The Bakos Brothers decorating Centre – an eye-catching corner property in Dunkeld, Johannesburg, is a well known landmark. It offers decorating, design, planning and furnishing services, and also serves as the headquarters for the family-owned furniture business which has showrooms in Sandton City, Design Quarter Fourways, Pretoria and Nelspruit. Several more are in the pipeline following a total refurbishment of the company by Ryan Bakos, the young and super-energetic new face of the iconic luxury furniture brand.
The first Bakos Brothers retail store opened its doors in 1971, in Rissik Street, Johannesburg. Of Lebanese descent, the brothers – Norman, Tyrone, Dennis, Bernard and Donald – came from a family with a strong entrepreneurial background and a couple of them had already owned their own furniture shops when they decided to pool their skills and resources to create a store that sold elegant pieces to an upmarket clientele and focused strongly on customer service finesse. The brothers’ hard work and commitment to the company saw them launching a second store two years later, also in the CBD. When television was introduced to the country in 1976, they spotted the gap in the market and Bakos Brothers became South Africa’s number one television retailer.
They sourced fine furniture from around the world, giving discerning consumers access to international designs and trends. That immediately differentiated the experience of shopping at the plush store, setting the business apart long before brand awareness became the marketing catchphrase that it is today. Bakos Brothers was synonymous with opulent living and gave South Africans a taste of what has since become known as lifestyle furniture and design.
The company also diversified into property development. In 1977, the brothers built a modern shopping centre in Nelspruit. A first for the town, the project was spearheaded by Dennis Bakos, the eldest of the five, and father to Ryan, who was destined to take over the reins from childhood.
A family tradition
By 2008, the brothers were confident that Ryan was old enough and experienced enough in the workings of the business to assume the role of leader. They realised it was time to inject new energy into the business, and Ryan was ready. It’s a job he says he was groomed for from the time he learnt to walk and talk.
“My uncles are conservative and traditionalist. The company consisted of three stores, a small staff, ancient systems and a real mom and pop attitude. Information flow was non-existent. It was hard to determine stock levels and find price lists. The things they excelled at were an eye for quality and superb salesmanship, but we needed to reinvent the Bakos Brothers brand to enable the business to grow in what has become an intensely competitive market. Luckily, I have always been more interested in back-end systems than the front-end. My experience with etailer eDreams had given me a huge insight into information systems, and I started to apply those learnings from the day I walked in.”
Never a good student, Ryan completed school in 1998. He had failed standard eight and was only too keen to matriculate and get his formal education over and done with. Interestingly, not one of the brothers who started Bakos matriculated, and Ryan’s own brother Sheldon is the only man in the family to have a degree. After school, Ryan went straight on to join the commercial and retail property side of the family business, working alongside his father. In 2000, he moved into furniture retail where he spent two years as a salesman, also delivering furniture and doing lots of manual labour in the warehouse. “Working anywhere else was never an option for me,” he says. “The business is as much a part of our family as we are of it.”
Profiting from outside experience
It’s well known in the business world that family-owned companies often suffer when the reins are handed over by the founder to the next generation. The founders work hard and build a business, the children take it over and are poorly prepared to manage and make it grow but they enjoy the wealth, and the grandchildren inherit a dead business and an empty bank account. Ryan and his family were determined that would not be the case.
At 21, he was encouraged to take a gap year and went to London where he waited tables and then backpacked around Europe. On his return to South Africa, he went back into the retail side in sales for two years and then moved into property for another five years. He became a property manager and – with responsibilities to both the landlord and the tenants – he got the opportunity to grow his real estate knowledge and combine this with management skills.
As a sideline, in 2003 he and a friend started a mail order company that imported consumer products from overseas. That became eDreams, a hugely successful and popular online shopping site in which Ryan continues to have an interest. It’s a business venture that gave him profound insight into what it takes to systematise operations.
“eDreams taught me a great amount about the importance of sophisticated functionality and the availability of information,” he says. “We spent nearly two years developing the website and today it is able to handle thousands of orders at any given time with just six staff. It was an excellent training ground for what happened next.”
But when he took over, it was not an easy period for the company. The recession was in full swing, margins were tight, and cheaper competitors had popped up all over the country. However, Ryan believes that what kept the business alive over four decades and through so many changes in fashion and style is family. “The difference between us and everybody else is that we remain a family business. My uncles come to work every morning and they open up the stores. They really are the greatest salesmen. Nothing can compete with that. It’s a great company to work for as that family ethos is pervasive. The environment is warm and friendly, and not at all corporate. Even though we now have commercial systems and processes in place, the atmosphere remains the same, and customers feel it too. If there is ever a problem, the customer can get hold of a Bakos to sort it out for them – they will not be sent from manager to manager. That’s because the brothers started the business from scratch. They drove around delivering couches – that service culture remains. It’s an essential part of our training programme; all our salespeople learn how to treat the customer the Bakos way.” Under Ryan’s leadership, the Bakos Brothers brand has undergone considerable changes, and it’s behind the scenes that some of the most innovative modifications have taken place, with Ryan revitalising the business and preparing the company for major growth into the second decade of the millennium.
