When Karen Short was 23 years old and living in London, she sent her mother a letter. “She still has it to this day. In it, I tell her that I know exactly what I want to do with my life and that I am coming back to South Africa to open a catering company like no other,” she says.
These turned out to be prophetic words; Karen came back in 1993, started By Word of Mouth Catering and is today the established voice of authority and the leading creative mind in the local industry. She has catered for presidents, royals and celebrities, including Bill Clinton, George Bush, Nelson Mandela, Thabo Mbeki, Prince Andrew, Princess Anne and Angelina Jolie. But the journey of a thousand mouthfuls started with one small bite. “I came back from the UK and had nothing really except R200 and my red Citi Golf that my father wisely refused to let me sell when I left to go overseas. I was staying with my parents’ friends in Bryanston and I started cooking out of a friend’s kitchen. He’d go to work during the day, and I’d use his kitchen,” she remembers.
Carving a niche
But in spite of her humble beginnings, Karen had big ideas. Those were the days when catering consisted of sad soggy sandwiches and sausage rolls. “You couldn’t get sundried tomatoes or pesto in this country. Putting flowers on a plate was a wild out-there idea,” she relates. With her Prue Leith School of Cooking qualification and experience working for many different catering companies overseas, Karen knew that she could create a niche for herself in the South African market by providing clients with beautifully presented, interesting and tasty food.
Beyond limited resources
However, big ideas are often hindered by small budgets and Karen battled to get off the ground. “I was a one-man band. I remember not having enough money to put petrol in my car, so I walked to the shops to buy sugar. For my first job, my cheque for the chicken bounced!” she laughs. For the business to work, she needed a big job and the first one she got was for MTN Sports.
When asked about her sales strategy, Karen laughs that she didn’t have one: “I sat on the floor with the Yellow Pages and I made extensive use of contacts and friends. I had a friend at MTN and that’s how I landed that client. Then someone else I had met at a ski resort overseas worked for IBM and I landed a huge event there, catering for more than 1 000 people over three days. I was very lucky to have some great people who gave me a chance.” However, being given a chance is one thing. Delivering the goods that impress your clients is another and at this, Karen excelled. ‘It’s all about creativity,” she says, “I think what has made us successful is that we’ve kept reinventing the wheel. And it’s not just new ideas about food – it’s also about knowing what’s fresh from a function and hiring point of view.” Her fresh, new approach to food hit its mark. Word got around and By Word of Mouth got off the ground.
For a couple of years, things went along swimmingly and the business grew steadily. Karen rented and then bought a house in Parkview, eventually adding an industrial kitchen. But as she points out, operational management had never been her strong point. “In retrospect, I wish I had done some sort of business qualification because I didn’t even know what a credit and debit was when I started. Fortunately, I was surrounded by great people who could teach me. And I learned very quickly that the best thing you can do for your business is to hire excellent people who are highly skilled in the things that aren’t your competency,” she says.
The rapid growth meant that more and more of Karen’s time was taken up running the business instead of doing what she loved. “I was no longer enjoying it. Instead of doing food and design I was meeting people about their salaries and performance appraisals,” she says. Not coping, she says she was ready to sell the business. It was then that her husband, Adrian, who had left his job at Dimension Data, came on board to help out. It didn’t take him long to become suspicious about the financial management. “We were due for an audit and I thought some things looked very suspect, so I asked a friend of mine from Dimension Data, Andrew Wilson, to take a look,” he remembers.What they discovered was that the bookkeeper had been robbing the business for 18 months, stealing half a million rand. “I don’t think there was any way I would ever have picked it up,” says Karen. Recognising that Karen needed help, and realising the enormous value inherent in the business, both Andrew Wilson and Adrian Short became partners.
Taking the business to the next level
Adrian says: “I think what Karen did really well was to build an incredible brand that people associated with professionalism, quality and service. It was new and unique and ahead of the curve when it came to new ideas. She had become a trendsetter. So she had really done all the groundwork; she had created a successful catering company. But she was struggling with the operational side of things, so all Andrew and I did was to help her migrate it to the next level. And we freed her up to do what she was best at.”
