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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

Expert Advice From Property Point On Taking Your Start-Up To The Next Level

Through Property Point, Shawn Theunissen and Desigan Chetty have worked with more than 170 businesses to help them scale. Here’s what your start-up should be focusing on, based on what they’ve learnt.

Nadine Todd

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Vital Stats

  • Players: Shawn Theunissen and Desigan Chetty
  • Company: Property Point
  • What they do: Property Point is an enterprise development initiative created by Growthpoint Properties, and is dedicated to unlocking opportunities for SMEs operating in South Africa’s property sector.
  • Launched: 2008
  • Visit: propertypoint.org.za

Through Property Point, Shawn Theunissen and his team have spent ten years learning what makes entrepreneurs tick and what small business owners need to implement to become medium and large business owners. In that time, over 170 businesses have moved through the programme.

While Property Point is an enterprise development (ED) initiative, the lessons are universal. If you want to take your start-up to the next level, this is a good place to start.

Risk, reputation and relationships

“We believe that everything in business comes down to the 3Rs: Risk, Reputation and Relationships. If you understand these three factors and how they influence your business and its growth, your chances of success will increase exponentially,” says Shawn Theunissen, Executive Corporate Social Responsibility at Growthpoint Properties and founder of Property Point.

So, how do the 3Rs work, and what should business owners be doing based on them?

Risk: We can all agree that there will always be risks in business. It’s how you approach and mitigate those risks that counts, which means you first need to recognise and accept them.

“We always straddle the line between hardcore business fundamentals and the relational elements and people components of doing business,” says Shawn. “For example, one of the risks that everyone faces in South Africa is that we all make decisions based on unconscious biases. As a business owner, we need to recognise how this affects potential customers, employees, stakeholders and even ourselves as entrepreneurs.”

Reputation: Because Property Point is an ED initiative, its 170 alumni are black business owners, and so this is an area of bias that they focus on, but the rule holds true for all biases. “In the context of South Africa, small black businesses are seen as higher risk. To overcome this, black-owned businesses should focus on the reputational component of their companies. What’s the track record of the business?”

A business owner who approaches deals in this way can focus on building the value proposition of the business, outlining the capacity and capabilities of the business and its core team to deliver how the business is run, and specific service offerings.

“From a business development perspective, if you can provide a good track record, it diminishes the customer’s unconscious bias,” says Shawn. “Now the entrepreneur isn’t just being judged through one lens, but rather based on what they have done and delivered.”

Related: Property Point Creates R1bn In Procurement Opportunities For Small Businesses

Relationship: “We believe that fundamentally people do business with people,” says Shawn. “There needs to be culture match and fluency in terms of relations to make the job easier. As a general rule, the ease of doing business increases if there is a culture match.”

This relates to understanding what your client needs, how they want to do business, their user experience and customer experience. “We like to call it sharpening the pencil,” says Desigan Chetty, Property Point’s Head of Operations.

“In terms of value proposition, does your service offering focus on solving the client’s needs? Is there a culture match between you and your client? And if you realise there isn’t, can you walk away, or do you continue to focus time and energy on the wrong type of service offering to the wrong client? This isn’t learnt over- night. It takes time and small but constant adjustments to the direction you’re taking.”

In fact, Desigan advises walking away from the wrong business so that you can focus on your core competencies. “If you reach a space where you work well with a client and you’ve stuck to your core competencies, business is just going to be easier. It becomes easier for you to deliver. Sometimes entrepreneurs stretch themselves to try to provide a service to a client that’s not serving either of their needs. This strategy will never lead to growth — at least not sustainable growth.”

Instead, Desigan recommends choosing an entry point through a specific offering based on an explicit need. “Too often we see entrepreneurs whose offerings are so broad that they don’t focus,” he says. “Instead, understand what your client’s need is and address that need, even if it means that it’s only one out of your five offerings. Your likelihood of success if you go where the need is, is much higher.

“Once you get in, prove yourself through service delivery. It’s a lot easier to on-sell and cross sell once you have a foot in the door. You’re now building a relationship, learning the internal culture, how things work, what processes are followed and so on — the client’s landscape is easier to navigate. The challenge is to get in. Once you’re in, you can entrench yourself.”

