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Famous Brands: Kevin Hedderwick

From shelf-packer to CEO of Famous Brands, Kevin Hedderwick took a successful but small family business on the growth ride of its life, turning it into a R4 billion industry and developing some of the country’s most loved food brands along the way.

Monique Verduyn

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Kevin Hedderwick

The Halamandres family (actually Halamandaris but the name was spelled incorrectly by an immigration official) came to South Africa from Greece in the 50s with just $50 between them, and the will to work hard and achieve something. It was one of the brothers, George, who decided that Johannesburg needed an American style steakhouse and so he opened the first Steers restaurant in the 60s. The rest, as they say, is history.

Steers was a huge success, and George was joined by his son John and his nephews, the Halamandaris brothers, Peter,  Theofanis, Perry and Babis in the 1970s. More restaurants were opened and the concept of franchising was introduced to the South African market. It expanded rapidly to become one of South Africa’s most well-known fast-food chains. In March 1994, the company listed under the name Steers Holdings (including Debonairs and FishAways) on the Johannesburg Stock Exchange. There were 162 Steers restaurants. On 1 January 1995 the company’s share price closed at 92c. But four years later, the family realised that the true value of the business had yet to be unlocked. In 1999 the share price was about 85c and the market cap R65 to R70 million. That meant that the family’s combined stake in the business was about R35 million to R40 million after all their hard work over a period of 37 years.

They were quite rightly very disappointed that they had worked hard at it for 37 years, and collectively were worth only R35 million to R40 million. You might be forgiven for thinking that’s hardly an achievement to sneeze at, but the family had grander plans. They complained that they had friends who owned Spar stores who had created far more wealth. It was as though the market was saying to them ‘you may as well delist and just remain a family business.’ Hard though it was to acknowledge, they needed to bring someone on board to change the company’s fortunes. Enter Kevin Hedderwick.

The man with a plan

Hedderwick is self-taught. Coming from a humble background in a small town, he has what he calls a “boere matriek”. There was no money for him to study further when he finished school so he went straight to work after completing his time in the army. One thing he knew was that he did not want to be poor. By the time the Steers founders met him, he had left the corporate world, but he had more than 20 years’ corporate experience behind him, and had also been the co-creator of the very successful Keg franchise which he’d helped launch and grow to 65 outlets. A highly effective leader and manager with a sharp mind for business, Hedderwick shared with the Halamandaris family humble beginnings, a need to learn as much as possible, and an almost insatiable drive to work hard and make it to the top. He was their man.

Craig McKenzie, creator of Debonairs, knew him well and brought him to the attention of the Halamandaris family who, McKenzie knew, were looking for a leader with the right set of business and people skills. That was how he found himself sitting in a boardroom with the family one day in 1999. He describes that first meeting as odd.

“I’d come out of a business where we wore jeans and takkies and I walked into a room with a bunch of guys in silk shirts and ties. I thought ‘Oh hell, back in corporate.’ But I soon got to know Theofanis really well. The chemistry between us was just great. Soon we were getting along really well and a relationship of trust developed. George and I both came from poor backgrounds and we spoke the same language. I didn’t walk in there waving qualifications around and claiming loudly that I would revolutionise the business. Instead, I listened to what they had to say and told them what I could do. After several more meetings, we agreed that we could work together and I joined what was then called Steers Holdings as MD.”

Working in a family business can present some tough challenges. But it was not like that for Hedderwick. “It’s been an amazing journey. I think that meeting the Halamandaris family and joining Steers was almost pre-ordained. I felt like I’d been practising for this all my life.”

He has huge admiration for the family. “They came here with nothing and built an amazing business. Then they were wise and smart enough to see that to take it to the next level, they would have to bring in an outsider. That’s quite a gamble.”

From vision to reality

Hedderwick, CEO of what is today known as Famous Brands, calls his story a fairytale. Having grown up in an environment where there was little money, he was determined that his family would not be deprived. He started his career at Distillers Corporation (known today as Distell) as a merchandiser, and through sheer hard work, determination and a focus on continuously improving himself, built himself into a man who was capable of taking what was essentially a family business and growing it into a South African franchising giant.

“My job at Distell was to make sure that our products were always within arm’s reach of the consumer. I was very blessed to get that job because the company invested heavily in its people.” It was at Distell that his raw enthusiasm and desire to learn caught the attention of Rauch van Reenen, the company’s Port Elizabeth sales manager. Van Reenen became his first mentor and an important influence in his life. In the young Hedderwick he found someone who was ready to learn what he had to teach. From him, Hedderwick learnt how to do presentations, how to manage other people and what business skills were critical. Like a sponge, he soaked it all up.

Ten years later, at the age of 30, Hedderwick’s hard work and commitment paid off and he was marketing director of the company, having played many different roles in the business. He had also become aware of how top-driven the company was. He’d learnt as much as he could and it was time for something new. In the mid-80s he made the move to South African Breweries, a time he recalls as one of the best in his life.
“I always say that SAB was where I did my MBA. Even though I don’t actually have the qualification, it’s a learning organisation like I have never come across in my life before. I spent 11 glorious years there working for some incredible leaders.”

At SAB he developed his knowledge further by moving from classic sales and marketing to doing lots of other tasks, like running depots. That’s how he built his skills in distribution, warehousing, and industrial relations, all of which he was to apply later in the franchising world.

A voracious reader, Hedderwick learnt much of what he knows from business books and biographies.

It was at SAB that he met marketing director Peter Savory, who was to become the next major influence on his career. Savory taught him to slow down, to take a deep breath before charging ahead into a situation and never to do anything impulsive. He says he was fortunate to find mentors as he believes the wisdom they have to impart is hugely beneficial for young people who want to grow. But luck played far less of a role in his achievements than his sheer drive and commitment to hard work. It was while at SAB that he moved to a much broader management position that included responsibility for human resources, warehousing, sales, industrial relations, finance and everything else in his district. His time there prepared him for the legendary turnaround that he was to effect at Famous Brands just a few years later.

