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How Ephraim Mashisani Rose to the Top of His Industry

Ephraim Mashisani has built a R50 million company in four years. He reveals the challenges of operating in a highly commoditised industry and the smart tactics he’s deployed that have resulted in profit on every single project since inception, and ongoing sustainable growth of his business, Nyalu Communications.

Tracy Lee Nicol

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Vital Stats:

  • Company: Nyalu Communications
  • Player: Ephraim Mashisani
  • Launched: 2009
  • Turnover: R50 million
  • Contact: +27 (0)11 402 8546
  • VISIT: nyalu.co.za

 

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The Challenge

Nyalu Communications is a marketing and communications company that has expanded its printing capabilities to incorporate outdoor advertising, PR and promotions, branding and design, print advertising, brochures and any other kind of printed supporting material for campaigns.

Related: Why Your Product is Not the Solution

The print industry is deceptive; from the outside it looks like an easy, low barrier to entry industry, but the reality is that it is highly technical, extremely cash intensive, the equipment costs hundreds of thousands, sometimes millions of rands, and there are just a handful of big players who are well established.

All of this makes it a difficult industry to break into. It’s also highly commoditised, and very price dependent. This means price (and the lowest price) is a common but poor differentiator, and difficult to build a sustainable business on.

The Solution

Despite all of these challenges, Ephraim Mashisani has built a thriving company using very smart tactics that centre on monitoring every single cent, and knowing his industry – competitors included – inside out. Having launched in 2009 as a part-time, bootstrapped company, he’s had to be specific and smart every step of the way. This is how he’s done it.

As a BEE level 1 company do you go straight for big tenders?

No, we don’t participate in all tenders, we select the ones we can have an upper hand on because the processes are difficult and time consuming.

What we do find is that we supply to companies that have secured tenders but don’t have the expertise or facilities to fulfil their obligations – that’s where we come in. But we do have some contracts with government departments and some corporates.

Historically, we’ve found corporate very difficult to break into because they’re not held to the same procurement processes as the public sector – a corporate can easily say they’re happy with their supplier, but the public sector is dictated to by the PFMA, meaning they need to mix up their suppliers from time to time or face an audit query. That’s where you get your chance to pitch for business and prove yourself.

Nyalu Communications is incorporating more and more functions rather than going niche. What is the rationale?

Growth has been a fine balancing act of deciding which functions to outsource to small businesses and which to bring in-house. It all depends how the numbers work out and how reliable my supplier is.

Growth relies on having control of production and I learnt some hard lessons to that effect as an SME: I’d take information from my supplier at face value and take it to client, only to be caught between a rock and a hard place.

The supplier would run over deadline and say, ‘You’re welcome to take your business elsewhere,’ knowing I’d go to the back of the queue if I did. Whatever decision I made I’d still have to go to client with a story about why their delivery would be late.

Another problem with outsourcing to multiple suppliers is that consistency may be compromised – one supplier’s purple may be different to another’s.

So coming back to Nyalu and its growth, equipment is purchased, functionalities added on, or smaller businesses purchased so that we become a one-stop-shop with as much control as possible. As a recent example, I purchased a litho printing company (Xanadu Printing & Graphics) because I realised I was spending in excess of R1 million per month just to outsource magazine print work.

Related: 4 Money Mistakes Made by Businesses That Are Always Short on Funds

I already had 51% shares in the company to secure priority, but realised 100% ownership would bring in more revenue, work towards our one-stop-shop goal, and ensure quality and consistency across different printing systems.

As part of our growth strategy I also recently purchased CMT Machinery for custom-made corporate wear, bags and protective wear after I realised I was spending R200 000 a month outsourcing this work.

How do you avoid value leakage with increased functionalities?

I’ve made sure that I’m qualified in my roles and responsibilities. Where I don’t know things, I hire the best people in those fields.

The danger with embracing all things is that not having the right people will result in more damage than good to the company’s reputation. Here’s an example of how I avoid that: Car branding is very specialised and outside my expertise and you can’t just get anyone to do it, but it’s part of our offering, so I’ve taken on a company that specialises in car branding and I send them on regular training to ensure they’re up to speed with new techniques and materials.

Related: Win Customer Loyalty With an Unexpected Experience

But when I bring in a new division or buy a new company, there’s the inevitable uptake period to recuperate that initial investment. To weigh up the decision I check how much I spend in the particular field, and if I spend more than enough, I research the costs of buying these machines and bringing on the expertise.

I then have the option to continue outsourcing (provided they’re cheaper and reliable), to buy equipment and recruit employees from the field, or to purchase an existing small business. Whichever decision I go with, it’s always with long-term growth in mind.

