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Biotribe: Jean-Marc Tostee

2001 was a hell of a year for Jean-Marc Tostee. Having built a hugely successful foot wear and brand licensing business, it all came crashing down, leaving him with R11 million in cold, hard debt. He reveals to Entrepreneur how he paid it back and created a whole new business model in the process.

Monique Verduyn

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Jean Marc Tostee of Biotribe

Surfing is my world. My first part-time job was working for Shaun Thompson’s mom at her surf shop in Durban which I did through high school. In 1984, after two years in the army, I enrolled for an Institute of Marketing Management (IMM) diploma, working and studying at the same time. I completed my diploma and became the manager of a surf store, which gave me great experience in all the aspects of the surf business. In 1988 I was employed as national sales and marketing manager for Gotcha Sportswear, a division of clothing giant SA Clothing. There I learnt a huge amount about marketing clothing and how to create and sew garments. I was promoted to sales and marketing manager and by 1990, I was the brand manager for Wrangler jeans wear.

Over time, it became clear that there was no way for me to move up the corporate ladder. My seniors were young and able and there were few opportunities open. In 1992 I resigned. I was offered a directorship to stay, but it was in school wear and that was not what I wanted. My passion has always been for surf and beach wear and I wanted to build a business around that. I went into partnership with three friends. We took the Gotcha and Wrangler sales agencies for the brands. Because I’d been the Gotcha sales manager I had a strong account base and it was easy for us to get going. Besides the agency business, we were all very enthusiastic about developing a brand licence-based business that would represent some of the best beach gear in the world. It must have been because of our love for what we were doing that the business just grew and grew.

As luck would have it, that same year we were approached by the owner of a foot wear business and given the opportunity to buy an ailing factory that had a good product. This was a real boost for a young business like ours. I did not know much about shoes, but Biotribe made surf sandals – its market was the same one I had always known. We bought the business and I applied everything I had learnt about clothing. In the four years from 1992 to 1996, we took what was essentially a garage-based business, and turned it into a foot wear manufacturer that was fulfilling orders of more than one million pairs of sandals a year by 1997 and exporting them to 17 countries. I was solely responsible for the product design, creation, production and marketing of the business because of my knowledge of the surf wear industry. Biotribe boomed, and we still had the licences for Gotcha and Wrangler, both of which were doing very well.

While all of that was going on, in 1994 I decided to apply for a brand licence from Bad Boy clothing based in the US. Brand licensing is the process of creating and managing contracts between the owner of a brand and a company that wants to use the brand in association with a product, for an agreed period of time, within an agreed territory, with royalties payable on sales. This enables the licensee – in this case our business – to bring the brand into the country under licence and have the clothes and accessories manufactured locally. Bad Boy had come to a standstill internationally but I just knew it had potential to grow in South Africa. The brand had never been degraded or misused and the name itself held great appeal in the country at that time.

We secured the Bad Boy licence in 1995 and launched a clothing line shortly after that. We used this opportunity to market the brand nationally, from scratch. Five years into the business, we were doing so well that we had to move into bigger premises. We employed about 100 staff at this time. By mid-1997, the business was stable and growing. My partners wanted to add additional brands and it started getting too big for my liking. I wanted a business that was focused solely on a few solid brands and on beach and surf wear. I bought my partners out, taking ownership of Biotribe and the Bad Boy brand, buying the forward business (orders that had already been received), stock and machinery. I took most of the employees with me so that we could continue trading without interruption and I brought in a new partner to manage admin and finances.

It was also in 1997 that I devised the Bad Girl brand to take advantage of the growing interest in ladies’ surf wear. I wanted to extend the reach of the brand and the sale of its core products. Bad Girl is now sold worldwide. By 1998, our wholesale turnover was about R12 million a year, with R30 million in retail sales. We had introduced a premium Australian surfboard wax called Mrs Palmers and we were also importing and distributing Legend sunglasses. The business grew by about 60% per year. By the end of 1998 we had to buy another building, and by early 2000 we had to buy one more and rent premises as well. At the end of that year, we got rid of them all and bought a large 5 000m2 warehouse facility where we housed several hundred staff. Retail sales values had grown to approximately R50 million per year. I was living my dream in my mid 30s; The business was solid, my wife and I had two small children, the big house and the flashy cars. The IMM had awarded me the prestigious “Emergent Marketer of the Year” award in 1995 and again in 1998. I was the king of my castle and life was great. I had no idea what lay ahead…

A brutal year

In late 2001 disaster struck. The South African government slashed import duties and the local clothing manufacturing industry was hit hard by cheap Chinese goods coming into the country. With no protection – and with our entire production “proudly made in SA” – our business was suddenly terribly exposed. To remain competitive, we desperately began to import as much as we could from China – our first major orders of containers were arriving for the summer of 2001 and were due by end September.

And then 9/11 happened. I was in the US when the planes flew into the towers. Just days after, I was at Ground Zero witnessing the destruction, the smouldering buildings and the chaos – I had no idea how symbolic that scene was of what was about to happen to my business. From an exchange rate of about R7 to the dollar, the rand depreciated rapidly and plummeted to a new all-time low of R13,84 by the end of December 2001. That meant that from 1 September to 31 December 2001, the rand weakened by 42%. We had large containers full of clothing that we had just brought in from China. We had been quoted at R6,80 to the dollar – the goods landed at more than twice that price. The letters of credit and the import duty were all payable in dollars so the stock immediately cost even more than the planned retail price, including mark-up, would have been.

Simultaneously, the interest rate shot up from 15% to 25%, so the bond on the big new warehouse was suddenly costing us almost 50% more in repayments per month, as were our financed vehicles, overdraft facility, trade finance loans and credit cards. Like most other South African businesses that had traded throughout the slow growth but very stable old regime, we had never before been exposed to such wild fluctuations. Retail confidence collapsed; large customers experienced slumps in retail spending and cancelled their orders despite the stock having already been made for them. Within three months, we had millions of rands worth of overvalued stock that was impossible to sell, as well as the massive operational costs of staff and the new warehouse. There was no way to continue and my partner and I voluntarily liquidated the business. If you look back at that year, you’ll see that liquidations and insolvencies – an indicator of the overall health of the economy – rose to an unprecedented 4 156 liquidations, and 3 935 insolvencies, unequalled even in the recent global economic meltdown. I was shattered. Broken. I had my own family to consider as well as several hundred staff members who were jobless.