At SAB, he got to know two of his customers who were starting the Keg franchise. They were great restaurateurs, but unlike Hedderwick, they were not great businessmen. Yet people were lining up to get into the Keg business so he decided to opt out of the corporate world and join them in 1994.

“By this stage, 20 years down the line, I was in my forties and ‘gatvol’ of corporate. I felt that I had learnt what there was to know about running a big operation and I thought it would be good to move to a smaller environment.”

It was a rash decision for someone who had thrived in the world of big business, but it opened the door to his future in franchising, or what he calls his ‘life’s work’.

He returned to his home town of East London and opened the Keg and Rose pub, a venture that taught him a lot about entrepreneurship. The former SAB hot shot served drinks and swept the floors, but he also turned the pub into a huge success. He was then persuaded to join the Keg team at head office where his management skills were sorely needed. He took over as MD and, in the second half of the 90s, grew the franchise into a very successful brand and was sad to see it sold to King Co when his partners decided to emigrate. He stayed on for three years, just long enough to see the company through its warranty period.

Believing in people

When Hedderwick joined Steers in 1999, McDonalds’s had set up shop in South Africa and there was a sense of panic in the air. But he focused on what he knew best: people, systems and processes. He applied everything he had learnt about the corporate world and running his own business to the franchising system.

“We sat in that same boardroom and decided that to unlock value for all the shareholders, we needed to take some risks and drive rapid business growth,” he recalls. “There certainly wasn’t investment in the right calibre of people.”

He stresses the importance of surrounding yourself with experts and not being intimidated by people who might be smarter than you. If you want to ramp up your game, he says, you have to make sure you have the right team. That’s really where he started.

“We brought in an HR consultant and installed a performance management system across the organisation. To this day, if you speak to the people in Famous Brands they’ll tell you that there is a high performance culture here and that’s the way it ought to be.”

On top of that, every four months Famous Brands does an executive officer review. It’s a well-known fact that Steve Jobs drives people around him so hard that if you fail to deliver you’re toast. That may well apply to Hedderwick too. Business unit heads present to him and his team. “We ask, ‘Are you on track, why aren’t you on track, what’s happening?’” he says. “So it’s not just a plan that you dust off once a year and pull out. It’s a living thing that’s been underpinned by scorecards. At the end of every fiscal year, everybody has an appraisal, so there are no surprises. Employees know how they’ve performed over the year. Everybody in this organisation, right down to the receptionist, has a scorecard that is part of the performance management system. We ensure that every scorecard is aligned with where we want to take the business in the long term.”

He says other people in the business will claim that he’s a workaholic and a micro manager. It’s not uncommon for a franchisee to call him late at night and complain that his bakery order has not arrived. He’s also straightforward and likes to tell people how it is. “With me, what you see is what you get. I love what I do. I’m a very lucky man. I get up every day of my life and I think I’m in such a great place. I’m surrounded by great people and wonderful franchise partners. I know them by name, I know their families, they know me, and they know my wife. So working long hours doesn’t faze me.”

He believes in management by walking around. Bureaucracy at Famous Brands is kept to a minimum, and he is often found visiting people at their desks. “I’m told that CEOs don’t usually walk around the building, but I always remind everyone that I’m just a burger salesman.”

Perfecting the systems

Hedderwick’s a stickler for formalities. Although he has achieved phenomenal successes, he has not rested on his laurels. Instead, he remains unassuming and refuses to ever be self-satisfied. His vision for Famous Brands to continue its growth trajectory requires unwavering focus. For him, constant reinvention is critical. Every year in October he and his team do a complete unpack of the business from a strategic planning point of view and robustly examine every area. Despite their significant size, they get right down to the detail and then put it all back together again. “That means that we have a strategy plan for the business going forward. We then share that with all the different business units and they make sure that they develop a plan that aligns with that macro strategy plan.”

It’s that drive to standardise the systems at the heart of the company that enabled him to turn a business that was already in franchising into the industry leader. He’s proved the obvious: the franchise business model is most successful when it’s ruled by systems.

“What was glaringly apparent when I joined is that there wasn’t a hell of a lot of attention being paid to process, which is typical in a family-run business. Decisions were written on the back of cigarette boxes.”

He can’t highlight enough the importance of processes. “That’s what was ingrained in us at SAB – if you can’t measure it, you can’t manage it. It’s as simple as that.

Underpinning all the systems and processes is a vision that was first articulated in 2000. “We set ourselves a four-year plan to take Steers Holdings and turn it into the leading quick service franchisor in Africa. Through luck, effort, hard work, and honest endeavour, come 2004 we ticked the box. Since then, every four years, we’ve articulated a new vision for the business and made sure that the planning process underpins that vision. If you wake any of our people up in the middle of the night and ask them what the vision is for Famous Brands right now, they’ll reply that it’s to double the size of the business by 2013.”

Growth through acquisition

Having put the right people and processes in place, Hedderwick took the business on an aggressive growth path. He refers to it as taking the lift rather than the stairs. “Right from the beginning we knew that in order to unlock value for ourselves and our shareholders, we needed to grow. We could play it safe, or we could take some risks. We decided to take the risks.” The Brazilian Coffee and House of Coffees franchises were bought in 2003. These small acquisitions were followed by a far more daring move – the buyout of that old family favourite, Wimpy. It was priced at R124 million, more than its own market cap. People in the industry and the company scoffed at Hedderwick. It was almost unthinkable that the deal would go through. “The family said to me, ‘Kevin you’re going to choke us on this thing.’ The big question for me was where the money was going to come from. We did not want to issue more shares as that would dilute the shareholding so we had to find a funder. We put a presentation together and pounded the streets. Five different financial institutions laughed us out the door, but then we met with Investec and they believed in what we wanted to do.” Hedderwick’s confidence in the Wimpy brand was soon vindicated. It proved to be a silver bullet. His persistence, self-belief and sheer ability to spot a good deal had paid off.

It became clear that a new name was needed for the group. “The Steers name was no longer representative of the business. What we were doing was buying brands and making them well-known. Hence, the new name, Famous Brands, was chosen in 2004. We chose it because it was in line with what we wanted to do – our philosophy has always been that we will acquire a business which is best in its class or that we can make best in its class.”

