. You come across as confident and capable and positive. You are ready to take on anything and overcome the odds.
By contrast, if you are hunched and withdrawn, you come across as nervous and lacking in confidence and these are not the qualities you want associated with you as an entrepreneur and a leader.
Body language for entrepreneurs
- Shake hands like a hero. The way you shake hands with someone is very significant in terms of establishing equality. Be even, be firm but don’t pull people towards you or turn their hands under your own. This makes them feel like you are trying to establish dominance.
- Create an atmosphere of openness. Maintain eye contact, say hello to people with warmth while holding a strong posture. A warm and open greeting is essential to establishing trust.
- Do the power pose for two minutes before any meeting or interview. This will get those chemicals stirring and make you feel confident and in charge.
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