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Capitec: Riaan Stassen

How Capitec gave the established banking industry a run for its money.

Juliet Pitman

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Riaan Stassen

Chances are, most entrepreneurs will never get their hands on R250 million start-up capital. They probably won’t have the backing of a large investment company to get their dream off the ground. These are considerable advantages and Capitec Bank had both of them. But that’s where the dissimilarity with most entrepreneurs ends, and a truly visionary journey begins.

Had you purchased Capitec shares back in 2002 when the company listed, you’d be feeling smugly pleased with yourself right now. From a listing price of R2, the company’s shares are today worth R173. The success of the bank that took on the banking industry is a remarkable story, and one from which entrepreneurs can learn a great deal, no matter how small their business or how modest their means.

It is a story of disruptive thinking in action, of the new kid on the old block who took a gap that others saw but were unable to fill. In doing so, it showed up the big players at a time when they seemed immovably entrenched as market leaders. And while it hasn’t yet dethroned one of the Big Four banks, it certainly has them sitting up and taking notice.

With good reason too. The country’s first new retail bank in decades, Capitec has cornered the massive lower-middle income retail banking market, signing on average 70 000 new customers a month. It has ambitious plans to grow its branch network by 55 branches a year for the next five years, and recently posted continued profit growth of 46%. All those things are deeply worrying (or should be) if you’re an established bank that’s grown used to your entrenched position in an industry that’s remained essentially unchanged for decades.

Shifting the game

And there’s the thing. Capitec’s greatest achievement is arguably the fact that it has changed an industry. Its no-frills approach to simple banking that meets the real needs of the customer has introduced a new element to the banking landscape and fundamentally changed the rules of the game. Those who want to compete can’t but take cognisance of this fact.

Capitec’s success has been driven by a ‘go big or go home’ approach that’s nothing if not ambitious. But then it has to be. As CEO Riaan Stassen points out, “You can’t compete in the banking industry as a small-time player. Not if you want to get ahead.” The same applies to any established industry. You might be able to carve out a tiny niche for yourself, but you’ll never really be in the game. Knowing this, Capitec did for banking what William Webb Ellis did for rugby. (Popular legend has it that Ellis picked up and ran with the ball during a soccer game at Rugby School, birthing a new sporting code named after the school). It’s what Apple did internationally and kulula, locally. And it transformed Capitec from ‘the little guy trying to carve out a market space’ to ‘the next new big thing’.

Taking the gap

This had always been Stassen’s goal. He’s not a maverick like Richard Branson and he doesn’t possess the charismatic god-like aura of Steve Jobs, but he’s no less the disruptive entrepreneur for all that. As far back as 1995, when he was MD of Boland Bank, he had ambitions of reengineering the bank, but when it merged with BoE and became part of a larger corporate structure, those plans were scuppered.

He didn’t forget them however. “We’d done a thorough analysis of the retail banking market and we knew there was an opportunity to do things differently,” he says. So when he and the majority of the former Boland Bank Exco left BoE to join PSG’s micro-lending outfit, Keynes Rational in 2000, those plans were revisited. (Keynes obtained a retail banking licence in February 2001 and Capitec was born.)

What the market analysis revealed was hardly surprising. After all, it wouldn’t take a genius to point out the flaws in the current banking landscape. The average banking customer could easily identify astronomically high banking fees, poor customer service, opaque policies and procedures, overly-complicated products and services, and reams upon reams of red tape. And that’s just for a start.

But while the market gap might have been obvious, the fact remains that no one – least of all the established banking players – had taken advantage of it. What Stassen did was outline where the opportunities lay and used this to clearly articulate the new bank’s vision.

“They key thing was to ask ourselves what we wanted to achieve. The answer was directly informed by where we saw the market gaps: affordability, greater and more hospitable branch access, and simplified, easy-to-understand banking products,” says Stassen.

It sounds simple: identify the gap and build your business around filling it. But it’s something countless businesses, large and small, fail to get right, even when they can see where the opportunities for
differentiation lie. That Capitec got it right speaks of a single-minded focus on a clearly defined vision, and the strength of leadership to carry that vision through to fruition.

