Ravi Naidoo turned the Design Indaba into the world’s top design conference generating R115 million in sales
Designing a Winning Business Model to Showcase SA Talents
An academic at heart, Ravi Naidoo, spent his youth engrossed in his studies. He completed a degree in medicine at UCT and was reading for his masters in the early 1990s – a time when change was in the air and South Africa was on the brink of a socio-economic revolution.
There was something big happening and Naidoo wanted to be part of it. In addition to his love for learning, he has always had a fetish for all things creative. Even as a serious undergrad med student, he had completed several arts courses and was a seasoned speech and drama enthusiast.
“I wanted to do something new and challenging,” Naidoo recalls. “So I wrote a wacky, irreverent letter to a whole lot of ad agencies.” He won’t be too specific about the content, but it had something to do with not wanting to spend the rest of his life nailed to a stool in a dingy lab. He received two replies. One agency wanted him to do a graduate degree in advertising. The other, Young & Rubicam, had just launched a pharmaceutical division and was only too keen to welcome him on board.
That’s how he got into advertising. Within six months he was an account director. But come 1993, Naidoo was ready for another challenge and he convinced his wife to enrol with him to do an MBA. They were the only two people of colour in the class, and as usual Naidoo excelled and was named MBA student of the year.
It was eight months into the programme that he launched Interactive Africa, the company that was to become best known for the Design Indaba, an internationally recognised conference and showcase of design talent that attracts around 40 000 people today from all the creative industries – graphic design, advertising, film, music, fashion, industrial design, architecture, craft, visual art, new media, publishing, radio, television and performance art.
How it all started
Interactive Africa started life as a marketing project management company. “I had found the ad industry a trifle too formulaic, and I was convinced that we needed other models and platforms to help marketers help clients beyond the ‘picture, logo, promise’ advertising formula. Instead, we focus on creativity, media leverage and business strategy, all governed by a measurable process.”
One of his first successes under the Interactive Africa banner was the creation of the Vodaworld magazine in 1994. Today, Interactive Africa is Vodacom’s longest-serving marketing agency. More recently, the company was instrumental in getting South Africa’s 2010 World Cup bid off the ground.
But it’s the Design Indaba, a brand that Naidoo created from scratch, that he is most proud of, and rightly so. This annual event was launched at the Mount Nelson in 1995 and attended by just 200 delegates. At the time, Naidoo was driven by the conviction that the South African economy had to become less dependent on raw commodities and start to leverage value-added products. It was a reality that Naidoo set out to change.
“We had great skills sets in this country at that time, but what we needed was to look at things afresh. I was coming at the problem from a strategic point of view – by 1994 our economy was moribund, and we were merely selling commodities without producing anything of real value. “As the world’s top gold producer, for example, the country has not been known for its jewellery design. Yet, when a gold ingot is turned into beautiful jewellery, the value goes up enormously. My goal was to work towards creating a society that places greater value on design and innovation.”
That first Design Indaba delivered way beyond Naidoo’s expectations. “I hadn’t realised just how starved people were for creativity and inspiration,” he says. “Not only had we been isolated from the rest of the world, but we had also become insular and narrow-minded as a result.”
One of the highlights of that first event was a presentation given by the creative directors behind the Atlanta Olympic Games bid. They gave the delegates some deep insight into what it takes to package a city. People were blown away and those working on Cape Town’s 2004 Olympic bid got a nice little wake-up call. They realised they had to up the tempo and increase their workload.
A post-conference survey showed that 92% of delegates had responded positively and wanted Naidoo to do it again. “I was a bit of an accidental entrepreneur,” he laughs. “I had a permanent staff of two at the time so I made a pledge to the design community to make the Design Indaba a biennial event. I really had no idea that it would become such a money spinner at the time.”
Subsequent events were held in 1997 (attendances doubled), 1999 (attendances went up by 70%) and 2001 (attendances doubled again), with the Design Indaba outgrowing its venue every time. From taking over the entire V&A Waterfront, it moved to Artscape and then to the Cape Town International Convention Centre after it opened in 2003.
Building revenue streams
Following the 2001 event, Naidoo decided that it was time to make it an annual happening. However, creating an event-based business is not about an annual three-day frolic, Naidoo cautions. “You actually have to build a solid business with strong revenue streams and professional staff, not casual labourers. Don’t think you can earn money in a few days to make that business sustainable for the other 362 days of the year.”
That’s why he introduced additional income channels such as the Design Indaba magazine, a multi-award winning quarterly publication that champions local creativity, features international expertise and investigates how design can create a better world. On diversification, Naidoo points out that you can diversify only when you know exactly what you stand for. In 2004, he launched the Design Indaba Expo, a 100% South African celebration of the country’s best creative talent across all the creative industries.
“The Design Indaba was in its eighth incarnation by then and we had to find a way to really differentiate it – we had to actually spend ahead of where the market was. There was not enough of a critical mass to justify the expo, but that is what turned it into a multi-sectoral event. And rather than just selling space to exhibitors, we curate the expo and we have an independent curatorial board of leading creatives to do this.”
That’s because standards are important, he adds. “We only feature what is home-grown, high-end and exportable. We are not interested in derivatives and mimicry. No knock-offs from Milan.”“While the conference has always been fiercely global, the expo is entirely local. What we have today is a global, best-in-class conference with speakers from around the world, accompanied on the flip side by an exhibition of top local talent.”
Making it all work
One of the great lessons Naidoo learnt along the way is that in the events business, you have to get out there and campaign, canvas and forge relationships with people and organisations. The design Indaba has thrived because he has never run it like a creative or cultural event; instead it’s managed like a sports event. That means securing robust sponsorship, ensuring accountability and strict auditing processes, and partnering with media organisations all around the world. These are what Naidoo calls the building blocks of success.
“As we grew, we set out to be the best – to become the Cannes of the design world. That’s why we now have around 40 000 people attending. We are intensely competitive.”
He straightforwardly declares the Design Indaba to be better than similar events held in design hot spots like London and San Francisco. It’s a claim borne out by EIBTM, a top global exhibition for the conference, incentives, events, business travel and meetings industry, which in 2005 voted the Design Indaba the best conference in the world. To date, it’s the only African event to be awarded this status.