Outsourcing can be cheaper, so how do you justify the higher price of bringing things in-house and what you can realistically charge?

Obviously you have to know your competition and how much they’re charging, but my pricing always hinges on quality. There are competitor prices I can’t compete with, but it shows in the quality of the final product. We did a job where we were asked to compete with a well-known competitor who I know uses a Chinese model machine that costs around R300 000 and his inks cost next to nothing, whereas my machine is a latex printer that costs around R3 million and three litres of ink cost R5 000. But it’s clear which is which.

I don’t get into price wars. When giving a quote we always offer a sample made at our own expense which inevitably forces the competition to do the same. When clients say our prices are too high for them, the minute they get the mock-ups in their hands and they know what we’re charging them for, they know who to give their business to. Yes, our prices are a little higher, but they’re informed by what’s involved.

Even when competing against inferior quality, we don’t overcharge. In fact we cap our margin at 30% and most jobs fall into 15% to 20% because we work on volumes. We’re more expensive than some, but more competitive than when middlemen are involved.

You’ve made a profit on every single project since you started. How have you achieved this?

I’m exceptionally careful about tracking costs and touch points to complete a project. Every single quote and invoice comes through me before it goes to client and because I’ve been in the industry so long I can pick up errors or anomalies at a glance. I also always have the invoice from the supplier at hand when checking as it prevents mistakes.

But from an internal perspective, you have to consider the time and labour that goes into a job and what it’s costing you. It’s the little things like the time taken for folding and bagging a T-shirt that adds up as you need to buy the plastic bag and pay for the labour.

We had an instance where a client brought in his own T-shirts, wanted them branded, put in plastic bags and then in nice branded boxes (which are expensive, around R5 to R6 each). He then told us we were being unfair to charge for the boxes! By working out every touch point of a project I’m able to determine what it’s costing the company and factor in a 15% to 20% margin.

Even if I’m doing a job for free as a favour, I’ll let them know how much it would have cost – from designing to printing, packaging and finishing – and that goes into our books.

How do you leverage your finances to grow the business?Ephraim-Mashisani

Like a lot of young businesses, I battled to get finance from banks, so most purchases were made in cash. I’d identify a machine, save for it and then buy it a year down the line.

There’d then be a lag time of up to nine months before I had enough capital again to fund big projects that would pay for the machine. Fortunately, we now appeal to banks and it’s easier to access finance. So we finance our purchases and retain our capital to put the machine to work immediately or have it earning interest elsewhere.

It’s critical we have strong working capital as often orders come in on a Monday with a Friday deadline. We’d miss the deadline if we had to apply for finance, especially because some clients can’t even pay a deposit for their jobs.

Related: Why Your Self-Imposed Limitations are Blocking Innovation

For example, a client can give us an order for R5 million without a deposit and then we still have to wait another 60 or 90 days after delivery for payment. This is another reason why we finance the big machines and keep working capital at hand.

With such a long wait for payment, how do you manage your cash flow and ensure payment?

It’s so important to chase and check. Very few clients are ever on the ball and pay on time. We’ve hired a person whose sole responsibility is to chase clients from the 15th of each month by following up on invoices, sending statements, and getting verbal confirmation that they’re on track for payment.

This helps the business because we get a better understanding of our financial status for the month, which then determines whether we must source money elsewhere for salaries and suppliers. We then look to our creditor’s book to see who owes and collect enough money to cover all the costs of the month.

How do you decide who your clients will be, especially if they’re late payers or default entirely?

We don’t want those kinds of clients as it costs us time and money to keep chasing them for payment, so we’re managing our existing debtor’s book and have implemented a policy of putting all new clients through a vetting process with a credit controller company called Credit Guarantee.

They vet new clients on our behalf, determine the client’s credit limit and insure it. If a client defaults, at least we’re covered and it becomes Credit Guarantee’s problem.

How this tactic also helps is that if Credit Guarantee covers a client for R100 000, we then only do jobs up to R100 000 for that client. If their order is larger, we request the excess in cash up-front.

As your company grows how do you manage staff to maintain production quality?

With unskilled labour, you can get those who don’t care that they’re not sticking a label on a bottle straight, so to ensure the quality of all our jobs we’ve got a tiered system of leadership.

My operations manager oversees everything and reports directly to me – she’s very experienced and acts as my eyes when I’m not around. She has a team of production managers who manage their departments. We meet with them daily to look at workloads, challenges and outputs. Every production manager also has a team leader who serves as quality controller, checking quality and quantity.

