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How Roman’s Pizza Got A Great Big Slice of Success (Over R1 Billion Of It)

When John Nicolakakis took over the reins of Roman’s Pizza from his father, he had only one goal: To create the biggest pizza brand in South Africa. R1 billion in system-wide sales into this journey, and the company’s aggressive expansion plans have never wavered. In fact, if ever there was a poster child for the mantra ‘go big or go home’, Nicolakakis would be it.

Nadine Todd

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Vital Stats

  • Player: John Nicolakakis
  • Company: Roman’s Pizza
  • Turnover: Over R1 billion in system-wide sales
  • Accolades: Young Business Leader of the Year – Southern Africa, 2015 All Africa Business Leaders Awards (AABLA) Brand Builder of the Year 2016, Franchise Association of South Africa (FASA) 2016 Awards Nominated for EY 2015, EY Entrepreneur of the Year, Exceptional category
  • Visit: romanspizza.co.za

The first Roman’s Pizza franchise John Nicolakakis ever sold was to a complete fraud. He was 23 years old, and it was his first deal since joining his father in the family business.

“I was so excited when he handed over the cheque for his joining fee. I didn’t realise it was the last cash we’d see from him. He couldn’t even cover his set-up costs. We had to step up and help him get the business up and running. We basically loaned him the money to buy a franchise from us. And we had to do it. The brand was more important than my mistake.”

Nicolakakis’ father hadn’t liked the prospective franchisee, but he’d gone through with the deal anyway, against his father’s wishes. It was a lesson the young businessmen took to heart.

“On the one hand, I was 23 with a 30-year-old’s experience. My dad had spent my whole life talking about the restaurant business. He always explained every decision he made to me, and would ask me questions. ‘John, this is a good site. Can you tell me why?’ Sites, restaurants, customers, I was always learning, which is why by the time I agreed to join him in the business, I had a solid concept of a good site — but I was very short on people skills.

“From that moment on I became far more discerning, and a lot less eager. The agreement that my father and I had when I joined the business was that we would embark on an aggressive expansion plan. That was my condition. My father had grown a strong brand with 28 stores and a distribution centre, but he loved the restaurant business and serving customers. That’s what made him happy.

“I wanted to grow a brand that would be a household name. But I was realising that there’s a right way to grow, and a wrong way. Every decision I made from then on had to take the sustainability of the brand into consideration.”

Related: How Flick Visual Foundry Found High Rewards By Taking A Narrow View

Informal Growth

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Arthur Nicolakakis’ goal was to run the busiest pizzeria in South Africa. Serving people was his first love, and the fact that many of the 25 stores in 2001 were franchised was simply because Arthur had agreed to let a few friends purchase franchises if they could find a good site. “That was my dad,” says Nicolakakis.

“His philosophy was ‘If I know you, trust you and you have my number, we can chat about a franchise.’ That’s as formal as the process got. When I joined the business in 2001 there was an entire filing cabinet filled with little slips of paper: Franchise enquiries that my dad’s secretary didn’t know what to do with, so they all ended up in drawers.”

But Nicolakakis Senior must have understood his son and what it would take for him to join the business, because even though it’s never been discussed between the two, he had quietly laid the foundations that Nicolakakis would need to build the business into a formidable brand.

“The distribution centre was started when the brand had less than 25 stores and didn’t need it yet,” says Nicolakakis. “But it’s much easier putting these systems in place when you’re small than when you have hundreds of stores. My dad had incredible foresight for what the business could become, even though that wasn’t his personal goal. These foundations allowed us to scale and keep costs down for our franchisees. Back-end infrastructure is crucial if you plan to grow. You have to start small, but think big. What will need to be in place as you hit certain milestones? The better your infrastructure, the smoother and more successful your growth.

“In hindsight it’s possible my dad played me,” laughs Nicolakakis.

“I had always been adamant that I was going to be a stock trader in New York, and yet here was this business with all the right foundations, ready for someone with completely different growth objectives to take over and run with.”

Nicolakakis had some conditions though. First, all profits had to be reinvested into the company. Profits couldn’t be saved so that one day the family could move back to Greece, as so many of Arthur’s contemporaries were doing. “If we did this, we were going to grow aggressively,” says Nicolakakis. “That was my main objective.”

Arthur was ecstatic to have his son on board, and happy to let Nicolakakis run with any growth plans he had. He was supportive, but he didn’t interfere with his son’s strategic decisions. This was why the young franchisor had a lot of hard lessons ahead of him.

Related: Business Partners Limited Explain What It Takes To Have The X (Fundable) Factor

Getting Serious

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Missteps are common for all businesses, particularly in start-up and growth phases. What’s important is not that they happen, but that lessons are learnt and systems, processes and strategies are adjusted as a result.

This is an area where Nicolakakis has been particularly vigilant. “Mistakes happen. I know, I’ve made my fair share of them,” he laughs. “But I’ve had one goal since joining the business, and it was only strengthened when I took over the helm from my father in 2004. I want to be the biggest pizza brand in South Africa. Nothing less will do.”

To achieve this ambitious goal, Nicolakakis has focused on three core areas of the business: The business model, marketing, and franchisee selection and support.

1. A business model that delivers on key objectives

When Nicolakakis joined the business, Roman’s Pizza was a strong brand in a localised area of Pretoria. His first step was to sell franchises — he wanted to grow the company’s footprint as quickly as possible, increasing its reach on a national level. But he also knew that while the pizza business had been a fledgling industry when his dad had first bought a struggling pizzeria in 1993, the landscape was far more competitive in 2001.

If Roman’s Pizza was going to be the largest pizza brand in the country, he needed to give consumers a compelling reason to choose Roman’s over a myriad of other pizza brands and take-away options.