Naidoo is also aiming to open up another revenue steam through the Design Indaba’s web strategy which includes an e-commerce channel.
“The retail side of the expo has been very successful,” he explains. “In 2009, we had a total of R115 million in sales in three days. Our goal now is to build a design portal that will enable people here and abroad to buy South African artefacts, like Imiso ceramics, online.”
Having built a strong brand, Naidoo and his team are often invited to speak at conferences around the world. He was invited to Singapore to speak about the relationship between design and farming, and paid $50 000 for the favour.
Partners have played a major role in ensuring the sustainability of the event, with Naidoo having big names on board, including Woolworths, Absa, DSTV, Grolsch, Jupiter Drawing Room, Sappi, South African Tourism, Chaywa, and One & Only. It’s also key to remember, Naidoo says, that the Design Indaba is owned by Interactive Africa, itself a big business with clients like Vodacom and FIFA.
Managing Money Matters
Naidoo recalls that in the beginning, he was interested in breaking even, but had to tighten up his infrastructure and his team as the business grew. Financial modelling was vital, and he spent a great deal of time working out what the market could bear from a pricing point of view.
“The Design Indaba is the cheapest creative event in the world, priced at around $500 to $600. Compared to similar events that come in at 2 000 Euros, that’s a compelling offer – you have access to a whole world of design at a rand-based cost. It was important to price the event so that it’s accessible to South Africans.”
When it comes to finance, money is nothing, Naidoo maintains. Leading with passion is what counts. Nonetheless, he had to raise R50 000 to launch the first Design Indaba. He did so through trade exchanges, barters and payments in kind.
Raising money was doubly difficult for Naidoo because his idea was untried and no-one knew who he was. Added to that, he was tackling a market that is known less for its appreciation of culture and design and more for its obsession with politics and sport. “I got the money because I had a big idea, a great concept, a unique proposition.” Call it what you will, the clincher was his ability to articulate his vision clearly. It’s one way in which he has benefitted from his speech and drama classes.
“You need to have persuasive powers to get people to buy into your idea. You need to know how to package and present your plan. Everything we do has style and a compelling narrative attached to it.” The conference turned a profit from the word go. In that first year, turnover was referred to in terms of hundreds and thousands; today it’s at around R20 million. When the expo was launched in 2004, Naidoo took a big risk and spent a lot of money to start it. It was a move that began to pay off only two years down the line. At first, he struggled to find 80 exhibitors when he knew that he needed 200 to break even. Today there are more than 300. He notes that early bird offers are the lifeblood of a young events company and that’s what has enabled the expo to grow alongside the conference.
How the Design Indaba become a worldwide success?
Naidoo attributes the prestige of the event – reputation being a key factor in his industry – to maintaining global competitiveness and aiming extremely high. There is simply nothing like it in the world – 60 creative leaders in one room over three days and around 300 exhibitors of local merchandise across a range of industry sectors in a top quality venue.
“One of the key differentiators is the fact that while industry sectors generally are siloed, we have done away with the traditional lines between things like design and biology, design and agriculture.” He also warns against the cut-and-paste approach applied by many events companies. “When we look for speakers, we do not deal with speakers’ bureaus, nor do we choose MCs from the celebrity circuit. We want uniqueness, not the same messages that are trotted out at every function.”
The toughest challenge for Naidoo has been the relationship with local, provincial and national government. Where private companies have supported the Design Indaba and invested in growing it into what it is today, the Government has done the opposite. “Government does not do multi-term agreements, so what goes one year does not apply to the next, despite what the Design Indaba contributes to the Western Cape’s GDP. This confounds planning. We can only do so much to promote the event; it would be gratifying to have support form the public sector that goes beyond cutting ribbons for an event that has won awards.” Harsh words, but the challenge is a very real one: the Arts and Culture ministry dropped the Design Indaba ahead of the World Cup, favouring a once-off event over a perennial attraction.
Having successfully leveraged the success of the Design Indaba for other areas of growth, Naidoo is proud of having built a prodigious global network which Interactive Africa is able to tap into for many other client projects. “We can talk to industry professionals in most cities around the world; we are not solely reliant on Cape Town’s talent. It really is an unfair advantage. We are very trend aware and in touch with what is happening.” He plans to use that knowledge to kick-start the web business and take the Design Indaba beyond the borders of this country.
Who is it for?
- 65% of the Design Indaba board are practitioners in creative fields
- 35% are people who commission creative work
- 20% of people who attend are overseas visitors
- 60% are from Gauteng
Design Indaba Milestones
1995: The Design Indaba is launched and 200 delegates attend
1997: Second Design Indaba event is held and the number of participants doubles
2001: Design Indaba becomes an annual event
- Design Indaba magazine is voted
- best new design magazine in the world in New York
2004: Design Indaba moves to the Cape Town International Convention Centre to accommodate participants
2005: Design Indaba voted best conference in the world by EIBTM
2007: Design Indaba wins Loerie gold award in the live events category
ABSA Cape Epic
Kevin Vermaak built the Absa Cape Epic into the race of choice for mountain bikers globally
How a Cape-Based Cycling Race Became a Global Epic
Written by Greg Fisher
The majority of theories and models on entrepreneurship and new venture creation focus on business opportunities orientated around day-to-day operations – such as a retail business that trades on an ongoing basis, a manufacturing entity that continuously produces output, or a service organisation that is always available to clients. Yet many new business opportunities are linked to events – either once-off events (such as a music concert or a trade convention) or regular events with significant amounts of time between each edition of the event (such as an annual sports event or a biannual exhibition). Under such circumstances the focus areas for successfully creating a new business are subtly different from those of an ongoing business operation. I call this concept event-based entrepreneurship. In this article I unpack some of the critical elements of event-based entrepreneurship by examining the intriguing case study of the Absa Cape Epic, an annual mountain bike race in the Western Cape.
Absa Cape Epic: The Learning
The business development process behind the race provides key insight into some of the most critical elements in the creation of a sustainable and profitable event-based business. Such elements include the following:
1. Funding. The development of the race as a business was largely self-funded (i.e. bootstrapped). Aside from a bridging loan from the IDC that was granted three years after launching the venture, Vermaak and his team developed this enterprise with true global reach using only internally generated funds supplemented by limited personal funds.
