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Zico’s Tshego Sefolo On Riding Out The Economic Storm

Building your business while the economy is thriving isn’t a particularly daunting proposition. But what happens when the tide turns? How do you grow when the market is contracting?

GG van Rooyen

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Tshego-Sefolo

Vital Stats

  • Player: Tshego Sefolo
  • Company: Zico
  • Position: MD
  • Established: 2002
  • What they do: Private equity investments
  • Contact: +27 (0)11 217 3300;
  • Visit: zico.co.za

There is no doubt that times are tough. The global economy might not be as deep in the doldrums as it was in the late 2000s, but we’re far from a position where growing a business is plain sailing.

In fact, the South African economy is contracting at the moment, which is creating a real threat of recession.

We-recommend-tickWe recommend: Cash is King: Managing Cash Flow for Business Survival and Growth

But it isn’t all bad news. Growing a business, even when the economy is struggling, isn’t impossible. It requires some hard work and very clever thinking, but it can be done.

Tshego Sefolo is the MD of Zico, an investment and private equity firm that identifies well-established companies on an upward trajectory, and provides growth capital to get these entities to the next level.

So Sefolo has a keen eye for the traits and tactics that separate burgeoning businesses from those that plateau or go under when an economic storm hits. Here are his rules for growing your business during tough times.

Provide great value

What do you do when customers start obsessing over cost-cutting and doing less with more? You could drop your prices, of course, but this is hardly a good strategy for growing one’s business. Instead, you should be exploring ways of providing your clients better value.

“What entices a customer to come back to you repeatedly? It’s about ‘stickiness’. It means that you’re providing something that they’re not getting anywhere else — and it usually has to do with more than the product or service you provide,” says Sefolo.

When the economy turns against you, you need to work particularly hard to prove your worth to customers. You don’t want to be just another supplier; this makes the relationship far too transactional.

You want to become a trusted advisor to your clients. They need to depend on you for more than just a product or service – they need to rely on your advice.

Be innovative

If the market shrinks, you need to come up with clever ways of attracting new customers. You also need to look out for opportunities that haven’t been properly explored yet.

“You need to establish centres of excellence within your organisation and allow them to think creatively,” says Sefolo.

“Companies such as Apple and Google have done a wonderful job of this. They established centres of excellence that managed to identify new and untapped markets. ‘Business as usual’ isn’t good enough in a difficult economy.”

Abandon a plan if it isn’t working

Creativity and a certain amount of bravery in exploring unchartered waters is important when trying to grow, but you also need to be willing to turn the ship around and head back to port if things aren’t working out.

“We often find that companies bend over backwards to attract or retain customers, sometimes to the point where margins are virtually non-existent. That doesn’t make sense. Growing your business usually means growing your client base, but it shouldn’t happen at the expense of your profit margin,” says Sefolo.

So how do you know that the time has come to abandon a strategy?

“You need to put a very definite ROI deadline on an opportunity, especially when the market is struggling,” says Sefolo. “The deadline will depend on the nature of the deal, but you need to be very firm in your ROI target. If it can’t be met, walk away. Importantly, the deadline doesn’t need to be in the short term, but it does need to be fixed.”

Assemble a great crew

“One of the key things Zico looks out for in a company is a great management team. Of course, you want a great MD or CEO, but you also want someone who surrounds themself with the right people.

“Founders of start-ups often struggle to delegate important responsibilities when a business really starts to grow. They need to have the courage to employ the right people, and then allow them to do their jobs. Growing a company while micro-managing every aspect of it is impossible,” says Sefolo.

A solid management team is always important, but it becomes absolutely crucial during an economic downturn. Anyone can pilot a ship over placid waters. When a storm hits, you need a very experienced hand at the tiller.

A booming economy can hide a lot of underlying problems within a company. When the economic tide recedes, though, these issues reveal themselves.

“When the ship starts to sink, you lose your best people first, so you need to value your employees if you want to grow,” says Sefolo.

When a storm looms it might be tempting to toss a few crew members overboard, but you’ll notice their absence down the line. Don’t sacrifice employees for a small bump in the bottom line.

We-recommend-tickWe recommend: How to Turn a Business Around for Survival

Take a long-term view

True to the age-old saying, some dark clouds really do have a silver lining and tough times bring with them great opportunities, but you often need to adopt a long-term view in order to benefit from them.

“Take our current electricity situation as an example. It brings with it great business opportunities. You need only look at the number of companies providing generators to realise this,” says Sefolo.

“However, you also take a long-term view. Some opportunities will only pay off down the line, so you need the patience (and liquidity) to sit back and wait. Others might offer a great short-term ROI, but you have to ask yourself if they’re truly great opportunities. They shouldn’t let you lose focus and scupper your long-term growth plans.”