That reason was a high quality product at a low price point. Now he just had to figure out how to deliver on that brand promise. High quality at a high price point is easy. Similarly, it’s relatively simple to price low if you aren’t concerned about quality and service delivery. High quality, low price is much harder to achieve — and maintain.

The distribution centre was an important first step that was already in place. It allowed the brand to purchase in bulk, and pass those savings onto its franchisees. It also meant Nicolakakis could control the quality of the product. All calamata olives, anchovies and pizza sauce are imported from Europe. Seeman’s is the company’s meat supplier, and only the highest quality mozzarella is used.

To offset the costs of quality, Nicolakakis needed some smart cost-cutting strategies. The first involved the operation of the head-office and distribution centre. This is a lean, mean operation. Offices are functional and above the distribution centre. There’s no plush furniture or frivolous expenses.

“We strip out all unnecessary expenses. The aim is to keep costs down, and other than our ingredients, every buying decision is made through that lens.”

Next, Nicolakakis turned his attention to the customer experience. With the exception of independent brands, most of his competitors — from pizza takeaways to burgers or fish — offer a free delivery service.

“This was the area in which we could really make a difference on our bottom line,” he says. “I don’t believe the South African market suits a delivery model. Urban areas are congested with traffic, and suburban living means that a delivery radius needs to be quite large. It’s expensive to offer; even if it’s marketed as ‘free,’ that service has to be built into the product’s price point. It’s also difficult to deliver a hot product that’s as good when it reaches its destination as it was when it left the store, and there will always be incorrect orders.”

As a result, Nicolakakis made the bold decision to be a call and collect business. It was flying in the face of traditional customer expectations, but the price point he was able to offer as a result also broke conventional norms. As a Roman’s customer you can purchase a high-quality pizza for less money than anywhere else — as long as you’re happy to pick up your order yourself.

As it turned out, most people are perfectly willing to do just that, and the model has been a runaway success. “We are the leaders in terms of value, and this is why — we can’t afford to deliver without raising our prices to cover those costs. Yes, we lose out on people who will only order deliveries. That’s okay, we’ve chosen our model and it’s working.”

Related: Urban Property Development Brand Blok’s Niche Designs For The Urban Dweller In Mind

2. Aggressive marketing and discounting tactics

Roman’s Pizza operates some of the busiest pizzerias in South Africa, and aggressive marketing campaigns and crazy discounting deals play a large role in that success.

“We’re in unprecedented times,” says Nicolakakis. “For the first time in 15 years the consumer sector is facing a proper downturn. How will we weather this recession? The consumer is stretched beyond belief, which means as a brand you need to give a reason why people should buy from you.

“It’s accepted that quality is important, but in this sector, so is price. Our stock-standard menu pricing is 10% to 35% cheaper than our competitors, so we’re already better value for money. Our whole model is built on discounted prices. But it’s important to remind consumers who you are. Never stop marketing, particularly in a crowded market. We’ve learnt that you need to get a little bit crazy.” Roman’s Pizza markets 365 days a year, but ad campaigns switch between generic campaigns and discount campaigns.

“We see an effect with our generic branding campaigns, and they’re important, but the real response comes from our promotional campaigns. The problem is that there’s a fine line you need to walk when you’re offering discounts to that degree.

“Gross profits (GP) collapse when we do this, which means volumes have to make up the losses. A GP of 40% instead of 50% is fine as long as volumes make up the difference, and then you carry your increased customer base through a generic marketing period. It’s a balance and it takes constant work.”

To make the large-scale discounting campaigns work, head office takes on the risk. “If the growth in turnover does not ensure that the franchisee maintains the rand value of his GP, we will subsidise the loss through a rebate or royalty discounts. We’re a debt free family-owned business, which means we have no partners and shareholders to report in to. It gives us an enormous amount of freedom.”

Well-marketed discount campaigns mean a sudden influx of customers, and this needs to be carefully managed as well.

“We’ve been doing it for so long we now know how to prepare for our discount campaigns,” says Nicolakakis. “In the early days we had some specials where the wheels fell off, but today we’re prepared for those volumes. Our stores are built for high volume, low margins.

“Our first above-the-line advertising was a R750 000-radio campaign. A few months later we followed up with our first TV campaign, offering incredible discounts. Volumes skyrocketed by 40%. It was chaos. As the distributor, it’s up to us to ensure that our franchisees receive the stock they need. We needed extra trucks to deliver the volumes. It was all hands on deck, working around the clock.

“The trick with discounting is to drive the volumes, and then be able to deliver. In-store the franchisees and their staff need to be equipped to handle high volumes, but our support is crucial. It’s a team effort.”

3. Finding and supporting the right franchisees

Nicolakakis’s growth strategy has always been a franchise model. Currently the brand has 25 company-owned stores, 30 joint ventures and 140 franchised stores.

As so much of the brand’s success rests with its franchisees, the company has also fine-tuned its franchisee selection process since Nicolakakis’ early (and over-eager) mistakes.

“Our first step is to verify financial records and vet all financial criteria,” says Nicolakakis. “We learnt the hard way that you can’t just take someone’s word at face value. We conduct personal interviews and do psychometric testing as well.” As a general rule, Roman’s Pizza franchisees should be owner-operators, and before any documents are signed or money exchanges hands, each prospective franchisee spends one full week in a store, from open to close.

According to Nicolakakis, many prospective franchisees drop out of the process at this point. “This business is a lifestyle choice. You either love it, or it’s not for you. But it’s important to know which before we embark on a relationship together. Protecting the brand is far more important than selling another franchise. We want our franchisees to love what they do and what Roman’s Pizza stands for.”