The 51% acquisition of boutique daytime café, Tasha’s in 2008 signalled a new direction for Famous Brands. “We had so many bases covered – pizza, burgers, fish, speciality coffee – all of which are mainstream businesses. It was time for us to look at something a little more upmarket for our portfolio. That’s when I met Natasha Sideris, who had two restaurants in Bedfordview and Athol. She has an energy that I would bottle if I could, so I said to her ‘let us buy into your business and we’ll help you realise your dream.’ People said there was no way we would be able to franchise Tasha’s, but we’ve done it and it’s been a great success. There are now eight shops and they are performing exceptionally well.”

Never one to be complacent, Hedderwick took another big bite at the franchising industry in 2009 with the purchase of Mugg & Bean for
R104 million, which significantly strengthened Famous Brands’ coffee offering. “I’d been talking to Mugg & Bean founder, Ben Filmalter for a long time and I loved the business,” he says. “Subsequently we’ve entered into joint ventures with an artisan bakery chain called Vovo Telo, and a township-based flame-grilled chicken business called
Giramundo.”

The group’s focus has now moved to leisure, a more encompassing concept than ‘quick service and casual dining’. Continuing to focus strongly on growth, Hedderwick says that being about leisure has opened up the market for Famous Brands more than ever before. “It just so happened that we were approached to buy the ailing Keg business, which came along with McGinty’s and O’Hagan’s, which we acquired for a relatively low cost. We did not acquire these businesses for the brands. Instead, we are launching a ground-breaking trading model, The Brewers Guild, for the pub and restaurant industry. It’s designed to reinvent what has become an ailing category and adds liquor to the portfolio.”

Taking care of brands

It’s worth noting that Hedderwick is also a great believer in bringing along good management teams when he acquires companies because they understand the culture and the business of their brand. Brand stewardship is a critical component of Famous Brands’ core strategy.

Under Hedderwick’s leadership, the group has always displayed a willingness to use the broadest array of tools and techniques to understand, develop and enhance the relationship between the consumer and the brand. Because the different brands have different requirements, it’s a strategy that underpins this business – one core corporate value buoyed by multiple individual brand values.

“Many people have asked me how we have managed to build a multi-branded portfolio when most other companies have failed because, they say, you can’t be all things to all people. But I learnt all about brand stewardship at SAB, and that’s the model we’ve applied here. No matter what brand we acquire or how big or small it may be, from the day we buy it that business has a champion who looks after it – they eat, drink and sleep that brand.”

He says that leads to healthy, if somewhat vocal, competition between brands at the group’s headquarters. “The other day the Steers guys launched a new range of burgers and wanted to get everyone to run a new screensaver for the product. The Wimpy people flatly refused. There’s good banter between everyone, and it creates a lot of brand loyalty within our team. That’s important because we always have to remember how different our brands are from each other. A Steers customer is very different from a Tasha’s customer, and the franchisees have to be people who can fit into those different environments.

“People ask me sometimes what keeps me awake at night. Right now I suppose the only thing that keeps me awake at night is the economy. If the economy works, we’re going to work. One of the things that I say we are fanatical about here is continuous improvement so we try and always keep up our game.”

Right now, Hedderwick heads up a franchising giant with 2 000 outlets, a market cap of R4 billion, and a share price of more than R40. Add to that his vision to double the size of the business by 2013 and you begin to understand the level of energy he has. At 58, his desire to continue to grow the business is relentless. As for the Halamandaris family, they still own 43% of the business. “They don’t spend much time here, but they know that I do and that I’m having a hell of a time.”

The Famous Brands Portfolio

  • Steers (520)
  • Wimpy, incl. UK (636)
  • Debonairs Pizza (334)
  • FishAways (115)
  • Mugg & Bean (115)
  • Tasha’s (8)
  • House of Coffees (16)
  • Brazilian/Brazilian Café (48)
  • Blacksteer (8)
  • Giramundo (6)
  • Keg (25)
  • McGinty’s (4)
  • Vovo Telo (3)
  • O’Hagan’s (19)
  • Milky Lane (90)
  • Juicy Lucy (16)

Acquisitions

2003

  • Acquisition of Pleasure Foods, comprising the Wimpy and Whistle Stop brands
  • Acquisition of the franchise agreements of House of Coffees and Brazilian brands

2004

  • The holding company changes its name from Steers Holdings Limited to Famous Brands Limited, to reflect more accurately the diversity of the group’s brand portfolio

2005

  • Acquisition of TruFruit, a manufacturer and distributor of fruit juices
  • Acquisition of Baltimore Foods, a manufacturer and distributor of ice-cream products

2006

  • Acquisition of Bimbo’s franchise agreements at selected Engen garage sites and successful conversion to Steers

2007

  • Acquisition of a 75% interest in Wimpy UK

2008

  • Acquisition of a 51% interest in the Tashas brand
  • Acquisition of Cape Franchising master licence and business

2009

  • Acquisition of the South African and African business of Mugg & Bean, the brand leader in the fast-casual coffee-themed category
  • Acquisition of a further 20% of Wimpy UK and settlement of foreign debt

2010

  • Acquisition of the trademarks and franchise agreements of Keg, McGinty’s, O’Hagan’s, Black Steer
  • Acquisition of a controlling stake in Giramundo, a flame-grilled peri-peri chicken offering and Vovo Telo, an artisan bakery and café business
  • Launch of black economic empowerment owner-driver initiative

2011

  • Acquisition of the trademarks and franchise agreements of Milky Lane, Juicy Lucy

Quote

“With me, what you see is what you get. I love what I do. I’m a very lucky man. I get up every day of my life and I think I’m in such a great place. I’m surrounded by great people and wonderful franchise partners.
I know them by name, I know their families, they know me, and they know my wife. So working long hours doesn’t faze me.”

Quote

“At the end of every fiscal year, everybody has an appraisal, so there are no surprises. Employees know how they’ve performed over the year. Everybody in this organisation, right down to the receptionist, has a scorecard that is part of the performance management system. We ensure that every scorecard is aligned with where we want to take the business in the long term.”

