- Player: Stephan Ekbergh
- Company: Travelstart
- Established: 1999 (Sweden), 2006 (South Africa)
- Investors: UK-based Amadeus Capital Partners and MTN
- What they do: Online travel booking portal
- Visit: travelstart.co.za
There’s a secret weapon in the arsenal of the successful leader that, when wielded correctly, has the ability to literally change the world.
It’s called a ‘reality distortion field’, and while a first reference to it can be found in the annals of science fiction television — in an episode of Star Trek called The Menagerie — it’s also been ascribed to Steve Jobs, Bill Clinton and Elon Musk in the real world.
Basically, it’s the ability to make everyone around you see the world as you do; so powerfully in fact that incredible feats are achieved — often against all odds.
Inside the reality distortion field
In The Menagerie, the crew of the USS Enterprise encounter a race of aliens called the Talosians who were able to alter the nature of reality through mental force alone. This ability was called a ‘reality distortion field’.
Now, had this ability remained the stuff of science fiction, it would long ago have faded from the lexicon of popular culture, but it was eventually discovered that some people indeed possessed a real-world version of this power — and with it they could accomplish what seemed utterly impossible to most.
The chess player Bobby Fischer was said to possess a reality distortion field that made it incredibly hard for other chess players to compete against him. When Bill Clinton began his political career, his potent charisma was said to emit a reality distortion field that drew massive crowds.
Elon Musk says he’s taking humanity to Mars, and a lot of smart people are starting to believe him, thanks to a distortion field that has him looking like a real-life version of Iron Man.
And, most famously, Steve Jobs was said to possess a reality distortion field that would force those around him to adopt his dreams, deadlines and delusions.
When Jobs insisted in 1981 that the complex Macintosh would ship early the following year, despite the fact that it was nowhere near ready, Mac developer Andy Hertzfeld had the following to say:
“Steve insists that we’re shipping in early 1982, and won’t accept answers to the contrary. The best way to describe the situation is a term from Star Trek. Steve has a reality distortion field. In his presence, reality is malleable. He can convince anyone of practically anything. It wears off when he’s not around, but it makes it hard to have realistic schedules.”
The point is this: A company lives and dies by the vision of its leader. Their approach to life and business will bleed into every aspect of an organisation. So whenever you’re confronted with a company that doesn’t believe in ‘business as usual’, you can be sure that it’s the result of a founder with a unique outlook on things.
This is certainly true of Travelstart. It’s a company composed of interesting dichotomies: Disruptive yet simple and minimalist in its approach, proudly South African yet cosmopolitan in nature and global in reach, cheeky and irreverent yet focused and professional.
How has Travelstart grown into the company it is today? It’s thanks to the reality distortion field of its Swedish founder, Stephan Ekbergh.
Let the crowd follow you
To really understand Stephan Ekbergh’s approach to business, we need to visit the Swedish dance floors of the 1970s and 1980s. Ekbergh was working in his homeland as a DJ. He had his fair share of raving fans, but he also had to contend with loads of people who absolutely hated what he was doing.
“There was a very specific kind of music that I enjoyed playing, and it had nothing to do with what was popular in the charts at that particular moment. I was really into what was happening in the New York scene and in Chicago,” says Ekbergh.
“The hip places liked what I was doing, but other places didn’t, so I would be very careful about where I chose to play. To me it was about being paid to do what I love. My approach has remained the same over the years. I love creating something that I’m passionate about and that people are willing to pay for.”
Instead of following the crowd, Ekbergh stuck to what he loved and literally got those around him to dance to his tune.
“I was amazed by the fact that I could influence a crowd — I could capture people and influence their moods and actions. It also taught me to read people — something that I’ve been able to use in business ever since.”
Fear leads to bad decisions
In 1989 Ekbergh launched a company in Sweden called International Tours. As its name suggests, it specialised in organising global holiday trips.
“I visited South Africa with my brother in 1989 and I immediately fell in love with the country,” says Ekbergh. “It also gave me an idea for a business that would facilitate upmarket tours to places like South Africa for European tourists. Of course, because of the country’s political situation, it was being vetoed as a holiday destination by many people, and International Tours received a lot of flak for promoting South Africa.”
Still, the company grew, and soon it had become a substantial industry player. The success should have filled Ekbergh with pride — instead it left him intensely fearful.
“I couldn’t believe my own luck. I didn’t trust it. The company grew so quickly that I didn’t think it would last, and I couldn’t help worrying about what would happen if International Tours failed,” he says.
Thanks to this fear, Ekbergh was eager to cash out his chips, so when the biggest real estate company in Sweden approached him to acquire a large stake in International Tours, he jumped at the opportunity and sold 91% of the company.