Given how seriously Nicolakakis takes service delivery, it’s an important distinction. Franchisee cell phone numbers must be prominently displayed in-store, and customers must be able to contact you, no matter the day or hour. Nicolakakis’ own number is readily available for all customers as well.

“We have a lot of loyalty towards our franchisees, and we will always go the extra mile for them, which is why our first franchisees are still with us, 20 years later. But we expect excellence from them as well — and will be completely transparent if something isn’t operating according to our expectations.

“Great franchisees are irreplaceable. This is why we spend so much time vetting new candidates; it’s why we will always give first option of a new site to an existing franchisee, and it’s why we are so focused on maintaining an open and transparent relationship with our franchisees.

Related: From Simple Idea To Sideline Business: How Nkosenhle Hlophe Spotted An Opportunity

“Our worst store is a corporate store, our best is a JV. Corporate stores tend to trade on average. They’ll trade better than a bad franchisee — bad franchisees take shortcuts, buy inferior products, and will destroy your brand, no corporate store will ever do that — but they also lack the passion of an exceptional franchisee.

“We’ve also found that it’s incredibly important to have corporate stores from an overall business perspective. We’re able to test new procedures, systems and standards at our corporate stores before rolling them out, and it keeps our finger on the pulse of the market.

“For example, we insist that franchisees spend a minimum of 1% of sales on local marketing, but at our corporate stores we spend 2,5%. It’s our testing ground. We need to back up our theories at store level before we can expect franchisee implementation.

“We’re an aggressive brand. We’re hands on, passionate, and value personal relationships. But we’re also very straightforward. If you play ball and we make an error, we’ll do anything to fix it. But we expect the same from you.”

Throughout this expansive growth journey, Roman’s Pizza has remained a family business. “My dad is a sounding board. His experience is a vital factor in our growth. But we’re also both alpha males, and we’ve boxed over the years. We’re the two people who love this business most, and when we fight it’s truly for the business’s best interests. We might not always agree on what’s best for the business, but we know any argument is coming from a good place.”

With that degree of passion behind its name, it’s no wonder Roman’s Pizza has become a household brand.

Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.

Entrepreneur Profiles

Tim Hogins Started Out As A Security Guard, Today His Has A Turnover Of R150 Million And Has Self-Funded Three Huge Lifestyle Parks

As a poor township kid, Tim Hogins watched kids pile into buses heading to Sun City every weekend, knowing he couldn’t afford to join them. He was a youngster, but he made a promise to himself. One day he would build parks that anyone could visit — especially underprivileged kids like himself.

Nadine Todd

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tim-hogins

Vital Stats

  • Player: Tim Hogins
  • Company: GOG, formerly Green Outdoor Gyms
  • Est: 2012
  • Turnover: R110 million
  • Projected Turnover: R150 million (2018)
  • Visit: gog.co.za

“I’m a visionary, and I’m not scared to invest in my vision. I’ve lost millions, but I’ve made more because of that. Business is about making money, but I’ve grown beyond that – I want to employ people, develop them, push boundaries and see where we can take this.”

“Poverty can be a good thing, because growing up poor makes you creative, and that’s an incredible power if you know how to use it.”

Seven years ago, Tim Hogins drove out of an office park and pulled onto the side of the road because he was having a panic attack. His car was closing in on him, he couldn’t see and he couldn’t breathe. After months of hard work, it was all over. His dreams were shattered.

Tim isn’t the first entrepreneur to find himself here, and he won’t be the last. What separates him from countless other aspiring business owners is that despite a massive setback, he didn’t back down. He sat in his car, phoned his wife, and told her what had happened. Instead of telling him it was time to move on and find a job, she asked him how they were going to cobble together the money he needed to start again.

And that was the beginning of Green Outdoor Gyms, a vision Tim had been nurturing for almost two years. A business idea that had led to his retrenchment and was almost ripped away from him by his business partners and investors.

But he didn’t quit. He pushed on. And today his business has a projected turnover of R150 million and has self-funded three huge lifestyle parks that Tim hopes will impact the lives of thousands of underprivileged children while providing jobs for hundreds more.

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

The in-built art of tenacity

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To understand Tim, you need to understand where he came from. As a township kid growing up in Randfontein on the West Rand of Johannesburg, Tim always helped his parents to sell stuff. They were traders. His dad had a small café selling burgers and chips, and his mom baked. While other kids in the area piled into buses for Sun City on the weekends, or visited a local bird park, Tim had to work or the family didn’t eat.

“I matriculated in 1996, and even though I had an exemption, tertiary education wasn’t on the cards for me,” he says. “We just couldn’t afford it.” But Tim had a plan. His cousin told him about a free four-week course to become a security guard, and Tim aced it, securing a position at one of the firm’s top industrial sites.

Here’s the first secret to Tim’s success. Instead of seeing a dead-end job, Tim saw an opportunity. If he did his job well, he would progress to a driver, and then a cash-in-transit guard. From there the plan was management. Becoming a security guard wasn’t his fate because he couldn’t get a degree — it was step one to the rest of his life.

“I was raised to be the best version of myself. Everything is what you make of it. In primary school I was head boy, and in high school the head of the SRC. There’s always a way to grow and improve yourself.”

Two years into his career as a security guard, Tim heard about another opportunity  — a free programming course teaching COBOL, a back-end system used by the financial services industry.

“I grew up 500 metres from Stafford Masie, who would go on to become the first head of Google South Africa and is one of our country’s greatest tech entrepreneurs,” says Tim. “I had zero programming experience — I’d never touched a computer — but I knew how valuable these skills were, and here was an opportunity being handed to me.”