Once the quality and quantity check is done at a departmental level, it gets sent to dispatch. Here we have a dispatch manager who’s very strict and stubborn as a result of past lessons with clients who would question why their delivery of 50 T-shirts actually amounted to 45. So this dispatch manager literally counts everything going in and going out.

It doesn’t matter if it’s 5 000 water bottles – he’ll count them until he’s satisfied and then records it in Pastel. He then gets the client to sign. This brings all the departments together and ensures the final order is correct. I believe that quality checks and quantity checks go hand in hand. Leakage of 15 shirts per 1 000 doesn’t sound like much but it adds up.

How do you find the time to plan for growth in your company?

All industries operate in cycles, and printing is no exception. But instead of scrambling for business when times are slow, I take that opportunity to think strategically about what operations I can bring in-house.

I always like to be challenged, to tell you the truth. In quiet times I’m able to identify where we have gaps in our offering. The minute you sit and relax, you get used to the situation and things become normal to you.

How do you market your new purchases to drum up business that will pay for it?

Whenever we buy a new piece of machinery, whether it’s bigger, faster or completely new, we send out emails to clients to show off our new acquisition and what it can do. We then invite them to come over and take a look at it. It’s fascinating how that alone drums up excitement and turns into business.

What does the future hold for Nyalu’s growth?

We’re in a great position now that we’ve developed a sound reputation, have the expertise and capital to take on big projects, and are established enough and able to leverage our BEE status to target the sector.

Related: 6 Secrets to Making Business Decisions That Get Results

Tracy-Lee Nicol is an experienced business writer and magazine editor. She was awarded a Masters degree with distinction from Rhodes university in 2010, and in the time since has honed her business acumen and writing skills profiling some of South Africa's most successful entrepreneurs, CEOs, franchisees and franchisors.Find her on Google+.

Business Landscape

4 Vital Differences Between King III And King IV™ On Corporate Governance

April 2018 marks a year since the effective date of the IoDSA’s (Institute of Directors in Southern Africa) latest report, the King IV Report on Corporate Governance ™ (King IV™), on effective and ethical corporate governance.

Ilana Steyn

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What is the King Report?

If you’re not familiar with the King Reports: it’s a series of reports that translate international standards and big-time happenings on corporate governance into set of local principles. Each new Report replaces the former.

The aim of the King Report is to set up actionable principles for South African company leadership to act as modern, good corporate citizens.

It also ensures those in leadership positions act in the best interest of the company and all parties influenced by the company. The first Report, King I, published in 1994, and was the first officiated document of its kind in South Africa.

Why is it useful to my business?

The Report also promotes transparency within your company’s leadership to ensure transgressions aren’t hidden that will eventually damage the company.

Related: South African Millennials Key To Enforcing King IV

The Report also ensure blunders can be evaluated, found and corrected ASAP. Today, its mandatory for all JSE listed companies to implement the Report into their company policy. If you’re a smaller business or a non-profit, you can comply with the Report voluntarily; by applying the principles you’re essentially ensuring the long-term sustainability and survival of the business.

It also helps that create a healthy corporate culture and when your business’s foundation is healthy, growth is unthreatened. If you haven’t applied any of the former Reports in your business, you’re in luck; King IV™ is the simplest, and seemingly the most practical, Report in the family of four reports.

Why was King IV™ needed?

Companies, especially smaller businesses, often struggled to apply the King III due to its long-winded structure.

Also, King IV™ was needed because King III, published in 2009, was out-dated in terms of present-day concerns like technological advances, the increased need for online transparency, long-term resource sustainability and information security.

Here’s the rundown of the most significant differences between King IV™ and King III.

1. King IV’s™ structure is much simpler to apply

While King III did a good job of summarising the extensive scope of effective and ethical governance into 75 principles, the Report still lacked clear guidance on real-world application.

Ensuring the effective incorporation of all 75 vague, ethical principles was too exhaustive for most companies to implement, monitor and account for. That’s why King IV™ took a different structural approach.

King IV™ boiled good corporate governance down to 17 simplified principles, each supplemented with various recommended practices to make it easier for smaller companies to implement the principles within their day-to-day running.

2. King IV™ spotlights practical implementation

King III lists multiple ethical principles and then commands companies to explain how their management and actions honour those principles.

Unfortunately this meant companies approached it like a mindless compliance checklist.

King IV™ also states principles, but more importantly, requires organisations to actively report on the implementation of the recommended practices thereof.

Mervyn King, the chair of the King Committee, dubs this the shift from a “apply OR explain” mentality to a “apply AND explain” mentality. The Report also allows organisations to report on alterative-implemented practices – provided they support and advance the principle.