Negotiating with banks and creditors

I owed the banks and creditors millions and considered filing for bankruptcy to avoid having to pay all that cash back, but I decided against it, even though I could have walked away and been rehabilitated in five years. That would have been the easy way out. People often ask me why I chose to struggle through and commit to pay every cent back. All I can say is that it must have been my upbringing. I knew that for my own peace of mind I would have to do the right thing. I went to everyone I owed money to and committed to repaying every single cent of the capital plus interest. I wasn’t sure how I was ever going to make it all back but I was convinced that even if it took me the rest of my life to do the right thing I would persevere.

Once all the creditors were totalled I was in for R11 million plus interest at 25% (the prime rate at the time). The major creditor was Investec’s Reichmans Capital, our trade financiers. They were very accommodating, far more so than most banks, and I kept them abreast of everything. They worked with me throughout the liquidation period, allowing me to trade with the Bad Boy brand, to sell the stock myself over time instead of putting it all on auction, and to collect the debtors’ book myself. This meant I could get the best possible price for the stock I had on hand. The relationship I had built with Reichmans was invaluable. I owed them more than R9 million but they did not set out to destroy me. Instead, they agreed to assist me in my plan to recover what I owed them, which was also a unique opportunity for me to start again. I suppose they had no other choice. Had I chosen bankruptcy, everyone would have lost a lot of money. And my chances of ever really regaining my reputation would have been zero. I flew to America to explain what had happened to the Bad Boy brand owners. They too were very understanding. Based on the successes we had achieved with the brand in South Africa, Bad Boy had been resurrected in places like Japan, Brazil and Australia. They restructured our agreement and extended the licence to me for another five years based on royalties.

Back at home, the bank had destroyed my credit cards, closed my accounts, taken my car and was discussing the repossession of my home. I had bonded the house to such an extent that the bank could probably not afford to sell it in the collapsed property market. I was given a six-month bond holiday which helped me to keep food on the table for the family each day as I set about trying to start again without an office, without staff and without capital. It would have been easy for me to sink into a black hole but I was married with two children – I had no choice but to survive. The day after it was all over and the liquidator had tallied up the millions I owed, I woke up after a very short and fitful night’s sleep to the stark revelation that although I had lost every cent I ever had, I was not dead. I cannot emphasise enough how important it was for me to get out there and start working immediately instead of falling into a depression. I set up a work area at my dining room table and I calculated that in the short-term I needed to bring home R500 cash every day to cover the family’s expenses like food and school fees. Rather than choosing to hide under a rock, I was honest with everyone. I went down to the beach – my version of the golfers’ country club – and I spoke to all the people I knew. The upside was that when people know you don’t have two cents to rub together – but that you’re going to claw your way back instead of rolling over – they pay for the coffee.

Surviving rock bottom

I immediately set about liquidating as many assets as I could. I cashed in all our personal savings and retirement policies and gave the money to creditors. I sold Biotribe on the condition that the buyer take the factory and the staff. The income that came in from the sale every month went straight into servicing the debt. Next, I lined up new jobs for all our employees within two months – there were about 200 of them, either directly or contractually employed. With the sale of the business, I managed to have every staff member relocated into a new job over a few months. I made it publicly known that I was looking for any business, no matter how small, just to keep food on the table and petrol in our one car.

I started off by taking orders for corporate T-shirts and caps – if a company ordered 50 items, I would put on a R10 mark-up and make my R500 for that day. You have absolutely no idea how tough it is to start a day with zero and come home with R500 cash in your hand, every day. But it had to be done. Miraculously, I did it and the kids had no idea that dad was completely broke, out of a job, and owed the banks millions. This hand-to-mouth trading went on for about three months. People were very good to me. Everyone I approached knew that I had a lot of experience in the clothing industry. They were only too keen to hand their orders over to me and to refer more business my way. My confidence was beginning to return and I was able to start envisaging a new plan of business for the future.

A new business model

I was determined to rebuild the licensing business, but I had learnt the hard way that I had to do it differently. I approached a number of specialists in the clothing industry – cut, make and trim manufacturers (known as CMTs) who specialise in different garments, from T-shirts to board shorts, caps and everything in-between. I proposed that I would do the marketing and design of the Bad Boy range, they would manufacture and sell them, and then pay me a royalty fee based on a percentage of sales.

All the revenues from my royalties would be channelled into a business going towards paying back Reichmans. The positive thing was that because I got moving so quickly, consumers did not even know that the brand had been put on pause. We started with mens’ and ladies’ T-shirts in early 2002. Next, I introduced Bad Boy foot wear, and followed that with sunglasses, then underwear, then bikinis (under the Bad Girl brand). The idea was to create as many products as possible to derive a wide spread of income streams which together could provide cashflow for paying off my debts.

Having lost my business so suddenly, I was now setting up a licensing base and succeeding in spreading my risk across a number of products, licensees and manufacturers. We have the brands, they have the factories. With this licensing model, we find the best manufacturers and negotiate a win/win partnership with them – I provide the product ideas and brand know-ledge and they produce products they are already successful at making, but under our brand. Together we have a thriving business. In return for distributing our branded product, our manufacturing partners benefit from my years of expertise in brand licensing, my knowledge of the surf wear market, and my relationships with top customers in this sector. When you own the licences for powerful brands, you are ensured of high brand awareness, clearly defined brand equities, a devoted customer following and proactive trademark management. From my point of view, additional brand licences mean new retail channels for my licensees and also new customers for them. Today our licensee partnerships have resulted in 800 people being employed in the local clothing industry.