“It was a huge mistake,” says Ekbergh. “I sold too quickly and too cheaply. Moreover, the real estate company wasn’t nearly as solid as it looked. About 18 months later, it went bankrupt, taking International Tours down with it.
“It was a very important moment for me. I realised that the failure of International Tours had not come about because of the bankruptcy, but because of my fear. My negative thoughts had been the ultimate cause of the disaster. I made the conscious decision not to let that sort of thing happen again.”
Failure breeds success
Steve Jobs was famously ousted from Apple for being a tad difficult to work with. It is not an uncommon situation. Entrepreneurs are notoriously headstrong, especially those who operate within their own reality distortion field. Like Jobs, Ekbergh was fired from a company he started in August 1997 called Mrjet.com.
“I was fired by the investors for being a pain in the ass,” he says. “But I view it as a good thing. You can’t become a good rider until you’ve been thrown from a horse a few times. The same is true of business. It teaches you humility and empathy. As a founder or CEO of a business, you will inevitably need to fire people at times, so having been on the other side of the table is an invaluable experience. I also learnt from the mistakes I made at Mrjet and made sure to avoid them when I founded Travelstart.”
But Ekbergh is ultimately quite sanguine about the mistakes he made at both International Tours and Mrjet.com. He sees mistakes as inevitable. The important thing, however, is to learn from them — both your own and those of your competition.
“The difference between failure and success often lies in making fewer mistakes than your competition. You need to ride in the slipstream of your competitors and wait for them to mess up. Over the years, we’ve made some good decisions at Travelstart, but at least some of our success is attributable directly to the mistakes of our competition.”
Low risk results in low reward
Stephan Ekbergh founded Travelstart in Sweden in January 1999. The company grew, but it wasn’t doing particularly well. It was perpetually spending ahead of revenue, always on the cusp of running out of money. Travelstart was — to use a bit of start-up jargon that is too apt to resist — quickly running out of runway.
So it seemed like a godsend when Ekbergh was offered $10 million for his failing company. He could trade his bad bet for a quick windfall. But very little of that amount turned out to be in the form of cold hard cash. Most of it was equity in a company that was failing at an alarming rate. If anything, the new owners had managed Travelstart into an even more precarious position. So Ekbergh made a stupid bet. He bought the company back and decided to turn it around.
It was brutal. Ekbergh had to let 34 of the company’s 40 employees go. He had to plead and negotiate with creditors to extend Travelstart’s line of credit. He even had to take out another mortgage on his house to pay his remaining staff in December 2001. It was a very bleak time, as the 9/11 attacks had brought air travel to a virtual standstill.
In 2002, however, as airlines tried to coax travellers back with irresistible deals, the tide turned, and Travelstart started to become exceptionally profitable. Most people would have sat back and enjoyed the spoils. Ekbergh didn’t. In 2004, he decided to move to Cape Town and launch Travelstart here.
“I don’t believe in playing it safe,” says Ekbergh.
“Low risk will give you a safe result with low yield. I believe in embracing risk and choosing life. You always need to count the cost, but you can’t always play it safe. You have to follow your dreams and never give up.”
Naivety is actually an asset
Here’s the problem with embracing risk: It’s scary. And, as Ekbergh learnt with the quick success of International Tours, the more you focus on the risks, the more risk-averse you become. The solution? A kind of blissful naivety.
Naivety is rarely seen as an advantage, especially within the business world, yet Ekbergh is adamant that it is one of his most useful attributes.
“Naivety allows you to dream big and aim for things that really should be unattainable,” says Ekbergh.
“It also prevents you from realising how unsuited you are to the role you’ve assigned yourself. If you look at some of the truly great companies in history, many of them tried things that they shouldn’t have tried. Most people thought they’d fail, but they didn’t. Somehow, they succeeded. They had a vision and they pursued it, regardless of what people thought.”
Naivety is a crucial component of the reality distortion field. Steve Jobs was not an engineering genius, so he wasn’t particularly aware of (or interested in) the demands he was placing on the Macintosh team. Once you get too bogged down in the details, that moonshot starts looking impossible. Sometimes you just need to approach a project with the wide-eyed optimism of a child building a spaceship out of cardboard.
With a fresh injection of cash, Stephan Ekbergh and Travelstart are setting their sights on the rest of Africa. Their goals are clear: Keep things simple, do things better, and never play it safe.
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.
- 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.
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
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.”
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?
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.”
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.
- Player: Margie Carr
- Company: In Touch Media
- Est: 2008
- Visit: intouchmedia.co.za
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.
“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.
“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.”
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.
- 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.
“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.”
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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