Money matters

Liquidity is vital when times are tough. “Unsurprisingly, the businesses with decent capital reserves are the ones that generally perform best during economic downturns,” says Sefolo.

“This is important to remember when trying to build your company. If your growth plans are going to seriously impact your liquidity, you have to question the timing of your strategy.”

We-recommend-tickWe recommend: The 5 Non-Negotiables for Thriving in Business and Life

Many companies also gear too aggressively, leaving no margin for error. If something goes wrong, they find themselves over-leveraged. Growth is good, but should never be reckless.

You need to be measured and strategic in your growth, especially when the economy isn’t in the healthiest of states. If you don’t keep a close eye on your destination, you’ll find yourself out at sea.

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Business Survival

How To Embrace An Exponential Mindset For Your Business

In the age of exponential technologies, it’s a risk not to take a risk.

Mic Mann

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Think global and exponential

If you’re an entrepreneur trying to establish a successful business, it’ll be dead before it even takes off, if you don’t build it for the future. You have to think three to five years ahead, so when it launches, it’s still relevant.

Think like former Canadian pro ice hockey player Wayne Gretzky, who said: “I skate to where the puck is going to be, not where it has been.” And these days it’s easier for entrepreneurs to predict the future thanks to technology and data insights.

Consider what Singularity University co-founder Ray Kurzweil calls The Law of Accelerating Returns. He says the only thing that’s constant is change and that change itself is accelerating exponentially. As per Moore’s Law, information-enabled industries are doubling their performance and halving their price every 18 months, according to the price-performance ratio. The field of biotechnology has managed to surpass that.

Related: 5 Mindset Changes You Must Make When Going From Employee To Entrepreneur

There’s no time to slow down, your business has to constantly evolve, and you have to keep asking “what’s next”. Encourage experimentation and innovation in your company. Innovation focuses on incrementally improving your already existing products and services, while experimentation allows for fresh outlooks and breakthrough strategies that leapfrog old ways.

We should reprogramme our linear mindset into an exponential one. Don’t aim to grow your business by 10 per cent year-on-year, but rather 10 times. The first thing I learned at Singularity University is the potential of exponential growth. If you take 30 linear steps, you only move 30 places, but if you move 30 exponential steps your place doubles with each step and by the 30th step, you’ve moved over a billion places.

We’ve seen this happen with unicorns – not the magical creatures, but start-up companies that are valued at over $1 billion within their first year – like Slack (cloud-based team collaboration tools and services) and Square Inc. (a mobile payment company). It once took around 20 years for American companies to reach the billion-dollar valuation mark, now it may take less than a year.

In the early stages – until your third step – your progress may seem linear. Many exponentially-geared companies give up at this point – just as their growth rate is about to explode. Persevere!

A few decades ago it was unthinkable for an individual or start-up to disrupt entire industries. Start thinking globally, not locally. Use staff-on-demand and crowd souring to propel your business ahead of the competition. It’s unlikely that you have the world’s smartest minds working for you, however with the power of the crowd, you just might.

If you’re struggling to find a solution, turn the challenge into a game and offer prize money. You’ll have thousands of people attempting to solve your problem, but will only pay for the best solution. Kaggle is a platform for predictive modelling and analytics competitions. It lets statisticians and data miners compete to produce the best models for predicting and describing data. Mining company Gold Corp placed its geological data online and offered money to anyone who could locate gold at their Canadian mine. Four of the five winning entries struck gold. And in 2011 it took a team of gamers 10 days to solve an enzyme riddle that could hold the key to curing AIDS.

The six Ds of tech

As companies become information-enabled they should internalise what Singularity University co-founder Peter Diamandis calls the six-step growth cycle of digital technologies. These Six Ds of Tech Disruption are digitisation, deception, disruption, demonetisation, dematerialisation, and democratisation.

The first step is digitisation. Once something enters the digital realm it gains the potential for exponential growth. Think of the radio and CDs. You no longer need either, instead you can stream online, listen via YouTube or download music. After digitisation, growth appears slow, even deceptive. Sadly that’s when many companies opt out. Be patient!

Related: How To Build The Right Mindset For Start-up Success

No one imagined Kodak would disappear after a century. Kodak thought they were in the business of printing photographs, while they were in the business of memories. Think about the need your business solves. Kodak invented the digital camera, but was too scared to disrupt its own industry. It didn’t realise that people were no longer taking photographs in the same way, so their competitors disrupted the industry instead.