How the business grew

In that first year of trading, the interest I was paying exceeded the income from the business: In 2002 I only generated R1 million in income but the interest bill was R2,5 million. But by 2003, I was starting to turn the corner and my income matched my interest cost. By 2004, my new business had 20 licences for different product lines, including body boards from Australian company Hot Buttered. Early on I had found it impossible to work from home so I had set up a small one-desk office in a section of a friend’s business premises which he rented to me for a nominal fee. I worked incredibly hard day and night to grow the number of licences and the turnover – all to service the debt. In 2005 I brought on board two previous employees to work with me and we moved to a bigger office. I have kept the business extremely lean and today there are still just the three of us; we work from a marketing office and showroom in Durban – a stark contrast from the couple of hundred employees I had in 2001.

Three years ago we bought out our body board competitors, making us the biggest importer of premium board products in the country. We retail our brands through a number of stores, the biggest client being Edgars. We also supply Meltz, Game, Makro, Studio 88, and a number of independent shops. Early last year, with the tightening of the economy, we had a big surf shop client who could not pay, so we bought him out and we now own Surf HQ, the busiest hardcore body board and surf shop in the country. At first, few believed that my new business model would work, but today Bad Boy is in the top three youth brands in the country in terms of market share. Last year we bought the Gotcha licence – 22 years after first working with the brand, I now own it. But it’s going to take a few years to correctly reposition the brand through marketing to get it to its full potential. Bad Boy has grown into a street brand that’s aimed at macho, adrenalin junkie, cage fighting and martial arts types.

Gotcha is pure beach and surf wear, so they do not compete at all. This means we can capture business in two niche markets going forward. We have recently had many international brands approaching us and asking us to integrate them into our structure and I believe we will look to add more brands in the long-term. That’s where our future growth will come from. If we measure our performance in retail value since closing the business in 2001, for 2010 our projected turnover across all licences is R200 million. Last year sales were R160 million, and R140 million a year before that. I am still paying off my debt to Reichmans and it should be settled within about two years. Reichmans has allowed me to build a thriving new business while paying off a huge bill and for that I am extremely grateful. My goal is obviously to keep the business growing and to start rebuilding my retirement plan.

Lessons I have learnt

Today I can appreciate how naive I was ten years ago and how important it is to pay attention to change in the world around you. Degrees, diplomas and awards do not replace years of experience. With the benefit of hindsight, I know now that back in 2001 the business I had built was hugely exposed to external risks. Today, I would not employ that many people. I would not make and distribute so many diverse products from just one facility. It makes far more sense to outsource production to manufacturing and distribution experts who have all the expertise and channels in place. I would, and do, take forward cover on any international forex importing and exporting we do. I keep overheads to an absolute minimum and maintain tight control over all financial aspects of the business. I’ve also learnt that my expertise lies in the marketing and creative side of the beach wear industry. That is what I am good at and it’s what I must continue to focus on.

How to keep going (when all you want to do is quit)

Get out of your negative space.
Tostee loved the beach and that’s where he went when everything fell apart. He could have chosen to stay at home and sink into a depression; instead, he got out there. Strength and determination are self-perpetuating.

Keep yourself busy.
When we get involved in other activities that we enjoy it takes us out of ourselves. Activity forces us to do something constructive, and does not allow us to dwell on our depressed state of mind. It allows the creative juices to flow, which leads to solutions.

Don’t hide from the people you know.
Tostee went from being “king of the surf” to bottom feeder, but he forced himself to go out there and meet with people every day. Oscar Wilde’s words drove him: “There is one thing worse than being spoken about, and that is not being spoken about.” Don’t be Invisible – if you want to make a mark you must have a presence.

Break your goals into small achievable objectives so you can monitor your progress.
Tostee’s first goal was to bring home R500 a day. When you do that every day you can increase the amount over time and set your sights on R1 000 a day, and so on.

Avoid feelings of guilt.
Even if you have made a mistake, guilt will not help alleviate the situation. Instead of feeling guilty, concentrate on doing the right thing. Tostee did that by ensuring his employees found new jobs and that all his creditors would be repaid in full.

Remember why you started in the first place.
Tostee’s combined passion for surf wear and for marketing kept him involved and interested in the industry. He took what he knew and applied it to a new, improved business model.

Keep your family and good friends close.
They will be the ones who stand by you through the dark times and are there when the good times return.

Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.

Entrepreneur Profiles

Karl Westvig Of Retail Capital Shares His Insights Into A Year-On-Year Double-Digit Growth Business

Here’s how Karl has negotiated the many challenges of building a high-impact growth organisation that currently has a turnover of R150 million, which expects to double within the next three years.

Nadine Todd

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Vital Stats

  • Player: Karl Westvig
  • Company: Retail Capital
  • Launched: 2011
  • Turnover: R150 million (2017)
  • Visit: www.retailcapital.co.za

Anyone who has successfully navigated a business from a R5 million turnover to R30 million, then to R100 million, and heading towards the billion rand mark knows that growth might be the goal, but it’s also where businesses stumble and fall.

When you’re on a growth trajectory, there will always be some areas of your business outpacing others. The trick is to hang on, and bring your customers, employees, investors and directors on your journey with you, improving the business each step of the way.

Here’s what Karl Westvig, co-founder of Retail Capital, has learnt along his journey, and why he’s continuing to enjoy year-on-year double-digit growth.

Differentiators determine market penetration

Retail Capital’s core product is a merchant cash advance. When the company launched in 2011, there was limited competition in South Africa, but Karl knew that would change. “South Africa is a high card-usage market, which is what you need for merchant cash advance products to work. You need to be able to track the monthly income of an SME to determine the size of cash advance they qualify for, and collect the loan repayments through POS (or point of sale) card machines.

“My founding partner, Dave Lewis saw the product in the UK, and believed it would work here, thanks to our high card penetration. That meant other competitors would soon join the field. The product itself wasn’t our differentiator, but that didn’t mean it wasn’t a business worth pursuing.” In any industry, you need to evaluate competitors and whether the market is big enough for you. Karl and Dave believed it was, and that SME finance was under-served, but they also knew they needed a differentiator.