Stepping into the customer’s shoes

Stassen’s point of departure in all of this was the question, “What does the customer want?” It’s a question many banks (and businesses) claim to ask. But if they are indeed asking it, they certainly don’t seem to be using the answer to inform any of their strategy.

At Capitec, what the customer wants drives everything. Indeed, it’s given the bank its differentiating edge, helping it to introduce a range of industry firsts.

Take its pricing structure for instance. Other banks have repeatedly claimed it’s impossible for them to reduce bank fees because of the high cost of servicing the low-end market. Capitec proved them wrong.

“We identified affordability as a huge opportunity. Most banks were charging very high transaction costs and were giving virtually no return on savings,” says Stassen.

Point-of-sale debit card purchases are free, as are balance enquiries except when using other bank and international ATMs. The monthly administration fee is R4,50. Customers can also withdraw cash from participating retailers – including Pick n Pay, Shoprite, Checkers, PEP, Boxer and Score stores – for R1,00 per transaction. On average, when compared to traditional banks, customers can save close to R100 a month. “Our bank charges are 50% cheaper than the best product in the market,” says Stassen.

Capitec also encourages saving by turning the traditional interest rate structure on its head, offering a higher rate of interest for lower value savings.

This year, the bank took the decision not to raise banking fees. Interestingly these decisions, which put customers before shareholders, have delivered the goods when it comes to the share price, proof positive that the needs of the customer and the shareholder need not be in opposition.

Retaining personalised service

Stassen believes that the face-to-face relationship is also critical to providing customers with what they want. “Banks have become very unfriendly and intimidating places. We wanted to improve access – not just from the point of view of having more branches, but also by making the bank a hospitable place that people felt comfortable visiting,” he says.

At a time when other banks are actively discouraging customers from using the branch, Capitec is engineering its branches to make them welcoming. Cash withdrawals can only be made at an ATM, and cash deposits are immediately sent to a drop safe, which allows the bank to do away with the unfriendly bullet-proof glass of most branches. At Capitec, consultants talk to customers across tables.

In fact, its entire recruitment strategy is informed by the recognition that many customers prefer to speak to a consultant face to face.

“We take cognisance of the diversity of our customer base, so we recruit staff from the communities in which we open branches,” Stassen explains. A policy of recruiting for potential and training for skill brings its own set of challenges. “Very often, particularly in remote rural areas, it’s difficult to find staff with the right potential. We never want to compromise on the quality of service we give to customers, and this means we’ve had to invest a lot in excellent training,” he adds. Around 200 new staff members are trained each month but for every one of those, the bank has interviewed ten people.

Training is intensive and carried out over seven weeks. In order to manage training costs, the bank employs a combination of e-learning and interactive training, and trains all staff centrally at its Stellenbosch headquarters. “Centralised training has also helped us to create a homogenous culture,” says Stassen.

Going where the customers are

Capitec’s objective to grow its branch network by 55 branches a year  will provide customers with even greater branch access. Like everything else it does, the way these branches are distributed is directly informed by a thorough understanding of the market and what customers need.

“Modes of transport are particularly relevant to our customer base, and we’ve used research in this area to help us establish branches in the best possible location,” says Stassen. This often leads to distribution channels that might seem counter-intuitive. In Belville, for example, there are three Capitec branches within 200 metres of each other.

As Stassen explains, each services customer groups with very different profiles. “One group commutes by train. They are blue-collar workers who are paid weekly. Another group is employed by bigger companies and government buildings in the area. They commute by car and are paid on a monthly basis. The third group is balanced between monthly and weekly paid customers.”

Typically, branches are located on transport routes and in retail centres, and in order to allow greater access the bank has offered minimum banking hours of 8am to 5pm since its inception. In certain areas, branches are open from 7am to 7pm. Capitec also recently became the first bank in South Africa to open for Sunday trading. (Unsurprisingly, other banks have quickly followed suit).