This set the business on its second growth spurt and diversification into allied sectors. Adrian explains the thinking behind this strategy: “The catering division was the backbone of the company, but I had to consider what would happen to the business if something happened to Karen. I certainly can’t cook! So I wanted to build other lines of business that could stand on their own but that were also symbiotic in nature and could feed off each other.” When Adrian joined, the business was still in the Parkview premises and needed room to grow. “We put in an offer on a Parktown property and it was only then that we realised it included what is now Hazeldene Hall,” says Karen. The Sir Herbert Baker national monument was dilapidated and needed some work.“We thought we’d do it up and use it as a meeting and tasting room, but in the end, because it’s a national monument, we had to hire a heritage consultant for an entire year to oversee the renovations, and we spent so much money on it that we realised we needed to do something more with it,” says Karen. Bearing in mind that many of her clients battled to find suitable venues in Johannesburg, she opened Hazeldene Hall as an upmarket By Word of Mouth venue for events, weddings, exhibitions, launches and corporate functions. By Word of Mouth Hiring, Floral Design and Sports Suites, which caters to the corporate boxes at the big sporting stadiums, followed.
Implementing sound systems
After the experience with the bookkeeper and recognising the need for tighter controls, Adrian set about implementing a number of important systems. “When I joined, there was one diary. The receptionist would need it, then the kitchen, then the events coordinators. So one of the first things we did was to put the diary onto the computer system,” he explains. Realising that the business wasn’t capitalising on the number of leads it was receiving, he also implemented a software system to feed leads to the relevant divisions within the business through a centralised automated e-mail system. “Logistics is everything in this business,” says Adrian, “and systems, coupled with great people, were the key to ensuring that all our events ran smoothly.”
Setting the benchmark
While service excellence has always been a cornerstone of By Word of Mouth’s offering, Adrian recognised the need to formalise it. “After every function, we do a performance appraisal where we phone the client and ask them to rate the food, the function, the coordinator – everything. We don’t accept anything under eight out of 10,” he explains, adding that the system has been enormously valuable in helping them to understand where they are going wrong and what they are doing well.
Hiring the right people
Maintaining a track record of excellent service means having the right people. As Karen points out, there is a worldwide shortage of chefs, particularly in South Africa, and the business faces the constant challenge of having staff poached. “We’re always on the lookout for hot young chefs,” she says, explaining that she would like to start training chefs to help meet the business’s staffing needs. Adrian adds: “We also have to accept that in this industry, talent moves around a lot and chefs are mobile, so people are going to leave. Equally important are our other people, the coordinators and support staff. We recognise that our key resource is good people and we make a lot of effort to take care of them.”
Advice to aspirant entrepreneurs in the catering sector
- People often over-capitalise in this industry and then go out of business. There are peaks and lows in this business; it’s very seasonal, so you can’t rush out and spend lots of money thinking that you’ll be busy for the whole year.
- Focus on building relationships and a clientele base first before you set up costly business infrastructure.
- Passion is what separates great caterers from average ones. You either have it or you don’t, but it’s critical to creating a successful company.
- This business might sound glamorous, but behind the scenes it’s hard work. You cannot underestimate how long the hours are and that this is a very hands-on business. You need to be there to oversee everything. Things go wrong at 2am and you have to fix them. You’ll also be working when other people are playing – during weekends and holidays.
- Surround yourself with experts – don’t hire a bookkeeper, hire a great accountant. Get a labour lawyer to help you with your hiring and firing issues. Don’t scrimp on these important skills.
- There are no short cuts; you have to go through the fire to become steel.
Resources I found helpful
- My husband and his business knowledge
- Travelling overseas to visit other catering companies to see what they were doing
- Studying magazines to keep up with the latest trends
Starbucks Coffee Is All About Culture… For A Reason
CEO Howard Schultz reveals how Starbucks does it.
- Player: Howard Schultz
- Company: Starbucks
- Market cap: $85 bn
- Established: 1971 (Schultz purchased the brand in 1987)
- Website: starbucks.com
When Howard Schultz was raising money for his first coffee shop called Il Giornale (later to be renamed Starbucks) he was finding it hard to land investors. The reason was simple: Schultz was trying to create a coffee culture where none existed.