“We brought the concept to South Africa and built our own back-end. The way to differentiate is through channels and distribution, as terms and pricing structures are the same.

Related: Author Of The Little Book of Inspiration Gives Great Advice On Having Direction And Courage

“Our differentiator is our people. It’s about who we are and how we train. We have 40 sales consultants nationwide who conduct face-to-face visits with our customers. We don’t push product, we provide a solution. We work hard to understand each owner’s business, and whether they will get a return on investment from a cash advance. We evaluate what the money’s for, what the margin on it is, and whether it makes commercial sense. There’s no point taking money unless you can make more from it. For example, if it’s used to procure much-needed stock, or gain a large settlement discount from a supplier, that’s an opportunity. But, plugging a cash flow hole to pay salaries doesn’t make sense. You should always ask what the benefit of cash in hand is, and then determine if a cash advance makes sense.

“We’ve developed the tools we use to evaluate this in-house. We’ve gone from zero to 40 sales consultants and we’ve been testing our processes and learning from them throughout that journey. We manually underwrote our early deals, and tracked what the advance was used for, how long the terms were and whether there was a return.

“This process has been automated in recent years, and we now have a wealth of data available to us, but we also have consistency. This means our clients can walk their journey with us. They understand the cost of the money, why they are getting it and their ROI. By the time they deploy the cash, they understand exactly how they’re using it.”

Longevity is built on the right partnerships

point-of-sale-system

Retail Capital’s first product was a premium offering targeted at restaurant owners, franchisees and independent retail stores. “There are 200 000 POS systems in independent chains and single stores across the retail and restaurant sectors in South Africa, and 50 000 franchise stores,” explains Karl. “This was our target market.”

The offering suited the first segment of their market, but they struggled with franchise owners. “The independent space works for us. We’re almost like private bankers for SMEs. Our consultants understand the SME space — many of them have first-hand experience running a small business — and we work closely with our clients. We have business owners who have used us for seven years and have significantly grown their businesses over that time.”

Franchising was a much tougher nut to crack. “We faced a lot of resistance from franchisors who didn’t understand why their franchisees would need to borrow money — particularly a premium, and therefore more expensive product. We realised there was a disconnect between franchisors and their franchisees. Franchisors saw the product as too expensive. Franchisees had experience in trying to secure loans when they didn’t have assets to borrow against, and banks lend against balance sheets, not cash flow. We realised we needed to stop fighting the franchisors and partner with them instead.”

Retail Capital approached a number of franchisors and explained the pricing structure of merchant cash advances, particularly that higher risks for them meant higher interest charges for their (Retail Capital) clients. “We said we could bring the price down if the franchisors could help us derisk their franchisees with pre-vetting, and letting us know who the good operators who used their cash reserves well were. We brought franchisors into the fold and could pass on better pricing because we were taking on less risk.”

Karl has taken a similar approach to the micro segment of the market. “There are 50 000 micro retailers in South Africa, but this segment is growing rapidly,” he explains. “Within the next five years that 50 000 will be 250 000.”

It’s a segment that also benefits from cash advances, but not at the price point of Retail Capital’s premium product.

“We watched the development of mPOS (mobile points of sale) devices overseas and found local producers like iKhoka and Yoco. Our approach is simple; they have the devices, we have the capital and the system to disperse funds. It’s too expensive for us to service this sector face to face. It needs to be a fintech play, which was why we partnered with companies that had the devices.

“There are three sides to a deal. The originator (the device), the capital and the operator. The data that runs through the devices allows us to pre-approve micro vendors for a specific amount over relatively short payment terms. The risks are higher, but we mitigate them with cost-free delivery of the loans.

The systems and processes to get the funding to a micro operator and collect payments is our area of expertise, but we recognise that the originators will also want to hold the book.

“Yoco for example is building scale. To truly grow they need to become lenders themselves. This is going to happen whether we like it or not. Our current joint venture model allows them to partner with us, and eventually we will just be the operator. Within this particular market, we’d rather have that than nothing, which is why we’re flexible.

“There are other business benefits for us. Our technology is our platform, and this can be used in many other ways. We’re operating in a minefield of opportunity, collecting risk data on industries across the SME sector that we will be able to apply to other products. You don’t need to own every channel of a value chain. Working with the right partners can be much more valuable, and opens doors to new opportunities.”

Related: Going The Extra Mile With Neil Robinson Of Relate Bracelets

Leverage existing platforms for growth

“The most exciting part of Retail Capital for me is re-imagining the business. Dave built a great business before he exited to sail around the world. It was profitable and well-managed, but with a single product.

“When I walked in I took a different approach. I started by asking what our customers were looking for, and listening to what they were telling us, instead of pushing them into nine-month products.

Whenever you launch a new product, you need to start with a profitability framework. For us, this meant asking what our return on capital requirements needed to be across three to 18 months. Once we knew that, we could build it and offer adapted products to the market.

“Adapted products require adapted training. Too often companies add products, but don’t walk their teams through the new offerings, and so everyone sticks to what they know.

“We also looked at what other markets we could enter, which led us to franchises and the micro segment.

“What you really need to understand is your core. Financial services are all about distribution. Can you give it out, and can you get it back? Everything else is the framework that supports this core.”

According to Karl, the question ‘can you give it out?’ is about creating a product that you deliver where customers want it, whether that’s on the phone, online, or through face-to- face engagements. “You need to give your customers touchpoints at places convenient to them. Great businesses build capacity around their customers. Understanding their routines and what’s convenient to them allows you to invest where it makes sense.

“By listening to our customers, we could give them what they were looking for. We built new products and extended existing products based on this data.”