Making ‘simple’ sophisticated

These are just some of the ‘industry firsts’ that have helped Capitec attract new customers at the rate it has. But perhaps more than anything, it’s the bank’s products that set it apart. There is a single transaction and savings product for all customers, regardless of income. It’s a fundamental break from the multiple and complex products offered by traditional banks trying to provide something tailored for every customer group. The transaction account also acts as a savings and loan facility, all rolled into one.

The very existence of the Global One product is proof of Stassen’s innate tendency of turning the tried and tested way of doing things on its head, and challenging entrenched industry beliefs and systems.  This is a man who sees things very differently to his competitors, and it’s given him the edge.

As he explains, most banks segment the market in terms of income, based on the assumption that different income groups have different needs. “I take a very different view,” he says, “I believe that the only time that income drives different needs is when it comes to wealth creation. A poorer person requires good savings advice and products, whereas a richer person requires good investment advice and products. But that’s where it ends. When it comes to things like making withdrawals or payments, different income groups might choose different access mechanisms, but at the end of the day they require the same functionality. They want a bank that can handle cash in and cash out, efficiently.”

The bank’s pay-off line, Simplicity is the ultimate sophistication, is borne through in its products as well as its fees. “I don’t like the bundled fee approach. We’ve gone with a single, pay-as-you-go pricing structure,” he adds.

Capturing a market

All this simplicity leads to greater clarity in the minds of the consumer, and transparency is an important deliverable at Capitec. “We believe customers want more control over their money, and they can’t have that if they don’t understand the banking fees they are being charged,” Stassen points out.

Such transparency has no doubt played a central role in helping the bank to gain access to a market that’s notoriously mistrustful of financial services institutions. It goes hand in hand with open communication, and for Stassen this has been key to capturing the market. “For this market, you never want to create an expectation gap. Such gaps lead to things like more enquiries at the branch which, at the end of the day are non-income-generating activities for the business,” he says, proudly asserting that, unlike its competitors, Capitec branches have very short enquiries queues.

As part of its communication strategy, the bank offers customers the opportunity to register for SMS updates. “It’s too expensive to send out statements for savings accounts and many customers don’t have fixed addresses. The SMS facility allows them to see, in real time, how much money they’ve just spent on a transaction and what their existing balance is,” he explains. Customers also get a monthly SMS outlining their banking fees and any interest earned. “It’s all about putting them back in control. We believe customers have a right to know what’s happening to their money,” says Stassen.

Building a system that delivers

Such strategies are easily conceived, but Stassen is the first to admit that setting up a bank is a mammoth undertaking. “We underestimated what it would take to establish and build such an organisation from scratch. You need massive infrastructure to compete with the big players,” he says, adding that technology is a critical component. In spite of that, Stassen believes that Capitec was able to turn its newcomer status to its advantage. “Most banks inherit their systems, which have been changed and added to over generations. It was a major undertaking but the fact that we got to build our own technology platform from scratch turned out to be an advantage. It meant we could tailor it exactly to suit our needs,” he says.

The system had to be able to handle high volume, low value transactions, quickly and efficiently, and be scalable. “Being paperless was also very important, particularly given the fact that much of our market is only semi-literate,” says Stassen. The system was engineered to be process-driven with a high degree of centralised control. As Stassen explains, this took much of the administrative burden away from the point of customer interaction.

At the time that the technology platform was built Capitec was the only bank in the country that ran its main banking system off a Windows platform. And here’s the thing. In total, the company has spent around R120 million on both hardware and software. “Many of the big banks can spend in the region of R3 billion over a three-year period on the same thing, and our system handles similar volumes to theirs,” Stassen points out. “Setting clear objectives of what the bank wanted to achieve was a critical guide as to which components we needed to select for the technology platform,” he adds.

The system has provided the bank with the ability to sign up customers in ten minutes, without any forms. Prospective customers need only their ID document and proof of residence, and in some instances don’t even need to visit a branch to sign up. Stassen formed a mobile banking unit to travel to large organisations and sign up new customers on the spot. The value of such immediacy in capturing the market cannot be overstated.