To make the application simpler to grasp, King IV™ clearly differentiates between the long-term Outcomes, the ethical Principles and the recommended Practices.

Essentially the new structure and its requirements mean companies have to engage in thoughtful implementation and reporting of those practices.

Related: 5 Thoughts To Give You The Courage To Make Change

3. King IV™ is inclusive to more than just large companies

After King III, there was a significant demand for the inclusivity of smaller businesses, and governmental or non-profit organisations in the King Report.

Consequently, King IV™ dedicates an entire supplement chapter to guiding municipalities; non-profit organisations; retirement funds; small and medium enterprises and state-owned entities in the implementation of the Report.

Also, where King III used terms like “companies” and “boards”, King IV™ very purposefully uses more inclusive terms like “governing bodies” and “organisations” throughout the report.

It’s clear that King IV™ aims to move the principles on good corporate governance into real-world action – for all organisations.

4. Difference 3: King IV™ pushes for more accountability, transparency and reporting

What King IV™ does quite differently from King III, is recommending the application of its principles within set timelines, reports and committees within it’s recommended practices.

King IV™ strongly propagates transparency, the delegation of responsibility and the implementation of accountability by putting pen to paper in term of officiated aims, bodies responsible for those aims and the provisions of consistent reports.

Take leadership as an example, where King III would just stipulate what being a good leader means, King IV™ advises you to set goals, delegate responsibility and evaluate progress through reports and accountability.

An example would be to set up a committee, consisting of lower management levels, with clearly identifiable responsibilities and then to measure their progress via reports.

It comes down to the ignorance no longer being a valid excuse. Directors should be aware of all issues within your company.

Directors should take responsibility for everything that happens within their organisation – you can’t plead innocence on the grounds of not knowing. There should rather be reports in place to identify and uncover any discrepancies early on.

Essentially, where King III lacks in the aim of ensuring the actualisation of good corporate citizenship, King IV™ steps up the game.

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Business Landscape

How Economic Crime Is Impacting Business In South Africa

77% of SA organisations have experienced economic crime and CEO’s and boards are increasingly being held accountable for economic crime.

PwC

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South African organisations continue to report the highest instances of economic crime in the world with economic crime reaching its highest level over the past decade, according to PwC’s biennial Global Economic Crime Survey.

South African organisations that have experienced economic crime is now at a staggering 77%, followed in second place by Kenya (75%), and thirdly France (71%). With half of the top ten countries who reported economic crime coming from Africa, the situation at home is more than dire.

The Global Economic Crime and Fraud Survey examines over 7200 respondents from 123 countries, of which 282 were from South Africa.

The rise of economic crime

Trevor White PwC Partner, Forensic Services and South Africa Survey Leader, says: “ Economic crime continues to disrupt business, with this year’s results showing a steep incline in reported instances of economic crime. At 77% South Africa’s rate of reported economic crime remains significantly higher than the global average rate of 49%. However, this year saw an unprecedented growth in the global trend, with a 36% period-on-period increase since 2016.”

Related: PwC Focus On Sugar Tax

Economic crime in South Africa is now at the highest level over the past decade. It is also alarming to note that 6% of executives in South Africa (Africa 5% and Global 7%) simply did not know whether their respective organisations were being affected by economic crime or not.

While the overall rate of economic crime reported was indeed the highest for South Africa, the period-on-period rate of increase for South Africa and Africa as a whole was below that of our American, Asian and European counterparts.

Global indicators of a rise in economic crime

From a regional perspective, the biggest increase in experiences of economic crime occurred in Latin America, where there was a 25% increase since 2016 to 53% in respondents who indicated they had experienced economic crime. The US was a close second with a 17% increase over 2016 to 54% of respondents, while Asia Pacific and Eastern Europe experienced increases of 16% and 14%, respectively.

Asset misappropriation continues to remain the most prevalent form of economic crime reported by 45% of respondents globally and 49% of South African respondents. While the instances of reported cybercrime showed a small decrease in the South African context (29% in 2018 versus 32% in 2016), it retained its second place in the global rankings (31%) albeit at a lower rate of occurrence than 2016.

One of the new categories of economic crimes was that of “fraud committed by the consumer”.

It is the second most reported crime in South Africa at 42% and takes third place globally at 29%. This was followed closely by procurement fraud (39% in South Africa versus 22% globally). This indicates that the entire supply chain in SouthAfrica is fraught with criminality.

Related: PwC: Pria Chetty

When combined with the high instances of bribery and corruption reported (affecting more than a third of organisations at 34%), the resultant erosion in value from the country’s gross domestic product (GDP) is startling. Accounting fraud, which is usually perpetrated by senior management and results in the largest losses, increased from 20% to 22%.