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

Entrepreneur Profiles

In Touch Media’s Margie Carr Shares How She Made An Out-Of-Home Media Agency A Solid Competitor

Out-of-home media agencies are growing and In Touch Media’s Margie Carr is leading the way with an approach that embraces trust, simplicity and the power of networks.

Monique Verduyn

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margie-carr

Vital Stats

With content playing an increasingly central role, out-of-home media agencies can no longer just be real estate companies. They must evolve to become publishers. That’s according to a recent article in US advertising trade publication Adweek.

It’s an approach that has worked for Margie Carr, owner and MD of In Touch Media, a business she has built over 20 years in a cutthroat industry. Having gone through several key growth phases, today the company has a level 2 B-BBEE rating, and is accredited with the Association for Communication and Advertising (ACA).

Margie is positive about the future of out-of-home, thanks to the increasing digitisation of the media, consumer demands for responsive experiences, and an explosion of location data.

Related: Funding For Women Entrepreneurs – A Collective Effort

“Advertisers are fundamentally changing their perception of out-of-home advertising,” says Margie. “Where we have differentiated our services is that we simplify the entire process, from idea to execution, so that our clients can focus on managing their brands.”

When Margie started the business, she had experience as an account manager and copywriter. Initially she was ‘selling out-of-home stock’, but her passion for strategic campaign management got in the way, and the business evolved into a full-service out-of-home media agency. That shift required a change in mindset.

“To book, plan and execute an out-of-home campaign is a much more complex process than selling space,” says Margie. “It was a major adjustment. A tangible product is easier to sell than an intangible service.”

That’s because a tangible product can more easily demonstrate value, whereas with a service, you create a vision and sell the vision to the customer.

“Our promise to the client is that once they brief us, we do the rest. We handle the communication across all the teams contracted into campaigns, keeping clients updated on progress every step of the way. Out-of-home is an extremely complex medium, and knowledge of both buyers and sellers is critical. We have differentiated the business on our depth of knowledge and extensive experience in the market.”

Believe in your employees

Margie admits that one of her biggest challenges was learning to trust employees. It’s a common one for entrepreneurs. One of the key requirements of ‘learning to let go’ is showing your people what it means to walk in your shoes, and to avoid the temptation of trying to protect them from reality.

“Giving employees the ability to see things from your perspective helps to make them feel more like partners, rather than staff who are in it for the salary at the end of the month. This makes it easier to establish trust, and a mutual commitment to the business and its long-term goals.”

Become part of a network

Margie also acknowledges that it’s important to have a professional network. For her, membership of the local chapter of Women Presidents’ Organisation (WPO), of which she is also a founder member, has been beneficial. It’s an organisation for female CEOs and managing directors, and the South African chapter, launched in 2008 by Anni Hoare, is the first to be established beyond North America. Margie credits the organisation with empowering her to grow her company.

“The WPO aims to accelerate business growth, enhance competitiveness, and promote economic security through confidential and collaborative peer-learning groups,” she says. “For me it has been a platform to learn from, and to be inspired by and work with incredible people who are determined to succeed.”

As an entrepreneur, she points out that you do not have a board that meets regularly. Instead you are expected to have all the answers. With a dedicated board, you have people who are focused on what you need to be successful, guide you on the risks you should take or avoid, and can help you to achieve your long-term goals and strategic objectives. Boards expand networks, promote accountability, and give a company a level of credibility that is reassuring for customers and employees.

Related: Watch List: 50 Top SA Business Women To Watch

“In the absence of that, membership of a powerful network can make all the difference. Having the ability to meet with fellow entrepreneurs once a month, to work through different sets of challenges together and come up with creative solutions, is a proactive learning experience that really helps you to grow as a business owner and leader. It’s an opportunity to come to grips with your own strengths and weaknesses, and to understand the value of high-level advice.”

Simplicity is the key to success

Ken Seagall, author and former Apple creative director, said ‘The most important thing we do is give people a simple solution, so they can do amazing things.’ The connection between simplicity and success has contributed to the success of In Touch Media. Keeping it simple has been a guiding principle for the business.

“We had to make changes to our systems to make them more client friendly as the out-of-home environment evolved. In some instances, clients are required to sign more than a dozen different contracts with diverse providers — we have streamlined our processes so that clients sign one agreement with us and we manage all the suppliers.”

The future is digital

Looking ahead, Margie expects ongoing change with the growth of digital out-of-home. PricewaterhouseCoopers (PwC) valued South Africa’s out-of-home market — the biggest in Africa — at R4,4 billion in 2016, with growth of 2,7% forecast over the next five years. More than a quarter of the country’s out-of-home revenue is now sourced via digital screens. UK research has shown that digital out-of-home reaches 92% of Londoners.

“There are exciting times ahead. On average, out-of-home super-users increase profits by 26%. Consumer trust is a key element, and  familiarity nurtures trust. A consumer passing your ad every time they go shopping will develop confidence in the brand. They see you are here for the long haul, and that you have confidence in your brand.”

Related: 8 Codes Of Success That Helped Priven Reddy of Kagiso Interactive Media Achieve A Networth Of Over R4 Billion

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Entrepreneur Profiles

The House That Moladi Built – How Challenging Traditional Building Empowers Local Entrepreneurs

Hennie Botes is a true entrepreneur — through a combination of passion and resilience, he has pressed on despite challenges, developing an unrelenting ability to sell his vision, and execute it. His goal has always been to use the technology he created — which challenges traditional building techniques — to empower other entrepreneurs.

Monique Verduyn

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hennie-botes

Vital Stats

  • Player: Hennie Botes
  • Company: Moladi
  • Est: 1986
  • Visit: moladi.co.za

South Africa has a housing backlog of between 2,5 million to three million and it’s continuing to grow. The country also has a persistently high number of unemployed people at 5,98 million, according to the latest numbers from Stats SA.