2. Sponsorship. The business focuses on a very niche, secondary sport, which seven years earlier had enjoyed only limited spectator or sponsor interest in South Africa. Yet through the Absa Cape Epic, Vermaak has elevated the prestige, professionalism and competition of the sport to the point where it now has television appeal across the globe and has blue chip companies vying to be associated with the race.
3. Business Model. In developing the Cape Epic as a business, Vermaak realised that there are multiple potentially profitable revenue streams associated with a single popular event. He has effectively exploited many of these additional revenue streams in a way that benefits all stakeholders and enables the business to turn a profit from the R30 million in revenue it generates from a single race.
In unpacking the intricacies of building an event-based business, I will discuss each of these elements in detail in the context of the Absa Cape Epic.
Many prospective entrepreneurs believe that funding is the most significant barrier to starting a new business in South Africa. They spend huge amounts of time and effort trying to convince financiers to invest in their business and enable them to launch a new product or service. Sadly, many fail to realise that it is highly unlikely that any financier will provide capital for a business that is not yet operational. Thus, much of their early passion and energy is focused on something that yields very low returns – trying to raise money. Vermaak went about things very differently. He focused primarily on just getting the first race off the ground and in so doing tackled issues with the philosophy of “how can I make this happen” instead of asking “how much money will I need to raise to make this happen”.
This meant that instead of putting a PowerPoint presentation together to persuade banks and venture capitalists to fund his idea, he put a presentation together to go out to sports marketing firms and sponsors with whom he could partner to sell his race on a global platform. Instead of engineering the business plan to make the returns of the venture look attractive he engineered the marketing material to make the actual race look attractive to mountain bikers across the world.
In June 2003, he opened entries for the inaugural race at a cost of R7 800 per team and the 275-team slots were taken up and paid for in just three days. With that uptake in entries he quickly had about R2 million in the bank that he could use to deliver the first event. Although R2 million seems like a large sum of money to deliver a mountain bike race, because of the quality, logistics and length of the event it was not enough to cover his costs for the first race. Vermaak worked incredibly hard to persuade suppliers to extend payment terms – a tough thing to negotiate for a company with no track record. “These were highly stressful times,” he recalls, yet his tenacity and persuasive skills resulted in a number of suppliers agreeing that he could settle his debts 90 days after invoice.
This meant that if the entries for the following year’s race could be opened up within three months of the 2004 race, then Vermaak could use entry fees for the 2005 race to cover the deficit from the 2004 race. The difference in timing between collecting revenue and paying expenses enabled Vermaak to creatively build the business off a very low capital base. By 2006, two highly successful editions of the Cape Epic had been staged and Vermaak and his team now had the credibility and track record to approach the IDC for a bridging loan. Because of the good work they were doing to expose South Africa on a global stage, the IDC agreed to give them a bridging loan at preferential rates. That same year Absa agreed to come on as a title sponsor of the event. The title sponsorship deal helped reduce the deficit between income and cost on each race yet it still took another two years of hard work for the company to finally break-even and make a profit.
Key lessons: funding an event-based business
- Be patient – building a profitable event based business takes time. You may not make any profit on the first few events but if you learn through the process and deliver a good experience for customers, over time you can start to generate a profit.
- Get operational – do whatever you can to get the business off the ground. It is much easier to get loan funding once you are generating cash flows.
- Use timing of cash flow creatively – speed up revenue collection and slow down payments to suppliers.
Sponsorship is a critical element of the Absa Cape Epic’s business model. Vermaak concedes that “the business of sport is built around sponsorship” and he has set out to create “the Formula 1 version of mountain bike racing”. He cannot rely on rider entry fees to cover the costs of the race; he and his team therefore need to create an event that is highly attractive for big companies to be associated with. From the outset, Vermaak set himself the goal of attracting a title sponsor with global recognition and a minimum of R100 million in marketing budget. His intuition told him that the race had to be associated with “big blue chip brands” for it to be a long-term success. Initially he spread his net far and wide, doing presentations to whoever would listen. He was thrilled when his marketing partners secured Adidas International as a sponsor for the very first event. As he has built this business, Vermaak’s secret to success for securing sponsorships was Gary Player’s mantra, “the harder you work the luckier you get” – he just kept plugging away until he got a positive response.
The route to securing Absa as the title sponsor was a little more strategic. Vermaak realised that the title sponsor was likely to be a South African company and he targeted companies with a marketing budget of R100 million or more. He exploited every personal relationship possible to find a way into the executive offices of SA’s blue chip companies – calling on people who had ridden the race, family, friends and long lost acquaintances to get an introduction. In this process, he discovered that the executive assistant to Steve Booysen, then CEO of Absa, was entered into the following year’s race.
Using this as an access point into Absa, one of South Africa’s largest financial services organisations, he went through a series of meetings with the right people, and finally Absa agreed to be the title sponsor. Having a title sponsor has significantly improved the financial viability of the event but for Absa it has also created a unique marketing opportunity. Firstly, the average South African rider spends approximately R40 000 in preparing for and getting to the race, which suggests that the majority of the riders in the race are fairly wealthy and influential. The riders of the race are therefore an attractive captive market for Absa. Secondly, Absa has the opportunity to invite some of its most important clients to ride the race with senior employees. The relationship bonds that are forged with important clients during an eight day mountain bike race are more valuable than a relationship forged over a beer at a rugby game. Over the years, more and more sponsors have expressed an interest in being associated with the Cape Epic but one of the fundamental lessons that Vermaak has learned is that “lots of sponsors is not the answer”. The relationship with each sponsor takes time and effort to nurture and it is thus much more productive to have a few high value sponsors rather than many less significant sponsors.
Key lessons: Sponsorship for an event-based business
- Know what you want – establish criteria for the type of sponsors that are going to best serve your event and be best served by it in the long-term, then spread your net wide across those companies that meet your criteria.
- Leverage relationships – use whatever access point you can to get a meeting with the decisionmakers in the companies that you are targeting as potential sponsors.
- Quality is better than quantity – don’t be tempted to take on too many sponsors. Each sponsorship relationship takes time, effort and energy to nurture and manage.
- If you take on too many sponsors you may not be able to manage any of them effectively.
The Business Model
The two broad categories of events in the business of sport:
1) The mass participation event in which the organisers rely primarily on many thousands of relatively small entry fees to generate revenue for the event (e.g. the Comrades Marathon, the Pick ‘n Pay Cape Argus Cycle Tour).