Desigan and Shawn agree that this is one of the reasons why suppliers to large corporates become so entrenched. “Once you’re in, you can capitalise from other needs that may have emanated from your entry point and unlock opportunities,” says Shawn.

Building a sustainable start-up

While all start-ups are different, there are challenges most entrepreneurs share and key areas they should focus on.

Shawn and Desigan share the top five areas you should focus on.

1. Align and partner with the right people

This includes your staff, stakeholders, partners, suppliers and clients. Partnerships are the best thing to take you forward. The key is to collaborate and partner with the right people based on an alignment of objectives and culture. It’s when you don’t tick all the boxes that things don’t work out.

2. Make sure you get the basics right

Never neglect business fundamentals. Do you have the processes and systems in place to scale the business?

3. Understand your value proposition

Are you on a journey with your clients? Is your value proposition aligned to the need you’re trying to solve for your clients? Are you looking ahead of the curve — what’s the problem, what are your clients saying and are you being proactive in leveraging that relationship?

Related: Want To Start A Property Business That Buys Property And Rents It Out?

4. Unpack your value chain

If you want to diversify, understand your value chain. What is it, where are the opportunities both horizontally and vertically within your client base, and what other solutions can you offer based on your areas of expertise?

8. Don’t ignore technology

Be aware of what’s happening in the tech space and where you can use it to enable your business. Tech impacts everything, even more traditional industries. Businesses that embrace technology work smarter, faster and often at a lower cost base.

Ultimately, Desigan and Shawn believe that success often just comes down to attitude. “We have one entrepreneur in our programme who applied twice,” says Shawn. “When he was rejected, he listened to the feedback we gave him and instead of thinking we were wrong, went away, made changes and came back. He was willing to learn and open himself up to different ways of approaching things. That business has grown from R300 000 per annum to R20 million since joining us.

“Too many business owners aren’t willing to evaluate and adjust how they do things. It’s those who want to learn and embrace change and growth that excel.”

Networking, collaborating and mentoring

Property Point holds regular networking sessions called Entrepreneurship To The Point. They are open to the public and have two core aims. First, to provide entrepreneurs access to top speakers and entrepreneurs, and second, to give like-minded business owners an opportunity to network and possibly even collaborate.

“We believe in the power of collaboration and networking,” says Desigan.

“Most of our alumni become mentors themselves to new entrants to the programme. They want to share what they have learnt with other entrepreneurs, but they also know that they can learn from newer and younger entrepreneurs. The business landscape is always changing. Insights can come from anywhere and everywhere.”

The To The Point sessions are designed to help business owners widen their network, whether they are Property Point entrepreneurs or not.

To find out more, visit www.ettp.co.za

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Entrepreneur Profiles

Bain & Company Give You The Data On How To Become 40% More Productive

Top performing organisations get more done by 10am on a Thursday than most companies achieve in a full week. They don’t have more talented employees than everyone else though — they’re working with the same people and tools as you. Michael Mankins unpacks what separates these businesses from everyone else, and how you can learn to be more like them.

Nadine Todd

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Vital Stats

“Engaged employees are 45% more productive than satisfied employees. An inspired employee is 55% more productive than an engaged employee and 125% more productive than a satisfied employee.”

When Bain & Company partner, Michael Mankins evaluates businesses, he clearly distinguishes between efficiency and productivity. Efficiency is producing the same amount with less — in other words, finding and eliminating wastages. Productivity, on the other hand, is producing more with the same, which requires an increased output per unit of input and removing obstacles to productivity.

Interestingly, when businesses face challenges or tough operating conditions, the first response is always to become more efficient, instead of more productive. Restructuring and ‘rightsizing’ are the result. The problem, says Michael, is that when companies take people out, they don’t take the work out, and so the people end up coming back, along with the costs.

A better response, he says, is to identify the work that could be removed to free up time, which could then be invested in producing higher levels of output.