One entrepreneur who is committed to helping address both crises is Hennie Botes. A toolmaker by trade, the Port Elizabeth-based founder and designer of construction system Moladi developed this innovative building technology as a means to address many of the cumbersome and costly aspects of conventional construction methods, without compromising on the quality or integrity of the structure. The system replaces the bricklaying process with an approach similar to plastic injection moulding.

Founded back in 1986, when Hennie first realised how difficult it was for the poor to get good quality housing, his solution was the development of a whole new building system, which he named Moladi. The company has been in existence for more than three decades, and exports to 22 countries around the world.

“I built the first house based on the Moladi system in Benoni, in 1987,” Hennie says. “Substandard craftsmanship has resulted in South Africa’s poor living in inferior housing structures. I wanted to fix this problem, and I wanted to show people that the concept I had developed actually worked in real life.”

Like many truly innovative entrepreneurs, however, he discovered that a brilliant business idea is no guarantee of success. Converting an idea into a reality (regardless of the required investment of time and money) is never an easy task. In fact, it can be extremely difficult.

“I was naïve to think that a phenomenal breakthrough in the way we build houses would have people beating a path to my door, but academics and politicians speak different languages from entrepreneurs. I discovered that the saying, ‘Eat the elephant one bite at a time’ really does apply to entrepreneurship.”

Related: Construction Business Plan

Hennie learnt that you have to believe in yourself enough to handle the consequences of your decisions. “When you take on the responsibility of developing something that had not existed before, you become accountable. To turn that opportunity into a reality, you have to believe in yourself 100%. Great ideas fail because the unexpected challenges become more than you think you can handle, and the risk is that you lose the belief in yourself to see things through all the way to the end. In many ways, it’s like competing in a triathlon — you achieve one goal, and you have to move on straight to the next one.”

Hennie says his goal is not to enrich himself, but to use his technology to help empower other entrepreneurs. His methodology has been used to build thousands of houses all around the world — from Mexico to Sri Lanka. Today, Moladi exports to multiple countries, including Mexico, Trinidad and Tobago, Panama, Nigeria, Ghana, Tanzania, and Kenya. Moladi recently built a showhouse for a low-cost housing development in Trinidad and Tobago — the structure went up in 12 days. Another big win has been the construction of the 1 600m2 Kibaha District Courthouse in Tanzania. It was built in six months, at a cost of 4 250 per m2, which is less than half the cost of a conventional building. In Mauritius. the technology is being used to build 2 000 low-cost homes on 250 acres of coastline.

building-houses

“Despite the housing backlog in this country, what has sustained my business over 32 years is the work we have done beyond our borders,” he says. “But that is changing. Earlier this year we were contracted by the Western Cape Department of Education to build four classrooms in Philippi, as well as a double-storey building with eight classrooms in Robertson. We completed these projects in a record four months, at a third of the price. Usually, the construction of just one classroom can take between four to six months. This kind of government project is exactly the foot-in-the door that Moladi is after. The Western Cape has to build 20 schools a year to provide for its growing population.”

Moladi provides training in the construction of its houses and licences people who finish the course to build Moladi houses. Training is free, but trainees need to pay for the moulds and admixture. Licensees are supplied with viable business plans to help them secure loans for their start-ups. Hennie has a vested interest in the success of the licensees, since poor outcomes reflect badly on the business. He also prefers working with cooperatives rather than individuals, as it means that people will check up on each other. This is especially important when it comes to cash flow. Many new entrepreneurs fail, he says, because they splurge on cars and cell phones instead of the must-haves required to make a business grow.

Hennie has kept his team small. Low overhead costs have enabled Moladi to remain profitable in the low cost housing market. Companies with high overheads simply cannot compete in this small-margin, big-volume space.

“The real market requires a vast amount of homes below the R500 000 range, and that’s where our focus lies. Also, I did most of the work alone for many years after I started the company. These days my daughters, Shevaughn and Camalynne, are key to the successful running of Moladi and they fulfil vital roles. We outsource work to keep overheads down and have very good relationships with various suppliers, building experts, engineers, town planners, architects, and funding institutions. Our biggest differentiator is the pride we take in our ‘land to stand’ approach’ — we are a one-stop-shop for home building.”

Related: Engineering Consulting Business Plan Sample

His goal now is to find ways to work together with organisations like the National Development Plan (NDP) and the National Youth Development Agency (NYDA). Hennie refers to his customers as partners, which forms part of his holistic approach to construction. Typical clients include private construction firms and property developers. Governments can often play indirect roles, as they would usually contract state-funded housing programmes through the tender process.

“I believe we need entrepreneurship that looks beyond spaza shops, hairdressers and car washes,” he says. “There is an enormous and pressing need to provide dignified housing for South Africans, and to address our appalling unemployment levels. What better way to begin to do that than by using accredited, affordable technology that can achieve both goals at an accelerated rate? Moreover, to fulfil the supply chain, work would be provided for painters, plumbers, electricians and roofers.”

The Moladi building system uses a removable, reusable, recyclable and lightweight plastic formwork mould, which is filled with mortar to form the wall structure of a house in only one day.

Hennie describes it as the ‘Henry Ford’ of mass housing. “We produce components and products that reduce the cost of building, and we work on a production-line basis, from production to homeowner, bypassing the middleman in the supply chain.”

The process involves the assembly of a temporary plastic formwork mould, the size of the designed house, with all the electrical services plumbing and steel reinforcing located within the wall structure, which is then filled with a specially formulated mortar mix to form all the walls of the house simultaneously.

All the steel reinforcing, window and door block-outs, conduits, pipes and other fittings are positioned within the wall cavity to be cast in-place when filled with the Moladi mortar mix. The mix is a fast curing aerated mortar that flows easily, is waterproof and possesses good thermal and sound insulating properties.

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Entrepreneur Profiles

Swipe Successful – How Sureswipe Scaled To A R250 Million Turnover

Here’s how Sureswipe cornered a niche market with limited funding and continues to enjoy double-digit year-on-year growth.