2) The professional event in which the organisers attract companies to sponsor an event, pay professionals to participate in the event and charge spectators to watch the event (e.g. The Nedbank Golf Challenge, FIFA World Cup).
Kevin Vermaak realised that his concept of the Cape Epic did not fall directly into either of these categories. He wanted to attract the world’s top professional riders to the race but also provide an opportunity for the aspiring amateur mountain biker to participate. He wanted to charge an entry fee for participation but he knew there was a limit to the number of people he could allow to participate (due to limited route access and safety). He therefore needed to create a new business model that would enable him to create a profitable “pro-am” (professional and amateur) sports event. Over the years he has been open to experimenting with a different mix of revenue streams for the business. As early as the second year of the event he realised that there was an opportunity to “introduce extra rider service products – ‘margin sales’ – like pre- and post-event hotel accommodation, accommodation upgrades during the race, mobile homes, hospitality, etc.” Many of the riders travelling to the race were willing to pay for extra services before the race and along the route.
By packaging and selling these extra services Vermaak uncovered an extra revenue stream that is seldom exploited by organisers of similar events. Over the years this offering has grown to include rider DVDs, clothing, massage services and nutrition services, among other things. The ‘margin sales’ revenue stream now constitutes 20% of the company’s revenue (approximately R6 million). The other two primary revenue streams are sponsorships (40%) and entry fees (40%). Because the Cape Epic is shown on so many TV channels across the globe, many people perceive that TV rights should be a significant revenue generator for the business but as Vermaak points out: “Mountian biking is not football, we pay an agency to give our TV products away for free.” He recognises that he needs to increase the profile of the sport of mountain biking significantly to create value for his sponsors and make the business sustainable in the future.
Thus, he invests heavily in getting the race onto TV screens across the globe. Being a first mover and an innovator in an emerging industry is often expensive.
One needs to invest heavily in increasing the legitimacy and profile of the entire sector which opens the door for others to move in and establish their businesses on the back of the hard work of the innovating company. Similar examples are evident in the coffee and airline industries. In the coffee industry, a multitude of premium coffee shops emerged after Starbucks established a market for gourmet take away coffee. In the airline industry, a stream of new low cost carriers popped up after Southwest Airlines worked hard to establish the credibility of low-cost airlines.
In most cases where an innovating company needs to invest heavily to establish a new industry they will retain the highest market share in the sector but it is often a lot easier for other players to come in and quickly turn a profit, even though they may have lower market share than the early innovator. Kevin Vermaak sees the effect of this in mountain bike stage racing.
A stream of new events has emerged locally and abroad in the wake of the success of the Absa Cape Epic.
Key lessons: building a profitable event-based business
- Look for alternative revenue streams associated with your core product but don’t over-engineer the additional offerings – recognise where you have the opportunity to package and sell other products or services linked to what you currently do. Don’t feel locked into just one or two revenue streams; look for alternative sources of revenue. As you do this, be careful not to over-engineer your additional offerings such that they take excessive work to deliver. The team behind the Cape Epic is very careful to create ‘standard products’ for their margin sales so that people buy the service that is offered or not at all. They don’t offer customised versions of any of these services as that creates more work than it is worth.
- Recognise whether you are a leader or a follower in your industry and invest accordingly – evaluate whether your company needs to establish a market and legitimise the industry in which you operate. If so, take a long-term view, seek to be the leader in the industry but recognise that it may take time to get to profitability. If you are entering an established industry, recognise that your market share may be restricted but look for ways to get to profitability quickly.
- Experiment and learn as you go – in a new industry no-one really knows what the standards are and thus the best way to learn is to experiment. The people behind the Cape Epic have used online auctions and premium charity entries to test price points and they have experimented with route changes and race formats to increase rider appeal and decrease logistical overheads. They are also continually evolving their company structure to make the business more efficient and effective as they grow and learn.
As Kevin Vermaak reflects on his journey of building a world-class event-based business from scratch, he passionately acknowledges the role that mentors and role models have played in influencing his decision-making processes. I have no doubt that his willingness to share aspects of his journey in building the Absa Cape Epic as a viable business will influence other entrepreneurs with aspirations to build world-class event-based businesses and, as such, his own function as a role model should be highlighted.
Absa Cape Epic: The Event
The Cape Epic is a two-person team mountain bike stage race over eight days, covering approximately 800 kilometres through the mountains of the Western Cape. The race is limited to 600 teams (1 200 individuals). Some 35% of the participants are international riders coming to South Africa from more than 40 countries. Entrants in the 2010 race paid R25 200 per team to enter the race and the lottery for entries into the 2010 race was oversubscribed. The Cape Epic is one of only four bicycle stage races and the only mountain bike race in the world to be classified by the UCI (the International Cycling Federation) as Hors Categorie (beyond classification). The other three stage races with the Hors Categorie classification are the Tour de France, Giro d’Italia and Vuelta Espana. The 2009 edition of the Cape Epic was broadcast in 175 countries, on 205 TV stations attracting 4 300 hours of global TV coverage. This makes the event the most televised mountain bike race of all time.
Absa Cape Epic: The Business
Beyond being a truly world-class cycle race The Cape Epic is a remarkable entrepreneurial story. With the impact that this race has had on global cycling it is hard to believe it is just less than seven years old and was started by a single individual. Kevin Vermaak conceived the idea while lying on the beach in Costa Rica in November 2002. He had travelled from London to Costa Rica to do the La Ruta mountain bike race. “La Ruta was popular for what it was but it was very expensive,” reflects Vermaak, who grew up in the Eastern Cape and attended the University of Cape Town. He knew that South Africa was a much better venue for a world-class mountain bike event. “The terrain, beauty, people, services and facilities in the Western Cape would make it possible to organise a far superior race.” Vermaak went about creating a business plan for his new venture and “three months later I’d packed up eight years in London and was starting a new life in Cape Town,” he remembers. Recognising the need to market the race on a global platform, he first forged a relationship with marketing partners in Munich and then focused on developing the brand, the logo, the ethos and refining the basic concept so that he could begin selling entries for the inaugural race in March 2004.