Accountability of the board

Accountability for fraud and economic crime has moved into the executive suite, with the C-Suite increasingly taking responsibility, and the fall, when economic crime and fraud occur.”

The survey shows that almost every serious incident of fraud has been brought to the attention of senior management (95%).

85% of South African respondents indicated their organization had a formal business ethics and compliance programme in place.

In addition, 20% of local respondents indicated that the CEO (who is part of the first line of defence) has primary responsibility for the organisation’s ethics and compliance programmes, and is therefore more instrumental to the detection of fraud and the response to it.

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Business Landscape

PwC Focus On Sugar Tax

The proposed sugar levy is unlikely to make sizeable dent in fiscal deficit, but the Sugar Beverage Industry is offering a helping hand to reduce obesity.

PwC

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PWC

In 2016, the National Treasury announced a Sugar Beverage Levy (SBL) on sugar-sweetened beverages (SSBs) scheduled to take effect April 2018. The aim of the levy was to prevent and control obesity in South Africa, but key industry players also viewed it as a potentially significant new source of revenue that could help plug the growing fiscal deficit.

The fiscal deficit has been widening as National Treasury faces slow economic growth and a shrinking tax base. Initially estimated at 3.1% of GDP, fiscal deficit projections increased to 4.3% of GDP in October last year.[i]

However, official data suggests the deficit already reached R195 billion in the first 8 months of the 2018/19 fiscal year, so it could amount to approximately R250 billion, thereby exceeding Finance Minister Gigaba’s October projections by 25%.

The levy has undergone various changes since it was first announced.

When the levy takes effect in April this year, it will amount to 2.1 cents per gram of sugar per 100ml, above 4 grams per 100ml.

This is down from an initial 2.29 cents per gram of sugar with no exempted amount.[ii]

Related: Silver Linings For Smaller Businesses In Budget 2018

Our estimations suggest the tax burden is approximately 10% given current levels of sugar content, down from approximately 20% previously. In addition, industry has recently reacted to the news of the SBL, reducing the sugar content of popular beverages by including non-nutritive sweeteners.

In addition to efforts to reformulate, the industry introduced smaller bottle sizes to curb excessive sugar consumption and limit the excise tax burden.

SBL excise revenue estimations

We estimated that in a scenario in which the beverages industry makes no change to the sugar content of SSBs, the levy would result in an estimated R1.5 billion loss in sales revenue and a R 1.4 billion excise revenue gain for government.

However, a reformulation by industry would result in a lower loss in sales revenues of only R1.07bn and lower than expected excise revenue gain for government of R990mn.

Given the estimated fiscal budget deficit of up to R250bn, additional revenues of between R990mn and R1.4bn are unlikely to make a significant dent in plugging the deficit and could support the assertion that the levy will focus on curbing sugar consumption rather than providing significant additional revenue inflows.

In our quantitative analysis of the proposed tax on SSBs, we use the PwC Economic Impact Assessment Model to derive the potential impacts, based on a 10% sales reduction calculation due to potential excise driven price changes.

Although excise revenues are expected to increase, other tax revenue streams are likely to experience a decline. Not considering excise impacts, the prospective tax revenue loss stemming from reduced sales revenues and showing in lower VAT, corporate income tax (CIT) and personal income tax (PIT) could range between R363 million and R518 million in the reformulation and non-reformulation scenarios, respectively.

Related: 4 Budget Speech 2018 Outcomes To Know For Your Business

Therefore, the net impact on estimated tax revenue combining the implications for excise tax, VAT, CIT and PIT revenue would only range between R631 million and R856 million, subject to which scenario is implemented.

It is unclear whether the SBL levy will assist in reducing consumers’ sugar consumption. However, industry facilitates lower sugar consumption by reducing bottle sizes and through reformulation.

Smaller sizes nudge consumers to lower sugar consumption

In addition to reformulating popular SSBs, the beverages industry has altered the size of the 500ml buddy bottle to 440ml, potentially nudging consumers to reducing their sugar consumption.

The move to the 440ml bottle represents a 12%[iii] reduction in size and means that sugar content fell from 53 grams in the 500ml bottle to 46.6 grams in the 440ml bottle.

The implementation of the new levy could still result in an approximately 61 cent increase in the price of the 440ml bottle.

It remains to be seen how South Africans will react to the current and impending price change of SSBs and if the SBL can indeed assist in reducing obesity. It is clear that monitoring and evaluation are key tools to help government and industry understand the effectiveness of this initiative to prevent and control obesity in South Africa.


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