2. The Service-Based Business
- Player: Mike Sharman
- Company: Retroviral
- What they do: Online communications agency
- Est: 2010
- Investor: Bidvest Media
- Shareholding: 70%
- Visit: retroviral.co.za
Unlike Dov Girnun, Mike Sharman hasn’t built a product, but a brand. His metrics are very different, because his business is service-based, not tech-based. What he can track however, is marketing ROI. Unlike traditional marketing and advertising, digital campaigns can be tracked and measured, and it’s Retroviral’s job to make sure a campaign goes viral.
It’s an interesting business, because it’s based on Sharman and his team’s specific talents and ability to understand what audiences care about and will share.
“The route of viral content is all about insights into consumer head spaces, analysis of thoughts, behaviours and niches. We need to understand groups and cultures and how to tap in to their daily lives, and give them meaningful content that they want to share,” says Sharman.
In other words, it’s more art than science. But, it’s also very measurable, — emails, downloads, views, shares can all be tracked and measured, which means it’s relatively easy to see how well a digital agency does its job.
In theory, this makes a valuation and even finding a buyer or investor relatively easy. If you have measurable numbers, you can prove your worth. But what is the investor actually buying? Is it the business, or the skills and talents inside the founder and their team’s heads?
As a business owner looking for an investor or to sell the business outright, these are all things you need to consider before approaching a potential buyer.
Most importantly, you need to be 100% sure that the IP that makes your business a success doesn’t live in your head, but is part of the company’s IP and culture. How are skills disseminated and shared? How are new employees quickly brought up to speed, and what happens when someone leaves? There need to be systems and processes that can be followed to ensure that the magic continues, even as the people within the organisation change.
Related: Going Viral…Retroviral
Avoiding the founder’s trap
Many entrepreneurial businesses reach a point where they can’t survive with you, or they can’t survive without you. Either growth is surpassing the founder’s skills, and a new CEO is required, or the business cannot survive without its founder, because the company’s IP and differentiators aren’t entrenched in the business and its process, but the founder’s head. It’s known as the founder’s trap.
Different business models are prone to different traps. From an investment perspective, the first trap is relatively simple to fix, and it’s the reason why so often part of the investment deal is that the founder is asked to step down as CEO.
The second trap however is a slightly different story, and it’s one of the reasons why so many entrepreneurial businesses (up to 98% according to statistics) can’t be sold. Without the founder, there is no business. It’s a shock for founders nearing retirement age when they discover that the business they thought was their retirement fund is actually worth far less than they assumed because the entire valuation is based on their role in the company.
So how do you avoid the founders trap? In many respects, Retroviral could be an ideal candidate, because Sharman’s experience and talents are so interwoven with the company’s success. Despite this, the Bidvest Group, through one of its subsidiaries, MSCSports, recently purchased a 70% stake in the business. Here’s why.
Creating a culture
First, Sharman’s focus since launch has been to create a culture at Retroviral where everyone is 100% clear on the company’s values and what it offers to clients. Sharman hates mediocrity, and this is wired into the company’s DNA.
“It started with me and one employee, creating a framework that others could follow as they joined the business,” explains Sharman. “It was important that the vision wasn’t mine alone, but based on a replicable and measurable ideology that new employees could understand, embrace and follow.”
Second, not every deal is based purely on revenue generation. In Retroviral’s case, the IP that Sharman and his team bring to the table is extremely valuable to the Bidvest Group as a whole. The acquisition is under the Bidvest Media division, and according to its CEO, Neil Jankelowitz, the majority stake in Retroviral is a strategic investment as Retroviral has the capabilities to offer digital marketing services to the entire Bidvest Group. In other words, it’s not just the business that’s valuable, but what Sharman and his team can share with the rest of the division in terms of insights and lessons.
In Jankelowitz’s own words: ‘The focus is to buy a great digital agency and acquire entrepreneurial, like-minded entities and expand the value chain. Our aspiration
over time is to grow Bidvest Media into its own division.’
Related: Retroviral: Mike Sharman
But there are always two parties in an investment deal. The buyer and the seller. As important as it was for Bidvest to see the value in Retroviral, Sharman needed to see the value in joining a large group as well. So what does Retroviral get out of the deal?
First, it allowed Sharman’s co-founder, Murray Legg, to exit the business, while still leaving Sharman with enough equity to really care about the company and continue growing the brand and client base. It also opened a large new potential pool of clients. The value of joining a large group is that there should always be synergies that the various members of the group can benefit from.
“Bidvest owns a number of cool brands: Yamaha, King Pie, Bidvest Insurance, Bidvest Car Rental, and we’re now able to approach these companies from within the group, and if they see value in what we have to offer, have some fun building client awareness,” says Sharman.
For example, it was Retroviral working with Bidvest Insurance that was responsible for the news that Handre Pollard had insured his kicking foot for R2 million ahead of the 2015 Rugby World Cup. The campaign did so well it hit news outlets across the world, from the UK to New Zealand.
“That’s what we’re great at, and now we can start sowing those seeds across a group of companies that has 144 000 employees across multiple countries. There’s so much potential to educate along successful and profitable lines. It’s all about the transfer of knowledge between acquirer and acquired,” says Sharman.
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 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.”
10 People Who Became Wildly Successful After Facing Rejection
Maybe failing isn’t always such a bad thing, as these well-known individuals prove.
Sometimes, you jump out of the gate with a great idea that you can polish and run with. Everything’s going well – until you get hit with a failure. Failure punches you in the gut, leaving you with throbbing wounds and the inability to do anything but moan about what might have been.
But take heart – failure isn’t the end, unless you let it be. Failure means you’re on the road so many others have taken to success. Don’t believe me? Here are 10 people who lived through failure before going on to become names known around the world:
1. Milton Hershey
The man who blessed us with the sweet milk-chocolate treat we all love wasn’t a hit the first time around. Before launching his own candy business, he had worked for a local candy factory. But when he decided to go out on his own, he failed miserably.
Despite two more failures, he returned to the family farm and perfected the art of making delicious milk-chocolate candy, which we enjoy in the form of Hershey chocolate today.
Related: 9 Things Successful People Won’t Do