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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+.

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Entrepreneur Profiles

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.

GG van Rooyen

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Vital stats

  • 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.

Jason English

Related: 5 Top Lessons From LAWTrust To Prepare For Super-Charged Growth

“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.

Related: Establishing The Wheels Of Change In Business

“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.

prommac

“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.”

Exponential growth

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.

key-insights-from-jason-english

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