It wasn’t quite as easy as Tim imagined. He failed the aptitude test and had to take it again. Once he was on the course, he failed that too — it was a programming course after all, and Tim needed a far more basic introduction to IT. He didn’t give up though. He’d quit his job and needed to make this work while he was still living with his father and didn’t have financial responsibilities, so he begged the course administrator to let him retake the programme. This time he passed, and found a job at a small IT firm.

Once there, Tim built up his IT acumen. Over the course of his IT career Tim worked for Dimension Data, EOH and SITA. In his final three years he applied for an account management position and moved into sales. His goal was to become a business owner, and so he diversified and learnt what he could about business.

He also paid attention to the world around him, looking for a business opportunity or problem he could solve. He dabbled with some ideas, but the one he kept coming back to was outdoor gyms.

“I saw kids in parks doing sit-ups, push-ups, pull-ups on trees, and kept thinking there must be a better way than this for them. I knew that a proper solution would be good for the whole community — giving kids and parents a safe and free environment to play in and focus on their health. I focused on poorer communities, where gym fees weren’t an option, and kids needed safe places to play and keep out of trouble.”

The more Tim unpacked the idea, the more he began to believe in it. And then his employers found out, and made it clear that they did not like Tim’s attention divided between his job and his business idea. Despite this, Tim continued to focus on his entrepreneurial play, and within a few months he’d been retrenched, ostensibly due to a restructuring of the business, yet Tim was the only person let go.

It was October 2010 and Tim had no job, two-months’ salary and he was about to get married. But it was the best thing that could have happened to him. “That retrenchment catapulted me into business. From then on, my full focus became outdoor gyms.”

Winning and losing

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Tim had approached Joburg City Parks who where interested in the idea. He had also met with an engineer and they had begun to design the equipment. There was just one small problem: Money.

“I knocked on doors, approaching anyone who would listen. One investor laughed at me. He said I’d gone from IT to playing with steel — what was wrong with me? A contact at SITA said flat out that she wouldn’t help me. Looking for funding can be incredibly demoralising. I had an idea and a letter of intent from Joburg City Parks, and it still wasn’t enough.”

And then Tim was introduced to a group of investors who wanted to instal kids play areas in municipal parks. Tim had the City Parks connection; they had the funding. They entered into a business partnership and built a prototype together. This was when Tim’s wheels fell off.

“I was invited to a meeting by my three business partners, and when I arrived there were five people in the room — my partners and their two lawyers. We’d entered into the agreement as 50/50 partners, and they wanted us to all be 25% shareholders. I couldn’t agree to that. This was my idea, my connection, my baby.”

By the time Tim left the meeting, he had no funding, no partners and no prototype and he knew City Parks was getting impatient. All he’d done was create competitors — and they had a demo model.

Tim had spent most of 2011 looking for funding and then building the prototype once he found his partners. He wasn’t just back to square one, he was behind where he’d started months ago. Hence the panic attack.

It was a pivotal moment. Give up or push on? Tim chose to push on. That night, Tim and his wife, Rona Hogins, sat down and came up with a plan. They would sell one car and Rona would apply for a bank loan. Together, they managed to come up with R200 000. Tim approached a friend who was interested in a side business and they launched LXI, an importer of screens for media companies. LXI brought in enough to pay the bills while Tim concentrated on getting Green Outdoor Gyms off the ground.

Then luck stepped in. “I drove past a warehouse and saw some play equipment. Instead of driving on, I pulled in and pitched my business idea to the owner.” The owner, Neta Indig, agreed to build Tim’s prototype at cost, in exchange for a long-term partnership. Tim agreed. His R200 000 would be enough to get the business back off the ground. Green Outdoor Gyms was officially launched in February 2012.

Here’s the thing about luck though. Unless you’re open to opportunities, paying attention and willing to step out of your comfort zone, luck alone will get you nowhere. By the time Tim drove into Neta’s parking lot, he’d spoken to countless investors, had doors shut in his face, lost a partnership and his prototype, and was still willing to look for any opportunity that might present itself. Through sheer will and tenacity, he found it.

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

Seizing opportunities

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After the first outdoor gym was installed, two things happened. The competition Tim had feared from his old partners didn’t materialise. It was Tim’s first real lesson in the power of passion. He’d doggedly pursued his idea for over two years. His partners, who didn’t share that passion, did nothing with the prototype they’d acquired. Tim was still — at that stage — in blue ocean territory.

The second was how quickly an idea can take off once the foundations are in place. GOG’s turnover was R3 million in its first year, and orders were flooding in from municipalities throughout South Africa.

Tim was invited to present his solution in parliament, and it was included in the National Development Plan. “Everything escalated faster than I could have imagined,” he says.

“The reality is that we’re an obese nation. It’s a real problem. On top of that, 90% of the country can’t afford commercial gym fees. Under the National Development Plan, every community was earmarked for an outdoor gym. Government saw my vision and they bought into it.”

Tim had to tender for each new site, but he had a first-mover advantage. By the time other players entered his space he’d already built up a track record. His team’s turnover times are impressive and the business doesn’t only design and instal the equipment, but can also overhaul a derelict park. The quality of his products ensures that equipment lasts at least eight years with no maintenance, although once an outdoor park is installed, the community takes ownership of it, cleaning it regularly and maintaining the area.

In six short years, GOG has installed over 1 000 outdoor gyms for local municipalities around the country, and there’s still room for growth. There are currently between 5 000 and 10 000 sites available, and while Tim doesn’t believe they will get all of them, the business will continue to expand. “I believe we still have a ten-year run with government-funded outdoor gyms, but this is no longer our core business.”

In fact, GOG has grown and changed considerably since that first outdoor gym was installed in February 2012.