The second question, ‘can you get it back?’, involves underwriting and collections, and this is where Retail Capital’s IP resides. “You need to be able to set different limits and risk levels for different industries. There’s no such thing as one solution fits all in the SME space,” explains Karl. “Fashion stores and restaurants can afford to repay 10% to 12% of their credit card turnover, but FMCG stores wouldn’t have cash flow if their repayments were that high. Industries have differing risk profiles and require different terms. This develops over time. The longer you spend in the market, the more you can increase your efficiencies and reduce risk.”

Impactful growth doesn’t happen overnight

Two of the institutions that fund Retail Capital’s book are Ashburton and FutureGrowth, both large and established investment funds. “Today we are a rated business. Our returns are healthy. We’re a high-yield alternative investment,” explains Karl. “As our rating goes up, our interest rate falls, and we are able to pass that saving onto our customers. But that takes time.” You don’t go from being a start-up to funded by Ashburton overnight. You need a good track record, a professional and experienced team and stable loss rates. In short, you have to prove yourself in the market. Building something of value takes time and patience.

There have been challenges along the way, matching the balance sheet. “If you’re doubling the size of your business year on year, you need to be able to fund the growth of your book. The problem is that customers and money are seldom in balance. One is always stronger than the other. If you get funding, you need to find customers. If you suddenly have an influx of customers, you need funding.

“Then it’s down to distribution. You’re doing great, signed deals go up, your volume takes off, and now you need to run to your funders for more cash.”

Related: Executive Director Hasnayn Ebrahim’s 5 Rules For Strategic Growth In Your Business

Retail Capital doesn’t only have investment funds backing its book, but also equity investors. The management team owns 51% of the business, but various funders have been involved since the business’s inception.

“From a corporate perspective, growth triggers changes in a business, and those require investment. However, while we were experiencing rapid growth, our profits went backwards. People, systems and marketing are all significant costs, and they were all happening together. At the same time, I had to keep the confidence of my board and investors.

“As an entrepreneur, you sell your vision. Mine was that we would grow between 70% and 100%, and we weren’t hitting the numbers. It’s tough to keep the faith in a high-growth environment, and you really only get three strikes. How do you explain your vision, inner workings and full pipeline to a board that’s removed from your business, is risk-averse and doesn’t understand your sector? There was a six-month lag between where we were and where we said we’d be, but I knew we’d get there. However, confidence was waning because of the mismatch between the business and its investors.

“I realised I needed to find shareholders who understood where we were going. FutureGrowth was already funding our book. They understood our business, and we’d worked well together. They wanted a stake in the business, and they supported a management buy-out that would exit an investor who wasn’t comfortable in the business, and enable management to increase their stake.

“Ultimately, it all comes down to patience. Build the business that you envision, step-by-step. It takes time, but if you do it right, and lay strong foundations, the right people who share your vision will come on board.” 


CASH ADVANCES:

South Africa is a high card-usage market, which is what you need for merchant cash advance products to work. You need to be able to track the monthly income of an SME to determine the size of cash advance they qualify for, and collect the loan repayments through POS (or point of sale) card machines.

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Entrepreneur Profiles

How Bertus Albertse Overcame Adversity To Build A R80 Million Franchising Business

This is how an entrepreneur who is still under 30, and who launched Body20 from his living room when he was 24, has built a R80-million business that has just gone global.

Nadine Todd

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Vital stats

  • Player: Bertus Albertse
  • Company: Body20 Global
  • Launched: 2013
  • Franchised: 2014
  • Turnover: R80 million
  • Visit: www.body20.co.za

At 29, Bertus Albertse has built a R80-million franchising business that launched in the US a year ago. He’s been an over-achiever since school, and his approach to business has been no different. Over the past 12 months however, there has been a personal shift in Bertus’ life and mindset. Just over a year ago, he realised that his childhood wasn’t something to be embarrassed about or buried. In fact, the adversity he’s lived through is a big driving force behind a need for control and success.

“It was a part of myself I’d never shared. I didn’t discuss it in school, and once I started training people and then building a business, I didn’t talk about it either,” says Bertus. “

You’re focused on giving people the best customer experience possible, and that means putting your best foot forward, all the time. Admitting you aren’t always sure of what you’re doing, that you aren’t as confident as you look, or that you’ve struggled and needed to overcome real hardships — that’s just not part of the package.”

Bertus is driven — he got good marks at school, was captain of any team he played in, and would train on Friday nights when everyone else was out having a party. This same drive has led him to learn as much as possible about business, and the more he read, the more he realised that one of the things top entrepreneurs have in common is the fact that they’ve shared their stories. Who they are and what they’ve been through are big contributing factors to their success.

“We’re made to believe that, to a large degree, our adversity is not part of what we project to the world. What do you tell a client that walks in, or a franchisee, or someone that has to be motivated on your team — do you tell them the worst part of your journey, or do you share something that will motivate them? This was always my approach. But the more I started accepting my story, the more I realised that the power of my story made me who I am today.

“Books like Simon Sinek’s, Start With Why, and A Storyteller’s Secret have had a massive impact on me. We shouldn’t ignore the fundamental things that have brought us to where we are today. Mindset, willpower, discipline, the ability to pick ourselves up when we fail — these are all critical success factors, and they’re all mental. If you want to build a strong business, you need to start with your mind. You need to know who you are, how you react to challenges, and why you are the way you are. Then you can harness your strengths, and hopefully work on your weaknesses — or at least be aware of them.

Related: The Wolf Within Bertus Albertse: Body20’s CEO

bertus-albertse-body20“Every time you solve a problem, it makes you realise there’s a bigger problem that you didn’t know you didn’t know. The things that you don’t know hurt you the most. This has been my biggest learning curve with franchising. You might know what it takes you to be successful, but what’s to say what it takes someone else to be successful? You’re now supporting other people who aren’t like you. The more honest you can be with yourself, and the more you can interrogate why you’ve been successful, and what lessons you can share with others, the higher everyone’s chances of success.”

It was within this context that Bertus realised the dangers of being placed on a pedestal. “When your success starts to grow, people naturally want to know more about you. What I found was that I’d been so busy putting my best foot forward, an assumption had grown that I knew everything; that I’d had everything in life, and that this had all been easy. The opposite was true. I knew that if I was going to inspire franchisees to believe in their own journeys, I had to let them into mine. Nothing comes easy. In fact, adversity can often be your greatest gift, provided you know how to harness it.”