The idea that the man on the street would pay a premium price for a cup of Italian coffee with a name he couldn’t pronounce seemed nothing short of preposterous. But that wasn’t the only reason people weren’t willing to buy into his idea. Schultz, you see, refused to talk like a proper capitalist. He kept emphasising the fact that he wanted ‘to do good’.
Schultz recounted the trouble he had finding investors during a recent visit to South Africa for the local launch of Starbucks. He spoke at a Q&A session hosted by the Wits Business School.
“My wife was eight months pregnant at the time,” says Schultz. “Her father actually sat me down and said: ‘My daughter is pregnant, and she’s working. You have a hobby. You need to get a job.”’
But, as is so typical of entrepreneurs, Schultz persevered and eventually got the funding he needed.
“The first time someone gave me $100 000, I couldn’t believe it,” he recalls.
Since those early days (the shop opened in the mid-1980s), Starbucks has grown rather prodigiously. Consider the following: By the late 1980s there were 11 Starbucks stores that employed about 100 people. A few years later, in 1992, the company went public with a market cap of $270 million. Today, it has around 24 000 stores in more than 70 countries. And its market cap? A cool $85 billion.
While growth is good, it has a tendency to birth a ravenous monster that is impossible to satiate.
“We have to add $2,5 billion in revenue every year for the next five years just to maintain our current growth rate and satisfy Wall Street,” says Schultz. “And to do this, we will need to add 80 000 employees over the next 12 months. Essentially, we’re launching a new massive company every year.”
Yet, despite this, Starbucks manages to maintain its unique culture. Just as when Starbucks was a far smaller operation, it is known for stores manned by high-energy individuals who have a clear love for the brand. How has the brand managed this? Schultz attributes it to the following seven core principles.
1. Partners not employees
Howard Schultz’s father worked as a truck driver, delivering and picking up cloth diapers in the days before Pampers. When he slipped and seriously injured himself, he was summarily retrenched. Schultz wanted to create a very different company.
One of the reasons he didn’t adopt a franchise model was that he wanted to be able to offer each employee at least some stake in Starbucks.
When the company went public, each employee became entitled to a portion of their annual salary in the form of stock options. That is still the case today, which is why Starbucks employees are called ‘partners’.
“Success is best when it’s shared,” says Schultz. “At Starbucks, we always ask: What’s in it for our people? Starbucks is accused of being great at marketing, but it spends very little on marketing. It’s all about the experience we offer in the stores.
Managers and leaders must do everything to exceed the expectations of our people so that they can exceed the expectations of our customers.
2. Regular interaction
The management of Starbucks does everything in its power to engage with employees regularly.
“We travel extensively, and the amount of face-time management has with employees across the globe is really unusual for a company of Starbucks’s size,” says Schultz.
Schultz himself, for instance, sat down with each and every new Starbucks employee in South Africa during his recent visit.
Starbucks also has what it calls ‘Town Hall Meetings’ all over the world, during which management interacts with employees in an open and informal manner.
“We tell employees that they are free to speak up during these meetings without fear of retribution. We want honest opinions,” says Schultz.
3. Respecting (and cherishing) employees
Howard Schultz is a humanist at heart, and this is reflected in the culture of the company that he created.
“The universal language of Starbucks is a deep sense of humanity,” says Schultz. “Building a company is a lot like raising children. You are imprinting a company with a culture and a set of values. Now, if a child falls, what do you do? You pick it up and comfort it. You don’t scold it. You need to take the same approach in business.”
4. Protecting the culture
Being tolerant of failure, however, does not mean the same thing as indulging bad behaviour. In fact, Starbucks is fiercely protective of its culture, and it doesn’t tolerate bad behaviour.
“We teach employees that they have a voice, and that they should speak up when they see someone doing something wrong. You can’t enable bad behaviour because it will erode a company’s culture.”
5. Spending money on employees
According to Schultz, the management teams of most large companies would be horrified to discover the amount of time and money spent on Starbucks employees.