“I’m an opportunist. I pay attention to developments around me and am always on the lookout for where we can add value,” says Tim. As a result, GOG is now developing its own sites and supplying equipment to the industry — across private and public sectors.

“You need to know that competitors are coming,” says Tim. “When we started out we had a niche with outdoor gyms and government, but someone will always want to eat your lunch. If you know that someone’s paying attention to what you’re doing and that everyone needs to diversify, you can stay ahead of your competitors.

“Our business is centred around health, fitness and family, and  this understanding has allowed us to grow into lifestyle spaces that support our core focus.”

As a result, GOG has expanded to the installation of play areas and outdoor gyms for hotels, private and public schools, beach parks and lifestyle estates, including Steyn City.

“We also have a registered landscape company,” says Tim. “We can take vacant land and transform it into a park with grass, trees, water and pathways. We have a Geotech division that does soil testing and environmental studies.”

None of this happened overnight. It takes time to build a reputation, but if you’re focused on four key things, you can build a sustainable business. “You need to diversify your product range, diversify your customer base, nurture relationships and push outbound sales,” says Tim.

Tim has geared the business for scale, which is critical in a production and manufacturing context. “We have always outsourced our manufacturing, first with Neta, and later to a Chinese manufacturer who has become integral to our success.”

Tim’s relationship with Neta was critical in the start-up phase, but after two years the manufacturer decided to focus on his core. “We were too big — it wasn’t a side project anymore, and Neta wanted to remain in construction,” says Tim. “I needed to either find another manufacturing partner, or move into that space myself.”

Tim visited manufacturing facilities in China and sourced samples until he found a plant that could handle GOG’s volumes and quality. “Chinese manufacturers value loyalty and they’ll do whatever you want at the price point you ask. If you want a cheap product, you’ll get it — and the quality to match. Good quality costs more. I have an excellent relationship with our supplier — so good that he flew out to South Africa to see our operations, because he was impressed with the volumes he produces for us.”

It’s this relationship and the capacity available to Tim that has allowed him to take the next step towards his ultimate vision for GOG: Lifestyle parks.

Living the dream

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GOG’s first lifestyle park stemmed from Tim’s need for a showroom and his life-long dream to give underprivileged children access to entertainment parks that he couldn’t afford when he was a child.

“We were manufacturing outdoor parks and I started thinking about other ideas in this space that aligned with our vision and niche. I needed a showroom that could showcase everything we can do, from ziplines to climbing walls, swimming pools to spray pools and outdoor gyms. A lifestyle park was the natural answer to everything I wanted to achieve.”

GOG Lifestyle was opened in November 2016 and is situated off the N14 near Lanseria Airport. It’s close to a number of townships, including Diepsloot and Cosmo City. “The revenue model is corporate team building events, family days and launches, which allows us to run specials for kids, the elderly, and CSI projects for schools and churches.”

The next lifestyle park, GOG Gardens, was opened in Soweto in December 2017. Bigger than the first lifestyle park, GOG Gardens caters for picnics, outdoor events and concerts. It’s a multi-purpose venue with seven venues in one, and also focuses on corporates, the general public and events, with CSI projects that support children.

“We have launched some smaller projects, such as GOG Kids at Chameleon Village in Hartbeespoort and a play area in Vilakazi Street, but our next big project is Happy Island, a 36 hectare water park off Beyers Naude Drive in Muldersdrift.”

Happy Island is GOG’s first joint venture with an investment partner, Tim’s Chinese supplier. Unlike the other lifestyle parks, which GOG self-funded from cash reserves, Happy Island is a multi-hundred million rand project with large capex needs. “The idea came to life when the chairman of our manufacturing supplier visited our operations in South Africa. There are no water parks in South Africa similar to those I visited in China. We are doing something completely new and exciting, and we broke ground in April 2017.”

All of GOG’s lifestyle parks have required high capex investments and have not yet reached break-even, unlike the smaller projects that will reach break-even within a few months. “Our projection for the lifestyle parks is three years, and five years for Happy Island,” says Tim.

“My long-term goal is to have ten lifestyle parks across South Africa, one in each region, and that’s what I’m investing in. We want to make a difference, give kids access to these parks and employ people.

“I’m here today because of my childhood experiences, but before I could invest in this dream, I needed to start small and build up my reputation and cash reserves. To achieve my ultimate dream will take a lot of investment, so that’s the focus.

“I’m a visionary, and I’m not scared to invest in my vision. I’ve lost millions, but I’ve made more because of that. Business is about making money, but I’ve grown beyond that — I want to employ people, develop them, push boundaries and see where we can take this. When someone says something is impossible, I want to know why, and then try anyway. That’s how you achieve great things. That’s how you realise your dreams.”

Related: 6 Lesson Gems From Appanna Ganapathy That Helped Him Launch A High-Growth Start-Up

Next level

In 2016, GOG launched its first lifestyle park, GOG Lifestyle. Since then, two more lifestyle parks have been added, GOG Gardens in Soweto, and GOG  Kids in Chameleon Village in Hartbeespoort. The company’s biggest venture, Happy Island will soon be open to the public as well.

Healthy Living

GOG’s genesis was outdoor gyms, and the company continues to grow from these original roots: Catering to a growing focus on healthier lifestyles, from public parks to beaches, corporates and residential estates.

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Entrepreneur Profiles

How Fever-Tree Is Burning Up The Mixer Market With Their Unique Selling Point

When it comes to targeting the mixer market, Charles Rolls and Tim Warrillow of Fever-Tree, have hit the nail on the metaphorical head. Their unique selling point, drive for quality and passion for innovation has put the business into a prime position to grow their business – with a little help from well-sourced ingredients.