With that understanding, Bertus started delving into his personal psyche, motivations, habits and the driving force behind his actions. It’s been an interesting journey, filled with pain and rewards. He now has a much stronger understanding of his personal motivations and actions though, and he’s sharing these lessons with fellow entrepreneurs.

From humble beginnings

Other than a good education, Bertus’s childhood years are characterised by having as little as you can possibly start with. His childhood is shaped by memories of the all-too familiar feeling of a car running out of petrol, or of his mother waking him and his sister up in the middle of the night, so that she could take them home for a few hours before returning them to their 24-hour créche before starting her next shift as a traffic cop. These were all factors that the future entrepreneur buried when he went to school, directing his energy into his studies and sports instead.

“There were so many things we couldn’t control growing up. My mother did the best she could do, but the reality was that we had very little. I realised that control was important to me, and that I could create my own success if I was disciplined, and so I focused on the things I could influence: My marks and how much I trained. I’d grown up watching a level of perseverance in my mom that influenced the way I viewed work as well.”

In fact, Bertus has a keen understanding of the various influences in his life and how they have shaped him. When he was nine years old, his mother married his step-father, and later, in his teenage years, he reconnected with his father. The men are vastly different in the way they view work and success, and yet Bertus learnt a lot from both of them — not necessarily to emulate either of them, but rather in what he wanted from life.

“Both the men in my life had started out without degrees. They worked and studied at night. They achieved success through sheer hard work — and they’d both been indoctrinated to work for someone else, because that gave you stability.”

For a kid who had known very little stability in his life outside of what he could personally control, working for someone else wasn’t very appealing, and his father agreed. “My father realised that if you truly want to be successful, you need to work for yourself. He really encouraged me to be an entrepreneur. One of the first things he taught me was ‘buy low, sell high, collect early, pay late’. That’s how you make money. It’s obviously not that simple, but it’s a good way for you to start thinking about business. I realised that if you’re good at something, don’t do it for free. That’s rule number one. Rule number two is understanding how you generate income and making sure that your income is higher than your expenses. But I didn’t know about assets and balance sheets and how to generate wealth at that point. I was just starting to think about what a business would entail.”

While his father was pro-entrepreneurship, Bertus’ step-father was the opposite. “My step-father is a careful man. He’s got a good job, but he’s also frugal. He doesn’t take risks, and he has no debt. He’ll buy a smaller car, but he’ll pay cash. That’s how he operates. He instilled extreme positivity in us, and always put family first, but watching him made me realise that I’m not risk averse. If anything, I have a high impulse and risk appetite. The combination of these traits can lead you to taking good risks, or bad risks — it’s all about where your focus lies. I’ve always been aware of that and tried to channel my energy into the good risks — areas of my life that I could grow, build on, and hopefully also create an avenue of wealth for others.”

For Bertus, the secret is discovering what motivates you. “I believe in living life to the fullest. I live freely. One of the first decisions I made when I started earning my own money was buying a car I couldn’t afford. This was 150% against the advice of both of my dads — but it motivated me and made me run. I ran for my life. I could have it easier, with less stress — I create stress for myself — but it keeps me focused and driven. There are so many influences around us all the time. You need to find what matters to you. Mostly it’s trial and error. That’s okay. Just keep looking for it — you will find the answers you’re looking for.”

A strong sense of self

Key to Bertus’ journey has been understanding, and to a degree mastering, his own triggers. This isn’t always possible — but the more you understand why you do what you do, the more you can learn to harness that energy.

“I grew up in an OCD household. It was always fine, because I’m also OCD — I didn’t realise how much until I got to hostel and discovered it wasn’t normal to never want to sit on my perfectly made bed, or to shower for 45 minutes or brush my teeth for two hours. Sharing a room with other boys forced me to get rid of some of those habits, and I needed to channel that desire for control elsewhere, so I shifted it to sports and academics.

“This level of discipline is still massive for me, even today. I measure my day on zero to 100 every day. And each new day I’m back on zero — it doesn’t matter how productive I was the day before, or how big a deal we closed. I feel a sense of urgency to make extraordinary things happen today, each and every day.”

Related: Join The Fitness Revolution

This sounds positive, but it has a dark side as well. “If I don’t wake up at 5am to start dealing with emails I feel like I’ve started on the wrong foot, which quickly makes me spiral and feel like a failure,” Bertus explains. “I’ve had to find ways to balance my OCD nature. I can be very disciplined, but if I start spiralling, I’m the most unproductive person on the planet. I need to keep myself in check.”

To find that balance, Bertus has learnt to choose his battles. “I can be very obsessive about one thing, and care nothing about something else. I can’t be obsessed about everything, so I have to choose where my obsessions will lie. I try and make these as positive as possible, focusing on training and supporting my clients and now franchisees.”

Bertus might be OCD, but self-discipline is a muscle just like any other — the more you work it, the stronger it becomes. “For me, it’s all about directing my energies to the right place. For other entrepreneurs, it’s choosing where they can make the greatest impact, and then being consistent in their efforts. Routine is everything.”

Bertus does have a caveat though: “Discipline alone, with no clear direction, can actually be a bad thing. You can easily become too focused on things that don’t drive success.”

24 And taking risks (to reap the rewards)

bertus-albertseBertus has never been employed. He started out self-employed while still at university. He chose to discontinue his studies and dive into entrepreneurship instead, opening a supplements store in Cape Town. “As an underweight kid I’d taken supplements to get my weight up. That, combined with training, was where my expertise lay.”

But Bertus knew it wasn’t enough. “I was just making ends meet. What I had wasn’t a wealth building mechanism at all. I wanted to make a bigger impact in my own life, and in the lives of my clients. I believed a more holistic approach focused on training was a way to do that.”