“We have been very innovative with technology, and we have created a massive digital eco-system. Interestingly, though, we spent as much time and money focusing on the things that were employee-facing as the ones that were customer-facing.”
6. Rewarding the right things
Schultz famously stepped away from the role of Starbucks CEO for around five years, and during that time the culture of the company quickly deteriorated.
“The company lost its way. The people who were managing the company — who were all good people — were measuring and rewarding the wrong things. Things such as profit and stock price became the focus. In any business, you need to continuously ask: What is our core purpose for being? Otherwise you lose your way.”
Schultz believes that his big mistake was not selecting a successor from within the culture. When he eventually retires, he intends to choose someone from within the operation who is in touch with the culture of the brand.
7. Being human
The film Fight Club famously depicted Starbucks as the epitome of the faceless corporation taking over the globe, but the company is actually quite unique in its willingness to speak out and engage with people on a social (and even political) level.
“We are very outspoken as a company. We feel that we live in a time where the rules of engagement have changed. What I mean by this is that we need to do more for the communities that we serve. The question we ask ourselves is: What is the role of a for-profit public company? Looking at this question has resulted in us taking on social issues such as same-sex marriage, gay rights, gun control and racism.”
For example, Starbucks recently unveiled its first store in Ferguson, Missouri (which has been plagued by racial unrest) as part of a plan to support efforts to rebuild and revitalise communities.
How Merchant Capital And Retroviral Were Built To Sell
Entrepreneur chats to Dov Girnun of Merchant Capital and Mike Sharman of Retroviral. We explore why their companies attracted funders, and how the relationship can be used to grow their businesses.
The Tech Based Business
Know your business’s numbers inside out, and don’t try to bluff your way through any questions that relate to numbers.
- Player: Dov Girnun
- Company: Merchant Capital
- What they do: Lending solutions for SMEs
- Est: 2013
- Investor: Rand Merchant Investment Holdings
- Shareholding: 25%
- Visit: merchantcapital.co.za
Less than two years into his business, Dov Girnun attracted the attention of Rand Merchant Investment Holdings (RMIH), a financial services investment company that includes the founders of FirstRand, Laurie Diepenaar, Paul Harris and GT Ferreira. These are no small industry players. On an investment level, they’re the funders who backed Adrian Gore when he launched Discovery and Willem Roos when he started OUTsurance.
How had Girnun found himself in the position to pitch to investors at this level? Months earlier, RMIH had launched a fintech incubator called Alpha Code. The idea was to find pre-revenue start-ups that would be the next game-changers. Their research brought them to Merchant Capital.
“We didn’t exactly fit their mandate because we were already operational and profitable,” says Girnun, “but they still really loved the business. They’d been researching the fintech space, and had recognised the potential in SME lending, which is our focus. They really wanted to invest, but at the time I was unsure if I wanted to dilute my shares further.”
Girnun already had an investor, the Capricorn Group, whose investments include Hollard, Nandos and Clientèle, and until this point he’d been careful to maintain his shareholding. His relationship with Capricorn was excellent, as the investment team added huge strategic value to the business over and above capital, and so he hadn’t been actively seeking additional funding.
And then a new opportunity presented itself. “We realised we have golden data on the SME space. How could we cross-sell to our base and monetise that data? We started chatting to RMIH, who were aligned to our thinking.
“Once I realised the value RMIH could add to our business, my whole perspective shifted. Here was an investor that could potentially help me to build a billion dollar business. I’d be diluting shares, but building a much bigger pie.”
Related: Funding Growth with Dov Girnun
The price of equity
Girnun is referring to the investment lesson that equity is cheap early on, and very expensive later, when a funder holds more shares of your business than you do. If you look for funding later, your valuation is higher, you’ve got a proven track record, and the same amount of money secures fewer shares. Sell too early, and the exact opposite happens.
This had always been Girnun’s view, but an understanding of how far the business could potentially go with RMIH’s backing was changing his mind.
There was just one challenge. While RMIH’s investment team loved Merchant Capital’s business model, investments need to be signed off by the board, which meant Girnun and his co-founder Daniel Moritz, needed to pitch to them in person, so that they could see their energy, passion and vision for Merchant Capital.