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Vital Stats

  • Company: Fever-Tree
  • Launched: 2005
  • Founders: Charles Rolls and Tim Warrillow
  • Visit: fever-tree.com

What is Fever-Tree’s Unique Selling Point (USP)?

For us, it’s always been about putting the quality back into the mixer category, from the packaging, imagery, even style of serve but nowhere more so than the ingredients themselves. When creating Fever-Tree, the mixer category was dominated by a couple of multinational conglomerates that had become driven by manufacturing efficiency, rather than quality or flavour.

Our meticulous focus on quality resulted in a very different approach to product development – we delved into the history books to find the most authentic and highest quality ingredients we could, then we went out into the field to track them down, spending time with specialist producers and experts to create our products.

There’s no other company going to the lengths we do to source these fantastic ingredients.

Watch the video below on how it all began …

 

Related: 20 South African Side-Hustles You Can Start This Weekend

Since it’s listing on the London Stock Exchange, Fever-Tree has seen an impressive 20x increase in the share price. Can you expand on the some of the challenges that were faced, as well as how you overcame them, when listing Fever-Tree?

The listing was a great opportunity to attract long term investors in the business as well as enabling the Company to reach a wider consumer audience as we discovered lots of our shareholders are also advocates of our products!

What do you wish you had known before starting the business 13 years ago, or what advice can you give to entrepreneurs?

charles-rolls-and-tim-warrillow-fevertree

My advice to any entrepreneur is to do your research, but also listen to your instinct. There were definitely some nay-sayers for us in the early days, and it’s fortunate we did our best not to listen to them.

When it comes to ingredient sourcing and packaging – where do you begin?

Within a couple of months of meeting my co-founder, Charles Rolls, we set off on a pursuit to find the very best ingredients, literally travelling to the ends of the earth.

Our initial research took us to the British library, where we learned that quinine, the core ingredient in tonic water, comes from the bark of the cinchona tree – colloquially referred to as the ‘fever’ tree. In search of the best quinine in the world, I discovered the last remaining plantation in the Eastern Democratic Republic of Congo, one of the most dangerous parts of Africa. So I travelled there to meet with the growers and to this day, this is where our quinine is sourced.

The journey continues to this day, whether it’s our fresh green ginger from Ivory Coast, Cochin ginger from India or closer to home, our lemon from Provenance or hand-picked elderflowers from Gloucestershire.

Similarly for packaging, from the very beginning we would not compromise on quality, using single serve glass packaging to premiumise the mixer category in every way we could.

We see you’ve launched a new ‘Aromatic Tonic Water’ – what is your key to innovating and creating a product?

aromatic-tonic-water

With any product innovation, it is key to listen to your consumers, look at the trends, find out what people are talking about, what they are buying, what they want more of. This is how it all began when creating Fever-Tree. Charles and I had noted, from different ends of the sector, that premium spirits were driving the growth in spirits category. Consumers were increasingly seeking out craft ingredients and flavours in place of commoditised, mass produced products, but this movement towards premiumisation had passed the mixer category by. There was a clear opportunity to put quality, choice and excitement back into a long-forgotten, stagnant category.

The whole company is built on innovation and we are constantly developing new mixers, new flavours, new ideas and in doing so, creating an array of flavours to pair with the myriad of premium spirits out there.

Our unique Aromatic Tonic Water is a great example of this – it is perfect to mix with gin to create the ultimate pink G&T, a hugely popular drink amongst consumers. This tonic water is made using angostura bark from South America and pimento berries from Jamaica to create a sweet, spicy flavour with a wonderful pink hue.

Related: 10 Cheap Businesses You Can Start In South Africa That Offer Uniquely Local Relevance

Where do you see Fever-Tree in 5 years?

What’s so exciting, is that we’ve only scratched the surface! Whilst G&T consumption is still in strong long-term global growth, the spirits category is not just about gin; and the mixer category is not just about tonic. The trends that we identified at the outset are only accelerating. We’ve seen that quality has broad appeal – people are wanting to drink better quality spirits in greater numbers.

Here in South Africa, the same trends that drove the G&T revolution in the United Kingdom are beginning to emerge. There’s a real ‘gin explosion’ in South Africa, with the emergence of an abundance of craft and local gin brands, as well as more established premium brands becoming ever more present. We’re already seeing some great opportunities for co-promotional activity both in retail but also across hotel, bars and restaurants and we believe there is a significant opportunity to increase our footprint and visibility across South Africa, capitalising on this revival of simple, long mixed drinks such as the gin & tonic.

But Gin only accounts for 6% of global premium spirits, presenting a significant opportunity for us with other spirit categories. Dark spirits, for example, accounts for 10 times as much as gin, and we are the first company to develop a full range of mixers specifically designed to address this very notable opportunity.

What is Fever-Tree’s mantra?

Charles and I created Fever-Tree with one simple premise, which still holds true to this day, that if ¾ of your drink is the mixer, use the best.

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Entrepreneur Profiles

Kumaran Padayachee Of Spartan SME Finance Unpacks When You Should Apply For Funding And What Strategies To Have In Place To Secure It

There’s a big difference between funding that will help you grow your business, and trying to plug a self-inflicted cash flow problem. Kumaran Padayachee unpacks the difference, as well as what funders look for and how businesses can build better cash flow bases.

Nadine Todd

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Vital Stats

  • Player: Kumaran Padayachee
  • Company: Spartan SME Finance
  • What they do: Growth finance, bridging finance and specialised asset finance for the SME sector
  • Visit: spartan.co.za

When do most business owners apply for funding? For some it’s because they suddenly — and urgently — need cash. For others, it’s the culmination of a long-term growth strategy that requires additional working capital to invest in new equipment, people, premises or marketing.