While businesses have become very good at tracking the productivity levels of blue-collar and manufacturing workers, tracking the productivity of knowledge workers is entirely different.

“There’s no data around white-collar productivity,” says Michael. “The problem is that the world is shifting towards knowledge work, and so, if we can’t measure productivity, output and obstacles in that space, businesses will never get the great levels of performance they’re looking for.”

Because of a complete lack of statistics in this area, when Michael and his colleague, Eric Garton, were approached by Harvard Business Review Press to write a book dealing with this issue, they had to devise a way of looking at the relative productivity of organisations comprised of white-collar workers.

The results were unexpected. “We were asked to research the difference between top performing organisations (the top quartile) compared to average organisations. I honestly thought the answers would be obvious, even if we didn’t yet have the tools to track them. I thought the best companies would have the best people. That’s 90% of the answer. Simple as that.”

As it turned out, it wasn’t that simple at all. Of the 308 organisations in the study, drawn from a global pool, the average star performer or A-player was one in seven employees. This statistic held true whether the company was in the top 25% of performers or an average performer. The difference was that the top performing businesses were 40% more productive than their counterparts — and yet their mix of talent, on average, was the same.

“There were some exceptions, but on the whole, the best in our research accomplishes as much by 10am on a Thursday as the rest do the whole week. And they continue to innovate, serve customers and execute on great ideas — all with the same percentage of A-players as other, more mediocre businesses.”

Related: (Slideshow) Top Advice From Local Entrepreneurs That Will Change Your Business In 2019

So, what were the differentiating factors?

What’s dragging your organisation down?

First, we need to understand how Michael and Eric approached their research before we can understand — and implement — their conclusions.

“We began with the notion that every company starts with the ability to produce 100 if they have a workforce that’s comprised of average talent, that’s reasonably satisfied with their job and can dedicate 100% of their time to productivity — bearing in mind that no-one can dedicate 100% of their time to productive tasks.

“The question we were focusing on was around bureaucratic procedures, complex processes and anything else that wastes time and gets in the way of people getting things done, but doesn’t lead to higher quality output or better service to customers. That’s what we call organisational drag. You start at 100 and then the organisation drags you down. The good news is that you can make up for organisational drag in three ways: First, you can make better use of everyone’s time. Second, you can manage your talent better by deploying it in smarter ways, which includes placing it in the right roles, teaming it more effectively and leading it more effectively. Third, you can unleash the discretionary energy of your workforce by engaging them more effectively.”

This trifecta — time, talent and energy — became the basis for Michael and Eric’s book, Time, Talent, Energy: Overcome Organizational Drag & Unleash Your Team’s Productive Power. “The way you manage the scarce resource of talent can make up for some, potentially even all, of what you lose to organisational drag,” says Michael.

What the research revealed: Time

time-management-productivity

“Wasted time is not an individual problem,” says Michael. “It’s an organisational problem. The symptoms include excess emails and meetings and far more reports being generated than the business needs to operate.”

These are all manifestations of an underlying pathology of organisational complexity, which is managed by senior leadership. “The best companies lose about 13% of their productive activity to organisational drag. The rest lose 25%. The most important thing is to reduce the number of unnecessary interactions that workers are having. That means meetings and ecommunications need to be relooked.”

The easiest manifestation for Michael and Eric to observe were hours committed to meetings and how much time workers spend dealing with ecommunications. What’s left-over is the time people can actually get some work done.

What they found is that the average mid-level manager works 46 hours a week. 23 hours are dedicated to meetings and another ten hours to ecommunication. That leaves 13 hours to get some work done — except that it doesn’t.

“It’s difficult to do deep work in periods of time less than 20 minutes. When we subtracted all the other distractions that happen daily, we were left with just six and a half hours each week to do work.” What’s even scarier about this statistic is the fact that meeting work and ecommunication time is increasing by 7% to 8% each year and doubles every nine years. If left unchecked, no-one will have the time to get any work done. “This is why everyone plays catch-up after hours and on weekends,” says Michael.