Over the past six years the race has grown into a global phenomenon and has been referred to as “the Tour de France for mountain bike pros and the best week of the year for recreational riders” by Christoph Sauser, the multiple mountain bike world champion and overall World Cup champion from Switzerland.
4 Lessons From The Pivotal Group Founders On Growing And Disrupting All At Once
Here’s how they’ve built what they believe to be the foundations of a successful group of businesses in five years.
- Company: Pivotal Group
- Players: Paul Hutton, Joel Stransky and Bruce Arnold
- What they do: Pivotal pioneered voice biometrics in the financial and telecommunications market. Over time, the company has grown to include nine divisions across multiple sectors.
- Launched: 2012
- Visit: pivotalgroup.co.za
How do you build a disruptive business while also focusing on growth? Disruptive ideas are by definition new and unknown to the market. They defy traditional and established solutions and ways of doing business, and they require the market to be educated before you can really onboard clients or even sell your product or service.
The answer is to build parallel solutions: Business units that bring in revenue while the more disruptive ideas are being developed and introduced to the market. Here are the four top lessons the founders of the Pivotal Group have learnt while building their business and pursuing disruptive opportunities simultaneously.
1. Know who your competitors (and potential competitors) are
Great ideas that are economically viable and solve a need that consumers are willing to pay for are few and far between. Great ideas alone are a dime a dozen, but if you’ve spotted a need, chances are someone else has as well. You then need to step back and critically evaluate why someone else hasn’t done this before; if they have done it and they’ve failed; or if you’re entering shark-infested waters riddled with competitors.
Once you’ve determined there is a gap in the market, you need to evaluate who your potential competitors are, and the impact if they suddenly started offering a similar solution to the market.
For Paul Hutton, Bruce Arnold and Joel Stransky, the founders of OneVault, competition was always a factor, particularly as a start-up, and given that potential competitors included Bytes and Dimension Data, this was a very real factor to consider. After careful analysis, however, the founders decided to go for it. Their differentiator was their business model. They wouldn’t be selling OneVault as a software solution, but as a service.
The idea had taken root while Paul was still CEO of TransUnion Credit Bureau. “I came across voice biometrics in Canada. There’s been a surge in identity fraud around the world, and I really understood the value of voice recognition as a verification tool,” he explains. “It can’t be faked, and it’s the only remote biometrics solution available, because you don’t physically need to be there to verify yourself.”
Paul had presented the idea to Transunion’s global board, and while they were intrigued, nothing came of it. “TransUnion’s model is to buy companies that are experts in their specific fields, not launch a new disruptive division from scratch.”
But this meant there was an opportunity for Paul to pursue the idea independently. Joel (former MD of Altech Netstar and CEO of Hertz SA) and Bruce (formerly Group CFO of TransUnion Africa and CFO at Unitrans Freight) were immediately interested in partnering with Paul. Both wanted to pursue entrepreneurship, although neither could do so immediately. The commitment was enough for Paul to get directly involved and start working on the business while he waited for his partners to join him.
In January 2011, Paul and Joel travelled to the UK and started investigating voice biometric solutions. “Voice biometrics was fairly new, but good technology was available, and there were global leaders in the sector,” says Joel.
It was important to choose the right product for the South African market, as this would form the basis of their offering. A contact at Dimension Data (one of whom became an investor in the business) offered this simple and straightforward advice:
When you’re choosing a technology partner, go with the company whose tech you’re confident in, and whose leadership is stable. You’re basing so much on this company and their longevity, so don’t disregard this criteria.
For Paul, Joel and Bruce, a US-based company, Nuance, ticked those boxes. But, from a competitive perspective, OneVault wasn’t the only potential player in the market. “Neither Bytes nor Dimension Data had gone into voice, but they had the potential to do so,” says Bruce. “The products were available to them through their partners.”
To mitigate this very clear risk, the founders made two critical decisions. “Our intention was to sell voice biometrics as a service, instead of a software solution that customers bought and owned, with the necessary infrastructure to go with it. The idea for OneVault was that there would be one place where your voice print lived, and different businesses could plug into our solution.”
The business model of large technology players in South Africa is to sell integrated software solutions, so OneVault’s business model was a differentiator. The next differentiator Paul, Bruce and Joel focused on was becoming specialists in their field.
“This is Paul’s baby,” says Bruce. “We’ve needed to build up a niche, expert team that specialises in voice biometrics. Because we aren’t generalists, 100% of our focus goes into this, instead of 5% or 10%.”
To attract the best in their fields, the founders needed a very appealing culture and a strong recruitment strategy. “We focused on what we wanted from our work environment, and then applied the same rules across the business,” says Joel. “Our goals were to drink good coffee, have no leave forms — ever; be able to take the time to ride our bikes and watch our kids play sports. If someone can’t make it work, or takes advantage without putting in the work, they come and go, but on the whole, we’ve had extremely low churn, and we’ve attracted — and kept — incredible talent.”
This differentiator would prove to be important for two reasons. First, two and a half years into the business, with investors on board and having pumped a significant amount of their own capital into the business, the team hit a major stumbling block. For a few weeks, they didn’t even know if they had a business.
“We had been operating on one major, and as it turned out, faulty, assumption,” says Paul. “We thought South African companies had the right telephony structure to implement our solution. We’d been building our solution on top of Nuance’s software, and were ready to start piloting the entire system with a few key customers, and we found out that in order to meet global voice biometric standards, the telephone technology had to be G711 compliant. South Africa was operating on G729.”
This was OneVault’s make or break moment. The team had six weeks to come up with a solution that ensured it met the necessary levels of accuracy. Without a highly skilled team this would have been impossible.
Even as a start-up, the strategy had been to only bring the best of the best on board. “We didn’t interview,” says Bruce. “We approached people whom we knew. We approached the best in the industry, and convinced them to take a chance with us. There was risk, but there were also rewards.” One of those people was Bradley Scott, a brilliant engineer whom both Paul and Bruce had worked with at Transunion.
Today, OneVault is one of the most specialist companies in the world, and often asked to speak at events in the US.
Being the niche specialists paid off, and OneVault achieved the almost impossible. But this had its downside.
Once you’ve shown something can be done, the bar of what’s impossible moves. Competitors enter your space.