“When I was appointed CEO, my goals were to revitalise the business, leveraging all the good, solid, family values that were in place, while at the same time overhauling all the systems and processes that would hamper growth. My uncles had not been interested in expansion, but I made them realise that it would be the best way forward for the business as we needed greater visibility if we wanted to remain competitive.
On the question of trust, Ryan points out that the brothers took no convincing when it came to making him CEO. That was how he in turn encouraged them to let him implement the changes to the business, the results of which are clearly evident in the figures, with turnover in the nine digits.
“Trust and support make all the difference in a family business,” he says. “The five brothers have worked together for so long and I grew up as their son. They have always had conviction in my desire to do the best for the business. In any family concern, the older generation must be prepared to let go and to have faith in the youngsters. Change is fundamental to growth. Less than five years ago the company was still run on carbon paper copies. Today we are geared up for national expansion.”
Reinvention in the midst of the downturn
Ryan’s decision to open a 4 500m2 factory in Wynberg at a time when the market was in severe downturn – employment in the furniture manufacturing industry had dropped by 11% to less than 40 000 by 2009 – was a brave move. It has helped the company to take on larger competitors, adjust its pricing and cut out the middlemen.
Up until then, Bakos Brothers had been a focused retail company that bought from local manufacturers and imported most of its sofas. They were buying expensive fabrics and couches from suppliers, all of whom had their own margins. The only way to bring costs down was to start making their own furniture.
Ryan notes that he was astonished by how many furniture companies were wiped out by the recession. “I know of seven major factories and retailers that have disappeared. The closure of these businesses worked to our advantage, with the company sourcing both skilled employees and relatively new equipment from the defunct factories.”
The factory now provides work for 160 people and the company buys fabrics and leather in bulk, direct from the wholesalers. This has made it possible to bring down the tag of a couch from about R40 000 to R 9 000. The showrooms have been redesigned to feature both ranges – top-end and more affordable.
The company also brought on board Gerald Yosh, a legend in the local furniture business who is now in his 70s, to head the manufacturing division and assist with design. “You can feel the presence of genius when you are around him,” says Ryan. “He has so much experience and knowledge and he’s also helping us to bring in even more business. We meet every day and speak constantly.”
Expanding market share
The establishment of the factory is enabling the company to grow its national footprint. From appealing to just 2% of the market previously, it’s expanding rapidly. In 2009, a new store was opened in Nelspruit. This was a first for the business which had operated solely in Gauteng up to then. “The store was a tester to see how efficiently we could control a business remotely. We got our managers involved in the project and it has really taken off. I’m pleased about that. I grew up in Nelspruit and my family has had a long history there so it was important for me to get it right.”
But Ryan notes that the store did have a few teething problems at first. Ironically, these difficulties helped to pave the way for the business’s ongoing transformation. “The store struggled when it first opened because of the cost of the high-end items. That’s when I realised that to really boost turnover across the entire company, we needed vertical integration.”
Manufacturing locally also means the company is able to fulfil orders far more quickly, as customers do not have to wait for items to be imported.
“With the opening of our own factory and our control of the manufacturing process, we have brought down the cost of our sofas dramatically. We still provide exceptional quality. Our frames and raw materials are of the highest specs, and we buy only the best fabrics and leathers. But because we’ve brought everything in-house, we are able to offer the same quality at a far more affordable price. The strength of the rand has also worked in our favour as this has lowered the cost of the fabrics we do import.”
At the same time, Ryan saw the need to introduce more budget lines of furniture items. He says this will not impact the perception of the store as a high-end retailer. Although he considered launching a separate label for the more affordable range, he decided against it as he felt there was no need to dilute the brand.
“The exclusive, top-end lines are still at the core of the business, it’s just that we now offer a large range of more affordable items too. This has grown our customer base radically along with the marketing drive as people want to own a Bakos Brothers item. Whether you want a four-metre mahogany dining table or a less ostentatious item, we can provide both. It wasn’t necessary to introduce a second brand, because both price points appeal to the same market. The brand is aspirational. It’s this mix of products that has enabled the new Nelspruit store to flourish, and that’s the strategy we have adopted for the rollout of our other stores through 2011.”
Next, Ryan took another unprecedented step for Bakos Brothers and radically increased the advertising budget – by 400%. “I was determined that we would advertise aggressively in the glossy magazines and in newspapers. Because of the slump, most companies were slashing their advertising budgets so we managed to get massive discounts. We got so much bang for our buck, it was amazing. Alongside the budget increase, the ads changed too. They had been the same for many years, and it was time to simplify the concepts and introduce clean lines and fresh designs, all more in line with the demands of the contemporary consumer and with what is happening in the furniture market.”