“One of my clients told me that his most productive meeting is at 6.30am on a Saturday, because it doesn’t involve one minute that isn’t required or one individual that doesn’t absolutely need to be there. If the same meeting was held at 2pm on a Tuesday, there’d be twice as many people, it would be twice as long and there’d probably be biscuits.”

The point is clear: We don’t treat time as the precious resource that it is, and if we did, we would radically shift our behaviour.

Start by asking what work needs to be done and then figure out the best structure to do that work. “Don’t confuse having a lean structure that does the wrong work with being effective,” says Michael. “One of the biggest problems we see is that companies are not particularly good at stopping things. Things get added incrementally, but nothing ever gets taken away. For example, we found that 62% of the reports generated by one of our clients had a producer — but no consumer. Time, attention and energy was invested in reports that no one needed and no one read.

“Ask yourself: How many initiatives have you shut down? If you made the decision that you could only do ten initiatives effectively, and each time you added an initiative, one had to be eliminated, what would your organisation look like?

“Unless you routinely clean your house, it gets cluttered. The same is true of companies. Initiatives spawn meetings, ecommunications and reports, which all lead to organisational drag.”

What the research revealed: Talent

According to Michael, the biggest element in their research that explained the 40% differential in productivity is the way that top performing organisations manage talent.

“We conducted research in 2017 that revealed the productivity difference between the best workers and average employees. Everyone knows that A-level talent can make a big difference to an organisation’s performance, but not everyone knows just how big that difference is.”

To put it in context, the top developer at Apple writes nine times more usable code than the average software developer in Silicon Valley. The best blackjack dealer at Caesars Palace in Las Vegas keeps his table playing at least five times as long as the average dealer on the Strip. The best sales associate at Nordstrom sells at least eight times as much as the average sales associate walking the floor at other department stores. The best transplant surgeon at Cleveland Clinic has a patient survival rate at least six times longer than that of the average transplant surgeon. And the best fish butcher at Le Bernadin restaurant in New York can portion as much fish in an hour as the average prep cook can manage in three hours.

It doesn’t matter what industry you investigate, A-level talent is exponentially more productive than everyone else.

This is why Michael thought that the obvious answer to why some organisations perform better than others is the mix of talented employees they’ve attracted.

“When we asked senior leaders to estimate the percentage of their workforce that they would classify as top performers or A-level talent, the average response was slightly less than 15%. And that’s despite the fact that most companies have spent vast sums of money in the so-called war for talent.”

The big difference, as Michael and Eric discovered, is how that talent is deployed. “It’s what they do with that one in seven employees that makes the biggest difference,” says Michael. “Most companies use a model called unintentional egalitarianism, which basically means that they spread star talent across all roles. The best on the other hand, are more likely to deploy intentional non-egalitarianism. They ensure that business-critical roles are held by A-level talent.”

The challenge is that approximately 5% of the roles in most companies explain 95% of a company’s ability to execute its strategy, and very few organisations articulate which roles those are — but the ones that do tend to be top performers.

“There’s an excellent historical example of this at work,” says Michael. “Between 1988 and 1994, Gap was a high-flyer in the retail sector. They performed globally on all levels — they grew faster than anyone else, were more profitable, had higher shareholder returns, and were the most admired company.

“During that time period, the organisation was led by Mickey Drexler, and his strategy was to focus on what he believed was Gap’s critical role, which was merchandising. He wanted every merchandiser to be a star. ‘No one will tell us what the colour is this year — we’re going to tell the world. We’re going to determine which styles are in and what everyone will be wearing.’

“And they did. If you want proof that Gap’s merchandisers were in fact stars during that period, you can look at today’s CEOs and COOs of the world’s largest retailers. Most of them were merchandisers at Gap during those years.”

The challenge of course is that everyone is always trying to hire stars, and yet only 15% of employees can be described as A-level talent. What can organisations do to utilise their stars wisely?

“First, move a star into a different position if they’re not in a business-critical role. To achieve this, how you define a star might have to change. Some companies hire for positions, and others hire for skills across positions. Stars, in my view, are more the latter. They can learn different skills and fill different roles.