Bertus wasn’t alone. He was 24 years old, and had a young wife and three children, one of whom was from his wife’s previous relationship. Given the risks involved in trying something new, many people would have stuck with the business opportunity that wasn’t a significant success, but that was paying the bills.

Bertus had different plans. “You need to run for your life,” he says. “That stress, the risks involved — they’re what drive me. I always tell our young trainers that if they really want to be successful, they need to move out of their parents’ homes. The most basic necessities should be at risk. There’s nothing like fear to motivate you.”

With this in mind, Bertus launched Body20 from his living room in 2013. He had

R85 000 in an Allan Gray investment fund that he’d started while he was still studying. He decided the time had come to draw that cash, but it still wasn’t enough. A friend had introduced him to Electro Muscle Stimulation (EMS) technology, and the whole set-up was R220 000. Luckily, this friend believed in the concept, and agreed to invest in Bertus’ business idea. “I paid the loan back within a year, but he was really investing in the purpose, and he and his wife received free training. It was exactly what I needed to get me started.”

Related: From Body20 Member To Franchisee Of The Year 2017

From the word go, Bertus understood a key element that would ultimately lead to Body20’s success: When it comes to EMS technology, the tech itself isn’t a differentiator. “There’s no exclusivity,” Bertus explains. “There are multiple tech providers available, and no one holds patents. There were also already competitors in the market, so I knew this wasn’t my competitive advantage.”

What Bertus also recognised was that the players in the market were focusing on their offerings as niche. He believed it could be a more mainstream addition to training programmes, working in conjunction with conventional gym sessions, and to help pro and amateur athletes prepare for big events. He went in with a different differentiator in mind: Service.

“At the time, I just wanted to move out of my living room and into a studio. I had no plans to franchise. I believed that my passion and willingness to serve would set me apart.”

And it did. “My clients saw how much I loved what I did, and they started asking me how I’d started out. They were intrigued by the lifestyle I lived — yes, success was growing, but I was also living my passion. That drew them.”

Slowly, Bertus’ clients started enquiring about franchising opportunities, and the idea started to take shape that not only was franchising an opportunity to scale the business, but it would help Bertus to share his passion with others, empower them and provide them a means to also build wealth.

The shift to franchising

Franchising has been an incredible experience for Bertus and Body20 has gone from strength to strength, growing from one studio in 2013, to franchising in 2014 and encompassing 38 studios in early 2018, including three studios in the US. But there have also been a multitude of lessons for the young entrepreneur to learn.

“Franchising as a growth strategy has never been about the capital — if that was the case, we could be a corporate that raises funds through investors. But this is a service business, and that means you need someone in the studio who is passionate about the business and their clients, and franchising enables that. We want to create opportunities for other people. This means supporting franchisees, and in some cases, even investing in the right operators who don’t have the capital to set up their own stores.”

The shift from studio owner and personal trainer to franchisor has not been without its own significant growth hurdles.

“The most interesting lesson I’ve learnt is that franchising is a completely different business model to operating your own business,” says Bertus. “That’s the problem; there’s no one bridging the gap for you. You can go to a franchise attorney to draw up your franchise agreement, but that doesn’t tell you how to operate your franchise. How do you suddenly put up an operational infrastructure to support other people to be as successful as you, when you don’t yet know what they need? It’s difficult to know what someone else needs in their business, even if it’s the same business that you were in.

“Everyone comes at business from a different perspective. We’re all indoctrinated in different ways. I had momentum in this industry. How do you carry that through to someone else who is a mechanic, an attorney, a teacher, or a CA? What do they each need? How do different studios operate in different areas? There are so many variables to consider, and we didn’t always get them right.”

Related: Healthy Body20 Franchise Leads To Happy Hearts

Bertus understood he knew nothing about franchising — but he had no idea of the lessons that lay in store for him until he took the plunge. “This is the biggest difference between corporate and entrepreneurship,” he says. “In a corporate environment, you get clarity first, before you take action. In entrepreneurship, you only get clarity through action. You only know where you’re going once you start moving — clarity comes from doing.

“When you start taking action, you’re already on the path to finding answers — you’re hitting the problems you’re going to encounter, which gives you the opportunity to find the solutions you need to keep moving forward. You won’t always get it right — the path to successful business is littered with failures, but you can’t overcome obstacles unless you’re encountering them.”

One of Bertus’ biggest learnings has been that effort alone isn’t enough to carry you through. “I used to believe that effort equals success in battle,” he says. “This was my guiding mantra — that if you worked hard enough, anything was possible. Franchising took me from being a sole operator to a business owner, and I now know that effort equals a lot of work and a lot of lessons learnt, but that you’ll still get nowhere if you don’t have a solid strategy in place.

“Success equals strategy plus effort. Busyness and success are not the same thing, nor are busyness and effectiveness. Effectiveness happens when you’re busy with the right strategy. This has been huge for me — finding the balance between strategy and effort.

“In 2014 I used to receive no less than 100 phone calls a day. I had to deal with clients, solve franchisee problems and be available for all the people looking for me hourly. I used to think ‘how do you upscale from this?’ I couldn’t take any more calls and I didn’t have a second of the day to think about anything other than getting back to people. I knew I needed to have those problems — if you don’t, you’re not on the right wicket, but how do you upscale from taking a hundred calls to five calls?

“I once had someone tell me that the day would come when I wouldn’t receive a single call. I just thought they didn’t understand my business. After all, my primary role is sales and marketing — how could I not get that many calls? I still believed that effort equalled income. The moment I started focusing on strategy though, this started shifting. With a focus on strategy came systems, processes, well-documented operations. These all empowered people, and the ‘busyness’ started to fall away. I started to find the time to work on key areas that would drive the business forward. My phone didn’t ring as much, because there were systems and processes in place that meant the entire operation was starting to flow. I’ve learnt that the more successful you are, the less busy you’ll be. This doesn’t mean you work less, just that you do less busy work. It’s replaced with focused, strategic work. When you’re busy, you’re just dealing with what’s in front of you. A strategic focus is looking at three, five and ten years down the line.”

