Google a company called Motion and you’ll find news articles with headlines declaring “massive growth” and interviews recounting how Motion aggressively penetrated an already saturated market.
Yet type in the URL and the website of the company – once billed as South Africa’s largest multibrand office automation supplier – and it cannot be displayed. Motion, which in September this year had 350 employees and 13 offices nationwide, is no more. Entrepreneur investigates what went wrong.
In August 2007, the first time I went to Motion’s head office in Bryanston, I remember driving past a huge billboard advertising the company in vivid red. Quite impressive for a business that supplies printers and copiers, I thought.
Shortly thereafter I reached its head office, a striking building with landscaped grounds and a stylish, calm interior complete with plasma screens and piped music. Its founder, 37-year-old Brett Furlong, was cheerful and confident, informing me almost immediately that he had started the business in 1999 and built it by hiring only the best people. Furlong had been working as a salesperson in the office automation sector for over four years when he decided it was time for a change because, he said, he wanted something new.
“You can’t continue to do the same things and expect something different to happen. I knew that there were opportunities out there and I wanted to grab them.”
He bought into a franchise and became a single brand vendor on Johannesburg’s West Rand. “I had no access to finance and being a typical salesperson, I had the car and the boat, but no fixed property with which to secure a loan. To get the business going I maxed my credit card.
That kept me, my partner and our receptionist afloat for a week or two until we closed our first deal, which came about as a result of a referral from a neighbour.” From that point on, he funded his business’s growth through trade, continuously ploughing profits back into the company.
Furlong kept the franchise going for a number of years, but he realised that he was not going to achieve the level of growth he wanted. “We were confined to a small area which we had saturated, the margins were extremely conservative, and for every machine we sold, we had to cede the service contract to the principal. This last factor was significant as it meant we could never establish annuity revenue.”
Based on the reputation he and his team had built, they had no trouble getting Motion off the ground. Furlong invested a lot of money in marketing and advertising, and it showed – it was difficult to miss the striking black, white and red branding, particularly in an industry as staid as office automation.
“We launched a concerted marketing drive in 2004 and watched the business grow by 240% in that year. From 2005 to 2006, we experienced a further 60% growth,” he recalls.
2004 was also the year in which Furlong decided to franchise the Motion business model, a move that was driven by a need to build critical mass and get the channel up and running so that the business would present an attractive opportunity for an equity partner.
“Franchising allowed us to create a solid foundation for growth so that we could begin to look for the right partner, someone who wanted to contribute actively to a vibrant and growing business.”
He points out that he chose to go the franchising route because of his belief that owner-managed businesses just work better. “The franchise model also enabled us to create opportunities for people to share in Motion’s wealth around the country.”
According to Furlong, the single best business decision he ever made was to focus on people. “I recruited the best people and I paid above the standard for their talents,” he said. “I believe you have to offer a carrot if you want top people. By doing so, you know that you can trust them to drive the bus.”
Another reason for hiring the best, he said, is that great people come with lots of strong attributes. “When you are building a business, you need to have people who know how to dress, how to talk to different kinds of clients, why it’s important to be at work on time, and why commitment to the company goals is vital.
You don’t have to teach them these fundamentals.” It’s the people factor that enabled him to differentiate Motion in a highly competitive industry. Furlong attributed the business’s early successes to the quality of people the company had at the front end, and the guaranteed services it provided for customers.
“Product is one thing, but it’s the levels of service, honesty, trust and integrity that truly distinguish a business,” he adds.
How it all Went Wrong
When I returned to Motion two months later, the business with a turnover last year of R200 million, and R240 million projected for 2007, had gone out of business.
Its customer service base was taken over by Canon SA and the company itself was in liquidation. Furlong, who lost all his personal assets in the process, was keen to share his experiences and talk about ways that other entrepreneurs can avoid similar failures. It all started with the back office, that area that is largely unseen by customers and where tasks dedicated to running the company itself take place.
The back office includes the IT that keeps a company up and running, human resources and crucially, finances and accounting.
“It was in the back office that Motion was at its weakest,” said Furlong in hindsight. “I did not have the knowledge or experience required to take control of the finances and that is where things started to spiral out of control.” Controlling finances is a function of management and an integral part of the overall process of managing operations. Furlong pointed to the following back office failure.