“Second, start defining your business-critical roles. If you ask executives what percentage of their roles are business critical, most say 54%. They’re not discerning. It’s unintentional, because they don’t want to signal to their workers who aren’t in a business-critical role that they’re not as valuable to the organisation, but the reality is that people figure it out anyway, and you just end up with business-critical roles that aren’t filled by the right people, and stars in positions that anyone else could fill.”

Related: Entrepreneur Erik Kruger On The Importance Of Clarity And Embracing Failure

Teams perform better than individuals

To understand how important teams are when deploying talent, Michael uses an example from the world of racing — Nascar in the US to be precise.

“Between 2008 and 2011, there was one pit crew that outperformed everyone else on the track,” he says. “A standard pit stop is 77 manoeuvres, and this crew could complete them in 12,12 seconds, which was faster than any other team. However, if you took one team member out and substituted them with an average team member, that time jumped to 23 seconds. Substitute a second team member, and it was now 45 seconds. The lesson is simple: As the percentage of star players on a team goes up, the productivity of that team goes up — and it’s not linear.”

Michael and Eric also discovered that the role leadership plays on team productivity is both measurable and exponential.

“In 2011, the National Bureau of Economic Research wanted to quantify the impact of a great boss on team productivity. They found that a great boss can increase the productivity of an average team by 11%, which is the same as adding another member to a nine-member team.

“If you take that same boss and put them in charge of an all-star team, productivity is increased by 18%, and this is with a team whose productivity was exponentially higher to begin with. Great bosses act as a force multiplier on the force multiplier of all-star teams.”

According to Michael and Eric’s research however, what most organisations tend to do is place a great boss with an under-performing team in the hopes of improving them, when what they should be doing is pairing great bosses with great teams.

“We did a survey that asked a simple question: When your company has a mission-critical initiative, how do you assemble the team? A: Based on whomever is available. B: Based on perceived subject matter expertise. C: We attempt to create balanced teams of A, B and C players to foster the development of the team. D: We create all-star teams and we put our best leaders in charge of them.

“We thought everyone would answer D. We were wrong. 30% of our bottom three quartiles answered B, closely followed by C, and then A. Only 8% of them answered D.

“The results were very different in our top-performing quartile though. There, 81% of respondents answered D. In other words, the 25% most productive companies in our study set were ten times more likely to assemble all-star teams with their best players than the remaining 75% of the organisations in our research.”

How talent is deployed makes a difference. “I recently had this highlighted for me through another sporting analogy. The world record for the 400-metre relay is faster than the 100-metre dash multiplied four times. How is that possible? When your role is clear and your position is clear, the handoff is seamless. Under these conditions, the best teams outperform a collection of the best individuals.” Michael does offer a word of advice though.

“Don’t fall into the trap of believing that if you do have the best talent, you don’t need to worry about anything else. I don’t believe that’s true. There are always higher levels of performance that can be achieved because there are always areas you can improve on.”

What the research reveals: Energy

According to Michael, employee engagement and inspiration is a hierarchy. “There are a set of qualifiers that have to be met just to feel satisfied in your job: You need to feel safe, have the resources you need, feel that you’re relatively unencumbered in getting your job done every day and that you’re rewarded fairly.

“To be engaged, these all need to meet, and more. Now you also need to feel part of a team, that you’re learning on the job, that you’re having an impact and that you have a level of autonomy.”

Inspiration takes this a step further. “Inspired employees either have a personal mission that is so aligned with the company’s mission that they’re inspired to come to work every day, or the leadership of their immediate supervisors is incredibly inspiring, or both.”

Why does this matter? Because how satisfied, engaged or inspired your employees are has a real, tangible impact on productivity. “Engaged employees are 45% more productive than satisfied employees. An inspired employee is 55% more productive than an engaged employee and 125% more productive than a satisfied employee.”

The really scary statistic is that 66% of all employees are only satisfied or even dissatisfied with their jobs, 21% are engaged, and only 13% are inspired. “These statistics are pretty constant, although top organisations can improve their engaged and inspired ratios,” says Michael. “What we found amongst those companies that did have more engaged and inspired workers was that they all tended to believe that inspiration can be taught. It’s not innate. You can become an inspirational leader with the right attitude and training.