Nadine Todd

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paul-kent

Vital Stats

  • Player: Paul Kent
  • Company: Sureswipe
  • What they do: Sureswipe is one of South Africa’s first card Payment Service Providers (PSPs), established to make card payment acceptance easy and accessible to all independent retailers and service providers.
  • Est: 2008
  • Turnover: R251 million
  • Visit: sureswipe.co.za

Four years ago, Paul Kent received a Request for Proposal (RFP) from a tier one retailer. He ran around the office high-fiving everyone. Sureswipe had made it. They were officially on the map.

Two days later, Paul and his COO, Richard Flack, turned the RFP down, choosing not to pitch for the business, even though it would have been a huge deal if they’d secured it. It took two brutal days to make the decision, but ultimately, Paul and Richard understood that sometimes you have to say no to business, particularly if it doesn’t align with your vision.

“I was so excited, but Richard immediately said, ‘let’s think carefully about this before making any decisions,’ and so we did. We went back to our vision to make card acceptance easy and accessible for all independent retailers. The more we thought about the RFP, the more we realised that we’re not geared to service tier one retailers. Our team has a deep connection with independents. That’s who we want to support and where our expertise lies. Our business model is geared to support that market sector. Extending our focus to tier one retailers would require a change in our business and a new division to service them. It wasn’t the right move for us.”

Paul learnt what many successful entrepreneurs before him have discovered: In business, what you say no to is as important as what you take on. The more focused you are and the better you understand your core customers, the more successfully you will service them. That’s the foundation of a sustainable, high-growth company.

It took Paul and his team five years to get 3 000 Sureswipe card payment machines into the market. They were growing rapidly by the time they received the RFP. Today they have 10 000 devices in the market, and expect to hit 30 000 within three years. The business has grown 30% in the last year alone.

Here are the lessons Paul has learnt since launching Sureswipe in 2008, from the leanest way to start (and run) a business, to minimising customer churn and maximising market loyalty.

1. Launch a solution, not just a company

sureswipe-machine

The idea for Sureswipe was born inside Healthbridge, a company that processed claims between doctors and medical insurers. It was the mid-2000s and medical aids were changing. Where previously doctors submitted directly to medical aids, co-payments and limited annual benefits compelled medical practices to start accepting cash and card payments.

Sureswipe was launched as a division that supplied card payment machines to support this shift. Paul, who was heading up the business development key account team at Healthbridge, realised that there was a much bigger market that needed a value-for-money, high service level card payment solution, and that was independent retailers.

“Growing up in the UK, I spent a lot of time in my grandfather’s fruit and florist store and in high school I worked weekends at a local clothing retailer. As a result I understood the challenges of retail, particularly the time-bound administrative burdens,” he says.

Paul researched the market and developed a value proposition based on two key factors. First, although paying for payments is a grudge purchase, particularly for small, independent retailers, cash-based businesses that adopt card payments typically experience a 50% increase in monthly turnover. Second, independent retailers with point of sale (POS) machines were paying a 5% transaction fee, while those that hadn’t adopted POS systems weren’t the core focus of banks. Paul found a frustrated customer base eager for an alternative service provider.

“Most retailers either thought that card payments were too expensive, or that they could only access POS machines through their banks. They’d often wait up to 30 days for a machine, and if it broke, it would be another week before a technician came to fix it. At that time, the large banks weren’t geared to service that market.”

With a clear value proposition in mind, Paul convinced Healthbridge to ring-fence Sureswipe and launch it as a separate business. In October 2008, Sureswipe opened its doors with Heathbridge as the majority shareholder. The business model had two core focuses: Converting cash-based businesses and switching independent retailers who already had POS systems but were dissatisfied with their current service providers.

“We were strategic in picking the right market, but luck also played a part,” says Paul. “When we entered this space, a similar company was launched to focus on tier one and two retailers. But, the banks were highly competitive in that market segment and new entrants found it difficult to compete. We targeted a market that was largely ignored and today, 70% of our business is from single-store owners.”

While they were fine-tuning their offering, Paul and his team found that their customers were so grateful for an alternative solution that they tended to forgive start-up wobbles as Sureswipe found its groove.

Related: If You Want Scale, Fail Fast And Learn Quickly

Stress-testing your business

In the early days, the Sureswipe team leveraged its relationship with Capitec Bank to secure meetings and make sales. “We’re not a bank, so we need a banking sponsor to help us meet regulations and operate within this market,” explains Paul. “When Capitec secured its licence to do merchant acquiring, they had no customers and were developing their product in-house. They were also looking for a distribution partner. We aligned Sureswipe with Capitec as our sponsor and provided them with a distribution partner and a solid footprint in the medical market — it was a perfect solution.”

When you’re dealing with people’s money, you need a strong level of trust, so the relationship with Capitec was essential while Sureswipe built its own brand. “It wasn’t always easy,” says Paul. “We had six people who went from retailer to retailer explaining who we were and what we did. At one restaurant, two off-duty cops heard one of our reps and decided it was a con. They arrested him and he called me from the back of the police van. I had to convince them that we were a legitimate business before they’d let him go.”

After five years, Sureswipe and Capitec found that they were competing with each other. When the contract came to an end, both parties decided not to renew it. But Sureswipe had 3 000 devices in the market, all of which were on Capitec’s technology platform. By not renewing the agreement with Capitec, Sureswipe needed to recontract all 3 000 of their customers. It was a massive project.

“It was also a huge lesson for us, and I’m glad it happened when we only had 3 000 machines in the market. We realised the risk in working with one bank, particularly because the technology that processed our customers’ payments wasn’t our own. We needed to licence our own technology and develop a dual sponsor system to mitigate this risk.”

The entire project took more than six months to complete. “People in the industry were sceptical — a project of this scope had never been done before,” says Paul. “We started with a small, ring-fenced team. By the end of the six months every employee was working on the migration of customers onto the new platform.”

The lesson: There will always be challenges, particularly during growth phases. Stress-test your business as much as possible. The earlier you spot a potential risk or problem, the sooner you can address it and implement a solution, even if it means adjusting your business model.

To stress-test your business, ask yourself these four questions regularly: What happens if everything goes right (ie, we grow too fast)? If I remove one piece that’s central to the functionality of my business (this is what Sureswipe faced), what happens? Is my business valued (ie, do you know if your buyers love you and why)? What’s the worst that could happen?

