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How Dial A Nerd Managed To Dial Up Profits

Dial a Nerd’s enduring success is realising that profits matter more than bright lights and courting equity partners. To grow profits brothers, Colin and Aaron Thornton, have strategically brought their turnover down and today run a simpler, consolidated and more sustainable company. This is their story.

Nadine Todd

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Dial-A-Nerd-brothers

Vital stats

  • Players: Aaron Thornton and Colin Thornton
  • Company: Dial a Nerd
  • EST: 1998
  • Visit: dialanerd.co.za

What is success?

It’s a question that the founders of Dial a Nerd, brothers Colin and Aaron Thornton, have often thought about and debated with their fellow directors, Roberto Caprio and Phil Case. Is it massive top-line growth? Check.

We-recommend-tickWe recommend: Dial-a-Nerd: Staying on Top While the Market Changed

Growing from one retail store in Joburg to 14 nationwide, with another 26 on the cards? Check. Drawing the attention of a large ISP who wants to acquire you, and then signing a three-year structured buy-out deal? Check.

By 2008 it seemed like nothing could go wrong, and the brothers would be in their 30s and retired by 2011. And then the wheels fell off.

“In hindsight, the writing was on the wall,” says Colin.

“At the time, we felt like we were flying. We were signing expensive leases, chasing top-line growth and focusing on getting bigger and bigger and bigger. We were no longer just Dial a Nerd either. A few years into the business we formed Nerdworks as a holding company for Dial a Nerd and Network Nerds. We had home, software development and website divisions. We were doing a lot — and fast.”

What they didn’t see was how the buy-out would negatively impact their business, the effects of a global recession on the horizon, and how the home IT market was about to radically shift.

Growing pains

dial-a-nerd-car

The ISP’s interest and the buy-out deal just accelerated Dial a Nerd’s growth, which meant 100% of Aaron and Colin’s focus was on the top line, instead of paying careful attention to the market. Before long, the cracks started to show.

“It was a perfect storm,” says Aaron. “We were chasing turnover growth without properly considering what it was costing us, or if there was a smarter way to be making better margins and higher profits. We were blinded by the beautiful retail stores we were opening and the brag factor of the growth we were experiencing.” It soon became apparent that there were some fundamental flaws in the buy-out deal.

“The ISP that we’d signed the deal with was aggressively gaining market share, and wanted to partner with a support company. They also wanted to break into the SME space. They saw us as the ideal partner for this. One of their goals was for us to grow to 40 branches nationwide. We were all for it, and used their cash for aggressive expansion,” explains Colin.

Unfortunately, the reality of the deal was quite different to how it looked on paper.

“We’ve learnt that in a successful partnership, 1 + 1 = 3,” says Aaron. “Then it’s worth it, and you have real, sustainable growth that everyone benefits from. This just wasn’t the case for us. The synergy wasn’t right.”

“We all got carried away with the value of our organisation, and when we joined the ISP, we didn’t do enough homework on the market, what they were purchasing, where the gaps lay, and who our competitors in the space were,” adds Colin. As it turned out, a lot of those competitors were actually resellers for the ISP.

”By marketing ourselves to their end-users we would’ve alienated the resellers who, as you can imagine, weren’t happy. Once they got wind of our plan they threatened to stop selling the ISP’s services – and that obviously wasn’t acceptable. A major ‘synergy’ we had identified just evaporated.

“To make matters worse, the ISP’s board wanted us to cover South Africa as fast as possible to help accelerate their own growth. We were trying to grow too quickly, which was putting enormous pressure on the business’s sustainability,” says Colin.

Finding an exit and facing new challenges

“We stood back, took stock, and realised the whole deal wasn’t working out the way we’d planned,” says Colin. It’s never easy to admit that you’ve made a mistake, let alone face the fact that the deal you thought would make you rich just isn’t delivering on its promise.

Colin and Aaron could have ignored this realisation and kept pushing, hoping they could turn it around or that they could still make it work. Instead, they decided to take their company back and build it on their terms, at their pace.

“We were lucky. The ISP’s focus was shifting, and we no longer represented the core market they wanted to concentrate on. Roberto approached the board and asked them if we could take ownership off the table, walk away and pay back the money they’d already given us,” says Aaron.

“They were happy with the proposed deal. We agreed on a payment structure, and it took us three years to pay them back.”

Not only were the brothers now free and clear to rework their entire business strategy, but they managed to salvage a good relationship with the ISP, which remains to this day.

They might have extricated themselves from a poor partnership, but the business’s problems were far from over.