“For example, one organisation surveys its employees every six months and specifically asks workers to rate how inspirational their leaders are. If you’re rated uninspiring by your team for the first time, you’re given training. If, six months later, you’re still rated uninspiring, you’re given access to a coach to evaluate why the tools aren’t working for you.

“By the third, two questions are asked: Should you be a leader, and should you be at the company? Many productive employees can be effective individual contributors but aren’t necessarily leaders, or aren’t happy as leaders, and would best serve the organisation in a different role. The second question is tougher, but even more important. If an inspired employee is 55% more productive than an engaged employee and 125% more than a satisfied employee, an uninspiring leader is a tax on the performance of the company, and there has to be a consequence to that. We have to constantly enrich our workforce and leaders need to be included in that.”

The problem is that very few organisations are asking how inspiring their leaders are. “If you don’t know if your employees are engaged or if your leadership is inspiring, you can’t address it,” he says. “You can take a satisfied employee and make them engaged, but you can’t inspire someone if they aren’t first engaged — that’s the hierarchy. Employee engagement is largely achieved through the way you manage teams. You have to give people the sense that they are having an impact, working within a team and learning. Get that right, and you’ll unlock a powerful level of discretionary energy that will drive productivity in your organisation.”

Related: How Yoco Successfully Secured Capital And The Importance Of A Pitch

Time, Talent, Energy: Overcome Organizational Drag and Unleash Your Team’s Productive Power, by Michael Mankins and Eric Garton, focuses on the scarcest resource companies possess — talent — and how it can be utilised to drive productivity.

Visit www.timetalentenergy.com to find out more.

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Entrepreneur Profiles

7 Foundational Values Of Brand Cartel And How They Grew an Iconic Business From The Ground Up

Marco Ferreira, Renate Albrecht and Dillon Warren built Brand Cartel, a through-the-line agency, that delivers exactly what they wanted — and has grown exponentially as a result.

Nadine Todd

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brand-cartel

Vital Stats

  • Players: Marco Ferreira, Renate Albrecht and Dillon Warren
  • Company: Brand Cartel
  • Launched: 2013
  • Visit: brandcartel.co.za

“We’d never worked at agencies, which meant we had no idea how much you need to run an agency. We grew into it. It’s made us really good at what we do.”

When Dillon Warren, Renate Albrecht and Marco Ferreira launched Brand Cartel in 2013 they were in their early 20s with zero agency experience between them. The idea had started when Marco recognised that social media was taking off, but no agencies were playing in that space yet. It was a clear opportunity.

Printing flyers that said ‘Your social media is so last season’, Marco and Renate went from store to store in Sandton City, pitching their services. When Dillon joined them a few months later because they needed someone to handle the company’s finances, they had two laptops between them, R6 000, which Dillon had earned from a Ricoffy advert, and sheer will and tenacity.

“We shared a house to save on rent and split everything three ways,” says Renate. “At one point we hadn’t eaten in two days. My mom lent me R500 so I could buy Futurelife and a bag of apples for the three of us.”

The trio hired their first employee soon after launching Brand Cartel, and after prioritising salaries and bills, there wasn’t much leftover. “Dillon actually paid us R67 each one month,” laughs Marco. “That’s what was left — although I still can’t believe he actually sent it to us.” It was at this point that the young business owners realised they needed credit cards if they were going to make it through their start-up phase — not an easy feat when your bank balance is under R100.

Related: What Comfort Zones? Get Comfortable With Being Uncomfortable Says Co-Founder Of Curlec: Zac Liew

“Looking back, those days really taught us the value of money,” says Dillon

We spent a lot of time with very little, and we’re still careful with money today.” Through it all though, the partners kept their focus on building their business. “It almost didn’t work for a long time. We were young and naïve, but in a way, that was our strength. We didn’t have any responsibilities, and we’d never worked at agencies, which meant we had no idea how much you need to run an agency. We grew into it. It’s made us really good at what we do. All of our business has been referral business. It takes time, but we focused on being the best we could be and giving everything we had to our clients. Our differentiator was that we really cared, and were willing to offer any solutions as long as they aligned with our values.”