Overcoming growing pains

Stassen believes that one of the reasons Capitec was able to take advantage of the market gaps where its competitors weren’t, is that it had the nimbleness of a small entrepreneurial company. But the business’s growth plans are ambitious and Stassen is acutely aware of the danger of becoming another large, slow-to-respond bank as the organisation gets bigger.

“Implementation definitely becomes more difficult as you grow, but I think the solution is to prioritise properly to get the best new ideas implemented,” he says. Getting this right is partly a function of building the right culture. “We’ve worked hard to make sure our people understand the value of continuous improvement. We communicate the benefits it will bring to them and to the organisation,” Stassen says. The upshot is that the bank experiences very little push-back when things like Sunday trading are introduced. “Staff don’t automatically ask ‘Why should I change or work harder?’” he says.

As the organisation grows, Stassen will continue to implement his conservative approach to financial management and accounting standards. “I’m happy to be innovative when it comes to development, but on issues of managing liquidity and conserving capital, I’m definitely conservative,” he says. Looking ahead, it’s an approach that will stand the bank in good stead.

Stassen wants to grow internationally but typically, unlike other banks, he’s not overly focused on the African market. “The cost of entry in banking is high, so we want to be in the high potential countries. For this reason, we’d rather go into India than Namibia, for example. We would also prefer to focus on countries that have stable economies,” he says. In addition to India, he’s interested in Brazil and the Eastern Block countries. “I’d also love to be in China but the complexities are too great for us to consider it for another couple of years,” he says.

Recognising that a thorough understanding of the market has been so critical to Capitec’s local success, Stassen indicates that the bank would prefer to partner with a local player in overseas markets. One option would be to partner with retailers, which would give the bank access to a customer base, market knowledge and a distribution network.

For the moment, however, he’s focused on growing the South African market. “We want 1 000 branches and five million customers.” Given what Capitec’s achieved to date, it’s not difficult to imagine it reaching those goals. If the future belongs to disruptive thinkers, this is what it looks like.

Building a brand that shows it understands the market

At a time when most banks are encouraging customers to spend more, Capitec launched a campaign to do just the opposite. Called The Live Free Project, the campaign staged events that highlighted ways in which consumers could enjoy themselves without spending money.

In one instance the bank employed a sandcastle construction crew on Cape Town and Durban beaches in December, reminding consumers that they could enjoy a day out with their families building sandcastles on the beach, for free, instead of racking up debt in shopping malls.

In time for the national budget speech it opened Le Budget Cafe in Cape Town, where consumers could enjoy their own home-made lunch in a completely free environment. And in a different take on shopping, the campaign launched a ‘swapping mall’ in Johannesburg where consumers could exchange their lightly-used fashion, homeware, art, books and design items.

“Advising consumers not to spend money might seem like a paradox for a bank – particularly given that they were blamed for the debt crisis that triggered the global recession in 2007. But Capitec wants consumers to save money, stay out of debt and live within their means,” says Charl Nel, Head: Strategic Communication.

For Stassen, it’s all about resonating with the needs of the market. “Not everything needs to be about making more money off your customers.
I can’t stand all those strategies about cross-selling or upselling. We don’t sit around a table and ask ourselves how we can get more money out of our client base. We ask ourselves what our customers need and how we can give it to them in a way that’s different to, and will beat our competitors.”

What you can learn from Capitec

  1. Don’t accept the status quo: Just because things have been done a particular way by companies that have become market leaders, doesn’t mean there isn’t a new, better way of doing things.
  2. Ask how it can be done differently: Capitec challenged long-held assumptions about the banking industry and how to service the market.
  3. Start by going back to the source – your customer: Give them what they need – particularly if no-one else is meeting those needs – and the rest will follow.
  4. It’s not enough to identify the gaps: You need to come up with a sustainable and profitable solution to fill them. Capitec’s advantage lay not in the fact that it saw the market gaps, but in being able to meet them.
  5. Articulate a clear vision based on the opportunities available: Gear your business and all its systems and processes around taking advantage of these.
  6. Structure your systems to meet your objectives: The smartest system is worthless unless it helps your business achieve its goals.
  7. Be prepared to work longer and harder than your competitors: Taking on the big guns is hard work. Make sure you and your staff are up to the challenge.
  8. Employ people who understand the importance of doing things differently: Capitec’s leadership was able to articulate why it’s important for the business to continually improve, a critical step in getting staff on board

Juliet Pitman is a features writer at Entrepreneur Magazine.