The difference can make or break a business. Do you have a strong base to build from, or are you trying to plug a hole in a leaking ship?

Spartan SME Finance is an alternative funder that focuses on the SME market, ranging from businesses with a turnover of R5 million right through to hundreds of millions. The key to alternative funding solutions though, is that they should be accessed to help you grow.

Spartan CEO, Kumaran Padayachee, unpacks the key elements business owners should have in place to build sustainable businesses with healthy cash flows, and how this will place them on a better footing to secure growth funding as well.

1. Know your numbers

A key success factor in all growth businesses is a focus on internal financial management. “As businesses move from start-up phase into a growth phase, considerations around financial management, forecasting and overall strategic decisions require a higher-level resource than a bookkeeper whose role is to do the books,” says Kumaran. “Someone must be responsible for the business’s financial portfolio, whether that’s a senior financial manager or a financial director.”

Kumaran and his team interview hundreds of business owners each year, and this key area is a clear gap for many businesses. “Entrepreneurs come from many diverse backgrounds. A few have accounting or BCom backgrounds, but most are subject matter experts. They have marketing backgrounds or industry-specific skills. They’ve never studied finance and their decision-making isn’t influenced enough by the numbers.

Related: Spartan Technology Rentals: Kumaran Padayachee

For example, we often analyse a business that has applied for finance and discover that their pricing is incorrect and they are actually undercharging for their product or service. There are clear gaps in their strategy and understanding of product/market fit and a lack of access to market. There are also gaps in how gross profits, margins and pricing formulas work. Put this all together and you have a business that is making less profit than it should, which means less cash is coming into the business, resulting in cash flow problems. Additional financing won’t fix the problem — but financial insights will.”

The lesson is simple: Invest in a financial manager or director sooner rather than later. “Having a financial head offers SMEs two clear advantages. First, their financial housekeeping is in order and up-to-date. You can’t apply for finance if you don’t have up-to-date management accounts and realistic forecasts. We often find business owners applying for funding and they need the cash immediately because they haven’t had a clear view of their financials to see what was coming; the problem is that these businesses tend to have poor management accounts, which delays the process because we can’t get a clear view of the business.

“Second, if the business owners had a tight hold on their financials, they could plan for future requirements, or not need financial assistance in the first place. Finance should be for growth — not to plug cash flow problems.”

2. Focus on a healthy working capital cycle

It’s an all-too-familiar scenario: A manufacturing business needs to purchase raw materials and pay their suppliers within 30 days. Meanwhile, it takes 30 days to manufacture the product, they sell it after a further 60 days, and then another 30 days pass before they are paid. It takes 120 days before the manufacturer sees their cash, and yet they need to be able to fund a production cycle and pay their suppliers.

“The key is to recognise your cash flow cycle and through forecasting be able to manage it,” advises Kumaran. “You can approach your suppliers and negotiate 60-day terms. You can negotiate with your debtors to pay earlier. These are the levers of the working capital cycle that need to be managed to minimise your cash crunch.”

From Kumaran’s perspective, a strategic view of working capital is essential if you want to scale, but there are many basic areas that need to be addressed before a business owner can start focusing on strategy.

“For instance we have businesses with a R30 million turnover that approach us for R5 million in finance. These are not small start-ups. They’re established businesses with decent turnovers. And yet they can’t give us up-to-date management accounts. We need debtors, creditors, management accounts and the last set of financials to evaluate a business and whether it can service the loan. Financials aren’t good enough. We live in a volatile world and a lot changes quickly.

“Management accounts and a debtors report shows us who owes you money, but more importantly, how you manage the people who owe you money. We see this more often than we can count: business owners who are owed a lot, and yet they aren’t collecting their cash.

“A company’s debtors age tells us a lot. We can see how you’re exposed, how many people owe you money, how good or bad you are at managing that, and who your bigger customers are. We can see the balance between your debtors and suppliers. Any accounting system today can capture this information, but is it up-to-date and are you reviewing it? Without these figures at your fingertips, you can’t have a firm grip on the health of your organisation. A healthy working capital cycle is the lifeblood of a business. It doesn’t matter how much money you’re owed if you can’t pay your bills.”

3. Realistic forecasting can make or break you

spartan-sme-finance

When you’re in a scale or growth phase, it’s essential that you lift your head beyond simply the survival of the month or month-end. “Many entrepreneurs get stuck in the trenches, working on the day-to-day challenges and requirements of their businesses without looking ahead.

If you want to grow, you need to be focused on the future: How many people do you need to hire to achieve certain goals; how much funding do you need; where are your growth opportunities? Answering any of these questions requires a forecasting ability that takes into account cash flow, sales forecasts, your pipeline and any opportunities to increase revenue and margins.”

A great example of forecasting is a company that Spartan recently assessed.

“This business is a niche wholesale supplier to the confectionery industry. This sounds like an incredibly narrow offering, and yet they did their research and found a machine that can improve their margins by 75% — after paying for the machine. They needed to finance the machine, and they approached us with full financials, including sales forecasts and the improvements that importing the machine would make on their margins. They had also calculated whether or not they could service the loan.”

4. Be able to service the loan

Your cash flow forecast demonstrates past and future cash flow. It shows how you’re managing the business, how you’re managing cash flow and debtors, and the residual cash that’s available to pay a loan.

“If you’re approaching a funder, make sure you have these figures on hand. If you don’t, the funder needs to figure it out, and more importantly, you might not be able to service the loan. Having the numbers on hand impresses the funder instead — you’ve determined your payability and whether the loan makes sense. You’ve reviewed your options and evaluated the best course of action for your business — these are all clear markers of success.”