Ryan believes this spurt in visibility while other retailers were playing it safe played a major role in Bakos Brothers’ subsequent successes. The company’s exposure in the media increased by around 2 000% and turnover skyrocketed. Growth has since been posted at 17% year-on-year. “A downturn can provide great opportunities if you keep an eye out for them,” he says. “This massive advertising drive has positioned us upfront to take advantage of the slow but steady upturn.”
A fresh look at tired systems
Critical to the growth of the business was Ryan’s move to revitalise business systems across the company. “We implemented a totally new, cutting edge information systems infrastructure. The need for this type of system is glaringly obvious in any big company, but in an old-school family business it can be overlooked because ‘things have always been done in a certain way’ and the founders are familiar with that. Initially, my uncles took some convincing. This type of change is expensive and it can be invasive, but we started to see the benefits fairly quickly.”
“I started at ground level, ensuring that things like stock levels were right, the stock balanced, lead times were brought down, and price lists were all accurate. That gave everybody a window into the company, a 100% accurate picture of what was available, what we could and couldn’t sell, and what processes to follow in each case – all of which had previously been unavailable or hard to find.”
To make sure the systems were as perfect as possible, he walked around with booklets and asked employees to comment on what was working and what was not. He also held one-on-one interviews with staff, asking them what were the ten things they hated about their job. That was a smart move as they are on the ground every day. Incorporating their suggestions into the operational side of the business has helped to significantly boost turnover in the past two years, Ryan says.
“We found out what the problems were and fixed them. I have always believed that the best way to glean information from people is to speak to them directly – that is my style of doing things. We overhauled departments that had been undermanaged and spent a fortune on bringing in new management. We also asked our people what they loved about their work and made sure those aspects of the business remained intact. This gave us real insight. With all that information, we were able to take the weakest components of the business and make them strong. When the business started picking up, demand grew and so did stress levels. That gave us the opportunity to push out the bad eggs.”
Family businesses often have poor human resources systems in place, and Bakos Brothers was no exception. When Ryan took over, the HR department was weak and had to be completely revamped. On the topic of recruitment, he is adamant that he will not consider employing people who job hop, and will only look at CVs of those who have been in their current employment for five to ten years. “One thing I have learnt over the years is that loyal, stable and conservative employees are the ones who will be with you for a long time.”
Ryan also brought in experts to monitor the company’s carbon footprint. The company emits 100 tons of carbon every month, most of it from electricity consumption. It now offsets that by planting hundreds of trees in Johannesburg’s poorer suburbs. A lighting conversion programme to reduce consumption is also underway.
“I believe it is every person’s responsibility to adopt low-carbon practices, and businesses are made of people. Raising public awareness and encouraging choices that support ethical companies will result in pressure being felt by other suppliers to follow suit,” he says.
A new approach to leadership
Ryan’s not a great reader, but he takes his inspiration from others. He continues to be mentored by his father and uncles, all of whom are able to provide him with the advice and cautionary words that come with years of experience in the business.
He admits that it’s challenging to retain the feel of a family business, yet still function at a corporate level. One of the advantages is that he’s introduced some team activities for his people, such as ten pin bowling, beach volleyball and inspirational talks. There has to be a balance however, he says, between having a good time at work and doing the work properly. “My message to the staff is simply, ‘Love your job and obey the rules’. I believe we have managed to retain a very positive energy in the business because of that.”
He believes in leading by example, which is not difficult for someone who has taken on just about every role in the business over the years. On a typical day, he gets to the factory at seven, checks on production and quality control, and also sees that the floors and the bathrooms are clean. From there he visits the warehouse, and then goes to his office to monitor the finances and payments. He’s putting in the hours, but he says that if you love what you do you never have to work.
“I’ve been in it for so long that I can do anything and everything. That is essential if you want to build a strong company. You have to know how things are done. My staff have photos of me working on the factory floor. It’s fun to build a couch.”
4 Lessons From The Pivotal Group Founders On Growing And Disrupting All At Once
Here’s how they’ve built what they believe to be the foundations of a successful group of businesses in five years.
- Company: Pivotal Group
- Players: Paul Hutton, Joel Stransky and Bruce Arnold
- What they do: Pivotal pioneered voice biometrics in the financial and telecommunications market. Over time, the company has grown to include nine divisions across multiple sectors.
- Launched: 2012
- Visit: pivotalgroup.co.za
How do you build a disruptive business while also focusing on growth? Disruptive ideas are by definition new and unknown to the market. They defy traditional and established solutions and ways of doing business, and they require the market to be educated before you can really onboard clients or even sell your product or service.