1. An inability to identify and evaluate the exposures to loss in diverse spheres of operation.
Motion had always been highly geared and carried a huge amount of debt. Gearing is the ratio of debt to equity capital. If a balance sheet shows R10 million of total assets and a debt of R6 million, the gearing is 60%. In a secure economic climate, high gearing can fuel growth; ultimately, however, the higher the gearing, the greater the exposure to changes in circumstances and in the market.
2. Neglecting to specify and establish policies, plans, and operating standards, procedures, systems, and other disciplines to minimise, mitigate, or limit the risks associated with identified exposures.
Motion had also been overtrading throughout its nine years of existence. Overtrading occurs when a company expands its own operations too quickly or aggressively. An overtraded company typically enters a negative cycle: an increase in interest expenses negatively impacts net profit > leads to a decrease in working capital > leads to increased borrowings > leads to more interest expense, and so the cycle continues.
Overtraded companies eventually face liquidity problems and run out of working capital. In Motion’s case, the market turned soft as a result of rising interest rates and the introduction of the National Credit Act. Turnover dropped by 60% in its last financial year.
3. A lack of practical controlling processes that required and encouraged employees to carry out their duties and responsibilities in a manner that would achieve the control objectives outlined above.
Furlong could not trust anyone in the financial division of the business because there was no sense of ownership. In the first half of 2007, Motion amassed four months of uncollected debtors, exposing the business to enormous risk, simply because there was little sense of accountability and urgency.
The daily pressures and responsibilities of managing a business and dealing with customers, suppliers and partners can often make it difficult for business owners to find the time to deal with financial issues. Taking control of your finances, however, is one of the most important components of a successful business.
“Proper planning, coupled with ongoing control and review of your finances, is critical to achieving a profitable business,” says Furlong. “As the market becomes more and more competitive, and products and services continue to evolve and diversify, the need to proactively manage your finances grows in importance.”
When you go out on your own, he notes, your primary goals are to provide great services to your clients and to feel the satisfaction and fulfilment of having your own business. You are your own boss. You have control over your professional life.
But the advantages may make you overlook the pitfalls. “Our focus was on providing office automation services for our customers at hugely discounted rates, but I lost sight of the need to also take care of the business side of things,” Furlong admits.
“That means you not only have to watch the bottom line, you need to know how to get there. Working hard and being creative often is not enough. Certain fundamentals of business success cannot be ignored.”
Citing some examples of the mistakes he made on the money side, he says it is vital to separate personal and business finances.
Many entrepreneurs finance their business start-ups using their personal credit cards, savings or home equity, as did Furlong, but there comes a time when you have to draw the line between the two. The cleaner your records, the easier it is to maintain them and to know exactly how much your business is earning and spending.
But there’s another key consideration: when you pay for car and household insurance through your business and the business fails, you are left without any history and with no insurance risk rating. This has a negative impact on the future premiums you will be charged in your personal capacity.
Motion’s accelerated growth also had an impact on the HR side of the business. “Because we started small, salaries were structured in accordance with the requirements of a fledgling business when we should have re-structured them in line with the demands of a growing corporate environment,” Furlong said.
In line with what he calls a small business approach, Furlong found himself empathising with staff members; salaries ballooned when he should have been holding tightly onto his cash. He rewarded people with bonuses and gave staff an annual increase even while he was beginning to concede that the business was cash-strapped.
In February 2007, he discovered that the tax bill had not been paid for December and January. “At one point we owed the Receiver R2,5 million, but we met with Sars and came to an arrangement that enabled us to settle all but one month’s worth of the monies owing.”
By March, a competitor had put an offer on the table to buy Motion for R64 million. “It was a mixture of greed and optimism that made me turn down the offer and demand R80 million,” he concedes. Eight months later he was in a R30 million hole.
“My situation had been reversed by almost R100 million. The lesson there is don’t do a deal on price alone – find a partner who can help you sustain and grow the business and make that the basis of the transaction.”
He took a dim view of the commercial banks. “Whatever they may promise in the advertising campaigns, banks are not there for you or your company; they’re only out to make a profit. Despite a successful nine-year relationship with our bankers, they pulled the plug on us and terminated our overdraft based only on rumours they heard in the market.”
He recommends finding private investors as a more viable alternative. With the market becoming tighter and liquidations on the up and up, Furlong does not recommend starting a business on your own. “Experience has taught me that it is advisable to partner with a company that can provide you with infrastructure and administrative support. Industry experience alone is not enough.”
When times are tough, it’s important to handle creditors appropriately even while you are playing open cards with them. Motion made the error of running up big balances on its super sized credit lines. While credit enables you to run your business, it is often far more advisable to go the cash-on-delivery route so that you avoid the risks of building up vast amounts of debt.