This was the second reason why being such focused, niche experts paid off. “We demo’d the solution for a large local corporate, they loved it, and then went to a ‘then’ competitor to implement it,” says Paul.
“We always knew this was a real danger. Players like Bytes and Dimension Data have solid, existing client relationships with the same companies we’re targeting.”
18 months later the project still wasn’t working. “This is deep specialist knowledge,” says Paul. “Knowledge we built while we created our offering.” OneVault won the contract, and developed a partnership with Bytes at the same time. Today, OneVault works with all the major software integrators in the market. “We’re a specialist service they can offer their clients, without needing to put the same time and energy we needed to put in to become the specialists.”
Through a focused strategy, OneVault has become a partner, rather than a competitor, of some of the largest players in the industry.
2. Understand the nature of disruption so that you can prepare for it
In today’s ever-changing and fast-paced business world, most business experts are in agreement that as a company, you’re either the disruptor, or you’re being disrupted. The problem is that disruption comes with its own set of challenges.
“Our entire business model was built around a subscription service. Instead of a company buying a software solution, installing it and running it internally, we would do all of that. We would carry the infrastructure burden, and the high upfront cost,” says Joel.
In theory, this sounded like a clear win for businesses that would benefit from a voice biometrics solution. The reality is never so simple, particularly when you’re a disruptor.
“The software is expensive, and so we thought this would be seen as an excellent solution,” says Paul. “Instead, we faced a lot of reticence over the cloud. Businesses didn’t trust it yet.”
On top of that, first movers are often faced with a lag in corporate governance guidelines. As technology becomes more sophisticated, so governance guidelines change — but it’s a slow process, and the lag can impede disruptors.
“You also can’t give proper reference cases, because it’s all brand new to your market,” says Paul. “The best we had was a case study of how well it had worked in Turkey.”
To compound matters, proof of revenue is essential for businesses wanting to trade with large corporates, but non-existent in the start-up phase.
So, what’s the solution? According to Joel, Bruce and Paul, it’s all about being patient, never giving up, building gravitas and getting a few clients on board, even if it’s free of charge to build up your reputation and prove your concept. Finally, you need to bring in revenue from more traditional channels to support your disruptive products and solutions.
“Disruptive solutions are by their nature new and different, which means change management for your customers. This makes the sales cycle long and complex, and you have to be prepared for that,” says Bruce.
Don’t stop laying your groundwork. While disruptors are ahead of the curve, you need to be ready for the uptake when it arrives. “We’ve now concluded a partnership with South Africa Fraud Prevention Services,” says Paul. “When an imposter calls we won’t only terminate the transaction but we will alert the identity being compromised in the attempt and we will actively prevent fraud by contacting Fraud Prevention. The ultimate vision is for every South African’s voice biometric signature to live in our vault, and we are already receiving imposter information.”
3. Cultivate additional revenue streams
So, what do you do while you are living through the extremely long sales turnaround time of your disruptive, game-changing solution? Bills still have to be paid and investment is needed to develop truly disruptive ideas.
First, the team realised that while an annuity subscription service was their ultimate goal and where the industry was heading, initially they needed to be able to sell and implement the software.
It’s worth noting that one of OneVault’s earliest customers who bought the software has since launched a new business, which is on OneVault’s annuity service model. The shift has just taken time. “The change is happening, but it’s been slower than we anticipated,” says Bruce. “We needed to accept that fact and sell the software to bring revenue into the business while we were waiting for the market to catch up.”
It’s an important lesson. You don’t want to get distracted from your vision, but you need to be bringing in revenue, even if that means your short-term strategy differs from your long-term goals.
“It took three years before we really started seeing a move towards hosted solutions,” he adds. “Outsourced and offsite solutions are opex environments, not capex. They are more cost-effective for customers, but they require a shift in thinking. It’s a move away from how things have always been done, and that takes time.”
But, while Paul, Bruce and Joel were learning the art of patience, they also needed to start bringing revenue into the business.
“It was clear that we needed to find other opportunities,” says Joel. The result is the Pivotal Group, a diversified holding company with different businesses that are interlinked and complementary.
The group’s first business outside of OneVault, Pivotal Data, was based on a large call centre contract Joel, Paul and Bruce secured. “You can’t be an expert in everything – when you specialise you will always be more successful. The trick is to partner with other experts,” says Joel. In this case, three entrepreneurs were opening a call centre — this was their area of expertise; they were absolute subject matter experts. What they weren’t experts in was technology or facilities management. Instead of doing it themselves, they were looking for partners.
“We manage everything aside from the people element,” explains Joel. “We found and leased a building, built the bespoke workspace, put in the technology, and managed the facility and IT on an opex basis back to them.”
The business immediately had a good anchor client, and Pivotal Data has built on that. The annuity income has supported further growth.
“This was a base for us, but we’ve acquired a few businesses on the back of this success, and created our own cloud contact centre solution — which also feeds into what we’re doing with OneVault,” says Bruce. “Our vision is to create a technology stack that’s world-class and provides a range of services that no other businesses provide as a single solution.”
Because of this pivot into call centre management, a new opportunity has presented itself, and Pivotal’s ambition has grown to include a solution that calls, authenticates, and then analyses all the data that is collected during those calls.
“Through partnerships, my team has developed a predictive analytics system that gives contact centres deep diagnostic tools. We can predict why agents are having the conversations they have, and what to tweak to improve them. We see the agent’s problem before they do. This isn’t just value add, it’s a revenue generating tool if it improves lead conversion rates and customer service. It’s also all geared to lowering call volumes.
“We know we need to keep looking forward. OneVault is starting to gain real traction, but we need to be working on the next disruptive solution and model. We can’t sit back and relax,” says Bruce.
“Three years ago we said that’s it; no more start-ups or investing in pre-adoption phase businesses. From now on, everything we do will be revenue generating,” says Paul. “We’d stretched three years of runway to five years in OneVault, and we didn’t want to keep doing that. We wanted instant revenue businesses. And the very next thing we did was invest in a start-up. It’s a crazy space, but it’s also very rewarding.”
To sustain it, the group continues to grow, focusing on investing in businesses and entrepreneurs who are subject matter experts and therefore already know and understand the market, and then positioning each new business or service to plug into the current offering.
“Data is our golden thread — technology and the disruptive space,” says Joel.