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Entrepreneur Profiles

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.

Nadine Todd

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paul-hutton-joel-stransky-and-bruce-arnold-of-pivotal-group

Vital stats

  • 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.

Related: Which Of These 7 Personality Traits Do You Share With The World’s Richest People?

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

pivotal-group

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.

Related: 8 Inspirational Quotes From Movie Mogul Steven Spielberg

“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

pivotal-group-south-africa-founders

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.”

Related: Listen And Learn: Why Podcasts Aren’t Just For Start-up Founders


Listen to the podcast

Matt BrownMatt 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.

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Entrepreneur Profiles

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.

GG van Rooyen

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michel-m-katuta-and-thabo-mphate-of-afritorch-digital

Vital stats

  • 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.”

Related: Edward Moshole Founder Of Chem-Fresh Started With R68 And Turned It Into A R25 Million Business

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.

Related: AutoTrader South Africa’s George Mienie Knows Disruptive Innovation Is More Than Shifting Gears

“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.


Take note

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.

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Entrepreneur Profiles

Jason English On Growing Prommac’s Turnover Tenfold And Being Mindful Of The ‘Oros Effect’

Rapid growth and expansion can lead to a dilution of the foundational principles that defined your company in its early days. Jason English of Prommac discusses how you can retain your company’s culture and vision while growing quickly.

GG van Rooyen

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Vital stats

  • Player: Jason English
  • Position: CEO
  • Company: Prommac
  • Associations: Young President’s Organisation (YPO)
  • Turnover: R300 million (R1 billion as a group)
  • Visit: prommac.com
  • About: Prommac is a construction services business specialising in commissioning, plant maintenance, plant shutdowns and capital projects. Jason English purchased the majority of the company late in 2012, and currently acts as its CEO. Under his leadership, the company has grown from a small business to an international operation.

Since Jason English purchased Prommac in 2012, the company has experienced phenomenal growth. At the time he took over as owner and CEO, it was a small operation that boasted a turnover below R50 million.

Today, Prommac is part of a diversified group of companies under the CG Holdings umbrella and alone has grown it’s turnover nearly ten fold since Jason English took over. As a group, CG Holdings, of which Jason is a founder, is generating in excess of R1 billion. How has Prommac managed such phenomenal growth? According to Jason, it’s all about company culture… and about protecting your glass of Oros.

Jason English

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

“As your business grows, it suffers from something that I call the Oros Effect. Think of your small start-up as an undiluted glass of Oros. When you’re leading a small company, it really is a product of you. You know everything about the business and you make every decision. The systems, the processes, the culture — these are all a product of your actions and beliefs. As you grow, though, things start to change. With every new person added to the mix, you dilute that glass of Oros.

“That’s not to say that your employees are doing anything wrong, or that they are actively trying to damage the business, but the culture — which was once so clear — becomes hazy. The company loses that singular vision. As the owner, you’re forced to share ‘your Oros’ with an increasing number of people, and by pouring more and more of it into other glasses, it loses the distinctive flavour it once had. By the time you’re at the head of a large international company, you can easily be left with a glass that contains more water than Oros.

“Protecting and nurturing a company’s culture isn’t easy, but it’s worth the effort. Prommac has enjoyed excellent growth, and I ascribe a lot of that success to our company culture. Whenever we’ve spent real time and money on replenishing the Oros, we’ve seen the benefits of it directly afterwards.

“There have been times when we have made the tough decision to slow growth and focus on getting the culture right. Growth is great, of course, but it’s hard to get the culture right when new people are joining the company all the time and you’re scaling aggressively. So, we’ve slowed down at times, but we’ve almost always seen immediate benefits in terms of growth afterwards. We focus heavily on training that deals with things like the systems, processes and culture of the company. We’ve also created a culture and environment that you won’t necessarily associate with engineering and heavy industries. In fact, it has more in common with a Silicon Valley company like Google than your traditional engineering firm.