Furlong’s advice is to steer clear of group meetings and to rather meet with creditors individually. “Bringing everyone together creates an environment of fear and mistrust that we could probably have avoided had we consulted with our creditors one-on-one.”
At the same time, he learnt that lending money to your channel without having watertight agreements in place can spell disaster. “Never engage in a franchise rollout without having all the paperwork and contracts in place,” he cautions. “No matter how much emphasis you may place on trust and personal relationships, having the documents in black-and-white is vital and protects both the franchisor and the franchisee.”
What lies Ahead?
Furlong acknowledges that with more prudent management of the finances, as well as some long-term planning, he could have avoided losing control of the business.
He is also resolute that Motion did the best it could for as long as possible. “Our competitors were extremely critical about our aggressive style, but our multibrand business model was unique in that it enabled us to offer clients the best value in the market. It was a high-risk, high-reward venture and after nine years I can say that the learning curve was remarkable.”
What about his fiduciary responsibilities? When you become a director, you sign a document declaring that you know how to fulfil your role and that you are fully aware of all the implications and personal risks involved. From that moment on, you will not be able to say you didn’t know.
As a consequence, there are real personal risks involved in holding a directorship. Furlong claims he was able to show that he carried out all his obligations from the time it became apparent that the company was in trouble. “I was able to demonstrate that I did what a reasonable director would have done in my position and I was not found to have acted recklessly.”
Furlong, who was once worth R40 million in assets, and owned a Ferrari and a luxury holiday home, no longer has a thing to his name. Not only did he lose all his possessions, right down to his personal residence, but he also owes R16 million on a loan account he took to finance the business when he realised that things were not looking good. Negotiations with Motion’s creditors are pending.
But there is a light at the end of the tunnel. He has been approached by three listed companies who are looking at ways in which they could adopt his business model, recapitalise it and look after the back office. “On a positive note, they have recognised the success story behind the failure and there may yet be a way of resurrecting Motion in the months that lie ahead,” he says.
How to Avert a Business Survival Crisis
- Do not run up huge credit lines with creditors. It is better to buy products COD and let the creditor pressure you into paying.
- Do not lend money to your channel without watertight agreements.
- The market is tight and liquidations are at a high. Try not to open a business all on your own as the pressure is immense. Look to partners who can offer you financial and infrastructure support.
- Make sure that you keep your financials clean. Do not mix up the personal (cars, property, insurance) with the professional as it becomes very messy.
- Do not put your faith in commercial banks. They will be the first to pull the plug on you when things go awry. Motion had a nine-year relationship with its bankers and they withdrew its overdraft the minute they heard rumours in the market.
- Don’t rely on gut feel. Entrepreneurs are optimistic by nature, but Furlong believes he should have gone to market and sealed a deal with the competition at the first signs of danger.
Stop Surviving And Start Thriving In Business
It will inform your operations, which will inform your human and asset capital and lastly, the financial investments you make.
To thrive – and not just survive – in business you need three basic building blocks: 1) attract more customers and clients; 2) who spend more; and 3) buy more often. But how do we make this happen in the tight, recessionary environment we find ourselves in South Africa?
Despite the tough economic conditions, businesses can still thrive. In fact, many small businesses have been found to thrive in difficult economic conditions and are known as counter-cyclical businesses.
So how do you turn the tide from surviving, to thriving? You need to start thinking creatively, making informed decisions and being agile in the business environment. Always start with your marketing strategy. It will inform your operations, which will inform your human and asset capital and lastly, the financial investments you make.
Ansoff Growth Matrix
Business leaders continuously explore various growth strategies to retain and grow market share. One of most respected and often used is the Ansoff Growth Matrix. It was first published in the Harvard Business Review in 1957, written by strategist Igor Ansoff to help management focus on the options for business growth. Ansoff suggested that an effective strategy considers four growth areas, varying in risk. This strategic planning tool guides us to understand our current situation, contemplate strategic options and consider the associated risks.
- Market Penetration: Market penetration has the least risk of the four options. Here you are selling more of the same things to the same market. You know your product and market well. The question is, how can you defend your market share and sell more to your existing customer? You may consider special promotions or introduce a loyalty scheme.
- Product/ Service Development: Product and service development is slightly riskier as you introduce a new component into your existing market. The advantage is that you sell to a customer/ client that you know, and they trust you. Ask yourself how to grow your product and service portfolio? You may consider adding new services and products or modifying your existing offering.