4. Be open to new ideas and opportunities
Integral to the Pivotal Group’s positioning is Paul, Bruce and Joel’s focus on supporting other business owners whose offerings align with the group’s own growth goals, and who would benefit from joining a group.
“If your goal is to be disruptive, you need to be open to all kinds of new ideas,” says Joel. Some will be better than others, and the co-founders have made the decision to focus on the ‘jockey’ rather than the business as a result. Business offerings and ideas need to pivot. If you have the right partners, finding a solution is all part of the challenge.
Pivotal’s move into the world of artificial intelligence is due to one such partnership. “One of our clients approached us with a concept. But he needed a partner to develop it into a proper AI solution,” says Joel.
It’s an augmented intelligence solution that focuses on recruitment, talent management and career guidance. The solution screens, ranks and matches candidates against a job profile, or a number of profiles. It’s a multidisciplinary platform that predicts the performance of the individual in a role.
“Our partner is a former Accenture consultant and a leader in this field. His focus is on the IP and science of the product, ours is on the business component.”
The challenge is how to commercialise and scale the business in as short a time frame as possible. Like many disruptive products, the adoption process is a stumbling block. “We invest at the pre-adoptive curve — not at the revenue generating stage, which means a big focus is always on how we can take an idea and build it into a revenue generating business,” says Bruce.
The business uses capital selectively. “We want to invest in and drive our own agenda,” says Paul. “We’re in charge of our own destiny, but it’s not comfortable or simple. We came from corporate. Big machines that you need to direct and keep on course. This is an entirely different challenge and we are still learning.”
Listen to the podcast
Matt Brown interviews Paul, Joel and Bruce and discusses what it’s like to invest in pre-adoptive start-ups and staying ahead of the curve.
To listen to the podcast, go to mattbrownmedia.co.za/matt-brown-show or find the Matt Brown Show on iTunes or Stitcher.
The Matt Brown Show is a podcast with a listenership in over 100 countries and is designed to empower entrepreneurs around the world through information sharing.
Afritorch Digital An Overnight Success That Was Years In The Making
By any standard, local start-up AfriTorch Digital has seen phenomenal growth and traction. But, while the company’s success might seem quick and effortless, there is a lot of hard work behind it.
- Players: Michel M. Katuta and Thabo Mphate
- Company: Afritorch Digital
- Established: 2017
- Visit: afritorchdigital.com
- About: Afritorch Digital assists research agencies in conducting market research through its in-depth knowledge of the African continent and its use of the latest digital technologies.
There is a saying that goes: It takes years to become an overnight success. While a company or individual might seem to enjoy sudden (and seemingly effortless) success, there is often more to the story. The results are usually public and well-publicised, but the years of hard work that came before go unnoticed.
Local start-up AfriTorch Digital is a great example of this. Since launching in May 2017, the business has seen excellent growth. “To be honest, we were very surprised by the level of success. Things progressed a lot quicker than we anticipated,” says co-founder Thabo Mphate.
“All the goals we had hoped to reach in four or sixth months, we managed to hit in the first month. It was just amazing.”
Preparing to launch
While AfriTorch Digital has certainly seen quick growth and success, it would be a mistake to assume that the same is true of the two founders. For them, the creation of AfriTorch was years in the making.
“The goal was always to start our own business,” says Thabo. “I think we’re both entrepreneurs at heart, and we saw an opportunity to create a unique kind of business that offered an innovative solution to clients, but we also realised the value of getting some experience first. Without the knowledge, experience, network and intimate understanding of the industry landscape, getting AfriTorch off the ground would have been incredibly difficult.”
Entrepreneurs tend to dislike working for other people. They want to forge their own path. However, as AfriTorch Digital’s case illustrates, spending time in the industry that you’d like to launch your business in is tremendously useful.
“Finding clients when we launched AfriTorch was relatively easy,” says company co-founder and CEO Michel Katuta. “One reason for this, I think, was that we were offering potential clients a great solution, but the other was that we had established a name for ourselves in the industry. People knew us. We had worked for respected companies, and we had done work for large clients. So, when we launched, we were able to provide a new start-up with credibility in the industry.”
The Lesson: Becoming an entrepreneur doesn’t always start with the launch of a company. Spending time in an established business, gaining experience and making contacts, can be invaluable. Very often, it’s the relationships you build during this time and the knowledge you accumulate that will help make your company a success.
Solving a problem
Everyone knows that launching a successful business means solving a burning problem, but what does that mean in practice? Aren’t all the burning problems already being addressed? And how do you attempt this without any money?
Thabo and Michel identified a small group of potential clients with a burning problem. Crucially, it was a problem that no one outside of the research field could have identified. Having spent years in the trenches, they saw a massive gap waiting to be filled.
“A decade ago, researchers were still debating whether the future of the field was in the digital space. That debate is now over. Everyone agrees that online is the way to go. What once took months now takes days or hours, and the cost of research can be reduced by a factor of five,” says Michel.
“But researchers are not technology specialists. If made available, they are eager to adopt digital tools, but they aren’t eager to develop these tools themselves. That’s not their area of expertise.”
AfriTorch Digital stepped up to provide these tools. Katuta has a background in software engineering, so he could approach research problems with the eye of a tech specialist. Very soon, research agencies were lining up to make use of AfriTorch Digital’s services.
“We work with research agencies that conduct research on behalf of their clients. We provide the digital tools needed to conduct research online, and we provide the online communities. A big reason for our success is that we understand Africa. A lot of companies want to conduct research in Africa, but traditionally, this has been very hard. There was a lack of access and a lack of infrastructure that made research very hit-and-miss. Thanks to the continent’s adoption of mobile technology, it’s now much easier. If you have the technological know-how and an understanding of the environment, you can do amazing things,” says Michel.
The Lesson: Find a niche and own it. Research agencies might not have seemed like an obvious and lucrative market, but having spent time in the industry, the AfriTorch founders were able to identify clients who would be desperate for their offering. Spending time in an industry will help you see where the opportunities lie.
Before launching a business, get to know an industry from the inside out. This will give you an unparalleled view into gaps you can service.
Jason English On Growing Prommac’s Turnover Tenfold And Being Mindful Of The ‘Oros Effect’
Rapid growth and expansion can lead to a dilution of the foundational principles that defined your company in its early days. Jason English of Prommac discusses how you can retain your company’s culture and vision while growing quickly.