The answer is to build parallel solutions: Business units that bring in revenue while the more disruptive ideas are being developed and introduced to the market. Here are the four top lessons the founders of the Pivotal Group have learnt while building their business and pursuing disruptive opportunities simultaneously.
1. Know who your competitors (and potential competitors) are
Great ideas that are economically viable and solve a need that consumers are willing to pay for are few and far between. Great ideas alone are a dime a dozen, but if you’ve spotted a need, chances are someone else has as well. You then need to step back and critically evaluate why someone else hasn’t done this before; if they have done it and they’ve failed; or if you’re entering shark-infested waters riddled with competitors.
Once you’ve determined there is a gap in the market, you need to evaluate who your potential competitors are, and the impact if they suddenly started offering a similar solution to the market.
For Paul Hutton, Bruce Arnold and Joel Stransky, the founders of OneVault, competition was always a factor, particularly as a start-up, and given that potential competitors included Bytes and Dimension Data, this was a very real factor to consider. After careful analysis, however, the founders decided to go for it. Their differentiator was their business model. They wouldn’t be selling OneVault as a software solution, but as a service.
The idea had taken root while Paul was still CEO of TransUnion Credit Bureau. “I came across voice biometrics in Canada. There’s been a surge in identity fraud around the world, and I really understood the value of voice recognition as a verification tool,” he explains. “It can’t be faked, and it’s the only remote biometrics solution available, because you don’t physically need to be there to verify yourself.”
Paul had presented the idea to Transunion’s global board, and while they were intrigued, nothing came of it. “TransUnion’s model is to buy companies that are experts in their specific fields, not launch a new disruptive division from scratch.”
But this meant there was an opportunity for Paul to pursue the idea independently. Joel (former MD of Altech Netstar and CEO of Hertz SA) and Bruce (formerly Group CFO of TransUnion Africa and CFO at Unitrans Freight) were immediately interested in partnering with Paul. Both wanted to pursue entrepreneurship, although neither could do so immediately. The commitment was enough for Paul to get directly involved and start working on the business while he waited for his partners to join him.
In January 2011, Paul and Joel travelled to the UK and started investigating voice biometric solutions. “Voice biometrics was fairly new, but good technology was available, and there were global leaders in the sector,” says Joel.
It was important to choose the right product for the South African market, as this would form the basis of their offering. A contact at Dimension Data (one of whom became an investor in the business) offered this simple and straightforward advice:
When you’re choosing a technology partner, go with the company whose tech you’re confident in, and whose leadership is stable. You’re basing so much on this company and their longevity, so don’t disregard this criteria.
For Paul, Joel and Bruce, a US-based company, Nuance, ticked those boxes. But, from a competitive perspective, OneVault wasn’t the only potential player in the market. “Neither Bytes nor Dimension Data had gone into voice, but they had the potential to do so,” says Bruce. “The products were available to them through their partners.”
To mitigate this very clear risk, the founders made two critical decisions. “Our intention was to sell voice biometrics as a service, instead of a software solution that customers bought and owned, with the necessary infrastructure to go with it. The idea for OneVault was that there would be one place where your voice print lived, and different businesses could plug into our solution.”
The business model of large technology players in South Africa is to sell integrated software solutions, so OneVault’s business model was a differentiator. The next differentiator Paul, Bruce and Joel focused on was becoming specialists in their field.
“This is Paul’s baby,” says Bruce. “We’ve needed to build up a niche, expert team that specialises in voice biometrics. Because we aren’t generalists, 100% of our focus goes into this, instead of 5% or 10%.”
To attract the best in their fields, the founders needed a very appealing culture and a strong recruitment strategy. “We focused on what we wanted from our work environment, and then applied the same rules across the business,” says Joel. “Our goals were to drink good coffee, have no leave forms — ever; be able to take the time to ride our bikes and watch our kids play sports. If someone can’t make it work, or takes advantage without putting in the work, they come and go, but on the whole, we’ve had extremely low churn, and we’ve attracted — and kept — incredible talent.”
This differentiator would prove to be important for two reasons. First, two and a half years into the business, with investors on board and having pumped a significant amount of their own capital into the business, the team hit a major stumbling block. For a few weeks, they didn’t even know if they had a business.
“We had been operating on one major, and as it turned out, faulty, assumption,” says Paul. “We thought South African companies had the right telephony structure to implement our solution. We’d been building our solution on top of Nuance’s software, and were ready to start piloting the entire system with a few key customers, and we found out that in order to meet global voice biometric standards, the telephone technology had to be G711 compliant. South Africa was operating on G729.”
This was OneVault’s make or break moment. The team had six weeks to come up with a solution that ensured it met the necessary levels of accuracy. Without a highly skilled team this would have been impossible.
Even as a start-up, the strategy had been to only bring the best of the best on board. “We didn’t interview,” says Bruce. “We approached people whom we knew. We approached the best in the industry, and convinced them to take a chance with us. There was risk, but there were also rewards.” One of those people was Bradley Scott, a brilliant engineer whom both Paul and Bruce had worked with at Transunion.