Serious, seasoned investors don’t make this easy. They need to see your passion, and how well you understand your business. They’re not there to make the experience easy.
“Even though I knew they were interested in my business, I still found the experience extremely daunting. There were very few introductions, handshakes or jokes. I was expected to launch into my pitch, and I knew that even though I had been given 20 minutes, the first two minutes would be the deciding factor. If I didn’t grab their attention in that time frame, they wouldn’t be investing in me and my business.”
Tapping into investor concerns
“I had just returned from the Endeavour international selection panel in San Francisco, and I think this played a major role in the success of my pitch,” says Girnun.
“One of my judges, a hugely successful venture capitalist from Sillicon Valley, really explained the significance of the elevator pitch to me. Imagine you’ve gotten into an elevator with the CEO of Goldman Sachs, he said. If you’re lucky, you’ve got seven floors to get them interested enough in your business to want your card, and maybe even a meeting. They can’t possibly learn everything about your business there and then — they just need enough for their interest to be piqued.
“Because you don’t know how much time you have, or who you’ll be talking to and what their area of expertise is, you can’t just learn a pitch off by heart, and you certainly shouldn’t have a power point deck that you rely on. Both are very bad ideas. Instead, you need to know your business so well, inside and out, that you can tailor your pitch to the person you’re talking to, based on what they care about.
“Because of this piece of advice, I was able to tailor the first two minutes of my pitch to the RMIH board and what they care about. If I grabbed their attention, I’d be able to hold it for the next 20 minutes, which actually ended up being close on two hours. If I hadn’t, we would have politely shaken hands after 20 minutes (if not earlier), and been on our way.”
It’s a simple, but incredibly important lesson: Know your business’s numbers inside out, and don’t try to bluff your way through any questions that relate to numbers.
“You have to know your unit economics — are you able to distill the essence of your business economics on the back of a napkin? You need to know the high level stuff and the minute details, and they all have to be at your fingertips. If they aren’t, you have no business trying to sell your company or attract investors.”
How AutoTrader Anticipated Change
AutoTrader South Africa is an online behemoth, boasting more than three million visitors each month. Not that long ago, though, the brand faced the very real possibility of extinction.
- Player: George Mienie
- Company: AutoTrader South Africa
- Established: 1992
- Visit: www.autotrader.co.za
- Trends are out there to be identified. Being caught unprepared is unacceptable.
- Change needs to be tracked through the use of a measurable KPI.
- Don’t be afraid to act pre-emptively.
- Do research. Know your customer.
- Create an unprecedented user experience.
By the mid-2000s, it was becoming clear that the world was changing. The internet was going mainstream, placing massive pressure on industries that only a few years earlier had seemed untouchable.
The print industry in particular was coming under threat, with readers moving to the internet for information. Things didn’t change overnight, though. The general decline in readership was steady but quite slow.
Like a frog sitting in a slowly-heated pot of water, it was all too easy to ignore the evidence. AutoTrader South Africa, however, was not willing to accept death by attrition.
“When it comes to the digital realm, you can never complain that some development impacted you unexpectedly. The writing is always on the wall, provided you’re taking notice,” says AutoTrader CEO George Mienie.
Long before the global shift to digital mediums started to affect AutoTrader in a real way, the company began to prepare for the inevitable.
“We knew it was coming. The shift to digital was already starting in places such as the US and Europe,” says Mienie.
“We also knew that we needed to measure this shift in a reliable way. When it comes to managing difficult change, you need a KPI that you can reliably measure.”
Comparing unique users of a website to the circulation of the magazine wasn’t reliable enough, since it was impossible to truly know how many people had used any given copy as a reference when shopping for a vehicle. Some other KPI was needed.
“We settled on leads to dealers. We wanted to track how many people had actually contacted vehicle dealers thanks to the magazine, versus how many had contacted a dealer because of the website,” says Mienie.
Finding a KPI
Tracking website leads and comparing them to magazine leads sounds like a simple idea, until you actually start to think about it. If it’s hard to know how many people used a single copy of AutoTrader as a reference, how do you figure out how many leads the mag has generated? It was a conundrum.