2.Variable cost models keep businesses lean

One of Sureswipe’s success factors is that its product isn’t cutting edge — what the business does is not unique, and the technology is available to be licensed. Nothing had to be built from scratch.

This allowed Paul and his team to launch the business with a variable cost model, outsourcing sales, the call centre and even their technology.

“The biggest outlay was the initial investment into the product, funded by Healthbridge, but within a year we were cashflow positive,” says Paul. “We’ve been funding ourselves organically ever since.”

At the time, launching the business wasn’t a big risk because it didn’t involve a huge upfront investment. Healthbridge was happy to see where it went. Paul and his team of eight kept costs down and slowly built up the business to the point where it became bigger than its initial shareholder.

“It was the ideal business model to start with. Don’t try to build the biggest — do the minimum required and don’t use a lot of capital. If you use a lot of capital upfront shareholders will put you under immense pressure. We were under no pressure. We weren’t drawing anything; we were just a little side thing that may or may not work.

“We were the first mover in this space in South Africa, but everything we do has been done somewhere else. The machines are sourced from a few companies in the world that manufacture them. The mPOS machine is licensed from a company in Iceland. Software is licensed. Everything Sureswipe needs exists — it’s just a case of sourcing it and building a solid service-delivery business around the tech.”

Without the burden of heavy research and development and other start-up costs, Sureswipe channels all internally-generated cash into finding ways to do things better and faster for their customers.

 “Today fintech is a buzzword. Disruption within the financial services sector is expected. Ten years ago, fintech wasn’t even a word. Everyone thought you could only deal with banks.

“What we had going for us when we launched was our card machines. People understood them so we didn’t need to educate our market on what we did. We just needed to make them aware that there was an alternative to banks, and because we focused on an untapped market, there weren’t really competitors in the space. We weren’t trying to bring in new technology like mobile payments. The market wasn’t ready for that in 2008.”

Sureswipe launched with traditional stand-alone card machines, followed by Integrated payments for larger retail franchise stores, mobile MOVE card readers for businesses on the go, and Sureswipe POS LITE, an app-based point-of-sale software for start-ups and smaller retailers.

“When it came to mPOS, we were happy to be followers. We had a product ready to launch, but we made the decision to wait for the banks to launch their offerings and educate the market first. We were then in a perfect position to be fast followers — without needing to educate the market ourselves.

“It was a strategic play and it worked for us. We’ve also had good growth in our MOVE product and we’re doing the same with QR code payments. There have been trailblazers in the market who have done phenomenally well, but they operate on separate platforms. We can now offer a QR code that accepts almost any QR Wallet.

“On the other hand, a peer-to-peer mobile wallet was developed within Healthbridge that never gained the traction needed for success. It was too early for the market and deep pockets were needed to fund the business. The business had a great team that worked on the project and Sureswipe benefited from accessing them.”

Today, Sureswipe has integrated many functions that were previously outsourced. “Our variable cost-model allowed us to enter the market without huge financial backing, but where it’s made financial sense, or it offers us a strong competitive advantage, we have brought services or products in-house.”

Related: How to Build a Lean and Efficient Business Plan

3. Understand — and leverage — your competitive advantage

sureswipe-product

Since entering the market ten years ago, transaction fees have more than halved. This is good for retailers, but it makes the space more competitive for service providers who must maintain quality products and service as profit margins narrow.

Sureswipe’s value proposition is captured in one sentence: They come for price, they stay for service. “Everything we do needs to adhere to that,” says Paul. “We need to bring technology to market at a lower price point than incumbents are offering, and then secure customer loyalty with our superior service offering.”

Within an increasingly competitive space, Sureswipe is not always the most cost-effective solution in the market, but a focus on service and convenience means that retailers are willing to pay a premium if the offering is good for their business.

“Our focus is value for money, not price. Retailers want to be able to accept any legal currency from their customers. As a service provider, we needed to figure out a way to do that in the most cost-effective way possible, without increasing our administrative burden as the business grew. With its low margins, this business only works at scale. If our internal costs escalate with each new user, that’s not a scalable business.”

So, what is Sureswipe’s competitive edge? “We’ve always understood retailers,” says Paul. “Their biggest burden is time — they never have enough of it. If you have an unreliable product, or an administrative burden, you’re essentially losing time and revenue.”

This was the business’s entry into the market, but growth has been the result of continuously fine-tuning Sureswipe’s offering based on its knowledge of customer needs. “The more time we spend understanding our target market, the more we’re able to recognise their pain points. Everything we do is focused on simplifying the lives of retailers and helping them to grow their businesses.”

In a highly competitive space, you need to create an edge for yourself. Some businesses create a moat around the business with tech, but often there is a competitor who can do things faster and cheaper.

Successful companies find a different competitive edge, one that focuses on delivering value to the customer beyond the product.

Sureswipe has a two-pronged approach. First, convenience and simplicity are a must — if Sureswipe isn’t making the lives of its clients easier (and more convenient for their customers in turn), then the business isn’t living up to its core values. The second is keeping costs as low as possible. Sureswipe needs to be able to offer its products and services to the market at highly competitive prices. This is only possible if the business has lean operations and is scalable.

So, how have Paul and his team managed to offer exceptional service while keeping costs low? “You need to sweat the details,” he says. “This landscape has become increasingly competitive. Banks have caught up to us. An independent retailer can pick up the phone and the bank will send someone the following day to chat to them.”

To counter competition, Sureswipe focuses on service and cost to serve. It’s one thing acquiring a customer, it’s another keeping them, and this has been where Sureswipe’s team focuses their passion and energy.

“We’ve found that complex structures hinder service levels and so we’ve kept our structure flat. Our internal culture is extremely important for customer service. Hiring the right people who are passionate about retail and business means we are able to service our clients better. We care about their businesses. 86% of calls get resolved by our call centres. If they can’t solve the problem, a technician is sent to the store to fix or swap a faulty machine.”