- Market Development: With market development you target new customers and clients with your existing products and services. You sell more of the same things to a different market. You can consider new sales channels, online or direct sales. Do a proper market dissection to target different groups of people, considering different age groups, gender and demographics.
- Diversification: Diversification is very risky. Here you consider introducing a new, unproven product or service into an entirely new market that you may not fully understand. You may need new expertise, acquiring another business or venturing into another sector. The main benefit of diversification is that during difficult times only one component or element of the business may suffer.
Related: My Business Is Growing… What Now?
The fifth element: Passion
In addition, I would add one more element critical to business growth: Passion. It is the single component most critical to business success and, combined with any one or combination of the four areas of the Ansoff Growth Matric, it can equip small business owners with all they need to thrive in their business environment. Passion determines your business success, so make sure you have it in heaps to reap the rewards of your hard work.
6 Common Decision-Making Blunders That Could Kill Your Business
Among the logical errors nearly everybody makes is thinking only everybody else makes logical errors.
Humans are often very irrational. If you’ve ever explored behavioural economics or psychology, you may have found a host of examples demonstrating situations when we make objectively bad decisions.
Below are six of the largest decision-making blunders we all make. Avoiding them will dramatically improve your decision-making, your quality of life and success.
1. Sunk-cost fallacy
Of all the ones on this list, the sunk-cost fallacy is the most common. Many of the decisions we make are final or difficult to change. For example, let’s say you invest R1 000 in Facebook, and the price of the stock goes down to R600 the following day. The fact that you put in R1 000 initially is irrelevant to the situation at hand; you now have R600 worth of Facebook shares.
What this means is that once the decision is made and our cost is incurred, there’s no point thinking back. You already put in the time, money or other form of investment. Considering that in any future decision is illogical, despite how tempting it is. Instead, present yourself with the new options at hand — without considering the sunk cost.
2. Narrow framing
Would you take this bet? You pay me R1 000 if a flipped coin lands on heads and I pay you R1 200 if it lands on tails. Most people would say no. We tend to be risk-averse, unwilling to risk something like R1 000, despite the reward being a bit greater.
Now, what if I offered you that bet, but I promised we would flip 100 coins? Each time, the loser pays up. Would you take it then?
Almost certainly, right? The chances that you lose money, overall, are extremely slim. This idea can be applied throughout life. When we’re in situations that will repeat themselves over time, we should take a step back and play a game of averages.
3. Confirmation bias
Another common one in the worlds of psychological and behavioural economy is confirmation bias. It hurts our ability to keep an open mind and shift our opinion. When we have a held belief, we typically look for information that confirms our opinion while ignoring data points that tell the opposite story.
For example, if I’m really excited about a new software product that I just integrated into my business, with ten of my employees as users, I might have made up my mind about the quality of the service before we put it to use. I would then be more likely to listen to the three employees who enjoy it, not the seven who don’t.
There’s almost always information that will validate our opinions, no matter how wrong they might be. That means we need to always look for conflicting evidence and, from there, make judgements based on more well-rounded information.
4. Emotionally driven decisions
When we’re angry or upset, we’re much worse decision-makers. When you have to make an important decision and happen to be in a bad mood, you should hold off. Instead, wait until you cool down and can think more clearly. It will remove the outside influences and let you think more rationally.
5. Ego depletion
This one makes intuitive sense, but it’s one of the most common ways to make bad decisions. The idea of ego depletion is that when we’re drained, physically or mentally, we’re less likely to think critically. Think about the times you’ve been exhausted after a long day of work. In those moments, you don’t want to have to think hard about anything. Instead, you want your brain to work automatically.
What that means is that when you’re tired and faced with challenging choices, you’ll rely more on your instinct or automatic processes as opposed to analysis and thought. That can be extremely problematic in situations that require effort.
6. Halo effect
The halo effect says that once we like somebody, we’re more likely to look for his or her positive characteristics and avoid the negative ones. This is similar to confirmation bias, but it’s oriented around people.
Related: 10 Stupid Mistakes Smart People Make
For example, let’s say I just hired someone named John, who was great during his interviews. Through his first few weeks, John does a few things well at work, but he also does many things poorly. The halo effect — brought on by his wonderful interview persona — could cause me to ignore his poor attributes and emphasise his good traits.
This can be detrimental to our ability to make judgements about others. We have to realise our biases toward certain people and eliminate them.