Going Global

Body20’s next big growth move has been into the United States. “Like any growth strategy, we’ve had highs and lows, and we’ve needed to learn a lot of lessons,” says Bertus.

“The interest and uptake has been incredible, not just within the US, but from local entrepreneurs looking to expand into international markets as well.”

At the time of going to print, Body20 had already sold three franchises in Florida, with another four in the works. These have brought strong capital contributions into the business as a whole, but not everything has been smooth sailing.

“On the one hand, the first store broke even within four months, when our projected time frame was eight months,” says Bertus. “That’s incredible. But we’ve also learnt that no two markets are the same.

“South Africa is geared for business. We love it here. We sell a lease and the studio can be open within three weeks. There’s no permitting, no inspections, none of that exists here. The US on the other hand is an extremely regulated environment. For example, we signed a lease in February 2017, expecting to be open in June and excited about a great leasing deal that gave us four months’ beneficial occupation to set up the store. Except it took us nine months to get up and running.

“In South Africa, this would have taken us under a month. It was an expensive lesson. Not only were we burning through cash, but the franchisee needs to stay motivated while you wait. The project flow and milestones are inherently different.”

From a franchisor perspective, operating across two continents also has its challenges. “We’re essentially selling our time. This is a services business, and our clients are our franchisees. What we didn’t take properly into account when we started was the incredible travel times involved in doing business in the US. It took us 20 hours just to get to Miami, and a further six to California. You have to factor in all that time when you’re planning your schedules. It’s been a huge adjustment.”

That said, it’s also clearly been a rewarding one, and Body20 is still only just getting started.


TOP TIPS

  • Clarity comes from action. You need to start to figure out what you need to do next.
  • Success is the result of effort plus strategy. Effort alone won’t get it done.
  • Systems and processes are essential if you want to move from ‘busy’ work to strategic work.

 

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Company Posts

Going The Extra Mile With Neil Robinson Of Relate Bracelets

In business, your offering is only as good as your relationships. Neil Robinson from Relate Bracelets explains how FedEx Express has helped the business grow into Africa and beyond.

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  • Who? Neil Robinson
  • Company: Relate Bracelets
  • Position: Managing Director
  • Visit: relate.org.za

Neil Robinson, MD of Relate Bracelets understands the importance of business relationships. While Relate is a non-profit organisation, it is run like a business. It does not rely on donors, but instead produces and sells a product.

For each bracelet sold, one third of the income goes towards the materials and operating costs, one third supports the people who produce the bracelets, and one third goes to the charity for which that particular bracelet is branded.

In order for the business model to work and be sustainable, Relate’s partners are incredibly important. These include the retail chains that stock the product and who provide prime point-of-sale positioning, the charities who Relate works with, and most importantly, Relate’s logistics service provider, FedEx Express.

“Retail is all about visibility and availability,” explains Neil. “A brand is a living, breathing thing. People can see it, use it, and comment on it, but if they can’t access it, it’s all for naught. And so, at the point of purchase, it’s both visible and available, or it’s not.

“Logistics is key. You need to get your product to the retailer on time, 100% of the time. The expertise and focus that FedEx displays in supply chain and logistics encompasses far more than just retail, they understand our specific needs, making them a strategic partner, rather than merely a supplier.”

Related: Zenzele Fitness’s Clever Tactics To Grow In Next To No Time

Building a relationship

The FedEx/Relate Bracelets relationship stretches back to 2009, when Relate Bracelets launched its first campaign with ‘Unite Against Malaria’ leading up to the 2010 FIFA World Cup.

“We did the first campaign in partnership with Nando’s,” says Neil. “Robbie Brozin was passionate about the cause, and he pulled in strategic partners to launch the campaign. Within two years we’d shipped hundreds of thousands of bracelets. FedEx was an incredible partner, ensuring the integrity of our product and time-sensitive deliveries, and we’ve worked with them ever since.”

As with all good B2B relationships, the FedEx and Relate Bracelets teams understand that regular strategy sessions and updates are important.

“FedEx understands the inner workings of our business,” says Neil.

“A successful campaign has multiple elements, from planning and strategy, to marketing support, pricing and distribution planning. Of these, distribution planning is the most critical. For us, the bridge between our brand and the consumer is logistics. FedEx have delivered beyond expectations. They literally and figuratively go the extra mile for us.”

Protecting a brand

FedEx has customers across different industries and each of their needs are different. In the case of Relate, who operate in the retail sector, buying patterns are important. “Retailers run a tight ship,” explains Neil.

“They have planning cycles and seasons. Besides the fact that penalty clauses are built into contracts, you can’t miss a deadline by two days, or you’re in the next cycle, and that might be two weeks later. Not only are you missing out on valuable shelf time, but this can affect an entire campaign. Lost sales can also influence the retailers’ buying decision the following season. FedEx has made it their business to understand our business, so they know what’s at stake and what’s important to us.”

Supporting growth

FedEx has also played an integral role in the overall expansion of Relate Bracelets, particularly into new markets. “As a global organisation, FedEx has been absolutely critical in supporting us to grow our business into Africa, the US, Australia, the UK, Western Europe, and now New Zealand. They play an enormous role in the delivery of our products, with sophisticated tracking systems ensuring that the quality and integrity of our products are maintained.”

Through the relationship with FedEx, Relate experiences the benefits of working with a globally recognised and credible brand. “When you work with quality, you get quality.”

Related: Entrepreneur BB Moloi’s Inspiring Story of Rise To Success Through Grit And Hard Work

The business

If you’ve ever bought a beaded bracelet that supports a cause (for example: United Against Malaria, Operation Smile SA or PinkDrive), chances are it was a Relate Bracelet. If you bought it at Woolworths, Clicks, Sorbet or Foschini, it most definitely was.

To date, Relate Bracelets has raised more than R40 million, which supports various charities and ‘gogos’, women living on government grants and supporting their grandchildren, and who desperately need the additional income Relate Bracelets provides.

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