From a cost perspective, Sureswipe needs to continuously get to market cheaper than before, while simultaneously offering products that are better, more seamless and more integrated into the business.

“There is always an initial cost when introducing a new product, whether it’s a device or an app. However, each new offering increases our clients’ revenue, which in turn increases our revenue. Scale is critical — we’re in the red until we achieve scale.

“We’ve had to be ruthless about achieving great service levels at low costs. We don’t believe in either low cost or good service — we need to deliver both. If something is too expensive for us or our clients, we either don’t do it, or we find a more cost-effective way to bring it to market.”

Related: Why Start-ups Like Uber Stumble When They Scale

4. Ensure you have a ‘stickiness’ factor

One of the dangers of a highly competitive market is that it’s simple for customers to switch service providers if they are only looking at price. If a retailer only has a POS machine with Sureswipe for example, it can be swopped out for another device. With this in mind, Paul started looking at value-added services that increase brand loyalty and reduce churn.

“We call it preventable churn,” says Paul. “If business owners have a POS device and take just one more product from us, the stickiness factor is exponential. This can include a cash advance product, or creating a gift and loyalty programme through our platform, or both. As a business owner you can still switch to another service provider, but it’s more complicated and you’re receiving a bundle of services that all add value to your business.”

To achieve this, Sureswipe has partnered with Retail Capital to offer its customers cash advance products, while a loyalty programme allows consumers to swipe their loyalty cards and gift cards at all Sureswipe terminals, accumulating points.

“We’ve seen a small increase in revenue since we added these offerings, but more importantly, our customers’ revenues have increased. For example, if someone has a gift card, they will generally spend a bit extra in-store as well. Our merchant discount fee means we offer these products to our customers at a low cost, but our churn rate has lowered by 70%.”

Everything Sureswipe introduces to the market is based on a long-term view. “We offer a commoditised product and so our success relies on scale and volume. As long as you can do that at the right cost, with the right returns, you have a sustainable business. These extra products reduce churn, solve pain points for our customers and in the long term will increase our revenue.”

Paul’s long-term focus is consolidation. “We’ve been in this space for ten years, we have a great customer base, and we believe that we can consolidate our market. Our long-term view informs any decision we make about acquisitions or mergers.”

In 2016, Sureswipe acquired Concord, a company running software that integrated banks with retailers’ till systems.

The acquisition enabled Sureswipe to reduce costs by offering customers one point of contact for their POS system, tills and the processing between the two. “It removes complexities from the value chain, reduces costs and reduces retailer admin.”

With new generation mPOS offerings encroaching on Sureswipe’s standalone devices on the one side, and Integrated payments on the other, Sureswipe is effectively cannibalising its own market, but as Paul is quick to point out — that’s the idea.

5. Always look to the future

paul-kent-sureswipe

Sureswipe’s potential is huge. With 10 000 devices in the market, the business will facilitate R10 billion in transactions this year alone, which accounts for only 6% of its target sector, 2% overall, and 1% if you consider that the biggest competitor to electronic payments isn’t other service providers or banks, but cash.

“Markets change and adapt, particularly in this space where there has been incredible innovation and growth over the past few years. We know that in the long run, if we want to sustain growth, we will need to cannibalise the stand-alone devices, which we’re already doing. Ultimately though, what we really want to bring to market are products that can compete with cash.”

According to Paul, everything comes down to two things: Convenience and cost. mPOS is a lower cost option; contactless payments are all about convenience. Sureswipe needs both — and to keep looking ahead to see what’s next for their market.

“In the UK this year, for the first time, there were more electronic payments than cash, thanks to the convenience of contactless purchases for small ticket items. This is a big driver for us.”

To stay ahead of the game, Paul focuses on the business’s capabilities, and his own. “I need to pay attention to what’s happening internationally and how we can adapt our product offerings based on international innovations, but I also need to continuously focus on personal growth.

“One of my biggest fears is that the business will outgrow me. It’s a common founder’s fear, and for good reason. Many founders are great at launching businesses, but they don’t possess the skills the business needs to grow.”

To avoid this pitfall, Paul has consciously developed his business acumen over the past 15 years, beginning with Wits Business School’s Management Advancement Programme in 2003, and completing his MBA in 2015 through IE Business School in Madrid.

“I think it’s essential for all entrepreneurs and business owners to keep the pencil sharp and learn as much as possible. If I reached a stage where I didn’t think I was the right person for this position, I’d step back. We’ve built a team to complement each other; I’m not a details guy, but someone who is can fill that role. Part of my journey has been working my way out of a job by bringing in someone who can do what I’m doing, and often they do it better than me.

Related: How To Scale Your Business Effectively


LESSONS LEARNT

Become an expert in a niche

Our focus on the independent retailer space has given us a deep understanding of our customers and their needs. We’ve had international companies that are interested in acquiring us state that companies in other markets don’t have our level of understanding for each element of the business.

Look at problems with fresh eyes

We were naive about banking and financial businesses; we’re more retailers than bankers. This meant we didn’t have legacy systems when we launched, which allowed us to look at the independent retail sector without preconceived ideas and ask: What does this market need and how can we service it?

Always seek to remove pain points from your customers, no matter how small

In our sector, as businesses grow, their owners go back to the bank each year to renegotiate their fees. We removed this administrative burden by signing them up on a sliding scale, and as they grow, they automatically move into new segments and their fees drop — both new entrants and incumbent banks have copied this pricing model.

Understand where you’re innovating and why

We knew we didn’t need to innovate on the tech side. Everything we needed existed, and it was far more cost-effective to licence products than build from scratch. Instead, we innovated around our business model and service offering.

Everything starts with your people

Our employees are friendly and helpful, even though we now have a staff complement of 139 people. We foster a passion for learning, promote from within, where possible, and champion a can-do attitude. We’re a service-based organisation, which means everyone’s visions need to align with our service goal.

Pay attention locally and internationally

Read a lot, find out what’s trending, be well networked and have associations overseas. For example, Mastercard and Visa let us know what’s happening in other markets. We’re not at the forefront of technology, but we need to know what’s happening with technology to be able to follow it.

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