Related: How Spartan Has Geared Their Business To Help Fund Yours

According to Kumaran, more often than not, growth requires funding. Businesses that ensure they are in a constant state of readiness, whose financials are always up-to-date and who understand their needs are far more likely to access that funding for the right reasons. More importantly, they’re far more likely to access funding they can afford.

5. Use funding for growth

There is a key to growth funding that can be summarised in a sentence: Will this help me make money? If the answer is yes, you’ve ticked the growth-funding box. If you’re not sure, relook your financials and forecasting. If the answer is no, you’re trying to solve a cash flow problem that will not be fixed by taking on more debt funding.

“As a funder, we care about what entrepreneurs want the money for,” says Kumaran. “We look at business models and strategy. We take a view of the entire picture, which gives us insight into whether the funding will be used in a growth context, or to plug a gap created by a strategy, cash flow, sales, marketing, management or access-to-market problem.

“Why does a business need funding? Is it because they’ve given customers 90 days to pay when the industry norm is 30 days? Is it because they have poor debt collection processes in place? Are they asking for money because their cash flow systems are inefficient? Is a big contract not paying you, and now you need funding to cover a delinquent client?

“On the other hand, is there a legitimate need? One of the key areas we look at is contracts. Project and contract-driven businesses have become the norm in today’s economy. A six-month contract with no prospect of additional work shouldn’t be used as a reason for large capex expenditure. A three-year contract, on the other hand, can be justification for finance to purchase additional machines or to hire more people. You now have three years to build up your pipeline while you service the first contract.

“We also evaluate each business’s strategy. A company that competes with cheaper imports and has no discernible value proposition shouldn’t be securing funding to do more of the same at poor margins, particularly in a highly challenged sector. On the other hand, a company in a commoditised sector that needs funding to pursue a new niche where they can improve margins, play in a space with far fewer (if any) competitors and even start exporting to other markets has a good case for securing funding.

“Can you creatively engineer yourself based on your knowledge, sector expertise and skills base? Or are you trying to bridge a self-inflicted cash flow problem? Too many business owners don’t adequately research their markets. Do you understand the market you’re in? Is your product or service unique? Does it allow you to be insulated against competition and charge a higher premium? Remember, healthy profits equal healthy cash flow, which in turn allows you scope for expanding the business.”

6. Grow slow

Where does growth go wrong? Accessing finance doesn’t automatically ensure success. “Growth is like placing a big bet, and the reality is that in most cases, an incremental bet is better,” says Kumaran. “Are you hiring one staff member every six months or 20 in one go? Will you buy one machine every two years or three in one year?

Related: Business & Leadership Lessons from Kumaran of Spartan

If you’re focused on incremental growth, the chances of falling are lower. We’ve seen business owners go big, and then they lose a key contract. The debt burden of that funding they’ve taken to service that growth buries the business, instead of boosting it. We evaluate every assumption business owners make relating to growth, because that’s the last thing we want to see happen.”

A problem Kumaran often encounters is when entrepreneurs use one positive sign as an affirmation for an entire strategy. “Entrepreneurs may get anxious that if they don’t ‘seize the day’, they’ll miss out on a big opportunity. The result is that they do things too quickly and over-expand.

“Ego also plays a role, particularly when it comes to opening multiple offices. Our advice is to watch yourself and your ego when making these expansion decisions. Get feedback from two or three alternative sources, whether that’s from your board of non-executive directors, mentors or a business group. Ask others for red flags. Review your decisions from every angle.

“Big bets should be slow; they should be the result of considered decisions rather than impulsive ones. You won’t always get everything right. You can plan ahead and still need to plug gaps. But at least start from a solid, sustainable base, with a clear strategy in place.”

7. Know when to fund your growth — and what funding to access

When is the right time to apply for growth funding? For starters, when the growth you’re planning can’t be funded organically, or simply through unlocking more cash within the business.

“Retail businesses and restaurants are a good example of this,” says Kumaran. “A retail business’s growth is often dependant on multiple locations or sites. You reach a point where you’re reasonably confident that your brand and business model works, you’ve piloted your first store for a few years and now you’re ready to expand.

To organically build up the cash to fund a second location will take another five or ten years. If the business has the margins to pay for debt funding over the next five years however, you can have two stores operating at the end of that cycle, with both turning a profit.

“Just consider your burn — there will always be a period where you are not making money from the investment. Is it six months, nine months, 12 months? You need adequate cash flow to support the debt and the burn.

“Go back to your strategy. It’s not just about your market, margins, product, uniqueness and so on. We’ve found that a lot of businesses are poor in their sales and marketing strategies. They want to grow — they have a plan and have pinpointed where to invest — but they can’t fill their sales pipelines. If you aren’t bringing in sales to support your growth investment, you’ll just increase your burn.

“In this economy, rather operate under capacity than over capacity. You’ll never be able to match supply and demand perfectly, no business can. No business can afford redundancies though. When you’re considering your growth options, focus on what you absolutely need to push the needle, and make do with what you can as you build up your pipeline.

“In every case ask the question: Do the costs involved make sense? Will this help drive growth? How? Once you’ve ticked those boxes, consider all your funding options. There are a lot of solutions available to you, from bank funding, which is the cheapest to access but requires a lot of collateral, to private equity funding, which involves giving away equity in the business.

“Alternative funders play in the middle of these two traditional options. Alternative funders tend to be niche and specific, focusing on specific sectors or industries. They carry more risk and don’t require collateral, which is why they’re more expensive than banks, but they bring industry and sector-specific insights as well — and it’s debt funding, which means you aren’t giving away equity in your business.

Their processes tend to be efficient as well, largely due to the niche nature of the funder. When you’re ready to grow, find a funder that matches your needs and understands your business.”

Related: The Ultimate Guide To New Business Funding

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