“Our relief at ending the partnership was short-lived,” says Colin. By 2011 the market started to shift rapidly. First, operating systems were getting much better.

Second, while the 2008 crash took a while to get to South Africa, by 2011 it was starting to impact consumer buying trends. Both would have a significant impact on Dial a Nerd’s business model.

We-recommend-tickWe recommend: Dial-a-Nerd: Colin Thornton

Shifting markets

aaron-and-colin-thornton

“IT costs were dropping and the home consumer market was becoming incredibly competitive,” says Colin.

“Consumer electronics were becoming commoditised, and large retail chains were squeezing suppliers for better prices.”

What did this mean for the business? When Dial a Nerd had first launched 11 years earlier, Colin made the decision to focus on the home user market, which needed assistance, but wasn’t being serviced. Desktop computers couldn’t just be bought out the box.

They were custom-made from specific components based on the customer’s needs. There were only a handful of computer brands on the market, and these were high-end products.

“It was actually worth personally spending an hour or two with each customer who wanted a laptop or desktop to find out exactly what their needs were at their homes or offices,” says Aaron, who would then take the specs back to a technician who would build it from components and then set it up for the customer — again at their homes.

“Everything was complicated. We had a document a page and a half long with instructions on how to connect to the Internet.”

Fast forward a decade and things were very different. Laptops were standard, and could be bought out the box.

Apple had launched the iPad, and suddenly consumers didn’t need desktops at home anymore — they had laptops at work and tablets at home. Nothing needed to be custom-made, and there was a range of out-the-box products to choose from.

Large retailers bought and sold on price, and Dial a Nerd, which had retail stores and sold products, but at a much smaller scale, just couldn’t compete on price.

Disappearing margins

“At this stage around 50% of our revenue was hardware sales, and we had all these fancy retail stores,” says Aaron.

“However, our FD Phil, kept warning us that margins were disappearing. We began to seriously question not only our original strategy of opening 40 stores nationwide, but even keeping the existing 14 stores.”

“It’s amazing how you can be blinded by the trappings of looking successful,” says Colin.

“We loved opening stores — they were beautiful, and you’ve got this showcase that you feel incredibly proud of. Of course, there was a reason behind them. We needed a way to present the hardware on offer, and it meant that technicians had a base to work from.

“They’d waste so much time travelling from Bryanston to the East or West Rand, so it made sense to open offices in each major area. But as the market changed, rents were going up, and margins were shrinking. What’s the point of a high turnover if you’re working so hard for small margins? The model just wasn’t making sense anymore.”

We-recommend-tickWe recommend: To Fund Or Not To Fund?

Start-up story

dial-a-nerd-store-front

“Launch is the wrong word. We fizzled into existence,” is how Colin Thornton describes Dial a Nerd’s beginnings. It was August 1998, and Colin was 19 years old. He’d just dropped out of his first year of university — an interesting choice, considering his father was a professor and his mother was a teacher — and he needed to make an income. His dad had been clear: If he wasn’t studying, he needed to pay rent.

“I had always been interested in computers. In 1984, when I was six years old, we got our first computer. It was one of the first private computers of anyone we knew, and I was always fiddling with it — playing games, breaking it, fixing it. I loved it. From a young age, friends and family asked me to look at their PCs when they broke, and to train them.

“By the time I was in high school I was charging R50 an hour for my services. When I realised that I didn’t want to study, this was the natural place to turn to. I had some clients, I had skills and most importantly, I had a passion for technology. What I didn’t have was a business — or enough clients.”

Colin’s solution was simple. He paid his rent, and every cent he made above that he spent on flyers.

“They were cheap flyers that I printed in bulk, and I handed them out everywhere – at robots, in car parks, at malls. We got chased out of more car parks in Joburg than I can count. We paid car guards to put them under people’s windscreens, and students did mailbox drops for us. If I could have hired a helicopter to blanket them over the city I would have.”

Gaining customers

It worked. Home users needed help, and Colin was affordable. Word started spreading, and as the business grew, three other friends who knew PCs came on board.

By 2000, Dial a Nerd had offices and a receptionist, and then Aaron, who had made it to his second year in varisty, decided to drop out as well.

“I knew tech, but we needed someone who could focus on marketing, business growth and clients. Aaron was a perfect fit, and I asked him to join us.”

Eight years later, the business had grown substantially and the brothers attracted the interest of a large ISP. A deal was signed. By 2010 that deal was reversed. By 2014 the debt to the ISP was settled, and consolidation began. Today, Dial a Nerd is a smaller business, but a far more profitable one. And growth is more on the cards than ever.