- Player: Jason English
- Position: CEO
- Company: Prommac
- Associations: Young President’s Organisation (YPO)
- Turnover: R300 million (R1 billion as a group)
- Visit: prommac.com
- About: Prommac is a construction services business specialising in commissioning, plant maintenance, plant shutdowns and capital projects. Jason English purchased the majority of the company late in 2012, and currently acts as its CEO. Under his leadership, the company has grown from a small business to an international operation.
Since Jason English purchased Prommac in 2012, the company has experienced phenomenal growth. At the time he took over as owner and CEO, it was a small operation that boasted a turnover below R50 million.
Today, Prommac is part of a diversified group of companies under the CG Holdings umbrella and alone has grown it’s turnover nearly ten fold since Jason English took over. As a group, CG Holdings, of which Jason is a founder, is generating in excess of R1 billion. How has Prommac managed such phenomenal growth? According to Jason, it’s all about company culture… and about protecting your glass of Oros.
“As your business grows, it suffers from something that I call the Oros Effect. Think of your small start-up as an undiluted glass of Oros. When you’re leading a small company, it really is a product of you. You know everything about the business and you make every decision. The systems, the processes, the culture — these are all a product of your actions and beliefs. As you grow, though, things start to change. With every new person added to the mix, you dilute that glass of Oros.
“That’s not to say that your employees are doing anything wrong, or that they are actively trying to damage the business, but the culture — which was once so clear — becomes hazy. The company loses that singular vision. As the owner, you’re forced to share ‘your Oros’ with an increasing number of people, and by pouring more and more of it into other glasses, it loses the distinctive flavour it once had. By the time you’re at the head of a large international company, you can easily be left with a glass that contains more water than Oros.
“Protecting and nurturing a company’s culture isn’t easy, but it’s worth the effort. Prommac has enjoyed excellent growth, and I ascribe a lot of that success to our company culture. Whenever we’ve spent real time and money on replenishing the Oros, we’ve seen the benefits of it directly afterwards.
“There have been times when we have made the tough decision to slow growth and focus on getting the culture right. Growth is great, of course, but it’s hard to get the culture right when new people are joining the company all the time and you’re scaling aggressively. So, we’ve slowed down at times, but we’ve almost always seen immediate benefits in terms of growth afterwards. We focus heavily on training that deals with things like the systems, processes and culture of the company. We’ve also created a culture and environment that you won’t necessarily associate with engineering and heavy industries. In fact, it has more in common with a Silicon Valley company like Google than your traditional engineering firm.
“Acquisitions can be particularly tricky when it comes to culture and vision. As mentioned, CG Holdings has acquired several companies over the last few years, and when it comes to acquisition, managing the culture is far trickier than it is with normal hiring. When you hire a new employee, you can educate them in the ways and culture of the business. When you acquire an entire company, you import not only a large number of new people, but also an existing organisation with its own culture and vision. Because of this, we’ve created a centralised hub that manages all training and other company activities pertaining to culture. We don’t allow the various companies to do their own thing. That helps to manage the culture as the company grows and expands, since it ensures that everyone’s on the same page.
“Systems and processes need to make sense. One of the key reasons that drove us to create a central platform for training is the belief that systems and processes need to make sense to employees. Everyone should understand the benefits of using a system. If they don’t understand a system or process, they will revert to what they did in the past, especially when you’re talking about an acquired company. You should expect employees to make use of the proper systems and processes, but they need to be properly trained in them first. A lot of companies have great systems, but they aren’t very good at actually implementing them, and the primary reason for this is a lack of training.
“Operations — getting the work done — is seen as the priority, and training is only done if and when a bit of extra time is available. We fell into that trap a year ago. We had enjoyed a lot of growth and momentum, so we didn’t slow down. Eventually, we could see that this huge push, and the consequent lack of focus on the core values of the business, were affecting operations. So, we had to put the hammer down and refocus on systems, processes and culture. Today Prommac is back at the top of it’s game having been awarded the prestigious Service Provider of the year for 2017 by Sasol for both their Secunda and Sasolburg chemical complexes.
“If you want to know about the state of your company’s culture, go outside the business. We realised that we needed to ‘pour more Oros into the company’ by asking clients. We use customer surveys to track our own performance and to make sure that the company is in a healthy state. It’s a great way to monitor your organisation, and there are trigger questions that can be asked, which will give you immediate insight into the state of the culture.
“It’s important, of course, to ask your employees about the state of the business and its culture as well, but you should also ask your customers. Your clients will quickly pick up if something is wrong. The fact of the matter is, internal things like culture can have a dramatic effect on the level of service offered to customers. That’s why it’s so important to spend time on these internal things — they have a direct impact on every aspect of the business.
“Remember that clients understand the value of training. There is always a tension between training and operational requirements, but don’t assume that your clients will automatically be annoyed because you’re sending employees on training. Be open and honest, explain to a client that an employee who regularly services the company will be going on training. Ultimately, the client benefits if you spend time and money on an employee that they regularly deal with.
“For the most part, they will understand and respect your decision. At times, there will be push back, both from clients and from your own managers, but you need to be firm. In the long term, training is win-win for everyone involved. Also, you don’t want a client to become overly dependent on a single employee from your company. What if that employee quits? Training offers a good opportunity to swop out employees, and to ensure that you have a group of individuals who can be assigned to a specific client. We rotate our people to make sure that no single person becomes a knowledge expert on a client’s facility, so when we need to pull someone out of the system for training, it’s not the end of the world.
“Managers will often be your biggest challenge when it comes to training. Early on, we hired a lot of young people we could train from scratch. As we grew and needed more expertise, we started hiring senior employees with experience. When it came to things like systems, processes and culture, we actually had far more issues with some of the senior people.
“Someone with significant experience approaches things with preconceived notions and beliefs, so it can be more difficult to get buy-in from them. Don’t assume that training is only for entry-level employees. You need to focus on your senior people and make sure that they see the value of what you are doing. It doesn’t matter how much Oros you add to the mix if managers keep diluting it.”
When Jason English purchased Prommac late in 2012, the company had a turnover of less than R50 million. This has grown nearly ten fold in just under five years. How? By focusing on people, culture and training.
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