Today, OneVault is one of the most specialist companies in the world, and often asked to speak at events in the US.
Being the niche specialists paid off, and OneVault achieved the almost impossible. But this had its downside.
Once you’ve shown something can be done, the bar of what’s impossible moves. Competitors enter your space.
This was the second reason why being such focused, niche experts paid off. “We demo’d the solution for a large local corporate, they loved it, and then went to a ‘then’ competitor to implement it,” says Paul.
“We always knew this was a real danger. Players like Bytes and Dimension Data have solid, existing client relationships with the same companies we’re targeting.”
18 months later the project still wasn’t working. “This is deep specialist knowledge,” says Paul. “Knowledge we built while we created our offering.” OneVault won the contract, and developed a partnership with Bytes at the same time. Today, OneVault works with all the major software integrators in the market. “We’re a specialist service they can offer their clients, without needing to put the same time and energy we needed to put in to become the specialists.”
Through a focused strategy, OneVault has become a partner, rather than a competitor, of some of the largest players in the industry.
2. Understand the nature of disruption so that you can prepare for it
In today’s ever-changing and fast-paced business world, most business experts are in agreement that as a company, you’re either the disruptor, or you’re being disrupted. The problem is that disruption comes with its own set of challenges.
“Our entire business model was built around a subscription service. Instead of a company buying a software solution, installing it and running it internally, we would do all of that. We would carry the infrastructure burden, and the high upfront cost,” says Joel.
In theory, this sounded like a clear win for businesses that would benefit from a voice biometrics solution. The reality is never so simple, particularly when you’re a disruptor.
“The software is expensive, and so we thought this would be seen as an excellent solution,” says Paul. “Instead, we faced a lot of reticence over the cloud. Businesses didn’t trust it yet.”
On top of that, first movers are often faced with a lag in corporate governance guidelines. As technology becomes more sophisticated, so governance guidelines change — but it’s a slow process, and the lag can impede disruptors.
“You also can’t give proper reference cases, because it’s all brand new to your market,” says Paul. “The best we had was a case study of how well it had worked in Turkey.”
To compound matters, proof of revenue is essential for businesses wanting to trade with large corporates, but non-existent in the start-up phase.
So, what’s the solution? According to Joel, Bruce and Paul, it’s all about being patient, never giving up, building gravitas and getting a few clients on board, even if it’s free of charge to build up your reputation and prove your concept. Finally, you need to bring in revenue from more traditional channels to support your disruptive products and solutions.
“Disruptive solutions are by their nature new and different, which means change management for your customers. This makes the sales cycle long and complex, and you have to be prepared for that,” says Bruce.
Don’t stop laying your groundwork. While disruptors are ahead of the curve, you need to be ready for the uptake when it arrives. “We’ve now concluded a partnership with South Africa Fraud Prevention Services,” says Paul. “When an imposter calls we won’t only terminate the transaction but we will alert the identity being compromised in the attempt and we will actively prevent fraud by contacting Fraud Prevention. The ultimate vision is for every South African’s voice biometric signature to live in our vault, and we are already receiving imposter information.”
3. Cultivate additional revenue streams
So, what do you do while you are living through the extremely long sales turnaround time of your disruptive, game-changing solution? Bills still have to be paid and investment is needed to develop truly disruptive ideas.
First, the team realised that while an annuity subscription service was their ultimate goal and where the industry was heading, initially they needed to be able to sell and implement the software.
It’s worth noting that one of OneVault’s earliest customers who bought the software has since launched a new business, which is on OneVault’s annuity service model. The shift has just taken time. “The change is happening, but it’s been slower than we anticipated,” says Bruce. “We needed to accept that fact and sell the software to bring revenue into the business while we were waiting for the market to catch up.”
It’s an important lesson. You don’t want to get distracted from your vision, but you need to be bringing in revenue, even if that means your short-term strategy differs from your long-term goals.
“It took three years before we really started seeing a move towards hosted solutions,” he adds. “Outsourced and offsite solutions are opex environments, not capex. They are more cost-effective for customers, but they require a shift in thinking. It’s a move away from how things have always been done, and that takes time.”
But, while Paul, Bruce and Joel were learning the art of patience, they also needed to start bringing revenue into the business.
“It was clear that we needed to find other opportunities,” says Joel. The result is the Pivotal Group, a diversified holding company with different businesses that are interlinked and complementary.
The group’s first business outside of OneVault, Pivotal Data, was based on a large call centre contract Joel, Paul and Bruce secured. “You can’t be an expert in everything – when you specialise you will always be more successful. The trick is to partner with other experts,” says Joel. In this case, three entrepreneurs were opening a call centre — this was their area of expertise; they were absolute subject matter experts. What they weren’t experts in was technology or facilities management. Instead of doing it themselves, they were looking for partners.