Time for a new strategy

Dial-a-nerd-founder

The brothers took stock yet again. Turnover was good, but profits were not. Because they couldn’t compete with large retail chains on price, the validity of the retail stores was called into question.

They were still helping clients set up their home tech systems, even if the tech was being purchased elsewhere, but this side of the business didn’t require a showroom.

“In addition, even the home user market was shrinking — operating systems were getting better and much simpler to use. People with very little tech-savvy were able to plug and play without technical assistance. Tech was also getting cheaper, which meant in most cases hardware would be replaced instead of fixed.

“Instead of lamenting how tech developments had harmed the business, we decided to focus on how they could help us instead,” says Colin.

“We’d built a great brand over the years. It was well known, respected and trusted. That was a really excellent base to start from. We just needed to accept that we could no longer do what we’d always done if we wanted to continue to grow the business.

“In terms of the retail side, our options were to enter into a pricing war or start importing ourselves. We didn’t want to do either. Tech support was what we were good at, and that’s where we needed to focus. We made the decision to close the retail stores and stop actively selling products. We also made the decision to shift from home users to businesses.”

We-recommend-tickWe recommend: Mark Pilgrim On Authenticity In Business

A revenue problem

2012 became Dial a Nerd’s first year of consolidation. “Over the past three years we’ve wrapped up a branch every six months,” says Aaron, who spearheaded this side of the business.

“We were watching our revenue evaporate, and as a branch stopped making cash completely, we shut it down.”

“We also started focusing on the business sector,” adds Colin.

“We tried to ramp it up at the same pace that the consumer side was dropping. It took longer than we thought it would, as it so often does, but we were on the path. Corporate has a much longer sales cycle, and you need to take the time to really build trust and put proper service level agreements in place. There’s a lot more at stake in corporate IT support, because downtime costs money — sometimes millions per day in lost revenue and productivity.”

The fact that things were moving more slowly than planned was alright, though. “We knew that this was where we had real scope to grow, unlike the consumer side, which was the exact opposite,” says Colin.

At the same time, business support was getting exciting. “Servers, networks, security, the cloud — there’s so much happening in the tech space; so much scope. Business is now impossible without IT. It’s one of the most important functions of any business.”

Balancing costs with growth

dial-a-nerd-entrepreneur

The past three years have been a balancing act for Colin and Aaron. They split their roles: Aaron would wind down the consumer side of the business while Colin concentrated on building the business side.

“It’s a strange position to be in, because you still have to give good support, watch the bottom line, and make profits while decreasing the size of the business and closing branches,” explains Aaron.

“As we shut branches the best operators stayed and became ‘mobile’ operators. They were on the road anyway; now it was just official. To manage technicians who were always on the road, we needed different systems and support to control and get live reporting from. We bought off-the-shelf, yet specialised software to do this. We needed to keep our best operators and the highest billers, but we didn’t need to keep the offices and branches.”

As a result, although the business continued to focus on home users for the next three years, it got rid of overheads.

“We had no company cars, offices or scattered administrators. We focused on creating a mobile workforce with all admin consolidated in one central office with robust systems to support the shift.

A shrinking market

“The market was shrinking, and we shrank with it, keeping only the higher LSM. Today our home users account for 30% to 40% of our turnover, but without the overheads of rent and admin it’s become a very profitable revenue stream.”

An additional revenue generator has been the direct result of technological advancements.

“Robust systems have allowed us to create a low-cost mobile workforce, but on the business side, technology has allowed us to offer off-site support. Our business technicians can monitor our clients’ servers and systems from our offices, without getting in their cars and driving to the client. This means we can spot and solve problems before the client even realises they are there, but it also means technicians can now offer eight hours of support in one day instead of four,” says Colin.

“It’s been amazing for our profit margins. The costs associated with time on the road have just evaporated. The advances of tech meant we had to shift our business model, but the benefits of those same changes have been immense. We just needed to recognise them and make the best use of them.”

Reaping the rewards

Ultimately, while the last few years have been tough, and radically changing a business model can be daunting, for Dial a Nerd, the rewards have been well worth it.

“With the home division we’ve always waited for the phone to ring. Business customers are different. We’ve put contracts in place, which has created an annuity income. This means we know how much revenue is coming in each month, and can plan (and spend) accordingly,” says Colin.

“While getting here has been scary as hell, our lives are simpler as a result and we’ve substantially grown our profits. Our turnover might be down by 35%, but our year-on-year profit growth over the past three years has been 100%.”

Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. 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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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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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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