This is how Brand Cartel has grown from a social media agency into PR and Media Buying, SEO and PPC Strategy, Digital and Print Design, Web Development, Campaign Strategy and now an Influencer division. “It’s an incredibly competitive space with low barriers to entry, which meant it was easy to launch, but tougher to build a client base,” says Renate. “I’d sometimes cry in my car between sales pitches, and then walk in smiling. We had no idea if we’d make it.”

The perseverance has paid off though. Strong foundations have laid the groundwork for exponential growth over the past year, with turnover growing almost ten-fold in 2017 thanks to relationship-building, strong referrals and fostering an internal culture and set of values that has driven the business to new heights as a team.

Like many start-ups, Renate, Dillon and Marco have made their fair share of hiring mistakes, but as the business grew and matured, the young entrepreneurs began to realise that the success of their business lay in the quality of their team and the values they stood for.

This meant two things: Those values needed to be formalised so that they could permeate everything Brand Cartel does, and they needed a team that lived, breathed and believed in them.

“We’ve had some nasty experiences,” admits Dillon. “You should always hire slowly and fire fast, and for five years we did the opposite. We’ve hired incredible people, but we’ve also ended up with individuals who didn’t align with our values at all, and that can destroy your culture.

Dillon, Marco and Renate realised they needed to put their values on paper. “We did an exercise and actually plotted people based on a score grading them against our values, so we knew where our issues were. We knew what we wanted to stand for, and who was aligned with those values. We were right; within a few weeks resignations came in and we mutually parted ways.”

The team that stayed was different. They embraced Brand Cartel’s values, and more importantly, it gave the partners a hiring blueprint going forward.

“Values are intangibles that you somehow need to make real, so it’s important to think about the language you use, and how they can be used in a real-world work context,” says Marco.

The team has done this in a number of ways. First, they chose ‘value phrases’ that can be used in conversation, for example, ‘check it, don’t wreck it’, and ‘are you wagging your tail?’ Team members can gently remind each other of the value system and focus everyone on a task at hand simply by referring to the company’s values. “In addition, when someone is not behaving according to those values, you can call them out on the value, which is an external thing, rather than calling them out personally,” explains Dillon.

Related: How Matthew Piper And Karidas Tshintsholo Launched Their First Business From Their UCT Dorm Rooms

Second, all performance reviews are based on the values first. This means everyone in the organisation begins any interaction from a place of trust, knowing they are operating according to the same value system.

“When you’re in a production environment with jobs moving through a pipeline, there can be problems and delays,” explains Marco. “Instead of pointing fingers when something is over deadline or a mistake is made, our team can give each other the benefit of the doubt and work together. They trust each other, which creates cohesion. We all work as a team, which impacts the quality of our work and the service we offer our clients.”

The system is simple. Coaches will step in first if there is an issue before it escalates to the Head of Team Experience, Nicole Lambrou. If Nicole is called in, she will address the problem head on. “Inevitably it’s something fixable,” says Marco. “By addressing it immediately and in the context of our values it can be sorted out quickly. Ultimately, the overall quality of our team improves, and we are a more cohesive unit.”

The founders have seen this in action. “I recently arrived at a client event and three different people came up to me and complimented my team on the same things — all of which aligned with our values. Everyone at Brand Cartel lives them, internally and externally,” says Renate.

The value system has also shaped how the team hires new employees. “We used to meet people and hire for the position if they could do the job,” says Renate. “But then we started realising that anyone can hold up for an hour or two in an interview. You only learn who they really are three months and one day later.

“We need people who walk the talk, and we really only had a proper measurement of that once we articulated our values. Our interview style has changed, but so has what we look for.”

brand-cartel-south-african-agency

Here are the seven values that Dillon, Marco and Renate developed based on what they want their business to look like, how they want it to operate, and what they want to achieve, both internally, and in the market place.