Today, the camera has become part of the smartphone and photographs are predominantly shared via social media. Instagram epitomises the next step in the equation: demonetisation. With time technology becomes cheaper and even free. Instead of printing photographs, many people instantly share them on a free smartphone app like Instagram.

Next comes dematerialisation. The radio, camera, video recorder, GPS, calculator and calendar are disappearing from the physical world as they’re being built into the smartphone. The wallet will dematerialise next with the advent of online transactions and cryptocurrencies.

Finally, democratisation happens when government, corporates and the wealthy no longer hold control and masses of people have access. Just think, the average South African with a smartphone has access to much more information than the president of the United States of America had 20 years ago.

In the age of exponential technologies, it’s a risk not to take a risk.

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Business Survival

Why, When You Fail, You Should ‘Fail Forward’

So, you’ve fallen on your face? Consider that you’re walking in the footsteps of some ‘famous failures,’ like Steve Jobs, Oprah Winfrey and Stephen King.

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Arianna Huffington

5 Inspiring stories to keep in mind

1000 times he failed

Teachers described him as “too stupid to learn anything.” He got fired from two jobs because he was “non-productive.”

Then he tried inventing something completely new. What’s even crazier is that he tried 1 000 times, unsuccessfully. When a reporter asked him how it felt to fail 1 000 times, the story goes, he replied, “I didn’t fail 1 000 times. “[The invention] was an invention with 1 000 steps.”

Through pure determination, Thomas Edison – initially a failure – made the world a brighter place to live in. If such good things come from success, then why do we choose to always look at the brighter days and completely disown the tough times?

Here are five more inspiring stories to keep in mind, should you ever feel that you’re the biggest failure.

The woman whose book got rejected 36 times

Arianna Huffington

Arianna Huffington

You’d think that once one book you’ve written becomes a bestseller, publishing another one would be a walk in the park. But it’s not that easy. At least not for Arianna Huffington.

Having produced that first bestseller, The Female Woman, when she was only 23,, Huffington tried to pitch her second book, but none of the 36 publishers she approached said yes. Still, she didn’t give up.

And that’s just one of a couple of failures from The Huffington Post’s co-founder. She has been dropped from hosting a BBC show, garnered 0.55 percent of the vote (when she ran for governor of California) and been unsuccessful when she called for then-President Bill Clinton’s resignation through her website.

But now The Huffington Post gets millions of visitors every month; she’s had a successful book career; and, if it helps, she’s very rich. Clearly, “failure is a stepping stone to success.”

Related: How Failing Fast was Nomanini’s Ticket to Creative Innovation

The woman who was “unfit for television”

Oprah Winfrey

Oprah Winfrey

Oprah Winfrey is worth more than $3 billion. But it hasn’t always been like that. And, considering that a Baltimore TV producer called her “unfit for television” right before he fired her, it’s telling that the main source of Oprah’s success was a TV show that ran for more than 20 seasons.

Oprah also tried to get into the movie business with the movie Beloved. It lost to Bride of Chucky in terms of revenue and consequently lost the $80 million invested in it. Oprah has said this failure sent her into a state of depression.

But then, in 2013, she got back onto the horse (speaking cinematically) with The Butler.

See? Even when you make it, you’re still at risk of failure. Henry Ford, William Crapo Durant and Walt Disney (among so many others) all went bankrupt after they’d already made it big. But each one sprang back in his own way.

The man who was fired from the company he’d founded

Steve Jobs

Steve Jobs

Not all of Apple’s products have received mass acclaim. More specifically, not all of the Apple products launched by Steve Jobs have been successful.

One such failuret was the Lisa computer. This was supposed to be a desktop computer targeted at personal business users. For a purchase price of $10,000 (about $24,000 today) consumers could buy the first desktop that would allow them to use a mouse to work with a 5MHz processor and up to 1MB RAM. The Lisa sounded like a magnificent idea, at least at the time.

However, the pricey computer sold poorly, and then-CEO John Scully, someone Jobs had chosen for that position a few years earlier (there are so many lessons in this story), helped remove Jobs from the Macintosh division in 1985.

So Jobs left Apple. Then he founded NeXT, and failed again, but sold the software division of NeXT to Apple in 1997. Then he returned and became CEO in 2000, and this time he was determined to make Apple something special. He succeeded.

Related: Why Balls to the Walls Could Mean Failing Fast

The man who almost gave up after 30 rejections

Stephen King

Stephen King

Stephen King was just selling short stories and teaching English when he had the idea to write Carrie. However, despite the $2,500 advance he received for the novel, he decided to give up on the book after 30 rejections.

But his wife wasn’t going to let him do that. She urged him on, and he finally agreed to submit the manuscript again.