“We manage everything aside from the people element,” explains Joel. “We found and leased a building, built the bespoke workspace, put in the technology, and managed the facility and IT on an opex basis back to them.”
The business immediately had a good anchor client, and Pivotal Data has built on that. The annuity income has supported further growth.
“This was a base for us, but we’ve acquired a few businesses on the back of this success, and created our own cloud contact centre solution — which also feeds into what we’re doing with OneVault,” says Bruce. “Our vision is to create a technology stack that’s world-class and provides a range of services that no other businesses provide as a single solution.”
Because of this pivot into call centre management, a new opportunity has presented itself, and Pivotal’s ambition has grown to include a solution that calls, authenticates, and then analyses all the data that is collected during those calls.
“Through partnerships, my team has developed a predictive analytics system that gives contact centres deep diagnostic tools. We can predict why agents are having the conversations they have, and what to tweak to improve them. We see the agent’s problem before they do. This isn’t just value add, it’s a revenue generating tool if it improves lead conversion rates and customer service. It’s also all geared to lowering call volumes.
“We know we need to keep looking forward. OneVault is starting to gain real traction, but we need to be working on the next disruptive solution and model. We can’t sit back and relax,” says Bruce.
“Three years ago we said that’s it; no more start-ups or investing in pre-adoption phase businesses. From now on, everything we do will be revenue generating,” says Paul. “We’d stretched three years of runway to five years in OneVault, and we didn’t want to keep doing that. We wanted instant revenue businesses. And the very next thing we did was invest in a start-up. It’s a crazy space, but it’s also very rewarding.”
To sustain it, the group continues to grow, focusing on investing in businesses and entrepreneurs who are subject matter experts and therefore already know and understand the market, and then positioning each new business or service to plug into the current offering.
“Data is our golden thread — technology and the disruptive space,” says Joel.
4. Be open to new ideas and opportunities
Integral to the Pivotal Group’s positioning is Paul, Bruce and Joel’s focus on supporting other business owners whose offerings align with the group’s own growth goals, and who would benefit from joining a group.
“If your goal is to be disruptive, you need to be open to all kinds of new ideas,” says Joel. Some will be better than others, and the co-founders have made the decision to focus on the ‘jockey’ rather than the business as a result. Business offerings and ideas need to pivot. If you have the right partners, finding a solution is all part of the challenge.
Pivotal’s move into the world of artificial intelligence is due to one such partnership. “One of our clients approached us with a concept. But he needed a partner to develop it into a proper AI solution,” says Joel.
It’s an augmented intelligence solution that focuses on recruitment, talent management and career guidance. The solution screens, ranks and matches candidates against a job profile, or a number of profiles. It’s a multidisciplinary platform that predicts the performance of the individual in a role.
“Our partner is a former Accenture consultant and a leader in this field. His focus is on the IP and science of the product, ours is on the business component.”
The challenge is how to commercialise and scale the business in as short a time frame as possible. Like many disruptive products, the adoption process is a stumbling block. “We invest at the pre-adoptive curve — not at the revenue generating stage, which means a big focus is always on how we can take an idea and build it into a revenue generating business,” says Bruce.
The business uses capital selectively. “We want to invest in and drive our own agenda,” says Paul. “We’re in charge of our own destiny, but it’s not comfortable or simple. We came from corporate. Big machines that you need to direct and keep on course. This is an entirely different challenge and we are still learning.”
Listen to the podcast
Matt Brown interviews Paul, Joel and Bruce and discusses what it’s like to invest in pre-adoptive start-ups and staying ahead of the curve.
To listen to the podcast, go to mattbrownmedia.co.za/matt-brown-show or find the Matt Brown Show on iTunes or Stitcher.
The Matt Brown Show is a podcast with a listenership in over 100 countries and is designed to empower entrepreneurs around the world through information sharing.
Afritorch Digital An Overnight Success That Was Years In The Making
By any standard, local start-up AfriTorch Digital has seen phenomenal growth and traction. But, while the company’s success might seem quick and effortless, there is a lot of hard work behind it.
- Players: Michel M. Katuta and Thabo Mphate
- Company: Afritorch Digital
- Established: 2017
- Visit: afritorchdigital.com
- About: Afritorch Digital assists research agencies in conducting market research through its in-depth knowledge of the African continent and its use of the latest digital technologies.
There is a saying that goes: It takes years to become an overnight success. While a company or individual might seem to enjoy sudden (and seemingly effortless) success, there is often more to the story. The results are usually public and well-publicised, but the years of hard work that came before go unnoticed.
Local start-up AfriTorch Digital is a great example of this. Since launching in May 2017, the business has seen excellent growth. “To be honest, we were very surprised by the level of success. Things progressed a lot quicker than we anticipated,” says co-founder Thabo Mphate.