1. Play with your work

Our goal is for everyone on our team to become so good at what they do that it’s no longer work. Once that happens you love your job because you’re killing it. It’s why sportsmen are called players, not workers, and it starts with the right mindset.

2. Wag your tail

The idea behind this value stems from Dale Carnegie, who said ‘have you ever met a Labrador you don’t like?’ In other words, we all respond well to people who are friendly. It needs to be genuine though, so again, it’s a mindset that you need to embrace.

We live these values whether we’re at the office or meeting clients. If you go into each and every situation with joy and excitement, from meeting someone new to a new brief coming in, you’ll be motivated and excited — and so will everyone around you.

3. Check it, don’t wreck it

The little things can make big differences. Previously it was too easy to pass the buck, which meant mistakes could — and did — happen. Once you instil a sense of ownership and create a space where people are comfortable admitting to a mistake however, two things happen. First, things get checked and caught before there’s a problem. Second, people will own up if something goes wrong. This can help avoid disasters, but it also leads to learnings, and the same thing not happening again.

4. What’s Plan B (aka make it happen)

We don’t want to hear about the problem; come to us with solutions, or better yet, already have solved the problem and made it happen. We reached a point where we had too many people coming to us with every small problem they encountered, or telling us that something wasn’t working so they just didn’t do it.

That wasn’t the way we operated, and it definitely wasn’t the way we wanted our company to operate. We also didn’t want to be spoon feeding our team. It’s normal for things to go wrong and problems to creep in — success lies in how those problems are handled.

Ignoring problems doesn’t make them go away, so we embrace them instead, encouraging everyone on our team to continuously look for solutions. For example, the PR department holds a ‘keep the paw-paw at Fruit & Veg City’ meeting every morning, where we deliberately look for where problems might arise so that we can handle them before they do. We start with what’s going wrong and then move to what’s going right. You need to give your team a safe and transparent space to air problems though. We don’t escalate. We need to know issues so that we can collectively fix them, not to find fault.

Related: The 5-Hour Rule Used By Bill Gates, Jack Ma And Elon Musk

5. Put your name to it

It’s about pride in work and making it your own. When someone has pride in what they’re doing, they’ll not only put in extra time and effort, but they’ll pull out all the stops to make their creative pop, or go the extra mile for a client.

We need to find the balance between great quality work and fast output though. One way we’ve achieved this is by everyone reviewing the client brief and then committing to how long their portion will take.

When someone gives an upfront commitment, they immediately take ownership of the job. It took time for us to find our groove with this, but today we can really see the difference. Our creative coaches also keep a close eye on time sheets and where everyone is in relation to the job as a whole to keep the entire brief on track. If someone is heading towards overtime we can immediately ask if something is wrong and if they need assistance.

We also celebrate everything that leaves our studio. Every morning we have a mandatory 15-minute catch up session where we check in on four core things: How am I feeling (which allows us to pick up on the mood in the room and the pressure levels of our teams); What’s the most important thing I did yesterday; What’s the most important thing I’m going to do today (both of which give intention and accountability); and ‘stucks’, issues that team members need help with. We then end off with our achievements so that we can celebrate them together.

6. Keep it real (aka check your ego at the door)

We believe in transparency. At the end of the day we’re all people trying to achieve the same thing, but it’s easy for ego to creep in — especially when things go wrong. You can’t be ego-driven and solutions-orientated. If clients or team members are having a bad day, you need to be able to focus on the solution. Take ego away and you can do just that. It’s how we deal with stucks as well. We can call each other out and say, ‘I’m waiting for you and can’t do my job until I receive what you owe me,’ and instead of getting a negative, ego-driven reaction, a colleague will say, ‘sorry, I’m on it.’

7. Walk the talk

For us, ‘walk the talk’ really pulls all our other values together. It’s about being realistic and communicating with each other. If you’ve made a mistake or run into a problem, tell your client. Don’t go silent while you try and fix it. Let them know what’s happening and fill them in on your plan of action.

Walk the talk also deals with the industry you’re in. For example, if you’re a publicist, you need to dress like a publicist, talk like a publicist, and live your craft. In everything we do, we keep this top of mind.

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