Carrie is one of King’s bestsellers and went on to become two film adaptations, one of which won the lead actress Sissy Spacek an Oscar.

The man who quit – just before striking gold

gold-mine-panning

Talk about hitting a gold mine

One last story comes from Napoleon Hill’s book, Think and Grow Rich. In it, the author writes of an interview with a millionaire named R.U. Darby who in turn described an uncle of his who, having heard of the riches that came from finding gold, set out to do just that. After weeks of commitment, this miner finally spotted a vein of shining ore. He raised the money for the necessary machinery and went ahead and he started shipping the gold. However, before long, he’d lost the vein of the gold ore.

Related: How Tebogo Ditshego Transformed a Failing Business and Tripled his Revenue

He tried to find it again and was unsuccessful. Then his workers quit and sold the machinery to a junk man. The junk man called in an engineer to inspect why the project had failed, and it was determined that the vein was just 3 feet (three) away from where the Darbys had left off.

The lesson? Before you stop trying, try again. If not for yourself, then for other people. What would the world be like without Thomas Edison’s invention? How about Alexander Graham Bell? Use failure as a step to elevate you because it’s by learning to accept failure that we can see great success.

This article was originally posted here on Entrepreneur.com.

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Business Survival

How To Recession-Proof Your Business

South Africa is in a technical recession. Here’s how to navigate the turbulent times ahead.

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For the lay-man like myself, it’s important to understand that a technical recession is an economic term that describes two consecutive quarters of negative growth in an economy. For South Africa, gross domestic product (GDP) declined 0,7% during the first quarter of 2017 after contracting by 0,3% in the fourth quarter of 2016.

Why is this a big deal? Because the economic outlook, even without the technical recession, was bleak. Ratings agencies are losing confidence in South Africa. S&P downgraded the country to junk status earlier this year, followed by Moodys, which revised South Africa down a notch.

Related: Can Your Business Survive A Recession?

How organisations respond to recessions

There are a number of knee-jerk reactions to a recession as a direct result of decreasing revenues and profits. The most relevant to SMEs are:

  • Cutting R&D spending. This means no new product lines, and no incremental innovation expenditure unless it returns direct value to the business.
  • People get fired. In a time where underperformance has a double impact on the business, people that aren’t performing are performance-managed out the door.
  • Market shares shrink. This is often due to reduced R&D spends.
  • Processes are evaluated. Companies start looking for efficiencies that should have already been in place.

Outlook and opportunities for SMEs

For SMEs, sales and product planning in a recession is key and must align to the way big business is responding to the recession.

Fundraising for capital expenditure is more expensive, but not impossible. It may be valuable to invest ahead of the curve to capture the emergent big businesses during this period and therefore external investment may make sense.

In an increasingly collaborative economy, SMEs should look to each other for partnerships and complementary projects that cost little to assemble, but amount to great value for a big business.

Survival of the nimblest

Cut down

SMEs have the ability to be nimble and move quickly to change organisational structures and deliver on just-in-time value. This can be hamstrung by unpredictable fluctuating expenses like cell phone contracts that may vary in cost in an unpredictable way from month to month. The fewer of these costs on your books, the better.

Related: How Renay & Russell Tandy Have Survived 2 Recessions And Built A Successful Agency

Sell harder

The term ‘always be closing’ is a famous sales mantra, it’s also applicable in a recessionary context. First, because you don’t know what they don’t know and unless you tell them — who will? Second, the feedback loop of understanding the concerns and actions from your customer or client can only be understood through interaction.

Position smarter

Is it clear that you are the best provider for the job that needs to be done? If not, it is important to build a stakeholder strategy that puts your business in front of the key procurement and strategy custodians. This may be a great opportunity to exhibit demos, case studies and showcase the efficiency that you offer.

Focus on value

I can’t over-state this. Value, value, value. It goes without saying that one of the key reasons anyone would consider an alternative supplier is because of the specific problem they solve, so this should be your approach in reinforcing the value you bring to the table. Repetition builds memory structure.

One recession doesn’t fit all

It’s important to understand that for SMEs a recession can have an expansionary effect in the same way the lipstick effect applies to luxury goods and services.

The lipstick effect is the theory that when facing an economic crisis, consumers will be more willing to buy less costly luxury goods. Instead of buying expensive fur coats, for example, people will buy expensive lipstick.

A series of psychology experiments have confirmed for the first time that while tougher economic times decrease desire for most items, they also reliably increase women’s yearning for products that boost their attractiveness.

Parting shot

So, for SMEs, the formula is simple — don’t panic, analyse your customer value chain and position your solution accordingly and then sell, sell, sell.

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