“All the goals we had hoped to reach in four or sixth months, we managed to hit in the first month. It was just amazing.”
Preparing to launch
While AfriTorch Digital has certainly seen quick growth and success, it would be a mistake to assume that the same is true of the two founders. For them, the creation of AfriTorch was years in the making.
“The goal was always to start our own business,” says Thabo. “I think we’re both entrepreneurs at heart, and we saw an opportunity to create a unique kind of business that offered an innovative solution to clients, but we also realised the value of getting some experience first. Without the knowledge, experience, network and intimate understanding of the industry landscape, getting AfriTorch off the ground would have been incredibly difficult.”
Entrepreneurs tend to dislike working for other people. They want to forge their own path. However, as AfriTorch Digital’s case illustrates, spending time in the industry that you’d like to launch your business in is tremendously useful.
“Finding clients when we launched AfriTorch was relatively easy,” says company co-founder and CEO Michel Katuta. “One reason for this, I think, was that we were offering potential clients a great solution, but the other was that we had established a name for ourselves in the industry. People knew us. We had worked for respected companies, and we had done work for large clients. So, when we launched, we were able to provide a new start-up with credibility in the industry.”
The Lesson: Becoming an entrepreneur doesn’t always start with the launch of a company. Spending time in an established business, gaining experience and making contacts, can be invaluable. Very often, it’s the relationships you build during this time and the knowledge you accumulate that will help make your company a success.
Solving a problem
Everyone knows that launching a successful business means solving a burning problem, but what does that mean in practice? Aren’t all the burning problems already being addressed? And how do you attempt this without any money?
Thabo and Michel identified a small group of potential clients with a burning problem. Crucially, it was a problem that no one outside of the research field could have identified. Having spent years in the trenches, they saw a massive gap waiting to be filled.
“A decade ago, researchers were still debating whether the future of the field was in the digital space. That debate is now over. Everyone agrees that online is the way to go. What once took months now takes days or hours, and the cost of research can be reduced by a factor of five,” says Michel.
“But researchers are not technology specialists. If made available, they are eager to adopt digital tools, but they aren’t eager to develop these tools themselves. That’s not their area of expertise.”
AfriTorch Digital stepped up to provide these tools. Katuta has a background in software engineering, so he could approach research problems with the eye of a tech specialist. Very soon, research agencies were lining up to make use of AfriTorch Digital’s services.
“We work with research agencies that conduct research on behalf of their clients. We provide the digital tools needed to conduct research online, and we provide the online communities. A big reason for our success is that we understand Africa. A lot of companies want to conduct research in Africa, but traditionally, this has been very hard. There was a lack of access and a lack of infrastructure that made research very hit-and-miss. Thanks to the continent’s adoption of mobile technology, it’s now much easier. If you have the technological know-how and an understanding of the environment, you can do amazing things,” says Michel.
The Lesson: Find a niche and own it. Research agencies might not have seemed like an obvious and lucrative market, but having spent time in the industry, the AfriTorch founders were able to identify clients who would be desperate for their offering. Spending time in an industry will help you see where the opportunities lie.
Before launching a business, get to know an industry from the inside out. This will give you an unparalleled view into gaps you can service.
Jason English On Growing Prommac’s Turnover Tenfold And Being Mindful Of The ‘Oros Effect’
Rapid growth and expansion can lead to a dilution of the foundational principles that defined your company in its early days. Jason English of Prommac discusses how you can retain your company’s culture and vision while growing quickly.
- Player: Jason English
- Position: CEO
- Company: Prommac
- Associations: Young President’s Organisation (YPO)
- Turnover: R300 million (R1 billion as a group)
- Visit: prommac.com
- About: Prommac is a construction services business specialising in commissioning, plant maintenance, plant shutdowns and capital projects. Jason English purchased the majority of the company late in 2012, and currently acts as its CEO. Under his leadership, the company has grown from a small business to an international operation.
Since Jason English purchased Prommac in 2012, the company has experienced phenomenal growth. At the time he took over as owner and CEO, it was a small operation that boasted a turnover below R50 million.
Today, Prommac is part of a diversified group of companies under the CG Holdings umbrella and alone has grown it’s turnover nearly ten fold since Jason English took over. As a group, CG Holdings, of which Jason is a founder, is generating in excess of R1 billion. How has Prommac managed such phenomenal growth? According to Jason, it’s all about company culture… and about protecting your glass of Oros.
“As your business grows, it suffers from something that I call the Oros Effect. Think of your small start-up as an undiluted glass of Oros. When you’re leading a small company, it really is a product of you. You know everything about the business and you make every decision. The systems, the processes, the culture — these are all a product of your actions and beliefs. As you grow, though, things start to change. With every new person added to the mix, you dilute that glass of Oros.