Tracking leads on the website would be easier, provided you were willing to harm the user-friendliness of the site. AutoTrader wasn’t willing to do this.
“We could track website leads by forcing every user to fill in some kind of form before gaining access to a dealer’s details, but we weren’t willing to do this,” says Mienie.
“Today, the average user spends a phenomenal amount of time on our site. A typical visit lasts 12 minutes, and we believe this is because our site is easy to use. While KPIs are important, they shouldn’t come at the expense of the user. Everything should be done to make the experience for the client or user as pleasant as possible.
“With this in mind, we give our software engineers a lot of freedom. They don’t need to seek permission to improve the site. If they’ve been working on something that they think will improve the website, they can run with it. You never want bureaucracy to stand in the way of improvement.”
An innovative solution
In order to effectively measure leads from both AutoTrader magazine and the website, the company came up with a very elegant solution called Call Tracker.
The solution was so elegant and transparent that even regular consumers of AutoTrader probably wouldn’t have noticed its existence.
How does it work? The number that you find for any given dealer in the AutoTrader magazine or on the website was not the same as the regular number of that dealer, although, the number was dedicated to a dealer.
Instead, it is a technology that redirected the call through the company to the dealer. Thus, giving AutoTrader the ability to measure leads via phone to the dealer, which was the most-used way in which consumers got in touch with dealers in those years.
Importantly, the company regularly placed a different number for specific dealers on the website and in the magazine, meaning AutoTrader could track exactly which platform a lead was generated from, and give the dealers useful insights into his/her dealership’s response.
AutoTrader had in essence created a reliable but simple KPI, using sophisticated technology at the time, that could be used to track consumers’ migration from print to digital.
As mentioned, the migration of users was fairly slow. AutoTrader had started monitoring the trend in 2007, but it wasn’t until 2013 that the website took over from the magazine as the core focus of the business.
In the mid-2000s, the company had printed around 230 000 magazines each month, and managed to sell 55% of those on a regular basis.
Today, it sells about 30 000 magazines a month. However, as magazine sales have declined, the number of visitors to the website has skyrocketed, with more than three million visitors to the website every month, opening more than 40 million pages.
The migration of AutoTrader magazine advertisers (sellers) and consumers (buyers) to the website wasn’t guaranteed. Getting buyers and sellers of the magazine to embrace the AutoTrader website required hard work.
“As a magazine, we had a big advantage: Potential competitors were faced with very high barriers to entry. We had the capability to compile a 600-page magazine, print it and distribute it weekly. Any new competitor would have found it hard to match us,” says Mienie. “The internet, however, obliterated those barriers. Suddenly it was much easier to compete with AutoTrader.”
AutoTrader wasn’t afraid to pre-empt the digital shift. “You need to be willing to eat yourself. One of the things we did was to place the website prominently in the magazine, knowing that it would eat into sales. We had to take a short-term hit, but we knew that we would benefit from it in the long term.” The company also placed a huge emphasis on the user experience.
“You need to be the best,” says Mienie. “You need to lead the charge and be first to market with every new development. You also need to know and respect your consumer and dealer. We believe in creating a site that is easy to use and offers more content than you’ll find anywhere else. We also make it a priority to know the consumer’s car-buying journey and car sellers’ needs.
“But, the game is changing again, fewer and fewer consumers are using the phone, and to an even lesser degree email, to get in touch with dealers. Our research over the last year shows that more than 52% of car-buying consumers don’t phone or email a car dealer, but simply take the address and visit the dealer directly.
“When it comes to managing great change within a company, research is incredibly important. But just doing research isn’t enough you need to use it effectively. The temptation exists to hog research because you don’t want competitors to get hold of it. That doesn’t work. We know exactly how much time the average consumer spends studying vehicles before buying a new car. We also know how much of that time is spent online (15 hours), and how much is spent in the physical world visiting dealers (14 hours), and this trend is shifting rapidly toward less time in the physical world and more time searching online, which means the consumer has pretty much made his choice before he leaves his screen. We give that info to our salespeople, who in turn give it to our clients (car sellers). Information needs to be disseminated.”
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