“Acquisitions can be particularly tricky when it comes to culture and vision. As mentioned, CG Holdings has acquired several companies over the last few years, and when it comes to acquisition, managing the culture is far trickier than it is with normal hiring. When you hire a new employee, you can educate them in the ways and culture of the business. When you acquire an entire company, you import not only a large number of new people, but also an existing organisation with its own culture and vision. Because of this, we’ve created a centralised hub that manages all training and other company activities pertaining to culture. We don’t allow the various companies to do their own thing. That helps to manage the culture as the company grows and expands, since it ensures that everyone’s on the same page.

“Systems and processes need to make sense. One of the key reasons that drove us to create a central platform for training is the belief that systems and processes need to make sense to employees. Everyone should understand the benefits of using a system. If they don’t understand a system or process, they will revert to what they did in the past, especially when you’re talking about an acquired company. You should expect employees to make use of the proper systems and processes, but they need to be properly trained in them first. A lot of companies have great systems, but they aren’t very good at actually implementing them, and the primary reason for this is a lack of training.

“Operations — getting the work done — is seen as the priority, and training is only done if and when a bit of extra time is available. We fell into that trap a year ago. We had enjoyed a lot of growth and momentum, so we didn’t slow down. Eventually, we could see that this huge push, and the consequent lack of focus on the core values of the business, were affecting operations. So, we had to put the hammer down and refocus on systems, processes and culture. Today Prommac is back at the top of it’s game having been awarded the prestigious Service Provider of the year for 2017 by Sasol for both their Secunda and Sasolburg chemical complexes.

Related: Establishing The Wheels Of Change In Business

“If you want to know about the state of your company’s culture, go outside the business. We realised that we needed to ‘pour more Oros into the company’ by asking clients. We use customer surveys to track our own performance and to make sure that the company is in a healthy state. It’s a great way to monitor your organisation, and there are trigger questions that can be asked, which will give you immediate insight into the state of the culture.

prommac

“It’s important, of course, to ask your employees about the state of the business and its culture as well, but you should also ask your customers. Your clients will quickly pick up if something is wrong. The fact of the matter is, internal things like culture can have a dramatic effect on the level of service offered to customers. That’s why it’s so important to spend time on these internal things — they have a direct impact on every aspect of the business.

“Remember that clients understand the value of training. There is always a tension between training and operational requirements, but don’t assume that your clients will automatically be annoyed because you’re sending employees on training. Be open and honest, explain to a client that an employee who regularly services the company will be going on training. Ultimately, the client benefits if you spend time and money on an employee that they regularly deal with.

“For the most part, they will understand and respect your decision. At times, there will be push back, both from clients and from your own managers, but you need to be firm. In the long term, training is win-win for everyone involved. Also, you don’t want a client to become overly dependent on a single employee from your company. What if that employee quits? Training offers a good opportunity to swop out employees, and to ensure that you have a group of individuals who can be assigned to a specific client. We rotate our people to make sure that no single person becomes a knowledge expert on a client’s facility, so when we need to pull someone out of the system for training, it’s not the end of the world.

“Managers will often be your biggest challenge when it comes to training. Early on, we hired a lot of young people we could train from scratch. As we grew and needed more expertise, we started hiring senior employees with experience. When it came to things like systems, processes and culture, we actually had far more issues with some of the senior people.

“Someone with significant experience approaches things with preconceived notions and beliefs, so it can be more difficult to get buy-in from them. Don’t assume that training is only for entry-level employees. You need to focus on your senior people and make sure that they see the value of what you are doing. It doesn’t matter how much Oros you add to the mix if managers keep diluting it.”

Exponential growth

When Jason English purchased Prommac late in 2012, the company had a turnover of less than R50 million. This has grown nearly ten fold in just under five years. How? By focusing on people, culture and training.

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