These are a handful of the many decision-making errors we’re all prone to. Although it’s challenging to scrutinise your preconceived notions, doing so is worthwhile. It gets easier over time and will, ultimately, make you a more effective decision-maker — personally and as a business owner.
This article was originally posted here on Entrepreneur.com.
8 Reasons Why Failure And Focus Are Essential To Business Success
There are two Fs that define the long-term and sustainable success of your business – Failure and Focus.
There is an event that runs globally across countries such as the United States, Spain, France, Brazil and Israel. It is a conference that is aimed at the entrepreneur, the investor, the developer and the designer. It also caters exclusively for failure – FailCon asks the entrepreneur, specifically within the technology space, to embrace failure. However, this focus on failure isn’t about leaping blindly into the ball pit of collapsed dreams and wallowing in its sorrow as you shout ‘Bazinga!’. It’s about being comfortable with the idea that failure can happen and using it to drive your business focus and long-term success. These eight steps define exactly how…
1. Not big, iterative
Giving someone advice to fail big isn’t practical. It isn’t the kind of attitude that investors will be drawn to either. Instead, embracing failure is about being open to the fact that it may very well happen to you and some of your ideas. It isn’t necessarily going to be a gigantic failure on a scale of company-wide collapse. It could just be that you had an idea, and it wasn’t a very good idea so it failed.
2. Focus on your agenda
If you’re not focused on your end game and business agenda, don’t expect your staff to be. This level of focus is critical as it gives people direction. They then understand exactly where the business is going, what it hopes to achieve, and the role that they play in taking it there.
If you don’t have this level of focus, your staff don’t have anything to latch onto.
This is where your ability to fail is of value. You need to test your assumptions and ideas and then use their failures to learn more about how they could potentially succeed in the future. You have to learn from your mistakes. Don’t drown in self-doubt, take the mistakes and move them towards enhancing your business.
4. Success isn’t easy
Look, if being a hugely successful entrepreneur was easy, everybody would do it. You need to keep the focus and intensity you brought on your first day all the way through to today. Create short term goals and objectives that give you endless purpose and a sense of achievement and use their success to drive you onwards towards your final destination.
5. Build in plenty of goalposts
Justify every decision and long-term goal through relentless measurement to ensure they are the right decisions. The last thing you want is to hit your goal in 10 years and discover that it wasn’t the right one, your business hasn’t gone anywhere and you’ve worked incredibly hard for nothing. The effectiveness of your time, decision making and execution is critical.
6. Define failure
What does failure mean to you? Understand how you define it and then use this as a barometer to define your idea of success. As long as you have clear objectives for both, you can assess your business, its effectiveness and your results. As mentioned in above, always set goals and objectives so you give your company and people a sense of purpose.
7. Your ideas aren’t always that good
Some of your ideas are not going to fly. They’re going to collapse with an embarrassed sigh. The lesson is that you should be constantly questioning yourself so when you are in a situation where your ideas don’t work, you can objectively examine why they failed and use these learnings to change and adapt.
There needs to be a healthy tension between learning through theory and practice. The latter is learning to win and to handle defeat in real time with real results.
Related: Your Business Failure is Your Fault
8. Get over it
It’s quite easy to wallow in your failure misery and lose years to personalised anguish. It’s harder to just get over it and move on. The thing is, it’s moving on that counts. Those who get up, dust themselves off and start again are those who end up thriving. The ability to compartmentalise and learn is invaluable as you take your business from your first idea through to a sustainable, epic enterprise.
Women Entrepreneur Successes1 week ago
Watch List: 50 Top SA Business Women To Watch
Snapshots1 week ago
25 Of The Most Successful Business Ideas In South Africa
Support for Women Entrepreneurs2 weeks ago
11 Quotes On Hard Work, Risk-Taking And Getting Started From Beauty Billionaire Estee Lauder
Entrepreneur Profiles2 weeks ago
The House That Moladi Built – How Challenging Traditional Building Empowers Local Entrepreneurs
Lessons Learnt4 days ago
How Lorenzo Escobal Bootstrapped His Way To Competing With Titans And Attracting Top-Tier Clients
Leading6 days ago
How To, In Practice, Distinguish Between Executive, Non-Executive And Independent Directors And Their Functions
Entrepreneur Profiles6 days ago
In Touch Media’s Margie Carr Shares How She Made An Out-Of-Home Media Agency A Solid Competitor
Company Posts1 week ago
Smoothie Franchise Opportunity: Puré Frooty Is A One-Of-A-Kind Smoothie Franchise Business