“That’s not to say that your employees are doing anything wrong, or that they are actively trying to damage the business, but the culture — which was once so clear — becomes hazy. The company loses that singular vision. As the owner, you’re forced to share ‘your Oros’ with an increasing number of people, and by pouring more and more of it into other glasses, it loses the distinctive flavour it once had. By the time you’re at the head of a large international company, you can easily be left with a glass that contains more water than Oros.
“Protecting and nurturing a company’s culture isn’t easy, but it’s worth the effort. Prommac has enjoyed excellent growth, and I ascribe a lot of that success to our company culture. Whenever we’ve spent real time and money on replenishing the Oros, we’ve seen the benefits of it directly afterwards.
“There have been times when we have made the tough decision to slow growth and focus on getting the culture right. Growth is great, of course, but it’s hard to get the culture right when new people are joining the company all the time and you’re scaling aggressively. So, we’ve slowed down at times, but we’ve almost always seen immediate benefits in terms of growth afterwards. We focus heavily on training that deals with things like the systems, processes and culture of the company. We’ve also created a culture and environment that you won’t necessarily associate with engineering and heavy industries. In fact, it has more in common with a Silicon Valley company like Google than your traditional engineering firm.
“Acquisitions can be particularly tricky when it comes to culture and vision. As mentioned, CG Holdings has acquired several companies over the last few years, and when it comes to acquisition, managing the culture is far trickier than it is with normal hiring. When you hire a new employee, you can educate them in the ways and culture of the business. When you acquire an entire company, you import not only a large number of new people, but also an existing organisation with its own culture and vision. Because of this, we’ve created a centralised hub that manages all training and other company activities pertaining to culture. We don’t allow the various companies to do their own thing. That helps to manage the culture as the company grows and expands, since it ensures that everyone’s on the same page.
“Systems and processes need to make sense. One of the key reasons that drove us to create a central platform for training is the belief that systems and processes need to make sense to employees. Everyone should understand the benefits of using a system. If they don’t understand a system or process, they will revert to what they did in the past, especially when you’re talking about an acquired company. You should expect employees to make use of the proper systems and processes, but they need to be properly trained in them first. A lot of companies have great systems, but they aren’t very good at actually implementing them, and the primary reason for this is a lack of training.
“Operations — getting the work done — is seen as the priority, and training is only done if and when a bit of extra time is available. We fell into that trap a year ago. We had enjoyed a lot of growth and momentum, so we didn’t slow down. Eventually, we could see that this huge push, and the consequent lack of focus on the core values of the business, were affecting operations. So, we had to put the hammer down and refocus on systems, processes and culture. Today Prommac is back at the top of it’s game having been awarded the prestigious Service Provider of the year for 2017 by Sasol for both their Secunda and Sasolburg chemical complexes.
“If you want to know about the state of your company’s culture, go outside the business. We realised that we needed to ‘pour more Oros into the company’ by asking clients. We use customer surveys to track our own performance and to make sure that the company is in a healthy state. It’s a great way to monitor your organisation, and there are trigger questions that can be asked, which will give you immediate insight into the state of the culture.
“It’s important, of course, to ask your employees about the state of the business and its culture as well, but you should also ask your customers. Your clients will quickly pick up if something is wrong. The fact of the matter is, internal things like culture can have a dramatic effect on the level of service offered to customers. That’s why it’s so important to spend time on these internal things — they have a direct impact on every aspect of the business.
“Remember that clients understand the value of training. There is always a tension between training and operational requirements, but don’t assume that your clients will automatically be annoyed because you’re sending employees on training. Be open and honest, explain to a client that an employee who regularly services the company will be going on training. Ultimately, the client benefits if you spend time and money on an employee that they regularly deal with.
“For the most part, they will understand and respect your decision. At times, there will be push back, both from clients and from your own managers, but you need to be firm. In the long term, training is win-win for everyone involved. Also, you don’t want a client to become overly dependent on a single employee from your company. What if that employee quits? Training offers a good opportunity to swop out employees, and to ensure that you have a group of individuals who can be assigned to a specific client. We rotate our people to make sure that no single person becomes a knowledge expert on a client’s facility, so when we need to pull someone out of the system for training, it’s not the end of the world.
“Managers will often be your biggest challenge when it comes to training. Early on, we hired a lot of young people we could train from scratch. As we grew and needed more expertise, we started hiring senior employees with experience. When it came to things like systems, processes and culture, we actually had far more issues with some of the senior people.
“Someone with significant experience approaches things with preconceived notions and beliefs, so it can be more difficult to get buy-in from them. Don’t assume that training is only for entry-level employees. You need to focus on your senior people and make sure that they see the value of what you are doing. It doesn’t matter how much Oros you add to the mix if managers keep diluting it.”
When Jason English purchased Prommac late in 2012, the company had a turnover of less than R50 million. This has grown nearly ten fold in just under five years. How? By focusing on people, culture and training.
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